<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1998
Registration No. 333-53729
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GARY PLAYER GOLF, INC.*
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3949 95-4553128
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization Classification Code Number) Identification No.)
</TABLE>
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. [ ]
---------------------
*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 JULY 15, 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."
Of the shares of Common Stock being sold in this offering, 350,000 shares
have been reserved for sale, at the initial public offering price set forth
below, to Goldmark Properties, Inc. ("Goldmark"), a leading golf course
designer. As a result, if Goldmark purchases such shares, Goldmark will become a
principal stockholder of the Company, beneficially owning approximately 8.5% of
the outstanding Common Stock following the consummation of this offering.
Goldmark has advised the Company that if it purchases such shares, it will agree
not to sell any of such shares for a period of 12 months following the date of
this Prospectus, without the prior written consent of the Underwriter. In
addition, the Company has advised Goldmark that, if Goldmark purchases such
shares, the Company will appoint a designee of Goldmark to the Company's Board
of Directors. See "Management" and "Principal Stockholders."
---------------------
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 17.
---------------------
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
================================================================================
<PAGE>
(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 $1,082,000 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 unbrella 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 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
Gary Player Golf, Inc. (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 principally 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 for a royalty of up to 3% of net receipts. The
Company also acquired in the Player Acquisition existing sublicenses based on
the Player Licenses, and an immaterial amount of inventory, furniture and
fixtures, and accounts receivable. The Player Acquisition purchase price
consisted of the issuance of 375,000 shares of Common Stock and a promissory
note in the principal amount of $750,000, and the assumption by the Company of
liabilities of GPG in the aggregate amount of $1,100,000. In connection with
the Player Acquisition, Gary Player became Chairman of the Board of Directors
of the Company and the Company changed its name from Golf One Industries, Inc.
to Gary Player Golf, Inc.
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.
3
<PAGE>
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.
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 television
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)............. 4,137,730 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 SmallCap
Market 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) 370,750 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."
----------------------
Notice to California Investors: Each purchaser of Common Stock in
California must be an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), or satisfy one of the following suitability standards;
(i) minimum gross income of $65,000 and a net worth (exclusive of home, home
furnishings and automobiles) of $250,000; or (ii) minimum net worth (exclusive
of home, home furnishings and automobiles) of $500,000.
Notice to Washington Investors: Each purchaser of Common Stock in
Washington must be an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
Notice to Ohio Investors: Each purchaser of Common Stock in Ohio must be
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
Notice to South Carolina Investors: Each purchaser of Common Stock in
South Carolina must be an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
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) ........................... $ (5,925,412)
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) $ (5,917,710) $ 4,428,408
Total assets ........................... 1,630,675 7,148,871 13,781,847
Total liabilities ...................... 7,090,746 8,265,442 5,187,299
Stockholders' equity (deficit) ......... (5,460,071) (1,116,571) 8,594,548
</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
$1,100,000 (of which $100,000 will be converted into 17,857 shares of
Common Stock and $100,000 will be cancelled upon consummation of this
offering pursuant to agreements with creditors); (ii) the incurrence
of $1,450,000 of short-term debt and the issuance of 90,625 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 119,879 shares of Common
Stock in exchange for outstanding warrants; (v) the issuance of 79,356
shares of Common Stock in exchange for the cancellation of $450,000 of
indebtedness; (vi) the extension of the maturity of $910,000 principal
amount of indebtedness to a date 13 months following the consummation of
this offering; (vii) cancellation of $68,500 of accounts payable and
accrued liabilities; and (viii) cancellation of 232,082 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 $1,582,881 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 $1,760,000
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 through 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 recently began to test market one direct response
commercial. The infomercial test marketed in 1997 did not result in consumer
acceptance and was discontinued. The Company attributes the poor response to
the infomercial primarily 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 were being introduced into the market. In the future, the
Company intends to offer in its infomercials products with features that are
popular in the market and in demand by consumers, which the Company believes
will result in greater consumer response to its infomercials. The revenues
generated by the direct response commercial which the Company recently began to
test market have exceeded the media costs incurred in broadcasting the
commercial. 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 of demonstration models 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,
9
<PAGE>
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."
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 two sources, 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
10
<PAGE>
is obligated to deliver specified quantities of components or to deliver
components for any specified period. Accordingly, the Company is substantially
dependent on the ability of its suppliers to provide adequate inventories of
golf club components on a timely basis and on acceptable terms. The Company's
suppliers also produce components for certain of the Company's competitors, as
well as other large customers, and there can be no assurance that any such
supplier will have sufficient production capacity to satisfy the Company's
inventory or scheduling requirements during any period of sustained demand or
that the Company will not be subject to the risk of price fluctuations and
periodic delays. Although the Company believes that its relationships with its
suppliers are satisfactory and that alternative sources of each of the
components are currently available, the loss of the services of a supplier or
substantial price increases imposed by a supplier could result in production
delays, thereby causing cancellation of orders by customers and/or price
increases resulting in reduced 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
11
<PAGE>
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 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 $4,039,000 (35.8%) 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 $2,905,000 (25.7%) 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 $7.01 per share (or 87.6%) 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 4,137,730 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
2,437,730 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 2,437,730 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
12
<PAGE>
aggregate of 2,315,844 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."
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 the Nasdaq SmallCap Market upon the completion of this
offering. In order to continue to be listed on the Nasdaq SmallCap Market,
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 the Nasdaq
SmallCap Market, 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
the Nasdaq SmallCap Market 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
13
<PAGE>
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 5,000,000 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 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."
Underwriter's Potential Influence on the Company. Upon consummation of
this offering, the Underwriter will have the right, for a period of three years
from the date of this Prospectus, to designate one individual to serve on the
Board of Directors of the Company or, at the Underwriter's option, as a
non-voting adviser to the Board of Directors. In addition, the Company has
agreed to sell to the Underwriter the Underwriter's Warrants, which give the
Underwriter the right to purchase up to 170,000 shares of Common Stock at an
exercise price equal to 165% of the initial public offering price and, subject
to certain limitations, to have such shares registered under the Securities
Act. Further, the Company has agreed to retain the Underwriter as a financial
consultant for a period of two years following the consummation of this
offering for a fee of $60,000, payable in full in advance. Pursuant to the
consulting agreement, in the event that the Underwriter originates a financing
or a merger, acquisition, joint venture or other transaction to which the
Company is a party, the Underwriter will be entitled to receive a finder's fee
in consideration of the origination of such transaction. The ability to
designate a member to serve on the Company's Board of Directors and the other
foregoing relationships will provide the Underwriter with a certain amount of
influence over the Company's business, operations and future capital raising
efforts following consummation of this offering. See "Underwriting."
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
14
<PAGE>
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.
15
<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 $11,294,000 ($13,089,200 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) .............................. $ 3,139,000 27.8%
Marketing and advertising(2) .............................. 2,600,000 23.0
Inventory(3) .............................................. 1,500,000 13.3
Player Acquisition costs(4) ............................... 1,150,000 10.2
Working capital and general corporate purposes(5) ......... 2,905,000 25.7
----------- -----
Total ................................................. $11,294,000 100.0%
=========== =====
</TABLE>
- ------------------
(1) Represents amounts to be used for the repayment of (i) $2,325,000 principal
amount of indebtedness, plus accrued and unpaid interest thereon of
approximately $94,000, pursuant to promissory notes which bear interest at
the rate of 13.5% per annum; (ii) $325,000 principal amount of
indebtedness, plus accrued and unpaid interest thereon of approximately
$245,000, 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 (i) $220,000 to be used to establish two additional
telemarketing call centers and hire additional golf consultants and other
telemarketing personnel; (ii) $1,260,000 to be used to complete the post-
production of an infomercial, develop and produce a second infomercial and
broadcast these infomercials; (iii) $595,000 to be used to design, print and
mail catalogs of Gary Player brand golf clubs and golf-related products;
(iv) $55,000 to be used to create and acquire additional content for the
Company's web site and Internet and online advertising; (v) $385,000 to be
used for print advertising; and (vi) $85,000 to pay the initial salary and
benefits of personnel hired to manage the Company's sublicensing and retail
operations. The foregoing amounts are estimates of the amounts to be
allocated to these marketing and advertising functions, and are subject to
change based upon, among other things, the success of the Company's
marketing and advertising efforts and other opportunities that may arise in
the future, including marketing arrangements with third parties. 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 $900,000 of indebtedness and
accounts payable of GPG assumed by the Company in the Player Acquisition.
(5) Represents amounts to be used to pay rent, telecommunication expenses,
salaries and benefits, accounts payable, consulting and professional fees,
customer refunds and other expenses. All decisions with respect to the
uses of the amounts allocated to working capital and general corporate
purposes will be made by the Company's executive officers.
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
16
<PAGE>
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.
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 $(6,111,326), or $(2.51) 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 $4,109,792, or $.99 per share of Common Stock,
representing an immediate increase in net tangible book value of $3.50 per
share to existing stockholders and an immediate dilution of $7.01 (87.6%) 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 ................ .87
------
Pro forma net tangible book deficit before this offering ................ (2.51)
Increase attributable to investors in this offering ..................... 3.50
------
Adjusted net tangible book value per share after this offering ........... .99
------
Dilution per share to new investors ...................................... $ 7.01
======
</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.
17
<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid Average
----------------------- ------------------------- Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 2,437,730 58.9% $ 9,991,246 42.4% $ 4.10
New investors ................. 1,700,000 41.1 13,600,000 57.6 8.00
--------- ----- ----------- -----
Total ......................... 4,137,730 100.0% $23,591,246 100.0%
========= ===== =========== =====
</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
61.0% of the total consideration for 44.5% of the total number of shares of
Common Stock outstanding. In addition, the foregoing table assumes no exercise
of outstanding options.
18
<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 $ 2,504,532 $ 250,000
============= ============= =============
Notes payable, less current portion, net of
unamortized discount .............................. -- 980,000 980,000
------------- ------------- -------------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value -- 5,000,000
shares authorized (actual, 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); 2,437,730 shares outstanding (pro
forma); 4,137,730 shares outstanding (as
adjusted)(1) ................................. 1,701 2,438 4,138
Additional paid-in capital ........................ 5,645,472 9,988,808 21,281,108
Accumulated deficit ............................... (11,107,817) (11,107,817) (12,690,698)
------------- ------------- -------------
Total stockholders' equity (deficit) ............ (5,460,071) (1,116,571) 8,594,548
------------- ------------- -------------
Total capitalization ........................... $ (5,460,071) $ (136,571) $ 9,574,548
============= ============= =============
</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)
370,750 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."
19
<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) ................................. $ (5,925,412)
=============
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.
20
<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 $1,100,000 of liabilities of GPG (of
which $100,000 will be converted into 17,857 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
21
<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. Approximately 18% of gross sales were derived from sales of
returned golf clubs which the Company sells as demonstration models at a
discount from the clubs' original price. 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.
22
<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. The net loss was $646,601 for the three months ended March 31, 1997.
See Consolidated Financial Statements--Pro Forma Consolidated Financial
Statements.
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 Preferred 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 lender in connection with this loan.
23
<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 $1,450,000 of indebtedness. The Company intends to use approximately
$3,139,000 of the proceeds of this offering to retire a portion of the
outstanding indebtedness. In addition, the Company has extended the maturity of
approximately $910,000 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.
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<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 (the "Player Acquisition"), including principally
two licenses (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(TM)
logo, in connection with the manufacture, marketing and distribution of golf
clubs, accessories and apparel for a royalty of up to 3% of net receipts. The
Company also acquired in the Player Acquisition existing sublicenses based on
the Player Licenses, and an immaterial amount of inventory, furniture and
fixtures, and accounts receivable. The Company also obtained a right of first
refusal to purchase the golf instruction and training business of GPG. The
Player Acquisition purchase price consisted of the issuance of 375,000 shares of
Common Stock and a promissory note in the principal amount of $750,000, and the
assumption by the Company of liabilities of GPG in the aggregate amount of
$1,100,000. In connection with the Player Acquisition, Gary Player became
Chairman of the Board of Directors of the Company and the Company changed its
name from Golf One Industries, Inc. to Gary Player Golf, Inc.
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.
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<PAGE>
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
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 in California
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 began to test market nationwide a one-minute direct response
commercial featuring Gary Player. 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."
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<PAGE>
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."
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 including 8 clubs,
consisting of the 3 through 9 irons and a pitching wedge, has a list price of
$699. The Company also markets a 1 iron and a 2 iron which have a list price of
$89.00 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 $299.
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<PAGE>
Black Knight Ti-162 Titanium Woods. The Company intends to introduce its
Black Knight Ti-162 3 and 5 woods in July 1998 at a list price of $299 per
club, or both for $575. 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 56o sand wedge and a 60o lob wedge, which have
a list price of $89.00 per club. The sand wedge and the lob wedge feature
stainless steel club heads.
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 shafts and have a list price of
$99.00 per club.
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 it 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 throughout the United
States 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.
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.
28
<PAGE>
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 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
Company expects each new call center will cost approximately $100,000 in
start-up costs, which include costs of furniture and equipment and salaries,
rent and other costs of operating the call center during its initial three
months. 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 June 1998, the Company began to test market nationwide a one-minute
direct response commercial featuring Gary Player and retired professional
baseball player, Steve Garvey, advertising the Company's Gary Player Black
Knight Ti-162 titanium irons. The revenues generated by the direct response
commercial have exceeded the media costs incurred in broadcasting the
commerical.
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 were
being introduced into the market.
29
<PAGE>
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 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.
30
<PAGE>
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.
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, in which event he would receive
the license fee for up to five more years). 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
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<PAGE>
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.
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
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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 markets demonstration models
through telemarketing to price-sensitive customers who desire a less expensive
alternative to the Company's new golf clubs.
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.
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.
33
<PAGE>
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 $151,800. 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.
34
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of the date of this
Prospectus:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------ ----- -----------------------------------------------------
<S> <C> <C>
Gary Player ........................ 62 Chairman of the Board
Joseph J. White .................... 51 Chief Executive Officer and Director
Alfonso J. Cervantes, Jr. .......... 48 President, Secretary and Director
Joseph A. DePanfilis ............... 43 Chief Financial Officer and Executive Vice President
James Braden ....................... 45 Vice President
Robert J. Friedland ................ 41 Director
Marc B. Player ..................... 37 Director
Steven O. Sparks ................... 51 Director
</TABLE>
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
35
<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. 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.
Pursuant to the underwriting agreement between the Company and the
Underwriter (the "Underwriting Agreement"), the Company has 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. In addition, the Company has advised Goldmark
Properties, Inc. ("Goldmark") that if Goldmark purchases the 350,000 shares of
Common Stock reserved for sale to Goldmark in this offering, the Company will
appoint a designee of Goldmark to the Company's Board of Directors. Goldmark and
GPG have entered into an agreement to jointly develop and promote the Gary
Player Club concept pursuant to which member golfers would receive golf
privileges at various member golf clubs around the world.
36
<PAGE>
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 theBoard 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.
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 (i) $3,000,000 (for the year ending March 31, 1999) and
(ii) 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.
37
<PAGE>
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.
The Company has entered into an employment agreement with Joseph A.
DePanfilis 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 350,000 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"),
38
<PAGE>
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.
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
39
<PAGE>
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 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.
40
<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(3)
----------------------
Number of Shares Before After
Name and Address of Beneficial Owner(1)(2) Beneficially Owned(3) Offering Offering
- -------------------------------------------- -------------------------- ---------- ---------
<S> <C> <C> <C>
Gary Player Group, Inc ..................... 346,875(4) 14.2% 8.4%
3930 RCA Boulevard, #3001 .................
Palm Beach Gardens, FL 33410 ..............
Gary Player ................................ 346,875(4) 14.2 8.4
Marc B. Player ............................. 346,875(4)(5) 14.2 8.4
Alfonso J. Cervantes Jr. ................... 213,283(6) 8.8 5.2
Norman A. Kunin ............................ 177,658(7) 7.3 4.3
Steven O. Sparks ........................... 47,582(8) 2.0 1.2
Joseph J. White ............................ 28,125(9) 1.2 *
Robert Friedland ........................... 26,404(10) 1.1 *
James Braden ............................... 9,167(11) * *
Joseph A. DePanfilis ....................... 5,900(12) * *
All of the directors and executive
officers as a group (8 persons) ........... 677,336(11)(13) 27.7% 16.3%
</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) Does not include 350,000 shares of Common Stock reserved for sale to
Goldmark Properties, Inc. ("Goldmark") in this offering at the initial
public offering price. If Goldmark purchases such shares, Goldmark will
become a principal stockholder of the Company, beneficially owning
approximately 8.5% of the outstanding Common Stock, following the
consummation of this offering.
(3) 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 2,437,730
shares of Common Stock outstanding prior to this offering and a base of
4,137,730 shares of Common Stock outstanding immediately after this
offering, before any consideration is given to other outstanding options.
(4) 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.
(5) Does not include 9,000 shares of Common Stock issuable upon exercise of
stock options exercisable commencing April 1, 1999.
(6) 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."
(7) 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.
41
<PAGE>
(8) 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.
(9) 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.
(10) Does not include 22,000 shares of Common Stock issuable upon exercise of
stock options exercisable at various times commencing April 1, 1999.
(11) Includes 7,500 shares of Common Stock issuable upon exercise of stock
options that are currently exercisable.
(12) 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.
(13) Does not include 280,500 shares of Common Stock issuable upon exercise of
stock options exercisable at various times commencing April 1, 1999.
42
<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 $1,100,000 of liabilities of GPG. The
Company has advanced $125,000 to GPG. The first installment of the promissory
note issued to GPG will be repaid with the proceeds of this offering. 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."
All future transactions, including loans, between the Company and its
officers, directors and stockholders holding 5% or more of the Company's
outstanding voting securities will be on terms no less favorable to the Company
than could be obtained in arm's length transactions from unaffiliated third
parties. Further, all such transactions, and the forgiveness of indebtedness
owed by such persons to the Company, must be approved by a majority of the
Company's independent directors who do not have an interest in the transaction
and who have access, at the Company's expense, to the Company's or to
independent legal counsel.
43
<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 5,000,000 shares of Preferred Stock, par value
$0.001 per share. As of the date of this Prospectus, there are 2,437,730 shares
of Common Stock outstanding held by approximately 207 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
44
<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.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 4,137,730 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 2,437,730 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 41,400 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 2,315,844 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.
46
<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 to retain the Underwriter as a financial
consultant for a period of two years following the consummation of the offering
for a fee of $60,000, payable in full in advance. The consulting agreement with
the Underwriter does not require the Underwriter to devote a specific amount of
time to the performance of its duties thereunder. It is anticipated that these
consulting services will be provided by principals of the Underwriter and/or
members of the Underwriter's corporate department who, however, have not been
designated as of the date hereof. In the event that the Underwriter originates
a financing or a merger, acquisition, joint venture or other transaction to
which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration of the origination of such transaction.
47
<PAGE>
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.
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.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
48
<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.
49
<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
<PAGE>
<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
======= ==== ========= ======
<PAGE>
<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's 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 $1,450,000,
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>
<CAPTION>
<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 $1,450,000 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 90,625 shares of common stock which were valued at $725,000 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,
USA (the "Group"). The agreement provides for the allocation of group expenses
to the Company. Salaries and employee related costs are allocated based upon
projects performed by such employees. Rent is allocated based upon square
footage occupied by the Company. Other costs are allocated based upon actual
usage. Management of the Company believes the methods used are reasonable. 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 $ 1,320,000 e $ 751,156
(718,500) k
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 ........................... 690,206 264,330 413,196 1,367,732
PROPERTY AND EQUIPMENT, net ....................... 158,486 14,617 173,103
OTHER ASSETS ...................................... 781,983 -- 4,471,053 c 5,608,036
130,000 e
225,000 k
-------------
$ 1,630,675 $ 278,947 $ 5,239,249 $ 7,148,871
============= ============ ============= =============
LIABILITIES AND STOCKHOLDERS DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities ......... $ 2,505,624 $ 584,611 $ (188,304) a $ 2,577,431
(156,000) k
(68,500) j
(100,000) c
Notes payable .................................... 2,306,643 3,509,471 (2,994,082) b 2,504,532
500,000 c
(450,000) h
(100,000) d
725,000 e
(730,000) i
(262,500) k
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 (3,899,386) 7,285,442
LONG TERM DEBT .................................... 250,000 c 980,000
730,000 i
STOCKHOLDERS DEFICIT
Series B Convertible Preferred ................... 573 (573) f --
Common stock ..................................... 1,701 375 c 2,438
18 d
91 e
286 f
120 g
79 h
(232) l
Capital in excess of par value ................... 5,645,472 2,999,625 c 9,988,808
99,982 d
724,909 e
287 f
(120) g
68,500 i
449,921 h
232 l
Accumulated deficit .............................. (11,107,817) (3,815,135) 2,994,082 b (11,107,817)
821,053 c
-------------
(5,460,071) (3,815,135) 8,158,635 (1,116,571)
------------- ------------ ------------- -------------
$ 1,630,675 $ 278,947 $ 5,239,249 $ 7,148,871
============= ============ ============= =============
</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 as follows:
Common Stock issued:
Par value .............................. $ 375
Capital in excess of par value ......... 2,999,625
----------
3,000,000
Liabilities assumed .................... 1,000,000
Notes issued ........................... 750,000
----------
Total purchase price ................... $4,750,000
==========
Allocate assets as follows:
Historical assets of GPGE .............. $ 278,947
Gary Player licenses acquired .......... 4,471,053
----------
4,750,000
==========
Management of the company has estimated the useful life of the Gary Player
licenses to be twenty-five years based upon Gary Player's reputation and
achievements as a professional golfer, his positive image in the golf
community and the Company's belief that the marketability of the Gary
Player brand name will survive well past Mr. Player's retirement from the
game of golf.
d Record conversion of assumed liabilities to 17,857 shares of common stock
e Record additional short term debt in the amount of $1,450,000 and issuance
of 90,625 shares of common stock in connection therewith and related costs
f Conversion of Series B Preferred stock into 286,325 shares of common stock
g Issuance of 119,879 shares of common stock in exchange for cancellation of
warrants to purchase 359,638 shares of common stock.
h Issuance of 79,356 shares of common stock in exchange for cancellation of
$450,000 of indebtedness
i Extend the maturity date of debt and related unamortized discount
j Cancellation of amounts due to former stockholder
k Use of proceeds from short term debt in (e)
l Cancellation of 232,082 shares of common stock pursuant to various
settlement agreements with shareholders and former shareholders
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) m $ 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) m 1,346,997
General and administrative ........ 1,680,723 659,776 2,340,499
Depreciation and amortization ..... 34,028 28,933 178,842 n 241,803
Litigation settlements ............ 26,194 26,194
Loss on impaired assets ........... --
------------
Total operating expenses ........ 6,568,875 784,820 (255,563) 7,098,132
------------ --------- ------------ ------------
Operating loss .................. (3,773,948) (6,291) (178,842) (3,959,081)
Other expenses
Interest expense .................. 179,536 70,765 45,000 o 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) $ (223,842) $ (5,925,412)
============ ========= ============ ============
Net loss attributable to common
shares
Net loss .......................... $ (5,624,514) $ (5,925,412)
Preferred dividends ............... (155,799) (155,799)
------------ ------------
$ (5,780,313) $ (6,081,211)
============ ============
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
- ------------
m Elimination of intercompany license fees
n Record amortization of Player Licenses acquired over estimated life of
twenty-five years
o 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 .......................... 16
Dilution ................................. 17
Capitalization ........................... 19
Dividend Policy .......................... 19
Selected Financial Data .................. 20
Management's Discussion and Analysis
of Results of Operations and Financial
Condition ............................. 21
Business ................................. 25
Management ............................... 35
Principal Stockholders ................... 41
Certain Transactions ..................... 43
Description of Securities ................ 44
Shares Eligible for Future Sale .......... 46
Underwriting ............................. 47
Legal Matters ............................ 49
Experts .................................. 49
Additional Information ................... 49
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:
<TABLE>
<CAPTION>
Document Exhibit Number
- -------- --------------
<S> <C>
Registrant's Amended and Restated Certificate of Incorporation .......... 3.1
Registrant's Bylaws ..................................................... 3.2
Registrant's Form of Indemnification Agreement .......................... 10.1
</TABLE>
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:
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission ......... $ 5,276
NASD filing fee ................................................ 2,288
Nasdaq SmallCap fee ............................................ 9,129
Pacific Stock Exchange fee ..................................... 20,000
Accounting fees and expenses ................................... 150,000
Legal fees and expenses (other than blue sky) .................. 260,000
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 .................................................. 7,307
----------
Total ..................................................... $1,082,000
==========
</TABLE>
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 Company and/or its principal executive officers
or directors had a preexisting relationship with each of the consultants and,
based on this relationship, the Company reasonably concluded that each of the
consultants were acquiring the securities for themselves and not for other
persons, and that such consultants had the capacity to protect their own
interests. Each of the warrant certificates issued to the consultants includes
a legend providing that neither the warrants nor the common stock issuable upon
their exercise have been registered under the Securities Act, and may not be
transferred in the absence of an effective registration statement or unless an
exemption from registration is available. Further, the Company did not engage
in any general advertisement or general solicitation in connection with the
issuance of the warrants. Based on the foregoing, 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
II-3
<PAGE>
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.
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
and a partner in the law firm of Saphier, Rein & Walden, which serves as legal
counsel to the Company. Mr. Rein has represented to the Company that he is an
Accredited Investor. The warrants were issued as compensation for business and
financial consulting services performed for the Company by Racada Corporation
pursuant to a written Consulting Agreement, dated October 11, 1996. The Company
disclosed in the Consulting Agreement that the warrants were subject to
restrictions on transfer. Based on the foregoing, the Company reasonably
concluded that Racada Corporation had the capacity to protect its own interests
and that it would be acquiring the securities for itself and not for other
persons. The value of the services provided by Racada Corporation and the value
of all issuances of securities of the Company made in reliance on the exemption
afforded by Rule 701 under the Securities Act during the 12 months preceding
the issuance to Racada Corporation was less than $500,000. The warrant
certificate issued to Racada
II-4
<PAGE>
Corporation includes a legend providing that neither the warrants nor the
common stock issuable upon their exercise have been registered under the
Securities Act of 1933, as amended, and may not be transferred in the absence
of an effective registration statement or unless an exemption from registration
is available. The Company did not engage in any general advertisement or
general solicitation in connection with the issuance of the securities to
Racada Corporation. Based on the foregoing, 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 with a consultant.
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 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.
Rescor, Inc. is a corporation wholly-owned by Donald Bergman, a former director
of the Company who was serving on the board of directors at the time of the
issuance. Accordingly, Rescor, Inc. was an Accredited Investor at the time of
the issuance. Based on Mr. Bergman's relationship as a director of the Company,
the Company reasonably concluded that Rescor, Inc. was acquiring the securities
for itself and not for other persons. The Common Stock certificate issued to
Rescor, Inc. includes a legend providing that the securities have not been
registered under the Securities Act, and may not be transferred in the absence
of an effective registration statement or unless an exemption from registration
is available. Further, the Company did not engage in any general advertisement
or general solicitation in connection with the issuance of the securities to
Rescor, Inc. Based on the foregoing, 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.
II-5
<PAGE>
From May 1997 to September 1997, the Company issued an aggregate of
223,400 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 21,490 Class A Warrants valued at $21,490 to
each of Steven Sparks, a director of the Company, and Private Equity Partners,
L.L.C., and (ii) 250 shares of Common Stock valued at $1,250 to each of Michael
Frellich and Arnold Cooperman. In addition to its relationship with Steven
Sparks, who was a director of the Company and an Accredited Investor at the
time of the issuance, the Company had a preexisting relationship with each of
the other consultants who received securities in the issuance. Based on the
Company's relationship with each of the consultants, the Company reasonably
concluded that each of the consultants was acquiring the securities for itself
and not for other persons. Each of the certificates representing the securities
issued to the consultants includes a legend providing that the securities have
not been registered under the Securities Act of 1933, as amended, and may not
be transferred in the absence of an effective registration statement or unless
an exemption from registration is available. Further, the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities to these consultants. Based on the foregoing,
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.
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 Company and Alfonso J. Cervantes, Jr., the
II-6
<PAGE>
Company's Chief Executive Officer and director, had a preexisting relationship
with Mr. Robertson at the time of the issuance. Mr. Robertson has performed
computer modeling services for the Company from time to time since inception,
and Mr. Robertson has also performed such services for other business in which
Mr. Cervantes has been involved. Based on the foregoing, the Company reasonably
concluded that Mr. Robertson had the capacity to protect his own interests and
that he would be acquiring the securities for himself and not for other
persons. The Common Stock certificate issued to Mr. Robertson includes a legend
providing that the securities have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement or unless an exemption from registration is available. Further, the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities to Mr. Robertson. Based on the
foregoing, 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 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
II-7
<PAGE>
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
$1,450,000 from Thomas Gallagher, Ritch Gaiti, Augustine Fund, LP., IAC,
Higgins Family LP., Corporate Communications Network, Inc., Stephen E. Hoffman
and William Schuler. In connection with these loans, the Company issued an
aggregate of 90,625 shares of Common Stock to the lenders which the Company
valued at $725,000. 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 $725,000, the lenders and the Company have agreed to adjust the number of
shares so that the number of shares shall equal $725,000 divided by the initial
public offering price. In addition, the Company has agreed to issue an
additional 10,272 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 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.*
1.3 Form of Underwriter's Consulting Agreement.
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.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- -------- -------------------
<S> <C>
10.2 Standard Sublease Agreement, dated as of January 20, 1995, between Comstream Corporation and
Rhino Marketing Inc.*
10.3 Form of Proposed 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 May 31, 1998, between Sparks Financial, Inc. and the Registrant.
10.8 Consulting Agreement, dated May 31, 1998, between Robert Friedland and the Registrant.
10.9 Consulting Agreement, dated May 31, 1998, 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.*
10.13 Secured Promissory Note in the principal amount of $1,000,000, dated as of March 13, 1998, in
favor of Jack Cancellieri.
10.14 Form of Secured Promissory Note in favor of eight lenders (the "Senior Lenders") in connection
with loans aggregating $1,450,000.
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>
- ------------
* Previously filed.
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,
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.
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<PAGE>
(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-10
<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 Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California, on
July 14, 1998.
GARY PLAYER GOLF, INC.
By: /s/ Alfonso J. Cervantes, Jr.
-----------------------------------
Alfonso J. Cervantes, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 July 14, 1998
Alfonso J. Cervantes, Jr. Director
*
- ---------------------------------- Chief Financial Officer and Secretary July 14, 1998
Joseph A. DePanfilis (Principal Financial and Accounting
Officer)
*
- ---------------------------------- Director July 14, 1998
Robert J. Friedland
*
- ---------------------------------- Director July 14, 1998
Steven O. Sparks
*By: /s/ Alfonso J. Cervantes, Jr.
-----------------------------
Alfonso J. Cervantes, Jr.
his Attorney-In-Fact
</TABLE>
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<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.*
1.3 Form of Underwriter's Consulting Agreement.
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 Form of Proposed 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 May 31, 1998, between Sparks Financial, Inc. and the Registrant.
10.8 Consulting Agreement, dated May 31, 1998, between Robert Friedland and the Registrant.
10.9 Consulting Agreement, dated May 31, 1998, 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.*
10.13 Secured Promissory Note in the principal amount of $1,000,000, dated as of March 13, 1998, in
favor of Jack Cancellieri.
10.14 Form of Secured Promissory Note in favor of eight lenders (the "Senior Lenders") in connection
with loans aggregating $1,450,000.
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>
- ------------
* Previously filed.
<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
<PAGE>
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 Offered Shares to the Underwriter (the
"Closing"). 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 Warrants 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
-2-
<PAGE>
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 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 five 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 payable 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 which are required to be performed
prior to the Option Closing Date, to the satisfaction by the Company of the
conditions, as of the date hereof and as of the Option Closing Date, set forth
in
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<PAGE>
Section 6 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:
(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 (a "Material Adverse Effect") of the
Company. The Company has no subsidiaries other than Gran Prix Marketing, Inc.
(the "Material Subsidiary") 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 Company and the Subsidiaries, taken as a whole.
The Company owns all of the issued and outstanding
shares of capital stock of Material Subsidiary, free and clear of any security
interests, liens, encumbrances, claims and charges, except for such security
interests, liens, encumbrances, claims and charges which are set forth in the
Prospectus 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
-4-
<PAGE>
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 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 the Material
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.
-5-
<PAGE>
(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. 333-53729) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares,
the Underwriter's Warrants 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 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, 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
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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 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 in all material
respects and present fairly the information required to be disclosed, and 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
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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, except where the failure to do so would not have a
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole;
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 material
taxes have been asserted against the Company or any Subsidiary which are
currently outstanding.
(k) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
None of the outstanding Common Shares or options or warrants to purchase Common
Shares has been issued in violation of the preemptive rights of any shareholder
of the Company, except for such violations which have been waived or with
respect to which there would not be a Material Adverse Effect on the Company and
the Subsidiaries, taken as a whole. The offers and sales of the outstanding
Common 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,
except where the failure to have been so registered or except would not have a
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.
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.
(l) No securities of the Company have been sold by
the Company within the three years prior to the date hereof, except as disclosed
in the Registration Statement.
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(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.
(o) Neither the Company nor the Material 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, except for
indebtedness under certain notes as set forth in the Prospectus which the
Company covenants to repay within three business days from the Closing Date; 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 the Material Subsidiary or any of the Company's or the
Material Subsidiary's properties or business, except where such breaches or
defaults, individually or in the aggregate, would not have a Material Adverse
Effect on the Company and the Subsidiaries, taken as a whole. 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 its business and operations as presently conducted
and all such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of
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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, would not have a Material Adverse Effect on the Company and the
Subsidiaries, taken as a whole, 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 the Material Subsidiary and enjoining the Company or the
Material Subsidiary from taking, or requiring the Company or the Material
Subsidiary to take, any action, or to which the Company or the Material
Subsidiary, or the Company's or the Material 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) Each of the Company and the Material Subsidiary
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 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, except for any infringements which,
individually or in the aggregate, could not have a Material Adverse Effect on
the Company and the Subsidiaries, taken as a whole; 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,
have a Material Adversely Affect on the Company and its Subsidiaries, taken as a
whole, 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 the Material Subsidiary.
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(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, except as disclosed in or
contemplated by the Prospectus or Registration Statement, 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,
except as disclosed in or contemplated by the Prospectus or Registration
Statement, 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 or Registration Statement.
(t) The Company does not own any real property.
The Company and the Material Subsidiary has good title to all personal property
(tangible and intangible) owned by it, free and clear of all security interests,
charges, mortgages, liens and encumbrances, except such as are described in the
Registration Statement and Prospectus, which secure indebtedness which is
described in the Registration Statement and Prospectus and which the Company
covenants to repay within three days following the Closing Date 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 the Material Subsidiary. The material leases, licenses or other
contracts or instruments under which the Company and the Material 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 the Material 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 passage
of time or the giving of notice, or both, would constitute a default thereunder,
except for such defaults which, individually or in the aggregate, would not have
a Material Adverse Effect on the Company and the Material Subsidiary, taken as a
whole. Neither the Company
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nor the Material Subsidiary has received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties. Each of the Company and the Material 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 the Material Subsidiary is a
party or by which their properties or businesses are or may be bound or affected
and to which specific 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 the
Material Subsidiary, and neither the Company nor the Material 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, except for such defaults which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and the
Material Subsidiary, taken as a whole.
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, except for such violations which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company and the Subsidiaries,
taken as a whole.
(v) The employment consulting agreements between the
Company 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
with respect to the non-competition provisions of such agreements and 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.
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<PAGE>
(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 employees or is
imminent which could have a Material Adverse Affect on the Company Subsidiaries,
taken as a whole.
(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.
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<PAGE>
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately upon becoming aware of, 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 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) Until the expiration of the Underwriter's option
to purchase the Optional Shares, 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
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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
information 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.
(f) If the Closing occurs, 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) If the Closing occurs, the Company will deliver
to the Underwriter and to Underwriter's counsel on a timely basis, (i) for a
period of five (5) years from the Effective Date, (A) 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; (B) as soon as practicable, copies of any reports or
communications (financial or other) of the Company mailed to its security
holders; and (C) 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; and (ii) for a
period of three (3) years from the Effective Date, (x) 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 (y) 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. If the Closing occurs, for a period of three (3)
years from the
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Effective Date, 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) Until the expiration of the Underwriter's option
to purchase the Optional Shares, the Company will not and will use its best
efforts to cause any person that controls, is controlled by or is under common
control with the Company not to 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 Closing occurs, 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 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 from the sale of such Offered Shares and/or Optional Shares at the
initial public offering price set forth in the Prospectus (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
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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 are not consummated 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 material breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
material 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 Prospectus.
(l) If the Closing occurs, during the period of
twelve (12) months from the Effective Date, the Company will not offer for sale
or sell or otherwise dispose of, directly or indirectly, any securities of the
Company, without the prior written consent of the Underwriter, except for the
issuance of Common Shares upon the exercise of outstanding options and warrants.
(m) If the Closing occurs, 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) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company will 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
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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 recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) If the Closing occurs, 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 (directly or indirectly in
connection with a reorganization): (i) use its best efforts to maintain the
listing of the Shares on NASDAQ or a national securities exchange and (ii) 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 Common Shares under Section 12(g) of the Exchange Act and, if
the Closing occurs the Company will maintain such registration for a minimum of
five (5) years from the Effective Date, 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 (directly or indirectly in connection
with a reorganization) otherwise.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors by operation by law 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 (or a
successor 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 (in accordance with the Company's standard
policies for travel). The Company agrees to enter into an indemnification
agreement in the form of Exhibit A hereto.
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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 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) If the Closing occurs, the Company agrees to
enter into a consulting agreement on the Closing Date, in form and substance
reasonably acceptable to the Company and the Underwriter, pursuant to which the
Company will (i) engage 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, 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; and (ii) agree to 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.
(s) If the Closing occurs, 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) If the Closing occurs, 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 until
the earlier of three (3) years from the Effective Date or the date on
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which the Common Shares are listed on a national securities exchange or the
NASDAQ National Market System.
(v) For a period of three (3) 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
frequently by management, and are submitted to the Company's Board of Directors
for formal review.
(w) If the Closing occurs, for a period of three (3)
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) If the Closing occurs, 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 reasonably
acceptable to the Underwriter) as the Company's independent public accountants.
(y) If the Closing occurs, 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) If the Closing occurs, the Company will not
increase or authorize an increase in the compensation of its employees whose
employment agreements are described in the Prospectus greater than those
increases provided for in their employment agreements with the Company in effect
as of the
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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) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company will promptly submit to the
Underwriter copies of management reports and similar correspondence between the
Company's independent auditors and the Company.
(ac) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company will not offer or sell any of its
securities pursuant to Regulation S promulgated under the Act without the prior
written consent of the Underwriter.
(ad) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company will provide to the Underwriter ten
days' written notice prior to any issuance by the Company of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) Common Shares 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 Common
Shares 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 if the Closing
occurs 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 year.
(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 not less than twenty-five percent (25%)
of the gross proceeds of the offering, and, if the Closing occurs the Company
will use its best efforts to 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
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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 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
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 corporate power and authority 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 in which the Company has advised Company Counsel
that it owns or leases properties or maintains permanent employees. 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 corporate power and authority 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
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corporation and is in good standing in all jurisdictions in which the Company
has advised Company Counsel that such Subsidiary owns or leases properties or
maintains permanent employees.
To the best of Company Counsel's knowledge,
the Company owns all of the issued and outstanding shares of capital stock of
the Material Subsidiary, free and clear of any security interests, liens,
encumbrances, claims and charges, other than security interests, liens,
encumbrances, claims and charges subject to indebtedness described in the
Prospectus as being due and payable within three days following the consummation
of the offering, and all of such shares have been duly authorized and validly
issued and are fully paid and nonassessable.
(ii) The Company has full corporate power
and authority 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
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 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
to standard enforceability exceptions.
(iii) 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 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 agreement or other document filed to an Exhibit to the Registration
Statement (the Company having certified
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to Company Counsel that all material indentures, mortgages, notes, contracts, or
other material agreements or instruments required to be filed as an Exhibit to
the Registration Statement have been so filed); (C) violate any existing
applicable California or federal 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 material adverse effect on
any Permit of which Company Counsel is aware 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 California or federal court or governmental agency
or body (other than under the Act, the Regulations and applicable state
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 California or federal statutes, regulations or government
classifications, or, to the best of Company Counsel's knowledge, material
contracts or documents, of a character required to be
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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.
(viii) The outstanding Common Shares and
outstanding options and warrants to purchase Common Shares have been duly
authorized and validly issued. The outstanding Common Shares are fully paid and
nonassessable. The outstanding options and warrants to purchase 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, except for
such violations which have been waived. None of the holders of the outstanding
Common 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 outstanding options and warrants to purchase Common
Shares conform in all material respects 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 are
subject to any existing preemptive rights of any shareholder of the Company
pursuant to
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California law, the Company's Articles of Incorporation or by-laws or any
agreement for the purchase of securities of the Corporation or any other
material contract or agreement. 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 in all material respects
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
California Uniform Commercial Code) will be the owners of the Offered Shares,
free and clear of any adverse claims.
(xii) [On the Option Closing Date], assuming
that the Underwriter exercises 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
California Uniform Commercial Code) will be the owners of such Optional Shares,
free and clear of any adverse 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, which is required to be disclosed in the Registration Statement.
(xiv) 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 any patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations (collectively 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 any Intangibles which might, singly or in the aggregate,
materially adversely affect its business, results of operations or financial
condition and such
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<PAGE>
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.
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 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.
(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 reasonably require.
(d) At the Closing Date (i) the Registration
Statement 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
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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 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 not have a Material Adverse Effect on 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 of the
Company 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
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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 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
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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 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, in form satisfactory to
the Underwriter, of (i) its officers, directors and securityholders agreeing not
to offer for sale, 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 during the twelve (12) month period from the
Effective Date (the "Lock-Up Period"), except that, notwithstanding the
foregoing, a group of securityholders, each of which securityholders
beneficially owns less than one percent (1%)
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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)
of the holders of registration rights relating to securities of the Company not
to exercise any such registration rights, in either case, without the prior
written consent of the Underwriter. In addition, such undertakings shall provide
that, 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.
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 on behalf of
the Company, filed in any jurisdiction in order to
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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
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conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(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, a conflict of interest exists making it 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,
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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
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
Underwriter, 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
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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.
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)
after the date hereof trading in securities generally on the New York Stock
Exchange or the American Stock Exchange will have been suspended; (iv) after the
date hereof, limited or minimum prices will have been established on either such
Exchange; (v) after the date hereof, a banking moratorium will have been
declared either by federal or New York State authorities; (vi) after the date
hereof, 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) after the date
hereof, trading in any
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<PAGE>
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) after the date hereof, 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) after the date hereof, 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 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
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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 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.
14. Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the entire subject
matter hereof, and there are no representations, inducements, promises or
agreements, oral or otherwise, not embodies herein. Any and all prior
discussions, negotiations, commitments and understanding relating thereto,
including without
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<PAGE>
limitation, that certain letter of intent between the Company and the
Underwriter dated January 20, 1998, are superseded hereby.
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>
CONSULTING AGREEMENT
____________, 1998
Gary Player Golf, Inc.
2811 Airpark Drive
Santa Maria, California 93455
Attention: Joseph J. White,
Chief Executive Officer
Dear Mr. White:
This will confirm the arrangements, terms and conditions
pursuant to which Whale Securities Co., L.P. (the "Consultant"), has been
retained to serve as a financial consultant and advisor to Gary Player Golf,
Inc., a Delaware corporation (the "Company"), on a non-exclusive basis for a
period of two (2) years commencing on ________________, 1998. The undersigned
hereby agrees to the following terms and conditions:
1. Duties of Consultant. Consultant shall, at the request of
the Company, upon reasonable notice, render the following services to the
Company from time to time:
(a) Consulting Services. Consultant will provide such
financial consulting services and advice pertaining to the Company's business
affairs as the Company may from time to time reasonably request. Without
limiting the generality of the foregoing, Consultant will assist the Company in
developing, studying and evaluating financing and merger and acquisition
proposals based upon documentary information provided to the Consultant by the
Company.
(b) Financing. Consultant will assist and represent
the Company in obtaining both short and long-term financing. The Consultant will
be entitled to additional compensation under certain circumstances in accordance
with the terms set forth in Section 3 hereof.
(c) Wall Street Liaison. Consultant will, when
appropriate, arrange meetings between representatives of the Company and
individuals and financial institutions in the investment community, such as
security analysts, portfolio managers and market makers.
<PAGE>
The services described in this Section 1 shall be rendered by
Consultant without any direct supervision by the Company and at such time and
place and in such manner (whether by conference, telephone, letter or otherwise)
as Consultant may determine.
2. Compensation. As compensation for Consultant's services
hereunder, the Company shall pay to Consultant an annual fee of Thirty Thousand
Dollars ($30,000), the entire Sixty Thousand Dollars ($60,000) payable in full,
in advance, on __________________, 1998.
3. Additional Compensation in Certain Circumstances. In
addition to the financial consulting services described in Section 1 above,
Consultant may bring the Company in contact with persons, whether individuals or
entities, that may be suitable candidates for providing the Company with, or may
lead the Company to other individuals or entities that may provide the Company
with, debt or equity financing or that may be suitable candidates, or may lead
the Company to such suitable candidates, to purchase substantially all of the
stock or assets of the Company, to have substantially all of its stock or assets
purchased by the Company, merge with the Company, or enter into a joint venture
or other transaction with the Company. If, at any time up until the [second]
anniversary of the date hereof, the Company enters into an agreement with any
such persons or their affiliates, or with any persons introduced to the Company
by any such persons or their affiliates, pursuant to which the Company obtains
debt or equity financing or pursuant to which substantially all of the Company's
stock or assets is purchased, the Company purchases substantially all of the
stock or assets of another entity or the Company is merged with or into another
entity, or pursuant to which the Company enters into a joint venture or other on
or off balance sheet corporate finance transaction (each a "Transaction"), the
Company will pay to Consultant, in accordance with the formula set forth below,
additional compensation based on the aggregate value of the consideration,
whether in cash, securities, assumption of (or purchase subject to) debt or
liabilities (including, without limitation, indebtedness for borrowed money,
pension liabilities and guarantees), or other property, obligations or services,
paid or payable directly or indirectly (in escrow or otherwise) or otherwise
assumed in connection with such Transaction (the "Consideration"). For purposes
of this Section 3, the "Company" shall include its subsidiaries and any other
entity in which it owns (directly or indirectly) a majority interest.
The additional compensation to be paid will be paid upon the
closing of the Transaction (except that, if any part of the Consideration is in
the form of contingent payments to be calculated to reference to uncertain
future occurrences, such as future financial or business performance, than the
portion of the
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<PAGE>
fees of Consultant relating to such part of the Consideration shall be payable
at the earlier of (i) the receipt or payment of such Consideration; or (ii) the
time that the amount of such Consideration can be determined, by certified
check, in the following amounts:
5% of the first $5,000,000 of the Consideration;
4% of the Consideration in excess of $5,000,000 and
up to $6,000,000;
3% of the Consideration in excess of $6,000,000 and
up to $7,000,000;
2% of the Consideration in excess of $7,000,000 and
up to $8,000,000; and
1% of any Consideration in excess of $8,000,000.
4. Available Time. Consultant shall make available such time
as it, in its sole discretion, shall deem appropriate for the performance of its
obligations under this agreement and may in certain circumstances be entitled to
additional compensation in connection therewith.
5. Relationship. Nothing herein shall constitute Consultant as
an employee or agent of the Company, except to such extent as might hereinafter
be agreed upon for a particular purpose. Except as might hereinafter be
expressly agreed, Consultant shall not have the authority to obligate or commit
the Company in any manner whatsoever.
6. Confidentiality. Except in the course of the performance of
its duties hereunder, Consultant agrees that it shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information becomes
generally known.
7. Assignment and Termination. This Agreement shall not be
assignable by any party except to successors to all or substantially all of the
business of either party for any reason whatsoever without the prior written
consent of the other party, which consent may be arbitrarily withheld by the
party whose consent is required.
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<PAGE>
8. Governing Law. This Agreement 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.
Very truly yours,
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:_______________________________
Name:
Title:
AGREED AND ACCEPTED:
GARY PLAYER GOLF, INC.
By:______________________________
Name:
Title:
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOLF ONE INDUSTRIES, INC.
Golf One Industries, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify:
1. The name of the Corporation is Golf One Industries, Inc. The
original Certificate of Incorporation of this Corporation was filed with the
Secretary of State of the State of Delaware on October 31, 1995 and was
subsequently amended on March 22, 1996 and on August 21, 1996.
2. The amendment and restatement herein set forth has been duly adopted
in accordance with the provisions of Section 242 and has been consented to in
writing by the stockholders, and written notice has been given, in accordance
with Section 228 of the General Corporation Law of the State of Delaware.
3. The text of this Certificate of Incorporation of the Corporation as
heretofore amended is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of the Corporation is: Gary Player Golf, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of its registered agent at such address is Corporation
Service Company.
THIRD: The purpose of this Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The Corporation is authorized to issue two classes of
shares, designated, respectively, Preferred Stock (the "Preferred Stock"), and
Common Stock, par value $0.001 per share (the "Common Stock"). The number of
shares of Preferred Stock authorized to be issued is 5,000,000 and the number of
shares of Common Stock authorized to be issued is 10,000,000. Of the Preferred
Stock, there is one series designated pursuant to Paragraph (b) below, namely,
572,649.25 shares of Series B Convertible Preferred Stock (the "Series B
Preferred").
(b) The Preferred Stock may be divided into such number of
series as the Board of Directors of the Corporation may determine. The Board of
Directors of the Corporation is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to and imposed upon the
Preferred Stock or any series thereof with respect to any wholly
<PAGE>
unissued class or series of Preferred Stock, and to fix the number of shares of
any series of Preferred Stock and the designation of any such series of
Preferred Stock. The Board of Directors of the Corporation, within the limits
and restrictions stated in any resolution or resolutions of the Board of
Directors of the Corporation originally fixing the number of shares constituting
any series, may increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent to the
issue of that series.
FIFTH: At all elections of directors of the Corporation each holder of
stock or of any class or classes or of a series or series thereof entitled to
vote in the election of directors, shall be entitled to as many votes as shall
equal the number of votes which (except for such provision as to cumulative
voting) he would be entitled to cast for the election of directors with respect
to his shares of stock multiplied by the number of directors to be elected by
him, and that he may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any 2 or more of them
as he may see fit.
SIXTH: Special meetings of the stockholders for any purpose or purposes
may be called at any time only by the Board of Directors, the Chairman of the
Board or by the Chief Executive Officer or President of the Corporation.
SEVENTH: Election of directors at an annual or special meeting of the
stockholders need not be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
EIGHTH: The officers of the Corporation shall be chosen in such a
manner, shall hold their offices for such terms and shall carry out such duties
as are determined solely by the Board of Directors, subject to the right of the
Board of Directors to remove any officer or officers at any time with or without
cause.
NINTH: (a) The Corporation may indemnify to the full extent authorized
or permitted by law (as now or hereafter in effect) any person made, or
threatened to be made, a defendant or witness to any action, suit or proceeding
(whether civil or criminal or otherwise) by reason of the fact that he, his
testate or intestate, is or was a director or officer of the Corporation, or at
the request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or enterprise, in any
capacity. Nothing contained herein shall affect any rights to indemnification to
which employees other than directors and officers may be entitled by law. No
amendment or repeal of this Paragraph (a) of Article NINTH shall apply to or
have any effect on any right to indemnification provided hereunder with respect
to any acts or omissions occurring prior to such amendment or repeal.
(b) No director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director as a director. Notwithstanding the foregoing
sentence, a director shall be liable to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to the
2
<PAGE>
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, or (iii)
for any transaction from which such director derived an improper personal
benefit. No amendment or repeal of this Paragraph (b) of Article NINTH shall
apply to or have any effect on any right to indemnification provided hereunder
with respect to any acts or omissions occurring prior to such amendment or
repeal.
(c) In furtherance and not in limitation of the powers
conferred by statute:
(1) the Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan 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 against such liability under the provisions of law; and
(2) the Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or elsewhere.
TENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation.
ELEVENTH: The Corporation reserves the right to repeal, alter, amend or
rescind any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
TWELFTH: The rights, preferences, privileges and restrictions granted
to or imposed upon Series B Preferred and the holders thereof are as follows:
(a) Voting.
(1) General Voting Rights: Subject to certain supermajority
voting set forth in Subparagraph (a)(2) of Article TWELFTH below or as otherwise
provided by law, the holders of Series B Preferred shall be entitled to vote
with the holders of the Common Stock, and not as a separate class or series, on
all matters submitted to the stockholders, with the number of votes of the
holders of Series B Preferred being determined on the same basis as if the
Series B Preferred had been converted into Common Stock.
3
<PAGE>
(2) Protective Voting Rights: So long as any shares of Series
B Preferred are outstanding, the Corporation shall not, without first obtaining
the consent, either expressed in writing or by affirmative vote at a meeting
called for that purpose, of at least two thirds (2/3) of that total number of
shares of Series B Preferred then outstanding, as a class, in addition to the
vote or written consent of the outstanding shares (including the Series B
Preferred as set forth above in Subparagraph (a)(1)):
(A) Change, amend, or repeal any of the provisions of
this Certificate of Incorporation applicable to Series B Preferred which would
adversely affect the rights, preferences, privileges, and restrictions of Series
B Preferred or authorize the Board of Directors to do so;
(B) Increase the presently authorized number of
shares of Series B Preferred;
(C) Effect an exchange, reclassification, or
cancellation of all or part of Series B Preferred or effect an exchange, or
create a right of exchange, of all or part of the shares of any other class into
Series B Preferred;
(D) Create any new class of shares (or any security
convertible into such shares) ranking on a parity with or having rights,
preferences, or privileges, as to dividends or assets, prior to Series B
Preferred;
(E) Directly or indirectly retire, redeem, purchase,
or otherwise acquire any shares of any capital stock of the Corporation ranking
on a parity with or junior to the Series B Preferred unless (i) at the time of
any such transaction all accrued dividends on the Series B Preferred through the
end of the most recent full calendar quarter have been paid; or
(F) Declare, pay or make, with respect to any shares
of the capital stock of the Corporation ranking junior to the Series B Preferred
on liquidation, any dividend or distribution (except in shares of, or warrants
or rights to subscribe for or purchase shares of the Corporation which are
junior to the Series B Preferred as to dividends or assets) if after giving
effect to that dividend or distribution there are any accrued but unpaid
dividends on the Series B Preferred through the end of the most recent full
calendar quarter.
(b) Cumulative Non-Participating Dividend Rights. Commencing August 30,
1996, and on the last day of September, December, March and June thereafter, the
Corporation shall declare, so long as and to the extent there are any assets of
the Corporation at the time legally available therefor, and the holders of
Series B Preferred as of such dates shall be entitled to receive, out of such
assets of the Corporation at the time and to the extent legally available
4
<PAGE>
therefor, dividends with respect to the Series B Preferred at the annual rate of
twenty six and two-thirds cents (26-2/3(cent)) per share. Dividends required to
be declared with respect to any such calendar quarter shall be payable in cash
no later than thirty (30) days following the end of the calendar quarter they
relate to. Dividends shall accrue on each share of Series B Preferred from the
date of its original issuance and shall accrue from day to day, on a
non-compounded basis, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart for all shares of Series B Preferred at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares of
Series B Preferred before the Corporation makes any Distribution (as defined
below) to holders of shares of Common Stock. The term "Distribution" is defined
for purposes of this Paragraph (b) as the transfer of cash or property without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of the Corporation which are junior to Series B Preferred as to dividends
or assets) or the purchase or redemption of shares of the Corporation for cash
or property (except such junior shares), including any such transfer, purchase,
or redemption by a subsidiary of the Corporation. The time of any distribution
by way of dividend shall be the date of declaration and the time of any
distribution by purchase or redemption of shares or otherwise than by dividend
shall be the day cash or property is transferred by the Corporation, whether or
not pursuant to a contract of an earlier date; provided that when a debt
obligation that is a security is issued in exchange for shares the time of the
distribution is the date when the Corporation acquires the shares in that
exchange.
(c) Liquidation, Dissolution, or Winding Up. In the event of a
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, the holders of Series B Preferred shall be entitled to receive, out
of the assets of the Corporation, whether those assets are capital or surplus of
any nature, an amount equal to (i) three dollar and thirty three cents ($3.33)
per share of Series B Preferred plus (ii) an amount equal to any dividends
accrued and unpaid thereon, as provided in Paragraph (b) of this Article
TWELFTH, to the date that payment is made available to the holders of Series B
Preferred, whether earned or declared or not, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock. If, upon
liquidation, dissolution, or winding up, whether voluntary or involuntary, the
assets thus distributed among the holders of Series B Preferred shall be
insufficient to permit the payment to those stockholders of the full
preferential amounts, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the holders of Series B
Preferred.
In the event of any liquidation, dissolution, or winding up,
whether voluntary or involuntary, subject to all of the preferential rights of
the holders of Series B Preferred, the holders of Common Stock shall be entitled
to receive, ratably, all remaining assets of the Corporation.
Neither the recapitalization or reclassification of the
capital stock of the Corporation, or the merger or consolidation of the
Corporation with or into any other corporation
5
<PAGE>
or corporations, or the reorganization of the Corporation (including an exchange
reorganization or a sale-of-assets reorganization), or the sale or conveyance of
all or substantially all of the assets of the Corporation, shall be deemed a
liquidation, dissolution, or winding up of the Corporation within the meaning of
this Paragraph (c).
(d) Conversion. The Series B Preferred shall be converted upon the
following basis:
(1) By Preferred Stockholders. Each share of the Series B
Preferred shall be convertible, at the option of the respective holder of such
share at any time at the office of the Corporation or any transfer agent for
such share, into such number of fully paid and nonassessable shares of Common
Stock of the Corporation as would be determined by dividing three dollars and
thirty three cents ($3.33) by the Conversion Price (as such term is hereinbelow
defined in Subparagraph (d)(3)) in effect at the date of surrender of the Series
B Preferred to be converted (as such date is hereinbelow more particularly
described). Before any shares of Series B Preferred may be converted into Common
Stock at the option of the holder, the holder must surrender the certificates or
certificates for those shares, duly endorsed in blank or accompanied by proper
instruments of transfer, at the office of the Corporation or of any transfer
agent for the Series B Preferred. The holder shall also give written notice to
the Corporation at such office that the holder elects to convert a specified
number or all of the shares represented by the surrendered certificate(s). The
notice shall also specify the name or names in which the holder wishes the
certificate or certificates for Common Stock to be issued. If a name specified
is not that of the holder, the notice shall also state the address of the new
holder and any other information required by law. The Corporation shall, as soon
as practicable thereafter, issue and deliver to the holder of Series B Preferred
converted, or that holder's nominee or nominees, certificates for the number of
full shares of Common Stock to which the holder shall be entitled, to receive
together with a scrip certificate or cash in lieu of any fraction of a share as
provided below in Subparagraph (d)(5). The person or persons entitled to receive
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on that
date.
(2) Automatic Conversion. Each share of the Series B Preferred
then outstanding shall be automatically converted into such number of fully paid
and nonassessable shares of Common Stock of the Corporation as would be
determined by dividing three dollars and thirty three cents ($3.33) by the
Conversion Price (as such term is hereinbelow defined in Subparagraph (d)(3)) in
effect at the time of conversion determined as provided below, in the event the
Corporation files a registration statement on Form S-1 or comparable form for an
initial public offering of its Common Stock with the Securities and Exchange
Commission, and such registration statement is declared effective, with such
conversion occurring on the date and time such registration statement becomes
effective. The Corporation shall, as soon as practicable after the effective
date of the conversion, issue and deliver to the holder of Series B Preferred
converted, or that holder's nominee or nominees, certificates for the number of
full shares of Common Stock to which the holder shall be entitled, to receive
together with a scrip certificate or cash in lieu of
6
<PAGE>
any fraction of a share as provided below in Subparagraph (d)(5). The person or
persons entitled to receive shares of Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on that date. The Board of Directors may order any holders of
outstanding certificates of Series B Preferred to surrender them for
certificates evidencing Common Stock. The order may provide that a holder of
certificates so to be exchanged is not entitled to vote or to receive dividends
or to exercise any other rights of a stockholder until the holder has complied
with the order, but this order shall be operative only after notice and only
until compliance.
(3) Conversion Price. The price at which shares of Common
Stock shall be deliverable upon conversion pursuant to this Paragraph (d)
(herein called the "Conversion Price") shall be initially three dollars and
thirty three cents ($3.33) per share of Common Stock. The initial Conversion
Price shall be subject to adjustment from time to time in certain instances, as
provided below in Subparagraph (d)(4). The Corporation shall make no payment or
adjustment on account of any dividends accrued and unpaid on the Series B
Preferred surrendered for conversion.
(4) Subdivision, Stock Dividend, Combination. If the
Corporation shall at any time subdivide the outstanding shares of Common Stock,
or shall issue shares of Common Stock as a dividend on the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior to that
subdivision or the issuance of such dividend shall be proportionately decreased,
and in case the Corporation shall at any time combine the outstanding shares of
Common Stock the Conversion Price in effect immediately prior to that
combination shall be proportionately increased, effective at the close of
business on the date of the subdivision, division, or combination. For the
purposes of this Subparagraph (d)(4), the issuance of any such dividend shall be
deemed to have occurred on the day next succeeding the record date for the
determination of stockholders entitled to the dividend.
(5) Fractional Shares. No fractional shares of Common Stock
shall be issued upon the conversion of Series B Preferred. If any fractional
shares of Common Stock would, except for the provisions of this Subparagraph
(d)(5), be deliverable upon the conversion of any shares of Series B Preferred
the Corporation shall, in lieu of delivering the fractional share therefor, at
its option either: (1) adjust the fractional interest by payment to the holder
of the converted Series B Preferred in an amount in cash equal (computed to the
nearest cent) to the current market value of the fractional interest as
determined by the Board of Directors in its sole discretion, unless the current
market value of such fraction interest does not exceed ten dollars ($10), in
which case the fractional interest may be adjusted by rounding off such shares
of Common Stock to be issued upon the conversion to the nearest whole share, or
(2) issue non-dividend bearing and nonvoting certificates for fractions of a
share which would otherwise be issuable, in form and containing terms and
conditions as determined by the Board of Directors, and exchangeable, within the
period following the date of issue as the Board of Directors shall fix, together
with other unexpired scrip certificates of like tenor aggregating one or more
full shares, for share certificates representing a full share or shares.
7
<PAGE>
(6) Statement. Immediately upon the adjustment of the
Conversion Price, the Corporation shall maintain at its principal executive
office and file with the transfer agent, if any, for Series B Preferred, a
statement, signed by the Chairman of the Board, or the President, or a Vice
President of the Corporation and by its Chief Financial Officer or an Assistant
Treasurer, showing in reasonable detail the facts requiring the adjustment and
the Conversion Price after the adjustment. The transfer agent, if any, shall be
under no duty or responsibility with respect to any such statement except to
exhibit the same from time to time to any holder of Series B Preferred desiring
an inspection.
(7) Recapitalization or Reclassification; Merger or
Consolidation; Reorganization. If there shall occur any recapitalization or any
reclassification of the capital stock of the Corporation, or the merger or
consolidation of the Corporation with or into another corporation or
corporations, or the reorganization of the Corporation (including an exchange
reorganization or a sale-of-assets reorganization), each share of Series B
Preferred shall thereafter be convertible into the number of shares or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of Series B Preferred would have
been entitled upon, as the case may be, the recapitalization or
reclassification, merger or consolidation, or reorganization; and, in any such
case, appropriate adjustment (as determined by the Board of Directors) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of shares of Series B Preferred,
to the end that the provisions set forth (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the conversion of Series B Preferred.
(8) Notice of Events Pertinent to Conversion Rights. If: (1)
the Corporation shall set a record date for the purpose of entitling the holders
of its Common Stock to receive a dividend, or any other distribution of property
or securities of the Corporation (except a dividend in shares of the Corporation
which are junior to Series B Preferred as to dividends or assets); or (2) the
Corporation shall set a record date for the purpose of entitling the holders of
its Common Stock, as a class, to subscribe for or purchase any shares of any
class or securities convertible into or exchangeable for shares of any class, or
any option, right or warrant, to subscribe therefor; or (3) the merger or
consolidation of the Corporation (other than a short-form merger which does not
require the vote of the stockholders of the Corporation) with or into another
corporation or corporations; or (4) any reorganization of the Corporation
(including any exchange reorganization or sale-of-assets reorganization), any
recapitalization or reclassification of the capital stock of the Corporation; or
(5) the voluntary or involuntary dissolution, liquidation, or winding up of the
Corporation; then, and in any such case, the Corporation shall cause to be
mailed to the holders of record of the outstanding Series B Preferred, at least
thirty (30) days prior to the date hereinafter specified, a notice stating the
date (x) that has been set as the record date for the
8
<PAGE>
purpose of dividend, distribution, or rights subscription as hereinabove
described in Clauses (1) and (2) of this Subparagraph (d)(8), or (y) on which
the merger or consolidation, reorganization, liquidation, dissolution or winding
up described in Clauses (3) through (5) of this Subparagraph (d)(8) is to take
place.
(9) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued Common Stock
solely for the purpose of effecting conversion of its Series B Preferred
pursuant to the terms of this Paragraph (d) the full number of shares of Common
Stock deliverable on conversion of all Series B Preferred from time-to-time
outstanding. The Corporation shall from time to time, in accordance with
Delaware general corporate law, increase the authorized amount of its Common
Stock if at any time the authorized number of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all Series B Preferred at
the time outstanding.
(10) Costs; Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issued or delivered shares
of Common Stock on conversion of Series B Preferred pursuant hereto. The
Corporation shall not, however, be required to pay any tax payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name other
than that in which Series B Preferred so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting that
issue has paid to the Corporation the amount of any such tax, or has established
to the satisfaction of the Corporation that the tax has been paid.
(11) No Reissuance. Once converted into Common Stock, shares
of Series B Preferred shall be restored to the status of authorized but unissued
shares of undesignated preferred stock, but may not be reissued as part of the
Series B Preferred.
(12) Capital Stock. Whenever reference is made in these
provisions to the issue or sale of shares of Common Stock, the term "Common
Stock" shall include any stock of any class of the Corporation other than Series
B Preferred with a fixed limit on dividends and a fixed amount payable in the
event of any voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation.
(e) No Redemption Rights. Series B Preferred shall not be subject to
mandatory or optional redemption by the Corporation.
(f) No Assessments Permitted; Partial Payment Allowed. Series B
Preferred shall not be assessable. Series B Preferred may, at the discretion of
the Board of Directors, be issued partially paid, so long as the par value of
the Series B Preferred is paid.
(g) Application to Other Junior Shares. The preferences of Series B
Preferred over Common Stock shall also apply to any shares ("other junior
shares") hereafter authorized which
9
<PAGE>
are junior to Series B Convertible Preferred Stock as to dividends or assets;
and all prohibitions, limitations, or restrictions upon the declaration or
payment of any dividends upon, the making of any distribution of assets upon, or
the application of any assets to the purchase, redemption, or other acquisition
of Common Stock shall correspondingly apply to similar action in respect of
other junior shares.
THIRTEENTH: Until the earlier of (i) June 30, 1998, or (ii) such time
as the Corporation has filed a Registration Statement with the Securities and
Exchange Commission under the Securities Act of 1933, and such Registration
Statement is declared effective, and except as provided in this Article
THIRTEENTH, the holders of the Series B Preferred shall have the right to
purchase, during the period or periods, at the prices and on the other terms and
conditions fixed by the Board of Directors, any shares of Common Stock, and any
options or warrants or other instruments or securities exchangeable for or
convertible into shares of Common Stock, which may be issued from time-to-time
by the Corporation.
The portion of the securities each holder of shares of the
Series B Preferred (or shares of Common Stock into which the Series B Preferred
is converted) shall have the initial right to purchase in any issuance subject
to this Article THIRTEENTH shall be in the same ratio to the total shares held
of record by that stockholder on the date set for the determination of shares
entitled to that right bears to the total number of shares of Common Stock at
the time outstanding. For purposes of the preceding sentence, the holders of
Series B Preferred (or shares of Common Stock into which the Series B Preferred
is converted) shall be deemed to own a number of shares of Common Stock
determined on the same basis as if Series B Preferred of such holders had been
converted into Common Stock pursuant to the terms of Article TWELFTH. After
giving notice of any proposed issuance of shares of Common Stock and affording
the holders of outstanding shares of Series B Preferred (or shares of Common
Stock into which the Series B Preferred is converted) the opportunity to
purchase those shares during a period of not less than ten (10) days after the
date of giving the notice, the Corporation may thereafter sell any of those
shares of Common Stock that are not purchased by such stockholders without
further offering them to such Stockholders.
Notwithstanding the foregoing, the Corporation is authorized
to issue shares of Common Stock without first offering the same to the holders
of the then outstanding shares of Series B Preferred (or shares of Common Stock
into which the Series B Preferred is converted) in the following circumstances:
(1) in exchange for capital stock or indebtedness of the Corporation; (2) to
fulfill or comply with any obligation of the Corporation to issue shares of
Common Stock pursuant to any present or future stock option plan, stock
purchase, bonus, savings investment, or other stock incentive programs for the
benefit of the directors, officers, employees of or consultants to the
Corporation; (3) upon conversion of convertible securities the issuance of which
was approved by the holders of the majority of the outstanding shares of Common
Stock and, if applicable, the holders of two-thirds of the outstanding shares of
the Series B Preferred, upon or prior thereto; or (4) in connection with a
public offering pursuant to a Registration
10
<PAGE>
Statement which has been filed by the Corporation with the Securities and
Exchange Commission under the Securities Act of 1933, and which Registration
Statement has been declared effective.
The holders of Series B Preferred may, by affirmative vote of
at least two thirds (2/3) of the total number of shares of Series B Preferred
then outstanding, waive the rights, preferences and/or privileges of Series B
Preferred granted by this Article THIRTEENTH in connection with any issuance of
securities, and such waiver may be given before or after such issuance of
securities.
FOURTEENTH: Effective upon the filing of this Amended and Restated
Certificate of Incorporation, each outstanding share of Common Stock shall,
without any further action on the part of the Corporation, be split and
converted into one-half (0.5) share of Common Stock. No fractional shares of
Common Stock shall be issued as a result of the split and conversion. If any
holder of Common Stock, after the split of all such holder's Common Stock, would
be entitled to a fractional share of Common Stock, the Corporation shall, in
lieu of delivering the fractional share, pay to the holder cash equal (computed
to the nearest cent) to the current market value of the fractional share.
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation this ____ day of _____, 1998.
GOLF ONE INDUSTRIES, INC.
By: __________________________
Its:
11
<PAGE>
EXHIBIT 4.1
GARY PLAYER GOLF, INC.
NUMBER SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 72811R 10 8
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE OF
GARY PLAYER GOLF, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the fascimile
signatures of its duly authorized officers.
Dated:
/s/ Alfonso J. Cervantes /s/ Gary Player
SECRETARY CHAIRMAN OF THE BOARD OF DIRECTORS
[SEAL OF GARY PLAYER GOLF, INC.]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY:___________________
AUTHORIZED OFFICER
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________Custodian_______________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants Under Uniform Gifts to Minors
with right of survivorship Act____________________________________
and not as tenants in common (State)
UNIF TRF MIN ACT - ______________Custodian (until age ____)
(Cust)
_________________under Uniform Tranfers
(Minor)
to Minors Act__________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
| |
| |
|_______________________________________|
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint____________________________________________
___________________________Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated:________________________________
X ________________________________________
X ________________________________________
________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
TROOP MEISINGER STEUBER & PASICH, LLP
LAWYERS
July 14, 1998
Exhibit 5.1
Gary Player Golf, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form
SB-2 (the "Registration Statement") to which this letter is attached as Exhibit
5.1 filed by Gary Player Golf, Inc., a Delaware corporation (the "Company"), in
order to register under the Securities Act of 1933, as amended (the "Act"),
1,700,000 shares of Common Stock, par value $0.001 per share, of the Company
(the "Company Firm Shares"), an additional 255,000 shares of Common Stock, par
value $0.001 per share, of the Company subject to the underwriter's
over-allotment option (the "Over-Allotment Shares"), a warrant to purchase up to
170,000 shares of Common Stock to be issued to the Underwriter (the
"Underwriter's Warrant"), 170,000 shares of Common Stock underlying the
Underwriter's Warrant (the "Underlying Shares") and any additional shares of
Common Stock of the Company which may be registered pursuant to Rule 462(b)
under the Act (collectively with the Company Firm Shares and the Over-Allotment
Shares, the "Shares").
We are of the opinion that the Shares have been duly authorized and
upon issuance and sale of the Shares in conformity with and pursuant to the
Registration Statement, the Shares will be validly issued, fully paid and
non-assessable.
We are of the opinion that the Underwriter's Warrant has been duly
authorized and upon issuance and sale of the Underwriter's Warrant in conformity
with and pursuant to the Registration Statement, the Underwriter's Warrant will
be validly issued, fully paid and non-assessable.
We are of the opinion that the Underlying Shares have been duly
authorized and, upon exercise and payment of the exercise price therefor in
accordance with the terms of the Underwriter's Warrant, will be validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Respectfully submitted,
/s/ TROOP MEISINGER STEUBER & PASICH, LLP
-----------------------------------------
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
GOLF ONE INDUSTRIES, INC.
1998 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of this 1998 Stock Option Plan (the "Plan") is to provide
incentives and rewards to selected eligible directors, officers, employees and
consultants of Golf One Industries, Inc. (the "Company") and its subsidiaries in
order to assist the Company and its subsidiaries in attracting, retaining and
motivating those persons by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests in
the Company with those of the Company's shareholders.
2. Administration of the Plan.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") consisting of two
or more members who shall serve at the pleasure of the Board. The administrator
of the Plan shall be referred to as the "Administrator." During such time that
administration is delegated to the Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.
The Administrator shall have all the powers vested in it by the terms
of the Plan, including exclusive authority (i) to select from among eligible
directors, officers, employees and consultants, those persons to be granted
"Options" (as defined below) under the Plan; (ii) to determine the type, size
and terms of individual Options (which need not be identical) to be made to each
person selected; (iii) to determine the time when Options will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Options; (iv) to amend the terms or
conditions of any outstanding Options, subject to applicable legal restrictions
and to the consent of the other party to such Options; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Options without constituting termination of their employment for purposes of
their Options; (vi) to authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the Plan; and
(vii) to make any and all other determinations which it determines to be
necessary or advisable in the administration of the Plan. The Administrator
shall have full power and authority to administer and interpret the Plan and to
adopt, amend and revoke such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Administrator deems necessary or advisable. The Administrator's
interpretation of the Plan, and all actions taken and determinations made by the
Administrator pursuant to the powers vested in it hereunder, shall be conclusive
and binding on all parties concerned, including the Company, its shareholders,
any optionee's Plan and any other employee of the Company or any of its
subsidiaries.
<PAGE>
3. Persons Eligible Under the Plan.
Any person who is a director, officer, employee or consultant of the
Company or any of its subsidiaries shall be eligible to be considered for the
grant of Options under the Plan.
4. Options.
(a) Type of Options. Options granted under the Plan ("Options") may, at
the discretion of the Administrator, either be "incentive stock options"
("Incentive Stock Options") within the meaning of Section 422 of Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not qualify
as "incentive stock options" under Section 422 of the Code ("Nonqualified
Options").
(b) Terms and Conditions of Options.
(i) Subject to the provisions of the Plan, the Administrator, in
its sole and absolute discretion, shall determine all of the
terms and conditions of each Option granted pursuant to the
Plan.
(ii) The terms and conditions of an Option may include, among
other things:
(A) any provision necessary for the Option to qualify as an
Incentive Stock Option; and
(B) a provision permitting the optionee to pay the purchase
price of the Common Stock or other property issuable
pursuant to the Option, or to pay such recipient's tax
withholding obligation with respect to such issuance,
in whole or in part, by delivering previously owned
shares of capital stock of the Company (including
"pyramiding") or other property, or by reducing the
number of shares of Common Stock or the amount of other
property otherwise issuable pursuant to the Option.
(iii) The terms and conditions of each Option shall be in
compliance with the following limitations:
(A) the exercise price may not be less than 100% of the
fair value of the Common Stock at the time the Option
is granted (110% of the fair value in the case of any
person who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of
the Company);
(B) The exercise period may not be more than 120 months
from the date the Option is granted;
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(C) The Option may not be transferable by the optionee
other than by will or the laws of descent and
distribution;
(D) The optionee must have the right to exercise the Option
at the rate of at least 20% per year over 5 years from
the date the Option is granted subject to reasonable
conditions such as continued employment;
(E) The optionee must have the right to exercise the
Option, following termination of employment, to the
extent it was exercisable at termination of employment:
(I) at least six months from the date of termination if
termination is caused by death or disability; and (II)
at least 30 days from the date of termination if
termination was caused other than by death or
disability;
(F) If the option agreement gives the Company the right to
repurchase shares upon termination of employment, (I)
the repurchase price must be equal to the greater of
the original purchase price paid by the optionee for
the shares or the fair value on the date of termination
of employment, (II) the right must be exercised for
cash or cancellation of purchase money indebtedness for
the shares within 90 days of termination of employment,
and (III) the right must expire if the Common Stock of
the Company becomes publicly traded; and
(c) Maximum Grant of Options to any Person. No person shall 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 Plan as set forth in
Section 5 hereof.
(d) Financial Statements. The Company shall provide optionees with
annual financial statements of the Company.
5. Shares of Common Stock Subject to the Plan.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to the Plan shall not exceed an aggregate of 350,000 shares of
Common Stock, subject to adjustment as provided in Section 6 of the Plan. Any
shares of Common Stock subject to an Option which for any reason expires or is
terminated unexercised as to such shares shall again be available for issuance
under the Plan. The aggregate number of shares of Common Stock that may be
issued at any time pursuant to Options granted under the Plan shall be reduced
by the number of shares of Common Stock which were otherwise issuable pursuant
to Options granted under this Plan but which were withheld by the Company as
payment of the purchase price of the Common Stock issued pursuant to such
Options or as payment of the recipient's tax withholding obligation with respect
to such issuance.
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<PAGE>
6. Dilution and Other Adjustment.
In the event of any change in the outstanding shares of the Common
Stock or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
as a class (other than cash dividends), then the Administrator may, and shall in
the event of a stock split, reverse stock split, stock dividend,
recapitalization, combination of recapitalization of the Company's stock, make
such equitable adjustments to the Plan and the Options thereunder (including,
without limitation, appropriate and proportionate adjustments in (i) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Options theretofore
granted under the Plan, (ii) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Options thereafter granted under the Plan; and (iii) the maximum number of
shares with respect to which Options may thereafter be granted to any optionee
in any fiscal year) as the Administrator in its sole discretion determines
appropriate, including any adjustments in the maximum number of shares referred
to in Section 5 of the Plan. Such adjustments shall be conclusive and binding
for all purposes of the Plan.
7. Miscellaneous Provisions.
(a) Definitions. As used herein, "subsidiary" means any future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 424(f) of the Code, of the Company; and the term "or" means "and/or."
(b) Conditions on Issuance. Securities shall not be issued pursuant to
Options unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Options, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
(c) Rights as Shareholder. An optionee shall have no rights as a holder
of Common Stock with respect to Options hereunder, unless and until certificates
for shares of such stock are issued to the optionee.
(d) Agreements. All Options granted under the Plan shall be evidenced
by written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Administrator shall from time to time adopt.
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(e) Withholding Taxes. The Company shall have the right to require upon
exercise of an Option the payment (through withholding from the optionee's
salary or otherwise) of any federal, state, local or foreign taxes required by
law to be withheld. The obligation of the Company to issue Common Stock shall be
subject to the restrictions imposed by any and all governmental authorities.
(f) No Rights to Option. No person shall have any right to be granted
an Option under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any person any right to be retained in the employ of the
Company or any of its subsidiaries or shall interfere with or restrict in any
way the rights of the Company or any of its subsidiaries, which are hereby
reserved, to discharge an employee at any time for any reason whatsoever, with
or without good cause.
8. Amendments and Termination.
(a) Amendments. The Board may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any outstanding Options.
However, with the consent of the optionee affected, the Administrator may amend
outstanding agreements evidencing Options under the Plan in a manner not
inconsistent with the terms of the Plan.
(b) Termination. Unless the Plan shall theretofore have been terminated
as above provided, the Plan (but not the Options theretofore granted under the
Plan) shall terminate on and no Options shall be granted after March 31, 2008.
9. Effective Date.
The Plan is effective on _____ __, 1998. [the date adopted by the
Board]
10. Governing Law.
The Plan and any agreements entered into thereunder shall be construed
and governed by the laws of the State of California applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
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GOLF ONE INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of May 31, 1998 by and between Golf One Industries, Inc., a Delaware
corporation (the "Company"), and Alfonso J. Cervantes ("Employee").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company.
Employee hereby accepts such employment. Employee shall have the title of
President, but may have any title determined by the Board of Directors provided
that Employee always has a title which is no less senior than President.
(b) Employee's duties and responsibilities shall be those incident to
the position(s) described in Section 1(a) as set forth in the Bylaws of the
Company and those which are normally and customarily vested in such office(s) of
a corporation; provided, however, that Employee shall report directly to the
Board and not to the Chief Executive Officer of the Company. In addition,
Employee's duties shall include those duties and services for the Company and
its affiliates as the Board shall, in its sole and absolute discretion, from
time to time reasonably direct which are not inconsistent with Employee's
position described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy
and efforts to the business of the Company and will use Employee's best efforts
and abilities faithfully and diligently to promote the Company's business
interests. For so long as Employee is employed by the Company, Employee shall
not, directly or indirectly, either as an employee, employer, consultant, agent,
investor, principal, partner, stockholder (except as the holder of less than 1%
of the issued and outstanding stock of a publicly held corporation), corporate
officer or director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
whatsoever with the business of the Company Group, as such businesses are now or
hereafter conducted.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
<PAGE>
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"Disability," with respect to Employee, shall mean that, for physical
or mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Employee agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Employee shall have suffered a disability and Employee hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Employee is not legally competent, Employee's
legal guardian or duly authorized attorney-in-fact will act in Employee's stead
for the purposes of submitting Employee to the examinations, and providing the
authorization of disclosure.
"Effective Date" shall have the meaning set forth in Section 9 of this
Agreement.
"Employee Handbook" shall mean the Company's Employee Handbook, as from
time to time in effect.
"For Cause" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 15 days of written
notice thereof from the Company (except for breaches of Sections 1(c), 6 or 7 of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(b) Employee is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Employee is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Employee commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to subordinate employees; or
(e) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's
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position as a senior or executive officer, or continued and repeated substantive
failure to perform duties assigned by or pursuant to this Agreement; or
(f) Employee continues to neglect his duties after receipt of notice
thereof from the Company (and the Company need give such notice only once).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"Relocation Expenses" shall mean reasonable expenses of moving
Employee's household goods and possessions in relocating from Los Angeles to
Santa Maria, based upon three competitive estimates from nationally recognized
moving companies submitted to the Company for review and approval by the Company
prior to incurring such expenses.
"Term" shall mean the period commencing on the Effective Date and
ending at the close of business on the business day immediately preceding the
second annual anniversary of the Effective Date.
3. Compensation and Benefits
For so long as Employee shall be employed by the Company, Employee
shall receive the compensation and benefits set forth in this Section 3.
(a) Salary. The Company shall pay Employee a base salary at an annual
rate of $150,000 for the first year following the Effective Date and $165,000
thereafter. The Board may, but shall not be obligated to, increase Employee's
base salary from time to time. The base salary shall be payable in installments
in the same manner and at the same times the Company pays base salaries to other
executive officers of the Company, but in no event less frequently than equal
monthly installments.
(b) Bonus. Employee shall be entitled to such bonuses as the Board in
its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
from the Company for the reasonable out-of-pocket costs and expenses which
Employee incurs in connection with the performance of Employee's duties and
obligations under this Agreement in a manner consistent with the Company's
practices and policies therefor.
(d) Employee Benefit Plans. Employee shall be entitled to participate
in any pension, savings and group term life, medical, dental, disability, and
other group benefit plans which the Company makes available to its employees
generally. If the Company does not maintain long-term disability insurance for
Employee, the Company will pay on behalf of Employee up to $2,000 per year for
the purchase of a long-term disability insurance policy for Employee.
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<PAGE>
(e) Vacation. Employee shall be entitled to four weeks paid vacation,
which shall accrue in accordance with, and be subject to limitations under, the
Employee Handbook.
(f) Automobile Allowance. Employer shall provide to Employee use of a
late model luxury automobile and shall pay gas, insurance, customary maintenance
and repairs on such automobile, up to a cost of $12,000 per year (including
leasing cost of the automobile).
(g) Options. Effective as of the Effective Date, Employee shall receive
an option under the Company's 1998 Stock Option Plan to purchase up to 100,000
shares of Common Stock (such number, and the number set forth below, to be
adjusted for any stock splits, dividends or reverse stock splits effected after
the date hereof and on or prior to the Effective Date), on the following terms:
(i) the exercise price shall be the initial public offering price of the Common
Stock in the IPO; (ii) the option shall vest on the first annual anniversary of
the Effective Date (with accelerated vesting in the event of a sale of the
Company or termination of employment by the Company pursuant to Section 4(e) of
this Agreement); and (iii) the option shall terminate on the earlier to occur
of: (A) the fifth annual anniversary of the Effective Date and 90 days following
termination of Employee's employment (or the date of termination of employment
if termination is by the Company For Cause or one year following termination of
employment if termination is by reason of death or Disability); and (B) a sale
of the Company. The option shall be evidenced by an agreement in the standard
form in effect as of the Effective Date, as approved by the Board of Directors
in connection with the Plan.
(h) Disability. In the event of any Disability, if Employee shall
receive payments as a result of such Disability under any disability plan
maintained by the Company or from any government agency, the Company shall be
entitled to deduct the amount of such payments received from base salary payable
to Employee during the period of such Disability.
(i) Withholding. The Company may deduct from any compensation payable
to Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. Term of Employment
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after the Term and at least 30 days
after the delivery of that notice); provided, however, that in the event
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
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(b) upon the death of Employee;
(c) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(d) upon delivery to Employee of written notice of termination by the
Company For Cause;
(e) upon delivery to Employee of written notice of termination by the
Company without cause; or
(f) upon the date set forth in a written notice of termination from
Employee to the Company delivered no later than 10 days following the occurrence
of a Change of Control of the Company, which date shall be after the Change of
Control and at least 30 days after delivery of that notice; provided, however,
that in the event Employee delivers such notice to the Company, the Company
shall have the right to accelerate such termination by written notice thereof to
Employee (and such termination by the Company shall be deemed to be a
termination of employment pursuant to this Section 4(f), and not a termination
pursuant to Section 4(d) or 4(e) hereof).
5. Severance Compensation
(a) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) prior to the end of the Term, the Company shall: (i)
continue to pay to Employee the salary which Employee would have earned through
the end of the Term as if Employee's employment had not terminated; (ii) shall
pay for Employee's (and his immediate family's) participation in group medical,
life, dental, disability and similar plans through the end of the Term, to the
extent permitted by the plan; and (iii) pay to Employee any unpaid bonus or
incentive compensation which has been earned by Employee at the time of
termination of employment.
(b) If Employee's employment is terminated by Employee pursuant to
Section 4(f) prior to the end of the Term, the Company shall: (i) within five
days following termination, pay to Employee an amount equal to the amount of
salary which Employee would have earned from the date of termination through the
end of the Term had Employee's employment not terminated (which payment shall be
a lump sum without discount); (ii) pay for Employee's (and his immediate
family's) participation in group medical, life, dental, disability and similar
plans through the end of the Term, to the extent permitted by the plan; and
(iii) pay to Employee any unpaid bonus or incentive compensation which has been
earned by Employee at the time of termination of employment.
(c) If Employee's employment is terminated for any reason other than by
the Company without cause prior to the end of the Term or by Employee pursuant
to Section 4(f), the Company shall pay to Employee (or Employee's estate or
beneficiary, as the case may be): (i) any unpaid base salary through the date of
termination of employment, and (ii) any unpaid bonus or incentive compensation
which has been earned by Employee at the time of termination of employment.All
rights and benefits which Employer or his estate may have under employee benefit
plans in which Employee shall be participating at the date of termination of
employment shall be determined in accordance with such plans.
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(d) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (by the Company For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(e) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract.
(f) Employee acknowledges that in the event of termination of
Employee's employment for any reason, neither Employee (nor Employee's estate,
heirs, beneficiaries or others claiming through Employee) shall not be entitled
to any severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Employee shall not be
entitled to any benefits under any such plan or policy.
6. Covenant Not To Solicit
Employee acknowledges and agrees that: (i) due to Employee's previous
experience in the industry in which the Company operates, being employed by the
Company will allow Employee to acquire valuable knowledge not otherwise
available to the public regarding the nature, requirements and character of, and
the design, manufacturing, processes and methods of pricing used in, the Company
Group's business and regarding the names and requirements of, and the Company's
course of dealing with, the Company Group's customers; (ii) as a result of
employment with the Company, Employee will be brought in personal contact with
the Company Group's customers and as a result Employee will establish business
goodwill, which is a valuable asset of the Company; (iii) having this knowledge
of the Company Group's business and its customers and this acquaintance with the
Company Group's customers places Employee in an unfair competitive position as
to the Company Group if Employee engages in a competing business in his own
behalf or for another; (iv) the Company Group is engaged in the sale and
distribution of golf equipment, golf apparel and related products to customers;
and (v) the provisions of this Section 6 are reasonable as to time, scope and
territory and in all other respects, and such provisions are reasonably
necessary to secure the protection of the business or goodwill of the Company
and do not prevent Employee from supporting himself and his dependents upon
termination of his employment with the Company. Accordingly, Employee covenants
and agrees that while in the Company's employ and for a period expiring one year
after the termination for any reason of Employee's employment with the Company:
(a) Employee will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or advisory services
to, or participate in or be connected with the management or control of any
business in any state or territory in which the Company Group sells or markets
its products at the time of the termination of Employee's employment, which
business is engaged in the direct marketing of any golf equipment, golf
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<PAGE>
apparel or related products of the general type sold and distributed by the
Company Group at the time of termination of Employee's employment;
(b) Employee will not, directly or indirectly, influence or attempt to
influence any customer of the Company Group to reduce or discontinue its
purchases of any products from the Company Group or to divert such purchases to
any Person other than the Company Group.
(c) Employee will not, directly or indirectly, interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company Group and any of its respective suppliers, principals, distributors,
lessors or licensors; and
(d) Employee will not, directly or indirectly, solicit any employee of
the Company Group to work for any Person.
For purposes of this Section 6, "competition with the Company Group"
shall mean direct competition for customers who are purchasers or users of golf
equipment, apparel, or related products of the type sold and distributed by the
Company Group.
7. Confidentiality.
Employee agrees not to disclose or use at any time (whether during or
after Employee's employment with the Company) for Employee's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Employee's breach of this covenant. Employee agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company Group except that he may retain personal notes, notebooks,
diaries, rolodexes and addresses and phone numbers. Employee further agrees that
he will not retain or use for his account at any time any trade names, trademark
or other proprietary business designation used or owned in connection with the
business of any member of the Company Group.
8. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
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If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Board of Directors
If to Employee, to:
Employee's address as set forth on the books
and records of the Company
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. No represen tations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
(e) 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.
(f) 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.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
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9. Effective Date
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Effective Date"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Employee, or by
Employee to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by September
30, 1998; (ii) if Employee shall die or suffer a Disability prior to the
Effective Date; or (iii) by written notice from the Company if Employee shall
take or omit any action which, if Employee was then employed by the Company,
would be the basis for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /S/ Joseph A DePanfilis
------------------------------
Its: CFO
/s/ Alfonso J. Cervantes
------------------------------
Alfonso J. Cervantes
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GOLF ONE INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of May 31, 1998 by and between Golf One Industries, Inc., a Delaware
corporation (the "Company"), and Joseph J. White ("Employee").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company.
Employee hereby accepts such employment. Employee shall have the title of Chief
Executive Officer.
(b) Employee's duties and responsibilities shall be those incident to
the position described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Board shall, in its sole and
absolute discretion, from time to time reasonably direct which are not
inconsistent with Employee's position described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy
and efforts to the business of the Company and will use Employee's best efforts
and abilities faithfully and diligently to promote the Company's business
interests. For so long as Employee is employed by the Company, Employee shall
not, directly or indirectly, either as an employee, employer, consultant, agent,
investor, principal, partner, stockholder (except as the holder of less than 1%
of the issued and outstanding stock of a publicly held corporation), corporate
officer or director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
whatsoever with the business of the Company Group, as such businesses are now or
hereafter conducted.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
<PAGE>
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"Disability," with respect to Employee, shall mean that, for physical
or mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Employee agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Employee shall have suffered a disability and Employee hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Employee is not legally competent, Employee's
legal guardian or duly authorized attorney-in-fact will act in Employee's stead
for the purposes of submitting Employee to the examinations, and providing the
authorization of disclosure.
"Effective Date" shall have the meaning set forth in Section 10 of this
Agreement.
"Employee Handbook" shall mean the Company's Employee Handbook, as from
time to time in effect.
"For Cause" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 15 days of written
notice thereof from the Company (except for breaches of Sections 1(c), 6 or 7 of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(b) Employee is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Employee is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Employee commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to subordinate employees; or
(e) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's position as a senior or executive officer, or
continued and repeated substantive failure to perform duties assigned by or
pursuant to this Agreement; or
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(f) Employee continues to neglect his duties after receipt of notice
thereof from the Company (and the Company need give such notice only once).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"Relocation Expenses" shall mean: (i) reasonable costs of air travel
(coach class) and other expenses in relocating Employee's family to a residence
within 100 miles of the Company's principal offices in Santa Maria, California;
(ii) reasonable expenses of moving Employee's household goods and possessions in
relocating from South Carolina to California, based upon three competitive
estimates from nationally recognized moving companies submitted to the Company
for review and approval by the Company prior to incurring such expenses; and
(iii) reasonable closing costs, real estate transfer taxes and real estate
brokerage commission (not to exceed 6% of the gross sales price) in connection
with the sale of Employee's family residence in Greenville, South Carolina.
"Term" shall mean the period commencing on the Effective Date and
ending at the close of business on the business day immediately preceding the
second annual anniversary of the Effective Date.
3. Compensation and Benefits
For so long as Employee shall be employed by the Company, Employee
shall receive the compensation and benefits set forth in this Section 3.
(a) Salary. The Company shall pay Employee a base salary at an annual
rate of $165,000 for the first year following the Effective Date and $181,500
thereafter. The Board may, but shall not be obligated to, increase Employee's
base salary from time to time. The base salary shall be payable in installments
in the same manner and at the same times the Company pays base salaries to other
executive officers of the Company, but in no event less frequently than equal
monthly installments.
(b) Bonus. If the Effective Date occurs, within 10 days following the
date Employee commences services as Chief Executive Officer at the Company's
offices, the Company shall pay to Employee a bonus of $25,000. In addition,
Employee shall be entitled to a bonus of 10% of the pre-tax earnings of the
Company in excess of the Base Amount for each of years ended March 31, 1999 and
2000, up to a maximum of $33,000 for the year ended March 31, 1999 and $36,000
for the year ended March 31, 2000; provided, however, that Employee shall not be
entitled to such bonus for such year if his employment shall have been
terminated by the Company For Cause during such year or he shall have terminated
his employment in breach of this Agreement during such year, and provided,
further, however, that if his employment terminates during such year for any
other reason, the bonus shall be prorated based on the number of days during
such year that Employee shall have been employed by the Company. The bonus for
any year shall be payable
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<PAGE>
within 10 days following the receipt to the independent auditor's report on the
Company's financial statements for such year. The "Base Amount" shall be (i)
$3,000,000 for the year ended March 31, 1999 and (ii) for the year ended March
31, 2000, the greater of $5,000,000 or 150% of pre-tax earnings of the Company
for the year ended March 31, 1999.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
from the Company for the reasonable out-of-pocket costs and expenses which
Employee incurs in connection with the performance of Employee's duties and
obligations under this Agreement in a manner consistent with the Company's
practices and policies therefor.
(d) Employee Benefit Plans. Employee shall be entitled to participate
in any pension, savings and group term life, medical, dental, disability, and
other group benefit plans which the Company makes available to its employees
generally. If the Company does not maintain long-term disability insurance for
Employee, the Company will pay on behalf of Employee up to $2,000 per year for
the purchase of a long-term disability insurance policy for Employee.
(e) Vacation. Employee shall be entitled to four weeks paid vacation,
which shall accrue in accordance with, and be subject to limitations under, the
Employee Handbook.
(f) Golf Country Club Membership. The Company shall pay on behalf of
Employee (i) up to $25,000 towards the initiation fee for a corporate membership
in a golf country club within the vicinity of the Company's executive offices,
selected by Employee and approved by the Company (which approval shall not be
unreasonably withheld); and (ii) up to $250 of the monthly dues of such golf
country club. If the corporate membership is an equity membership, Employee
shall reimburse the Company for the initiation fee paid by the Company for such
membership no later than the earlier to occur of: (i) two years from termination
of employment (30 days if Employee's employment is terminated by Employee prior
to the end of the Term or by the Company For Cause) and (ii) the sale of such
membership by Employee.
(g) Automobile. Employee shall be entitled to an automobile allowance
of $1,000 per month, payable in a manner consistent with the Company's practices
and policies therefor.
(h) Relocation Expenses. Upon submission of appropriate bills, invoices
and other documentation as may reasonably be requested by the Company, the
Company shall pay all Relocation Expenses incurred by Employee within 30 days of
written request for payment of such Expenses; provided, however, that at the
time of such request, Employee's employment shall not have been terminated by
(i) Employee or (ii) the Company For Cause.
(i) Options. Effective as of the Effective Date, Employee shall receive
an option under the Company's 1998 Stock Option Plan to purchase up to 300,000
shares of Common Stock (such number, and the number set forth below, to be
adjusted for any stock splits, dividends or reverse stock splits effected after
the date hereof and on or prior to the Effective Date), on the following terms:
(i) the exercise price shall be the initial public offering price of the Common
Stock in the IPO; (ii) the option shall vest on the first annual anniversary of
the Effective Date (with accelerated vesting in the event of a sale of the
Company or termination of employment by the Company pursuant to Section 4(e) of
this Agreement); and (iii) the option shall terminate on the
4
<PAGE>
earlier to occur of: (A) the fifth annual anniversary of the Effective Date and
90 days following termination of Employee's employment (or the date of
termination of employment if termination is by the Company For Cause or one year
following termination of employment if termination is by reason of death or
Disability); and (B) a sale of the Company. The option shall be evidenced by an
agreement in the standard form in effect as of the Effective Date, as approved
by the Board of Directors in connection with the Plan.
(j) Disability. In the event of any Disability, if Employee shall
receive payments as a result of such Disability under any disability plan
maintained by the Company or from any government agency, the Company shall be
entitled to deduct the amount of such payments received from base salary payable
to Employee during the period of such Disability.
(k) Withholding. The Company may deduct from any compensation payable
to Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. Term of Employment
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after the Term and at least 30 days
after the delivery of that notice); provided, however, that in the event
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon the death of Employee;
(c) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(d) upon delivery to Employee of written notice of termination by the
Company For Cause;
(e) upon delivery to Employee of written notice of termination by the
Company without cause; or
(f) upon the date set forth in a written notice of termination from
Employee to the Company delivered no later than 10 days following the occurrence
of a Change of Control of the Company, which date shall be after the Change of
Control and at least 30 days after delivery of that notice; provided, however,
that in the event Employee delivers such notice to the Company,
5
<PAGE>
the Company shall have the right to accelerate such termination by written
notice thereof to Employee (and such termination by the Company shall be deemed
to be a termination of employment pursuant to this Section 4(f), and not a
termination pursuant to Section 4(d) or 4(e) hereof).
5. Severance Compensation
(a) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) prior to the end of the Term, the Company shall: (i)
continue to pay to Employee the salary which Employee would have earned through
the end of the Term as if Employee's employment had not terminated; (ii) shall
pay for Employee's (and his immediate family's) participation in group medical,
life, dental, disability and similar plans through the end of the Term, to the
extent permitted by the plan; and (iii) pay to Employee any unpaid bonus or
incentive compensation which has been earned by Employee at the time of
termination of employment.
(b) If Employee's employment is terminated by Employee pursuant to
Section 4(f) prior to the end of the Term, the Company shall: (i) within five
days following termination, pay to Employee an amount equal to the amount of
salary which Employee would have earned from the date of termination through the
end of the Term had Employee's employment not terminated (which payment shall be
a lump sum without discount); (ii) pay for Employee's (and his immediate
family's) participation in group medical, life, dental, disability and similar
plans through the end of the Term, to the extent permitted by the plan; and
(iii) pay to Employee any unpaid bonus or incentive compensation which has been
earned by Employee at the time of termination of employment.
(c) If Employee's employment is terminated for any reason other than by
the Company without cause prior to the end of the Term or by Employee pursuant
to Section 4(f), the Company shall pay to Employee (or Employee's estate or
beneficiary, as the case may be): (i) any unpaid base salary through the date of
termination of employment, and (ii) any unpaid bonus or incentive compensation
which has been earned by Employee at the time of termination of employment. All
rights and benefits which Employer or his estate may have under employee benefit
plans in which Employee shall be participating at the date of termination of
employment shall be determined in accordance with such plans.
(d) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (by the Company For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(e) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract.
6
<PAGE>
(f) Employee acknowledges that in the event of termination of
Employee's employment for any reason, neither Employee (nor Employee's estate,
heirs, beneficiaries or others claiming through Employee) shall not be entitled
to any severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Employee shall not be
entitled to any benefits under any such plan or policy.
6. Covenant Not To Solicit
Employee acknowledges and agrees that: (i) due to Employee's previous
experience in the industry in which the Company operates, being employed by the
Company will allow Employee to acquire valuable knowledge not otherwise
available to the public regarding the nature, requirements and character of, and
the design, manufacturing, processes and methods of pricing used in, the Company
Group's business and regarding the names and requirements of, and the Company's
course of dealing with, the Company Group's customers; (ii) as a result of
employment with the Company, Employee will be brought in personal contact with
the Company Group's customers and as a result Employee will establish business
goodwill, which is a valuable asset of the Company; (iii) having this knowledge
of the Company Group's business and its customers and this acquaintance with the
Company Group's customers places Employee in an unfair competitive position as
to the Company Group if Employee engages in a competing business in his own
behalf or for another; (iv) the Company Group is engaged in the sale and
distribution of golf equipment, golf apparel and related products to customers;
and (v) the provisions of this Section 6 are reasonable as to time, scope and
territory and in all other respects, and such provisions are reasonably
necessary to secure the protection of the business or goodwill of the Company
and do not prevent Employee from supporting himself and his dependents upon
termination of his employment with the Company. Accordingly, Employee covenants
and agrees that while in the Company's employ and for a period expiring one year
after the termination for any reason of Employee's employment with the Company:
(a) Employee will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or advisory services
to, or participate in or be connected with the management or control of any
business in any state or territory in which the Company Group sells or markets
its products at the time of the termination of Employee's employment, which
business is engaged principally in the direct marketing of any golf equipment,
golf apparel or related products of the general type sold and distributed by the
Company Group at the time of termination of Employee's employment (and the
Company agrees that employment with Gary Player Group shall not be a violation
of this section);
(b) Employee will not, directly or indirectly, influence or attempt to
influence any customer of the Company Group to reduce or discontinue its
purchases of any products from the Company Group or to divert such purchases to
any Person other than the Company Group.
(c) Employee will not, directly or indirectly, interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company Group and any of its respective suppliers, principals, distributors,
lessors or licensors; and
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<PAGE>
(d) Employee will not, directly or indirectly, solicit any employee of
the Company Group to work for any Person.
For purposes of this Section 6, "competition with the Company Group"
shall mean direct competition for customers who are purchasers or users of golf
equipment, apparel, or related products of the type sold and distributed by the
Company Group.
7. Confidentiality.
Employee agrees not to disclose or use at any time (whether during or
after Employee's employment with the Company) for Employee's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Employee's breach of this covenant. Employee agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company Group except that he may retain personal notes, notebooks,
diaries, rolodexes and addresses and phone numbers. Employee further agrees that
he will not retain or use for his account at any time any trade names, trademark
or other proprietary business designation used or owned in connection with the
business of any member of the Company Group.
8. Loan
If Employee shall be unable to sell his principal place of residence
(the "Old Residence") in Greenville, South Carolina, by October 21, 1998, and
provided that Employee shall then be employed by the Company, the Company will
pay the interest accruing after such date on a loan obtained by Employee to
purchase a new principal residence within 100 miles of the Company's principal
executive offices in Santa Maria, California, subject to the following: (a) the
Company will only pay the interest up to 10% per annum; (b) the principal amount
of the loan on which the Company pays interest may not exceed $400,000; (c)
Employee must actively market the Old Residence and must accept an offer from a
qualified purchaser which is substantially on market terms and conditions; and
(d) the Company will pay the interest until the earliest to occur of: (i)
termination of Employee's employment; (ii) sale of the Old Residence; and (iii)
the last day of the Term.
9. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
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If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Board of Directors
If to Employee, to:
Employee's address as set forth on the books
and records of the Company
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. No represen tations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
(e) 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.
(f) 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.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted
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<PAGE>
in calculating the amount of a judgment for purposes of determining whether a
party is entitled to recover its costs or attorneys' fees.
10. Effective Date
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Effective Date"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Employee, or by
Employee to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by August 31,
1998; (ii) if Employee shall die or suffer a Disability prior to the Effective
Date; or (iii) by written notice from the Company if Employee shall take or omit
any action which, if Employee was then employed by the Company, would be the
basis for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------
Alfonso J. Cervantes,
President
/s/ Joseph J. White
--------------------------------
Joseph J. White
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<PAGE>
GOLF ONE INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of of May 31, 1998 by and between Golf One Industries, Inc., a Delaware
corporation (the "Company"), and Joseph DePanfilis ("Employee").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company.
Employee hereby accepts such employment. Employee shall have such title or
titles as the Board may from time to time determine. Employee shall initially
have the title of Chief Financial Officer and Executive Vice President.
(b) Employee's duties and responsibilities shall be those incident to
the position(s) described in Section 1(a) as set forth in the Bylaws of the
Company and those which are normally and customarily vested in such office(s) of
a corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Board or the President shall,
in its or his sole and absolute discretion, from time to time reasonably direct
which are not inconsistent with Employee's position described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy
and efforts to the business of the Company and will use Employee's best efforts
and abilities faithfully and diligently to promote the Company's business
interests. For so long as Employee is employed by the Company, Employee shall
not, directly or indirectly, either as an employee, employer, consultant, agent,
investor, principal, partner, stockholder (except as the holder of less than 1%
of the issued and outstanding stock of a publicly held corporation), corporate
officer or director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
whatsoever with the business of the Company Group, as such businesses are now or
hereafter conducted.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
<PAGE>
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"Disability," with respect to Employee, shall mean that, for physical
or mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Employee agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Employee shall have suffered a disability and Employee hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Employee is not legally competent, Employee's
legal guardian or duly authorized attorney-in-fact will act in Employee's stead
for the purposes of submitting Employee to the examinations, and providing the
authorization of disclosure.
"Effective Date" shall mean the closing date of the IPO.
"Employee Handbook" shall mean the Company's Employee Handbook, as from
time to time in effect.
"For Cause" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 15 days of written
notice thereof from the Company (except for breaches of Sections 1(c), 6 or 7 of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(b) Employee is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Employee is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Employee commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to subordinate employees; or
(e) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's position as a senior or executive officer, or
continued and repeated substantive failure to perform duties assigned by or
pursuant to this Agreement; or
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(f) Employee continues to neglect his duties after receipt of notice
thereof from the Company (and the Company need give such notice only once).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"Relocation Expenses" shall mean reasonable expenses, not to exceed
$6,000, of moving Employee's household goods and possessions to a permanent
residence in San Luis Obispo, California or the in vicinity thereof.
"Term" shall mean the period commencing on the date hereof and ending
at the close of business on the business day immediately preceding the first
annual anniversary of the Effective Date.
3. Compensation and Benefits
For so long as Employee shall be employed by the Company, Employee
shall receive the compensation and benefits set forth in this Section 3.
(a) Salary. The Company shall pay Employee a base salary at an annual
rate of $85,000 until the Effective Date and $90,000 thereafter. The Board may,
but shall not be obligated to, increase Employee's base salary from time to
time. The base salary shall be payable in installments in the same manner and at
the same times the Company pays base salaries to other executive officers of the
Company, but in no event less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to a bonus of $5,000 upon the
Effective Date. In addition, if the Effective Date occurs, Employee shall be
entitled to such other bonuses as the Board in its sole discretion from time to
time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
from the Company for the reasonable out-of-pocket costs and expenses which
Employee incurs in connection with the performance of Employee's duties and
obligations under this Agreement in a manner consistent with the Company's
practices and policies therefor.
(d) Employee Benefit Plans. Employee and his spouse and dependents
shall be entitled to participate in any pension, savings and group term life,
medical, dental, disability, and other group benefit plans which the Company
makes available to its employees generally.
(e) Vacation. Employee shall be entitled to three weeks paid vacation
per year for the first and second years of Employee's employment, and four weeks
per year thereafter (based on the date Employee commenced employment with the
Company). Vacation shall accrue in accordance with, and be subject to
limitations under, the Employee Handbook.
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(f) Automobile Allowance. Employer shall provide to Employee use of a
late model luxury automobile and shall pay gas, insurance, customary maintenance
and repairs on such automobile, up to a cost of $6,000 per year (including
leasing cost of the automobile).
(g) Options. Effective as of the Effective Date, Employee shall receive
an option under the Company's 1998 Stock Option Plan to purchase up to 25,000
shares of Common Stock (such number, and the number set forth below, to be
adjusted for any stock splits, dividends or reverse stock splits effected after
the date hereof and on or prior to the Effective Date), on the following terms:
(i) the exercise price shall be the initial public offering price of the Common
Stock in the IPO; (ii) the option shall vest on the first annual anniversary of
the Effective Date (with accelerated vesting in the event of a sale of the
Company or termination of employment by the Company pursuant to Section 4(e) of
this Agreement); and (iii) the option shall terminate on the earlier to occur
of: (A) the fifth annual anniversary of the Effective Date and 90 days following
termination of Employee's employment (or the date of termination of employment
if termination is by the Company For Cause or one year following termination of
employment if termination is by reason of death or Disability); and (B) a sale
of the Company. The option shall be evidenced by an agreement in the standard
form in effect as of the Effective Date, as approved by the Board of Directors
in connection with the Plan.
(h) Disability. In the event of any Disability, if Employee shall
receive payments as a result of such Disability under any disability plan
maintained by the Company or from any government agency, the Company shall be
entitled to deduct the amount of such payments received from base salary payable
to Employee during the period of such Disability.
(i) Withholding. The Company may deduct from any compensation payable
to Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
(j) Relocation Expenses. Upon submission of appropriate bills, invoices
and other documentation as may reasonably be requested by the Company, the
Company shall pay the Relocation Expenses incurred by Employee within 30 days of
written request for payment of such Expenses; provided, however, that at the
time of such request, Employee's employment shall not have been terminated by
(i) Employee or (ii) the Company For Cause.
4. Term of Employment
Employee's employment pursuant to this Agreement shall commence on May
31, 1998 and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after the Term and at least 30 days
after the delivery of that notice); provided, however, that in the event
Employee delivers such notice to the Company, the Company
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<PAGE>
shall have the right to accelerate such termination by written notice thereof to
Employee (and such termination by the Company shall be deemed to be a
termination of employment pursuant to this Section 4(a), and not a termination
pursuant to Section 4(d) or 4(e) hereof);
(b) upon the death of Employee;
(c) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(d) upon delivery to Employee of written notice of termination by the
Company For Cause;
(e) upon delivery to Employee of written notice of termination by the
Company without cause; or
(f) upon the date set forth in a written notice of termination from
Employee to the Company delivered no later than 10 days following the occurrence
of a Change of Control of the Company following the Effective Date, which date
shall be after the Change of Control and at least 30 days after delivery of that
notice; provided, however, that in the event Employee delivers such notice to
the Company, the Company shall have the right to accelerate such termination by
written notice thereof to Employee (and such termination by the Company shall be
deemed to be a termination of employment pursuant to this Section 4(f), and not
a termination pursuant to Section 4(d) or 4(e) hereof).
5. Severance Compensation
(a) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) prior to the Effective Date, the Company shall: (i)
continue to pay to Employee the salary which Employee would have earned through
October 31, 1998 as if Employee's employment had not terminated; (ii) shall pay
for Employee's (and his immediate family's) participation in group medical,
life, dental, disability and similar plans through the end of the Term, to the
extent permitted by the plan; and (iii) pay to Employee any unpaid bonus or
incentive compensation which has been earned by Employee at the time of
termination of employment. If Employee's employment is terminated pursuant to
Section 4(e) (by the Company without cause) on or after the Effective Date and
prior to the end of the Term, the Company shall: (i) continue to pay to Employee
the salary which Employee would have earned through the end of the Term as if
Employee's employment had not terminated; (ii) shall pay for Employee's (and his
immediate family's) participation in group medical, life, dental, disability and
similar plans through the end of the Term, to the extent permitted by the plan;
and (iii) pay to Employee any unpaid bonus or incentive compensation which has
been earned by Employee at the time of termination of employment.
(b) If Employee's employment is terminated by Employee pursuant to
Section 4(f) prior to the end of the Term, the Company shall: (i) within five
days following termination, pay to Employee an amount equal to the amount of
salary which Employee would have earned from the date of termination through the
end of the Term had Employee's employment not terminated (which payment shall be
a lump sum without discount); (ii) pay for Employee's (and his immediate
family's) participation in group medical, life, dental, disability and similar
plans through the end
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<PAGE>
of the Term, to the extent permitted by the plan; and (iii) pay to Employee any
unpaid bonus or incentive compensation which has been earned by Employee at the
time of termination of employment.
(c) If Employee's employment is terminated for any reason other than by
the Company without cause prior to the end of the Term or by Employee pursuant
to Section 4(f), the Company shall pay to Employee (or Employee's estate or
beneficiary, as the case may be): (i) any unpaid base salary through the date of
termination of employment, and (ii) any unpaid bonus or incentive compensation
which has been earned by Employee at the time of termination of employment. All
rights and benefits which Employer or his estate may have under employee benefit
plans in which Employee shall be participating at the date of termination of
employment shall be determined in accordance with such plans.
(d) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (by the Company For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(e) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract.
(f) Employee acknowledges that in the event of termination of
Employee's employment for any reason, neither Employee (nor Employee's estate,
heirs, beneficiaries or others claiming through Employee) shall not be entitled
to any severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Employee shall not be
entitled to any benefits under any such plan or policy.
6. Covenant Not To Solicit
Employee acknowledges and agrees that: (i) due to Employee's previous
experience in the industry in which the Company operates, being employed by the
Company will allow Employee to acquire valuable knowledge not otherwise
available to the public regarding the nature, requirements and character of, and
the design, manufacturing, processes and methods of pricing used in, the Company
Group's business and regarding the names and requirements of, and the Company's
course of dealing with, the Company Group's customers; (ii) as a result of
employment with the Company, Employee will be brought in personal contact with
the Company Group's customers and as a result Employee will establish business
goodwill, which is a valuable asset of the Company; (iii) having this knowledge
of the Company Group's business and its customers and this acquaintance with the
Company Group's customers places Employee in an
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<PAGE>
unfair competitive position as to the Company Group if Employee engages in a
competing business in his own behalf or for another; (iv) the Company Group is
engaged in the sale and distribution of golf equipment, golf apparel and related
products to customers; and (v) the provisions of this Section 6 are reasonable
as to time, scope and territory and in all other respects, and such provisions
are reasonably necessary to secure the protection of the business or goodwill of
the Company and do not prevent Employee from supporting himself and his
dependents upon termination of his employment with the Company. Accordingly,
Employee covenants and agrees that while in the Company's employ and for a
period expiring one year after the termination for any reason of Employee's
employment with the Company:
(a) Employee will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or advisory services
to, or participate in or be connected with the management or control of any
business in any state or territory in which the Company Group sells or markets
its products at the time of the termination of Employee's employment, which
business is engaged in the direct marketing of any golf equipment, golf apparel
or related products of the general type sold and distributed by the Company
Group at the time of termination of Employee's employment;
(b) Employee will not, directly or indirectly, influence or attempt to
influence any customer of the Company Group to reduce or discontinue its
purchases of any products from the Company Group or to divert such purchases to
any Person other than the Company Group.
(c) Employee will not, directly or indirectly, interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company Group and any of its respective suppliers, principals, distributors,
lessors or licensors; and
(d) Employee will not, directly or indirectly, solicit any employee of
the Company Group to work for any Person.
For purposes of this Section 6, "competition with the Company Group"
shall mean direct competition for customers who are purchasers or users of golf
equipment, apparel, or related products of the type sold and distributed by the
Company Group.
7. Confidentiality.
Employee agrees not to disclose or use at any time (whether during or
after Employee's employment with the Company) for Employee's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Employee's breach of this covenant. Employee agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company Group except that he may retain
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<PAGE>
personal notes, notebooks, diaries, rolodexes and addresses and phone numbers.
Employee further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of any member of the Company Group.
8. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Chief Executive Officer
If to Employee, to:
Employee's address as set forth on the books
and records of the Company
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. Without limiting the
foregoing, this Agreement supersedes those certain term sheets and/or agreements
dated August 12, 1997, November 1, 1997 and December 1, 1997. No
representations, oral or otherwise, express or implied, other than those
contained in this Agreement have been relied upon by any party to this
Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
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<PAGE>
(e) 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.
(f) 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.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------
Alfonso J. Cervantes,
Chief Executive Officer
/s/ Joseph A. DePanfilis
------------------------------
Joseph A. DePanfilis
9
<PAGE>
GOLF ONE INDUSTRIES, INC.
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into
as of the 31st day of May, 1998 by and between Golf One Industries, Inc., a
Delaware corporation (the "Company"), and Sparks Financial, Inc. ("Consultant").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby engages Consultant as a consultant, and Consultant
accepts such engagement.
(b) Consultant hereby agrees that all duties and responsibilities of
Consultant set forth in this Agreement shall be performed by Steven Sparks
("Sparks").
(c) Consultant's duties and responsibilities shall include advice and
assistance in the following areas:
(i) identification of new golf club features and design
trends; and
(ii) development of strategic partner relationships.
(d) Sparks, as of the date of this Agreement, is a director of the
Company. It is understood that the service to be provided by this Agreement are
over and above the services to be provided in his capacity as a director. It is
understood further, however, that Sparks shall perform his services on a
part-time basis.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company or (ii) the Company
sells all or substantially all of its assets.
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
<PAGE>
"Disability," with respect to Sparks, shall mean that, for physical or
mental reasons, Sparks is unable to perform the essential functions of
Consultant's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period.
"Effective Date" shall have the meaning set forth in Section 7 of this
Agreement.
"For Cause" shall mean, in the context of a basis for termination of
Consultant's employment with the Company, that:
(a) Consultant breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 30 days of written
notice thereof from the Company; or
(b) Sparks is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Sparks is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Sparks commits any act of personal conduct that, in the reasonable
opinion of the Board, gives rise to any member of the Company Group of a
material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to employees of the Company.
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. Compensation
(a) Options. Effective as of the Effective Date, Consultant shall
receive an option under the Company's 1998 Stock Option Plan (the "Plan") to
purchase up to 25,000 shares of Common Stock (such number, and the number set
forth below, to be adjusted for any stock splits, dividends or reverse stock
splits effected after the date hereof and on or prior to the Effective Date), on
the following terms: (i) the exercise price shall be the initial public offering
price of the Common Stock in the IPO; (ii) the option shall vest on the first
annual anniversary of the Effective Date (with accelerated vesting in the event
of a sale of the Company); and (iii) the option shall terminate on the earlier
to occur of: (A) 90 days following termination of Consultant's engagement as a
consultant; and (B) a sale of the Company. The option shall be evidenced by an
agreement in the standard form in effect as of the Effective Date, as approved
by the Board in connection the Plan.
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<PAGE>
(b) Expense Reimbursement. Consultant shall be entitled to
reimbursement from the Company for the reasonable out-of-pocket costs and
expenses which Consultant incurs in connection with the performance of
Consultant's duties and obligations under this Agreement in a manner consistent
with the Company's practices and policies therefor.
4. Term of Engagement
Consultant's engagement pursuant to this Agreement shall commence on
the Effective Date and shall terminate on the earliest to occur of the
following:
(a) one year from the Effective Date;
(b) upon the death of Sparks;
(c) upon delivery to Consultant of written notice of termination by the
Company if Sparks shall suffer a Disability;
(d) upon delivery to Consultant of written notice of termination by the
Company For Cause;
(e) if any Person other than Sparks acquires beneficial ownership of
50% or more of any class of voting securities of Consultant; or
(f) upon a Change of Control of the Company.
5. Confidentiality.
Consultant agrees not to disclose or use at any time (whether during or
after Consultant's employment with the Company) for Consultant's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Consultant's breach of this covenant. Consultant agrees that upon termination of
its consulting engagement with the Company for any reason, it will return to the
Company immediately all memoranda, books, papers, plans, information, letters
and other data, and all copies thereof or therefrom, in any way relating to the
business of the Company Group except that it may retain personal notes,
notebooks, diaries, rolodexes and addresses and phone numbers. Consultant
further agrees that it will not retain or use for its account at any time any
trade names, trademark or other proprietary business designation used or owned
in connection with the business of any member of the Company Group. Consultant's
covenants under this paragraph are made on behalf of itself and of Sparks.
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<PAGE>
6. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Chief Executive Officer
If to Consultant, to:
Consultant's address as set forth on the books
and records of the Company
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. No represen tations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
(e) 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.
(f) 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.
4
<PAGE>
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
(h) Independent Contractor. It is the intention of the parties to this
Agreement that Consultant is, and shall be deemed to be, an independent
contractor with respect to the subject matter hereof, and nothing contained
herein shall be deemed or construed in any manner whatsoever as creating any
partnership, joint venture or other similar relationship between Consultant and
the Company.
7. Effective Date
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Effective Date"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Consultant, or by
Consultant to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by August 31,
1998; (ii) if Sparks shall die or suffer a Disability prior to the Effective
Date; or (iii) by written notice from the Company if Sparks shall take or omit
any action which, if Sparks was then employed by the Company, would be the basis
for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
-------------------------------------
Alfonso J. Cervantes, President
Sparks Financial, Inc.
By: /s/ Steven Sparks
-------------------------------------
Steven Sparks
5
<PAGE>
GOLF ONE INDUSTRIES, INC.
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into
as of the 31st day of May, 1998 by and between Golf One Industries, Inc., a
Delaware corporation (the "Company"), and Robert J. Friedland ("Consultant").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby engages Consultant as a consultant, and Consultant
accepted such engagement.
(b) Consultant's duties and responsibilities shall include advice and
assistance in the following areas:
(i) assembly and shipment of the Company's products
(ii) order processing and fulfilment;
(iii) financial analysis; and
(iv) labor matters.
(c) The Consultant, as of the date of this Agreement, a director of the
Company. It is understood that the service to be provided by this Agreement are
over and above the services to be provided in his capacity as a director. It is
understood further, however, that Consultant shall perform his services on a
part-time basis.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"Disability," with respect to Consultant, shall mean that, for physical
or mental reasons, Consultant is unable to perform the essential functions of
Consultant's duties under this Agreement
<PAGE>
for 30 consecutive days, or 60 days during any one six month period. Consultant
agrees to submit to a reasonable number of examinations by a medical doctor
advising the Company as to whether Consultant shall have suffered a disability
and Consultant hereby authorizes the disclosure and release to the Company and
its agents and representatives all supporting medical records. If Consultant is
not legally competent, Consultant's legal guardian or duly authorized
attorney-in-fact will act in Consultant's stead for the purposes of submitting
Consultant to the examinations, and providing the authorization of disclosure.
"Effective Date" shall have the meaning set forth in Section 7 of this
Agreement.
"For Cause" shall mean, in the context of a basis for termination of
Consultant's employment with the Company, that:
(a) Consultant breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 30 days of written
notice thereof from the Company; or
(b) Consultant is grossly negligent in the performance of services to
the Company Group, or commits any act of personal dishonesty, fraud,
embezzlement, breach of fiduciary duty or trust against the Company Group; or
(c) Consultant is indicted for, or convicted of, or pleads guilty or
nolo contendere with respect to, theft, fraud, a crime involving moral
turpitude, or a felony under federal or applicable state law; or
(d) Consultant commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to employees of the Company.
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. Compensation
(a) Options. Effective as of the Effective Date, Consultant shall
receive an option under the Company's 1998 Stock Option Plan (the "Plan") to
purchase up to 10,000 shares of Common Stock (such number, and the number set
forth below, to be adjusted for any stock splits, dividends or reverse stock
splits effected after the date hereof and on or prior to the Effective Date), on
the following terms: (i) the exercise price shall be the initial public offering
price of the Common Stock in the IPO; (ii) the option shall vest on the first
annual anniversary of the Effective Date (with accelerated vesting in the event
of a sale of the Company); and (iii) the option shall terminate on the earlier
to occur of: (A) 90 days following termination of Consultant's engagement as a
consultant; and (B) a sale of the Company. The option shall be evidenced by an
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agreement in the standard form in effect as of the Effective Date, as approved
by the Board in connection the Plan.
(b) Expense Reimbursement. Consultant shall be entitled to
reimbursement from the Company for the reasonable out-of-pocket costs and
expenses which Consultant incurs in connection with the performance of
Consultant's duties and obligations under this Agreement in a manner consistent
with the Company's practices and policies therefor.
4. Term of Engagement
Consultant's engagement pursuant to this Agreement shall commence on
the Effective Date and shall terminate on the earliest to occur of the
following:
(a) one year from the Effective Date;
(b) upon the death of Consultant;
(c) upon delivery to Consultant of written notice of termination by the
Company if Consultant shall suffer a Disability;
(d) upon delivery to Consultant of written notice of termination by the
Company For Cause; or
(e) upon a Change of Control of the Company.
5. Confidentiality.
Consultant agrees not to disclose or use at any time (whether during or
after Consultant's employment with the Company) for Consultant's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Consultant's breach of this covenant. Consultant agrees that upon termination of
his consulting engagement with the Company for any reason, he will return to the
Company immediately all memoranda, books, papers, plans, information, letters
and other data, and all copies thereof or therefrom, in any way relating to the
business of the Company Group except that he may retain personal notes,
notebooks, diaries, rolodexes and addresses and phone numbers. Consultant
further agrees that he will not retain or use for his account at any time any
trade names, trademark or other proprietary business designation used or owned
in connection with the business of any member of the Company Group.
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<PAGE>
6. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Chief Executive Officer
If to Consultant, to:
Consultant's address as set forth on the books
and records of the Company
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. No represen tations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
(e) 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.
(f) 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.
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<PAGE>
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
(h) Independent Contractor. It is the intention of the parties to this
Agreement that Consultant is, and shall be deemed to be, an independent
contractor with respect to the subject matter hereof, and nothing contained
herein shall be deemed or construed in any manner whatsoever as creating any
partnership, joint venture or other similar relationship between Consultant and
the Company.
7. Effective Date
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Effective Date"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Consultant, or by
Consultant to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by August 31,
1998; (ii) if Consultant shall die or suffer a Disability prior to the Effective
Date; or (iii) by written notice from the Company if Consultant shall take or
omit any action which, if Consultant was then employed by the Company, would be
the basis for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------
Its: President
/s/ Robert J. Friedland
------------------------------
Robert J. Friedland
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<PAGE>
GOLF ONE INDUSTRIES, INC.
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into
as of the 31st day of May, 1998 by and between Golf One Industries, Inc., a
Delaware corporation (the "Company"), and Marc B. Player ("Consultant").
1. Engagement and Responsibilities
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby engages Consultant as a consultant, and Consultant
accepted such engagement.
(b) Consultant's duties and responsibilities shall include advice and
assistance in the following areas:
(i) strategic planning;
(ii) investor relations;
(iii) develop domestic and foreign strategic business
opportunities; and
(iv) new product lines.
(c) The Consultant, as of the date of this Agreement, a director of the
Company. It is understood that the service to be provided by this Agreement are
over and above the services to be provided in his capacity as a director. It is
understood further, however, that Consultant shall perform his services on a
part-time basis.
2. Definitions
"Board" shall mean the Board of Directors of the Company.
"Change of Control" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
"Company Group" shall mean the Company and each Person which the
Company directly or indirectly Controls.
"Control" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
<PAGE>
"Disability," with respect to Consultant, shall mean that, for physical
or mental reasons, Consultant is unable to perform the essential functions of
Consultant's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Consultant agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Consultant shall have suffered a disability and Consultant hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Consultant is not legally competent, Consultant's
legal guardian or duly authorized attorney-in-fact will act in Consultant's
stead for the purposes of submitting Consultant to the examinations, and
providing the authorization of disclosure.
"Effective Date" shall have the meaning set forth in Section 7 of this
Agreement.
"For Cause" shall mean, in the context of a basis for termination of
Consultant's employment with the Company, that:
(a) Consultant breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 30 days of written
notice thereof from the Company; or
(b) Consultant is grossly negligent in the performance of services to
the Company Group, or commits any act of personal dishonesty, fraud,
embezzlement, breach of fiduciary duty or trust against the Company Group; or
(c) Consultant is indicted for, or convicted of, or pleads guilty or
nolo contendere with respect to, theft, fraud, a crime involving moral
turpitude, or a felony under federal or applicable state law; or
(d) Consultant commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to employees of the Company.
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Person" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. Compensation
(a) Consulting Fee. Consultant shall receive a consulting fee of $5,000
per month, payable on the last day of each calendar month and on the last day of
Consultant's engagement as a consultant pursuant to this Agreement. The fee for
any portion of a calendar month shall be prorated.
(b) Expense Reimbursement. Consultant shall be entitled to
reimbursement from the Company for the reasonable out-of-pocket costs and
expenses which Consultant incurs in
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<PAGE>
connection with the performance of Consultant's duties and obligations under
this Agreement in a manner consistent with the Company's practices and policies
therefor.
4. Term of Engagement
Consultant's engagement pursuant to this Agreement shall commence on
the Effective Date and shall terminate on the earliest to occur of the
following:
(a) one year from the Effective Date;
(b) upon the death of Consultant;
(c) upon delivery to Consultant of written notice of termination by the
Company if Consultant shall suffer a Disability;
(d) upon delivery to Consultant of written notice of termination by the
Company For Cause; or
(e) upon a Change of Control of the Company.
5. Confidentiality.
Consultant agrees not to disclose or use at any time (whether during or
after Consultant's employment with the Company) for Consultant's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Consultant's breach of this covenant. Consultant agrees that upon termination of
his consulting engagement with the Company for any reason, he will return to the
Company immediately all memoranda, books, papers, plans, information, letters
and other data, and all copies thereof or therefrom, in any way relating to the
business of the Company Group except that he may retain personal notes,
notebooks, diaries, rolodexes and addresses and phone numbers. Consultant
further agrees that he will not retain or use for his account at any time any
trade names, trademark or other proprietary business designation used or owned
in connection with the business of any member of the Company Group.
6. 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 or
by United States first class, registered or certified mail, addressed to the
following addresses:
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<PAGE>
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Chief Executive Officer
If to Consultant, to:
Consultant's address as set forth on the books
and records of the Company
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. No represen tations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) 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.
(e) 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.
(f) 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.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted
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<PAGE>
in calculating the amount of a judgment for purposes of determining whether a
party is entitled to recover its costs or attorneys' fees.
(h) Independent Contractor. It is the intention of the parties to this
Agreement that Consultant is, and shall be deemed to be, an independent
contractor with respect to the subject matter hereof, and nothing contained
herein shall be deemed or construed in any manner whatsoever as creating any
partnership, joint venture or other similar relationship between Consultant and
the Company.
7. Effective Date
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Effective Date"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Consultant, or by
Consultant to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by August 31,
1998; (ii) if Consultant shall die or suffer a Disability prior to the Effective
Date; or (iii) by written notice from the Company if Consultant shall take or
omit any action which, if Consultant was then employed by the Company, would be
the basis for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
----------------------------
Its: President
/s/ Marc B. Player
------------------------------
Marc B. Player
5
<PAGE>
PLAYER LICENSE AGREEMENT
This Agreement (this "Agreement") is made and entered into as of the
1st day of November, 1997 by and between Gary Player ("Player"), an individual,
and Gary Player Group, Inc., a Florida corporation ("GPG"), with reference to
the following facts:
A. Player is famous throughout the world as a champion professional
golfer, international celebrity and spokesperson whose endorsement of products
and services has great intrinsic and commercial value.
B. Player has the right to provide for the use of the Player Name (as
hereinafter defined) as provided for in this Agreement.
C. On the terms and subject to the conditions of this Agreement, Player
desires to grant to Licensee the sole and exclusive right and license to use the
Player Name in the Territory in the Exploitation of Endorsed Products (as such
terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto do hereby agree as follows:
1. Grant of Rights; Definitions
(a) On the terms and subject to the conditions in this Agreement,
Player hereby grants to Licensee the sole and exclusive right and license (the
"License") in perpetuity to use the Player Name in the Exploitation of Endorsed
Products throughout the Territory. The License shall commence as of the
Effective Date. The License shall include and encompass without limitation each
and every Intellectual Property Right arising or existing in connection with,
with respect to, or embodied in, the Player Name in connection with the use of
such Player Name in the Exploitation of Endorsed Products. The License shall
also include the right to use "Gary Player" as part of Licensee's corporate
name, subject to approval of the full corporate name by Player, which approval
will not be unreasonably withheld (and Player hereby approves the name "Gary
Player Golf, Inc.").
(b) Player reserves the right to: (i) produce or cause to be produced,
in connection with the Gary Player Golf Academy, instructional golf videos and
other golf instruction products and aids in any media incorporating the Player
Name ("Golf Instruction Products") and market and sell Golf Instruction Products
other than on a Direct Marketing Basis (except as provided below); and (ii)
produce, market and sell biographical videos and other biographical products
incorporating the Player Name. Except for the Existing DM Licenses, Player may
market and sell Golf Instruction Products on a Direct Marketing Basis only
through Licensee, in which event Licensee shall reasonably cooperate with
Player. Player and Licensee shall share on an equal basis all Net Revenues from
the sale of Golf Instruction Products on a Direct Marketing Basis. "Net
Revenues" from the sale of Golf Instruction Products shall mean revenues from
such sales less the related cost of goods sold, including sales commissions.
Player agrees not to renew or extend any Existing DM License, and will use
commercially reasonable efforts transfer such business to Licensee (but Player
shall not be obligated to breach any Existing DM License).
<PAGE>
(c) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Affiliate" shall mean, with respect to any specified 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.
"Agreement Year" shall mean a year period commencing with the
Effective Date or an annual anniversary of the Effective Date and terminating
one year thereafter.
"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.
"Asset Purchase Agreement" shall mean that certain Asset
Purchase Agreement dated as of the date hereof by and between GPG and Golf One
pursuant to which, among other things, GPG has agreed to sell, transfer and
assign certain assets, including its rights under this Agreement, to Golf One.
"Direct Marketing Basis" shall mean marketing and sales
through infomercials, telemarketing, Internet or other computer systems, direct
mail, CD-ROM, and other direct response marketing channels.
"Effective Date" shall mean date of the closing of the
purchase and sale of the assets contemplated by the Asset Purchase Agreement.
"Electronic Media" shall mean all forms of electronic,
magnetic, digital, optical and laser-based information storage and retrieval
systems, floppy diskette-based software, CD-ROM, interactive software and
compact discs, floptical disks, ROM Card, silicon chip, on-line electronic or
satellite-based data transmission and other such systems, and any other device
or medium for electronic reproduction, publication, distribution or
transmission, whether now or hereafter known or developed.
"Endorsed Products" shall mean (i) golf clubs, including, but
not limited to Woods, Irons and Specialty Clubs, including Drivers, Wedges,
Chippers and Putters; and (ii) Golf Accessories.
"Exhibit" shall mean to produce, transmit, broadcast,
telecast, cable cast, display, exhibit, project, perform, reproduce, publicize,
or otherwise use.
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<PAGE>
"Existing DM Licenses" shall mean the licenses identified on
Exhibit B to this Agreement as "Existing DM Licenses."
"Existing Licenses" shall mean the licenses described in
Exhibit B to this Agreement other than Existing DM Licenses.
"Exploit" shall mean use, promote, advertise, affix, copy,
Exhibit, distribute, manufacture, sell, market, sublicense, rent, modify, create
derivative works from, practice or otherwise exploit in all forms in any and all
media.
"Golf Accessories" shall mean hats, apparel, towels,
umbrellas, bags, balls, audiotapes, videotapes and other products pertaining to
the playing of golf or the marketing, sale and distribution of golf clubs.
"Golf One" shall mean Golf One Industries, Inc., a Delaware
corporation.
"Initial Quarter" shall mean the period commencing the
Effective Date and terminating on the last day of the calendar quarter in which
the Effective Date occurs.
"Intellectual Property Rights" shall mean each and every right
now or hereafter recognized and enforced under trademark, service mark,
copyright, patent, trade secret and all other intellectual laws, whether
existing by statute and/or at common law, of each jurisdiction within the world.
"Licensee" shall mean the Licensee under this Agreement, which
initially be GPG, and shall be Golf One and its successors and permitted assigns
from and after the Effective Date.
"License Fee" shall have the meaning set forth in Section 2(a)
of this Agreement.
"Marketing Materials" shall mean brochures, advertisements,
pictures, photos, films, infomercials, commercials, videos and similar materials
used to market, advertise and promote the Endorsed Products which utilize or
incorporate the Player Name.
"Media Production" shall mean television programs and
broadcasts, radio programs and broadcasts, television or radio series,
newscasts, documentaries, video productions, video tapes, video discs, sound
tracks, motion picture productions, and any other form of media production that
has been, or may in the future be, conceived, developed or invented, by any
process, instrumentation or device now known or hereafter developed.
"Net Receipts" during any period shall mean (i) gross revenues
of Licensee from the sale of Endorsed Products throughout the world during such
period less (ii) discounts, incentives, applicable advertising, freight, duty
and commissions, less (iii) all Refunds during such period which are not offset
against Return Reserves, less (iv) all Return Reserves established during such
period with respect to sales of Endorsed Products during such period, plus (iv)
all Return Reserves in effect at the beginning of such period which shall not be
used to offset Refunds
3
<PAGE>
during such period. With respect to sales of Endorsed Products by Licensee which
are not manufactured or produced by Licensee or sold only for the account of
Licensee, "gross revenues" shall mean only the selling commissions and fees
received by Licensee, and not the gross revenues from the sale of the Endorsed
Products. For example, if Licensee sublicenses to a third party the right to
incorporate the Player Name on golf hats, and then Licensee acts as sales,
distribution and/or marketing agent for such golf hats on a Direct Marketing
Basis (and collects the full price for such hats from customers), "gross
revenues" shall include only that portion of the sales price for such golf hats
as may be retained by Licensee in connection with the sale of such golf hats.
Net Receipts shall not include revenues from the sale of Golf Instruction
Products produced by or on behalf of Player which are sold by Licensee on a
Direct Marketing Basis, as contemplated by Section 1(b) of this Agreement.
"Person" shall mean an individual or a partnership,
corporation, trust, association, limited liability company, governmental
authority or other entity.
"Player Name" shall mean the name "Gary Player," the initials,
voice, signature and likeness of Player, the Knight's Head Logo, the trademark
BLACK KNIGHT(TM) and any other trademark presently or hereafter used by Player
in connection with Endorsed Products.
"Player Percentage" for any Royalty Year shall mean the
percentage obtained by dividing the Subject Net Receipts for such Royalty Year
by the Net Receipts for such Year.
"Player/WSE License" shall mean that certain Memorandum of
Agreement dated as of January 1, 1967 between Player and WSE, as amended by that
certain Amendment Agreement dated January 1, 1987, that certain letter dated
January 1, 1997 and that certain letter dated April 17, 1998.
"Refunds" shall mean amounts refunded by Licensee to customers
for any reason, including for product returns, damaged products, canceled orders
or otherwise relating to Endorsed Products.
"Return Reserve" shall mean reserves reasonably maintained by
the Company from time to time for Refunds.
"Royalty Quarter" shall mean a calendar quarter, provided that
the first Royalty Quarter shall be Initial Quarter.
"Royalty Statement" shall mean a Royalty Statement as defined
in Section 2(b) of this Agreement.
"Royalty Year" shall mean a period commencing April 1 and
terminating the following March 31; provided that the first Royalty Year shall
be the period commencing on the Effective Date and ending on the following March
31 and the last Royalty Year (if any) shall be the period ending on the date
this Agreement terminates and commencing on the immediately prior April 1.
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<PAGE>
"Subject Net Receipts" shall mean Net Receipts from sales in
the Territory.
"Territory" shall mean the United States of America and its
possessions, Canada, the Commonwealth of Puerto Rico and each country or
territory in the continent of Africa which is lies completely south of the
Equator.
"Transfer" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration.
"WSE" shall mean World Services Establishment, a Liechtensein
corporation.
"WSE Agreement" shall mean that certain WSE License Agreement
dated the date hereof by and between GPG and WSE pursuant to which WSE has
granted to GPG the exclusive perpetual right to use the Player Name in the
Exploitation of Endorsed Products in the world except for the Territory.
2. Remuneration
(a) As full and complete consideration for the License as set forth
herein, and for the ancillary marketing services of Player to be performed
hereunder, Licensee shall pay to Player the following amounts set forth in
Sections 2(b) and 2(c).
(b) Licensee shall pay to Player the following license fees (the
"License Fees"):
Agreement Year Amount
- ----------------------------------- ----------------------------------
1 $37,500
2 $50,000
3 $62,500
4 $75,000
5-10 $87,500 (per year)
The obligation to pay License Fees shall terminate on the
earlier to occur of: (i) the first date that Player has not played in at least
10 internationally televised professional golf tournaments in the prior 12
months (the "Tournament Test") and is no longer the Chairman of the Board of
Golf One; and (ii) the tenth anniversary of the Effective Date; provided,
however, that if prior to the end of the fifth Agreement Year a Removal Event
occurs, Player shall be entitled to continue to receive the License Fees through
the end of the fifth Agreement Year following the Agreement Year immediately
prior to the Agreement Year in which the Removal Event occurs provided he
continues to meet the Tournament Test. A "Removal Event" shall be deemed to
occur if: (i) Player is removed by the shareholders of Golf One without cause as
Chairman of the Board of Golf One or (ii) at any shareholders' meeting at which
Player's position as director is up for election, Player is not re-elected by
the shareholders as a director of Golf One
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(assuming he has continued to serve through the date of such meeting). The
License Fee for each Agreement Year shall be paid in four equal installments on
a quarterly basis within 30 days following the end of each calendar quarter
during the Year, commencing with the first calendar quarter which ends in such
Year. The payment for any period which is not a full calendar quarter shall be
prorated other than the period in which this Agreement is terminated by Player
pursuant to Section 8(b) of this Agreement.
(c) In addition to the License Fee, each Royalty Year Licensee shall
pay to Player a royalty (the "Royalty") equal to the Player Percentage for such
Royalty Year multiplied by the sum of: (i) 3% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of $10,000,000
and are less than or equal to $20,000,000; (ii) 2% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of
$20,000,000; and (iii) 3% of Net Receipts from Net Sales of Endorsed Products
other than on a Direct Marketing Basis. The $10,000,000 and $20,000,000 amounts
shall be prorated for the first and last Royalty Years. The Royalty shall be
advanced on a quarterly basis, within 30 days from the end of each Royalty
Quarter, based on the good faith estimate of the Player Percentage determined
for the year-to-date. It is understood that notwithstanding any advances of the
Royalty, the actual Royalty for any Royalty Year shall be determined in
accordance with the formula set forth in first sentence of this Section 2(c),
and that the final payment of the Royalty for such Royalty Year shall be the
difference between the amount of the Royalty determined in accordance with such
first sentence and the amounts previously advanced. If the amount of advanced
for any Royalty Year shall exceed the actual Royalty determined in accordance
with such first sentence, Licensee shall offset such excess against future
Royalties or other obligations payable under this Agreement; provided, however,
that if the amount of overpayment exceeds 10% of the total Royalty for such
Royalty Year, the Company may demand the refund of such of excess from Licensor.
(d) Within 30 days following the end of each Royalty Quarter, Licensee
shall deliver to Player a royalty statement (a "Royalty Statement") setting
forth the Net Receipts for the Quarter and the calculation of the Royalty, which
Statement shall be certified by an executive officer of Licensee as being true
and complete. Each Royalty Statement shall be conclusive and binding upon Player
as to the amount of the Royalty for the Royalty Quarter covered by such
Statement unless Player shall object in writing within two years following
receipt of such Royalty Statement. Upon reasonable prior notice, Player shall
have the right to examine Licensee's books and records (but in no more than
twice each Royalty Year) to the extent reasonably necessary to determine the
accuracy and completeness of the information on such Statement. Such examination
shall be made during Licensee's usual business hours at the place where such
books and records are maintained. Unless such examination and inspection results
in a determination that Licensee underpaid the Royalty in either of the two
prior Royalty Years by more than the greater of 5% of the Royalty actually due
or $2,500, such examination shall be at the cost and expense of Player. If such
examination or inspection shows that the Royalty in either of the two prior
Royalty Years shall have underpaid by more than the greater of 5% of the Royalty
actually due or $2,500, all costs and expenses for such examination, up to
$10,000 per examination, shall be paid by Licensee.
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<PAGE>
(e) Licensee shall have the right to offset against any License Fee the
amount of any cash compensation and fees paid or payable to Player for serving
as director and/or officer of Licensee which have not previously been so offset.
3. Player Approvals
(a) Licensee agrees that all uses of the Player Name in connection with
the Exploitation of Endorsed Products in the Territory, including in connection
with Marketing Materials and the quality of the Endorsed Products, will be
subject to prior approval of Player, which approval will not be unreasonably
withheld. It is understood that, with respect to the use of the Player Name,
each approval shall relate to the use of the Player Name in connection with the
form and content of the Marketing Materials and/or the incorporation of the
Player Name on Endorsed Products, and that once given, no further approval shall
be required with respect to multiple uses of approved uses of the Player Name or
immaterial variances in the Marketing Materials (immateriality be determined by
reference to the materiality of such change to Player). Any approvals required
by Player or requested of Player pursuant to the terms hereof shall be given by
confirmed facsimile or certified mail to Licensee within a reasonable time from
the date of receipt by Player of the materials for which approval is requested.
In the event no response by Player is received by Licensee within 10 days from
receipt of such materials by Player, the approvals shall be deemed given. All
sublicenses, other than those in effect on the date hereof, must permit Licensee
(and indirectly Player) the same right of approval unless otherwise agreed in
writing by Player. Player may from time to time delegate to one person, or any
one of several persons, his approval rights by written notice to Licensee, in
which event until such delegation is withdrawn by written notice to Licensee,
all approvals may be granted by such person or persons.
(b) Licensee shall own the copyright to all Marketing Materials. Player
shall take any action reasonably requested by Licensee to confirm such
ownership. Licensee acknowledges that it does not own the Player Name.
4. Player's Warranties and Covenants
(a) Player warrants and represents as follows: (i) Player has all
right, power and authority to enter into this Agreement and grant the License;
(ii) Player has all rights to use the Player Name in the Exploitation of
Endorsed Products in the Territory; (iii) except pursuant to this Agreement, the
Existing Licenses and the Player/WSE License, no Person has any right to use the
Player Name in the Exploitation of Endorsed Products in the Territory and there
are no licenses or other rights presently outstanding for the use of the Player
Name in the Exploitation of the Endorsed Products in the Territory; (iv) the
Exploitation of the Player Name in connection with Endorsed Products
contemplated by this Agreement and the Player/WSE License will not violate or
infringe upon the rights (including, but not limited to, the Intellectual
Property Rights) of any Persons anywhere in the world; (v) the use of the Player
Name as contemplated by this Agreement will not require any payments to any
Person other than to Player pursuant to this Agreement; (vi) Player has provided
to Licensee a true and correct copy of the Player/WSE License; the Player/WSE
License is in full force and effect, constitutes a valid and legally binding
obligation of Player and WSE, enforceable against Player and WSE in accordance
with its terms, and neither Player nor WSE is in breach of or in default under
the Player/WSE License and in no
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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/WSE License.
Licensee acknowledges that Player makes no representations with respect to the
use of any other Intellectual Property Rights in connection with any Marketing
Materials or the Exploitation of the Player Name.
(b) Player agrees that from and after the date hereof, Player shall not
directly or indirectly use the Player Name in the Exploitation of any Endorsed
Products, or Transfer any right or license to use the Player Name in the
Exploitation of Endorsed Products.
(c) Player has developed a valuable right in the Player Name which is
an integral part of this Agreement and is subject to the exclusive License
granted to Licensee hereunder. To facilitate Licensee's use of the License
pursuant to this Agreement, Player agrees to: (i) serve as spokesman for each
Endorsed Product; (ii) actively promote Endorsed Products and (iii) subject to
medical impairments rendering Player unable to perform, provide the services
described in Exhibit A to this Agreement. Licensee acknowledges that the
covenants under Sections 4(c)(i) and (ii) shall not require Player to perform
any specific amount of time of service.
(d) Notwithstanding anything to the contrary contained herein, it is
mutually understood that Player has no control over, and is not responsible for:
(i) the media, including without limitation, any news, media
photographs or other depictions of Player that may appear from time to time;
(ii) the content of the advertising or sponsorship portion not
directly involving Player of:
(A) any Media Production;
(B) any athletic tournament, game or outing; or
(C) any other event, including without
limitation, any live artistic, literary,
dramatic, theatrical or musical production
or charitable event, in which Player
participates or with which he is otherwise
associated.
(iii) the products and services endorsed, promoted, advertised
or publicized by any other team, league or association for which Player may play
or with respect to which he may become associated or by any of their respective
successors and assigns;
all or any of which may use Player's name, fame, nickname, initials, autograph,
voice, video or film portrayals, facsimile or original signature, photograph,
likeness and image or facsimile image, without Player's consent and in any or
all of which Player may appear or participate. Licensee agrees that Player shall
not be, and shall not be deemed to be, in contravention or breach of any of the
provisions hereof as a result of any or all of the foregoing or arising in
connection therewith.
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(e) The restrictions set forth in this Agreement are not intended to
preclude and shall not preclude Player from appearing in the sports,
entertainment, news or information portion of:
(i) any form of Media Production; or
(ii) any professional golf tournament; or
(iii) any other entertainment event, including without
limitation, any live artistic, literary, dramatic, theatrical or musical
production;
in which or in connection with which products or services are advertised,
publicized, featured or otherwise dealt with that are the same as or similar to
or competitive with Endorsed Products or that are sponsored by competitors of
Licensee, provided that Player's participation is not for the endorsement of
such products or services.
(f) Player is not responsible for initiating action against, enjoining
or otherwise attempting to dissuade any Person not licensed by Player, including
without limitation, any former licensee of Player, the media or any advertiser,
promoter or other entity, which in contravention of this Agreement or otherwise
makes unauthorized use of anything, including without limitation, any
unauthorized use of the Player Name in promoting or advertising any product (or
products) or services whatsoever, including without limitation, any products
which are the same as or similar to or directly competitive with Endorsed
Products. Player shall not incur any liability to Licensee or any Person arising
out of any such activity by any such Person. Player agrees that at Licensee's
sole cost and expense, he shall give such reasonable assistance to Licensee as
may be required to cause any such Person to cease and desist from such
activities, or in connection with any lawsuit or other proceeding by Licensee
against such Person.
(g) To the extent that Player has (and has all necessary rights to) any
Artwork which Licensee believes would be useful in the Exploitation of Endorsed
Products, Player shall furnish such Artwork to Licensee on a royalty-free basis.
Licensee shall be responsible for all shipping and handling charges in
connection with such Artwork, shall safekeep such Artwork and be responsible for
it while in transit, and after use of such Artwork, Licensee shall return such
Artwork to Player. 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 such use of Artwork is subject to Player's prior approval
pursuant to Section 3(a) of this Agreement. To the extent that any Artwork is
owned by Persons other than Player, upon request of Licensee, Player shall
provide such consents or approvals to such other Persons as may be necessary for
Licensee to acquire (at no cost or expense to Player) the right to use such
Artwork.
5. Indemnification; Liability
(a) Player agrees to indemnify and hold Licensee and its successors and
permitted assigns, and their respective Affiliates ("Licensee Indemnified
Party") harmless from and against any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by any Licensee Indemnified Party arising out of breach by
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Player of any warranty, representation or covenant hereunder or the use pursuant
to this Agreement by such Licensee Indemnified Party of the Player Name.
(b) Licensee agrees to indemnify and hold Player and his heirs and
permitted assigns, and their respective Affiliates ("Player Indemnified Party")
harmless from and against any and all claims, losses, damages, liabilities and
expenses (including attorneys fees and court costs) suffered or incurred by any
Player Indemnified Party arising out of a breach by Licensee of any warranty,
representation or covenant hereunder, from the Exploitation by Licensee of the
Endorsed Products, from Endorsed Products, from the services of Player
hereunder, from the use of the Player Name and from the violation of any law,
rule or regulation in connection with the Exploitation of the Player Name (other
than claims, losses, damages, liabilities and expenses (including attorneys fees
and court costs) related to a breach by Player of any of its representations,
warranties or covenants under this Agreement, such as an infringement claim
against Licensee for infringement of another Person's rights based solely on the
use by Licensee of the Player Name other than with the respect to use of other
Intellectual Property Rights in connection therewith).
(c) In no event shall any party to this Agreement be liable to the
other for punitive, indirect or special damages.
6. Insurance. From and after the Effective Date, Licensee shall provide
and maintain, at its own expense, commercial general liability insurance,
including product liability and advertising injury coverage, with limits of not
less than $5,000,000, and shall cause such policy to be endorsed to state that
Player is an additional named insured thereunder. A certificate of insurance
evidencing such coverage shall be furnished to Player within 30 days following
the Effective Date. Such insurance policy shall provide that the insurer shall
not terminate or materially modify such policy or remove Player as an additional
named insured without prior written notice to Player at least 30 days in advance
thereof.
7. Reservation of Rights
Player reserves all rights pertaining to the Player Name except as
specifically granted to Licensee hereunder. Without limiting the generality of
the foregoing, Player may Exploit the Player Name in all forms of Electronic
Media other than in connection with the Exploitation of Endorsed Products.
8. Termination
(a) Licensee shall have the right, upon 30 days prior written notice to
Player, to terminate this Agreement in the event that governmental regulations
or other causes arising out of a state of national emergency or war, or causes
beyond Licensee's control, render Licensee's performance under this Agreement
materially impaired.
(b) In the event that either party defaults in any material respect
under any of the material terms or conditions set forth herein, including but
not limited to payments, the non-defaulting party shall send a notice to cure by
either certified or registered mail return receipt
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requested to the defaulting party. Failure by the defaulting party to cure the
default within 30 days of receipt of the notice to cure shall give the right to
the non-defaulting party, in its sole discretion, to terminate this Agreement.
(c) Licensee shall have the right to terminate this Agreement upon
written notice to Player in the event that the WSE Agreement shall be terminated
other than termination by WSE in accordance with the Agreement as a result of
the default by Licensee under the WSE Agreement.
(d) Player shall have the right to terminate this Agreement after the
Effective Date in the event of termination of the WSE Agreement by WSE as a
result of the default by Licensee under such Agreement following the Effective
Date.
(e) Promptly following termination of this Agreement, Licensee shall
provide Player with a statement indicating the remaining Endorsed Products in
inventory, in process of manufacture or subject to non-cancelable orders as of
the termination date ("Remaining Products"). Unless this Agreement is terminated
by Player pursuant to Section 8(b) or 8(d) hereof or by Licensee pursuant to
Section 8(a) or 8(h) hereof, Licensee shall have the right to sell any Remaining
Products for a period of six months after termination of this Agreement (the
"Sell-Off Period"). Notwithstanding the foregoing, Licensee shall not have the
right, other than with respect to Remaining Products, to manufacture any
additional Endorsed Products. No License Fee shall accrue during the Sell-Off
Period provided that the Royalty shall accrue during the Sell-Off Period and be
payable as contemplated by Section 2(b) of this Agreement. Upon the expiration
of the Sell-Off Period, or termination by Player pursuant to Section 8(b) or
8(d) of this Agreement, Licensee shall destroy any remaining inventory and shall
certify same by declaration executed by an executive officer of Licensee.
(f) The termination of this Agreement for any reason will not have any
effect on: (i) the rights of Player to collect any amounts due and owing under
this Agreement; (ii) the rights of Licensee to sell its remaining inventory in
accordance with Section 8(e) except as provided in Section 8(e) hereof; (iii)
the rights to indemnification pursuant to Section 5 of this Agreement; and (iv)
the rights to damages or other legal or equitable relief for breaches or
defaults occurring prior to the termination of the Agreement.
(g) If Player files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangement or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall not terminate
upon the occurrence of any such event and Player shall not have the authority to
Transfer any rights of any nature for the use of the Player Name or any Endorsed
Products in conflict with this Agreement or to reject any rights hereunder.
(h) If Licensee files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangements or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall terminate
upon the occurrence of such event.
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(i) Upon termination of the License for any reason, if Licensee's
corporate name includes the Player Name or a derivative or variation thereof,
Licensee shall, as promptly as practicable, but in no event later than 90 days
following termination of the License, amend its corporate name to a name not
including the Player Name.
9. 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, confirmed facsimile
transmission 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 fifth 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) 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. This Agreement may not be amended prior to
the Effective Date without the prior written consent of Golf One unless and
until the Asset Purchase Agreement is terminated.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
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(h) 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.
(i) 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.
(j) 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.
(k) Independent Relationship. This Agreement does not constitute and
shall not be construed to constitute an agency, a partnership, a joint venture
or employment agreement between Player and Licensee. Licensee shall not have
authority to obligate or bind Player in any manner whatsoever, subject to the
provisions stated herein and only as Player may specifically approve in writing
prior thereto. Player and Licensee shall be deemed independent contractors in
all respects.
(l) Assignments. Player may not Transfer its rights or obligations
under this Agreement except that Player may assign its right to receive the
License Fee and the Royalty. Licensee may not Transfer its rights or obligations
under this Agreement except: (i) to a subsidiary or to a Person who controls
Licensee; and/or (ii) through a merger or consolidation of Licensee with another
Person (other than an Excluded Purchaser); and/or (iii) the sale by Licensee of
all or substantially all of its assets to another Person (other than an Excluded
Purchaser); and/or (iv) GPG may assign its rights and obligations to Golf One
pursuant to the Asset Purchase Agreement. For purposes of this Agreement, an
"Excluded Purchaser" is a Person: (i) whose sales of golf clubs in the United
States exceeded 10% of the total sales of golf clubs in the United States during
the calendar year prior to the sale or merger date, based on industry reports
(or, if no such report is available for such prior calendar year, the most
recent prior calendar year for which such report is available); (ii) whose
corporate name includes the name of any recognized professional golfer; or (iii)
which has over 25% of its capital stock owned by a recognized professional
golfer. Any assignee permitted pursuant to the terms of this Section 8(l) must
be capable of fulfilling all terms of this Agreement and, further, except for
the assignment from Licensee to Golf One, no such assignment shall act to
relieve the assignor of its obligations and duties under this Agreement. Upon
the request of Golf One following the assignment of this Agreement to Golf One,
Player and Golf One shall enter into a new contract, identical to this
Agreement, deleting references to GPG.
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(m) 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 (other than, in all events, the payment of
money) 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.
(n) 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. The arbitration provisions of this
Agreement shall not prevent any party from obtaining injunctive relief from a
court of competent jurisdiction to enforce the obligations for which such party
may obtain provisional relief pending any decision on such merits by an
arbitrator.
(o) Remedies. In the event either party materially breaches this
Agreement, Licensee and Player agree that, in addition to any and all other
remedies available at law or in equity, the non-breaching party shall be
entitled to injunctive relief to the extent permitted by law from further
violation of this Agreement, during any proceeding as well as on final
determination thereof, without prejudice to any other right of either party.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GARY PLAYER GROUP, INC.
By: /s/
-----------------------------
Its:
----------------------------
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
/s/ Gary Player
-------------------------------
GARY PLAYER
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
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EXHIBIT A to AGREEMENT
Between
Gary Player Group, Inc. and Gary Player
Services:
Player agrees to provide to Licensee each Agreement Year the number of
days of Services requested by Licensee, up to six days per Agreement Year (the
"Maximum Days"). "Services" shall include, among other things, appearing in
infomercials, videos, commercials and other advertisements, appearing at or
playing in golf tournaments on behalf of Licensee and attending other
promotional functions for Endorsed Products in order to perform the ancillary
marketing services required by this Agreement. Except for night time promotional
activities, Player shall not be required to render Services except during normal
business hours.
Licensee shall give reasonable advance notice of any request for
Services, it being generally understood that at least 30 days advance notice
shall be required. Licensee acknowledges that Player often has other commitments
to play in golf tournaments, and Licensee shall schedule the taping or filming
of infomercials, videos and commercials to accommodate Player's professional and
personal schedule.
Licensee shall have final script approval for any and all videos,
infomercials and commercials; provided, however, the Licensee shall permit
Player to review all scripts and shall revise scripts pursuant to reasonable
objections from Player. Videos, infomercials and commercials produced hereunder
shall be produced and distributed in all material respects in accordance with
and adhere to policies, procedures and standards established by Licensee in
consultation with Player, which shall include verification procedures to ensure
consistent and professional delivery of services which are equal to or greater
than the minimum standard acceptable in the respective industry. The copyright
to all Marketing Materials (other than the Player Name) shall be owned by
Licensee.
Player shall provide the Maximum Days of Services per Agreement Year
without additional compensation from Licensee. If Licensee requires Services to
be performed in a location (the "Services Location") which is more than 100
miles from the location Player was otherwise scheduled to be, Player shall be
entitled to first class transportation (or the cash equivalent thereof) to and
from the Services Location and first class accommodations at the Services
Location during the period he is required to perform the services.
If Player and Licensee agree that Player will provide more than the
Maximum Days of Services in an Agreement Year, Player shall be paid a fee of
$25,000 for each additional day, payable one half no later than three business
days prior to the schedule date for such additional services, and one half on
the date of performance of such services.
Exhibit A - 1
<PAGE>
For these purposes, a "day" shall be considered 8.5 hours, and shall
include two 15 minute breaks and a one-hour lunch break.
Player shall not be required to participate in any activities which (i)
would subject Player to federal or state securities laws, (ii) would impose a
fiduciary duty upon Player to Licensee's shareholders, (iii) would cause Player
to violate any laws, (iv) would cause injury to Player or (v) may subject Player
to public disrepute. Licensee further understands that Licensee's failure to
utilize services of Player hereunder shall not result in any reduction in
payments to Player hereunder, nor shall any unused appearances from one
Agreement Year be carried forward to another Agreement Year. The obligations of
Player to provide Services hereunder are subject to the condition that payments
to Player are current and up to date and Licensee is not otherwise in breach of
any material provisions of the Agreement; provided that if there is a good faith
dispute regarding whether payments are current or Licensee is in breach, Player
shall continue to provide services until such dispute is resolved. If Player
confirms his availability for any appearance and Player is unable to appear due
to illness, injury or other emergency beyond the control of Player, such
non-appearance is not a breach of this Agreement and Player shall not be
responsible for any expenses incurred due to such nonappearance. In such event,
Player and Licensee shall attempt in good faith to reschedule the appearance
date (which could be in a subsequent Agreement Year, at no additional charge to
Licensee).
If at any time during the term of the Agreement Licensee elects to
feature Player in a television commercial in connection with the advertisement,
promotion and sale of Endorsed Products, Licensee shall pay any pension, welfare
and other charges as may be levied by any union(s) having jurisdiction over
Player's appearance in such television commercial(s) which amounts shall be in
addition to any other amounts required to be paid hereunder.
Exhibit A - 2
<PAGE>
EXHIBIT B
EXISTING LICENSES AND EXISTING DM LICENSES
Existing Licenses:
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.
Existing DM Licenses:
1. Endorsement Agreement, dated August 1, 1997 by and between Richter
Innovative Corporation and Gary Player Group, d.b.a. Gary Player Golf
Equipment Inc.
Exhibit B - 1
<PAGE>
WSE LICENSE AGREEMENT
This Agreement (this "Agreement") is made and entered into as of the
1st day of November, 1997 by and between World Services Establishment, a
Liechtensein corporation ("WSE"), and Gary Player Group, Inc., a Florida
corporation ("GPG"), with reference to the following facts:
A. WSE has the sole and exclusive license in perpetuity to use and
sublicense the Player Name in the Exploitation of Endorsed Products in the
Territory (as such terms are hereinafter defined).
B. Gary Player is famous throughout the world as a champion
professional golfer, international celebrity and spokesperson whose endorsement
of products and services has great intrinsic and commercial value.
C. On the terms and subject to the conditions of this Agreement, WSE
desires to grant to Licensee the sole and exclusive right and license to use the
Player Name in the Territory in the Exploitation of Endorsed Products (as such
terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto do hereby agree as follows:
1. Grant of Rights; Definitions
(a) On the terms and subject to the conditions in this Agreement, WSE
hereby grants to Licensee the sole and exclusive right and license (the
"License") in perpetuity to use the Player Name in the Exploitation of Endorsed
Products throughout the Territory. The License shall commence as of the
Effective Date. The License shall include and encompass without limitation each
and every Intellectual Property Right arising or existing in connection with,
with respect to, or embodied in, the Player Name in connection with the use of
such Player Name in the Exploitation of Endorsed Products.
(b) WSE reserves the right to: (i) produce or cause to be produced, in
connection with the Gary Player Golf Academy, instructional golf videos and
other golf instruction products and aids in any media incorporating the Player
Name ("Golf Instruction Products") and market and sell Golf Instruction Products
other than on a Direct Marketing Basis (except as provided below); and (ii)
produce, market and sell biographical videos and other biographical products
incorporating the Player Name. Except for the Existing DM Licenses, WSE may
market and sell Golf Instruction Products on a Direct Marketing Basis only
through Licensee, in which event Licensee shall reasonably cooperate with WSE.
WSE and Licensee shall share on an equal basis all Net Revenues from the sale of
Golf Instruction Products on a Direct Marketing Basis. "Net Revenues" from the
sale of Golf Instruction Products shall mean revenues from such sales less the
related cost of goods sold, including sales commissions. WSE agrees not to renew
or extend any Existing DM License, and will use commercially reasonable efforts
transfer such business to Licensee (but WSE shall not be obligated to breach any
Existing DM License).
<PAGE>
"Affiliate" shall mean, with respect to any specified 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.
"Agreement Year" shall mean a year period commencing with the
Effective Date or an annual anniversary of the Effective Date and terminating
one year thereafter.
"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.
"Asset Purchase Agreement" shall mean that certain Asset
Purchase Agreement dated as of the date hereof by and between GPG and Golf One
pursuant to which, among other things, GPG has agreed to sell, transfer and
assign certain assets, including its rights under this Agreement, to Golf One.
"Direct Marketing Basis" shall mean marketing and sales
through infomercials, telemarketing, Internet or other computer systems, direct
mail, CD-ROM, and other direct response marketing channels.
"Effective Date" shall mean date of the closing of the
purchase and sale of the assets contemplated by the Asset Purchase Agreement.
"Electronic Media" shall mean all forms of electronic,
magnetic, digital, optical and laser-based information storage and retrieval
systems, floppy diskette-based software, CD-ROM, interactive software and
compact discs, floptical disks, ROM Card, silicon chip, on-line electronic or
satellite-based data transmission and other such systems, and any other device
or medium for electronic reproduction, publication, distribution or
transmission, whether now or hereafter known or developed.
"Endorsed Products" shall mean (i) golf clubs, including, but
not limited to Woods, Irons and Specialty Clubs, including Drivers, Wedges,
Chippers and Putters; and (ii) Golf Accessories.
"Exhibit" shall mean to produce, transmit, broadcast,
telecast, cable cast, display, exhibit, project, perform, reproduce, publicize,
or otherwise use.
<PAGE>
"Existing DM Licenses" shall mean the licenses identified on
Exhibit B to this Agreement as "Existing DM Licenses."
"Existing Licenses" shall mean the licenses described in
Exhibit B to this Agreement other than Existing DM Licenses.
"Exploit" shall mean use, promote, advertise, affix, copy,
Exhibit, distribute, manufacture, sell, market, sublicense, rent, modify, create
derivative works from, practice or otherwise exploit in all forms in any and all
media.
"Golf Accessories" shall mean hats, apparel, towels,
umbrellas, bags, balls, audiotapes, videotapes and other products pertaining to
the playing of golf or the marketing, sale and distribution of golf clubs.
"Golf One" shall mean Golf One Industries, Inc., a Delaware
corporation.
"Initial Quarter" shall mean the period commencing the
Effective Date and terminating on the last day of the calendar quarter in which
the Effective Date occurs.
"Intellectual Property Rights" shall mean each and every right
now or hereafter recognized and enforced under trademark, service mark,
copyright, patent, trade secret and all other intellectual laws, whether
existing by statute and/or at common law, of each jurisdiction within the world.
"Licensee" shall mean the Licensee under this Agreement, which
initially be GPG, and shall be Golf One and its successors and permitted assigns
from and after the Effective Date.
"License Fee" shall have the meaning set forth in Section 2(a)
of this Agreement.
"Marketing Materials" shall mean brochures, advertisements,
pictures, photos, films, infomercials, commercials, videos and similar materials
used to market, advertise and promote the Endorsed Products which utilize or
incorporate the Player Name.
"Media Production" shall mean television programs and
broadcasts, radio programs and broadcasts, television or radio series,
newscasts, documentaries, video productions, video tapes, video discs, sound
tracks, motion picture productions, and any other form of media production that
has been, or may in the future be, conceived, developed or invented, by any
process, instrumentation or device now known or hereafter developed.
"Net Receipts" during any period shall mean (i) gross revenues
of Licensee from the sale of Endorsed Products throughout the world during such
period less (ii) discounts, incentives, applicable advertising, freight, duty
and commissions, less (iii) all Refunds during such period which are not offset
against Return Reserves, less (iv) all Return Reserves established during such
period with respect to sales of Endorsed Products during such period, plus (iv)
all Return Reserves in effect at the beginning of such period which shall not be
used to offset Refunds
<PAGE>
during such period. With respect to sales of Endorsed Products by Licensee which
are not manufactured or produced by Licensee or sold only for the account of
Licensee, "gross revenues" shall mean only the selling commissions and fees
received by Licensee, and not the gross revenues from the sale of the Endorsed
Products. For example, if Licensee sublicenses to a third party the right to
incorporate the Player Name on golf hats, and then Licensee acts as sales,
distribution and/or marketing agent for such golf hats on a Direct Marketing
Basis (and collects the full price for such hats from customers), "gross
revenues" shall include only that portion of the sales price for such golf hats
as may be retained by Licensee in connection with the sale of such golf hats.
Net Receipts shall not include revenues from the sale of Golf Instruction
Products produced or on behalf of WSE which are sold by Licensee on a Direct
Marketing Basis, as contemplated by Section 1(b) of 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, a professional golfer.
"Player Agreement" shall mean that certain Player License
Agreement dated the date hereof by and between Player and GPG pursuant to which
Player has granted to GPG the exclusive perpetual right to use the Player Name
in the Exploitation of Endorsed Products outside the Territory.
"Player Name" shall mean the name "Gary Player," the initials,
voice, signature and likeness of Player, the Knight's Head Logo, the trademark
BLACK KNIGHT(TM) and any other trademark presently or hereafter used by Player
in connection with Endorsed Products.
"Player Percentage" for any Royalty Year shall mean the
percentage obtained by dividing the Subject Net Receipts for such Royalty Year
by the Net Receipts for such Year.
"Player/WSE License" shall mean that certain Memorandum of
Agreement dated as of January 1, 1967 between Player and WSE, as amended by that
certain Amendment Agreement dated January 1, 1987, that certain letter dated
January 1, 1997 and that certain letter dated April 17, 1998.
"Refunds" shall mean amounts refunded by Licensee to customers
for any reason, including for product returns, damaged products, canceled orders
or otherwise relating to Endorsed Products.
"Return Reserve" shall mean reserves reasonably maintained by
the Company from time to time for Refunds.
"Royalty Quarter" shall mean a calendar quarter, provided that
the first Royalty Quarter shall be Initial Quarter.
<PAGE>
"Royalty Statement" shall mean a Royalty Statement as defined
in Section 2(b) of this Agreement.
"Royalty Year" shall mean a period commencing April 1 and
terminating the following March 31; provided that the first Royalty Year shall
be the period commencing on the Effective Date and ending on the following March
31 and the last Royalty Year (if any) shall be the period ending on the date
this Agreement terminates and commencing on the immediately prior April 1.
"Subject Net Receipts" shall mean Net Receipts from sales in
the Territory.
"Territory" shall mean all parts of the world other than the
United States of America and its possessions, Canada, the Commonwealth of Puerto
Rico and each country or territory in the continent of Africa which is lies
completely south of the Equator.
"Transfer" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration.
2. Remuneration
(a) As full and complete consideration for the License as set forth
herein, and for WSE making available the ancillary marketing services of Player
to be performed hereunder, Licensee shall pay to WSE the following amounts set
forth in Sections 2(b) and 2(c).
(b) Licensee shall pay to WSE the following endorsement fees (the
"License Fees"):
Agreement Year Amount
-------------- --------
1 $112,500
2 $150,000
3 $187,500
4 $225,000
5-10 $262,500 (per year)
The obligation to pay License Fees shall terminate on the
earlier to occur of: (i) the first date that Player has not played in at least
10 internationally televised professional golf tournaments in the prior 12
months (the "Tournament Test") and is no longer the Chairman of the Board of
Golf One; and (i) the tenth anniversary of the Effective Date; provided,
however, that if prior to the end of the fifth Agreement Year a Removal Event
occurs, Player shall be entitled to continue to receive the License Fees through
the end of the fifth Agreement Year following the Agreement Year immediately
prior to the Agreement Year in which the Removal Event occurs provided he
continues to meet the Tournament Test. A "Removal Event" shall be deemed to
occur if: (i) Player is removed by the shareholders of Golf One without cause as
Chairman of the
<PAGE>
Board of Golf One or (ii) at any shareholders' meeting at which Player's
position as director is up for election, Player is not re-elected by the
shareholders as a director of Golf One (assuming he has continued to serve
through the date of such meeting). The License Fee for each Agreement Year shall
be paid in four equal installments on a quarterly basis within 30 days following
the end of each calendar quarter during the Year, commencing with the first
calendar quarter which ends in such Year. The payment for any period which is
not a full calendar quarter shall be prorated other than in the period in which
this Agreement is terminated by Player pursuant to Section 8(b) of this
Agreement.
(c) In addition to the License Fee, each Royalty Year Licensee shall
pay to WSE a royalty (the "Royalty") equal to the Player Percentage for such
Royalty Year multiplied by the sum of: (i) 3% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of $10,000,000
and are less than or equal to $20,000,000; (ii) 2% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of
$20,000,000; and (iii) 3% of Net Receipts from Net Sales of Endorsed Products
other than on a Direct Marketing Basis. The $10,000,000 and $20,000,000 amounts
shall be prorated for the first and last Royalty Years. The Royalty shall be
advanced on a quarterly basis, within 30 days from the end of each Royalty
Quarter, based on the good faith estimate of the Player Percentage determined
for the year-to-date. It is understood that notwithstanding any advances of the
Royalty, the actual Royalty for any Royalty Year shall be determined in
accordance with the formula set forth in first sentence of this Section 2(c),
and that the final payment of the Royalty for such Royalty Year shall be the
difference between the amount of the Royalty determined in accordance with such
first sentence and the amounts previously advanced. If the amount of Royalty
advanced for any Royalty Year shall exceed the actual Royalty determined in
accordance with such first sentence, Licensee shall offset such excess against
future Royalties or other obligations payable under this Agreement; provided,
however, that if the amount of overpayment exceeds 10% of the total Royalty for
such Royalty Year, the Company may demand the refund of such of excess from
Licensor.
(d) Within 30 days following the end of each Royalty Quarter, Licensee
shall deliver to WSE a royalty statement (a "Royalty Statement") setting forth
the Net Receipts for the Quarter and the calculation of the Royalty, which
Statement shall be certified by an executive officer of Licensee as being true
and complete. Each Royalty Statement shall be conclusive and binding upon WSE as
to the amount of the Royalty for the Royalty Quarter covered by such Statement
unless WSE shall object in writing within two years following receipt of such
Royalty Statement. Upon reasonable prior notice, WSE shall have the right to
examine Licensee's books and records (but in no more than twice each Royalty
Year) to the extent reasonably necessary to determine the accuracy and
completeness of the information on such Statement. Such examination shall be
made during Licensee's usual business hours at the place where such books and
records are maintained. Unless such examination and inspection results in a
determination that Licensee underpaid the Royalty in either of the two prior
Royalty Years by more than the greater of 5% of the Royalty actually due or
$2,500, such examination shall be at the cost and expense of WSE. If such
examination or inspection shows that the Royalty in either of the two prior
Royalty Years shall have underpaid by more than the greater of 5% of the Royalty
actually due or $2,500, all costs and expenses for such examination, up to
$10,000 per examination, shall be paid by Licensee.
<PAGE>
3. WSE Approvals
(a) Licensee agrees that all uses of the Player Name in connection with
the Exploitation of Endorsed Products in the Territory, including in connection
with Marketing Materials and the quality of the Endorsed Products, will be
subject to prior approval of WSE, which approval will not be unreasonably
withheld. It is understood that, with respect to the use of the Player Name,
each approval shall relate to the use of the Player Name in connection with the
form and content of the Marketing Materials and/or the incorporation of the
Player Name on Endorsed Products, and that once given, no further approval shall
be required with respect to multiple uses of approved uses the Player Name or
immaterial variances in the Marketing Materials (immateriality be determined by
reference to the materiality of such change to WSE). Any approvals required by
WSE or requested of WSE pursuant to the terms hereof shall be given by confirmed
facsimile or certified mail to Licensee within a reasonable time from the date
of receipt by WSE of the materials for which approval is requested. In the event
no response by WSE is received by Licensee within 10 days from receipt of such
materials by WSE, the approvals shall be deemed given. All sublicenses, other
than those in effect on the date hereof, must permit Licensee (and indirectly
WSE) the same right of approval unless otherwise agreed in writing by WSE. WSE
may from time to time delegate to one person, or any one of several persons, its
approval rights by written notice to Licensee, in which event until such
delegation is withdrawn by written notice to Licensee, all approvals may be
granted by such person or persons.
(b) Licensee shall own the copyright to all Marketing Materials. WSE
shall take any action reasonably requested by Licensee to confirm such
ownership. Licensee acknowledges that it does not own the Player Name.
4. WSE's Warranties and Covenants
(a) WSE warrants and represents as follows: (i) WSE has all right,
power and authority to enter into this Agreement and grant the License; (ii) WSE
has the exclusive rights to use the Player Name in the Exploitation of Endorsed
Products in the Territory; (iii) except pursuant to this Agreement and the
Existing Licenses, no Person has any right to use the Player Name in the
Exploitation of Endorsed Products in the Territory and there are no licenses or
other rights presently outstanding for the use of the Player Name in the
Exploitation of the Endorsed Products in the Territory; (iv) the Exploitation of
the Player Name in connection with Endorsed Products contemplated by this
Agreement will not violate or infringe upon the rights (including, but not
limited to, the Intellectual Property Rights) of any Persons anywhere in the
world; (v) the use of the Player Name as contemplated by this Agreement will not
require any payments to any Person other than to WSE pursuant to this Agreement;
and (vi) WSE has provided to Licensee a true and correct copy of the Player/WSE
License; the Player/WSE License is in full force and effect, constitutes a valid
and legally binding obligation of Player and WSE, enforceable against Player and
WSE in accordance with its terms, and neither Player nor WSE is in breach of or
in default under the Player/WSE License and in 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/WSE License. Licensee
acknowledges that WSE makes no representations with respect to the use of
<PAGE>
any other Intellectual Property Rights in connection with any Marketing
Materials or the Exploitation of the Player Name.
(b) WSE agrees that from and after the date hereof, WSE shall not
directly or indirectly use the Player Name in the Exploitation of any Endorsed
Products, or Transfer any right or license to use the Player Name in the
Exploitation of Endorsed Products.
(c) Notwithstanding anything to the contrary contained herein, it is
mutually understood that WSE has no control over, and is not responsible for:
(i) the media, including without limitation, any news, media
photographs or other depictions of Player that may appear from time to time;
(ii) the content of the advertising or sponsorship portion not
directly involving WSE of:
(A) any Media Production;
(B) any athletic tournament, game or outing; or
(C) any other event, including without limitation, any live
artistic, literary, dramatic, theatrical or musical
production or charitable event, in which Player
participates or with which he is otherwise associated.
(iii) the products and services endorsed, promoted, advertised
or publicized by any other team, league or association for which Player may play
or with respect to which he may become associated or by any of their respective
successors and assigns;
all or any of which may use Player's name, fame, nickname, initials, autograph,
voice, video or film portrayals, facsimile or original signature, photograph,
likeness and image or facsimile image, without Player's consent and in any or
all of which Player may appear or participate. Licensee agrees that WSE shall
not be, and shall not be deemed to be, in contravention or breach of any of the
provisions hereof as a result of any or all of the foregoing or arising in
connection therewith.
(d) The restrictions set forth in this Agreement are not intended to
preclude and shall not preclude Player from appearing in the sports,
entertainment, news or information portion of:
(i) any form of Media Production; or
(ii) any professional golf tournament; or
(iii) any other entertainment event, including without
limitation, any live artistic, literary, dramatic, theatrical or musical
production;
<PAGE>
in which or in connection with which products or services are advertised,
publicized, featured or otherwise dealt with that are the same as or similar to
or competitive with Endorsed Products or that are sponsored by competitors of
Licensee, provided that Player's participation is not for the endorsement of
such products or services.
(e) WSE is not responsible for initiating action against, enjoining or
otherwise attempting to dissuade any Person not licensed by WSE, including
without limitation, any former licensee of WSE, the media or any advertiser,
promoter or other entity, which in contravention of this Agreement or otherwise
makes unauthorized use of anything, including without limitation, any
unauthorized use of the Player Name in promoting or advertising any product (or
products) or services whatsoever, including without limitation, any products
which are the same as or similar to or directly competitive with Endorsed
Products. WSE shall not incur any liability to Licensee or any Person arising
out of any such activity by any such Person. WSE agrees that at Licensee's sole
cost and expense, it shall give such reasonable assistance to Licensee as may be
required to cause any such Person to cease and desist from such activities, or
in connection with any lawsuit or other proceeding by Licensee against such
Person.
(f) To the extent that WSE has (and has all necessary rights to) any
Artwork which Licensee believes would be useful in the Exploitation of Endorsed
Products, WSE shall furnish such Artwork to Licensee on a royalty-free basis.
Licensee shall be responsible for all shipping and handling charges in
connection with such Artwork, shall safekeep such Artwork and be responsible for
it while in transit, and after use of such Artwork, Licensee shall return such
Artwork to WSE. 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 such use of Artwork is subject to WSE's prior approval
pursuant to Section 3(a) of this Agreement. To the extent that any Artwork is
owned by Persons other than WSE, upon request of Licensee, WSE shall provide
such consents or approvals to such other Persons as may be necessary for
Licensee to acquire (at no cost or expense to WSE) the right to use such
Artwork.
(g) WSE agrees: (i) not to amend or modify the Player/WSE License
without the prior written consent of: (A) GPG until such time as GPG has
assigned this Agreement to Golf One and (B) Golf One unless and until the Asset
Purchase Agreement shall be terminated without the closing of the transactions
contemplated thereby, in which event the agreement in this Section 4(g)(i) shall
terminate; and (ii) that should the Player/WSE License terminate, this Agreement
shall be deemed to be an agreement between Player and GPG (or its assignee),
without further action of any Person, and thereafter WSE shall have no rights
under this Agreement and Player shall succeed to the rights of WSE.
5. Indemnification; Liability
(a) WSE agrees to indemnify and hold Licensee and its successors and
permitted assigns, and their respective Affiliates ("Licensee Indemnified
Party") harmless from and against any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by any Licensee Indemnified Party arising out of breach by WSE of any
warranty, representation or covenant hereunder or the use pursuant to this
Agreement by such Licensee Indemnified Party of the Player Name.
<PAGE>
(b) Licensee agrees to indemnify and hold WSE and its successors and
permitted assigns, and their respective Affiliates, including Player if Player
assumes the obligations of WSE pursuant to Section 4(g) ("Player Indemnified
Party") harmless from and against any and all claims, losses, damages,
liabilities and expenses (including attorneys fees and court costs) suffered or
incurred by any Player Indemnified Party arising out of a breach by Licensee of
any warranty, representation or covenant hereunder, from the Exploitation by
Licensee of the Endorsed Products, from Endorsed Products, from the use of the
Player Name and from the violation of any law, rule or regulation in connection
with the Exploitation of the Player Name (other than claims, losses, damages,
liabilities and expenses (including attorneys fees and court costs) related to a
breach by WSE of any of its representations, warranties or covenants under this
Agreement, such as an infringement claim against Licensee for infringement of
another Person's rights based solely on the use by Licensee of the Player Name
other than with the respect to use of other Intellectual Property Rights in
connection therewith).
(c) In no event shall any party to this Agreement be liable to the
other for punitive, indirect or special damages.
6. Insurance. From and after the Effective Date, Licensee shall provide and
maintain, at its own expense, commercial general liability insurance, including
product liability and advertising injury coverage, with limits of not less than
$5,000,000, and shall cause such policy to be endorsed to state that WSE is an
additional named insured thereunder. A certificate of insurance evidencing such
coverage shall be furnished to WSE within 30 days following the Effective Date.
Such insurance policy shall provide that the insurer shall not terminate or
materially modify such policy or remove WSE as an additional named insured
without prior written notice to WSE at least 30 days in advance thereof.
7. Reservation of Rights
WSE reserves all rights pertaining to the Player Name which it holds
pursuant to the Player/WSE License except as specifically granted to Licensee
hereunder.
8. Termination
(a) Licensee shall have the right, upon 30 days prior written notice to
WSE, to terminate this Agreement in the event that governmental regulations or
other causes arising out of a state of national emergency or war, or causes
beyond Licensee's control, render Licensee's performance under this Agreement
materially impaired.
(b) In the event that either party defaults in any material respect
under any of the material terms or conditions set forth herein, including but
not limited to payments, the non-defaulting party shall send a notice to cure by
either certified or registered mail return receipt requested to the defaulting
party. Failure by the defaulting party to cure the default within 30 days of
receipt of the notice to cure shall give the right to the non-defaulting party,
in its sole discretion, to terminate this Agreement.
<PAGE>
(c) Licensee shall have the right to terminate this Agreement upon
written notice to WSE in the event that the Player Agreement shall be terminated
other than termination by Player in accordance with the Player Agreement as a
result of the default by Licensee under the Player Agreement.
(d) WSE shall have the right to terminate this Agreement after the
Effective Date in the event of termination of the Player Agreement by Player as
a result of the default by Licensee under such Agreement following the Effective
Date.
(e) Promptly following termination of this Agreement, Licensee shall
provide WSE with a statement indicating the remaining Endorsed Products in
inventory, in process of manufacture or subject to non-cancelable orders as of
the termination date ("Remaining Products"). Unless this Agreement is terminated
by WSE pursuant to Section 8(b) or 8(d) hereof or by Licensee pursuant to
Section 8(a) or 8(h), Licensee shall have the right to sell any Remaining
Products for a period of six months after termination of this Agreement (the
"Sell-Off Period"). Notwithstanding the foregoing, Licensee shall not have the
right, other than with respect to Remaining Products, to manufacture any
additional Endorsed Products. No License Fee shall accrue during the Sell-Off
Period provided that the Royalty shall accrue during the Sell-Off Period and be
payable as contemplated by Section 2(b) of this Agreement. Upon the expiration
of the Sell-Off Period, or termination by WSE pursuant to Section 8(b) or 8(d)
of this Agreement, Licensee shall destroy any remaining inventory and shall
certify same by declaration executed by an executive officer of Licensee.
(f) The termination of this Agreement for any reason will not have any
effect on: (i) the rights of WSE to collect any amounts due and owing under this
Agreement; (ii) the rights of Licensee to sell its remaining inventory in
accordance with Section 8(e) except as provided in Section 8(e) hereof; (iii)
the rights to indemnification pursuant to Section 5 of this Agreement; and (iv)
the rights to damages or other legal or equitable relief for breaches or
defaults occurring prior to the termination of the Agreement.
(g) If WSE files a petition in bankruptcy or is adjudicated bankrupt,
or becomes insolvent or makes an assignment for the benefit of creditors or
other similar arrangement or discontinues business, or if a receiver is
appointed for it or its business, this Agreement shall not terminate upon the
occurrence of any such event and WSE shall not have the authority to Transfer
any rights of any nature for the use of the Player Name or any Endorsed Products
in conflict with this Agreement or to reject any rights hereunder.
(h) If Licensee files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangements or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall terminate
upon the occurrence of such event.
9. 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
<PAGE>
service, courier, confirmed facsimile transmission 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
fifth 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) 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. This Agreement may not be amended prior to
the Effective Date without the prior written consent of Golf One unless and
until the Asset Purchase Agreement is terminated.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
<PAGE>
(i) 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.
(j) 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.
(k) Independent Relationship. This Agreement does not constitute and
shall not be construed to constitute an agency, a partnership or a joint venture
agreement between WSE and Licensee. Licensee shall not have authority to
obligate or bind WSE in any manner whatsoever, subject to the provisions stated
herein and only as WSE may specifically approve in writing prior thereto. WSE
and Licensee shall be deemed independent contractors in all respects.
(l) Assignments. WSE may not Transfer its rights or obligations under
this Agreement except that WSE may assign its right to receive the License Fee
and the Royalty. Licensee may not Transfer its rights or obligations under this
Agreement except: (i) to a subsidiary or to a Person who controls Licensee;
and/or (ii) through a merger or consolidation of Licensee with another Person
(other than an Excluded Purchaser); and/or (iii) the sale by Licensee of all or
substantially all of its assets to another Person (other than an Excluded
Purchaser); and/or (iv) GPG may assign its rights and obligations to Golf One
pursuant to the Asset Purchase Agreement. For purposes of this Agreement, an
"Excluded Purchaser" is a Person: (i) whose sales of golf clubs in the United
States exceeded 10% of the total sales of golf clubs in the United States during
the calendar year prior to the sale or merger date, based on industry reports
(or, if no such report is available for such prior calendar year, the most
recent prior calendar year for which such report is available); (ii) whose
corporate name includes the name of any recognized professional golfer; or (iii)
which has over 25% of its capital stock owned by a recognized professional
golfer. Any assignee permitted pursuant to the terms of this Section 8(l) must
be capable of fulfilling all terms of this Agreement and, further, except for
the assignment from Licensee to Golf One, no such assignment shall act to
relieve the assignor of its obligations and duties under this Agreement. Upon
the request of Golf One following the assignment of this Agreement to Golf One,
WSE and Golf One shall enter into a new contract, identical to this Agreement,
deleting references to GPG.
(m) 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 (other than, in all events, the payment of
money) 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.
(n) Arbitration. All disputes, controversies or differences which are
not settled by common accord shall be conclusively settled by arbitration in Los
Angeles, California, in
<PAGE>
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. The arbitration provisions of this Agreement shall
not prevent any party from obtaining injunctive relief from a court of competent
jurisdiction to enforce the obligations for which such party may obtain
provisional relief pending any decision on such merits by an arbitrator.
(o) Remedies. In the event either party materially breaches this
Agreement, Licensee and WSE agree that, in addition to any and all other
remedies available at law or in equity, the non-breaching party shall be
entitled to injunctive relief to the extent permitted by law from further
violation of this Agreement, during any proceeding as well as on final
determination thereof, without prejudice to any other right of either party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GARY PLAYER GROUP, INC.
By: /s/ Joseph White
---------------------------
Its: President
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
WORLD SERVICES ESTABLISHMENT
By: /s/
---------------------------
Its: Director
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
ACKNOWLEDGMENT AND AGREEMENT
The undersigned, the licensor under the Player/WSE License, hereby
acknowledges and agrees as follows:
<PAGE>
1. The undersigned consents to WSE entering into this Agreement, and
acknowledges that this Agreement and the rights granted hereunder are consistent
with the Player/WSE License;
2. The undersigned agrees that the Player/WSE License shall not be
modified or amended in any manner without the prior written consent of: (i) GPG
until such time as GPG has assigned this Agreement to Golf One and (ii) Golf One
unless and until that certain Asset Purchase Agreement dated November 1, 1997
(the "Asset Purchase Agreement") between Golf One and GPG shall be terminated
without the closing of the transactions contemplated thereby, in which event
these restrictions will terminate;
3. The undersigned agrees that if for any reason the Player/WSE License
shall be terminated, this Agreement shall remain in full force and effect and,
without any further action, the undersigned shall be deemed to have assumed all
of the obligations and duties of WSE under this Agreement and shall have
succeeded to all of the rights, whether contingent, accrued or future, of WSE
under this Agreement; in this connection, the undersigned agrees to execute such
documents and instruments as shall be reasonably requested by GPG (or its
successor) to evidence such assumption;
4. The undersigned agrees to take no action that would be inconsistent
with the rights of GPG or Golf One under this Agreement or the undersigned's
ability to fully and faithfully perform the obligations of WSE under this
Agreement should the undersigned succeed to the rights and obligations of WSE
under this Agreement as provided in Section 3 of this Agreement;
5. The undersigned acknowledges and agrees that none of his covenants
or agreements under this Acknowledgment and Agreement may be modified, amended,
rescinded or terminated without the prior written consent of Golf One, unless
the Asset Purchase Agreement shall be terminated without the closing of the
transactions contemplated thereby, in which event this restriction shall
terminate.
/s/ Gary Player
-------------------
Gary Player
<PAGE>
EXHIBIT A to AGREEMENT
Between
Gary Player Group, Inc. and Gary Player
[Intentionally left blank]
Exhibit A - 1
<PAGE>
EXHIBIT B
EXISTING LICENSES AND EXISTING DM LICENSES
Existing Licenses:
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.
Existing DM Licenses:
1. Endorsement Agreement, dated August 1, 1997 by and between Richter
Innovative Corporation and Gary Player Group, d.b.a. Gary Player Golf
Equipment Inc.
Exhibit B - 1
<PAGE>
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 ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
SECURED PROMISSORY NOTE
Santa Maria, California Principal Amount: $1,000,000
Date: March 13, 1998
FOR VALUE RECEIVED Golf One Industries, Inc., a Delaware corporation, having an
address of 2811 Airpark Drive, Santa Maria, California 93455 ("Borrower"),
unconditionally promises to pay to Jack Cancellieri, or registered assigns,
("Lender") One Million Dollars ($1,000,000) together with interest thereon at a
rate of (i) 13.5% per annum from the date hereof through July 31, 1998; and (ii)
15.0% on and after August 1, 1998. This Note is issued pursuant to that certain
Loan Agreement between Lender and Borrower dated the date hereof (the "Loan
Agreement"), and is part of a group of notes (the "Notes") in an aggregate
principal amount of up to $2,500,000 issued as part of the Senior Financing (as
defined in the Loan Agreement). Unless otherwise defined herein, capitalized
terms used in this Note shall have the meanings ascribed to them in the Loan
Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the third business day after the closing of the
IPO; or, (b) December 31, 1998 (the "Maturity Date"). All payments shall be sent
to Lender's address as set forth in the Loan Agreement, or such address as later
specified by Lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty or
premium.
3. Security. To secure payment of the Note, Borrower has executed and delivered
a Security Agreement in favor of the Lender.
4. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
5. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
6. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
-------------------------------
Alfonso J. Cervantes, President
<PAGE>
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 ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
SECURED PROMISSORY NOTE
Santa Maria, California Principal Amount: $_______
May __, 1998
FOR VALUE RECEIVED Golf One Industries, Inc., a Delaware corporation, having an
address of 2811 Airpark Drive, Santa Maria, California 93455 ("Borrower"),
unconditionally promises to pay ______________, or registered assigns,
("Lender") _______________________ Dollars ($______) together with interest
thereon at a rate of 13.5% per annum from the date hereof. This Note is issued
pursuant to the certain Loan Agreement between Lender and Borrower dated the
date hereof (the "Loan Agreement"), and is part of a group of notes (the
"Notes") in an aggregate principal amount of up to $2.5 million issued as a part
of the Senior Financing (as defined in the Loan Agreement).
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the third business day after the closing of the
IPO; or, (b) December 31, 1998 (the "Maturity Date"). All payments shall be sent
to Lender's address as set forth in the Loan Agreement, or such address as later
specified by lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty or
premium.
3. Security. To secure payment of the Note, Borrower has executed and delivered
a Security Agreement in favor of the Lender.
4. Default. Any of the following occurrences or acts shall constitute an event
of default ("Event of Default") under this Note:
(a) The failure by the Borrower to pay all or any part of the principal
or any accrued and unpaid interest on this Note within five (5) days if when
due; or
(b) Any material default, breach or misrepresentation under the terms
and provisions of the Loan Agreement not cured within twenty (20) days of notice
of such default, breach or misrepresentation; or
(c) Insolvency of, business failure of, or an assignment for the
benefit of creditors by or the filing of a petition under bankruptcy, insolvency
or debtor's relief law, or for any readjustment
<PAGE>
of indebtedness, composition or extension by the Borrower, or commenced against
the Borrower which is not discharged within sixty (60) days; or
(d) The receipt by Borrower of notice (either in writing or orally) of
termination or cancellation of the Asset Purchase Agreement between Gary Player
Group, Inc. ("GPG") and Borrower; or
(e) The receipt by Borrower of notice (either in writing or orally) of
termination or cancellation of the Direct Marketing Agreement between the
Borrower and GPG entered into November 1996; or
(f) Receipt of notice (either in writing or orally) of Whale Securities
Co., L.P.'s intent to terminate its efforts on behalf of the Borrower with
respect to the initial public offering of the Borrower's common stock; unless
the Borrower is able to secure a commitment from an alternative underwriter of
equal or better standing in the financial community within 45 days of notice of
termination by Whale.
5. Remedies upon Event of Default. Upon the occurrence of an Event of Default:
(a) Specified in clause (c) of Section 4, then the note shall be
automatically accelerated and immediately due and payable; and
(b) Specified in clause (a), (b), (d), (e) or (f) of Section 4, then
the Lender may declare the Note immediately accelerated, due and payable; and
(c) The Lender shall have all of the rights and remedies, at law and in
equity, by statute and otherwise, and no remedy shall herein conferred upon the
Lender is intended to be exclusive of any other remedy and each remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute or otherwise.
(d) Any action taken by Lender with respect to the Collateral (as that
term is defined in that certain Security Agreement between Borrower and the
"Senior Lender", including the Lender, dated the date hereof (the "Security
Agreement")) shall be subject to Section 3(b) of such Security Agreement.
6. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date for any payment and then
against principal due.
7. Waiver of Presentment, etc. The Borrower hereby waives presentment for
payment, demand, notice of dishonor, and notice of protest of this Note. The
Borrower hereby consents to any extensions of time, renewals, waivers or
modifications that may be granted by the Lender with respect to the payment or
other provisions of this Note.
8. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a
2
<PAGE>
suit is brought. Borrower waives demand, protest and notice of maturity and
non-payment, and all requirements necessary to hold Borrower liable hereunder.
9. Miscellaneous. THIS NOTE SHALL BE GOVERNED IN ALL RESPECTS BY THE LAW OF THE
STATE OF NEW JERSEY AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW JERSEY.
Any and all judicial proceedings brought by the Lender against the
Borrower with respect to this Note may be brought in any court of competent
jurisdiction in the State of New Jersey and any Federal district court having
subject matter jurisdiction and being located in the State of New Jersey. The
Borrower hereby accepts, for itself and its properties, the non-exclusive
jurisdiction of the aforesaid courts and agrees to be bound by any judgements
rendered by such courts in connection with this Agreement. The Borrower will not
move to transfer any such proceeding to any different court. Any such process
may be mailed by registered or certified mail to the Borrower at the address
referred to in Section 6 of the Loan Agreement. The Borrower agrees that service
by mail will constitute sufficient notice, Nothing herein limits the right of
the Lender to bring proceedings against the Borrower in the courts of any other
jurisdiction.
BORROWER:
Golf One Industries, Inc.
By:__________________________
Alfonso J. Cervantes, President
3
<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
July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS OF GARY PLAYER GOLF, INC. FOR THE YEAR ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 129,008
<SECURITIES> 0
<RECEIVABLES> 75,468
<ALLOWANCES> 26,184
<INVENTORY> 408,491
<CURRENT-ASSETS> 690,206
<PP&E> 301,136
<DEPRECIATION> 142,650
<TOTAL-ASSETS> 1,630,675
<CURRENT-LIABILITIES> 7,090,746
<BONDS> 0
0
573
<COMMON> 1,701
<OTHER-SE> (5,462,345)
<TOTAL-LIABILITY-AND-EQUITY> 1,630,675
<SALES> 4,768,032
<TOTAL-REVENUES> 4,768,032
<CGS> 1,973,105
<TOTAL-COSTS> 6,565,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,850,566
<INCOME-PRETAX> (5,624,514)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,624,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,624,514)
<EPS-PRIMARY> (3.89)
<EPS-DILUTED> (3.89)
</TABLE>
