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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM 10-SB
________________
GENERAL FORM OF REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
CARBITE GOLF, INC.
(Name of Small Business Issuer in its charter)
British Columbia, Canada 33-0770893
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6330 NANCY RIDGE DRIVE, SUITE 107
SAN DIEGO, CA 92121
(Address of principal executive offices) (Zip code)
Issuer's telephone number (858) 625-0065
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT: None
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(Title of class)
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PART I
Forward-Looking Statements
This document contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
These forward-looking statements are based on management's expectations as
of the date hereof, and the Company does not undertake any responsibility to
update these statements in the future. Actual future performance and results
could differ materially from those contained in or suggested by these forward-
looking statements as a result of the factors set forth in this Form 10-SB,
including without limitation the disclosures made under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Factors That May Affect Future Results and Financial Condition"
and the other risks detailed in the Company's reports to be filed with the
Securities and Exchange Commission.
DESCRIPTION OF BUSINESS
Overview
Carbite Golf, Inc. (the "Company"), through its wholly-owned subsidiary
Carbite, Inc., designs, develops, and markets high quality innovative golf clubs
based on its proprietary powder metallurgy technology. The products currently
include wedges, putters, utility woods, wood sets and iron sets.
The Company does not manufacture the principal components of its clubs
(clubheads, shafts, and grips), but purchases the components from outside
suppliers and then assembles, packages and ships the products at the San Diego,
California headquarters.
The Company markets and sells its products through a diverse combination of
(i) wholesale sales to on-course and off-course golf retail shops and selected
sporting goods retailers; and (ii) direct response sales to consumers through
television infomercials, direct mail, telemarketing and the internet.
The Company is a holding company and all of the golf club operations
described herein are conducted through its wholly-owned subsidiary, Carbite,
Inc.
Organization
The Company was incorporated in 1985 in British Columbia, Canada under the
name Q Data Systems, Inc. In 1986, the Company conducted a public offering in
Canada only. Its stock has been publicly traded on the Vancouver Stock Exchange
since 1986. The current trading symbol is "CAB".
From 1985 to 1996, the Company was involved in a variety of non-golf
businesses, including electronic devices and an automobile dealership. In 1991,
the name was changed to Consolidated Q Data Systems, Inc.
In September, 1997, the Company completed the acquisition of two privately-
held, California corporations involved in the golf equipment business: (i)
Carbite, Inc., which had developed a line of wedges and other golf clubs using
patented powder metallurgy technology; and (ii) Advanced Golf Systems, Inc.
which was Carbite's joint venture
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partner in a television infomercial selling golf clubs under the name ViperBite.
In connection with these acquisitions, the Company changed its name to Carbite
Golf, Inc., effective January 4, 1996.
By December 31, 1998, the Company's only assets were its ownership of all
the stock in Carbite, Inc. and Advanced Golf Systems. Since Advanced Golf's
only asset is its joint venture with Carbite, it is considered a discontinued
operation and the Company intends to formally dissolve it in 1999.
Proprietary Technology Applied to Golf Clubs
After its incorporation in 1988, Carbite, Inc. began developing products
using the proprietary metallurgical technology developed by its founder, Chester
S. Shira, a metallurgist with an avid interest in golf. Mr. Shira's original
concept was that a tungsten carbide surface inserted on the face of a golf club
would improve performance by increasing ball control through backspin. By 1992,
Mr. Shira had secured six patents and the USGA had approved the inserts as
conforming to the Rules of Golf. Carbite, Inc. introduced its first products in
mid-1992 and by year end 1998 had grown to annual sales of $15 million.
Inserts
The Company's initial innovation was a friction-enhancing insert for irons
designed to increase backspin. The insert combines tungsten carbide particles in
a bronze alloy matrix, creating a slightly abrasive, but durable, club face
designed to create more backspin than traditional non-sandblasted clubs. The
Company believes that greater backspin assists in greater control for players at
all skill levels.
The insert has been primarily applied to wedge products where the Company
believes extra spin is particularly helpful. The inaugural insert product was
the Check-Mate wedge, introduced in 1992, with a traditional head shape/size
offered in four loft configurations. Two other Check-Mate models (CS-100 and
CS-200) were added in 1995. In 1997, the insert technology was extended to two
new products - the Diatanium wedge which combines titanium and diamond particles
designed to decrease weight and increase durability and ball control; and the JS
Series Putters which feature a soft bronze version of the insert designed to
optimize softness of feel and playability.
Taylor Made Golf has licensed the insert for use on its "Tour Wedge"
product. Professional golfers have also used the club in competition - the
Company believes that more than 60 players on the PGA Tour, Senior Tour, LPGA
and Nike Tour currently use wedges which incorporate inserts using Carbite
technology.
Surface Technology and Plating
The Company has developed a surface plating process which is designed for
performance benefits similar to the insert, but which are less expensive to
manufacture. This technology was first used on the ViperBite, an oversized
wedge, which was introduced in mid-1995 through a television infomercial. The
success of the wedge helped create a market for ViperBite iron sets, introduced
in mid-1996.
In March, 1997 the Company launched a utility wood, since discontinued,
called the Gyroseven, which combined the surface plating with a keel-shaped sole
and offset head designed to create an easy-to-hit alternative to the long iron.
This design has since been extended to a full line of Carbite Gear Effect Metal
Woods (1-3-4-5-7-9).
Dual Density - Polar Balanced
The Company is the assignee of all rights to a patent on a process to
fabricate and join dissimilar metals with different densities in a single club.
The Company believes that such technology (which it refers to as "Dual Density")
has significant potential as the industry continues to move toward club heads
with bigger "sweet spots" which are more
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forgiving on off-center hits. Dual Density is designed to achieve this by
combining lightweight metals in the hitting area and denser materials in the
heel and toe.
The Company's first application of this technology is to a new family of
Polar Balanced Putters which combine lightweight titanium or aluminum in the
hitting area with dense tungsten in the heel and toe. This combination is
designed to produce an increase in resistance to twisting at the moment of
impact (in metallurgical parlance, the "Moment of Inertia;" in golf parlance, a
bigger "Sweet Spot"). The complete product line (titanium and aluminum models)
was introduced in January, 1998.
The Company believes there are significant opportunities in the production
of full iron sets with the Dual Density process. This opportunity has been
highlighted by the introduction of multiple material irons from various industry
leaders. The Company's first products in this area are its Tungsten Tour Irons
(a full line of irons) which are designed to bias the weight of the club head to
help square the club at impact.
Products
The Company operates in the golf club segment within the golf industry and
offers wedges, putters, irons, and woods. These clubs are designed and priced to
compete at the premium and middle range price levels. The Company sells
substantially all of its golf clubs under the Carbite brand name.
The following table sets forth the contribution to net sales attributable
to the Company's product groups for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
1998 1997 September 30, 1999
--------------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Putters $12,370,000 79% $ 428,396 5% $11,522,556 82%
Woods $ 1,942,000 12% $3,632,203 43% $ 505,910 4%
Wedges $ 1,172,000 7% $4,419,319 52% $ 1,766,515 12%
Other $ 178,000 2% $ 0 0% $ 267,652 2%
Net Sales $14,527,670 100% $8,480,111 100% $14,062,633 100%
=========== === ========== === =========== ===
</TABLE>
The Company currently offers the following products:
Polar Balanced Putters
In the Polar Balanced Putter, 70% of the total putter-head weight is
strategically placed at the toe and heel. Tungsten weights, with twice the
density of lead, are molecularly bonded to an ultra light center section of
aluminum. This technology is designed to reduce club head rotation at impact,
even on off-center hits. The Polar Balanced series of putters are designed to
have a higher moment of inertia than most conventionally shaped putters which
the Company believes make them more accurate and forgiving than other putters.
Polar Balanced Putters are available in four models (ZG, ZH, ZI and ZM),
all with steel or aluminum shafts.
Tour Insert Wedges
The Tour Insert Wedge Series stresses performance through design, materials
and technology. Carbite's patented high-friction insert blends powdered soft
bronze with diamond and tungsten carbide particles designed to
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deliver extended wear and coefficient of friction. This technology was designed
to provide performance through spin control so the ball holds the green from any
approach shot.
Tour Insert Wedges are available in three loft configurations (52(degrees)
Approach, 56(degrees) Sand and 60(degrees) Lob) with steel or graphite shafts.
Gear Effect Metal Woods
Gear Effect Metal Woods are designed to impart proper spin on the ball at
the point of impact that keeps it working to the center of the fairway. A mis-
hit towards the toe will generally move back to the intended target line. The
Company believes this feature helps to ensure more consistent directional
control instead of slices or hooks. The exclusive high friction club face grips
the ball at impact. The offset head is designed to prevent slices by keeping the
hands ahead of the ball at impact. The lightweight grip and shaft are designed
to provide for greater club head speed for increased distance. A radiused keel-
shaped sole is designed to pick the ball cleanly from the tightest lies to the
deepest rough.
Gear Effect Metal Woods are available in Driver, 3 Wood, 4 Wood, 5 Wood, 7
Wood and 9 Wood, all in graphite shafts.
Tungsten Tour Irons
Tungsten Tour Irons are designed to bias the weight toward the heel or toe
to help square the club face at impact. Unique weighted inserts made from a
blend of 70% copper and 30% tungsten are designed to modify the club handling
with the goal of reducing hooks and slices.
For the long irons, the weighting is moved toward the heel. For shorter
clubs, the weight is shifted toward the toe. These irons also feature a
progressive offset with a mid-size cavity back head.
Tungsten Tour Irons are available in full sets of 3-Iron through Pitching
Wedge, in graphite or steel shaft.
New Products
For 1999, Carbite introduced an assortment of new products which added to
the wedge and putter lines and expanded the overall product line to include wood
and iron sets: two new models of the Polar Balanced Putter (the ZI and the ZM);
Tour Insert Wedges offered in three configurations; Tungsten Tour Iron Sets; and
Gear Effect Metal Woods offered in six lofts. See Discussion at "Products", page
4-5.
The Polar Balanced Putter accounted for 81.9% and 66% of net sales for the
nine months ended September 30, 1999 and the fiscal year ended December 31,
1998. A decline in the demand for, or a decline in the average selling price of,
these putters would have a material adverse impact on the Company's business,
operations and financial condition.
Product Design and Development
The Company believes that the development of new products and the on-going
enhancement of its product lines are necessary for its growth and success.
Product design at the Company is a result of the integrated efforts of its
product design team, marketing departments and outside manufacturers, all of
which work together to generate new ideas for golf equipment. The Company's
research and development expenses for the nine months ended September 30, 1999,
and for the fiscal years ended December 31, 1998 and 1997 were $341,703,
$345,000 and $243,000,
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respectively. The Company intends to invest significant amounts in its research
and development activities through the remainder of 1999 and beyond.
The product design effort is headed by Chester S. Shira, the Company's
Chairman who has over 40 years experience as a metallurgist engineer, and Joe
Sery, Vice President of Engineering, a mechanical engineer and industrial
engineer. The Company also employs on an as-needed basis outside consultants
who work on specific design features of new products.
The design team assimilates ideas from many sources, including professional
golfers, sales personnel, and the marketing department, and incorporates the
golf equipment standards developed by the USGA. Once the basic design
parameters and materials are determined, working designs are formulated,
generally with computer-aided design software, followed by brass models and
prototype molds. A small number of sample club heads are created and used for
testing. After field testing, any design changes are implemented and the
specifications are given to potential outside manufacturers who are selected
based on price and quality. Once the initial products are inspected and
approved, mass production may begin.
The regular introduction of new products does, however, have certain risks.
Prior designs of the Company, even if successful, may be rendered obsolete
within a relatively short period of time as new products are introduced. Basic
design changes in existing golf equipment and new models may be met with
consumer rejection. New products with lower prices can decrease revenues even
with increased unit sales. The rapid introduction of new products could result
in closeouts of existing inventories for wholesale and retail sales. Such
closeouts could reduce margins on sales of older products and reduce sales of
new products. Such events could have a material adverse impact on the Company's
operations.
The Company plans its orders to manufacturers based upon the forecasted
demand for its products. Actual demand may be more or less than forecasted
demand. Since the Company's overseas club-head vendors generally require 30-45
day lead times to produce heads after a purchase order is placed, and since
shipments from these vendors average 25-30 days, the Company's ability to
quickly expand its manufacturing capacity for new products is limited. If the
Company is unable to produce sufficient quantities of new products in time to
fulfill actual demand, it could limit the Company's sales and adversely affect
its financial performance. If actual demand is less than forecasted, the
Company could have excess inventories and related obsolescent charges that could
adversely affect financial performance.
Sales and Marketing
The Company sells its products through wholesale sales to on-course and
off-course golf retail shops and selected sporting goods retailers and through
direct sales to consumers using television infomercials, direct mail,
telemarketing and the Company's web site.
Retail Sales. A significant portion of the Company's sales are to U.S.
retailers. To generate retailer loyalty and maintain its high quality
reputation, the Company does not currently sell to price sensitive general
discount warehouses or membership chains. For the nine months ended September
30, 1999 and for the fiscal years ended December 31, 1998 and 1997, sales to
retailers accounted for approximately 71%, 46% and 57%, respectively, of total
sales.
Retail accounts are handled by a national network of independent sales
representatives supported by the Company's executive office and a telemarketing
team of 12 employees in San Diego. At September 30, 1999, the Company had 32
independent sales representatives who receive a commission on qualifying sales
and are free to sell for other golf equipment companies. Although the Company
works closely with its sales representatives, it cannot directly control or
insure the effectiveness of their sales and marketing activities.
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All product orders from retailers and other customers are subject to
cancellation or rescheduling by the customer prior to shipment with limited or
no penalties. While the Company believes its relationships with its customers
are satisfactory, there can be no assurance the Company will be able to maintain
such relationships in the future.
International Sales. The Company markets its products outside the United
States through independent distributors. The primary foreign market is Japan.
Sales have also been made in Korea, United Kingdom, Germany, Sweden, Puerto Rico
and the Phillippines. International sales accounted for 14.7%, 6% and 2.3% of
the Company's net sales for the nine months ended September 30, 1999, and for
the 1998 and 1997 fiscal years, respectively.
The Company's primary foreign distributor is a United States company, which
sells the Polar Balanced putter and other products through infomercials in
Japan. Sales to this distributor were approximately $1,704,619 (12.4% of
overall net sales) for the nine months ended September 30, 1999 and
approximately $1,122,993 (9% of overall net sales) for the fiscal year 1998.
The Company's foreign operations increase the Company's exposure to
fluctuations in exchange rates for various foreign currencies which could result
in losses, and in turn, adversely impact the Company's business, financial
conditions and results of operations.
Customer Service Support. The Company believes that superior customer
service can significantly enhance its marketing efforts. The Company maintains
an in-house customer service department for both wholesale and direct consumer
trade. A 24-hour 7-day-a-week inbound telemarketing company answers customer
calls generated by the Company's infomercials. The Company's sales
representatives directly service the retail accounts.
Advertising and Promotion. The Company seeks to promote its products
through a cost-effective combination of public relations, promotion, print
advertising, and printed sales materials which invoke the theme of a "material
advantage" through technology. To date, the Company has avoided general image
advertising (in television or print), choosing instead to focus its marketing
budget on direct response advertising which the Company believes has a more
predictable impact on sales and can be a cost-effective way to simultaneously
build brand name recognition, communicate a product story, and sell product.
The Company regularly places direct response advertisements in national print
publications such as Golf Digest and Golf World and has used television
infomercials for specific products.
Infomercials. The Company has successfully used television infomercials to
launch new products. The ViperBite in 1995, the Gyroseven utility wood in 1997,
and the Polar Balanced Putter in 1998 were all introduced to the market through
infomercials. The Company believes that good infomercials can enhance consumer
awareness of its products, make immediate sales, and expand the retail customer
base. Infomercials are typically 28 minutes long, feature celebrities, pro
athletes and/or golf professionals and are shown primarily on the Golf Channel
and major regional sports channels. During their economic life, they are often
aired every day, particularly on weekends.
Direct Response. In addition to direct response advertising, the Company
pursues direct consumer sales with sophisticated direct mail and telemarketing
programs, spearheaded by the Company's in-house telemarketing department in San
Diego. Since most direct response sales are made by credit card, the Company is
able to secure cash payment before shipment without any credit risk or accounts
receivable management.
Product Endorsements. The Company promotes its products to touring golf
professionals. In August, 1999, the Company entered into a five-year Endorsement
Agreement with professional golfer Fuzzy Zoeller whereby Zoeller will play,
endorse, and assist in the development of Carbite products worldwide. The
Agreement calls for payments to Zoeller in a combination of cash and stock of
$138,000 for the first six months (August, 1999 to February 2000) and five
annual payments of cash and stock thereafter with a dollar value of $300,000 in
Year 2, $300,000 in Year 3,
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$500,000 in Year 4, $550,000 in Year 5 and $575,000 in Year 6. The Company has
the right to terminate the arrangement if 2001 sales do not reach $25 million.
Carbite Golf Web Site. The Company's products are promoted and offered
for sale on the Company's internet web site (www.carbitegolf.com).
The Company's total advertising and marketing related expenses were
approximately $5.3 million and $3.0 million for the fiscal years 1998 and 1997,
and $4.6 million for the nine months ended September 30, 1999.
Manufacturing, Assembly and Raw Materials
The principal components for the Company's golf clubs (clubheads, shafts
and grips) are manufactured by outside suppliers and shipped to the Company for
assembly. The suppliers are selected based on the quality of the finished
products, materials, dependability and pricing. All clubheads are designed by
the Company which provides the manufacturers with detailed specifications. They
are inspected prior to shipment by a quality control inspector employed by the
Company in Taiwan.
All assembly operations, including painting, stenciling and the application
of trade dress, are completed at the Company's facility in San Diego,
California. All components are inspected upon arrival from the suppliers and
are assembled under the supervision of a full-time quality control inspector who
conducts numerous visual inspections at various points along the assembly
process.
The Company is dependent on a limited number of suppliers and does not have
prior written agreements with them. The principal clubhead suppliers, all based
in Taiwan, are CIPA, New Abiding, Tibest International and Ever Ring. The
principal shaft suppliers are True Temper, Neo Fiber and Titan. The principal
grip suppliers are Rubberon, Eaton and Lamkin. Some of the Company's products
require specifically developed manufacturing techniques and processes which make
it difficult to identify and utilize alternative suppliers quickly. The Company
believes that suitable clubheads, shafts and grips could be obtained from
alternative manufacturers, but any significant production delay or disruption
caused by the inability of current suppliers to deliver or the transition to
other suppliers could have a material adverse effect on the Company's business,
results of operations and financial position.
Dependence on Major Customers
During the fiscal years ended December 31, 1998 and 1997, no customer
accounted for more than 10% of net sales revenue. For the nine months ended
September 30, 1999, one foreign distributor accounted for approximately 12.4% of
net sales.
Patents and Trademarks
The Company is the exclusive assignee, subject to a royalty obligation, of
the following seven U.S. registered patents owned by Chester S. Shira which give
the Company the exclusive right to produce golf clubs incorporating the
proprietary powder metallurgy processes set forth in these patents: No.
4,768,787 (issued 9/6/88); No. 4,992,236 (issued 2/12/91); No. 5,062,638 (issued
11/5/91); No. 5,094,810 (issued 3/10/92); No. 5,217,227 (issued 6/8/93); No.
5,669,825 (issued 9/23/97); and No. 5,755,626 (issued 5/26/98). Eight
additional patent applications are pending, but have not been issued.
The Company's ability to compete effectively in the golf club market will
depend, in part, on its ability to maintain the proprietary nature of its
technologies and products covered by these patents. There can be no assurance,
however, as to the degree of protection afforded by these patents or as to the
likelihood that patents will be issued from
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the pending patent applications. Moreover, these patents may have limited
commercial value or may lack sufficient breadth to adequately protect the
aspects of the Company's products to which the patents relate.
There can be no assurance that competitors, many of which have
substantially greater resources than the Company and have made substantial
investments in competing products, will not apply for and obtain patents of
their own that will prevent, limit or interfere with the Company's ability to
make and sell its products. The Company is aware of numerous patents held by
third parties that relate to products competitive to the Company's. There is no
assurance that these patents would not be used as a basis to challenge the
validity or limit the scope the Company's patent rights. A successful challenge
to the validity of the Company's patents may adversely affect the Company's
competitive position. Moreover, there can be no assurance that such patent
holders or other third parties will not claim infringement by the Company with
respect to current and future products. Because U.S. patent applications are
held and examined in secrecy, it is also possible that presently-pending U.S.
applications will eventually issue with claims that will be infringed by the
Company's products or technologies. The defense and prosecution of patent suits
is costly and time-consuming, even if the ultimate outcome is favorable. This
is particularly true in foreign countries where expenses associated with such
proceedings can be prohibitive. An adverse outcome in the defense of a patent
suit could subject the Company to significant liabilities to third parties,
require the Company to cease selling products or require disputed rights to be
licensed from third parties. Such licenses may not be available on satisfactory
terms, or at all. The Company also relies on unpatented proprietary technology.
Third parties could develop the same or similar technology or otherwise obtain
access to the Company's proprietary technology.
The Company's products are principally sold under the Carbite brand name.
The Company is the owner of the following U.S. trademarks registered with the
U.S. Patent office: "Carbite;" "Check Mate;" "Multi Density;" "Dual Density;"
and "Diatanium." The "Carbite" mark is also registered in Japan and Germany.
The Company has applied for U.S. registration of the following marks and
such applications are pending: "Ti-Gear;" "Di-Gear;" "Nomis;" "Yipless;" "Multi
Density;" "Dual Density;" "Polar Balanced;" "Dovetail Design;" "Enerlite;" and
"Mometal." There can be no assurance that any such pending trademarks will be
granted.
In 1997, Orlimar Golf Company advised the Company that it believed that the
Gyroseven wood infringed Orlimar's rights in the trademark "Gyro" which Orlimar
had previously used on a putter product. To resolve this matter, the Company
agreed to cease production of additional Gyrosevens and paid a royalty to
Orlimar totaling $25,000. The Company no longer uses the Gyroseven name.
The Company has developed procedures to maintain the secrecy of its
confidential business information. These procedures include criteria for access
to and distribution of information and require written confidentiality
agreements with certain employees and vendors. There can be no assurance these
measures will prove adequate in all instances to protect the Company's
confidential information.
Licenses
In January, 1995, the Company licensed to Taylor Made Golf Company the
rights to use its bronze high friction inserts under the Taylor Made brand name
on irons. In March, 1997, that agreement was extended through December 31,
1999. Taylor Made may purchase the inserts directly from the supplier, subject
to certain exceptions. For the fiscal years ended December 31, 1998 and 1997,
and for the nine months ended September 30, 1999, the Company received royalty
fees of $60,101, $202,778 and $5,000 from Taylor Made.
In October 28, 1998, the Company entered into a License Agreement with KZG
Golf, Inc. for the brazing of copper tungsten wood heads manufactured for
Orlimar Golf's TriMetal wood products. The term of the License Agreement is
five years and requires a minimum annual payment of $5,000. The License
Agreement may be terminated by either party in the event of a material breach.
For the fiscal year ended December 31, 1998 and for the nine months
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ended September 30, 1999, the Company was paid $221,308 and $161,571,
respectively, in royalties pursuant to this License Agreement.
Daiwa Agreements
In September, 1999, the Company entered into two agreements with Daiwa
Seiko of Japan:
A Trademark License Agreement which permits the Company to use the Daiwa
name and other trademarks of Daiwa on golf products in the United States. The
term is five years with an option for an additional five-year term. The Company
is obligated to pay a royalty of 6% of the Company's FOB purchase price on all
products sold under the license. The agreement is subject to termination upon
certain events, including failure to meet certain minimum royalty amounts
($75,000 in Year 1, $225,000 in Year 2, $250,000 in Year 3, $375,000 in Year 4
and $450,000 in Year 5).
A Distribution Agreement which designates the Company as the exclusive
distributor of Daiwa golf products in the United States for a term of five years
with an option to renew for an additional five years. The agreement is subject
to termination upon certain events, including the failure for two consecutive
years to undertake to meet certain minimum purchase obligations, which begin at
$1.75 million for the first year of the agreement and escalate substantially
each year thereafter. The agreement grants Daiwa an option, exercisable through
September, 2002, to buy 300,000 shares of the Company's common stock at fair
market value. The Company must also pay 10% of Daiwa net sales for advertising
and promotion of Daiwa products in the United States.
Competition
The Company operates in a highly-competitive market which is served by a
number of well-established and well-financed companies with recognized brand
names, as well as new companies with popular products. The Company believes it
competes in the mid-priced to premium-priced segment of the golf club industry.
The majority of the Company's competitors have substantially greater capital
resources, depth of management and brand name identification in the golf
industry than the Company. The Company believes it competes primarily on the
basis of performance, quality, price and brand name recognition. The Company's
competitors include Callaway, Taylor Made, Ping, Titleist, Odyssey and
Cleveland.
The golf club industry is generally characterized by rapid and widespread
imitation of popular technologies, designs and product concepts developed by
both new and/or existing competitors. Occasionally, new market entrants may
develop innovative club designs which meet with acceptance from golf club
purchasers, leading to unanticipated changes in consumer preferences. Many
purchasers of golf clubs desire golf clubs that feature the latest technological
innovations and cosmetic designs, and their purchasing decisions are often the
result of highly subjective preferences which can be influenced by many factors,
including, advertising, media and product endorsements. The Company could,
therefore, face substantial competition from existing or new competitors who
successfully introduce new clubs perceived to offer performance advantages and
greater aesthetic appeal. Golf club manufacturers which do not currently compete
directly with the Company could pose significant competition in the future if
they were to enter the market of medium to premium-priced high-quality clubs.
There can be no assurance the Company will compete successfully in the future.
Seasonality
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. As a result, the
Company's operating results are highly seasonal. Sales of golf clubs are also
dependent on discretionary consumer spending, which may be affected by general
economic conditions. A decrease in consumer spending generally could result in
decreased spending on golf equipment, which could have a material adverse effect
on the Company's business, operating results and financial condition. The
Company's future results of operations could also be affected by a
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number of other factors, such as the unseasonal "El Nino" weather patterns
experienced during the winter of 1997-1998; new product introductions by the
Company's competitors; competitive pressures resulting in lower than expected
average selling prices; and a reduction in sales volume.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall. Technological advances by
competitors or other competitive factors may require the Company to invest
significantly greater resources than anticipated in research and development or
sales and marketing efforts. Accordingly, the Company believes that period-to-
period comparisons of its results of operations should not be relied upon as an
indication of future performance. Likewise, the results of any quarter are not
indicative of results to be expected for a full fiscal year.
Product Warranty
The Company supports all of its golf clubs with a limited two year written
warranty to the original purchaser. To date, the Company has experienced only
nominal warranty claims which are generally resolved with a replacement product.
The Company monitors the level and nature of any products breakage and, where
appropriate, seeks to incorporate design and product changes to assure its
customers of the highest quality products. If Carbite clubs were to experience
a significant increase in the incidence of breakage or other product problems,
the Company's sales and image with golfers could be materially adversely
affected.
Regulatory Matters
The design of new golf clubs is subject to various regulations by the
United States Golf Association ("USGA") relating to materials, construction,
size and weight of golf clubs. Although the equipment standards established by
the USGA generally apply only to competitive events sanctioned by that
organization, the Company believes it is critical for its success that its clubs
comply with USGA standards. The Company's current products all comply with USGA
standards.
The process of securing a favorable ruling from the USGA on a given product is
subjective and no assurance can be given that any new products will receive USGA
approval or that existing USGA standards will not be altered in ways that could
adversely affect the sales of the Company's products in the future. If any of
the Company's clubs were found to be non-conforming to USGA standards, it could
have a materially adverse effect on the Company's sales, image and overall
financial performance.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste and
emissions and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company believes it is in compliance in all material respects with all
applicable environmental and occupational safety regulations.
Employees
As of September 30, 1999, the Company had 83 full-time employees, including
36 in product assembly and shipping, 29 in sales and marketing, and 18 in
management, finance and administration. None of the Company's employees are
represented by a union, and the Company has not experienced any work stoppages.
The Company considers its relations with its employees to be satisfactory.
11
<PAGE>
Acquisitions
The Company regularly reviews possible acquisition opportunities to
potentially expand its business. The Company may make acquisitions of, or
strategic alliances with, complementary services, technologies, product designs
or businesses in the future, but only if such are available on advantageous
terms and can substantially aid the Company in expanding its market share and
product line. There can be no assurance, however, that any future acquisition
or other arrangement will be completed or that, if completed, any such
acquisition will be effectively assimilated into the Company's business.
Acquisitions involve numerous risks, including loss of key personnel of the
acquired company, the difficulty associated with assimilating the personnel and
operations of the acquired company, the potential disruption of the Company's
ongoing business, the maintenance of uniform standards, controls, procedures and
policies, and the impairment of the Company's reputation and relationships with
employees and customers. Any future acquisitions could also result in the
issuance of dilutive equity securities, the incurrence of debt or contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on the Company's
business, operating results or financial condition.
Enforceability of Certain Civil Liabilities
The Company is a Canadian corporation. One of its five directors and its
accountants referenced herein reside outside of the United States.
Substantially all of the assets of these persons are located outside of the
United States. However, the sole asset of the Company, Carbite, Inc. and all of
the Carbite, Inc.'s assets are located in the United States. It may not be
possible for investors to effect services of process within the United States
upon the director and the accountants who reside outside of the United States,
or to enforce against the Company or such persons judgments obtained in a United
States court predicated upon the liability provisions of the United States
securities laws. The Company believes there is doubt as to the enforceability
in British Columbia, Canada, where the Company's principal executive offices are
located, of judgments against the Company or its directors or accountants named
herein who are not residents of the United States, predicated solely on the
civil liability provisions of these laws.
Additional Information
The Company furnishes its shareholders with an annual report containing
audited financial statements prepared in accordance with generally accepted
accounting principles in Canada ("Canadian G.A.A.P.") that have been reported on
by its independent chartered accountants that will include, if applicable, a
reconciliation between the presentation made in accordance with Canadian
G.A.A.P. and one made in accordance with generally accepted accounting
principles in the United States ("G.A.A.P."). The Company also furnishes its
shareholders with quarterly reports for the first three quarters of each fiscal
year containing unaudited summary financial information.
Upon completion of this registration, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and, in accordance therewith, will file reports, proxy statements and
other information with the Securities and Exchange Commission ("Commission").
Such reports, proxy statements and other information may be inspected at public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, DC 20549; Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York
10048; and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549 at
prescribed rates.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following management's discussion and analysis of financial condition
and results of operations addresses the performance of the Company for the Nine
Months Ended September 30, 1999 and 1998, and the fiscal years ended December
31, 1998 and 1997, and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Registration Statement.
Overview
The Company was originally incorporated in British Columbia, Canada in 1985
as Q Data Systems, Inc. and its stock has been publicly traded on the Vancouver
Stock Exchange since 1986. The Company's original business was the development
and sale of an electronic stock quotation device. In 1992, the Company changed
its name to Consolidated Q Data Systems, Inc. and expanded its business with the
acquisition of an automobile dealership. Both of those businesses were
discontinued in 1996.
In June 1994, the Company invested $1.4 million through a series of
transactions to acquire 50% of the outstanding equity in Carbite, Inc. and
secured an option to purchase the remaining 50%. In January 1996, the Company
changed its name to Carbite Golf, Inc.
In a transaction that closed September 3, 1997, the Company completed its
acquisition of Carbite, Inc. through a share exchange of 6.78 million shares of
the Company's common stock at a price of $.90 Canadian for all the outstanding
shares of Carbite, Inc. Simultaneously, the Company completed its acquisition
of Advanced Golf Systems, Inc. through a share exchange of 700,000 shares of the
Company's common stock at a price of $.90 Canadian for all the outstanding
shares of Advanced Golf Systems, Inc. and warrants to purchase an additional
700,000 shares, all of which expired unexercised in September, 1999. The merger
of the Company with Carbite, Inc. and Advanced Golf Systems, Inc. was approved
by the Vancouver Stock Exchange and the California Department of Corporations in
September 1997, and in connection with the merger, the Company obtained a
fairness opinion from KPMG LLP.
In August 1997, the Company acquired the assets of Printer Graphics, a
printing business based in Vancouver, Canada which printing business was
subsequently discontinued in September 1998.
The Company's financial results are derived primarily from the operating
results of its wholly-owned subsidiary, Carbite, Inc., whose operating results
are included in the consolidated financial statements only from September 3,
1997 forward, the date the Company completed its merger with Carbite, Inc. The
other wholly-owned subsidiary of the Company, Advanced Golf Systems, a
California corporation, has no on-going operations and the Company intends to
dissolve it in 1999.
Carbite, Inc.'s net sales are primarily derived from sales of golf
equipment to on-course and off-course golf shops, selected sporting goods
retailers, international distributors and direct sales to consumers. Carbite,
Inc.'s sales increased to $10.6 million for 1996 from $2.9 million for 1995,
decreased to $8.7 million in 1997 and then increased to $15.6 million in 1998.
For the nine months ended September 30, 1999 sales increased to $14.1 million
from $12.2 million for the nine months ended September 30, 1998. Carbite,
Inc.'s net sales are accounted for on an accrual basis for all wholesale sales
and on a cash basis for direct consumer sales.
Carbite, Inc. does not currently manufacture the components required to
assemble its golf clubs, relying instead on component suppliers. Costs of the
clubs consist primarily of component parts, including the head, shaft and grip.
The Company's cost of goods sold includes labor and occupancy costs in
connection with the inspection, testing and assembly of component parts at its
facility in San Diego, California. Operating expenses are composed primarily of
selling and royalty expenses, general and administrative expenses, research and
development expenses. Selling and
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<PAGE>
royalty expenses include advertising and marketing expenses, salaries and
commissions, and royalties and consulting fees paid to talent and the producer
of the Company's infomercials. During the fiscal years ended December 31, 1997,
December 31, 1998 and for the nine months ended September 30, 1999, royalties
were approximately 1% of net sales.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
The following table sets forth the Company's operating results expressed as
a percentage of net sales for the Nine Months Ending September 30, 1999 compared
with the Nine Months Ending September 30, 1998. The Company believes this is
the first nine-month period to period comparison of consolidated results that is
generally indicative of the relative financial components of the Company's
operations since Carbite, Inc. results were included in the Company's
consolidated financial statements only as of September 3, 1997.
Statement of Operations
<TABLE>
<CAPTION>
Nine Months Ending September 30,
1999 1998
---------------------------------------------
<S> <C> <C> <C> <C>
(US Dollars)
Net Sales $14,062,812 100.00% $12,168,503 100.00%
Cost of goods sold 7,142,713 50.79% 5,017,305 41.23%
Gross profit 6,920,099 49.21% 7,151,198 58.77%
Selling expenses 4,405,246 31.33% 5,059,820 41.58%
Operating expenses 1,325,623 9.42% 920,285 7.56%
Net operating income 1,189,230 8.46% 1,171,093 9.62%
Research and development (341,703) -2.43% (241,744) -1.99%
Other expenses (7,866) -0.06% (39,372) -0.32%
Amortization of goodwill and deferred costs (304,883) -2.17% (304,868) -2.51%
Gain on discontinued printing operation 68,138 0.48% -- 0.00%
Loss on disposal of fixed assets -- 0.00% (31,670) -0.26%
Income (loss) before income taxes 602,916 4.29% 553,439 4.54%
Income taxes (397,722) -2.83% -- 0.00%
Net income (loss) 205,194 1.46% 553,439 4.54%
</TABLE>
Net sales increased to $14.1 million for the Nine Months Ended September
30, 1999 from $12.2 million for the comparable period of 1998, primarily due to
strong wholesale sales of the Polar Balanced Putters. Sales of the Polar
Balanced Putter began with an infomercial marketing campaign in March 1998 and
for the nine months ended September 30, 1999, direct consumer sales of the
putters were $443,000 and wholesale sales to distributors were $3,048,000. In
the first quarter of 1998, the Company was still running the infomercial
campaign for the Gyroseven Wood, which produced $375,000 in direct consumer
sales and $107,000 in wholesale sales. The Gyroseven infomercial was not used
in 1999.
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<PAGE>
Cost of goods sold increased to $7,142,713 for the nine months ended
September 30, 1999 compared to $5,017,305 for the comparable period in 1998.
The increase is the result of the increase in sales and a change in the mix of
sales described below. Gross profit decreased to $6,920,099 for the nine months
ending September 30, 1999, from $7,151,198 for the comparable period in 1998.
The gross profit percentages were 49.2% and 58.8% respectively. The reason for
the decrease in gross profit percentage is due to the sales mix changing to a
greater percentage of wholesale sales versus direct consumer sales in 1999.
Wholesale sales have a gross profit ranging from 40-55% compared to 250-400% for
direct consumer sales.
Operating income increased to $1,189,230 for the nine months ended
September 30, 1999 from $1,171,093 for the comparable period in 1998. Total
operating expenses including selling expenses decreased to $5.7 million for the
nine months ended September 30, 1999 from $6 million for the comparable period
in 1998 which represented 40.8% and 49.1% of net sales respectively. The
decrease in operating expenses as a percentage of sales in the first nine months
of 1999 versus 1998 is due to selling expenses being cut to $4.4 million from
$5.9 million. The effectiveness of the Polar Balanced Putter infomercial
decreased in 1999, so the media spent on buying television time decreased. The
operating results include a reserve of $120,000 against a potentially
uncollectible receivable of approximately $372,000 from a customer; the entire
amount may be uncollectible. Net income after taxes for the nine months ended
September 30, 1999 decreased to $205,194 from $553,439 for the comparable period
in 1998. The decrease is primarily due to $397,722 provision for income taxes
in 1999. In 1998, the company benefitted from net operating loss carryforwards,
which offset all of the federal and state taxes that would have been due.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following table sets forth the operating results expressed as a
percentage of net sales for the periods indicated for Carbite Golf, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------------------------- ----------------------
<S> <C> <C> <C> <C>
Net Sales $15,790,853 100.0% $ 2,345,014 100.0%
Cost of goods sold 7,157,329 45.3% 1,287,030 54.9%
Gross profit 8,633,524 54.7% 1,057,984 45.1%
Operating expenses 1,154,649 7.3% 578,616 24.7%
Net operating income 1,296,438 8.2% (774,406) -33.0%
Research and development (345,900) -2.2% (95,536) -4.1%
Other expenses (69,406) -0.4% (210,365) -9.0%
Amortization of goodwill and def costs (531,860) -3.4% (262,726) -11.2%
Gain on discontinued printing operation --- 0.0% --- 0.0%
Loss on disposal of fixed assets (57,954) -0.4% --- 0.0%
Income (loss) before income taxes 291,318 1.8% (1,343,033) -57.3%
Income taxes (52,800) -0.3% (8,423) -0.4%
Net income (loss) 238,518 1.5% (1,351,456) -57.6%
</TABLE>
Net consolidated sales for Carbite Golf Inc. for the fiscal year ended 1998 were
$15.7 million compared to $2.3 million for fiscal 1997. The increase was the
result of only the operations of Carbite, Inc. from September 3, 1997 through
15
<PAGE>
December 31, 1997 being included in the consolidated financial statements for
1997. Thus, the comparison is of the fourth quarter of 1997 to a full year of
operations for 1998.
Cost of goods sold was $7,157,329 for the fiscal year ended December 31,
1998 compared to $1,287,030 for fiscal 1997. The increase is the result of only
the operations of Carbite, Inc. from September 3, 1997 through December 31, 1997
being included in the consolidated financial statements for 1997. Thus, the
comparison is of the fourth quarter of 1997 to a full year of operations for
1998. Gross profit was $8.6 million for the fiscal year ended 1998 compared to
1.0 million for fiscal 1997. Operating expenses increased to $1,154,649 for the
fiscal year ended December 31, 1998 compared to $578,616 for fiscal 1997. The
increase was the result of only the operations of Carbite, Inc. from September
3, 1997 through December 31, 1997 being included in the consolidated financial
statements for 1997. Thus, the comparison is of the fourth quarter of 1997 to a
full year of operations for 1998. Net income was $238,518 in the fiscal year
ended 1998 compared to a loss of $1.35 million in fiscal 1997. The loss in 1997
was caused by (i) the fact that the consolidated statements for 1997 included
only the post-merger fourth quarter for Carbite, Inc. (generally the weakest
sales quarter in the golf industry); (ii) merger costs; (iii) amortization of
goodwill; (iv) year-end write offs and inventory adjustments.
Consolidated Q Data did not have any operating companies in 1996 and thus
no revenues. It incurred $229,000 in losses related to raising capital and
maintaining its good status as a listed corporation on the Vancouver Stock
Exchange. Under other income, it reported a minority interest income from
Carbite, Inc. of $73,000. The net loss including amortization of previously
deferred costs was $238,000.
The Company believes this comparison of the Company's consolidated
financials from 1997 to 1998 does not fully describe overall operating results
because the 1997 consolidated statement only included the final quarter for
Carbite, Inc., the golf operating company. Net sales for Carbite, Inc. increased
to $15.64 million for fiscal 1998 from $8.8 million in fiscal 1997, due
primarily to the Polar Balanced Putter infomercial which produced $7.1 million
in direct consumer sales and $5.2 million in retail sales in fiscal 1998. Gross
profit for Carbite, Inc. increased to $8.9 million (56.7%) in 1998 from $4.3
million (49.1%) in 1997. Operating expenses increased to $1,002,092 in 1998 from
$789,700 in 1997, but decreased as a percent of sales to 6.3% from 9.0%. Net
operating income increased to $1,502,089 from a $595,949 loss in 1997. Net
income after taxes increased to $879,833 in 1998 from a loss of $881,875 in
1997.
Quarterly Results and Seasonality
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. The results of any
one quarter, therefore, are not necessarily indicative of annual results or
continuing trends. In addition, sales of golf clubs are dependent on
discretionary consumer spending, which may be affected by general economic
conditions. A decrease in consumer spending generally could result in decreased
spending on golf equipment, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company's future results of operations could be affected by a number of other
factors such as unseasonal weather patterns, new product introductions by the
Company's competitors, competitive pressures resulting in lower than expected
average selling prices, and the volume of orders that are received and that can
be fulfilled in a quarter. Any one or more of these factors could result in the
Company failing to achieve its expectations as to future sales or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially adversely
affect quarterly results of operations. If technological advances by competitors
or other competitive factors require the Company to invest significantly greater
resources than anticipated in research and development or sales and marketing
efforts, the company's business, operating results or financial condition could
be materially adversely affected. Accordingly, the Company believes that period-
to-period comparisons of its results of operations should not
16
<PAGE>
be relied upon as an indication of future performance. In addition, the results
of any quarter are not indicative of results to be expected for a full fiscal
year. As a result of fluctuating operating results or other factors discussed
above and below, in certain future quarters the Company's results of operations
may be below the expectations of public market analysts or investors. In such
event, the market price of the Company's Common Stock would be materially
adversely affected.
Computer Systems and Year 2000 Compliance
As of May 1, 1999, the Company initiated a system-wide upgrade of all
computer systems which are intended to provide the Company with state-of-the-art
systems and hardware for financial, manufacturing, customer services and
telemarketing functions. The system is designed to be fully "Year 2000"
compliant. The system was fully operational by December 1, 1999. Total costs
associated with the new system, including Year 2000 compliance, were
approximately $100,000.
The Company believes that its manufacturing operations could be adversely
affected by external supplier systems that are not Year 2000 compliant, and
believes its overseas suppliers involve Year 2000 risk factors.
There can be no assurance that the Company's efforts to achieve Year 2000
compliance will be successful or that third parties with whom the Company has
material relationships will be Year 2000 compliant by January 1, 2000, which
could have a material adverse impact on the business and operations of the
Company.
Liquidity and Capital Resources
The Company has historically financed its business through cash flow from
operations and the private placement of equity and/or debt securities. Such
funds have been supplemented from time to time with short-term borrowings from
commercial lenders.
In February, 1998, $842,000 was raised through private equity placements
made outside the United States. In February 1999, an additional equity of
approximately $530,000 was raised through the exercise of 1,454,545 warrants
issued in a February, 1997 private placement made outside the United States. An
additional $100,000 of equity was raised in March, 1999 through the exercise of
employee options.
Net cash provided by operating activities was $11,000 for the year ended
December 31, 1998 compared to net cash used in 1997 and 1996 of $663,000 and
$158,000, respectively.
In April, 1998, the Company borrowed $500,000 from a private party to
finance the initial launch of the Polar Balanced putter infomercial. The Loan
Agreement dated August 14, 1998 with James A. Henderson and Susan V. Henderson,
as Co-Trustees of The Henderson Living Trust, ("Henderson") provided for a term
of one year at an interest rate of 10% and included a conversion provision
whereby Henderson had the right to convert the loan to units of the Company's
stock and warrants to purchase an additional share. In November, 1998, Henderson
converted $250,000 of the loan to 678,750 units. In December, 1998, the Company
repaid the remaining $250,000 of the loan.
The Company has two commercial credit facilities, both with Scripps Bank in
San Diego, California, including a $1,000,000 Revolving Credit Facility, which
expires on May 15, 2000 and a $60,000 term equipment loan due November 15, 2002.
As of September 30, 1999, the Company had drawn $193,000 under the Credit
Facility and the full balance of $60,000 remained due on the equipment loan.
Both credit facilities are at the lender's general refinance rate of interest
and are collateralized by substantially all of the Company's assets,
receivables, inventory and equipment.
The Company's capital expenditures amounted to $354,115, $256,000 and
$35,000 for the nine months ended September 30, 1999 and the fiscal years ended
December 31, 1998 and 1997, respectively.
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<PAGE>
The Company believes that cash flow from operations, and the Company's
$1,000,000 credit facility will be sufficient to meet operating needs and
capital expenditures to maintain sales at the current levels.
To finance growth and new product introduction planned for the fiscal year
2000, the Company believes it will require approximately $1,000,000 in equity or
debt private placement financing, for which there are presently no firm
commitments as of December 15, 1999 and there can be no assurance that any such
financing will be secured.
Factors that May Affect Future Results and Financial Condition
The Company's operations and financial results are subject to numerous
risks, many of which are beyond the Company's control, including:
Dependence on New Product Introductions; Uncertain Consumer Acceptance
During the nine months ended September 30, 1999 and the fiscal years ended
December 31, 1998 and 1997, approximately 81.9%, 66% and 0%, respectively, of
the Company's net sales were derived from the sale of Polar Balanced Putter.
Sales of this product line are expected to account for a substantial portion of
the Company's net sales for some time. A decline in demand for, or average
selling prices of, the Polar Balanced Putter line of products would have a
material adverse effect on the Company's business, operating results and
financial condition. Accordingly, the Company's continued growth and success
depend, in large part, on its ability to successfully develop and introduce new
products accepted in the marketplace. Historically, a large portion of new golf
club technologies and product designs have been met with consumer rejection. No
assurance can be given that the new products currently under development will
meet with market acceptance or that the Company will be able to continue to
design, manufacture and introduce new products that will meet with market
acceptance. Failure by the Company to identify and develop innovative new
products that achieve widespread market acceptance would adversely affect the
Company's future growth and profitability. Additionally, successful
technologies, designs and product concepts are likely to be copied by
competitors. Accordingly, the Company's operating results could fluctuate as a
result of the amount, timing and market acceptance of new product introductions
by the Company or its competitors. The design of new golf clubs is also greatly
influenced by the rules and interpretations of the U.S. Golf Association
("USGA"). Although the golf equipment standards established by the USGA
generally apply only to competitive events sanctioned by that organization, the
Company believes that it is critical for its future success that new clubs
introduced by the Company comply with USGA standards. No assurance can be given
that any new products will receive USGA approval or that existing USGA standards
will not be altered in ways that adversely affect the sales of the Company's
products.
Patents and Protection of Proprietary Technology
The Company's ability to compete effectively in the golf club market will
depend, in large part, on its ability to maintain the proprietary nature of its
technologies and products. The Company is currently the assignee, subject to the
obligation to pay a royalty, of seven U.S. patents relating to certain of its
products and proprietary technologies. There can be no assurance, however, as to
the degree of protection afforded by these patents. Moreover, these patents may
have limited commercial value or may lack sufficient breadth to adequately
protect the aspects of the Company's products to which the patents relate. The
Company's U.S. patent rights do not preclude competitors from developing or
marketing products similar to the Company's products in international markets.
There can be no assurance that competitors, many of which have
substantially greater resources than the Company and have made substantial
investments in competing products, will not apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make and sell its
products. The Company is aware of numerous patents held by third parties that
relate to products competitive to the Company's. There is no assurance that
these patents would not be used as a basis to challenge the validity of one or
more of the Company's patent rights, to limit the scope of the Company's patent
rights or to limit the Company's ability to obtain additional or broader patent
rights.
18
<PAGE>
A successful challenge to the validity of the Company's patent rights may
adversely affect the Company's competitive position. Moreover, there can be no
assurance that such patent holders or other third parties will not claim
infringement by the Company with respect to current and future products. Because
U.S. patent applications are held and examined in secrecy, it is also possible
that presently pending U.S. applications will eventually issue with claims that
will be infringed by the Company's products or technologies. The defense and
prosecution of patent suits is costly and time-consuming, even if the outcome is
favorable. This is particularly true in foreign countries where the expenses
associated with such proceedings can be prohibitive. An adverse outcome in the
defense of a patent suit could subject the Company to significant liabilities to
third parties, require the Company to cease selling products or require disputed
rights to be licensed from third parties. Such licenses may not be available on
satisfactory terms, or at all. The Company also relies on unpatented proprietary
technology. Third parties could develop the same or similar technology or
otherwise obtain access to the Company's proprietary technology. See "Business--
Patents and Trademarks."
Highly Competitive Industry; Significant Price Competition
The market for golf clubs is highly competitive. The Company's competitors
include a number of established companies, most of which have greater financial
and other resources than the Company. The purchasing decisions of many golfers
are often the result of highly subjective preferences, which can be influenced
by many factors, including, among others, advertising, media, promotions and
product endorsements. The Company could therefore face substantial competition
from existing or new competitors that introduce and successfully promote golf
clubs that achieve market acceptance. Further, there can be no assurance that
the Company's marketing strategy will not be emulated by others, thereby
diluting the Company's message or forcing the Company to adopt a new marketing
strategy. Such competition could result in significant price erosion or
increased promotional expenditures, either of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that its
business, operating results or financial condition will not be adversely
affected by increased competition in the markets in which it operates. See
"Business--Competition."
Seasonality and Quarterly Fluctuations; Discretionary Consumer Spending
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. In addition, sales
of golf clubs are dependent on discretionary consumer spending, which may be
affected by general economic conditions. A decrease in consumer spending
generally could result in decreased spending on golf equipment, which could have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, the Company's future results of operations
could be affected by a number of other factors, such as unseasonal weather
patterns; demand for and market acceptance of the Company's existing and future
products; new product introductions by the Company's competitors; competitive
pressures resulting in lower than expected average selling prices; and the
volume of orders that are received and that can be fulfilled in a quarter. Any
one or more of these factors could result in the Company failing to achieve its
expectations as to future sales or net income. Because most operating expenses
are relatively fixed in the short term, the Company may be unable to adjust
spending sufficiently in a timely manner to compensate for any unexpected sales
shortfall, which could materially adversely affect quarterly results of
operations. If technological advances by competitors or other competitive
factors require the Company to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, the
Company's business, operating results or financial condition could be materially
adversely affected. Accordingly, the Company believes that period- to-period
comparisons of its results of operations should not be relied upon as an
indication of future performance. In addition, the results of any quarter are
not indicative of results to be expected for a full fiscal year. As a result of
fluctuating operating results or other factors discussed above and below, in
certain future quarters the Company's results of operations may be below the
expectations of public market analysts or investors. In such event, the market
price of the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<PAGE>
Future Capital Needs; Need for Additional Financing
The Company estimates that it may need significant funding, in addition to
its present capital, to be able to fully develop and expand its business. The
Company's future capital requirements will depend upon many factors, including
the extent and timing of acceptance of the Company's products in the market,
commitments to third parties to develop and manufacture products, the progress
of the Company's product development efforts, the Company's operating results
and the status of competitive products. Between January 1, 1999 and September
30, 1999 the Company raised approximately $942,000 in additional capital. While
the Company is currently attempting to raise additional funding, the Company has
no commitment for such additional funding. There is no assurance that the
Company will be able to obtain such funding; if obtained, such funding could
dilute the ownership of present shareholders.
Dependence on Golf Industry
The financial performance of the Company is dependent in large part upon
the current and anticipated market demand for golf equipment. During 1998 and
early 1999, the golf equipment industry experienced periods of oversupply. The
Company believes that the golf equipment industry will continue to be subject to
this period of oversupply through the end of 1999. The golf equipment industry
has experienced significant growth but demonstrated a slowdown in demand in 1998
and early 1999. There can be no assurance that such growth will return and that
the slowdown will not continue. A reduced rate of growth in the demand for golf
equipment due, for example, to competitive factors, technological change or
otherwise, may materially adversely affect the markets for the Company's
products. Accordingly, any factor adversely affecting the golf equipment
industry may materially adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the
Company's net sales and results of operations will not be materially adversely
affected if downturns or slowdowns in the golf equipment industry continue or
occur again in the future.
Ability to Manage Growth
The Company has recently experienced a period of rapid growth that has
resulted in new and increased responsibilities for existing management
personnel. The Company's growth has placed, and is expected to continue to
place, a strain on the Company's systems and resources to accommodate this
recent growth. To compete effectively and manage future growth, if any, the
Company will be required to continue to implement and improve its operational,
financial and management information systems, procedures and controls on a
timely basis and to expend, train, motivate and manage its workforce. There can
be no assurance the Company's personnel, systems, procedures and controls will
be adequate to support its existing or future operations. Any failure to
implement and improve the Company's financial and management systems or to
expand, train, motivate or manage employees could have a material adverse effect
on the Company's business, operating results or financial condition.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the performance
of its senior management team, particularly the Company's founder, Chester S.
Shira, and its President, Michael A. Spacciapolli. Mr. Shira leads the Company's
products development efforts. Mr. Spacciapolli directs day to day affairs of the
Company. The loss or unavailability of Mr. Shira or Mr. Spacciapolli would
adversely affect the Company's business and prospects. The Company does not
maintain life insurance on either Mr. Shira or Mr. Spacciapolli. Mr. Shira and
Mr. Spacciapolli are bound by employment agreements with the Company, but they
expire on September 3, 2000. In addition, there is strong competition for
qualified personnel in the golf club industry, and the inability to continue to
attract, retain and motivate other key personnel could adversely affect the
Company's business, operating results or financial condition.
20
<PAGE>
Risks Associated with Acquisitions
The Company regularly reviews possible acquisition opportunities and may
make future acquisitions of complementary services, technologies, product
designs or businesses in the future. The Company has no letters of intent or
agreements for any acquisitions. There can be no assurance that future
acquisitions, if any, will be completed or that, if completed, any such
acquisition will be effectively assimilated into the Company's business.
Acquisitions involve numerous risks, including, among others, loss of key
personnel of the acquired company, the difficulty associated with assimilating
the personnel and operations of the acquired company, the potential disruption
of the Company's ongoing business, the maintenance of uniform standards,
controls, procedures and policies, and the impairment of the Company's
reputation and relationships with employees and customers. In addition, any
future acquisitions could result in the issuance of dilutive equity securities,
the incurrence of debt or contingent liabilities, and amortization expenses
related to goodwill and other intangible assets, any of which could have a
material adverse effect on the Company's business, operating results or
financial condition.
Effect of Outstanding Options and Warrants
As of September 30, 1999, there are outstanding options to purchase an
aggregate of 2,864,240 shares of Common Stock and outstanding warrants to
purchase an aggregate of 791,250 shares of Common Stock. As of September 30,
1999, the Company had 22,426,486 shares of Common Stock outstanding. The
exercise of such outstanding options and warrants would dilute the percentage
ownership of the Company's stock, and any sales in the public market of Common
Stock underlying such stock options could adversely affect prevailing market
prices for the Common Stock. Moreover, the terms upon which the Company would be
able to obtain additional equity capital could be adversely affected by the
existence of such options or warrants.
Credit Risk
The Company primarily sells its products to golf equipment retailers and
distributors, and directly to customers via infomercials. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral from these customers. The 1998-1999 downturn in the
retail golf equipment market has resulted in delinquent or uncollectible
accounts for some of the Company's customers. Management does not foresee any
significant improvement in the golf equipment market during 1999, and therefore
expects this trend to continue. Accordingly, there can be no assurance that the
Company's results of operations or cash flows will not be adversely impacted by
the failure of its customers to meet their obligations to the Company.
Technological Changes
The manufacture and design of golf clubs has undergone significant changes
with respect to design and materials in recent years. The introduction of new or
enhanced technologies or designs by competitors could render the Company's
products less marketable. The ability of the Company to compete successfully
will depend to a large degree on its ability to innovate and respond to changes
and advances in its industry. There can be no assurance that the Company will be
able over the long term to keep pace with the demands of the market place.
Risks of Technical Problems or Product Defects
There is no assurance, despite testing and quality assurance efforts that
may be performed by the Company and/or its industry partners, that technical
problems or product defects will not be found, resulting in loss of or delay in
market acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and support costs, any of which could
have a material adverse effect on the Company's business. Moreover, there is no
assurance that the Company will not experience difficulties that could delay or
prevent the development and introduction of its products and services, that new
or enhanced products and services will meet with market acceptance,
21
<PAGE>
or that advancements by competitors will not erode the Company's position or
render the Company's products and services obsolete.
Dependence on Limited Number of Component Suppliers
The Company assembles all of its clubs at its San Diego facility. The
Company does not manufacture the components required to assemble its golf clubs.
The Company relies on three suppliers for heads and three suppliers each for
shafts and grips. The Company does not have written supply agreements with any
of its current suppliers. Therefore, the Company's success will be dependent on
maintaining its relationships with existing suppliers and developing
relationships with new suppliers. The Company believes that there are readily
available alternative sources for each of the components used in the manufacture
and assembly of its clubs, although, of this, there can be no assurance. Any
significant delay or disruption in the supply of components from the Company's
suppliers or any diminution of quality resulting from such supplier's
insufficient controls or inadequate component testing, would have a material
adverse effect on the Company's business, operating results and financial
condition. Further, given the highly seasonal nature of the golf equipment
industry, such adverse effect would be exacerbated should any supply delay or
quality problem occur immediately prior to or during the nine month period
ending September 30 (the period during which sales of golf equipment generally
are expected to be the highest). See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
Reliance on Independent Domestic Sales Representatives
Sales of the Company's products are dependent, in part, on its nationwide
network of independent sales representatives. While the Company believes that
its relationships with its sales representatives and customers are satisfactory,
there can be no assurance that the Company will be able to maintain such
relationships in the future. The Company's sales representatives are not
exclusive and may also provide services for other golf club equipment
manufacturers that offer product lines competitive with those of the Company.
Although the Company works closely with its sales representatives, the Company
cannot directly control such representatives' sales and marketing activities.
There can be no assurance that these representatives will effectively manage the
sale of the Company's products or that their selling efforts will prove
effective. See "Business--Sales and Marketing."
International Sales; Reliance on Limited Number of Foreign Distributors
During the nine months ended September 30, 1999 and the fiscal years ended
December 31, 1998 and 1997, sales to international customers, primarily through
one customer which markets products in Japan, accounted for approximately 12.4%,
6.0% and 2.3% of the Company's net sales, respectively. Accordingly, if this
distributor ceases to purchase golf clubs from the Company, the Company's sales
will be reduced significantly. The Company relies exclusively on this and other
foreign distributors to market and sell the Company's products outside the
United States. Although the Company works closely with its foreign distributors,
the Company cannot directly control such distributors' sales and marketing
activities and, accordingly, cannot manage the Company's product sales in
foreign markets. The Company's foreign distributors may also distribute, either
on behalf of themselves or other golf club equipment manufacturers, other
product lines, including product lines that may be competitive with those of the
Company. There can be no assurance that these distributors will effectively
manage the sale of the Company's products worldwide or that their marketing
efforts will prove effective. Additionally, the Company's international sales
may be disrupted or adversely affected by events beyond the Company's control,
including currency fluctuations and political or regulatory changes. See
"Business--Sales and Marketing."
22
<PAGE>
DESCRIPTION OF PROPERTY
The Company's principal executive offices presently are located at 6330
Nancy Ridge Drive, San Diego, California, where it leases approximately 17,000
square feet of office, warehouse, manufacturing and research and development
space. That lease carries a base rent of $12,400 per month and runs through
January 30, 2000. The Company has completed plans to move its headquarters upon
expiration of the current lease on January 30, 2000 and has entered into a four-
year lease commencing February 1, 2000 for a 26,000 square foot facility in the
same area which the Company believes will accommodate the Company's expected
growth. Base rent under the new lease will be $20,185 per month with 4% annual
increases.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1999 by:
(i) each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock; (ii) each of the Company's directors;
(iii) each named executive officer; and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Amount of
Common Stock Approximate
and Nature of Percent of
Beneficial Beneficial
Name and Address of Beneficial Owner/(1)/ Ownership Ownership/(2)/
- ----------------------------------------- --------------- ----------------
<S> <C> <C>
Chester S. Shira/(3)/.......................................... 4,718,130 21.04%
Michael A. Spacciapolli/(4)/................................... 1,867,694 6.89%
Randie Burrell/(5)/............................................ 224,400 1.00%
David Nairne/(6)/.............................................. 349,570 1.56%
James Henderson/(7)/........................................... 1,465,072 6.53%
All directors and executive officers as a group (5 persons).... 8,077,366 36.02%
</TABLE>
_______________
(1) Unless otherwise indicated, the address of each person is in care of the
Company at 6330 Nancy Ridge Drive, Suite 107, San Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants or convertible securities that are currently
exercisable, or exercisable within 60 days of September 30, 1999 are deemed
outstanding for computing the percentage of the person holding such
options, warrants or convertible securities but are not deemed outstanding
for computing the percentage owned by any other shareholder listed. Except
as indicated by footnote and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shares as beneficially
owned by them.
(2) Percentage ownership is based in 22,426,486 shares outstanding as of
September 30, 1999.
(3) Includes 389,620 shares which Mr. Shira has the right to acquire upon
exercise of outstanding options, and all of such options were exercisable
as of September 30, 1999.
(4) Includes 1,444,120 shares which Mr. Spacciapolli has the right to acquire
upon exercise of outstanding options and all of such options were
exercisable as of September 30, 1999.
(5) Includes 67,500 shares which Mr. Burrell has the right to acquire upon
exercise of outstanding options, and all of such options were exercisable
as of September 30, 1999.
23
<PAGE>
(6) Includes 20,000 shares which Mr. Nairne has the right to acquire upon
exercise of outstanding options, and all of such options were exercisable
as of September 30, 1999.
(7) Includes a warrant to acquire 678,750 shares of Common Stock exercisable at
$.80 per share through April, 1999, and exercisable at $.95 per share
through April, 2000, and all of the shares underlying the warrant are
exercisable as of September 30, 1999.
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------------------------------------------------
<S> <C> <C>
Chester S. Shira............... 71 Director of Research and Development and Chairman of the Board
Michael A. Spacciapolli........ 47 President, Chief Executive Officer and Director
Randie Burrell................. 47 Chief Financial Officer
David Nairne................... 45 Director
James Henderson................ 48 Director
</TABLE>
Chester S. Shira is the founder of the Company's wholly-owned subsidiary,
Carbite, Inc., and has been its Chairman of the Board since 1988. From 1988 to
1994 he also served as President and Chief Executive Officer of Carbite, Inc.
Mr. Shira has been Chairman of the Board and Director of Research and
Development of the Company since 1997. Mr. Shira spent 11 years managing all
aspects of welding, forging and metal finishing development for North American
Rockwell and four years with Lincoln Electric Company, working in the areas of
application engineering and process controls. He has over 40 years experience
as a metallurgist and welding engineer. Mr. Shira has a BA from Ohio State
University, and is a registered professional metallurgical engineer in
California and Ohio.
Michael A. Spacciapolli joined Carbite, Inc. in 1992 as Executive Vice
President. He has been the President, Chief Executive Officer and a Director of
Carbite, Inc. since 1995 and was the Chief Financial Officer from 1992 to 1998.
Mr. Spacciapolli has been the President, Chief Executive Officer and a Director
of the Company since 1997. From 1988 to 1992, Mr. Spacciapolli was the Director
of Business Development for the accounting firm of Sterres, Alpert and Carne.
Prior to joining Sterres, Alpert and Carne, Mr. Spacciapolli was a Vice
President and District Manager for Wells Fargo Bank with responsibility for 18
branch locations and over 200 employees in San Diego. Mr. Spacciapolli has a BS
in Accounting from Rochester Institute of Technology.
Randie Burrell joined the Company as Chief Financial Officer in 1998. From
June 1995 through August 1997 he was the Managing Partner of the ViperBite
Company, a partnership between Advanced Golf Systems, Inc. and Carbite, Inc.
From 1993 to 1995 he was the Chief Financial Officer for Advanced Golf Systems,
Inc.
David Nairne was appointed as a director in 1996. Mr. Nairne is President
of Cedaridge Development and Management LTD, a private company in real estate
based in Vancouver, Canada. Cedaridge provides equity financing to other
developers, as well as undertaking developments for its own account in both
Canada and the United States. Prior to joining Cedaridge, Mr. Nairne was Vice
President of Communities Southwest in Irvine, California from August, 1993 to
November, 1995. Communities Southwest was a major developer of residential
communities throughout southern California. Mr. Nairne received his Bachelor of
Commerce degree in 1997 and his Bachelor of Laws degree in 1978.
24
<PAGE>
James Henderson was elected as a director in May, 1999. Mr Henderson was
the Chief Executive Officer of Advanced Machine Programming from 1980- 1996.
From 1996 to present, Mr. Henderson has been a consultant.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for the
fiscal years ended December 31, 1998, 1997 and 1996 to the Chief Executive
Officer and the other executive officers (collectively the "Named Executive
Officers") whose total annual salary and bonus exceed $100,000 in the fiscal
year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation(2) Awards
---------------------- --------------
Securities
Other Annual Underlying All other
Salary Bonus Compensation Options/SAR's Compensation
Name and Principal Position Year ($) ($) ($)(3) ($) ($)(1)
- --------------------------- ---- ------- ------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Chester S. Shira, Director of 1998 128,817 30,000 168,445 75,000
Research and Development 1997 128,817 124,181 164,620
1996 69,692
Michael A. Spacciapolli, Chief 1998 140,719 60,000 125,000
Executive Officer and President 1997 140,719 164,620
1996 69,692
Randie Burrell, Chief Financial 1998 96,000 47,500
Officer(1) 1997 20,000
1996
</TABLE>
_____________
(1) Mr. Burrell joined the Company in 1998.
(2) The compensation described in this table does not include certain perks and
other personal benefits received by the Named Executive Officers, the value
of which does not exceed the lesser of $50,000 or 10% of the Name Executive
Officers total annual salary and bonus.
(3) Represents royalties paid to Mr. Shira pursuant to the Royalty Agreement
dated March 1, 1993 between the Company and Mr. Shira.
25
<PAGE>
Option Grants
The following table sets forth information concerning stock option grants
made to the Company's Chief Executive Officer and each of the other Named
Executive Officers for the fiscal year ended December 1998:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Number of % of Total
Securities Options/SAR's
Underlying Granted to
Options/SAR's Employees Exercise or
Name Granted (#) in Fiscal Year Base Price ($/Sh) Expiration Date
- ---- ------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Chester S. Shira 75,000 8.0% $0.60 (Cdn) November 3, 2003
Michael A. Spacciapolli 125,000 13.0% $0.60 (Cdn) November 3, 2003
Randie Burrell 30,000 3.2% $0.60 (Cdn) November 3, 2003
</TABLE>
Option Exercise and Holdings
The following table sets forth information concerning option exercises and
option holdings for the year ended December 31, 1998, with respect to the
Company's Chief Executive Officer and the Named Executive Officers:
<TABLE>
<CAPTION>
Aggregate Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
------------------------------------------------------------------------
Value Realized Number of Unexercised Value of unexercised
Shares Market Price at Options/SAR's at In-The-Money Options/SAR's
Acquired on Exercise less Fiscal Year End at Fiscal End ($U.S.)(1)
--------------- -----------------------
Name Exercise (#) Exercise Price($) Exercisable Unexercisable Exercisable Unexercisable
- ----- ------------ ----------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Chester S. Shira ___ --- 239,620 --- $123,004 ---
Michael A. Spacciapolli --- ___ 896,620 --- $460,265 ---
Randie Burrell --- --- 67,500 --- $ 34,650 ---
</TABLE>
_______________
(1) Based on the closing price of $.77 Canadian on the Vancouver Stock Exchange
on December 31, 1998 with a U.S. conversion rate of 1.50.
Compensation of Directors
All directors of the Company receive $500 for each meeting attended and are
reimbursed for their expenses to attend meetings.
Employment Agreements
The Company has employment agreements with Messrs. Spacciapolli and Shira,
which provide for employment by the Company for a three year term beginning
September 3, 1997, at an annual salary of not less than $125,000, and such other
periodic and extraordinary compensation deemed appropriate by the Board of
Directors. Following the three year term, their employment shall renew
automatically for one year on each anniversary date unless either party provides
notice of non-renewal.
26
<PAGE>
Messrs. Spacciapolli and Shira's employment agreements also provide that in
the event their employment is terminated pursuant to the employment agreement,
or a notice of non-renewal is issued by the Company they shall each receive six
months severance pay. In the event either of them are terminated other than
pursuant to the employment agreements, they shall each receive the compensation
provided for in their employment agreements for the remainder of the term.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a Royalty Agreement with Carbite, Inc. dated March 1, 1993, the
Company pays patent royalties to Chester S. Shira, Director of Research and
Development and Chairman of the Board. Mr. Shira is the inventor of the
technology used by Company in the design, manufacture and sale of its golf
equipment, and the owner of 7 U.S. patents, all of which have been assigned to
the Company in connection with the Royalty Agreement. The Royalty Agreement
provides for a royalty of $.50 per club on clubs sold by the Company employing
his inventions during the life of the patents. All royalty payments are
current. Mr. Shira can terminate the Royalty Agreement and regain possession of
the patents in the event Carbite, Inc. fails to timely pay his royalties or when
Carbite does not comply with a term or condition of the Royalty Agreement. For
the fiscal years ended December 31, 1998 and 1997, Mr. Shira was paid a total of
U.S. $168,455 and $124,181, respectively, in royalties. For the nine months
ended September 30, 1999, the Company paid $153,221 in royalties to Mr. Shira.
To date, substantially all of the Company's club sales have been subject to the
royalty.
By an Agreement dated April 14, 1998, James A. Henderson (a Director as of
May 19, 1999) and Susan V. Henderson as Co-Trustees of the Henderson Living
Trust ("Henderson") made a loan to the Company in the amount of $500,000. The
loan term was for a period of one year (callable after six months) at an
interest rate of 10%. The loan agreement included a conversion provision under
which Henderson had the right to convert the loan amount into units consisting
of one share of common stock and one two-year warrant (collectively, "Units") to
purchase an additional common share at CDN $.80 in the first year and CDN $.95
in the second year at a price per unit of CDN $.80 per unit. In November, 1998,
the units were repriced to $.52 Canadian with the warrant repriced at $.52 in
the first year and $.50 Canadian in the second year. As incentive to make the
loan, Henderson was paid a "Bonus" equal to 12% of the $500,000 loan, paid in
shares of common stock at a per share price of CDN $.80 per share, which was
reduced to $.52 per share in March, 1998. In November, 1998, Henderson
converted $250,000 of the loan to 678,750 Units, which included one share of
common stock at $.52 Canadian per share with one two-year warrant to purchase an
additional share at $.52 Canadian in the first year and $.60 Canadian in the
second year. The remaining $250,000 of the loan was repaid by the Company on
December 4, 1998. The proceeds of this loan were used to finance the initial
launch of the Polar Balanced Putter infomercial at a time when the Company did
not have ready access to adequate credit or capital to launch the infomercial.
The Company has entered into Employment Agreements with its Chairman,
Chester S. Shira, and its President, Michael A. Spacciapolli, that run through
September 3, 2000 which provide for compensation to each of at least $125,000
per year. During the year ended December 31, 1998, Mr. Spacciapolli was paid
$200,719 U.S. and Mr. Shira was paid $158,817 U.S., by Carbite, Inc.
Randie Burrell, the Chief Financial Officer of the Company, has been
granted options to acquire a total of 67,500 shares of Common Stock, of which
17,500 shares are exercisable at $.80 Canadian per share, and the remaining
50,000 shares are exercisable at $.60 Canadian per share.
Mr. Nairne, a director, has been granted an option to acquire a total of
20,000 shares of Common Stock at $.85 Canadian per share.
27
<PAGE>
Chester S. Shira, Director of Research and Development and a Director of
the Company, has been granted options to acquire a total of 389,620 shares of
Common Stock, of which 150,000 shares are exercisable at $.87 Canadian per
share, and the remaining 239,620 shares are exercisable at $.60 Canadian per
share.
Michael A. Spacciapolli, the President, Chief Executive Officer and a
director, has been granted options to acquire a total of 1,444,120 shares of
Common Stock. 607,000 shares are exercisable at $.01 Canadian per share;
139,620 shares are exercisable at $.60 Canadian per share; 247,500 shares are
exercisable at $.77 Canadian per share, and 450,000 shares are exercisable at
$.85 Canadian per share.
28
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 shares of
common stock, no par value ("Common Stock").
Common Stock
The holders of Common Stock are entitled to one vote for each share on all
matters submitted to a vote of the shareholders and are entitled to receive such
dividends, if any, as may be declared by the Board of Directors from time to
time out of legally available funds. Upon liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share in all
assets of the Company that are legally available for distribution. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares are fully paid and nonassessable.
As of September 30, 1999, there were 22,426,486 shares of Common Stock
issued and outstanding, held of record by approximately 1,100 persons.
At its Annual General Meeting on May 19, 1999, the shareholders of the
Company authorized the Board of Directors to approve a reverse stock split of
both the authorized and issued share capital of the Company using a ratio of
4:1, such that the authorized shares would be reduced to 12,500,000 from
50,000,000, and the issued shares would be reduced from 22,426,486 to
approximately 5,597,246 shares if and when the reverse stock split is authorized
by the Board of Directors, assuming a 4:1 reverse split. The shareholders also
approved a post-consolidation increase in the authorized capital of the Company
to 50,000,000 common shares. As of September 30, 1999, the Board has not
proceeded with any share consolidation.
Stock Transfer Agent
The Company's transfer agent and registrar is Pacific Corporate Trust
Company, 625 Howe Street, Vancouver, British Columbia, Canada V6C 3B8.
29
<PAGE>
PART II
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Vancouver Stock Exchange,
Canada under the symbol "CAB." The following table sets forth for the last two
fiscal years and for the nine months ended September 30, 1999, the high and low
sale prices for the Common Stock as reported on the Vancouver Stock Exchange.
The sale prices quoted are in Canadian dollars and are based on information
provided by the Vancouver Stock Exchange.
<TABLE>
<CAPTION>
Fiscal Year 1997 High Low
---------------- ---- ---
<S> <C> <C>
First Quarter $2.35 $1.50
Second Quarter 1.90 1.55
Third Quarter 1.55 .90
Fourth Quarter 1.10 .55
Fiscal Year 1998
----------------
First Quarter $1.02 $ .50
Second Quarter .80 .60
Third Quarter 1.02 .60
Fourth Quarter .80 .40
Nine Months ended September 30, 1999
------------------------------------
First Quarter $1.16 $ .55
Second Quarter 1.05 .62
Third Quarter .80 .53
</TABLE>
As of September 30, 1999, there were approximately 1,100 holders of the
Company's Common Stock.
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently anticipates it will retain all further earnings, if any,
for use in the operation and expansion of it business and does not anticipate
paying any cash dividends in the foreseeable future.
LEGAL PROCEEDINGS
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
30
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Sales to United States Residents
Since December 1, 1996, the Company has sold or issued the following
securities to persons or entities who are resident in the United States:
1. In January, 1997, the Company granted an option to purchase 50,000
shares of common stock at an exercise price of $1.50 Canadian per share to a
director. The option expired unexercised.
2. In August, 1997, in connection with the Company's acquisition of
Carbite, Inc., the Company issued an aggregate of 6,263,872 shares of common
stock to the shareholders of Carbite Inc. in exchange for all of the then issued
and outstanding shares of Carbite, Inc.
3. In August, 1997, in connection with the Company's acquisition of
Advanced Golf Systems, Inc. ("Advanced"), the Company issued an aggregate of
700,000 shares of its common stock and warrants to purchase an additional
700,000 shares to the shareholders of Advanced in exchange for all of the then
issued and outstanding shares of Advanced. The warrants expired unexercised.
4. In August, 1997, the Company granted an option to purchase 450,000
shares of common stock at an exercise price of $1.50 Canadian per share to a
director. The option expired unexercised.
5. In September, 1997, in connection with the Company's acquisition of
Carbite, Inc., the Company granted an option to purchase 607,000 shares of
common stock at an exercise price of $.01 Canadian per share to Michael A.
Spacciapolli, the Company's President.
6. In October, 1997, the Company granted options to purchase an aggregate
of 435,000 shares of common stock at an exercise price of $1.00 Canadian per
share to officers, directors and employees and ten consultants of the Company.
7. In December, 1997, the Company granted an option to purchase 7,500
shares of common stock at an exercise price of $.75 Canadian per share to a
consultant to the Company.
8. In February, 1998, the Company granted options to Michael Spacciapolli,
its President, and Chester Shira, its Chairman, to each acquire 87,620 shares of
common stock at an exercise price of $1.00 Canadian per share; reduced the
option granted to a director in August, 1997 from 450,000 shares to 250,000
shares; and reduced the exercise price of all outstanding options as of February
28, 1998 (except for the option to acquire 607,000 shares at $.01 granted to the
Company's President in September, 1997) to $.60 Canadian per share. All
exercise price re-pricings were approved by the Vancouver Stock Exchange.
9. In April, 1998, the Company issued an aggregate of 190,666 shares of
common stock (at a rate of $0.60 Canadian of principal indebtedness per share)
to the following in cancellation of certain indebtedness of the Company to them:
2M Group; Lewis, England & Associates, Inc.; Luce, Forward, Hamilton & Scripps,
LLP; and Shimshon Hasson.
10. In April, 1998, the Company granted options to purchase an aggregate
of 162,500 shares of common stock at an exercise price of $.80 Canadian per
share to an officer, employees and one consultant of the Company.
11. In July, 1998, the Company granted an option to purchase 35,000 shares
of common stock at an exercise price of $.85 Canadian to a director; granted an
option to purchase 5,000 shares of common stock at an exercise price
31
<PAGE>
of $.85 Canadian to an employee; and issued 67,500 shares to a consultant to the
Company upon the exercise of stock options for an aggregate exercise price of
$40,500 Canadian.
12. In August, 1998, the Company issued 107,572 shares of common stock to
James A. Henderson and Susan V. Henderson as Co-Trustees of The Henderson Living
Trust ("Henderson") dated April 3, 1990 in consideration for entering into a
Loan Agreement dated August 14, 1998 whereby Henderson loaned the Company
$500,000 U.S.
13. In November, 1998, the Company granted options to purchase an
aggregate of 559,000 shares of common stock at an exercise price of $.60
Canadian per share to officers, directors, employees and six consultants of the
Company.
14. In December, 1998, the Company granted an option to purchase 100,000
shares of common stock at an exercise price of $.70 Canadian per share to a
consultant of the Company.
15. In January, 1999, the Company issued 678,750 shares of common stock
(at a rate of $0.52 Canadian of principal indebtedness per share) and warrants
to purchase an additional 678,750 shares of common stock to James A. Henderson
and Susan V. Henderson as Co-Trustees of The Henderson Living Trust
("Henderson") in cancellation of certain indebtedness of the Company to
Henderson.
16. In March, 1999, the Company issued 150,000 shares to Michael
Spacciapolli, the Company's President, in exchange for $90,000 Canadian upon
exercise of a stock option; granted the Company's President, Michael
Spacciapolli, options to acquire an aggregate of 847,500 shares at an average
exercise price of $.82 Canadian; granted the Company's Chairman, Chester Shira,
an option to acquire 150,000 shares at an exercise price of $.87 Canadian per
share; and granted a consultant to the Company an option to acquire 2,500 shares
at an exercise price of $.77 Canadian.
17. In March, 1999, the Company issued an aggregate of 150,000 shares of
common stock and warrants to purchase an additional 150,000 shares of common
stock in a private placement to four investors for an aggregate purchase price
of $60,000 Canadian.
18. In April, 1999, the Company issued 37,500 shares of common stock to
one investor upon the exercise of stock warrants for an aggregate exercise price
of $15,000 Canadian.
19. In June, 1999, the Company granted an option to purchase 50,000 shares
of common stock at an exercise price of $.70 Canadian per share to a director.
20. The Company is obligated, upon regulatory approval by the Vancouver
Stock Exchange, to issue approximately 195,000 shares of common stock to golf
professional Fuzzy Zoeller for his services during the first six months of his
Endorsement Agreement dated August 20, 1999.
For paragraphs 1 and 4 - 20 herein, no underwriters were used with these
transactions, and the registrant relied upon the exemptions provided by Section
4(2) and/or Regulation D of the Securities Act. For paragraphs 2 and 3, the
registrant relied upon the exemption provided by Section 3(a)(10) of the
Securities Act. All references are to Canadian dollars.
32
<PAGE>
Sales to Non-United States Residents
Since December 1, 1996, the Company has sold or issued the following
securities outside of the United States to persons or entities who are resident
outside the United States:
1. In January, 1997, the Company granted an option to purchase an
aggregate of 450,000 shares of common stock at an exercise price of $1.50
Canadian per share to two officers who reside in Canada.
2. In May, 1997, the Company issued 350,000 shares of common stock to a
Canadian company upon exercise of warrants for an aggregate exercise price of
$402,500 Canadian.
3. In June, 1997, the Company issued 100,000 shares of common stock to an
officer resident in Canada upon exercise of stock options for an aggregate
exercise price of $150,000 Canadian.
4. In August, 1997, the Company issued 150,000 shares of common stock to a
director resident in Canada for services to the Company.
5. In September, 1997, the Company issued 80,000 shares of common stock to
a former director resident in Canada who is now deceased, upon exercise of stock
options for an aggregate exercise price of $48,000 Canadian.
6. In October, 1997, the Company granted options to purchase an aggregate
of 635,000 shares of common stock at an exercise price of $1.00 Canadian per
share to four officers and directors resident in Canada.
7. In February, 1998, the Company amended a prior option granted to a
director resident in Canada to increase the options granted from 50,000 shares
at $1.00 Canadian to 100,000 shares at $1.00 Canadian.
8. In April, 1998, the Company sold an aggregate of 1,454,545 shares of
common stock and warrants to purchase an additional 1,454,545 shares of common
stock to six investors resident outside the United States for an aggregate
purchase price of $800,000 Canadian.
9. In April, 1998, the Company issued an aggregate of 168,000 shares of
common stock (at a rate of $0.60 Canadian of principal indebtedness per share)
to the following firms resident in Canada in cancellation of certain
indebtedness of the Company to them: Martyn Element & Associates Corporate &
Project Finance Limited and Alexander, Holburn, Beaudin & Lang.
10. In July, 1998, the Company issued an aggregate of 415,000 shares of
common stock to three officers resident in Canada upon exercise of stock options
for an aggregate exercise price of $249,000 Canadian.
11. In November, 1998, the Company granted options to purchase an
aggregate of 220,000 shares of common stock at an exercise price of $.60
Canadian per share to an officer and a director, both resident in Canada.
12. In February, 1999, the Company issued an aggregate of 1,454,545 shares
of common stock to six investors resident outside the United States upon the
exercise of stock warrants for an aggregate exercise price of $800,000 Canadian.
13. In April, 1999, the Company granted an option to purchase 100,000
shares of common stock at an exercise price of $.70 Canadian per share to an
officer resident in Canada.
14. In April, 1999, the Company issued 100,000 shares of common stock to
an officer resident in Canada upon the exercise of stock options at an aggregate
exercise price of $60,000 Canadian.
33
<PAGE>
15. In September, 1999, the Company granted an option to purchase 150,000
shares of common stock at an exercise price of $.70 Canadian per share to a
consultant to the Company resident in Canada.
16. In July, 1999, the Company granted an option to purchase 20,000 shares
of common stock at an exercise price of $.85 Canadian per share to a consultant
to the Company resident in England.
17. The Company is obligated, upon regulatory approval by the Vancouver
Stock Exchange, to grant to Daiwa Seiko of Japan an option to purchase 300,000
shares of the Company's common stock at an exercise price equal to the closing
price on September 16, 1999.
For paragraphs 1 - 17 under the Non-United States Residents heading, there
were no underwriters used and the registrant relied upon the exemptions provided
by Regulation S and/or Section 4(2) of the Securities Act. All references are
to Canadian dollars.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company Act for the Province of British Columbia, Canada, the
jurisdiction for which the Company is incorporated and the Company's Articles
govern the indemnification of directors. Section 128 of the Company Act permits
a company to, with the approval of the court, indemnify a director against all
costs, charges and expenses because of being or having been a director,
including an action brought by the company or corporation if:
the person acted honestly and in good faith with the best interests
of the corporation of which the person is or was a director, and
in the case of a criminal or administrative action or proceeding,
the person had a reasonable grounds for believing that the person's
conduct was lawful.
The Company's Articles contain the following regarding the personal
liability of a director to the extent approved by the Court pursuant to the
Company Act:
"11.1 The Company shall indemnify any director, officer, employee or agent
of the Company who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or proceeding
and whether civil, criminal or administrative, by reason of the fact
that he is or was a director, officer, employee or agent of the
Company or any act or thing occurring at a time when he is or was
serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all costs, charges and
expenses, including legal fees and any amount paid to settle the
action or proceeding or satisfy judgment, if he acted honestly and
in good faith with a view of the best interest of the corporation or
other legal entity or enterprise as aforesaid of which he is or was
a director, officer, employee or agent, as the case may be, and
exercise the case, diligence and skill of a reasonably prudent
person, and with respect to any criminal or administrative action or
proceeding, he had reasonable grounds for believing that his conduct
was lawful; provided that no indemnification of a director or former
director of the Company, or director or former director of a
corporation in which the Company is or was a shareholder, shall be
made accepted to the extent approved by the court pursuant to the
Company Act or any other statute. The determination of any action,
suit or proceeding by judgment, order, settlement, conviction or
otherwise shall not of itself, create a presumption that the person
did not act honestly and in good faith and in the best interests of
the Company and did not exercise the care, diligence and skill of a
reasonably prudent person and, with respect to any criminal action
or proceeding, did not have a reasonable grounds to believe that the
conduct was lawful.
34
<PAGE>
11.2 The Company shall indemnify any person in respect of any loss,
damage, costs or expenses whatsoever incurred by him while acting as
an officer, employee or agent for the Company unless such loss,
damage, costs or expenses shall arise out of the failure to comply
with instructions, willful act or default or fraud by such person,
in any of which events the Company shall only indemnify such persons
if the directors, in their absolute discretion so decide or the
Company by ordinary resolution so direct.
11.3 The indemnification provided by this part shall not be deemed
exclusive of any other rights to which those seeking indemnification
may be entitled under any other part, or any valid and lawful
agreement, vote of members or disinterested directors or otherwise,
both as to actions in his official capacity and as to actions in
another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, office, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such person. The indemnification provided by this
article shall not be exclusive of any powers, rights, agreements or
undertakings which may be allegedly permissible or authorized by or
under any applicable law. Notwithstanding any other provisions set
forth in this part, the indemnification authorized by this part
shall be applicable only to the extent that any such indemnification
shall not duplicate indemnity or reimbursement which that person has
received or shall receive otherwise than under this part.
11.4 The directors are authorized from time to time to cause the Company
to give indemnities to any director, officer, employee, agent or
other person who has undertaken or is about to undertake any
liability on behalf of the Company or any corporation controlled by
it.
11.5 Subject to the Company Act, no director or officer or employee for
the time being of the Company shall be liable for the acts,
receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or act for conformity, or
for any loss, damage or expense happening to the Company through the
insufficiency or deficiency of title to any property acquired by
order of the Board for the Company or for the insufficiency or
deficiency of any security in or upon which any of the moneys of or
belongings to the Company shall be invested or for any loss or
damages arising from the bankruptcy, insolvency or tortuous act of
any person, firm or corporation which whom or which any moneys,
securities or effects shall be lodged or deposited or for any loss
occasioned by any error of judgment or oversight on his part or for
any other loss, damage or misfortune whatever which may happen in
the execution of the duties of his respective office or trust or in
relation thereto unless the same shall happen by or through his own
willful act or default, negligence, breach of trust or breach of
duty.
11.6 Directors may rely upon the accuracy of any statement of fact
represented by an officer of the Company to be correct or upon
statements in a written report of the auditor of the Company and
shall not be responsible or have liability for any loss or damage
resulting from the paying of any dividends or otherwise acting in
good faith upon any such statement.
11.7 The directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was a director,
officer, employee or agent of the Company is or was serving at the
request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability incurred by him as a director,
office, employee or agent.
The Company has a currently effective directors' and officers' liability
insurance policy.
35
<PAGE>
PART FS
INDEX TO FINANCIAL STATEMENTS
The following index lists the financial statements of the Company included in
this Registration Statement:
<TABLE>
<S> <C>
Independent Auditor's Report................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996........................... F-3
Consolidated Statements of Operations and Deficit for the years ended
December 31, 1998, 1997 and 1996............................................................. F-4
Consolidated Statements of Changes in Financial Position for the years ended
December 31, 1998, 1997 and 1996............................................................. F-5
Notes to Consolidated Financial Statements................................................... F-6
Unaudited Consolidated Balance Sheets for the nine months ended September 30, 1999 and 1998... F-15
Unaudited Consolidated Statements of Operations for the nine months ended
September 30, 1999 and 1998.................................................................. F-16
Unaudited Consolidated Statements of Changes in Financial Position for the
nine months ended September 30, 1999 and 1998................................................ F-17
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Carbite Golf Inc.
We have audited the consolidated balance sheets of Carbite Golf Inc. as at
December 31, 1998 and 1997 and the consolidated statements of operations and
deficit and changes in financial position for each of the years in the three
year period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1998,
in accordance with generally accepted accounting principles in Canada. As
required by the Company Act (British Columbia), we report that, in our opinion,
these principles have been applied on a consistent basis.
KPMG LLP
Chartered Accountants
Abbotsford, Canada
March 2, 1999
F-2
<PAGE>
CARBITE GOLF INC.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and term deposits $ 1,154,678 $ 403,814
Accounts receivable 1,304,595 530,911
Inventory (Note 4) 1,999,251 2,071,667
Prepaid expenses 204,029 142,996
-----------------------------------------------------------------------
4,662,553 3,149,388
Capital assets (Note 5) 385,106 305,409
Patents and trademarks, net of accumulated
amortization of $68,603 (1997 - $54,143) 76,000 23,980
Deferred costs, net of accumulated
amortization of $500,783 (1997 - $273,383) 353,766 500,266
Goodwill, net of accumulated amortization
of $335,481 (1997 - $45,481) 2,512,804 2,802,805
- ----------------------------------------------------------------------------
$ 7,990,229 $ 6,781,848
- ----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan $ - $ 18,846
Accounts payable and accrued liabilities 615,488 769,520
Current portion of long-term debt (Note 6) 12,960 -
Lease obligation - 6,857
-----------------------------------------------------------------------
628,448 795,223
Long-term debt (Note 6) 44,590 -
Shareholders' equity:
Share capital (Note 7) 9,777,421 8,685,374
Deficit (2,460,230) (2,698,749)
-----------------------------------------------------------------------
7,317,191 5,986,625
Subsequent event (Note 12)
Contingency (Note 14)
- ----------------------------------------------------------------------------
$ 7,990,229 $ 6,781,848
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
______________________ Director
______________________ Director
F-3
<PAGE>
CARBITE GOLF INC.
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year end December 31
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 15,662,361 $ 2,230,232 $ -
Cost of sales 8,133,194 1,474,979 -
- ------------------------------------------------------------------------------------------------------------------
Gross margin 7,529,167 755,253 -
Expenses:
Advertising and promotion 5,110,717 992,527 116,272
Bad debts 41,221 50,741 -
Bank charges and interest 85,943 9,525 789
Consulting fees, wages and commissions 545,900 202,589 56,179
Depreciation 23,751 7,332 999
Insurance 34,423 5,645 -
Listing 9,710 2,859 5,650
Office and miscellaneous 217,173 18,226 5,442
Printing - 6,780 1,306
Professional fees 50,739 140,758 18,452
Rent 67,906 24,442 8,801
Repairs and maintenance 10,414 4,255 1,024
Telephone and utilities 27,238 8,242 1,488
Transfer agent fees 4,132 8,845 6,875
Travel 20,143 22,168 6,004
--------------------------------------------------------------------------------------------------------------
6,249,410 1,504,934 229,281
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,279,757 (749,681) (229,281)
Other income (expenses):
Printing operations (Note 8) (52,025) (24,077) -
Research and development (345,900) (95,536) -
Equity in earnings (loss) of Carbite, Inc. - (226,240) 72,736
Amortization of deferred costs (227,400) (163,102) (110,281)
Amortization of goodwill, patents and
trademarks (304,460) (99,624) -
Interest and other income 2,959 18,515 16,277
Loss (gain) on disposal of assets (57,954) - 18,335
Foreign exchange loss (3,658) (11,712) (5,919)
--------------------------------------------------------------------------------------------------------------
(988,438) (601,776) (8,852)
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) before income taxes 291,319 (1,351,457) (238,133)
Income taxes (Note 9) 52,800 - -
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) 238,519 (1,351,457) (238,133)
Deficit, beginning of year (2,698,749) (1,347,292) (1,109,159)
- ------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (2,460,230) $ (2,698,749) $ (1,347,292)
==================================================================================================================
Earnings (loss) per share (Note 11) $ 0.01 $ (0.11) $ (0.03)
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CARBITE GOLf INC.
Consolidated Statements of Changes in Financial Position
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities:
Net income (loss) $ 238,519 $ (1,351,457) $ (238,133)
Add (deduct):
Items not affecting working capital:
Depreciation 98,979 23,129 999
Equity in loss (earnings) of Carbite Inc. - 226,240 (72,736)
Amortization 531,860 262,726 110,281
Gain on disposal of joint venture investment - - (18,335)
Loss on disposal of capital assets 57,954 - -
Net changes in non-cash working capital balances
relating to operations:
Accounts receivable (773,684) 320,139 3,008
Inventory 72,416 18,735 -
Prepaid expenses (61,033) 126,813 23,430
Accounts payable and accrued liabilities (154,032) (289,488) 33,474
--------------------------------------------------------------------------------------------------------------
10,979 (663,163) (158,012)
Investing activities:
Acquisition of net non-cash assets of
subsidiaries (Note 2(a)) - (3,260,256) -
Proceeds on sale of marketable securities - 29,184 -
Deferred costs incurred (80,900) (73,596) (121,091)
Patent and trademark costs incurred (66,479) - -
Investment in Carbite, Inc. - - (225,000)
Proceeds on disposal of joint venture investment - - 18,335
Purchase of capital assets (256,467) (35,254) -
Proceeds on disposal of capital assets 19,837 - -
--------------------------------------------------------------------------------------------------------------
(384,009) (3,339,922) (327,756)
Financing activities:
Issuance of common shares 842,047 4,489,690 1,920,894
Issuance of share subscriptions - - (594,796)
Proceeds on convertible debenture 500,000 - -
Repayment of convertible debenture (250,000) - -
Proceeds on long-term debt 60,000 - -
Repayments on long-term debt (2,450) - -
Decrease in promissory note receivable - 80,257 388
Advances to associated companies - (1,036,029) -
Decrease in lease obligation (6,857) (3,610) -
Decrease in bank loan (18,846) (9,160) -
--------------------------------------------------------------------------------------------------------------
1,123,394 3,521,148 1,326,486
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during the year 750,864 (481,937) 840,718
Cash and term deposits, beginning of year 403,814 885,751 45,033
- ----------------------------------------------------------------------------------------------------------------
Cash and term deposits, end of year $ 1,154,678 $ 403,814 $ 885,751
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
________________________________________________________________________________
1. Operations:
The Company is incorporated under the laws of British Columbia, Canada and
its primary business activity is the development and sales of a proprietary
brand of golf clubs.
2. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada.
The consolidated financial statements include the accounts of the
Company and the following subsidiaries:
Subsidiary Percentage ownership
---------- --------------------
Carbite, Inc. 100%
AGS Acquisition Corp. 100%
Printer Graphics Inc. 90%
All material intercorporate transactions and balances have been
eliminated upon consolidation.
During the year ended December 31, 1997 the following transactions
occurred:
(i) On August 29, 1997, the Company acquired 90% of the outstanding
shares of Printer Graphics Inc. for $7,615.
(ii) On September 3, 1997 the Company's newly incorporated, wholly-
owned subsidiary, AGS Acquisition Corp., acquired 100% of the
outstanding shares of Advanced Golf Systems Inc. in exchange for
700,000 shares of the Company and 700,000 share purchase
warrants, for a total deemed purchase price of $362,460.
Immediately following the acquisition, Advanced Golf Systems
Inc. was merged into AGS Acquisition Corp.
(iii) On September 3, 1997, the Company's newly incorporated, wholly-
owned subsidiary, Carbite Acquisition Corp., acquired the
remaining 50% of the outstanding shares of Carbite, Inc. in
exchange for 7,078,872 shares of the Company and 912,524 share
purchase warrants, for a total deemed purchase price of
$3,665,435. As part of the purchase, the Company also issued
607,000 share options to a director, who previously held 607,000
options of Carbite, Inc. Immediately following the acquisition,
Carbite, Inc. was merged into Carbite Acquisition Corp. In
fiscal 1998, Carbite Acquisition Corp. changed its name to
Carbite Inc.
F-6
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(a) Basis of presentation (continued):
These transactions have been accounted for using the purchase method
with the results of operations of the acquired subsidiaries included
in the financial statements from the dates of acquisition. Aggregate
acquisition costs of $3,260,256 were allocated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Printer Graphics Advanced Golf Carbite
Inc. Systems Inc. Inc.
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets acquired:
Non-cash current assets $ 75,399 $ 15,000 $3,112,748
Capital assets 45,038 - 245,135
Investment in joint venture - 944,077 -
Goodwill 12,325 (589,138) 2,974,384
Deferred costs - - 148,647
----------------------------------------------------------------------------------------------
132,762 369,939 6,480,914
Liabilities assumed:
Current liabilities 98,913 9,036 902,367
Non-current liabilities 47,303 - 1,004,005
50% Existing equity ownership - - 1,661,735
----------------------------------------------------------------------------------------------
146,216 9,036 3,568,107
------------------------------------------------------------------------------------------------
Net non-cash assets acquired $ (13,454) $ 360,903 $2,912,807
------------------------------------------------------------------------------------------------
</TABLE>
Advanced Golf Systems Inc. held a 49% interest in the Viper Bite joint
venture with Carbite Inc., which held the other 51% interest. This
joint venture was effectively terminated upon the completion of these
acquisitions.
(b) Inventory:
Inventory is valued at the lower of cost and net realizable value.
(c) Investment in Carbite, Inc.:
From March 15, 1996 up to the completion of the acquisition of
Carbite, Inc. (Note 2(a)), the investment in Carbite, Inc. was
accounted for using the equity method. Prior to March 15, 1996, the
investment was accounted for using the cost method. Under the equity
method, the original cost of the shares was adjusted for the Company's
share of post-acquisition earnings or losses less dividends. The
excess of the cost of the shares of Carbite, Inc. over the net book
values of the net assets on the date of acquisition amounted to
$538,481. This excess related to the goodwill and certain intangible
assets of Carbite, Inc. and was being amortized on a straight-line
basis over ten years. Upon the completion of the acquisition, the
unamortized balance was added to goodwill.
F-7
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(d) Deferred costs:
Deferred costs are related to the development and promotion of the
products of Carbite, Inc. The costs are being amortized on a straight-
line basis over a maximum five year period, depending on the nature of
the costs.
(e) Capital assets:
Capital assets are stated at cost. Depreciation is provided over the
estimated useful lives of the assets.
(f) Goodwill:
Goodwill, representing the excess of cost over net assets of
subsidiaries acquired and certain intangible assets purchased, is
amortized using the straight-line method over ten years. The Company
assesses the continuing value of goodwill each year by considering
current operating results, trends, and prospects. In the year of an
impairment in value, the goodwill will be reduced by a charge to
earnings.
(g) Patents and trademarks:
Patents and trademarks represent all costs incurred to obtain these
intangible assets. The patents and trademarks are amortized using the
straight-line method over ten years. The Company assesses the
continuing value of patents and trademarks each year by considering
operating results, trends, and prospects. In the year of an impairment
in value, the patents will be reduced by a charge to earnings.
(h) Foreign currency translation:
The Company has adopted the United States dollar as its reporting
currency (Note 3), which is also its functional currency. The Company
and its subsidiaries are considered to be integrated operations and
the accounts are translated using the temporal method. Under this
method, monetary assets and liabilities are translated at the rates of
exchange in effect at the balance sheet date; non-monetary assets at
historical rates and revenue and expense items at the average rates
for the period other than depreciation and amortization which are
translated at the same rates of exchange as the related assets. The
net effect of the foreign currency translation is included in current
operations.
(i) Use of estimates:
These financial statements have been prepared in accordance with
generally accepted accounting principles which require management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
3. Change in reporting currency:
Prior to January 1, 1997 the consolidated financial statements of the
Company were expressed in Canadian ("Cdn") dollars. As a result of a
significant portion of revenues, expenses and assets being denominated in
United States ("U.S.") dollars, the U.S. dollar became the principal
currency of the Company's business. Accordingly, the U.S. dollar was
adopted as the reporting currency for the consolidated financial statements
of the Company effective for its fiscal year ended December 31, 1997.
The 1996 financial statements were restated to reflect the U.S. dollar as
the reporting currency. The accounts were translated using the temporal
method (Note 2(g)).
4. Inventory:
---------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------
Golf inventory:
Raw materials $ 936,237 $1,058,663
Finished goods 1,063,014 1,001,127
-------------------------------------------------------------------------
1,999,251 2,059,790
Printing supply inventory - 11,877
---------------------------------------------------------------------------
$1,999,251 $2,071,667
---------------------------------------------------------------------------
5. Capital assets:
---------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------
Office and computer equipment $ 151,523 $ 162,513
Manufacturing equipment 432,936 248,457
Printing equipment - 58,575
Automotive equipment 6,785 6,785
Leasehold improvements 20,430 39,406
---------------------------------------------------------------------------
611,674 515,736
Less: accumulated depreciation 226,568 210,327
---------------------------------------------------------------------------
$ 385,106 $ 305,409
---------------------------------------------------------------------------
F-9
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
6. Long-term debt:
---------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------
Bank loan, payable in monthly
instalments of $1,501 including
interest at bank prime rate plus 1.75%
per annum, due November 2002 $57,550 $ -
Less current portion 12,960 -
---------------------------------------------------------------------------
$44,590 $ -
---------------------------------------------------------------------------
The Company has secured an operating line of credit of $300,000. The
operating line of credit bears interest at bank prime rate plus 2% per
annum. The Company has not drawn on the operating line as at year end.
The above bank loan and operating line of credit, are secured by assignment
of inventories, accounts receivable, equipment, and assignment of insurance
proceeds.
Principal repayments for the next four years are as follows:
1999 $12,960
2000 $14,250
2001 $15,700
2002 $14,640
F-10
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. Share capital:
Authorized:
50,000,000 Common shares with no par value
Issued:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Number
of shares Amount
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1995 5,586,751 $2,274,790
Issued in 1996:
For cash (net of financing costs of $46,468) 3,381,785 1,893,302
For services 150,000 27,592
-----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 9,118,536 4,195,684
Issued in 1997:
For cash 530,000 434,826
For acquisition of subsidiaries 7,778,872 4,027,895
For services 150,000 26,969
-----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 17,577,408 8,685,374
Escrow shares cancelled (Note 7(a)) (125,000) -
Issued in 1998:
For cash (net of financing costs of $92,770) 2,044,617 691,537
For settlement of debt 358,666 150,510
For conversion of debenture 678,750 250,000
-----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 20,534,441 $9,777,421
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Escrow shares:
As at December 31, 1997, 125,000 of the issued shares were held
subject to an escrow agreement. The approval of the regulatory
authorities was required for the transfer or release of these shares.
In fiscal 1998, these shares were cancelled for nil proceeds.
F-11
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. Share capital (continued):
(b) Share options:
The following share options were outstanding at December 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Number Exercise Expiry
of Shares Price Date
---------------------------------------------------------------------------------------------------------
(CAD$)
<S> <C> <C> <C>
Director 20,000 0.60 October 1, 1999
Employees 162,500 0.80 April 14, 2000
Director 250,000 0.60 July 1, 2000
Directors 329,240 0.60 October 1, 2002
Employees 126,000 0.60 October 1, 2002
Employees 7,500 0.60 December 9, 2002
Director 607,000 0.01 March 1, 2003
Directors 250,000 0.60 March 3, 2003
Employees 659,000 0.60 March 3, 2003
---------------------------------------------------------------------------------------------------------
2,411,240
---------------------------------------------------------------------------------------------------------
</TABLE>
No compensation resulted in the granting of these options.
(c) Share purchase warrants:
The following share purchase warrants were outstanding at December 31,
1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Number Exercise Expiry
of Shares Price Date
---------------------------------------------------------------------------------------------------------
(CAD$)
<S> <C> <C> <C>
Warrants 1,454,545 0.55 February 20, 1999
Warrants 700,000 0.80 August 5, 1999
Warrants 678,750 0.52 November 30, 2000
---------------------------------------------------------------------------------------------------------
2,833,295
---------------------------------------------------------------------------------------------------------
</TABLE>
8. Printing operations:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Six months ended Four months ended
June 30, 1998 December 31, 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $128,492 $114,782
Cost of sales 95,856 73,298
--------------------------------------------------------------------------------------------------------------
32,636 41,484
General and administrative expenses 84,661 65,561
--------------------------------------------------------------------------------------------------------------
Loss from printing operations $(52,025) $ (24,077)
--------------------------------------------------------------------------------------------------------------
</TABLE>
In June 1998 the Company ceased its printing operations.
F-12
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. Income taxes and investment tax credits:
The 1998 income tax expense provision is comprised of California State
income taxes. No provision has been recorded for U.S. Federal income taxes,
as the taxable income has been applied against Federal net operating loss
carryforwards which were previously not reflected in the accounts.
The Company has losses for tax purposes of approximately CAD $2,010,000
which are available to offset future years' taxable income in Canada
expiring as follows:
1999 CAD $ 142,000
2000 113,000
2001 97,000
2002 172,000
2003 475,000
2004 641,000
2005 370,000
---------
CAD $2,010,000
=========
The Company has unclaimed research and development expenditures of
approximately CAD $474,000 which can be deducted for income tax purposes in
Canada in future years at the Company's discretion.
The possible income tax benefits of the Canadian losses and Canadian
unclaimed research and development expenditures have not been reflected in
the accounts.
10. Related party transactions:
The following amounts were paid to directors and officers of the Company:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wages and fees to directors $ 14,231 $41,528 $34,910
Management salaries paid to
directors post Carbite, Inc.
acquisition (Note 2(a)) $375,215 $70,486 $ -
Royalties paid to a director post
Carbite, Inc. acquisition
(Note 2(a)) $168,445 $30,199 $ -
Consulting fees paid to a company
controlled by a director $ - $30,000 $ -
Wages and fees paid to an officer $ 84,537 $20,945 $ -
Interest paid to directors $ 3,548 $ - $ -
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. Related party transactions (continued):
These transactions occurred in the normal course of operations and are
measured at the exchange amount, which is the amount of the consideration
established and agreed to by the related parties.
11. Earnings per share:
The earnings per share figures are calculated using the weighted average
monthly number of shares outstanding during the respective fiscal years,
which was 19,074,032 in 1998, 12,186,147 in 1997, and 7,914,341 in 1996.
The effect of the exercise of share options and share purchase warrants
outstanding is not materially dilutive in 1998, and antidilutive in 1997
and 1996.
12. Subsequent event:
Subsequent to December 31, 1998 warrants were exercised for 1,159,398
common shares at CAD $.55 per share, for total proceeds of CAD $637,669.
13. Fair value of financial instruments:
For certain of the Company's financial instruments including accounts
receivable, accounts payable and accrued liabilities, and lease obligation,
the carrying amounts approximate fair value due to the immediate or short-
term maturity of these financial instruments.
The carrying value for long-term debt approximates fair value because the
borrowing rate is similar to the current rates presently available to the
Company for loans with similar terms and maturity.
14. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-14
<PAGE>
CARBITE GOLF INC.
CONSOLIDATED BALANCE SHEETS (Stated in US Dollars)
September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30 September 30
1999 1998
-----------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,066,715 $ 1,360,824
Trade Receivables 2,049,588 1,075,695
Inventory 2,684,377 2,087,290
Other Receivables 116,368 113,897
Prepaid Expenses 291,459 458,663
-----------------------------------
Total Current Assets 6,208,507 5,096,369
-----------------------------------
CAPITAL ASSETS (Net of Depr) 616,508 403,723
OTHER ASSETS
Goodwill 2,295,304 2,585,319
Investment in Carbite Inc.
Deferred Costs - Merger 151,986 268,447
Notes Receivable - Carbite Inc.
Patents 70,095 18,077
Infomercial (Net of Amort) 63,584 150,248
Deposits 2,016 2,016
-----------------------------------
Total Other Assets 2,582,985 3,024,107
-----------------------------------
-----------------------------------
TOTAL ASSETS $ 9,408,000 $ 8,524,199
===================================
LIABILITIES AND EQUITY
LIABILITIES
Accounts Payable 554,445 $ 604,728
Accrued Expenses 23,581
Line of Credit 240,865
Income Taxes Payable 396,122
Short Term Note Payable 500,000
-----------------------------------
Total Liabilities 1,215,013 1,104,728
-----------------------------------
SHAREHOLDERS EQUITY
Share Capital 10,437,829 9,562,649
Retained Earnings (Def) (2,457,542) (2,699,172)
Foreign Exchange Adjustment 7,506 2,555
Net Income (Loss) - YTD 205,194 553,439
-----------------------------------
Total Stockholders Equity 8,192,987 7,419,471
-----------------------------------
-----------------------------------
TOTAL LIABILITIES & EQUITY $ 9,408,000 $ 8,524,199
===================================
</TABLE>
F-15
<PAGE>
CARBITE GOLF INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Stated in US Dollars)
NINE MONTHS ENDING SEPTEMBER 30, 1999 with comparative figures for 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30 September 30
1999 1998
-----------------------------------
<S> <C> <C>
Sales $ 14,062,812 $ 12,168,503
Cost of Sales 7,142,713 5,017,305
-----------------------------------
Gross Profit 6,920,099 7,151,198
Operating Expenses 5,730,869 5,980,105
-----------------------------------
Net Income from Operations 1,189,230 1,171,093
-----------------------------------
Other Income (Expenses) (7,866) (39,372)
Research and Development (341,703) (241,744)
Amortization of Goodwill & Deferred Costs (304,883) (304,868)
Gain on Discontinued Printing Operations 68,138
Loss on Disposal of Fixed Assets (31,670)
-----------------------------------
Net Income before Taxes 602,916 553,439
-----------------------------------
Provision for Income Taxes (397,722) 0
===================================
Net Income after Taxes $ 205,194 $ 553,439
===================================
</TABLE>
F-16
<PAGE>
CARBITE GOLF INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION (Stated in US Dollars)
NINE MONTHS ENDED SEPTEMBER 30, 1999 with comparative figures for 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30 September 30
Cash provided by (used for): 1999 1998
-----------------------------------
<S> <C> <C>
Operating Activities
Income (Loss) $ 205,194 $ 553,439
Add (deduct)
Items not affecting working capital
Depreciation 122,713 38,808
Amortization 113,203 89,787
Gain on discontinued printing operations (68,138)
Net increase in non-cash operating
working capital relating to operations (1,603,243) (1,180,466)
Subtotal (1,230,271) (498,432)
-----------------------------------
Investing Activities
Purchase of capital assets (370,285) (181,793)
Leasehold Improvements (20,430)
Disposed Assets 65,101
Amortization of Deferred Costs 304,845 304,868
Other Assets (42,292) (92,134)
-----------------------------------
Total (107,732) 75,612
-----------------------------------
Financing Activities
Issuance of Common Shares 660,408 877,275
Short Term Note Payable 500,000
Bank Line of Credit 183,315
Income Taxes Payable 396,122
Adjustment in Retained Earnings 2,689
Foreign Exchange Adjustment 7,506 2,555
-----------------------------------
Total 1,250,040 1,379,830
-----------------------------------
Increase (decrease) in cash position (87,963) 957,010
Cash position at beginning of period 1,154,678 403,814
-----------------------------------
Cash position at end of period 1,066,715 $ 1,360,824
===================================
</TABLE>
F-17
<PAGE>
PART III
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ---------------------
2.1 Agreement and Plan of Merger between Carbite, Inc., Carbite Golf, Inc.
and Carbite Acquisition Corp. dated June 6, 1996*
2.2 Agreement between Advanced Golf Systems, Inc. and Carbite Golf, Inc.
dated September 24, 1996*
3.1 Amended and Restated Articles of Incorporation and Bylaws of the
Company*
4.1 Specimen Common Stock Certificate*
4.2 Form of Warrant*
10.1 Royalty Agreement between Carbite, Inc. and C. S. Shira dated March 1,
1993*
10.2 Employment Agreement between the Company and Chester S. Shira dated
September 3, 1997*
10.3 Employment Agreement between the Company and Michael A. Spacciapolli
dated September 3, 1997*
10.4 License Agreement between Carbite Golf Company and Taylor Made Golf
dated January 1, 1995 and Amendment dated March 4, 1997*
10.5 License Agreement between Carbite, Inc. and K Z Golf, Inc. dated
October 28, 1998*
10.6 Endorsement Agreement between Carbite Golf, Inc., Carbite, Inc. and
Fuzzy Zoeller Productions, Inc. dated August 20, 1999*
10.7 Loan Agreement dated April 13, 1998 between the Company and James A.
and Susan V. Henderson as Co-Trustees of the Henderson Living Trust*
10.8 Lease Agreement dated January 6, 1998 between Carbite, Inc. and Nancy
Ridge Technology Center, LLC relating to the facilities at 6330 Nancy
Ridge Road, San Diego, CA 92121*
10.9 Form of Stock Option Agreement*
10.10 Employee Confidentiality and Invention Agreement*
10.11 Commercial Security Agreement between Carbite, Inc. and Scripps Bank
dated May 15, 1999**
10.12 Trademark License Agreement between Carbite Golf, Inc. and Daiwa
Seiko, Inc. dated September 16, 1999*
10.13 Exclusive Distribution Agreement between Carbite Golf, Inc. and Daiwa
Seiko, Inc. dated September 16, 1999*
13. Form F-X Appointment of Agent for Service of Process and Undertaking*
27 Financial Data Schedule*
__________________________
* Filed herewith
** To be filed by amendment
III-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARBITE GOLF, INC.
Date: December 21, 1999 By: /s/ Michael A. Spacciapolli
-------------------------------
Michael A. Spacciapolli
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael A. Spacciapolli and Chester S. Shira, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael A. Spacciapolli Director and Chief Executive Officer December 21, 1999
- -----------------------------
Michael A. Spacciapolli
/s/ Chester S. Shira Chairman of the Board and Director of December 21, 1999
- ----------------------------- Research and Development
Chester S. Shira
/s/ Randie Burrell Chief Financial Officer December 21, 1999
- -----------------------------
Randie Burrell
/s/ David Nairne Director December 21, 1999
- -----------------------------
David Nairne
/s/ James Henderson Director December 21, 1999
- -----------------------------
James Henderson
</TABLE>
III-2
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger ("Agreement") dated for reference as of
June 6, 1996, is entered into by and among Carbite, Inc., a California
corporation ("Carbite"), Carbite Golf Inc., a corporation organized under the
laws of the Province of British Columbia, Canada ("CGI"), and Carbite
Acquisition Corp., a California corporation (the "Company"), all of the issued
and outstanding stock of which is owned by CGI.
For and in consideration of their respective covenants and undertakings set
forth in this Agreement, the parties hereby agree as follows:
ARTICLE 1
THE MERGER
----------
1.1 The Merger.
----------
(1) Subject to the provisions of this Agreement, at the Effective
Time (as defined in Section 1.1(b)), Carbite shall be merged with and into the
Company (the "Merger") in accordance with the California General Corporation Law
(the "CGCL"), whereupon the separate existence of Carbite shall cease, and the
Company shall be the surviving corporation (the "Surviving Corporation"). The
Merger is, and the transactions contemplated by this Agreement are, sometimes
referred to herein as the "Acquisition".
(2) As soon as practicable after satisfaction or, to the extent
provided hereunder, waiver of all conditions to the Merger, the Company and
Carbite shall deliver to the Secretary of State of California, for filing, a
Certificate of Merger together with all other filings or recordings required by
the CGCL in connection with the Merger. The Merger shall be consummated, the
closing of the Acquisition (the "Closing") shall occur, and the Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the California Secretary of State, or at such later time as is specifically set
forth in the Certificate of Merger (the "Effective Time"). The date on which the
Closing takes place is sometimes hereinafter referred to as the "Closing Date".
The Closing shall take place at the offices of Luce, Forward, Hamilton & Scripps
LLP, 600 West Broadway, San Diego, California 92101, or at such other place or
such other time as the parties shall mutually agree.
(3) From and after the Effective Time, the Surviving Corporation
shall possess all of the rights, privileges, powers and franchises, and shall be
subject to all of the restrictions, liabilities and duties of the Company and of
Carbite, all as provided under the CGCL.
<PAGE>
1.2 Conversion of Shares. Upon the effective date of the Merger:
--------------------
(1) The common shares of Carbite owned by CGI shall be canceled and
no payment shall be made with respect thereto.
(2) Each issued and outstanding share of the common stock of Carbite
("Carbite Common Stock") other than shares of Carbite Common Stock described in
paragraph (a) above and shares of Carbite Common Stock that are "dissenting
shares," as defined in Section 1300(b) of the CGCL, shall be converted, by
virtue of the Merger, into 1.3287 shares of theretofore unissued CGI Common
Stock and .197455 CGI Warrants, each Warrant to purchase one share of CGI Common
Stock (subject to adjustment for fractional shares or warrants as provided in
Section 1.3 and to anti-dilution adjustment as provided in Section 8.11 hereof).
Any shares of Carbite Common Stock which become "dissenting shares," as defined
in Section 1300(b) of the CGCL, are herein referred to as shares of "Dissenting
Carbite Stock." The form of Warrant shall be in the form attached hereto as
Exhibit A.
- ---------
The foregoing conversion shall be deemed effected without any action on the part
of the holders of Carbite Common Stock. Commencing at the Effective Time,
however, each holder of an outstanding certificate or certificates theretofore
representing shares of Carbite Common Stock may surrender the same to CGI, and
such holder shall thereupon be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of CGI Common
Stock and CGI Warrants into which the shares of Carbite Common Stock represented
by the certificate or certificates so surrendered shall have been converted.
After the Effective Time and prior to surrender, each outstanding certificate
representing issued and outstanding shares of Carbite Common Stock shall be
deemed for all purposes to evidence ownership of the number of shares of CGI
Common Stock and CGI Warrants into which such shares of Carbite Common Stock
have been converted and to have all of the rights and entitlements thereof.
1.3 No Fractional Shares. Neither certificates nor scrip for fractional
--------------------
shares of CGI Common Stock or CGI Warrants will be issued, but in lieu thereof
each holder of shares of Carbite Common Stock who otherwise would have been
entitled to a fraction of a share of CGI Common Stock or a fraction of a CGI
Warrant will be paid cash by CGI on the following basis: The amount paid shall
be the product of the applicable fraction of a share multiplied by the average
closing price of CGI Common Stock on the Vancouver Stock Exchange over the
thirty (30) day period immediately preceding June 6, 1996.
1.4 Dissenting Carbite Shareholders. Carbite shall give CGI prompt notice
-------------------------------
of any demands for the purchase of shares of Carbite Common Stock for cash. If
any holder of shares of Carbite Common Stock demands that Carbite purchase such
shares for cash in connection with the Merger pursuant to the provisions of
Section 1300 of the CGCL, but such holder withdraws his or her demand for such
purchase (and Carbite consents to such withdrawal) or becomes ineligible to
require such purchase, such shares of Carbite Common Stock shall be converted
2
<PAGE>
into, and such holder shall be deemed the record owner of, shares of CGI Common
Stock and CGI Warrants determined in accordance with Section 1.2(b) of this
Agreement (subject to anti-dilution adjustment as provided in Section 8.11
hereof).
1.5 Spacciapolli Option. Upon the Merger and at the Closing, CGI shall
-------------------
provide to Michael A. Spacciapolli an option to acquire 607,000 shares of CGI
Common Stock in exchange for the existing option Spacciapolli has to acquire
607,000 shares of Carbite Common Stock. Such option shall be in the form
attached hereto as Exhibit B.
---------
1.6 Employment Agreements. Upon the Merger and at the Closing, the
---------------------
Company shall enter into an employment agreement with each of Chester S. Shira
and Michael A. Spacciapolli, which contracts shall be in the forms attached
hereto as Exhibits C-1 and C-2, respectively.
--------------------
1.7 Additional Share Issuance. Upon the Merger and at the Closing, CGI
-------------------------
shall issue an additional 743,000 shares of CGI Common Stock to Michael A.
Spacciapolli and Chester S. Shira as a control premium in view of the
significance of their share position in Carbite.
1.8 Compensation. As compensation for services rendered and to be
-------------
rendered, CGI shall, upon the Merger and at the Closing, issue shares of CGI
Common Stock, up to an aggregate maximum of 72,000 shares, to the persons
identified on Schedule 1.8 in the amounts set forth opposite their names
thereon.
1.9 Plan of Reorganization. The parties agree that this Agreement shall
----------------------
constitute a Plan of Reorganization for purposes of Section 368 of the Internal
Revenue Code.
ARTICLE 2
---------
THE SURVIVING CORPORATION
-------------------------
1.10 Articles of Incorporation of the Surviving Corporation. At the
------------------------------------------------------
Effective Time:
(1) Article First of the Articles of Incorporation of the Company
shall be amended to read in its entirety as set forth below:
"The name of this Corporation is Carbite, Inc."
(2) As so amended, the Articles of Incorporation of the Company shall
be the Articles of Incorporation of the Surviving Corporation after the
Effective Time, and thereafter may be amended in accordance with their terms and
as provided by law.
3
<PAGE>
1.11 Bylaws of the Surviving Corporation. At the Effective Time, the
-----------------------------------
Bylaws of the Company as in effect immediately prior to the Effective Time, a
copy of which is attached hereto as Exhibit D, shall be the Bylaws of the
---------
Surviving Corporation and thereafter may be amended in accordance with their
terms and as provided by law, provided that such Bylaws shall be amended to
provide that the number of directors shall be six, that the Board shall nominate
for election to the Board three persons designated by Chester S. Shira and three
persons designated by David Nairne and that this provision may be amended during
the two years following Effective Time only by a unanimous vote of the
shareholders of CGI. Following the Effective Time, CGI shall vote its shares of
the Common Stock of the Company in accordance with this Section 2.2.
1.12 Board of Directors of the Surviving Corporation and CGI. At the
-------------------------------------------------------
Effective Time, the directors of the Surviving Corporation shall be Chester S.
Shira (who shall serve as Chairman), Michael A. Spacciapolli, Ron Cady, Ron
Riemer, David Nairne, and Richard Thompson, each such director to hold office
subject to the applicable provisions of the Bylaws of the Surviving Corporation.
If at the Effective Time any of the foregoing persons shall for any reason be
unwilling or unable to serve, the resulting vacancy shall be filled as provided
in said Bylaws. Immediately following the Effective Time, the Board of
Directors and Shareholders of CGI will elect the members of the Board of
Directors of the Surviving Corporation as the members of the Board of Directors
of CGI.
1.13 Officers of the Surviving Corporation. At the Effective Time, the
-------------------------------------
officers of Carbite in office at such time shall become the officers of the
Surviving Corporation, each such officer to hold office subject to Section 1.6
of this Agreement and the applicable provisions of the Bylaws of the Surviving
Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CARBITE
-----------------------------------------
Carbite represents and warrants that:
1.14 Valid Corporate Existence; Qualification. Carbite is a corporation
----------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California and has full corporate power and authority to own, lease or
otherwise hold its assets and properties and to carry on its business as now
conducted. Carbite is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which Carbite owns or
leases any real property or conducts any business, so as to require such
qualification or licensing, except for instances where the failure to so qualify
would not materially adversely affect the business or financial condition of
Carbite. Schedule 3.1 lists the charter documents of Carbite, including its
Articles of Incorporation, its Bylaws and all amendments thereto. There are no
other amendments thereto. Such charter documents, as amended, are in full force
and effect. The minute books of Carbite contain accurate records of all
meetings of the Board of Directors thereof, any committee of the Board of
Directors and the shareholders thereof, from the date of
4
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incorporation through the date of this Agreement, and accurately reflect all
transactions passed upon by the Board of Directors, any committees thereof or
the shareholders of Carbite.
1.15 Capitalization of Carbite. At October 31, 1996, the authorized
-------------------------
capital stock of Carbite consisted of 48,000,000 shares of Carbite Common Stock,
of which 9,242,858 shares were issued and outstanding, and 699,857 shares were
reserved for issuance upon the exercise or conversion of outstanding options,
warrants, convertible securities or other similar instruments. At such date, no
other shares were authorized or reserved for issuance by Carbite, and, except
with regard to its shares reserved for issuance, Carbite had not entered into
any agreement, or made any promise or commitment, to issue shares of its Common
Stock or options or warrants to purchase its Common Stock, or securities
convertible into its Common Stock or other similar instruments to any person.
There are no agreements between or among any of Carbite's shareholders with
respect to the voting of any shares of Carbite Common Stock on any matter, or
providing for the appointment of any voting trustees, or any similar proxy,
pooling, or shareholders' agreement.
1.16 Subsidiaries and Affiliated Entities.
------------------------------------
(1) Schedule 3.3 sets forth with respect to each corporation,
partnership, joint venture or other business entity controlled by Carbite
(hereinafter referred to collectively as the "Subsidiaries" and individually as
a "Subsidiary"), (i) the name and jurisdiction of incorporation or other
organization, (ii) the authorized, issued and outstanding shares of capital
stock or other voting interests, (iii) the record and beneficial ownership of
such outstanding shares or voting interests, and (iv) each jurisdiction in which
it is duly qualified or licensed to do business and is in good standing as a
foreign corporation, and, with respect to each other corporation, partnership,
joint venture or other business entity of which Carbite or any Subsidiary owns,
in the aggregate, five percent or more of the outstanding shares of any class or
other interests, the information described in the foregoing clauses (i) and (ii)
and the percentage of record and beneficial ownership of each class of
outstanding shares or other interests owned by Carbite and each Subsidiary. As
used herein "control" shall mean (i) the ownership of 50 percent or more of the
voting securities or other voting interests of such corporation, partnership,
joint venture or other business entity or (ii) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such corporation, partnership, joint venture or other business
entity, whether through the ownership of voting shares, by contract or
otherwise. Schedule 3.3 lists the charter documents of each Subsidiary,
including the Articles of Incorporation and Bylaws (or other constituent
instruments), as amended, of each Subsidiary. There are no other amendments
thereto. The same, as amended, are in full force and effect. The minute books of
each Subsidiary accurately reflect all transactions from inception of each
Subsidiary through the date of this Agreement passed upon by the Board of
Directors (or similar governing bodies), any committee thereof, or shareholders
or other equity owners of such Subsidiary.
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(2) Each Subsidiary is duly organized and validly existing and in
good standing under the laws of the jurisdiction of its incorporation or other
organization, and has full corporate power and authority to own, lease or
otherwise hold its assets and properties and to carry on its business as now
conducted. Each Subsidiary is duly qualified or licensed to do business and is
in good standing as a foreign corporation or other business entity in all of the
jurisdictions in which each such Subsidiary owns or leases any real property or
conducts any business, so as to require such qualification or licensing, except
for instances where the failure to so qualify would not materially adversely
affect the business or financial condition of each such Subsidiary. All of the
outstanding shares of capital stock or other voting interests of each Subsidiary
are validly issued and outstanding, fully paid and nonassessable, and owned by
Carbite or another Subsidiary free of any claims, liens, charges or encumbrances
of any nature whatsoever.
1.17 Options, Warrants, Etc. As of October 31, 1996, except as set forth
----------------------
in Schedule 3.4, there are no outstanding options, warrants, rights, calls,
subscriptions, commitments or agreements of any character whatsoever relating
to, or calling for the issuance, transfer, sale or other disposition of, or the
repurchase or other acquisition of, any shares, issued or unissued, of Carbite
Common Stock, the capital stock or other voting interests of any Subsidiary or
securities convertible or exchangeable into or for any of the foregoing
(collectively "Rights"), to which Carbite or any Subsidiary is a party or by
which Carbite or any Subsidiary is bound. Schedule 3.4 sets forth with respect
to all employees of Carbite or a Subsidiary, and all other persons holding
Rights, all Rights currently outstanding, specifying the plan or other
arrangement pursuant to which the same were granted, the exercise price,
exercise schedule, expiration date and other material terms thereof and any
applicable special terms or restrictions of grant.
1.18 Authority for Agreement. Subject to obtaining the approval of the
-----------------------
holders of Carbite Common Stock in accordance with the CGCL, Carbite has full
corporate power and authority to execute and deliver this Agreement, to perform
the transactions contemplated hereby and to consummate the Merger. Except for
such shareholder approval, all corporate and other proceedings required to be
taken by or an behalf of Carbite, including without limitation, all action
required to be taken by the Board of Directors of Carbite, to authorize Carbite
to enter into and carry out this Agreement, to perform the transactions
contemplated hereby and to consummate the Merger, have been duly and properly
taken. This Agreement has been duly executed and delivered by Carbite and is
valid and binding upon Carbite in accordance with its terms.
1.19 No Breach; Governmental Consents. The execution and delivery of this
--------------------------------
Agreement and the consummation of the transactions contemplated hereby will not,
and with notice or the lapse of time or both would not (i) result in the breach
of any of the terms or conditions of, or constitute a default under, the
Articles of Incorporation or Bylaws (or other constituent instruments) of
Carbite or any Subsidiary, or any mortgage, bond, indenture, agreement,
franchise or other instrument or obligation to which Carbite or any Subsidiary
is a party or by which any one of them or any of their properties or assets may
be bound, except for
6
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cases, set forth in Schedule 3.6, in which appropriate, valid and binding
waivers or consents will have been obtained prior to the Closing, (ii) violate
any judgment, order, writ, injunction or decree of any court, administrative
agency or governmental body, (iii) constitute a violation by Carbite or any of
its Subsidiaries of any law or regulation of any jurisdiction as such law or
regulation relates to Carbite or any of its Subsidiaries or to the securities,
property or business of Carbite or any of its Subsidiaries, or (iv) result in
the breach of any of the terms or conditions of, constitute a default under, or
otherwise cause any impairment of, any license or permit. Except as set forth in
said Schedule 3.6 or as contemplated hereby, no consent, approval or
authorization of, or declaration or filing on the part of Carbite or any
Subsidiary with, any federal, state, local or foreign governmental or regulatory
authority is required in connection with the valid execution and delivery of
this Agreement or the performance by Carbite of any of the transactions
contemplated hereby.
1.20 Financial Statements. The books of account and related records of
--------------------
Carbite and each Subsidiary in reasonable detail accurately and fairly reflect,
in all material respects, their respective assets, liabilities, capital, equity
and transactions. The consolidated financial statements (including the notes
thereto) of Carbite and its consolidated subsidiaries for the fiscal years ended
December 31, 1995, 1994, and 1993 attached hereto as Schedule 3.7, are true and
correct and fairly present the consolidated financial position of Carbite and
its Subsidiaries as of said dates and the results of their operations and
changes in shareholders' equity and financial position for such fiscal years,
and were prepared in accordance with generally accepted accounting principles,
applied on a basis consistent with prior fiscal years. The consolidated
financial statements (including the notes thereto) of Carbite and its
Subsidiaries for the nine-month period ended September 30, 1996, attached hereto
as Schedule 3.7.1 fairly present the consolidated financial position of Carbite
and its Subsidiaries as of said date and the results of their operations for
such year-to-date period, were prepared in accordance with generally accepted
accounting principles, applied on a basis consistent with prior fiscal years and
include all adjustments necessary for a fair presentation. All references herein
to the "Carbite Balance Sheet" shall be deemed to refer to the balance sheet as
of September 30, 1996, contained in the consolidated financial statements of
Carbite as of and for the period ended on such date and to the related notes
thereto; all references herein to the "Balance Sheet Date" shall be deemed to
refer to September 30, 1996; and all references herein to the "Carbite Statement
of Income" shall be deemed to refer to the consolidated statement of income of
Carbite for the nine-month period ended on the Balance Sheet Date contained in
the consolidated financial statements of Carbite as of and for the period ended
on such date and to the related notes thereto. Each of the Subsidiaries is
included in the consolidated financial statements referred to in this Section
3.7.
1.21 Liabilities. Except as set forth in Schedule 3.8, there are no
-----------
material liabilities of Carbite or any Subsidiary other than:
(1) Liabilities disclosed or provided for in the Balance Sheet,
including the notes to such Balance Sheet;
7
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(2) Liabilities incurred in the ordinary course of business since
the Balance Sheet Date, none of which has been materially adverse to the
business, assets, financial condition or results of operations of Carbite or a
Subsidiary and none of which is attributable to any period prior to the Balance
Sheet Date.
"Liabilities" shall be read in the broadest sense and shall include all
liabilities, debts and obligations, whether accrued, absolute or contingent, and
whether due or to become due.
Nothing has come to the attention of Carbite or any Subsidiary which would
cause it to believe that there exist any circumstances, conditions, events or
arrangements which may hereafter give rise to Liabilities except in the ordinary
and usual course of business.
1.22 Tax Matters. Except as set forth in Schedule 3.9, (i) Carbite has
-----------
filed all returns, reports and declarations required to be filed for all periods
prior to the Closing Date and has not extended any time in which to file any
such returns, reports or declarations, (ii) Carbite has paid, at the time and in
the manner required, all taxes shown to be due on any returns, reports and
declarations and is not delinquent in the payment of any estimated taxes, and
(iii) no audit or investigation of Carbite's liability for any Taxes is pending
or in progress, and Carbite has not received any notice of, and has no knowledge
that, any such audit or investigation will be commenced or is threatened. Except
as set forth in Schedule 3.9, no deficiency or adjustment in respect of Taxes
which has been assessed against Carbite remains unpaid, and Carbite has no
knowledge of any unassessed tax deficiency proposed or threatened, or any tax
audits or investigations pending or threatened against Carbite or any
Subsidiary. For purposes of this Section and Section 4.9, the term "Tax" shall
include all federal, state, local, foreign or other governmental income,
franchise, gross receipts, property, sales, use, transfer, estimated excise,
employment and other taxes of any nature whatsoever including, without
limitation all interest, penalties, fines, assessments and deficiencies related
thereto. For purposes of this Section, the term "Carbite" shall include all
subsidiaries and any affiliated, combined or unitary group of which each such
corporation is or was a member and any and all corporations which Carbite owns
stock representing at least 50 percent of the total voting power or 50 percent
of the value of such corporation.
1.23 Affiliates. Schedule 3.10 lists all persons who may be deemed to be
----------
"affiliates" of Carbite (collectively, the "Carbite Affiliates" and individually
a "Carbite Affiliate"), as such term is used for purposes of Rule 145
promulgated under the Securities Act, and the record and beneficial ownership of
all shares of Carbite Common Stock beneficially owned by such persons.
1.24 Adverse Developments. Since the Balance Sheet Date there has been no
--------------------
(a) change in the assets, operations, business, financial condition or capital
structure, including without limitation changes in the competitive position,
sales or earnings of Carbite and the Subsidiaries or (b) adverse judgment in any
lawsuit pending at the date hereof which have had or may have a materially
adverse effect on the business or financial condition of Carbite or of Carbite
and the Subsidiaries on a consolidated basis. Except as set forth in Schedule
3.11,
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neither Carbite nor any Subsidiary knows of any development of a nature that may
have a materially adverse effect on the business or financial condition of
Carbite or of Carbite and the Subsidiaries taken on a consolidated basis.
1.25 Employees. Schedule 3.12 sets forth with respect to each officer of
---------
Carbite and each employee of Carbite or any Subsidiary receiving a salary, as of
the date hereof, at an annual rate exceeding $50,000, all remuneration paid or
to be paid during Carbite's fiscal year ending December 31, 1996, and all
commitments with respect to compensation for the year commencing January 1,
1997.
1.26 Certain Transactions. Except as set forth in Schedule 3.13, no
--------------------
Carbite Affiliate, officer, director, or consultant receiving fees at an annual
rate in excess of $50,000 from Carbite or any Subsidiary (i) owns, directly or
indirectly, any interest in (except less than 1% stock holdings for investment
purposes in securities of publicly-held and traded companies), or is an officer,
director, consultant, agent or employee of, any corporation, firm, association
or other business entity or organization that is a competitor, lessor, lessee,
customer, supplier or distributor of Carbite or any Subsidiary, (ii) owns,
directly or indirectly, in whole or in part, any invention, permit, license or
secret or confidential information that Carbite or any Subsidiary is using, or
(iii) has any cause of action or other claim whatsoever (other than for
indemnification under Carbite's or a Subsidiary's Articles of Incorporation or
Bylaws or any policy of insurance maintained by Carbite or any Subsidiary or
under applicable law, or for compensation, remuneration, fees or business
expenses currently due, or under existing employment agreements) against, or
owes any amount to, Carbite or any Subsidiary. Except as set forth in Schedule
3.13, there are no such transactions to which Carbite or any Subsidiary is a
party, on the one hand, and any such person is a party as a disclosed principal,
on the other hand, and any such transactions involving Carbite or any
Subsidiary, on the one hand, and any of such persons, on the other hand, during
the period covered by the financial statements described in Section 3.7 hereof,
which are required in accordance with generally accepted accounting principles
to be reflected in such financial statements, have been so reflected, and each
of such transactions has been effected at prices, interest rates or charges that
are substantially the same as those that would have been paid or incurred in
similar transactions involving Carbite or any subsidiary and unaffiliated
parties.
1.27 Brokers. Except for accountants and attorneys acting as such (and
-------
not as brokers, finders or in other like capacity), all negotiations on behalf
of Carbite relating to this Agreement and the transactions contemplated hereby
have been carried on directly by it with CGI without the intervention of any
broker, finder, investment banker or other third party representing Carbite.
Except as provided in the preceding sentence, neither Carbite nor any officers,
directors or agents of Carbite have engaged or authorized any broker, finder,
investment banker or other third party to act on Carbite's behalf, directly or
indirectly, as a broker, finder, investment banker or in any other like capacity
in connection with this Agreement or the transactions contemplated hereby, or
have consented to or acquiesced in anyone so acting, and Carbite knows of no
claim for compensation from Carbite or CGI for so acting or of any basis for
such a claim.
9
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1.28 Actions and Proceedings. Except as set forth in Schedule 3.15, there
-----------------------
are no actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the best knowledge of Carbite or
any Subsidiary, threatened, against, involving or affecting Carbite or any
Subsidiary or any of their respective properties or assets. There are no
outstanding judgments, orders, writs, injunctions or decrees of any court,
governmental agency or arbitration tribunal against, involving or affecting
Carbite or any Subsidiary or any of their respective properties or assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
CGI AND THE COMPANY
-------------------
CGI and the Company represent and warrant that:
1.29 Valid Corporate Existence; Qualification. CGI and the Company are
----------------------------------------
corporations duly organized, validly existing and in good standing under the
laws of the Province of British Columbia and the State of California,
respectively, and have full corporate power and authority to own, lease or
otherwise hold their assets and properties and to carry on their business as now
conducted. Each of CGI and the Company is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each jurisdiction
in which it owns or leases any real property or conducts any business, so as to
require such qualification or licensing, except for instances where the failure
to so qualify would not materially adversely affect its business or financial
condition. Schedule 4.1 lists the charter documents of each of CGI and the
Company, including its Articles of Incorporation, its Bylaws and all amendments
thereto. There are no other amendments thereto. Such charter documents are in
full force and effect. The minute books of each of CGI and the Company contain
accurate records of all meetings of the Board of Directors thereof, any
committee of the Board of Directors and the shareholders thereof from the date
of incorporation through the date of this Agreement, and accurately reflect all
transactions passed upon by the Board of Directors, any committees thereof or
the shareholders.
1.30 Capitalization of CGI. At June 30, 1996, the authorized capital stock
---------------------
of CGI consisted of 50,000,000 shares of CGI Common Stock, of which 7,874,251
shares were issued and outstanding, and 1,844,285 shares were reserved for
issuance upon the exercise or conversion of outstanding options, warrants,
convertible securities or other similar instruments. At October 31, 1996, the
authorized capital stock of CGI consisted of 50,000,000 shares of CGI Common
Stock, of which 9,118,536 shares were issued and outstanding and 825,000 shares
were reserved for issuance upon the exercise or conversion of outstanding
options, warrants, convertible securities, or other similar instruments. At
such dates, no other shares were authorized or reserved for issuance by CGI,
and, except with regard to its shares reserved for issuance, CGI had not entered
into any agreement, or made any promise or commitment, to issue shares of its
Common Stock or options or warrants to purchase its Common Stock or securities
convertible into its Common Stock or other similar instruments to any other
person. There are
10
<PAGE>
no agreements between or among any of CGI's shareholders with respect to the
voting of any shares of CGI Common Stock on any matter, or providing for the
appointment of any voting trustee, or any similar proxy pooling or shareholders
agreement.
1.31 Subsidiaries and Affiliated Entities.
------------------------------------
(1) Schedule 4.3 sets forth with respect to each corporation,
partnership, joint venture or other business entity controlled by CGI or the
Company (hereinafter referred to collectively as the "CGI Subsidiaries" and
individually as a "CGI Subsidiary"), (i) the name and jurisdiction of
incorporation or other organization, (ii) the authorized, issued and outstanding
shares of capital stock or other voting interests, (iii) the record and
beneficial ownership of such outstanding shares or voting interests, and (iv)
each jurisdiction in which it is duly qualified or licensed to do business and
is in good standing as a foreign corporation, and, with respect to each other
corporation, partnership, joint venture or other business entity of which CGI,
the Company, or any CGI Subsidiary owns, in the aggregate, five percent or more
of the outstanding shares of any class or other interests, the information
described in the foregoing clauses (i) and (ii) and the percentage of record and
beneficial ownership of each class of outstanding shares or other interests
owned by CGI, the Company and each Subsidiary. As used herein "control" shall
mean (i) the ownership of 50 percent or more of the voting securities or other
voting interests of such corporation, partnership, joint venture or other
business entity or (ii) the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
corporation, partnership, joint venture or other business entity, whether
through the ownership of voting shares, by contract or otherwise. Schedule 4.3
lists the charter documents of each CGI Subsidiary, including the Articles of
Incorporation and Bylaws (or other constituent instruments), as amended, of each
CGI Subsidiary. There are no other amendments thereto. The same, as amended, are
in full force and effect. The minute books of each CGI Subsidiary accurately
reflect all transactions from inception of each CGI Subsidiary through the date
of this Agreement passed upon by the Board of Directors (or similar governing
bodies), any committee thereof, or shareholders or other equity owners of such
CGI Subsidiary.
(2) Each CGI Subsidiary is duly organized and validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
other organization, and has full corporate power and authority to own, lease or
otherwise hold its assets and properties and to carry on its business as now
conducted. Each CGI Subsidiary is duly qualified or licensed to do business and
is in good standing as a foreign corporation or other business entity all of the
jurisdictions in which each such Subsidiary owns or leases any real property or
conducts any business, so as to require such qualification or licensing, except
for instances where the failure to so qualify would not materially adversely
affect the business or financial condition of each such CGI Subsidiary. All of
the outstanding shares of capital stock or other voting interests of each CGI
Subsidiary are validly issued and outstanding, fully paid and nonassessable, and
owned by CGI, the Company or another Subsidiary free of any claims, liens,
charges or encumbrances of any nature whatsoever.
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1.32 Options, Warrants, Etc. As of October 31, 1996, except as set forth
----------------------
in Schedule 4.4, there are no outstanding options, warrants, rights, calls,
subscriptions, commitments or agreements of any character whatsoever relating
to, or calling for the issuance, transfer, sale or other disposition of, or the
repurchase or other acquisition of, any shares, issued or unissued, of CGI
Common Stock or Company Common Stock, the capital stock or other voting
interests of any CGI Subsidiary or securities convertible or exchangeable into
or for any of the foregoing (collectively "Rights"), to which CGI or any
Subsidiary is a party or by which CGI or any Subsidiary is bound. Schedule 4.4
sets forth with respect to all employees of CGI or a CGI Subsidiary, and all
other persons holding Rights, all Rights currently outstanding, specifying the
plan or other arrangement pursuant to which the same were granted, the exercise
price, exercise schedule, expiration date and other material terms thereof and
any applicable special terms or restrictions of grant.
1.33 Authority for Agreement. Subject to obtaining the approval of the
-----------------------
Vancouver Stock Exchange, each of CGI and the Company has obtained the requisite
approvals of the boards of directors and shareholders of CGI and the Company,
respectively, and each of CGI and the Company has full corporate power and
authority to execute and deliver this Agreement, to perform the transactions
contemplated hereby and to consummate the Merger. All corporate and other
proceedings required to be taken by or an behalf of CGI or the Company,
including without limitation, all action required to be taken by the Board of
Directors of CGI and the Company, to authorize CGI and the Company to enter into
and carry out this Agreement, to perform the transactions contemplated hereby
and to consummate the Merger, have been duly and properly taken. This Agreement
has been duly executed and delivered by CGI and the Company and is valid and
binding upon CGI and the Company in accordance with its terms.
1.34 No Breach; Governmental Consents. The execution and delivery of this
--------------------------------
Agreement and the consummation of the transactions contemplated hereby will not,
and with notice or the lapse of time or both would not (i) result in the breach
of any of the terms or conditions of, or constitute a default under, the
Articles of Incorporation or Bylaws (or other constituent instruments) of CGI,
the Company, or any CGI Subsidiary, or any mortgage, bond, indenture, agreement,
franchise or other instrument or obligation to which CGI, the Company, or any
CGI Subsidiary is a party or by which any one of them or any of their properties
or assets may be bound, (ii) violate any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental body, (iii)
constitute a violation by CGI, the Company, or any CGI Subsidiary of any law or
regulation of any jurisdiction as such law or regulation relates to CGI, the
Company, or any CGI Subsidiary or to the securities, property or business of
CGI, the Company, or any CGI Subsidiary, or (iv) result in the breach of any of
the terms or conditions of, constitute a default under, or otherwise cause any
impairment of, any license or permit. No consent, approval or authorization of,
or declaration or filing on the part of CGI, the Company or any CGI Subsidiary
with any federal, state, local or foreign governmental or regulatory authority
is required in connection with the valid execution and delivery of this
Agreement or the performance by CGI and the Company of any of the transactions
contemplated hereby.
12
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1.35 Financial Statements. The books of account and related records of
--------------------
CGI, the Company, and each CGI Subsidiary in reasonable detail accurately and
fairly reflect, in all material respects, their respective assets, liabilities,
capital, equity and transactions. The consolidated financial statements
(including the notes thereto) of CGI and its consolidated subsidiaries for the
fiscal years ended December 31, 1995, 1994, and 1993, attached hereto as
Schedule 4.7, are true and correct and fairly present the consolidated financial
position of CGI, and the CGI Subsidiaries as of said dates and the results of
their operations and changes in shareholders' equity and financial position for
such fiscal years, and were prepared in accordance with generally accepted
accounting principles, applied on a basis consistent with prior fiscal years.
The consolidated financial statements (including the notes thereto) of CGI and
the CGI Subsidiaries for the nine-month period ended September 30, 1996,
attached hereto as Schedule 4.7.1 fairly present the consolidated financial
position of CGI and the CGI Subsidiaries as of said date and the results of
their operations for such year-to-date period, were prepared in accordance with
generally accepted accounting principles, applied on a basis consistent with
prior fiscal years and include all adjustments necessary for a fair
presentation. All references herein to the "CGI Balance Sheet" shall be deemed
to refer to the CGI balance sheet as of September 30, 1996, contained in the
consolidated financial statements of CGI as of and for the period ended on such
date and to the related notes thereto; all references herein to the "Balance
Sheet Date" shall be deemed to refer to September 30, 1996; and all references
herein to the "CGI Statement of Income" shall be deemed to refer to the
consolidated statement of income of CGI for the nine-month period ended on the
Balance Sheet Date contained in the consolidated financial statements of CGI as
of and for the period ended on such date and to the related notes thereto. Each
of the CGI Subsidiaries is included in the consolidated financial statements
referred to in this Section 4.7.
1.36 Liabilities. Except as set forth in Schedule 4.8, there are no
-----------
material liabilities of CGI, the Company, or any CGI Subsidiary other than:
(1) Liabilities disclosed or provided for in the Balance Sheet,
including the notes to such Balance Sheet;
(2) Liabilities incurred in the ordinary course of business since
the Balance Sheet Date, none of which has been materially adverse to the
business, assets, financial condition or results of operations of CGI, the
Company or a CGI Subsidiary and none of which is attributable to any period
prior to the Balance Sheet Date.
"Liabilities" shall be read in the broadest sense and shall include all
liabilities, debts and obligations, whether accrued, absolute or contingent, and
whether due or to become due.
Nothing has come to the attention of CGI, the Company or any CGI Subsidiary
which would cause it to believe that there exist any circumstances, conditions,
events or arrangements which may hereafter give rise to Liabilities except in
the ordinary and usual course of business.
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1.37 Tax Matters. Except as set forth in Schedule 4.9, (i) CGI and the
-----------
Company have filed all returns, reports and declarations required to be filed
for all periods prior to the Closing Date and CGI and the Company have not
extended any time in which to file any such returns, reports or declarations
(ii) CGI and the Company have paid, at the time and in the manner required, all
taxes shown to be due on any returns, reports and declarations and CGI and the
Company are not delinquent in the payment of any estimated taxes; and (iii) no
audit or investigation of CGI's or the Company's liability for any Taxes is
pending or in progress, and neither CGI nor the Company has received any notice
of, and has no knowledge that, any such audit or investigation will be commenced
or is threatened. Except as set forth in Schedule 4.9, no deficiency or
adjustment in respect of Taxes which has been assessed against CGI or the
Company remains unpaid, and neither CGI nor the Company has any knowledge of any
proposed or threatened assessments, or any tax audits or investigations pending
or threatened against CGI or the Company. For purposes of this Section, the term
"CGI" or the "Company" shall include all subsidiaries and the affiliated,
combined or unitary group of which each such corporation is or was a member and
any and all corporations which CGI or the Company owns stock representing at
least 50 percent of the total voting power or 50 percent of the value of such
corporation. Further, CGI and the Company represent that: (i) prior to the
transaction, CGI will be in control of Company within the meaning of Section
368(c)(1) of the Internal Revenue Code; (ii) following the transaction, Company
will not issue additional shares of its stock that would result in CGI losing
control of Company within the meaning of Section 368(c) of the Internal Revenue
Code; (iii) CGI has no plan or intention to reacquire any of its stock issued in
the transaction; (iv) CGI has no plan or intention to liquidate Company; to
merge Company with and into another corporation; to sell or otherwise dispose of
the stock of Company; or to cause Company to sell or otherwise dispose of any of
the assets of Target acquired in the transaction, except for dispositions made
in the ordinary course of business; (v) following the transaction, Company will
continue the historic business of Carbite or use a significant portion of
Carbite's business assets in a business; (vi) CGI, Company, Carbite and the
shareholders of Carbite will pay their respective expenses, if any, incurred in
connection with the transaction; and (vii) there is no intercorporate
indebtedness existing between CGI and Carbite or between Company and Carbite
that was issued, acquired, or will be settled at a discount.
1.38 Affiliates. Schedule 4.10 lists all persons who may be deemed to be
----------
"affiliates" of CGI (collectively, the "CGI Affiliates" and individually a "CGI
Affiliate"), as such term is used for purposes of Rule 145 promulgated under the
Securities Act, and the record and beneficial ownership of all shares of CGI
Common Stock beneficially owned by such persons.
1.39 Adverse Developments. Since the Balance Sheet Date there has been no
--------------------
(a) change in the assets, operations, business, financial condition or capital
structure, including without limitation changes in the competitive position,
sales or earnings of CGI, the Company, and the CGI Subsidiaries or (b) adverse
judgment in any lawsuit pending at the date hereof which have had or may have a
materially adverse effect on the business or financial condition of CGI, the
Company, and the CGI Subsidiaries on a consolidated basis. Neither CGI nor the
Company knows of any development of a nature that may have a materially adverse
effect on the business
14
<PAGE>
or financial condition of CGI or of CGI, the Company, and the CGI Subsidiaries
taken on a consolidated basis.
1.40 Employees. Schedule 4.12 sets forth with respect to each officer of
---------
CGI and the Company, all remuneration paid or to be paid during CGI's fiscal
year ending December 31, 1996, and all commitments with respect to such
compensation for the year commencing January 1, 1996.
1.41 Certain Transactions. Except as set forth in Schedule 4.13, no CGI
--------------------
Affiliate, officer, director, or consultant receiving fees at an annual rate in
excess of $50,000 from CGI or any CGI `Subsidiary (i) owns, directly or
indirectly, any interest in (except less than 1% stock holdings for investment
purposes in securities of publicly-held and traded companies), or is an officer,
director, consultant, agent or employee of, any corporation, firm, association
or other business entity or organization that is a competitor, lessor, lessee,
customer, supplier or distributor of CGI or any CGI Subsidiary, (ii) owns,
directly or indirectly, in whole or in part, any invention, permit, license or
secret or confidential information that CGI or any CGI Subsidiary is using or
the use of which is necessary or desirable for the conduct of its business, or
(iii) has any cause of action or other claim whatsoever (other than for
indemnification under CGI's or a CGI Subsidiary's Articles of Incorporation or
Bylaws or any policy of insurance maintained by CGI or any CGI Subsidiary or
under applicable law, or for compensation, remuneration, fees or business
expenses currently due, or under existing employment agreements) against, or
owes any amount to, CGI or any CGI Subsidiary. Except as set forth in Schedule
4.13, there are no such transactions to which CGI or any CGI Subsidiary is a
party, on the one hand, and any such person is a party as a disclosed principal,
on the other hand, and any such transactions involving CGI or any CGI
Subsidiary, on the one hand, and any of such persons, on the other hand, during
the period covered by the financial statements described in Section 4.7 hereof,
which are required in accordance with generally accepted accounting principles
to be reflected in such financial statements, have been so reflected, and each
of such transactions has been effected at prices, interest rates or charges that
are substantially the same as those that would have been paid or incurred in
similar transactions involving CGI or any CGI subsidiary and unaffiliated
parties.
1.42 Brokers. Except for accountants and attorneys acting as such (and not
-------
as brokers, finders or in other like capacity), all negotiations on behalf of
CGI relating to this Agreement and the transactions contemplated hereby have
been carried on directly by it with CGI without the intervention of any broker,
finder, investment banker or other third party representing CGI. Except as
provided in the preceding sentence, neither CGI nor any officers, directors or
agents of CGI have engaged or authorized any broker, finder, investment banker
or other third party to act on CGI's behalf, directly or indirectly, as a
broker, finder, investment banker or in any other like capacity in connection
with this Agreement or the transactions contemplated hereby, or have consented
to or acquiesced in anyone so acting, and CGI knows of no claim for compensation
from CGI or Carbite, other than shares of CGI Common Stock to be issued to David
Nairne as described herein, for so acting or of any basis for such a claim.
15
<PAGE>
1.43 Actions and Proceedings. Except as set forth in Schedule 4.15, there
-----------------------
are no actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the best knowledge of CGI or any
CGI Subsidiary, threatened, against, involving or affecting CGI or any CGI
Subsidiary or any of their respective properties or assets. There are no
outstanding judgments, orders, writs, injunctions or decrees of any court,
governmental agency or arbitration tribunal against, involving or affecting CGI
or any CGI Subsidiary or any of their respective properties or assets.
1.44 Securities Filings. CGI has timely filed all documents and reports
------------------
required to be filed by it with the Vancouver Stock Exchange and the Securities
Commission of the Province of British Columbia. Such filings, which have been
provided to Carbite and upon which Carbite has relied in entering into this
Agreement, do not contain any material misstatement of fact and do not omit to
state any fact necessary to make the statements made therein not misleading.
1.45 Prior Issuances. All issuances of securities by CGI prior to the date
---------------
of this Agreement have been made in full compliance with applicable law. CGI is
not aware of any pending litigation, threatened claim, or unasserted possible
claim seeking damages or recision as a consequence of any such issuance.
ARTICLE 5
---------
SHAREHOLDER APPROVAL AND TERMINATION
------------------------------------
1.46 Shareholder Approval. Carbite agrees to take appropriate action to
--------------------
call a shareholders' meeting (the "Carbite Shareholders' Meeting") to be held at
the earliest practicable date to consider approval of the transactions
contemplated by this Agreement. Subject to receiving the fairness opinion
described in Section 7.3(g), Carbite's Board of Directors shall recommend that
the shareholders approve such transactions and shall use reasonable commercial
efforts to secure such approval. CGI, as the sole shareholder of the Company,
shall vote its shares of common stock of the Company to approve the Merger.
1.47 Termination. This Agreement may be terminated, notwithstanding prior
-----------
approval hereof and of the transactions contemplated hereby by the Boards of
Directors of CGI, the Company, and Carbite or by the shareholders of Carbite or
by CGI as the sole shareholder of the Company, (i) by CGI and the Company or by
Carbite, respectively, if the Closing shall not have occurred on or before April
30, 1997, or any later date to which such date may be extended by agreement of
the parties, such termination to be effective five business days after notice by
the terminating party or parties to the other party or parties or (ii) by mutual
consent of the parties hereto at any time prior to the Effective Time. In the
event of any termination pursuant to this Section 5.2, the parties shall be
released from all liabilities and obligations arising under this Agreement with
respect to matters contemplated by this Agreement, other than for damages to the
extent arising from a prior breach of this Agreement.
16
<PAGE>
ARTICLE 6
COVENANTS OF THE PARTIES
------------------------
1.48 Commercially Reasonable Efforts. Subject to the terms and conditions
-------------------------------
of this Agreement, each party will use commercially reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the merger as soon as practicable after the satisfaction of the
conditions set forth in Article 7 hereof.
1.49 Public Announcements. The parties will consult with each other before
--------------------
issuing any press release or making any public statement with respect to this
Agreement and the Acquisition, and, except as may be required by applicable law
or any listing agreement with any securities exchange, will not issue any such
press release or make any such public statement prior to such consultation and
without the approval of the other.
1.50 Further Assurances. At and after the Effective Time, the officers and
------------------
directors of the Surviving Corporation will be authorized to execute and deliver
in the name and on behalf of Carbite, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of Carbite, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title, and interest in, to and under
any of the rights, properties or assets of Carbite acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
1.51 Conduct of Business. Each party shall conduct its business only in
-------------------
the ordinary and usual course, and make no change in any respect in any of its
business policies or practices without the prior written consent of the other
parties.
1.52 Notice of Actions and Proceedings. Each party shall promptly notify
---------------------------------
the other parties of any actions, claims or legal, administrative or arbitration
proceedings or investigations threatened or commenced against it, which, if
pending on the date hereof, would have been required to be described in a
schedule previously delivered pursuant to this Agreement or which otherwise
relate to, or affect, its business or assets in any material respect or the
consummation of the Merger and the transactions contemplated hereby.
1.53 Satisfaction of Conditions. Neither Carbite, CGI, nor the Company
--------------------------
shall take or omit to take any action that would result in nonsatisfaction of
any of the conditions set forth in Article 7 hereof. Each of Carbite, CGI, and
the Company shall exercise reasonable commercial efforts to cause or facilitate
the satisfaction of each condition set forth in Article 7 hereof. Without
limiting the generality of the foregoing, except to the extent required by this
Agreement or consented to in advance in writing by CGI and Carbite, each party
to this Agreement shall not: (i) effect any amendment to or change in its
Articles of Incorporation or Bylaws, (ii) effect any change in its authorized
capital stock or the shares of its capital stock reserved for issuance,
17
<PAGE>
(iii) issue or sell, or agree to issue or sell, any of its capital stock or
effect any subdivision, combination or other recapitalization affecting its
capital stock (except for the issuance of shares reserved for issuance under
Rights as set forth in Sections 3.2 and 4.2 hereof), (iv) grant or agree to
grant any Rights in addition to those set forth in Schedules 3.4 and 4.4 or
amend or agree to amend any Rights therein set forth or permit the exercise
thereof otherwise than in accordance with their terms or as contemplated hereby;
(v) declare, pay or set aside any dividends or other distribution or payments on
its capital stock, or redeem or repurchase any shares of its capital stock; (vi)
incur or assume any Liability, except Liabilities arising in the ordinary and
usual course of business and except as permitted by this Section 6.6; (vii) pay
or satisfy any Liability except Liabilities existing on the Balance Sheet Date
or Liabilities thereafter incurred in accordance with subsection (vi) hereof; or
pay any Liability other than in the ordinary course of business; (vii) grant or
modify the terms of any bonus or make any payment to any officer, director,
consultant or agent or commit or agree to make or pay the same (other than
normal salaries or other periodic payments in effort on the date hereof); or
(viii) make any loans or advances to any officer, director, consultant or agent.
1.54 Registration and Listing of Securities. CGI shall exercise its best
--------------------------------------
efforts to obtain the necessary permits, registrations, qualifications,
exemptions, listings, and approvals, including, without limitation, a permit
under the CGCL, registration or exemption from registration of the issuance of
the shares of CGI Common Stock issued hereunder and the shares underlying the
CGI Warrants under the laws of the Province of British Columbia, and the listing
of such shares on the Vancouver Stock Exchange, to cause such shares, upon their
issuance, to be freely tradeable, without legend or restriction, on the
Vancouver Stock Exchange. Following the Effective Time, CGI will make all
filings with the Vancouver Stock Exchange, the securities regulatory authorities
of the Province of British Columbia, and any other relevant regulatory
authorities or otherwise to assure that such shares remain freely tradeable,
without legend or restriction, on the Vancouver Stock Exchange.
1.55 Tax Compliance. All parties to this Agreement intend that this
--------------
transaction will qualify as a tax-free reorganization pursuant to Section 368 of
the Internal Revenue Code of 1986. Consequently, all parties agree to file all
tax returns and filing consistent with this treatment and agree not to take any
inconsistent position on any document, report, filing or for any other purpose.
ARTICLE 7
---------
CONDITIONS TO THE MERGER
------------------------
1.56 Conditions to the Obligations of Each Party. The obligations of the
-------------------------------------------
parties to consummate the Merger are subject to the satisfaction of the
following conditions at Closing:
(1) The Merger shall have been approved by the holders of a majority
of the outstanding shares of Carbite Common Stock entitled to vote thereon and
fewer than ten percent
18
<PAGE>
(10%) of the number of shares of Carbite Common Stock entitled to vote thereon
shall be shares of Dissenting Carbite Stock or be eligible to become shares of
Dissenting Carbite Stock.
(2) No action, suit, proceeding or investigation shall have been
instituted and be continuing before a court or before or by any governmental
body or agency, or have been threatened, and be unresolved, by any governmental
body or agency, to restrain or prevent the consummation of the Merger or the
other transactions contemplated hereby, or seeking damages in the event of the
consummation of the Merger or the transactions contemplated hereby.
1.57 Conditions to the Obligations of CGI and the Company. The obligations
----------------------------------------------------
of CGI and the Company to consummate the Merger are subject to the satisfaction
of the following:
(1) Carbite shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing.
(2) All representations and warranties of Carbite contained in this
Agreement, in any exhibit hereto, or in any written statement (including
financial statements), certificate, Schedule or other document delivered by it
pursuant hereto or in connection with the transactions contemplated hereby (a)
shall have been true and correct when made, and (b) shall be true and correct on
and as of the Closing Date.
(3) All actions by or in respect of, or filings with, any
governmental body, agency or official, whether necessary or required to permit
the consummation of the Merger so that the Surviving Corporation shall be able
to continue to carry on the business of Carbite substantially in the manner now
conducted shall have been taken, made, or obtained.
(4) CGI and the Company shall have received, or be satisfied that
they will receive, any material consents, approvals, or waivers from third
parties required to consummate the Merger, or made necessary as a result of the
Merger, including but not limited to the approval of the Vancouver Stock
Exchange.
(5) The number of shares of Carbite Common Stock issued and
outstanding and reserved for issuance immediately prior to the Effective Time
shall not exceed 9,333,715 and 607,000, respectively, including shares issued or
to be issued pursuant to the Rights referred to in Section 3.4 hereof, and CGI
shall have received a certificate of the Secretary of Carbite to such effect.
(6) Except as permitted by this Agreement, there shall have been no
material adverse change in the properties, business, financial or operating
condition of Carbite;
(7) The currently outstanding convertible notes of Carbite shall
have been converted to Carbite Common Stock or repaid.
19
<PAGE>
(8) CGI shall have received a certificate, executed by the President
of Carbite, dated as of the Closing Date, to the effect that the conditions set
forth in Section 7.2(a) through 7.2(g) have been satisfied.
(9) CGI shall have received such other certificates, documents and
instruments from or on behalf of Carbite as CGI shall reasonably request as
being necessary or appropriate in connection with the consummation of the
transactions contemplated by this Agreement.
1.58 Conditions to the Obligation of Carbite. The obligation of Carbite to
---------------------------------------
consummate the Merger is subject to the satisfaction of the following
conditions:
(1) CGI and the Company shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by them prior to or at the Closing.
(2) All representations and warranties of CGI and the Company
contained in this Agreement or in any Exhibit hereto or in any written statement
(including financial statements), certificate, schedule or other document
delivered by CGI or the Company pursuant hereto or in connection with the
transactions contemplated hereby (a) shall have been true and correct when made.
(3) The holders of a majority of the number of shares of Carbite
Common Stock entitled to vote thereon shall have approved the Merger at the
Carbite Shareholders' Meeting.
(4) CGI shall have received all exchange, state and provincial
securities law or "blue sky" permits and other authorizations, including but not
limited to the approval of the Vancouver Stock Exchange, necessary to carry out
the transactions contemplated hereby. The shares of CGI Common Stock to be
issued to the shareholders of Carbite as of the Closing will be approved for
listing on the Vancouver Stock Exchange, will not bear any restrictive legend,
and will be freely tradeable when issued.
(5) The Merger shall have been approved by CGI as the sole
shareholder of the Company.
(6) Immediately prior to the Effective Time, the number of shares of
CGI Common Stock issued and outstanding shall not exceed 9,118,536 and the
number of shares of CGI Common Stock issuable upon the exercise of Rights shall
not exceed 825,000.
(7) Carbite shall have received an opinion, acceptable in form and
substance to Carbite, of KPMG Chartered Accountant to the effect that the Merger
is fair and reasonable in
20
<PAGE>
all material respects to the shareholders of Carbite and that (i) the value of
the CGI Warrants and (ii) the amounts paid to dissenting shareholders is less
than five percent of the value of the CGI Common Stock issued pursuant to
Section 1.2(b) of this Agreement.
(8) The California Department of Corporations shall have approved
the transactions contemplated by this Agreement after a hearing held pursuant to
Section 25142 of the CGCL.
(9) Carbite shall have received from counsel to CGI an opinion,
acceptable in form and substance to counsel for Carbite, that the Merger will
qualify as a tax-free reorganization pursuant to Section 368(a) of the Internal
Revenue Code of 1986.
(10) On the Closing Date, the Company's working capital, determined
without consideration of the effects of the Merger, shall be not less than Seven
Hundred Thousand United States Dollars ($700,000).
(11) Carbite shall have received a certificate, executed by the
President of CGI, dated as of the Closing Date, to the effect that the
conditions set forth in Sections 7.3(a) through 7.3(j) have been satisfied.
(12) Carbite shall have received such other certificates, documents
and instruments from or on behalf of CGI and the Company as Carbite shall
reasonably request as being necessary or appropriate in connection with the
consummation of the transactions contemplated by this Agreement.
ARTICLE 8
---------
MISCELLANEOUS
-------------
1.59 Amendment and Waiver. This Agreement may be amended, modified,
--------------------
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by Carbite, on the one hand, and CGI and the Company, on the other
hand. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver by any party of the breach of any
term, provision, covenant or condition contained herein as a condition to such
party's obligation hereunder, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or of any breach or a waiver of any other condition
or of any breach of any other term, covenant, representation or warranty of this
Agreement. Subject to applicable law, this Agreement may be amended upon
authorization by the parties hereto before or after the Carbite Shareholders'
Meeting at any time prior to the Effective Time; provided, however, that,
without the vote required by the CGCL, no such
21
<PAGE>
amendment effected after the Carbite Shareholders' Meeting shall diminish the
consideration to be delivered in exchange for Carbite Common Stock as described
in Section 1.2(b) hereof.
1.60 Necessary Acts. All parties to this Agreement shall perform any and
--------------
all acts as well as execute any and all documents that reasonably may be
necessary or appropriate to fully carry out the provisions and intent of this
Agreement.
1.61 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing (including telecopy or similar writing) and shall
be given as follows:
If to CGI or the Company to:
Carbite Golf Inc.
Michael Scholz
2700 - 700 West Georgia Street
Vancouver, B.C.
V7Y IB8
If to Carbite, to:
President
6370 Nancy Ridge Drive, Suite 110
San Diego, California 92121
or to such other address as may be designated by any of the foregoing
individuals by written notice given in conformity herewith. Each such notice,
request, or other communication shall be effective, if given by telecopy, when
such telecopy is transmitted to the telecopy number specified in this Section
and the appropriate confirmation of receipt is received, or, if given by any
other means, when delivered at the address specified in this Section.
1.62 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations, warranties, and covenants included or provided herein, or in
any Schedule or certificate or other document delivered pursuant hereto, shall
survive the Closing Date.
1.63 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Provided that no assignment of any rights or delegation
of any obligations provided for herein may be made by any party hereto without
the express prior written consent of the other parties.
1.64 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of California, without giving effect to
the principles of conflict of laws.
22
<PAGE>
1.65 Headings. The headings of the articles and sections of this Agreement
--------
have been inserted solely for convenience of reference and shall in no way
restrict or modify any of the terms or provisions hereof.
1.66 Entire Agreement. This Agreement and the Agreements contemplated by
----------------
the Exhibits hereto constitute the entire agreement and supersede all prior
agreements and understandings (including any representations and warranties made
by any party), both written and oral, among the parties with respect to the
subject matter hereof.
1.67 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
1.68 Dissenters' Rights. CGI agrees that, if the Merger becomes effective,
------------------
it will promptly pay to any dissenting shareholders of Carbite the amounts, if
any, to which they are entitled under the provisions of the CGCL.
1.69 Anti-Dilution of CGI Common Stock and Carbite Common Stock. All
----------------------------------------------------------
references herein to numbers of shares of CGI Common Stock or Carbite Common
Stock, including, without limitation, the reference in subsection 1.2(b) hereof
to the conversion ratio, pursuant to the Merger, of 1.3287 shares of CGI Common
Stock and .197455 CGI Warrants per share of issued and outstanding Carbite
Common Stock and the reference in Section 1.5 hereof to the number of shares of
CGI Common Stock to be subject to options granted as therein provided and the
exercise prices of such options, and the number of shares of CGI Common Stock to
be issued pursuant to Section 1.7 hereof shall be appropriately adjusted to
reflect any recapitalization, reclassification, split-up, stock dividend, rights
offering, combination or reverse split made, declared or effected with respect
to CGI Common Stock or Carbite Common Stock prior to the Effective Time.
23
<PAGE>
ARTICLE IX
QUALIFICATION CONDITION
-----------------------
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be duly
executed on its behalf under its corporate authority, effective as of the day
and year first above written.
CARBITE INC.
By:____________________________
Its:_________________________
CARBITE GOLF INC.
By:____________________________
Its: Chairman
CARBITE ACQUISITION CORP.
By:____________________________
Its: Chairman
24
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated for reference the 24th day of
September, 1996, is entered into by and among Advanced Golf Systems, Inc., a
California corporation ("AGS"), Carbite Golf Inc., a corporation organized under
the laws of the Province of British Columbia, Canada ("CGI"), and AGS
Acquisition Corp., a California corporation (the "Company"), all of the issued
---
and outstanding stock of which is owned by CGI.
For and in consideration of the mutual covenants and undertakings set forth
herein, the parties hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger.
----------
(a) Subject to the provisions of this Agreement, at the Effective Time (as
defined in Section 1.1(b)), AGS shall be merged with and into the
Company (the "Merger") in accordance with the California General
Corporation law (the "CGCL"), whereupon the separate existence of AGS
shall cease, and the Company shall be the surviving corporation (the
"Surviving Corporation"). The Merger is, and the transactions
contemplated by this Agreement are, sometimes referred to herein as
the "Acquisition".
(b) As soon as practicable after satisfaction or, to the extent provided
hereunder, waiver of all conditions to the Merger, the Company and AGS
shall deliver to the Secretary of State of California, for filing, a
Certificate of Merger together with all other filings or recordings
required by the CGCL in connection with the Merger. The Merger shall
be consummated, the closing of the Acquisition (the "Closing") shall
occur, and the Merger shall become effective at such time as the
Certificate of Merger is duly filed with the California Secretary of
State, or at
<PAGE>
-2-
such later time as is specifically set forth in the Certificate of
Merger (the "Effective Time"). The date on which the Closing takes
place is sometimes hereinafter referred to as the "Closing Date". The
Closing shall take place at the offices of Carbite Inc., Suite 110,
6370 Nancy Ridge Drive, San Diego, CA, 92121, or at such other place
or such other time as the parties shall mutually agree.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all of the rights, privileges, powers and franchises, and
shall be subject to all of the restrictions, liabilities and duties of
the Company and of AGS, all as provided under the CGCL.
1.2 Conversion of Shares. Upon the Effective Time:
--------------------
(a) The 3,956,000 common shares of AGS issued and outstanding as of the
Effective Time shall be converted into the right to receive and shall
become 700,000 units of CGI, the parent corporation of the Surviving
Corporation, each such unit (the "CGI Unit") consisting of one common
share of CGI, and one non-transferable warrant entitling the holder to
purchase one additional common share of CGI for $1.50 (Canadian) for a
period expiring on the second anniversary of the Closing.
(b) The conversion of AGS shares into CGI Units shall be as calculated in
the attached Schedule "A".
(c) The full names and addresses of the shareholders of AGS are as set out
in the attached Schedule "B".
(d) The conversion shall be deemed effected without any action on the part
of the holders thereof. Commencing at the Effective Time, however,
each holder of an outstanding certificate or certificates theretofore
representing shares of common
<PAGE>
-3-
stock of AGS may surrender the same to CGI, and such holder shall
thereupon be entitled upon such surrender to receive in exchange
therefor a certificate or certificates representing the number of CGI
Units into which the shares of common stock of AGS theretofore
represented by the certificate or certificates so surrendered shall
have been converted (subject to the resale restrictions and legending
as hereinafter described). Although, prior to surrender, each
outstanding certificate representing issued and outstanding common
stock of AGS shall be deemed for all purposes, except the payment of
dividends, to evidence ownership of the number of shares of CGI Units
into which the shares of common stock of AGS have been so converted,
no actual dividends or other distributions shall be paid to any
holders of record of common stock of CGI, after the Effective Time,
who have not surrendered their AGS share certificates for transfer.
Upon surrender and exchange, however, all previously withheld
dividends and distributions, without interest, shall be paid to such
holders.
(e) Dissenting AGS Shareholders. AGS shall give CGI prompt notice of any
---------------------------
demands for the purchase of shares of AGS shares for cash. If any
holder of shares of AGS shares demands that AGS purchase such shares
for cash in connection with the Merger pursuant to the provisions of
Section 1300 of the CGCL, but such holder withdraws his or her demand
for such purchase (and AGS consents to such withdrawal) or becomes
ineligible to require such purchase, such shares of AGS shares shall
be converted into, and such holder shall be deemed the record owner
of, shares of CGI Common Stock and CGI Warrants determined in
accordance with Section 1.2 of this Agreement
(f) Plan of Reorganization. The parties agree that this Agreement shall
----------------------
constitute a Plan of Reorganization for purposes of Section 368 of the
Internal Revenue Code.
<PAGE>
-4-
ARTICLE 2.
THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The Articles of Incorporation of the
-------------------------
Company, as amended at the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until further amended in accordance
with applicable law.
2.2 Bylaws. The Bylaws of the Company, as amended at the Effective Time,
------
shall be the Bylaws of the Surviving Corporation until further amended in
accordance with applicable law.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF AGS
AGS represents and warrants to CGI and the Company that:
3.1 Organization and Existence. AGS is a corporation duly incorporated on
--------------------------
January 6, 1993, and validly existing and in good standing under the laws of the
State of California. AGS has full corporate power and authority to own and
lease the properties and assets it now owns and leases and to carry on its
business as and where such properties and assets are now owned or leased, or
where such business is now conducted. AGS has heretofore delivered to the Buyer
true and correct copies of its Articles of Incorporation and Bylaws, each as
amended to the date hereof. AGS is duly qualified or licensed to do business
and is in good standing as a foreign corporation in each jurisdiction in which
AGS owns or leases any real property or conducts any business, so as to require
such qualification or licensing, except for instances where the failure to so
qualify would not materially adversely affect the business or financial
condition of AGS. The minute books of AGS contain full and accurate records of
all meetings of the Board of Directors thereof, any committee of the Board of
Directors and the shareholders thereof, from the date of incorporation through
the date of this Agreement, and accurately reflect all transactions passed
<PAGE>
-5-
upon by the Board of Directors, any committees thereof or the shareholders of
AGS.
3.2 Capitalization.
--------------
(a) The authorized share capital of AGS consists of 10,000,000 Common
Shares.
(b) As of the date of this Agreement, there were 3,956,000 shares of AGS's
common stock issued and outstanding, according to AGS's stock records,
all of which are owned by the Shareholders of AGS (the "Shareholders")
as set forth in Schedule "A". All of the outstanding common stock of
AGS are duly authorized, validly issued, and fully paid and non-
assessable.
3.3 Subsidiaries. AGS has no subsidiaries; however, it has a 49% interest
------------
in Viper Bite Company, a California General Partnership.
3.4 Stock Options and Other Securities. There are no options or other
----------------------------------
rights to acquire from AGS, and no obligation of AGS to issue, any capital
stock, voting securities, or securities convertible into or exchangeable for
capital stock of AGS.
3.5 Authority and Approvals. Subject to obtaining the approval of the
-----------------------
holders of AGS common stock in accordance with the CGCL, AGS has the corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the Merger. Except for such shareholder approval, all corporate and
other proceedings required to be taken by or on behalf of AGS, including without
limitation, all actions required to be taken by the Board of Directors of AGS,
to authorize AGS to enter into and carry out this Agreement, to perform the
transactions contemplated hereby and to consummate the Merger, have been duly
and properly taken. This Agreement has been duly executed and delivered by AGS
and is valid and binding upon AGS in accordance with its terms.
3.6 Financial Statements. The books of account and related records of AGS
--------------------
in
<PAGE>
-6-
reasonable detail accurately and fairly reflect, in all material respects,
their respective assets, liabilities, capital, equity and transactions. The
consolidated financial statements (including the notes thereto) of AGS and its
consolidated subsidiaries for the fiscal years ended December 31, 1995 and
December 31, 1996 respectively, attached hereto as Schedule "C", are true and
correct and fairly present the consolidated financial position of AGS as of said
dates and the results of their operations and changes in shareholders' equity
and financial position for such fiscal years. Each of the AGS Subsidiaries is
included in the consolidated financial statements referred to in Schedule "C".
3.7 Liabilities. Except as set forth in Schedule "C", there are no
-----------
material liabilities of AGS other than:
(a) Liabilities disclosed or provided for in Schedule "C", including the
notes to the Balance Sheet;
(b) Liabilities incurred in the ordinary course of business since December
31, 1996, none of which has been materially adverse to the business,
assets, financial condition or results of operations of AGS and none
of which is attributable to any period prior to December 31, 1996.
"Liabilities" shall be read in the broadest sense and shall include all
liabilities, debts and obligations, whether accrued, absolute or contingent, and
whether due or to become due. Nothing has come to the attention of AGS which
would cause it to believe that there exist any circumstances, conditions, events
or arrangements which may hereafter give rise to Liabilities except in the
ordinary and usual course of business.
3.8 Financial Statements. Upon Closing, AGS shall provide to CGI and the
--------------------
Company up-to-date Financial Statements which shall include, without limitation,
confirmation that AGS will on Closing have not less than $700,000 U.S. of net
working capital after paying off all liabilities. AGS' net working capital
would include it's pro-rata share of Viper Bite Company's
<PAGE>
-7-
net working capital on the Closing Date.
3.9 No Breach; Governmental Consents. The execution and delivery of this
--------------------------------
Agreement and the consummation of the transactions contemplated hereby will not,
and with notice or the lapse of time or both would not, result in the breach of
any of the terms or conditions of, or constitute a default under, the Articles
of Incorporation or Bylaws (or other constituent instruments) of AGS, or any
mortgage, bond, indenture, agreement, franchise or other instrument or
obligation to which AGS is a party or by which it or it's properties or assets
may be bound.
3.10 Tax Matters. (i) AGS has filed all tax returns, reports and
-----------
declarations required to be filed for all periods prior to the Closing Date and
has not extended any time in which to file any such returns, reports or
declarations, (ii) AGS has paid, at the time and in the manner required, all
taxes shown to be due on any returns, reports and declarations and is not
delinquent in the payment of any estimated taxes, and (iii) no audit or
investigation of AGS's liability for any Taxes is pending or in progress, and
AGS has not received any notice of, and has no knowledge that, any such audit or
investigation will be commenced or is threatened. No deficiency or adjustment
in respect to Taxes which has been assessed against AGS remains unpaid, and AGS
has no knowledge of any unassessed tax deficiency proposed or threatened, or any
tax audits or investigations pending or threatened against AGS. For purposes of
this Section, the term "Tax" shall include all federal, state, local, foreign or
other governmental income, franchise, gross receipts, property, sales, use,
transfer, estimated excise, employment and other taxes of any nature whatsoever
including, without limitation all interest, penalties, fines, assessments and
deficiencies related thereto.
3.11 Affiliates. Except as listed in Schedule "D" there are no
----------
"affiliates" of AGS, as such term is used for purposes of Rule 145 promulgated
under the Securities Act. References to AGS throughout shall include AGS's 49%
interest in Viper Bite Company.
3.12 Adverse Developments. Since December 31, 1996 there has been no (a)
--------------------
change
<PAGE>
-8-
in the assets, operations, business, financial condition or capital structure,
including without limitation changes in the competitive position, sales or
earnings of AGS, or (b) adverse judgment in any lawsuit pending at the date
hereof which have had or may have a materially adverse effect on the business or
financial condition of AGS. AGS knows of no development of a nature that may
have a materially adverse effect on the business or financial condition of AGS.
3.13 Employees. AGS has advised CGI with respect to each officer of AGS
---------
and Viper Bite Company and each employee of AGS and Viper Bite Company receiving
a salary, as of the date hereof, all remuneration paid or to be paid during
AGS's fiscal year ending December 31, 1996, and all commitments with respect to
compensation for the year commencing January 1, 1997 the particulars of which
are set out in the attached Schedule "E". AGS covenants that it shall use its
best efforts to arrange for Randie Burrell to enter into an agreement to become
a full-time employee of the Company on the Effective Date.
3.14 Certain Transactions. AGS has no officer, director, or consultant
--------------------
who: (i) owns, directly or indirectly, any interest in (except less than 1%
stock holdings for investment purposes in securities of publicly-held and traded
companies), or is an officer, director, consultant, agent or employee of, any
corporation, firm association or other business entity or organization that is a
competitor, lessor, lessee, customer, supplier or distributor of AGS, (ii) owns,
directly or indirectly, in whole or in part, any property, invention, permit,
licence, or secret or confidential information that AGS is using, or (iii) has
any cause of action or other claim whatsoever (other than for indemnification
under AGS's Articles of Incorporation or Bylaws or any policy of insurance
maintained by AGS or under applicable law, or for compensation, remuneration,
fees or business expenses currently due, or under existing employment
agreements) against, or owes any amount to, AGS. There are no transactions to
which AGS is a party, on the one hand, and any such person is a party as
disclosed principal, on the other hand, and any such transactions involving AGS,
on the one hand, and any of such person, on the other hand, during the period
covered by the financial statements described in Section 3.6 hereof, which are
required in accordance with generally accepted accounting principles to be
reflected in such financial statements, have been so reflected, and each of such
transactions has been effected at prices,
<PAGE>
-9-
interest rates or charges that are substantially the same as those that would
have been paid or incurred in similar transactions involving AGS and
unaffiliated parties.
3.15 Brokers. Except for accountants and attorneys acting as such (and not
-------
as brokers, finders or in other like capacity), all negotiations on behalf of
AGS relating to this Agreement and the transactions contemplated hereby have
been carried on directly by it with AGS without the intervention of any broker,
finder, investment banker or other third party representing AGS. Except as
provided in the preceding sentence, neither AGS nor any officers, directors or
agents or AGS have engaged or authorized any broker, finder, investment banker
or other third party to act on AGS's behalf, directly or indirectly, as a
broker, finder, investment banker or in any other like capacity in connection
with this Agreement or the transactions contemplated hereby, or have consented
to or acquiesced in anyone so acting, and AGS knows of no claim for compensation
from AGS for so acting or of any basis for such claim.
3.16 Actions and Proceedings. There are no actions, suits, claims or
-----------------------
legal, administrative or arbitration proceedings or investigations pending or,
to the best of knowledge of AGS, threatened, against, involving or affecting AGS
or any of it's properties, business or assets. There are no outstanding
judgments, orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against, involving or affecting AGS or any of
it's properties, business or assets.
3.17 Fairness Opinion. AGS has obtained a fairness opinion regarding the
----------------
proposed Merger in the form attached hereto as Schedule "F".
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF CGI
AND THE COMPANY
CGI and the Company represent and warrant to AGS and the shareholders
of AGS that:
<PAGE>
-10-
4.1 Organization and Existence. Both CGI and the Company are corporations
--------------------------
duly organized, validly existing and in good standing under the laws of their
jurisdictions of incorporation, and have all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on their respective businesses as now conducted.
4.2 Capitalization of CGI. At December 31, 1996, the authorized capital
---------------------
stock of CGI consisted of 50,000,000 shares of CGI Common Stock, of which
9,118,536 shares were issued and outstanding, and 825,000 shares were reserved
for issuance upon the exercise or conversion of outstanding options, warrants,
convertible securities or other similar instruments. Except for an Agreement
and Plan of Merger, with Carbite, Inc., a California corporation, dated for
reference June 6, 1996, (the "Carbite Merger Agreement") a copy of which is
attached as Schedule "FF", no other shares were authorized or reserved for
issuance by CGI, and, except with regard to its shares reserved for issuance,
CGI had not entered into any agreement, or made any promise or commitment, to
issue shares of its Common Stock or options or warrants to purchase its Common
Stock or securities convertible into its Common Stock or other similar
instruments to any other person. There are no agreements between or among any
of CGI's shareholders with respect to the voting of any shares of CGI Common
Stock on any matter, or providing for the appointment of any voting trustee, or
any similar proxy pooling or shareholders agreement.
4.3 Subsidiaries and Affiliated Entities. The attached Schedule "G" sets
------------------------------------
forth with respect to each corporation, partnership, joint venture or other
business entity controlled by CGI or the Company (hereinafter referred to
collectively as the "CGI Subsidiaries" and individually as "CGI Subsidiary"),
(i) the name and jurisdiction of incorporation or other organization, (ii) the
authorized, issued and outstanding shares of capital stock or other voting
interests, (iii) the record and beneficial ownership of such outstanding shares
or voting interests, and (iv) each jurisdiction in which it is duly qualified or
licensed to do business and is in good standing as a foreign corporation, and,
with respect to each other corporation, partnership, joint venture or other
business entity of which CGI, the Company, or any CGI Subsidiary owns, in the
aggregate, five
<PAGE>
-11-
percent or more of the outstanding shares of any class or other interests, the
information described in the foregoing clauses (i) and (ii) and the percentage
of records and beneficial ownership of each class of outstanding shares or other
interest owned by CGI, the Company and each Subsidiary. As used herein "control"
shall mean (i) the ownership of 50 percent or more of the voting securities or
other voting interests of such corporation, partnership, joint venture or other
business entity or (ii) the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
corporation, partnership, joint venture or other business entity, whether
through the ownership of voting shares, by contract or otherwise. Schedule "G"
lists the charter documents of each CGI Subsidiary, including the Articles of
Incorporation and Bylaws (or other constituent instruments), as amended, are in
full force and effect. The minute books of each CGI Subsidiary accurately
reflect all transactions from inception of each CGI Subsidiary through the date
of this Agreement passed upon by the Board of Directors (or similar governing
bodies), any committee thereof, or shareholders or other equity owners of such
CGI Subsidiary.
4.4 Options, Warrants, Etc. As of December 31, 1996, except as set forth
-----------------------
in Schedule "H", there are no outstanding options, warrants, rights, calls,
subscriptions, commitments or agreements of any character whatsoever relating
to, or calling for the issuance, transfer, sale or other disposition of, or the
repurchase or other acquisition of, any shares, issued or unissued, of CGI
Common Stock or Company Common Stock, the capital stock or other voting
interests of any CGI Subsidiary or securities convertible or exchangeable into
or for any of the foregoing (collectively "Rights"), to which CGI or any
Subsidiary is a party or by which CGI or any Subsidiary is bound. Schedule "H"
sets forth with respect to all employees of CGI or a CGI Subsidiary, and all
other persons holding Rights, all Rights currently outstanding, specifying the
plan or other arrangement pursuant to which the same were granted, the exercise
price, exercise schedule, expiration date and other material terms thereof and
any applicable special terms or restrictions of grant.
4.5 Authority for Agreement. Subject to obtaining the approval of the
-----------------------
Vancouver Stock Exchange, each of CGI and the Company has obtained the requisite
approvals of the
<PAGE>
-12-
boards of directors and shareholders of CGI and the Company, respectively, and
each of CGI and the Company has full corporate power and authority to execute
and deliver this Agreement, to perform the transactions contemplated hereby and
to consummate the Merger. All corporate and other proceedings required to be
taken by or on behalf of CGI or the Company, including without limitation, all
action required to be taken by the Board of Directors of CGI and the Company, to
authorize CGI and the Company to enter into and carry out this Agreement, to
perform the transactions contemplated hereby and to consummate the Merger, have
been duly and properly taken. This Agreement has been duly executed and
delivered by CGI and the Company and is valid and binding upon CGI and the
Company in accordance with its terms.
4.6 No Breach: Governmental Consents. The execution and delivery of this
---------------------------------
Agreement and the consummation of the transactions contemplated hereby will not,
and with notice or the lapse of time or both would not (i) result in the breach
of any of the terms or conditions of, or constitute a default under, the
Articles of Incorporation or Bylaws (or other constituent instruments) of CGI,
the Company, or any CGI Subsidiary, or any mortgage, bond, indenture, agreement,
franchise or other instrument or obligation to which CGI, the Company, or any
CGI Subsidiary is a party or by which any one of them or any of their properties
or assets may be bound, (ii) violate any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental body, (iii)
constitute a violation of CGI, the Company, or any CGI Subsidiary of any law or
regulation of any jurisdiction as such law or regulation relates to CGI, the
Company, or any CGI Subsidiary or to the securities, property or business of
CGI, the Company, or any CGI Subsidiary, or (iv) result in the breach of any of
the terms or conditions of, constitute a default under, or otherwise cause any
impairment of, any license or permit. No consent, approval or authorization of,
or declaration or filing on the part of CGI, the Company or any CGI Subsidiary
with any federal, state, local or foreign governmental or regulatory authority
is required in connection with the valid execution and delivery of this
Agreement or the performance by CGI and the Company of any of the transactions
contemplated hereby.
4.7 Financial Statements. The books of account and related records of
--------------------
CGI, the
<PAGE>
-13-
Company, and each CGI Subsidiary in reasonable detail accurately and fairly
reflect, in all material respects, their respective assets, liabilities,
capital, equity and transactions. The consolidated financial statements
(including the notes thereto) of CGI and its consolidated subsidiaries for the
fiscal year ended December 31, 1995, attached hereto as Schedule "I", are true
and correct and fairly present the consolidated financial position of CGI, and
the CGI Subsidiaries as of said dates and the results of their operations and
changes in shareholders' equity and financial position for such fiscal years.
The consolidated financial statements (including the notes thereto) of CGI and
the CGI Subsidiaries for the nine-month period ended September 30, 1996,
included in Schedule "I" fairly present the consolidated financial position of
CGI and the CGI Subsidiaries as of the said date and the results of their
operations for such year-to-date period, were prepared in accordance with
generally accepted accounting principles, applied on a basis consistent with
prior fiscal years and include all adjustments necessary for a fair
presentation. All references herein in to the "CGI Balance Sheet" shall be
deemed to refer to the CGI balance sheet as of September 30, 1996, contained in
the consolidated financial statements of CGI as of and for the period ended on
such date and to the related notes thereto; all references herein to the
"Balance Sheet Date" shall be deemed to refer to September 30, 1996; and all
references herein to the "CGI Statement of Income" shall be deemed to refer to
the consolidated statement of income of CGI for the nine-month period ended on
the Balance Sheet Date contained in the consolidated financial statements of CGI
as of and for the period ended on such date and to the related notes thereto.
Each of the CGI Subsidiaries is included in the consolidated financial
statements referred to in Schedule "I".
4.8 Liabilities. Except as set forth in Schedule "I", there are no
-----------
material liabilities of CGI, the Company, or any CGI Subsidiary other than:
(a) Liabilities disclosed or provided for in the Balance Sheet, including
the notes to such Balance Sheet;
(b) Liabilities incurred in the ordinary course of business since the
Balance Sheet Date, none of which has been materially adverse to the
business, assets, financial
<PAGE>
-14-
condition or results of operations of CGI, the Company or a CGI
Subsidiary and none of which is attributable to any period prior to
the Balance Sheet Date.
"Liabilities" shall be read in the broadest sense and shall include all
liabilities, debts and obligations, whether accrued, absolute or contingent, and
whether due or to become due. Nothing has come to the attention of CGI, the
Company or any CGI Subsidiary which would cause it to believe that there exist
any circumstances, conditions, events or arrangements which may hereafter give
rise to Liabilities except in the ordinary and usual course of business.
4.9 Tax Matters. Except as set forth in Schedule "J", (i) CGI and the
-----------
Company have filed all returns, reports and declarations required to be filed
for all periods prior to the Closing Date and CGI and the Company have not
extended any time in which to file any such returns, reports or declarations
(ii) CGI and the Company have paid, at the time and in the manner required, all
taxes shown to be due on any returns, reports an declarations and CGI and the
Company are not delinquent in the payment of any estimated taxes; and (iii) no
audit or investigation of CGI's or the Company's liability for any Taxes is
pending or in progress, and neither CGI nor the Company has received any notice
of, and has no knowledge that, any such audit or investigation will be commenced
or is threatened. Except as set forth in Schedule "J", no deficiency or
adjustment in respect to Taxes which has been assessed against CGI or the
Company remains unpaid, and neither CGI nor the Company has any knowledge of any
proposed or threatened assessments, or any tax audits or investigations pending
or threatened against CGI or the Company. For purposes of this Section, the
term "CGI" or the "Company" shall include all subsidiaries and the affiliated,
combined or unitary group of which each such corporation is or was a member and
any and all corporations which CGI or the Company owns stock representing at
least 50 percent of the total voting power or 50 percent of the value of such
corporation. Further, CGI and the Company represent that: (i) prior to the
transaction, CGI will be in control of Company within the meaning of Section
368(c) of the Internal Revenue Code; (ii) following the transaction, Company
will not issue additional shares of its stock that would result in CGI losing
control of Company within the meaning of Section 368(c) of the Internal Revenue
Code; (iii) CGI has no plan or intention to reacquire any of its stock issued in
the transaction; (iv) CGI
<PAGE>
-15-
has no plan or intention to liquidate Company; to merge Company with and into
another corporation; to sell or otherwise dispose of the stock of Company; or to
cause Company to sell or otherwise dispose of any of the assets acquired in the
transaction, except for dispositions made in the ordinary course of business;
(v) following the transaction, Company will continue the historic business of
AGS or use a significant portion of AGS's business assets in a business (vi)
CGI, Company, AGS and the shareholders of AGS will pay their respective
expenses, if any, incurred in connection with the transaction; and (vii) there
is no intercorporate indebtedness existing between CGI and AGS or between
Company and AGS that was issued, acquired, or will be settled at a discount.
4.10 Affiliates. Schedule "K" lists all persons who may be deemed to be
----------
"affiliates" of CGI (collectively, the "CGI Affiliates" and individually a "CGI
Affiliate"), as such term is used for purposes of Rule 145 promulgated under the
Securities Act, and the record and beneficial ownership of all shares of CGI
Common Stock beneficially owned by such persons.
4.11 Adverse Developments. Since the Balance Sheet Date there has been no
--------------------
(a) change in the assets, operations, business, financial condition or capital
structure, including without limitation changes in the competitive position,
sales or earnings of CGI, the Company, and the CGI Subsidiaries or (b) adverse
judgment in any lawsuit pending at the date hereof which have had or may have a
materially adverse effect on the business or financial condition of CGI, the
Company, and the CGI Subsidiaries on a consolidated basis. Neither CGI nor the
Company knows of any development of a nature that may have a materially adverse
effect on the business or financial condition of CGI or of CGI, the Company, and
the CGI Subsidiaries taken on a consolidated basis.
4.12 Brokers. Except for accountants and attorneys acting as such (and not
-------
as brokers, finders or in other like capacity), all negotiations on behalf of
CGI relating to this Agreement and the transactions contemplated hereby have
been carried on directly by it with CGI without the intervention of any broker,
finder, investment banker or other third party representing CGI. Except as
provided in the preceding sentence, neither CGI nor any officers, directors or
agents of
<PAGE>
-16-
CGI have engaged or authorized any broker, finder, investment banker or other
third party to act on CGI's behalf, directly or indirectly, as a broker, finder,
investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby, or have consented to or
acquiesced in anyone so acting, and CGI knows of no claim for compensation from
CGI or AGS.
4.13 Actions and Proceedings. Except as set forth in Schedule "L", there
-----------------------
are no actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the best knowledge of CGI or any
CGI Subsidiary, threatened, against, involving or affecting CGI or any CGI
Subsidiary or any of their respective properties or assets. There are no
outstanding judgments, orders, writs, injunctions or decrees of any court,
governmental agency or arbitration tribunal against, involving or affecting CGI
or any CGI Subsidiary or any of their respective properties or assets.
4.14 Securities Filings. CGI has timely filed all documents and reports
------------------
required to be filed by it with the Vancouver Stock Exchange and the Securities
Commission of the Province of British Columbia. Such filings, which have been
provided to AGS and upon which AGS has relied in entering into this Agreement,
do not contain any material misstatement of fact and do not omit to state any
fact necessary to make the statements made therein not misleading.
4.15 Prior Issuances. All issuances of securities by CGI prior to the date
---------------
of this Agreement have been made in full compliance with applicable law. CGI is
not aware of any pending litigation, threatened claim, or unasserted possible
claim seeking damages or recision as a consequence of any such issuance.
ARTICLE 5.
COVENANTS OF THE PARTIES
AGS, CGI, and the Company agree that:
<PAGE>
-17-
5.1 Shareholder Approval. AGS agrees to take appropriate action to call a
--------------------
shareholders' meeting (the "AGS Shareholders' Meeting") to be held at the
earliest practicable date to consider approval of the transactions contemplated
by this Agreement. Subject to receiving the fairness opinion described in
Section 6.3(d), AGS's Board of Directors shall recommend that the shareholders
approve such transactions and shall use reasonable commercial efforts to secure
such approval. CGI, as the sole shareholder of the Company, shall vote its
shares of common stock of the Company to approve the Merger.
5.2 Termination. This Agreement may be terminated, notwithstanding prior
-----------
approval hereof and of the transactions contemplated hereby by the Boards of
Directors of CGI, the Company, and AGS or by the shareholders of AGS or by CGI
as the sole shareholder of the Company, (i) by CGI and the Company or by AGS,
respectively, if the Closing shall not have occurred on or before April 30,
1997, or any later date to which such date may be extended by agreement of the
parties, such termination to be effective five business days after notice by the
terminating party or parties to the other party or parties or (ii) by mutual
consent of the parties hereto at any time prior to the Effective Time. In the
event of any termination pursuant to this Section 5.2, the parties shall be
released from all liabilities and obligations arising under this Agreement with
respect to matters contemplated by this Agreement, other than for damages to the
extent arising from a prior breach of this Agreement.
5.3 Best Efforts. Subject to the terms and conditions of this Agreement,
------------
each party will use its best efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Acquisition as soon as
practicable after the satisfaction of the conditions set forth in Article 5
hereof.
5.4 Public Announcements. The parties will consult with each other before
--------------------
issuing any press release or making any public statement with respect to this
Agreement and the Acquisition, and, except as may be required by applicable law
or any listing agreement with any national securities exchange, will not issue
any such press release or make any such public
<PAGE>
-18-
statement prior to such consultation and without the approval of the other.
5.5 Further Assurances. At and after the Effective Time, the officers and
------------------
directors of the Surviving Corporation will be authorized to execute and deliver
in the name and on behalf of AGS, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of AGS, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title, and interest in, to and under
any of the rights, properties or assets of AGS acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.
5.6 Conduct of Business. Each party shall conduct its business only in
-------------------
the ordinary and usual course, and make no change in any respect in any of its
business policies or practices without the prior written consent of the other
parties.
5.7 Notice of Actions and Proceedings. Each party shall promptly notify
---------------------------------
the other parties of any actions, claims or legal, administrative or arbitration
proceedings or investigations threatened or commenced against it, which, if
pending on the date hereof, would have been required to be described in a
schedule previously delivered pursuant to this Agreement or which otherwise
relate to, or affect, its business or assets in any material respect or the
consummation of the Merger and the transactions contemplated hereby.
5.8 Satisfaction of Conditions. Neither AGS, CGI, nor the Company shall
--------------------------
take or omit to take any action that would result in non-satisfaction of any of
the conditions set forth in Article 6 hereof. Each of AGS, CGI, and the Company
shall exercise reasonable commercial efforts to cause or facilitate the
satisfaction of each condition set forth in Article 6 hereof. Without limiting
the generality of the foregoing, except to the extent required by this Agreement
or consented to in advance in writing by CGI and AGS, each party to this
Agreement shall not: (i) effect any amendment to or change its Articles of
Incorporation or Bylaws, (ii) effect any change in its authorized capital stock
or the shares of its capital stock reserved for issuance, (iii) issue or sell,
or agree to issue or sell, any of its capital stock or effect any subdivision,
<PAGE>
-19-
combination or other recapitalization affecting its capital stock (except for
the issuance of shares reserved for issuance under Warrants as set forth in
Sections 1.2(a)), (iv) grant or agree to grant any Warrants in addition to those
set forth in Section 1.2(a) or amend or agree to amend any Warrants therein set
forth or permit the exercise thereof otherwise than in accordance with their
terms or as contemplated hereby; (v) declare, pay or set aside any dividends or
other distribution or payments on its capital stock, or redeem or repurchase any
shares of its capital stock; (vi) incur or assume any Liability, except
Liabilities arising in the ordinary and usual course of business; (vii) pay or
satisfy any Liability except Liabilities existing on the Balance Sheet Date or
Liabilities thereafter incurred in accordance with subsection (vi) hereof, or
pay any Liability other than in the ordinary course of business; (vii) grant or
modify the terms of any bonus or make any payment to any officer, director,
consultant or agent or commit or agree to make or pay the same (other than
normal salaries or other periodic payments in effort on the date hereof); or
(viii) make any loans or advances to any officer, director, consultant or agent.
5.9 Registration and Listing of Securities. CGI shall exercise its best
--------------------------------------
efforts to obtain the necessary permits, registrations, qualifications,
exemptions, listings, and approvals, including, without limitation, a permit
under the CGCL, registration or exemption from registration of the issuance of
the shares of CGI common stock issued hereunder and the shares underlying the
CGI Warrants under the laws of the Province of British Columbia, and the listing
of such shares on the Vancouver Stock Exchange, to cause such shares, upon their
issuance, to be freely tradeable, without legend or restriction, on the
Vancouver Stock Exchange. Following the Effective Time, CGI will make all
filings with the Vancouver Stock Exchange, the securities regulatory authorities
of the Province of British Columbia, and any other relevant regulatory
authorities or otherwise to assure that such shares remain freely tradeable,
without legend or restriction, on the Vancouver Stock Exchange.
5.10 Tax Compliance. All parties to this Agreement intend that this
--------------
transaction will qualify as a tax-free reorganization pursuant to Section 368 of
the Internal Revenue Code of 1986. Consequently, all parties agree to file all
tax returns and filings consistent with this treatment and agree not to take any
inconsistent position on any document, report, filing or for
<PAGE>
-20-
any other purpose.
ARTICLE 6.
CONDITIONS TO THE MERGER
6.1 Conditions to the Obligations of Each Party. The obligations of the
-------------------------------------------
parties to consummate the Merger are subject to the satisfaction of the
following conditions at Closing:
(a) The shareholders of AGS shall have approved and adopted this Agreement
and the Merger, by a 95% or more majority vote of the holders of the
issued and outstanding stock of AGS, and not more than five percent of
the holders of the common stock of AGS shall have exercised
dissenters' rights under the CGCL;
(b) No provision of any applicable law or regulation, and no judgment,
injunction, order or decree shall prohibit the consummation of the
Acquisition, and no action, suit, proceeding or investigation shall
have been instituted and be continuing before a court or before or by
any governmental body or agency, or have been threatened, and be
unresolved, by any governmental body or agency, to restrain or prevent
the consummation of the Merger or the other transactions contemplated
hereby, or seeking damages in the event of the consummation of the
Merger or the transactions contemplated hereby.
6.2 Conditions to the Obligations of CGI and the Company. The obligations
----------------------------------------------------
of CGI and the Company to consummate the Merger are subject to the satisfaction
of the following:
(a) AGS shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to
the Closing.
(b) The representations and warranties of AGS contained in this Agreement
pursuant hereto shall be true and correct in all material respects at
and as of the Closing as
<PAGE>
-21-
if made at and as of such time.
(c) The holders of not less than 95% of all AGS common stock entitled to
vote thereon shall have approved the Merger at the AGS Shareholders'
Meeting.
(d) CGI shall have received all exchange, state and provincial securities
law or "blue sky" permits and other authorizations, including but not
limited to the approval of the Vancouver Stock Exchange, necessary to
carry out the transactions contemplated hereby. The shares CGI Common
Stock to be issued to the shareholders of AGS as of the Closing will
be approved for listing on the Vancouver Stock Exchange, will not bear
any restrictive legend, and will freely tradeable when issued.
(e) The California Department of Corporations shall have approved the
transactions contemplated by this Agreement after a hearing held
pursuant to Section 25142 of the CGCL.
(f) CGI and AGS shall have received from counsel to AGS: (i) an opinion,
acceptable in form and substance to counsel for each of AGS and CGI,
that the Merger will qualify as a tax-free reorganization pursuant to
section 368(a) of the Internal Revenue Code of 1986, and (ii) an
opinion, in a form acceptable to CGI and its solicitors, as to the
title of AGS's interest and title to its assets, including without
restriction, its 49% interest in Viper Bite Company, and the execution
by AGS of this Agreement.
(g) On the Closing Date, AGS's working capital, including it's pro-rata
share of Viper Bite Company and determined without consideration of
the effects of the Merger, shall not be less than $700,000 U.S. The
net working capital of Viper Bite Company (current assets less current
liabilities) including the net working capital allocated to AGS's 49%
interest shall not be less than $900,000 Canadian.
<PAGE>
-22-
(h) AGS shall have received a certificate, executed by the President of
AGS, dated as of the Closing Date, to the effect that the conditions
set forth in Section 6.2(a) through (j) have been satisfied.
(i) CGI shall have received such other certificates, documents and
instruments from or on behalf of AGS as CGI shall reasonably request
as being necessary or appropriate in connection with the consummation
of the transactions contemplated by this Agreement.
(j) All actions by or in respect of, or filings with, any governmental
body, agency or official, whether necessary or required to permit the
consummation of the Acquisition so that the Surviving Corporation
shall be able to continue to carry on the business of AGS
substantially in the manner now conducted shall have been taken, made,
or obtained.
(k) CGI and the Company shall have received, or be satisfied that they
will receive, any material consents, approvals, or waivers from third
parties required to consummate the Acquisition, or made necessary as a
result of the Acquisition.
(l) No court, arbitrator, or governmental body, agency or official shall
have issued any order restraining or prohibiting the effective
operation of the business of AGS after the Closing, and no proceeding
challenging this Agreement or seeking to prohibit, alter, prevent or
materially delay the Acquisition shall have been instituted and be
pending.
(m) Except as permitted by this Agreement, there shall have been no
material adverse change in the properties, business, financial or
operating condition of AGS.
(n) CGI and the Company shall have received such other certificates,
documents and
<PAGE>
-23-
instruments from or on behalf of AGS as shall reasonably request as
being necessary or appropriate in connection with the consummation of
the transactions contemplated by this Agreement.
(o) The Company shall have entered into a full-time employment agreement
with Randie Burrell on mutually acceptable terms.
6.3 Conditions to the Obligation of AGS. The obligation of AGS to
-------------------------------------
consummate the Merger is subject to the satisfaction of the following
conditions:
(a) CGI and the Company shall have performed in all material respects all
of their obligations hereunder required to be performed by them at or
prior to the Closing.
(b) The representations and warranties of CGI and the Company contained in
this Agreement shall be true and correct in all material respects at
and as of the Closing as if made at and as of such time.
(c) AGS shall have received such other certificates, documents and
instruments from or on behalf of CGI and the Company as AGS shall
reasonably request as being necessary or appropriate in connection
with the consummation of the transactions contemplated by this
Agreement.
(d) AGS shall have received an opinion, acceptable in form and substance
to each of AGS and CGI, from KPMG, in the form attached as Schedule
"F", to the effect that the Merger is fair and reasonable in all
material respects to the shareholders of AGS and that (i) the value of
the CGI Warrants and (ii) the amounts paid to dissenting shareholders
is less than ten percent of the value of the CGI Common Stock issued
pursuant to Section 1.2(b) of this Agreement or such other amount as
may be agreed.
<PAGE>
-24-
ARTICLE 7.
MISCELLANEOUS
7.1 Amendment and Waiver. This Agreement may be amended, modified,
--------------------
superseded or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by AGS, CGI and the Company. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right of such party at a later time to enforce the same. No waiver by any
party of the breach of any term, provision, covenant or condition contained
herein as a condition to such party's obligation hereunder, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or of any breach or a
waiver of any other condition or of any breach of any other term, covenant,
representation or warranty of this Agreement. Subject to applicable law, this
Agreement may be amended upon authorization by the parties hereto before or
after the AGS Shareholders' Meeting at any time prior to the Effective Time;
provided, however, that, without the vote required by the CGCL, no such
amendment effected after the AGS Shareholders' Meeting shall diminish the
consideration to be delivered in exchange for AGS common stock as described in
Section 1.2(b) hereof.
7.2 Necessary Acts. All parties to this Agreement shall perform any and
--------------
all acts as well as execute any and all documents that reasonably may be
necessary or appropriate to fully carry out the provisions and intent of this
Agreement.
7.3 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing (including telecopy or similar writing) and shall
be given as follows:
If to CGI or the Company to:
<PAGE>
-25-
Carbite Golf Inc. Michael Scholz
2700 - 700 West Georgia St.
Vancouver, B.C.
V7Y 1B8
If to AGS, to: Don MacKay
1911 Coast Boulevard
Del Mar, California 92014
and to: Randie Burrell
14221 Arbolitos Drive
Poway, California 92064
or to such other address as may be designated by any of the foregoing
individuals by written notice given in conformity herewith. Each such notice,
request, or other communication shall be effective, if given by telecopy, when
such telecopy is transmitted to the telecopy number specified in this Section
and the appropriate confirmation of receipt is received, or, if given by any
other means, when delivered at the address specified in this Section.
7.4 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations, warranties, and covenants included or provided herein, or in
any schedule or certificate or other document delivered pursuant hereto, shall
survive the Closing Date.
7.5 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Provided that no assignment of any rights or delegation
of any obligations provided for herein may be made by any party hereto without
the express prior written consent of the other parties.
7.6 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of California, without giving effect to
the principles of conflict of laws.
7.7 Headings. The headings of the articles and sections of this Agreement
--------
have been inserted solely for convenience of reference and shall in no way
restrict or modify any of the
<PAGE>
-26-
terms or provisions hereof.
7.8 Gender and Number. The masculine, feminine, or neuter gender and the
-----------------
singular or plural number shall each be deemed to include the others whenever
the context so indicates.
7.9 Entire Agreement. This Agreement and the Agreements contemplated by
----------------
the Exhibits hereto constitute the entire agreement and supersede all prior
agreements and understandings (including any representations and warranties made
by any party), both written and oral, among the parties with respect to the
subject matter hereof.
7.10 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
-27-
7.11 Dissenters' Rights. CGI agrees that, if the Merger becomes effective,
------------------
it will promptly pay to any dissenting shareholders of AGS the amounts, if any,
to which they are entitled under the provisions of the CGCL.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
duly executed on its behalf under its corporate authority, effective as of the
day and year first above written.
ADVANCED GOLF SYSTEMS INC.
By: _________________________ ___________________________
Don MacKay, President Randie Burrell, Vice-President
CARBITE GOLF INC.
By: ___________________________ ___________________________
Richard Thompson, Chairman David Nairne, Director
AGS ACQUISITION CORP.
By: ____________________
Its President
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
- -------------------------
I CERTIFY THIS IS A COPY OF A DOCUMENT FILED ON
JAN 04 1996
JOHN S. POWELL
REGISTRAR OF COMPANIES
PROVINCE OF BRITISH COLUMBIA
FORM 21 (Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of Incorporation No.294773
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned Company on
the date stated:
Name of Company:
Date resolution passed:
Resolution:
RESOLVED THAT:
CONSOLIDATED QDATA SYSTEMS INC. May 8, 1995
1. The name of the Company be changed from CONSOLIDATED QDATA SYSTEMS INC. to
CARBITE GOLF INC. and that paragraph 1 of its Memorandum be altered
accordingly.
2. The form of altered Memorandum attached hereto be approved and adopted by
the Company.
Certified a true copy the 19th day of December, 1995.
(Signature) Solicitor
(Relationship to Company)
<PAGE>
ALTERED MEMORANDUM
OF
CONSOLIDATED QDATA SYSTEMS INC.
(as altered by Special Resolution
dated May 8, 1995)
1. The name of the Company is CARBITE GOLF INC.
2. The authorized capital of the Company consists of 50,000,000 Common shares
without par value.
<PAGE>
I HEREBY CERTIFY THAT THIS IS
A COPY
OF A DOCUMENT FILED
WITH THE
REGISTRAR OF
COMPANIES ON
SEP 191991
- ----------
FORM 21
(Section 371) _________________________
PROVINCE OF BRITISH COLUMBIA/REGISTRAR OF COMPANIES FOR THE
PROVINCE OF BRITISH
COLUMBIA
Certificate of
Incorporation
No. 294773
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned Company
on the date stated:
Name of Company:
QDATA SYSTEMS INCORPORATED
Date resolution passed: April 22, 1991
Resolution:
PLEASE SEE ATTACHED
SCHEDULE "A"
Certified a true copy the 14th day of June, 1991.
(Signature)
Solicitor (Relationship to Company)
<PAGE>
SCHEDULE "A"
RESOLVED as Special Resolutions that:
1. The name of the Company be changed from QDATA SYSTEMS INCORPORATED to
CONSOLIDATED QDATA SYSTEMS INC. and that paragraph 1 of its Memorandum be
altered accordingly.
2. The Company consolidate its authorized capital of 10,000,000 shares on a
three old shares for one new share basis to 3,333,333.3 shares (3,197,400
issued shares being reduced to 1,065,800 shares).
3. The Company increase its post-consolidation authorized capital of
3,333,333.3 shares by the addition of 46,666,666.7 shares so that the
authorized capital of the Company will now consist of 50,000,000 common
shares without par value.
4. The form of altered Memorandum attached hereto be approved and adopted by
the Company.
<PAGE>
ALTERED MEMORANDUM
OF
QDATA SYSTEMS INCORPORATED
(as altered by Special Resolution
dated April 22, 1991)
1. The name of the Company is CONSOLIDATED QDATA SYSTEMS INC.
2. The authorized capital of the Company consists of 50,000,000 Common shares
without par value.
<PAGE>
FORM 21
(Section 371j
Certificate of
Incorporation No. 294773
I HEREBY CERTIFY THAT THIS IS
A COPY OF A DOCUMENT FILED WITH THE
REGISTRAR OF COMPANIES ON
.May 16, 1986
REGISTRAR OF COMPANIES FOR
THE PROVINCE OF BRITJSH COLUMBIA
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned
Company on the date stated:
Name of Company: QUOTRON DATA INCORPORATED
-----------
Date resolution passed: May 1, 1986.
[See note (a)] Resolution:
RESOLVED as a Special Resolution of the Company that the name of the
Company be changed from "Quotron Data Incorporated" to "QDATA SYSTEMS
INCORPORATED", and that the Memorandum of the Company be amended so that it
shall be in the form as set out in the Schedule attached to this Special
Resolution.
Certified a true copy the
16th
day of May, 1986
ALEXANDER, HOLBURN, BEAUDIN & LANG
Per:
(Signature) - __________________
(ReIationship to Company)-Solicitor
<PAGE>
SCHEDULE
ALTERED MEMORANDUM
OF
QUOTRON DATA INCORPORATED
-------------------------
(Altered by Special Resolution of Shareholders dated May 1, 1986)
1. The name of the Company is QData Systems Incorporated.
2. The authorized capital of the Company consists of
10,000,000 common shares without par value.
<PAGE>
I HEREBY CERTIFY THAT THESE ARE COPIES OF
DOCUMENTS FILED WITH THE
REGISTRAR OF COMPANIES ON
JUL 2, 1985
REGISTRAR OF COMPANIES FOR THE PROVINCE OF
BRITISH COLUMBIA
MEMORANDUM OF
QUOTRON DATA INCORPORATED
I wish to be formed into a company with limited liability under the Company
Act in pursuance of this Memorandum.
1. The name of the Company is QUOTRON DATA INCORPORATED.
2. The authorized capital of the Company consists of 10,000,000 common shares
without par value.
3. I agree to take the number of shares in the Company set opposite my name.
FULL NAME, RESIDENT ADDRESS NUMBER OF SHARES TAKEN
AND OCCUPATION OF SUBSCRIBER BY SUBSCRIBER
One (1) common share
ERIN E. MULHERN
201-1569 West 12th Avenue
Vancouver, B.C.
V6E 2J2
Legal Assistant
TOTAL SHARES TAKEN: One (1) common share
DATED this 27th day of June, 1985.
<PAGE>
ARTICLES
OF
QUOTRON DATA INCORPORATED
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART SUBLECT PAGE
- ---- ------- -----
<S> <C> <C>
1 INTERPRETATION 1
2 ISSUE OF SHARES 2
3 SHARE CERTIFICATES 3
4 TRANSFER OF SHARES, GENERAL 4
5 TRANSMISSION OF SHARES 5
6 BORROWING AND CAPITAL 6
7 MEETINGS 8
8 PROCEEDINGS AT GENERAL MEETINGS 9
9 VOTES OF MEMBERS 12
10 DIRECTORS 14
11 INDEMNIFICATION 19
12 PROCEEDINGS OF DIRECTORS 22
13 OFFICERS 24
14 EXECUTION OF INSTRUMENTS 25
15 DIVIDENDS 26
16 ACCOUNTS 28
17 NOTICES 28
18 FEES 30
</TABLE>
<PAGE>
ARTICLES
OF
QUOTRON DATA INCORPORATED
PART 1 - INTERPRETATION
-----------------------
1.1 In these Artic1es, unless the context otherwise requires:
(a) "directors" means the director or directors of the Company for the
time being;
(b) "Company Act" means the Company Act of the Province of British
Columbia from time to time in force and amendments thereto and all
Regulations and amendments thereto made pursuant to that Act;
(c) "register" means the register of members to be kept pursuant to the
Company Act;
(d) "registered address" of a member means his address as recorded in the
register;
(e) "registered address" of a director means his address as be kept at the
records office of the Company pursuant to the Company Act;
1.2 Words importing the singular include the plural and vice versa, and words
importing a male person include a female person and a corporation.
1.3 The definitions in the Company Act in force and as amended from time to
time with necessary shall, changes and so far as applicable, apply to
these Articles.
1.4 The regulations contained in Table A in the First Schedule to the
Company Act shall not apply to the Company.
<PAGE>
-2-
PART 2 - ISSUE OF SHARES
------------------------
2.1 Subject to the Company Act and to these Articles, the issue of shares of
the Company shall be under the control of the directors who may, subject to the
rights of holders of shares of the Company for the time being Outstanding, allot
or otherwise dispose of, and/or grant options on, shares authorized but not yet
issued at such times and to such persons, including directors, and in such
manner and upon such terms and conditions and at such price or for such
consideration as the directors in their absolute discretion may determine.
2.2 Whenever the Company is not a reporting company, the directors, before
allotting any shares, shall first offer those shares pro rata to the members,
but where there are classes of shares, the directors shall first offer the
shares to be allotted pro rata to the members holding shares of the class
proposed to be allotted, and, if any shares remain, the directors shall then
offer the remaining shares pro rata to the other members. The offer shall be
made by notice specifying the number of shares offered and the time, which shall
be not less than 7 days, for acceptance of the offer. After the expiration of
the time for acceptance or on receipt of written confirmation from the person to
whom such an offer is made that he declines to accept the offer, and where there
are no other members holding shares who should first receive an offer, the
directors may, for three months thereafter, offer shares to such persons and in
such manner as they think most beneficial to the Company, but the offer to those
persons shall not be at a price less than, or on terms more favourable than, the
offer to the members. Whenever the Company is a reporting company, the directors
may allot and issue its shares at such times and in such manner and to such
persons or class of persons as the directors may determine and the Company Act,
the Securities Act, and all other applicable laws permit.
2.3 When the Company is authorized to issue shares without par value, the
directors are authorized to determine the price or consideration for which such
shares shall be allotted or issued, and notwithstanding that the price
<PAGE>
-3-
or consideration for a share may be other than cash, the price or consideration
for a share shall, at the time when the share is allotted, be expressed in terms
of money and so recorded in the proceedings of the directors of the Company.
2.4 No share shall be issued until the Company has received the full
consideration therefor in cash, property, or services, provided that:
a) a document or book account evidencing indebtedness of the allottee
does not constitute property;
b) services shall be past services actually performed for the Company,
and,
c) the value of property or services shall be the value the directors
determine by resolution to be, in all the circumstances of the
transaction, the fair market value.
2.5 Subject to the provisions and restrictions contained in the Company Act
applicable to the shares without par value or otherwise, the Company may pay a
commission or allow a discount in an amount not exceeding 25% of the amount of
the subscription price to any person in consideration of his subscribing or
agreeing to subscribe, or procuring or agreeing to procure subscriptions,
whether absolutely or conditionally, for shares. The Company may pay such
brokerage as may be lawful.
PART 3 - SHARE CERTIFICATES
-----------------------------
3.1 Every share certificate issued by the Company shall be in such form as the
directors approve and shall comply with the requirements of the Company Act.
3.2 If any share certificate is worn out or defaced, then upon production of
that certificate to the directors or the transfer agent of the Company, the
directors or that transfer agent may declare the same to be cancelled and
<PAGE>
-4-
cause it to be so marked and may issue a new certificate in place of the
certificate cancel led. If any share certificate is lost or destroyed, then,
upon proof of the loss or destruction to the satisfaction of the directors, and
upon giving such indemnity as the directors deem adequate, a new certificate
shall be issued to the party entitled to it. In any such case where a new share
certificate is issued, the fee prescribed in these Articles must be paid if
requested.
3.3 A share certificate registered in the names of two or more persons shall be
delivered to the person first named on the register.
PART 4 - TRANSFER OF SHARES, GENERAL
--------------------------------------
4.1 Subject to the restrictions, if any, set forth in these Articles, any
member may transfer his shares by instrument in writing executed by or on behalf
of such member and delivered to the Company or its transfer agent. The
instrument of transfer of any share of the Company shall be in the form, if any,
on the back of the certificate of the share being transferred, or in any other
form which the directors may approve. If the directors so require each
instrument of transfer shall be in respect of only one class of shares.
4.2 Every instrument of transfer shall be executed by the transferor and left
at the registered office of the Company or at an authorized office of its
transfer agent for registration, together with the certificate for the shares to
be transferred and such other evidence, if any, as the directors or the transfer
agent may require to prove the title of the transferor or his right to transfer
the shares. All instruments of transfer which are registered shall be retained
by the Company or its transfer agent, but any instrument of transfer where the
transfer is not registered shall be returned to the person depositing the same,
together with the share certificate which accompanied the same when tendered for
registration. The transferor shall remain the holder of the share until the name
of the transferee is entered on the register in respect of that share.
<PAGE>
-5-
4.3 The signature of the registered owner of any shares, or of his duly
authorized attorney, upon the form of transfer constitutes an authority to the
Company to register the shares specified in the form of transfer in the name of
the person named in that form as transferee or, if no person is so named, then
in any name designated in writing by the person depositing the share certificate
and the form of transfer with the Company or its agents. The Company or its
transfer agent may require proof or guarantee of the signature of any
transferor.
4.4 Neither the Company or any director, officer or agent is bound to enquire
into the title of the transferee of shares to be transferred, nor is any such
person liable to the registered or any intermediate owner of the shares for
registering the transfer.
4.5 The Company may keep its register of members either at its records office
or at any office in the Province of British Columbia of a trust company
registered under the Trust Company Act, and may keep, or cause to be kept within
the Province by a trust company registered as aforesaid, one or more branch
registers of members.
4.6 Whenever the Company is a reporting company, but not otherwise, it may
cause one or more branch registers of members to be kept outside the Province of
British Columbia.
PART 5 - TRANSMISSION OF SHARES
---------------------------------
5.1 In the case of the death or bankruptcy of a member, his personal
representative or trustee in bankruptcy shall be the only person recognized by
the Company as having any title to or interest in the shares registered in the
name of the deceased. Before recognizing any personal representative or trustee
in bankruptcy the directors may require him to produce and deposit the documents
required by the Company Act.
5.2 Notwithstanding anything otherwise provided in these Articles, if a person
becomes entitled to a share as a
<PAGE>
-6-
result of an order of a Court of competent jurisdiction or pursuant to a
statute, then, upon producing such evidence as the directors think sufficient
that he is so entitled, such person may be registered as holder of the share.
PART 6 - BORROWING AND CAPITAL
--------------------------------
6.1 Subject to any restriction which may from time to time be included in the
memorandum of the Company or these Articles or contained in the Company Act or
the terms, rights or restrictions of any shares or securities of the Company
outstanding, the directors may at their discretion authorize the Company to
borrow any sum of money and may raise or secure the repayment of such sum in
such manner and upon such terms and conditions, in all respects, as they think
fit, and in particular, and without limiting the generality of the foregoing, by
the issue of bonds or debentures, or any mortgage or charge, whether specific or
floating, or by granting any other security on the undertaking, or the whole or
any part of the property, of the Company, both present and future.
6.2 The directors may make any debentures, bonds or other debt obligations
issued by the Company, by their terms, assignable free from any equities between
the Company and the person to whom they may be issued or any other person who
lawfully acquires the same by assignment, purchase, or otherwise, howsoever.
6.3 The directors may authorize the issue of any debentures, bonds or other
debt obligations of the Company at a discount, premium or otherwise, and with
special or other rights or privileges as to redemption, surrender, entitlement
to interest or share of income, allotment of, or conversion into, or exchange
for shares, attendance at general meetings of the Company, and otherwise as the
directors may determine at or before the time of issue, but no debenture shall
be issued which the Company has not the power to reissue until the members by
resolution determine such debenture shall be cancelled unless such debenture
expressly provides by its terms that it shall not be reissued. The Company may
cause one or more branch registers of its debentureholders to be kept.
<PAGE>
-7-
6.4 The Company by ordinary resolution of the members and insofar as the
Company Act shall permit, may alter its memorandum to increase its authorized
capital by:
a) creating shares with par value, or shares without par value, or both;
b) increasing the number of shares with par value, or shares without par
value, or both; or,
c) increasing the par value of a class of shares with par value, if no
shares of that class are issued;
d) creating shares of different classes with special rights or
restrictions.
6.5 The Company may, by resolution of the directors and subject to the
provisions of the Company Act and the specific provisions of any special rights
or restrictions attached to any class or classes of its shares, purchase or
otherwise acquire any of its shares if, at the time of the proposed purchase or
acquisition, the Company is not insolvent or likely to be rendered insolvent by
such purchase or acquisition and if, where a proposed purchase of shares is not
to be made through a stock exchange, the Company shall make its offer to
purchase pro rata to every member who holds shares of the class or kind to be
purchased unless the Company is purchasing shares from a dissenting member
pursuant to the Company Act.
6.6 The Company may, by resolution of the directors and subject to the
provisions of the Company Act and the specific provisions of any special rights
or restrictions attached to any class or classes of its shares by the memorandum
or these Articles, redeem any of its issued shares that have a right of
redemption attached thereto provided that at the time of such redemption the
Company is not insolvent or likely to be rendered insolvent by such redemption
and where the Company proposes to redeem some, but not all, of its shares of a
particular class or kind, the directors shall have absolute discretion to
determine in such manner as they deem proper which shares shall be redeemed,
and, without limiting the generality of the foregoing, may redeem shares which
have been purchased by the Company in priority to shares which are held by
members.
<PAGE>
-8-
PART 7 - MEETINGS
-------------------
7.1 Meetings of the Company shall be held at such time and place, in accordance
with the Company Act, as the directors appoint, and, unless otherwise
specifically provided, the provisions of these Articles relating to meetings
shall apply with necessary changes to a meeting of members holding a particular
class of shares.
7.2 Every meeting, other than an annual general meeting or a class meeting,
shall be called an extraordinary general meeting.
7.3 The directors may, whenever they think fit, convene an extraordinary
general meeting.
7.4 Notice of a meeting shall specify the place, the day and the hour of
meeting, and, in case of special business, the general nature of that business.
The accidental omission to give notice of any meeting to, or the nonreceipt of
any notice by, any of the members entitled to receive notice shall not
invalidate any proceedings at that meeting.
7.5 If any special business includes the presenting, considering, approving,
ratifying or authorizing the execution of any document, then the portion of any
notice relating to that document is sufficient if it states that a copy of the
document or proposed document is or will be available for inspection by members
at an office of the Company in the Province of British Columbia or at one or
more designated places in the Province during business hours on any specified or
unspecified business day or days prior to the date of the meeting, and at the
meeting.
<PAGE>
-9-
PART 8 - PROCEEDINGS AT GENERAL MEETINGS
----------------------------------------
8.1 The following business at a general meeting shall be deemed to be special
business:
(a) All business at an extraordinary general meeting;
(b) All business that is transacted at an annual general meeting, with the
exception of the consideration of the financial statement and the
report of the directors and auditors, the election of directors, the
appointment of the auditors and such other business as, under these
Articles or in accordance with the Company Act ought to be transacted
at an annual general meeting or is business which is brought under
consideration by the report of the directors issued with the notice
convening the meeting;
and no special business shall be conducted at any meeting unless notice of
that business has been given to the members in accordance with these
Articles or members holding at least 75% of the shares entitled to be voted
at that meeting are present and consent to the conduct of such business.
8.2 No business, other than the election of a chairman and the adjournment or
termination of the meeting, shall be conducted at any meeting at any time when a
quorum is not present. A quorum shall be two persons holding or representing by
proxy not less than one-tenth of the outstanding shares of the Company which are
entitled to be voted at the meeting, unless the Company has only one member, in
which case the quorum shall be that member who may conduct the business of the
Company by proceedings recorded in writing and signed by him. If at any time
during a meeting there ceases to be a quorum present, any business then in
progress shall be suspended until there is a quorum present or until the meeting
is adjourned or terminated, as the case may be.
<PAGE>
-10-
8.3 If within a half an hour from the time appointed for a meeting a quorum is
not present, the meeting/1/ if convened upon the requisition of members, shall
be terminated. In any other case, it shall stand adjourned to the same day in
the next week, at the same time and place, and if, at the adjourned meeting, a
quorum is not present within half an hour from the time appointed for the
meeting, the member or members present shall be a quorum.
8.4 Subject to Article 8.5, the chairman of the directors, if there is one,
whom failing the president of the Company, whom failing one of the directors
present chosen by the directors from among their number, shall preside as
chairman of every meeting.
8.5 If at any general meeting there is no chairman or president or director
present within fifteen minutes after the time appointed for holding the meeting,
or if the chairman or president and all the directors present are unwilling to
act as chairman, the members present shall choose some one of their number to be
chairman.
8.6 The chairman of a meeting may, with the consent of any meeting at which a
quorum is present, and shall, if so directed by the meeting, adjourn the meeting
from time to time and from place to place, but no business shall be transacted
at any adjourned meeting other than the business left unfinished at the meeting
from which the adjournment took place. When a meeting is adjourned for thirty
days or more, notice of the adjourned meeting shall be given as in the case of
the original meeting. Except as aforesaid, it is not necessary to give any
notice of an adjournment or of the business to be transacted at an adjourned
meeting.
8.7 No resolution proposed at a meeting need be seconded, and the chairman of
any meeting is entitled to move or propose a resolution
8.8 In case of an equality of votes the chairman shall not, either on a show of
hands or on a poll, have a casting or second vote in addition to the vote or
votes to which he may be entitled as a member, which vote or votes he is
entitled to cast without vacating the chair.
<PAGE>
-11-
8.9 In the case of any dispute as to the admission or rejection of proxy or a
vote, the chairman shall determine the same and his determination, made in good
faith, is final and conclusive.
8.10 A member entitled to more than one vote need not, if he votes, use all his
votes or cast all the votes he uses in the same way.
8.11 Subject to these Articles, if a poll is duly demanded it shall be taken in
such manner as the chairman directs within 7 days of the demand for the same.
The result of the poll shall be deemed to be the resolution of the meeting at
which the poll is demanded. A demand for a poll may be withdrawn at any time
before it has been taken.
8.12 A poll demanded on a question of adjournment shall be taken at the meeting
without adjournment.
8.13 The demand for a poll shall not, unless the chairman so rules/1/ prevent
the continuance of a meeting for the transaction of any business other than the
question on which a poll has been demanded or questions which depend or bear
upon that question.
8.14 Subject always to any contrary or specific provision of the Company Act, a
resolution that has been submitted to all of the members who would have been
entitled to vote thereon in person or by proxy at a meeting and that has been
consented to in writing by such members holding not less than three-fourths of
the shares of the Company shall be deemed to be an ordinary resolution passed
at a meeting.
8.15 Subject always to any contrary or specific provision of the Company Act, a
resolution consented to in writing by every member of the Company who would have
been entitled to vote thereon in person or by proxy at a meeting shall be deemed
to be a special resolution passed at a meeting.
<PAGE>
-12-
8.16 Subject always to the provisions of the Company Act, whenever the Company
is not a reporting company, where all the members entitled to attend and vote at
the annual general meeting of the Company consent in writing to all the business
required to be transacted at the meeting, it is not necessary for the Company to
hold that annual general meeting.
PART 9 - VOTES OF MEMBERS
-------------------------
9.1 Subject to any rights or restrictions for the time being attached to
any class or classes of shares, on a show of hands every member over the age of
eighteen years present in person or by proxy has one vote, and on a poll every
such member present in person or by proxy has one vote for each share he holds
on the record date except that no member which is a corporation which is a
subsidiary or the Company shall be entitled to vote its shares of the Company,
and the Company itself shall not vote in respect of any share of the Company
that it has redeemed, purchased, or otherwise acquired. A guardian of an infant
member shall be entitled to vote the shares registered in the name of such
infant member.
9.2 Any person who is not registered as a member but is entitled to vote
at any meeting in respect of a share, may vote the share in the same manner as
if he were a member; but, unless the directors have previously admitted his
right to vote at that meeting in respect of the share, if so required by any
director he shall satisfy the directors of his right to vote the share before
the time for holding the meeting, or adjourned meeting, as the case may be, at
which he proposes to vote.
9.3 Where there are joint members registered in respect of any share, any
one of the joint members may vote at any meeting, either personally or by proxy,
in respect of the share as if he were solely entitled to it. If more than one of
the joint members is present at any meeting, personally or by proxy, the joint
member present whose name stands first on the register in respect of the share
shall alone be entitled to vote in respect of that share.
<PAGE>
-13-
Several executors or administrators of a deceased member in whose sole name any
share stands shall, for the purposes of this Article, be deemed joint members.
9.4 Subject to the provisions of the Company Act, a corporation which is a
member and is not a subsidiary of the Company may vote by up to two duly
authorized representatives, who are entitled to speak and vote, either in person
or by proxy, and in all other respects exercise the rights of a member and those
representatives shall be reckoned as a member for all purposes in connection
with any meeting of the Company.
9.5 A member for whom a committee has been duly appointed may vote, whether
on a show of hands or on a poll, by his committee and that committee may appoint
a proxyholder.
9.6 Unless the directors otherwise determine, the instrument appointing a
proxyholder and the power of attorney or other authority, if any, under which it
is signed, or a notarially certified copy thereof, shall be deposited at a place
specified for that purpose in the notice convening the meeting, not less than
forty-eight hours before the time for holding the meeting at which the
proxyholder proposes to vote, or, if no such place is specified, then it shall
be deposited with the chairman of the meeting prior to the commencement of the
meeting.
9.7 A vote given in accordance with the terms of an instrument of proxy is
valid notwithstanding the previous death or incapability of the member, or
revocation of the proxy, or of the authority under which the proxy was executed,
or the transfer of the share in respect of which the proxy is given, if, but
only if, no prior notice in writing of the death, incapability, revocation or
transfer has been received at the registered office of the Company or by the
chairman of the meeting or adjourned meeting before the vote is given.
9.8 Unless, in the circumstances, the Company Act requires any other form
of proxy, an instrument appointing a proxyholder, whether for a specified
meeting or otherwise shall be in the form following, or in any other form that
the directors shall approve:
<PAGE>
-14-
(Name of the Company) The undersigned hereby appoints of (or failing him ) as
proxy for the undersigned to attend at and vote for and on behalf of the
undersigned at the meeting of the Company to be held on the day of ,
19 , and at any adjournment of that meeting. Signed this day of 19
Number of Shares
(Signature of Member or Authorized Officer of a Corporate Member)
PRINT NAME OF MEMBER BELOW
9.9 A proxy or an instrument appointing a duly authorized representative of a
corporation shall be in writing, under the hand of the appointor or of his
attorney duly authorized in writing, or, if such appointor is a corporation,
either under its seal or under the hand of an officer or attorney duly
authorized
9.10 Any person may act as a proxyholder whether or not he is entitled on his
own behalf to be present and to vote at the meeting at which he acts as
proxyholder.
PART 10 - DIRECTORS
-------------------
10.1 The subscriber or subscribers to the memorandum or, where the Articles
have come into force after the incorporation of the Company, then the directors
holding office at the coming into force of these Articles, shall be the
directors of the Company unless and until such person:
a) dies;
b) resigns in writing;
c) is no longer qualified in accordance with these Articles
or the Company Act;
<PAGE>
-15-
d) is removed from office by special resolution of the
members.
10.2 The management of the business of the Company shall be vested in the
directors and the directors may exercise all such powers and do all such acts
and things as the Company may exercise and do which are not by these Articles or
by the Company Act or otherwise lawfully directed or required to be exercised or
done by the Company in general meeting, but subject, nevertheless, to the
provisions of all laws affecting the Company and of these Articles and to any
rules, not being inconsistent with these Articles, which are made from time to
time by the Company in general meeting, provided that no rule made by the
Company in general meeting shall invalidate any prior act of the directors that
would have been valid if that rule had not been made.
10.3 The number of directors shall be at least one as long as the Company is
not a reporting company, and shall be at least three whenever the Company is a
reporting company. Subject to the foregoing, the number of directors may be
determined from time to time by resolution of the directors themselves, and
provided that the number of directors holding office shall not fall below the
minimum numbers above mentioned\\1 \\ the number of directors shall be
automatically reduced upon the death, resignation, removal or disqualification
of any director and automatically increased upon the appointment of any
additional director or directors in accordance with these Articles.
10.4 A director is not required to hold a share of the Company as
qualification to be a director, but in order to be qualified he must not be:
a) under the age of eighteen years; or,
b) found to be incapable of managing his own affairs by
reason of mental infirmity; or
c) a corporation; or,
d) an undischarged bankrupt; or,
e) unless the Supreme Court of British Columbia orders otherwise,
convicted within or without the Province of British Columbia
of an offence
<PAGE>
-16-
(i) in connection with the promotion, formation,
or management of a corporation; or,
(ii) involving fraud, unless five years have elapsed since the
expiration of the period fixed for suspension of the passing
of sentence without sentencing, or since a fine was imposed,
or the term of imprisonment and probation imposed, if any,
was concluded, whichever is the latest, but the disability
imposed by this clause ceases upon a pardon being granted
under the Criminal Records Act (Canada);
and every director must not be subject to any other disqualifications
as to office according to the Company Act, provided always that no
person who is not ordinarily resident in Canada shall be appointed a
director of the Company if, upon his appointment, the majority of the
directors of the Company would not be persons ordinarily resident in
Canada.
10.5 In the event of the death, resignation, removal or disqualification of a
director and his consequent vacating of office in accordance with these Articles
or the Company Act in circumstances in which the majority of the directors of
the Company would thereafter not be persons ordinarily resident in Canada, then
the last appointed director who is not ordinarily resident in Canada shall, ipso
facto, be disqualified from office and be no longer a director of the Company.
In the event there are on the happening of such an event two or more persons who
are not ordinarily resident in Canada who were last appointed and appointed at
the same time, then the Secretary shall determine by lot which of the two or
more so last appointed shall have ceased to hold office by reason of this
paragraph.
10.6 If the Company removes any director by special resolution, it may by
ordinary resolution, appoint another person in his stead.
10.7 The directors have power at any time and from time to time to appoint
any qualified person as a director, and
<PAGE>
-17-
the number of directors shall be automatically increased upon and by
any such appointment.
10.8 Any person not being a member of the Company who becomes a director shall
be deemed to have agreed to be bound by the provisions of the Articles to the
same extent as if he were a member of the Company.
10.9 Subject to the provisions of any ordinary resolution, the remuneration of
the directors as such may from time to time be determined by the directors
themselves, and such remuneration may be in addition to any salary or other
remuneration paid to any officer or employee of the Company as such, who is also
a director. The directors shall be repaid such reasonable expenses as they may
incur in and about the business of the Company, and if any director shall
perform any professional or other services for the Company that are outside the
ordinary duties of a director, or shall otherwise be specifically occupied in or
about the Company's business, he may be paid a special remuneration to be fixed
by the directors in addition to any other remuneration that he may be entitled
to receive and the same shall be charged as part of the ordinary working
expenses. Unless otherwise determined by ordinary resolution, the directors on
behalf of the Company may pay a gratuity or pension or allowance on retirement
to any person who has held any office of employment with the Company or to his
spouse or dependants and may make contributions under any plan or to any fund
and pay premiums for the purchase or provision of any such gratuity, benefit,
pension or allowance.
10.10 The directors may from time to time and at any time by power of attorney
appoint any company, firm or person or body of persons to be the attorney or
attorneys of the Company for such purposes and with such powers, authorities and
discretions, not exceeding those vested in or exercisable by the directors under
these Articles, and for such period, and subject to such conditions, as they may
think fit.
10.11 A director who is in any way directly or indirectly interested in a
proposed contract or transaction with the Company shall disclose the nature and
extent of his
<PAGE>
-18-
interest at a meeting of the directors in accordance with the provisions of the
Company Act. A director shall not vote in respect of any contract or transaction
with the Company in which he is interested, and if he shall do so his vote shall
not be counted, but he may be counted in the quorum present at the meeting at
which such vote is taken.
10.12 A director may hold any office or place of profit under the Company other
than auditor, for such period, and on such terms as to remuneration or
otherwise, as the directors may determine. Subject to compliance with the
Company Act, no director shall be disqualified by his office from contracting
with the Company either with regard to his tenure of any office or place of
profit or as vendor, purchaser or otherwise
10.13 Any director may act by himself or his firm in any professional capacity
for the Company except as auditor, and he or his firm shall be entitled to
remuneration for professional services as if he were not a director.
10.14 Any director may, from time to time, appoint by written instrument
delivered to the Secretary any person of whom the directors approve to be his
alternate director. The appointee, while he holds office as alternate director,
shall be entitled to notice of meetings of the directors and, in the absence of
the director for whom he is an alternate, to attend and vote thereat as a
director or sign any resolution of directors to be consented to in writing, but
an alternate director shall not be entitled to be remunerated otherwise than out
of the remuneration of the director appointing him. Any director may make or
revoke an appointment of his alternate director by notice in writing or by
telegram or cable to be delivered or addressed, postage or other charges
prepaid, to the registered office of the Company. The directors may by
resolution revoke any appointment of an alternate director. No person shall act
as an alternate for more than one director at any given time. If an alternate
director is already a director of the Company, he shall be entitled to two
votes. If the director making such appointment ceases to be a director, the
person appointed by him shall cease to be an alternate director.
<PAGE>
-19-
10.15 At each annual general meeting of the Company all the directors shall
retire from office, but are eligible for re-election and the Company shall elect
a Board of Directors consisting of the number of directors so retiring or
determined by resolution or recommendation of the directors. If in any calendar
year the Company does not hold an annual general meeting the directors then in
office shall be deemed to have been elected as directors on the last day on
which the meeting should have been held pursuant to the Company Act, and the
directors so elected may hold office until other directors are appointed or
elected or until the day on which the next annual general meeting is held.
PART 11 - INDEMNIFICATION
-------------------------
11.1 The Company shall indemnify any director, officer, employee or agent of
the Company who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding and whether civil,
criminal or administrative, by reason of tile fact that he is or was a director,
officer, employee, or agent of the Company or any act or thing occurring at a
time when he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all costs, charges and expenses, including
legal fees and any amount paid to settle the action or proceeding or satisfy a
judgment, if he acted honestly and in good faith with a view to the best
interests of the corporation or other legal entity or enterprise as aforesaid of
which he is or was a director, officer, employee or agent, as the case may be,
and exercised the care, diligence and skill of a reasonably prudent person, and
with respect to any criminal or administrative action or proceeding, he had
reasonable ground for believing that his conduct was lawful; provided that no
indemnification of a director or former director of the Company, or director or
former director of a corporation in which the Company is or was a shareholder,
shall be made except to the extent approved by the Court pursuant to the Company
Act or any other statute. The determination of any action, suit or proceeding by
judgment, order, settlement, conviction or otherwise shall not, of itself,
create a presumption that
<PAGE>
-20-
the person did not act honestly and in good faith and in the best interests of
the Company and did not exercise the care, diligence and skill of a reasonably
prudent person and, with respect to any criminal action or proceeding, did not
have reasonable grounds to believe that his conduct was lawful.
11.2 The Company shall indemnify any person in respect of any loss, damage,
costs or expenses whatsoever incurred by him while acting as an officer,
employee or agent for the Company unless such loss, damage, costs or expenses
shall arise out of failure to comply with instructions, wilful act or default or
fraud by such person, in any of which events the Company shall only indemnify
such person if the directors, in their absolute discretion, so decide or the
Company by ordinary resolution shall so direct.
11.3 The indemnification provided by this Part shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any other Part, or any valid and lawful agreement, vote of members or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall enure to the benefit of the heirs, executors and administrators
of such person. The indemnification provided by this Article shall not be
exclusive of any powers, rights, agreements or undertakings which may be legally
permissible or authorized by or under any applicable law. Notwithstanding any
other provisions set forth in this Part, the indemnification authorized by this
Part shall be applicable only to the extent that any such indemnification shall
not duplicate indemnity or reimbursement which that person has received or shall
receive otherwise than under this Part.
11.4 The directors are authorized from time to time to cause the Company to
give indemnities to any director, officer, employee, agent or other person who
has undertaken or is about to undertake any liability on behalf of the Company
or any corporation controlled by it.
<PAGE>
-21-
11.5 Subject to the Company Act, no director or officer or employee for the
time being of the Company shall be liable for the acts, receipts, neglects or
defaults of any other director or officer or employee, or for joining in any
receipt or act for conformity, or for any loss, damage or expense happening to
the Company through the insufficiency or deficiency of title to any property
acquired by order of the Board for the Company, or for the insufficiency or
deficiency of any security in or upon which any of the moneys of or belonging to
the Company shall be invested or for any loss or damages arising from the
bankruptcy, insolvency, or tortious act of any person, firm or corporation with
whom or which any moneys, securities or effects shall be lodged or deposited or
for any loss occasioned by any error of judgment or oversight on his part or for
any other loss, damage or misfortune whatever which may happen in the execution
of the duties of his respective office or trust or in relation thereto unless
the same shall happen by or through his own wilful act or default, negligence,
breach of trust or breach of duty.
11.6 Directors may rely upon the accuracy of any Statement of fact represented
by an officer of the Company to be correct or upon statements in a written
report of the auditor of the Company and shall not be responsible or held liable
for any loss or damage resulting from the paying of any dividends or otherwise
acting in good faith upon any such statement.
11.7 The directors may cause the Company to purchase and maintain insurance
for the benefit of any person who is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability incurred by him as a
director, officer, employee or agent.
<PAGE>
-22-
PART 12 - PROCEEDINGS OF DIRECTORS
----------------------------------
12.1 The directors, when there is more than one, may meet together at such
places and upon such notice as they think fit for the dispatch of business,
adjourn and otherwise regulate their meetings and proceedings as they see fit.
The quorum shall be a majority of the directors then in office, and when an even
number of directors are holding office, shall be one more than half of their
number. Unless and until the directors shall elect one of their number to be
chairman of the directors, the president of the Company shall be chairman of all
meetings of the directors; but if at any meeting a chairman elected by the
directors or the president is not present within thirty minutes after the time
appointed for holding the meeting, the directors present may choose some one of
their number to be chairman at that meeting. Any director may waive notice of
any meeting of directors. Accidental omission to give notice of a meeting of
directors to, or non-receipt of notice by, any director, shall not invalidate
the proceedings of any meeting of the directors.
12.2 The directors, or any committee of directors, may take any action required
or permitted to be taken by them and may exercise all or any of the authorities,
powers and discretions for the time being vested in or exercisable by them by
resolution either passed at a meeting at which a quorum is present or authorized
by resolution consented to in writing signed by all the directors in accordance
with the Company Act.
12.3 The directors may delegate any, but not all, of their powers to committees
consisting of such director or directors as they think fit. Any committee so
formed in the exercise of the powers so delegated shall conform to any rules
that may from time to time be imposed on it by the directors, and shall report
every act or thing done in exercise of those powers to the first meeting of the
directors held after it has been done.
12.4 A committee of more than one director may elect a chairman of its meetings
and if no chairman is elected, or if at any meeting the chairman is not present
within thirty
<PAGE>
-23-
minutes after the time appointed for holding the meeting, the directors present
who are members of the committee may choose one of their number to be chairman
of the meeting.
12.5 The member or members of a committee may govern their procedure as they
think proper, subject to any rules imposed by the directors. Questions arising
shall be determined by the member, if there be only one, or by a majority of
votes of the members present, but in case of an equality of votes the chairman
of a committee shall not have a second or casting vote.
12.6 Any director of the Company who may be absent from the Province of British
Columbia may file at the registered office of the Company by letter, telegram,
telex or cable, a waiver of notice of any meeting of the directors and may, at
any time and by one of the means mentioned aforesaid, withdraw the waiver, but
until the waiver is withdrawn, no notice of meetings of directors need be sent
to that director, and any and all meetings of the directors of the Company held
after receipt of such waiver and held prior to its withdrawal shall, provided a
quorum of the directors is present, be valid and effective without notice of
such meeting given to that director
12.7 Any director who expects he may be absent from a specific meeting of the
directors may, by letter, telegram, telex or cable sent to the Secretary of the
Company at its registered office or at the place where the meeting is to be
held, appoint some other director to be his proxy for the purpose of voting at,
such meeting either for an adjournment of the meeting, or for the postponement
of discussion of any matter which may come before the meeting, or in favour of
any matter specified in such letter, telegram, telex or cable, but no such
appointment shall empower any proxy to vote at any such meeting in favour of any
matter other than is specifically mentioned in the letter, telegram, telex or
cable appointing such proxy.
12.8 Questions arising at any meeting of the directors shall be decided by a
majority of votes. In case of an
<PAGE>
-24-
equality of votes, the chairman shall not have a second or casting vote.
12.9 No resolution proposed at a meeting of directors need be seconded, and
the chairman of any meeting is entitled to move or propose and vote upon a
resolution of the directors
12.10 Any resolution or proceeding recorded in writing and signed by all of the
directors shall be deemed to be a valid resolution or proceeding of the
directors just as if the same had been adopted or enacted at a meeting of the
directors duly called and convened with a quorum present, and at any time when
there is only one director of the Company, all business required or desired to
be conducted by the director may be enacted by proceeding in writing signed by
the director.
12.11 All acts done by any meeting of the directors or by a committee of
directors or by any person acting as a director shall, notwithstanding that it
shall be after-wards discovered that there was some defect in the appointment of
any such director or person acting as aforesaid, or that they or any of them
were disqualified, be as valid as if every such person had been duly appointed
and was qualified to be a director.
PART 13 - OFFICERS
------------------
13.1 The Company shall have a President and a Secretary whom the directors
shall appoint. The President of the Company, and the Chairman of the directors,
if any, shall be directors of the Company. Except when the Company has only one
member, the President and Secretary shall be different persons.
13.2 All appointments of officers shall be made at such remuneration, whether
by way of salary, fee, commission, participation in profits, or otherwise, as
the directors think fit, and every appointment of an officer by the directors
shall be in force until revoked by the direc-
<PAGE>
-25-
tors or until the death or resignation in writing of the officer unless
otherwise provided in the resolution of appointment.
13.3 Every officer of the Company who holds any office or possesses any
property whereby, whether directly or indirectly, duties or interests might be
created in conflict with his duties or interests as an officer of the Company
shall, in writing, disclose to the President the fact and the nature, character
and extent of the conflict.
PART 14 - EXECUTION OF INSTRUMENTS
----------------------------------
14.1 The directors may, but shall not be required to, provide a common seal
for the Company. They shall have power from time to time to destroy the same or
substitute a new seal in place of the seal destroyed or to cause the affairs of
the Company to be conducted without a common seal. In the event a seal is
provided, then unless otherwise provided by the directors, the same may be
affixed to any document obligating the Company signed by the President and the
Secretary, or to any certificate of the Company signed by the Secretary alone.
14.2 Subject to the provisions of the Company Act, the directors may provide
for use in any other province, state, territory or country an official seal,
which shall be a facsimile of the common seal of the Company, with the addition
on its face of the name of the province, state, territory or country where it is
to be used.
14.3 The signature of any officer of the Company may be printed, lithographed,
engraved or otherwise mechanically reproduced upon all instruments executed or
issued by the Company or any officer thereof; and, subject to the Company Act,
any instrument on which the signature of any such person is so reproduced, shall
be deemed to have been manually signed by such person whose signature is so
reproduced and shall be as valid to all intents and purposes as if such
instrument had been signed manually, and notwithstanding that the person whose
signature is so
<PAGE>
-26-
reproduced may have ceased to hold office at the date of the delivery or issue
of such instrument. The term "instrument" as used in this Article shall include
all paper writings
PART 15 - DIVIDENDS
-------------------
15.1 The directors may declare dividends and fix the date of record therefore
and the date for payment thereof.
15.2 Subject to the terms of shares with special rights or restrictions, all
dividends shall be declared according to the number of shares held.
15.3 Dividends may only be payable out of the profits of the Company. No
dividend shall bear interest against the Company. A transfer of a share shall
not pass the right to any dividend thereon before the registration of the
transfer in the register
15.4 A resolution declaring a dividend may direct payment of the dividend
wholly or partly by the distribution of specific assets or of paid-up shares,
bonds, debentures or other debt obligations of the Company, or in any one or
more of those ways, and, where any difficulty arises in regard to the
distribution, the directors may settle the same as they think expedient, and in
particular may fix the value for distribution of specific assets, and may
determine that cash payments shall be made to a member upon the basis of the
value so fixed in place of fractional shares, bonds, debentures or other debt
obligations in order to adjust the rights of all parties, and may vest any of
those specific assets in trustees upon such trusts for the persons entitled as
may seem expedient to the directors.
15.5 Any dividend or other moneys payable in cash in respect of a share may be
paid by cheque sent through the post to the member in a prepaid letter, envelope
or wrapper addressed to the member at his registered address, or in the case of
joint members, to the registered address of
<PAGE>
-27-
the joint member who is the first named on the register, or to such person and
to such address as the member or joint members, as the case may be, in writing
direct. Any one of two or more joint members may give effectual receipts for any
dividend or other moneys payable or assets distributable in respect of a share
held by them.
15.6 No notice of the declaration of a dividend need be given to any member.
15.7 The directors may, before declaring any dividend, set aside out of the
profits of the Company such sums as they think proper as a reserve or reserves
which shall , at the discretion of the directors, be applicable for meeting
contingencies, or for equalizing dividends, or for any other purpose to which
the profits of the Company may be properly applied, and pending that application
may, at the like discretion, either be employed in the business of the Company
or be invested in such in vestments, as the directors may from time to time
think fit, including shares of the Company purchased or acquired in accordance
with these Articles.
15.8 The directors may capitalize any undistributed surplus on hand of the
Company and may from time to time issue as fully paid and non-assessable any
unissued shares or any bonds, debentures or other debt obligations of the
Company as a dividend representing such undistributed surplus on hand or any
part thereof.
15.9 Should any dividend result in any shareholder being entitled to a
fractional share, the directors shall have the right to pay such shareholders
the cash equivalent of such fractional part, and shall have the further right to
carry out such distribution and to adjust the rights of the shareholders with
respect thereto on as practical and equitable a basis as possible.
<PAGE>
-28-
PART 16 - ACCOUNTS
------------------
16.1 The directors shall cause records and books of accounts to be kept as
necessary to record properly the financial affairs and conditions of the Company
and to comply with the provisions of the Company Act and all statutes applicable
to the Company.
PART 17 - NOTICES
-----------------
17.1 A notice may be given to any member or director, either by personal
service or by sending it by post to him in a letter, envelope or wrapper
addressed to the member or director at his registered address.
17.2 A notice may be given by the Company to joint members in respect of a
share registered in their names by giving the notice to the joint member first
named in the register of members in respect of that share.
17.3 A notice may be given by the Company to the persons entitled to a share
in consequence of the death or bankruptcy of a member by sending it through the
post in a prepaid letter, envelope or wrapper addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt, or by
any like description, at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or, until that address has been so supplied,
by giving the notice in any manner in which the same might have been given if
the death or bankruptcy had not occurred.
17.4 Any notice or document sent by post to, or left at, the registered
address of, any member, shall, notwithstanding that member is then deceased, and
whether or not the Company has notice of his death, be deemed to have been duly
served in respect of any registered shares, whether held solely or jointly with
other persons by that de ceased member, until some other person is registered in
his stead as the member or joint member in respect of those shares, and that
service shall for all purposes of
<PAGE>
-29-
these Articles be deemed a sufficient service of such notice or document on his
personal representatives and all persons, if any, jointly interested with him in
those shares.
17.5 Any notice sent by post shall be deemed to have been served on the second
day following that on which the letter, envelope or wrapper containing the same
is posted, exclusive of any day upon which the mail is not regularly delivered
or handled in either the place of posting or the place of delivery, and in
proving service it is sufficient to prove that the letter, envelope or wrapper
containing the notice was properly addressed and put in a Canadian government
post office, postage prepaid, subject always to it being proved by the person to
whom the notice was addressed that the mail was not regularly delivered or
handled as aforesaid on or between the day of posting and the day of delivery.
17.6 Notice of every general meeting shall be given in the manner hereinbefore
authorized to:
(a) every member holding a share or shares carrying the right to vote at
such meetings on the record date or, if no record date was
established by the directors, on the date of personal service or
mailing;
(b) every person upon whom the ownership of a share has devolved by
reason of his being a legal personal representative or a trustee in
bankruptcy of a member where the member, but for his death or
bankruptcy, would be entitled to receive notice of the meeting;
(c) the auditor of the Company.
Subject to any provisions in any instrument of the Company or in the special
rights or restrictions attached to any shares, no other person is entitled to
receive notice of general meetings.
<PAGE>
-30-
PART 18 - FEES
--------------
18.1 The Company may charge the following fee to issue a new certificate in
exchange for an existing certificate or a defaced or worn out certificate or to
replace a lost or destroyed certificate:
Per new certificate: $1.00
NUMBER OF SHARES TAKEN
Signature of Subscribers BY SUBSCRIBER
ERIN E. MULHERN
One (1) common share
201-1569 Wet 12th Avenue
Vancouver, B.C.
V6E 2J2
Legal Assistant
TOTAL SHARES TAKEN One (1) common share
DATED this 27th day of June, 1985.
<PAGE>
EXHIBIT 4.1
NUMBER C 00716
INCORPORATED IN THE PROVINCE OF BRITISH COLUMBIA
CARBITE GOLF INC.
THIS CERTIFIES THAT **NOMINEE** is the registered holder of ***1000*** fully
paid and non-assessable common shares without par value in the Capital of the
above named Company subject to the memorandum and Articles of the Company
transferable on the books of the Company by the registered holder in person or
by Attorney duly authorized in writing upon surrender of this Certificate
properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Company.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed on its
behalf by the facsimile signatures of its duly authorized officers at Vancouver,
British Columbia.
Dated August 7, 1997
Countersigned and registered Pacific Corporate Trust Company, Vancouver,
Transfer Agent and Registrar.
<PAGE>
EXHIBIT 4.2
SAMPLE WARRANT
--------------
THIS WARRANT WILL BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE
5:00 P.M. (VANCOUVER TIME) ON FEBRUARY 20, 1999
THIS WARRANT IS NOT TRANSFERABLE
CARBITE GOLF INC.
(Incorporated under the laws of British Columbia)
Number: Warrant to Purchase _____ Shares
WARRANT FOR PURCHASE OF SHARES
THIS IS TO CERTIFY THAT, for value received, ___ (hereinafter called the
"Holder") is entitled to subscribe for and purchase up to ___ fully paid and
non-assessable shares without par value in the capital (as constituted on
February 2, 1998) of CARBITE GOLF INC. (hereinafter called the "Corporation") at
any time on or before the close of business on February 20, 1999 (5:00 p.m.
Vancouver Time), pursuant to the terms of a subscription agreement between the
Holder and the Corporation dated for reference February 20, 1998 at a price of
$0.55 (Cdn) per share if exercised on or before February 20, 1999 subject,
however, to the provisions and upon the Terms and Conditions attached hereto as
Schedule "A."
The rights represented by this Warrant may be exercised by the Holder, in
whole or in part (but not as to a fraction of a share) by surrender of this
Warrant (properly endorsed if required) at the office of Pacific Corporate Trust
Company, 830 Howe Street, Vancouver, British Columbia, together with a certified
cheque or bank draft payable to or to the order of the Corporation in payment of
the purchase price of the number of shares subscribed for.
IN WITNESS WHEREOF, the Corporation has caused this Non-Transferable
Warrant to be executed by its duly authorized officers under its corporate seal,
this ___ day of February, 1998.
CARBITE GOLF INC.
COUNTERSIGNED:
PACIFIC CORPORATE TRUST COMPANY
Per: Authorized Signatory
<PAGE>
Exhibit 10.1
ROYALTY AGREEMENT
This Royalty Agreement is entered into as of March 1, 1993, by and between
C.S. Shira ("Recipient") and Carbite, Inc., a California corporation ("Carbite")
RECITALS
A. Recipient has assigned various patents ("Patents"), identified in Exhibits
A, B, C and D, attached hereto and made a part hereof to Carbite.
B. Carbite intends to use the inventions ("Inventions") described on and
covered by the Patents in the design, manufacture and sale of golf clubs
("Clubs")
C. In view of the ongoing benefit to Carbite of Recipient's know how and
involvement in enabling Carbite to employee the Inventions in the manufacture of
the Clubs, Carbite believes the compensation provided hereby to Recipient is
justified and is in the best interests of Carbite and its shareholders.
AGREEMENT
Therefore, in consideration of the mutual covenants and promises contained
herein, the parties agree as follows:
1. Definitions.
-----------
1.1 Sale. The term "Sale" shall mean the sale of Clubs but
----
shall not mean the disposition of Clubs for testing or sample Clubs distributed
to professional golfers and others without consideration in connection with the
testing and promotion of Carbite's products.
1.2 Clubs. The term "Clubs" as used herein shall mean golf
-----
clubs manufactured by or for Carbite incorporating the Inventions.
1.3 Territory. The term "Territory" shall mean the world.
---------
2. Term. This Agreement shall have an initial term coextensive with the
----
life of each of the Patents. Thereafter, as to the Inventions described in each
Patent, the term of this Agreement may be extended for additional periods of one
(1) year each upon such terms and conditions as may be agreed upon by the
parties. Should either party desire to extend the term of this Agreement beyond
the end of the initial term or any renewal term then in effect as to one or more
of said Patents, such party
-1-
<PAGE>
shall provide written notice of its intent to extend the term as to one or more
identified Patents at least sixty (60) days prior to the expiration of such
term. Neither party shall be obligated to extend the term of this Agreement
beyond the term then in effect. This Agreement and all royalty obligations
other than those accrued in respect of the Sale of Clubs shall terminate with
respect to Clubs incorporating the Inventions, respectively, upon the
reacquisition of any such Patent by Recipient as provided in the assignment
instruments (Exhibits A, B, C and D hereof) covering each of the Patents.
3. Agreement to Pay Royalties. Carbite hereby agrees to pay to Recipient
--------------------------
a royalty on the Sale of Clubs employing any of the Inventions around any of the
Patents in the amount of $0.50 per Club payable as set forth herein, during the
initial term of this Agreement, and $0.30 per such Club on the Sale of Clubs
during any extension.
4. Records and Reports.
-------------------
4.1 Records. Carbite agrees to keep records of the Sale of all
-------
Clubs for a period of three (3) years after the date of sale in sufficient
detail to permit Recipient to confirm the accuracy of Carbite's royalty
calculations. At Recipient's request and expense, Carbite shall permit an
independent certified public accountant appointed and compensated by Recipient
and acceptable to Carbite to examine, upon reasonable notice and at reasonable
times, such records solely to the extent necessary to verify Carbite's
calculations. Such examinations shall be conducted no more frequently than
annually and shall be limited to records applicable to a period of time of no
more than two (2) fiscal years immediately preceding the request for
examination.
4.2 Reports. Within thirty (30) days after the end of each
-------
calendar quarter following the effective date of this Agreement, Carbite shall
furnish to Recipient a written report of the Sale of Clubs subject to royalty
during such calendar quarter. Such report shall include the number of Sales and
the calculation of the royalty payment then due.
5. Payment of Royalties. Concurrently with the delivery of each report
--------------------
described in Section 4.2, Carbite shall make the royalty payment when due.
Payments shall be in United States dollars.
6. 0wnership of Proprietary Label. Recipient acknowledges that Carbite
------------------------------
owns the exclusive right, title and interest in and to the names Carbite, CHECK
MATE~ and BAXPIN~ ("Proprietary Names"). Recipient will not at any time
knowingly do or cause to be done any act or thing in any way impairing or
tending to impair any part of such right, title and interest. Recipient shall
not in any manner represent that it has any ownership in the Proprietary Names
or the registration thereof,
-2-
<PAGE>
and Recipient acknowledges that the payment of royalties hereunder shall not
create in favor of Recipient any right, title or interest in or to the
Proprietary Names, and all uses of the Proprietary Names by Carbite shall inure
solely to the benefit of Carbite. Upon the expiration of this Agreement or
termination, Carbite may sell Clubs utilizing the Proprietary Names.
7. Maintenance of Trademark Carbite will use its best efforts to
------------------------
register and maintain, or cause to be registered and maintained, the Proprietary
Names to enable the Clubs to be distributed and sold under the Proprietary Names
as provided herein. Carbite will not permit any other person to use the
Proprietary Names in the Territory in connection with the Clubs, of for any
other purpose except in connection with a sale of all or substantially all the
assets of Carbite or under and pursuant to a license or licensee for the
manufacture and sale of Clubs utilizing all or one or more of the Patents,
provided the purchaser and/or any such licensee assumes and otherwise agrees to
continue the royalties payable to Recipient in connection with the sale of
Clubs.
8. Indemnity. Carbite hereby indemnifies and holds harmless Recipient
---------
from and against any and all losses, damages and expenses, including attorneys'
fees, incurred as a result of or related to claims of third persons involving
the use of the Clubs. Recipient hereby indemnifies and holds harmless Carbite
from and against any and all losses, damages and expenses, including attorneys'
fees, incurred as a result of or related to claims by third persons for
infringement of the Patents.
9. Club Quality. The Clubs manufactured and marketed by Carbite pursuant
------------
to this Agreement shall be of a consistent level of quality and appearance.
10. Best Efforts Obligation. Carbite shall use reasonable efforts to
-----------------------
market and sell Clubs provided, however, that Carbite may market and sell Clubs
under names, labels and marks other than and in addition to the Proprietary
Names.
11. Termination. In addition to the events giving rise to termination set
-----------
forth in Section 2, Shira shall have the right to terminate this Agreement in
its entirety upon the occurrence of any of the following, and the expiration of
any applicable period of cure: (a) failure of Carbite to make any payment when
due and the expiration of fifteen (15) days from receipt of notice thereof; (b)
the failure of Carbite to comply with any term or condition of this Agreement
and the expiration of thirty (30) days from written notice thereof, specifying
the nature of such default, without cure; (c) the dissolution or liquidation of
Carbite; (d) the insolvency or bankruptcy of Carbite; (e) the institution of any
proceeding by or against Carbite under the provisions of any insolvency or
bankruptcy law; (f) the appointment of a receiver of any of the assets or
-3-
<PAGE>
property of Carbite; or (g) the issuance of an order for an execution on the
property of Carbite pursuant to a judgment.
12. Relationship of the Parties. Nothing in this Agreement is intended or
---------------------------
shall be deemed to constitute a partnership, agency, employer-employee, or joint
venture relationship between the parties, and neither party is authorized to
obligate the other except as specifically provided therein.
13. Assignment. This Agreement shall be binding on and inure to the
----------
benefit of the heirs, executors, administrators, estate, successors and
permitted assignees of the parties. Other than as is contemplated by the last
sentence of section 2, this Agreement and the rights granted hereunder may not
be transferred or assigned by Carbite without the prior written consent of
Recipient, which consent shall not be unreasonably withheld or delayed.
14. Miscellaneous Provisions.
------------------------
14.1 California Law This Agreement is made and entered into in
--------------
the State of California and shall be governed by and construed and enforced in
accordance with the laws of the State of California.
14.2 Notices. All notices, requests, demands and other
-------
communications required or permitted to be given under this Agreement shall be
in writing and shall either be delivered by personal messenger or be sent by
telefax or by regular or certified first-class mail, postage prepaid, deposited
in the United States mail, and property addressed to the receiving party at the
address set forth on the signature page of this Agreement. Any such notice shall
be deemed to have been received, if sent by personal messenger or telefax upon
receipt at such address, and, if sent by mail, upon the expiration of three (3)
days after such notice is deposited in the United States mail.
14.3 Waivers. Failure by either party hereto to enforce at any
-------
time any term or condition under this Agreement shall not be a waiver of the
right to act on the failure of such term or condition and shall not impair or
waive the party's right thereafter to enforce each and every term and condition
of this Agreement.
14.4 Severability. In the event that any of the terms, conditions or
------------
provisions of this Agreement are held to be illegal, unenforceable or invalid by
any court of competent jurisdiction, the legality, validity and enforceability
of the remaining terms, conditions or provisions shall not be affected thereby.
14.5 Entire Agreement. This Agreement and the Purchase Agreement
----------------
constitute the entire agreement between the parties in connection with the
subject matter hereof and shall
-4-
<PAGE>
supersede all prior agreements, whether oral or in writing, whether explicit or
implicit, which have been entered into prior to the execution hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
RECIPIENT; CARBITE:
C.S. SHIRA C.S. SHIRA, President
-5-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into and becomes
effective as of September 3, 1997, by and between Carbite, Inc. ("Employer") and
Chester S. Shira ("Employee").
RECITALS
A. Employer is a corporation organized under the laws of the State of
California and is authorized to do and is doing business in the State of
California.
B. Employer wishes to engage Employee as its Chairman.
AGREEMENT
IN CONSIDERATION of their respective promises and covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment. Employer hereby engages Employee to serve as its Chairman and
----------
Director of Research and Development, and Employee hereby accepts such an
engagement upon the terms and conditions set forth herein.
2. Effective Date and Term. The effective date of this Agreement shall be
-----------------------
September 3, 1997. The term of this Agreement shall begin on the effective date
and continue for a period of three (3) years thereafter unless this Agreement is
terminated pursuant to Paragraph 12. Following the expiration of its initial
three year term, the term of this Agreement shall renew automatically for one
year on each annual anniversary date hereof unless either party provides the
other party with a notice of nonrenewal during the thirty (30) day period
preceding an anniversary date.
3. Duties. Employee shall perform such duties and have such responsibilities
------
as are set forth in Employer's Bylaws and such duties and responsibilities as
are customarily performed by the Chairman of a corporation and identified by
Employer's Board of Directors. Employee and Employer acknowledge and understand
that Employee shall devote his full business time and attention to the rendition
of such services, subject to absences for customary vacations and for temporary
illness, and will not engage in any other gainful occupation which requires his
personal attention, with the exception that Employee may personally trade in
stock, bonds, securities, commodities or real estate investments for his own
benefit. Employee shall perform his duties primarily in San Diego County,
California.
<PAGE>
4. Confidentiality. Other than in furtherance of the business of the Company,
---------------
Employee shall not disclose any proprietary information of Employer to any third
party. For purposes of this Agreement, "proprietary information" shall mean the
trade secrets (including customer lists) and patent applications, if any, of
Employer.
5. Nonsolicitation Covenant. Employee agrees that, during his employment with
------------------------
Employer, and for so long as he is receiving payments under Section 13 of this
Agreement after the termination of his employment, he will not, directly or
indirectly, solicit or otherwise attempt to induce any employee to leave the
employ of Employer.
6. Patents and Inventions. All patents, designs, plans and inventions which
----------------------
Employee discovers or develops during the time he is employed by Employer, and
which are either within the scope of Employer's endeavors or developed through
the use of Employer's resources, shall be the exclusive property of Employer.
Employee shall execute any separate assignments, patent applications and other
documents deemed necessary by Employer to secure or evidence its ownership of
any such patents, designs, formulas, plans, and inventions and to otherwise give
effect to this provision. Employee shall cooperate fully with Employer in any
dispute in which Employer's ownership of any such patent, design, formula, plan,
or invention is contested or in which it is alleged that any such patent,
design, formula, plan, or invention infringes upon, or is infringed upon by, the
ownership rights of any other person. This Section 6 shall not apply to (i) any
patent, design, plan, or invention if; as a consequence of such application,
this Section 6 would be unenforceable under Section 2870 of the California Labor
Code (a copy of which is attached to this Agreement), or (ii) any patent,
design, plan, or invention designed or developed by Employee prior to the date
of this Agreement. The filing of a patent application within twelve (12) months
following the termination or expiration of this Agreement shall be deemed prima
facie evidence that the invention covered by the patent is the property of
Employer.
7. Authority. Other than in the ordinary course of business, Employee shall
---------
not have the authority, without the approval of the Board of Directors, to:
a. Pledge the credit of Employer,
b. Release or discharge any debt due to Employer; or
c. Sell, mortgage, transfer or otherwise dispose of any assets of the
Employer.
8. Personnel Policies and Procedures. Employer shall have the authority to
--------- -------- --- ----------
establish from time to time personnel policies and procedures to be followed by
its employees. Employee agrees to comply with the policies and procedures of
Employer. To the extent any provision in Employer's Personnel policies and
procedures differs from the terms of this Agreement, the terms of this Agreement
shall apply.
2
<PAGE>
9. Compensation. During the term of this Agreement, Employee shall be paid
------------
such periodic and extraordinary compensation as is deemed appropriate by
Employer's Board of Directors, provided that Employee's periodic compensation,
which shall be exclusive of any royalty payments and which shall be paid in
equal monthly installments, shall not be less than $125,OOO (U.S.) per year.
10. Benefits.
--------
a. Vacation. Employee shall be entitled to four week paid vacation each
--------
year.
b. Health and Disabilitv Insurance. Employer shall provide group
-------------------------------
health and disability insurance to Employee.
c. Other Benefits. Employee shall be entitled to participate in or
--------------
receive any other benefits made generally available by Employer to its
employees.
11. Expenses. Employer shall reimburse Employee for reasonable and necessary
--------
expenses incurred by Employee in the ordinary course of business on behalf of
Employer.
12. Termination. This Agreement and the employment of Employee shall
-----------
terminate under the following conditions:
a. The death of Employee;
b. The permanent disability of Employee (permanent disability shall exist
when Employee suffers from a condition of mind or body that indefinitely
prevents him from further performance of his duties); or
c. Employee engages in conduct constituting grounds for the termination
of employment as set forth in Section 2924 of the California Labor Code.
13. Severance. In the event of a termination of this Agreement pursuant to
---------
Section 12 or the issuance of a notice of non-renewal by Employer under Section
2, Employee or Employee's estate shall continue to receive the compensation
provided for by this Agreement for a period of six (6) months following such
termination. In the event of a termination of this Agreement by Employer other
than pursuant to Section 12, Employer shall continue to pay Employee the
compensation provided for by this Agreement for the remainder of the term hereof
(determined as if the termination had not Occurred). A material change in the
duties and responsibilities of Employee, or a breach of this Agreement by
Employer, which is unacceptable to Employee and results in his resignation shall
be deemed to be a termination of this Agreement by Employer.
14. Arbitration/Sole Remedy for Breach of Agreement. In the event of any
------------------------------------- ---------
dispute between Employer and Employee concerning any aspect of their employment
relationship, including any disputes upon termination, all such disputes shall
be resolved by binding arbitration before a single
3
<PAGE>
neutral arbitrator. The arbitration shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator may
apportion the costs of the arbitration, including arbitrator's fees, among the
parties, but shall have no power to award attorneys' fees. Each party shall be
responsible for its own attorneys' fees. In the event that any lawsuit is
filed concerning any such dispute concurrently with the arbitration of such
dispute, each of the parties hereto waives any right to provisional remedies
such as attachments, temporary restraining orders, and preliminary injunctions,
to which they otherwise might be entitled in such litigation.
15. Successors and Assigns. The rights and obligations of Employer under this
---------- -----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. Employee shall not be entitled to assign any of his
rights or obligations under this Agreement.
16. Survival. The enforceability of Sections 4, 5, 6, 13, and 14 hereof shall
--------
survive the termination or expiration of this Agreement.
17. Governing Law. This Agreement shall be interpreted, construed, governed
-------------
and enforced in accordance to the laws of the State of California.
18. Amendments. No amendment, modification, or waiver of the terms or
----------
conditions of this Agreement shall be valid unless in writing and signed by the
parties hereto.
19. Separate Terms. Each term, condition, covenant or provision of this
--------------
Agreement shall be viewed as separate and distinct; and, in the event that any
such term, covenant or provision shall be held by a court of competent
jurisdiction to be invalid, the remaining provisions hereof shall continue in
full force and effect.
20. Waiver. A waiver by either party of a breach of any provision of this
------
Agreement shall not constitute a general waiver or prejudice that party's right
otherwise to demand strict compliance with that provision or any other provision
in this Agreement.
21. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if it is in writing and sent by mail, or hand
delivered, to his residence, in the case of Employee, or to its principal office
in the case of the Employer.
22. Entire Agreement. This Agreement constitutes the entire Agreement between
----------------
Employee and Employer concerning the subject matter hereof and supersedes any
previous oral or written communications, representations, understandings or
agreements concerning such subject matter between them. Employee understands
that no representative of the Employer has been
4
<PAGE>
authorized to enter into any agreement or commitment with Employee which is
inconsistent in any way with the terms of this Agreement.
WITNESS HEREOF, the parties have executed this Agreement as of the date set
forth above.
Employer:
Carbite, Inc.
By:
Employee:
Chester S. Shira
5
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into and becomes
effective as of September 3, 1997, by and between Carbite, Inc. ("Employer") and
Michael Spacciapolli ("Employee").
RECITALS
A. Employer is a corporation organized under the laws of the State of
California and is authorized to do and is doing business in the State of
California.
B. Employer wishes to engage Employee as its Chairman.
AGREEMENT
IN CONSIDERATION of their respective promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Employment. Employer hereby engages Employee to serve as its Chairman
----------
and Director of Research and Development, and Employee hereby accepts such an
engagement upon the terms and conditions set forth herein.
2. Effective Date and Term. The effective date of this Agreement shall be
-----------------------
September 3, 1997. The term of this Agreement shall begin on the effective date
and continue for a period of three (3) years thereafter unless this Agreement is
terminated pursuant to Paragraph 12. Following the expiration of its initial
three year term, the term of this Agreement shall renew automatically for one
year on each annual anniversary date hereof unless either party provides the
other party with a notice of nonrenewal during the thirty (30) day period
preceding an anniversary date.
3. Duties. Employee shall perform such duties and have such
------
responsibilities as are set forth in Employer's Bylaws and such duties and
responsibilities as are customarily performed by the Chairman of a corporation
and identified by Employer's Board of Directors. Employee and Employer
acknowledge and understand that Employee shall devote his full business time and
attention to the rendition of such services, subject to absences for customary
vacations and for temporary illness, and will not engage in any other gainful
occupation which requires his personal attention, with the exception that
Employee may personally trade in stock, bonds, securities, commodities or real
estate investments for his own benefit. Employee shall perform his duties
primarily in San Diego County, California.
<PAGE>
4. Confidentiality. Other than in furtherance of the business of the
---------------
Company, Employee shall not disclose any proprietary information of Employer to
any third party. For purposes of this Agreement, "proprietary information" shall
mean the trade secrets (including customer lists) and patent applications, if
any, of Employer.
5. Nonsolicitation Covenant. Employee agrees that, during his employment
------------------------
with Employer, and for so long as he is receiving payments under Section 13 of
this Agreement after the termination of his employment, he will not, directly or
indirectly, solicit or otherwise attempt to induce any employee to leave the
employ of Employer.
6. Patents and Inventions. All patents, designs, plans and inventions
----------------------
which Employee discovers or develops during the time he is employed by Employer,
and which are either within the scope of Employer's endeavors or developed
through the use of Employer's resources, shall be the exclusive property of
Employer. Employee shall execute any separate assignments, patent applications
and other documents deemed necessary by Employer to secure or evidence its
ownership of any such patents, designs, formulas, plans, and inventions and to
otherwise give effect to this provision. Employee shall cooperate fully with
Employer in any dispute in which Employer's ownership of any such patent,
design, formula, plan, or invention is contested or in which it is alleged that
any such patent, design, formula, plan, or invention infringes upon, or is
infringed upon by, the ownership rights of any other person. This Section 6
shall not apply to (i) any patent, design, plan, or invention if; as a
consequence of such application, this Section 6 would be unenforceable under
Section 2870 of the California Labor Code (a copy of which is attached to this
Agreement), or (ii) any patent, design, plan, or invention designed or developed
by Employee prior to the date of this Agreement. The filing of a patent
application within twelve (12) months following the termination or expiration of
this Agreement shall be deemed prima facie evidence that the invention covered
by the patent is the property of Employer.
7. Authority. Other than in the ordinary course of business, Employee
---------
shall not have the authority, without the approval of the Board of Directors,
to:
a. Pledge the credit of Employer,
b. Release or discharge any debt due to Employer; or
c. Sell, mortgage, transfer or otherwise dispose of any assets of the
Employer.
8. Personnel Policies and Procedures. Employer shall have the authority to
---------------------------------
establish from time to time personnel policies and procedures to be followed by
its employees. Employee agrees to comply with the policies and procedures of
Employer. To the extent any provision in Employer's Personnel policies and
procedures differs from the terms of this Agreement, the terms of this Agreement
shall apply.
2
<PAGE>
9. Compensation. During the term of this Agreement, Employee shall be paid
------------
such periodic and extraordinary compensation as is deemed appropriate by
Employer's Board of Directors, provided that Employee's periodic compensation,
which shall be exclusive of any royalty payments and which shall be paid in
equal monthly installments, shall not be less than $125,000 (U.S.) per year.
10. Benefits.
--------
a. Vacation. Employee shall be entitled to four week paid vacation
--------
each year.
b. Health and Disability Insurance. Employer shall provide group
-------------------------------
health and disability insurance to Employee.
c. Other Benefits. Employee shall be entitled to participate in or
--------------
receive any other benefits made generally available by Employer to its
employees.
11. Expenses. Employer shall reimburse Employee for reasonable and
--------
necessary expenses incurred by Employee in the ordinary course of business on
behalf of Employer.
12. Termination. This Agreement and the employment of Employee shall
-----------
terminate under the following conditions:
a. The death of Employee;
b. The permanent disability of Employee (permanent disability shall
exist when Employee suffers from a condition of mind or body that indefinitely
prevents him from further performance of his duties); or
c. Employee engages in conduct constituting grounds for the
termination of employment as set forth in Section 2924 of the California Labor
Code.
13. Severance. In the event of a termination of this Agreement pursuant to
---------
Section 12 or the issuance of a notice of non-renewal by Employer under Section
2, Employee or Employee's estate shall continue to receive the compensation
provided for by this Agreement for a period of six (6) months following such
termination. In the event of a termination of this Agreement by Employer other
than pursuant to Section 12, Employer shall continue to pay Employee the
compensation provided for by this Agreement for the remainder of the term hereof
(determined as if the termination had not Occurred). A material change in the
duties and responsibilities of Employee, or a breach of this Agreement by
Employer, which is unacceptable to Employee and results in his resignation shall
be deemed to be a termination of this Agreement by Employer.
14. Arbitration/Sole Remedy for Breach of Agreement. In the event of any
------------------------------------- ---------
dispute between Employer and Employee concerning any aspect of their employment
relationship, including any disputes upon termination, all such disputes shall
be resolved by binding arbitration before a single
3
<PAGE>
neutral arbitrator. The arbitration shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator may
apportion the costs of the arbitration, including arbitrator's fees, among the
parties, but shall have no power to award attorneys' fees. Each party shall be
responsible for its own attorneys' fees. In the event that any lawsuit is filed
concerning any such dispute concurrently with the arbitration of such dispute,
each of the parties hereto waives any right to provisional remedies such as
attachments, temporary restraining orders, and preliminary injunctions, to which
they otherwise might be entitled in such litigation.
15. Successors and Assigns. The rights and obligations of Employer under
---------- -----------
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of his rights or obligations under this Agreement.
16. Survival. The enforceability of Sections 4, 5, 6, 13, and 14 hereof
--------
shall survive the termination or expiration of this Agreement.
17. Governing Law. This Agreement shall be interpreted, construed,
-------------
governed and enforced in accordance to the laws of the State of California.
18. Amendments. No amendment, modification, or waiver of the terms or
----------
conditions of this Agreement shall be valid unless in writing and signed by the
parties hereto.
19. Separate Terms. Each term, condition, covenant or provision of this
-------- -----
Agreement shall be viewed as separate and distinct; and, in the event that any
such term, covenant or provision shall be held by a court of competent
jurisdiction to be invalid, the remaining provisions hereof shall continue in
full force and effect.
20. Waiver. A waiver by either party of a breach of any provision of this
------
Agreement shall not constitute a general waiver or prejudice that party's right
otherwise to demand strict compliance with that provision or any other provision
in this Agreement.
21. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if it is in writing and sent by mail, or hand
delivered, to his residence, in the case of Employee, or to its principal office
in the case of the Employer.
22. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between Employee and Employer concerning the subject matter hereof and
supersedes any previous oral or written communications, representations,
understandings or agreements concerning such subject matter between them.
Employee understands that no representative of the Employer has been
4
<PAGE>
authorized to enter into any agreement or commitment with Employee which is
inconsistent in any way with the terms of this Agreement.
WITNESS HEREOF, the parties have executed this Agreement as of the date
set forth above.
Employer:
Carbite, Inc.
By:
Employee:
Michael Spacciapolli
5
<PAGE>
EXHIBIT 10.4
TAYLOR MADE ROYALTY AGREEMENT - AS AMENDED
------------------------------------------
This Amendment between Taylor Made Golf Company ("Taylor Made") and
Carbite Golf Company ("Carbite"), effective as of March 04, 1997, amends the
agreement ("Original Agreement") entered into between the Parties ("Parties"
refers to both Taylor Made and/or Carbite) which was originally effective
January 1,1995.
RECITALS
--------
A. Taylor Made desires to continue with the license arrangement entered into
by the Original Agreement.
B. Taylor Made would like to extend the period of exclusivity, under the same
terms and conditions as the Original Agreement.
C. Taylor Made desires, without minimum quantity requirements, to be able to
purchase the Carbite Inserts from a third party and pay a per-insert royalty
rather than purchasing the Carbite Inserts through Carbite.
D. Carbite desires to continue the period of exclusivity.
E. Carbite desires to effect a royalty payment on a per insert basis.
Now, therefore, in consideration of the mutual covenants, agreements and
conditions herein stated, Taylor Made and Carbite agree as follows:
<PAGE>
TERMS
-----
Taylor Made and Carbite hereby amend the Original Agreement as described
below. For those paragraphs not mentioned in this Amendment, those paragraphs
will remain as originally drafted in the Original Agreement. The amended
language takes effect on March 04, 1997.
A. Changes to Paragraph 1(a). "Grant of License": The period of exclusivity
---------------------------------------------
described in Paragraph 1(a) of the Original Agreement shall be extended for a
period of three (3) additional years. The amended period of exclusivity shall
continue until December 31, 1999. The terms of exclusivity shall be as stated in
the Original Agreement.
B. Changes to Paragraph 2. "Taylor Made's Obligations": Sub-paragraph (a) is
---------------------------------------------------
deleted in its entirety and substituted with the following Sub-paragraph (a):
"(a) Taylor Made agrees to pay a license fee on a per insert basis, as
described in Paragraph 4, 'Price'. Taylor' Made has no further obligation to
purchase any quantity of Carbite inserts from Carbite. Current 10,523 returned
inserts stemming from already past due P.O. numbers 306188 and 306174
respectively, will be treated as following:
25% of the 10,523 returned inserts (or 2,631 inserts) will be refunded by PSM
to Carbite. Since PSM will not be able to supply any parts until July, 1997,
Carbite has agreed to provide replacement of these 2,631 pieces via Cloyes
within three months' from the effective date of this contract. This agreement
is subject to TMG acceptance of the remaining returned inserts. The remaining
75% of the 10,523 returned inserts (or 7,892 inserts) TMC will perform a 100%
inspection, all acceptable parts will be sent to Hitchiner, and the remaining
rejected parts will be destroyed at Taylor Made expenses.
<PAGE>
Sub-paragraph (b) through (d) remain unchanged.
C. Changes to Paragraph 3. "Carbite's Obligations": Sub-paragraph (c) is
-----------------------------------------------
modified as follows: Carbite agrees to Taylor Made purchasing inserts
directly from the supplier subject to the work in process exception
described in Paragraph 2(a). As to the Carbite Inserts that qualify as work
in process, Carbite has a continuing obligation to correct any problems or
defects identified by Taylor Made, and will use its best efforts to correct
such problems or defects arising from non sand blasted inserts which are
non-conforming to Carbite's specification.
D. Changes to Paragraph 4. "Price": Sub-paragraph (a) shall remain in its
-------------------------------
entirety.
Insert Sub-paragraphs (1)) and (c):
"(b) As of the effective date of this Amendment, Carbite
shall continue to supply Carbite Inserts to Taylor Made, only as
described in Paragraph 2(a) above, according to the price
schedule 5 & forth in Exhibit B, as mutually agreed upon by the
Parties."
"(c) As of the effective date of this Amendment, Taylor Made
Golf shall pay Carbite a royalty of 52.00 per Carbite Insert that
Taylor Made purchases directly from a third party. Payment terms
will be the same as those for Taylor Made's future insert
suppliers. For example, if payment is based on a Net 30 term,
then payment will be processed 30 days after receipt of subject
inserts. Outstanding payments due Carbite will be based on final
count of 100% inspected inserts by Taylor Made." Taylor Made
<PAGE>
will pay $10,000 to Carbite upon execution of this Amendment, as
an advance payment for the first 5,000 Carbite Inserts. On March
04, of each succeeding year during the Term, Taylor Made will
make an advance payment of $10,000 for the first 5,000 Carbite
Inserts as long as Taylor Made, in its sole discretion, projects
that at least 5,000 Carbite Inserts will be purchased during that
year.
E. Paragraph 5. "Confidential Information": Paragraph 5 remains in its
---------------------------------------
entirety.
F. Remaining Paragraphs: All remaining paragraphs, including Paragraphs 6
--------------------
through 10 of the Original Agreement remain in their entirety.
In witness whereof, the Parties have by their duly authorized representatives
executed this Agreement as of March 04,1997.
TAYLOR MADE GOLF COMPANY, INC.
Phil Dube
Vice President Industrial
CARBITE GOLF COMPANY
Michael A. Spacciapolli President
Original Taylor Made Agreement
AGREEMENT
---------
This Agreement is between Taylor Made Golf Company, a Delaware corporation,
located and doing business at 2271 Cosmos Court, Carlsbad, California 92008
(hereinafter "Taylor Made") and Carbite Golf Co., a California corporation,
located and doing business at 6370 Nancy Ridge Drive, Suite 110, San Diego, CA
92121 (hereinafter "Carbite") and is effective as of January 1, 1995 ("Effective
Date")
<PAGE>
WHEREAS, Carbite represents it has developed and owns certain technology
relating to bronze high friction inserts (hereinafter "Carbite Inserts") for use
in connection with golf clubs and methods for manufacturing the same, which
technology includes the U.S. and foreign patents, listed on Exhibit A attached,
as well as trade secret and confidential information and know-how (hereinafter
collectively referred to as the "Carbite Technology/")
WHEREAS, Taylor Made is a leading manufacturer of golf clubs and golf related
equipment and has the ability to market and advertise golf clubs on a national
and international basis;
WHEREAS, Carbite represents that it is capable of manufacturing and supplying
Carbite Inserts under the Carbite Technology to Taylor Made for use in Taylor
Made's golf clubs;
WHEREAS, Taylor Made desires to have the exclusive right to use and sell golf
clubs having Carbite Inserts made with the Carbite technology under the Taylor
Made brand names, and Carbite is willing to grant such an exclusive right to
Taylor Made, on the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants herein and
other good and valuable consideration, the sufficiency of which is acknowledged
by the parties, Taylor Made and Carbite agree as follows:
1. Grant of License
----------------
a. Carbite hereby grants Taylor Made an exclusive license to use Carbite
Inserts manufactured in accordance with the Carbite Technology in the
manufacture, marketing and sale of certain golf clubs, commonly referred to as
irons, for a period of two years from the Effective Date of this Agreement,
provided that, Carbite, and its licensee Bullet Golf Company, shall have the
ability to market golf clubs, including irons, containing Carbite Inserts solely
under Carbite's or Bullet's own names during the period of this Agreement
b. At the end of said two year period, Taylor Made and Carbite shall negotiate,
in good faith, to extend the period of exclusivity for an additional three
years. If Taylor Made elects not to pursue further exclusivity, Taylor Made will
continue to have access to the Carbite Technology and the right to sell golf
club irons containing Carbite Inserts manufactured according to the Carbite
Technology on a non-exclusive basis, until December 31, 1999.
2. Taylor Made's Obligations
-------------------------
a. Taylor Made agrees to purchase all its requirements of Carbite Inserts from
Carbite, unless otherwise agreed upon by the parties. If Carbite refuses or is
unable to supply Taylor
2
<PAGE>
Made's requirements of Carbite Inserts on a timely basis [8 weeks] at any time
during the term of this Agreement, Taylor Made shall have the right to
manufacture or have manufactured by others, Carbite Inserts according to the
Carbite Technology, in order to fulfill its requirements.
b. Taylor Made agrees to devote reasonable marketing and promotional
resources, including tour resources, to develop and promote its golf clubs with
Carbite Inserts
c. Taylor Made will, in press releases, hangtags, advertising and
promotional literature relating to the golf club products using the Carbite
Inserts, acknowledge Carbite by a phrase, such as "Licensee of Carbite Golf".
d. Taylor Made will indemnify Carbite from claims based upon defects in
Taylor Made's manufacture of clubs using the Carbite Insert and the use of such
clubs by customers, as well as Taylor Made's improper use of the Carbite name.
3. Carbite's Obligations
---------------------
a. Carbite agrees to provide Taylor Made with all information, including
confidential and trade secret information relating to the Carbite Technology, as
well as copies of any patents covering such Technology, necessary to allow
Taylor Made to develop and market its golf club products, including the Carbite
Inserts. Carbite represents that it owns the Carbite Technology and agrees to
indemnify Taylor Made from any claims for patent infringement based on its use
of the Carbite Inserts.
3
<PAGE>
b. Carbite agrees to make available an officer or engineer thoroughly familiar
with the Carbite Technology to consult with Taylor Made, its manufacturers,
engineers and foundry, up to 6 days per year, to achieve development of irons
containing Carbite Inserts and to address any problems encountered by Taylor
Made in the development or incorporation of the Carbite Inserts into Taylor
Made's golf clubs (thereafter at Carbite's published consulting rate) . Taylor
Made shall bear all expenses for travel and lodging for such person or persons
during the period of time required to assist in development of Taylor Made clubs
including the Carbite Insert.
c. Carbite agrees to supply Taylor Made with all its requirements for Carbite
Inserts for golf clubs, manufactured according to the Carbite Technology, on a
timely basis and according to a schedule agreed upon by the parties. If Taylor
Made becomes aware of any problems or defects in connection with the Carbite
Inserts, Carbite agrees to promptly use its best efforts to correct such
problems or defects arising from inserts which are non-conforming to Carbite's
insert specification.
4. Price.
-----
a. Carbite shall supply Carbite Inserts to Taylor Made according to the price
schedule set forth in Exhibit B, as mutually agreed upon by the parties.
5. Confidential Information
------------------------
a. It is understood by the parties that, in the course of developing golf
clubs for Taylor Made containing the Carbite
4
<PAGE>
Inserts, the parties may provide the other with certain Confidential Information
relating to engineering, research, marketing and/or business information. Each
party agrees to keep any such Confidential Information, disclosed by the other,
in confidence and to take reasonable steps to insure that it is not used,
disclosed, communicated or made available to any third party, other than as
necessary to develop, manufacture, or market the golf clubs with Carbite Inserts
to be sold by Taylor Made. The parties agree that Confidential Information shall
not include any information that 15: a) publicly available as of the date of
this agreement; b) becomes publicly available other than as a result of
unauthorized disclosure by a party; c) was lawfully known to a party prior to
disclosure hereunder; d) was lawfully obtained from a third party without breach
of any confidentiality obligation by such third party; or e) is independently
developed by either party.
6. Fees.
----
a. As consideration for this Agreement and License, Taylor Made agrees to pay
Carbite a fee of $5,000 as follows:
$2,500 having been already paid prior to execution of this agreement
by all parties; and, $2,500 on April 1, 1995.
7. Term.
----
a. This Agreement shall commence on the Effective Date set forth above, and
shall continue in full force and effect until December 31, 1999. At the end of
this period, Taylor Made and Carbite will negotiate in good faith to continue
the Agreement on
5
<PAGE>
a non-exclusive basis, for an additional 3-year period, unless the parties agree
otherwise.
8. Severability.
------------
(a) If any provision of this Agreement is determined to be invalid
or unenforceable, the remaining provisions shall not be
affected thereby and shall be binding upon the parties.
9. Entire Agreement Amendment.
--------------------------
a. This Agreement constitutes the entire Agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior written and
oral proposals, communications, letters or understandings regarding the
same. This Agreement may be modified only by a writing signed by the duly
authorized representative of each of the parties hereto.
10. Transferability; Successors
---------------------------
a. This Agreement shall not be assigned or transferred by either
party apart from a sale of substantially all of the assets of its business
without the consent of the other party, which shall not be unreasonably
withheld, provided that, Taylor Made may allow its parents and/or subsidiary
corporations to assume its responsibilities and obligations hereunder
b. This Agreement shall be binding upon the parties and their
successors, assigns, heirs, subsidiaries and licensees to the extent permitted
under paragraph 10(a) above.
9.
6
<PAGE>
IN WITNESS WHEREOF, the parties have by their duly authorized
representatives executed this Agreement as of the effective date.
Taylor Made Golf Company, Inc.
By
Its
Carbite Golf Co.
By:
Its:
7
<PAGE>
Exhibit 10.5
LICENSE AGREEMENT
RE TRIMETAL IRON HEADS
This license agreement is made this 28th day of October, 1998 between Carbite,
-------
Inc., a California Corporation (hereinafter "Licensor") and K Z Golf, Inc., a
California corporation (hereinafter "Licensee").
Whereas, Chester S. Shira is the inventor of the United States Patent
No.5,669,825 (hereinafter "patent") and whereas Chester S. Shira has assigned
all right, title and interest in said patent to Carbite, Inc. which Carbite,
Inc. is now the present owner of the entire right, title and interest in said
patent and the Licensor herein. Said patent deals with the brazing of sintered
metals onto golf club heads, including the brazing of copper tungsten inlays
into golf club heads produced thereby.
Whereas, Licensee is the sole sales representative of Performax Golf &
Composite, Inc. a Taiwanese corporation (hereinafter "PFX") for Orlimar TriMetal
iron heads; PFX is the sole manufacturer of the Orlimar TriMetal iron heads for
Orlimar.
Whereas, Licensee desires to obtain a license under Licensor's patent rights
identified above for the brazing of copper tungsten to the Orlimar TriMetal iron
heads and desires to use same for the manufacture, sale and distribution of
Orlimar TriMetal iron heads.
THEREFORE, in consideration of the mutual covenants and undertakings of the
parties, Licensor and Licensee agree as follows:
I. License Grant. Licensor hereby grants to Licensee a royalty-bearing
right and non-exclusive license under Licensor's patent to sell and market
Orlimar TriMetal iron heads manufactured by PFX utilizing Licensor's patented
process for making said iron heads for sale in the United States.
2. Payment. Licensee shall make payments to Licensor as follows:
i. Five thousand ($5,000) dollars as the minimum annual payment for said
licensing rights which shall be due on July 1st of each year,
commencing 1998. The minimum annual payment shall be applied as a
credit to the royalties produced for each year (year to run July 1
through June 30th).
ii. A royalty of twenty-five cents ($0.25) for each Orlimar TriMetal iron
head sold and distributed by and through Licensee in the U.S. which
iron heads utilize Licensor's patent. Said royalty payment shall be
due each month commencing from the first month that the subject iron
heads are manufactured and shipped and shall be due by the 15 day of
each month following the close of each month. A statement indicating
the number of the subject Orlimar iron heads shipped during the
specified month shall be included with the Licensee's royalty payment
to Licensor.
<PAGE>
3. Marking.
Licensee shall secure an agreement with Orlimar Golf Equipment Company LLC so
that they will acknowledge use of the patent in all related print advertising
over which Orlimar has control and so long as Orlimar is utilizing said patent
in the manufacture of its TriMetal iron heads; said acknowledgment shall state:
"brazed copper tungsten inlays licensed under U.S. Patent #5,669,825."
4. Records.
Licensee shall keep complete and accurate books and records in accordance with
generally accepted accounting principles. Licensor shall have the right during
normal business hours on seven days prior written notice and at its own expense,
and not more than once in any calendar year, to have the relevant books and
records of Licensee examined by an independent certified public accountant for
the purpose of verifying the reports rendered hereunder. If said examination
discloses a discrepancy of greater than 3% between sales of Orlimar TriMetal
iron heads utilizing the patent reported by Licensee and sales determined by
said accountant, Licensee shall pay the reasonable expenses of said audit and
within thirty days pay to Licensor any additional royalties that may be due.
5. Representations and Warranties.
Licensor makes the following representations and warrants that:
1. Licensor is the sole owner of the entire right, title and interest in
the patent rights which are the subject matter of this Agreement and that
it has the full capacity to enter into and perform this Agreement and
that said patent rights have been assigned to Licensor by the inventor of
said patent, Chester S. Shira who has acknowledged said assignment by
executing this Agreement.
ii. As of the date of execution of this Agreement, Licensor has no knowledge
that the manufacture, sale and/or use of products covered by Licensor's
patent will infringe any other patent or otherwise violate or appropriate
the rights of any third party. If any other third party becomes known who
claims any right, title or interest in any patent or other right which
would effect the subject patent and the rights of Licensee under this
Agreement, then Licensor shall immediately notify Licensee and Licensee
shall have the option to terminate this Agreement forthwith; and,
iii. Licensor shall maintain all of the subject patent rights in full force
and effect during the term of this Agreement or until expiration of
Licensor's rights by law.
6. Patent Enforcement.
Licensor and Licensee shall each provide immediate written notice to the other
party of any infringement of Licensor's patent which may come to such party's
attention. Licensee has no obligation to protect Licensor's patent. Licensor
alone shall enforce its patent.
2
<PAGE>
7. Term of Agreement.
This Agreement shall commence on the date first written above and shall
continue in full force and effect for a five year duration. Licensee shall
thereupon have the option of renewing the Agreement for another five year term
based on terms and conditions mutually agreed upon.
8. DISPUTE RESOLUTION
If any dispute arises under this Agreement, the parties shall make a good
faith effort to resolve the dispute before taking any legal action. The parties
shall meet to discuss the dispute no later than 30 days after either party gives
written notice to the other party that such a dispute exists. Such meeting may
be held telephonically if travel is impractical for either party. At such
meeting, a representative of each party who has authority to resolve the dispute
shall be in attendance. No action, suit, arbitration or other proceeding may be
commenced before the parties have met pursuant to this provision unless
immediate injunctive relief is being sought, in which case the noted meeting
shall take place at the earliest opportunity after such immediate injunctive
relief is sought.
9. TERMINATION
In addition to the specific term provisions of this Agreement, either party
may terminate this Agreement at any time in the event of a material breach of
the terms herein by the other party, if such other party shall fail to cure such
material breach within thirty (30) days of receipt of written notice of such
breach. If the material breach is not cured within the specified time and the
Agreement is terminated, then Licensee shall pay the regular royalty rate on
Orlimar TriMetal iron heads utilizing the patent that were shipped prior to the
termination.
Licensee shall have the discretionary right to terminate this license at any
time on one (1) month's written notice to Licensor.
A breach of any provision of this Agreement may only be waived in writing and
the waiver of such breach shall not operate or be construed as a waiver of any
subsequent breach.
10. MISCELLANEOUS PROVISIONS.
A. Severability. If any provision of this Agreement should, for any reason,
be held invalid or unenforceable in any respect, the remainder of this
Agreement shall be enforced to the full extent permitted by law.
B. Assignment and Transfer. Licensee may assign or transfer this Agreement to
a parent or subsidiary, but to no other entity without the express prior
written consent of Licensor. Licensor may assign benefits of this
Agreement without the prior written consent of Licensee.
C. Bind and Benefit. This Agreement shall bind and benefit the heirs,
successors, administrators, trustees, and assigns of Licensor and
Licensee.
D. Entire Agreement. This Agreement contains the entire agreement between the
parties hereto as to the subject matter hereof. This Agreement supersedes
all prior oral and written agreements between the parties. This Agreement
may not be modified or amended except by a writing signed by the parties
hereto. In the
3
<PAGE>
event of any conflict between the language of this Agreement and the
language of any proposal or other writing or agreement between the parties,
the language of this Agreement shall control.
E. Headings. Headings in this Agreement are for the purpose of convenience
only. They are not intended to be a material part of the Agreement, and in
the event of any conflict between the heading and the text, the text shall
govern.
F. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California, USA, except for any
federal law governing U.S. patents. Licensor and Licensee consent to the
State of California having jurisdiction over them.
G. Notices. All notices and communications required to be given under this
Agreement shall be in writing and be deemed to have been properly delivered
five days after mailing by registered mail, return receipt requested; two
days after mailing by express mail; or one day after electronic mailing by
fax. All notices shall be as follows, or as either party shall designate in
writing to the other:
To Licensor: Carbite, Inc.
Attn: Chester S. Shira, Chairman
6330 Nancy Ridge Drive, Suite 107
San Diego, California 92121
Fax: (619)625-0684
To Licensee: K Z Golf, Inc.
Attn: Bruce H. McKinnon, President
12711 Ventura Boulevard, Suite 480
Studio City, California 91604
Fax: (8J ~) 506-8053
H. Signatures. This Agreement may be signed in counterparts and copies of
facsimile signatures shall be deemed originals for the purposes hereof.
IN WITNESS HEREOF, the parties have caused their duly authorized
representatives to execute and deliver this Agreement as of the date first
written above.
CARBITE, INC.
By: CHESTER S. SHIRA
Title: Chairman
By: B CE H. McKINNON
Title: President
4
<PAGE>
I hereby acknowledge that I have assigned all right, title and interest in U.S.
Patent #5,669,825 to Carbite, Inc.
CHESTER S. SHIRA Inventor of U.S. Patent
#5,669,825
5
<PAGE>
EXHIBIT 10.6
ENDORSEMENT AGREEMENT
This agreement is entered into as of this 20 day of August 1999, between
Carbite, Inc. a California corporation located at 6330 Nancy Ridge Dr. Suite
107, San Diego CA. 92121 (herein after referred to as "Carbite") and Fuzzy
Zoeller Productions, Inc. an Indiana corporation located at P0 Box 1407, New
Albany, IN 47151 (herein after referred to as "Zoeller").
Whereas, Zoeller represents it owns all the rights to the Fuzzy Zoeller who is
known through the world as a professional golfer; and
Whereas, Carbite manufactures and distributes products world wide; and
Whereas, Carbite is desirous of acquiring the exclusive rights to use Zoeller's
name and likeness in promoting the company and products of Carbite, or other
brand to be acquired;
Therefore, in consideration of the Agreement herein and for other good valuable
consideration, it is agreed to as follows:
1. Zoeller agrees to allow the unlimited worldwide use of Zoeller's name and
likeness in the promotion of Carbite products under the Carbite name or other
brand to be acquired. The use of the image and direct quotes will be
submitted to Zoeller in advance for approval and such approval will not be
unreasonable withheld. Carbite agrees not to use Zoeller in the promotion of
specific products that will violate the endorsement agreements currently in
place.
2. Zoeller will provide a link from www.fuz.com to domains that Carbite will
designate. Carbite will provide a link from Carbite domains to www.fuz.com.
Zoeller will be available occasionally for on line chats providing time and
schedule permitting.
3. Zoeller will carry a Carbite or other brand to be acquired golf bag while
competing on the PGA and Senior PGA TOUR, while attending corporate outings
and all golf functions and activities in general and continue to conduct
himself in a professional manner.
<PAGE>
4. Zoeller will use his best efforts to attempt to use products produced by
Carbite or other brand to be acquired. At a minimum, Zoeller will use 10
Carbite or other brand to be acquired clubs including Carbite wedges and
putter. Carbite agrees to allow Zoeller to continue to play the Daiwa 153
irons until such time as Carbite has an agreement with Daiwa for the
continued use of the trademark or Carbite can provide an acceptable
replacement. Zoeller will wear a Carbite or company to be acquired shirt for
advertising or promotional purposes.
5. Zoeller will occasionally advise and consult with Carbite on golf club
design.
6. Zoeller will provide a maximum of 8 days per contract year (dates, times,
locations and schedule permitting) for sales and marketing of Carbite or
other brand to be acquired products including filming infomercials, trade
shows, customer meetings, etc. Carbite agrees to the best of its ability to
have as many of these dates as possible at Covered Bridge Golf Course.
7. Zoeller will use his best efforts to aid Carbite in corporate development.
Carbite anticipated the need to use Zoeller to periodically meet with
investment bankers, investors and shareholders among others to develop and
expand relationships that will benefit the company. These meetings will be
arranged in advance to meet the time and schedule of Zoeller.
8. Carbite agrees to pay Zoeller according to the following schedule.
a. For the 6 months following the signing to the contract, $50,000 in cash
(to be paid $25,000 upon execution of this agreement and $25,000 in 90
days from this date). $88,000 in Carbite stock payable in the form of
compensation stock or as options (number of shares to be determined on the
date of execution of this agreement based on the closing price of the
stock).
b. For year 1. $200,000 in cash (to be paid quarterly). $100,000 in Carbite
stock payable in the form of compensation stock or as options (number of
shares to be determined on February \\19\\th in the year 2000 based on the
closing price of the stock on that day).
c. For year 2. $200,000 in cash (to be paid quarterly). $100,000 in Carbite
stock payable in the form of compensation stock or as options (number of
shares to be determined on February \\19\\th in the year 2001 based on the
closing price of the stock on that day).
d. For year 3. $275,000 in cash (to be paid quarterly). $225,000 in Carbite
stock payable in the form of compensation stock or as options (number of
shares to be determined on February \\19\\th in the year 2002 based on the
closing price of the stock on that day).
<PAGE>
e. For year 4. $300,000 in cash (to be paid quarterly). $250,000 in Carbite
stock payable in the form of compensation stock or as options (number of
shares to be determined on February \\19\\th in the year 2003 based on the
closing price of the stock on that day).
f. For year 5. $325,000 in cash (to be paid quarterly). $250,000 in Carbite
stock payable in the form of compensation stock or as options (number of
shares to bedetermined on February 19 in the year 2004 based on the
closing price of the stock on that day).
9. Carbite agrees to pay all reasonable and necessary expenses involved in
sales and marketing or corporate development appearances including first
class travel hotel and meal expenses.
10. Zoeller will compete in a minimum of 15 PGA tournaments per year. If for
whatever reason, Zoeller plays in less than 15 PGA tournaments in any year,
the compensation will be reduced by dividing the compensation by 15 and
multiplying by the number of events played.
11. Carbite can terminate the contract for the following reasons,
a. Zoeller is unable to compete due to serious injury or dies.
b. Carbite gross sales do not exceed $25,000,000 for the calendar year of
2001.
12. Carbite will indemnify Zoeller from any claims and damages arising from the
use of the endorsed product or the endorsement of the products or the
advertising of Carbite products.
13. This agreement shall be governed by the laws of the State of California. Any
disputes between the parties that can not be resolved will be determined by
arbitration according with the American Arbitration Association. The
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements.
14. The contract period shall commence on August 20, 1999 and conclude on
February 20,2005 unless sooner terminated, extended or renewed in accordance
with this agreement.
15. Nothing contained in this Agreement shall be construed as establishing an
employer/employee relationship between Carbite and Zoeller. There shall be
no withholdings for tax purposes from any payments due to Zoeller from
Carbite.
<PAGE>
16. Neither party shall have any right to grant sublicenses to otherwise assign
any of its rights or obligations in this Agreement with out the express
written consent of the other party.
17. All notices and statements shall be sent via overnight express to the
following addresses.
Carbite, Inc.
6330 Nancy Ridge Dr. Suite 107
San Diego, CA. 92121
Attention: John Pierandozzi
Fuzzy Zoeller Productions, Inc.
P0 Box 1407
New Albany, IN 47151
Attention: Dave Lobeck
In Witness, the parties in this Agreement have caused it to be executed as of
the \\20\\th day of August 1999.
Date: August 20, 1999
Carbite, Inc.
By:
John Pierandozzi
Date: August 20, 1999
Fuzzy Zoeller Productions
<PAGE>
EXHIBIT 10.7
HENDERSON LOAN
LOAN SUBSCRIPTION
to
CARBITE GOLF INC.
(the "Company")
The undersigned (the "Lender") hereby agrees to advance to the Company $500,000
in US funds (the "Loan"). The Loan will be advanced by the Lender to the Company
and will be secured by a Promissory Note on the terms set forth in the form of
Promissory Note attached hereto as Schedule "A" (the "Promissory Note"),
convertible in accordance with the terms and conditions referred to therein (the
"Security"). The Lender will also receive a bonus in common shares of the
Company equal to 12% of the principal sum advanced, issued at a deemed price per
share of CDN$0.80.
The Lender agrees that the Promissory Note is convertible into units of the
Company at the conversion price of CDN$0.80 per Unit (the "Unit). Each Units
shall consist of one (1) common share and one (1) non-transferable share
purchase warrant (individually a "Warrant" and collectively, the "Warrants").
Each Warrant, once exercised, will entitle the holder thereof to purchase one
(1) additional common share of Carbite for a period of two years at a price of
CDN$0.80 if exercised during the first year, and CDN$0.95 if exercised during
the second year.
WARRANTS
The Warrants will be non-transferrable and the terms and conditions of the
Warrants will be referred to on the certificate representing them and will
include, among other things, anti-dilution provisions, including provisions for
the appropriate adjustment in the class, number and price of shares issuable
pursuant to the exercise thereof upon the occurrence of any subdivision,
consolidation or reclassification of the common shares of the Company,
amalgamation of the Company with another corporate entity, the sale of
substantially all of the undertaking and assets of the Company, or any payment
of stock dividends. The issue of the Warrants will not restrict or prevent the
Issuer from issuing additional securities or rights with respect thereto during
the period within which the Warrants are exercisable.
The Units to be issued will be recorded in the name and at the address set out
below:
JAMES A. HENDERSON and SUSAN V. HENDERSON
AS CO-TRUSTEES OF THE HENDERSON LIVING
TRUST DATED APRIL 3, 1990
-------------------------
Name in Full
17045 S. Monterey Road, Ste. D
------------------------------
Address (Suite No., Street)
Morgan Hill, CA 95037
----------------------
<PAGE>
-2-
City/Country/Postal Code/Zip
ACKNOWLEDGMENT, REPRESENTATIONS AND WARRANTIES
The Lender acknowledges, represents and warrants to the Company, as of the date
hereof and as of the Closing Date as hereinafter defined, that:
(a) no prospectus has been filed by the Company with the British Columbia
Securities Commission (the "Commission"), or Offering Memorandum delivered,
in connection with the issuance of the Security, the issuance is exempted
from the prospectus requirements of the Securities Act of British Columbia
--------------
(the "Act") or any regulations (the "Regulations") or rules (the "Rules")
promulgated pursuant to the Act and that:
(i) the Lender is restricted from using most of the civil remedies
available under the Act, the Regulations and the Rules;
(ii) the Lender may not receive information that would otherwise be
required to be provided to him under the Act, the Regulations and the
Rules; and
(iii) the Company is relieved from certain obligations that would
otherwise apply under the Act, the Regulations and the Rules;
(b) the Lender is not a syndicate, partnership or other form of unincorporated
entity or organization created solely to permit the purchase of the
Security (or other similar purchases) by a group of individuals whose
individual share of the aggregate acquisition cost of the Security is less
than $97,000 and the Lender is acquiring the Security as principal and not
for any other person;
(c) The Lender hereby represents and warrants that he or it is a sophisticated
investor and that because of his/her previous investment experience and net
worth, the Lender is in a position to fully evaluate the investment in the
Security.
(d) the Lender is subscribing for and purchasing the Security as principal for
the Lender's own account and not for the benefit of, or on behalf of, any
other person;
(e) the purchase of the Security has been privately negotiated and arranged and
the Lender or his agent has been invited and afforded the opportunity to
conduct a review of all of the Company's affairs and records in order that
the Lender may be properly and fully aware of all of the facts relevant to
the Company's affairs;
(f) the Lender has sought and obtained independent legal advice regarding the
purchase of the Security and confirms the Lender's ability to resell the
Security is prohibited unless exempted under the Act and the Regulations;
<PAGE>
-3-
(g) unless otherwise exempted under the applicable laws the Security must be
unconditionally held for a period of twelve (12) months from the date
hereof;
(h) the Lender specifically acknowledges that the Company may:
(i) pay and receive finders fees, placement fees, commissions, bonuses
etc. in respect of this Loan or the subsequent advance of funds to
the Company, which may include paying or receiving such fees to
individuals or companies that are associated, affiliated or connected
with the Company and/or its directors or officers;
(ii) make investments in companies or projects in which directors or
officers of the Company, or persons or companies that are associated
or affiliated with the Company and/or its directors or officers, have
an interest.
(i) the Security were not offered to the Lender through an advertisement in
printed media of general and regular paid circulation, radio or television
and no person has made to the Lender any written or oral representations
whatsoever and in particular, no person has made any written or oral
representations:
(i) that any person will resell or repurchase the Security;
(ii) that any person will refund the purchase price of the Security; or
(iii) as to the future price or value of the Security.
(j) this Offer of Loan and the issue of the Promissory Note has not been
solicited in any other manner contrary to the Act, the Regulations, or the
Rules or the United States Securities Act of 1933, as amended; and
(k) the Offer of Loan made herein is irrevocable and requires acceptance by the
Company.
FORM 20A (IP) ACKNOWLEDGEMENT OF INDIVIDUAL
The Lender covenants and agrees to execute and deliver to the Company the "Form
20A (IP) Acknowledgement of Individual Purchaser" in substantially the form
attached hereto as Schedule "B".
INTERPRETATION AND FURTHER ASSURANCES
Upon acceptance of this offer by the Company, this Offer of Loan will constitute
a valid and binding agreement between the parties (the "Agreement"), and:
<PAGE>
-4-
(a) this Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia;
(b) the Lender and the Company will execute and deliver to each other all such
further and other deeds, documents and assurances, and will do and perform
all such further and other acts as may be necessary to give effect to the
intent and meaning of this Agreement;
(c) this Agreement will constitute the entire agreement between the parties and
there are no representations, warranties or collateral agreements, express
or implied, other than as expressly set forth herein; and
(d) time shall be of the essence hereof.
INDEPENDENT LEGAL ADVICE RECOMMENDED
The Lender acknowledges and agrees that neither the Company, nor its legal
advisors, has provided any advice whatsoever to the Lender, and make absolutely
no representations and warranties regarding the offering, sale or
transferability of Security. The Lender acknowledges having received a
recommendation from the Company to obtain independent legal advice prior to the
Lender entering into this Subscription.
CLOSING DATE
The Closing Date shall be the latter of the date the Lender has advanced funds
or April 16, 1998.
DATED at San Diego, California, this 16th day of April, 1998.
JAMES A. HENDERSON and SUSAN V. HENDERSON, as Co-Trustees of THE HENDERSON
LIVING TRUST DATED APRIL 3, 1990:
__________________________________ ___________________________________
JAMES A. HENDERSON SUSAN V. HENDERSON
ACCEPTED BY , this 16th day of April, 1998.
THE CORPORATE SEAL of )
CARBITE GOLF INC. )
was hereunto affixed in )
the presence of: ) c/s
)
_______________________ )
Authorized Signatory )
<PAGE>
SCHEDULE "A"
PROMISSORY NOTE
<PAGE>
SCHEDULE "B"
FORM 20A (IP)
Securities Act
ACKNOWLEDGMENT OF INDIVIDUAL
1. We have agreed to subscribe for Security (the "Security") issued by CARBITE
GOLF INC. (the "Corporation").
2. We are making the subscribing for and acquiring the Security as principal
and, on closing of the transaction, we will be the beneficial owner of the
Security.
3. We have not received an offering memorandum describing the Corporation and
the Security.
4. We acknowledge that:
(a) no securities commission or similar regulatory authority has reviewed
or passed on the merits of the Security, AND
(b) there is no government or other insurance covering the Security, AND
(c) We may lose all of our investment, AND
(d) there are restrictions on my ability to resell the Security and it is
my responsibility to find out what those restrictions are and to
comply with them before selling the Security, AND
(e) We will not receive a prospectus that the British Columbia Securities
--------
Act (the "Act") would otherwise require be given to us because the
Corporation has advised us that it is relying on a prospectus
exemption, AND
(f) because we are not making the loan and acquiring the Security under a
prospectus, we will not have the civil remedies that would otherwise
be available to me, AND
(g) the Corporation has advised us that it is using an exemption from the
requirement to sell through a dealer registered under the Act, and as
a result we do not have the benefit of any protection that might have
been available to us by having a dealer act on my behalf.
5. We also acknowledge that:
(a) We are purchasing Security that have an aggregate acquisition cost of
$97,000 or more,
(b) my net worth, or my net worth jointly with my spouse at the date of
the agreement
<PAGE>
-3-
of purchase and sale of the security, is not less than $400,000,
(c) my annual net income before tax is not less than $75,000, or my annual
net income before tax jointly with my spouse is not less than
$125,000, in each of the two most recent calendar years, and we
reasonably expect to have annual net income before tax of not less
than $75,000 or annual net income before tax jointly with my spouse of
not less than $125,000 in the current calendar year.
6. We acknowledge that, on the basis of information about the Security
furnished by the Corporation, we are able to evaluate the risks and merits
of the Security because: [circle one]
(a) of my financial, business or investment experience, OR
(b) We have received advice from a person [Name of adviser:_______________
_______________ (the "Adviser")] who has advised us that the Adviser
is:
(i) registered to advise, or exempted from the requirement to be
registered to advise, in respect of the Security, and
(ii) not an insider of, or in a special relationship with, the
Corporation.
The statements made in this report are true.
DATED ____________________________________, 19 ________98.
___________________________________
Signature of Subscriber
___________________________________
Signature of Subscriber
JAMES A. HENDERSON and SUSAN V.
HENDERSON AS CO-TRUSTEES OF THE HENDERSON LIVING TRUST DATED APRIL 3, 1990
----------
Name of Subscriber
17045 S. Monterey Road, Ste.,
-----------------------------------
Morgan Hill, California, USA, 95037
-----------------------------------
Address of Subscriber
<PAGE>
EXHIBIT 10.8
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
Basic Provisions ("Basic Provisions"): Extracted from Standard Industrial Lease
PARTIES: The Lease ("Lease") dated for reference purposes only, January 06,
1998, is made by and between Nancy Ridge Technology Center, LLC, ("Lessor") and
Carbite, Inc., a California Corporation, ("Lessee"), (collectively, the
"Parties," or individually a "Party").
PREMISES: That certain portion of the Building, including all improvements
therein or to be provided by Lessor under the terms of this Lease, commonly
known by the street address of 6330 Nancy Ridge Drive, located in the City of
San Diego, County of San Diego, State of CA, with zip code 92121 as outlined on
Exhibit A attached hereto ("Premises"), The "Building" is that certain building
containing the Premises and generally described as (describe briefly the nature
of the Building): approximately 17,803 square feet of industrial space, in
addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the industrial center. The Premises, the Building, the
Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center." (Also see Paragraph 2).
PARKING: Pro rata share of unreserved vehicle parking spaces ("Unreserved
Parking Spaces") and -0- reserved vehicle parking spaces ("Reserved parking
Spaces")
TERM: 2 years and -0- months ("Original Term") commencing February 01, 1998
("Commencement Date") and ending January 31, 2000 ("Expiration Date")
BASE RENT: $12,000.00 per month ("Base Rent"), payable on the 1/st/ day of each
month commencing February 01, 1998.
RENTAL INCREASES: The base rental rate shall increase by four percent (4%) on
each one year anniversary of the lease term.
Base Rent Paid Upon Execution: $12,000.00 as Base Rent for the period February
1998.
Lessee's Share of Common Area Operating Expenses: 10.380 per cent (10.38%)
("Lessee's Share") as determined by X prorata square footage of the Premises as
compared to the total square footage of the Building.
SECURITY DEPOSIT: $1,478.40 ("Security Deposit")
<PAGE>
PERMITTED USE: Office space, distribution and manufacturing of golf equipment in
compliance with M-18 zoning.
By Lessor:
Nancy Ridge Technology Center, LLC
/s/ Chris Loughridge - President
By: Lessee:
Carbite Inc., a California corporation
/s/ Randie Burrell - Vice President
<PAGE>
EXHIBIT 10.9
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT made this 15th day of September,
1999.
BETWEEN:
EMPLOYEE
(hereinafter referred to as the "Optionee")
OF THE FIRST PART
AND:
CARBITE GOLF INC., a company duly incorporated pursuant to
the laws of the Province of British Columbia and having
its registered and records office located at 2700 - 700
West Georgia Street, Vancouver, British Columbia V7Y 1B8
(hereinafter referred to as the "Company")
OF THE SECOND PART
WHEREAS:
A. The Optionee (or in the event that the Optionee is a corporation, the
individual who owns all of the issued and outstanding shares of such
corporation), is a Director, Senior Officer, Employee or Consultant of the
Company, or its subsidiaries;
B. The Company desires to grant the Optionee an option to purchase common
shares in the capital of the Company;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
sum of $1.00 given by the Optionee to the Company and other good and valuable
consideration (the receipt and sufficiency of which is acknowledged by the
Company) the parties hereto agree as follows:
1. Subject to the provisions hereof, as an incentive to the Optionee and
not as an inducement to employment or continued employment by the Company, the
Company grants to the Optionee an option to purchase, from time to time, a total
of ONE HUNDRED FIFTY THOUSAND (150,000) common shares in its share capital (the
"Option") at an exercise price of $0.70 per share, exercisable on or before
September 15, 2000 (the "Expiry Date").
2. In order to exercise the Option, the Optionee shall, no later than
5:00 p.m. (Vancouver time) on the Expiry Date give written notice to the Company
of the Optionee's intention to exercise the Option in whole or in part, such
notice to be accompanied by cash or certified cheque, payable to the Company in
the amount equal to the number of shares being purchased under the Option.
<PAGE>
-2-
3. The Option shall be in full force and effect and exercisable only so
long as the Optionee shall continue to serve in the capacity as a Director,
Senior Officer, Employee or Consultant of the Company, and for a period of
thirty (30) calendar days after the Optionee ceases to serve in such capacity
(the "Termination Date"). This Option shall terminate and shall therefore not be
exercisable by the Optionee after 5:00 p.m. (Vancouver time) on the Termination
Date. In the event that the Optionee dies during the term of the Option, any
unexercised portion of the Option shall be available for exercise by the
Optionee's heirs or administrators, prior to the Expiry Date, and within 180
days after the date of the Optionee's death.
4. In the event that the Optionee is not a Director or Senior Officer of
the Company, or its subsidiaries (as such terms are defined in the Securities
Act (British Columbia)), the Optionee represents and warrants that it is an
Employee in accordance with one of the following definitions:
(a) under the terms of the Optionee's employment contract, the Company is
required to make deductions at source for income tax, unemployment
insurance and Canada Pension Plan and that the Optionee is to receive
all salary net of these amounts; or
(b) the Optionee is fully responsible to remit applicable income tax,
unemployment insurance and Canada Pension Plan payments and that the
Company does not deduct any such remittances from the Optionee's
salary. The Optionee further represents and warrants that it is a term
of the Optionee's contract with Company that the Optionee shall at all
times abide by and carry out directions given by the Board of
Directors and Senior Officers of the Company within the scope of the
Optionee's duties; or
(c) the Optionee is a "Consultant" who:
i) provides ongoing consulting services to the Company under a
written contract;
ii) possesses technical, business or management expertise of value to
the Company or an affiliate of the Company; and
iii) spends a significant amount of time and attention on the business
and affairs of the Company or an affiliate of the Company.
5. The Option granted is personal to the Optionee and may not be assigned
nor transferred in whole or in part.
6. This Agreement or any amendments to this Agreement shall be subject to
the prior approval of the Vancouver Stock Exchange.
7. In the event that the Optionee is an insider of the Company, as that
term is defined in section 1(1) of the Securities Act (British Columbia) (an
"Insider"), the Optionee agrees not to exercise the Option prior to the approval
of the grant of the Option by the shareholders of the Company. For the purposes
of this paragraph, approval of the shareholders may be obtained in advance of
the grant of the Option hereunder, by way of blanket or omnibus resolution
authorizing the Company's Board of Directors to grant Options to Insiders. If
the shareholders do not approve the Option, then the Option and this Agreement
shall be null and void as of the date of execution.
<PAGE>
-3-
8. In the event the Optionee is a resident of the United States, the shares
represented by this option, once exercised, will not have been registered under
the United States Securities Act of 1933 (the "Act") or any State securities
laws, and will be "RESTRICTED SECURITIES" as that term is defined in Rule 144
under the Act. The shares, once issued, may not be offered for sale, sold or
otherwise transferred within the United States except pursuant to an Effective
Registration Statement under the Act and any applicable State securities laws,
or pursuant to an exemption from registration under the Act, the availability of
which will be established to the satisfaction of the Company.
9. Any amendment to this Agreement shall be subject to the approval of
the shareholders of the Company if the Optionee was an Insider at the time of
the granting the Option, or is an Insider of the Company at the time of the
amendment, which approval may also be obtained in advance by blanket or omnibus
resolution.
10. Notwithstanding anything to the contrary contained herein, the Option
and this Agreement shall be governed under the terms of Plan, as it may exist
from time to time, and in the event of any inconsistencies between this
Agreement and the Plan, the terms of the Plan shall prevail.
11. In the event that there is any change in the common shares of the
Company through the declaration of stock dividends, stock splits,
consolidations, exchanges of shares, or otherwise, the number of common shares
subject to Option and the option price shall be adjusted appropriately by the
Company, at its discretion, and such adjustment shall be effective and binding
for all purposes of this Agreement.
12. In the event that the Company shall amalgamate, consolidate with, or
merge into another corporation, the Optionee will thereafter receive, upon the
exercise of the Option, the securities or property to which a holder of the
number of common shares then deliverable upon the exercise of the Option would
have been entitled to upon such amalgamation, consolidation, or merger. The
Company agrees to take such reasonable steps in connection with such
amalgamation, consolidation, or merger as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as near as reasonably
possible. A sale of all or substantially all of the assets of the Company for
consideration (apart from the assumption of obligations), a substantial portion
of which consists of securities shall be deemed a consolidation, amalgamation or
merger for the purposes hereof.
13. In the event that the Optionee is a corporation, the Optionee
represents and warrants that all of its issued and outstanding shares are owned
by a Director, Senior Officer, Employee or Consultant of the Company or its
subsidiaries, and the Optionee hereby agrees to complete the "Certification and
Undertaking Required from a Corporation granted an Incentive Stock Option" as
prescribed by the VSE and attached hereto and represents and warrants that the
certifications set forth in such document are true and correct.
14. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and upon the successors or assigns of the Company and upon the
executors, administrators and legal personal representatives of the Optionee.
15. This Agreement shall be governed, construed and enforced according to
the laws of the Province of British Columbia and is subject to the exclusive
jurisdiction of the courts of the Province of British Columbia.
16. Whenever the singular or masculine are used throughout this Agreement,
the same shall be construed as being the plural or feminine or neuter where the
context so requires.
17. The parties agree to execute such further documents and assurances as
may be required to effect the intent hereof.
<PAGE>
-4-
18. The Optionee agrees to abide by the provisions of applicable
securities laws in the exercise and disposition of any common shares of the
Company acquired pursuant to the exercise of the Option.
19. The Optionee and the Company may execute this Agreement in two or more
counterparts, each of which is deemed to be an original and all of which
constitute one agreement, effective as of the date first above written.
IN WITNESS WHEREOF the parties hereto have hereunto executed these
presents as of the day and year first above written.
THE COMMON SEAL OF )
CARBITE GOLF INC. )
was hereunto affixed in )
the presence of: )
) C/S
)
______________________________ )
Authorized Signatory )
SIGNED, SEALED AND DELIVERED )
by EMPLOYEE in the )
presence of: )
)
______________________________ ) _______________________
Name ) NAME
)
______________________________ )
Address )
)
______________________________ )
Occupation )
<PAGE>
EXHIBIT 10.10
EMPLOYEE CONFIDENTIALITY
AND INVENTIONS AGREEMENT
The following confirms an agreement between me and Carbite, Inc. a
______________ corporation (the "Company"), which is a material part of the
consideration for my employment by the Company:
1. I understand that the Company possesses and will possess Proprietary
Information which is important to its business. For purposes of this Agreement,
"Proprietary Information" is information that was or will be developed, created,
or discovered by or on behalf of the Company, or which became or will become
known by, or was or is conveyed to the Company, which has commercial value in
the Company's business. "Proprietary Information" includes, but is not limited
----------- -----------
to, information about trade secrets, computer programs, designs, technology,
ideas, know-how, processes, formulas, compositions, data, techniques,
improvements, inventions (whether patentable or not), works of authorship,
business and product development plans, the salaries and terms of compensation
of other employees, information about customers and other information concerning
the Company's actual or anticipated business, research or development, or which
is received in confidence by or for the Company from any other person. I
understand that my employment creates a relationship of confidence and trust
between me and the Company with respect to Proprietary Information.
2 I understand that the Company possesses or will possess "Company
Materials" which are important to its business. For purposes of this
Agreement, "Company Materials" are documents or other media or tangible items
-----------------
that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others. "Company Materials" include,
but are not limited to, blueprints, drawings, photographs, charts, graphs,
notebooks, customer lists, computer disks, tapes or printouts, sound recordings
and other printed, typewritten or handwritten documents, as well as samples,
prototypes, models, products and the like.
3. In consideration of my employment by the Company and the compensation
received by me from the Company from time to time, I hereby agree as follows:
-A1-
<PAGE>
a. All Proprietary Information and all title, patents, patent
rights, copyrights, mask work rights, trade secret rights, and other
intellectual property and rights (collectively "Rights") in connection therewith
will be the sole property of the Company. I hereby assign to the Company any
Rights I may have or acquire in such Proprietary Information. At all times, both
during my employment by the Company and after its termination, I will keep in
confidence and trust and will not use or disclose any Proprietary Information or
anything relating to it without the prior written consent of an officer of the
Company except as may be necessary and appropriate in the ordinary course of
performing my duties to the Company. Nothing contained herein will prohibit an
employee from disclosing to anyone the amount of his or her wages.
b. All Company Materials will be the sole property of the
Company. I agree that during my employment by the Company, I will not remove
any Company Materials from the business premises of the Company or deliver any
Company Materials to any person or entity outside the Company, except as I am
required to do in connection with performing the duties of my employment. I
further agree that, immediately upon the termination of my employment by me or
by the Company for any reason, or during my employment if so requested by the
Company, I will return all Company Materials, apparatus, equipment and other
physical property, or any reproduction of such property, excepting only (i) my
personal copies of records relating to my compensation; (ii) my personal copies
of any materials previously distributed generally to stockholders of the
Company; and (iii) my copy of this Agreement.
c. I will promptly disclose in writing to my immediate
supervisor, with a copy to the President of the Company, or to any
persons designated by the Company, all "Inventions," which includes all
-----------
improvements, inventions, designs, formulas, works of authorship, trade secrets,
technology, computer programs, formulas, compositions, ideas, designs,
processes, techniques, know-how and data, whether or not patentable, made or
conceived or reduced to practice or developed by me, either alone or jointly
with others, during the term of my employment. I will also disclose to the
President of the Company all things that would be Inventions if made during the
term of my employment, conceived, reduced to practice, or developed by me within
six months of the termination of my employment with the Company. Such
disclosures will be received by the Company in confidence (to the extent they
are not assigned in (d) below) and do not extend the assignment made in Section
-------
3(d) below. I will not disclose Inventions to any person outside the Company
- ----
unless I am requested to do so by management personnel of the Company.
d. I agree that all Inventions which I make,
<PAGE>
conceive, reduce to practice or develop (in whole or in part, either alone or
jointly with others) during my employment will be the sole property of the
Company to the maximum extent permitted by Section 2870 of the California Labor
Code, a copy of which is attached, and I hereby assign such Inventions and all
Rights therein to the Company. No assignment in this Agreement will extend to
inventions, the assignment of which is prohibited by Labor Code Section 2810
(attached Exhibit A). The Company will be the sole owner of all Rights in
---------
connection therewith.
e. I agree to perform, during and after my employment, all acts
deemed necessary or desirable by the Company to permit and assist it, at the
Company's expense,
<PAGE>
in obtaining, maintaining, defending and enforcing Rights with respect to such
Inventions and improvements in any and all countries. Such acts may include, but
are not limited to, execution of documents and assistance or cooperation in
legal proceedings. I hereby irrevocably designate and appoint the Company and
its duly authorized officers and agents, as my agents and attorneys-in-fact to
act for and in my behalf and instead of me, to execute and file any documents
and to do all other lawfully permitted acts to further the above purposes with
the same legal force and effect as if executed by me.
f. Any assignment of copyright pursuant to this Agreement
includes all rights of paternity, integrity, disclosure and withdrawal and any
other rights that may be known as or referred to as "moral rights" (collectively
"Moral Rights"). To the extent such Moral Rights cannot be assigned under
applicable law and to the extent the following is allowed by the laws in the
various countries where Moral Rights exist, I hereby waive such Moral Rights and
consent to any action of the Company that would violate such Moral Rights in the
absence of such consent. I will confirm any such waivers and consents from time
to time as requested by the Company.
g. I have attached as Exhibit B to this Agreement a complete
------- -
list of all existing Inventions or improvements to which I claim ownership as of
the date of this Agreement and that I desire to specifically clarity are not
subject to this Agreement, and I acknowledge and agree that such list is
complete. If no such list is attached to this Agreement, I represent that I have
no such Inventions and improvements at the time of signing this Agreement
_______ [INITIAL HERE]
h. During the term of my employment and for one year
thereafter, I will not encourage or solicit any employee or consultant of the
Company to leave the Company for any reason. However, this obligation will not
affect any responsibility I may have as an employee of the Company with respect
to the bona fide hiring and firing of Company personnel.
i. I agree that during my employment with the Company I will
not engage in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and I will
not assist any other person or organization in competing with the Company or in
preparing to engage in competition with the business or proposed business of the
Company. The provisions of this paragraph will apply both during normal working
hours and at all other times including, but not limited to, nights, weekends and
vacation time, while I am employed by the Company.
j. I represent that my performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith or in conflict with my
employment with the Company.
4. I agree that this Agreement is not an employment contract and
that I have the right to resign and the Company has the right to terminate my
employment at any time, for any reason, with or without cause.
<PAGE>
5. I agree that this Agreement does not purport to set forth all of
the terms and conditions of my employment, arid that as an employee of the
Company I have obligations to the Company which are not set forth in this
Agreement.
6. I agree that my obligations under sections 3(a) through 3(f) and
-------- ---
section 3(h) of this Agreement will continue in effect after termination of my
- -------
employment, regardless of the reason or reasons for termination, and whether
such termination is voluntary or involuntary on my part, and that I will notify
any future client, employer or potential employer or client of my obligations
under this Agreement, and I agree that the Company is entitled to communicate my
obligations under this Agreement to any future employer or potential employer of
mine.
7. I agree that any dispute in the meaning, effect or validity of
this Agreement will be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof to this
Agreement. I further agree that if one or more provisions of this Agreement are
held to be illegal or unenforceable under applicable California law, such
illegal or unenforceable portion(s) will be limited or excluded from this
Agreement to the minimum extent required so that this Agreement will otherwise
remain in full force and effect and enforceable in accordance with its terms.
8. This Agreement will be effective as of the date I execute this
Agreement and will be binding upon me, my heirs, executors, assigns, and
administrators and will inure to the benefit of the Company, its subsidiaries,
successors and assigns.
9. This Agreement can only be modified by a subsequent written
agreement executed by the President of the Company.
Employees Signature Date
<PAGE>
EXHIBIT 10.12
TRADEMARK LICENSE AGREEMENT
---------------------------
THIS TRADEMARK LICENSE AGREEMENT (hereinafter this "Agreement") is entered
into as of the 16/th/ day of September, 1999 by and between DAIWA SEIKO, INC.,
a Japanese corporation with offices at 14-16, Maesawa 3-chome, Higashikurume
City, Tokyo, Japan ("Daiwa") and Carbite Inc., a United States company organized
and existing under the laws of the State of California and having its principal
office at 6330 Nancy Ridge Dr., Suite 107, San Diego, CA 92121, U.S.A.
("Carbite").
WHEREAS:
(1) Pursuant to an exclusive distribution agreement between Daiwa and
Carbite dated as of the 16/th/ day of September, 1999 (the "Distribution
Agreement"), Carbite is acting as the exclusive distributor in the Territory (as
defined therein) of the Daiwa Original Products (as defined therein);
(2) In addition to acting as such distributor in the Territory of the
Daiwa Original Products, Carbite wishes to assemble or have assembled or
otherwise procure golf clubs and certain other products bearing the trademarks
of Daiwa for distribution within the Territory;
(3) For such purpose, Daiwa is willing to grant a license to Carbite for
the rights to use the Trademarks (as defined below) on the Licensed Products (as
defined below) and Carbite so wishes to license the rights to use the
Trademarks;
(4) Daiwa and Carbite wish to enter into a written agreement setting out
the terms and conditions under which Carbite shall act as such licensee of the
Trademarks in the Territory.
-1-
<PAGE>
NOW IT IS HEREBY AGREED as follows:
1. Definitions
All capitalized terms herein shall have the same meaning as in the
Distribution Agreement, except that the following terms shall have the following
meanings in this Agreement:
(a) The "Licensed Products" shall mean any or all golf clubs, golf bags,
golf gloves, golf wear and accessories
(i) bearing any of the Trademarks and assembled by or for Carbite
using any parts and/or components ("Daiwa Original Parts")
purchased from Daiwa; or
(ii) bearing any of the Trademarks and manufactured by or for Carbite
by Qualified Manufacturers (as defined in the Distribution
Agreement) for distribution within the Territory.
(b) The "Trademarks" shall mean those trademarks of Daiwa as are listed in
Exhibit A attached hereto.
2. License for Use of Trademarks
(a) Daiwa hereby grants to Carbite an exclusive license to use the
Trademarks in the Territory for the purposes of distribution, assembly and/or
manufacture of the Licensed Products, and outside the Territory for the sole
purpose of having the Licensed Products assembled and/or manufactured by
Qualified Manufacturers for distribution by Carbite in the Territory. Carbite
may not use the Trademarks except as specifically provided in this Agreement.
(b) Carbite shall not distribute or have distributed outside the Territory
the Licensed
-2-
<PAGE>
Products or any products identical or confusingly similar in design and/or
appearance to the Licensed Products. In accordance with Article 2 (b) of the
Distribution Agreement, Carbite shall ensure that its distributors and
manufacturers/suppliers shall comply with this restriction during the term of
this Agreement.
(c) Carbite shall not use in any way, in connection with the sale of the
Licensed Products, any trademarks or tradenames other than the Trademarks or
those approved in advance by Daiwa; Carbite shall not put such trademarks or
tradenames on the Licensed Products.
(d) Carbite may also use the Trademarks in connection not only with the
distribution of the Licensed Products but with the advertising, merchandising
and promotion of the Licensed Products.
3. Manufacture/Assembly of Licensed Products
(a) The parties hereby agree that Carbite may assemble or manufacture or
have Qualified Manufacturers assemble or manufacture the Licensed Products for
distribution within the Territory. Provided, however, that nothing herein shall
grant to Carbite the right to sub-license or otherwise transfer the rights
hereunder; provided further that Carbite makes best efforts to ensure that any
Licensed Products assembled or manufactured by it or by Qualified Manufacturers
do not in any way infringe the intellectual property rights of a third party;
and provided further that samples of any Licensed Products manufactured or
assembled by Carbite or by Qualified Manufacturers chosen by Carbite be
submitted to Daiwa prior to their distribution for approval, which shall not be
unreasonably withheld by Daiwa.
(b) Carbite shall permit Daiwa and its subsidiaries and affiliates to
purchase any Licensed Products manufactured or assembled by Carbite or by
Qualified Manufacturers on terms mutually acceptable to Daiwa and Carbite for
distribution outside the Territory by Daiwa and/or by its subsidiaries and
affiliates.
-3-
<PAGE>
4. Royalty Payments
(a) In consideration for the license granted herein, Carbite shall pay
Daiwa a minimum royalty fee each Contract Year (the "Minimum Royalty"), as
follows:
Contract Year Minimum Royalty
------------- ---------------
September 16, 1999-
September 15, 2000 US $ 75,000
September 16, 2000-
September 15, 2001 US $ 225,000
September 16, 2001-
September 15, 2002 US $ 250,000
September 16, 2002-
September 15, 2003 US $ 375,000
September 16, 2003-
September 15, 2004 US $ 450,000
(b) In calculating the above Minimum Royalty, the following rules shall
apply:
(i) For Licensed Products which are
(a) manufactured or assembled with Daiwa Original Parts,
Distributor shall receive a credit of 6% of the FOB price
towards the Minimum Royalty for the relevant Contract Year;
or
-4-
<PAGE>
(b) other than those described in (a) above, Carbite shall pay
Daiwa six percent (6%) of the FOB price of such Licensed
Products.
The royalty for Daiwa golf clubs, consisting of head, shaft and
grip, shall be calculated based upon the accumulated total of FOB
or invoiced prices of those 3 major parts, not including labor
charges and other charges.
(ii) Distributor shall also receive a credit of 6% of the FOB price of
Daiwa Original Products which Distributor may purchase under the
Distribution Agreement towards the Minimum Royalty for the
relevant contract year.
(c) Amounts in excess of those stated in (a) above may not be carried
forward and credited against the Minimum Royalty for the succeeding Contract
Year. Products are considered purchased when invoiced by Daiwa or other
Qualified Manufacturers.
(d) Within six (6) months of the end of the term of this Agreement or any
extension thereof, Daiwa and Carbite shall discuss and negotiate the Minimum
Royalty for the following term.
(e) Royalty payments shall be made as follows:
(i) Royalty payments and the corresponding liability shall be
calculated and accrue quarterly. Carbite shall send its quarterly
statement of the royalty due to Daiwa by the fifteenth (15/th/ )
day of the following month, in the case of purchase from parties
other than Daiwa, together with evidence of the invoiced prices
to establish the relevant royalty amount due. In the event that
the quarterly royalty amount due based upon purchases does not
exceed one quarter (1/4) of the minimum royalty for the
applicable year, then the royalty payment due shall be one
quarter (1/4) of the minimum royalty of the applicable year.
-5-
<PAGE>
(ii) Royalty payments to be made by Carbite to Daiwa shall be made
quarterly, within thirty (30) days of the end of the relevant
quarter.
(iii) Carbite will deposit in immediately available funds the royalty
payments due for each period designated in the preceding
paragraph to an account with a bank in Tokyo as designated by
Daiwa.
(iv) Each remittance shall be in United States dollars. When currency
conversion is necessary for determining amounts payable in
Japanese Yen, the rate of \105.00 = US$1 shall be applied.
Should the TTB official exchange rate as announced in New York,
New York, U.S.A. fall below \85.00 = US$1 or rise above \125.00
= US$1 for two (2) consecutive months, the parties shall re-
negotiate the Minimum Royalty amounts.
(v) Daiwa shall have the right to request that a certified public
accountant in California, U.S.A. agreeable to both parties
inspect Carbite's books and records relating to the Licensed
Products to ascertain the correctness of the royalty payments.
(vi) Daiwa will bear the income tax (if any) which is levied on the
royalty payments in California, U.S.A. according to applicable
federal and/or state tax law and the tax treaty between the
U.S.A. and Japan. In case Carbite pays the income tax for the
account of Daiwa, Carbite shall deduct the same amount from the
royalty payment at the time of remittance. Carbite shall send
the tax receipt to Daiwa immediately after the tax payment as
proof of payment.
-6-
<PAGE>
5. Other Obligations of Carbite
(a) Should Carbite place any orders with Qualified Manufacturers for
Licensed Products, Carbite shall send a copy of such order to Daiwa plus a copy
of the relevant shipping documents, including bills of lading, once received by
Carbite.
(b) Carbite shall provide at its expense sufficient facilities in the
Territory for after-sales services of the Licensed Products to satisfy
reasonable requirements for such services by the retail purchasers in the
Territory. For such purposes, for the term of this Agreement and for three (3)
years following the termination hereof, Carbite shall maintain such stock of
spare parts as are necessary to keep the Licensed Products in serviceable
condition, deal with customer complaints and honor warranties to purchasers of
the Licensed Products.
(c) Carbite will conduct its business in accordance with the highest
business standards and shall not perform any act which will or may reflect
adversely upon the "Daiwa" name, the Trademarks or Daiwa's business integrity or
goodwill.
6. Intellectual Property Rights; Indemnity
(a) Both parties agree that should any claim, demand or suit be made or
filed against Carbite by a third party regarding the Licensed Products
(including, but not limited to, claims pertaining to patent, trademark and other
intellectual property rights), Carbite shall be fully responsible for the
defense of any such claim and shall bear all costs and expenses related thereto.
Notwithstanding the foregoing however, with respect to any claims, demands or
suits where the products contain Daiwa Original Parts, Carbite shall not make
any admission of liability and shall give Daiwa immediate notice of any claim,
provided that if Daiwa so elects, Daiwa may co-operate in the defense of such
claim. In the case of any claim, demand or suit where the products in question
are Licensed Products using Daiwa Original Parts and pertain exclusively to
Daiwa Original Parts, the provisions of Article 8(e) of the Distribution
Agreement
-7-
<PAGE>
with respect to the handling of claims shall apply. In the event that the
distribution of the Licensed Products is adjudged to infringe a patent of a
third party, Daiwa may terminate this Agreement forthwith.
(b) Carbite shall indemnify Daiwa during and after the term of this
Agreement against all claims, liabilities (including settlements entered into in
good faith) and expenses (including reasonable attorneys' fees) arising out of
Carbite's activities hereunder or out of any defect (whether obvious or hidden)
in a Licensed Product or arising from personal injury or any infringement of any
rights (including, but not limited to, patent, trademark and other intellectual
property rights) of Daiwa or of any other person by the manufacture, sale,
possession or use of the Licensed Products or by the Carbite's failure to comply
with applicable laws; provided that such claim shall not apply to Licensed
Products using Daiwa Original Parts if any such cause of indemnity pertains
exclusively to Daiwa Original Parts. The parties indemnified hereunder shall
include Daiwa, its subsidiaries (both direct and indirect) and its affiliates
and its and their officers, directors, employees and agents. The indemnity shall
not apply to any claim or liability relating to any infringement of the
copyright of a third party caused by Carbite's utilization of the Licensed
Products and the Trademarks in accordance with the provisions hereof.
(c) No warranty or indemnity is given by Daiwa with respect to any
liability or expense arising from any claim that sale of the Licensed Products
or use of the Trademarks on or in connection with the Licensed Products
hereunder or that any packaging, advertising or promotional material infringes
any trademark right of any third party or otherwise constitutes unfair
competition by reason of any prior rights acquired by such third party other
than rights acquired from Daiwa. It is expressly agreed that it is Carbite's
responsibility to carry out such investigations as it may deem appropriate to
establish that the Licensed Products, packaging, promotional and advertising
material which are manufactured or created hereunder, including any use made of
the Licensed Products and the Trademarks therewith, do not infringe such rights
of any third party, and Daiwa shall not be liable to Carbite if such
infringement occurs.
-8-
<PAGE>
7. Term and Termination
(a) This Agreement shall be effective for five (5) years from the date
first above written until August 31, 2004. Distributor shall be given an option
to extend for an additional 5-year term if Distributor has met all the
obligations and the conditions of the Exclusive Distribution Agreement and the
Trademark License Agreement. Distributor must execute such option four (4)
months prior to the end of the initial period unless previously terminated in
accordance with the terms hereof. The Minimum Royalty for each extended Contract
Year must be reviewed and mutually agreed upon 6 months before the termination
of the first contract period, but in no event may the Minimum Royalty be
increased more than 20% over that applicable to the previous year as a baseline
for the contract extension. If no agreement is reached 6 months prior to the end
of the initial period, then this Agreement will be terminated on August 31,
2004. If and when the term of this Agreement is extended beyond such date, this
Agreement shall thereafter be extended automatically from year to year unless
notice of intention to terminate in accordance with this Agreement is given by
either party to the other not less than 6 months prior to the end of the initial
extended period or any other extension thereof, or unless previously terminated
in accordance with the terms hereof. Provided, however, that in the absence of
an agreement by the parties otherwise, the minimum royalty applicable to such
extended Contract Year shall be that applicable to the last year of the
preceding term of this Agreement.
(b) This Agreement shall automatically terminate immediately in the event
of the
(i) insolvency or bankruptcy of either party;
(ii) termination of the Distribution Agreement;
(iii) withdrawal of Carbite from the business of manufacturing,
selling or distributing Daiwa Products;
(iv) laying of criminal charges against either party;
(v) transfer of control of Carbite to a direct golf and/or Fishing
Tackle competitor of Daiwa without the prior approval of Daiwa;
or
-9-
<PAGE>
(vi) if any of the Licensed Products are adjudged definitively to
infringe the patent rights of a third party.
(c) If Carbite shall fail to make the Minimum Royalty payments for two (2)
consecutive quarters, Daiwa may in its sole discretion terminate this Agreement
forthwith by giving a written notice to Carbite within three (3) months after
the end of such consecutive quarters.
(d) Unless otherwise provided herein, if at any time either party fails to
comply with any of its obligations under this Agreement, and if such defaulting
party has not remedied such default within thirty (30) days after the date of
the receipt by such party from the other party of notice of default giving
reasonable particulars of the alleged default, then the party not in default may
terminate this Agreement by notice to that effect at any time after the
aforesaid period of thirty (30) days.
(e) Neither party shall be released from any debts or liabilities which
have accrued under this Agreement or the Distribution Agreement at the time of
the termination and which are outstanding.
8. Governing Law and Arbitration
This Agreement shall be governed by the laws of Japan. Any dispute, if it
cannot be amicably settled by consultation and negotiation, shall be settled by
arbitration. Unless the parties otherwise agree in writing, in the event that
Distributor is the claimant, arbitration shall take place in Tokyo, Japan, under
the rules of the Japan Commercial Arbitration Association. In the event that
Daiwa is the claimant, arbitration shall take place in San Diego, California,
under the rules of the American Arbitration Association. The language of
arbitration shall be English. The outcome of such arbitration shall be final and
without any right of appeal.
-10-
<PAGE>
9. Notices
All notices, requests and other communications hereunder shall be in the
English language in writing, and shall be deemed to have been duly given if
delivered by hand with proof of receipt at the time of receipt; if communicated
by facsimile, cable or similar electronic means to the facsimile number or cable
identification number as previously provided by each party to the other, at the
time that receipt thereof has been confirmed by return electronic communication
or signal that the message has been clearly received; or if mailed, ten (10)
days after dispatched by registered airmail, postage prepaid, from any post
office in Japan or the United States of America, as the case may be, addressed
as follows:
If to Daiwa: 14-16, Maesawa 3-chome
Higashikurume City
Tokyo, Japan
Attention: Mr. Toshikuni Dekura
If to Carbite: 6330 Nancy Ridge Dr., Suite 107
San Diego, CA 92121
U.S.A.
Attention: Mr. John Pierandozzi
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
10. Warranties of the Parties
Each party warrants to the other that it has the full right and power to
enter into this Agreement and that the performance of this Agreement will not
violate any rule, regulation, law
-11-
<PAGE>
or other governmental restriction to which it is bound and will not violate any
agreement between that party and any third party.
11. No Waiver
No waiver of any right or remedy in respect of any occurrence or event on
any one occasion will be deemed a waiver of such right or remedy in respect of
such occurrence or event on any subsequent occasion.
12. Force Majeure
If either party is prevented from or delayed in performing any obligation
of this Agreement as a result of circumstances beyond its control, including but
not limited to Acts or God, governmental order or restriction, war, war-like
conditions, hostilities, sanctions, mobilizations, blockage, embargo, detention,
revolution, riot, strike, lockout, epidemic, fire or flood, such obligation
shall be suspended for so long and to such an extent as may be justified in the
circumstances and thereafter such obligation shall be performed pursuant to the
terms of this Agreement.
13. Language and Counterparts
This Agreement may be executed in multiple counterparts in the English
language, and each counterpart shall be deemed an original of this Agreement.
-12-
<PAGE>
14. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto
and supersedes all previous agreements and negotiations, commitments,
communications and contracts in respect thereof. This Agreement may be amended
only in writing signed by the parties hereto.
15. Headings
The headings of articles used in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of the
respective articles of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above, and this Agreement shall be deemed dated as of such date.
DAIWA SEIKO, INC.
By: __________________________________
Its: _________________________________
Carbite Inc.
By: __________________________________
Its: _________________________________
-13-
<PAGE>
EXHIBIT 10.13
EXCLUSIVE DISTRIBUTION AGREEMENT
--------------------------------
THIS EXCLUSIVE DISTRIBUTION AGREEMENT (hereinafter this "Agreement") is
entered into as of the 16/th/ day of September, 1999 by and between DAIWA SEIKO,
INC., a Japanese corporation with offices at 14-16, Maesawa 3-chome,
Higashikurume City, Tokyo, Japan ("Daiwa") and Carbite Inc., a United States
company organized and existing under the laws of the state of California and
having its principal office at 6330 Nancy Ridge Dr., Suite107, San Diego, CA
92121, U.S.A. ("Carbite").
WHEREAS:
(1) Daiwa manufactures golf clubs or has golf clubs manufactured by its
Authorized Suppliers (as defined below) and wishes to arrange for the
distribution of such products in the Territory (as defined below) and for such
purpose wishes Carbite to act as the exclusive distributor in the Territory of
such products manufactured by Daiwa or its Authorized Suppliers;
(2) In addition to acting as exclusive distributor in the Territory of the
Daiwa Original Products (as defined below), Carbite wishes to assemble or have
assembled or otherwise procure golf clubs and certain other products bearing the
trademarks of Daiwa for distribution within the Territory, and for this purpose
Daiwa and Carbite have entered into a separate trademark license agreement dated
as of the 16/th/ day of September, 1999 (the "License Agreement");
(3) Daiwa and Carbite wish to enter into a written agreement setting out
the terms and conditions under which Carbite shall act as exclusive distributor
of the Daiwa Original Products and Daiwa Licensed Products (as defined below) in
the Territory.
<PAGE>
NOW IT IS HEREBY AGREED as follows:
1. Definitions
The following terms shall have the following meanings in this Agreement:
(a) The "Authorized Suppliers" shall mean (i) Daiwa's subsidiaries and
affiliates; and (ii) other manufacturers which are authorized by Daiwa
to manufacture the Daiwa Original Products for distribution in the
Territory.
(b) "Qualified Manufacturers" shall mean those manufacturers chosen by
Distributor to produce Daiwa Licensed Products for Carbite with
Daiwa's approval, which shall not be withheld by Daiwa unreasonably.
(c) The "Daiwa Products" shall mean any golf clubs, parts, golf bags, golf
gloves, golf wear and accessories bearing any of the Trademarks and
shall consist of the following:
(i) "Daiwa Original Products", which shall mean those products
manufactured by Daiwa or an Authorized Supplier; and
(ii) "Daiwa Licensed Products", which shall mean any other products
produced by Qualified Manufacturers in accordance with the
License Agreement.
(d) The "Territory" shall mean the United States of America.
(e) The "Trademarks" shall mean the trademarks in the form listed in
the License Agreement, which are owned by Daiwa and registered in the
Territory.
<PAGE>
2. Grant of Distribution Right/Right of First Refusal
(a) Daiwa hereby appoints Carbite, and Carbite hereby agrees to act, as
the exclusive distributor of the Daiwa Products in the Territory.
(b) Carbite agrees to purchase Daiwa Original Products only from Daiwa and
not from any other party. Carbite will use its best efforts to promote and sell
Daiwa Original Products and Daiwa Licensed Products. In consideration of the
fact, however, that Carbite has been distributing and desires to continue to
distribute world wide its own golf products under the Carbite and other brand
names owned by Carbite, Daiwa consents to Carbite's continuing to distribute
such golf products in such manner, provided Carbite fulfills the terms of this
Agreement. However, Carbite is not to be permitted to distribute or promote, as
a distributor or otherwise, the golf products of any other company which is or
could reasonably be expected to be in competition with Daiwa in golf products
and/or fishing tackle products in the Territory, without obtaining the prior
written consent of Daiwa.
(c) Daiwa and its Authorized Suppliers shall not offer the Daiwa Products
for sale to any person within the Territory other than (i) Carbite and (ii), or
from outside the Territory by use of telecommunication or other means,
individual consumers, or to any such person outside the Territory for
distribution within the Territory, without obtaining the prior written consent
of Carbite.
(d) The rights granted to Carbite hereunder shall not give the Carbite a
right to have the Daiwa Products distributed by its subsidiaries, if any, or by
any other agents in the Territory.
(e) Carbite shall not establish, maintain or utilize any branch or depot
for distribution of the Daiwa Products outside the Territory.
(f) Daiwa hereby grants Carbite the right of first refusal for an
exclusive distributorship of Daiwa Products in Canada, if and when such
distributorship can be legally granted by Daiwa.
<PAGE>
3. Minimum Purchase Obligation
(a) Carbite shall undertake to purchase the Daiwa Products having an
aggregate invoiced amount of at least fifty per cent (50%) of the Target Amount
(as defined below) each year (the "Minimum Purchase Obligation").
The target amount of sales of the Daiwa Products by Carbite (the "Target
Amount") for each 12 months from September 16/th/ to September 15/th/ of the
following year (a "Contract Year") shall be as follows:
<TABLE>
<CAPTION>
Contract Year Target Amount
------------- -------------
<S> <C>
September 16, 1999-
September 15, 2000 US $ 3,500,000
September 16, 2000-
September 15, 2001 US $ 10,000,000
September 16, 2001-
September 15, 2002 US $ 15,000,000
September 16, 2002-
September 15, 2003 US $ 20,000,000
September 16, 2003-
September 15, 2004 US $ 25,000,000
</TABLE>
(b) Within six (6) months of the end of the term of this Agreement or any
extension thereof, Daiwa and Carbite shall discuss and negotiate the Target
Amounts and Minimum Purchase Obligation for the following term.
(c) For the purposes of this Article, amounts in excess of those stated
above may not be carried forward and credited against the Minimum Purchase
Obligation for the
<PAGE>
succeeding Contract Year. Daiwa Products are considered purchased when invoiced
by Daiwa and/or by any Qualified Manufacturer.
(d) For the purposes of this Article, the above Target Amounts and Minimum
Purchase Obligation shall be calculated in United States dollars. When currency
conversion is necessary for determining amounts payable in Japanese Yen, the
rate of \105.00 = US$1 shall be applied. Should the TTB official exchange rate
as announced in New York, New York, U.S.A. fall below \85.00 = US$1 or rise
above \125.00 = US$1 for two (2) consecutive months, the parties shall re-
negotiate in good faith the above Target Amounts and Minimum Purchase Obligation
to make an equitable adjustment.
(e) For the purposes of this Article, the term "Daiwa Original Products"
shall include "Daiwa Original Parts" as defined in Article 1(a)(i) of the
License Agreement.
(f) Daiwa Original Products and parts offered to Carbite at FOB price by
Daiwa shall include a 6% royalty. Therefore, Daiwa agrees to credit such 6% of
FOB price toward the Minimum Royalty stated in Article 4(a) of the License
Agreement for the relevant Contract Year.
4. Other Obligations of Carbite
(a) Carbite shall exert its best efforts to promote and extend sales of the
Daiwa Products throughout the Territory. For such purposes, Carbite shall spend
at least ten per cent (10%) of net sales of all Daiwa Products sold by Carbite
on advertising and promotion of the Daiwa Products in the Territory.
(b) Carbite shall provide at its expense sufficient facilities in the
Territory for after-sales services of the Daiwa Products to satisfy reasonable
requirements for such services by the retail purchasers of the Daiwa Products.
(c) Three (3) months prior to the end of each Contract Year, beginning May
31,
<PAGE>
2000, Carbite shall submit to Daiwa for its comments the following reports and
forecasts on the format indicated by Daiwa:
(i) A general report outlining the promotional program for the
Daiwa Products and a general budget on a monthly basis therefor
for the next Contract Year and a forecast of such program for
the two (2) succeeding consecutive Contract Years. Such
outlines are a forecast only and are not to be used for actual
projections of anticipated results; and
(ii) An itemized outline of sales estimates for the Daiwa Products
for the next Contract Year, with a breakdown on a monthly basis
by anticipated sources (where possible) of supply, referring to
the factories of Daiwa or any Authorized Suppliers and or
Qualified Manufacturers. Such an outline is to be a forecast
only and is not to be used for actual projections of
anticipated results. Such outlines for the first Contract Year
shall be submitted by Carbite as soon as practicable, but not
later than December 31, 1999.
(d) Carbite shall, thirty (30) days prior to the end of each quarter of
each Contract Year, beginning October 31, 1999, provide Daiwa with a market
survey report of general market conditions for the Daiwa Products in the
Territory and the following reports, together with such other information as the
parties may agree to be essential for the formation and implementation of
production and marketing policies:
(i) An itemized list of the inventory of the Daiwa Products at the
end of the preceding quarter of Carbite; and
(ii) Itemized sales records showing the quantity of Daiwa Products
sold.
(e) Carbite has the right to solicit sales and develop business by way of
sales of the Daiwa Products to retailers in the Territory, including golf
specialty stores, department
<PAGE>
store golf shops, sporting goods specialists, golf mail-order businesses, on-
course golf shops and golf mass marketers (notwithstanding any retail outlet
that Carbite itself may operate). Carbite has the right to also solicit sales to
consumers directly via television, the Internet, direct mail order or catalog
sales.
(f) Carbite shall, on arrival of any consignment of the Daiwa Products at
its premises, promptly store them in an appropriate manner as specified by Daiwa
and distribute the Daiwa Products in a manner which will ensure that they reach
the customer in good condition.
(g) Carbite shall pay promptly, without any deduction or set-off not
expressly provided in this Agreement, all sums due to Daiwa in respect of the
supply of the Daiwa Products in accordance with this Agreement or any other sum
whatsoever due under this Agreement.
(h) Carbite shall conduct its business in accordance with the highest
business standards, and shall not conduct itself in a manner which will or may
reflect adversely upon the "Daiwa" name, the Trademarks or Daiwa's business
integrity or goodwill.
5. Advertising and Promotion; Development of Daiwa Products
(a) Carbite shall be responsible at its own expense for all advertising and
promotion of the Daiwa Products in the Territory and, as provided in Article
4(a) hereof, shall spend at least ten per cent (10%) of net sales of all Daiwa
Products sold by Carbite on advertising and promotion of the Daiwa Products in
the Territory. Carbite may consult with Daiwa as to any advertising and
promotional activities, and Daiwa may provide Carbite with such reasonable
technical information as is necessary for that purpose.
(b) Both parties agree to cooperate towards the technical development of
new Daiwa Products.
<PAGE>
6. Orders, Shipment and Payment of Daiwa Original Products
(a) Daiwa Original Products ordered by Carbite from Daiwa shall be
delivered FOB. by Daiwa to Carbite.
(b) Standard payment terms for Daiwa Original Products shall be the FOB.
price payable by irrevocable letter of credit at sight. However, Daiwa hereby
agrees to special payment terms by irrevocable letter of credit in favor of
Daiwa to be issued by Carbite's bank for payment 90 days after the bill of
lading date, provided that Carbite agrees to bear the interest for such 90 day
period. The applicable interest rate shall be agreed upon by the parties
separately here from in advance for each semi-annual Contract Year. Accordingly,
Carbite shall arrange sixty (60) days prior to the proposed shipment date for
each order of Daiwa Products either (i) such letter of credit at sight in such
amount in U.S. dollars as is sufficient to cover the FOB. price of the relevant
order, or (ii) such letter of credit payable 90 days after the bill of lading
date in such amount in U.S. dollars as is sufficient to cover the FOB. price of
the relevant order plus interest thereon for the 90 days calculated at the
agreed-upon interest rate.
(c) Other terms of sale of the Daiwa Original Products to Carbite pursuant
to this Agreement shall be on such terms as are contained in the bill of lading
or as are mutually agreed-upon and determined by the parties hereto from time to
time.
7. Title
Title to each shipment of Daiwa Original Products shall pass from Daiwa to
Carbite after delivery of the relevant bill of lading issued by the carrier for
shipment by sea or by air, as the case may be, to Carbite.
<PAGE>
8. Trade Name; Trademarks; Intellectual Property Rights
(a) Carbite hereby acknowledges that the "Daiwa" name and the rights of
ownership therein, and goodwill attached thereto, belong exclusively to Daiwa.
Carbite therefore agrees to refrain from using "Daiwa" or any other name similar
thereto and clarify in its operating manuals, catalogues and all other
advertisements, etc. that Carbite is an independent company without any equity
relationship with Daiwa.
(b) Carbite further hereby acknowledges that the Trademarks and the rights
of ownership therein, and goodwill attached thereto, belong exclusively to
Daiwa. Carbite shall not claim any rights for any derivatives, improvements or
modifications of the Trademarks. Daiwa reserves all rights in the Trademarks
not expressly granted to Carbite in this Agreement or the License Agreement.
(c) Carbite shall not impose or have imposed on the Daiwa Products, or use
in any way in connection with the sale of the Daiwa Products, any trademarks or
trade names other than those approved in advance by Daiwa; provided, however,
that this shall not prevent Carbite from indicating on the Daiwa Products, or in
connection with the sale of the Daiwa Products, that they are distributed and
serviced by Carbite.
(d) Carbite shall use during the period of this Agreement only such
literature, logos, trademarks and trade names of Daiwa, and only in such manner
as previously agreed in writing by Daiwa in the normal course of business in
connection with distribution of the Daiwa Products in the Territory. Any other
use must be approved in advance in writing by Daiwa.
(e) To the best of Daiwa's knowledge, the Trademarks and the Daiwa Original
Products supplied by Daiwa do not infringe the intellectual property rights of
any third party. Should any claim, demand or suit be made or filed against
Carbite by a third party claiming that the Trademarks and/or the Daiwa Original
Products infringe its intellectual property rights, Daiwa and Carbite shall re-
negotiate the Target Purchase Amounts and Minimum Purchase Obligation (as
defined above) set forth in Article 3. Daiwa further agrees, in the
<PAGE>
case of such a claim, to co-operate with Carbite in the defense of any such
claim; provided, however, that Carbite shall not make any admission of
liability, shall give Daiwa immediate notice of any claim, shall co-operate in
the defense of such claim, and shall allow Daiwa, if it so elects, to handle,
settle and assume any liability for such claim in such manner as Daiwa deems
proper. Daiwa further agrees to indemnify, defend and hold harmless Carbite
against any and all losses, claims, damages and expenses, including reasonable
attorney fees and defense costs, to which Carbite may become subject as a result
of any such claim, provided such claim pertains exclusively to Daiwa Original
Products, but then only to the extent that the aggregate of such losses, damages
and expenses does not exceed the aggregate of the payments Daiwa shall have
received from Carbite under the License Agreement. In the event that the Daiwa
Original Products are adjudged to infringe the patent rights of a third party,
and Daiwa does not obtain a license under such patent, Carbite may terminate
this Agreement forthwith.
9. Defective Daiwa Original Products; After-Sales Service; Indemnification
(a) Daiwa will, free of charge, repair or replace or cause to be repaired
or replaced such Daiwa Original Products as shall be determined by Carbite upon
consultation and agreement with Daiwa to be defective in design or manufacture,
provided that notice of such defect is received by Daiwa within 6 months of the
shipping date appearing on the bill of lading relating to the Daiwa Original
Products. Carbite will be responsible for the replacement or repair of any
Daiwa Licensed Products at its own expense. A small percentage (less than 5% on
sold quantities) of other defective Daiwa Original Products and repairs shall be
for Carbite's account.
(b) For the term of this Agreement and for three (3) years following
termination hereof, Carbite shall be responsible for and shall bear the entire
expense of all after-sales service for the Daiwa Products and shall maintain
such workshops and service facilities, employ such qualified personnel and
maintain such stock of spare parts as are necessary to keep the Daiwa Products
in serviceable condition, deal with customer complaints and honor
<PAGE>
warranties to purchasers of the Daiwa Products. During such time, Daiwa will
make best efforts to provide spare parts to Carbite for the repair of any Daiwa
Original Products.
(c) In addition to those obligations set forth in paragraph (b) above, with
respect to Daiwa Original Products which may be discontinued, Carbite agrees to
maintain such stock of spare parts for five (5) years after discontinuation as
are necessary to keep such discontinued Daiwa Original Products in serviceable
condition, deal with customer complaints and honor warranties to purchasers of
such discontinued Daiwa Original Products. Daiwa will exert its best efforts to
provide spare parts to Carbite for the repair of any such discontinued Daiwa
Original Products.
(d) Carbite shall make no representations or warranties as to the quality,
specifications or performance of Daiwa Original Products or parts thereof
purchased from Daiwa other than those representations and warranties which have
been made by Daiwa to Carbite.
(e) Daiwa shall not be liable for any delay in delivery or non-delivery of
any Daiwa Original Products which are manufactured by any third party on behalf
of Daiwa for any reason which is outside Daiwa's control (including, but not
limited to, labor disputes, delay in transport or the default of any sub-
contractor) and if any delay occurs, then the period for delivery shall be
extended by such period (not limited to the length of the delay) as may be
required in order to deliver the Daiwa Original Products.
(f) In recognition of the possibility that a claim, demand or suit may be
made or filed against Daiwa and/or Carbite as a result of any defect, actual or
claimed, in the Daiwa Original Products, and that under the theory or law of
product liability or under the product liability statutes of states or countries
within the Territory, Daiwa and/or Carbite may be held liable therefor, Daiwa
shall obtain and shall maintain in full force and effect, for the term of this
Agreement and for three years thereafter, comprehensive Daiwa Original Products
liability insurance coverage for an amount it deems proper. Daiwa shall notify
Carbite from time to time of the limit of such coverage obtained by Daiwa so
that Carbite, if it so elects, may obtain additional coverage for its own
benefit. Should any claim, demand or suit be
<PAGE>
made or filed against Carbite by a third party as a result of any defect, actual
or claimed, in the Daiwa Original Products, the same provisions as set forth in
Article 8(e) with respect to the handling and expenses thereof shall apply with
respect to such claim, demand or suit.
10. Stock Options for Daiwa
As further compensation to the amount reflected in the Minimum Royalty
referred to in Article 4 (a) of the License Agreement, the Carbite hereby grants
Daiwa stock options for 300,000 shares of common stock of Carbite at the closing
market price on the date of the signatures of the Distribution Agreement. These
options must be exercised by August 31, 2002, and shall expire upon termination
of this Distribution Agreement, if such termination occurs prior to such date.
11. Term and Termination; Loss of Exclusivity
(a) This Agreement shall be effective for five (5) years from the date
first above written until August 31, 2004. Carbite shall be given the option to
extend for an additional 5-year term if Carbite has met all the obligations and
the conditions of the Exclusive Distribution Agreement and the Trademark License
Agreement . Carbite must execute such an option four (4) months prior to the
end of the initial period unless previously terminated in accordance with the
terms hereof. The Minimum Purchase Obligation and Minimum Royalty for each
extended Contract Year must be reviewed and mutually agreed upon prior to six
(6) months before the termination of the first contract period, but in no event
may the Minimum Purchase Obligation and Minimum Royalty be increased by more
than 20% over that applicable to the previous year as a baseline for the
contract extensions. If no agreement is reached four (4) months prior to the
end of the initial period, then this Agreement will be terminated at August 31,
2004. If and when the term of this Agreement is extended beyond such date, this
Agreement shall thereafter be extended automatically from year to year unless
notice of intention to terminate in accordance with this Agreement is given by
either party to the other not less than six (6) months prior to the end of the
initial extended period or any other extension thereof, or unless previously
terminated in accordance with the terms hereof. Provided, however, that in the
absence of an agreement by the parties otherwise, the Target
<PAGE>
Amount and Minimum Purchase Obligation applicable to such extended annual period
shall be those applicable to the last year of the preceding term of this
Agreement.
(b) This Agreement shall automatically terminate immediately in the event
of the
(i) insolvency or bankruptcy of either party;
(ii) termination of the License Agreement;
(iii) withdrawal of Carbite from the business of manufacturing,
selling or distributing Daiwa Products;
(iv) laying of criminal charges against either party;
(v) transfer of the control of Carbite to a direct golf and or
fishing tackle competitor of Daiwa without the prior consent
of Daiwa; or
(vi) if any of the Daiwa Original Products are definitively
adjudged to infringe the patent rights of a third party.
(c) If Carbite shall fail to meet the Minimum Purchase Obligation for two
(2) consecutive Contract Years, Carbite shall no longer be entitled to act as
exclusive distributor of the Daiwa Products.
(d) Unless otherwise provided herein, if at any time either party fails to
comply with any of its obligations under this Agreement, and if such defaulting
party has not remedied such default within ninety (90) days after the date of
the receipt by such party from the other party of notice of default giving
reasonable particulars of the alleged default, then the party not in default may
terminate this Agreement by notice to that effect at any time after the
aforesaid period of ninety (90) days.
12. Consequences of Termination
If this Agreement is terminated for any reason:
(a) Any Daiwa Products purchased by Carbite hereunder may be sold by
Carbite
<PAGE>
within six (6) months after the date of such termination to customers,
retailers, distributors, wholesalers, etc. of its own choosing in the Territory.
(b) If so directed in writing by Daiwa, any remaining stock not sold by
Carbite within six (6) months after the date of termination shall be resold to
Daiwa or any person designated by Daiwa at prices and on conditions as follows:
(i) For current Daiwa Original Products or parts thereof (i.e.
listed in the catalog current at the time of termination), one
hundred percent (100%) of the FOB price plus import duties
thereon, customs clearance expenses and inland transportation
costs (the "Landed Cost");
(ii) For discontinued Daiwa Original Products or parts thereof,
thirty percent (30%) of the Landed Cost;
(iii) Daiwa Original Products or parts thereof more than five (5)
years after their discontinuation, ten percent (10%) of the
Landed Cost;
(iv) For Daiwa Original Products or parts thereof between five (5)
and seven (7) years after their discontinuation, five percent
(5%) of the Landed Cost;
(v) For any excessive stock of parts of Daiwa Original Products
kept for after-sales service by Carbite, Daiwa shall not
repurchase such parts from Carbite.
For the purposes of the above paragraph, an expert representative from
Daiwa shall determine what quantity of stock of parts of Daiwa
Original Products kept for after-sales service would be "excessive"
and the determination of such expert shall be considered final.
(c) Carbite shall not make any financial demands upon Daiwa, seeking
compensation for its services performed hereunder or refund of expenses incurred
by Carbite in providing service facilities, promotional activities and
advertising or any other cause.
<PAGE>
(d) Neither party shall be released from any debts or liabilities which
have accrued under this Agreement or the License Agreement at the time of
termination and which are outstanding at the time of the termination of this
Agreement.
13. Relationship of the Parties
Nothing contained in this Agreement shall constitute any relationship of
partnership, joint venture or principal and agent between the parties and
Carbite has no power, express or implied, to bind Daiwa in any matter. No
manufacturing rights, licensing rights, or rights to use any patent or trademark
are granted by this Agreement, except such as are specifically provided herein.
14. Governing Law and Arbitration
This Agreement and each sale of Daiwa Original Products hereunder by Daiwa
to Carbite shall be governed by the laws of Japan. Any dispute, if it cannot be
amicably settled by consultation and negotiation, shall be settled by
arbitration. Unless the parties otherwise agree in writing, in the event that
Carbite is the claimant, the arbitration shall take place in Tokyo, Japan, under
the rules of the Japan Commercial Arbitration Association. In the event that
Daiwa is the claimant, arbitration shall take place in San Diego, California,
under the rules of the American Arbitration Association. The language of
arbitration shall be English. The outcome of such arbitration shall be final
and without any right of appeal.
15. Notices
All notices, requests and other communications hereunder shall be in the
English language in writing, and shall be deemed to have been duly given if
delivered by hand with proof of receipt at the time of receipt; if communicated
by facsimile, cable or similar electronic means to the facsimile number or cable
identification number as previously
<PAGE>
provided by each party to the other, at the time that receipt thereof has been
confirmed by return electronic communication or signal that the message has been
clearly received; or if mailed, ten (10) days after dispatched by registered
airmail, postage prepaid, from any post office in Japan or the United States of
America, as the case may be, addressed as follows:
If to Daiwa: 14-16, Maesawa 3-chome
Higashikurume City
Tokyo, Japan
Attention: Mr. Toshikuni Dekura
If to Carbite: 6330 Nancy Ridge Dr., Suite107,
San Diego, CA 92121
U.S.A.
Attention: Mr. John Pierandozzi
Either party may change its facsimile number, cable identification number
or address by a notice given to the other party in the manner set forth above.
16. Warranties of the Parties
Each party warrants to the other that it has the full right and power to
enter into this Agreement and that the performance of this Agreement will not
violate any rule, regulation, law or other governmental restriction to which it
is bound and will not violate any agreement between that party and any third
party.
17. No Waiver
No waiver of any right or remedy in respect of any occurrence or event on
any one occasion will be deemed a waiver of such right or remedy in respect of
such occurrence or
<PAGE>
event on any subsequent occasion.
18. Force Majeure
If either party is prevented from or delayed in performing any obligation
of this Agreement as a result of circumstances beyond its control, including but
not limited to Acts or God, governmental order or restriction, war, war-like
conditions, hostilities, sanctions, mobilizations, blockage, embargo, detention,
revolution, riot, strike, lockout, epidemic, fire or flood, such obligation
shall be suspended for so long and to such an extent as may be justified in the
circumstances and thereafter such obligation shall be performed pursuant to the
terms of this Agreement.
19. Language and Counterparts
This Agreement may be executed in multiple counterparts in the English
language, and each counterpart shall be deemed an original of this Agreement.
20. Entire Agreement
This Agreement, in combination with the Trademark License Agreement,
constitutes the entire agreement between the parties hereto and supersedes all
previous agreements and negotiations, commitments, communications and contracts
in respect thereof. This Agreement may be amended only in writing signed by the
parties hereto.
21. Headings
The headings of articles used in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of the
respective articles of this
<PAGE>
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above, and this Agreement shall be deemed dated as of such date.
DAIWA SEIKO, INC.
By: __________________________________
Its: __________________________________
Carbite Inc.
By: __________________________________
Its: __________________________________
<PAGE>
EXHIBIT 13
FORM F-X
APPOINTMENT OF AGENT FOR SERVICE OF PROCESS
AND UNDERTAKING
GENERAL INSTRUCTIONS
I. Form F-X shall be filed with the Commission:
(a) by any issuer registering securities on Form F-8, F-9, F-10 or F-80
under the Securities Act of 1933;
(b) by any issuer registering securities on Form 40-F under the Securities
Exchange Act of 1934 (the "Exchange Act");
(c) by any issuer filing a period report on Form 40-F, if it has not
previously filed a Form F-X in connection with the class of securities in
relation to which the obligations to file a report on Form 40-F arises;
(d) by any issuer or other non-U.S. person filing tender offer documents
on Schedule 13E-4F, 14D-1F or 14D-9F;
(e) by any non-U.S. person acting as trustee with respect to securities
registered on Form F-7, F-8, F-9, F-10, F-80 or SB-2; and
(f) by a Canadian issuer qualifying an offering statement pursuant to the
provisions of Regulation A, or registering securities on Form SB-2. [Added in
Release No. 33-6949 (Section 72,439), effective August 13, 1992, 57 F.R. 36442.]
A Form F-X filed in connection with any other Commission form should not be
bound together with or be included only as an exhibit to, such other form.
II. Six copies of the Form F-X, one of which must be manually signed, shall be
filed with the Commission at its principal office.
A. Name of the issuer or person filing ("Filer"): Carbite Golf, Inc.
-------------------------
B. This is [check one]
[X] an original filing for the Filer
[_] an amended filing for the Filer
C. Identify the filing in conjunction with which this Form is being filed:
Name of registrant Carbite Golf, Inc.
------------------------------------------------
<PAGE>
Form type Form 10-SB
----------------------------------------------------------
File Number (if known) n/a
---------------------------------------------
Filed by Carbite Golf, Inc.
-----------------------------------------------------------
Date Filed (if filed concurrently, so indicate) December 29, 1999
--------------------
D. The Filer is incorporated or organized under the laws of British
Columbia, Canada and has its principal place of business at:
6330 Nancy Ridge Drive, Suite 107, San Diego, CA 92121 (858) 625-0065
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. The Filer designates and appoints Randie Burrell ("Agent") Located at:
6330 Nancy Ridge Drive, Suite 107, San Diego, CA 92121 (858) 625-0065
- --------------------------------------------------------------------------------
________________________________________________________________________________
as the agent of the Filer upon whom may be served any process, pleadings,
subpoenas or other papers in
(a) any investigation or administrative proceeding conducted by the
Commission; and
(b) any civil suit or action brought against the Filer or to which the
Filer has been joined as defendant or respondent, in any appropriate court in
any place subject to the jurisdiction of any state or of the United States or of
any of its territories or possessions or of the District of Columbia, where the
investigation, proceeding or cause of action arises out of or relates to or
concerns (i) any offering made or purported to be made in connection with the
securities registered or qualified by the Filer on Form 10-SB on December 29,
1999 or any purchases or sales of any security in connection therewith; (ii) the
securities in relation to which the obligation to file an annual report on Form
40-F arises, or any purchases or sales of such securities; (iii) any tender
offer for the securities of a Canadian issuer with respect to which filings are
made by the Filer with the Commission on Schedule 13E-4F, 14D-1F or 14D-9F; or
(iv) the securities in relation to which the Filer acts as trustee pursuant to
an exemption under Rule 10a-5 under the Trust Indenture Act of 1939. The Filer
stipulates and agrees that any such civil suit or action or administrative
proceeding may be commenced by the service of process upon, and that service of
an administrative subpoena shall be effected by service upon such agent for
service of process, and that service as aforesaid shall be taken and held in all
courts and administrative tribunals to be valid and binding as if personal
service thereof had been made. [Amended in Release No. 33-6949 (?? 72,439),
effective August 13, 1992, 57 F.R. 36442.]
2
<PAGE>
F. Each person filing this Form in connection with:
(a) the use of Form F-9, F-10, 40-F or SB-2 or Schedule 13K-4F, 14D-1F
or 14D-9F stipulates and agrees to appoint a successor agent for service of
process and file an amended Form F-X if the Filer discharges the Agent or the
Agent is unwilling or unable to accept service on behalf of the Filer at any
time until six years have elapsed from the date the issuer of the securities to
which such Forms and Schedules relate has ceased reporting under the Exchange
Act;
(b) the use of Form F-8 or Form F-80 stipulates and agrees to appoint a
successor agent for service of process and file an amended Form F-X if the Filer
discharges the Agent or the Agent is unwilling or unable to accept service on
behalf of the Filer at any time until six years have elapsed following the
effective date of the latest amendment to such Form F-8 or Form F-80;
(c) its status as trustee with respect to securities registered on Form
F-7, F-8, F-9, F-10, F-80 or SB-2 stipulates and agrees to appoint a successor
agent for service of process and file an amended Form F-X if the Filer
discharges the Agent or the Agent is unwilling or unable to accept service on
behalf of the Filer at any time during which any of the securities subject to
the indenture remain outstanding; and
(d) the use of Form 1-A or other Commission form for an offering
pursuant to Regulation A stipulates and agrees to appoint a successor agent of
service of process and file an amended Form F-X if the Filer discharges the
Agent or the Agent is unwilling or unable to accept service on behalf of the
Filer at any time until six years have elapsed from the date of the last sale of
securities in reliance upon the Regulation A exemption.
Each filer further undertakes to advise the Commission promptly of any change to
the Agent's name and address during the applicable period by amendment of this
Form, referencing the file number of the relevant form in conjunction with which
the amendment is being filed. [Amended in Release No. 33-6949 (?? 72,439),
effective August 13, 1992, 57 F.R. 36442.]
G. Each person filing this Form, other than a trustee filing in accordance
with General Instruction I. (e) of this Form, undertakes to make available, in
person or by telephone, representatives to respond to inquiries made by the
Commission staff, and to furnish promptly, when requested to do so by the
Commission staff, information relating to: the Forms, Schedules and offering
statements described in General Instructions I. (a), I. (b), I. (c), I. (d) and
I. (f) of this Form, as applicable; the securities to which such Forms,
Schedules and offering statements relate; and the transactions in such
securities. [Amended in Release No. 33-6949 (?? 72,439), effective August 13,
1992, 57 F.R. 36442.]
The Filer certifies that it has duly caused this power of attorney,
consent, stipulation and agreement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, Country of
United States of America this 21st day of December, 1999.
3
<PAGE>
Carbite Golf, Inc. /s/ Randie Burrell, Chief Financial Officer
- --------------------------------------------------------------------------------
Filer: By: (Signature and Title)
This statement has been signed by the following persons in the capacities
and on the dates indicated.
(Signature) /s/ Randie Burrell
---------------------------------------------------------------------
(Title) Chief Financial Officer
-------------------------------------------------------------------------
(Date) December 21, 1999
--------------------------------------------------------------------------
Instructions
1. The power of attorney, consent, stipulation and agreement shall be signed by
the Filer and its authorized Agent in the United States.
2. The name of each person who signs Form F-X shall be typed or printed beneath
such person's signature. Any person who occupies more than one of the specified
positions shall indicate each capacity in which such person signs Form F-X. If
any name is signed pursuant to a board resolution, a copy of the resolution
shall be filed with each copy of Form F-X. A certified copy of such resolution
shall be filed with the manually signed copy of Form F-X. If any name is signed
pursuant to a power of attorney, a copy of the power of attorney shall be filed
with each copy of Form F-X. A manually signed copy of such power of attorney
shall be filed with the manually signed copy of Form F-X. [Amended in Release
No. 33-6949 (?? 72,439), effective August 13, 1992, 57 F.R. 36442.]
4
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