<PAGE>
- --------------------------------------------------------------------------------
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
----- -----
Commission File Number: 0-14146
S2 GOLF INC.
------------
(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2388568
- ---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Gloria Lane, Fairfield, NJ 07004
- ----------------------------- -----
(Address of Principal Executive Office) (Zip Code)
(973) 227-7783
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
On April 27, 1998, 2,218,846 shares of common stock, $.01 par value, were issued
and outstanding.
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<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
Item 1. Financial Statements
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Balance Sheets - March 29, 1998 and December 31, 1997 2
Statements of Operations - Three Months Ended
March 29, 1998 and March 31, 1997 3
Statements of Cash Flow-Three Months Ended
March 29, 1998 and March 31, 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 6
-----------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
--------------------------------
Signatures 11
</TABLE>
<PAGE>
S2 GOLF INC.
BALANCE SHEETS
Item 1. Financial Statements
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash $46,672 $121,431
Accounts Receivable (Net of Allowance
for Doubtful Acco$313,025 in 1998
and $320,930 in 1997 5,453,221 3,722,924
Inventory (Note 3) 4,644,985 3,094,302
Prepaid Expenses 28,763 44,660
Deferred Income Taxes 372,879 372,879
----------- ----------
Total Current Assets 10,546,520 7,356,196
Plant and Equipment - Net 65,862 79,474
Non-Current Deferred Income Taxes 30,034 30,034
Other Assets - Net 161,043 164,472
----------- ----------
Total Assets $10,803,459 $7,630,176
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $5,014,947 $2,921,832
Accounts Payable 1,515,272 608,724
Accrued Expenses 388,306 336,909
Other Current Liabilities 52,428 53,386
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Total Current Liabilities 6,970,953 3,920,851
Non-Current Liabilities 188,681 202,231
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Total Liabilities 7,159,634 4,123,082
Commitments and Contingencies
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000
Authorized Shares: 2,218,605 Issued and
Outstanding at March 31, 1998 and
December 31, 1997 22,186 22,186
Additional Paid in Capital 4,036,802 4,036,802
Accumulated Deficit (415,163) (551,894)
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Total Shareholders' Equity 3,643,825 3,507,094
----------- ----------
Total Liabilities and Shareholders'
Equity $10,803,459 $7,630,176
=========== ==========
</TABLE>
See notes to financial statements
-2-
<PAGE>
S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
March 29, March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Net Sales $3,385,629 $2,837,433
Cost of Goods Sold 2,287,567 1,978,215
--------------- ---------------
Gross Profit 1,098,062 859,218
--------------- ---------------
Operating Expenses:
Selling 478,746 384,932
General & Administrative 293,255 265,922
--------------- ---------------
Total Operating Expenses 772,001 650,854
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Operating Income 326,061 208,364
--------------- ---------------
Other Income (Expense)
Interest Expense
Other Income (Expense) (99,479) (58,588)
Other - Net 1,075 (503)
--------------- ---------------
(98,404) (59,091)
Income Before Income Taxes 227,657 149,273
Provision for Income Taxes 90,926 10,146
--------------- ---------------
Net Income $136,731 $139,127
=============== ===============
Earnings (Loss) Per Common Share-Basic $0.06 $0.06
=============== ===============
Diluted $0.05 $0.06
=============== ===============
Weighted Average Number of Shares Outstanding-Basic 2,218,605 2,210,171
Diluted 2,490,018 2,238,839
</TABLE>
See notes to financial statements
-3-
<PAGE>
S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
UNAUDITED
<TABLE>
<CAPTION>
March 29, March 31,
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $136,731 $139,127
Adjustments to Reconcile Net Income to Net Cash (used)
Provided By Operating Activities:
Depreciation and Amortization 17,241 38,230
Other 0 (6,966)
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (1,730,297) (1,641,063)
Inventory (1,550,683) (667,872)
Prepaid Expenses 15,897 (234)
Other Assets (200) (30,689)
Accounts Payable and Accured Expenses 957,945 795,717
Other - Net (14,508) 2,786
---------------- ----------------
NET CASH (USED) IN OPERATIONS (2,167,874) (1,370,964)
---------------- ----------------
INVESTING ACTIVITIES
Purchase of Equipment 0 (5,601)
---------------- ----------------
FINANCING ACTIVITIES
Net Proceeds from Line of Credit 2,093,115 1,210,123
---------------- ----------------
INCREASE (DECREASE) IN CASH (74,759) (166,442)
CASH - BEGINNING OF PERIOD 121,431 166,592
---------------- ----------------
CASH - END OF PERIOD $46,672 $150
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period
Interest $61,583 $43,588
</TABLE>
See notes to financial statements
-4-
<PAGE>
S2 GOLF, INC.
Notes to Financial Statements
Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principals for interim financial reporting.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principals for complete financial statements. In
the opinion of management, all material adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 29, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. The unaudited financial statements and related notes
are presented as permitted by Form 10Q and do not contain certain information
included in the Company's annual financial statements and notes. For further
information, refer to the Company's annual financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1997.
1) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share", which
requires presentation of basic and diluted earnings per share. Basic earnings
per share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the reporting period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. As required, the Company adopted the provisions of SFAS 128
for the year ended December 31, 1997. All prior year weighted average and per
share information has been restated in accordance with SFAS 128 for the quarter
ended March 31,1997. Outstanding stock options issued by the Company represent
the only dilutive effect reflected in diluted weighted average shares
outstanding.
2) Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an enterprise and Related Information", which is
effective for the Company for the year ending December 31, 1998. This statement
establishes standards for the way in which public enterprises report information
about operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoptions of SFAS No. 131 will have on its financial
statements for the year ending December 31, 1998.
-5-
<PAGE>
3) Inventory
Inventory at March 29, 1998 and December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Finished Goods $1,202,622 $ 819,423
Work In Process 25,000 25,000
Raw Materials 3,417,363 2,249,879
---------- ----------
$4,644,985 $3,094,302
</TABLE>
4) Employment Agreements
In April 1998, the Company entered into an employment agreement with Douglas A.
Buffington, effective January 1, 1998, with a term ending December 31, 2002.
The agreement states that Mr. Buffington shall serve the Company as President,
Chief Operating Officer and Chief Financial Officer. Mr. Buffington's annual
base salary under the agreement is $137,500 for the year ending December 31,
1998 and $150,000 for the consecutive years ending December 31, 1999 through
2002. Bonuses and the issuance of stock options are at the discretion of the
Board. The agreement also entitles Mr. Buffington to receive from the Company
health and disability benefits, reimbursement of certain expenses and a $750,000
life insurance policy with Mr. Buffington's spouse as beneficiary. If the
agreement is terminated, the agreement provides that Mr. Buffington is only
entitled to receive the unpaid balance of his salary pro-rated and accrued to
the date of termination.
5) Revolving Line of Credit
Effective March 18, 1998, the Company entered into an agreement to temporarily
increase of its revolving line of credit from $5,000,000 to $5,500,000. This
increase is effective through May 31, 1998 and is pursuant to the Loan Agreement
and Revolving Note with PNC Bank as amended on June 30, 1997. Under said
agreement, on March 29, 1998 the Company had $485,053 available under the line
and $7,980 in letters of credit written but not drawn.
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Results of Operations
- ---------------------
Net Sales for the three-month period ended March 29, 1998 increased $548,196 or
19% to $3,385,629 as compared to $2,837,433 for the same period in 1997. This
increase is primarily due to: 1) a 38% increase in sales of the Light and Easy
product line along with a 34% increase in the new Agree line of women's clubs
which replaced the 1997 Classic Lady line; 2) increased distribution to new and
existing on course and off course accounts.
Gross profit as a percentage of sales increased to 32.4% for the three-month
period ended March 29, 1998 as compared to 30.2% for the same period in 1997.
The increase of 2.2% is primarily due to increased sales of higher margin
products such as the Light and Easy and Power Circle Graphite which had gross
margin increases of 4.89% and 6.97% respectively over 1997.
Selling expenses increased $93,814 for the three-months ended March 29, 1998 to
$478,746 versus $384,932 for the same period in 1997. The increase is primarily
due to increased commission expense due to increased sales volume, as well as
increases in advertising expense and LPGA Royalty expense per the Company's
agreement with the LPGA.
General and Administrative expenses increased $27,333 to $293,255 for the three-
month period ended March 29, 1998 as compared to $265,922 for the same period in
1997. This increase is primarily due to an increase in payroll expense as well
as an increase in the provision for bad debt offset by a decrease in
amortization expense related to a non-compete agreement with a former officer
which was fully amortized in June of 1997.
Interest expense for the three-month period March 29, 1998 increased $40,890
over the same period in 1997 due to an overall increase in the average loan
balance offset by a lower interest rate. The average balance for the three-
months ended March 29, 1998 was approximately $4,536,833 at 8.5% versus
$2,391,832 at 10.5% for the same period in 1997.
The Company's net income before taxes was $227,657 for the three-month period
ended March 29, 1998 versus $149,273 for the same time in 1997. This
improvement of approximately 53% was the result of increased sales volume of
approximately 19%.
The Company's effective tax rate was 41% for the period ended March 29, 1998
versus 7% for the same period in 1997. This increase is due to the utilization
of substantially all the Company's available Net Operating Loss carryforwards in
the year ended December 31, 1997.
-7-
<PAGE>
Financial Condition and Liquidity
- ---------------------------------
The Company's working capital at March 29, 1998 increased $140,222 from December
31, 1997 to $3,575,567 due to increased current assets of $3,190,324 offset by
increased current liabilities of $3,050,102. The increase in current assets is
primarily due to an increase of $1,730,297 in accounts receivable resulting from
first quarter sales activity as is typical to the Company due to the cyclical
nature of the golf industry. In addition, inventory increased $1,550,683 due to
increased purchases in the 4th quarter of 1997 and 1st quarter of 1998 as the
continued result of management's decision to increase raw material purchases in
both quarters to meet anticipated demand in 1998. The increase in inventory
purchases also resulted in the increase in current liabilities with amounts due
under the credit facility and accounts payable at March 29, 1998 increasing
$2,093,115 and $906,548, respectively, compared to March 31, 1997.
The increase in working capital of $1,051,337 at March 29, 1998 from March 31,
1997 is due to increased current assets of $3,741,221 offset by increased
current liabilities of $2,689,884. The increase in current assets is primarily
due to increased accounts receivable of $1,382,478 resulting from increased
sales volume and, increased inventory of $2,103,912 due to increased 1st quarter
purchases. The increase in current liabilities is primarily the result of
increased bank borrowings of $2,032,578 resulting from the increased inventory
purchases.
Cash used in operations was $2,167,874 and $1,370,964 for the three-months ended
March 29, 1998 and March 31, 1997 respectively. This increase resulted from
increased accounts receivable and inventory.
Cash provided by financing activity amounted to $2,093,115 for the three-month
period ending March 29, 1998 as compared to $1,210,123 for the same period in
1997. This increase was the result of increased borrowings under the Company's
line of credit to finance increased inventory purchases.
Effective March 18, 1998, the Company entered into an agreement to temporarily
increase of its revolving line of credit from $5,000,000 to $5,500,000. This
increase is effective through May 31, 1998 and is pursuant to the Loan Agreement
and Revolving Note with PNC Bank as amended on June 30, 1997. Under said
agreement, on March 29, 1998 the Company had $485,053 available under the line
and $7,980 in letters of credit written but not drawn.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an enterprise and Related Information", which is
effective for the Company for the year ending December 31, 1998. This statement
establishes standards for the way in which public enterprises report information
about operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoptions of SFAS No. 131 will have on its financial
statements for the year ending December 31, 1998.
-8-
<PAGE>
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
Exhibit
Number Description of Exhibit*
- ------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company dated
June 28, 1991 (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1991).
3.2 Amended and restated By-laws of the Registrant dated December 6, 1991
(incorporated by reference to Exhibit 3.2 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991).
4.1 Common Stock Purchase Warrant in favor of Wesmar Partners dated
February 28, 1988, (incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.2 Common Stock Purchase Warrant in favor of Wesmar Partners dated
February 28, 1988, (incorporated by reference to Exhibit 4.5 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.3 Stock Option Agreement between the Registrant and Wesmar Partners
dated February 29, 1988, (incorporated by reference to Exhibit 4.6 of
the Registrant's Registration Statement No. 33-37371 on Form S-3).
10.0 Credit Agreement and Security Agreement between the Registrant and
Midlantic Bank, National Association dated December 29, 1994
(incorporated by reference to Exhibit 99 of the Registrant's Current
Report on Form 8-K dated December 26, 1994).
10.1 United States Patent No. 4,203,598 issued to the Registrant
(incorporated by reference to Exhibit 10.3 of the Registrant's
Registration Statement No. 33-16931 on Form S-1).
10.2 Agreement between the LPGA Tournament Players Corporation and the
Registrant dated July 31, 1991 (incorporated by reference to Exhibit
4.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991).
10.3 Lease Agreement between the registrant and 12 Gloria Lane Limited
Partnership dated June 22, 1989 (incorporated by reference to Exhibit
10.6 of the Registrant's Registration Statement No. 33-37371 on
Form S-3).
10.4 Modification of Lease Agreement between the Registrant and 12 Gloria
Lane Industrial Partnership dated October 3, 1995 (incorporated by
reference to Exhibit 10.2 of the Registrants Annual Report on
Form 10-K for the year ended December 31, 1995).
-9-
<PAGE>
10.5 1984 Incentive Stock Option Plan of the Registrant dated February 10,
1984 (incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement No. 33-16931 on Form S-1).
10.6 Consulting Agreement between the Registrant and MR & Associates dated
January 1992 (incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992).
10.7 Amendment of Consulting Services Agreement between the Registrant and
MR and Associates effective as of February 1, 1996 (incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
10.8** 1992 Stock Plan for Independent Directors of S2 Golf, Inc. dated
December 28, 1992 (incorporated by reference to Exhibit 10.11 of the
Registrant's Annual Report on form 10-K for the year ended December
31, 1992).
10.9** Employment Agreement between the Registrant and Douglas A. Buffington
dated January 1, 1995 (incorporated by reference to Exhibit 10.10 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.10** Agreement between the Registrant and Randy A. Hamill dated January 2,
1997.
10.11 Amended and Restated Licensing Agreement between Ladies Professional
Golf Association and the Registrant dated July 1, 1996 (incorporated
by reference to Exhibit 12 of the Registrant's Annual Report on Form
10K for the year ended December 31, 1996).
10.12 Second amendment to loan and security agreement between Registrant and
PNC Bank dated December 1, 1997 (incorporated by reference to Exhibit
99 of the Registrant's Current Report on Form 8-K dated December 26,
1994.
10.13 Employment agreement between Registrant and Douglas A. Buffington
dated January 1, 1998.
27 Financial Data Schedule.
No Current reports on Form 8-K were filed for the first quarter ended March 29,
1998
- --------------------------------------------------------------------------------
* In the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant's file number under
the Act is 0-14146.
** Management contract or management compensatory plan or arrangement.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
S2 GOLF INC.
May 8, 1998 /s/ Douglas A. Buffington
- ----------- -------------------------
Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
-11-
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
Made as of the 1st day of January 1998 by and between S2 Golf Inc., a
New Jersey Corporation with its principal place of business in Fairfield, New
Jersey ("S2"), and Douglas A. Buffington of Canton, Ohio ("DAB") as follows:
WHEREAS, the parties desire to: (i) provide for the employment of DAB in
the management of S2; and (ii) provide for a valid and enforceable covenant by
DAB not to compete with S2 in the conduct of its business and in the
geographical area described in Exhibit A hereto ("Business") for the period
herein described; and (iii) fix the compensation of DAB for such services and
covenant;
NOW, THEREFORE, in mutual consideration of the covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term. S2 hereby hires and employs DAB for a period beginning on the
----
effective date of this Agreement, and terminating on the close of business on
December 31, 2002 unless terminated sooner as provided herein (the "Employment
Period").
2. Duties. During the Employment Period, DAB shall devote his full business
------
time and attention to the business of S2 and to such activities as may be
assigned to him from time to time by S2. DAB will have the titles and
responsibilities of President, Chief Operating Officer and Chief Financial
Officer and will serve S2 diligently and faithfully in the Business and use his
best endeavors to promote the interests of S2 and will perform such services at
such reasonable times and places as S2 may direct in connection with the
Business.
3. Salary. In consideration of the services to be performed by DAB, he will
------
receive an annual gross salary of $137,500 for 1998 and $150,000 for each year
thereafter (the "Base Salary"). The Base Salary shall be paid in accordance
with S2's regular payroll policies.
4. Bonus. For 1998, Exhibit C attached represents the bonus program for
-----
DAB. In the future years, the BOD shall determine similar bonus programs based
on annual budgets to be mutually agreed upon.
1
<PAGE>
5. Stock Options.
-------------
(a) On various dates in the past S2 did, and may again during the
Term of this agreement, grant to DAB common stock options for certain numbers of
shares of S2's common stock (the "Stock Options").
(b) The exercise price and the number of shares exercisable under any
Stock Option shall be adjusted accordingly for any subsequent common stock
splits, reverse common stock splits, recapitalizations, etc.
(c) Notwithstanding any other provision of this paragraph 5 to the
contrary, if a "change in control" (as defined below) of S2 occurs, then (i) all
of the then "non-vested" shares of any Stock Option shall be and become
exercisable immediately prior to such "change in control" (each, an "Accelerated
Share"; combined, the "Accelerated Shares") (ii) the exercise price for each
Accelerated Share of any Stock Option shall be either (a) one (1) cent ($.01) or
(b) the lowest greater exercise price per Accelerated Share which will not cause
the value to DAB of all the shares of any Stock Options exercised upon such
"change in control" to be considered an "excess parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended and (iii) the exercise
price of the then "vested" shares of any Stock Option shall be the exercise
price determined in clause (ii) above; provided, however that in no event shall
the exercise price of the then "vested" shares of any Stock Option be in excess
of the Exercise Price originally determined upon the grant of such Stock Option.
(d) For purpose of subparagraph 5(c), a "change in control" shall be
deemed to have occurred if (i) S2 shall be merged or consolidated with any
corporation (other than with any of its subsidiaries), (ii) S2 shall sell all or
substantially all of its operating properties and assets or (iii) any person
(including any person, association, corporation or other entity) becomes a
beneficial owner, directly or indirectly, of securities of S2 representing more
than 50% of the combined voting power of S2's then outstanding securities.
6. Benefits. During the Employment Period, DAB shall be entitled to receive
--------
the fringe benefits listed on Exhibit B attached hereto. S2 reserves the right
to alter, abolish, change or improve any such benefit.
2
<PAGE>
7. Termination.
-----------
(a) S2's obligation to pay DAB's salary during the Employment Period and
DAB's employment shall terminate if:
(i) DAB dies; or
(ii) in the event of DAB's Disability, 90 days after the onset of
such Disability (as defined below); or
(iii) S2 has discharged DAB for cause. Cause shall be determined by
S2 in its sole discretion and shall mean DAB's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, failure to perform his duties
described herein, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final cease
and desist order, material breach of any provision of this
Agreement or acceptance of employment other than with S2.
(iv) DAB violates the provisions of this Agreement;
(v) DAB voluntarily terminates his employment with S2; or
(vi) there has been a "change in control" and in conjunction with
such "change in control" DAB's duties are modified, without DAB's
express written consent, so as to no longer include the title and
responsibility of either (a) President or (b) Chief Operating
Officer.
"Disability" is defined as a medically determinable physical or mental
impairment which renders DAB incapable of performing his employment duties
with S2 and which can be expected to result in death or to be of long-
continued and indefinite duration. S2 shall select a physician to
determine whether DAB is disabled, as hereinbefore defined, and such
determination shall be binding and conclusive.
(b) In the event of the termination of DAB's employment, whether such
termination be pursuant to the terms of this paragraph 7, by expiration of the
term, or otherwise, all further obligations of S2 hereunder shall terminate. In
the event of a termination (other than pursuant to subparagraphs 7(a)(i) or
(vi)), DAB shall continue to observe the covenant not to compete set forth
herein except in the case of a change in control and an agreeable employment
agreement cannot be developed between all parties. In the event of termination,
DAB shall be entitled to any unpaid balance of DAB's salary prorated and accrued
to the date of termination. No provision of this Agreement shall be construed
as to prejudice any right or remedy available to S2 or DAB in any case of
termination.
8. Required Relocation.
-------------------
(a) S2 acknowledges that (i) on the date of this agreement DAB resides
in Canton, Ohio and (ii) except as provided in subparagraph (b) below, the
relocation of DAB's residence near to S2's principal place of business is not a
condition precedent to DAB's employment.
(b) S2 and DAB acknowledge that it is anticipated that at some
3
<PAGE>
point in time during the Employment Period the BOD will decide on a permanent
location for S2's operations and that DAB will then be required to relocate near
to such permanent location. Upon such relocation, (i) DAB's commuting expense
reimbursement benefits included on Exhibit B shall cease and (ii) S2's
reimbursement of DAB's relocation related expenditures shall be subject to the
Relocation Policy of S2 then in effect for all executive employees.
9. Confidentiality. DAB will treat as confidential and will not, without
---------------
written approval of S2, use, other than in the performance of his designated
duties to S2, or publish, disclose, copyright or authorize anyone else to use,
publish, disclose or copyright, during the term of employment under this
Agreement any information relating to inventions, processes, formulas, systems,
plans, programs, studies, techniques, "know-how", products, product development,
product costing, product pricing, or trade secrets of S2, or any affiliated
entities of S2, or any other information which S2 or such entities might prefer
or require remain undisclosed including information relating to any of the
activities, operations or affairs of S2 or of such entities. DAB will
diligently protect such information against loss by inadvertent or unauthorized
disclosure and will comply with any rules established by S2 for the purpose of
protecting such information.
10. Assignment. This Agreement is not assignable by DAB but is assignable by
----------
S2 to any affiliate or successor entity. As used in this Agreement, the term
"S2" shall include any entity to which this Agreement shall have been assigned
by S2.
11. Patents and Inventions. DAB will promptly submit to S2 written
----------------------
disclosures of all inventions, improvements and discoveries, relating to the
Business, whether or not patentable (hereinafter call "Inventions"), which are
made or conceived by him, alone or jointly with others, while in its employ.
Title to all such Inventions that shall be within the existing or contemplated
scope of S2's business at the time such inventions are made or conceived or
which result from or are suggested by any work he or others may do for or on
behalf of S2, together with such patent, patents or other legal protection as
may be obtained thereon in the United States of America and all foreign
countries, shall belong to S2. DAB will assign any rights or interest in such
title to S2, and, upon the request of S2, will at any time during his employment
with S2 and after its termination for any reason, execute all proper papers for
use in applying for, obtaining, maintaining and enforcing such patents or other
legal protection as S2 may desire and will execute and deliver all proper
assignments thereof, when so requested, without remuneration but at the expense
of S2.
12. Non-competition.
---------------
(a) During the term of this Agreement DAB will not, directly or
indirectly, engage in any activity similar to that of any part of the Business
or otherwise in competition with the Business.
(b) For one year after the termination of this Agreement (for any
reason other than as a result of the event described in subparagraphs 7(a)(i)or
(vi)) DAB will not, directly or indirectly, engage in any activity for any
person or entity the purpose of which activity is to assist such person or
entity in any manner in either: (i) soliciting or obtaining an endorsement of
such person's or entity's products by the Ladies Professional Golf Association
("LPGA") for which S2 has an exclusive or non-exclusive license from the LPGA or
(ii) establishing a women's golf club product line where such person or entity
had no such product line previously.
4
<PAGE>
(c) DAB shall not engage in any activity described in subparagraphs
12(a) or (b) in any place in the United States of America involving sales to
anyone who, or any entity which, was a customer of S2 during the Employment
Period.
(d) DAB shall be deemed to be engaged in the activities described in
subparagraphs 12(a) or (b) directly or indirectly if he is an employee, officer,
director, trustee, agent, representative or partner of, or a consultant or
advisor to or for, any person, firm, corporation, association, trust or other
entity (other than S2 or any of its affiliates, subsidiaries, or successors)
which is engaged in such business or if he owns, directly or indirectly, in
excess of five percent (5%) of the outstanding stock or shares or has a
beneficial or other financial interest exceeding five percent (5%) of the net
assets of any such person, firm, corporation, association, trust or other
entity. The foregoing shall not be construed to prohibit the mere ownership by
DAB of investments not representing a controlling interest in any securities
traded in over-the-counter market or listed on any national securities exchange.
(e) DAB agrees that the remedy at law for any breach or threatened
breach of the covenant contained in this paragraph 12 will be inadequate and
that any breach or threatened breach would cause such immediate and permanent
damage as would be impossible to ascertain, and, therefore, DAB agrees and
consents that in the event of any breach or threatened breach of any provision
of such covenant by him, in addition to any and all other legal and equitable
remedies available to S2 for such breach or threatened breach including a
recovery of damages, S2 shall be entitled to obtain preliminary or permanent
injunctive relief without the necessity of proving actual damage by reason of
such breach or threatened breach and, to the extent permitted by applicable
statutes and rules of procedure, a temporary restraining order (or similar
procedural device) may be granted immediately upon the commencement of such
action.
(f) To the extent that any obligation to refrain from competing within an
area, for a period of time or with respect to a product or service, as provided
in this paragraph 12 is invalid or unenforceable, it shall, to the extent that
it is invalid or unenforceable, be deemed void ab initio, and the remaining
---------
obligations imposed by the provisions of this Agreement shall be fully
enforceable as if such invalid or unenforceable provisions had not been included
herein. The parties intend for this covenant to be enforceable to the maximum
extent permitted by law, and if any reviewing court deems it overbroad, such
court may reduce the time element by months, and the area by counties to achieve
the intention of the parties.
13. Binding Effect. This Agreement shall be binding upon the parties hereto,
--------------
their heirs, legal representatives, successors and permitted assigns.
14. Governing Law and Selection of Forum. This Agreement shall in all
------------------------------------
respects be governed by and construed in accordance with the laws of the State
of New Jersey.
5
<PAGE>
15. Sole Agreement. This Agreement supersedes all prior agreements and
--------------
understandings between the parties with respect to the employment contemplated
hereby and may not be changed or amended orally. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be of any
effect unless the same is set forth in writing and duly executed by the party
against which it is sought to be enforced.
ATTEST: S2 GOLF INC.
By: s/s Douglas A. Buffington
- ------------------------- ------------------------------
Its:
------------------------------
WITNESS:
(L.S.)
- ------------------------- -----------------------------
Douglas A. Buffington
6
<PAGE>
EXHIBIT A
The ownership, management or operation of any business enterprise which is
engaged in the manufacture, assembly, purchase for resale and/or wholesale
distribution of golf clubs, golf bags, golf balls and/or golf apparel in the
United States of America.
All of the foregoing is collectively referred to herein as the "Business."
7
<PAGE>
EXHIBIT B
1. Annual vacation in accordance with S2 policy.
2. Health benefits in accordance with S2 policy.
3. Long term disability insurance with benefits at 80% of Base Salary.
4. Reimbursement of all ordinary and necessary travel and entertainment
expenses.
5. Reimbursement of Canton/Fairfield air travel commuting expenses and
Fairfield meals and lodging expenses.
6. Relocation benefits in accordance with S2 policy.
7. $750,000 Life Insurance Policy with spouse as beneficiary.
8
<PAGE>
DOUG BUFFINGTON'S
1998 BONUS AND SALARY PROPOSAL
Position Salary Cap $150,000
1998 Base Salary $137,500
Bonuses
Operating Income Bonus
1. Cash Bonus
a. Equal prior year's actual operating income absolute dollars, the
minimum cash bonus will be $7,500 ("Minimum Cash Bonus").
b. For every $100,000 increase in actual operating income versus prior
year's operating income, the cash bonus will be calculated by
applying 4% of base salary and after adding the Minimum Cash Bonus,
the total maximum bonus will not exceed 25% of base salary.
2. Stock Option
a. Equal prior year's actual operating income absolute dollars the
minimum stock option bonus will be 7,500 options ("Minimum Stock
Bonus")
b. For every $100,000 increase in actual operating income versus prior
year's operating income, the stock option bonus will be calculated by
applying 4% times the Base Salary and after adding the Minimum Stock
Bonus Option amount to this amount, the total stock option bonus will
not exceed a calculated 25% of base salary.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1998
<CASH> 46,672
<SECURITIES> 0
<RECEIVABLES> 5,766,246
<ALLOWANCES> 313,025
<INVENTORY> 4,644,985
<CURRENT-ASSETS> 10,546,520
<PP&E> 743,834
<DEPRECIATION> 543,948
<TOTAL-ASSETS> 10,803,459
<CURRENT-LIABILITIES> 6,970,953
<BONDS> 0
0
0
<COMMON> 22,186
<OTHER-SE> 3,621,639
<TOTAL-LIABILITY-AND-EQUITY> 10,803,459
<SALES> 3,385,629
<TOTAL-REVENUES> 3,385,629
<CGS> 2,287,567
<TOTAL-COSTS> 772,001
<OTHER-EXPENSES> (1,075)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,479
<INCOME-PRETAX> 227,657
<INCOME-TAX> 90,976
<INCOME-CONTINUING> 136,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,731
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
