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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
December 31, 1999 Number O-14146
S2 GOLF INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW JERSEY 22-2388568
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
18 GLORIA LANE
FAIRFIELD, N.J. 07004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(973) 227-7783
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT: NONE SECURITIES
REGISTERED PURSUANT TO 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01
(TITLE OF CLASS)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K. [X]
As of March 13, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $ 1,635,930. This calculation
is based upon the closing price of the registrant's common stock on March 13,
2000.
The number of shares of the registrant's Common Stock outstanding as of March
13, 2000 was 2,220,113.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
S2 Golf, Inc. (the "Company" or "Square Two") was incorporated under the laws of
the state of New Jersey in February 1982. The Company manufactures and markets a
proprietary line of golf equipment, including golf clubs, golf bags, golf balls
and accessories, throughout the United States. The Company markets these
products under the tradename and trademark SQUARE TWO(R) and uses several
additional trademarks including S2(R) and Posiflow(R), among others.
The common stock of the Company (the "Common Stock") trades on the National
Association of Securities Dealers Automated Quotation System (Nasdaq) under the
trading symbol "GOLF."
During 1999, the Company introduced two new lines of putters (Power Circle(TM)
XL and Light and Easy(TM) XL), added steel shafted clubs to its Agree women's
value line, added irons and drivers to the men's Relief line, added drivers to
the women's Lady Rave line, and redesigned its Light and Easy(TM) and Power
Circle(TM) lines.
In 1999, the Company maintained and strengthened its position as manufacturer
and seller of premium quality, high performance clubs for women golfers, which
comprise between 58% and 62% of the Company's business, renewing its 19-year
partnership with the Ladies Professional Golf Association ("LPGA"), entering
into an endorsement agreement with Kathy Whitworth that took effect on January
1, 2000, and launching its first television advertisement, which is aimed
exclusively at women. The Company's sponsorship of the Square Two/LPGA Custom
Club Fitting Program provided a forum for design input from professional women
golfers. Cosmetic changes to the Company's lines of women's clubs continued to
include greater prominence for the distinctive LPGA logo, which all of Square
Two's women's clubs carry.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For financial information about business segments in which the Company operates,
see Item 8, Financial Statements and Supplementary Data.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Club Design
The Company designs products for men and women of all ages and has two broad
design approaches. One targets the steel shaft market, and the other targets the
graphite shaft market.
In recent years, the graphite shaft market has experienced tremendous growth,
particularly among women. Graphite shafts are lighter than steel shafts and have
greater design flexibility. The Company, recognizing that graphite has become
the shaft of choice for the majority of women, has developed an extensive array
of graphite shaft models.
Products
The Company currently markets the following full line of golf equipment for both
men and women:
The PCX II line features cavity back, oversize elliptical head design for irons
with oversized metal woods. The woods feature Synchro Speed System 1 graphite
shafts. The irons feature lightweight steel shafts and the Company's Totally
Matched proprietary weighting and balancing system. PCX II clubs are available
for men only.
The Light and Easy(TM) line was redesigned in 1999 and is now called Light and
Easy(TM) XL. It features the LPGA logo on both the irons and woods and is
available in either lightweight steel or graphite shafts. The mid-profile,
stainless steel, cavity-back
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irons have dual copper inserts in the sole, which lower the
center of gravity as well as expand the sweet spot. The perimeter weighted
stainless steel woods are oversize and offset.
The Power Circle(TM) line was redesigned in 1999 and is now called Power
Circle(TM) XL. It is available in either lightweight steel or graphite shafts.
The mid-profile, stainless steel, cavity-back irons have dual copper inserts in
the sole, which lower the center of gravity as well as expand the sweet spot.
The perimeter weighted stainless steel woods are oversize and offset.
The RAVE graphite line features the Company's patented Posiflow weighting system
in its irons. The oversize stainless steel metal woods have expanded sweet
spots. Irons and woods feature ultra-light high modulus graphite shafts, which
are matched to the player's swing speed. The RAVE graphite clubs are available
in right and left-handed men's, ladies' and Lady Petite(R) models.
In 1999, the Company also marketed the Power Circle(TM) and Light and Easy(TM)
Titanium driver series, featuring heads made of 100% 6/4 Titanium.
In 1999, the Company expanded its value line of women's clubs with the
introduction of the Agree in steel shafts. Previously, the Agree was available
only in graphite shafts.
In 1999, the Company continued to market the ZCX-Ti line of Titanium-faced irons
available in right hand only. These irons feature 100% Titanium inserts for
enhanced feel and Posiflow weighting for fewer long iron fades and short iron
pulls.
In 1999, the Company marketed its Lady Ti line of Titanium-faced irons.
Available in women's only, these irons feature 100% 6/4 Titanium inserts for
maximum energy transfer and high modulus lightweight shafts for improved
distance.
In 1999, the Company continued to sell its Eight-Is-Enough line of clubs for
junior golfers. These sets, which now feature the same XL heads as the Light and
Easy(TM) XL and Power Circle(TM) XL lines, are available for both young men and
young women, come in three different lengths and feature four irons, three woods
and a putter.
In 1999, the Company continued to sell its Relief iron as a complement to its
popular Relief wood series. The driver, long, middle and short Relief clubs
offer V-soles designed to be user-friendly in all playing conditions.
In 1999, the Company continued to distribute its WTD or Women's Tour Design
wedge system. Designed for women, these wedges feature polymer inserts for
better bite on the green.
In 1999, the Company continued to sell its TMPII line of clubs with offset
oversized stainless steel heads. Available in both steel and graphite, the TMPII
offers superior playability at affordable prices.
In 1999, the Company continued to market its Rough Relief line of men's low
profile woods. Available with both steel and graphite shafts, the Rough Relief
line features dual brass inserts on the sole for increased playability.
In 1999, the Company continued to market its Lady Rave low profile line of
graphite-shafted woods. These easy to hit woods feature copper inserts in the
sole for added playability.
In 1999, the Company continued to market styles in its line of women's bags
featuring matching head covers.
In 1999, the Company continued to sell putters under the Power Circle(TM), Light
and Easy(TM) and Rave lines. Additionally, the Company introduced the Power
Circle(TM) XL and Light and Easy(TM) XL lines of putters in 1999. These
tri-metal putters are heel toe weighted to reduce torque on off center hits.
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In 1999, the Company introduced its Relief line of men's irons. Designed to
complement the Rough Relief men's woods, the bi-metal Relief irons feature the
Company's patented Posiflow weighted system, which reduces long iron slices and
short iron pulls.
In 1999, the Company introduced its men's Relief and women's Lady Rave lines of
mid-profile, bi-metal drivers. These drivers feature brass inserts, which lower
the center of gravity and expand the sweet spot.
Manufacturing
The Company's clubs are assembled at its facility located in Fairfield, New
Jersey. Finished heads are purchased from several sources in Taiwan, Thailand
and The People's Republic of China, which manufacture them to Square Two's
appearance and weight specifications. Various domestic and foreign shaft
manufacturers supply steel shafts, grips, and accessories. The Company obtains
its graphite shafts from several foreign shaft suppliers, which manufacture them
to the Company's design specifications. In the course of assembling its PCXII
line of steel shafted clubs, the Company applies its Totally Matched proprietary
weighting and balancing techniques to achieve the clubs' unique design and
construction.
Seasonality
The golf industry is seasonal. While manufacturing occurs throughout the year,
demand for the Company's clubs is greatest from March through July.
Inventory Supply
The Company tries to maintain at least two sources of supply for irons and metal
wood heads from foreign suppliers. These suppliers generally require 90 to 120
day lead times to deliver heads to the Company. Domestic suppliers of shafts and
grips are more plentiful and, under normal circumstances, can provide components
to the Company on relatively short notice.
While the Company does not anticipate long-term shortages of either components
or sources of supply from its domestic or foreign suppliers, no assurance can be
given that the Company will not experience shortages in the future. Delays are
not anticipated to be longer than 2 weeks and are not anticipated to affect
materially the Company's ability to deliver product. The Company continues to
evaluate other alternatives in sourcing suppliers.
The Company has a line of credit in the amount of $5,000,000 with PNC Bank
pursuant to which PNC Bank may make available an additional credit facility of
up to $1,750,000 in the form of standby or documentary letters of credit and
demand loans. The amount and number of letters of credit outstanding at any
given time will vary on a daily basis depending on the dollar volume of material
being ordered and supplies received.
Industry Background
The National Golf Foundation estimates that in 1998 there were 26.4 million
golfers in the United States. (The figure for 1999 is not yet available.) The
rate of growth remained relatively flat from 1997 to 1998. The popularity of the
sport has created a significant market for golf clubs. In competition for a
share of the market, various manufacturers have developed golf clubs using
various materials, differing types of construction and the latest engineering
technology.
Marketing & Distribution
Until approximately 15 years ago, top of the line golf equipment was sold almost
exclusively by golf professionals at private clubs. Currently, off course
specialty golf shops, sporting goods retailers, discounters, mail order houses,
internet and infomercials account for a substantial share of sales to the golf
club market.
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As of March 1, 2000, the Company had established a network of approximately
2,100 retailers with approximately 2,800 retail outlets. The Company has
prepared a comprehensive catalog for its dealers.
The golf equipment industry is one in which advertising and promotion is
required to create market awareness of a company's products. Management
anticipates that manufacturers will increase their research and development
efforts as well as their advertising expenditures.
In 1999, no customer accounted for more than 5% of the Company's total sales.
The Company does not believe that the loss of any single customer would
materially affect its business.
The Ladies Professional Golf Association Agreement
The Company has entered into an agreement with the Ladies Professional Golf
Association (LPGA), an Ohio nonprofit corporation, which grants the Company the
exclusive right to use the LPGA name and logo on its women's golf clubs and the
non-exclusive right to use the LPGA name and logo on certain of its other
products, including golf bags. The Company has renewed and restated this
licensing agreement effective January 1, 1999 through December 31, 2003, at
which time the Company has the option to renew the agreement for two consecutive
years under the same terms and conditions. The agreement entitles the Company to
use the license granted on a worldwide basis. The Company is obligated to pay to
the LPGA a license fee and a royalty fee based on sales volume.
The annual license fee for the term of the agreement is $200,000 each
consecutive year through 2003. In the event that the sum of (A) 5% of the net
sales of the licensed products (other than golf shoes) up to $1,000,000 in any
calendar year, (B) 2.5% of the net sales of the licensed products (other than
golf shoes) in excess of $1,000,000 and less than $5,000,000 in any calendar
year, and (C) 1% of the net sales of the licensed products (other than golf
shoes) in excess of $5,000,000 in any calendar year exceeds the annual license
fee, the Company also shall pay to the LPGA a royalty fee equal to the amount of
such excess plus 1% of the net sales of golf shoes in that calendar year.
Under the agreement, the Company is obligated to be a "Title Sponsor" of the
LPGA Teaching and Club Professionals ("T&CP") Division Team Classic at an annual
cost of $35,000 beginning in 1999 and increasing by $2,500 per year through
2003. In addition, the Company is obligated to spend a minimum of $100,000 per
year on various advertising programs.
Competition
In general, the Company competes with manufacturers of sporting goods equipment
for all phases of the recreation industry, and its business is subject to
factors generally affecting the recreation and leisure market, such as economic
conditions, changes in discretionary spending patterns and weather conditions.
The golf club industry is highly competitive and is dominated principally by
approximately 15 nationally known manufacturers of sporting goods equipment.
Such manufacturers, including Callaway, Ping, Spalding, Taylor Made, and
Cobra/Titleist, possess financial and other resources greater than those of the
Company. The Company competes with these entities primarily on the basis of the
quality and value of Square Two's products and service, along with the Company's
position as the official sponsor of the LPGA.
Golf clubs are also manufactured by lesser known, lower volume companies who
assemble clubs from components manufactured by others. While these manufacturers
of clubs are generally smaller than the Company, their products also compete
with those manufactured by the Company.
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Patents and Trademarks
The Company holds two United States patents. One protects the concept of
Posiflow weighting in iron heads, and the second protects an internal triangular
reinforcement cell for metal woods.
The Company has registered the following trademarks with the United States
Patent and Trademark Office:
<TABLE>
<S> <C> <C> <C>
TOTALLY MATCHED(R) TEE DEVIL(R) ONYX(R) TRI-BAR(R)
PCX(R) SQUARE TWO(R) S2(R)(Stylized) AGREE(R)
POSIFLOW(R) DYNA-BALANCE(R) LADY PETITE(R) MELODY(R)
SAND DEVIL(R) ALLEGRA(R) DISTANCE DEVIL(R) TURF DEVIL(R)
ZCX(R) RUFF DEVIL(R) LADIES LONG DRIVE(R)
</TABLE>
Given the competitive climate within the golf industry worldwide and the recent
counterfeiting of clubhead designs, the Company believes that it is imperative
to protect the Company's tradenames, trademarks and patentable inventions and
designs. The Company has registered "Square Two" in 25 countries.
Employees
As of December 31, 1999, the Company employed 53 persons, including 51 full-time
employees, of which two were executive officers. Forty-three of these were
hourly employees and ten were management, administrative and marketing
personnel. Additional hourly employees are hired during peak production periods
and management anticipates no problems in finding adequate employees. The
employees of the Company are not represented by any labor organization. The
Company believes that its present staff is adequate. However, if sales of the
Company's clubs should increase, it is anticipated that additional production,
clerical and management personnel may be necessary to meet product demand.
Special Note on Forward-Looking Statements
The business, financial condition and results of operations of the Company may
be adversely affected by a number of factors. Certain statements and information
contained herein constitute "forward-looking statements" within the meaning of
the Federal Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance, or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other risks and uncertainties: the risks inherent in the
development and introduction of new products; the Company's dependence on
consumer tastes, which fluctuate from time to time; seasonality and prevailing
weather conditions, as protracted periods of inclement weather could disrupt
consumer demand for golf-related products; unanticipated shortages of components
or delays in component delivery; and the significant competition in the
Company's line of business.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
It is impracticable for the Company to provide financial information about
geographic areas. Historically, the Company's sales to foreign customers have
not been material. For the fiscal year ended December 31, 1999, the Company's
sales to foreign customers comprised less than 1.4% of net sales.
ITEM 2. PROPERTIES
The Company currently leases its manufacturing, sales and executive offices
located at 18 Gloria Lane, Fairfield, New Jersey 07004. The Company exercised
its option to renew its lease at such facility through December 31, 2001. The
lease covers 20,612 square feet. This facility serves the needs of the one
segment in which the Company
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operates -- the manufacture and marketing of golf equipment -- and the Company
believes that this space is adequate for its current production levels.
ITEM 3. LEGAL PROCEEDINGS
On July 21, 1999, a former Vice President of the Company filed a complaint
against the Company in the Essex County Superior Court of New Jersey in
connection with the termination of his employment. He claims damages of
approximately $50,000. The Company intends to defend this lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to shareholders for vote during the quarter
ended December 31, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
See Part III, Item 10 of this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on Nasdaq under the trading symbol
"GOLF." The following table sets forth the high and low bid prices for the
Common Stock as provided by Nasdaq for the periods indicated. These prices
represent quotations between dealers, do not include retail markups, markdowns
or commissions and do not necessarily represent prices at which actual
transactions were effected.
<TABLE>
<CAPTION>
PERIODS: COMMON STOCK BID PRICES:
-------- ------------------------
HIGH LOW
---- ---
<S> <C> <C>
1998 1st Quarter $11.31 $4.38
1998 2nd Quarter $8.81 $4.31
1998 3rd Quarter $6.00 $2.50
1998 4th Quarter $5.25 $2.00
1999 1st Quarter $4.00 $2.50
1999 2nd Quarter $3.50 $2.18
1999 3rd Quarter $2.71 $2.00
1999 4th Quarter $2.12 $1.62
</TABLE>
On March 13, 2000, the number of holders of record of the Company's Common Stock
was approximately 196. No cash dividends have been paid to date and it is not
anticipated that cash dividends will be paid in the near future.
In 1999, the Company issued 400 shares of Common Stock to Frederick B.
Ziesenheim and 400 shares of common stock to Mary Ann Jorgenson as compensation
for their service as directors of the Company and participation in board
meetings. As no public offering was involved, the issuance of such shares was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended. See Item 11.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
OPERATING RESULTS:
<S> <C> <C> <C> <C> <C>
Net Sales $11,003,556 $11,505,000 $12,073,843 $8,563,588 $7,243,307
Net Income (Loss) 306,126 440,848 855,565 118,884 (80,468)
Net Income (Loss)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
per Share-Basic 0.14 0.20 0.39 (0.04)
per Share-Diluted 0.14 0.19 0.37 0.05 (0.04)
Weighted Average
Number of Shares
Outstanding-Basic 2,219,700 2,219,078 2,214,448 2,208,311 2,205,647
Outstanding- Diluted 2,263,876 2,315,149 2,290,505 2,208,311 2,205,647
Cash Dividend 0 0 0 0
At Year End:
Working Capital 4,020,772 3,766,986 3,435,345 2,401,904 2,320,912
Total Assets 5,752,079 7,534,080 7,630,176 5,153,651 4,726,353
Total Liabilities 1,492,011 3,582,138 4,123,082 2,513,551 2,205,137
Long Term Obligations: 84,822 146,157 202,231 253,498 315,206
Shareholders' Equity 4,260,068 3,951,942 3,507,094 2,640,100 2,521,216
Market Price of Common Stock High-Low 4.00/1.62 11.3125/2.00 5.00/.81 1.75/.81 2.50/.81
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations constitutes forward-looking
information that involves certain risks and uncertainties. See Item 1, Business,
under caption "Special Note on Forward Looking Statements."
Results of Operations
Sales
1999 Compared to 1998
For the year ended December 31, 1999, net sales were $11,003,556, versus
$11,505,000 for the year ended December 31, 1998, a decrease of $501,444 or
4.3%. The decrease in volume was primarily due to two customers experiencing
financial difficulty, tighter credit controls and continued sluggishness in the
industry, particularly in the first half of 1999.
1998 Compared to 1997
For the year ended December 31, 1998, net sales were $11,505,000 versus
$12,073,843 for the year ended December 31, 1997, a decrease of $568,843. The
decrease in sales volume was primarily the result of the Company's decision to
halt shipments to retailers with credit problems and the general softness in the
golf equipment industry in 1998.
Gross Profit
1999 Compared to 1998
Gross profit on sales for the year ended December 31, 1999 was $3,575,426
(32.4%) versus $3,837,700 (33.4%) for the year ended December 31, 1998. The
decrease was due to mix of products sold.
1998 Compared to 1997
Gross profit on sales for the year ended December 31, 1998 was $3,837,700
(33.4%) versus $3,958,530 (32.8%) for the year ended December 31, 1997. The
increase was due to lower material costs and mix of products sold.
Selling Expenses
1999 Compared to 1998
Selling expenses for the year ended December 31, 1999 were $1,641,744 versus
$1,540,048 for the year ended December 31, 1998. This increase was the result of
increased product advertising expense arising from the production and airing of
the Company's first national television advertisement.
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1998 Compared to 1997
Selling expenses for the year ended December 31, 1998 were $1,540,048 versus
$1,551,552 for the year ended December 31, 1997. This decrease was the result of
lower sales commission expense due to reduced volume and lower advertising
costs, offset by an increase in the royalty payment to the LPGA.
General Administrative
1999 Compared to 1998
General and Administrative expenses were $1,302,325 for the year ended December
31, 1999 versus $1,228,559 for the year ended December 31, 1998. This increase
was the result of increased salaries and wages as well as increased legal costs
associated with the preparation of player endorsement and licensing contracts.
1998 Compared to 1997
General and Administrative expenses were $1,228,559 for the year ended December
31, 1998 versus $1,187,444 for the year ended December 31, 1997. This was the
result of an increase in the Company's bad debt expense offset by lower
executive bonus expense and a decrease in amortization relating to the
non-compete agreement with a former officer, which was fully amortized in 1997.
Interest
1999 Compared to 1998
Interest expense for the year ended December 31, 1999 was $158,892 a decrease of
$209,393, or 56.8%, compared to the year ended December 31, 1998, which was
$368,285. The average outstanding balance of the credit facility was $1,622,654
in 1999 compared to an average balance of $3,910,051 in 1998. This decrease was
attributed to a 33.1% decrease in the average inventory balance of $2,977,544 in
1999 compared to an average balance of $4,452,970 in 1998. Average balances for
accounts receivable in 1999 of $3,421,439 were also 14.4% lower than the 1998
balance of $3,997,686.
1998 Compared to 1997
Interest expense for the year ended December 31, 1998 was $368,285, an increase
of $90,431, or 32.5%, compared to the year ended December 31, 1997, which was
$277,854. The average outstanding balance of the credit facility was $3,910,051
in 1998 compared to an average balance of $2,454,918 in 1997. This increase was
attributed to a 65.6% increase in the average inventory balance of $4,452,970 in
1998 compared to an average balance of $2,689,140 in 1997. Average balances for
accounts receivable in 1998 of $3,997,686 were also 11.9% higher than the 1997
balance of $3,572,253.
Income Taxes
1999 Compared to 1998
In 1999 the Company had an income tax provision of $166,901, compared to
$254,282 in 1998.
1998 Compared to 1997
In 1998 the Company had an income tax provision of $254,282, compared to $89,230
in 1997. The tax benefit from the net operating loss carryforward ("NOL") was
approximately $20,734 in 1998, which was 92% less than the tax benefit in 1997.
In 1998 the Company utilized the balance of the net operating loss carryforward.
Liquidity and Capital Resources
The Company's working capital increased $253,786 for the year ended December 31,
1999 to $4,020,772, compared to $3,766,986 for the year ended December 31, 1998.
This
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change was the result of a decrease in current assets of $1,775,006 offset by a
decrease in current liabilities of $ 2,028,792. The decrease in current assets
was due to a decrease of $1,426 in cash, a decrease in accounts receivable of
$662,681, which was a result of decreased sales, a decrease in inventories of
$1,085,387, and a decrease of $52,372 in current deferred income taxes. The
decrease in current liabilities was attributed to a 72.0% decrease, or
$1,992,411, in short-term borrowings as of December 31, 1999.
Cash provided by operating activities in 1999 amounted to $2,082,656 as compared
to cash provided by operations of $57,395 in 1998 and cash used in operation of
$1,177,537 in 1997. The cash provided from operations in 1999 was primarily due
to a decrease in inventory and accounts receivable.
Credit Facility
The Company has a secured revolving line of credit with PNC Bank, which was
amended and restated as of December 1, 1997, allowing a maximum credit limit of
$5,000,000, less 50% of the aggregate face amount of all outstanding letters of
credit, and subject to various borrowing bases. The availability of funds under
this line of credit varies as it is based, in part, on a borrowing base of 80%
of eligible accounts receivable and 50% of qualified inventory. Substantially
all of the Company's assets are used as collateral for the credit line. Interest
rates are at prime plus one-quarter percent, paid monthly; the interest rate as
of December 31, 1999 was 8.75%. At December 31, 1999, credit available to the
Company under the line of credit was approximately $1,259,000. The Company had
no outstanding letters of credit as of December 31, 1999.
The credit facility contains certain covenants, which among other items, require
the maintenance of certain financial ratios including tangible net worth and
working capital. Any event of default under the credit facility permits the
lender to cease making additional loans thereunder. The Company was in
compliance with all covenants and conditions of the facility as of December 31,
1999.
Year 2000
Prior to January 1, 2000 the Company completed a review of its information
systems and applications in preparation for the Year 2000. The Company incurred
internal staff costs as well as outside consulting and other capital
expenditures related to this initiative. Total incremental expenses to bring
current systems into compliance did not exceed $75,000. None of the Company's
products or manufacturing systems were affected on January 1, 2000. System
upgrades were done on a timely basis and did not impact operations or financial
reporting.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement Schedule on
page F-1 for the required information.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's current directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------- ----- --------------------------
<S> <C> <C>
Robert L. Ross 55 Chairman of Board and Chief Executive
Officer
Douglas A. Buffington 44 Director, President, Chief Financial Officer, Chief Operating
Officer and Treasurer
Randy A. Hamill 44 Senior Vice President of Manufacturing and Resources and
Assistant Secretary
Richard M. Maurer 51 Director and Secretary
Mary Ann Jorgenson 59 Director
Frederick B. Ziesenheim 73 Director
</TABLE>
ROBERT L. ROSS has been a director of the Company since 1988 and Chairman of the
Board since October 1995. Effective in January 1996, Mr. Ross became Chief
Executive Officer of the Company. He has been Co-Managing Partner of Wesmar
Partners Limited Partnership ("Wesmar Partners"), the majority shareholder of
the Company, since 1985. Prior to the formation of Wesmar Partners, Mr. Ross was
associated with The Hillman Company, a private investment firm, from 1978 to
1985. Mr. Ross is a Certified Public Accountant and was associated with Haskins
& Sells and with Westinghouse Electric Corporation prior to joining The Hillman
Company.
DOUGLAS A. BUFFINGTON joined the Company in January 1994 as Vice President of
Sales and Marketing, and became Chief Financial Officer and Chief Operating
Officer in June 1994, President in December 1994, a director in February 1995
and Treasurer in January 1996. From 1992 until joining the Company, Mr.
Buffington served as General Manager of Simon-Duplex, a $25 million capital
goods division of Simon Engineering, a company based in the United Kingdom. From
1990 to 1992, he served as Vice President of Finance of Simon-Ltd., a $35
million division of Simon Engineering.
RANDY A. HAMILL has been Senior Vice President of the Company since July 1991
and is in charge of all manufacturing and purchasing. Effective in January 1996,
Mr. Hamill became Assistant Secretary of the Company. He was formerly Vice
President of Manufacturing of the Company from 1981 to July 1991.
RICHARD M. MAURER has been a director of the Company since 1988. Effective in
January 1996, Mr. Maurer became Secretary of the Company. He has been
Co-Managing Partner of Wesmar Partners, the majority shareholder of the Company,
since 1985. Prior to the formation of Wesmar Partners, Mr. Maurer was associated
with The Hillman Company, a private investment firm, from 1978 to 1985. Mr.
Maurer is a Certified Public Accountant and was associated with Price Waterhouse
prior to joining The Hillman Company.
MARY ANN JORGENSON has been a director of the Company since 1992. She has been a
partner with the law firm of Squire, Sanders & Dempsey L.L.P. since 1984 and has
been associated since 1975 with that firm. She also serves as a director of
Cedar Fair Management Company, the general partner of Cedar Fair, L.P., an owner
and operator of amusement parks, and is a director of Anthony & Sylvan Pools
Corporation, an installer of concrete inground swimming pools.
FREDERICK B. ZIESENHEIM has been a director of the Company since 1992. He has
been with the law firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C.
since 1988 and is currently Vice Chairman of that firm. Prior to combining his
practice with
11
<PAGE> 12
that firm, he was President of the law firm of Buell, Ziesenheim, Beck and
Alstadt, P.C., with whom he had been associated since 1958.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors, executive officers and any person
holding ten percent or more of the Company's Common Stock are required to report
their initial ownership of the Company's Common Stock and any changes in that
ownership to the Securities and Exchange Commission. Based solely on a review of
copies of the forms furnished to the Company in 1999 and written representations
from the Company's directors and executive officers, the Company believes that
all Section 16(a) filing requirements applicable to its directors, executive
officers and ten percent shareholders in 1999 were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to annual and
long-term compensation for services in all capacities paid by the Company for
the years ended December 31, 1999, 1998 and 1997 to or on behalf of Robert L.
Ross, Douglas A. Buffington and Randy A. Hamill (collectively, the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Ross, 1999 $ 0 $ 0 $ 0 $ 7,500 $ 0
Chief Executive Officer 1998 $ 0 $ 0 $ 0 $ 0 $ 0
1997 $ 0 $ 0 $ 0 $ 50,000(5) $ 0
Douglas A. Buffington, 1999 $149,808 $24,375(1) $19,389(4) $ 14,375(6) $975(8)
President 1998 $137,362 $ 7,500(2) $19,992(4) $ 7,500(7) $975(8)
1997 $126,942 $31,250(3) $19,387(4) $ 0 $975(8)
Randy A. Hamill, 1999 $100,000 $ 6,250(1) $ 0 $ 6,250(6) $ 0
Vice President 1998 $ 99,337 $ 4,375(2) $ 0 $ 4,375(7) $ 0
1997 $ 96,688 $20,000(3) $ 0 $ 44,267 $ 0
</TABLE>
(1) Bonus earned in 1999, paid in 2000.
(2) Bonus earned in 1998, paid in 1999.
(3) Bonus earned in 1997, paid in 1998.
(4) Represents an approximation of travel/commuting expenses reimbursed by the
Company.
(5) In October 1997, an option to purchase 100,000 shares of Common Stock
was erroneously granted to MR & Associates. Such option was
subsequently amended to be, as was intended, a grant of an option to
purchase 50,000 shares of Common Stock to each of Mr. Ross and Mr.
Maurer.
(6) Awarded for 1999 services, granted in 2000.
(7) Awarded for 1998 services, granted in 1999.
12
<PAGE> 13
(8) The Company paid $975 annual premium on a $750,000 insurance policy on the
life of Mr. Buffington, which names Mr. Buffington's wife as the sole
beneficiary.
The following table sets forth information pertaining to stock options granted
to the Named Executives in 1999.
1999 OPTION GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS GRANTED IN 1999 $/SH DATE
- ---- --------------- ------- ---- ----
<S> <C> <C> <C>
Robert L. Ross 7,500 (1) 38.7% market none
Douglas A. Buffington 7,500 (1) 38.7% $ 3.00 (2) 1/3/09 (3)
Randy A. Hamill 4,375 (1) 22.6% $ 3.00 (2) 1/3/09 (3)
</TABLE>
(1) Immediately exercisable.
(2) Upon certain changes in control, exercise price becomes $0.01.
(3) If employment terminates before 1/3/09, option expires 3 months after such
termination.
The following table sets forth certain information pertaining to stock options
held by the Named Executives as of December 31, 1999. No options were exercised
by the Named Executives in 1999.
1999 FISCAL YEAR END OPTION HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
-AT FISCAL YEAR END AT FISCAL YEAR END(1)
------------------ ----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Robert L. Ross 57,500 0 $ 0 0
Douglas A. Buffington 51,000 0 $17,719 0
Randy A. Hamill 48,642 0 $44,267 0
</TABLE>
(1) Calculated on the basis of the fair market value of the Common Stock
of $1.9375 per share on December 31, 1999 less exercise price.
Compensation of Directors
The Company compensates its non-employee directors (Mary Ann Jorgenson and
Frederick B. Ziesenheim) by granting such persons shares of the Company's Common
Stock having a fair market value of $1,000 for every meeting of the Board of
Directors or committee thereof attended by such person, and shares of Common
Stock having a fair market value of $500 if such person participated in a
meeting by telephone. The number of shares issued is based on the closing price
of the stock on the exchange where traded on the meeting date or the preceding
date on which such shares were traded.
Certain Agreements
The Company entered into a new employment agreement with Douglas A. Buffington
effective January 1, 1998 and terminating on December 31, 2002 unless terminated
sooner as provided in the agreement. Mr. Buffington's base annual salary under
the agreement was $137,500 for 1998 and is $150,000 for each year thereafter. An
incentive cash bonus and stock option program are incorporated into the
agreement. Additional stock options, other than those provided in the incentive
program, may be granted at
13
<PAGE> 14
the discretion of the Company. The agreement also
provides for certain benefits, in addition to the standard Company employee
fringe benefits, including but not limited to reimbursement of certain expenses
and payment of premiums on a $750,000 life insurance policy with Mr.
Buffington's spouse named as beneficiary. The agreement also contains a
"non-compete" clause and an "invention and secrecy" clause.
In January 1997, the Company entered into an agreement with Randy A. Hamill
pursuant to which Mr. Hamill was granted an immediately exercisable option to
purchase 40,000 shares of Common Stock at an exercise price of $0.9375 per
share. Upon the occurrence of a change in control of the Company (as defined in
the agreement) the exercise price per share for any unexercised portion of the
option would be the lower of (a) (i) one cent or (ii) the lowest price greater
than one cent per share that would not cause the value to Mr. Hamill of shares
acquired upon exercise to be considered an "excess parachute payment" under
section 280G of the Internal Revenue Code of 1986 as amended or (b) $0.9375. In
the event that Mr. Hamill should die while employed by the Company and the
Company has received $500,000 as beneficiary of a life insurance policy it
maintains on Mr. Hamill's life, Mr. Hamill's estate will have the right to
require the Company to purchase the option, if unexercised, for $500,000 or,
subject to certain limitations, to purchase up to 39,999 shares received on
exercise of the option for their fair market value at that time.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 13, 2000 by (i) each person
who beneficially owned 5% or more of the outstanding Common Stock, (ii) each
director, (iii) each Named Executive and (iv) all directors and executive
officers as a group calculated in accordance with Rule 13d-3 under the Exchange
Act. Except as otherwise noted, the persons named in the table below have sole
voting and investment power with respect to the shares shown as beneficially
owned by them.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED(1) OF CLASS(1)
- ------------------- -------- -----------
<S> <C> <C>
L. R. Jeffrey (2) 250,000 10.1%
50 Gloucester Road
Summit, NJ 07901
Richard M. Maurer (3) 1,491,896 65.2%
Three Gateway Center
Pittsburgh, PA 15222
Robert L. Ross (4) 1,473,596 64.4%
Three Gateway Center
Pittsburgh, PA 15222
Mary Ann Jorgenson 10,465 *
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
Frederick B. Ziesenheim 10,948 *
700 Koppers Building
436 7th Avenue
Pittsburgh, PA 15219-1818
Douglas A. Buffington 67,375 3.0%
18 Gloria Lane
Fairfield, NJ 07004
Randy A. Hamill (5) 69,142 3.0%
18 Gloria Lane
Fairfield, NJ 07004
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
Wesmar Partners (6) 1,399,096 63.0%
MR & Associates
Maurer, Ross & Co., Incorporated
Three Gateway Center
Pittsburgh, PA 15222
All directors and executive
officers as a group (6 persons)(7) 1,724,326 69.7%
</TABLE>
*Less than 1%
(1) The numbers shown include shares covered by options that are currently
exercisable as of March 13, 2000. The numbers and percentages of shares
owned assume that such outstanding options had been exercised as
follows: L. R. Jeffrey, Jr. - 250,000, Richard M. Maurer - 67,500,
Robert L. Ross - 67,500, Douglas A. Buffington - 63,017, Randy A.
Hamill - 54,892 and all directors and executive officers as a group -
240,267.
(2) Does not include 730 shares owned by various members of Mr. Jeffrey's
family with respect to which shares he disclaims any beneficial
ownership.
(3) Includes 25,300 shares which are held directly by three trusts of which
Mr. Maurer is co-trustee and with respect to which he shares voting and
investment power and 1,399,096 shares owned directly by Wesmar Partners
with respect to which he shares voting and investment power and 67,500
shares underlying the options held directly by Mr. Maurer. Mr. Maurer
is an officer, director and principal shareholder of Maurer Ross & Co.,
Incorporated, the general partner of MR & Associates, and the managing
general partner of Wesmar Partners.
(4) Includes 1,399,096 shares owned directly by Wesmar Partners and 67,500
options underlying the options held by Mr. Ross. Mr. Ross is an
officer, director and principal shareholder of Maurer Ross & Co.,
Incorporated, the general partner of MR & Associates, the managing
general partner of Wesmar Partners.
(5) Does not include shares owned by various members of Mr. Hamill's family
with respect to which shares Mr. Hamill disclaims any beneficial
ownership.
(6) Wesmar Partners is a Delaware limited partnership whose partners are
Landmark Equity Partners III, L. P., a Delaware limited partnership,
and MR & Associates, a Pennsylvania limited partnership. MR &
Associates is the managing partner of Wesmar Partners. Messrs. Maurer
and Ross are officers, directors and principal shareholders of Maurer
Ross & Co., Incorporated, a Pennsylvania corporation and the general
partner of MR & Associates.
(7) Does not include shares owned by various members of a certain officer's
family with respect to which shares such officer disclaims any
beneficial ownership. Includes 1,399,096 shares owned directly by
Wesmar Partners (See Notes 3, 4 and 6 above).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others
During the fiscal year ended December 31, 1999, Richard M. Maurer and Robert L.
Ross provided the Company with employee services on a non-compensated basis. Mr.
Maurer is Secretary and a director of the Company. Mr. Ross is Chief Executive
Officer, Chairman and a director of the Company.
During the fiscal year ended December 31, 1999, the Company retained the law
firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C., of which
Frederick B. Ziesenheim, a director of the Company, is a Vice President and
member of the Management Committee, to represent the Company on various
intellectual property matters.
15
<PAGE> 16
During the fiscal year ended December 31, 1999, the Company retained the law
firm of Squire, Sanders & Dempsey L.L.P., of which Mary Ann Jorgenson, a
director of the Company, is a partner, to represent the Company in various
matters.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedule on Page F-1 are filed as part of
this report.
(2) The financial statement schedule listed in the accompanying Index to
Financial Statements and Financial Statement Schedule on Page F-1 is filed as
part of this report.
(3) The Exhibits listed in the accompanying Exhibit Index are filed as
part of this report.
(b) No reports on Form 8-K were filed for the fourth quarter ended December 31,
1999.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>
S2 GOLF INC.
<S> <C>
Dated: March 27, 2000 By: /s/ Douglas A. Buffington
--------------------------
Douglas A. Buffington
President, Chief Financial Officer,
Chief Operating Officer and Treasurer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------- ----- -------
<S> <C> <C>
/s/ Douglas A. Buffington Director, President, Chief March 27, 2000
- ------------------------ Financial Officer, Chief
Douglas A. Buffington Operating Officer and Treasurer
/s/ Robert L. Ross Chairman of the Board March 27, 2000
- ----------------------- and Chief Executive Officer
Robert L. Ross
/s/ Richard M. Maurer Director and Secretary March 24, 2000
- ---------------------
Richard M. Maurer
/s/ Mary Ann Jorgenson Director March 27, 2000
- ----------------------
Mary Ann Jorgenson
/s/ Frederick B. Ziesenheim Director March 28, 2000
- ---------------------------
Frederick B. Ziesenheim
</TABLE>
17
<PAGE> 18
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- -------------------- ------
<S> <C>
Independent Auditors' Report F-2
F-3
Balance Sheets - December 31, 1999
and 1998 F-4
Statements of Operations - For the Years
Ended December 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows - For the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Changes in Shareholders' Equity - For the
Years Ended December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
and Reserves F-15
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
S2 Golf, Inc.
We have audited the accompanying balance sheet of S2 Golf, Inc. as of December
31, 1999, and the related statements of operations, changes in shareholders'
equity, and cash flows and financial statement schedule for the year ended
December 31, 1999. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of S2 Golf, Inc. as of December
31, 1999, and the results of its operations and its cash flows for the year
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the financial statement schedule referred to
above, when considered in relation to the basis financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/Rothstein, Kass & Company,P.C.
Roseland, New Jersey
February 18, 2000
F-2
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of S2 Golf Inc.
We have audited the accompanying balance sheet of S2 Golf, Inc. as of December
31, 1998 and the related statements of operations, changes in shareholders'
equity, and cash flows for each of the two years in the period ended December
31, 1998. Our audits also included the financial statement schedule listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of S2 Golf, Inc. as of December 31, 1998 and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/Deloitte & Touche LLP
Parsippany, New Jersey
March 22, 1999
F-3
<PAGE> 21
S2 GOLF INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash $ 150 $ 1,576
Accounts Receivable (net) 2,650,197 3,312,878
Inventories 2,554,736 3,640,123
Prepaid Expenses 59,278 32,418
Deferred Income Taxes 163,600 215,972
---------- ----------
Total Current Assets 5,427,961 7,202,967
Plant and Equipment - Net 104,476 59,442
Non-Current Deferred Income Taxes 82,000 118,056
Other Assets - Net 137,642 153,615
---------- ----------
Total Assets 5,752,079 7,534,080
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term Borrowings $774,468 $2,766,879
Accounts Payable 399,864 324,849
Accrued Expenses 171,522 288,178
Other Current Liabilities 61,335 56,075
---------- ----------
Total Current Liabilities 1,407,189 3,435,981
Non-Current Liabilities 84,822 146,157
--------- ----------
Total Liabilities 1,492,011 3,582,138
--------- ---------
Commitments and Contingency
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Authorized
Shares: 2,220,113 and 2,219,313 Issued and
Outstanding at December 31, 1999 and 1998,
respectively 22,201 22,193
Additional Paid-in Capital 4,042,787 4,040,795
Accumulated Profit(Deficit) 195,080 (111,046)
--------- ----------
Total Shareholders' Equity 4,260,068 3,951,942
---------- ----------
Total Liabilities and Shareholders' Equity $5,752,079 $7,534,080
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements
F-4
<PAGE> 22
S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales $ 11,003,556 $ 11,505,000 $ 12,073,843
Cost of Goods Sold 7,428,130 7,667,300 8,115,313
------------ ------------ ------------
Gross Profit 3,575,426 3,837,700 3,958,530
------------ ------------ ------------
Operating Expenses:
Selling 1,641,744 1,540,048 1,551,552
General & Administrative 1,302,325 1,228,559 1,187,444
------------ ------------ ------------
Total Operating Expenses 2,944,069 2,768,607 2,738,996
------------ ------------ ------------
Operating Income 631,357 1,069,093 1,219,534
------------ ------------ ------------
Other Income (Expense)
Interest Expense (158,892) (368,285) (277,854)
Other Income (Expense) 562 (5,678) 3,115
------------ ------------ ------------
Other - Net (158,330) (373,963) (274,739)
------------ ------------ ------------
Income Before Income Taxes 473,027 695,130 944,795
Provision for Income Taxes 166,901 254,282 89,230
------------ ------------ ------------
Net Income $ 306,126 $ 440,848 $ 855,565
============ ============ ============
Earnings per Common Share - Basic $ 0.14 $ 0.20 $ 0.39
============ ============ ============
Diluted $ 0.14 $ 0.19 $ 0.37
============ ============ ============
Weighted Average Number of Shares
Outstanding -
Basic 2,219,700 2,219,078 2,214,448
Diluted 2,263,876 2,315,149 2,290,505
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements
F-5
<PAGE> 23
S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 306,126 $ 440,848 $ 855,565
Adjustments to Reconcile Net Income to
Net Cash Provided By (Used in)
Operating Activities:
Depreciation and Amortization 63,499 57,092 108,488
Deferred Income Taxes 88,428 68,885 (65,024)
Issuance of Stock for Compensation 2,000 4,000 11,430
Allowance for Doubtful Accounts 272,919 (108,368) 70,799
Allowance for Returns 190,586 (10,000) (40,877)
Inventory Obsolescence Reserve 75,000 (60,621) 22,702
Changes in Assets and Liabilities:
Accounts Receivable 199,176 528,414 (1,323,166)
Inventories 1,010,387 (485,200) (1,243,803)
Prepaid Expenses (26,860) 12,242 (2,307)
Other Assets (889) (3,906) (31,289)
Accounts Payable 75,015 (283,875) 378,634
Accrued Expenses (116,656) (48,731) 141,608
Other Current and Non-Current
Liabilities (56,075) (53,385) (60,297)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS 2,082,656 57,395 (1,177,537)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of Equipment (91,671) (22,297) (17,209)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (91,671) (22,297) (17,209)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from (payments of) revolving
line of credit, net (1,992,411) (154,953) 1,149,586
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,992,411) (154,953) 1,149,586
----------- ----------- -----------
DECREASE IN CASH (1,426) (119,855) (45,160)
CASH - BEGINNING OF PERIOD 1,576 121,431 166,591
----------- ----------- -----------
CASH - END OF PERIOD $ 150 $ 1,576 $ 121,431
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES Cash Paid During the Year For:
Interest $ 158,892 $ 361,644 $ 261,411
Income Taxes (Net of Refund) 179,500 254,282 (9,295)
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements
F-6
<PAGE> 24
S2 GOLF INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED SHARE-
------------ PAID IN PROFIT HOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1996 2,208,311 $ 22,083 $ 4,025,475 $(1,407,459) 2,640,099
Issuance of Common Stock 10,294 103 11,327 - 11,430
Net Income 1997 855,565 855,565
--------- --------- ------------ ----------- -----------
Balance - December 31, 1997 2,218,605 $ 22,186 4,036,802 (551,894) $ 3,507,094
Issuance of Common Stock 708 7 3,993 - 4,000
Net Income 1998 440,848 440,848
--------- --------- ------------ ----------- -----------
Balance - December 31, 1998 2,219,313 $ 22,193 $ 4,040,795 $ (111,046) $ 3,951,942
Issuance of Stock 800 8 1,992 - 2,000
Net Income 1999 306,126 306,126
--------- --------- ------------ ----------- -----------
Balance December 31, 1999 2,220,113 $ 22,201 $ 4,042,787 $ 195,080 $ 4,260,068
========= ========= ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements
F-7
<PAGE> 25
S2 GOLF INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
S2 Golf Inc. (the "Company") was incorporated under the laws of the state of New
Jersey on February 2, 1982. The Company manufactures and markets a proprietary
line of golf equipment including golf clubs, golf bags, golf balls and
accessories. These operations comprise one business segment. The Company markets
these products under various tradenames and uses several additional trademarks.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company sells to customers primarily throughout the United States, with a
small amount sold to customers overseas. The Company does not require collateral
on its trade receivables and while it believes its trade receivables, net of
allowances, will be collected, the Company anticipates that in the event of
default it would follow normal collection procedures. Overall, management
believes the Company's credit risk related to its trade receivables is limited
due to the broad range of products and the large number of customers in
differing geographic areas.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable and accounts payable approximate
their carrying values due to the short-term nature of the instruments. The fair
value of short-term borrowings approximates their carrying value due to their
variable interest rate features, which reprice quarterly. The fair value of
long-term borrowings approximate their carrying value due to the interest rate
which approximates the prime rate.
INVENTORIES
Inventories are valued at the lower of cost, determined on the basis of the
first-in, first-out method, or market. Inventories consists of materials, labor
and manufacturing overhead.
PLANT & EQUIPMENT
Equipment is stated at cost, less accumulated depreciation. Depreciation is
provided over the estimated useful service life.
The estimated lives used in determining depreciation are:
Machinery and Equipment 5 Years
Furniture and Fixtures 7 Years
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements whichever is shorter.
Maintenance and repairs are charged to operations as incurred.
REVENUE RECOGNITION
F-8
<PAGE> 26
The Company recognizes revenue upon the shipment of merchandise in fulfillment
of orders. As of December 31, 1999 and 1998, the Company had an allowance for
doubtful accounts of $215,000 and $212,562, respectively, allowance for
discounts of $40,000 in each year, and an allowance for returns of $88,000 and
$83,000 respectively.
ADVERTISING COSTS
The Company expenses costs of advertising as incurred. Advertising expenses
included in selling expenses for the years ended December 31, 1999, 1998 and
1997 were approximately $511,000, $321,000 and $394,000 respectively.
INCOME TAXES
The Company complies with Statement of Financial Accounting Standards No. 109
(SFAS No. 109) "Accounting for Income Taxes", which requires an asset and
liability approach to financial recording for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce the deferred tax
assets to the amount expected to be realized.
OTHER ASSETS
Other assets principally include patents, trademarks and a covenant not to
compete with a former officer of the Company. The patents and trademarks are
amortized on the straight-line method over 15 years. The covenant not to compete
was amortized over a five-year period on a straight-line method, which began on
July 1, 1992 and ended in June 1997. Management periodically evaluates the
recoverability of intangible assets based upon current and anticipated net
income and undiscounted future cash flows.
EARNINGS PER SHARE
The Company complies with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share." SFAS No. 128 revises certain methodologies for
computing earnings per share ("EPS") and requires the dual presentation of basic
and diluted earnings per share. Basic EPS excludes dilution and is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if stock options or other contracts to issue
common stock were exercised and resulted in the issuance of common stock that
then shared in the earnings of the Company. Diluted EPS is computed using the
treasury stock method when the effect of common stock equivalents would be
dilutive. The only reconciling item between the denominator used to calculate
basic EPS and the denominator used to calculate diluted EPS is the dilutive
effect of stock options issued to employees of the Company and other parties.
The Company has issued no other potentially dilutive common stock equivalents.
RECLASSIFICATIONS
Certain reclassifications to prior years financial statements were made in order
to conform to the 1999 presentation.
2. INVENTORIES
Inventories consists of the following components at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Finished Goods $ 638,684 $ 695,825
</TABLE>
F-9
<PAGE> 27
<TABLE>
<S> <C> <C>
Work-in-process 25,000
Raw Materials 1,916,052 2,919,298
---------- ----------
$2,554,736 $3,640,123
========== ==========
</TABLE>
3. PLANT AND EQUIPMENT
Plant and equipment at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Machinery and Equipment $759,763 $668,092
Furniture and Fixtures 54,485 54,485
Leasehold Improvements 43,554 43,554
-------- --------
Total 857,802 766,131
Less: Accumulated Depreciation and Amortization 753,326 706,689
-------- --------
$104,476 $ 59,442
======== ========
</TABLE>
Depreciation and amortization for the years ended 1999, 1998 and 1997 was
$46,637, $42,329,and $50,395, respectively.
4. OTHER ASSETS
Other assets consist of the following at December 31, 1999, and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Covenant Not to Compete $436,277 $436,277
Patents and Trademarks 223,809 222,920
Security Deposits 49,500 49,500
-------- --------
Total $708,586 $708,697
Less: Accumulated
Amortization 571,944 555,082
-------- --------
$137,641 $153,615
======== ========
</TABLE>
Amortization expense for the years ended 1999, 1998 and 1997 was $16,862,
$14,763, and $58,093, respectively.
5. SHORT TERM BORROWINGS
The Company has a revolving line of credit with PNC Bank, allowing a maximum
credit limit of $5,000,000, less 50% of the aggregate face amount of all
outstanding letters of credit, and subject to various borrowing bases through
September 1, 2000. The availability of funds under this line of credit varies as
it is based, in part, on a borrowing base of 80% of eligible accounts receivable
and 50% of qualified inventory. Substantially all of the Company's assets are
used as collateral for the credit line. Interest rates are at prime plus
one-quarter percent, paid monthly; the interest rate as of December 31, 1999 was
8.75% compared to 8% as of December 31, 1998. At December 31, 1999 and 1998,
funds available to the Company under the line of credit was approximately
$1,259,000 and $758,000 respectively. Outstanding letters of credit as of
December 31, 1999 and 1998 were $0 and $13,276 respectively.
The credit facility contains certain covenants which, among other items, require
the maintenance of certain financial ratios including tangible net worth and
working capital. Any event of default under the credit facility permits the
lender to cease making additional loans thereunder. The Company was in
compliance with all covenants and conditions of the facility as of December 31,
1999.
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998 and
1997 consists of the following:
F-10
<PAGE> 28
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 62,173 $ 137,704 $ 61,912
State 16,300 47,693 92,342
-------- -------- --------
78,473 185,397 154,254
------ -------- ---------
Deferred
Federal 62,784 53,363 (48,127)
State 25,644 15,522 (16,897)
-------- ------- ---------
88,428 68,885 (65,024)
-------- ------- --------
Total Provision
for Income Taxes $ 166,901 $ 254,282 $ 89,230
========= ========= ========
</TABLE>
A summary of the differences between the actual income tax provision (benefit)
and the amounts computed by applying the statutory federal income tax rate to
income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal Tax at
Statutory Rate $ 160,829 $ 236,365 $ 321,230
Increase (Decrease) in Taxes
Resulting From:
Utilization of NOL (20,734) (259,148)
Meals and Entertainment 2,081 1,353 7,600
State Tax, Net of Federal
Tax Benefit 28,382 41,722 45,809
Reversal of reserves no longer
considered necessary (8,000)
Other (16,391) (4,424) (26,261)
---------- -------- -----------
Total Income Tax Provision $166,901 $ 254,282 $ 89,230
======== ========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the current and noncurrent deferred tax assets at December 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Accounts Receivable Allowances $135,200 $136,021
Accrued Expenses 4,000 79,951
Non-Compete Agreement 24,400 0
------ -
Current Deferred Income Tax Assets $163,600 $215,972
======== ========
Non-Compete Agreement $ 34,000 $ 80,771
Other 48,000 37,285
-------- --------
Non Current Deferred Income Tax Assets $ 82,000 $ 118,056
======== =========
</TABLE>
7. LEASED PROPERTIES
OPERATING LEASE
The Company leases factory and office space at 18 Gloria Lane, Fairfield, New
Jersey. The Company has exercised its option to renew this lease through
December 31, 2001. The annual base rent for 2000 and 2001 will be $131,917. In
addition to the base rent, the Company is obligated to pay its pro rata share of
real estate taxes, assessments and water and sewer charges. Total rent expense
for the years ended December 31, 1999, 1998 and 1997 was $152,339, $119,269, and
$118,519 respectively.
The Company currently leases one automobile. The term of the lease is 24 months,
ending May 12, 2001. The total expense for 1999 was $7,162. Expense to be
incurred in years ending December 31, 2000 and 2001 are $ 9,549 and $ 2,388,
respectively
F-11
<PAGE> 29
8. COMMITMENTS AND CONTINGENCY
ROYALTIES PAYABLE
Under the terms of an agreement with the Ladies Professional Golf Association
(LPGA), the Company is obligated to pay a license and royalty fee based upon
sales volume. Beginning in 1998, the minimum annual license and royalty fee is
$200,000 through December 31, 2003 payable in equal quarterly installments. In
the event that the sum of (A) 5% of the net sales of the licensed products
(other than golf shoes) up to $1,000,000 in any calendar year, (B) 2.5% of the
net sales of the licensed products (other than golf shoes) in excess of
$1,000,000 and less than $5,000,000 in any calendar year and (C) 1% of the net
sales of the licensed products (other than golf shoes) in excess of $5,000,000
exceeds the annual license fee, the excess plus 1% of the net sales of golf
shoes in that calendar year shall be paid as a royalty fee.
As of December 31, 1999 and 1998, the accrued royalty was $0 and $7,630
respectively. Royalty expense for years ended December 31, 1999, 1998, and 1997
was $200,000, $244,829, and $175,000 respectively.
In addition, the Company is obligated to spend a minimum of $100,000 per year on
various advertising programs and to be a "Title Sponsor" of the LPGA Teaching
and Club Professionals ("T&CP") Division Team Classic at an annual cost of
$35,000 beginning in 1999 and increasing by $2,500 per year through the term of
the agreement.
EMPLOYMENT AGREEMENT
The Company entered into a new employment agreement with Douglas A. Buffington
effective January 1,1998 and terminating on December 31, 2002 unless terminated
sooner as provided in the agreement. Mr. Buffington's base annual salary under
the agreement was $137,500 for 1998 and $150,000 for each year thereafter. An
incentive cash bonus and stock option program are incorporated into the
agreement. Additional stock options, other than those provided in the incentive
program, may be granted at the discretion of the Company. The agreement also
contains a "non-compete" clause and an "invention and secrecy" clause.
ENDORSEMENT AGREEMENT
In October 1999, the Company entered into an agreement with former LPGA Golf
Professional Kathy Whitworth, effective January 1, 2000 through December 31,
2005. Under the terms of the agreement, Ms. Whitworth grants the company an
exclusive license to use her name, likeness, image and personal identification,
singly or in any combination, in connection with the production, marketing and
sale of a "Kathy Whitworth" signature line of women's golf clubs. In addition,
the Company has the right to include Ms. Whitworth in two print and
one-television advertisement per year. The Company will pay Ms. Whitworth a base
fee of $36,000 per year in equal quarterly payments. In addition, Ms. Whitworth
will receive a royalty fee of 2% of net sales of "Kathy Whitworth" line of
clubs.
Ms. Whitworth agrees to use only the golf clubs and golf bags of the Company in
any golf event, either professional or social, during the term of the agreement.
Ms. Whitworth will serve as a golf instructor at up to 10 golf clinics per
calendar year. In addition, Ms. Whitworth will represent the Company at 2
Professional Golf Association merchandise shows as their spokesperson each
calendar year. The Company will reimburse Ms. Whitworth for all reasonable and
necessary travel expenses in connection with her performance of the services.
LEGAL
The Company, in the ordinary course of business, is party to a legal action, the
outcome of which, in the opinion of management, will not have a material adverse
effect on the result of operations, cash flows or financial position of the
Company.
F-12
<PAGE> 30
OTHER LIABILITIES
Under the terms of a Separation Agreement, the Company is obligated to pay its
former President $6,000 per month for a period of ten years that began on April
1, 1992 as consideration for his covenant not to compete with the Company. The
obligation is recorded at its present value in other current and non-current
liabilities, and accrues interest at 9% per annum.
In connection with the Separation Agreement, the Company granted its former
President stock options for 250,000 shares of the Company's common stock
("Common Stock") at an exercise price of $4.48 per share, which was the average
of the closing bid and asked prices of the Company's Common Stock on the last
trading date immediately preceding the effective date of the grant. Subject to
certain limitations, the options were exercisable immediately and will remain
exercisable until April 16, 2006. If, and to the extent that, any amount is
realized in excess of the exercise price upon the sale of any Common Stock
obtained upon exercise of all or any part of the options, then 65 percent of
such excess amount, subject to certain limitations, is to be paid to the Company
in immediately available funds concurrent with the realization event.
9. STOCK OPTIONS AND GRANTS OF STOCK
Options have been granted to current and former officers, employees and
directors of the Company at the discretion of the Company's Board of Directors.
The table below summarizes all outstanding stock options.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at January 1, 1997 491,670 $4.006
Granted 164,000 2.232
Canceled or expired 90,000 5.000
------ -----
Outstanding at December 31, 1997 565,670 $3.333
Granted 2,000 4.250
----- -----
Outstanding at December 31, 1998 567,670 $3.336
Granted 28,875 2.608
------ -----
Outstanding at December 31, 1999 596,545 $3.295
======= ======
</TABLE>
The Company applies the intrinsic value method in accounting for its stock
plans. Accordingly, no compensation cost has been recognized for stock option
grants issued to employees under any of the Company's stock option plans. If
compensation cost for stock option grants issued during 1999, 1998 and 1997 had
been determined under the provisions of SFAS No. 123, the Company's net income
would have been $276,504 $436,331, and $661,172, respectively. The Company's net
income per share for basic and diluted in 1999, 1998 and 1997 would have been
$.12 and $.12, $.20 and $.19, $.29 and $.28, respectively.
The fair value of each stock option granted under the Company's plans was
estimated on the date of grant using the Black-Scholes option pricing model. The
following weighted average assumptions were used to value grants issued under
the plans in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Annualized Volatility 46% 70% 66-83%
Risk-free interest rate 5% 5% 5%
Expected term of option (in years) 3.5 3.5 3.5
Dividend Yield N/A N/A N/A
</TABLE>
The weighted average fair values per share of stock options granted during 1999,
1998 and 1997 were $3.00, $4.25 and $2.23, respectively.
The exercise price ranges for options outstanding and exercisable at December
31, 1999 were:
F-13
<PAGE> 31
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED
OUTSTANDING AND AVERAGE
EXERCISABLE AT EXERCISE
EXERCISE PRICE RANGE DECEMBER 31, 1999 PRICE
- -------------------- ----------------- -----
<S> <C> <C>
$0.50 to $2.00 174,000 $1.46
$2.01 to $5.00 422,545 $4.05
------- -----
Total 596,545 $3.30
</TABLE>
The Company has generally granted options that do not expire.
GRANTS OF STOCK TO DIRECTORS
The Company compensates its non-employee directors by granting such persons
shares of the Company's Common Stock having a value of $1,000 for every meeting
of the Board of Directors or committee thereof attended by such person, and
shares of common stock having a value of $500 if such person participated in a
meeting by telephone. The number of shares issued is based on the closing price
of the stock on the exchange where traded on the meeting date or the preceding
date on which such shares were traded.
10. RELATED PARTY TRANSACTIONS
During the fiscal years ended December 31, 1999 and 1998, Richard M. Maurer and
Robert L. Ross provided the Company with an insignificant amount of employee
services on a non-compensated basis. Mr. Maurer is Secretary and a director of
the Company and Mr. Ross is Chief Executive Officer, Chairman and a director of
the Company.
During the fiscal years ended December 31, 1999, 1998 and 1997, the Company
retained the law firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C.,
of which Frederick B. Ziesenheim, a director of the Company, is a Vice Chairman,
to represent the Company on various intellectual property matters. The Company
had paid Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C. $22,807, $28,122,
and $17,524 in 1999, 1998 and 1997, respectively, and was indebted in the amount
of $2,673, $877, and $627 at December 31, 1999, 1998 and 1997, respectively.
During the fiscal years ended December 31, 1999 and 1998, the Company retained
the law firm of Squire, Sanders & Dempsey L.L.P., of which Mary Ann Jorgenson, a
director of the Company, is a partner, to represent the Company on various
matters. The Company had paid Squire, Sanders & Dempsey L.L.P. $ 22,494 in 1999
and was indebted in the amount of $ 3,162 and $ 1,173 at December 31, 1999 and
1998 respectively.
11. SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
During 1999, 1998 and 1997, the Company recorded certain non-cash charges of
$15,925, $20,734, and $25,130, respectively, representing accrued interest for a
liability to its former President in connection with his Separation Agreement.
F-14
<PAGE> 32
S2 GOLF, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 31, 1997 250,131 159,000 --- 88,194(1) 320,937
December 31, 1998 320,930 268,450 --- 376,818(1) 212,562
December 31, 1999 212,562 272,919 --- 270,481(1) 215,000
ALLOWANCE FOR RETURNS
December 31, 1997 62,000 184,289 --- 157,657 88,632
December 31, 1998 88,632 135,930 --- 136,562 88,000
December 31, 1999 88,000 190,586 --- 195,586 83,000
ALLOWANCE FOR DISCOUNTS
December 31, 1997 90,877 128,977 --- 169,854 50,000
December 31, 1998 50,000 225,427 --- 235,427 40,000
December 31, 1999 40,000 236,974 --- 236,974 40,000
INVENTORY OBSOLESCENCE RESERVE
December 31, 1997 200,374 72,000 --- 49,298 223,076
December 31, 1998 223,076 --- --- 60,621 162,455
December 31, 1999 162,455 75,000 --- 87,049 150,406
</TABLE>
(1) Uncollectible Accounts Written Off, Net of Recoveries
F-15
<PAGE> 33
EXHIBIT INDEX
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 Amended and Restated Licensing Agreement between Ladies Professional
Golf Association and the registrant dated January 1, 1999.
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 registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
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).
F-16
<PAGE> 34
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 (incorporated by reference to Exhibit 10.10 of the registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.11 Second amendment to loan and security agreement between registrant and
PNC Bank dated December 1, 1997 (incorporated by reference to Exhibit
10.12 of the registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.12 License Agreement between the registrant and Raymond Lanctot Ltee/Ltd.
dated June 28, 1999.
10.13 Endorsement Agreement between the registrant and Kathy Whitworth dated
October 13, 1999.
27 Financial Data Schedule.
* 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.
F-17
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
LICENSING AGREEMENT
This Agreement is made this 1ST day of JANUARY 1999 by and between the
LADIES PROFESSIONAL GOLF ASSOCIATION, an Ohio nonprofit corporation with offices
at 100 International Golf Drive, Daytona Beach, Florida 32124-1092 ("LPGA"), and
S2 GOLF INC., a New Jersey corporation having its principal place of business at
18 Gloria Lane, Fairfield, New Jersey 07004 (hereinafter, "Licensee").
WHEREAS, the LPGA owns all right, title and interest in, and has the
exclusive right to license the use of, its name and marks and the logo as
described and depicted in Exhibit A attached hereto (collectively, the "Logos");
WHEREAS, Licensee desires to obtain from the LPGA, and the LPGA desires
to grant to Licensee, a license to use the Logos in connection with the
manufacture, distribution and sale of the articles specified in Exhibit B
attached hereto in accordance with the terms and conditions of this Agreement;
WHEREAS, the LPGA and Licensee have previously entered into that
certain Amended and Restated Licensing Agreement dated July 1, 1996 (the "Former
Licensing Agreement"); and
WHEREAS, the LPGA and Licensee desire hereby to amend and restate the
Former Licensing Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. DEFINITIONS.
(a) "Premium" shall mean any articles used or to be used for
the purpose of increasing the sale of or publicizing any other product or
service.
(b) "Net Sales" shall mean the dollar amount of gross sales of
the Licensed Products by Licensee or by any entity affiliated with Licensee,
less (i) quantity and cash discounts, (ii) returns actually made or allowed, and
(iii) a deduction for uncollectible accounts but without deduction for
commissions, taxes, manufacturing, marketing and distribution costs or any other
amount. For purposes of calculating Net Sales, Licensed Products distributed by
Licensee or by any entity affiliated with Licensee at less than the usual net
sales price for such Licensed Products shall be deemed to have been distributed
at the usual net sales price for such Licensed Product.
2. GRANT OF LICENSE.
<PAGE> 2
(a) The LPGA grants to Licensee during the entire Term of this
Agreement (i) the non-exclusive, worldwide license to use the Logos solely in
connection with the manufacture, distribution and sale of the Non-Exclusive
Articles described in Exhibit B attached hereto and made a part hereof and (ii)
the exclusive worldwide license to use the Logos solely in connection with the
manufacture, distribution and sale of the Exclusive Articles described in
Exhibit B attached hereto and made a part hereof (the Non-Exclusive Articles and
Exclusive Articles set forth in Exhibit B attached hereto are collectively
referred to as the "Licensed Products").
(b) No license is granted hereunder for the use of the Logos
for any purpose other than upon or in connection with the Licensed Products.
Except as permitted under paragraph 2(b) above, no license is granted hereunder
for the manufacture, sale or distribution of the Licensed Products for publicity
purposes, in combination sales, as Premiums or giveaways, or in connection with
any similar method of merchandising. If the Exclusive Articles of the Licensed
Products are required by the LPGA for Premium purposes, the LPGA shall, by
separate agreement, grant Licensee the right to manufacture and sell such
merchandise for such purposes, provided that such additional grant does not
conflict with other commitments of the LPGA and that Licensee is able to produce
the same in the quantities required at competitive prices. If Licensee is unable
to meet such conditions, the LPGA shall have the right to obtain such
merchandise from other manufacturers.
3. SCOPE. Licensee shall be entitled to use the license granted
hereunder on a worldwide basis. Notwithstanding the preceding sentence, Licensee
acknowledges that the LPGA has made no representations or warranties of any
nature pertaining to the use of the Logos outside the United States. Without
limiting the generality of the foregoing, the LPGA disclaims any representation
or warranty, express or implied, concerning the ownership, exclusivity, or the
right to the use of the Logos outside of the United States. Licensee hereby
acknowledges that the license granted to Licensee hereunder grants to Licensee
only such rights, if any, that Licensor has in and to the Logos outside of the
United States. If requested by Licensee, the LPGA agrees to cooperate with
Licensee to permit Licensee to procure and obtain, in the name and on behalf of
the LPGA, trademark, copyright, design patent or other property right protection
of the Logos, at Licensee's expense, in Jurisdictions outside the United States;
provided, however, that the LPGA agrees promptly to reimburse Licensee for its
expenses incurred in connection with obtaining such protection in an aggregate
amount not to exceed $2,000 for each calendar year during the Term of this
Agreement.
4. TERM. The Initial Term of this Agreement shall commence as of
January 1, 1999, and shall continue through December 31, 2003. Licensee shall
have the option (the "Option"), upon one hundred twenty (120) days prior written
notice received by the LPGA before the expiration hereof, to renew this
Agreement for a second Subsequent Term of two (2) years, the approval of which
renewal the LPGA shall withhold only if Licensee has substantially failed to
perform its material obligations hereunder to the reasonable satisfaction of the
LPGA. The Initial Term plus any and all Subsequent Terms shall equal the entire
Term of this Agreement. The Term of the Former Licensing Agreement shall expire
on December 31, 1998.
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<PAGE> 3
5. ANNUAL LICENSE FEE AND ROYALTY PAYMENTS.
(a) In consideration of the license granted herein to Licensee
by the LPGA, Licensee shall pay to the LPGA an annual license fee (the "Annual
License Fee"), payable as follows:
Calendar Year Annual License Fee
------------- ------------------
1999, 2000, 2001, 2002 & 2003 $200,000
If Option is exercised:
2004 & 2005 $225,000
(b) In addition to the Annual License Fee payable by Licensee
to the LPGA pursuant to paragraph 5(a) above, Licensee hereby agrees to pay to
the LPGA an annual royalty payment (the "Annual Royalty Payment") calculated in
the following manner:
(i) During the Term of this Agreement, in the event
that the sum of (A) five percent (5%) of the Net Sales of the Licensed Products
(other than golf shoes) up to $1,000,000 in any calendar year, (B) two and
one-half percent (2.5%) of the Net Sales of the Licensed Products (other than
golf shoes) in excess of $1,000,000 and less than $5,000,001 in any calendar
year and (C) one percent (1%) of the Net Sales of the Licensed Products (other
than golf shoes) in excess of $5,000,000 in any calendar year exceeds the Annual
Licensee Fee paid by Licensee in such year pursuant to paragraph 5(a) above, the
Annual Royalty Payment payable by Licensee with respect to such year shall be
the sum of (a) the amount equal to such excess plus (b) one percent (1%) of the
Net Sales of golf shoes in any calendar year.
(c) Licensee agrees to spend a minimum of $100,000 per year
during the entire Term of this Agreement advertising the Licensed Products in
the United States.
(d) Licensee shall make the Annual License Fee payments in
equal quarterly installments on January 1, April 1, July 1 and October 1 of each
subsequent year during the entire Term of this Agreement.
(e) On or before April 30 of each year during the Term of this
Agreement, Licensee shall furnish the LPGA full and accurate statements,
certified by the chief financial officer of Licensee, showing the number,
description and Net Sales of the Licensed Products distributed and/or sold by
Licensee during the previous year, and simultaneously therewith Licensee shall
make all Annual Royalty Payments, if any, to the LPGA which are due to the LPGA
as a result of the sales made during the period covered by such statements.
Receipt or acceptance by the LPGA of any of the statements furnished pursuant to
this paragraph 5(e) shall not preclude the LPGA from questioning the correctness
thereof at any time within two (2) years of the date of the respective statement
and, in the event any inconsistencies or mistakes are discovered in such
statement in any such two (2) year period, they shall be immediately rectified
and appropriate adjustments made by the parties. All information so furnished by
Licensee shall be treated as confidential by the LPGA.
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<PAGE> 4
(f) Simultaneously with the April 30 statements specified in
paragraph 5(e) above, Licensee shall furnish the LPGA an accounting of the
dollar amount and manner of advertising of the Licensed Products during the
preceding calendar year.
(g) Licensee's obligations under paragraphs 5(e) and 5(f)
above shall continue during the calendar year following the expiration of this
Agreement and shall not terminate because of Licensee's failure to exercise the
Option.
(h) If the LPGA fails to perform or is in breach of any
material term of this Agreement, Licensee shall be relieved of paying to the
LPGA any installment of the applicable Annual License Fee and Annual Royalty
Payment until such time as such failure to perform or material breach is
corrected by the LPGA, at which time any unpaid Annual License Fee or Annual
Royalty Payment shall become immediately due and payable.
6. TERMS.
(a) LPGA hereby agrees to provide the following promotional
support to Licensee in consideration of the payment of the royalties hereunder:
(i) From January 1, 1999 through the expiration of
this Agreement, provision of the non-exclusive designation, "Official Sponsor of
the LPGA";
(ii) Eight (8) pro-am playing spots in the aggregate
at tournaments sponsored or co-sponsored by the LPGA for each calendar year
during the term of this Agreement, such tournaments to be mutually agreed upon
by Licensee and LPGA; provided, however, that one (1) position shall be
guaranteed for the LPGA Championship;
(iii) Ten (10) "Season Badges" at each LPGA sponsored
or co-sponsored event when requested by Licensee; and
(iv) Designation as an "Official Sponsor of the LPGA
Teaching and Club Professional Division".
(b) LPGA hereby further agrees that during the Initial Term of
this Agreement Licensee shall annually be the "Title Sponsor" of the LPGA
Teaching and Club Professionals ("T&CP") Division Team Classic, with promotional
benefits as detailed in Exhibit C. In consideration of such title sponsorship,
the Licensee shall pay the following amounts to the T&CP Division:
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<PAGE> 5
Year Annual Amount
---- -------------
1999 $35,000
2000 $37,500
2001 $40,000
2002 $42,500
2003 $45,000
2004 $47,500
2005 $50,000
(c) Licensee hereby agrees to extend through December 31, 2003
the T&CP Division rebate programs that have been in effect since July 31, 1991,
as amended and restated in Exhibit D hereto.
(d) Subject to the conditions described in subparagraphs
6(d)(i) and (ii), Licensee hereby further agrees to transfer to the LPGA any and
all intellectual property rights that Licensee may have to, and materials
comprising, the existing so-called "Square Two/LPGA Club Fitting Workshop
Program". Licensee's agreement to so transfer its rights is conditioned upon (i)
the LPGA's continued exclusive use of Licensee's products for this club fitting
workshop program held during the Term of this Agreement and (ii) Licensee's
prior approval of the LPGA's choice of instructor(s) for each such club fitting
workshop program. Licensee shall not unreasonably withhold such approval.
(e) The LPGA hereby further agrees that during the Term of
this Agreement the LPGA will not (i) provide an exclusive license, with respect
to any of the types of products included on Exhibit B, to any person or entity
other than Licensee and (ii) provide a non-exclusive license, with respect to
the type of products included in Exclusive Articles on Exhibit B, to any person
or entity.
7. COPYRIGHT AND TRADEMARK PROTECTION.
(a) The LPGA hereby represents and warrants to Licensee that
it owns all right, title and interest in and to the Logos in the United States,
and to the knowledge of the LPGA, the grant of the license hereunder will not
violate any agreement or license to which the LPGA may be subject.
(b) Except as otherwise set forth in Section 3 above, the LPGA
shall be solely responsible for taking such action as it deems appropriate to
obtain copyright, trademark or service mark registrations for the Logos.
Licensee shall perform all acts necessary and execute all necessary documents to
effect such registrations, and to register as a user of the Logos where such
registration is needed, and to otherwise assist the LPGA to the extent necessary
to protect the LPGA's rights to the Logos.
(c) Licensee acknowledges and agrees that the LPGA owns the
exclusive right, title and interest in and to the Logos and any copyright,
trademark or service mark registrations that have issued or may issue thereon
and that use of the Logos shall inure to the benefit of the LPGA. Licensee shall
not at any time acquire or claim any right, title or interest of
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<PAGE> 6
any nature whatsoever in or to the Logos by virtue of this Agreement or
Licensee's use of the Logos, and any right, title or interest in or relating to
the Logos which comes into existence as a result of, or during the exercise by
Licensee of, any right granted to it hereunder shall immediately vest in the
LPGA.
(d) All uses of the Logos by Licensee shall include any
designations legally required or useful for enforcement of copyright, trademark
or service mark rights, such as "(C)", "(R)", "(TM)" or ("SM"). The LPGA shall
have the right to revise the above designation requirements and to require such
other notices as shall be reasonably necessary to protect the rights and
interests of the LPGA in the Logos.
(e) Licensee shall notify the LPGA in writing of any
infringements or imitations of the Logos by others, and the LPGA, in its sole
discretion and expense, may commence or prosecute any claims or suits resulting
from such infringements or imitations in its name or in the name of Licensee or
join Licensee as a party thereto. Licensee shall not institute any suit or take
any action on account of any infringements or imitations of the Logos without
the prior written consent of the LPGA.
(f) In the event Licensee employs the services of
photographers in connection with the production, promotion, marketing or
distribution of the Licensed Products, Licensee shall require each such
photographer to agree that the photographic works produced for Licensee will be
"works made for hire" for the purposes of the copyright laws, and, to the extent
such photographic works may not qualify as "works made for hire", Licensee shall
cause the copyright in each such work to be assigned to the LPGA.
8. INDEMNIFICATION.
(a) Licensee shall indemnify and hold the LPGA harmless from
and against any and all claims, actions, damages, liability, cost and expense,
including reasonable attorneys' fees and costs of suit or arbitration, arising
out of or in connection with (i) the design, manufacturing, promotion, sale,
distribution or use of the Licensed Products; or (ii) the unauthorized use of
the Logos.
(b) The LPGA shall indemnify and hold harmless Licensee from
and against any and all claims, actions, damages, liability, cost and expense,
including reasonable attorneys' fees and costs of suit or arbitration, arising
out of (i) Licensee's use of the Logos in accordance with this Agreement, (ii)
Licensee's title sponsorship of the T&CP Division Team Classic, and (iii) the
LPGA's post transfer use of the intellectual property rights and materials
transferred to the LPGA pursuant to subparagraph 6(d) hereof, provided that the
LPGA is given prompt written notification of, and shall have the option to
undertake and conduct the defense of, any such claim or action.
(c) Each party agrees to indemnify and hold harmless the other
party, its directors, officers, employees, members and representatives, from and
against any and all claims, actions, damages, liability, cost and expense,
including reasonable attorneys' fees,
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<PAGE> 7
arising out of or in connection with any act or omission on the part of the
indemnifying party in the performance or non-performance of its duties under
this Agreement.
(d) Licensee shall obtain, at its own expense, comprehensive
general liability insurance, including product liability insurance, providing
adequate protection for the LPGA and Licensee against any claims or suits, with
coverage on the basis of occurrences rather than claims made and in an amount no
less than $1,000,000 per incident or occurrence, or Licensee's standard
insurance policy limits, whichever is greater. Such insurance shall remain in
force at all times during the term of this Agreement and for a period of five
(5) years thereafter. Within thirty (30) days from the date hereof, Licensee
shall submit to the LPGA a certificate of insurance evidencing such coverage and
naming the LPGA as an additional insured party thereon. Licensee shall require
the insurer to provide the LPGA with at least thirty (30) days written notice
prior to the cancellation or material modification of such coverage.
9. QUALITY OF LICENSED PRODUCTS. Licensee agrees that the Licensed
Products shall be of high standards of style, quality and appearance. Licensee
shall, at the LPGA's written request, periodically send samples of Licensed
Products to the LPGA to confirm Licensee's compliance with the requirements of
this Section 9. All samples of the Licensed Products and materials sent to the
Commissioner of the LPGA pursuant to this Section 9 shall be accompanied by a
cover letter (a copy of which shall also be forwarded to the Deputy Commissioner
of the LPGA) which states that such samples and materials are being furnished
pursuant to Section 9 of this Agreement for the purpose of inspection and
approval by the LPGA. Any sample furnished to the LPGA for its approval or
consent pursuant to this Section 9 shall be deemed approved and consented to by
the LPGA unless Licensee is notified otherwise within thirty (30) days after the
LPGA's receipt of such sample. Licensee shall not sell or distribute irregulars
or seconds of, any Licensed Product approved by the LPGA pursuant to this
Section 9, without the prior written consent of the LPGA.
10. PROMOTIONAL MATERIAL. All promotional displays and advertising
materials for the Licensed Products shall (i) contain and prominently display
the Logos, (ii) use and conform to presentation suggested by the LPGA and (iii)
be gender specific with respect to the use by women of the Exclusive Articles of
the Licensed Products. Under no circumstances will Licensee use the Logos in
connection with "lotteries" or "games of chance" sponsored by Licensee.
11. DISTRIBUTION. Licensee shall use its best efforts to manufacture,
distribute and sell the Licensed Products in all price and quality brackets that
may be required to meet competition by reputable manufacturers of similar
articles. Licensee shall make and maintain adequate arrangements for the
distribution of the Licensed Products throughout the world.
12. GOODWILL. Licensee recognizes the great value of the publicity and
goodwill associated with the Logos and, in that connection, acknowledges that
(i) such goodwill belongs exclusively to the LPGA, (ii) no such property or
other right will vest in Licensee as a result of this Agreement or of Licensee's
use of the Logos permitted hereunder, and (iii) the Logos have acquired a
secondary meaning in the mind of the public.
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<PAGE> 8
13. SPECIFIC UNDERTAKINGS OF LICENSEE. During the term of this
Agreement and thereafter, Licensee agrees that:
(a) It will not do or cause to be done any act or thing
contesting or in any way impairing or tending to impair the right, title and
interest of the LPGA in and to the Logos, or any copyright, trademark or service
mark pertaining thereto, nor will it attack the validity of the license granted
hereunder;
(b) It will not use the Logos in any manner other than as
licensed hereunder, nor will it at any time, without the prior written consent
of the LPGA, adopt or use any word or mark which is likely to be similar to or
confusing with the Logos;
(c) It will not harm, misuse or bring into disrepute the
Logos;
(d) It will not create any expenses chargeable to the LPGA
without the prior written approval of the LPGA;
(e) It will not enter into any sublicense or agency agreement
for the manufacture, sale or distribution of the Licensed Products without the
prior written consent of the LPGA;
(f) Except as otherwise provided in paragraph 2(b) above, it
will not use, or knowingly permit the use of, the Licensed Products as a
giveaway or as a Premium without the prior written consent of the LPGA;
(g) It will comply in all material respects with all
applicable laws, regulations and requirements relating or pertaining to the
manufacture, sale, advertising or use of the Licensed Products, including,
without limitation, the requirements of the United States Consumer Product
Safety Commission;
(h) Except as otherwise provided in that certain letter
agreement between the parties hereto dated July 31, 1991 as amended and restated
in Exhibit D hereto, Licensee will offer the Licensed Products for sale to the
LPGA at prices not to exceed the lowest wholesale prices for such Licensed
Products, and shall promptly ship or deliver to the LPGA all Licensed Products
purchased by the LPGA;
(i) In calendar year 1999, it will agree to air one (1) :30
advertising unit per each day of the following telecasts at a cost of $3,500 per
:30 unit ($60,000 net), that would result in (8) :30 advertising units on ESPN
and nine (9) :30 advertising units on ESPN2 (for clarification, Chick-fil-A,
ShopRite and Giant Eagle are three-day telecats; Wegmans and Michelob Light are
four-day events).
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EVENT DATE NETWORK
----- ---- -------
Chick-fil-A Charity Championship April 23-25, 1999 ESPN2
Wegmans Rochester International June 10-13, 1999 ESPN
ShopRite LPGA Classic June 18-20, 1999 ESPN2
Michelob Light Classic July 8-11, 1999 ESPN
Giant Eagle LPGA Classic July 23-25, 1999 ESPN2
In addition to the seventeen (17) :30 advertising
units provided above, Licensee will receive one (1) opening or closing billboard
within each of the five (5) 1999 Mercury Series events listed above, event for a
total of five (5) billboards.
In 1999, Licensee agrees to commit an additional
$15,000 net to advertising opportunities on non-Mercury Series LPGA television
programming. The allocation of which shall be mutually agreed upon between
Licensee and the LPGA no later than March 1, 1999.
If the Licensee's advertising experience is
satisfactory with the 1999 Mercury Series, Licensee will commit to expending a
minimum of $75,000 of its annual television budget to future Mercury Series
events. However, at its discretion, Licensee will have the right to terminate
this Mercury Series commitment after 1999 if satisfactory advertising
performance is not realized from the Mercury Series.
14. TERMINATION.
(a) The occurrence of any one or more of the following events
shall constitute a Default by Licensee under this Agreement:
(i) If Licensee fails to deliver to the LPGA or to
maintain in full force and effect the insurance referred to in paragraph 8(d)
above; or
(ii) If Licensee fails to make any payment due
hereunder on the date due; or
(iii) If Licensee fails to deliver any of the
statements required pursuant to paragraph 5(e) above or to provide the LPGA or
its authorized representatives with access to Licensee's premises and/or records
and accounts pursuant to Section 17 below; or
(iv) If any governmental agency or court of competent
jurisdiction finds that a Licensed Product is defective in any way, manner or
form that, in the reasonable opinion of the LPGA, brings into disrepute the
Logos; or
(v) If Licensee is unable to pay its debts when due,
or makes any assignment for the benefit of creditors or an arrangement pursuant
to any bankruptcy law, or files or has filed against it any petition under the
bankruptcy or insolvency laws of any jurisdiction,
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county or place, or shall have or suffer a receiver or trustee to be appointed
for its business or property, or be adjudicated a bankrupt or an insolvent; or
(vi) If Licensee does not commence in good faith to
manufacture, distribute and sell the Licensed Products in accordance with the
terms of this Agreement within three (3) months from June 1, 1996; or
(vii) If Licensee shall discontinue its business as
it is now conducted: or
(viii) If, in the periodic statements furnished
pursuant to paragraph 5(e) above, the amounts owed to the LPGA are significantly
or consistently understated; or
(ix) If Licensee shall fail to perform or shall be in
breach of any material term of this Agreement; or
(b) In the event Licensee has failed to cure a Default within
thirty (30) days of receipt of written notice from the LPGA specifying such
Default, the LPGA shall have the right to terminate this Agreement.
(c) In the event that the LPGA grants, during the Term of this
Agreement, a Competing License, Licensee shall have the right to Terminate this
Agreement. Upon Licensee's election to so terminate this Agreement Licensee
(other than as described in Sections 14(d) and 15 below) shall have no further
obligations to the LPGA.
(d) Upon termination of this Agreement pursuant to this
Section 14, Licensee shall pay the LPGA any and all payments then due from
Licensee hereunder, and Licensee shall have no further right to use,
manufacture, advertise, distribute, sell or otherwise deal in any products which
use the Logos. The LPGA's exercise of its right to terminate this Agreement
pursuant to this Section 14 shall be without prejudice to any other rights and
remedies available to it at law or in equity.
15. DISPOSAL OF STOCK. Except as otherwise provided in this Section 15,
after the termination or expiration of this Agreement, Licensee shall have no
further right to manufacture, distribute, sell, exploit or otherwise deal in any
articles which utilize the Logos. Within thirty (30) days after the expiration
or termination of this Agreement, Licensee shall deliver to the LPGA a statement
indicating the number and description of the Licensed Products on hand or in
process as of the date of such statement. During the period of three hundred
sixty (360) days immediately following the expiration or termination of this
Agreement, Licensee may dispose of products or materials which are on hand or in
process at the time of such expiration or termination, but only in the normal
course of business and at regular or reasonably discounted selling prices. All
such sales shall be subject to the terms and conditions of this Agreement.
Licensee may remove the Logos from any such products or materials and shall be
free to sell or dispose of such products or materials in any manner it sees fit
as long as identification of the LPGA is not possible.
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16. LPGA REPRESENTATIONS. The LPGA agrees, warrants and
represents the following:
(a) It has and will have throughout the term of this Agreement
the exclusive right to license the Logos to Licensee in the United States.
(b) The making of this Agreement by the LPGA and the
fulfillment of its obligations hereunder does not violate the Constitution or
By-Laws of the LPGA or, to the knowledge of the LPGA, any agreements, rights or
obligations existing between the LPGA and others.
(c) The LPGA will be throughout the term of this Agreement the
sole owner of all right, title and interest in and to the Logos hereinabove
described, for use in connection with the manufacture, development, promotion,
sale or distribution of the Licensed Products in the United States.
(d) The LPGA has the exclusive right to register in the United
States the name "Ladies Professional Golf Association" and its present logo as
trademarks on the public register of the United States Patent and Trademark
Office, for use in connection with the Licensed Products herein.
(e) The LPGA has the exclusive right to obtain appropriate
United States copyright registration respecting all existing and any new art
work in connection with the Logos licensed herein.
17. BOOKS AND RECORDS.
(a) Licensee shall keep, maintain and preserve at Licensee's
place of business, for at least two (2) years following termination or
expiration of this Agreement, complete and accurate records and accounts
including, but not limited to, invoices, correspondence, banking and financial
and other records pertaining to the various items required to be shown on the
statements to be submitted by Licensee pursuant to paragraph 5(e) above. Such
records and accounts shall be available to the LPGA or its representatives for
inspection and for purposes of making extracts therefrom and copies thereof and
for audit at any time or times during reasonable business hours and upon
reasonable notice by the LPGA.
(b) Licensee further agrees, in order to facilitate inspection
of its books and records by the LPGA, that it will designate a symbol or number
which shall be used by Licensee on all books and records to denote activity
relating to the Licensed Products.
18. RESERVATION OF RIGHTS. The LPGA retains all rights not
expressly and exclusively conveyed herein, and the LPGA may grant to third
parties the right to use the Logos in connection with other products, including
products identical to the (i) Non-Exclusive Articles and (ii) during any
Subsequent Term, Initially Exclusive Articles of Licensed Products set forth in
Exhibit B attached hereto.
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19. CONFIDENTIALITY. All records and accounts, and statements thereof,
and other information furnished or made available by one party to the other
hereunder shall be kept confidential by the other party and shall not be
disclosed to any third party, or to any person without need to know, without the
prior written consent of the party furnishing such information.
20. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder, if any, shall be in writing and hand-delivered,
telecopied or mailed by first class mail, certified, return receipt requested
and, if hand delivered, shall be deemed to be received when so delivered, if
telecopied, shall be deemed to be received when transmission is confirmed or, if
mailed, shall be deemed to be received two (2) days after the date of mailing
and shall be addressed as follows:
The LPGA: Ladies Professional Golf Association
100 International Golf Drive
Daytona Beach, Florida 32124-1092
Fax: (904) 274-6200
Attention: Commissioner
Copy to: Ty M. Votaw, Esq.
Vice President of Business Affairs
Ladies Professional Golf Association
100 International Golf Drive
Daytona Beach, Florida 32114
Fax: (904) 274-1099
Licensee: S2 Golf Inc.
18 Gloria Lane
Fairfield, New Jersey 07004
Attention: Douglas A. Buffington
Fax: (201) 227-7018
Copy to: Mr. Robert L. Ross
Suite 16 South
Three Gateway Center
Pittsburgh, Pennsylvania 15222
Fax: (412) 392-2361
or such other address or telephone numbers as either party hereto shall have
designated to the other in writing.
21. ENTIRE AGREEMENT. This Agreement, together with the Exhibits
attached hereto, constitutes the entire agreement of the parties hereto as to
the matters stated herein, and no amendment or modification shall be binding
unless reduced to writing and signed by the parties.
22. WAIVER. The failure of any party at any time to demand strict
performance by another of any of the terms, covenants or conditions set forth
herein shall not be construed as a
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continuing waiver or relinquishment thereof, and any party may, at any time,
demand strict and complete performance by another of the terms, covenants and
conditions hereof.
23. RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be
construed to place the LPGA and Licensee in an agency, partnership or joint
venture relationship. Neither party shall have the right to obligate or bind the
other in any manner whatsoever, and nothing herein contained shall give or is
intended to give any rights of any kind to any third persons.
24. ASSIGNMENT. This Agreement and any rights granted herein are
personal to Licensee and shall not be assigned, sub-licensed or encumbered by
Licensee without the prior written consent of the LPGA. This Agreement shall be
binding upon and shall inure to the benefit of the parties' permitted successors
and assigns.
25. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Ohio, and the applicable trademark
and copyright laws of the United States, without regard to the conflicts of law
principles thereof.
26. SEVERABILITY. In the event any one or more provisions of this
Agreement shall be declared invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
27. ACCEPTANCE BY LPGA. This instrument, when signed by Licensee, shall
be deemed an application for a license and not a binding agreement unless and
until signed by the LPGA.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above:
LADIES PROFESSIONAL GOLF ASSOCIATION
/s/ JIM RITTS
-----------------------------------
Name: Jim Ritts
Title: Commissioner
S2 GOLF INC.
/s/ DOUGLAS A. BUFFINGTON
-----------------------------------
Name: Douglas A. Buffington
Title: President
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EXHIBIT A
---------
LOGOS
-----
Registered in the United States Patent and Trademark Office, Registration Number
_________________________ and Dated _____________________________.
The term Logos also refers to any other marks or logos developed and utilized by
the LPGA during the term of this Agreement, other than any marks and logos
developed and utilized by the LPGA in conJunction with LPGA co-sponsored events
and/or tournaments.
<PAGE> 15
EXHIBIT B
---------
LICENSED PRODUCTS
-----------------
Exclusive Articles:
- ------------------
Women's golf clubs (woods, irons, putters and utility clubs).
Non-exclusive Articles:
- ----------------------
Golf bags, golf balls, golf gloves, golf shoes, carryalls, visors, caps, hats
and umbrellas.
<PAGE> 16
EXHIBIT C
---------
SQUARE TWO
LPGA Teaching and Club Professional
Team Classic
- --------------------------------------------------------------------------------
SQUARE TWO GOLF
TITLE SPONSORSHIP BENEFITS
1999-2005
- --------------------------------------------------------------------------------
<PAGE> 17
SQUARE TWO
LPGA TEACHING AND CLUB PROFESSIONAL
TEAM CLASSIC
TITLE SPONSORSHIP
- - Exclusive designation of Square Two Golf as the title sponsor of the
Square Two LPGA Teaching and Club Professional Team Classic from
January 1, 1999 to December 31, 2005.
HOST SITE
- - To be determined by the LPGA T&CP Division and approved by Square Two.
MEDIA BENEFITS
- - Production and distribution of a national and international LPGA press
release announcing the title sponsorship relationship sent to 2,400
media points as well as LPGA sponsors, members and other LPGA
affiliated organizations.
- - Listing in the annual Rolex LPGA Schedule (300,000 - 350,000 printed
and distributed to LPGA members, sponsors, licensees, tournaments and
fans).
- - Listing in the annual Kodak Calendar (15,000 - 20,000 printed and
distributed to LPGA members, sponsors, licensees, tournaments and
fans).
- - Feature article in an upcoming LPGA T&CP Division national newsletter
announcing the title sponsorship relationship (2,000 printed quarterly
and distributed to LPGA T&CP and Tour members, sponsors, licensees and
tournaments).
- - Pre-tournament and post-tournament articles annually in the LPGA T&CP
Division national newsletter.
- - Title sponsorship credit, tournament history and one full page, black
and white advertisement in the annual LPGA Teaching and Club
Professional Membership Guide and Directory (1,200 printed and
distributed to LPGA members, sponsors and other LPGA affiliated
organizations).
TOURNAMENT LOGO
- - Development of a tournament logo which communicates the Square Two Golf
- LPGA partnership. Inclusion of the logo on all tournament print
promotion pieces, press releases, registration materials,
on-course-signage.
<PAGE> 18
- - Square Two Golf granted the use of the tournament logo and title in all
promotional materials.
ENTERTAINMENT BENEFITS
- - Two pro-am spots including gift packs for the Members Pro-Am. Square
Two Golf has first choice of professionals. Four pro-am luncheon
invitations.
- - Nine pro-am spots including gift packs for the Team Classic Pro-Am.
Square Two Golf has first choice of professionals. Eighteen pro-am
reception invitations.
- - Six Team Classic Banquet invitations.
DISPLAY AND PROMOTION
- - Prominent Square Two Golf signage at the Team Classic scoreboard,
clubhouse, driving range, first and tenth tees and all food and
beverage events.
- - Square Two Golf title sponsorship recognition on the official scorecard
of the event.
- - Square Two Golf demo area set on the driving range throughout
tournament week.
- - Square Two Golf demo day or promotional activity on days prior to the
tournament for facility members and general public. LPGA Teaching and
Club Professional Division members chosen by Square Two Golf will
participate.
- - Square Two Golf promotional materials distributed to all pro-am
participants and Team Classic participants.
- - Opportunity to have Square Two Golf promotional activity during Team
Classic Pro-Am (i.e. closest-to-the-pin contest).
- - Promotional involvement in Team Classic Shoot-Out to be jointly
developed by Square Two Golf and the LPGA.
- - One time annual usage of the LPGA Teaching and Club Professional
Division membership mailing list. (All materials must be pre-approved
by the LPGA).
<PAGE> 19
SPONSORSHIP FEE
---------------
1999 35,000
2000 37,500
2001 40,000
2002 42,500
2003 45,000
2004 47,500
2005 50,000
Nine pro-am prizes (three teams) donated by Square Two Golf. Other Square Two
Golf product for pro-am participants and players to be decided upon by Square
Two Golf.
<PAGE> 20
EXHIBIT D
---------
LPGA TEACHING DIVISION SALES PROGRAM
Any member of the Teaching Division whose principal place of employment is at a
recognized golf club, course or range as such terms are defined in the LPGA
Teaching Division Constitution (a "Teaching Member") will have the opportunity
through the LPGA Teaching Division Sales program to sell any Square Two product
to the public. Square Two shall pay a fee of 3% on net sales to the LPGA
Teaching Division for any Square Two product sold provided the product is
ordered directly from Square Two Golf.
<PAGE> 1
EXHIBIT 10.12
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into this 28th day of
June, 1999 by and between S2 GOLF INC., a corporation duly constituted under the
laws of New Jersey, United States of America, having its principal place of
business at 18 Gloria Lane, Fairfield, New Jersey 07006, U.S.A. ("Licensor"),
and RAYMOND LANCToT LTeE/LTD., a corporation duly constituted under the laws of
Canada, having its principal place of business at 5790 Pare Street, Montreal,
Quebec, Canada, H4P 2M2 ("Licensee").
PREAMBLE
--------
WHEREAS the Licensor is the owner of the trademarks SQUARE TWO in the United
States and Canada and S2(logo) in the United States for use with various
products;
WHEREAS the Licensee desires to use the trademarks SQUARE TWO and S2(logo) for
the marketing, sale and distribution of clothing articles as further described
in this Agreement; and
WHEREAS the parties hereto wish to enter into the present Agreement for their
mutual advantage.
NOW, THEREFORE, in consideration of the above premises and the covenants and
agreements herein contained, the parties hereto agree as follows:
1. INTERPRETATION.
1.1 DEFINITIONS.
As used herein, the following terms have the meanings set
forth below:
1.1.1 "Articles" means the following goods: golf clothes
for men, women and children, ski clothes for men,
women and children, and sports clothes for men, women
and children, except for clothing produced by the
Licensor for promotional purposes in quantities of
fewer than one hundred (100) pieces. The parties
agree that headwear, belts and shoes are not included
in the Articles.
1.1.2 "Principal Term" means the three (3) year period
commencing on August 1, 1999 and ending on July 31,
2002, subject to the terms of the following Section
3.
1.1.3 "Trademark" means either the SQUARE TWO trademark or
the S2(logo) and "Trademarks" means the SQUARE TWO
trademark and the S2(logo),
<PAGE> 2
the particulars of which are set forth in Schedule A
hereto, and any confusingly similar term or
designation.
1.2 SCHEDULES.
The following schedule is attached hereto and incorporated by
reference and deemed to be part hereof:
Schedule Description
-------- -----------
"A" Description of Trademarks
2. RIGHTS GRANTED.
2.1. LICENSE FOR USE.
Subject to the terms and conditions contained in this
Agreement, the Licensor grants to the Licensee an exclusive
non-transferable license to manufacture Articles bearing the
Trademarks for sale in the United States and Canada and to
distribute, market, advertise, export and sell the Articles
bearing the Trademarks in the United States and Canada.
2.2. LICENSE FOR ADVERTISING AND PROMOTION.
The Licensor further grants to the Licensee (i) the right to
reproduce and use the Trademarks on display materials, and in
advertising and promotional materials related to the Articles,
and (ii) the right to include the Trademarks in any
description of the Licensee's business activities as related
to the Articles, provided that, if used in any description of
Licensee's business activities, attribution be given to
Licensor as the owner of the marks, said attribution being in
the form of a footnote appearing on the same page as the first
appearance of the Trademarks and including the following text:
"`SQUARE TWO' and `S2(logo)' are trademarks of S2 Golf Inc.,
used in this report under license to Raymond Lanctot Ltee/Ltd.
with the permission of S2 Golf Inc."
2.3 COVENANTS OF THE LICENSEE.
2.3.1 Licensee agrees to use the Trademarks only in a
manner approved by Licensor and Licensor shall
provide guidelines on their use, including their
presentation, size and style, in another document.
Unless Licensor otherwise agrees in writing, each use
of either of the Trademarks shall be immediately
followed by (i) the symbol "(TM)" or, (ii) if the
Trademark is registered in the country in which the
Articles are to be sold, the symbol (R) or
equivalent.
2
<PAGE> 3
2.3.2 Licensee agrees that it will use the Trademarks only
in connection with the Articles and will not use the
Trademarks, including use in countries outside of the
United States and Canada, in any manner except as
permitted by this Agreement. Licensee expressly
recognizes that the use of the Trademarks confers no
rights to the Trademarks to Licensee and that all use
by Licensee shall inure to the benefit of Licensor.
Licensee shall not take any action that would be
inconsistent with, or tend to impair, Licensor's
rights in the Trademarks.
2.3.3 Licensee agrees not to contest, question or challenge
the ownership of the Trademarks by Licensor anywhere
in the world, except the right to use same pursuant
to the terms of this Agreement.
3. DURATION.
The present Agreement will remain in full force during the Principal
Term and the Renewal Terms, as defined herein, unless earlier
terminated for any reason provided in this Agreement. At the end of the
Principal Term, this Agreement shall be renewed for an additional three
(3) year term (the "First Renewal Term") (i) automatically if wholesale
sales of the Articles by the Licensee in the period beginning on July
1, 2001 and ending on June 30, 2002 are at least Five Hundred Thousand
United States Dollars ($500,000), or (ii) at the sole discretion of the
Licensor if wholesale sales of the Articles by the Licensee in the
period beginning on July 1, 2001 and ending on June 30, 2002 are less
than Five Hundred Thousand United States Dollars ($500,000). At the end
of the First Renewal Term, if any, this Agreement shall be renewed for
an additional three (3) year term (the "Second Renewal Term") (i)
automatically if wholesale sales of the Articles by the Licensee in the
period beginning on July 1, 2004 and ending on June 30, 2005 are at
least One Million United States Dollars ($1,000,000), or (ii) at the
sole discretion of the Licensor if wholesale sales of the Articles by
the Licensee in the period beginning on July 1, 2004 and ending on June
30, 2005 are less than One Million United States Dollars ($1,000,000).
(The First Renewal Term and the Second Renewal Term, together, the
"Renewal Terms," and either, alone, a "Renewal Term.")
4. ROYALTIES.
4.1 ROYALTY RATE.
During the Principal Term and the Renewal Terms, if any, the
Licensee shall pay to the Licensor a royalty of nine percent
(9%) of the Licensee's FOB shipping point cost, as defined
herein, of each Article manufactured by or for the Licensee
pursuant to this Agreement. The Licensee's FOB shipping point
cost shall mean the per-Article cost to the Licensee to
manufacture the Articles and to take delivery of them at the
shipping point. The parties agree that Licensee shall not pay
such royalty to Licensor on Articles (i) supplied free of
charge by Licensee or Licensor to Ladies Professional Golf
Association golfers for promotional purposes or (ii)
manufactured as sample pieces.
3
<PAGE> 4
4.2 PAYMENTS OF ROYALTIES; STATEMENTS.
Royalties will be payable in United States currency, within
thirty (30) days of the arrival of the Articles at their first
port of entry into the United States and Canada. The Licensee
agrees to provide to the Licensor, with the said payments, a
statement showing the quantities of Articles manufactured, the
manufacturing, shipping and handling costs, and the royalties
applicable thereto. The Licensee also agrees to give the
Licensor such reasonable access to the Licensee's financial
books and records related to the Articles, for the purpose of
conducting an audit thereof, as the Licensor shall request
from time to time.
5. FIRST REFUSALS.
5.1 DURING THE TERM OF THE AGREEMENT.
The Licensor hereby grants to the Licensee a right of first
refusal with respect to use of the Trademarks during the
Principal Term and any Renewal Term (i) on Articles to be
distributed or sold in Europe, and (ii) on any categories of
clothing not already included in the Articles, except for
headwear, belts and shoes. The Licensor agrees to notify the
Licensee promptly of any decision (i) to market in Europe
Articles bearing the Trademarks or (ii) to expand the list of
products that may be associated with the Trademarks. The
Licensee may then exercise its right of first refusal by
providing to the Licensor, within thirty (30) days, a written
notice of its intent to exercise. Any license with respect to
such expanded geographic region or new products will be the
subject matter of a separate agreement between the parties.
The parties agree to use reasonable efforts to agree upon the
royalty, payment, Trademark usage and other terms of such
separate agreement. If the parties fail to agree upon the
terms of such separate agreement within sixty (60) days after
the notification by the Licensor of its decision to market in
Europe or to expand the list of Products that may be
associated with the Trademarks, as explained above, neither
party shall be obligated to enter into said separate agreement
and the Licensor shall be free to enter into an agreement with
a third party.
5.2 AFTER THE TERM OF THE AGREEMENT.
If at any time within the first six (6) months after the end
of the Second Renewal Term, if there is any such Second
Renewal Term, any third party offers to enter into a licensing
agreement with the Licensor for the use of the Trademarks on
sports clothes for men, women or children, including golf and
ski clothes but excluding headwear, belts and shoes, on terms
that are more favorable to the Licensor than the terms of the
present Agreement (a "Third Party Offer"), the Licensor agrees
(i) to notify the Licensee of such offer, and (ii) to enter
into a subsequent licensing agreement with the Licensee on the
same terms as those of the Third Party Offer if (a) within
thirty (30) days the Licensee provides to the
4
<PAGE> 5
Licensor a written notice of the Licensee's intent to enter
into such subsequent licensing agreement and (b) the terms of
such subsequent licensing agreement are acceptable to both
parties.
6. QUALITY OF ARTICLES.
6.1 QUALITY STANDARDS.
The Licensee agrees that Articles bearing the Trademarks will
be manufactured in accordance with high standards of quality,
style, appearance and durability, and in no event less than
(i) the quality standards of similarly priced clothing
articles produced by others, and (ii) the quality standards of
the clothing articles manufactured and sold by the Licensor
itself that do not include the Trademarks. Licensee further
agrees that all Articles bearing the Trademarks will be
manufactured, sold, distributed and exported in accordance
with all applicable laws and regulations.
6.2 DESIGN APPROVAL.
The Licensee agrees to submit the design for each Article to
bear the Trademarks, in artist's rendering or in written form
as appropriate, plus any information relevant to the quality
of the finished Article, such as fabric type and weight, to
the Licensor for approval, and agrees further that it will not
commence the manufacture of any Article bearing the Trademarks
prior to the Licensor's approval of the design therefor. The
Licensor agrees that it will timely provide such approvals,
and that it will not withhold unreasonably its approval of any
design.
6.3 QUALITY INSPECTION.
The Licensee agrees that prior to any sale or other
distribution of any Article bearing the Trademarks it will
provide the Licensor with one piece from each manufacturing
lot of each Article for the purpose of the Licensor's quality
inspection. Licensor shall also have the right to inspect,
from time to time, and at least once annually, Licensee's
manufacturing facilities to determine the quality of Articles
bearing the Trademarks. Licensee shall permit such inspection.
Licensee shall recall (if substandard quality articles have
been shipped) and destroy any and all Articles bearing the
Trademarks that the Licensor reasonably finds to be of
substandard quality.
6.4 TIME TO REMEDY.
If Licensor determines that Licensee has failed to maintain
the quality of Articles as defined herein, it shall notify
Licensee in writing. Licensee shall have sixty (60) days from
the date of such notice in which to remedy the failure to
Licensor's satisfaction.
5
<PAGE> 6
7. TERMINATION.
7.1. FAILURE TO CONFORM.
Should a party to the present Agreement fail to respect any of
the terms of the present Agreement, the other party shall
provide to the defaulting party a written notice (the
"Notice") informing it of said failure. Should the defaulting
party fail to correct the said failure within ten (10) days of
having received the Notice (or, in the case of a notice
pursuant to Section 6.4, sixty (60) days), the other party,
without prejudice to any other right or remedy available to
it, shall have the right at any time thereafter to terminate
this Agreement by providing a thirty (30) day prior written
notice to that effect.
7.2 INSOLVENCY.
The parties, without prejudice to any other right or remedy
available to them, shall also have the right at any time to
terminate this Agreement by giving to the other party a
written notice thereof, if the latter makes any assignment for
the benefit of creditors, files a petition in bankruptcy, is
adjudged bankrupt, becomes insolvent, is placed in
receivership, or if the equivalent of any such proceedings or
acts occurs.
7.3 CHANGE OF CONTROL.
Unless the parties agree otherwise in writing, this Agreement
shall terminate immediately (i) upon the transfer of the
beneficial ownership of more than sixty five percent (65%) of
the issued and outstanding shares in the capital of Licensor
or Licensee; (ii) upon the dissolution or winding up of
Licensor or Licensee; (iii) upon the transfer of the assets of
Licensor or Licensee other than in the ordinary course of
business; or (iv) upon the merger of Licensor or Licensee with
any other person or entity.
8. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION.
8.1 UNSOLD INVENTORY.
If the Licensee has any manufactured but unsold Articles
bearing the Trademarks in inventory on the date of
termination, it shall provide a statement in writing of the
kinds and quantities of such unsold Articles to the Licensor
within five (5) days from the date of termination. Within
fifteen (15) days from the date of receipt of the said
statement, the Licensor shall have the exclusive option to
acquire from the Licensee the inventory of said unsold
Articles, in part or in whole, at the Licensee's manufacturing
cost. If the Licensor chooses not to exercise this option, the
Licensee shall have the right to sell and deliver such
Articles.
6
<PAGE> 7
8.2 CEASE USE OF TRADEMARKS.
Upon the expiration or termination of this Agreement for any
reason, Licensee shall immediately cease all use of the
Trademarks and shall not use the Trademarks thereafter,
provided that Licensee shall have the right to complete any
work-in-process inventory in accordance with the provisions of
this Agreement.
8.3 SURVIVAL OF COVENANTS.
Sections 2.3.2 and 2.3.3 shall survive the termination or
expiration of this Agreement for any reason whatsoever.
9. WAREHOUSE AND SHIPPING SERVICES.
The Licensor agrees to provide warehouse and shipping services to the
Licensee on the terms provided in this paragraph. The Licensor agrees
to provide to the Licensee the use of not less than One Thousand Five
Hundred (1,500) square feet of warehouse space in the Licensor's
existing buildings at 18 Gloria Lane, Fairfield, New Jersey, U.S.A.,
for the purposes of the storage and distribution of the Articles,
provided that if the Licensee uses such warehouse space, the Licensor
also shall provide to the Licensee Handling Services, as defined
herein, for the Articles at the rate of Seventy Five U.S. Cents ($0.75)
per Article (the "Handling Fee"). As used herein, "Handling Services"
means sorting the Articles, packing them in boxes or other appropriate
containers, addressing such containers for shipment, and arranging for
their shipment to destinations in the United States and Canada. The
Handling Fee does not include the cost of packaging materials or
freight.
10. TRADEMARK INFRINGEMENT.
If a charge or notice of infringement of a trademark or other
proprietary right of a third party is directed to Licensee, or if a
suit for infringement of a trademark or other proprietary right of a
third party is instituted against Licensee which charge, notice or suit
is based upon Licensee's use of the Trademarks, Licensee agrees to
notify Licensor in writing ("Notice by Licensee") within five (5) days
from Licensee's receipt of the first notice of such charge, notice or
suit. Licensor may, at its option, within thirty (30) days of receiving
Notice by Licensee, initiate action to dispose of the charge, notice or
suit. To dispose of any such charge, notice or suit, Licensor shall
have the option to require that Licensee immediately discontinue its
use of the Trademarks, in which case (i) Licensor and Licensee can
agree to use other Trademarks and continue under the terms of this
Agreement, or (ii) terminate this Agreement. Licensee shall notify
Licensor promptly upon obtaining knowledge of any unauthorized use of
the Trademarks.
11. INDEMNIFICATION.
7
<PAGE> 8
The Licensee shall indemnify the Licensor and hold it harmless from and
against any and all claims, expenses, losses or damages arising out of
or in connection with the Licensee's use of the Trademarks and
manufacture and sale of the Articles pursuant hereto, including any
charge or notice of trademark infringement.
12. MISCELLANEOUS.
12.1 WAIVERS.
A waiver by either of the parties at any time of a breach of
any provision of this Agreement shall not apply to any breach
of any other provision of this Agreement or imply that a
breach of the same provision at any other time has been or
will be waived.
12.2 RELATIONSHIP.
This Agreement shall not be construed to create a partnership,
joint venture, employment or agency relationship between the
parties hereto. Neither party hereto shall be liable for any
of the debts or obligations of the other party hereto, and
neither party shall have the right to bind, make any
representations or warranties, accept service of process or
perform any act for or on behalf of the other party hereto,
except as otherwise expressly provided herein. Each party
hereto acknowledges that it is an independent entity and not
subject to the control of the other party except as otherwise
expressly provided herein.
12.3 MODIFICATION OR EXTENSIONS OF THIS AGREEMENT.
Except as otherwise provided herein, this Agreement can only
be extended or modified by a written document to that effect
executed by both parties.
12.4. APPLICABLE LAW AND JURISDICTION.
This Agreement shall be construed and interpreted according to
the laws of the State of New Jersey, in the United States of
America. The parties hereby irrevocably submit to the personal
jurisdiction of the United States District Court for the
District of New Jersey, Northern Division or the Courts of the
State of New Jersey, County of Essex in any action or
proceeding arising out of or relating to this Agreement, and
the parties irrevocably agree that all claims in respect of
any such action or proceeding may be heard and determined in
either such court.
12.5 NOTICES.
Any communication (including any notice, consent, approval or
instructions) provided for under this Agreement may be given
to the person to whom it is addressed by delivering the same
to or for such person at the address or facsimile number of
such person as set out hereinafter or at such other address or
number as
8
<PAGE> 9
such person shall have notified to the other party hereto,
provided that a copy of any communication sent by fax shall be
immediately deposited in the mail. Any communication so
addressed and delivered as aforesaid shall be deemed to have
been sufficiently given or made on the date on which it was
delivered.
If to Licensor: S2 GOLF INC.
18 Gloria Lane
Fairfield, New Jersey 07004
U.S.A.
Attention: Mr. Douglas A. Buffington
Facsimile number: (973) 227-7018
With a copy to: Mary Ann Jorgenson, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
U.S.A.
Facsimile number: (216) 479-8776
If to Licensee: Raymond Lanctot Ltee/Ltd.
5790 Pare Street
Montreal, Quebec
Canada, H4P 2M2
Attention of: Mrs. Diane Lanctot
Facsimile number: (514) 342-4059
With a copy to: Mr. Georges T. Robic
Leger Robic Richard
55 St. Jacques
Montreal, Quebec
Canada, H2Y 3X2
Facsimile number: (514) 845-7874
12.6 ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the
parties and fully supersedes any and all prior agreements or
understandings between the parties pertaining to the subject
matter hereof.
12.7 NO ASSIGNMENT; BINDING ON SUCCESSORS.
No party shall assign this Agreement or any right accruing to
it hereunder without the prior written consent of the other
party, which shall not be withheld unreasonably. This
Agreement shall inure to the benefit of and be binding upon
9
<PAGE> 10
the respective heirs, executors, administrators, successors
and assigns of the parties hereto.
12.8 LANGUAGE.
The present Agreement has been drafted in the English language
at the request of the parties. Le present contrat a ete regide
en langue anglaise a la demande des parties. All contracts,
correspondence and information relating to or required by this
Agreement shall be in the English language.
12.9 COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date and year
first above written.
LICENSOR:
S2 GOLF INC.
Per:
/s/ DOUGLAS A. BUFFINGTON
----------------------------------
Name: Douglas A. Buffington
Title: President
RAYMOND LANCTOT LTEE/LTD.
Per:
/s/ DIANE LANCTOT
----------------------------------
Name: Diane Lanctot
Title: President
10
<PAGE> 1
EXHIBIT 10.13
EXECUTION COPY
ENDORSEMENT AGREEMENT
---------------------
This Endorsement Agreement ("Agreement") is made this 13th day of
October, 1999 by and between SQUARE TWO GOLF INC., a New Jersey corporation (the
"Company"), and KATHY WHITWORTH, an individual, with an address at 302 La Mancha
Court, Santa Fe, New Mexico, 87501 (the "Professional").
RECITALS
--------
WHEREAS, the Company manufactures and sells women's golf clubs and
other golf equipment;
WHEREAS, the Professional is a retired Ladies Professional Golf
Association ("LPGA") Tour Professional;
WHEREAS, the Company desires to utilize the services of the
Professional in connection with the promotion, marketing, and sale of a
signature line of women's golf clubs and the Company's other products and
services; and
WHEREAS, the Company and the Professional desire to enter into an
agreement pursuant to which the Professional will serve the Company as an
independent contractor, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Company and the Professional hereby agree as follows:
1. TERM.
1.1 The term of this Agreement shall begin on January 1, 2000 and
continue for an initial period of five (5) years unless earlier terminated in
accordance with Section 7 hereof, and may be renewed under Section 8 hereof (the
initial period plus any renewal period, the "Term").
2. ENDORSEMENT SERVICES.
During the Term, the Professional will provide the services described
in this Section 2 (the "Services"):
2.1 The Professional hereby grants to the Company an exclusive license
to use her name, likeness, image and personal identification, singly or in any
combination, in connection with the production, use, marketing and sale of a
"Kathy Whitworth" signature line of women's golf clubs (the "Products"), as
described more fully in Section 3 below.
<PAGE> 2
EXECUTION COPY
2.2 The Professional agrees to serve as a professional golf instructor
during up to ten (10) golf clinics hosted by the Company per calendar year at
locations within the United States to be determined by the Company. The golf
clinics shall be one or two day events.
2.3 The Professional agrees to serve as a spokesperson for the Company
at up to two (2) Professional Golf Association merchandise shows, including but
not limited to the PGA Merchandise Shows.
2.4 The Professional hereby grants to the Company the exclusive and
worldwide right to use her name, likeness, image and personal identification,
singly or in any combination, during the Term and for a period of six (6) months
after the Term as provided in Section 2.8, in the creation of two (2) print
advertisements per year and one (1) television advertisement per year (together,
the "Advertisements") for any golf equipment, along with all rights in any
images, videos, advertisement copy or other materials created by the
Professional or others. The Professional agrees that the Company shall own all
such materials and all intellectual property rights therein for use in
perpetuity in any media now known or hereafter devised or developed, including
but not limited to the internet. The Professional hereby grants to the Company
the worldwide right during the Term and for a period of six (6) months after the
Term as provided in Section 2.8 to use, reproduce, print, publish, distribute,
broadcast, modify, edit, condense, or expand any materials containing her name,
image, likeness or personal identification that are created hereunder.
2.5 The Professional hereby grants to the Company an exclusive license
to use her name, likeness, image and personal identification in the Company's
catalog of products.
2.6 The Professional agrees to participate in a minimum of five (5)
other events per calendar year to market and promote the Company's products,
including but not limited to market consultations, each of which shall include
meeting with the Company executives to assist in the design, development,
marketing and promotion of the Company's products.
2.7 The Professional agrees to use only the golf clubs and golf bags of
the Company in any golf event, whether professional or social, during the Term.
The Professional agrees (i) to use no golf bag bearing any identification of a
competitor of the Company and (ii) to wear no apparel bearing any identification
of a competitor of the Company, and will prohibit any caddy of hers from bearing
any such identification.
2.8 The Company shall cease use of the name, likeness, image or
personal identification of the Professional upon expiration or termination of
this Agreement. However, the Company will have the right to dispose of its
inventory of Products existing at the time of termination or expiration of this
Agreement and the right to use the name, likeness, image and personal
identification of the Professional in connection with the disposition of such
inventory. The right granted in this section shall expire six (6) months after
the termination or expiration of this Agreement. The Professional understands
and agrees that the Company shall have no obligation to take action against or
attempt to stop distributors, retailers and other third parties to this
Agreement who have purchased Products bearing the name, likeness, image or
personal
-2-
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EXECUTION COPY
identification of the Professional from any marketing, advertising, sale or
other disposition of such Products, regardless of any use they make of the name,
likeness, image or personal identification of the Professional.
3. LICENSE AND ENDORSEMENT FOR PRODUCTS.
3.1 The Professional hereby grants an exclusive, worldwide license to
the Company to use the name, likeness, image and personal identification of the
Professional, during the Term and for a period of six (6) months after the Term
as provided in Section 2.8, in connection with the creation, manufacture,
marketing, sale and promotion of the Products. As a condition precedent to, and
a continuing precedent of, any obligations of the Company hereunder, the
Professional hereby agrees to use the Products upon their creation and to
provide an unqualified and unequivocal endorsement thereof during the Term at
the request of the Company at any time or times during the Term in verbal,
written or recorded forms. If the Professional is unable at any time during the
Term to provide such endorsement of the Products, the Company shall be released
from any of its obligations under Sections 4.1, 4.2, and 4.3 hereof to pay any
fees or royalties or to provide any stock options to the Professional and may
elect to terminate this Agreement without any further obligation to the
Professional.
4. COMPENSATION FOR ENDORSEMENT SERVICES.
4.1 The Company will pay the Professional a base fee of thirty-six
thousand dollars ($36,000) per year (the "Base Fee") for Services performed
during the Term. The Company shall pay the Base Fee in four (4) equal
installments of nine thousand dollars ($9,000) each on March 15, June 15,
September 15 and December 15 of each year during the Term commencing on January
15, 2000. The Professional acknowledges that the Company is under no obligation
to create or maintain the Products. The Professional agrees that payment of the
Base Fee shall satisfy all obligations of the Company hereunder if it elects not
to create or market and sell the Products.
4.2 If the Company elects to create and market the Products, the
Company will pay to the Professional a "Royalty Fee" on the sales of Products
during the Term, except as provided in the following sentence, of two percent
(2%) of the "Royalty Base," which Royalty Base shall be calculated as the
wholesale selling price of all Products for which the Company actually receives
the proceeds of such net of returns, allowances, discounts, shipping, taxes,
insurance and credits. During the Term, the Company shall pay the Royalty Fee,
earned for the preceding quarter, to the Professional quarterly, within thirty
(30) days of the end of the succeeding calendar year quarter. If the Company
decides not to renew this Agreement in accordance with the provisions of Section
8 below, the Company shall pay the Professional an amount equal to two percent
(2%) of the net book value of its unsold inventory of Products on December 31,
2004.
4.3 If the Company elects to create and market the Products, the
Company will grant to the Professional options to purchase shares of the
Company's capital stock ("Options"), as provided in this paragraph. On each
March 31, June 30, September 30, and December 31 during the Term that the
Company elects to continue the marketing and sale of the Products, the Company
will grant to the Professional a number of Options (the "Quarterly Grant
Number").
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The Quarterly Grant Number shall be the nearest whole number that results from
the division of the number of dollars represented by one half of one percent
(0.5%) of the Royalty Base by the closing price of the Company's stock on the
grant date. The exercise price of the Options shall be the closing price of the
Company stock on the grant date. The sum of the Quarterly Grant Numbers in each
calendar year of the Term shall not exceed fifteen thousand (15,000). The
options will expire five (5) years after each grant date. The Options shall not
be assigned, transferred or alienated by the Professional. Any attempt to
assign, transfer or alienate the Options without the prior written consent of
the Company shall be void.
4.4 The Company will reimburse the Professional for her reasonable and
necessary travel expenses in connection with her performance of the Services.
4.5 The Company shall be under no obligation to create, market, promote
or sell the Products. There shall be no minimum amounts due from the Company
hereunder except as specified in Section 4.1 above. The failure of the Company
to create, market, promote or sell the Products or to reach any specific sales
volume shall not result in any liability of the Company or create any right for
the Professional to make a claim against the Company. The Company may elect to
dispose of the Products at any price or for no consideration in its sole
discretion and shall not be obligated to the Professional for any sale or
transfer of the Products which does not produce compensation for the
Professional.
5. PROFESSIONAL'S CONDUCT.
5.1 The Professional shall at all times during the Term refrain
from:
5.1.1 dishonest, fraudulent, illegal or unethical acts or
omissions;
5.1.2 excessive use or abuse of alcohol;
5.1.3 use of controlled substances, except as prescribed by
a licensed medical professional in the treatment of illness or disease;
5.1.4 acts or omissions reasonably determined by the
Company to be prejudicial or injurious to the business or goodwill of
the Company, its officers, employees, shareholders or products, the
golf industry or professional golf; and
5.1.5 conduct which could reasonably be expected to degrade
the Professional, devalue the services of the Professional or to
bring the Professional into public hatred, contempt, scorn or
ridicule, or that could reasonably be expected to shock, insult or
offend the community or to offend public morals or decency.
6. INDEPENDENT CONTRACTOR.
6.1 With respect to all Services described in this Agreement, the
Professional's status will be that of an independent contractor and not a
partner, employee or agent of the Company. The Professional has no power or
authority whatsoever to make binding commitments or
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contracts on behalf of the Company. The Professional agrees that she will pay
and hold the Company harmless from any and all costs, expenses, fees, dues,
pension contributions, benefit contributions and fines associated with her
present or future required membership in any trade association, union or
professional organization, including but not limited to LPGA, PGA, USGA, SAG or
AFTRA, that may be associated with her performance of this Agreement. The
Professional represents that no agent or representative fees, charges, rights or
claims exist in connection with her execution or performance of this Agreement,
and the Professional shall hold harmless the Company from any such liability.
Any costs incurred by the Company to comply with any rule, contract, order or
other requirement of SAG, AFTRA or other union or professional organization
having control or jurisdiction over the Professional or her performance of the
services required by this Agreement shall be deducted from the sums due from the
Company to the Professional. The Professional agrees that the compensation
provided to her under Section 4 of this Agreement shall be deemed compensation
for purposes of meeting any minimum pay requirements of any SAG or AFTRA
agreement. If any of the above terms are deemed to violate any SAG or AFTRA
agreement, the Company shall have the option to terminate this Agreement without
liability.
6.2 The Professional shall have no authority to incur expenses on
behalf of the Company without the Company's prior written approval. The
Professional shall submit to the Company for written approval a description of
anticipated expenses, other than those for reasonable and necessary travel,
prior to incurring such expenses. All statements submitted by the Professional
for expenses that were not pre-approved by the Company will be subject to
review, approval or rejection by the Company in its sole discretion.
6.3 The Professional will be solely responsible for withholding and
paying any and all federal, state and local taxes, including but not limited to
payroll, unemployment, social security and income taxes, and any other payments
which may be due as a result of or in connection with payments made by the
Company for services rendered under this Agreement. The Professional
acknowledges that she is not qualified for and will not receive any Company
employee benefits or other incidents of employment.
6.4 The Professional agrees to maintain at all times during the Term
such insurance, including without limitation, health insurance, workers'
compensation, automobile and general comprehensive liability coverage, as will
protect and hold harmless the Company from any claims, losses, damages, costs,
expenses or liability arising out of the Services performed under this
Agreement. The Company may require the Professional to provide insurance
certificates evidencing the same.
6.5 The Professional represents and warrants that:
6.5.1 The Professional has the right to enter into this
Agreement;
6.5.2 By agreeing to perform or performing this Agreement,
the Professional will not breach any existing agreement; and
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6.5.3 Neither the Professional's grant of rights to the
Company under this Agreement nor the Company's exercise of such rights
will cause the infringement of any rights of third parties.
6.6 The Professional agrees not to enter into any other agreement the
performance of which would or could cause an infringement of the rights that the
Professional grants to the Company under this Agreement.
7. TERMINATION.
7.1 This Agreement shall terminate automatically if the Professional
dies or becomes disabled, or suffers illness, mental or physical disability to
the extent that she is unable to perform the obligations of the Professional
under the terms of this Agreement.
7.2 Either the Company or the Professional may terminate this Agreement
in the event of a non-curable breach of this Agreement by the other party.
7.3 In case of a breach of the Agreement that is capable of being
cured, the non-breaching party shall, before terminating the Agreement, give the
breaching party written notice of such breach, and a thirty (30) day period in
which to cure such breach.
7.4 The Professional's obligations under (i) Section 9 hereof and (ii)
Exhibit A shall survive a termination of this Agreement for the applicable
periods set forth therein. The Company's obligation to compensate the
Professional pursuant to Section 4 of this Agreement shall cease on the
effective date of termination except as to amounts earned by the Professional
and due from the Company accruing prior to such date.
7.5 The right to terminate outlined in this section shall be in
addition to, and not in lieu of, all other remedies which may be available to
the non-breaching party, whether at law or in equity, for a breach of this
Agreement.
8. RENEWAL.
8.1 The Company may renew this Agreement on the same terms and
conditions for one (1) additional five year period that shall begin on January
1, 2005 and end on December 31, 2009, by providing a written notice of its
intent to effect such renewal to the Professional by November 30, 2004.
9. NON-COMPETITION.
9.1 The Professional acknowledges that any use of her name, likeness,
image or personal identification by any third party in connection with the
making, use, sale, marketing, promotion or advertising of golf equipment,
including but not limited to golf clubs and golf bags, would cause a likelihood
of confusion with the Products of the Company, during the Term and thereafter
during the time the Company disposes of inventory on hand at the expiration of
this Agreement. The Professional acknowledges that she will have a right,
pursuant to and under the
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conditions described in Section 4.2 above, to receive a specified royalty for
inventory on hand at the expiration of the initial term, and accordingly hereby
grants to the Company the right to fill any orders for, assemble components of,
market, advertise, promote and sell any inventory of Products in its inventory
existing at the expiration or termination of this Agreement, for a period not to
exceed two (2) years after such expiration or termination of the original term.
To avoid any possibility of confusion of the public, trademark infringement or
interference with the rights of the Company, the Professional agrees not to
endorse, license or otherwise authorize the use of her name, likeness or image
in connection with another company's golf clubs or golf-related clothing or
equipment during the Term and for a period of two (2) years thereafter.
9.2 The Professional agrees to divest herself of any management or
control interest that she currently has in any entity that is a competitor of
the Company, and not to acquire any such interest during the Term.
10. RIGHT OF INJUNCTIVE RELIEF.
10.1 The Professional acknowledges and agrees that a breach of the
covenants contained in Section 9 of this Agreement would actually or potentially
deprive the Company of a substantial amount of sales and business value and that
the amount of injury would be impossible or difficult to ascertain fully. The
Company shall, therefore, be entitled to obtain an injunction against the
Professional restraining any violation, further violation, or threatened
violation of Section 9 above, in addition to any other remedies to which the
Company may be entitled by law.
11. MISCELLANEOUS.
11.1. ENFORCEABILITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
the balance of the Agreement. In the event that any such provision should be or
becomes invalid for any reason, such provision shall remain effective to the
maximum extent permissible, and the parties shall consult and agree on a legally
acceptable modification giving effect to the commercial objectives of the
unenforceable or invalid provision, and every other provision of this Agreement
shall remain in full force and effect.
11.2. ASSIGNABILITY. This Agreement is not assignable by the
Professional but is assignable by the Company to any affiliate or successor
entity. Any attempted assignment by the Professional without the prior written
consent of the Company shall be void. As used in this Agreement, the term
"Company" shall include any entity to which this Agreement shall have been
assigned by the Company, in accordance with the preceding.
11.3. AMENDMENT/WAIVER.
11.3.1 This Agreement supersedes all prior and contemporaneous
agreements and understandings between the parties with respect to the
subject matter hereof and may not be changed or amended orally.
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11.3.2 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.
11.3.3 The failure of any party at any time or from time to
time to require performance of the other party's obligations under this
Agreement shall in no manner affect such party's right to enforce any
provisions of this Agreement at a subsequent time. The waiver by any
party of any right arising out of any breach by the other party shall
not be construed as a waiver of any right arising out of a subsequent
breach.
11.4. GOVERNING LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed in
accordance with the laws of the State of New Jersey without giving
effect to the principles of conflicts of laws of such state.
11.5. NOTICES. Any communication (including any notice, consent,
approval or instructions) provided for under this Agreement may be given to the
person to whom it is addressed by delivering the same to or for such person at
the address or facsimile number of such person as set out hereinafter or at such
other address or number as such person shall have notified to the other party
hereto, provided that a copy of any communication sent by fax shall be
immediately deposited in the mail. Any communication so addressed and delivered
as aforesaid shall be deemed to have been sufficiently given or made on the date
on which it was delivered.
If to the Company: S2 GOLF INC.
18 Gloria Lane
Fairfield, New Jersey 07004
Attention: Mr. Douglas A. Buffington
Facsimile number: (973) 227-7018
With a copy to: Mary Ann Jorgenson, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile number: (216) 479-8776
If to the Professional: Kathy Whitworth
1735 Mistletoe
Flower Mound, Texas 75022
Facsimile number: (792) 355-7021
With a copy to: Nick Lampros
16615 Lark Avenue
Suite 101
Los Gatos, California 95032
Facsimile number: (408) 358-2486
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11.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7. INTELLECTUAL PROPERTY RIGHTS, CONFIDENTIALITY AND NON-USE. The
Professional acknowledges her obligations under the provisions of the
Intellectual Property Rights Confidentiality and Non-Use Obligations Agreement
attached hereto as "Exhibit A" and made a part hereof by this reference. The
rights and obligations of the parties set forth in Exhibit A shall survive the
termination or expiration of this endorsement agreement, regardless of cause or
circumstances of the termination or expiration.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SQUARE TWO GOLF, INC.
By: /s/DOUGLAS A. BUFFINGTON
---------------------------------
Douglas A. Buffington
President
PROFESSIONAL
/s/ KATHY WHITWORTH
------------------------------
Kathy Whitworth
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EXHIBIT A
Intellectual Property Rights
Confidentiality and Non-Use Obligations Agreement
This Agreement by and between SQUARE TWO GOLF INC., a New Jersey
corporation (the "Company") and KATHY WHITWORTH, an individual residing at 302
La Mancha Court, Santa Fe, New Mexico 87501 (the "Recipient"), is part of the
Endorsement Agreement of the parties. In consideration of and as an inducement
for the Company entering into said Endorsement Agreement with Recipient:
(a) Recipient acknowledges and agrees that communications for the
purpose of proposing to work for or working for the Company have in the past or
will entail the disclosure, observation and display to Recipient of information
and materials of the Company that are proprietary, confidential and trade
secret, which include, but are not limited to, golf equipment marketing plans,
research, development and designs, computer software, screens, user interfaces,
systems designs and documentation, processes, methods, fees, charges, know-how
and any result from the work performed by Recipient or the Company, new
discoveries, Intellectual Property (as defined below) and improvements to the
Company's products made for or on behalf of the Company (all of which, singly
and collectively, "Information").
With regard to such Information, whether or not labeled or specified as
confidential, proprietary or trade secret, Recipient agrees:
(i) to use the Information solely for the purpose of making
proposals to or working under contracts with the Company; and
(ii) not to disclose or transfer the Information to others
without the Company's written permission.
(b) Recipient will not be prevented from using or disclosing
Information:
(i) which Recipient can demonstrate, by written records, was
known to it before the disclosure or display of the Information by the
Company to Recipient; or
(ii) which is now, or becomes in the future, public knowledge
other than by breach of this Agreement or the endorsement agreement by
Recipient, its employees or agents; or
(iii) that is lawfully obtained by Recipient from a source
independent of the Company, which source was lawfully in possession of
the Information and which source had the unrestricted right to disclose
or display the Information to the Recipient; or
(iv) that is required by legal process to be disclosed,
provided that Recipient will timely inform the Company of the
requirement for disclosure, will permit the Company to attempt, by
appropriate legal means, to limit such disclosure and will itself
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use appropriate efforts to limit the disclosure and maintain
confidentiality to the extent possible.
(c) The confidentiality and non-use obligations of Recipient will
remain in effect after all work for the Company has been completed.
(d) All Information, including any copies thereof, in any media, in the
possession or control of Recipient and Information embodied or included in any
software or data files loaded or stored on computers in the possession or
control of Recipient, its agents or employees, shall be removed and returned to
the Company upon demand, but no later than the completion of work for the
Company.
(e) Recipient agrees that she will not copy the Information in whole or
in part or use all or any part of the Information to reverse engineer, duplicate
the function, sequence or organization of the Information for any purpose
without the prior written permission of the Company.
(f) Recipient further acknowledges and agrees that all new discoveries,
inventions, improvements, processes, formulae, designs, drawings, training
materials, original works of authorship, photos, video tapes, electronic images,
documentation, trademarks and copyrights (the "Intellectual Property"), that may
be developed, conceived, or made by Recipient, alone or jointly with others
during her work for the Company, shall be the exclusive property of the Company
and shall be deemed a work for hire. Recipient hereby assigns and agrees to
assign all Recipient's rights in any Intellectual Property to the Company.
Recipient hereby grants to the Company power of attorney for the purpose of
assigning all Recipient's rights in Intellectual Property to the Company for the
purposes of filings, registrations and other formalities deemed necessary by the
Company to prosecute, protect, perfect or exploit its ownership and interests in
Intellectual Property. Recipient further agrees to execute, acknowledge and
deliver any documentation, instruments, specifications or disclosures necessary
to assign, prosecute, protect, perfect or exploit the Company ownership of
Intellectual Property.
(g) Recipient acknowledges and agrees that the Company possesses
valuable know-how, proprietary, confidential and trade secret Information that
has been procured or developed by the Company at great expense and that its
unauthorized disclosure would result in substantial damages to the Company that
may not be adequately compensated by monetary relief. Accordingly, Recipient
hereby consents to the jurisdiction of the Federal and County Courts in Essex
County, New Jersey and agrees that the Company may seek temporary restraining
orders against it or other extraordinary relief necessary to protect the
Information.
A-2
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<NAME> S2 GOLF INC.
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