<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _____ to _____.
Commission File Number: 0-14146
S2 GOLF INC.
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(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2388568
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Gloria Lane, Fairfield, NJ 07004
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(Address of Principal Executive Office) (Zip Code)
(973) 227-7783
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-- --
On March 31, 2000, 2,220,113 shares of common stock, $.01 par value, were issued
and outstanding.
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S2 GOLF INC.
FORM 10-Q
FOR QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
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<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Balance Sheets -
March 31, 2000 and December 31, 1999 2
Statements of Operations -
Three Months Ended March 31, 2000
and April 2, 1999 3
Statements of Cash Flows -
Three Months Ended March 31, 2000
and April 2, 1999 4
Notes to Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 8
Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 8
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 8
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
S2 GOLF INC.
BALANCE SHEETS
AS OF MARCH 31, 2000 (UNAUDITED)
AND DECEMBER 31, 1999 (AUDITED)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 150 $ 150
Accounts Receivable - Net 3,794,480 2,650,197
Inventories 2,697,463 2,554,736
Prepaid Expenses 14,437 59,278
Deferred Income Taxes 185,500 163,600
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Total Current Assets 6,692,030 5,427,961
Plant and Equipment - Net 119,533 104,476
Non-Current Deferred Income Taxes 76,000 82,000
Other Assets - Net 133,487 137,642
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Total Assets $7,021,050 $5,752,079
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short term Borrowings $1,202,465 $ 774,468
Accounts Payable 1,029,683 399,864
Accrued Expenses 283,462 171,522
Other Current Liabilities 72,000 61,335
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Total Current Liabilities 2,587,610 1,407,189
Non-Current Liabilities 59,335 84,822
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Total Liabilities 2,646,945 1,492,011
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Contigency
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Authorized
Shares: 2,220,113 and 2,220,113 Issued and
Outstanding at March 31, 2000 and December 31, 1999,
respectively 22,201 22,201
Additional Paid in Capital 4,042,787 4,042,787
Accumulated Profit 309,117 195,080
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Total Shareholders' Equity 4,374,105 4,260,068
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Total Liabilities and Shareholders' Equity $7,021,050 $5,752,079
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
2
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S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND APRIL 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, April 2,
2000 1999
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<S> <C> <C>
Net Sales $ 2,864,670 $ 2,679,325
Cost of Goods Sold 1,913,827 1,862,397
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Gross Profit 950,843 816,928
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Operating Expenses:
Selling 433,134 451,872
General & Administrative 306,153 290,481
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Total Operating Expenses 739,287 742,353
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Operating Income 211,556 74,575
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Other Income (Expense)
Interest Expense (20,691) (64,328)
Other Income -- 562
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Total Other - Net (20,691) (63,766)
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Income Before Income Taxes 190,865 10,809
Provision for Income Taxes 76,828 4,398
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Net Income $ 114,037 $ 6,411
=========== ===========
Earnings per Common Share - Basic $ 0.05 $ 0.00
=========== ===========
Diluted $ 0.05 $ 0.00
=========== ===========
Weighted Average Number of
Common Shares Outstanding - Basic 2,220,113 2,219,316
Diluted 2,268,279 2,313,471
</TABLE>
The accompanying notes are an integral
part of these statements
3
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S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND APRIL 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 April 2,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
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Net Income $ 114,037 $ 6,411
Adjustments to Reconcile Net Income to Net Cash Provided
By (Used in) Operating Activities:
Depreciation and Amortization 14,462 13,626
Deferred Income Taxes (15,900) (14,320)
Changes in Assets and Liabilities:
Accounts Receivable (1,144,283) (723,707)
Inventories (142,727) 219,405
Prepaid Expenses 44,841 18,669
Other Assets -- (400)
Accounts Payable 629,819 47,185
Accrued Expenses 111,940 17,478
Other Current and Non-Current Liabilities (14,822) (13,552)
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NET CASH USED IN OPERATIONS (402,633) (429,205)
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INVESTING ACTIVITIES
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Purchase of Equipment (25,364) (8,508)
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NET CASH USED IN INVESTING ACTIVITIES (25,364) (8,508)
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FINANCING ACTIVITIES
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Proceeds from Revolving Line of Credit, Net 427,997 437,752
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NET CASH PROVIDED BY FINANCING ACTIVITIES 427,997 437,752
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INCREASE IN CASH -- 39
CASH - BEGINNING OF PERIOD 150 1,576
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CASH - END OF PERIOD $ 150 $ 1,615
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SUPPLEMENTAL CASH FLOW DISCLOSURES
- ----------------------------------
Cash Paid During the Year For:
Interest $ 20,691 $ 64,328
Income Taxes (Net of Refund) -- 180,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE STATEMENTS
4
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NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of S2 Golf Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting. In the opinion of management, all material
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2000. The unaudited financial
statements and related notes are presented as permitted by Form 10-Q and do not
contain certain information included in the Company's annual financial
statements and notes thereto. For further information, refer to the Company's
annual financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1999.
1) EARNINGS PER SHARE
Basic earnings per share ("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.
2) INVENTORIES
Inventories are valued at the lower of cost, determined on the basis of the
first-in, first-out method, or market.
Inventories at March 31, 2000 and December 31, 1999 consisted of the following
components:
3/31/00 12/31/99
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Raw Materials $2,023,097 $1,916,052
Finished Goods 674,366 638,684
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$2,697,463 $2,554,736
========== ==========
3) SHORT TERM BORROWINGS
The Company has a secured revolving line of credit 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
5
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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 March
31, 2000 was 9.25% and 8.75% as of December 31, 1999. The Company's availability
on the line of credit, as of March 31, 2000, was approximately $1,349,000.
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 March 31,
2000.
4) 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.
5) QUARTERLY ENDS
The Company reports its interim financial statements as of the Friday closest to
month-end of the quarter. Therefore, the interim quarters for fiscal 2000 will
end on March 31, 2000, June 30, 2000, and September 29, 2000. The Company
reports its year end financial statements as of December 31.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales for the three-month period ended March 31, 2000 were $2,864,670,
compared to $2,679,325 for the same period in 1999. Management attributes this
6.9% increase in sales for the three-month period over the same period in the
prior year primarily to general strengthening of the golf equipment industry
plus the continued strength of the Company's women's business, supported by the
Company's national television advertising campaign.
Gross profit as a percentage of sales was 33.2% for the three-month period ended
March 31, 2000 as compared to 30.5% for the same period in 1999. Management
attributes this increase primarily to differences in the mix of products shipped
during the comparison period and to lower costs for some components in the
period ended March 31, 2000.
Selling expenses for the three-month period ended March 31, 2000 were $433,134
compared to $451,872 for the same period in 1999. This reduction is the result
of the timing of advertising expenses during the three-month period ended March
31, 2000 as compared to the three-month period ended April 2, 1999.
6
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General and Administrative expenses for the three-month period ended March 31,
2000 were $306,153 compared to $290,481 for the same period in 1999. This
increase is due primarily to increased rent expenses for the Company's
facilities as well as increased bad debt expense.
Interest expense for the three-month period ended March 31, 2000 was $20,691,
which reflected a 68% decrease compared to the same period in 1999. This
reduction in interest expense was a direct result of the 61% decrease in the
average loan balance. The average loan balance for the three-month period ended
March 31, 2000 was $1,179,441 compared to an average loan balance of $2,986,126
for the three-month period ended April 2, 1999.
The Company's net income for the three-month period ended March 31, 2000 was
$114,037 compared to $6,411 for the same three-month period in 1999. This
increase is the result of a 6.9% increase in net revenue, gross margins
improving to 33% and lower interest charges.
The provision for income taxes was $76,828 for the three-month period ended
March 31, 2000 compared to $4,398 for the same three-month period in 1999.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital increased by $83,648 for the three-month period
ended March 31, 2000. Current assets increased by $1,264,069, offset by an
increase in current liabilities of $1,180,421. Accounts receivable increased by
$1,144,283 for the three-month period ended March 31, 2000, which was typical
for the Company due to the cyclical nature of the golf industry. Inventory
increased during the same period by $142,727 or 5.5%. The Company's short-term
borrowing increased by $427,997, which was a result of the increase to accounts
receivable and inventory. In addition, accounts payable increased by $629,819
for the three-month period ended March 31, 2000, and accrued expenses increased
by $111,940 for the same period. The increases in accounts payable and accrued
expenses are primarily a result of the cyclical nature of the business.
Working capital increased by $336,748 from the period ended April 2, 1999 to the
period ended March 31, 2000. This increase was the result of a $1,015,309
decrease in current assets offset by a $1,352,057 decrease in current
liabilities.
Cash used in operations was $402,633 and $429,205 for the three-month periods
ending March 31, 2000 and April 2, 1999, respectively. Cash provided by
financing activities totaled $427,997 for the three-month period ended March 31,
2000 and $437,752 for the same three-month period in 1999. During the
three-month period ended March 31, 2000, cash used for the payment of equipment
purchased was $25,364 and interest charges on short and long term borrowings was
$20,691.
7
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PART II. OTHER INFORMATION
ITEM 1. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the attached Exhibit Index are filed as part of this
report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
S2 GOLF INC.
5/15/00 /s/ Douglas A. Buffington
- -------------- ---------------------------
Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
8
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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 (incorporated
by reference to Exhibit 10.2 of the registrant's Annual Report on Form
10-K for the year ended December 31, 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).
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, 1998.
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).
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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 (incorporated by reference to Exhibit 10.12 of the
registrant's Annual Report on Form 10-K for the year ended December 31,
1999).
10.13 Endorsement Agreement between the registrant and Kathy Whitworth dated
October 13, 1999 (incorporated by reference to Exhibit 10.13 of the
registrant's Annual Report on Form 10-K for the year ended December 31,
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.
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Exhibit 10.9
EMPLOYMENT AGREEMENT
Made as of the 1st day of January 1998 by and between S2 Golf Inc., a
New Jersey Corporation with its principal place of business in Fairfield, New
Jersey ("S2"), and Douglas A. Buffington of Canton, Ohio ("DAB") as follows:
WHEREAS, the parties desire to: (i) provide for the employment of DAB
in the management of S2; and (ii) provide for a valid and enforceable covenant
by DAB not to compete with S2 in the conduct of its business and in the
geographical area described in Exhibit A hereto ("Business") for the period
herein described; and (iii) fix the compensation of DAB for such services and
covenant;
NOW, THEREFORE, in mutual consideration of the covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. TERM. S2 hereby hires and employs DAB for a period beginning on the
effective date of this Agreement, and terminating on the close of business on
December 31, 2002 unless terminated sooner as provided herein (the "Employment
Period").
2. DUTIES. During the Employment Period, DAB shall devote his full
business time and attention to the business of S2 and to such activities as may
be assigned to him from time to time by S2. DAB will have the titles and
responsibilities of President, Chief Operating Officer and Chief Financial
Officer and will serve S2 diligently and faithfully in the Business and use his
best endeavors to promote the interests of S2 and will perform such services at
such reasonable times and places as S2 may direct in connection with the
Business.
3. SALARY. In consideration of the services to be performed by DAB, he
will receive an annual gross salary of $137,500 for 1998 and $150,000 for each
year thereafter (the "Base Salary"). The Base Salary shall be paid in
accordance with S2's regular payroll policies.
4. BONUS. For 1998, Exhibit C attached represents the bonus program for
DAB. In the future years, the BOD shall determine similar bonus programs based
on annual budgets to be mutually agreed upon.
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5. STOCK OPTIONS.
(a) On various dates in the past S2 did, and may again during the Term
of this agreement, grant to DAB common stock options for certain numbers of
shares of S2's common stock (the "Stock Options").
(b) The exercise price and the number of shares exercisable under any
Stock Option shall be adjusted accordingly for any subsequent common stock
splits, reverse common stock splits, recapitalizations, etc.
(c) Notwithstanding any other provision of this paragraph 5 to the
contrary, if a "change in control" (as defined below) of S2 occurs, then (i) all
of the then "non-vested" shares of any Stock Option shall be and become
exercisable immediately prior to such "change in control" (each, an "Accelerated
Share"; combined, the "Accelerated Shares") (ii) the exercise price for each
Accelerated Share of any Stock Option shall be either (a) one (1) cent ($.01) or
(b) the lowest greater exercise price per Accelerated Share which will not cause
the value to DAB of all the shares of any Stock Options exercised upon such
"change in control" to be considered an "excess parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended and (iii) the
exercise price of the then "vested" shares of any Stock Option shall be the
exercise price determined in clause (ii) above; provided, however that in no
event shall the exercise price of the then "vested" shares of any Stock Option
be in excess of the Exercise Price originally determined upon the grant of such
Stock Option.
(d) For purpose of subparagraph 5(c), a "change in control" shall be
deemed to have occurred if (i) S2 shall be merged or consolidated with any
corporation (other than with any of its subsidiaries), (ii) S2 shall sell all or
substantially all of its operating properties and assets or (iii) any person
(including any person, association, corporation or other entity) becomes a
beneficial owner, directly or indirectly, of securities of S2 representing more
than 50% of the combined voting power of S2's then outstanding securities.
6. BENEFITS. During the Employment Period, DAB shall be entitled to
receive the fringe benefits listed on Exhibit B attached hereto. S2 reserves
the right to alter, abolish, change or improve any such benefit.
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7. TERMINATION
(a) S2's obligation to pay DAB's salary during the Employment Period
and DAB's employment shall terminate if:
(i) DAB dies; or
(ii) in the event of DAB's Disability, 90 days after the onset of such
Disability (as defined below); or
(iii) S2 has discharged DAB for cause. Cause shall be determined by S2
in its sole discretion and shall mean DAB's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, failure to perform his duties described
herein, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and
desist order, material breach of any provision of this Agreement or
acceptance of employment other than with S2.
(iv) DAB violates the provision of this Agreement;
(v) DAB voluntarily terminates his employment with S2; or
(vi) there has been a "change in control" and in conjunction with such
"change in control" DAB's duties are modified, without DAB's
express written consent, so as to no longer include the title and
responsibility of either (a) President or (b) Chief Operating
Officer.
"Disability" is defined as a medically determinable physical or
mental impairment which renders DAB incapable of performing his
employment duties with S2 and which can be expected to result in death
or to be of long-continued and indefinite duration. S2 shall select a
physician to determine whether DAB is disabled, as hereinbefore
defined, and such determination shall be binding and conclusive.
(b) In the event of the termination of DAB's employment, whether such
termination be pursuant to the terms of this paragraph 7, by expiration of the
term, or otherwise, all further obligations of S2 hereunder shall terminate. In
the event of a termination (other than pursuant to subparagraphs 7(a)(i) or
(vi), DAB shall continue to observe the covenant not to compete set forth herein
except in the case of a change in control and an agreeable
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employment agreement cannot be developed between all parties. In the event of
termination, DAB shall be entitled to any unpaid balance of DAB's salary
prorated and accrued to the date of termination. No provision of this Agreement
shall be construed as to prejudice any right or remedy available to S2 or DAB
in any case of termination.
8. REQUIRED RELOCATION.
(a) S2 acknowledges that (i) on the date of this agreement DAB resides
in Canton, Ohio and (ii) except as provided in subparagraph (b) below, the
relocation of DAB's residence near to S2's principal place of business is not a
condition precedent to DAB's employment.
(b) S2 and DAB acknowledge that is anticipated that at some point in
time during the Employment Period the BOD will decide on a permanent location
of S2's operations and that DAB will then be required to relocate near to such
permanent location. Upon such relocation, (i) DAB's commuting expense
reimbursement benefits included on Exhibit B shall cease and (ii) S2's
reimbursement of DAB's relocation related expenditures shall be subject to the
Relocation Policy of S2 then in effect for all executive employees.
9. CONFIDENTIALITY. DAB will treat as confidential and will not,
without written approval of S2, use, other than in the performance of his
designated duties to S2, or publish, disclose, copyright or authorize anyone
else to use, publish, disclose or copyright, during the term of employment
under this Agreement any information relating to inventions, processes,
formulas, systems, plans, programs, studies, techniques, "know-how", products,
product development, product costing, product pricing, or trade secrets of S2,
or any affiliated entities of S2, or any other information which S2 or such
entities might prefer or require remain undisclosed including information
relating to any of the activities, operations or affairs of S2 or of such
entities. DAB will diligently protect such information against loss by
inadvertent or unauthorized disclosure and will comply with any rules
established by S2 for the purpose of protecting such information.
10. ASSIGNMENT. This Agreement is not assignable by DAB but is
assignable by S2 to any affiliate or successor entity. As used in this
Agreement, the term "S2" shall include any entity to which this Agreement
shall have been assigned by S2.
11. PATENT AND INVENTIONS. DAB will promptly submit to S2 written
disclosures of all inventions, improvements and discoveries, relating to the
Business, whether or not patentable (hereinafter call "Inventions"), which are
made or conceived by him, alone or jointly with others, while in its employ.
Title to
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all such Inventions that shall be within the existing or contemplated scope of
S2's business at the time such inventions are made or conceived or which result
from or are suggested by any work he or others may do for or on behalf of S2,
together with such patent, patents or other legal protection as may be obtained
thereon in the United States of America and all foreign countries, shall belong
to S2. DAB will assign any rights or interest in such title to S2, and, upon
the request of S2, will at any time during his employment with S2 and after its
termination for any reason, execute all proper papers for use in applying for,
obtaining, maintaining and enforcing such patents or other legal protection as
S2 may desire and will execute and deliver all proper assignments thereof, when
so requested, without remuneration but at the expense of S2.
12. NON-COMPETITION.
(a) During the term of this Agreement DAB will not, directly or
indirectly, engage in any activity similar to that of any part of the Business
or otherwise in competition with the Business.
(b) For one year after the termination of this Agreement (for any reason
other than as a result of the event described in subparagraphs 7(a)(i) or (vi))
DAB will not, directly or indirectly, engage in any activity for any person or
entity the purpose of which activity is to assist such person or entity in any
manner in either: (i) soliciting or obtaining an endorsement of such person's
or entity's products by the Ladies Professional Golf Association ("LPGA") for
which S2 has an exclusive or non-exclusive license from the LPGA or (ii)
establishing a women's golf club product line where such person or entity had
no such product line previously.
(c) DAB shall not engage in any activity described in subparagraphs 12(a)
or (b) in any place in the United States of America involving sales to anyone
who, or any entity which, was a customer of S2 during the Employment Period.
(d) DAB shall be deemed to be engaged in the activities described in
subparagraphs 12(a) or (b) directly or indirectly if he is an employee,
officer, director, trustee, agent, representative or partner of, or a
consultant or advisor to or for, any person, firm, corporation, association,
trust or other entity (other than S2 or any of its affiliates, subsidiaries, or
successors) which is engaged in such business or if he owns, directly or
indirectly, in excess of five percent (5%) of the outstanding stock or shares
or has a beneficial or other financial interest exceeding five percent (5%) of
the net assets of any such person, firm, corporation, association, trust or
other entity. The foregoing shall not be construed to prohibit the mere
ownership by DAB of investments not representing a controlling interest in any
5
<PAGE> 6
securities traded in over-the-counter market or listed on any national
securities exchange.
(e) DAB agrees that the remedy at law for any breach or threatened
breach of the covenant contained in this paragraph 12 will be inadequate and
that any breach or threatened breach would cause such immediate and permanent
damage as would be impossible to ascertain, and, therefore, DAB agrees and
consents that in the event of any breach or threatened breach of any provision
of such covenant by him, in addition to any and all other legal and equitable
remedies available to S2 for such breach or threatened breach including a
recovery of damages, S2 shall be entitled to obtain preliminary or permanent
injunctive relief without the necessity of proving actual damage by reason of
such breach or threatened breach and, to the extent permitted by applicable
statutes and rules of procedure, a temporary restraining order (or similar
procedural device) may be granted immediately upon the commencement of such
action.
(f) To the extent that any obligation to refrain from competing within an
area, for a period of time or with respect to a product or service, as provided
in this paragraph 12 is invalid or unenforceable, it shall, to the extent that
it is invalid or unenforceable, be deemed void AB INITIO, and the remaining
obligations imposed by the provisions of this Agreement shall be fully
enforceable as if such invalid or unenforceable provisions had not been included
herein. The parties intend for this covenant to be enforceable to the maximum
extent permitted by law, and if any reviewing court deems it overbroad, such
court may reduce the time element by months, and the area by counties to achieve
the intention of the parties.
13. BINDING EFFECT. This Agreement shall be binding upon the parties
hereto, their heirs, legal representatives, successors and permitted assigns.
14. GOVERNING LAW AND SELECTION OF FORUM. This Agreement shall in all
respects be governed by and construed in accordance with the laws of the State
of New Jersey.
6
<PAGE> 7
15. SOLE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the employment contemplated
hereby and may not be changed or amended orally. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be of any
effect unless the same is set forth in writing and duly executed by the party
against which it is sought to be enforced.
ATTEST: S2 GOLF INC.
/s/ Richard M. Mauer By: /s/ Robert L. Ross
- -------------------- -------------------
Secretary Its: Chairman
WITNESS:
/s/ Emily Force /s/ Douglas A. Buffington (L.S.)
- --------------- -------------------------
Douglas A. Buffington
7
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
0
<COMMON> 22,201
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<SALES> 2,864,670
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