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Rule 424(b)(3)
File Number 333-47908
S2 GOLF INC. LADIES GOLF EQUIPMENT
COMPANY, INC.
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
S2 Golf Inc. ("S2 Golf") has entered into a merger agreement with Ladies Golf
Equipment Company, Inc. ("Ladies Golf") pursuant to which Ladies Golf will
become a wholly-owned subsidiary of S2 Golf. We believe that this merger will
strengthen significantly the positions of our two companies in the women's golf
equipment market. Upon consummation of the merger, the shareholders of Ladies
Golf will receive 1,000,000 shares of common stock of S2 Golf and a promissory
note in the principal amount of $1,000,000.
We cannot complete the merger unless the shareholders of both our companies
approve it. Each of the companies will hold a special meeting of its
shareholders to vote on this merger proposal as well as certain related matters.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your shareholder
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote in favor of the
merger. Not returning your card or not instructing your broker how to vote any
shares held for you in "street name" will have the same effect as a vote against
the merger.
The dates, times and places of the meetings are as follows:
S2 GOLF SPECIAL MEETING LADIES GOLF SPECIAL MEETING
December 15, 2000 at 10:00 a.m. December 4, 2000 at 10:00 a.m.
Suite 16 South 3803 Corporex Park Drive
Three Gateway Center Suite 400
Pittsburgh, Pennsylvania 15222 Tampa, Florida 33619
This document provides you with detailed information about these meetings and
the proposed merger. You can also get information about S2 Golf from publicly
available documents that S2 Golf has filed with the Securities and Exchange
Commission. Information about Ladies Golf has been included in this document. We
encourage you to read this entire document carefully.
We strongly support this combination of our companies and join with all of the
other members of our Boards of Directors in recommending that you vote in favor
of the merger.
Douglas A. Buffington James E. Jones
President, Chief Operating Officer, President
Chief Financial Officer and Treasurer Ladies Golf Equipment Company, Inc.
S2 Golf Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
S2 GOLF'S COMMON STOCK IS TRADED ON THE NASDAQ SMALL CAP MARKET. THE TRADING
SYMBOL FOR S2 GOLF'S COMMON STOCK IS "GOLF."
FOR ANY QUESTIONS, OR TO REQUEST ASSISTANCE, PLEASE CALL S2 GOLF'S PROXY
SOLICITOR, CONTINENTAL STOCK TRANSFER & TRUST COMPANY, AT (212) 509-4000.
JOINT PROXY STATEMENT/PROSPECTUS DATED October 25, 2000 AND FIRST MAILED TO
SHAREHOLDERS ON OR ABOUT October 27, 2000.
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S2 GOLF INC.
18 GLORIA LANE
FAIRFIELD, NJ 07004
(973) 227-7783
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 15, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of S2
Golf Inc. will be held at Suite 16 South, Three Gateway Center, Pittsburgh,
Pennsylvania on December 15, 2000 at 10:00 a.m., local time, for the following
purpose, more completely set forth in the accompanying proxy
statement/prospectus:
- To approve and adopt the Agreement and Plan of Reorganization,
dated as of September 22, 2000, by and among S2 Golf Inc., its
wholly-owned subsidiary, S2 Golf Acquisition Corp., Ladies
Golf Equipment Company, Inc., James E. Jones and Brian
Christopher.
Pursuant to S2 Golf's bylaws, the Board of Directors of S2 Golf has
fixed October 23, 2000 as the record date for the determination of shareholders
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof. Only shareholders of record at the close of business on
that date will be entitled to notice of and to vote at the special meeting. A
list of S2 Golf shareholders entitled to vote at the special meeting will be
available for inspection at the special meeting.
In the event that there are not sufficient votes to approve the
foregoing proposal at the time of the S2 Golf special meeting, the special
meeting may be adjourned in order to permit further solicitation by S2 Golf.
By Order of the Board of Directors
Richard M. Maurer
Corporate Secretary
Fairfield, New Jersey
October 25, 2000
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED PRIOR TO ITS
EXERCISE BY FILING WITH THE CORPORATE SECRETARY OF S2 GOLF PRIOR TO THE SPECIAL
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE SPECIAL MEETING, FILING A WRITTEN NOTICE OF REVOCATION
WITH THE SECRETARY OF THE SPECIAL MEETING AND VOTING IN PERSON.
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LADIES GOLF EQUIPMENT COMPANY, INC.
SUITE 400
3803 CORPOREX PARK DRIVE
TAMPA, FLORIDA 33619
(813) 246-4414
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 4, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Ladies
Golf Equipment Company, Inc. will be held at 3803 Corporex Park Drive, Suite
400, Tampa, Florida 33619 on December 4, 2000 at 10:00 a.m., local time, for the
following purpose, more completely set forth in the accompanying proxy
statement/prospectus:
- To approve and adopt the Agreement and Plan of Reorganization,
dated as of September 22, 2000, by and among S2 Golf Inc., its
wholly-owned subsidiary, S2 Golf Acquisition Corp., Ladies
Golf Equipment Company, Inc., James E. Jones and Brian
Christopher.
Pursuant to the Ladies Golf bylaws, the Board of Directors of Ladies
Golf has fixed October 20, 2000 as the record date for the determination of
shareholders entitled to notice of and to vote at the special meeting and any
adjournment or postponement thereof. Only shareholders of record at the close of
business on that date will be entitled to notice of and to vote at the special
meeting.
In the event that there are not sufficient votes to approve the
foregoing proposal at the time of the Ladies Golf special meeting, the special
meeting may be adjourned in order to permit further solicitation by Ladies Golf.
However, there are two shareholders of Ladies Golf, and both have indicated
their intention to approve and adopt the Agreement and Plan of Reorganization.
By Order of the Board of Directors
James E. Jones
Corporate Secretary
Tampa, Florida
October 25, 2000
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED PRIOR TO ITS
EXERCISE BY FILING WITH THE CORPORATE SECRETARY OF LADIES GOLF PRIOR TO THE
SPECIAL MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING
A LATER DATE, OR BY ATTENDING THE SPECIAL MEETING, FILING A WRITTEN NOTICE OF
REVOCATION WITH THE SECRETARY OF THE SPECIAL MEETING AND VOTING IN PERSON.
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WHERE YOU CAN FIND MORE INFORMATION
S2 Golf filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the shares of S2 Golf common stock to be
issued to Ladies Golf shareholders in the merger. This joint proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of S2 Golf in addition to being a proxy statement of S2 Golf for the
S2 Golf special meeting and a proxy statement of Ladies Golf for the Ladies Golf
special meeting. The registration statement, including the attached exhibits and
schedules, contains additional relevant information. As allowed by Securities
and Exchange Commission rules, this joint proxy statement/prospectus does not
contain all the information contained in the registration statement or in the
exhibits and schedules to the registration statement.
S2 Golf files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information we file at the Securities
and Exchange Commission's public reference room at the following location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the public reference room. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Securities and Exchange Commission at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information that S2 Golf files with it, which means we can
disclose important information to you by referring you to those documents. The
information included in the following documents is incorporated by reference and
is considered to be a part of this proxy statement/prospectus. The most recent
information that S2 Golf files with the Securities and Exchange Commission
automatically updates and supersedes more dated information. S2 Golf has
previously filed the following documents with the Securities and Exchange
Commission, which we incorporate by reference into this proxy
statement/prospectus:
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S2 GOLF SEC FILINGS (FILE NO. 0-14146) PERIOD
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Annual Report on Form 10-K Year ended: - December 31, 1999
Quarterly Report on Form 10-Q Quarter ended: - March 31, 2000
Quarterly Report on Form 10-Q Quarter ended: - June 30, 2000
Quarterly Report on Form 10-Q/A Quarter ended: - June 30, 2000
Current Report on Form 8-K Date of event reported: - July 31, 2000
Current Report on Form 8-K/A Date of event reported: - July 31, 2000
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We also incorporate by reference all documents subsequently filed by S2
Golf pursuant to section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), until the date of the special
meeting. This joint proxy statement/prospectus is accompanied by S2 Golf's
Annual Report on Form 10-K for the year ended December 31, 1999, Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, and Quarterly Report on
Form 10-Q/A for the quarter ended June 30, 2000.
Documents incorporated by reference are available from S2 Golf without
charge, excluding all exhibits unless specifically incorporated by reference as
an exhibit to this document. If you would like to obtain this information from
us, please direct your request, either in writing or by telephone, to Douglas A.
Buffington, President, Chief Operating Officer, Chief Financial Officer and
Treasurer, S2 Golf Inc., 18 Gloria Lane, Fairfield, New Jersey 07004, telephone:
(973) 227-7783.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the approval of
the merger agreement and the merger. Neither S2 Golf nor Ladies Golf has
authorized anyone to provide you with information that is different from what is
contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated October 25, 2000. You should not assume that the
information contained in the joint proxy statement/prospectus is accurate as of
any other date, and neither the mailing of this joint proxy statement/prospectus
to shareholders nor the issuance of S2 Golf common stock in the merger should
create any implication to the contrary.
S2 Golf has supplied all information contained or incorporated by
reference in this document relating to S2 Golf. Ladies Golf has supplied all
information contained in this document relating to Ladies Golf.
FORWARD-LOOKING STATEMENTS
This document, the documents incorporated by reference in this document
or the documents attached to it, or any other written statements made by, or on
behalf of, S2 Golf may include forward-looking statements with respect to the
financial condition, results of operations and business of S2 Golf, based on
management's belief and information currently available to management. These
forward-looking statements are subject to risks, uncertainties and assumptions.
Actual results may vary materially from those anticipated, estimated, projected
or expected. Among, but not limited to, the factors that may cause variations
from such forward-looking statements are:
- S2 Golf's ability to realize anticipated cost savings relating
to the merger;
- S2 Golf's ability to leverage its access to expanded markets
provided by the merger;
- fluctuations in the economy and in the golf industry; and
- the rate of growth of the markets in which S2 Golf operates.
Readers are cautioned not to place undue reliance on any
forward-looking statements made by, or on behalf of, S2 Golf. Additional
information with respect to factors that may cause the results to differ
materially from those contemplated by such forward-looking statements is
included in S2 Golf's current and subsequent filings with the Securities and
Exchange Commission.
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PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
Page
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SUMMARY...........................................................................................................1
The Companies..................................................................................................1
Our Reasons for the Merger.....................................................................................1
Special Meetings...............................................................................................1
Board Recommendations to Shareholders..........................................................................2
Risk Factors...................................................................................................2
The Merger.....................................................................................................2
COMPARATIVE MARKET VALUE DATA.....................................................................................5
COMPARISONS OF CERTAIN UNAUDITED PER SHARE DATA...................................................................6
SELECTED HISTORICAL FINANCIAL DATA OF S2 GOLF.....................................................................7
S2 GOLF AND LADIES GOLF UNAUDITED PRO FORMA CONDENSED COMBINED
SELECTED FINANCIAL DATA...........................................................................................8
RECENT DEVELOPMENTS...............................................................................................8
RISK FACTORS......................................................................................................9
General Risks Relating To The Proposed Merger..................................................................9
Risks Relating to Ownership of S2 Golf Common Stock...........................................................10
THE S2 GOLF SPECIAL MEETING......................................................................................13
Purpose of the S2 Golf Special Meeting........................................................................13
Record Date; Voting Rights; Proxies...........................................................................14
Solicitation of Proxies.......................................................................................15
Quorum........................................................................................................15
Required Vote.................................................................................................15
THE LADIES GOLF SPECIAL MEETING..................................................................................16
Purpose of the Ladies Golf Special Meeting....................................................................16
Record Date; Voting Rights; Proxies...........................................................................16
Solicitation of Proxies.......................................................................................17
Quorum........................................................................................................17
Required Vote.................................................................................................17
RIGHTS OF DISSENTING SHAREHOLDERS................................................................................18
Procedures for Exercise of Dissenters' Rights.................................................................18
Notice of Election............................................................................................18
Written Offer to Purchase the Shares..........................................................................19
Judicial Determination of Value of Shares.....................................................................19
THE MERGER.......................................................................................................20
General.......................................................................................................20
Background of the Merger......................................................................................20
S2 Golf's Reasons for the Merger; Recommendation of the S2 Golf Board.........................................21
Ladies Golf's Reasons for the Merger; Recommendation of the Ladies Golf Board.................................21
Interests of Certain Directors and Officers in the Merger; Potential Conflicts of Interest....................22
Completion and Effectiveness of the Merger....................................................................22
Material Federal Income Tax Consequences......................................................................23
Accounting Treatment..........................................................................................23
Expenses of the Merger .......................................................................................24
Stock Exchange Listing........................................................................................24
Dividends.....................................................................................................24
Regulatory Approvals Needed to Complete the Merger............................................................24
THE MERGER AGREEMENT.............................................................................................24
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Consideration.................................................................................................24
Adjustment to Merger Consideration............................................................................24
Closing Date and Effective Time...............................................................................25
Ladies Golf Representations and Warranties...................................................................25
S2 Golf Representations and Warranties........................................................................26
Conduct of Business Before Completion of the Merger...........................................................26
Board Representation and Employment...........................................................................28
Conditions to Completion of the Merger........................................................................28
Amendment.....................................................................................................29
Termination and Termination Fees..............................................................................29
PRINCIPAL SHAREHOLDERS...........................................................................................30
DESCRIPTION OF S2 GOLF CAPITAL STOCK.............................................................................32
DESCRIPTION OF LADIES GOLF CAPITAL STOCK.........................................................................32
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS...............................................................33
Introduction..................................................................................................33
Number of Directors...........................................................................................33
Election of the Board Of Directors............................................................................33
Removal of Directors..........................................................................................33
Vacancies on the Board of Directors...........................................................................33
Special Meetings of the Shareholders..........................................................................34
Annual Meeting of Shareholders................................................................................34
Shareholder Action Without a Meeting..........................................................................34
Shareholder Inspection Rights; Shareholder List...............................................................35
Amendments to Charter Documents...............................................................................35
Amendment to Bylaws...........................................................................................35
Merger or Business Combinations...............................................................................35
Mergers with Subsidiaries.....................................................................................36
Provisions Affecting Control Share Acquisitions and Business Combinations.....................................36
Dissenters' Rights............................................................................................37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS.........................................38
INFORMATION ABOUT LADIES GOLF....................................................................................45
THE BUSINESS OF LADIES GOLF......................................................................................45
Women's Golf Equipment and Accessories........................................................................45
Manufacturing.................................................................................................48
Trademarks....................................................................................................48
Seasonality...................................................................................................48
Marketing and Distribution....................................................................................48
Competition...................................................................................................49
Properties....................................................................................................49
Insurance.....................................................................................................50
Employees.....................................................................................................50
Financial Information About Geographic Areas..................................................................50
Legal Proceedings.............................................................................................50
Market Price, Dividends and Stockholder Matters...............................................................50
SELECTED HISTORICAL FINANCIAL DATA OF LADIES GOLF................................................................51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OF OPERATIONS OF LADIES GOLF.....................51
STOCK OWNERSHIP OF LADIES GOLF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.........................................55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................55
FINANCIAL STATEMENTS OF LADIES GOLF..............................................................................56
LEGAL MATTERS....................................................................................................64
EXPERTS..........................................................................................................64
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.............................64
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ANNEX A Agreement and Plan of Reorganization, dated as of September
22, 2000, by and among S2 Golf Inc., its wholly-owned
subsidiary, S2 Golf Acquisition Corp., Ladies Golf Equipment
Company, Inc., James E. Jones and Brian Christopher
ANNEX B Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act
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SUMMARY
This brief summary highlights selected information from the joint proxy
statement/prospectus. It does not contain all of the information that is
important to you. You should carefully read the entire prospectus and the other
referenced documents to fully understand the merger.
THE COMPANIES
S2 GOLF INC.
18 Gloria Lane
Fairfield, New Jersey 07004
(973) 227-7783
S2 Golf is a corporation organized under the laws of the State of New Jersey in
1982. S2 Golf manufactures and markets a proprietary line of golf equipment
including golf clubs, golf bags, golf balls and accessories.
LADIES GOLF EQUIPMENT COMPANY, INC.
Suite 400
3803 Corporex Park Drive
Tampa, Florida 33619
(813) 246-4414
Ladies Golf is a corporation organized under the laws of the State of Florida in
1993. Ladies Golf is a supplier of women's golf shoes, gloves, socks and related
accessories to golf course pro shops and off-course shops throughout the United
States and Canada.
OUR REASONS FOR THE MERGER
We believe that the merger will benefit the shareholders of each company by
increasing the value of the shares of S2 Golf through the cost savings and
enhanced opportunities for growth provided by the merger. To review our reasons
for the merger in detail, as well as how we came to agree on the merger, see
pages 21 through 22.
SPECIAL MEETINGS
THE S2 GOLF SPECIAL MEETING (SEE PAGE 13)
If you are a S2 Golf shareholder, you are entitled to vote at the special
meeting if you owned S2 Golf common stock as of the close of business on October
23, 2000. As of October 23, 2000, a total of 2,221,055 votes were eligible to be
cast at the S2 Golf special meeting. At the special meeting, the shareholders
will consider and vote upon the proposal to approve and adopt the merger
agreement.
A majority of the issued and outstanding S2 Golf common stock must be present in
person or by proxy for any vote to be valid. You can vote your shares by
attending the S2 Golf meeting and voting in person or by mailing the enclosed
proxy card. You can revoke your proxy as late as the date of the meeting either
by sending in a new proxy or by attending the meeting and voting in person.
THE LADIES GOLF SPECIAL MEETING (SEE PAGE 16)
If you are a Ladies Golf shareholder, you are entitled to vote at the special
meeting if you owned Ladies Golf common stock as of the close of business on
October 20, 2000. As of October 20, 2000, there were only two shareholders of
Ladies Golf, and a total of 1,000 votes were eligible to be cast at the Ladies
Golf special meeting. At the special meeting, the shareholders will consider and
vote upon the proposal to approve and adopt the merger agreement.
VOTES REQUIRED
S2 Golf Shareholders. In order to complete the merger, a majority of the votes
cast by holders of shares entitled to vote at the S2 Golf special meeting must
be for the approval and adoption of the merger agreement.
Ladies Golf Shareholders. In order to complete the merger, a majority of shares
entitled to vote at the Ladies Golf special meeting must vote to approve and
adopt the merger agreement.
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BOARD RECOMMENDATIONS TO SHAREHOLDERS
TO S2 GOLF SHAREHOLDERS:
The S2 Golf Board believes that the merger is in your best interests and
unanimously recommends that you vote FOR the proposal to approve and adopt the
merger agreement.
TO LADIES GOLF SHAREHOLDERS:
The Ladies Golf Board, consisting of the two shareholders of Ladies Golf,
believes that the merger is in their best interests and unanimously recommends a
vote FOR the proposal to approve and adopt the merger agreement.
RISK FACTORS
There are risks that the combination of the businesses of S2 Golf and Ladies
Golf may not be successful. There are also risks associated with an investment
in S2 Golf common stock. You should carefully consider the factors discussed in
the section entitled "Risk Factors" beginning on page 9.
THE MERGER
DESCRIPTION OF THE MERGER
We propose the merger of Ladies Golf into a subsidiary of S2 Golf. S2 Golf will
continue its operations as they are currently conducted, with its corporate
headquarters in Fairfield, New Jersey. We expect to complete the merger in the
last quarter of 2000.
WHAT YOU WILL RECEIVE IN THE MERGER
Ladies Golf Shareholders. Ladies Golf shareholders will receive a total of
1,000,000 shares of S2 Golf common stock and a promissory note in the principal
amount of $1,000,000. You will have to surrender your Ladies Golf stock
certificates in order to receive your S2 Golf stock certificates. At the time of
the merger, James E. Jones will receive the $1,000,000 promissory note and
775,000 shares of S2 Golf common stock, and Brian Christopher will receive
225,000 shares of S2 Golf common stock.
S2 Golf Shareholders. After the merger, you will continue to own your shares of
S2 Golf common stock. You will not need to surrender your certificates or
exchange your shares for new ones.
ADJUSTMENT TO MERGER CONSIDERATION
Following the effective date of the merger, an accountant selected by the Ladies
Golf shareholders will prepare a six month net accounts receivable trial
balance, and a nine month non-current inventory report at S2 Golf's expense.
The S2 Golf common stock given as consideration for the merger will be subject
to a one share reduction for each two dollars included in the sum of the
following:
- the total amount of accounts receivable existing on the effective date
which remain uncollected six months following the effective date; plus
- the amount of non-current inventory existing on the effective date that
remains unsold nine months following the effective date, plus the
difference between the selling price and the effective-date carrying
value of non-current inventory that in the first nine months after the
merger has sold for less than its effective-date carrying value.
As security for any adjustments to the amount of S2 Golf common stock to be
given as merger consideration, the Ladies Golf shareholders have agreed to place
in escrow share certificates representing 75,000 of the shares of S2 Golf common
stock to be given as consideration for the merger.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
As of October 23, 2000, directors and executive officers of S2 Golf and their
respective affiliates
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beneficially owned an aggregate of 1,727,268 shares of S2 Golf common stock,
including shares which may be acquired within 60 days after such date upon
exercise of employee or director stock options. This number amounts to
approximately 69.8% of the S2 Golf common stock outstanding on that date.
As of October 20, 2000, directors and executive officers of Ladies Golf and
their respective affiliates beneficially owned an aggregate of 1,000 shares of
Ladies Golf common stock. This number amounts to 100% of the Ladies Golf common
stock outstanding on that date.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 28)
The completion of the merger depends upon a number of conditions, including the
following:
- The S2 Golf shareholders must have approved the merger agreement.
- There must be no statute, rule, regulation, decree, preliminary or
permanent injunction, temporary restraining order or other legal
restraint blocking the merger or government proceedings trying to block
the merger.
- James E. Jones must enter into an employment agreement with S2 Golf and
S2 Golf Acquisition Corp.
- Each of the two shareholders of Ladies Golf must enter into a
noncompetition agreement with S2 Golf and S2 Golf Acquisition Corp.
Where law permits, we could decide to complete the merger even though one or
more of these conditions has not been met.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 29)
We can agree at any time to terminate the agreement without completing the
merger, even if the shareholders of both our companies have approved it. Also,
the merger agreement can be terminated:
- By S2 Golf and S2 Golf Acquisition Corp., if any of the conditions to
their obligations under the merger agreement cannot be fulfilled (other
than as a result of a breach of the merger agreement by S2 Golf or S2
Golf Acquisition Corp.);
- By Ladies Golf, if any of the conditions to its obligations under the
merger agreement cannot be fulfilled (other than as a result of a
breach of the merger agreement by Ladies Golf);
- By either Ladies Golf or S2 Golf and S2 Golf Acquisition Corp., if we
do not complete the merger on or before the 120th day following the
mailing of this proxy statement/prospectus, unless the failure to
complete the merger by that time is due to the willful and material
breach of the merger agreement by the party seeking to terminate it; or
- By Ladies Golf, if we do not complete the merger on or before December
31, 2000.
If the merger is not completed, we will each pay our own fees and expenses.
REGULATORY MATTERS (SEE PAGE 24)
We are not aware of any material governmental or regulatory approval required
for completion of the merger, other than the effectiveness of the registration
statement of which this proxy statement/prospectus is a part, and compliance
with applicable corporate and securities laws of New Jersey and Florida.
ACCOUNTING TREATMENT (SEE PAGE 23)
We intend to account for the merger as a "purchase" for financial reporting and
accounting purposes under generally accepted accounting principles.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 23)
S2 Golf Shareholders. As your shares of S2 Golf common stock remain unchanged,
the
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merger will not cause you to recognize gain or loss with respect to those shares
for United States federal income tax purposes.
Ladies Golf Shareholders. You will recognize gain for United States federal
income tax purposes equal to the lesser of:
- the principal amount of the promissory note that you receive in the
merger; and
- the amount of gain that you realize on the exchange.
The amount of gain that you realize on the exchange will equal the excess of:
- the sum of the principal amount of the promissory note (less any
unstated interest as determined under Sec.1274 of the Internal Revenue
Code of 1986, as amended) and the value of the S2 Golf common stock you
receive in the exchange
over
- your tax basis in the Ladies Golf common stock that you exchange in the
merger.
You may be eligible to report any recognized gain from the exchange on the
installment method for federal income tax purposes, provided that you do not use
the accrual method of accounting for tax purposes. In addition, there might be
an interest charge on the tax liability that is deferred through use of the
installment method. If you are not eligible to use the installment method, you
generally must report the entire amount of the recognized gain (calculated as
described above) in the year of the exchange.
For more detailed information about the tax consequences of the merger if it
does not meet the requirements of a tax free reorganization, you should review
the discussion of federal income tax consequences to shareholders under the
heading "Material Federal Income Tax Consequences" beginning on page 23.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER THAT ARE APPLICABLE TO YOU, INCLUDING YOUR
ELIGIBILITY TO USE THE INSTALLMENT METHOD.
DISSENTERS' RIGHTS (SEE PAGE 18)
S2 Golf Shareholders. You will not be entitled to dissenters' rights of
appraisal of your shares in connection with the merger.
Ladies Golf Shareholders. You are entitled to dissenters' rights of appraisal
pursuant to Sections 607.1301, 607.1302, and 607.1320 of the Florida Business
Corporation Act. If you fail to comply with these sections of the Florida
Business Corporation Act, you could lose these dissenters' rights. HOLDERS OF
LADIES GOLF COMMON STOCK WHO WANT TO EXERCISE THEIR DISSENTERS' RIGHTS MUST
NOTIFY LADIES GOLF OF THEIR INTENT TO EXERCISE THEIR DISSENTERS' RIGHTS PRIOR TO
THE LADIES GOLF SPECIAL MEETING AND MUST NOT VOTE IN FAVOR OF THE MERGER AT THE
LADIES GOLF SPECIAL MEETING.
We have attached Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act to this proxy statement/prospectus in Annex B and
encourage you to read these Sections in their entirety.
LISTING OF S2 GOLF COMMON STOCK (SEE PAGE 24)
S2 Golf intends to list the shares of its common stock to be issued in
connection with the merger on the Nasdaq Small Cap Market under the symbol
"GOLF."
DIVIDENDS (SEE PAGE 24)
Ladies Golf shareholders are not entitled to receive any dividends or other
distributions on S2 Golf common stock until the merger is completed and they
have surrendered their Ladies Golf stock certificates in exchange for the S2
Golf stock certificates.
4
<PAGE> 13
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (SEE PAGE 33)
The rights of holders of S2 Golf common stock are currently governed by New
Jersey law and S2 Golf's certificate of incorporation and bylaws. The rights of
holders of Ladies Golf common stock are currently governed by Florida law and
Ladies Golf's articles of incorporation and bylaws. See page 33 to learn more
about the material differences between the rights of holders of S2 Golf common
stock and the rights of holders of Ladies Golf common stock.
-------------------------------------------------------------------------------
COMPARATIVE MARKET VALUE DATA
S2 Golf common stock trades on the Nasdaq Small Cap Market. Ladies Golf
common stock does not trade in any public market, and therefore it is not
possible to provide the market value of shares of Ladies Golf common stock. The
following table shows the closing price per share of S2 Golf common stock and
the equivalent per share price for Ladies Golf common stock giving effect to the
merger on June 7, 2000, which is the last business day preceding the public
announcement of the proposed merger. We have calculated the equivalent per share
price of Ladies Golf common stock by dividing the total price to be paid in the
merger to the holders of Ladies Golf common stock ($3,250,000.00, calculated as
the sum of $1,000,000.00 (the amount of the promissory note) plus $2,250,000.00
(the value of 1,000,000 shares at a per share price of $2.25)) by 1,000, which
is the number of Ladies Golf common shares to be exchanged in the merger.
<TABLE>
<CAPTION>
Ladies Golf
S2 Golf Ladies Golf Equivalent
Date Per Share Price Per Share Price Per Share Price
---- --------------- --------------- ---------------
<S> <C> <C> <C>
June 7, 2000 $2.25 N/A $3,250.00
</TABLE>
You should obtain current market quotations for S2 Golf common stock,
as the market price of S2 Golf common stock will fluctuate between the date of
this document and the date on which the merger is completed and thereafter.
Because the number of shares of S2 Golf common stock that Ladies Golf
shareholders will receive is fixed and because the market price of S2 Golf
common stock fluctuates, the value of the shares of S2 Golf common stock that
Ladies Golf shareholders will receive may increase or decrease prior to and
after the merger.
5
<PAGE> 14
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following table presents certain historical and pro forma per share
data of S2 Golf and Ladies Golf. The equivalent pro forma per share information
was obtained by multiplying the related pro forma combined amounts for S2 Golf
by the exchange ratio of 1,000 to 1. Pro forma income loss data is based on the
assumption that the acquisition took place as of January 1, 1999. The
comparative per share data does not include any expenses that we expect to incur
in connection with completing the merger and integrating the operations of S2
Golf and Ladies Golf. As S2 Golf has not declared dividends, it is not possible
to provide data on cash dividends per share. While the pro forma information is
helpful in showing the financial characteristics of S2 Golf after the merger
under one set of assumptions, it does not attempt to predict or suggest future
results.
You should read this information together with S2 Golf's historical and
pro forma financial statements incorporated by reference or included in this
document. The information regarding S2 Golf in the following table is based on
the historical financial information that it has presented in the reports and
other information that it has filed with the Securities and Exchange Commission.
We have incorporated this material into this document by reference. See "Where
You Can Find More Information" on page i. This information regarding Ladies Golf
is based on its audited and unaudited financial statements. Ladies Golf audited
financial statements for the years ended December 31, 1999 and 1998 begin on
page 56.
<TABLE>
<CAPTION>
HISTORICAL AND PRO FORMA PER SHARE DATA
Historical Historical Pro Forma Combined
S2 Golf Ladies Golf S2 Golf
Common Stock Common Stock Common Stock
---------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
June 30, 2000 December 31, June 30, 2000 December 31, June 30, 2000 December 31,
(unaudited) 1999 (unaudited) 1999 (unaudited) 1999
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Book value per
share $2.05 $1.88 $416.86 $164.67 $2.46 $2.05
Income/(Loss)
per diluted
share $0.18 $0.14 $252.19 $(433.16) $0.43 $(0.29)
</TABLE>
6
<PAGE> 15
SELECTED HISTORICAL FINANCIAL DATA OF S2 GOLF
The following table sets forth selected historical financial data of S2
Golf and has been derived from its financial statements. This information is
only a summary and you should read it together with S2 Golf's historical
financial statements and related notes contained in the annual reports and other
information that S2 Golf has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information" on page i.
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended December 31,
June 30, 2000
(unaudited) 1999 1998 1997 1996 1995
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Results:
Net Sales $6,792,046 $11,003,556 $11,505,000 $12,073,843 $8,563,588 $7,243,307
Net Income (Loss) $402,742 $306,126 $440,848 $855,565 $118,884 $(80,468)
Net Income (Loss)
Per Share Basic 0.18 0.14 0.20 0.39 0.05 (0.04)
Per Share Diluted 0.18 0.14 0.19 0.37 0.05 (0.04)
Weighted Average
Number of Shares
Outstanding
Basic 2,220,113 2,219,700 2,219,078 2,214,448 2,208,311 2,205,647
Diluted 2,275,221 2,263,876 2,315,149 2,290,505 2,208.311 2,205,647
At Period End:
Working Capital $4,388,239 $4,020,772 $3,766,986 $3,435,345 $2,401,904 $2,320,912
Total Assets $6,883,325 $5,752,079 $7,534,080 $7,630,176 $5,153,651 $4,726,353
Total Liabilities $2,220,515 $1,492,011 $3,582,138 $4,123,082 $2,513,551 $2,205,137
Long Term Obligations: $44,177 $84,822 $146,157 $202,231 $253,498 $315,206
Shareholders' Equity $4,662,810 $4,260,068 $3,951,952 $3,507,094 $2,640,100 $2,521,216
Market Price of Common
Stock High/Low 2.86/1.72 4.00/1.62 11.31/2.00 5.00/.81 1.75/.81 2.50/.81
</TABLE>
7
<PAGE> 16
S2 GOLF AND LADIES GOLF UNAUDITED PRO FORMA CONDENSED COMBINED
SELECTED FINANCIAL DATA
The following unaudited pro forma condensed combined selected financial
data table sets forth historical selected financial data of S2 Golf adjusted to
give effect to the merger.
You should read this selected unaudited pro forma financial data
together with the "Unaudited Pro Forma Condensed Combined Financial Statements"
on pages 38 through 44. The pro forma information is not necessarily indicative
of the actual financial condition that would have existed or the results that
would have been achieved had the merger been closed on the dates indicated or
that may be achieved in the future. Pro forma stock prices reflect the high and
low market values of the S2 Golf common stock; it cannot be determined how the
merger will impact the market value of S2 Golf common stock.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Operating Results:
Net Sales $12,048,537 $17,446,038
Net Income (Loss) $367,658 $(1,273,591)
Net Income (Loss)
per Share Basic 0.11 (0.40)
per Share Diluted 0.11 (0.40)
Weighted Average
Number of Shares
Outstanding
Basic 3,220,113 3,219,700
Diluted 3,275,221 3,219,700
At Period End:
Working Capital $3,419,056 $3,920,025
Total Assets $15,257,572 $6,793,926
Total Liabilities $8,344,762 $2,369,193
Long Term
Obligations: $44,177 $84,822
Shareholders'
Equity $6,912,810 $4,424,733
Market Price
of Common
Stock High/Low 2.86/1.72 4.00/1.62
</TABLE>
RECENT DEVELOPMENTS
On July 31, 2000, S2 Golf acquired from The Arnold Palmer Golf Company
substantially all of the net assets of its NancyLopezGolf(TM) division, for a
cash purchase price of $4,633,333 (calculated as a function of projected sales
volume and reimbursement for the PGA show booth space) less a post-closing
adjustment of $473,928 based on changes in the net asset value between April 29,
2000 and the closing date. A further post-closing purchase price adjustment
based on realization on accounts receivable in the first six months after
closing is possible also. The acquired assets comprise intellectual property,
accounts receivable, inventory of golf equipment and manufacturing and other
physical equipment used by the seller in the manufacture and sale of golf clubs
and other golf equipment. The Company intends
8
<PAGE> 17
to use all equipment and physical property acquired to continue manufacturing
and distributing the NancyLopezGolf(TM) equipment line. Nancy Lopez will become
a director of S2 Golf as of January 1, 2001.
RISK FACTORS
In addition to the other information contained in this proxy
statement/prospectus, you should carefully consider the following risk factors.
GENERAL RISKS RELATING TO THE PROPOSED MERGER
S2 Golf and Ladies Golf may not achieve the benefits they expect from the
merger, which may have a material adverse effect on S2 Golf's business,
financial condition and operating results.
S2 Golf will need to manage successfully a number of post-merger events
in order to realize the full benefits or synergies from the merger. Key
post-merger events include:
- integrating the operations of the two companies;
- retaining and assimilating the key personnel of each company;
- offering the existing products and services of each company to the other
company's customers;
- retaining the existing customers and strategic partners of each
company; and
- developing new products that use the assets of both companies.
The successful execution of these post-merger events will involve
considerable risk and may not be successful. These risks include:
- the potential disruption of the combined company's ongoing business and
distraction of its management;
- the impairment of relationships with employees and customers as a result
of integration of new management personnel; and
- potential unknown liabilities associated with the acquired business.
The combined company may not succeed in addressing these risks or any
other problems encountered in connection with the merger. If the benefits of the
merger do not exceed the costs associated with the merger, including any
dilution to S2 Golf's shareholders resulting from the issuance of shares in
connection with the merger, S2 Golf's financial results, including earnings per
share, could be adversely affected.
Ladies Golf shareholders will receive a fixed number of shares of S2 Golf common
stock and cash despite changes in market value of S2 Golf common stock.
Upon the merger's completion, the Ladies Golf shareholders will receive
1,000,000 shares of S2 Golf common stock and a promissory note in the principal
amount of $1,000,000. There will be no adjustment to this merger consideration
for changes in the market price of S2 Golf common stock. In addition, neither S2
Golf nor Ladies Golf may terminate the merger agreement or "walk away" from the
merger solely because of changes in the market price of S2 Golf common stock.
Accordingly, the
9
<PAGE> 18
specific dollar value of S2 Golf common stock that Ladies Golf shareholders will
receive upon the merger's completion will depend on the market value of S2 Golf
common stock when the merger is completed and may increase or decrease from the
date on which you submit your proxies.
The market price of S2 Golf common stock may decline as a result of the merger.
The market price of S2 Golf common stock may decline as a result of the
merger for a number of reasons, including if:
- the integration of S2 Golf and Ladies Golf is unsuccessful;
- S2 Golf does not achieve the perceived benefits of the merger as rapidly
or to the extent anticipated by financial or industry analysts; or
- the effect of the merger on S2 Golf's financial results is not consistent
with the expectations of financial or industry analysts or the market
generally.
Failure to complete the merger could negatively impact S2 Golf's stock price.
If the merger is not completed for any reason, S2 Golf may be subject
to a number of material risks, including the following:
- the price of S2 Golf common stock may decline to the extent that the
relevant current market price reflects a market assumption that the
merger will be completed; and
- costs related to the merger, such as legal and accounting, must be paid
even if the merger is not completed.
In addition, S2 Golf's customers, in response to the announcement of
the merger, may delay or defer decisions concerning the company. Any delay or
deferral of those decisions by customers, strategic partners or suppliers could
have a material adverse effect on S2 Golf's business, regardless of whether the
merger is ultimately completed.
RISKS RELATING TO OWNERSHIP OF S2 GOLF COMMON STOCK
S2 Golf is dependent on new product introductions for growth and success.
S2 Golf's continued growth and success depend, in large part, on its
ability to develop and introduce new products that are accepted in the
marketplace. Historically, consumers have rejected a large portion of new golf
club technologies and product designs. S2 Golf may be unable to develop new
products that will have market acceptance. Failure to identify and develop
innovative new products that achieve widespread acceptance could adversely
affect S2 Golf's future growth and profitability. In addition, successful
technologies, designs and product concepts are likely to be copied by
competitors. The design of new golf clubs is also greatly influenced by the
rules and interpretations of the United States Golf Association (USGA). Although
the golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by the USGA, S2 Golf believes that it is important
to its future success that it introduce new clubs that comply with USGA
standards. There is no assurance that S2 Golf's new products will receive USGA
approval or that existing USGA standards will not be altered in ways that
adversely affect the sales of S2 Golf's products.
10
<PAGE> 19
S2 Golf relies on proprietary technology, and a failure to protect its
proprietary technology could seriously harm its business.
S2 Golf's ability to compete effectively in the golf club market
depends, in part, on its ability to maintain the proprietary nature of its
technologies and products. S2 Golf currently holds two U.S. patents relating to
certain of its products and proprietary technologies and an exclusive license to
manufacture other products. There is no assurance, however, as to the degree of
protection afforded by these patents. S2 Golf relies also on unpatented
proprietary technology. Third parties could develop the same or similar
technology or otherwise obtain access to S2 Golf's proprietary technology. If S2
Golf fails to protect or enforce its proprietary technology rights successfully,
its competitive position could suffer. S2 Golf could be required to spend
significant resources to monitor and police its proprietary technology rights.
Litigation could also be necessary to enforce any patents issued to it or to
determine the scope and validity of third-party proprietary technology also
claimed by it. Such litigation could result in substantial costs to S2 Golf,
even if the eventual outcome is favorable to it.
S2 Golf could be subject to claims of infringement of third-party proprietary
technology, which could result in significant expense and loss of proprietary
technology rights.
Existing patents held by third parties could conceivably be used as a
basis to challenge the validity or scope of S2 Golf's patent rights or to limit
our ability to obtain additional or broader patent rights. These patent holders
or other third parties could conceivably claim infringement by S2 Golf with
respect to current and future products. In addition, presently pending patent
applications could conceivably issue with claims that are infringed by S2 Golf's
products or technologies. The defense of patent suits is costly and
time-consuming, even if the outcome is favorable. An adverse outcome in the
defense of a patent suit could subject S2 Golf to significant liabilities to
third parties, require S2 Golf to cease selling certain products or require it
to obtain licenses from third parties. These licenses may not be available on
satisfactory terms, or at all.
S2 Golf operates its business in a highly competitive industry.
The market for golf clubs is highly competitive. S2 Golf's competitors
include a number of established companies, many of which have greater financial
and other resources than it does. The purchasing decisions of many golfers are
often the result of highly subjective preferences, which can be influenced by
many factors, including, among others, advertising, media, promotions and
product endorsements. S2 Golf could face substantial competition from existing
or new competitors that introduce and successfully promote golf clubs that are
perceived to enhance performance, are visually appealing or appeal to other
consumer preferences. This competition could result in significant price erosion
or increased promotional expenditures, either of which could have a material
adverse effect on S2 Golf's business, operating results and financial condition.
The market for S2 Golf's products is affected by trends in leisure activities.
S2 Golf's future operating results are likely to be dependent upon the
continuing popularity of golf as a sport and leisure activity. Any significant
decline in the popularity of golf could materially adversely affect S2 Golf. In
addition, golf, as a leisure activity, is affected by a number of factors
relating to discretionary consumer spending, including employment and business
conditions, interest rates and taxation. Any significant change in general
economic conditions or uncertainties regarding future economic prospects that
adversely affect discretionary consumer spending generally, and golfers
specifically, could have a material adverse effect on S2 Golf.
11
<PAGE> 20
S2 Golf's production could be harmed if its suppliers are not able to meet its
demand and alternative suppliers are not available.
S2 Golf relies on a limited number of suppliers for a significant
portion of the component parts used in the manufacture of its golf clubs. As a
result, there is a risk that S2 Golf could experience shortages of components or
periods of increased price pressures, or that it could fail to obtain adequate
supplies or fulfill customer orders on a timely basis. Each of these risks could
have a material adverse effect on its business, operating results or financial
condition.
Fluctuations in S2 Golf's quarterly revenues might lead to reduced prices for
its stock.
Golf generally is regarded as a warm weather sport, and sales of golf
equipment historically have been strongest during the second and third quarters,
with the weakest sales occurring during the fourth quarter. In addition, sales
of golf clubs are dependent on discretionary consumer spending, which may be
affected by general economic conditions. In certain future quarters, S2 Golf's
results of operations may be below the expectations of investors, and you should
not rely on period-to-period comparisons of S2 Golf's results of operations as
an indication of future performance. In such event, the market price of S2
Golf's stock could be materially adversely affected.
Factors that are likely to cause S2 Golf's results to fluctuate include:
- unseasonable weather patterns;
- a general decrease in discretionary consumer spending;
- demand for and market acceptance of S2 Golf's existing and future
products;
- new product introductions and technological advances by S2 Golf's
competitors;
- competitive pressures resulting in lower than expected average selling
prices; and
- the volume of orders that S2 Golf receives and that it can fulfill in a
quarter.
S2 Golf's future results could be harmed by economic, political, regulatory and
other risks associated with doing business abroad.
S2 Golf imports a significant portion of its component parts, including
club heads, shafts, headcovers and grips, from companies in Taiwan, the People's
Republic of China, and Thailand. As a result, its business is subject to the
risks generally associated with doing business abroad, such as foreign
governmental regulations, import and export controls, political unrest,
disruptions or delays in shipments and changes in economic conditions and
exchange rate fluctuations in countries in which S2 Golf purchases components or
sells its products.
S2 Golf depends heavily upon its licenses from the Ladies Professional Golf
Association and Nancy Lopez Enterprises, Inc., and failure to maintain these
licenses could seriously harm its business.
S2 Golf has entered into an agreement with the Ladies Professional Golf
Association, or LPGA, that grants it 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. S2 Golf has
renewed and restated this licensing agreement effective January 1, 1999 through
December 31, 2003, at which time it has the option to renew the agreement for
two consecutive years under the same terms and conditions. The license agreement
entitles S2 Golf to use the license granted on a worldwide basis. S2 Golf is
obligated to pay to the LPGA a license fee and a royalty fee based on sales
volume.
12
<PAGE> 21
S2 Golf has also entered into an agreement with Nancy Lopez
Enterprises, Inc. that grants S2 Golf the exclusive right to use the name,
signature, image and endorsement of Nancy Lopez on certain of its golf clubs and
other golf equipment. This agreement is for an initial term that ends on
December 31, 2007, and may be extended, if mutually agreed, until December 31,
2010. S2 Golf is obligated to pay to Nancy Lopez Enterprises, Inc. an annual
license fee, a royalty fee based on sales volume, and bonuses if Nancy Lopez
wins or places at least fifth in specified golf tournaments, or wins other named
awards. S2 Golf is obligated also to issue to Nancy Lopez Enterprises, Inc.
options to purchase S2 Golf common stock, on the basis of the revenue earned by
the S2 Golf products covered by the licensing agreement.
These license agreements are important to S2 Golf's marketing efforts
in its primary niche of women's golf clubs. Any development that might result in
early termination of either license agreement could have a material adverse
effect on S2 Golf's business, operating results and financial condition.
S2 Golf relies heavily on key management.
S2 Golf's future success depends to a significant extent on its
management team. Competition for qualified personnel among golf companies is
intense, and the loss of the services of members of the current management teams
of S2 Golf and Ladies Golf could have a material adverse effect on S2 Golf's
business, financial condition and future prospects. Neither S2 Golf nor Ladies
Golf hold any key man insurance on members of their management teams.
S2 Golf's principal shareholders exert substantial influence over the company.
Wesmar Partners Limited Partnership ("Wesmar Partners") owns
approximately 63% of S2 Golf's outstanding common stock. Robert L. Ross and
Richard M. Maurer, officers and directors of S2 Golf, are each officers,
directors, and principal shareholders of Maurer Ross & Co., Incorporated, which
is the general partner of MR & Associates, which is the managing general partner
of Wesmar Partners. As a result, Wesmar Partners is in a position to exercise
control of matters submitted to the S2 Golf shareholders, including the election
of directors. This concentration of ownership may also have the effect of
delaying or preventing a change in control of S2 Golf that may be viewed as
beneficial by other shareholders.
The market for S2 Golf common stock is limited and illiquid.
The common stock of S2 Golf trades on the Nasdaq Small Cap Market.
Because of the concentration of the ownership of S2 Golf common stock, the
trading market for it is highly illiquid and historically it has traded in small
volumes. You may experience difficulty in reselling S2 Golf common stock at any
particular time and may be unable to resell it at all. You should expect that
trading in the S2 Golf common stock will be significantly more limited, and the
market for S2 Golf common stock to be significantly less liquid, than would be
the case if the S2 Golf common stock were traded on the Nasdaq National Market,
the New York Stock Exchange, or the American Stock Exchange.
THE S2 GOLF SPECIAL MEETING
PURPOSE OF THE S2 GOLF SPECIAL MEETING
We are providing this joint proxy statement/prospectus to holders of S2
Golf common stock as part of the S2 Golf Board's solicitation of proxies for the
special meeting of S2 Golf shareholders to be
13
<PAGE> 22
held on December 15, 2000, at 10:00 a.m., local time at Suite 16 South, Three
Gateway Center, Pittsburgh, PA 15222. This joint proxy statement/prospectus and
the accompanying proxy card are first being mailed to shareholders of S2 Golf on
or about October 27, 2000.
At the S2 Golf special meeting, S2 Golf shareholders will be asked to
vote upon the proposal to approve and adopt the merger agreement.
Along with each copy of this joint proxy statement/prospectus mailed to
holders of S2 Golf common stock, we are sending a form of proxy for use at the
S2 Golf special meeting. S2 Golf is also sending this joint proxy
statement/prospectus to holders of Ladies Golf common stock as a prospectus in
connection with the issuance of S2 Golf common stock in exchange for Ladies Golf
common stock in the merger.
THE S2 GOLF BOARD HAS APPROVED THE MERGER AGREEMENT AND THE RELATED
TRANSACTIONS, INCLUDING THE ISSUANCE OF S2 GOLF COMMON STOCK IN EXCHANGE FOR
LADIES GOLF COMMON STOCK IN THE MERGER, AND UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The S2 Golf Board has fixed the close of business on October 23, 2000
as the record date for determining shareholders of S2 Golf entitled to notice of
and to vote at the S2 Golf special meeting. Only holders of S2 Golf common stock
who are holders at the close of business on the S2 Golf record date will be
entitled to notice of and to vote at the S2 Golf special meeting.
As of October 23, 2000, there were 2,221,055 shares of S2 Golf common
stock issued and outstanding, each of which entitles its holder to one vote.
Shareholders may vote either in person or by proxy. Shares of S2 Golf common
stock held in the treasury of S2 Golf or any of its subsidiaries do not have
voting rights.
All shares of S2 Golf common stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies and on such other
matters as may properly come before the S2 Golf special meeting. If your shares
are represented by more than one properly executed proxy, the proxy bearing the
most recent date will be voted at the S2 Golf special meeting. IF YOUR PROXY
CARD IS SIGNED AND DATED BUT DOES NOT SHOW HOW YOU WANT TO VOTE, YOUR S2 GOLF
COMMON STOCK WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Only shareholders of record on the S2 Golf record date are eligible to
give their proxies. If you give the proxy we are soliciting, you may revoke it
at any time before it is exercised by:
- sending a written, signed and dated revocation to the principal executive
offices of S2 Golf at 18 Gloria Lane, Fairfield, New Jersey 07004;
- signing and returning a later-dated proxy; or
- appearing in person at the S2 Golf special meeting and advising the
secretary of your intent to vote your shares.
Inspectors of election appointed for the meeting will tabulate votes
cast by proxy or in person at the S2 Golf special meeting and will determine
whether a quorum is present. The inspectors of election will treat abstentions
and broker non-votes as shares that are present and entitled to vote for
purposes of
14
<PAGE> 23
determining the presence of a quorum, but abstentions and broker non-votes will
have the same effect as votes against the merger agreement.
SOLICITATION OF PROXIES
S2 Golf will bear its own cost of solicitation of proxies. Proxies may
be solicited by mail, telephone, telegraph, telex, telecopier and advertisement
and in person. Solicitation may be made in the same manner by directors,
officers and other representatives of S2 Golf who will not be additionally
compensated for their solicitation efforts but may be reimbursed for
out-of-pocket expenses in connection with these efforts. S2 Golf will reimburse
brokerage houses, fiduciaries, nominees and others for their out-of-pocket
expenses incurred in forwarding proxy materials to beneficial owners of shares
held in their names.
QUORUM
To have a quorum at the S2 Golf special meeting, we must have the
holders of a majority of the issued and outstanding S2 Golf common stock
entitled to vote present either in person or by properly executed proxy.
Abstentions and broker non-votes will be counted in establishing a quorum.
REQUIRED VOTE
Under New Jersey law and S2 Golf's certificate of incorporation,
shareholder approval and adoption of the merger agreement requires the
affirmative vote of at least a majority of the votes cast by the holders of S2
Golf common stock entitled to vote at the S2 Golf special meeting. For any such
vote to be valid, a quorum must be present at the S2 Golf special meeting. If
fewer shares of S2 Golf common stock are present in person or by proxy than
necessary to constitute a quorum, we expect to adjourn or postpone the S2 Golf
special meeting to allow additional time for obtaining additional proxies or
votes. At any subsequent reconvening of the S2 Golf special meeting, all proxies
obtained before the adjournment or postponement will be voted in the same manner
the proxies would have been voted at the original convening of the S2 Golf
special meeting, except for any proxies which have been effectively revoked or
withdrawn, even if they were effectively voted on the same or any other matter
at a previous meeting.
As of October 23, 2000, directors and executive officers of S2 Golf and
their respective affiliates beneficially owned an aggregate of 1,727,268 shares
of S2 Golf common stock, including shares which may be acquired within 60 days
after such date upon exercise of employee or director stock options. This number
amounts to approximately 69.8% of the S2 Golf common stock outstanding on that
date. Wesmar Partners, beneficial owners of approximately 63% of S2 Golf's
outstanding common stock, has indicated its intention to vote for the merger.
A properly executed proxy marked "abstain" will not be voted on the
approval and adoption of the merger agreement but will count toward determining
whether a quorum is present. Brokers who hold shares of S2 Golf common stock in
"street name" for the beneficial owners of such shares cannot vote these shares
on the approval and adoption of the merger agreement without specific
instructions from the beneficial owners. Therefore, if you are the beneficial
owner of S2 Golf common stock held by a broker in "street name," you should
sign, date and return your proxy card to the broker in the envelope provided by
the broker. Because approval and adoption of the merger agreement requires the
affirmative vote of at least a majority of the votes cast by holders of
outstanding S2 Golf common stock entitled to vote, an abstention or, if your
shares are held in "street name," your failure to instruct your broker how to
vote, will have the same effect as a vote against the merger agreement.
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THE MERGER TO BE CONSIDERED AT THE S2 GOLF SPECIAL MEETING IS OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF S2 GOLF. THEREFORE, IF YOU ARE A S2 GOLF
SHAREHOLDER, WE URGE YOU TO READ AND CONSIDER CAREFULLY THE INFORMATION IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. WE ALSO URGE YOU TO COMPLETE, DATE, SIGN AND
RETURN PROMPTLY THE ENCLOSED PROXY CARD USING THE ENCLOSED POSTAGE-PAID
ENVELOPE.
THE LADIES GOLF SPECIAL MEETING
PURPOSE OF THE LADIES GOLF SPECIAL MEETING
We are providing this joint proxy statement/prospectus to holders of
Ladies Golf common stock as part of the Ladies Golf Board's solicitation of
proxies for the special meeting of Ladies Golf shareholders to be held on
December 4, 2000, at 10:00 a.m., local time at 3803 Corporex Park Drive, Suite
400, Tampa, Florida 33619. This joint proxy statement/prospectus and the
accompanying proxy card are first being mailed to shareholders of Ladies Golf on
or about October 27, 2000.
At the Ladies Golf special meeting, Ladies Golf shareholders will be
asked to vote upon the proposal to approve and adopt the merger agreement.
Along with each copy of this joint proxy statement/prospectus mailed to
holders of Ladies Golf common stock, we are sending a form of proxy for use at
the Ladies Golf special meeting. S2 Golf is also sending this joint proxy
statement/prospectus to holders of Ladies Golf common stock as a prospectus in
connection with the issuance of S2 Golf common stock in exchange for Ladies Golf
common stock in the merger.
THE LADIES GOLF BOARD HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The Ladies Golf Board has fixed the close of business on October 20,
2000 as the record date for determining shareholders of Ladies Golf entitled to
notice of and to vote at the Ladies Golf special meeting. Only holders of Ladies
Golf common stock who are holders at the close of business on the Ladies Golf
record date will be entitled to notice of and to vote at the Ladies Golf special
meeting.
As of October 20, 2000, there were 1,000 shares of Ladies Golf common
stock issued and outstanding, each of which entitles its holder to one vote.
Shareholders may vote either in person or by proxy. There are no shares of
Ladies Golf common stock held in the treasury of Ladies Golf or in any
subsidiary.
All shares of Ladies Golf common stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. If your
shares are represented by more than one properly executed proxy, the proxy
bearing the most recent date will be voted at the Ladies Golf special meeting.
IF YOUR PROXY CARD IS SIGNED AND DATED BUT DOES NOT SHOW HOW YOU WANT TO VOTE,
YOUR LADIES GOLF COMMON STOCK WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Only shareholders of record on the Ladies Golf record date are eligible
to give their proxies. If you give the proxy we are soliciting, you may revoke
it at any time before it is exercised by:
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- sending a written, signed and dated revocation to the principal executive
offices of Ladies Golf at 3803 Corporex Park Drive, Suite 400, Tampa,
Florida 33619;
- signing and returning a later-dated proxy; or
- appearing in person at the Ladies Golf special meeting and advising the
secretary of your intent to vote your shares.
Inspectors of election appointed for the meeting will tabulate votes
cast by proxy or in person at the Ladies Golf special meeting and will determine
whether a quorum is present. The inspectors of election will treat abstentions
and broker non-votes as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but abstentions and broker
non-votes will have the same effect as votes against the merger agreement.
SOLICITATION OF PROXIES
Ladies Golf will solicit its own proxies, and will bear the cost of
doing so. Proxies may be solicited by mail, telephone, telegraph, telex,
telecopier and advertisement and in person. Solicitation may be made in the same
manner by directors, officers and other representatives of Ladies Golf who will
not be additionally compensated for their solicitation efforts but may be
reimbursed for out-of-pocket expenses in connection with these efforts. Ladies
Golf will reimburse brokerage houses, fiduciaries, nominees and others for their
out-of-pocket expenses incurred in forwarding proxy materials to beneficial
owners of shares held in their names. However, Ladies Golf has only two
shareholders, both of whom have indicated their intention to vote for the
merger. DO NOT SEND YOUR LADIES GOLF SHARE CERTIFICATES WITH YOUR PROXY CARD.
Your Ladies Golf stock certificates will be exchanged for S2 Golf stock
certificates at the closing of the merger transaction.
QUORUM
To have a quorum at the Ladies Golf special meeting, we must have the
holders of a majority of the issued and outstanding Ladies Golf common stock
entitled to vote present either in person or by properly executed proxy.
Abstentions and broker non-votes will be counted in establishing a quorum.
REQUIRED VOTE
Under Florida law and Ladies Golf's articles of incorporation,
shareholder approval and adoption of the merger agreement requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Ladies Golf common stock entitled to vote at the Ladies Golf special meeting.
For any such vote to be valid, a quorum must be present at the Ladies Golf
special meeting. If fewer shares of Ladies Golf common stock are present in
person or by proxy than necessary to constitute a quorum, we expect to adjourn
or postpone the Ladies Golf special meeting to allow additional time for
obtaining additional proxies or votes. At any subsequent reconvening of the
Ladies Golf special meeting, all proxies obtained before the adjournment or
postponement will be voted in the same manner the proxies would have been voted
at the original convening of the Ladies Golf special meeting, except for any
proxies which have been effectively revoked or withdrawn, even if they were
effectively voted on the same or any other matter at a previous meeting. A
properly executed proxy marked "abstain" will not be voted on the approval and
adoption of the merger agreement but will count toward determining whether a
quorum is present.
As of October 20, 2000, directors and executive officers of Ladies Golf
beneficially owned an aggregate of 1,000 shares of Ladies Golf common stock.
This number amounts to 100% of the Ladies
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Golf common stock outstanding on that date. There are no employee or director
stock options. Both holders of Ladies Golf shares have indicated their intention
to vote for the merger.
THE MERGER TO BE CONSIDERED AT THE LADIES GOLF SPECIAL MEETING IS OF
GREAT IMPORTANCE TO THE SHAREHOLDERS OF LADIES GOLF. THEREFORE, IF YOU ARE A
LADIES GOLF SHAREHOLDER, WE URGE YOU TO READ AND CONSIDER CAREFULLY THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS. WE ALSO URGE YOU TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD USING THE
ENCLOSED POSTAGE-PAID ENVELOPE.
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 607.1301, 607.1302 and 607.1320 of the Florida Business
Corporation Act, copies of which are attached as Annex B to this joint proxy
statement/prospectus, set forth the rights of Ladies Golf shareholders who want
to exercise their dissenters' rights.
Ladies Golf shareholders who follow the procedures set forth in Section
607.1320 will be entitled to receive payment of the "fair value" of their Ladies
Golf common stock. The Florida Business Corporation Act defines "fair value" to
be the value of the shares as of the close of business on the date prior to the
date of shareholder approval of the merger, excluding any appreciation or
depreciation in anticipation of the merger, unless exclusion would be
inequitable.
PROCEDURES FOR EXERCISE OF DISSENTERS' RIGHTS
You must notify Ladies Golf that you wish to exercise dissenters' rights prior
to the Ladies Golf special meeting.
Any Ladies Golf shareholder who does not vote in favor of the merger
may, if the merger is consummated, have the right to seek to obtain payment in
cash of the "fair value" of his or her shares by strictly complying with the
requirements of Section 607.1320 of the Florida Business Corporation Act. Ladies
Golf shareholders who want to exercise dissenters' rights must deliver a written
notice of intent to demand payment for their shares if the merger is
effectuated. Such notice must be delivered to Ladies Golf before the vote on the
merger is taken. A PROXY OR VOTE AGAINST THE MERGER DOES NOT CONSTITUTE SUCH A
NOTICE OF INTENT TO DEMAND PAYMENT. Any such notice of intent to demand payment
should be addressed to:
Ladies Golf Equipment Company, Inc.
3803 Corporex Park Drive, Suite 400
Tampa, Florida 33619
Attn: President
Ladies Golf shareholders who want to exercise dissenters' rights must
not vote their shares in favor of the merger.
NOTICE OF ELECTION
Within 10 days after the vote of the Ladies Golf shareholders
authorizing the merger, Ladies Golf must provide written notice of such
authorization to each dissenting shareholder. Within 20 days after the giving of
such notice, any Ladies Golf shareholder who elects to dissent from the merger
must file with Ladies Golf a written notice of such election, stating the
shareholder's:
- Name and address;
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- The number, class and series of shares as to which the shareholder wishes
to dissent (which may be fewer than all of the shares as to which the
shareholder has a right to dissent);
- Certificates representing the Ladies Golf shares as to which the
shareholder wishes to dissent; and
- A demand for payment of the fair value of such shares.
Any Ladies Golf shareholder who fails to file this election within the
20-day period set forth will be bound by the terms of the merger agreement. Any
Ladies Golf shareholder who timely files this election in compliance with
Section 607.1320 will be entitled only to payment of the fair value of the
Ladies Golf shares and will not be entitled to vote or to exercise any other
rights of a Ladies Golf shareholder.
WRITTEN OFFER TO PURCHASE THE SHARES
Ladies Golf must make a written offer to each shareholder who has
properly dissented to pay an amount which it estimates to be the fair value for
the dissenting shareholder's common stock. A dissenting shareholder may withdraw
the notice of election at any time before an offer is made by Ladies Golf to pay
for the shares. After an offer is made, the notice of election may only be
withdrawn with the consent of Ladies Golf.
The written offer must be made within 10 days after:
- the expiration of the period in which shareholders may file their notices
of election; or
- the effective date of the merger, whichever is later.
However, in no case may the offer be made later than 90 days from the
date on which the Ladies Golf shareholders approve the merger agreement.
The Ladies Golf offer must be accompanied by a Ladies Golf balance
sheet as of the latest available date and a profit and loss statement for the 12
month period ended on the date of the balance sheet.
The fair value determined by Ladies Golf will reflect the value of its
common stock prior to the merger.
If a dissenting shareholder accepts the written offer within 30 days,
Ladies Golf must deliver payment for the shares within 90 days after the making
of the offer or the consummation of the merger, whichever is later. Upon payment
of the agreed value, the dissenting shareholder will cease to have any interest
in the shares.
JUDICIAL DETERMINATION OF VALUE OF SHARES
If Ladies Golf fails to make an offer for the fair value of the shares
within the period specified above, or if it makes the offer and any dissenting
shareholders fail to accept the offer within the 30-day period, then Ladies Golf
or a dissenting shareholder may elect to have the fair value of the shares
determined by a court of competent jurisdiction in Hillsborough County, Florida.
All dissenting shareholders (whether or not residents of the State of Florida),
other than shareholders who have agreed with Ladies Golf as to the value of
their shares, will be made parties to the judicial proceeding. Ladies Golf must
pay to each dissenting shareholder the amount found to be due within 10 days
after final determination of the judicial proceedings.
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Upon payment of the judgment, dissenting shareholders will cease to
have any interest in Ladies Golf common stock. Ladies Golf shareholders
considering seeking dissenters' rights should be aware that the fair value of
their common stock as determined under Section 607.1320 could be more than, the
same as, or less than the consideration they would receive pursuant to the
merger agreement. Any judicial determination of the fair value of the Ladies
Golf common stock can be based on numerous considerations. The judicial
determination of fair value may, at the discretion of the court, include a fair
rate of interest to be determined by the court.
The costs and expenses of any judicial proceeding will be determined by
the court and will be assessed against Ladies Golf, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding if Ladies Golf has made an offer to pay for their shares and if the
court finds that the action of the shareholders in failing to accept the offer
was arbitrary, vexatious, or not in good faith.
THE MERGER
The following information relates to matters contained in the merger
agreement. It describes the material aspects of the merger but is not a complete
description of the merger agreement. The merger agreement is attached as Annex
A. You are urged to read the merger agreement carefully.
GENERAL
Ladies Golf will be merged with and into a wholly-owned subsidiary of
S2 Golf, S2 Golf Acquisition Corp., and Ladies Golf shareholders will become
shareholders of S2 Golf. After the merger, the separate corporate existence of
Ladies Golf will terminate. The merger is subject to the satisfaction of certain
conditions, including approval of the shareholders of Ladies Golf and S2 Golf.
BACKGROUND OF THE MERGER
In 1994, the President of S2 Golf brought Ladies Golf to the attention
of the S2 Golf Board of Directors, which discussed the possibility of an
acquisition but concluded that the market penetration of each company was not
developed adequately to support the economies of scale that each company would
seek in a business combination. Approximately four years ago, the S2 Golf Board
authorized the company's Chairman to reopen discussion of a possible business
combination with the President of Ladies Golf. Although these exploratory
discussions halted when the two companies could not agree on a purchase price,
the senior management of the two companies remained in communication with one
another.
In January 2000, following general consideration by the S2 Golf Board
of Directors of the company's positioning for growth through acquisition, the
Chairman of S2 Golf and the President of Ladies Golf met at the PGA Golf Show in
Orlando, Florida, and again began to discuss a possible business combination.
Such discussions continued through the spring, concurrently with discussions by
the Chairman of S2 Golf with The Arnold Palmer Golf Company about a possible
business combination with its NancyLopezGolf(TM) division, a manufacturer and
distributor of women's golf clubs and other golf equipment.
On June 6, 2000, the Board of Directors of S2 approved both a proposed
acquisition of the assets of NancyLopezGolf(TM) division and the proposed merger
with Ladies Golf. On June 8, 2000, S2 Golf and Ladies Golf signed a nonbinding
letter of intent with respect to the proposed merger, and on June 19, 2000 S2
Golf and The Arnold Palmer Golf Company signed a nonbinding letter of intent
with respect to S2 Golf's proposed acquisition of the assets of
NancyLopezGolf(TM).
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On July 31, 2000, S2 Golf acquired from The Arnold Palmer Golf Company
substantially all of the net assets of its NancyLopezGolf(TM) division.
S2 GOLF'S REASONS FOR THE MERGER; RECOMMENDATION OF THE S2 GOLF BOARD
The Board of Directors and management of S2 Golf believe that the
merger is fair and in the best interests of the S2 Golf shareholders. At its
June 6 and September 19, 2000 meetings, the S2 Golf Board approved the merger
proposal and its related transactions. We have set forth below all the material
factors that the S2 Golf Board considered in reaching its decision to approve
the merger proposal and to recommend that S2 Golf's shareholders vote to approve
and adopt the merger agreement:
- the consistency of the merger with S2 Golf's strategic plans and
objectives, including the expansion of S2 Golf's presence in the women's
golf equipment market;
- the S2 Golf Board's familiarity with and review of its and Ladies Golf's
businesses, financial condition, results of operations and prospects,
including but not limited to the potential growth and profitability of
both businesses;
- the business, operations, financial condition, earnings, earnings
projections and business prospects of Ladies Golf. In making its
determination, the S2 Golf Board took each of these factors into account
along with the results of S2 Golf's due diligence review of Ladies Golf's
business. The S2 Golf Board considered each factor with no single factor
predominantly influencing its decision;
- the recognition of the complementary nature of the markets served,
distribution resources and products offered by S2 Golf and Ladies Golf
and the expectation that the merger would provide economies of scale,
expanded product offerings, cost savings opportunities and enhanced
opportunities for growth. The S2 Golf Board expects that these
efficiencies, when added to the efficiencies expected from the company's
acquisition of the assets of NancyLopezGolf(TM), should more than offset
pro forma earnings per share dilution from the merger;
- the similarity between S2 Golf's and Ladies Golf's philosophies and
commitments to their respective employees, suppliers, creditors and
customers, and the effect of the merger on those constituencies; and
- the review by the S2 Golf Board with its legal and financial advisors of
the provisions of the merger agreement.
Because of the variety of factors considered in connection with its
evaluation of the merger, the S2 Golf Board did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. Individual members of the S2 Golf
Board may have assigned different weights to different factors.
THE S2 GOLF BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF S2 GOLF
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
LADIES GOLF'S REASONS FOR THE MERGER; RECOMMENDATION OF THE LADIES GOLF BOARD
The Board of Directors and management of Ladies Golf believe that the
merger is fair and in the best interests of the Ladies Golf shareholders. On
September 22, 2000 the Board of Directors of Ladies Golf approved the merger
proposal and its related transactions. The Ladies Golf Board considered the
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following material factors in reaching its decision to approve the merger
proposal and to recommend that Ladies Golf's shareholders vote to approve and
adopt the merger agreement:
- the business prospects of S2 Golf and its ability to expand into the
women's golf equipment market;
- the opportunity for Ladies Golf to expand the Lady Fairway(TM) brand
through S2 Golf's distribution channels, and achievement of cost savings
by marketing through such channels;
- the opportunity for S2 Golf and Ladies Golf to improve the size and
quality of their respective sales forces, granting them the ability to
better promote the Square Two(R), NancyLopezGolf(TM) and Lady Fairway(TM)
brands;
- the opportunity to expand S2 Golf's and Ladies Golf's presence in
international markets;
- the recognition of the complementary nature of the markets served,
distribution resources and products offered by S2 Golf and Ladies Golf
and the expectation that the merger would provide economies of scale,
expanded product offerings, cost savings opportunities and enhanced
opportunities for growth; and
- the review by the Ladies Golf Board with its legal and financial advisors
of the provisions of the merger agreement.
THE LADIES GOLF BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF LADIES GOLF
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
INTERESTS OF CERTAIN DIRECTORS AND OFFICERS IN THE MERGER; POTENTIAL CONFLICTS
OF INTEREST
Robert L. Ross, Chairman and a director of S2 Golf, and Richard M.
Maurer, Secretary and a director of S2 Golf, are each officers, directors, and
principal shareholders of Maurer Ross & Co., Incorporated, which is the general
partner of MR & Associates, which is the managing general partner of Wesmar
Partners, which is the registered and beneficial owner of approximately 63% of
S2 Golf common stock prior to the merger.
Mary Ann Jorgenson, a partner in Squire, Sanders & Dempsey L.L.P.,
counsel to S2 Golf, is also a director of S2 Golf.
James E. Jones ("Mr. Jones"), a director of Ladies Golf, is the
beneficial owner of 85% of Ladies Golf stock. Upon the consummation of the
merger, Mr. Jones and the surviving corporation will enter into an employment
agreement, and Mr. Jones will become a director and officer of S2 Golf.
Brian Christopher, a director of Ladies Golf, is the beneficial owner
of 15% of Ladies Golf stock.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion
of the merger are satisfied or waived, including approval and adoption of the
merger agreement and related transactions by the shareholders of S2 Golf. The
merger will become effective upon the filing of articles of merger with the
State of Florida and a certificate of merger with the State of New Jersey.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
considerations generally applicable to the Ladies Golf shareholders. The
discussion below is based on United States federal income tax law, including the
Internal Revenue Code of 1986, as amended, regulations, rulings, decisions and
administrative practice all as in effect on the date of this proxy statement.
Future legislation, regulations, administrative interpretations or court
decisions could change the law either prospectively or retroactively and affect
the federal income tax consequences of the merger to the Ladies Golf
shareholders. In addition, the following discussion does not address the tax
consequences of transactions occurring before or after the merger (regardless of
whether such transactions are in connection with the merger). Furthermore, this
discussion does not consider the potential effects of any state, local or
foreign tax laws.
Each of the Ladies Golf shareholders will recognize gain equal to the
lesser of:
- the principal amount of the promissory note that the shareholder receives
in the merger; and
- the amount of gain the shareholder realizes on the exchange.
The amount of gain that each Ladies Golf shareholder realizes on the
exchange will equal the excess of:
- the sum of the principal amount of the promissory note (less any unstated
interest as determined under Sec.1274 of the Internal Revenue Code of
1986, as amended) and the value of the S2 Golf common stock that the
shareholder receives in the exchange,
over
- the tax basis in the Ladies Golf common stock that the shareholder
exchanges in the merger.
Receipt by a Ladies Golf shareholder of the S2 Golf promissory note in
the exchange may entitle the Ladies Golf shareholder to report any recognized
gain from the exchange of stock on the installment method, provided that the
shareholder does not use the accrual method of accounting for tax purposes. In
addition, circumstances may require the imposition of an interest charge on the
tax liability that is deferred through use of the installment method. A Ladies
Golf shareholder who is not eligible to use the installment method generally
will be obligated to report the entire amount of the recognized gain (calculated
as described above) in the year of the exchange.
Neither S2 Golf nor Ladies Golf has requested a ruling from the
Internal Revenue Service with respect to any of the U.S. federal income tax
consequences of the merger and, as a result, there can be no assurance that the
Internal Revenue Service will not disagree with or challenge any of the
conclusions described above. HOLDERS OF LADIES GOLF COMMON STOCK ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THEIR ELIGIBILITY TO USE THE
INSTALLMENT METHOD TO REPORT ANY RECOGNIZED GAIN AND THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME OR OTHER TAX LAWS IN THEIR PARTICULAR
CIRCUMSTANCES.
ACCOUNTING TREATMENT
We will account for the merger as a "purchase." This means that, for
accounting and financial reporting purposes, we will treat our companies as one
company beginning as of the date of the combination. Additionally, under this
method of accounting, S2 Golf will record the fair market value of Ladies Golf's
assets, less liabilities, on its financial statements. Because the purchase
price is greater than
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the fair market value of Ladies Golf's net assets, S2 Golf will record an asset
called "goodwill" of approximately $2,700,000. S2 Golf will write off this
goodwill as an expense over the next 25 years, reducing net income during that
period.
EXPENSES OF THE MERGER
S2 Golf and Ladies Golf will each bear its respective expenses incurred
in connection with the merger and the related transactions, including without
limitation, all fees of its respective legal counsel, financial advisors and
accountants. In effect, however, these expenses will be borne by the combined
company. S2 Golf will also be responsible for all expenses incident to obtaining
requisite regulatory approvals.
STOCK EXCHANGE LISTING
S2 Golf intends to apply for listing of the S2 Golf common stock to be
issued in connection with the merger on the Nasdaq Small Cap Market under the
symbol "GOLF."
DIVIDENDS
Ladies Golf shareholders are not entitled to receive any dividends or
other distributions on S2 Golf common stock until the merger is completed and
they have surrendered their Ladies Golf stock certificates in exchange for the
S2 Golf stock certificates.
REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER
We are not aware of any material governmental or regulatory approval
required for completion of the merger, other than the effectiveness of the
registration statement of which this proxy statement/prospectus is a part, and
compliance with applicable corporate and securities laws of New Jersey and
Florida.
THE MERGER AGREEMENT
The following is a description of certain material terms of the merger
agreement. A complete copy of the merger agreement is attached as Annex A to
this joint proxy statement/prospectus and is incorporated into this joint proxy
statement/prospectus by reference. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT
IN ITS ENTIRETY.
CONSIDERATION
Upon the effective date of the merger, the Ladies Golf shareholders
will receive an aggregate of 1,000,000 shares of S2 Golf common stock and a
promissory note in the principal amount of $1,000,000. In addition, on the
closing date S2 Golf will cause the complete satisfaction of the obligations of
Ladies Golf under a bank line of credit and a loan extended to Ladies Golf by
Katherine Dawn Jones. We anticipate that the aggregate principal amount of these
obligations at the effective date of the merger will be approximately $585,000.
ADJUSTMENT TO MERGER CONSIDERATION
The merger consideration given to the Ladies Golf shareholders may be
reduced to the extent that certain accounts receivable of Ladies Golf remain
uncollected more than six months after the merger or to
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the extent that certain inventory of Ladies Golf remains unsold for nine (9)
months or is sold for less than its carrying value after the merger.
Initial Report. Following the effective date of the merger, an
accountant selected by the Ladies Golf shareholders will prepare an initial
report (at S2 Golf's expense) that will set forth:
- the carrying value of Ladies Golf's net accounts receivable as of the
effective date; and
- the quantity and carrying value of non-current inventory (which is
inventory that is no longer in the Ladies Golf product line as of the
effective date).
Six Month Net Accounts Receivable Trial Balance. Six months after the
completion of the merger, the accountant will prepare a subsequent report with
respect to the accounts receivable first listed on the initial report. The
subsequent report will list the dollar amount of the balance of the accounts
receivable that were not collected in the six months following the effective
date of the merger. The S2 Golf common stock issued in the merger will be
reduced by one share for every two dollars included in such amount.
Nine Month Inventory Trial Balance. Nine months after the completion of
the merger, the accountant will prepare a subsequent report with respect to the
non-current inventory listed in the initial report. The subsequent report will
list an amount equal to (i) the carrying value of the non-current inventory
remaining unsold nine months after the merger, plus (ii) the difference between
the initial carrying value and the selling price of the non-current inventory
that sold in the nine months after the merger for less than its initial carrying
value. The S2 Golf common stock issued in the merger will be reduced by one
share for every two dollars included in such amount.
Escrow of Shares. As security for any adjustments to the amount of S2
Golf common stock to be given as merger consideration, the Ladies Golf
shareholders have agreed to place in escrow share certificates representing
75,000 of the shares of S2 Golf common stock to be given as consideration for
the merger.
CLOSING DATE AND EFFECTIVE TIME
Unless the merger agreement is terminated and the transaction
abandoned, the closing of the merger will take place at the Cleveland, Ohio
offices of Squire, Sanders & Dempsey L.L.P. at 10:00 a.m., local time, on
December 22, 2000. The parties to the merger agreement may agree to hold the
closing at another date, time or place.
LADIES GOLF REPRESENTATIONS AND WARRANTIES
Representations and warranties of Ladies Golf include representations
as to:
- its corporate organization, valid existence, active status and
qualification to do business;
- the absence of subsidiaries of Ladies Golf;
- its capitalization;
- its authorization to enter into the merger agreement and related
agreements;
- the absence of conflict between the merger agreement and the underlying
transactions and its articles of incorporation or by-laws, any other
material agreements or any governmental order or law;
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<PAGE> 34
- the governmental consents, approvals, and filings required for it to
complete the merger and related transactions;
- the necessary Ladies Golf shareholder vote required for approval of the
merger agreement;
- its compliance with applicable laws;
- its financial statements;
- the absence of certain changes in its business since December 31, 1999;
- the absence of material litigation involving Ladies Golf;
- its material contracts;
- its tax returns, other filings with taxing authorities, payment of taxes,
and other tax issues;
- its employee benefit plans and its compliance with ERISA;
- its leasehold interest in properties that it leases;
- its insurance coverage; and
- the absence of payments required to be made by it to brokers and agents
on account of the merger.
S2 GOLF REPRESENTATIONS AND WARRANTIES
Representations and warranties of S2 Golf and its subsidiary S2 Golf
Acquisition Corp. include representations as to:
- their corporate organization, valid existence, good standing and
qualification to do business;
- S2 Golf's capitalization;
- the authorization of S2 Golf and S2 Golf Acquisition Corp. to enter into
the merger agreement and related agreements;
- the absence of conflict between the merger agreement and the underlying
transactions and the certificate of incorporation or bylaws and with any
other material agreements of S2 Golf and S2 Golf Acquisition Corp. or
with any governmental order or law;
- the governmental consents, approvals, and filings required for S2 Golf or
S2 Golf Acquisition Corp. to complete the merger and related
transactions;
- S2 Golf's filings and reports with the Securities and Exchange
Commission;
- the absence of certain changes in S2 Golf's business since March 31, 2000
or as disclosed in the merger agreement;
- S2 Golf common stock to be issued in the merger;
- the absence of material litigation involving S2 Golf; and
- the absence of payments required to be made by S2 Golf to brokers and
agents on account of the merger.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Ladies Golf has agreed that, until the earlier of the completion of the
merger or termination of the merger agreement or unless S2 Golf consents in
writing, it will carry on its business in the ordinary
26
<PAGE> 35
course in substantially the same manner as it has prior to the signing of the
merger agreement, and use its reasonable efforts consistent with past practices
and policies:
- to preserve intact its current business organizations;
- to keep available the services of its current officers and key employees;
and
- to preserve its relationships with desirable customers and others having
business dealings with it.
Ladies Golf has also agreed that, unless S2 Golf consents in writing,
it will conduct its business in compliance with certain specific restrictions
contained in the merger agreement relating to its ability to do the following:
- declare, set aside or pay any dividends or make other distributions in
respect of its capital stock;
- split, combine or reclassify any of its capital stock or issue any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or other equity interests;
- purchase, redeem, acquire or amend any shares of capital stock or other
securities thereof or any rights, warrants or options to acquire any such
shares, interests or other securities;
- issue, deliver, sell, pledge, encumber or amend any shares of its capital
stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, those shares, interests,
voting securities or convertible securities;
- amend its articles of incorporation or bylaws;
- acquire or agree to acquire by merger, consolidation, purchase of assets,
or by any other manner any business organization or division that would
be material to Ladies Golf;
- sell, lease, license, mortgage, encumber, or dispose of a material amount
of its property or assets, except in the ordinary course of business
consistent with past practice;
- incur any indebtedness, issue or sell any debt securities, or guarantee
any debt securities of another person;
- pay, discharge, settle, or satisfy any claims, liabilities and
obligations other than in the ordinary course of business;
- adopt, terminate or amend any plan or other arrangement for the benefit
or welfare of any current or former director, officer or employee, except
as required to comply with applicable law or in the ordinary course of
business and not resulting in material liability;
- modify, amend or terminate any material contracts and agreements other
than in the ordinary course of business or as contemplated by the merger
agreement;
- waive, release or assign any material rights or claims under a contract
other than in the ordinary course of business;
- make or amend any federal, state, or local tax election, agree to waive
or extend any statute of limitations, or resolve or agree to resolve any
audit or proceeding relating to taxes;
- conduct its business in a manner or take, or cause to be taken, any other
action that would prevent or materially delay consummation of the
transactions contemplated in the merger agreement; or
- authorize any of, or commit or agree to take any of, the actions listed
above.
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<PAGE> 36
BOARD REPRESENTATION AND EMPLOYMENT
S2 Golf has agreed to appoint, or cause the election of, Mr. Jones to
the S2 Golf Board of Directors upon the consummation of the merger, effective as
of January 1, 2001, and S2 Golf and S2 Golf Acquisition Corp. have agreed to
employ Mr. Jones as Vice President of Marketing of S2 Golf and as President of
S2 Acquisition Corp. upon the consummation of the merger.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of our companies to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of a number of conditions.
Conditions to Obligations of Each Party. The obligations of all the
parties to the merger agreement are subject to the satisfaction or waiver of the
following conditions:
- The S2 Golf shareholders shall have approved the merger agreement;
- There shall be no statute, rule, regulation, decree, preliminary or
permanent injunction, temporary restraining order or other legal
restraint blocking the merger or government proceedings trying to block
the merger;
- S2 Golf and S2 Golf Acquisition Corp. shall have entered into an
employment agreement with Mr. Jones.
Conditions to Obligations of S2 Golf and S2 Golf Acquisition Corp. The
obligation of S2 Golf and S2 Golf Acquisition Corp. to complete the merger and
the other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of a number of conditions, including the following:
- The representations and warranties of Ladies Golf contained in the merger
agreement shall be true and correct in all material respects at and as of
the effective date of the merger, except for changes permitted or
contemplated by the merger agreement or where made expressly as of a
specified date, in which case they shall be true as of such date;
- Ladies Golf shall have performed its obligations under the merger
agreement in all material respects;
- The registration statement relating to the issuance of S2 Golf common
stock in the merger shall be effective;
- All necessary approvals or authorizations of any federal, state,
municipal, foreign or other governmental authority in connection with the
merger shall have been obtained;
- Each of the shareholders of Ladies Golf shall have entered into a
noncompetition agreement with S2 Golf and S2 Golf Acquisition Corp.;
- Ladies Golf shall have provided to S2 Golf a warranty as to the usability
and merchantability of the inventory of Ladies Golf; and
- Ladies Golf shall have provided to S2 Golf, to the reasonable
satisfaction of S2 Golf and its counsel, any consents necessary for the
assumption of certain contracts.
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<PAGE> 37
Conditions to Obligations of Ladies Golf. The obligation of Ladies Golf
to complete the merger and the other transactions contemplated by the merger
agreement are subject to the satisfaction or waiver of the following conditions:
- The representations and warranties of S2 Golf and S2 Golf Acquisition
Corp. contained in the merger agreement shall be true and correct in all
material respects at and as of the effective date of the merger, except
for changes permitted or contemplated by the merger agreement or where
made expressly as of a specified date, in which case they shall be true
as of such date;
- S2 Golf and S2 Golf Acquisition Corp. shall have performed their
obligations under the merger agreement in all material respects;
- The registration statement relating to the issuance of S2 Golf common
stock in the merger shall be effective;
- The Nasdaq Small Cap Market shall have accepted for filing the
notification form for the listing of the S2 Golf common stock to be
issued in connection with the merger;
- S2 Golf shall have taken or caused to be taken all action necessary to
elect Mr. Jones to the S2 Golf board of directors, effective as of
January 1, 2001;
- S2 Golf shall have delivered to Ladies Golf a resale certificate for
inventory of Ladies Golf; and
- S2 Golf Acquisition Corp. shall have obtained a Florida Dealer's
Certificate of Registration.
AMENDMENT
Prior to the completion of the merger, any provision of the merger
agreement may be waived, amended or modified by the written agreement of S2 Golf
and Ladies Golf. However, after the approval of the merger agreement by the
Ladies Golf shareholders, no amendment or modification may be made that would
reduce the consideration to be received by the Ladies Golf shareholders under
the terms of the merger agreement.
TERMINATION AND TERMINATION FEES
We can agree at any time to terminate the agreement without completing
the merger, even if the shareholders of both our companies have approved it.
Also, the merger agreement can be terminated:
- by S2 Golf and S2 Golf Acquisition Corp., if any of the conditions to
their obligations under the merger agreement cannot be fulfilled (other
than as a result of a breach of the merger agreement by S2 Golf or
S2 Golf Acquisition Corp.);
- by Ladies Golf, if any of the conditions to its obligations under the
merger agreement cannot be fulfilled (other than as a result of a breach
of the merger agreement by Ladies Golf);
- by either Ladies Golf or S2 Golf and S2 Golf Acquisition Corp., if we do
not complete the merger on or before the 120th day following the mailing
of this proxy statement/prospectus, unless the failure to complete the
merger by that time is due to the willful and material breach of the
merger agreement by the party seeking to terminate; or
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<PAGE> 38
- by Ladies Golf if we do not complete the merger on or before December 31,
2000.
If the merger is not completed, we will each pay our own fees and
expenses.
Upon termination, the merger agreement shall become void and have no
effect, without further action by any party, other than certain provisions
regarding confidentiality of information and indemnification. No party will be
released from any liability for any willful and material breach by it of the
terms and provisions of the merger agreement.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of S2 Golf common stock as of October 23, 2000, and as adjusted to
reflect the sale of the common shares offered by this joint prospectus/proxy
statement by (i) each person known by S2 Golf to own more than 5% of S2 Golf's
common shares, (ii) each director, (iii) each executive officer, 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>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING (1) THE OFFERING (1)
---------------- ----------------
SHARES
PERCENT BEING PERCENT
NAME AND ADDRESS NUMBER OF CLASS OFFERED NUMBER OF CLASS
---------------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Richard M. Maurer (2) 1,491,896 65.2% - 0 - 1,491,896 45.4%
Three Gateway Center
Pittsburgh, PA 15222
Robert L. Ross (3) 1,473,596 64.4% - 0 - 1,473,596 44.8%
Three Gateway Center
Pittsburgh, PA 15222
Wesmar Partners (4) 1,399,096 63.0% - 0 - 1,399,096 43.4%
MR & Associates
Maurer, Ross & Co., Incorporated
Three Gateway Center
Pittsburgh, PA 15222
L. R. Jeffrey (5) 250,000 10.1% - 0 - 250,000 7.2%
50 Gloucester Road
Summit, NJ 07901
Randy A. Hamill (6) 71,142 3.1% - 0 - 71,142 2.2%
18 Gloria Lane
Fairfield, NJ 07004
Douglas A. Buffington 67,375 3.0% - 0 - 67,375 2.1%
18 Gloria Lane
Fairfield, NJ 07004
Frederick B. Ziesenheim 11,419 * - 0 - 11,419 *
700 Koppers Building
</TABLE>
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<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
436 7th Avenue
Pittsburgh, PA 15219-1818
Mary Ann Jorgenson 10,936 * - 0 - 10,936 *
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
James E. Jones - 0 - * 775,000 775,000 24.1%
3803 Corporex Park Drive, Suite 400
Tampa, FL 33619
Brian Christopher - 0 - * 225,000 225,000 7.0%
3803 Corporex Park Drive, Suite 400
Tampa, FL 33619
All directors and executive
officers as a group (6 persons)(7) 1,727,268 69.8% 775,000 2,502,268 72.0%
</TABLE>
-----------------------------
* Less than 1%
(1) The numbers shown include shares covered by options that are currently
exercisable as of October 23, 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 - 65,375, Randy A.
Hamill - 54,892 and all directors and executive officers as a group -
255,267.
(2) 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, which is the general partner of MR & Associates, which is
the managing general partner of Wesmar Partners.
(3) 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, which is the general partner of MR & Associates, which is
the managing general partner of Wesmar Partners.
(4) 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 general partner of Wesmar Partners. Messrs.
Maurer and Ross are officers, directors and principal shareholders of
Maurer Ross & Co., Incorporated, a Pennsylvania corporation, which is
the general partner of MR & Associates.
(5) Does not include 730 shares owned by various members of Mr. Jeffrey's
family with respect to which shares he disclaims any beneficial
ownership.
(6) Does include 2,000 shares owned directly by Mr. Hamill's spouse. Does
not include shares owned by various members of Mr. Hamill's family with
respect to which shares Mr. Hamill disclaims any beneficial ownership.
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<PAGE> 40
(7) Does not include shares owned by various members of one officer's
family with respect to which shares the officer disclaims any
beneficial ownership. Includes 1,399,096 shares owned directly by
Wesmar Partners (See Notes 2, 3 and 4 above). Assumes the appointment
of James E. Jones to the S2 Golf board of directors.
DESCRIPTION OF S2 GOLF CAPITAL STOCK
The following is a summary of the material terms of the S2 Golf capital
stock. If you would like to review copies of the S2 Golf certificate of
incorporation and bylaws, these documents are on file with the Securities and
Exchange Commission. For further information on the rights of holders of S2 Golf
common stock, see "Material Differences in the Rights of Shareholders."
S2 Golf has a total of 12,000,000 authorized shares of common stock,
$.01 par value, of which 2,221,055 shares are issued and outstanding. Each
outstanding share of S2 Golf common stock is duly authorized, validly issued,
fully paid and nonassessable. The holders of S2 Golf common stock have one vote
per share on each matter on which shareholders are entitled to vote. Directors
are elected for one year terms. On liquidation or dissolution of S2 Golf, the
holders of S2 Golf common stock are entitled to share ratably in the assets that
remain after creditors have been paid.
The S2 Golf Board determines whether to declare dividends and the
amount of any dividends declared. Such determinations by the S2 Golf Board take
into account S2 Golf's financial condition, results of operations and other
relevant factors. Historically, the S2 Golf Board has not declared dividends,
and S2 Golf anticipates that for the foreseeable future, profits will be
reinvested in the company.
Continental Stock Transfer and Trust Company is the transfer agent and
registrar for S2 Golf common stock.
DESCRIPTION OF LADIES GOLF CAPITAL STOCK
The following is a summary of the material terms of the Ladies Golf
capital stock. If you would like to review copies of the Ladies Golf articles of
incorporation and by-laws, these documents are on file with the company at its
offices at 3803 Corporex Park Drive, Suite 400, Tampa, Florida 33619. For
further information on the rights of holders of Ladies Golf common stock, see
"Material Differences in the Rights of Shareholders."
Ladies Golf's authorized capital stock consists of 1,000 shares of
common stock having a par value of $1.00 per share. There are 1,000 shares of
Ladies Golf common stock issued and outstanding. All holders of Ladies Golf
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the shareholders. Holders of Ladies Golf common
stock are entitled to dividends when, as and if declared by the Ladies Golf
Board of Directors from funds legally available for such dividends and are
entitled, upon liquidation, to share ratably in all assets remaining after
payment of liabilities.
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<PAGE> 41
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
INTRODUCTION
Upon completion of the merger, the shareholders of Ladies Golf, a
Florida corporation, will become shareholders of S2 Golf, a New Jersey
corporation, and New Jersey law, the S2 Golf restated certificate of
incorporation and the S2 Golf bylaws will govern the rights of these new S2 Golf
shareholders. The following is a summary of certain similarities and material
differences between the rights of S2 Golf shareholders and Ladies Golf
shareholders. These differences arise from differences between various
provisions of New Jersey and Florida law, as well as differences between the S2
Golf certificate of incorporation and bylaws and the Ladies Golf articles of
incorporation and bylaws. Although it is impractical to compare all of the
aspects in which New Jersey and Florida law and the companies' charter documents
differ with respect to shareholders' rights, the following discussion summarizes
the material significant differences between them. We encourage you to read the
relevant provisions of New Jersey and Florida law, the S2 Golf certificate of
incorporation and bylaws and the Ladies Golf articles of incorporation and
bylaws.
NUMBER OF DIRECTORS
S2 Golf. S2 Golf's bylaws provide for a minimum of one and a maximum of
nine directors that must or may serve on the S2 Golf Board. The number of
directors serving on the S2 Golf Board is currently set at seven (7).
Ladies Golf. The Ladies Golf articles of incorporation provide for a
minimum of one and a maximum of six directors that must or may serve on the
Ladies Golf Board. The number of directors is determined by the directors or the
shareholders. The number of directors serving on the Ladies Golf Board is
currently set at two (2).
ELECTION OF THE BOARD OF DIRECTORS
S2 Golf and Ladies Golf. Under New Jersey law and in accordance with
the S2 Golf bylaws, and under Florida Law and in accordance with the Ladies Golf
bylaws, directors may be elected by a plurality of votes cast at a meeting of
shareholders, at which a quorum is present, by the holders of shares entitled to
vote in the election.
REMOVAL OF DIRECTORS
S2 Golf. Under New Jersey law and in accordance with the S2 Golf
restated certificate of incorporation, any director may be removed at any time,
with or without cause, by, and only by, a majority of the votes cast by the
holders of record of S2 Golf common stock voting at a meeting of such
shareholders called for that purpose.
Ladies Golf. The Ladies Golf bylaws provide that any or all of the
directors of Ladies Golf may be removed at any time, with or without cause, by
the holders of a majority of the outstanding shares of Ladies Golf entitled to
vote generally in the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
S2 Golf. The S2 Golf bylaws provide that any vacancy in the S2 Golf
Board may be filled by a majority of the remaining directors or by the
shareholders at a shareholders' meeting called for such purpose.
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<PAGE> 42
Ladies Golf. Pursuant to Florida law and the Ladies Golf bylaws,
vacancies on the Ladies Golf Board and newly created directorships resulting
from any increase in the authorized number of directors may be filled by the
affirmative vote of a majority of the remaining directors or by the vote of the
holders of a majority of the Ladies Golf common stock.
SPECIAL MEETINGS OF THE SHAREHOLDERS
S2 Golf. New Jersey law, together with the S2 Golf bylaws, permits
special meetings of shareholders to be called by the president, the chief
executive officer, the chairman of the board of directors, the board of
directors or the holders of a majority of the common stock of S2 Golf. New
Jersey law also provides that upon application of the holder or holders of not
less than 10% of all the shares entitled to vote at a meeting, a court, in an
action in which the court may proceed in a summary manner, for good cause shown,
may order a special meeting of the shareholders to be called.
Ladies Golf. Florida law, together with the Ladies Golf bylaws, permits
special meetings of shareholders to be called by the chairman of the board of
directors, the president, the board of directors, or upon the written request of
not less than 10% of all the shares entitled to vote at a meeting.
ANNUAL MEETING OF SHAREHOLDERS
S2 Golf. The date and time of each annual meeting of the S2 Golf
shareholders shall be designated by the S2 Golf Board.
Ladies Golf. Unless otherwise designated by the Ladies Golf Board,
annual meetings of the Ladies Golf shareholders are to be held at 10:00 a.m. on
the second Tuesday in April of each fiscal year.
SHAREHOLDER ACTION WITHOUT A MEETING
S2 Golf. New Jersey law generally provides that any shareholder action
required or permitted to be taken by shareholder vote, other than the election
of directors, can be taken without a meeting by the written consent of
shareholders who would have been entitled to cast the minimum number of votes
which would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote were present and voting. Under New Jersey law, the
election of directors by the shareholders, if not conducted at a shareholders'
meeting, may only be effected by unanimous written consent.
Under New Jersey law, a shareholder vote on a plan of merger or
consolidation or sale or disposition of all or substantially all of the assets,
if not conducted at a shareholders' meeting, may only be effected by either (a)
unanimous written consent of all shareholders, or (b) written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize the action at a meeting, with advance notice to all other
shareholders.
Ladies Golf. Under Florida Law and the Ladies Golf bylaws, any action
that is required or permitted to be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice and without a
vote, if one or more consents in writing, setting forth the action so taken, are
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote were present and voted.
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<PAGE> 43
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LIST
S2 Golf. New Jersey law and the S2 Golf bylaws provide that a
shareholder who has been a shareholder for at least six months or who holds, or
is authorized in writing by holders of, at least 5% of the outstanding shares of
any class or series of stock of S2 Golf upon at least 5 days' written demand has
the right for any proper purpose to inspect in person or by agent or attorney
the minutes of the proceedings of S2 Golf's shareholders and S2 Golf's record of
shareholders. Irrespective of the period such shareholder has held his or her
stock or the amount of stock such shareholder holds, a court is empowered, upon
proof of proper purpose, to compel production for examination by the shareholder
of the books and records of account, minutes and record of shareholders of S2
Golf. New Jersey law also provides that a list of shareholders be available for
inspection by any shareholder during a meeting of shareholders.
Ladies Golf. Pursuant to Florida law, Ladies Golf is required to
prepare an alphabetical list of the names of its shareholders who are entitled
to notice of a shareholders' meeting, arranged by voting group with the address
of, and the number and class and series, if any, of shares held by each. Ladies
Golf generally must make the shareholders' list available for inspection by any
shareholder for a period of 10 days prior to the meeting and continuing through
the meeting.
AMENDMENT TO CHARTER DOCUMENTS
S2 Golf. Pursuant to New Jersey law, a proposed amendment to the S2
Golf certificate of incorporation generally requires approval by the board of
directors and an affirmative vote of a majority of the votes cast by the holders
of shares entitled to vote thereon.
Ladies Golf. Pursuant to Florida law, some amendments to the Ladies
Golf articles of incorporation expressly permitted by Florida Law may be made by
the board of directors without shareholder approval. All other amendments to the
articles of incorporation must be recommended by the board of directors to the
shareholders and approved by holders of a majority of the shares entitled to
vote on the amendment.
AMENDMENT TO BYLAWS
S2 Golf and Ladies Golf. The S2 Golf bylaws may be amended or repealed
by the S2 Golf Board or the S2 Golf shareholders, and the Ladies Golf bylaws may
be amended or repealed by the Ladies Golf Board or the Ladies Golf shareholders.
MERGER OR BUSINESS COMBINATIONS
S2 Golf. New Jersey law requires approval of mergers, consolidations
and dispositions of all or substantially all of a corporation's assets (other
than so-called parent-subsidiary mergers) by the board of directors and by the
affirmative vote of a majority of the votes cast by the holders of shares
entitled to vote thereon. New Jersey law does not require shareholder approval
for control share acquisitions and does not require shareholder approval for a
merger if the corporation is the surviving entity and (i) the corporation's
certificate of incorporation is not amended in connection with the merger, (ii)
the shareholders of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and rights,
immediately after the merger, and (iii) the number of voting or participation
shares outstanding immediately after the merger, plus the number of voting or
participation shares issuable on conversion of other securities or on exercise
of rights and warrants issued pursuant to the merger, will not
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<PAGE> 44
exceed by more than 40% the total number of voting or participation shares of
the surviving corporation outstanding immediately before the merger.
Ladies Golf. Florida law provides that a vote of the board of directors
and a majority of the shares of each class of Ladies Golf stock outstanding and
entitled to vote is required to authorize a merger or consolidation involving
Ladies Golf or the sale, lease or exchange of all or substantially all of the
property and assets of Ladies Golf, unless the articles of incorporation require
a greater vote. The Ladies Golf articles of incorporation do not require a
greater vote.
MERGERS WITH SUBSIDIARIES
S2 Golf. Under New Jersey law, a parent corporation may merge with its
domestic subsidiary without shareholder approval if the parent corporation owns
at least 90% of the outstanding shares of each class of capital stock of its
subsidiary.
Ladies Golf. Under Florida law, a parent corporation may merge with its
subsidiary without shareholder approval if the parent corporation owns at least
80% of the outstanding shares of each class of capital stock of its subsidiary.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
S2 Golf. New Jersey law provides generally that no public corporation
organized under the laws of New Jersey with its principal executive offices or
significant operations located in New Jersey may engage in any business
combination with any "interested stockholder" (generally, a 10% or greater
shareholder) of the corporation for a period of five years following such
interested stockholder's stock acquisition, unless the business combination is
approved by the board of directors of the corporation prior to the stock
acquisition.
Ladies Golf. Florida law has provisions, informally known as the
"Affiliated Transaction Statute" and the "Control-Share Acquisition Statute,"
that are intended to deter hostile takeovers of Florida-based corporations.
In general, the Affiliated Transaction Statute requires that, subject
to limited exceptions, any "affiliated transaction" between a corporation with
more than 300 shareholders and a person who is a beneficial owner of more than
10% of the corporation's outstanding shares (or an affiliate or associate of
that person) must be approved by a majority of the "disinterested directors" of
the corporation or the holders of two-thirds of the voting shares of the
corporation (excluding shares beneficially owned by the more than 10% shareowner
or his affiliate/associate). Absent such approval or an exception, the statute
requires that a "fair price" be paid to shareholders in an affiliated
transaction. The Affiliated Transaction Statute does not apply to transactions
involving Ladies Golf because Ladies Golf currently has fewer than 300
shareholders.
Under the Control-Share Acquisition Statute, absent an applicable
exemption, "control shares" of an "issuing public corporation" (generally, a
corporation which has more than 100 shareholders, a certain percentage of whom
are Florida residents) that are acquired in a "control-share acquisition" will
retain their voting rights only to the extent granted by a resolution that is
approved by a majority of each class of voting securities of the issuing public
corporation. "Control shares" are shares of an issuing corporation owned by a
person that, immediately after acquisition of the shares, would entitle the
person to exercise directly or indirectly in the election of directors of the
corporation, voting power within any of the following ranges: (A) 20% or more
but less than 33% of all voting power of the corporation's voting securities,
(B) 33% or more but less than a majority of all voting power of the
corporation's voting
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securities or (C) a majority or more of all the voting power of the
corporation's voting securities. A "control share acquisition" is a direct or
indirect acquisition by a person of ownership of, or the power to direct the
exercise of voting power with respect to, "control shares." If so authorized in
its bylaws or articles of incorporation, an issuing public corporation may
redeem control shares for fair value in certain circumstances. Furthermore,
unless otherwise provided in a corporation's bylaws or articles of incorporation
before a control-share acquisition occurs, all the shareholders of the issuing
public corporation will have dissenters' rights, if control shares representing
a majority or more of all voting power in the election of directors of the
corporation are acquired in the transaction and accorded full voting rights. A
number of transactions are exempted from the Control Share Acquisition Statute.
The Control-Share Acquisition Statute will not apply to the merger because
Ladies Golf is not an issuing public corporation.
DISSENTERS' RIGHTS
S2 Golf. Under New Jersey law, a shareholder of a New Jersey
corporation has the right to dissent from, and obtain payment of the fair value
of his shares in the event of, (1) a merger or consolidation to which the
corporation is a party or (2) a sale or exchange of all or substantially all of
the corporation's property other than in the usual and regular course of
business. However, unless the corporation's articles of incorporation provide
otherwise (and S2 Golf's restated certificate of incorporation does not), a
shareholder does not have such dissenters' rights if the shares held by the
shareholder are listed on a national securities exchange or held of record by
1,000 holders or more, or, generally, in any transaction in connection with
which the shareholders of the corporation will receive only (a) cash,
(b) securities that, upon consummation of the transaction, will be listed on a
national securities exchange or be held of record by not less than 1,000
olders, or (c) cash and such securities.
Ladies Golf. Under Florida law, a shareholder, with certain exceptions,
has the right to dissent from, and obtain payment of the fair value of his
shares in the event of (1) a merger or consolidation to which the corporation is
a party, (2) a sale or exchange of all or substantially all of the corporation's
property other than in the usual and regular course of business, (3) the
approval of a control share acquisition, (4) a statutory share exchange to which
the corporation is a party as the corporation whose shares will be acquired, (5)
an amendment to the articles of incorporation if the shareholder is entitled to
vote on the amendment and the amendment would adversely affect the shareholder,
and (6) any corporate action taken to the extent that the articles of
incorporation provide for dissenters' rights with respect to such action.
However, unless the corporation's articles of incorporation provide otherwise
(and Ladies Golf's articles of incorporation do not), a shareholder does not
have dissenters' rights with respect to a plan of merger, share exchange or
proposed sale or exchange of property if the shares held by the shareholder are
either registered on a national securities exchange or held of record by 2,000
or more shareholders.
37
<PAGE> 46
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements reflect the historical financial statements of S2 Golf adjusted (i)
to give effect to S2 Golf's acquisition on July 31, 2000 of substantially all
the assets of the NancyLopezGolf(TM) division of The Arnold Palmer Golf Company
(the "NL Acquisition"), as if the NL Acquisition had occurred as of June 30,
2000, and (ii) to give effect to the NL Acquisition and the merger together as
if both had occurred as of June 30, 2000. Pro forma share amounts are based on
the conversion rate of 1,000 shares of S2 Golf common stock for each Ladies Golf
common share in this merger. Pro forma statement of operations data gives effect
to the transactions as if they had occurred on January 1, 1999.
You should read the unaudited pro forma condensed combined financial
statements together with the historical financial statements, including the
respective notes, of S2 Golf and Ladies Golf. Pro forma financial statements are
presented for informational purposes only and are not necessarily indicative of
the results of operations or combined financial position that would have
resulted had the merger been consummated as of the beginning of the earliest
period indicated, nor are they necessarily indicative of future results of
operations or combined financial position.
38
<PAGE> 47
<TABLE>
<CAPTION>
S2 GOLF INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
S2 Golf Nancy Lopez Nancy Lopez Ladies Golf
06/30/2000 Golf Golf 06/30/2000 Ladies Golf
(unaudited) 07/31/2000 Adjustments(A) (unaudited) Adjustments (B) Total
----------- ---------- -------------- ----------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $150 $ - $150
Accounts Receivable - Net 3,433,751 1,139,988 79,835 710,816 5,364,390
Inventories 2,886,917 836,383 150,043 427,999 160,000 4,461,342
Prepaid Expenses 41,759 16,667 33,333 - 91,759
Deferred Income Taxes 202,000 202,000
---------------------------------------------------------------------------------------------
Total Current Assets 6,564,577 1,993,038 263,211 1,138,815 160,000 10,119,641
Plant and Equipment - Net 129,969 303,551 (273,595) 42,694 202,619
Non-Current Deferred Income Taxes 59,500 59,500
Goodwill 1,983,518 2,737,144 4,720,662
Other Assets 129,279 25,871 155,150
---------------------------------------------------------------------------------------------
Total Assets $ 6,883,325 $2,296,589 $1,973,134 $1,207,380 $2,897,144 $15,257,572
=============================================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Short-term Borrowings $811,331 $3,259,405 $443,645 140,000 $4,654,381
Note Payable - Current 300,000 140,000 (140,000) 300,000
Accounts Payable 664,876 65,834 115,832 846,542
Accrued Expenses 628,131 44,484 71,040 743,655
Deferred Income Taxes 64,000 64,000
Other Current Liabilities 72,000 20,007 92,007
---------------------------------------------------------------------------------------------
Total Current Liabilities 2,176,338 110,318 3,559,405 790,524 64,000 6,700,585
Note Payable - Long-Term 600,000 1,000,000 1,600,000
Non-Current Liabilities 44,177 44,177
---------------------------------------------------------------------------------------------
Total Liabilities 2,220,515 110,318 4,159,405 790,524 1,064,000 8,344,762
---------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock 22,201 1,000 9,000 32,201
Additional Paid in Capital 4,042,787 767,971 1,472,029 6,282,787
Retained Earnings/(Deficit) 597,822 2,186,271 (2,186,271) (352,115) 352,115 597,822
---------------------------------------------------------------------------------------------
Total Shareholders' Equity 4,662,810 2,186,271 (2,186,271) 416,856 1,833,144 6,912,810
---------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $6,883,325 $2,296,589 $1,973,134 $1,207,380 $2,897,144 $15,257,572
=============================================================================================
See accompanying notes to unaudited pro forma consolidated condensed financial statements.
</TABLE>
39
<PAGE> 48
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
A. NANCY LOPEZ GOLF
On July 31, 2000, S2 Golf Inc. (the "Registrant") acquired from The Arnold
Palmer Golf Company (the "Company") substantially all of the net assets of its
Nancy Lopez Golf division, for a cash purchase price of $4,633,333 (the
"Purchase Price"). The Purchase Price was a function of projected sales volume
plus an amount for PGA show booth space, with post-closing adjustments to be
based on (i) changes in the net asset value between April 29, 2000 and the
closing date and (ii) realization on accounts receivable in the first six months
after the closing. On the closing date the Registrant paid $3,000,000 of the
Purchase Price to the Company, using the principal amount of a $900,000 term
loan extended to the Registrant by PNC Bank (the "Bank") together with funds
available under the Registrant's existing revolving line of credit with the
Bank. On August 10, the Registrant, using funds available to it under an
amendment to its existing revolving line of credit with the Bank, deposited
$150,000 of the Purchase Price into escrow pending the final determination of
the purchase price adjustment and paid to the Company $976,072, representing the
remaining balance of the Purchase Price adjusted pursuant to a mutual agreement
of the parties in anticipation of the first post-closing purchase price
adjustment. Total Purchase Price proceeds paid through the Registrant's
existing revolving line of credit amounted to $3,259,405.
Calculation of Acquisition Cost:
Purchase Price before adjustment $4,633,333
Less adjustment for change in net asset value (473,928)
----------
Purchase price at closing, July 31, 2000 $4,159,405
Less Net Assets Acquired (2,175,887)
----------
Excess cost over fair value $1,983,518
==========
Allocation of purchase price:
Accounts Receivable $1,219,823
Inventory 986,426
Prepaid Expenses 50,000
Property, plant and equipment 29,956
Accounts Payable (65,834)
Accrued Liabilities (44,484)
Goodwill 1,983,518
----------
$4,159,405
==========
40
<PAGE> 49
B. LADIES GOLF EQUIPMENT COMPANY, INC.
On June 8, 2000, the Registrant and Ladies Golf Equipment Company, Inc. (the
"Seller") signed a nonbinding letter of intent whereby the Registrant would
purchase 100% of the outstanding stock of the Seller. On the closing date, the
Registrant will issue a $1,000,000 note payable to the Seller's shareholders
maturing on December 31, 2001, and issue 1,000,000 shares of the Registrant's
common stock to the Seller's shareholders. Additionally, the Registrant will pay
off the outstanding credit facility of the Seller ($443,645 at June 30, 2000)
and an outstanding note of $140,000, using funds available to it under its
existing revolving line of credit in the amount of $583,645.
Calculation of Acquisition Cost:
Purchase Price $3,833,645
Less:
Ladies Golf equity 1,000,501
Step-up of Inventory 160,000
Deferred Income Tax (64,000)
----------
Excess cost over fair value $2,737,144
==========
Allocation of purchase price:
Accounts Receivable 710,816
Inventory 587,999
Property, plant and equipment 42,694
Other Current Assets 25,871
Goodwill 2,737,144
Accounts Payable (115,832)
Accrued Expenses (71,040)
Deferred Income Tax (64,000)
Other Current Liabilities (20,007)
----------
$3,833,645
==========
41
<PAGE> 50
<TABLE>
<CAPTION>
S2 GOLF INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 2000
Nancy Lopez
S2 Golf Golf Nancy Lopez Ladies Golf
06/30/2000 06/30/2000 Golf 06/30/2000 Ladies Golf
(unaudited) (unaudited) Adjustments (unaudited) Adjustments Total
----------- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales $6,792,046 $3,153,000 $2,103,491 $12,048,537
Cost of Goods Sold 4,386,886 1,716,000 1,316,579 7,419,465
-------------------------------------------- --------------------------- -----------
Gross Profit 2,405,160 1,437,000- 786,912 - 4,629,072
-------------------------------------------- --------------------------- -----------
Operating Expenses:
Selling 994,189 865,000 401,137 2,260,326
General & Administrative 682,016 446,000 99,176B 106,171 54,743B 1,388,106
-------------------------------------------- --------------------------- -----------
Total Operating Expenses 1,676,205 1,311,000 99,176 507,308 54,743 3,648,432
-------------------------------------------- --------------------------- -----------
Operating Income 728,955 126,000 (99,176) 279,604 (54,743) 980,640
-------------------------------------------- --------------------------- -----------
Other Income (Expense)
Interest Expense (57,299) (197,500)C (35,505) (48,750)C (339,054)
Other (46) 8,092 (8,046)
-------------------------------------------- --------------------------- -----------
Other - Net (57,345) - (197,500) (27,413) (48,750) (331,008)
-------------------------------------------- --------------------------- -----------
Income Before Income Taxes 671,610 126,000 (296,676) 252,191 (103,493) 649,632
Provision for Income
Taxes 268,868 (68,270)(D) 0 81,376D 281,974
-------------------------------------------- --------------------------- -----------
Net Income $402,742 $126,000 $(228,406) $252,191 $(184,869) $367,658
============================================ =========================== ===========
Earnings per Common
Share
Basic 0.18 0.11
=============== =============
Diluted 0.18 0.11
=============== =============
Weighted Average Number of
Common
Shares Outstanding
Basic 2,220,113 1,000,000 3,220,113
Diluted 2,275,221 1,000,000 3,275,221
See accompanying notes to unaudited pro forma consolidated condensed financial statements.
</TABLE>
42
<PAGE> 51
<TABLE>
<CAPTION>
S2 GOLF INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1999
Nancy Lopez Nancy Lopez
S2 Golf. Golf Golf Ladies Golf Ladies Golf
12/31/99 09/30/99 Adjustments 12/31/1999 Adjustments Total
-------- -------- ----------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales $11,003,556 $3,971,000 $2,471,482 $17,446,038
Cost of Goods Sold 7,428,130 2,626,000 150,043(A) 1,775,638 160,000(A) 12,139,811
----------------------------------------- -------------------------- -----------
Gross Profit 3,575,426 1,345,000 (150,043) 695,844 (160,000) 5,306,227
----------------------------------------- -------------------------- -----------
Operating Expenses:
Selling 1,641,744 1,251,000 383,694 3,276,438
General & Administrative 1,302,325 1,153,000 198,352(B) 723,582 109,486(B) 3,486,745
----------------------------------------- -------------------------- -----------
Total Operating Expenses 2,944,069 2,404,000 198,352 1,107,276 109,486 6,763,183
----------------------------------------- -------------------------- -----------
Operating Income/(Loss) 631,357 (1,059,000) (348,395) (411,432) (269,486) (1,456,956)
----------------------------------------- -------------------------- -----------
Other Income (Expense)
Interest Expense (158,892) (395,000)(C) (39,429) (97,500)(C) (690,821)
Other Income 562 17,704 18,266
----------------------------------------- -------------------------- -----------
Other - Net (158,330) 0 (395,000) (21,725) (97,500) (672,555)
----------------------------------------- -------------------------- -----------
Income/(Loss) Before Income
Taxes 473,027 (1,059,000) (743,395) (433,157) (366,986) (2,129,511)
Provision (Benefit) for
Income Taxes 166,901 (720,958)(D) (301,863)(D) (855,920)
----------------------------------------- -------------------------- -----------
Net Income/(Loss) $306,126 $(1,059,000) $(22,437) $(433,157) $(65,123) $(1,273,591)
========================================= ========================== ===========
Earnings per Common Share
Basic 0.14 (0.40)
============== ================
Diluted 0.14 (0.40)
============== ================
Weighted Average Number
of Common Shares Outstanding
Basic 2,219,700 1,000,000 3,219,700
Diluted 2,263,876 1,000,000 3,219,700
See accompanying notes to unaudited pro forma consolidated condensed financial statements.
</TABLE>
43
<PAGE> 52
NOTES TO
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS
NANCY LOPEZ GOLF
A. Reflects additional cost of goods sold from the sale of inventory,
which incurred a step-up basis to fair value under purchase accounting.
B. Reflects the Amortization of Goodwill over its estimated useful life of
10 years.
C. Interest expense on debt incurred to acquire Nancy Lopez Golf: a 3
year, $900,000 term loan carrying an interest rate of prime plus 1.5%
and a Revolving Line of Credit with an interest rate of prime plus
0.25%. If the interest rates changed by 1/8% there would be an
immaterial effect on net income.
D. Reflects increased tax benefit based on the Contribution/(Loss) of
Nancy Lopez Golf and other adjustments, assuming an effective tax rate
of 40%.
LADIES GOLF EQUIPMENT COMPANY, INC.
A. Reflects additional cost of goods sold from the sale of inventory,
which incurred a step-up basis to fair value under purchase accounting.
B. Reflects the Amortization of Goodwill over its estimated useful life of
25 years.
C. Interest expense on debt incurred in connection with the acquisition of
Ladies Golf Equipment Company, Inc.: a Revolving Line of Credit with an
interest rate of prime plus 0.25%. If the interest rates changed by
1/8% there would be an immaterial effect on net income.
D. Reflects increased tax benefit based on the income (loss) of Ladies
Golf Equipment Company, Inc. and other adjustments, assuming an
effective tax rate of 40%.
44
<PAGE> 53
INFORMATION ABOUT LADIES GOLF
THE BUSINESS OF LADIES GOLF
Ladies Golf was incorporated under the laws of Florida in August 1993.
Ladies Golf now designs and supplies women's golf shoes, gloves, socks and
related accessories to golf course pro shops and off-course shops throughout the
United States and Canada. Ladies Golf markets these products under the Lady
Fairway(TM) trademark.
Ladies Golf began as a women's golf shoe company in 1993, seeking to
accommodate the unique shape and build of a woman's foot. Over the years, Ladies
Golf has introduced numerous other accessories for the woman golfer, including
logoed socks, the Tan-Thru half glove, leather shoe bags, and products that
feature the Pink Ribbon and the Executive Women's Golf Association logo.
In late 1998, Ladies Golf began to transfer production of its shoe and
sock lines to new manufacturing facilities. In response to inconsistency and an
overall reduction in the quality of shoes produced by its third party
manufacturer, Ladies Golf transferred production of its shoe line to a new
facility, Pou Chen Ltd., located in Zhuhai, the People's Republic of China. As a
result, every aspect of the shoe line, from packaging to product, was
overhauled. Ladies Golf also moved production of its sock line to another
manufacturer, Moretz Mills in Newton, North Carolina, which could manufacture
larger product quantities in a shorter time period.
In 1999, Ladies Golf incorporated Outlast(R) Temperature Regulation
technology into its product lines, designed to absorb, store, and release body
heat in response to the microclimate close to the foot. This new technology was
introduced in the Riviera and Westchester shoe models, as well as new Lady
Fairway socks.
WOMEN'S GOLF EQUIPMENT AND ACCESSORIES
Ladies Golf designs and supplies women's golf shoes, gloves, socks and
related accessories to golf course pro shops and off-course shops throughout the
United States and Canada. Ladies Golf began as a women's golf shoe company in
1993. Sales of golf shoes have accounted for approximately 94%, 88%, and 80% of
Ladies Golf's total revenues in 1999, 1998 and 1997 respectively.
Ladies Golf currently markets the following lines of women's golf
accessories:
SHOES
Ladies Golf distributes nine different models of women's golf shoes
with a variety of styles and features. Several features that are incorporated in
the Ladies Golf shoe lines are described below:
Fast Twist Spike System
-----------------------
A majority of the shoes in Ladies Golf's shoe line use the Fast Twist
spike system, made by Tri-Sport, a division of Soft Spikes. The system utilizes
a double-thread, two-tier locking system for "fast-in, fast-out" spike changing.
45
<PAGE> 54
OutLast(R)Temperature Regulation Material.
------------------------------------------
Used in the insole of the Westchester and Riviera models, Outlast(R) is
a microthermal material that absorbs, stores and distributes body heat, keeping
the microclimate of the shoe at a stable or "regulated" temperature.
Rubalon
-------
Rubalon is a type of rubber used to manufacture outsoles for Ladies
Golf's shoes. Rubalon is made by mixing and molding rubber of two different
densities at a specific temperature to provide a lightweight and flexible
outsole while maintaining a stable platform.
ComfortFit Last
---------------
A last is a foot form upon which a shoe is constructed. The ComfortFit
last, a design used by Ladies Golf, is designed to mirror the anatomy of a
woman's foot, providing the proper fit from the heel, through the arch, to the
ball of the foot.
Ethel Vinyl Acetate ("EVA")
---------------------------
EVA is a lightweight material used to make outsoles and is used in the
manufacture of the Turnberry and Birkdale shoe models.
Ladies Golf's nine shoe models are described in more detail below:
The Riviera shoe, available in two color combinations, is made with the
Outlast(R) Temperature Regulation material and has been constructed on the new
ComfortFit last. The Rubalon outsole has a built-in lateral traction system and
uses the Fast Twist spike system.
The Westchester shoe, available in two color combinations, features the
Outlast(R) Temperature Regulation material constructed on the new ComfortFit
last, leather upper, removable cushioned insole and built-in lateral traction
system on a color-coordinated Rubalon outsole with the Fast Twist spike system.
The Cypress shoe features the new ComfortFit Last, a color-coordinated
outsole with secondary traction, a 4-1/2 millimeter ("mm") insole, and the Fast
Twist spike system.
The Ventana saddle oxford shoe, available in six colors, is constructed
on the new ComfortFit last. This shoe features a 4-1/2 mm insole, a two-tone,
secondary traction outsole, and the Fast Twist spike system.
The Shaughnessy shoe features a full-grain leather upper, a
lightweight, two-tone outsole with secondary traction, a removable 4-1/2 mm
insole, the Fast Twist spike system, and is available in three color
combinations.
The Naples line features three lace-to-toe oxford shoes in fashion
colors, constructed on the ComfortFit last, with a 4-1/2 mm insole and a
two-tone outsole.
The two shoes in the Ashton line, our wing-tip shoe, are constructed on
the ComfortFit last, have a seam-sealed full grain leather upper, two-tone
combination outsole, removable 4-1/2 mm insole and the Fast Twist spike system.
46
<PAGE> 55
The Turnberry shoe is a white/navy blucher with a seam-sealed leather
fashion upper, lightweight EVA outsole and is constructed on the ComfortFit
last.
The Birkdale, available in two colors, is a seam-sealed waterproof
leather White/Birch saddle with a lightweight EVA outsole and is constructed on
the ComfortFit last.
GLOVES
Ladies Golf distributes six different styles of women's golf gloves
with a variety of features. All gloves feature a velcro backtab bearing the Lady
Fairway(TM) logo. Several other features that are incorporated in our glove
lines are described below:
Cool Max LYCRA
--------------
Cool Max LYCRA is a product of DuPont that is used in both gloves and
socks sold by Ladies Golf. Cool Max LYCRA is designed to allow the skin to
breathe while maintaining the integrity and strength of other glove materials.
Sure Feel(TM)
-------------
Sure Feel(TM) is a microfiber synthetic material used in the palm of
the Combination, Full Length Tan-Thru, and Winter Gloves.
Cabretta Leather
----------------
Cabretta leather is a premium pig leather that is used in the
manufacturing of the Tour Glove, Pink Ribbon glove, and the palm and thumb of
the Combination Glove.
Ladies Golf's gloves are described in more detail below:
The Combination glove features the Sure Feel(TM) micro fiber synthetic
with a Cabretta leather palm and thumb, Cool Max LYCRA knuckles, and a terry
cloth wristband.
The Pink Ribbon glove features full Cabretta leather gloves with LYCRA
flex points, a terry cloth wristband, and the recognizable pink ribbon
embroidered on the back tab.
The Tour Glove features premium Cabretta leather with LYCRA flex points
and is worn by several golfers on the Ladies Professional Golf Association, or
LPGA, Tour.
The Half Glove features premium Cabretta leather palm, a Tan-Thru nylon
mesh backing, open fingertips and Flex-Fit construction.
The Winter Glove line features a Malden Mills' fleece backing and Sure
Feel(TM) palm material. Winter Gloves are sold in pairs.
The Full-Length Tan-Thru glove has a Sure Feel palm and a Tan-Thru mesh
backing.
47
<PAGE> 56
SOCKS
Ladies Golf distributes five different styles of women's golf socks
with different features. Ladies Golf's socks are described in more detail below:
The Outlast ped sock and quarter sock line contains Outlast(R)
Temperature Regulation microthermal materials.
The Transpor Ped line features Transpor(R) Dry-Fibre wicking and
moisture management technology. The Transpor(R) Dry-Fibres used in the sock are
manufactured in a two-step process so that they can rest directly against the
skin to absorb and store moisture away from the foot.
The Vapor Tech Quarter sock line features continual moisture-release
materials and antimicrobial protection. Vapor Tech is an acrylic moisture
management material that is mixed with the threads of the sock to draw moisture
away from the foot.
The Roll Top Ped sock is an all cotton, white and color-tipped classic
golf ped sock.
The Pink Ribbon Sock is a cotton quarter sock with an embroidered pink
ribbon logo on the side.
SHOE TREES
Ladies Golf markets white cedar, spring-loaded shoe trees with a
width-adapting toe. They are sold in small, medium, and large sizes,
accommodating shoe sizes 4 1/2 to 11.
MANUFACTURING
Ladies Golf utilizes third-party manufacturers in the People's Republic
of China, Indonesia, and North Carolina to produce its shoes, gloves and socks.
Such third-party manufacturers produced products representing 100% of Ladies
Golf's net sales in 1999. Ladies Golf believes that, if necessary, it can obtain
alternative third party manufacturers for the manufacture of its product lines.
The products supplied by third party manufacturers are produced in accordance
with Ladies Golf specifications.
TRADEMARKS
Ladies Golf markets its products under the Lady Fairway(TM) brand name,
and has registered this brand name as a trademark in the United Kingdom and in
Sweden.
SEASONALITY
The golf industry is seasonal. While purchasing and manufacturing occur
throughout the year, demand for Ladies Golf's products is greatest from March
through July. Purchasing is at its highest levels from February through May and
in October and November (to accommodate increased demand in warm weather states
such as California, Arizona, and Florida).
MARKETING AND DISTRIBUTION
Ladies Golf manufactures separate product lines through different third
party manufacturers. Ladies Golf attempts to maintain the level of inventory
that is necessary to effect same-day shipment to retailers. These facilities
generally require 90 to 120 day lead times to deliver products to Ladies Golf.
48
<PAGE> 57
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
in the golf equipment market.
Ladies Golf sells its products primarily to retailers throughout the
United States and Canada through approximately thirty independent sales
representatives. No one sales representative accounts for more than 8% of Ladies
Golf's sales. Products are sold through selling programs that offer some
discounts and other benefits based on the volume of product purchased. Ladies
Golf guarantees shipping to its customers within 24 hours of order placement. As
of August 31, 2000, Ladies Golf distributed its products to approximately 2,000
golf course pro shops and 300 off-course shops throughout the United States and
Canada. The bulk of sales of Ladies Golf products consists of sales to retailers
located in the United States.
The golf equipment industry is one in which advertising and promotion
are required to create market awareness of a company's products. Management
believes that manufacturers will increase their research and development efforts
as well as their advertising expenditures. Ladies Golf currently advertises in
two women's golf magazines and two trade magazines. Ladies Golf also uses an
in-store merchandising program. Through the program, Ladies Golf promotes its
products through the placement of product merchandisers, slat wall shelves, and
other product presentation aids in stores.
Customers of Ladies Golf are entitled to some discounts and return
privileges which are most favorable to purchasers of the highest volume of
products. For example, Ladies Golf's highest volume customers that are part of
the company's Key Account Program are entitled to return up to 33% of shoes
purchased. Furthermore, such customers are entitled to discounts of 10% if
payment is made within 30 days of purchase.
In 1999, no customer accounted for more than 3% of Ladies Golf's total
sales. Ladies Golf does not believe that the loss of any single customer would
materially affect its business.
COMPETITION
In general, Ladies Golf competes with other manufacturers of footwear
and golf accessories, 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 women's golf equipment industry is highly competitive and is
dominated principally by three nationally known manufacturers of sporting goods
equipment, which are Nike, Acushnet Company (maker of FootJoy golf products),
and Etonic. Such manufacturers possess financial and other resources greater
than those of Ladies Golf. Furthermore, some companies offer women's golf
equipment and accessories that are not sold by Ladies Golf. Ladies Golf competes
with these entities primarily on the basis of product features, brand
recognition, quality, price, and customer service.
PROPERTIES
Ladies Golf owns no real estate. It leases its operating facility in
Tampa, Florida. The aggregate area of office space under the lease is 11,328
square feet. The lease is for a term expiring on March 31, 2001. The aggregate
amount of rent paid by Ladies Golf in 1999 was approximately $76,000. Ladies
Golf believes that its facilities are adequate for its needs.
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<PAGE> 58
INSURANCE
Ladies Golf maintains several insurance policies, including commercial
liability and workers compensation policies. There is no assurance that any of
these coverages will be adequate for Ladies Golf's future needs.
EMPLOYEES
As of September 30, 2000, Ladies Golf employed seven persons, including
an executive officer, four hourly customer service employees, one office manager
and one warehouse worker. The employees of Ladies Golf are not represented by
any labor organization. Ladies Golf believes that its present staff is adequate.
However, if sales of Ladies Golf's products should increase, it is expected that
additional customer service personnel may be necessary to meet product demand.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Historically, Ladies Golf's sales to foreign customers have not been
material. For the fiscal year ended December 31, 1999, Ladies Golf's sales to
foreign customers comprised less than 7% of net sales.
LEGAL PROCEEDINGS
Ladies Golf is not a party to any litigation, nor is it aware of any
threatened litigation, that is expected to have a material adverse effect on
Ladies Golf or its business.
MARKET PRICE, DIVIDENDS AND STOCKHOLDER MATTERS
There is no public trading market for Ladies Golf common stock. As of
October 20, 2000, there were two shareholders of Ladies Golf common stock. As a
result of the merger, the shareholders of Ladies Golf common stock will hold
only shares of S2 Golf common stock. There were no distributions to shareholders
in 2000 or 1999. In 1998, distributions to shareholders totaled $147,647 to
cover the shareholders' tax liabilities in connection with income from Ladies
Golf.
50
<PAGE> 59
SELECTED HISTORICAL FINANCIAL DATA OF LADIES GOLF
The following table sets forth selected historical financial data of
Ladies Golf and has been derived from its audited and unaudited financial
statements. This information is only a summary and you should read it together
with Ladies Golf's historical financial statements and related notes. Ladies
Golf audited financial statements for the years ended December 31, 1999 and 1998
begin on page 56.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
2000 1997 1996 1995
(unaudited) 1999 1998 (unaudited) (unaudited) unaudited)
----------- ---- ---- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
$2,103,491 $2,471,482 $2,860,319 $3,751,757 $3,543,972 $2,468,162
Income (loss) from
continuing
operations $252,191 $(433,157) $(283,575) $46,739 $251,543 $146,068
Working capital $370,049 $100,747 $509,538 $952,635 $844,386 $771,425
Total assets $1,194,521 $1,041,847 $1,220,523 $1,127,223 $995,505 $966,804
Total liabilities $768,599 $877,182 $622,701 $115,826 $106,514 $152,485
Distributions to
shareholders - - $147,647 $124,000 $176,871 $306,841
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OF OPERATIONS OF LADIES GOLF
OVERVIEW
Ladies Golf's results during the late 1990's were affected by a general
downturn in the golf industry, substandard shoe quality and the resulting
transition to a new manufacturer for production of Ladies Golf's shoe line. The
results of operations during 2000 have been influenced by a gradual recovery of
the golf industry, the production of higher quality shoes by Ladies Golf's new
manufacturer, and increased sales of gloves and socks.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Revenues
--------
Nineteen ninety-nine revenues were $2,471,482, versus $2,860,319 for
1998, a decrease of $388,837 or 13.6%. The decrease in revenues was primarily
due to the continuation of an industry-wide slump in sales combined with a
sell-off of old inventory by retailers and manufacturers. Ladies Golf was also
transferring shoe and sock production to new manufacturers in 1999. Returns of
old and poor quality product by retailers and the delay of new product orders
until 2000 also contributed to the decrease.
51
<PAGE> 60
Gross Profit
------------
Gross profit on sales for 1999 was $695,844 (28.2%) versus $873,556
(30.5%) for 1998. This decrease was primarily due to the continued sell-off of
the inventory produced by the company's previous manufacturer inventory. Delays
in orders from retailers awaiting production from the company's new
manufacturers also contributed greatly to the decrease. Retailers also continued
to return merchandise as part of a close-out of inventory. Many orders placed by
retailers were scheduled for delivery in 2000.
Operating Expenses
------------------
Operating expenses for 1999 were $938,160 versus $1,094,754 for 1998, a
decrease of $156,594 or 14.3%. This significant decrease in operating expenses
represented a reaction to a slumping industry and the transfer of shoe
production to a new manufacturer. Operating expenses, specifically payroll and
advertising, were reduced due to a decrease in sales during the transition to
the new manufacturer.
Administrative Expenses
-----------------------
Administrative expenses were $169,116 for 1999 versus $151,664 for
1998, an increase of $17,452 or 11.5%. Administrative expenses increased due to
an increase in computer expenses associated with year 2000 compliance. Bad debt
expense also increased in 1999 because several customers ceased operations due
to the slumping golf industry.
Interest
--------
Interest expense in 1999 was $39,429, an increase of $7,544, or 23.7%,
compared 1998, which was $31,885. The average outstanding balance of the credit
facility was $449,494 in 1999 compared to an average balance of $361,858 in
1998. Increased interest charges resulted from higher inventory levels, which
were due to a lack of sales of goods produced by the old manufacturer combined
with the stocking of new inventory from the new manufacturers. Due to the
continued downturn in the golf industry, many customers were delinquent in
paying for their purchases, affecting cash flow.
Net Income (Loss)
-----------------
Ladies Golf's net income (loss) for 1999 was $(433,157) compared to
$(283,575) for 1998. This increased loss was the result of continued poor market
conditions in the industry and high inventory for manufacturers, which forced
many footwear companies to sell large quantities of their products at deep
discounts, saturating the golf footwear market. In addition, Ladies Golf did not
feel the full effect of receiving poor quality products from its old
manufacturer in 1998 until 1999, when many customers returned poor quality
products to Ladies Golf and delayed orders of new products from Ladies Golf
until Spring 2000, at which time products from the new manufacturer were
delivered.
1998 COMPARED TO 1997
Revenues
--------
For 1998, revenues were $2,860,319 versus $3,751,757 for 1997, a
decrease of $891,438 or 23.8%. The decrease in revenues was due to several
factors. The manufacturer that Ladies Golf had used for the previous four years
experienced financial, product quality and delivery problems, directly affecting
sales. Also, the golf industry entered into a slump, with the shoe segment
especially hurt by heavy inventories and financially-strapped retailers.
52
<PAGE> 61
Gross Profit
------------
Gross profit on sales for 1998 was $873,556 (30.5%) versus $1,796,730
(47.9%) for 1997. The decrease in gross profit was primarily due to retailers
returning poor quality products resulting from substantial problems at the
manufacturer, prompting the movement of production to the new manufacturer.
Shoes from the old manufacturer were sold at deep discounts.
Operating Expenses
------------------
Operating expenses for 1998 were $1,094,754 versus $1,036,220 for 1997,
an increase of $58,534 or 5.6%. Based upon positive results in 1997, Ladies Golf
increased its office staff, print advertising and in-store point of purchase
displays.
Administrative Expenses
-----------------------
Administrative expenses were $151,664 for 1998 versus $160,929 for
1997, a decrease of $9,265 or 5.7 %. The decrease was due to a reduced level of
computer, accounting and legal expenses.
Interest
--------
Interest expense for 1998 was $31,885, an increase of $10,504, or
49.1%, compared to 1997, which was $21,381. The average outstanding balance of
the credit facility was $361,858 in 1998 compared to an average balance of
$220,305 in 1997. High inventory turnover in 1997 and a healthy retail sector
allowed for strong cash flow. In 1998, inventory levels rose as sales declined
in a slumping market and Ladies Golf began to receive poor quality shoes from
its old manufacturer.
Net Income (Loss)
-----------------
Ladies Golf's net income (loss) for 1998 was $(283,575), compared to
$246,739 for 1997. This decrease is the result of the golf industry entering
into a deep slump, combined with a drop in sales due to high inventories at the
retail and wholesale levels and the sale of such inventories at deep discounts.
In addition, Ladies Golf began to receive poor quality products from its prior
manufacturer in the Spring of 1998. This reduction in quality further decreased
sales and increased the rate of product return by customers.
SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTH PERIOD
ENDED JUNE 30, 1999
Revenues
--------
Revenues for the six-month period ended June 30, 2000 were $2,111,583,
compared to $1,541,658 for the same period. Management attributes this 37%
increase in revenues for the six-month period over the same period in the prior
year primarily to the production of higher quality shoes by the new manufacturer
in the People's Republic of China, higher sales volume, and general
strengthening of the golf equipment industry.
Gross Profit
------------
Gross profit as a percentage of sales for the six-month period ended
June 30, 2000 was 37%, compared to 45% for the same period in 1999. Management
attributes this decrease to the sale of product
53
<PAGE> 62
produced by the old manufacturer at deep discounts and increased shipping costs
associated with the new manufacturer.
Operating Expenses
------------------
Operating expenses for the six-month period ended June 30, 2000 were
$401,137, compared to $475,853 for the same period in 1999. This decrease
resulted from reductions in print advertising and in-store merchandising display
costs and in payroll expenses through the elimination of three employment
positions.
Administrative Expenses
-----------------------
Administrative expenses for the six-month period ended June 30, 2000
were $106,171, compared to $69,725 for the same period in 1999. This increase is
due primarily to increased professional fees in connection with the expected
merger with S2 Golf as well as a small increase in bad debt expense.
Interest
--------
Interest expense for the six-month period ended June 30, 2000 was
$35,505, as compared to $18,313 for the same period in 1999, which reflects a
93.9% increase. This increase in interest expense was primarily due to a 71%
increase in the average loan balance. The average loan balance for the six-month
period ended June 30, 2000 was $695,572 compared to an average loan balance of
$406,858 for the six-month period ended July 30, 1999. The average loan balance
increased due to the need to increase inventory in order to meet the increase in
product demand and the stocking of inventory from the new manufacturer.
Net Income (Loss)
-----------------
Ladies Golf's net income (loss) for the six-month period ended June 30,
2000 was $252,191 compared to $(6,566) for the same six-month period in 1999.
This increase is the result of a 37% increase in net revenue, offset by
increased operating and administrative expenses. The increase in net income
resulted from a decrease in customer returns of goods produced by the old
manufacturer and increases in the sales of goods produced by the new
manufacturer.
Inflation has not had a significant effect on our results of operations
in recent years. Ladies Golf's selling, general and administrative expenses,
such as salaries, employee benefits, and facilities costs are subject to normal
inflationary pressures.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, Ladies Golf's sources of liquidity included
approximately $10,000 in cash and cash equivalents and $485,000 in additional
net working capital. During the year ended December 31, 1999, cash flow used for
operations was ($133,092). During the year ended December 31, 1999, cash flow
used for investing activities was ($14,023). During the year ended December 31,
1999, cash flow provided by financing activities was $150,751, resulting from an
increase in the credit line with the Bank of Tampa.
The golf industry is seasonal. While purchasing and manufacturing occur
throughout the year, demand for Ladies Golf's products is greatest from March
through July. Purchasing is at its highest levels from February through May and
in October and November to accommodate increased demand in warm weather states
such as California, Arizona, and Florida.
54
<PAGE> 63
Ladies Golf has a secured revolving line of credit with The Bank of
Tampa, which was amended and restated as of September 22, 2000, allowing a
maximum credit limit of $1,000,000, 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 70% of eligible accounts receivable plus 25% of
inventory. Substantially all of Ladies Golf's assets are used as collateral for
the credit line. Interest rates are at prime plus one percent, paid monthly; the
interest rate as of September 30, 2000 was 10.5%. At September 30, 2000, credit
available to Ladies Golf under the line of credit was approximately $207,000.
The line of credit agreement contains certain restrictive covenants, including
the maintenance of a total liabilities to equity ratio of no greater than two to
one. Ladies Golf was not in compliance with this covenant as of September 30,
2000. The term of the facility was extended in expectation of the merger with S2
Golf and will expire by its terms on January 15, 2001. Ladies Golf has no
outstanding letters of credit as of September 30, 2000.
STOCK OWNERSHIP OF LADIES GOLF
MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to (a) Ladies Golf common
stock owned by each director of Ladies Golf, (b) the beneficial ownership of
Ladies Golf common stock by all directors and officers of Ladies Golf as a
group, and (c) the shares of Ladies Golf common stock beneficially owned by any
person who is known by Ladies Golf to be a beneficial owner of more than 5% of
the outstanding shares of Ladies Golf common stock.
<TABLE>
<CAPTION>
Amount and Nature of
--------------------
Name and Address of Beneficial
------------------- ----------
Beneficial Owner Ownership Percent
---------------- --------- -------
<S> <C> <C>
James E. Jones 850 85%
3803 Corporex Park Drive, Suite 400
Tampa, Florida 33619
Brian Christopher 150 15%
3803 Corporex Park Drive, Suite 400
Tampa, Florida 33619
All directors and executive officers as a group 1,000 100%
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 11, 2000, Ladies Golf executed a promissory note in favor of
Katherine Dawn Jones, the wife of Ladies Golf's President, in the principal
amount of $160,000.00, in exchange for a loan to Ladies Golf for the same
amount. To date, Ladies Golf has paid $20,000 of the principal amount of the
loan; the company's current obligation under the note is $140,000. There is no
fixed term for the note and the unpaid balance can be paid at any time. Ladies
Golf's obligations under the note will be satisfied by S2 Golf upon consummation
of the merger.
55
<PAGE> 64
FINANCIAL STATEMENTS OF LADIES GOLF
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LADIES GOLF EQUIPMENT COMPANY, INC.
We have audited the accompanying balance sheets of Ladies Golf Equipment
Company, Inc. (the Company) as of December 31, 1999 and 1998, and the related
statements of operations, changes in shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Ladies Golf Equipment Company, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ DOWELL & PEREZ, P.A.
TAMPA, FLORIDA
AUGUST 8, 2000
56
<PAGE> 65
<TABLE>
<CAPTION>
LADIES GOLF EQUIPMENT COMPANY, INC.
BALANCE SHEETS
Six Months Ended Years Ended
June 30, 2000 December 31,
(unaudited) 1999 1998
--------------- ---- ----
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ - $15,750 $12,114
Accounts receivable, net of allowance for doubtful
accounts of $44,000 and $28,500, respectively 710,816 332,298 369,960
Inventories 427,999 629,881 750,165
---------- ---------- ----------
1,138,815 977,929 1,132,239
Fixed assets, net of accumulated depreciation of $157,500
and $117,500, respectively 42,694 57,694 83,671
Other assets 25,871 6,224 4,613
---------- ---------- ----------
Total Assets $1,207,380 $1,041,847 $1,220,523
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit $443,645 $510,704 $359,953
Accounts payable 115,832 226,572 131,093
Accrued expenses 71,040 118,310 106,663
Accrued payroll 10,007 11,596 14,992
Accrued warranty 10,000 10,000 10,000
Notes payable to related party 140,000 - -
---------- ---------- ----------
Total Liabilities $ 790,524 $877,182 $622,701
---------- ---------- ----------
Shareholders' equity:
Capital stock, $1 par value, 1,000 shares
authorized, 1,000 shares issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 767,971 767,971 767,971
Accumulated deficit (352,115) (604,306) (171,149)
---------- ---------- ----------
Total equity 416,856 164,665 597,822
---------- ---------- ----------
1,207,380 $1,041,847 $1,220,523
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
57
<PAGE> 66
<TABLE>
<CAPTION>
LADIES GOLF EQUIPMENT COMPANY, INC.
-----------------------------------
STATEMENTS OF OPERATIONS
------------------------
Six Months Ended
June 30, 2000 Years Ended
(unaudited) December 31,
----------- 1999 1998
---- ----
<S> <C> <C> <C>
Revenues $2,103,491 $2,471,482 $2,860,319
Cost of sales 1,316,579 1,775,638 1,986,763
---------- ---------- ----------
Gross profit 786,912 695,844 873,556
---------- ---------- ----------
Operating expenses:
Advertising and promotion 170,050 347,266 454,181
Salaries 141,552 382,629 415,058
Facilities 54,300 105,739 112,126
Travel and convention 5,351 36,428 49,852
Insurance expense 14,884 26,098 33,537
Depreciation expense 15,000 40,000 30,000
---------- ---------- ----------
401,137 938,160 1,094,754
---------- ---------- ----------
Administrative expenses:
Office expenses 12,349 32,987 47,350
Computer expenses 18,816 40,370 30,572
Bad debt expense 6,557 49,482 34,295
Postage expense 7,260 23,886 22,442
Other administrative expenses 61,189 22,391 17,005
---------- ---------- ----------
106,171 169,116 151,664
---------- ---------- ----------
Income(loss) from operations 279,604 (411,432) (372,862)
---------- ---------- ----------
Other income (expense):
Interest expense, net (35,505) (39,429) (31,885)
----------
Miscellaneous income 8,092 17,704 121,172
---------- ---------- ----------
(27,413) (21,725) 89,287
---------- ---------- ----------
Net income (loss) $252,191 $(433,157) $(283,575)
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
58
<PAGE> 67
<TABLE>
<CAPTION>
LADIES GOLF EQUIPMENT COMPANY, INC.
-----------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
Common Stock
------------
Shares Retained
Outstanding Amount Paid-in Capital Earnings Total
----------- ------ --------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 1,000 $1,000 $750,324 $260,073 $1,011,397
Net loss (283,575) (283,575)
Capital contribution - - 17,647 17,647
Distributions to
shareholders (147,647) (147,647)
----------- ------- -------- -------- ----------
Balance,
December 31, 1998 1,000 1,000 767,971 (171,149) 597,822
Net loss (433,157) (433,157)
----------- ------- -------- -------- ----------
Balance,
December 31, 1999 1,000 1,000 767,971 (604,306) 164,665
Net Income 252,191 252,191
----------- ------- -------- -------- ----------
Balance,
June 30, 2000
(unaudited) 1,000 $1,000 $767,971 $(352,115) $416,856
=========== ======= ======== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
59
<PAGE> 68
<TABLE>
<CAPTION>
LADIES GOLF EQUIPMENT COMPANY, INC.
-----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Six Months Ended June
30, 2000 Years ended
(unaudited) December 31,
----------- 1999 1998
---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $252,191 $(433,157) $(283,575)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation 15,000 40,000 30,000
Allowance for doubtful accounts (8,000) 15,500 18,500
(Increase) decrease in assets:
Accounts receivable (370,518) 22,162 (135,460)
Inventories 201,882 120,284 20,458
Other assets (19,647) (1,611) (500)
Increase (decrease) in liabilities:
Accounts payable (110,740) 95,479 66,240
Accrued expenses (47,270) 11,647 94,280
Accrued payroll (1,589) (3,396) (13,598)
-------- --------- ---------
Net cash used for operating activities (88,691) (133,092) (203,655)
-------- --------- ---------
Cash flows used for investing activities:
Capital expenditures - (14,023) (59,022)
-------- --------- ---------
Cash flows from financing activities:
(Repayment of)
Proceeds from line of credit (67,059) 150,751 359,953
Proceeds from note payable to related party 140,000 - -
Capital contribution - - 17,647
Distributions to stockholders - - (147,647)
-------- --------- ---------
Net cash provided by financing activities 72,941 150,751 229,953
-------- --------- ---------
Increase (Decrease) in cash (15,750) 3,636 (32,724)
Cash, beginning of period 15,750 12,114 44,838
-------- --------- ---------
Cash, end of period $ - $15,750 $12,114
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $35,505 $39,433 $31,985
======== ========= =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
60
<PAGE> 69
LADIES GOLF EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND HISTORY:
Ladies Golf Equipment Company, Inc. (the "Company") is a wholesaler of
ladies golf equipment, primarily shoes and gloves, throughout the United States
and Canada. The Company was incorporated under the laws of the State of Florida.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting
The accrual method of accounting is used for the financial statements
and income tax returns.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents. At December 31, 1999 there were no cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on the average cost method. In addition, the costs of customs and
duties are included as a component of inventory.
Property and equipment
Property and equipment are recorded at cost. Maintenance and repairs
that do not improve efficiency or extend useful lives are charged to operations
as incurred. Depreciation is computed on the straight-line basis over the
following useful lives:
Furniture and fixtures 5 years
Equipment 5 years
Vehicles 3 years
Shoe molds 5 years
Revenue recognition
Net sales are generally recognized when products are shipped. The
Company has established programs that, under specific conditions, enable
customers to return product. The Company establishes liabilities for estimated
returns and allowances at the time of shipment. In addition, accruals for
customer discounts and rebates are recorded when revenues are recognized.
The Company provides warranties on substantially all of its products
and provides an accrual for estimated future warranty costs.
61
<PAGE> 70
Income taxes
The company has elected to be taxed under the Subchapter S provisions
of the Internal Revenue Code. The provisions require that taxable income or loss
of the Company be included in the federal income tax returns of the
shareholders; accordingly, no provision or liability for income tax has been
reflected in the accompanying financial statements.
Use of 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.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expense
was $170,050 for the six months ended June 30, 2000, and was $454,181 and
$347,266 in 1999 and 1998, respectively.
Concentration of credit risk
The Company's primary financial instrument subject to potential
concentration of credit risk is trade accounts receivable which are unsecured.
The Company provides an allowance for doubtful accounts based on its analysis of
potentially uncollectible accounts. The Company's exposure to credit loss in the
event that payment is not received from a customer is equal to the outstanding
accounts receivable balance from that customer. As of December 31, 1999, the
Company had no significant concentrations of credit risk with any individual
customers.
The Company relies on several key manufacturers to supply its sales
merchandise. Although there are a limited number of manufacturers capable of
supplying these needs, the Company believes that other suppliers could provide
for the Company's needs on comparable terms. Abrupt changes in the supply flow
could, however, cause a delay in manufacturing and a possible inability to meet
sales commitments on schedule or a possible loss of sales, which would affect
operating results adversely.
Fair value of financial instruments
The Company has estimated the fair value amounts of financial
instruments as required by Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company would realize in a current market
exchange. The carrying amount of assets and liabilities are reasonable estimates
of their fair values.
Impairment of long-lived assets
Under the provisions of Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of, the Company evaluates its long-lived assets for
financial impairment as events or changes in circumstances indicate that the
carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability
62
<PAGE> 71
\
of long-lived assets by measuring the carrying amounts of the assets against
their estimated undiscounted future cash flows. If such evaluations indicate
that the future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the assets are adjusted
to their fair values.
NOTE 3 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(unaudited) 1999 1998
----------- ---- ----
<S> <C> <C> <C>
Furniture and fixtures $40,161 $40,161 $40,161
Equipment 64,824 64,824 59,860
Vehicles 33,121 33,121 33,121
Shoe molds 77,088 77,088 68,029
-------- -------- --------
215,194 215,194 201,171
Less: Accumulated
depreciation (172,500) (157,500) (117,500)
-------- -------- --------
$42,694 $57,694 $83,671
======== ======== ========
</TABLE>
NOTE 4 - LINE OF CREDIT:
The Company maintains a revolving line of credit of $1,000,000 with a
financial institution. The line of credit incurs interest at the prime rate plus
1% and matures on January 15, 2001. The Company's accounts receivable,
inventory, furniture, fixtures and equipment secure the line of credit. The
outstanding balances were $443,645, $510,704 and $359,953 at June 30, 2000,
December 31, 1999 and December 31,1998, respectively.
The line of credit agreement contains certain restrictive covenants
including the maintenance of a total liabilities to equity ratio of no greater
than two to one. At December 31,1999, the Company was not in compliance with
this covenant.
NOTE 5 - OPERATING LEASES:
The Company leases its office and warehouse space under an operating
lease expiring in March 2001. Future minimum lease payments due under this lease
commitment as of December 31, 1999 are $58,500 and $4,900 for the years 2000 and
2001, respectively.
NOTE 6 - SUBSEQUENT EVENTS:
On June 8, 2000 the Company entered into a letter of intent with S2
Golf Inc. in which S2 Golf Inc. expressed its intention to purchase 100% of the
outstanding stock of the Company. The Company anticipates closing this
transaction in December, 2000.
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LEGAL MATTERS
The validity of the shares of S2 Golf common stock that will be issued
in the merger will be passed upon for S2 Golf by Squire, Sanders & Dempsey
L.L.P., Cleveland, Ohio. Mary Ann Jorgenson, a partner in Squire, Sanders &
Dempsey L.L.P., is a director of S2 Golf.
EXPERTS
The financial statements of S2 Golf as of December 31, 1999 appearing
in this proxy statement/prospectus have been so included in reliance on the
report of Rothstein, Kass & Company, P.C., independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements and the related financial statement schedules
as of December 31, 1998 and for the years ended December 31, 1998 and 1997
incorporated in this proxy statement/prospectus by reference from S2 Golf's
Annual Report on Form 10-K for the year ended December 31, 1999 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Ladies Golf as of December 31, 1999 and
1998 appearing in this proxy statement/prospectus have been so included in
reliance on the report of Dowell & Perez, P.A., independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
S2 Golf's bylaws provide that S2 Golf will indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that the person is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit, or proceeding if such person acted in good faith and in a manner he
reasonably believed to be in the best interest of the corporation and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. The termination of any action suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in the best interest of the corporation and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions, S2 Golf
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and therefore is unenforceable.
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ANNEX A
AGREEMENT
and
PLAN OF REORGANIZATION
among
S2 GOLF INC.,
S2 GOLF ACQUISITION CORP.,
LADIES GOLF EQUIPMENT COMPANY, INC.,
JAMES E. JONES
and
BRIAN CHRISTOPHER
Dated as of September 22, 2000
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TABLE OF CONTENTS
Section Page No.
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ARTICLE I
DEFINITIONS
1.1 Definitions 1
1.2 Other Terms 6
1.3 Other Definitional Provisions 7
ARTICLE II
THE MERGER
2.1 Merger 7
2.2 Closing 7
2.3 Effective Time 7
2.4 Effects of the Merger 8
2.5 Articles of Incorporation and Bylaws 8
2.6 Directors 8
2.7 Officers 8
ARTICLE III
MERGER CONSIDERATION; EFFECT OF THE
MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
3.1 Merger Consideration 8
3.2 Effect on Capital Stock 9
3.3 Exchange of Certificates 9
3.4 Adjustment to the Merger Consideration 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
4.1 Organization, Standing and Corporate 12
Power
4.2 Subsidiaries 12
4.3 Capitalization 13
4.4 Authority; Enforceability; No Conflicts; 13
and Consents
4.5 Vote Required 14
4.6 Compliance with Applicable Laws 14
4.7 Financial Statements 15
4.8 Absence of Changes or Events 16
4.9 Litigation 16
4.10 Contracts 17
4.11 Taxes 17
4.12 Employee Benefits Plans; Compliance of 19
Plans with ERISA and Code
4.13 Title to Properties 21
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4.14 Insurance 21
4.15 Brokers and Intermediaries 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND MERGER SUB
5.1 Organization, Standing and Corporate Power 21
of Acquiror and Merger Sub
5.2 Capitalization 22
5.3 Authority; Enforceability; No Conflicts and 22
Consents
5.4 Acquiror Reports 23
5.5 Absence of Certain Changes or Events 24
5.6 Acquiror Common Stock 24
5.7 Litigation 24
5.8 Brokers and Intermediaries 24
5.9 Investment 25
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Business of the Company 25
6.2 Tax Matters 27
6.3 Access to Information 28
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Preparation of Acquiror Proxy Statement; 29
Acquiror and Company Shareholders' Meetings
7.2 Efforts 30
7.3 Announcements 30
7.4 Transfer Taxes 30
7.5 Noncompetition Agreement 31
7.6 Tax Free Reorganization 31
7.7 Affiliates of the Company 31
7.8 Rule 144 Reporting 31
7.9 Participation Rights 32
7.10 Payment of Severance to Company Employees 33
7.11 Maintenance of Benefits for Company 33
Employees
7.12 Termination of Shareholders Agreement 33
7.13 Covenant Not to Exercise Dissenter's Rights 33
Provisions
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to 33
Effect the Merger
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8.2 Conditions of Obligations of 34
Acquiror and Merger Sub
8.3 Conditions of Obligation of the 35
Company
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination 36
9.2 Effect of Termination 36
9.3 Amendment 37
9.4 Extension; Waiver 37
ARTICLE X
INDEMNIFICATION; SURVIVAL
10.1 Indemnification 37
10.2 Survival 38
ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses 38
11.2 Governing Law 38
11.3 Notices 38
11.4 Entire Agreement 40
11.5 Disclosure Schedule 40
11.6 Headings; References 40
11.7 Counterparts 40
11.8 Parties in Interest; Assignment 40
11.9 Severability; Enforcement 40
11.10 Specific Performance 41
EXHIBITS
Exhibit 3.3(f) Note
Exhibit 3.4(f) Escrow Agreement
Exhibit 7.5 Noncompetition Agreement
Exhibit 7.7 Agreement by Affiliates
to Hold Stock
Exhibit 8.1(c) Employment Agreement
SCHEDULES
Schedule 3.1(b) Obligation Under Line of Credit
Schedule 4.4(b) Conflicts
Schedule 4.8 Severance Payments
Schedule 4.10 Contracts
Schedule 4.11(e) Tax Elections
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Schedule 4.12(a) Employee Benefits
Schedule 4.12(e) List of Employees
Schedule 4.13 Leased Real Property
Schedule 4.14 Insurance
Schedule 5.2 Capitalization of the Acquiror
Schedule 6.1 Conduct of Business
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated as of
September 22, 2000, by and among S2 Golf Inc., a New Jersey corporation
("Acquiror"), S2 Golf Acquisition Corp., a New Jersey corporation and
wholly-owned subsidiary of Acquiror ("Merger Sub"), and Ladies Golf Equipment
Company, Inc., a Florida corporation (the "Company"), James E. Jones, a
shareholder in the Company ("Jones") and Brian Christopher, a shareholder in the
Company ("Christopher") (Jones and Christopher together are referred to as the
"Selling Shareholders").
WITNESSETH:
WHEREAS, the boards of directors of Acquiror, Merger Sub and the Company
have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate the acquisition of the Company by Acquiror
upon the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by a merger
of the Company with and into Merger Sub ("Merger"), with the Merger Sub
continuing as the surviving corporation (the "Surviving Corporation"); and
WHEREAS, Acquiror, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings set
forth below:
(1) The term "ACQUIROR COMMON STOCK" shall mean the common stock of
S2 Golf Inc., par value $0.01 per share.
(2) The term "ACQUIROR INDEMNIFIED PARTIES" has the meaning set forth in
Section 10.01(a).
(3) The term "ACQUIROR SEC REPORTS" has the meaning set forth in Section
5.4(a).
(4) The term "ACQUIROR SHAREHOLDER APPROVAL" has the meaning set forth in
Section 5.3(a).
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(5) The term "ACQUIROR SHAREHOLDERS' MEETING" has the meaning set forth in
Section 7.1(b).
(6) The term "AFFILIATE" has the meaning set forth in Rule 144 as
promulgated under the Securities Act.
(7) The term "APPLICABLE LAW" means, with respect to any Person, all
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Authority applicable to such Person and its business, properties and assets.
(8) The term "ARTICLES OF MERGER" has the meaning set forth in
Section 2.3.
(9) The term "BUSINESS DAY" means a day other than a Saturday, Sunday or
other day on which commercial banks in New Jersey are authorized or required by
law to close.
(10) The term "CERTIFICATE OF MERGER" has the meaning set forth in
Section 2.3.
(11) The term "CERTIFICATES" has the meaning set forth in
Section 3.3(b).
(12) The term "CLOSING" has the meaning set forth in Section 2.2.
(13) The term "CLOSING DATE" has the meaning set forth in
Section 2.2.
(14) The term "CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 3.4(a).
(15) The term "CLOSING DATE INCOME STATEMENT" has the meaning set forth in
Section 3.4(a).
(16) The term "CLOSING DATE NET ACCOUNTS RECEIVABLE TRIAL BALANCE" has the
meaning set forth in Section 3.4(b)(i).
(17) The term "CLOSING DATE NON-CURRENT INVENTORY REPORT" has the meaning
set forth in Section 3.4(b)(ii).
(18) The term "CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
(19) The term "COMPANY AUDITED FINANCIAL STATEMENTS" has the meaning set
forth in Section 4.7(a).
(20) The term "COMPANY COMMON STOCK" shall mean the common stock of
Ladies Golf Equipment Company, Inc., par value $1.00 per share.
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<PAGE> 80
(21) The term "COMPANY FINANCIAL STATEMENTS" has the meaning set forth in
Section 4.7(a).
(22) The term "COMPANY INTERIM FINANCIAL STATEMENTS" has the meaning set
forth in Section 4.7(a).
(23) The term "COMPANY SHAREHOLDER APPROVAL" has the meaning set forth in
Section 4.4(a).
(24) The term "COMPANY SHAREHOLDERS' MEETING" has the meaning set forth in
Section 7.1(c).
(25) The term "CONFIDENTIALITY AGREEMENT" has the meaning set forth
in Section 6.3.
(26) The term "CONTRACTS" has the meaning set forth in Section 4.10.
(27) The term "DISCLOSURE SCHEDULE" has the meaning set forth in
Section 11.5.
(28) The term "EFFECTIVE TIME" has the meaning set forth in
Section 2.3.
(29) The term "EMPLOYEE HANDBOOK" has the meaning set forth in
Section 7.11.
(30) The term "ENCUMBRANCES" means any and all mortgages, security
interests, liens, claims, pledges, restrictions, leases, title exceptions,
rights of others, charges or other encumbrances.
(31) The term "ENVIRONMENTAL LAWS" has the meaning set forth in
Section 4.6(b).
(32) The term "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the applicable regulations promulgated thereunder.
(33) The term "ESCROW SHARES" has the meaning set forth in
Section 3.4(f).
(34) The term "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(35) The term "EXCLUDED ACCOUNTS RECEIVABLE" has the meaning set forth in
Section 3.4(c).
(36) The term "EXCLUDED INVENTORY" has the meaning set forth in
Section 3.4(b).
(37) The term "FLORIDA CORPORATION CODE" means the Florida Business
Corporation Act.
(38) The term "GAAP" means generally accepted accounting principles in
effect in the United States of America as of the date of the applicable
determination.
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<PAGE> 81
(39) The term "GOVERNMENTAL AUTHORITY" means any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
(40) The term "HAZARDOUS MATERIAL" has the meaning set forth in
Section 4.6(c).
(41) The term "IRS" means the United States Internal Revenue Service.
(42) The term "KNOWLEDGE" means actual knowledge.
(43) The term "KNOWLEDGE OF THE COMPANY" means the Knowledge of
Jones.
(44) The term "LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, whether due or to become due
and whether as guarantor or otherwise for the liabilities of others), including
any liability for Taxes.
(45) The term "LEGAL PROCEEDINGS" means any judicial, administrative or
arbitral actions, suits, proceedings (public or private) or governmental
proceedings.
(46) The term "LOSSES" has the meaning set forth in Section 10.1(a).
(47) The term "MATERIAL ADVERSE EFFECT" means, with respect to any Person,
any change, occurrence or effect that is or is reasonably likely to cause a loss
equal to 5% of the current assets or 5% of the income for the prior fiscal year
of such party and its Subsidiaries taken as a whole.
(48) The term "MERGER" has the meaning set forth in the second recital to
this Agreement.
(49) The term "MERGER CONSIDERATION ADJUSTMENT" has the meaning set forth
in Section 3.4(d).
(50) The term "MERGER CONSIDERATION SHARES" has the meaning set forth in
Section 3.2(c).
(51) The term "NEW JERSEY CORPORATION CODE" means the New Jersey
Business Corporation Act.
(52) The term "NINE MONTH NON-CURRENT INVENTORY REPORT" has the meaning
set forth in Section 3.4(c).
(53) The term "NINE MONTH FINANCIALS" has the meaning set forth in Section
3.4(c).
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(54) The term "NONCOMPETITION AGREEMENTS" has the meaning set forth
in Section 7.5.
(55) The term "NON-CURRENT INVENTORY" has the meaning set forth in
Section 3.4(b)(ii).
(56) The term "NUMBER OF PARTICIPATING SHARES" has the meaning set forth
in Section 7.9(a).
(57) The term "PERMITS" has the meaning set forth in Section 4.6(a).
(58) The term "PERMITTED ENCUMBRANCES" means only the following title
exceptions: (a) taxes either not delinquent or being diligently contested; (b)
mechanics', materialmen's or similar statutory liens being diligently contested;
(c) other exceptions that do not and would not, individually or in the
aggregate, have a Material Adverse Effect with respect to the Company; and (d)
Encumbrances related to indebtedness disclosed in the Company Audited Financial
Statements.
(59) The term "PERSON" means an individual, corporation, partnership,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
(60) The term "PLANS" has the meaning set forth in Section 4.12(a).
(61) The term "PRIME RATE" means the rate of interest announced from time
to time by PNC Bank, National Association, its successors or assigns at its main
office in Pittsburgh, Pennsylvania as its "prime rate" or "prime lending rate"
or equivalent rate otherwise named.
(62) The term "PROXY STATEMENT" means the proxy statement and Registration
Statement on Form S-4 relating to the Acquiror Shareholder Approval in
connection with the consummation of the transactions contemplated by this
Agreement, as such proxy statement may be amended or supplemented from time to
time.
(63) The term "REAL PROPERTY" has the meaning set forth in
Section 4.13.
(64) The term "REGISTRATION STATEMENT" means the registration statement on
Form S-4 registering the shares of Acquiror Common Stock to be issued to the
Selling Shareholders as set forth in Section 3.1(a).
(65) The term "SALE NOTICE" has the meaning set forth in
Section 7.9(a).
(66) The term "SCHEDULE" when followed by a number means the Disclosure
Schedule of that number.
(67) The term "SECONDARY OFFERING" has the meaning set forth in
Section 7.9(a).
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(68) The term "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(69) The term "SEC" means the Securities and Exchange Commission.
(70) The term "SELLING SHAREHOLDERS" means Jones and Christopher.
(71) The term "SIX MONTH NET ACCOUNTS RECEIVABLE TRIAL BALANCE" has the
meaning set forth in Section 3.4(d).
(72) The term "SIX MONTH FINANCIALS" has the meaning set forth in Section
3.4(c).
(73) The term "SUBSIDIARY" means, with respect to any Person, (i) each
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Person owns, either directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or similar governing
body of such corporation, partnership, joint venture or other legal entity and
(ii) each partnership or limited liability company in which such Person or
another Subsidiary of such Person is the general partner, managing partner or
otherwise controls.
(74) The term "SURVIVING CORPORATION" means the Merger Sub following the
Merger.
(75) The term "TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
(76) The term "TAX RETURN" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(77) The term "TERMINATION DATE" has the meaning set forth in Section
9.1(d).
(78) The term "THIRD PARTY" means a party or parties unaffiliated with
either the Company or Acquiror.
(79) The term "WESMAR" has the meaning set forth in Section 7.9(a).
1.2 OTHER TERMS.
Other terms may be defined elsewhere in the text of this Agreement and,
unless otherwise indicated, shall have such meaning throughout this Agreement.
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1.3 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) The terms "dollars" and "$" mean United States dollars.
ARTICLE II
THE MERGER
2.1 MERGER.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Florida Corporation Code and the New Jersey
Corporation Code, the Company shall be merged with and into Merger Sub at the
Effective Time. Following the Merger, the separate corporate existence of the
Company shall cease and the Merger Sub shall continue as the Surviving
Corporation and shall continue to be governed by the laws of the State of New
Jersey in accordance with the New Jersey Corporation Code.
2.2 CLOSING.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 9.1, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., local time,
on December 22, 2000 (the "Closing Date"), at the offices of Squire, Sanders &
Dempsey L.L.P. in Cleveland, Ohio, unless another date, time or place is agreed
to by the parties hereto.
2.3 EFFECTIVE TIME.
On the Closing Date:
(a) the parties hereto shall cause the Merger to be consummated by filing
Articles of Merger executed in accordance with the relevant provisions of the
Florida Corporation Code (the "Articles of Merger") with the Secretary of State
of the State of Florida and a Certificate of Merger executed in accordance with
the relevant provisions of the New Jersey Corporation Code (the "Certificate of
Merger") with the Secretary of State of the State of New Jersey. The Merger
shall become effective at such time as the Articles of Merger and the
Certificate of Merger are so filed (the "Effective Time");
(b) the Selling Shareholders shall exchange the certificates evidencing
their shares of Company Common Stock for the certificates evidencing the Merger
Consideration Shares as provided in Section 3.3; and
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(c) Acquiror will convey to the Selling Shareholders the $1,000,000
Note as provided in Section 3.1(a).
2.4 EFFECTS OF THE MERGER.
The Merger shall have the effects as set forth in Section 607.1106 of the
Florida Corporation Code and in Section 14A:10-6 of the New Jersey Corporation
Code.
2.5 ARTICLES OF INCORPORATION AND BYLAWS.
(a) The Articles of Incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation after the Effective Time, until duly amended in accordance
with its terms and the Florida Corporation Code.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation after the
Effective Time until duly amended as provided therein, by the Florida
Corporation Code or the Articles of Incorporation of the Surviving Corporation.
2.6 DIRECTORS.
The directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation, until the earlier of their
resignations or removal or until their respective successors are duly elected
and qualified, as the case may be.
2.7 OFFICERS.
The officers of Merger Sub immediately prior to the Effective Time shall
be the officers of the Surviving Corporation, until the earlier of their
resignations or removal or until their respective successors are duly elected
and qualified, as the case may be.
ARTICLE III
MERGER CONSIDERATION; EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
3.1 MERGER CONSIDERATION.
(a) On the Closing Date, the issued and outstanding shares in the capital
stock of the Company will be converted into the right to receive a combination
of:
(i) 1,000,000 shares of Acquiror Common Stock, as provided in
Section 3.2, and
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(ii) a promissory note of Acquiror in favor of James E. Jones in the
principal amount of $1,000,000, bearing interest on the unpaid principal
balance at the variable rate per annum equal to one fourth of one percent
(0.25%) in excess of the Prime Rate from time to time in effect during the
term of such promissory note (the "Note"), having a maturity date of
December 31, 2001 (the "Note").
(b) On the Closing Date, Acquiror shall cause the complete satisfaction of
the Company's (i) obligation under its current bank credit line, as set forth on
Schedule 3.1(b), and (ii) obligation under a loan in the original principal
amount of $160,000 extended to the Company by Katherine Dawn Jones.
3.2 EFFECT ON CAPITAL STOCK.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Company Common Stock, or the holder of
any shares of the capital stock of Merger Sub, the Merger shall have the
following effects on such shares of capital stock:
(a) CAPITAL STOCK OF MERGER SUB. Each share of the capital stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall remain
an issued and outstanding share of the same class of capital stock of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK. Each share of Company Common Stock
that is directly owned by the Company shall be canceled and retired and shall
cease to exist and no consideration shall be delivered or deliverable in
exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Other than shares canceled in
accordance with subsection (b) above, at the Effective Time each share of
Company Common Stock issued and outstanding shall be converted into 1,000 shares
of Acquiror Common Stock. The aggregate number of shares of Acquiror Common
Stock used in such conversion shall be referred to herein as the "Merger
Consideration Shares."
(d) NO RIGHTS AS SHAREHOLDERS AFTER EFFECTIVE TIME. On and after the
Effective Time, holders of certificates which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock shall cease to have
any rights as shareholders of the Company except the right to receive the Merger
Consideration Shares and Note set forth in this Article III.
3.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT; CONVERSION OF SHARES. Acquiror shall act as exchange
agent in the Merger. Acquiror shall deliver the shares of Acquiror Common Stock
deliverable to each holder of Company Common Stock pursuant to Sections 3.1 and
3.2 upon the holder's satisfaction of the exchange procedures set forth in
subsection (b) below.
(b) EXCHANGE PROCEDURES. On the Closing Date, each holder of record of a
certificate or certificates that immediately prior to the Effective Time
evidenced outstanding shares of
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Company Common Stock (the "Certificates") shall surrender to Acquiror the
Certificates in exchange for payment of the Merger Consideration Shares. Upon
surrender to the Acquiror of the Certificates for cancellation together with
such other customary documents as may be required by Acquiror, the holder of
such Certificates shall be entitled to receive in exchange therefor certificates
evidencing the applicable Merger Consideration Shares. Jones shall receive
775,000 Merger Consideration Shares (the "Jones Shares"). Christopher shall
receive 225,000 Merger Consideration Shares (the "Christopher Shares").
(c) LOST CERTIFICATES. In the event that any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed, Acquiror will
issue or cause to be issued in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration Shares into which the shares of
Company Common Stock represented by the Certificate are converted in the Merger
in accordance with Section 3.2(c).
(d) FRACTIONAL SHARES. Fractional shares of Acquiror Common Stock may be
issued pursuant to the transactions contemplated herein.
(e) TRANSFER BOOKS. After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of any shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, certificates for such shares of Company
Common Stock are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Section 3.3 subject to the satisfaction of the
exchange procedures set forth above.
(f) DELIVERY OF NOTE. Upon satisfaction of the exchange procedures set
forth in this Section 3.3, the Acquiror shall deliver to Jones the Note in the
form of Exhibit 3.3(f).
3.4 ADJUSTMENT TO THE MERGER CONSIDERATION.
(a) The Company shall provide a balance sheet as of the Closing Date (the
"Closing Date Balance Sheet") and an income statement for the period then ended
(the "Closing Date Income Statement"), both of which shall be prepared (i) in
accordance with GAAP consistently applied and (ii) consistently with the Company
Audited Financial Statements as of December 31, 1998 and December 31, 1999 and
the Company Interim Financial Statements for April 30, 2000 (revised on
September 6, 2000), and June 30, 2000. Following the Closing, an accountant
selected by the Selling Shareholders (the "Accountant") shall review the Closing
Date Balance Sheet and Closing Date Income Statement at the Surviving
Corporation's expense.
(b) On or before the forty-fifth (45th) day following the Closing Date,
the Accountant shall provide to Acquiror and the Selling Shareholders:
(i) a trial balance containing the Closing Date carrying value of the
Company's net accounts receivable (the "Closing Date Net Accounts Receivable
Trial Balance"); and
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(ii) an inventory schedule showing as of the Closing Date the quantity
and carrying value of the inventory not in the Closing Date product line of
the Company, as evidenced by the exclusion of such inventory from the price
lists and product catalogs current at the Closing Date (the "Non-Current
Inventory" and the "Closing Date Non-Current Inventory Report").
(c) On or before the forty-fifth (45th) day following the date that is six
(6) months following the Closing Date (the "Six Month Anniversary") or nine (9)
months following the Closing Date (the "Nine Month Anniversary"), as the case
may be, the Accountant shall provide to Acquiror and the Selling Shareholders:
(i) a schedule of accounts receivable balances that were included in
the Closing Date Net Accounts Receivable Trial Balance and that were not
collected in full as of the Six Month Anniversary (the "Six Month Net
Accounts Receivable Trial Balance"); and
(ii) a schedule, as of the Nine Month Anniversary, of (A) the current
balances of Non-Current Inventory items that were included in the Closing
Date Non-Current Inventory Report and that were still existing in the
inventory, plus (B) the difference between the actual selling prices and the
Closing Date valuations of any Non-Current Inventory items that sold between
the Closing Date and the Nine Month Anniversary for lesser amounts than the
amounts at which the items were valued as of the Closing (the "Nine Month
Non-Current Inventory Report").
The Accountant shall prepare the Six Month Net Accounts Receivable Trial
Balance and the Nine Month Non-Current Inventory Report at the Surviving
Corporation's expense. The Acquiror or the Selling Shareholders shall provide
any objection to the Six Month Net Accounts Receivable Trial Balance or the Nine
Month Non-Current Inventory Report to the Accountant and the other parties
hereto in writing within ten (10) days of its or their receipt thereof.
(d) When preparing the Six Month Net Accounts Receivable Trial Balance,
the Accountant may, for purposes of determining the uncollected accounts
receivable amounts, apply payment receipts to account balances on an oldest open
item basis unless the customer remittances have indicated a specific application
preference.
(e) The Merger Consideration Shares shall be subject to a one (1) share
reduction for each two (2) dollars included in the sum of the following (the
"Merger Consideration Adjustment"):
(i) the total amount of the Six Month Net Accounts Receivable Trial
Balance; plus
(ii) the total amount of the Nine Month Non-Current Inventory Report.
The Accountant shall determine the Merger Consideration Adjustment within
ten (10) days of either final agreement by the Acquiror and the Selling
Shareholders on the Six Month Net Accounts Receivable Trial Balance and the Nine
Month Non-Current Inventory Report or, in
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the event there is no objection to either report, within ten (10) days of its
submission of the Nine Month Non-Current Inventory Report to Acquiror and the
Selling Shareholders.
(f) As security for any adjustment to the Merger consideration required
hereunder, the Selling Shareholders shall deposit the share certificates for
75,000 of the Merger Consideration Shares (the "Escrow Shares"), as provided in
(i) below, with Key Bank as the escrow agent, pursuant to an Escrow Agreement
substantially in the form attached hereto as Exhibit 3.4(f).
(i) Jones shall deposit 63,750 of the Escrow Shares (the "Jones Escrow
Shares") from the Jones Shares. Christopher shall deposit 11,250 of the
Escrow Shares (the "Christopher Escrow Shares") from the Christopher Shares.
(ii) Within three (3) days of the Accountant's determination of the
Merger Consideration Adjustment, Acquiror and the Selling Shareholders shall
provide to the escrow agent joint written directions for the distribution of
the Escrow Shares.
(iii) Jones and Christopher agree that they will direct the escrow
agent to distribute the Merger Consideration Adjustment shares to Acquiror
such that eighty-five percent (85%) of the Merger Consideration Adjustment
shares are distributed from the Jones Escrow Shares and fifteen percent
(15%) of the Merger Consideration Shares are distributed from the
Christopher Escrow Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger Sub as
follows:
4.1 ORGANIZATION, STANDING AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and with
active status under the laws of Florida and has the requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified or licensed to do business and is in good standing (or the
equivalent thereof), in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualifications or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect with respect to the Company. The Company has delivered
to Acquiror complete and correct copies of its Articles of Incorporation and
Bylaws, in each case as amended to the date of this Agreement.
4.2 SUBSIDIARIES.
The Company has no Subsidiaries, and has never had any Subsidiaries.
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4.3 CAPITALIZATION.
The authorized capital stock of the Company consists of 1,000 shares of
Company Common Stock. As of the date of this Agreement, 1,000 shares of Company
Common Stock were issued and outstanding. No shares of Company Common Stock were
held by the Company in its treasury. Except as set forth above, as of the date
of this Agreement, no shares of common stock or other voting or equity
securities of the Company were issued, reserved for issuance or outstanding.
There are no outstanding stock appreciation rights and/or other outstanding
contractual rights the value of which is derived from the financial performance
of the Company or the value of shares of Company Common Stock. All outstanding
shares of Company Common Stock are duly authorized, validly issued, fully paid
and nonassessable. There are no (i) bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of the Company may vote, (ii) outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company is a party or by which any of them is bound,
obligating the Company to issue, deliver or sell or cause to be issued,
delivered or sold, additional shares of capital stock or other voting or equity
securities of the Company or obligating the Company to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking, or (iii) outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or any of its Subsidiaries.
4.4 AUTHORITY; ENFORCEABILITY; NO CONFLICTS; AND CONSENTS.
(a) The Company has the requisite corporate power and authority to enter
into this Agreement and, subject to obtaining the Company Shareholder Approval,
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company, subject to approval of
this Agreement by the holders of a majority of the voting power of the
outstanding shares of Company Common Stock, voting as a class (the "Company
Shareholder Approval"), at a special meeting of the holders of Company Common
Stock. This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding obligations of
Acquiror and Merger Sub and subject to the Company Shareholder Approval,
constitutes the valid and binding obligations of the Company, enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights generally, and, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(b) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or cause loss of a material benefit under, or result in the
creation or maturation of any lien or purchase right upon any of the properties
or assets of the Company or any of its
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Subsidiaries under, (i) the Articles of Incorporation or Bylaws of the Company,
(ii) except as set forth in Schedule 4.4(b) or otherwise previously disclosed to
Acquiror and subject to the governmental filings and other matters referred to
in Section 4.4(c), any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or their
respective properties or assets, or (iii) subject to the governmental filings
and other matters referred to in Section 4.4(c), any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its Subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) or (iii), any such conflicts, violations, defaults, rights
or liens that individually or in the aggregate would not (X) have a Material
Adverse Effect with respect to the Company, (Y) impair, in any material respect,
the ability of the Company to perform its obligations under this Agreement or
(Z) prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by the
Company in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated by
this Agreement, except for (i) the filing of the Articles of Merger with the
Secretary of State of the State of Florida, the Certificate of Merger with the
Secretary of State of the State of New Jersey and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (ii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, and (iii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, (X) have a Material Adverse Effect with respect to the Company, (Y)
impair, in any material respect, the ability of the Company to perform its
obligations under this Agreement or (Z) prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
4.5 VOTE REQUIRED.
The Company Shareholder Approval is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
4.6 COMPLIANCE WITH APPLICABLE LAWS.
(a) The Company has in effect all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights, including all authorizations under
Environmental Laws ("Permits"), necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted other than
such Permits the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect with respect to the Company, and there has
occurred no default under any such Permit other than such defaults which,
individually or in the aggregate, would not have a Material Adverse Effect with
respect to the Company, and (ii) the Company is in compliance
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with all Applicable Laws, except for such noncompliance which, individually or
in the aggregate, would not have a Material Adverse Effect with respect to the
Company. The preceding sentence of this Section 4.6 does not apply to matters
specifically covered by Sections 4.10 or 4.11.
(b) The Company is, and has been, in compliance with all applicable
Environmental Laws, except as set forth in Schedule 4.6 and except for such
noncompliance which, individually or in the aggregate, would not have a Material
Adverse Effect with respect to the Company. The term "Environmental Laws" means
any applicable Federal, state, local or foreign statute, ordinance, rule,
regulation, Permit, judgment, order, decree, injunction or other legally binding
authorization, relating to health, safety or the environment, including, without
limitation: (A) Releases (as defined in 42 U.S.C. Section 9601(22)) or
threatened Releases of Hazardous Material (as hereinafter defined) into the
environment or (B) the generation, treatment, storage, disposal, use, handling,
manufacturing, transportation or shipment of, or exposure to, a Hazardous
Material.
(c) To the Knowledge of the Company, during the period of ownership or
operation by the Company and its Subsidiaries of any of their owned or leased
properties, there have been no Releases of Hazardous Material in, on, under or
affecting such properties in violation of applicable Environmental Laws and none
of the Company or its Subsidiaries have disposed of any Hazardous Material or
any other substance in a manner that has led to, or could reasonably be
anticipated to lead to, a Release in violation of, or liabilities or obligations
under, applicable Environmental Laws except as set forth on Schedule 4.6 and
except in each case for those which, individually or in the aggregate, would not
have a Material Adverse Effect with respect to the Company. The term "Hazardous
Material" means any material deemed "hazardous" or a "contaminant" under any
Environmental Law, including, without limitation, (1) hazardous substances (as
defined in 42 U.S.C. Section 9601(14)), (2) petroleum, including crude oil and
any fractions thereof, (3) natural gas, synthetic gas and any mixtures thereof,
(4) asbestos and/or asbestos-containing material, (5) PCBs, or materials
containing PCBs in excess of 50 ppm, and any material regulated as a medical
waste or infectious waste.
4.7 FINANCIAL STATEMENTS.
(a) The Company has previously delivered to Acquiror (i) the audited
financial statements of the Company as of December 31, 1999 and for the prior
year ended as of December 31, 1998 (the "Company Audited Financial Statements"),
and (ii) the unaudited balance sheets of the Company as of April 30, 2000
(revised on September 6, 2000), and June 30, 2000 and related statements of
operations for the periods then ended (the "Company Interim Financial
Statements" and together with the Company Audited Financial Statements, the
"Company Financial Statements"). The Company Financial Statements have been
prepared from, and are in accordance with, the books and records of the Company
and present fairly, in all material respects, the financial position, the
results of operations and cash flows of the Company as of the dates and for the
periods indicated, in each case in accordance with GAAP consistently applied
throughout the periods involved except as otherwise stated therein, and subject,
in the case of the Company Interim Financial Statements, to normal year-end
audit adjustments, which
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are not in the aggregate material, and to the absence of notes as may be
required by GAAP for annual financial statements.
(b) As of the date hereof, the Company has no Liabilities required by GAAP
to be reflected or disclosed in the Closing Date Balance Sheet that were not
adequately reflected or disclosed on such balance sheet, subject to normal
year-end audit adjustments, which are not in the aggregate material, and subject
to the absence of notes as may be required by GAAP.
4.8 ABSENCE OF CHANGES OR EVENTS.
Except as set forth on Schedule 4.8 or as permitted by Section 6.1 of this
Agreement, since December 31, 1999, the Company has conducted its business only
in the ordinary course, and there has not been: (i) any change or occurrence
(other than those which relate to the economy in general or to the Company's
industry in general) which will have a Material Adverse Effect with respect to
the Company; (ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to the Company Common Stock; (iii) any issuance
of any Shares of Company Common Stock or other capital stock of the Company or
any securities convertible into or exchangeable or exercisable for capital stock
of the Company; (iv) any split, combination or reclassification of any of the
capital stock of the Company or any issuance or authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
capital stock of the Company; (v) (X) any grant by the Company to any director
or officer of the Company of any increase in compensation, except in the
ordinary course of business consistent with prior practice, (Y) any grant by the
Company to any such person of any increase in severance or termination pay,
except as part of a standard employment package to any person promoted or hired,
or (Z) except for employment, severance or termination arrangements in the
ordinary course of business consistent with past practice with employees other
than any executive officer of the Company, any entry by the Company into any
employment, severance or termination agreement with any such person; (vi) any
damage, destruction or loss not covered by insurance that will have a Material
Adverse Effect with respect to the Company; or (vii) any change in accounting
methods, principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
GAAP.
4.9 LITIGATION.
There are no Legal Proceedings pending against the Company or, to the
Knowledge of the Company, threatened that, individually or in the aggregate, (i)
could reasonably be expected to have a Material Adverse Effect with respect to
the Company or (ii) could reasonably be expected to prevent or significantly
delay the consummation of the transactions contemplated by this Agreement. There
is no judgment, order, injunction or decree of any Governmental Authority
outstanding against the Company that, individually or in the aggregate, could
have any effect referred to in the foregoing clauses (i) and (ii).
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4.10 CONTRACTS.
Schedule 4.10 lists all material written contracts, agreements, leases,
mortgages and commitments to which the Company is a party or may be bound
("Contracts"), except for Contracts (i) relating to purchase or sales orders in
the ordinary course of business, (ii) involving a payment of less than $10,000
or (iii) which can be terminated by the Company within thirty (30) days after
written notice without material penalty or premium. Except as set forth on
Schedule 4.10, to the Knowledge of the Company, all Contracts are valid and in
full force and effect on the date hereof and the Company has not violated any
provision of, or committed or failed to perform any act, which with notice,
lapse of time or both would constitute a default under the provisions of any
Contract the termination of which would have a Material Adverse Effect upon the
financial condition or result of operations of the Company.
4.11 TAXES.
(a) The Company has (i) filed all Tax Returns required to be filed prior
to the date of this Agreement by any jurisdiction to which it is subject, (ii)
paid in full on a timely basis all Taxes due and claimed to be due by each such
jurisdiction, (iii) duly collected or withheld and timely paid all Taxes
required to be collected from others or deducted and withheld from any amounts
paid to employees or others, and (iv) properly completed and filed all sales tax
exemption certificates for sales where Tax was not charged. Such Tax Returns
accurately and completely set forth all relevant items and accurately reflect
the Tax Liabilities for such periods. No Tax deficiency or penalty has been
asserted or, to the Knowledge of the Company, has been threatened by any such
jurisdiction against the Company or any of its Subsidiaries.
(b) There is no audit of any Tax Return of the Company in progress. To the
Knowledge of the Company, there is no threatened action, suit, proceeding,
investigation, audit, or claim for or relating to Taxes, there are no matters
under discussion with any governmental authorities with respect to Taxes that
could reasonably be expected to result in an additional amount of Taxes. No
governmental authority has indicated in writing that it intends to audit any Tax
Return of the Company.
(c) The Company (i) has not waived any statute of limitations with respect
to Tax obligations or agreed to any extension of time with respect to a Tax
assessment or deficiency, (ii) has not been a party to any Tax allocation or
sharing agreement, (iii) has not been a member of an affiliated group (other
than the affiliated group of which the Company is the common parent) filing a
consolidated federal income tax return, nor taken any other action that could
result in Liability for Taxes of an affiliated group (other than the affiliated
group of which the Company is the common parent) under Treas. Reg. sec.1.1502-6
(or any similar provision of state, local, or foreign law), including as a
transferee or successor, by contract, or otherwise, and (iv) is not currently
the beneficiary of any extensions of time within which to file any Tax Return.
No claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction, nor, to the Knowledge of the Company, is there any factual or
legal basis for any such claim.
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(d) The Company has not agreed to extend the applicable statute of
limitations for any Tax for any period. No federal, state, local, or foreign
income Tax Returns that have been filed with respect to the Company have been
audited and none are currently the subject of an audit. The Company has
delivered to Acquiror correct and complete copies of all federal, state, and
foreign income tax returns with respect to calendar years 1997, 1998 and 1999,
and copies of all examination reports and statements of deficiencies that have
been assessed against or agreed to by the Company that may have any material
effect on the Tax Liability of the Company.
(e) Schedule 4.11(e) lists material Tax elections that the Company has
made. The Company has been an S corporation within the meaning of Section
1361(a) of the Code from the date of its incorporation.
(f) The Company (i) has not agreed or consented at any time under Code
Section 341(f) to have the provisions of Code Section 341(f)(2) apply to any
disposition of any assets, (ii) has not agreed, nor is required, to make any
adjustment under Code Section 481(a) by reason of a change in accounting method
or otherwise that will affect the Liability of the Company for Taxes, (iii) has
not made an election, nor is required, to treat any asset as owned by another
person pursuant to the provisions of Code Section 168(f) or as tax-exempt bond
financed property or tax-exempt use property within the meaning of Code Section
168, (iv) has not made any of the foregoing elections nor is required to apply
any of the foregoing rules under any comparable state or local tax provision,
and (v) does not own any material assets that were financed directly or
indirectly with, or that directly or indirectly secure, debt the interest on
which is tax-exempt under Code Section 103(a).
(g) The Company has not distributed stock or securities of a controlled
corporation within the meaning of Section 355 of the Code within two (2) years
of the Closing Date.
(h) The Company is not a party to any "Gain Recognition Agreements" as
such term is used in the Treasury Regulations promulgated under Code Section
367.
(i) The Company has not made or become obligated to make, nor will the
Company as a result of any event connected with any transaction contemplated
herein and/or any termination of employment related to such transaction, make or
become obligated to make, any "excess parachute payment" as defined in Code
Section 280G (without regard to subsection (b)(4) thereof).
(j) There are no liens for Taxes (other than for current Taxes that are
not yet due and payable or are being contested in good faith) upon the assets of
the Company.
(k) There are no joint ventures, partnerships, limited liability
companies, or other arrangements or contracts to which the Company is a party
and that could be treated as a partnership for federal income tax purposes.
(l) The unpaid Taxes of the Company (A) did not, as of the most recent
fiscal month end prior to the date hereof, exceed the reserve for Tax Liability
(not including any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth
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on the face of the most recent balance sheet (other than in any notes thereto)
that has been made available to the Acquiror and (B) will not, as of the Closing
Date, exceed such reserve in the Closing Date Balance Sheet.
4.12 EMPLOYEE BENEFIT PLANS; COMPLIANCE OF PLANS WITH ERISA AND CODE.
(a) Schedule 4.12(a) contains a complete and accurate list of each
employee contract, deferred compensation, bonus, incentive compensation, stock
purchase, stock option, vacation, holiday, personal leave, educational benefit,
Code Section 125 plan, fringe benefit, perquisite, profit sharing, employee
stock ownership, pension, retirement, insurance, and severance arrangement plan
or program, including, without limitation, each "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (collectively, the "Plans") maintained by or
contributed to by the Company or by any ERISA Affiliate (as hereafter defined)
since January 1, 1989, for the benefit of any one or more of the current or
former employees, officers, directors, or other persons. Complete and accurate
copies of all the Plans (or, in the case of any unwritten Plans, written
descriptions thereof) have been delivered to the Acquiror, along with copies of
all determination letters issued by the Internal Revenue Service and the most
recently disseminated summary plan descriptions of each Plan for which a summary
plan description is required. Neither the Company nor any "ERISA Affiliate" (as
hereafter defined) is maintaining or ever has maintained or is or has been
obligated to make contributions to any (i) "multiemployer" plan within the
meaning of Sections 3(37) and 4001 of ERISA; or (ii) any "defined benefit plan"
within the meaning of Section 3(35) of ERISA; or (iii) any "multiple employer
welfare arrangement" within the meaning of Section 3(40) of ERISA; or (iv) any
"excess benefit plan" within the meaning of 3(36) of ERISA; or (v) any "welfare
benefit fund" within the meaning of Code Sections 419(e) and 4976. As used
herein, the term "ERISA Affiliate" means any trade or business, whether or not
incorporated, which together with the Company would be deemed a "single
employer" within the meaning of Code Section 414. There are no Plans which
promise or provide post-employment health or life benefits to current or former
employees, officers, or directors of the Company or of any ERISA Affiliate,
other than required by ERISA Section 602 or Code Section 4980B.
(b) Compliance. If any of the Plans were to be terminated, the Company
would not have any Liability with respect to any such Plan other than for
amounts already paid or provided for. All obligations of the Company to
contribute to the Plans for the Plan years prior to the fiscal year ending
December 31, 1999 have been paid, and all obligations of the Company to
contribute to such plans on behalf of employees of the Company through December
31, 1999 and/or for the Plan year ending December 31, 1999 will be reflected as
an accrued expense on the balance sheet as of the Closing Date. All
contributions and payments made or accrued with respect to each Plan are
deductible in full as an income tax deduction under the Code; and all
contributions, premiums or payments required to be made with respect to each
such Plan have been made on or before their due date(s) (including permitted
extensions). The Plans conform to and have been administered in compliance with
their terms and in material compliance with applicable laws and regulations
(including, but not limited to, all substantive and procedural requirements of
ERISA and the Code) and no condition exists with respect to the Plans that could
reasonably be expected to have a Material Adverse Effect on the Acquiror. No
event or circumstance exists or has occurred that should cause the IRS to revoke
the tax-qualified status under Code Section 401(a) of any Plan or the
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tax-exempt status under Section 501(a) of any trust relating to any Plan. There
are no actions, suits, or claims pending (other than routine claims for
benefits) with respect to former or present employees of the Company. All
notices, reports, and disclosures relating to the Plans required by ERISA and
the Code (including, without limitation Code Section 4980B(f)) have been
provided to the employees of the Company, their spouses and dependents, no later
than the required due dates for such notices, reports, and disclosures.
(c) VIOLATIONS. No prohibited transaction within the meaning of either
ERISA Section 406 or Code Section 4975 has occurred with respect to any Plans.
The execution and delivery of this Agreement will not cause the termination of
any of the Plans, involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code, or constitute a breach of
fiduciary responsibility with respect to any Plans. No civil penalty has been or
could reasonably be expected to be assessed pursuant to ERISA Sections 409 or
502(i); no event has occurred and no condition exists that could reasonably be
expected to subject the Company to a fine under ERISA Section 502(c); and no tax
has been or could reasonably be expected to be imposed pursuant to Code Sections
4971, 4972, 4974, 4975, 4976, 4977, 4978, 4979, 4979A, 4980, 4980B, 4980D,
4980E, 5000, or 6652.
(d) DOCUMENTS. The Company has delivered to Acquiror: (i) any and all
documents submitted by the Company or any ERISA Affiliate to the IRS or the
Department of Labor ("DOL") with respect to the Plans during the past six (6)
years, including, without limitation, Forms 5300 and annual Forms 5500; (ii) any
document dated within the past six (6) years relating to the Plans or the
participation of the Company therein, or the benefits provided thereunder that
creates Liability with respect thereto; and (iii) any documents dated within the
past six (6) years received by the Company or any ERISA Affiliate from the IRS
or the DOL challenging or raising questions regarding the compliance of any Plan
with the Code, ERISA or any other applicable law. All data and documents
supplied to the Acquiror and the Acquiror's representatives relating to the
employees of the Company and the Plans are true and accurate in all respects.
(e) COMPANY EMPLOYEES. Schedule 4.12(e) provides a complete list of all of
the employees of the Company, their dates of hire, job titles, compensation and
participation in each of the Plans. There are no employees on leave of absence
who otherwise are or would be employed by the Company. To the Knowledge of the
Company, none of such employees has been the subject of criminal proceedings or
investigations, regulatory commission violations, SEC investigations, or
Immigration and Naturalization Service investigations or proceedings. The
Company has complied with the Immigration Reform and Control Act of 1986 and the
Immigration and Nationality Act of 1990 with respect to the Company's employees,
including, but not limited to, Immigration and Naturalization Service Form I-9
requirements. Except as set forth on Schedule 4.12(e), the Company has not
instituted, agreed to or changed any employment contract or Plan nor has the
Company increased, directly or indirectly, the salary, wages, or other
compensation of any employee of the Company, or paid or entered into any
agreement to pay any bonus or other extraordinary compensation to any employee
of the Company, or otherwise instituted any general increase in rates of
compensation or increased, directly or indirectly, any benefits or prerequisites
for any employee of the Company, except for customary and routine annual
adjustments, or as required by Applicable Law.
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4.13 TITLE TO PROPERTIES.
Schedule 4.13 sets forth a complete list of all material real property
owned in fee by the Company and sets forth all material real property leased by
the Company or one of its Subsidiaries as lessee as of the date hereof (such
owned and leased material real property, including all improvements, referred to
collectively as the "Real Property"). Except as set forth on Schedule 4.13, each
of the Company and its Subsidiaries has good and valid title to, or a valid
leasehold interest in, the Real Property held by it. Except as set forth on
Schedule 4.13, the Real Property is free of Encumbrances, except for Permitted
Encumbrances, and the consummation of the transactions contemplated by this
Agreement will not create any Encumbrance on any of the Real Property which,
individually or in the aggregate, would have a Material Adverse Effect with
respect to the Company. The Company enjoys peaceful and undisturbed possession
under all leases of Real Property, except for such breaches of the right to
peaceful and undisturbed possession that do not materially interfere with the
ability of the Company to conduct its business.
4.14 INSURANCE.
Schedule 4.14 sets forth a complete list of all insurance policies held by
the Company. The Company has insurance coverage with insurance companies or
associations in such amounts, on such terms and covering such risks, including
fire and other risks insured against by extended coverage, as is reasonably
prudent, and has public liability insurance, insurance against claims for
personal injury or death or property damage occurring in connection with any of
activities of the Company or of any properties owned, occupied or controlled by
the Company in such amount as is deemed reasonably necessary by the Company.
4.15 BROKERS AND INTERMEDIARIES.
No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub each hereby represents and warrants to the Company
as follows:
5.1 ORGANIZATION, STANDING AND CORPORATE POWER OF ACQUIROR AND MERGER SUB.
Each of Acquiror and Merger Sub is a corporation duly organized, validly
existing and in good standing (or the equivalent thereof) under the laws of the
jurisdiction in which it is organized and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of Acquiror and
Merger Sub is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership
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or leasing of its properties makes such qualifications or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a Material Adverse
Effect with respect to Acquiror. Acquiror and Merger Sub each has delivered to
the Company complete and correct copies of its certificate of incorporation and
by-laws (or comparable charter documents), in each case as amended to the date
of this Agreement.
5.2 CAPITALIZATION.
The authorized capital stock of Acquiror consists of 12,000,000 shares of
Acquiror Common Stock. As of the date of this Agreement, (i) 2,221,055 shares of
Acquiror Common Stock were issued and outstanding, (ii) no shares of Acquiror
Common Stock were held by Acquiror in its treasury, and (iii) 639,170 shares of
Acquiror Common Stock were reserved for issuance upon the exercise of
outstanding options. Except as set forth above, as of the date of this
Agreement, no shares of common stock or other voting or equity securities of
Acquiror were issued, reserved for issuance or outstanding. There are no
outstanding stock appreciation rights and/or other outstanding contractual
rights the value of which is derived from the financial performance of Acquiror
or the value of shares of Acquiror Common Stock. All outstanding shares of
Acquiror Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights. Except as set forth in
Schedule 5.2, (i) there are no bonds, debentures, notes or other indebtedness of
Acquiror having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of
Acquiror may vote, (ii) there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Acquiror is a party or by which it is bound, obligating Acquiror to
issue, deliver or sell or cause to be issued, delivered or sold, additional
shares of capital stock or other voting or equity securities of Acquiror or
obligating Acquiror to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking,
and (iii) there are no outstanding contractual obligations of Acquiror to
repurchase, redeem or otherwise acquire any shares of capital stock of Acquiror.
5.3 AUTHORITY; ENFORCEABILITY; NO CONFLICTS AND CONSENTS.
(a) Each of Acquiror and Merger Sub has the requisite corporate power and
authority to enter into this Agreement and, subject to obtaining Acquiror
Shareholder Approval, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Acquiror and Merger
Sub and the consummation by Acquiror and Merger Sub of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Acquiror and Merger Sub, subject to approval of
this Agreement by the holders of a majority of the voting power of the
outstanding shares of Acquiror Common Stock, voting as a class ("Acquiror
Shareholder Approval"), at a special meeting of the holders of Acquiror Common
Stock. This Agreement has been duly executed and delivered by Acquiror and
Merger Sub and constitutes valid and binding obligations of each of Acquiror and
Merger Sub, enforceable against Acquiror and Merger Sub in accordance with its
terms.
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(b) The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, or acceleration of
any obligation or cause loss of a material benefit under, or result in the
creation or maturation of any lien or purchase right upon any of the properties
or assets of Acquiror or Merger Sub under, (i) the certificate of incorporation
or by-laws (or comparable charter documents) of Acquiror or Merger Sub, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Acquiror or Merger Sub, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or Merger Sub or their
respective properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (X) have a Material Adverse Effect
with respect to Acquiror or Merger Sub, (Y) impair, in any material respect, the
ability of Acquiror or Merger Sub to perform its obligations under this
Agreement or (Z) prevent or significantly delay the consummation of any of the
transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by Acquiror
or Merger Sub in connection with the execution and delivery of this Agreement or
the consummation by Acquiror of any of the transactions contemplated by this
Agreement, except for (i) such reports and filings under the Securities Act and
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (ii) the filing of the Articles of
Merger with the Florida Secretary of State, the Certificate of Merger with the
New Jersey Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
and (iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, (X) have a Material Adverse Effect with
respect to Acquiror or Merger Sub, (Y) impair, in any material respect, the
ability of Acquiror or Merger Sub to perform its obligations under this
Agreement or (Z) prevent or significantly delay the consummation of the
transactions contemplated by this Agreement.
5.4 ACQUIROR REPORTS.
Acquiror has filed all reports, schedules, registration statements, and
definitive proxy statements required to be filed with the SEC pursuant to the
Exchange Act since January 1, 1997, including, without limitation, an Annual
Report on Form 10-K for the year ended December 31, 1999, a Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 and the proxy statement for
Acquiror's 2000 annual meeting of shareholders (all such reports filed or to be
filed, together with all registration statements filed with the SEC by Acquiror
pursuant to the Securities Act within the last year, the "Acquiror SEC Reports")
and has previously furnished to the Company true and complete copies of all
Acquiror SEC Reports filed with respect to periods beginning after January 1,
1997 and will promptly deliver to the Company or its counsel any Acquiror SEC
Reports filed between the date hereof and the Effective Time.
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5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as disclosed in the Acquiror SEC Reports filed prior to the date of
this Agreement, since March 31, 2000, neither Acquiror nor any of its
Subsidiaries has incurred any material liability, except in the ordinary course
of its business, consistent with past practices or suffered any change, or any
event involving a prospective change, in its business, assets, financial
condition or results of operations which has had, or will have, individually or
in the aggregate, a Material Adverse Effect. Since the most recent Acquiror SEC
Report was filed, there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution with respect to the Acquiror
Common Stock, (ii) any issuance of any shares of Acquiror Common Stock or other
capital stock of Acquiror or any securities convertible into or exchangeable or
exercisable for capital stock of Acquiror, or (iii) any split, combination or
reclassification of any of the capital stock of Acquiror or any issuance or the
authorization of any issuance of any other securities in respect to, in lieu of
or in substitution for shares of its capital stock of Acquiror.
5.6 ACQUIROR COMMON STOCK.
The Acquiror Common Stock to be issued in the Merger, when issued and
delivered to holders of the Company Common Stock pursuant to this Agreement,
will be (i) validly issued, fully paid and non-assessable, and free of
pre-emptive rights with no personal liability attaching to the ownership
thereof, (ii) registered under the Securities Act pursuant to the Registration
Statement, (iii) registered or exempt from registration under applicable state
securities or "Blue Sky" laws, (iv) designated for quotation on Nasdaq upon
official notice of issuance and (v) except with respect to Affiliates of the
Company as designated by the Company pursuant to Section 7.8, will be freely
tradable without any restrictions upon transfer.
5.7 LITIGATION.
Except as disclosed in the Acquiror SEC Reports filed and publicly
available prior to the date of this Agreement, there are no Legal Proceedings
pending against Acquiror or any of its Subsidiaries or, to the Knowledge of
Acquiror, threatened that, individually or in the aggregate, (i) could have a
Material Adverse Effect with respect to Acquiror or (ii) could reasonably be
expected to prevent or significantly delay the consummation of any of the
transactions contemplated by this Agreement. Except as disclosed in the Acquiror
SEC Reports filed and publicly available prior to the date of this Agreement,
there is no judgment, order, injunction or decree of any Governmental Authority
outstanding against Acquiror that, individually or in the aggregate, could
reasonably be expected to have any effect referred to in the foregoing clauses
(i) and (ii).
5.8 BROKERS AND INTERMEDIARIES.
No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Acquiror.
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5.9 INVESTMENT.
The Acquiror is acquiring the Company Common Stock for investment only,
and not with a view to or for sale in connection with any distribution of such
stock within the meaning of the Securities Act.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 CONDUCT OF BUSINESS OF THE COMPANY.
Except as otherwise provided by the terms of this Agreement or as set
forth in Section 4.8, on Schedule 4.8 or in this Section 6.1, from and after the
date hereof to the Effective Time, the Company shall carry on its business in
the ordinary course and use its reasonable efforts to preserve intact its
current business organizations, keep available the services of its current
officers and key employees and preserve its relationships, consistent with past
practice, with desirable customers and others having business dealings with it
to the end that its goodwill and ongoing businesses shall be unimpaired in all
material respects at the Effective Time. Without limiting the generality of the
foregoing, prior to the Effective Time, except as otherwise provided by the
terms of this Agreement or as set forth in Section 4.8 or on Schedule 4.8, the
Company shall not, without the written consent of Acquiror, which consent may
not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (B) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock or other equity interests or (C) purchase, redeem or
otherwise acquire or amend any shares of capital stock or other equity
interests of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares, interests or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or amend any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, interests, voting securities or convertible securities;
(iii) amend its Articles of Incorporation or Bylaws;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing all or substantially all of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company,
except (x) purchases of furnishings and equipment in the ordinary course of
business consistent with past practice or (y) expenditures listed on
Schedule 6.1;
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(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any material amount of its properties or
assets, except in the ordinary course of business consistent with past
practice;
(vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing or (B) make any loans, advances or capital contributions to,
or investments in, any other person other than (x) to customers in the
ordinary course of business, (y) advances to employees, in the ordinary
course of business consistent with past practice and (z) in connection with
specific projects listed on Schedule 6.1;
(vii) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
(A) in the ordinary course of business consistent with past practice, (B) in
accordance with their terms of liabilities reflected or reserved against in
the December 31, 1999 financial statements of the Company or incurred in the
ordinary course of business consistent with past practice since the date of
such financial statements or (C) waive the benefits of, or agree to modify
in any manner, any confidentiality, standstill or similar agreement to which
the Company is a party;
(viii) except as required to comply with Applicable Law, (A) adopt,
enter into, terminate or amend any Plan or other arrangement for the benefit
or welfare of any current or former director, officer or employee, except
for amendments that are made in the ordinary course of business and do not
result in material liability, (B) increase in any manner the compensation or
fringe benefits of, or pay any bonus to, any director, officer or employee
(except for normal increases or bonuses as contractually required pursuant
to agreements set forth on Schedule 4.8 or in the ordinary course of
business consistent with past practice to employees other than directors and
executive officers of the Company), (C) pay any benefit subject to the
requirements of ERISA that is not provided for under a Plan, (D) except for
payments or awards in cash permitted by clause (B), grant any awards under
any bonus, incentive, performance or other compensation plan or arrangement
or Plan (including the grant of stock options, stock appreciation fights,
stock based or stock related awards, performance units or restricted stock,
or the removal of existing restrictions in any Plans or agreements or awards
made thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Plan other than in the ordinary course of
business;
(ix) except in the ordinary course of business, and except as
contemplated by this Agreement, modify, amend or terminate any material
contract or agreement to which the Company is a party or waive, release or
assign any material rights or claims;
(x) conduct its business in a manner or take, or cause to be taken,
any other action that would prevent or materially delay the Company or
Acquiror from consummating the
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transactions contemplated hereby in accordance with the terms of this
Agreement (regardless of whether such action would otherwise be permitted or
not prohibited hereunder), including, without limitation, any action which
may materially limit the ability of the Company or Acquiror to consummate
the transactions contemplated hereby as a result of antitrust or other
regulatory concerns; or
(xi) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 TAX MATTERS.
(a) Prior to the Closing, the Company shall not, without the written
consent of Acquiror, which consent shall not be unreasonably withheld, make or
amend any federal, state, or local Tax election, agree to waive or extend any
statute of limitations, or resolve or agree to resolve any audit or proceeding
relating to Taxes.
(b) Each of the Selling Shareholders shall furnish to Acquiror on or
before the Closing Date a certification of the Selling Shareholder's non-foreign
status, in the form attached as Exhibit 6.2(b).
(c) The following provisions shall govern the allocation of responsibility
as between Acquiror and the Selling Shareholders for certain tax matters
following the Closing Date:
(i) Acquiror shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date that are filed after the Closing Date. Acquiror shall permit
the Selling Shareholders to review, comment on and approve, which approval shall
not be unreasonably withheld, each such Tax Return described in the preceding
sentence prior to filing. The Selling Shareholders shall reimburse Acquiror for
the amount of Taxes of the Company with respect to such periods within thirty
(30) days after payment by Acquiror, if approved by the Selling Shareholders, of
such approved Taxes to the extent such Taxes are not reflected in the reserve
for Tax Liability (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of the
Closing Date Balance Sheet. All Tax Returns prepared by Acquiror shall be
prepared consistent with the Company's past practice, provided such practice is
in accordance with the Code.
(ii) Acquiror shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns of the Company for Tax periods that begin
before the Closing Date and end after the Closing Date. Acquiror shall permit
the Selling Shareholders to review, comment on and approve, which approval shall
not be unreasonably withheld, each such Tax Return described in the preceding
sentence prior to filing. The Selling Shareholders shall pay to Acquiror within
thirty (30) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes that relates to the portion
of such Taxable period ending on the Closing Date, after payment by Acquiror, if
approved by the Company, or by the Company of such undisputed Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (excluding
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Date Balance
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Sheet. For purposes of this Section, in the case of any Taxes that are imposed
on a periodic basis and are payable for a Taxable period that includes (but does
not end on) the Closing Date, the portion of such Tax that relates to the
portion of such Taxable period ending on the Closing Date shall (x) in the case
of any Taxes other than Taxes based upon or related to income or receipts, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days in
the entire Taxable period, and (y) in the case of any Tax based upon or related
to income or receipts be deemed equal to the amount which would be payable if
the relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant Taxable period ended on the Closing Date.
All Tax Returns prepared by Acquiror shall be prepared consistent with the
Company's past practice, provided such practice is in accordance with the Code.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with the prior practice of the Company.
(d) Acquiror, the Company, and the Selling Shareholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Acquiror and the
Selling Shareholders further agree, upon request, to use their reasonable
commercial best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
6.3 ACCESS TO INFORMATION.
(a) During the period prior to the Effective Time, the Company shall (i)
afford to Acquiror and the Merger Sub, and to the officers, employees,
accountants, counsel, financial advisors and agents of Acquiror and the Merger
Sub, reasonable access during normal business hours to all its properties,
books, contracts, commitments, personnel and records, and (ii) furnish promptly
to the Acquiror or the Merger Sub all information concerning its business,
properties and personnel as such other party may reasonably request. The
Acquiror and the Merger Sub will hold, and will cause their respective officers,
employees, accountants, counsel, financial advisors and agents and Affiliates to
hold, any nonpublic information in confidence to the extent required by, and in
accordance with, the provisions of the letter, dated June 30, 2000, between the
Company and Acquiror (the "Confidentiality Agreement").
(b) During the period after the Effective Time, the Surviving Corporation
shall, to the extent necessary to determine the Selling Shareholders' liability
for Taxes (i) afford to the Selling Shareholders and their accountants, counsel,
financial advisors and agents, reasonable access during normal business hours to
its properties, books, contracts, commitments, personnel and records, and (ii)
furnish promptly to the Selling Shareholders all information concerning its
business, properties and personnel as such other party may request. The Selling
Shareholders will hold, and will cause their respective accountants, counsel,
financial advisors and agents to hold, any nonpublic information in confidence.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 PREPARATION OF ACQUIROR PROXY STATEMENT; ACQUIROR AND COMPANY
SHAREHOLDERS' MEETINGS.
(a) Promptly following the date of this Agreement, Acquiror shall prepare
the Proxy Statement. Each of the Company, Acquiror and Merger Sub covenants that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in the Proxy Statement will, at the date it is first
mailed to the shareholders of the Acquiror, or at the time of the Shareholders'
meeting contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Acquiror shall cause the Proxy Statement to comply as to form in
all material respects with the requirements of Applicable Law. Notwithstanding
the foregoing, no representation or covenant is made by the Company with respect
to statements made therein based on information supplied in writing by Acquiror
or Merger Sub specifically for inclusion therein. If at any time prior to the
Effective Time there shall occur (i) any event with respect to the Company, or
with respect to other information supplied by the Company for inclusion in the
Proxy Statement or (ii) any event with respect to Acquiror or Merger Sub, or
with respect to information supplied by Acquiror or Merger Sub for inclusion in
the Proxy Statement, in either case which event is required by Applicable Law to
be described in an amendment of, or a supplement to, the Proxy Statement and
disseminated to the shareholders of the Acquiror, such event shall be so
described, and such amendment or supplement shall be so disseminated.
(b) Acquiror shall take all action necessary in accordance with Applicable
Law and its Articles of Incorporation and Bylaws to convene and hold a meeting
of its shareholders (the "Acquiror Shareholders' Meeting") as promptly as
practicable for the purpose of obtaining the Acquiror Shareholder Approval.
Acquiror shall, through its Board of Directors, recommend to its shareholders
the adoption of this Agreement and the transactions contemplated hereby and
shall use reasonable efforts to solicit from its shareholders proxies in favor
of adoption of this Agreement and to take all other lawful action necessary to
secure the Acquiror Shareholder Approval. Notwithstanding the foregoing,
Acquiror's obligation to convene and hold the Acquiror Shareholders' Meeting and
to recommend the adoption of this Agreement and to solicit proxies from its
shareholders shall be subject to any action (including any withdrawal or change
of its recommendation) taken by, or upon authority of, the Board of Directors of
Acquiror which the Board of Directors determines, based on the advice of outside
legal counsel to the Acquiror, is required in the exercise of its fiduciary
duties to the Acquiror's shareholders under Applicable Law.
(c) The Company shall take all action necessary in accordance with
Applicable Law and its Articles of Incorporation and Bylaws to convene and hold
a meeting of its shareholders (the "Company Shareholders' Meeting") as promptly
as practicable for the purpose of obtaining the Company Shareholder Approval.
The Company shall, through its Board of Directors, recommend to its shareholders
the adoption of this Agreement and the transactions contemplated
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hereby, and the Selling Shareholders hereby agree to vote in favor of adoption
of this Agreement and to take all other lawful action necessary to secure the
Company Shareholder Approval.
7.2 EFFORTS.
Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties agrees to use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Authorities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Authority (including in respect of any
Governing Law), (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of any of the transactions contemplated by this Agreement,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Authority vacated or reversed and (iv) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
7.3 ANNOUNCEMENTS.
Prior to the Closing, none of the Company, Acquiror or Merger Sub will
issue any press release or otherwise make any public statement with respect to
this Agreement and the transactions contemplated hereby without the prior
consent of the other (which consent shall not be unreasonably withheld), except
as may be required by Applicable Law or applicable stock exchange regulations,
in which event the party required to make the release or announcement shall
allow the other party reasonable time to comment on such release or announcement
in advance of such issuance. The parties agree that any press release to be
issued with respect to the transactions contemplated by this Agreement shall be
reasonably satisfactory to each of the parties as to form and substance.
7.4 TRANSFER TAXES.
The Company and Acquiror shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use, transfer and stamp taxes, any
transfer, recording, registration and other fees and any similar taxes that
become payable in connection with the transactions contemplated by this
Agreement (collectively, the "Transfer Taxes"). The Selling Shareholders shall
pay all Transfer Taxes.
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7.5 NONCOMPETITION AGREEMENTS.
Each of the Selling Shareholders agrees to enter into a noncompetition
agreement with Acquiror and the Surviving Corporation in substantially the form
attached hereto as Exhibit 7.5 (the "Noncompetition Agreement").
7.6 TAX FREE REORGANIZATION.
Acquiror and the Company shall each use its reasonable efforts to cause
the Merger to be treated as a reorganization within the meaning of Section 368
of the Code.
7.7 AFFILIATES OF THE COMPANY.
Prior to the date of the Company Shareholders' Meeting, the Company shall
deliver to Acquiror a letter identifying all persons who, in the Company's
reasonable judgment, are at the time of the Company Shareholders' Meeting
Affiliates of the Company within the meaning of Rule 145 under the Securities
Act. The Company shall use reasonable efforts to cause each Person who is
identified as an Affiliate of the Company to deliver to Acquiror prior to the
Closing Date an agreement substantially in the form of Exhibit 7.7 to this
Agreement, restricting the disposition of the shares of Acquiror Common Stock to
be received by such Person in the Merger, or otherwise held by such person,
until the public announcement of the financial results of Acquiror for a period
that includes 30 days of combined operations with the Company. As soon as is
reasonably practicable but in no event later than 45 days after the end of the
first fiscal quarter of Acquiror ending at least 30 days after the Closing Date,
Acquiror will publish results including at least 30 days of combined operations
of Acquiror and the Company as referred to in the written agreements provided
for by this Section 7.7.
7.8 RULE 144 REPORTING.
Until the date that all Selling Shareholders cease to be Affiliates of the
Acquiror or until the one year anniversary of the Effective Time, whichever date
is later, the Acquiror agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after the effective date of the Registration Statement;
(b) file with the SEC in a timely manner all reports and other documents
required of the Acquiror under the Securities Act and the Exchange Act; and
(c) furnish to the Selling Shareholders, for so long as they are
shareholders of the Acquiror, forthwith upon request a written statement by the
Acquiror as to its compliance with the reporting requirements of Rule 144 and of
the Securities Act and Exchange Act, a copy of the most recent annual or
quarterly report of the Acquiror, and such other reports and documents so filed
as the Selling Shareholders may reasonably request in availing themselves of any
rule or regulation of the SEC allowing a Selling Shareholder to sell any such
securities.
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7.9 PARTICIPATION RIGHTS
(a) At least 30 days prior to any sale of Acquiror Common Stock by Wesmar
Partners Limited Partnership ("Wesmar") pursuant to a registration statement
filed with the SEC (a "Secondary Offering"), Wesmar shall deliver a written
notice (the "Sale Notice") to the Selling Shareholders, specifying in reasonable
detail the number of shares to be offered, the terms and conditions of the
Secondary Offering, and the name of the proposed underwriter. The Selling
Shareholders may choose to participate in the contemplated Secondary Offering,
as provided in this Section 7.9, at the same price per share and on the same
terms by delivering written notice to Wesmar within 20 days after delivery of
the Sale Notice. If a Selling Shareholder has chosen to participate in such
Secondary Offering, such Selling Shareholder shall be entitled to sell in the
contemplated Secondary Offering, at the same price and on the same terms, the
number of shares of Acquiror Common Stock held by the Selling Shareholder that
is equal to: (i) the quotient obtained by dividing (A) one-half (1/2) of the
total number of shares of Acquiror Common Stock held by the Selling
Shareholders, in the aggregate, as of the date of the Sale Notice by (B) the
total number of shares of Acquiror Common Stock held by both Wesmar and the
Selling Shareholders as of the date of the Sale Notice, multiplied by (ii) the
number of shares of Acquiror Common Stock held by Wesmar that are to be sold
under the terms of the Secondary Offering. The number of shares that may be sold
by the Selling Shareholder, as calculated in the previous sentence, is referred
to as the "Number of Participating Shares."
(b) Unless the Selling Shareholders agree otherwise, in the event that the
Selling Shareholders choose to participate in the Secondary Offering, each
Selling Shareholder shall be entitled to sell the number of shares of Acquiror
Common Stock that bears the same ratio to the Number of Participating Shares as
the number of shares held by the Selling Shareholder bears to the total number
of shares held by the Selling Shareholders, in the aggregate, as of the date of
the Sale Notice. In no event shall the total number of shares sold in the
Secondary Offering by the Selling Shareholders exceed the Number of
Participating Shares.
(c) SAMPLE CALCULATION OF PARTICIPATION RIGHTS. For purposes of this
example only, assume that Wesmar desires to sell 10,000 shares of Acquiror
Common Stock pursuant to a Secondary Offering. Also assume that there are two
Selling Shareholders and that as of the date of the Sale Notice, Wesmar owns
100,000 shares of Acquiror Common Stock and each Selling Shareholder owns 10,000
shares of Acquiror Common Stock (a total of 20,000 shares held by the Selling
Shareholders). If a Selling Shareholder elects to participate in the Secondary
Offering pursuant to Section 7.9(a), the Selling Shareholder will be entitled to
sell a total of 833 shares of Acquiror Common Stock (1/2 of the 20,000 shares
held by the Selling Shareholders, divided by 120,000 shares held by Wesmar and
the Selling Shareholders, multiplied by 10,000 shares to have been originally
sold by Wesmar in the Secondary Offering, is equal to 833 shares of Acquiror
Common Stock). Therefore, in the Secondary Offering, Wesmar will be entitled to
sell 9,167 shares of Acquiror Common Stock, and the Selling Shareholder will be
entitled to sell 833 shares of Acquiror Common Stock (9,167 shares plus 833
shares is equal to 10,000 shares, the original number of shares that was to be
sold by Wesmar). If all of the Selling Shareholders elect to participate in the
Secondary Offering, then each Selling Shareholder will be entitled to sell 416.5
shares of Acquiror Common Stock (one-half of 833 shares, since the Selling
Shareholders own an equal number of shares in this example), unless the Selling
Shareholders
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<PAGE> 110
agree otherwise.
7.10 PAYMENT OF SEVERANCE TO COMPANY EMPLOYEES.
The Acquiror agrees to assume the Company's obligation to pay each
employee set forth on Schedule 4.12(e), except for Jones, $2,500 in cash if such
employee is continuously employed by the Company and the Surviving Corporation
from the date of this Agreement until the date that the Company's warehouse and
customer service departments located in Tampa, Florida are closed and relocated
to Fairfield, New Jersey by the Surviving Corporation on or about December 31,
2001.
7.11 MAINTENANCE OF BENEFITS FOR COMPANY EMPLOYEES.
The Acquiror agrees to maintain the same level of employee benefits for
the Company's employees, including without limitation, either: (a) maintaining
the Plans set forth on Schedule 4.12(a) in accordance with the Company's
employee handbook dated September 1, 1996 (the "Employee Handbook") or (b)
providing equivalent benefits until the date that the Company's warehouse and
customer service departments located in Tampa, Florida are closed and relocated
to Fairfield, New Jersey by the Surviving Corporation on or about December 31,
2001. To the extent that the Acquiror provides a greater level of benefits to
its employees, the Acquiror will take all actions necessary to provide employees
of the Company with benefits that are equal to the benefits received by
employees of the Acquiror, including without limitation, amending any Plans
maintained by the Acquiror to include employees of the Company.
7.12 TERMINATION OF SHAREHOLDERS AGREEMENT.
At Closing, the Company, Jones and Christopher hereby agree to terminate
the Shareholders Agreement among themselves dated April 17, 1995.
7.13 COVENANT NOT TO EXERCISE DISSENTER'S RIGHTS.
Each of the Selling Shareholders agrees that he will not exercise any
dissenter's rights available to him, whether pursuant to statute or otherwise,
in connection with the transactions contemplated hereunder.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Acquiror shall have obtained Acquiror Shareholder Approval.
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<PAGE> 111
(b) No statute, rule, regulation, decree, preliminary or permanent
injunction, temporary restraining order or other order of any nature of any
court or Governmental Authority shall be in effect that restrains, prevents or
prohibits the Merger; provided, however, that in the case of a decree,
injunction or other order, the party invoking this condition shall have used
reasonable efforts to prevent the entry of any such injunction or other order
and to appeal as promptly as possible any decree, injunction or other order.
(c) The Acquiror and the Surviving Corporation shall have entered into an
employment agreement with Jones in the form of Exhibit 8.1(c).
8.2 CONDITIONS OF OBLIGATIONS OF ACQUIROR AND MERGER SUB.
The obligations of Acquiror and Merger Sub to effect the Merger are
further subject to the satisfaction of the following conditions, any or all of
which may be waived on or prior to the Closing Date in whole or in part by
Acquiror and Merger Sub:
(a) The representations and warranties of the Company shall be true and
correct in all material respects, at and as of the Closing Date, except for
changes permitted or contemplated by this Agreement and except to the extent
that any representation or warranty is expressly made as of a specified date, in
which case such representation or warranty shall be true and correct only as of
such date. Acquiror and Merger Sub shall have received a certificate from the
Company dated the Closing Date signed on behalf of the Company by an authorized
officer of the Company certifying to the fulfillment of this condition.
(b) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
or at the Closing Date and shall have complied or be in compliance in all
material respects with any agreement or covenant of the Company to be performed
by it under this Agreement at or prior to the Closing Date, and Acquiror and
Merger Sub shall have received a certificate from the Company dated the Closing
Date signed on behalf of the Company by an authorized officer of the Company
certifying the fulfillment of this condition.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, shall be effective at the Effective
Time, no stop order suspending effectiveness of the Registration Statement shall
have been issued, no action, suit, proceedings or investigation by the SEC to
suspend the effectiveness thereof shall have been initiated and be continuing,
and all necessary approvals under state securities laws relating to the issuance
or trading of the Acquiror Common Stock to be issued to holders of Company.
(d) All necessary approvals or authorizations of any Governmental
Authority in connection with the Merger shall have been obtained.
(e) The Noncompetition Agreements shall have been duly executed by the
parties thereto other than Acquiror.
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<PAGE> 112
(f) The Company shall have provided to Acquiror a warranty as to the
usability and merchantability of the inventory of the Company, except for
Non-Current Inventory.
(g) The Company shall have provided to Acquiror, to the reasonable
satisfaction of the Acquiror and its counsel, any consents necessary for the
Surviving Corporation (i) to assume the lease agreement dated November 30, 1995,
as amended, for premises located at 3803 Corporex Drive, Tampa, Florida, and
(ii) to use any and all equipment leased to the Company by Pitney Bowes Credit
Corporation.
8.3 CONDITIONS OF OBLIGATION OF THE COMPANY.
The obligation of the Company to effect the Merger is further subject to
the satisfaction of the following conditions, any or all of which may be waived
on or prior to the Closing Date in whole or in part by the Company:
(a) The representations and warranties of Acquiror and Merger Sub made
hereunder shall be true and correct in all material respects at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except to the extent that any representation or warranty is expressly made as of
a specified date, in which case such representation or warranty shall be true
and correct only as of such date. The Company shall have received a certificate
from Acquiror dated the Closing Date signed on behalf of Acquiror and Merger Sub
by an authorized officer of Acquiror and Merger Sub certifying to the
fulfillment of this condition.
(b) Acquiror and Merger Sub shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to or at the Closing Date and shall have complied or be in compliance in all
material respects with any applicable agreement or covenant of Acquiror and
Merger Sub to be performed by Acquiror and Merger Sub under this Agreement at or
prior to the Closing Date, and the Company shall have received the certificates
from the Acquiror and Merger Sub dated the Closing Date signed on behalf of
Acquiror and Merger Sub by an authorized officer of Acquiror and Merger Sub
certifying to the fulfillment of this condition.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, shall be effective at the Effective
Time, no stop order suspending effectiveness of the Registration Statement shall
have been issued, no action, suit, proceedings or investigation by the SEC to
suspend the effectiveness thereof shall have been initiated and be continuing,
and all necessary approvals under state securities laws relating to the issuance
or trading of the Acquiror Common Stock to be issued to holders of Company
Common Stock in connection with the Merger shall have been received.
(d) Nasdaq shall have accepted for filing the notification form for the
listing of the additional shares of Acquiror Common Stock issued pursuant to the
terms of this Agreement.
(e) The Acquiror and the shareholders of the Acquiror shall have taken all
actions necessary to elect Jones to the board of directors of the Acquiror,
effective as of January 1, 2001.
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(f) The Acquiror shall have executed and delivered to the Company a resale
certificate substantially in the form attached as Exhibit 8.3(f).
(g) The Merger Sub shall have obtained a Florida Dealer's Certificate of
Registration.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 TERMINATION.
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, whether before or after Acquiror Shareholder
Approval and Company Shareholder Approval have been obtained:
(a) by mutual written consent of the Company, on the one hand, and
Acquiror and Merger Sub, on the other hand, or by mutual action of their
respective boards of directors;
(b) by Acquiror and Merger Sub, if any of the conditions set forth in
Sections 8.1 or 8.2 shall have become incapable of fulfillment (other than as a
result of any breach by Acquiror or Merger Sub of the terms of this Agreement)
and shall not have been waived by Acquiror and Merger Sub;
(c) by the Company, if any of the conditions set forth in Sections 8.1 or
8.3 shall have become incapable of fulfillment (other than as a result of any
breach by the Company of the terms of this Agreement) and shall not have been
waived by the Company;
(d) by the Company or Acquiror and Merger Sub, if the Merger shall not
have been consummated on or before the 120th day following the mailing of the
Proxy Statement (the "Termination Date"), unless the failure to consummate the
Merger is the result of a willful and material breach of this Agreement by the
party seeking to terminate this Agreement; or
(e) by the Company, if the Merger shall not have been consummated on or
before December 31, 2000.
9.2 EFFECT OF TERMINATION.
In the event of termination by the Company or Acquiror and Merger Sub
pursuant to Section 9.1, written notice thereof shall promptly be given to the
other parties and, except as otherwise provided herein, the transactions
contemplated by this Agreement shall be terminated and become void and have no
effect, without further action by any party, other than the provisions of the
last sentence of Section 6.3 and Section 9.2. Nothing in this Section 9.2 shall
be deemed to release any party from any liability for any willful and material
breach by such party of the terms and provisions of this Agreement.
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9.3 AMENDMENT.
Subject to Applicable Law, this Agreement may be amended, modified or
supplemented only by written agreement of Acquiror and the Company at any time
prior to the Effective Date with respect to any of the terms contained herein;
provided, however, that, after receipt of the Company Shareholder Approval, no
such amendment or modification shall reduce the amount or change the form of
consideration to be delivered to the shareholders of the Company.
9.4 EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto, by action
taken or authorized by their respective boards of directors, may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
ARTICLE X
INDEMNIFICATION; SURVIVAL
10.1 INDEMNIFICATION.
(a) The Selling Shareholders jointly and severally agree to indemnify,
defend and hold harmless Acquiror, Surviving Corporation and their respective
employees, directors, officers, shareholders and agents (collectively, the
"Acquiror Indemnified Parties") from and against all Losses (as defined herein)
incurred by the Acquiror Indemnified Parties resulting from or on account of any
representation, warranty or covenant of the Company or the Selling Shareholders
made in this Agreement not being true or accurate at the Closing Date. The term
"Losses" means any and all expenses, losses, costs, deficiencies, liabilities
and damages, including, but not limited to, legal and professional fees and
expenses suffered or incurred in any manner, including investigation and defense
of claims.
(b) The Selling Shareholders jointly and severally agree to indemnify,
defend and hold harmless Acquiror and Surviving Corporation from and against all
Losses resulting from or on account of any tax obligation arising from treatment
of the Merger as taxable.
(c) The Acquiror and the Surviving Corporation jointly and severally agree
to indemnify, defend and hold harmless the Selling Shareholders from and against
all Losses incurred by the Selling Shareholders resulting from or on account of
any representation, warranty or covenant of the Acquiror or the Merger Sub made
in this Agreement not being true or accurate at the Closing Date.
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10.2 SURVIVAL.
The covenants, representations and warranties made by the parties in this
Agreement and in any other certificates and documents delivered in connection
herewith:
(a) shall terminate upon the termination of this Agreement pursuant to
Article IX, except that the agreements set forth in Sections 9.2 and Article X
hereof shall survive termination, or, if this Agreement is not terminated
pursuant to Article IX,
(b) shall survive the Closing Date and shall continue in full force and
effect until the date that is eighteen (18) months' following the Closing Date,
except that all representations, warranties, and covenants made by the Selling
Shareholders and the Company in Sections 4.11 and 6.2 hereto shall continue in
full force and effect until all applicable statutes of limitations, including
waivers and extensions, have expired with respect to the matters addressed
therein.
ARTICLE XI
GENERAL PROVISIONS
11.1 EXPENSES.
Each of the parties hereto shall pay the fees and expenses of its
respective counsel, accountants and other experts and shall pay all other costs
and expenses incurred by it in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby. In the event that the Merger is consummated, all reasonable
and customary out-of-pocket expenses incurred by the Company in connection with
the Merger including, without limitation, attorneys, accounting, investment
banking and printing costs and expenses, will be accounted for as current
liabilities on the financial statements of the Company at the Closing.
11.2 GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New Jersey without reference to choice of law principles,
including all matters of construction, validity and performance.
11.3 NOTICES.
Notices, requests, permissions, waivers, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
signed by the respective persons giving them (in the case of any corporation the
signature shall be by an officer thereof) and delivered by hand, deposited in a
United States express mail service, properly addressed and postage prepaid, or
delivered by confirmed facsimile:
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If to the Company, to: Mr. James E. Jones
Ladies Golf Equipment Company, Inc.
3803 Corporex Park Drive, Suite 400
Tampa, FL 33619
with a copy to: Douglas A. Wright, Esq.
Holland & Knight LLP
400 North Ashley Drive, Suite 2300
Tampa, FL 33602
If to Acquiror, to: Mr. Douglas A. Buffington
S2 Golf Inc.
18 Gloria Lane
Fairfield, NJ 07004
with a copy to: Richard M. Maurer
Wesmar Partners Limited Partnership
Three Gateway Center
401 Liberty Avenue
Pittsburgh, PA 15222
and to: Mary Ann Jorgenson, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114
If to Merger Sub, to: Mr. Douglas A. Buffington
S2 Acquisition, Inc.
18 Gloria Lane
Fairfield, NJ 07004
with a copy to: Richard M. Maurer
Wesmar Partners Limited Partnership
Three Gateway Center
401 Liberty Avenue
Pittsburgh, PA 15222
and to: Mary Ann Jorgenson, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114
Such names and addresses may be changed by notice given in accordance
with this Section 11.3.
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11.4 ENTIRE AGREEMENT.
This Agreement (including the Disclosure Schedule, and the Exhibits
attached hereto, all of which are a part hereof) and the Confidentiality
Agreement contain the entire understanding of the parties hereto and thereto
with respect to the subject matter contained herein and therein, supersede and
cancel all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
There are no restrictions, promises, representations, warranties, agreements or
undertakings of any party hereto with respect to the transactions contemplated
by this Agreement other than those set forth herein or made hereunder.
11.5 DISCLOSURE SCHEDULE.
The Disclosure Schedule, dated the date hereof, delivered by the Company
to Acquiror (the "Disclosure Schedule") is incorporated into this Agreement by
reference and made a part hereof.
11.6 HEADINGS; REFERENCES.
The article, Section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to "Articles",
"Sections" or "Exhibits" shall be deemed to be references to Articles or
Sections hereof or Exhibits hereto unless otherwise indicated.
11.7 COUNTERPARTS.
This Agreement may be executed in one or more counterparts and each
counterpart shall be deemed to be an original, but all of which shall constitute
one and the same original.
11.8 PARTIES IN INTEREST; ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties. Subject to the preceding sentence this
agreement shall inure to the benefit of and be binding upon the Company,
Acquiror and Merger Sub and shall inure to the sole benefit of the Company,
Acquiror and Merger Sub and their respective successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
other Person any rights or remedies under or by reason of this Agreement.
11.9 SEVERABILITY; ENFORCEMENT.
Except to the extent that the application of this Section 11.9 would have
a Material Adverse Effect with respect to Acquiror or the Company, the
invalidity of any portion hereof shall not affect the validity, force or effect
of the remaining portions hereof.
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11.10 SPECIFIC PERFORMANCE.
The parties hereto agree that the remedy at law for any breach of this
Agreement will be inadequate and that any party by whom this Agreement is
enforceable shall be entitled to specific performance in addition to any other
appropriate relief or remedy. Such party may, in its sole discretion, apply to a
court of competent jurisdiction for specific performance or injunctive or such
other relief as such court may deem just and proper in order to enforce this
Agreement or prevent any violation hereof and, to the extent permitted by
Applicable Law, each party waives any objection to the imposition of such
relief.
[SIGNATURE PAGE(S) FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
and Plan of Reorganization as of the date first above written:
S2 GOLF INC
/s/ Douglas A. Buffington
-------------------------------------
Douglas A. Buffington
Title: President
S2 GOLF ACQUISITION CORP
/s/ Douglas A. Buffington
-------------------------------------
By: Douglas A. Buffington
Title: President
LADIES GOLF EQUIPMENT COMPANY, INC
/s/ James E. Jones
-------------------------------------
By: James E. Jones
Title: President
SELLING SHAREHOLDERS:
/s/ James E. Jones
-------------------------------------
James E. Jones
/s/ Brian Christopher
-------------------------------------
Brian Christopher
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<PAGE> 120
ANNEX B
FLORIDA BUSINESS CORPORATION ACT
PROVISIONS ON DISSENTERS' RIGHTS
SECTIONS 607.1301, 607.1302, AND 607.1320
607.1301.DISSENTERS' RIGHTS; DEFINITIONS
The following definitions apply to sec. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302. RIGHT OF SHAREHOLDERS TO DISSENT
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent under
s. 607.1104, and the shareholders would have been entitled to vote on action
taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
Annex B-1
<PAGE> 121
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his or
her shares;
2. Altering or abolishing the voting rights pertaining to any of his or
her shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his
or her shares, when such exchange, cancellation, or reclassification would alter
or abolish the shareholder's voting rights or alter his or her percentage of
equity in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his or her shares, or making any
of his or her shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of the
shareholder's preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of the shareholder's
preferred shares; or
7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
Annex B-2
<PAGE> 122
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(1)(a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of sec. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of sec. 607.1301, 607.1302, and 607.1320 to each
shareholder simultaneously with any request for the shareholder's written
consent or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the corporation a notice of
such election, stating the shareholder's name and address, the number, classes,
and series of shares as to which he dissents, and a demand for payment of the
fair value of his or her shares. Any shareholder failing to file such
Annex B-3
<PAGE> 123
election to dissent within the period set forth shall be bound by the terms of
the proposed corporate action. Any shareholder filing an election to dissent
shall deposit his or her certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date the
shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is
not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand as
provided in this section to pay an amount the corporation estimates to be the
fair value for such shares. If the corporate action has not been consummated
before the expiration of the 90-day period after the shareholders' authorization
date, the offer may be made conditional upon the consummation of such action.
Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the dissenting
shareholder holds, as of the latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
Annex B-4
<PAGE> 124
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his or her shares shall be made within 90 days
after the making of such offer or the consummation of the proposed action,
whichever is later. Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him or her within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel far, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no
Annex B-5
<PAGE> 125
offer was made, the court in its discretion may award to any shareholder who is
a party to the proceeding such sum as the court determines to be reasonable
compensation to any attorney or expert employed by the shareholder in the
proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, in the case of other treasury
shares, except that, in the case of a merger, they may be held and disposed of
as the plan of merger otherwise provides. The shares of the surviving
corporation into which the shares of such dissenting shareholders would have
been converted had they assented to the merger shall have the status of
authorized but unissued shares of the surviving corporation.
Annex B-6
<PAGE> 126
APPENDIX 1
S2 GOLF INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Douglas A. Buffington and Richard M. Maurer, or either of them, each with
power of substitution, are hereby authorized to vote all stock of S2 Golf Inc.
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Shareholders of S2 Golf Inc. to be held on December 15, 2000,
and at any postponements or adjournments thereof as follows:
1. Approval and adoption of the Agreement and Plan of Reorganization, dated as
of September 22, 2000, by and among S2 Golf Inc., its wholly-owned
subsidiary, S2 Golf Acquisition Corp., Ladies Golf Equipment Company, Inc.,
James E. Jones and Brian Christopher (the "Merger Agreement").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
A VOTE FOR THE MERGER AGREEMENT IS RECOMMENDED BY THE BOARD OF DIRECTORS.
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Please sign this proxy exactly
as your name appears below. When
shares are held jointly, each
holder should sign. When signing
as attorney, executor,
administrator, trustee or in
another representative capacity,
please give full title as such.
If a corporation, please sign in
full corporate name by the
president or other authorized
officer. If a partnership,
please sign in partnership name
by an authorized person.
Dated: , 2000
-------------------
--------------------------------
Signature
--------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
