<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission File Number 033-07811-NY
GARY PLAYER DIRECT, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 93-0943925
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
710 AEROVISTA, SUITE B, SAN LUIS OBISPO, CALIFORNIA
(Address of Principal Executive Offices)
93401
(Zip Code)
(805) 783-1011
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: NONE.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [ X ]
<PAGE> 2
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB.[ ]
The issuer's revenues for its most recent fiscal year were $5,262,559.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such common equity, as of a specified
date within the past 60 days was approximately $10,454,399.80 as of March 31,
1999. The aggregate market value was based upon the mean between the closing bid
and asked price for the common stock as quoted by the NASD Electronic Bulletin
Board.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the issuer's classes of common
equity as of March 31, 1999 was 5,794,758 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
Item 1. Description of Business 1
Item 2. Description of Property 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters 15
Item 6. Management's Discussion and Analysis or Plan of Operation 24
Item 7. Financial Statements 26
Item 8. Changes in and Disagreements with Accountants on Accounting 27
and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; 27
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation 29
Item 11. Security Ownership of Certain Beneficial Owners and Management 31
Item 12. Certain Relationships and Related Transactions 32
Item 13. Exhibits and Reports on Form 8-K 33
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountant F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Deficit for the Two Year Period
Ended March 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
iii
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Gary Player Direct, Inc. ( the "Company"), is a direct marketing golf
equipment company that has been engaged in the direct marketing of premium golf
equipment under the Gary Player brand name through telemarketing and, to a
limited extent, internet sales. The Company's strategic plan is to establish a
premier international golf internet site serving as a multidimensional marketing
platform for the direct marketing of premium men's and women's golf equipment,
apparel and accessories principally under the Gary Player brand name in addition
to its existing telemarketing sales. One of the most successful international
golfers of his generation, Mr. Player has achieved the kind of worldwide
recognition reserved for only a handful of figures in the world of sports. In
the November 19, 1999 issue of Golf Week, a publication owned by the New York
Times, Mr. Player was ranked as one of the top five golfers of this Century
along with Jack Nicklaus, Bobby Jones, Ben Hogan and Sam Snead. The Company's
operations at March 31, 1999 and thereafter is that of Golf One Industries, Inc.
("Golf One"), which entity merged into the Company on March 29, 1999 (the "1999
Merger"), and at the time of the 1999 Merger, the Company changed its name from
Grafix Corporation to Gary Player Direct, Inc. The Company as Grafix Corporation
designed, developed, assembled and distributed high-quality golf products,
clothing and accessories worldwide utilizing the Carrera (R) brand name and
logo, pursuant to an exclusive licensing agreement with Carrera Optyl GmbH
("Carrera"), a subsidiary of Safilo SpG ("Safilo"), owner of the Carrera brand
name. Grafix Corporation ceased its operations in September, 1998. Details of
the 1999 Merger are included in the description of the Company under "Overview
and Recent Developments" below. The Company has two wholly-owned subsidiaries,
Rhino Marketing, Inc. ("Rhino") and Gran Prix Marketing, Inc. ("Gran Prix"),
which were previously subsidiaries of Golf One. The activities of these
subsidiaries are described throughout this report.
INTRODUCTORY STATEMENT
This report was prepared and filed in December 1999, and accordingly
this report addresses and reflects not only matters relevant to the reporting
period during the fiscal year ended March 31, 1999, but also certain events and
matters during the period April 1, 1999 through and including the date of this
report (the "Subsequent Period") which management believes are material and
useful to the reader's understanding of this report. The events of the
Subsequent Period that are addressed herein are included because this annual
report and the quarterly reports of the Company (as defined below) for the
quarters ended June 30, 1999 and September 30, 1999 have not been filed with the
Securities and Exchange Commission ("Commission") as of the date of this report.
The events of the Subsequent Period included a substantial transition in the
Company's Board and management, and the Company's engagement of new auditors
during October, 1999. See description of new management and directors under Item
9, "Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act" below. Accordingly, the information
contained herein is qualified to the extent of the knowledge possessed by the
Company's new management team as of the date of this report with respect to the
affairs of the Company.
OVERVIEW AND RECENT DEVELOPMENTS
On March 29, 1999, Grafix Corporation completed a merger with Golf One,
in which Golf One merged with and into the Company, and the Company changed its
name to "Gary Player Direct, Inc." Pursuant to the terms of the Agreement of
Merger, a copy of which was filed as an exhibit to a Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 14, 1999 (the "April,
1999 Form 8-K"), and which is incorporated herein by reference, the Company
issued 3,817,244 shares of its Common Stock to Golf One's shareholders and
lenders, resulting in a change of control of the Company. As part of the merger
with Golf One, the Company effected a 1:20 reverse split of its issued and
outstanding Common Stock. As of March 31, 1999, the Company had 5,794,758 shares
of Common Stock issued and outstanding, including the 3,817,244 shares owned by
Golf One's former shareholders. The Company's NASD trading symbol was changed
from "CRRA" to "GPLY" to reflect the Company's changed name following the 1999
Merger.
Upon closing of the 1999 Merger, the Company's operations, which had
ceased on or about September 30, 1998, became that of those conducted by Golf
One and its subsidiaries since 1995. Incorporated under the laws of the State of
Delaware on October 31, 1995, Golf One operated as a direct marketing company
manufacturing and marketing custom fitted, high quality golf clubs and related
golf accessories under the Gary Player brand name through its wholly-owned
subsidiary, Gran Prix, a California corporation, pursuant to a long term
licensing agreement which commenced on November 1, 1996. Gran Prix commenced the
sale of Gary Player branded product in February, 1997.
<PAGE> 5
The Company has two wholly-owned subsidiaries, Rhino and Gran Prix,
which were previously subsidiaries of Golf One. Rhino was formed in January,
1995, and commenced sales of generic, unbranded golf clubs and related golf
accessories in February of the same year and began sales of golf clubs under the
Rhino Rifle brand name in August, 1995. On November 15, 1995, the Company
acquired Rhino pursuant to a stock purchase agreement (the "Rhino Acquisition"),
which stock purchase agreement was subject to certain contingencies. The Company
satisfied the contingencies of the stock purchase agreement thereby completing
the Rhino Acquisition on June 28, 1996. On October 10, 1995, Rhino entered into
a licensing agreement with Robert Mann, a well-known golf professional, to
endorse the Rhino Rifle brand name golf clubs and accessories. Rhino commenced
sales of golf clubs under the Bob Mann brand name in November, 1995 and
terminated the Mann licensing agreement in January, 1997. After the termination
of this licensing agreement in January, 1997, the Company discontinued active
operations of Rhino.
The Company's second subsidiary, Gran Prix, was formed by the Company
in January, 1997 as a wholly-owned subsidiary of the Company, and commenced
sales of golf clubs and related golf products and accessories under the Gary
Player Gran Prix brand name in February, 1997. Such sales were made through
direct-marketing pursuant to an exclusive long-term direct marketing agreement
(the "Licensing Agreement") between the Company and Gary Player Golf Equipment,
Inc. ("GPGE"), a division of the Gary Player Group, Inc. ("GPG"), which
agreement is described more fully below. The Gary Player Gran Prix line of golf
products was discontinued by Gran Prix on or about the date of the 1999 Merger.
As of March 31, 1998 and March 31, 1999 the combined outstanding
liabilities of Rhino and Gran Prix were approximately $680,000 and $12,276,000
respectively.
As a result of the 1999 Merger, substantially all of the operations of
the Company relate to the operations of the Gary Player line of branded products
and the focus of the Company's activities going forward will be the development
of revenue from manufacturing, marketing, licensing and distributing golf
equipment and apparel resulting from licenses (the "Player Licenses") acquired
from GPG. As a result of a lack of financing affecting the Carrera Golf branded
products during the fiscal year ended September 30, 1998 and for the subsequent
period up until the 1999 Merger and a deterioration in relations between the
Company and Citizen's Trading Group of Japan ("Citizen"), the Company has not
recognized revenue from the sale of Carrera Golf branded products since
September 30, 1998. The Company is currently reviewing its relationship with
Citizen and its licensing arrangement with Carrera.
The 1999 Merger was accounted for as a purchase of the Company by Golf
One in a "reverse acquisition" because the pre-existing stockholders of the
Company did not have voting control of the combined entity after the 1999
Merger. In a reverse acquisition, the accounting treatment differs from the
legal form of the transaction, as the continuing legal entity is not considered
to be the acquirer and the financial statements of the combined entity are those
of the accounting acquirer (Golf One), including any comparative prior year
financial statements presented by the combined entity after the business
combination. Accordingly, the financial statements of the Company presented
herein are the comparative historical financial statements of Golf One, the
accounting acquirer, with accompanying disclosure concerning the change in
capital structure effected at the acquisition date.
In connection with the 1999 Merger, the Company changed its fiscal year
end from September 30th to March 31st, which is the fiscal year end of Golf One.
Golf One was located in Santa Maria, California at the time of the 1999
Merger but has since moved the Company's operations to its facility in San Luis
Obispo, California. The Company's corporate offices will house its internet
operations and currently is the site of all shipping and fulfillment as well as
financial services, customer service, order administration and an outbound call
center. Currently the Company's equipment assembly operations are sourced out to
two golf equipment production centers located in San Luis Obispo and Palm
Springs, California. Golf One did operate three separate call centers located in
Irvine, Ventura, and San Luis Obispo, California until May 31, 1999, at which
time the Company moved its operations from Santa Maria to San Luis Obispo, where
it currently occupies space for all of its operations. See Item 2, "Description
of Property" below.
As part of the 1999 Merger, Messrs. Arnold Guttenberg and Cliff Cozier
resigned as directors of the Company. Mr. Kenneth Krausman remained as the sole
director of the Company, and Mr. Alfonso J. Cervantes and Mr. Robert J.
Friedland were appointed directors of the Company. The Board of Directors also
appointed Mr. Cervantes as President, Chief Executive Officer, Chairman of the
Board and Secretary of the Company, Mr. Joseph A. DePanfilis as Executive Vice
President, Mr. Richard S. Schonfeld as Chief Financial Officer and Treasurer,
and Mr. Krausman as Senior Vice President, Business and Legal Affairs. Mr.
Krausman resigned from all of his positions with the Company on September 1,
1999. Messrs. Cervantes and Friedland resigned from all of their positions on
October 14, 1999 in
2
<PAGE> 6
connection with a certain Succession Plan and Agreement effective on October 14,
1999. (See below). Messrs. DePanfilis and Schonfeld also resigned in July, 1999
and May, 1999, respectively.
During September 1999, the NASD notified the Company's market makers
that the Company's shares would no longer be eligible for quotation on the NASD
Bulletin Board on or about October 20, 1999 if the Company was not current in
its reporting obligations. The Company issued a press release on October 21,
1999 stating that its shares had become ineligible for quotation on the NASD
Bulletin Board pending completion and filing of the Commission reports noted
above and that the Company intended to file all 1998 reports within one week and
the outstanding 1999 reports in November 1999. The financial statements
reflecting the 1999 Merger which were required to be filed with the Commission
on an Amended Current Report on Form 8-K were not timely filed and are instead
filed herewith.
Other material developments during the Subsequent Period include the
Company's execution of an agreement to transition the Company's prior management
and Board of Directors. Effective October 14, 1999, the Company entered into a
Succession Plan and Agreement (the "Succession Plan and Agreement") pursuant to
which the existing Board of Directors and senior management of the Company were
replaced with new directors and senior management. Additional information
regarding the Succession Plan and Agreement is contained in a press release
issued by the Company on October 19, 1999 which was filed as an exhibit to a
Current Report on Form 8-K filed October 25, 1999. The Succession Plan and
Agreement was also filed with the Commission as an exhibit to the aforementioned
8-K report.
As of October, 1999 and following the implementation of the Succession
Plan and Agreement, the Company and the new Board and management team have
adopted immediate near-term and long-term business strategies. The immediate
strategies address the following objectives:
1. Bring the Company current in its Securities and Exchange Commission
reporting obligations;
2. Restructure existing obligations with creditors and taxing
authorities;
3. Access additional capital through available equity sources;
4. Modify business operations to attain profitability including the
introduction of certain new products; and
5. Complete the acquisition of the assets of the golf equipment
division of GPG (the "Player Acquisition"), which division is known as
Gary Player Golf Equipment (hereinafter "GPGE").
There can be no assurance that the Company will be successful in achieving any
of the above-stated objectives.
The near-term business strategy is to fully capitalize on the rights
received under the Licensing Agreement to use the Gary Player brand name. One of
the most successful international golfers of his generation, Mr. Player has
achieved the kind of worldwide recognition reserved for only a handful of
figures in the world of sports. Should the Company complete the acquisition of
GPGE, the Company will be in a position to market and sell an expanded array of
golf equipment and accessories worldwide. The assets of the golf equipment
operations of GPG include principally two licenses which together give the
Company the perpetual, worldwide, exclusive right to use the name and likeness
of Gary Player, the professional golfer, and ancillary marks, including Black
Knight and the Knight's Head Logo, in connection with the manufacture, marketing
and distribution of golf clubs, accessories and apparel for an annual license
fee and a royalty payable based on net receipts. As part of the Player
Acquisition, the Company will also acquire existing sub-licenses based on the
Player licenses and accounts receivable. The inventory previously owned by GPG
has been transferred to the Company as part of the terms of the Company's
Licensing Agreement with GPG entered into on November 1, 1996 between the
Company and GPGE (the "Licensing Agreement").
The Company is exploring the possibility of expanding its internet
sales strategy over the coming months and creating strategic alliances to
further market the Company's products. Additionally, it is the Company's
objective to increase direct response television marketing through utilization
of an infomercial featuring Mr. Player and the continued telemarketing
activities that have been the primary source of revenue to date. Over the longer
term, the Company looks to engage in strategic acquisitions of golf related
businesses that complement or diversify the Company's existing product mix and
if the Company completes the Player Acquisition, enter into sub-license
agreements with third parties. There can be no assurance that the Company will
be successful in achieving any, or all, of the above-stated objectives.
The Company implemented a one-for-three stock split in July 1998 and a
one-for-twenty stock split in May 1999. In addition, Golf One shareholders
received one (1) share of the Company's Common Stock for each two (2) Golf One
shares
3
<PAGE> 7
owned at the date of the 1999 Merger. Unless otherwise indicated, all references
to the Company's Common Stock in this report give effect to both of these stock
splits.
HISTORICAL
Grafix Time Corporation, the Company's predecessor, was originally
incorporated as "Mont Blanc Resources, Inc." under the laws of the State of New
York on April 16, 1986. The Company's name was changed to Grafix Time
Corporation on December 11, 1989. Through June, 1991, the Company was in the
fashion sports watch and electronic jewelry distribution business. During June,
1995, the Company bought the license to use the Carrera (R) brand name in an
asset purchase agreement with Sports Equipment Technology Company, Inc., a
privately-held Colorado corporation doing business as Carrera (R) Golf
("SETCO").
The Company's operations and sales of golf apparel and golf-related
equipment commenced in January, 1996. In 1996, the Company finalized an
exclusive distribution agreement with Citizen, and obtained its first orders for
golf products from Citizen. During the fiscal year ended September 30, 1997 and
through the Company's fiscal year ended September 30, 1998, the Company expanded
its line of golf products, entered into new distribution agreements with
distributors in Asia, and continued to supply golf clubs, bags, and accessories
to Citizen.
On July 30, 1998, the Company reincorporated in Delaware pursuant to a
merger agreement by which Grafix Time Corporation, a New York corporation,
merged with and into Grafix Corporation, a Delaware corporation (the "1998
Merger"). A Certificate of Merger was filed with the Delaware Secretary of
State. As a result of the 1998 Merger, the Company has a new Certificate of
Incorporation and adopted new By-laws under the Delaware General Business laws,
a copy of which documents were filed as exhibits to Grafix' Current Report on
Form 8-K filed with the Commission on August 7, 1998 and which exhibits are
hereby incorporated by reference. The Certificate of Incorporation and Bylaws of
the Company resulting from the 1998 Merger continue to be the Certificate of
Incorporation and Bylaws of the Company after the 1999 Merger which merger is
described below.
As of December 31, 1997, Citizen was the Company's primary customer,
accounting for over ninety percent (90%) of the Company's sales. In October,
1998, Citizen withheld payment for a substantial order, citing concerns about
the ability of the Company to continue operations. Citizen also claimed an
offset for certain returned goods from 1996. The Company essentially
discontinued its operations in September, 1998 and began searching for a
suitable merger candidate.
PRODUCTS
The Company's principal products are golf clubs sold under the Gary
Player Black Knight trademark. The Company intends to launch a year 2000 line
of products.
The Company custom assembles each set of golf clubs based upon the
customer's physical attributes, golfing ability and personal preferences. The
Company obtains this information from a 20-point survey completed with the
customer at the time of order. The survey elicits information about the
customer's physical attributes, such as his or her gender, age, height, weight,
arm length and hand size, as well as information about the customer's golfing
ability, such as his or her handicap, swing speed and the number of years
playing golf. Using this information, the Company chooses the appropriately
weighted club head, the flex and length of the club shaft, and the customer's
preferred grip to fit a golf club to the particular needs of the customer. The
Company offers a variety of grips to its customers, which vary as to gender and
size, as well as by special need, such as arthritic grips.
As noted above, the Company completed the acquisition of Rhino in June
1996 as a result of a stock purchase agreement entered into on November 15,
1995. From November 1995 through January 1997 Rhino sold golf clubs and
accessories under the Rhino Rifle and Bob Mann brand names. After the
termination of the Mann licensing agreement in January 1997, Rhino discontinued
active production and sale of its branded products. In February 1997, Grand Prix
commenced sales of golf clubs and related golf accessories under the logo Gary
Player Gran Prix brand. The Company ceased selling the Gary Player Gran Prix
branded golf equipment during April, 1999 following the completion of the 1999
Merger.
GARY PLAYER BLACK KNIGHT CLUBS
The Company's principal line of golf clubs is the Gary Player Black
Knight line, which is available for
4
<PAGE> 8
men, women, seniors and juniors. The Gary Player Black Knight line currently
consists of titanium irons, a titanium driver and woods.
BLACK KNIGHT Ti-162 TITANIUM IRONS. Golf One introduced the Black
Knight Ti-162 irons in November 1997. A set of Ti-162 irons includes 8 clubs,
consisting of the 3 through 9 irons and a pitching wedge. Golf One also marketed
a 1 iron and a 2 iron. The Ti-162 irons feature club heads with titanium-face
inserts, which are oversized, deep cavity backed and perimeter weighted to
provide the most forgiveness for off-center hits. The club heads have a low
center of gravity to promote increased lift, distance and accuracy. The club
shafts are made from lightweight 100% high modulus graphite for greater
strength.
BLACK KNIGHT Ti-162 TITANIUM DRIVER. The Black Knight Ti-162 titanium
driver, which was introduced by Golf One in December 1997, features an
oversized, perimeter-weighted club head which is 25% larger than most oversize
metal woods and provides a larger "sweet spot" and increased hitting area. The
driver's 58-gram graphite shaft is 25% lighter than standard graphite shafts.
The lower overall weight and design of the titanium driver promotes increased
swing speed and reduces twisting on off-center hits.
BLACK KNIGHT Ti-162 TITANIUM WOODS. Golf One introduced its Black
Knight Ti-162 3 and 5 woods in June 1998. These woods feature titanium club
heads developed exclusively for the Company by Tom Stites, a noted golf club
designer.
The Company additionally has in development its year 2000 series which
includes the Gary Player Aluminum Bronze Par Saver Wedges in 55 degree and 60
degree versions, the Gary Player Black Knight Titanium driver and the Gary
Player Black Knight Chromium 3, 5, and 7 Fairway Woods, and plans on marketing
these clubs once their development and testing is complete.
The Company's golf clubs are assembled using components (heads, shafts
and grips) purchased from third-party manufacturers. See description under "Raw
Materials" below. The Company in collaboration with Gary Player and GPG, selects
the shafts and grips for its clubs from prototypes designed and developed by
component manufacturers based on aesthetics and features popular in the market
at the time. With the exception of the heads, the Company does not design its
own golf club components; rather, with input from Gary Player and GPG, it has
worked closely with its component manufacturers and designers to modify their
proprietary components when necessary to meet the Company's specifications. The
Company may commission the development of club components (in addition to the
heads) in the future if it believes that components with broad consumer
acceptance are not being made available to the Company by its manufacturers.
The Company as Grafix Corporation designed, developed, assembled and
distributed high-quality golf products, clothing and accessories worldwide
utilizing the Carrera (R) brand name and logo, pursuant to an exclusive
licensing agreement with Carrera Optyl GmbH, a subsidiary of Safilo SpG
("Safilo"), owner of the Carrera brand name. The Company as Grafix Corporation
ceased operations in September, 1998, which included production and distribution
of the Carrera brand name products. The Company has a limited quantity of
Carrera (R) branded inventory which it will retain for resale and/or liquidation
if it does not pursue the sale of further Carrera branded golf equipment.
The Company did produce and sell Rhino Rifle and Bob Mann brand name
golf products as well as the Gary Player Gran Prix brand name line of products
through its two subsidiaries, Rhino and Gran Prix, but discontinued such lines
on or about January, 1997 and April, 1999, respectively.
MARKETING AND SALES
Rhino commenced the sale of its Rhino Rifle and Bob Mann branded
products from August 1995 to January 1997. From February 1997 through the 1999
Merger, Gran Prix marketed and sold the Gary Player Gran Prix golf clubs and
accessories. Subsequent to the 1999 Merger, the Company has had limited sales of
its Gary Player branded products, golf equipment and accessories due to working
capital constraints. The Company has been developing and test-marketing new
products in anticipation of the introduction of several new product lines for
the year 2000. Through March 31, 1999 the subsidiaries marketed their products
through direct telemarketing. Since the 1999 Merger, the Company has also
marketed it products by direct telemarketing. Gran Prix had three separate call
centers until February, 1999, when it shut down operations at its Irvine,
California call center. After April, 1999, the Company maintained two call
centers in addition to its principal headquarters in Santa Maria, California
until it moved its primary operations to its San Luis Obispo, California call
center and shut down the remaining call centers
5
<PAGE> 9
in the spring and summer of 1999. See description of facilities under Item 2,
"Property" below.
The Company, through its subsidiaries, employed at March 31, 1999 89
persons who supervised, acted or assisted in the telemarketing operations. While
the Company has substantially reduced its telemarketing staff due to working
capital constraints since March 31, 1999, it still utilizes telemarketers as a
primary means of sales to customers.
Substantially all of the Company's sales are paid for by credit card.
Rhino entered into a merchant account agreement with Cardservice International,
Inc. ("CSI") on August 27, 1996 and Gran Prix entered into a separate merchant
account agreement on November 10, 1997, pursuant to which agreements CSI
provided Golf One credit card processing services and which agreements has been
utilized by the Company after the 1999 Merger. The Company is dependent upon CSI
to timely process, collect and accurately report customer payments to avoid
delays in collection. CSI has the right to withhold all or a portion of the
proceeds from sales as a reserve against customer charge-backs and returns. Due
to a high volume of returns and declining sales due to working capital
constraints subsequent to the 1999 Merger date, CSI has not been issuing all
customer accounts with return credits and has been withholding between 50% and
100% of gross sales and applying it against prior customer charge-backs. The
Company intends to commence negotiation with CSI to amend its current agreements
with them regarding customer purchases by credit card.
The Company believes that since it markets its golf clubs through
direct marketing channels, which do not allow customers to examine and handle
the golf clubs prior to purchase, it has to offer customers a meaningful right
to return the clubs. Under the Company's current policy, customers may return
golf clubs for a full refund (excluding shipping and handling charges) generally
within 60 days after they are received.
The Company offers returned products as demonstration models at
significantly reduced prices, after cleaning and refurbishing the product.
Demonstration models are sold at prices generally ranging from 65% to 75% of the
clubs' original price, and accounted for approximately 18% of gross sales for
the twelve months ended March 31, 1998 and 21% of gross sales for the twelve
months ended March 31, 1999.
During the year ended March 31, 1999, the Company commenced the
development of a new program whereby it offers new purchasers of clubs certain
incentives to "waive" the 60-day buy-back right. These buy-back waivers can
include bonus clubs, golf balls, golf tip videos, and under certain
circumstances, cash discounts. Based on preliminary results, management believes
it can reduce its returns to an estimated 35% rate from a 40% to 50% rate which
has a significant impact on the Company's prospective operating results.
The Company's strategic plan calls for the significant decrease of
outbound telemarketing activities to concentrate on inbound sales pursuant to
its infomercial and internet-driven strategies. Since May, 1999, the Company has
had its website operational on which it advertises the Company and its products.
The Company anticipates utilizing the website for future sales. See "Business
Strategy" below.
INTELLECTUAL PROPERTY
The Company utilizes the name Gary Player, Black Knight and the
Knight's Head logo as well as Gary Player's likeness (collectively, the "IP")
for its products and advertising pursuant to the Licensing Agreement dated
November 1, 1996 with GPGE, a division of GPG. Under the terms of the
Licensing Agreement, the Company has the exclusive domestic direct marketing
rights to the use of the IP in connection with the sale of golf equipment and
apparel in its marketing and selling efforts over the internet, infomercials,
direct media and telesales until 2016.
On November 1, 1997, Golf One executed an Asset Purchase Agreement
("APA") with GPG to acquire the principal assets of GPGE, including the Player
Licenses. The parties are currently negotiating an Amended and Restated APA. As
of March 31, 1999, the APA had been amended several times but has not been
consummated. The acquisition of the Player Licenses, if consummated, would grant
the Company the perpetual, worldwide, exclusive right to use the name and
likeness of Gary Player and ancillary marks in connection with the manufacture,
marketing, distribution and exploitation of golf clubs, accessories and apparel.
The Company would have the right to sublease these rights and would intend to
aggressively seek sublicensees to maximize royalty revenues if the APA is
completed. There can be no assurance that the Company will be able to consummate
the Player Acquisition and acquire the Player Licenses.
At October, 1999, the Company was in default of certain provisions of
the Licensing Agreement. These defaults have been remedied by payments of
$555,000 to GPG and Marc Player. In connection with these payments, the Company
and GPG executed two amendments by letter to the Licensing Agreement, one of
6
<PAGE> 10
which amendments was filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the period ended December 31, 1998, filed with the Commission on
November 9, 1999, and the other of which is filed herewith.
BUSINESS STRATEGY
The Company's Strategic Plan is to position the Company as an
internet-driven direct marketing golf equipment company in addition to its
telemarketing sales. The Strategic Plan also calls for the expansion of
international marketing activities to fully exploit the Gary Player name.
Until October 14, 1999, GPG's relationship with the Company was that of
a licensor of the Gary Player name for the direct marketing of Gary Player
branded golf equipment and accessories in North America principally through
telemarketing activities. Effective as of October 14, 1999 Marc Player, Mr.
Player's son, and Pamela Campbell, the Controller of GPG, were appointed two of
the three members of the Board of Directors of the Company along with Thomas P.
Gallagher, who became the Chairman of the Board of Directors. Also, as of
October 14, 1999, the Company's Licensing Agreement with GPG was in default as a
result of the Company's failure to satisfy certain provisions of the Licensing
Agreement including the failure to make certain royalty payments, the failure to
meet certain sales minimums and the failure to pay miscellaneous other charges
under the Licensing Agreement. As of November 9, 1999 and November 11, 1999, the
Company and GPG executed certain amendments to the Licensing Agreement and the
Company is no longer in default as of the date of this report. The Company has
made payments to GPG and Marc Player totaling $555,000 since October 14, 1999.
In addition, Gary Player, GPG and the Company anticipate finalizing the
APA which will allow the Company to market, sell, distribute and sublicense
premium golf equipment and accessories worldwide under the Gary Player name.
Upon the completion of the APA, GPG will be one of the largest shareholders of
the Company. On October 28, 1999, Marc Player became the interim Chief Executive
Officer of the Company. Furthermore, Mr. Gary Player plans to become more
actively involved in the design of the Company's golf equipment and in assisting
the Company in forming strategic relationships to assist the Company in many
areas including advertising and internet sales. Mr. Gary Player has also pledged
to assist the Company in making available his worldwide business and financial
contacts to create licensing and acquisition opportunities for the Company.
INTERNET MARKETING
A historically unprecedented amount of publicity has been generated
about the internet and its impact on the American culture and commerce in the
last several years. Management believes it is well positioned to capitalize on
this fundamental paradigm shift in the commercial and informational processes of
the American and international consumer through the merger of Grafix and Golf
One. Due to Golf One's status as a direct marketer, the Company will benefit
from Golf One's existing infrastructure.
The Company's strategy for its internet advertising is to create a
highly interactive and graphically attractive internet site integrating
animation, live and recorded video, interactivity and commerce to inform,
entertain, and provide a convenient and enjoyable place for e-commerce via the
Gary Player Pro Shop, while concurrently creating a lower cost sales and
marketing channel for the Company. The strategic plan is designed to increase
revenues, lower corporate expense, increase margins and result in an inexpensive
generator of leads as well as an overall marketing tool.
Within the context of the Company's plan is the aggressive development
of an e-mail database of golfers, both domestic and internationally. This data
base will lend itself to the creation of "The Gary Player VIP e-club," offering
golfers a broad array of services ranging from monthly newsletters and golf
tips, announcements of new products, discounted clubs and accessories, and news
information. The e-communications will have a number of embedded links to the
Company's website, allowing the golfer to inspect the product, check competitive
price points, obtain news, order products and ultimately check the status of
existing orders. With respect to ordering products, the customers will be able
to custom design their own equipment utilizing point and click technology to
specify components such as shafts, heads and grips. The Company is currently
evaluating vendors and other professionals who can develop the Company's
internet site to accomplish the above goals.
7
<PAGE> 11
To generate significant traffic for the Company's website, in addition
to the e-marketing program described above, the Company intends to implement a
multi-pronged approach: (i) utilize Gary Player as a spokesman to promote the
website in all media; (ii) produce and broadcast quarterly thirty minute
"webcasts" concurrent with major tournaments such as the Masters or the British
Open featuring Gary Player during which he will detail the tournament history,
the course upon which the tournament is being held, some of the history of
golf's legends, and provide tips for viewers who log on; (iii) use print and
electronic advertising placed in conjunction with Tradewell, Inc., an
international barter and media placement company; (iv) utilize Company
infomercials (being developed) to promote the website; and (v) pursue a campaign
to form strategic alliances with numerous high traffic sites, ranging from
sports to business, designed to link traffic flows and in certain cases share
revenue.
In addition to creating more widespread internet presence through
expansion of its existing website, the Company is launching a program to
identify and acquire high traffic golf-content internet sites which can be
consolidated under the Gary Player brand name.
Golf One has already implemented a number of web-based promotional
programs designed to generate direct marketing leads. These programs, which
include sweepstakes and product giveaways, were carried on Golf One's web site
as well as on other web sites whereby Golf One sponsored an annual Gary Player
sweepstakes inviting visitors to the Golf One web site to enter sweepstakes for
a chance to win golf clubs, other golf products and, for first place winners,
the opportunity to play nine holes of golf with Gary Player. The information
obtained from the sweepstakes entry forms is then used by the Company in its
telemarketing efforts and contributes to a mailing list for the Company's
catalogs.
The Company intends to invest a significant portion of the proceeds of
any financing received from any public or private offerings to increase
advertising of its website and create or obtain additional content for its
internet activities.
STRATEGIC ACQUISITIONS
The Company has commenced a program to identify and acquire certain
golf related companies or assets of companies which are consistent with its
strategic plan of increasing revenues and earnings. These acquisitions will be
sought pursuant to certain specific profiles which range from strategic synergy
to valuation and financing availability.
OTHER MARKETING AND EXPANSION STRATEGIES
- - Increase Direct Response Television Marketing. The Company believes that
direct response television will generate substantial additional inbound sales
which, by definition, decreases product returns as a percentage of sales. Direct
response television includes infomercials and direct response commercials. This
direct marketing channel generates sales through customers calling the Company
as compared to telemarketing, where the Company initiates the call. In addition
to generating sales, direct response television is expected to increase consumer
awareness of the Company's products and brand name, thereby enhancing the
effectiveness of other marketing activities. In December 1998, Golf One entered
into a strategic alliance with Caudill and Associates, a prominent international
infomercial producer and direct marketer. Pursuant to the terms of the
agreement, Golf One completed principal photography in December 1998 with Gary
Player for an approximately thirty minute infomercial for its Black Knight Par
Saver state-of-the-art wedges and a two minute direct response commercial for
the Heavy Hitter, a training aid.
- - Create and Distribute Mail Order Product Catalogs. The Company believes that
it can increase sales and exposure as well as drive sales to its internet site
through targeted mailings of product catalogs to existing and potential
customers. The Company anticipates that its catalogs will feature products of
both the Company and its sublicensees as well as other manufacturers.
- - Establish International Marketing Operations. Golf One's marketing of Gary
Player products has been limited to the United States and Canada under its
Licensing Agreement with GPGE. The proposed Player Acquisition will allow the
Company to expand into global marketing. The Company expects that its
international marketing efforts will focus on sublicensing, joint venture and
other arrangements for the marketing and distribution of Gary Player golf
products on a territory and/or product specific basis. The Company believes that
Mr. Player's international reputation will be
8
<PAGE> 12
valuable in creating international interest in the Company's products.
- - Increase Advertising and Trade Show Participation. The Company believes that
its overall sales efforts will be enhanced by greater consumer recognition of
the Company and its products. The Company intends to increase its expenditures
on print advertising in various golf and golf-related publications and golf and
direct marketing industry trade shows to create consumer awareness.
- - Telemarketing Activities. Virtually all of Golf One's sales have been
generated through telemarketing prior to the launch of its website in the spring
of 1999, which has led to excessive product returns. The Company will begin to
focus more on internet driven sales and streamline its telemarketing efforts by
updating its technology and increasing training of its sales representatives.
Prior to the 1999 Merger, Golf One began this process by consolidating its
telesales operations, terminating a significant number of telemarketers, as well
as a number of middle managers, resulting in the substantial reduction of its
overhead.
COMPETITION
The markets for the Company's golf clubs and accessories are highly
competitive and contain limited barriers to entry. The Company competes
primarily on the basis of providing higher quality products at lower price
points. The Company competes with golf equipment manufacturers and marketers as
well as manufacturers and marketers of other sporting equipment that offer
consumers products with similar entertainment or recreational value, such as ski
and tennis equipment. Many of these competitors are well-established companies
with broad consumer recognition and greater financial, marketing, distribution,
personnel and other resources than the Company. The Company's major domestic
competitors for its irons and metal woods are Callaway Golf, Taylor Made,
Titleist, Cobra and Ping. New product introductions and/or price reductions by
competitors continue to generate increased market competition and the Company
believes that such competition may cause it to lose some of its market standing
and may negatively affect sales. None of these companies are specifically
engaged in the direct marketing of their product. It is management's opinion
that the existing major manufacturers will not enter the direct marketing
business due to the conflict that may be created with their critical retail
relationships. In addition, the Company is aware of a number of companies that
use infomercials and websites to sell golf clubs (principally specialty clubs).
Competition in the market for golf apparel is also extremely
competitive. The Company intends to compete in this market by attempting to
establish the Gary Player brand and offering, principally through sublicensees,
a variety of products at various price and quality levels. In the golf apparel
market, the Company will compete with a large number of manufacturers and
retailers of golf and other sports apparel and casual and outerwear. There can
be no assurance that the Company will be able to compete in any of the markets
in which it currently participates successfully.
RAW MATERIALS
Golf One selected its suppliers primarily on the basis of quality,
price, payment terms and delivery capability. The Company believes that the
continued use of components from manufacturers with wide brand-name recognition
and favorable consumer perception will facilitate sales of its golf clubs and
maintain quality.
The Company assembled its golf clubs through March 31, 1999 at its
principal facility in Santa Maria, California. The Company received the
component parts for the clubs from several different suppliers, including the
following:
- - Heads for the Ti-162 Woods were supplied by a manufacturer in Taiwan
(35%) and for the Ti-162 Irons, a separate manufacturer in Taiwan
(35%);
- - Grips for all of the clubs were supplied by Golf Pride Tour Wrap Grip
(90%) and Avon Chamois Grips (10%);
- - Shafts for the Ti-162 Woods were supplied by Grafalloy (65%) and for
the Ti-162 Irons, by Aldila (35%);
- - Ferrels, which are the plastic fixtures on the clubs that conceal the
connection between the shaft and head, were exclusively supplied by
Probuilt Golf.
The Company has ordered its heads for the ParSaver Wedges, the Chromium
Fairway Woods and the new Titanium Driver from another manufacturer in Taiwan.
The source of the other parts is yet undetermined.
Historically, because of working capital constraints, Golf One
generally had been required to pay for components upon shipment, which has
resulted in delays in filling orders from customers. During the fiscal year
9
<PAGE> 13
ended March 31, 1999 and thereafter, the Company has periodically experienced
order interruptions due to the Company's inability to timely pay for its
components. Certain of the Company's suppliers have cancelled their shipments
since March 31, 1999. Consequently, the Company has sought to establish
relationships with alternate suppliers of its component parts. Certain of the
Company's suppliers have initiated proceedings against the Company for lack of
payment on inventory received. See description of such proceedings under Item 3,
"Legal Proceedings" below.
At March 31, 1999, golf clubs were shipped directly to customers via
UPS ground delivery service generally within two to three weeks from the date of
order. The Company began using Federal Express for delivery of its product in
August, 1999. The Company believes that increasing its inventory of components
will enable the Company to fill orders more quickly, which could reduce order
cancellations.
SEASONALITY
In the golf equipment industry, sales to retailers are generally
seasonal due to lower demand in the retail market in the cold weather months
covered by the third and fourth quarters. The Company's business generally
follows this seasonal trend and the Company expects this to continue. Unusual or
severe weather conditions may compound these seasonal effects.
EMPLOYEES
At March 31, 1999, the Company, through its subsidiaries, had
approximately 135 full-time employees, including 89 in sales and marketing, 20
in customer service and support, 10 in production, 13 in general administration
and finance and 3 salaried executives. None of its employees were covered by a
collective bargaining agreement.
As of November 1, 1999, the Company employs approximately 40 full-time
employees, including 12 in sales and marketing, 14 in customer service and
support, 5 in production and 9 in general administration and finance.
Additionally, the Company at March 31, 1999, employed several
independent contractors who acted as consultants to the Company in different
capacities, including in assisting in capital raising as well as in
promotional capacities. See description of such consultants under Item 12
"Certain Relationships and Related Transactions" below.
Gran Prix has an outstanding obligation to the Internal Revenue Service
(the "IRS") for unpaid taxes in the amount of $1,134,000.00. The Company has
reached an initial agreement with the IRS to make monthly payments to satisfy
this obligation. Certain payments have been made but the Company is trying to
obtain more favorable terms to make the payments.
The Company is aware of a claim by the State of California Employment
Development Department (the "EDD") for taxes owed by Gran Prix. The Company is
negotiating a payment plan with the EDD and intends to satisfy the obligation by
June 30, 2000. See Item 3 "Legal Proceedings" below.
On or about July 14, 1999 a fine was assessed against Gran Prix by the
State of California Department of Industrial Relations-Division of Labor
Standards Enforcement in the amount of $57,000.00. Gran Prix has not made any
payments in satisfaction of this debt but intends to fully satisfy this
obligation within the next twelve months. See Item 3 "Legal Proceedings" below.
GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE
Golf One's direct marketing operation, which is now operated by the
Company, is subject to numerous federal and state regulations, as well as
general public scrutiny. The Federal Telephone Consumer Protection Act of 1991
limits the hours during which telemarketers may call consumers to between 8:00
a.m. to 9:00 p.m. and prohibits the use of automated telephone dialing equipment
to call certain telephone numbers. The Federal Telemarketing and Consumer Fraud
and Abuse Prevention Act of 1994, and the Federal Trade Commission ("FTC")
regulations promulgated thereunder, prohibit deceptive, unfair or abusive
practices in telemarketing sales. Both the FTC and state attorney general have
authority to prevent telemarketing activities that constitute "unfair or
deceptive acts or practices." Additionally, some states have enacted laws and
others are considering enacting laws targeted directly at telemarketing
practices. There can be no assurance that any such laws, if enacted, will
not adversely
10
<PAGE> 14
affect or limit the Company's current or future operations.
The infomercial industry is also regulated by the FTC, as well as by
the Consumer Product Safety Commission, the Federal Communications Commission,
various states' attorney general and other state and local consumer protection
agencies. The Company's marketing activities and/or products may become subject
to the scrutiny of each of these regulatory agencies. Compliance with
regulations promulgated by these agencies is generally the responsibility of the
Company, and the Company could be subject to a variety of enforcement or private
actions for any failure to comply with such regulations. Noncompliance by the
Company with any rules and regulations enforced by a federal or state consumer
protection authority may subject the Company or its management to fines or
various forms of civil or criminal prosecution, any of which could materially
adversely affect the Company's business, financial condition and results of
operations.
ITEM 2. DESCRIPTION OF PROPERTY
Prior to the 1999 Merger, Grafix's operations were located in Denver,
Colorado as well as maintaining a warehouse for inventory in Japan. Upon
discontinuance of the Company's operations and in tandem with consummation of
the 1999 Merger, the Company's operations were moved to the California
facilities occupied by Golf One.
At March 31, 1999 the Company occupied approximately 23,000 square feet
of space in Santa Maria, California pursuant to a sublease agreement dated
January 20, 1995 between Comstream Corporation and Rhino. The term of the lease
was forty-five (45) months ending October 31, 1998 at a monthly rent of $12,650
for the final year. Pursuant to the terms of the sublease, the sublessor was
responsible for the property insurance, property taxes and maintenance of the
subleased space, but the Company was responsible for the difference between any
increases in the property insurance and taxes from the base year amount. The
Company was a holdover subtenant from November 1, 1998 through July, 1999, at
which time the Company relocated its principal operations in its current
facility in San Luis Obispo. The sublessor has instituted legal proceedings
against the Company on the sublease, which is more fully described below in
Item 3, "Legal Proceedings."
The Company also maintained a call center in Irvine, California until
February, 1999, under a lease agreement dated November 25, 1998 between Barclay
Associates and Golf One. The lease was for 3,424 square feet of office space for
a term of three years from December 15, 1998 through December 14, 2001 at a
monthly rent of $4,965.00.
The Company also maintained a call center in Ventura, California under
a sublease agreement dated June 24, 1997 between Fugro West, Inc. and Golf One.
The sublease was for 2,200 square feet of office space for a term of six months
from July 1, 1997 through December 31, 1997 at a monthly rent of $2,574.00 and
the Company was additionally responsible for interior janitorial services and
its pro-rata share of the cost of utilities. The sublease provided one three
year renewal option at an increased rent. The Company renewed the lease for an
additional two years to December 31, 1999, and maintained operations at the
facility through May, 1999, at which time the Company shut down its call center
operations in the Ventura facility. The sublessor obtained two judgments against
the Company on February 9, 1999 in the amount of approximately $77,000. See
description of the suit under Item 3 "Legal Proceedings" below.
The Company currently occupies the space in its San Luis Obispo,
California facility previously utilized as a call center as its principal place
of business pursuant to a month to month lease dated October 5, 1995 between
Volny Investment Co. and Rhino. The leased space consists of 2,660 square feet
of office space at a monthly rental rate of $1,650 for the first six months,
$1,800 for the next seven to twelve months and after twelve months, an increased
monthly rent of either 3% or the CPI increase for the next twelve months based
upon the previous twelve months' ending base rent. Currently, the monthly rental
being paid under this lease is $1,970. Under the terms of the lease, the
landlord is responsible for all common area maintenance expenses, real estate
taxes and insurance and the Company is responsible for the maintenance of the
interior portion of the space and its HVAC system as well as the Company's
utilities including water, sewer and gas. On October 29, 1999 the Company
received a notice to terminate the rental agreement between the parties and
consequently will vacate the premises on or before December 31, 1999. The
Company does not anticipate any material adverse financial impact to the
Company's operations if it relocates its operations in the San Luis Obispo,
California area after December 31, 1999.
11
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
On or about December 21, 1998, a lawsuit was brought against the
Company in the District Court of Arapahoe County, Colorado by the Company's
landlord to recover amounts due under the Company's lease of office space in
Englewood, Colorado. The suit alleges a breach of the lease by the Company and
seeks monetary damages in the amount of $20,266. The Company's new Board and
management team are evaluating the Englewood lease and this action to determine
the Company's position as of the date of filing this report.
In September 1997 a lawsuit was brought against the Company in the
County Court of Tarrant County, Texas by J. Russell Walker, the Company's former
vice president. The suit seeks damages related to an alleged breach of a 1996
employment agreement and other damages. The Company is currently negotiating a
settlement of this matter. The Company has accrued the amount of the claim
($20,000) for the settlement and legal costs, but management believes that the
cost of settlement will not exceed the amount accrued on its books and believes
that it can settle this claim for approximately $16,000.
On or about January 29, 1999 a lawsuit was brought against the Company
in District Court, City and County of Denver, Colorado by Patrick Burke. The
suit alleges breach of contract and seeks monetary damages and the issuance of
shares of the Company's common stock in connection with a 1994 independent
contractor agreement. The Company's new Board and management team are evaluating
such agreement and this action to determine the Company's position as of the
date of filing this report. The Company has accrued the full amount of the claim
($135,000) at September 30, 1998.
On or about April 20, 1999, a lawsuit was brought against the Company
and Mr. Kent Krausman in the District Court, County of Arapahoe, Colorado by
General Motors Acceptance Corporation for $8,573 in unpaid lease payments. This
action arises from an alleged breach of a lease agreement between the Company
and GMAC. The Company intends to settle this matter within the next thirty to
sixty days.
The Company has been notified of a claim by CSI, a provider of credit
card processing services. Rhino entered into a merchant account agreement
with CSI in August, 1996 and Gran Prix entered into a similar agreement in 1997
and which agreements were assumed by the Company in the 1999 Merger. CSI alleges
a breach by the Company of the merchant account agreements and is currently
withholding the proceeds from sales by the Company as payment against amounts
owing for customer charge-backs and returns. The Company intends to negotiate
with CSI to try and reach an agreement whereby the Company may utilize a
portion of the proceeds from sales while the debt is being repaid.
The Company has been notified of a claim in the amount of $532,500
under a license agreement between Carrera Optyl Marketing GmbH ("Carrera") and
Grafix. The claim is for payment of asserted royalties. The Company is
evaluating this claim as of the date of this report.
The Company has been notified of a potential claim by Mr. Jack
Cancellieri, who provided a $1,000,000 bridge loan to the Company in March of
1998. The loan was converted into shares of Common Stock of the Company in
connection with the 1999 Merger. Mr. Cancellieri is alleging fraudulent
inducement in connection with the conversion of his loan in April 1999. The
Company is attempting to settle this matter through the issuance of additional
shares of Common Stock.
Gran Prix has an outstanding obligation to the IRS for unpaid taxes in
the amount of $1,134,000.00. The Company has reached an initial agreement with
the IRS to make monthly payments aggregating $30,000 to satisfy this obligation.
Certain payments have been made but the Company is trying to obtain more
favorable terms to make the payments.
The Company has been notified of a claim arising from loans made to
Golf One by Nissho Iwai American Corporation, Nissho Iwai Logistics, Autrans
Corp., and N.I. Logistics American Corp. (collectively "Nissho"). A settlement
agreement was reached between the Company and Nissho in March of 1999, however,
the Company is in breach of that agreement. The amount currently outstanding to
these parties is approximately $870,000. The Company intends to renegotiate with
Nissho to fulfill its obligations under the settlement agreement.
On or about May 5, 1998 a lawsuit was brought against the Company and
Rhino in California Superior Court for Santa Barbara County by ComStream
Corporation, former landlord to Rhino. The dispute arises from a default by
Rhino under a sublease for the former premises it occupied in Santa Maria,
California. ComStream obtained a judgment against Rhino in the amount of
$248,242.50, however, the parties
12
<PAGE> 16
entered into a settlement agreement under which ComStream would accept $138,250
provided the amount is paid in certain installments. The Company has paid a
substantial portion pursuant to the agreement, however, there is still an
outstanding obligation and a dispute exists as to how much is owed by the
Company for certain repairs which were made to the property after the Company
vacated the premises. The Company intends to resolve the dispute regarding
repair costs and satisfy its remaining obligations under the settlement
agreement.
On or about May 11, 1999 a lawsuit was brought against the Company in
California Superior Court for Los Angeles County by Robert Murphy, The Murphy
Family Trust, Alex Trebek, and Gargoyle Productions, Inc., Futura Investments,
Inc., Donald Bergman, Future Investments, Inc. Defined Benefit Pension Plan and
Rescor, Inc. (collectively "Murphy"). The suit seeks repayment of amounts loaned
to the Company or guaranteed by Murphy. A judgment against the Company was
obtained by Murphy in the amount of $229,954.16 and if the Company did not
satisfy the judgment, a receiver was to be appointed by the Court. The Company
has made an initial payment of $25,000 to Murphy in exchange for which Murphy
agreed to temporarily forego its right to have a receiver appointed as of
December 1, 1999 and give the Company additional time to fully satisfy the
claim. The Company settled the Murphy litigation on November 30, 1999 for
$205,954.16, partially payable in cash and the issuance of 100,000 shares of
Common Stock and the cancellation of the Class B Warrants held by Murphy.
On or about June 2, 1999 a lawsuit was brought against the Company in
California Superior Court for Santa Maria County by Higgins Family, L.P.,
Intercontinental Acceptance Corp., Corporate Communications Network, Inc. and
Stephen E. Hoffman to collect $200,000 plus interest due under notes made to the
Company in May 1998. The Company is attempting to negotiate a settlement of this
matter.
On or about February 19, 1999 a lawsuit was brought against the Company
in the Supreme Court of the State of New York, New York County by Packquisition
Corp. The suit seeks $175,000 due for services rendered in connection with
printing services. The parties reached a settlement agreement whereby
Packquisition agreed to accept a payment of $55,000 as full satisfaction of the
debt. The Company is currently in default of the settlement agreement, however,
it fully intends to satisfy its obligations under the settlement agreement.
The Company has been notified of a claim by Direct Media, Inc. in the
amount of $138,632 arising from non-payment for services rendered to the
Company. The debt is currently in collection and the Company intends to initiate
negotiations directly with Direct Media to satisfy this debt.
The Company has been notified of a potential claim arising from a
$100,000 loan made to the Company by Mr. Daniel A. Stephenson. On or about
August 3, 1999, a settlement agreement was reached between Mr. Stephenson and
the Company whereby the Company would repay a portion of the debt and the
remainder of the debt would be converted to shares of Common Stock of the
Company. If payment is not made in accordance with the settlement agreement a
judgment will be entered against the Company.
The Company has been notified of a potential claim arising from two
loans totaling $45,000 made to the Company by Dr. Michael I. Freilich on March
14, 1999 and May 20, 1999. The Company negotiated an extension of these loans
until November 15, 1999. The Company intends to settle this matter with Dr.
Freilich before litigation ensues.
The Company is aware of a claim by the State of California EDD for
$90,000 in taxes owed by Gran Prix. The Company is negotiating a payment plan
with the EDD and intends to satisfy the obligation by June 30, 2000.
On or about August 11, 1999 a lawsuit was brought against the Company
in California Superior Court for Ventura County by Ms. Diana Garcia, a former
employee. The suit seeks damages in the amount of $70,400.00 in connection with
the alleged sexual harassment of Ms. Garcia by another employee of the Company.
The Company has settled this matter for $6,000.
On or about January 11, 1997 a lawsuit was brought against the Company
and Rhino in District Court, 224th Judicial District, Bexar County, Texas by
PTS, TV, Inc. On or about February 9, 1999 a judgment was entered in Texas
against the Company and Rhino in the amount of $69,036.96. On or about September
30, 1999 the judgment was also entered in California. The Company is currently
evaluating this claim and intends to initiate settlement negotiations.
13
<PAGE> 17
On or about July 28, 1999 a lawsuit was brought against the Company in
the California Superior Court for Ventura County by Fugro West, a former
landlord of the Company. The suit seeks damages for unpaid rent and repair
costs. On or about July 19, 1999, Fugro West obtained a judgment against the
Company pursuant to its action against the Company for unlawful detainer. In
addition, Fugro West has brought an action based upon the Company's abandonment
of the lease and is seeking the amount due for future rent payments. Fugro West
claims total approximately $77,000. The Company has recently initiated
settlement discussions and intends to settle the matter prior to any judgment
being enforced.
On or about April 30, 1999 a lawsuit was brought against the Company in
California Superior Court for Santa Maria County by Andrew F. Pollet and Sally
M. Pollet Revocable Trust (collectively "Pollet"). The suit seeks repayment of
amounts loaned to the Company by Pollet. A stipulation for judgment against the
Company was entered on or about April 1999 for $61,694. The stipulation provided
that enforcement of the judgment would be postponed provided payment was made by
April 30, 1999. No payment was ever made and judgment was entered pursuant to
the stipulation. The Company has paid approximately half of the judgment but is
currently in default under the agreement to pay the remaining balance. The
Company intends to negotiate a new agreement to satisfy the remainder of the
debt and to fulfill its obligations under such agreement.
On or about June 21, 1999 a lawsuit was brought against the Company in
California Superior Court for San Diego County by Grafalloy, L.P. for
non-payment for goods provided to the Company. A judgment was entered against
the Company on or about September 13, 1999 for $59,700.26 and a judgment lien on
personal property was filed with the Secretary of State of California on
September 21, 1999. The Company intends to initiate settlement negotiations with
Grafalloy to resolve this matter.
On or about July, 1999 a lawsuit was brought against the Company in
California Superior Court for Santa Barbara County by NEC America, Inc. for
failure to make payments on equipment leased to the Company by NEC America in
the amount of $58,281.03. The parties have been ordered by the Court to attend a
case management conference on December 7, 1999 at which time the Company hopes
to negotiate a settlement with NEC America.
On or about July 14, 1999 the Company was assessed a fine by the State
of California Department of Industrial Relations-Division of Labor Standards
Enforcement in the amount of $57,000.00. The Company has not made any payments
in satisfaction of this debt but intends to fully satisfy this obligation within
the next twelve months.
The Company is aware of a potential claim by The Towbes Group, Inc.
("Towbes"), a former landlord of the Company. On or about, November 23, 1998 the
Company entered into a lease agreement with Towbes and paid a security deposit
upon execution of the lease. The Company never took possession of the premises
and ultimately defaulted under the lease. The Company believes that the lease
has been terminated and it has no further liability since the security deposit
has been forfeited to Towbes as liquidated damages. The Company set forth its
position in a letter to Towbes on or about March 31, 1999 and has not received
any response, however, there can be no assurance that a claim will not be made
against the Company in the future.
Hawthorne Direct, Inc. ("Hawthorne") received an arbitration award in
the amount of $40,125.59 for non-payment for media services provided to the
Company. On or about July 16, 1998, the parties entered into a Media Services
Agreement pursuant to which any dispute between the parties was to be submitted
to binding arbitration with the American Arbitration Association. The
non-payment issue was submitted to arbitration on or about August 16, 1999. The
Company settled this matter on November 23, 1999 with the payment of $7,500 and
an agreement to make monthly payments commencing on January 23, 2000 at the rate
of $3,000 per month until the full amount of this claim has been paid.
On or about July 19, 1999 a lawsuit was brought against the Company in
California Superior Court for San Luis Obispo County by Eaton Corporation for
non-payment of goods sold which obligation has been reduced to a promissory note
in the amount of $29,195.74. The Company believes that the matter can be settled
for less than the amount sought in the complaint and intends to begin settlement
negotiations before December 31, 1999.
In addition, certain lenders, vendors, suppliers and professionals have
either threatened or instituted actions against the Company resulting from the
non-payment of loans or non-payment for services or goods provided by these
third parties to Company and its subsidiaries.
14
<PAGE> 18
The Company has received correspondence from certain parties that were
shareholders of Grafix Corporation prior to the merger with Golf One requesting
an adjustment of their shareholdings on the asserted grounds that Golf One had
furnished misleading financial information to the Carrera shareholders.
Subsequent correspondence proposes to reduce this number significantly. The
Company's newly elected Board and management is evaluating these proposals as
well as the potential for counter-claims against the principal pre-merger Grafix
shareholders, directors, and officers. The Company does not at this time foresee
litigation arising out of neither these issues nor any material adverse effect
upon the Company resulting from the potential claims and/or counter-claims.
Additionally, certain former directors and officers have sent letters
to the Company requesting the payment of certain outstanding fees, salaries, and
expenses incurred during their tenure as directors and/or officers.
The Company is aware of numerous pending and threatened legal actions
by customers of the Company who never received ordered merchandise or who
returned merchandise pursuant to the Company's guarantee and never received a
refund. Furthermore, the Company has been contacted by the Attorney General's
office in several states in connection with these consumer issues. The Company
is presently assessing the situation and has been attempting to resolve these
claims as they arise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A majority of the Company's shareholders voted to approve the merger
agreement between the Company and Golf One on March 26, 1999 and a majority of
Golf One's shareholders voted to approve the merger on February 23, 1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock was traded only in the over-the-counter
markets, and "bid" and "asked" price quotations of dealers who make a market in
the Common Stock were quoted on the NASD Electronic Bulletin Board as of
March 31, 1999. The Company's Common Stock was traded under the symbol
"GFIX" through August 6, 1998 at which time it began to trade under "CRRAD"
until September 8, 1998, after which time it has been traded under the symbol
"CRRA." The following table sets forth certain information with respect to the
high and low bid prices for the Company's Common Stock for each of the quarters
within the two years ended September 30, 1998. The source of the high and low
bid information for the years ended March 31, 1998 and 1999 is an internet stock
quotation service located at http:\\www.tscn.com. Such quotations reflect
inter-dealer prices, without retail mark-ups, markdowns or commissions, and may
not represent actual transactions.
Following the 1999 Merger with Golf One and Grafix, the Company's name
was changed to Gary Player Direct, Inc. and its symbol was changed to GPLY. In
September, 1999 an "E" was added to the symbol to indicate that the NASD had
notified the Company's market makers that the Company shares would no longer be
eligible for quotation on the NASD Bulletin Board on about October 21, 1999 if
the Company was not current in its reporting obligations with the Commission. On
October 21, 1999 the Company's shares were not eligible to be reported by market
makers on the NASD Bulletin Board. The Company's securities are now traded in
the over-the-counter market and accordingly the symbol was changed back to GPLY.
Last trade information may be obtained for the Company's Common Stock at
websites such as http:\\www.bloomberg.com and trading information for the
Company's common stock may be available at http:\\www.nqb.com although it may be
necessary to become a subscriber of the National Quotation Bureau to obtain this
information. The Company believes that its shares of Common Stock will be
eligible for quotation on the NASD Bulletin Board once all of its past due
periodic reports are filed with the Securities and Exchange Commission.
The Company implemented a one-for-three stock split in July 1998,
effective August 1998 and a one-for-twenty stock split in May 1999. Unless
otherwise indicated, all references to the Company's Common Stock in this report
give effect to both of these stock splits.
15
<PAGE> 19
<TABLE>
<CAPTION>
PRICES FOR COMMON STOCK
High Low
---- ---
<S> <C> <C>
1999
Quarter Ended June 30, 1998 $ 8.740 $3.120
Quarter Ended September 30, 1998 $20.000 $2.000
Quarter Ended December 31, 1998 $ 6.800 $1.860
Quarter Ended March 31, 1999 $ 4.200 $1.300
1998
Quarter Ended June 30, 1997 $12.500 $3.740
Quarter Ended September 30, 1997 $25.000 $2.500
Quarter Ended December 31, 1997 $15.000 $2.500
Quarter Ended March 31, 1998 $ 9.360 $3.120
</TABLE>
As of March 31, 1999, there were approximately 356 holders of record of
the Company's Common Stock.
At November 24, 1999, the closing price of the Company's Common Stock
was $6.375. The Company's Common Stock is thinly traded and prices for the
Company's Common Stock may vary widely from day-to-day.
PRIVATE SALES
There were various issuances and sales of equity securities by Golf One
during the fiscal year ended March 31, 1999 and for the previous three years
that were not registered under the Securities Act of 1933, as amended (the
"Act") based upon reliance on Section 4(2) of the Act and Regulation D
promulgated under the Act. The share amounts account for the one-for-three and
one-for-twenty reverse stock splits which occurred in July, 1998 and May, 1999,
respectively. The amount of shares or shares underlying warrants issued to
shareholders and warrantholders of Golf One provided for herein account for the
two for one 1999 Merger share exchange ratio.
From December 1995 through April 1996, the Company issued to twenty-two
purchasers units (the "Rhino Acquisition Units") comprised of an aggregate of
$800,000 in notes and warrants to purchase an aggregate of 188,265 shares of
Common Stock. The Rhino Acquisition Units were issued to raise capital to
satisfy a condition subsequent (the "Post Closing Conditions") to which the
Company agreed in connection with its acquisition of Rhino. In January 1997, the
Company issued 75,000 Class A Common Stock Purchase Warrants to sixteen of the
purchasers who purchased the Rhino Acquisition Units as consideration for their
agreement to extend the maturity date of the promissory notes included in the
Rhino Acquisition Units. In connection with the offering, (i) each of the
purchasers represented to the Company, and the Company believed, that each
purchaser was an Accredited Investor, (ii) the certificates representing the
securities contain appropriate restrictive legends regarding resale, and (iii)
the Company did not engage in any general solicitation or general advertisement.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Act as a transaction not involving any public offering.
In connection with the offering of Rhino Acquisition Units, the Company
issued warrants to purchase 51,795 shares of Common Stock to eight consultants
who assisted the Company in locating investors in the offering. The Company
and/or its principal executive officers or directors had a pre-existing
relationship with each of the consultants and, based on this relationship, the
Company reasonably concluded and believed that each of the consultants was a
sophisticated purchaser and was acquiring the securities for themselves and not
for other persons. Each consultant had adequate access, through their employment
or other relationships, to sufficient information about the Company to make an
informed investment decision. Each of the warrant certificates issued to the
consultants includes a legend providing that neither the warrants nor the Common
Stock issuable upon their exercise have been registered under the Act, and may
not be transferred in the absence of an effective registration statement or
unless an exemption from registration is available. Further, the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the warrants. Based on the foregoing, the issuance and sale of
these securities was made in reliance on Section 4(2) of the Act as a
transaction not involving any public offering.
16
<PAGE> 20
In April 1996, the Company issued Class A Common Stock Purchase
Warrants to purchase 20,000 shares of Common Stock to John McKey as compensation
for consulting services performed for the Company consisting of the promotion of
the Company's business and the investigation of strategic acquisitions. Mr.
McKey represented to the Company, and the Company believed, that Mr. McKey was
an Accredited Investor, and the certificate representing the securities issued
to Mr. McKey contains an appropriate restrictive legend regarding resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as a transaction not involving any public offering.
In June 1996, the Company issued an aggregate of 402,027 shares of
Common Stock upon the automatic conversion of outstanding Series A Convertible
Preferred Stock in accordance with the Company's Certificate of Incorporation.
The issuance of these securities was made without payment to the Company of any
additional consideration and therefore was not a "sale" within the meaning of,
and not subject to, Section 5 of the Act.
Also in June 1996, the Company issued an aggregate of 26,378 shares of
Common Stock to the Rhino Stockholders, who the Company believed were all
Accredited Investors, in consideration of their agreement to extend the date by
which the Company was required to satisfy the Post Closing Conditions. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as a transaction not involving any public offering.
From June 1996 to August 1997, the Company issued an aggregate of
572,649.25 shares of Series B Convertible Preferred Stock at a price of $3.33
per share to seventy-seven purchasers, of which 85,937 shares were purchased
through the conversion of $286,170 of outstanding indebtedness (the "Series B
Offering"). In connection with the Series B Offering, each of the purchasers
represented to the Company, and the Company believed, that they each were a
"Qualified Purchaser" (as that term is defined under Section 25102(n) of the
California Corporations Code), and the certificates representing the securities
issued to the purchasers contain an appropriate restrictive legend regarding
resale. The issuance and sale of these securities was made in reliance on
Section 3(b) of the Act and Regulation D promulgated thereunder.
In connection with the Series B Offering, the Company issued as
compensation to consultants who assisted the Company in locating investors in
the offering (i) an aggregate of 2,500 shares of Common Stock to Andrew Pollet
valued at $5.00, and (ii) 137,450 Class A Common Stock Purchase Warrants to
nineteen consultants. The Company believed that each of the consultants was a
sophisticated investor. The consultants had adequate access to sufficient
information about the Company, including all of the information contained in the
private placement memorandum used in the Series B Offering, to make an informed
investment decision. The certificates representing the securities issued to the
consultants contain appropriate restrictive legends regarding resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as a transaction not involving any public offering.
In July 1996, the Company issued 25,000 shares of Common Stock valued
at $50.00 to American Growth Fund L.L.P. ("American Growth") as additional
consideration for a $250,000 loan (the "AGF Loan") made by American Growth to
the Company. In April 1997, the Company issued an additional 12,500 shares of
Common Stock valued at $100,000 to American Growth in consideration of the
extension of the maturity date of the AGF Loan. American Growth represented to
the Company, and the Company believed, that American Growth was an Accredited
Investor, and the certificates representing the securities issued to American
Growth contain an appropriate restrictive legend regarding resale. The issuance
and sale of these securities was made in reliance on Section 4(2) of the Act as
transactions not involving any public offering. In connection with the 1999
Merger, the principal and accrued interest on the AGF loan was converted into
81,375 shares of Common Stock of the Company issued in May, 1999.
In July and October 1996, the Company issued an aggregate of 50,000
shares of Common Stock valued at $100.00 to John Pike, the Company's then Chief
Executive Officer and, by virtue of his position with the Company, an Accredited
Investor, as compensation for employment services. The certificates representing
these securities contain an appropriate restrictive legend regarding resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as a transaction not involving any public offering.
In July 1996, the Company issued 10,000 Class A Common Stock Purchase
Warrants to Robert Rein, a stockholder of the Company and a partner in the law
firm Saphier, Rein & Walden, which served as legal counsel to the Company at the
time of issuance, as additional consideration for a $100,000 loan made to the
Company by Mr. Rein. Mr. Rein has represented to the Company, and the Company
believed, that Mr. Rein was an Accredited Investor, and the certificates
representing these securities contain an appropriate restrictive legend
regarding resale.
17
<PAGE> 21
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Act as a transaction not involving any public offering.
From August 1996 to October 1996, the Company issued an aggregate of
75,000 Class A Common Stock Purchase Warrants to John Pike, Marco Garcia, James
Braden and William Bennetti, certain employees of the Company, as compensation
for employment services. The Company believed that each of the employees was a
sophisticated purchaser. Each of the employees had adequate access, through
their employment and other relationships with the Company, to sufficient
information about the Company to make an informed investment decision. The
certificates representing the securities issued to the employees contain an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Act as a transaction not
involving any public offering.
In October 1996, the Company issued 10,000 Class A Common Stock
Purchase Warrants to Alex Trebek as compensation for his appearance as a
spokesperson in a corporate video produced by the Company. Mr. Trebek
represented to the Company, and the Company believed, that he was an Accredited
Investor, and the certificate representing these securities contains an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Act as a transaction not
involving any public offering.
In December 1996, the Company issued 22,500 Class A Common Stock
Purchase Warrants to Racada Corporation, a corporation owned by Robert Rein, a
stockholder of the Company and a partner in the law firm of Saphier, Rein &
Walden, which serves as legal counsel to the Company. Mr. Rein has represented
to the Company, and the Company believed, that Mr. Rein was an Accredited
Investor. The warrants were issued as compensation for business and financial
consulting services performed for the Company by Racada Corporation pursuant to
a written Consulting Agreement dated October 11, 1996. The Company disclosed in
the Consulting Agreement that the warrants were subject to restrictions on
transfer. The Company believed that Racada Corporation would be acquiring the
securities for itself and not for other persons. The value of the services
provided by Racada Corporation and the value of all issuance of securities of
the Company made in reliance on the exemption afforded by Rule 701 under the
Securities Act during the twelve months preceding the issuance to Racada
Corporation was less than $500,000. The warrant certificate issued to Racada
Corporation includes a legend providing that neither the warrants nor the common
stock issuable upon their exercise have been registered under the Act and may
not be transferred in the absence of an effective registration statement or
unless an exemption from registration is available. The Company did not engage
in any general advertisement or general solicitation in connection with the
issuance and sale of these securities was made in reliance on Rule 701 as
securities issued pursuant to a written compensation contract with a consultant.
In December 1996, the Company issued an aggregate of 25,000 shares of
Common Stock valued at $50.00 to Futura Investments, Inc. Defined Benefit
Pension Plan, Robert Murphy IRA, City National Bank Custodian, and Gargoyle
Productions Ltd. Retirement Trust (the "BMT Stockholders") in consideration of
an extension of the maturity date of a promissory note evidencing a loan (the
"BMT Loan") in the principal amount of $400,000 made by the BMT Stockholders to
the Company in June 1996.
In March 1997, the Company issued an aggregate of 15,000 Class B Common
Stock Purchase Warrants to certain of the BMT Stockholders including Forest Lake
Associates, Alex Trebek and the Robert Murphy Living Trust as consideration for
their guarantees of the Company's obligations under a promissory note evidencing
a loan made to the Company by City National Bank in March 1997. Each of these
purchasers has represented to the Company, and the Company believed, that it was
an Accredited Investor, and the certificates representing the securities issued
to the purchasers contain an appropriate restrictive legend regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Securities Act as a transaction not involving any public offering.
In August and October 1997, the Company issued an aggregate of 50,000
Class B Common Stock Purchase Warrants valued at $240,000 and 25,000 Class B
Common Stock Purchase Warrants valued at $195,000, respectively, to Forest Lake
Associates, Alex Trebek, Trustee of the Gargoyle Productions, Ltd. Retirement
Trust and City National Bank, Trustee for the Murphy Living Trust, all
affiliates of the BMT Stockholders, in consideration of two additional
extensions of the maturity date of the BMT Loan. Each of the BMT Stockholders
has represented to the Company, and the Company believed, that it was an
Accredited Investor, and the certificates representing the securities issued to
the BMT Stockholders and their affiliates contain an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as transactions not involving any public
offering.
18
<PAGE> 22
In December 1996 and March 1997, the Company issued an aggregate of
25,000 shares of Common Stock valued at $50.00 to John Pike, the Company's then
Chief Executive Officer and, by virtue of his position with the Company, an
Accredited Investor, as consideration for Mr. Pike's personal guaranty of the
Company's obligations under an agreement with its credit card processor. The
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering.
In January 1997, the Company issued 7,500 shares of Common Stock valued
at $15.00 to Rescor, Inc. as compensation for consulting services provided by
Rescor, Inc. to the Company consisting of administrative and management
services. Rescor, Inc. is a corporation wholly-owned by Donald Bergman, a former
director of the Company who was serving on the Board of Directors at the time of
the issuance. Accordingly, by virtue of Mr. Bergman's position with the Company,
Rescor, Inc. was an Accredited Investor at the time of the issuance. The Company
believed that Rescor, Inc. was acquiring the securities for itself and not for
other persons. The Common Stock certificate issued to Rescor, Inc. includes a
legend providing that the securities have not been registered under the Act, and
may not be transferred in the absence of an effective registration statement or
unless an exemption from registration is available. Further, the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities to Rescor, Inc. Based on the foregoing, the
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as a transaction not involving any public offering.
In January 1997, the Company issued 10,000 Class A Common Stock
Purchase Warrants to John McKey in consideration of the extension of the
maturity date of a loan made by Mr. McKey to the Company in the principal amount
of $100,000. Mr. McKey has represented to the Company, and the Company believed,
that he was an Accredited Investor, and the certificate representing the
securities issued to Mr. McKey contain an appropriate restrictive legend
regarding resale. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Act as transactions not involving any public offering.
In April 1997, the Company issued 6,000 shares of Common Stock to Steve
Garvey for an aggregate of $120.00 and for promotional services provided by Mr.
Garvey under a consulting agreement dated April 1, 1997 and which agreement is
currently still in effect. See Item 12, "Certain Relationships and Related
Transactions" below. Mr. Garvey represented to the Company, and the Company
believed, that he was an Accredited Investor, and the certificate representing
the securities issued to Mr. Garvey contains an appropriate restrictive legend
against resale. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Act as a transaction not involving any public offering.
From May 1997 to September 1997, the Company issued an aggregate of
227,150 shares of Common Stock for cash at a price of $5.00 per share to
twenty-five purchasers (the "May 1997 Offering"). In connection with the
offering, (i) each of these purchasers represented to the Company, and the
Company believed, that it was a Qualified Purchaser, (ii) the certificates
representing the securities issued to the purchasers contain an appropriate
restrictive legend regarding resale, and (iii) the Company did not engage in any
general solicitation or general advertisement. The issuance and sale of these
securities was made in reliance on Section 3(b) of the Act and Regulation D
promulgated thereunder.
In connection with the May 1997 Offering, the Company issued as
compensation to consultants who assisted the Company in locating investors in
the offering (i) 21,490 Class A Common Stock Purchase Warrants to each of Steven
Sparks, a former director of the Company, and Private Equity Partners, L.L.C.,
and (ii) 250 shares of Common Stock valued at $1,250 to each of Michael Freilich
and Arnold Cooperman. In addition to its relationship with Steven Sparks, who
was a director of the Company and, by virtue of his position with the Company,
an Accredited Investor at the time of the issuance, the Company had a
preexisting relationship with each of the other consultants who received
securities in the issuance. Based on the Company's relationship with each of the
consultants, the Company believed that each of the consultants was a
sophisticated purchaser and was acquiring the securities for itself and not for
other persons. Each of the certificates representing the securities issued to
the consultants includes a legend providing that the securities have not been
registered under the Act and may not be transferred in the absence of an
effective registration statement or unless an exemption from registration is
available. Further, the Company did not engage in any general advertisement or
general solicitation in connection with the issuance of the securities to these
consultants. Based on the foregoing, the issuance and sale of these securities
was made in reliance on Section 4(2) of the Act as a transaction not involving
any public offering.
19
<PAGE> 23
In June 1997, the Company issued 12,500 Class A Common Stock Purchase
Warrants to Richard Casey as compensation for business and financial consulting
services performed for the Company. Mr. Casey represented to the Company, and
the Company believed, that he was an Accredited Investor, and the certificate
representing the securities issued to Mr. Casey contains an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Act as a transaction not involving
any public offering.
In June 1997 and November 1997, the Company issued an aggregate of 45,000
Class A Common Stock Purchase Warrants to Robert Friedland, a director of the
Company until October 14, 1999 and, by virtue of his position with the Company
then, an Accredited Investor, as compensation for management services performed
for the Company. The certificates representing the securities issued to Mr.
Friedland contain an appropriate restrictive legend regarding resale. The
issuance and sale of these securities was made in reliance on Section 4(2) of
the Act as transactions not involving any public offering.
From September 1997 to April 1998, the Company issued an aggregate of
52,375 shares of Common Stock for cash at a price of $8.00 per share to
twenty-three purchasers (the "September 1997 Offering"). In connection with the
September 1997 Offering, (i) each of the purchasers represented to the Company,
and the Company believed, that it was a Qualified Purchaser, (ii) the
certificates representing these securities contain an appropriate restrictive
legend regarding resale, and (iii) the Company did not engage in any general
solicitation or general advertisement. The issuance and sale of these securities
was made in reliance on Section 3(b) of the Act and Regulation D promulgated
thereunder.
In connection with the September 1997 Offering, the Company issued 250
shares of Common Stock valued at $2,000 to Monte A. Stern as consideration for
assistance to the Company in locating investors in the offering. Mr. Stern
represented to the Company, and the Company believed, that he was an Accredited
Investor, and the certificate representing these securities contains an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Act as a transaction not
involving any public offering.
In November 1997, the Company issued 6,250 shares of Common Stock valued
at $50,000 to Anthony Tesoro as compensation for corporate finance and new
business development services performed for the Company. Mr. Tesoro represented
to the Company, and the Company believed, that he was an Accredited Investor,
and the certificate representing these securities contains an appropriate
restrictive legend regarding resale. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Act as a transaction not involving
any public offering.
In November 1997, the Company issued 10,000 Class A Common Stock Purchase
Warrants to James Robertson for computer modeling services performed for the
Company. The Company and Alfonso J. Cervantes, Jr., the Company's Chief
Executive Officer and director, had a preexisting relationship with Mr.
Robertson at the time of the issuance. Mr. Robertson has performed computer
modeling services for the Company from time to time since its inception, and Mr.
Robertson has also performed such services for other businesses in which Mr.
Cervantes has been involved. Based on the foregoing, the Company believed that
Mr. Robertson was a sophisticated purchaser and that he would be acquiring the
securities for himself and not for other persons. Mr. Robertson had adequate
access, through his relationship with the Company, to sufficient information
about the Company to make an informed investment decision. The Common Stock
certificate issued to Mr. Robertson includes a legend providing that the
securities have not been registered under the Act, and may not be transferred in
the absence of an effective registration statement or unless an exemption from
registration is available. Further, the Company did not engage in any general
advertisement or general solicitation in connection with the issuance of the
securities to Mr. Robertson. Based on the foregoing, the issuance and sale of
these securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In November 1997, the Company issued 20,000 shares of Common Stock valued
at $160,000 to Robert Rein as consideration for his agreement to extend the
maturity date of two promissory notes evidencing loans made to the Company by
Mr. Rein in June and October 1996. Mr. Rein represented to the Company, and the
Company believed, that he was an Accredited Investor, and the certificate
representing these securities contains an appropriate restrictive legend
regarding resale. The issuance and sale of these securities was made in reliance
on Section 4(2) of the Act as a transaction not involving any public offering.
In November 1997, the Company issued 15,000 Class A Common Stock Purchase
Warrants to Joseph DePanfilis, the Company's Chief Financial Officer at the time
of issuance, and, by virtue of his position with the
20
<PAGE> 24
Company, an Accredited Investor, as compensation for employment services. The
certificate representing these securities contains an appropriate restrictive
legend regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering.
From November 1997 through March 1998, the Company obtained loans (the
"1998 Loans") from ten lenders in the aggregate amount of $880,000. In
connection with the loans, the Company issued to the lenders an aggregate of
44,000 shares of Common Stock which the Company valued at $352,000. In
connection with these loans, (i) each of the lenders represented to the Company,
and the Company believed, that he was an Accredited Investor, (ii) the
certificates representing these securities contain an appropriate restrictive
legend regarding resale, and (iii) the Company did not engage in any general
solicitation or general advertisement. The issuance and sale of these securities
was made in reliance on Section 4(2) of the Act as a transaction not involving
any public offering. In connection with the 1999 Merger, the Company issued an
aggregate of 195,175 shares of Common Stock in conversion of $780,700 amount of
principal and accrued interest on the 1998 Loans.
In connection with the 1998 Loans, the Company issued an aggregate of
44,000 shares of Common Stock valued at $352,000, 22,000 shares to Steven
Sparks, a director of the Company at the time of issuance, and 22,000 shares to
Sparks Financial, Inc., a corporation wholly-owned by Mr. Sparks, as
consideration for assistance to the Company in locating the lenders. By virtue
of Mr. Sparks' position with the Company, Mr. Sparks and Sparks Financial, Inc.
are Accredited Investors. The certificates representing these securities contain
an appropriate restrictive legend regarding resale. The issuance and sale of
these securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In November 1997, the Company issued 17,500 shares of Common Stock valued
at $140,000 to Alfonso J. Cervantes, Jr., the Company's Chief Executive Officer
at the time of issuance, and by virtue of his position with the Company, an
Accredited Investor, and 8,750 shares of Common Stock valued at $70,000 to
Norman A. Kunin, a founder and former executive officer of the Company, who the
Company believed to have such knowledge and adequate access to sufficient
information regarding the Company by virtue of his prior positions and
relationship with the Company, as consideration for their personal guarantees of
the Company's obligations under certain promissory notes evidencing amounts owed
by the Company in the aggregate principal amount of $750,000 for Mr. Cervantes
and $450,000 for Mr. Kunin. The certificates representing these securities
contain an appropriate restrictive legend regarding resale. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Act as a
transaction not involving any public offering.
In November 1997, the Company issued 2,500 shares of Common Stock valued
at $20,000 to Robert Friedland, a director of the Company at the time of
issuance, and by virtue of his position with the Company, an Accredited
Investor, in connection with a loan made to the Company by Mr. Friedland in the
principal amount of $40,000. The certificate representing these securities
contains an appropriate restrictive legend regarding resale. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Act as a
transaction not involving any public offering.
In January 1998, the Company issued 1,500 Class A Common Stock Purchase
Warrants to Sharna Dixon, the Company's Controller at the time of issuance, as
compensation for employment services. The Company believed that Ms. Dixon was a
sophisticated investor. Ms. Dixon had adequate access, through her employment
and other relationships with the Company, to sufficient information about the
Company to make an informed investment decision. The certificate representing
these securities contains an appropriate restrictive legend regarding resale.
The issuance and sale of these securities was made in reliance on Section 4(2)
of the Act as a transaction not involving any public offering.
In March 1998, the Company issued 1,700 shares of Common Stock valued at
$13,600 to Joseph DePanfilis, the Company's Chief Financial Officer at the time
of issuance, and, by virtue of his position with the Company, an Accredited
Investor, as consideration for loans aggregating of $76,000 made to the Company
by Mr. DePanfilis. The certificate representing these securities contains an
appropriate restrictive legend regarding resale. The issuance and sale of these
securities was made in reliance on Section 4(2) of the Act as a transaction not
involving any public offering.
In March 1998, the Company obtained a secured loan (the "March Loan") in
the amount of $1,000,000 from Jack Cancellieri. In connection with the loan, the
Company issued 76,250 shares of Common Stock to Mr. Cancellieri which the
Company valued at $610,000. In addition, the Company also agreed to issue an
additional 6,250 shares of Common Stock on the last day of each calendar month,
commencing the month of August 1998, that
21
<PAGE> 25
the loan shall not have been repaid. The Company has issued 168,331 shares of
Common Stock to Mr. Cancellieri since August, 1998 pursuant to this provision.
In connection with the March Loan, (i) Mr. Cancellieri represented to the
Company, and the Company believed, that he was an Accredited Investor, (ii) the
certificates representing the securities issued to Mr. Cancellieri contain an
appropriate restrictive legend regarding resale, and (iii) the Company did not
engage in any general solicitation or general advertisement. The issuance and
sale of these securities was made in reliance on Section 4(2) of the Act as a
transaction not involving any public offering. The Company paid a finder's fee
of $125,000 to Barry Grumman in connection with this loan. The March Loan was
cancelled in March 1999 in connection with the 1999 Merger and the Company
issued 383,767 shares of the Company's Common Stock to Mr. Cancellieri. Mr.
Cancellieri has threatened to institute an action against the Company to cancel
his conversion of the March 1999 Loan unless he is issued additional shares of
Common Stock and obtains the Company's assistance in liquidating a portion of
the shares received upon conversion of the March 1999 Loan. In connection with
this exchange, Mr. Cancellieri represented to the Company, and the Company
believes, that Mr. Cancellieri is an Accredited Investor and that he is
acquiring the securities for his own account for investment purposes and not
with a view to or for sale in connection with any distribution of the
securities. No underwriting fees, brokerage or other fees of commissions were
paid in connection with the exchange. The certificates representing the
securities will contain appropriate restrictive legends regarding resale. The
issuance of these securities was made in reliance on Section 3(a)(9) of the Act
as a security exchanged by the Company with an existing security holder
exclusively.
In May 1998, the Company obtained secured loans (the "May Loans") in the
aggregate amount of $1,450,000 from certain lenders including Thomas P.
Gallagher, Ritch Gaiti, Augustine Fund, L.P., IAC, Higgins Family LP., Corporate
Communications Network, Inc., Stephen E. Hoffman and William Schuler. In
connection with these loans, the Company issued an aggregate of 90,625 shares of
Common Stock to the lenders which the Company valued at $725,000. In addition,
the Company agreed to issue an additional 10,272 shares of Common Stock on
September 30, 1998 and November 30, 1998 if the loans have not been repaid, and
144,793 shares of Common Stock were issued to such lenders in connection with
these provisions through March 24, 1999. In connection with these loans, (i)
each lender represented to the Company, and the Company believed, that he or it
was an Accredited Investor, (ii) the certificates representing the securities
issued to the lenders contain an appropriate restrictive legend regarding
resale, and (iii) the Company did not engage in any general solicitation or
general advertisement. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering. The Company paid a finder's fee of $130,000 to a consultant in
connection with these loans. The May Loans were cancelled in March 1999 in
connection with the 1999 Merger and the Company issued 465,999 shares of Common
Stock to these lenders. Messrs. Gallagher, Gaiti, Schuler and Leach received an
additional 116,986 shares of the Company's Common Stock pursuant to the
Succession Plan and Agreement relating to the conversion of their $1.0 million
May loans plus accrued interest.
In July 1998, the Company issued 2,500 shares of Common Stock to Frank
Norton, as part of the consideration for software developed by Mr. Norton for
the Company. In June 1998, Frank Norton became the Company's Director of
Management Information Services. In connection with this issuance, the Company
believed that Mr. Norton was a sophisticated investor and had adequate access,
through his employment or other relationships with the Company, to sufficient
information about the Company to make an informed investment decision. Mr.
Norton represented to the Company that he was acquiring the securities for his
own account for investment purposes and not with a view to or for sale in
connection with any distribution of the securities. The certificates
representing the securities issued to Mr. Norton contain appropriate restrictive
legends regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering.
In July 1998, the Company issued 10,000 shares of Common Stock to Robert
Rein, Esq., of the law firm of Saphier, Rein & Walden, who served as legal
counsel to the Company at the time of issuance, in consideration of legal
services rendered by Mr. Rein. In connection with this issuance, Mr. Rein
represented to the Company, and the Company believed, that he was an Accredited
Investor. In addition, Mr. Rein represented to the Company that he was
purchasing the securities for his own account for investment purposes and not
with a view to or for sale in connection with any distribution of the
securities. The certificates representing the securities issued to Mr. Rein
contain appropriate restrictive legends regarding resale. The issuance and sale
of these securities was made in reliance on Section 4(2) of the Act as a
transaction not involving any public offering.
In connection with the 1999 Merger, the Company issued to Richard Casey
24,125 shares of Common Stock in exchange for the conversion of his loan of
$62,356 in principal and accrued interest. In connection with this issuance, Mr.
Casey represented to the Company, and the Company believed, that he is an
Accredited Investor and that he is acquiring the securities for his own account
for investment purposes and not with a view to or for sale in connection with
any distribution of the securities. The certificate representing the securities
to be issued to Mr. Casey will contain appropriate restrictive legends regarding
resale. No underwriting fees, brokerage or other fees or commissions will be
paid in connection with this exchange. The issuance and sale of these securities
will be made in
22
<PAGE> 26
reliance on Section 3(a)(9) of the Act as a security exchanged by the Company
with an existing security holder exclusively.
In connection with the 1999 Merger, the Company issued 67,186 shares of
Common Stock for conversion of $268,741.00 in principal and interest on loans
and/or outstanding debt owing to certain vendors to the Company.
Additionally, there were issuances of Grafix Corporation's Common Stock
prior to the 1999 Merger during the applicable period, which are listed and
described below. The holders of Common Stock of Grafix Corporation received new
share certificates reflecting the name change to Gary Player Direct, Inc. and
the 1:20 reverse stock split upon consummation of the 1999 Merger.
In November of 1998, the Company obtained a loan in the amount of
$2,000,000 from Capital Fund Leasing, LLC ("Capital Fund"). The loan bore
interest at the rate of 15% per annum and was to be repaid on the earlier of (i)
the date of the Company's initial public offering or (ii) December 31, 1998. In
connection with the loan, the Company entered into a one year Consulting
Agreement with James A. Capwill providing for the payment of $15,000 and the
issuance of Class C Common Stock Purchase Warrants to purchase 215,000 shares of
the Company's Common Stock.
Capital Fund made additional loans to the Company of $360,815, $206,180
and $75,000 in January and February of 1999. On February 12, 1999, the
outstanding loans, plus accrued interest, attorneys fees and other charges were
refinanced by execution of a Partially Convertible Promissory Note in the
principal amount of $3.3 million bearing interest at 16% per annum (the "16.0%
Note"). In connection with the refinancing, the Consulting Agreement between the
Company and James A. Capwill was amended to extend the term through December 31,
1999 and provide for payment of an additional sum of $82,500 over the term.
On March 29, 1999, Capital Fund purchased 1,000,000 shares of the
Company's Common Stock in a Regulation D (Rule 504) private placement for total
consideration of $1,000,000 or $1.00 per share. The shares were issued on June
1, 1999.
The Company is currently in default in payment of both the 16.0% Note and
the related Consulting Agreement.
On March 14, 1999, the Company obtained an additional loan from Dr.
Michael Freilich, and executed a promissory note in the principal amount of
$25,000 with fifteen percent (15%) annual interest. In consideration of the
loan, the Company agreed to issue 5,000 shares of Common Stock to Dr. Freilich.
The Company issued an aggregate of approximately 73,417 shares of Common
Stock for the conversion of approximately 440,500 Class A Common Stock Purchase
Warrants held by approximately 32 warrant holders of the Company. In connection
with this exchange, each of the warrant holders represented to the Company that
he was an Accredited Investor and/or that such person had a pre-existing
personal or business relationship with one or more of the Company's officers or
directors and had the knowledge and experience in financial and business matters
that enabled such person to evaluate the merits and risks of the investment in
the securities and in protecting such persons interest in the transaction. The
Company believes that each of the warrant holders is an Accredited Investor
and/or a sophisticated purchaser. Each of the warrant holders represented to the
Company that such person was acquiring the securities for its own account for
investment purposes and not with a view to or for sale in connection with any
distribution of the securities. No underwriting fees, brokerage or other fees or
commissions were paid in connection with the exchange. The certificates
representing the securities issued to these persons contain appropriate
restrictive legends regarding resale. The issuance and sale of these securities
will be made in reliance on Section 3(a)(9) of the Act as a security exchanged
by the Company with its existing security holders exclusively.
On February 10, 1999, the Company's Board of Directors approved the
issuance of 30,000 shares of Common Stock to Steven Sparks, a former director of
the Company, in consideration of his services to the Company as a director and
consultant.
In July 1998, the Company issued an aggregate of 34,048 shares of its
Common Stock, of which 1,767 shares were issued to a director and officer of the
Company for services rendered, 833 shares were issued to an employee of the
Company and 31,448 shares were issued to other third parties.
In September 1998, the Company issued an aggregate of 9,143 shares of its
Common Stock, of which 5,726 were issued to a director and officer of the
Company for services rendered, 1,750 shares were issued to an employee of the
Company for services rendered and 1,667 shares were issued to other third
parties.
23
<PAGE> 27
In October 1998, the Company issued an aggregate of 15,925 shares of its
Common Stock, of which 2,711 shares were issued to a director and officer of the
Company for services rendered and 13,214 shares were issued to other third
parties.
In March 1999 the Company amended its investment banking agreement with
Stone Pine Investment Banking and in connection therewith agreed to issue Stone
Pine 100,000 shares of Common Stock. These shares, issued in November, 1999,
were assigned to certain third parties. The amendment also provides that once
the Company raises gross proceeds in one or a series of offerings of $6,000,000.
in the aggregate, the Company will pay Stone Pine an additional fee of $50,000.
There were no underwriters involved in any of the transactions described
above. The sales and issuances of common stock described above were deemed to be
exempt from registration under the Act pursuant to Section 4(2) thereof based on
the investor's suitability and/or representations furnished by the
securityholders.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since Grafix
Time Corporation, the Company's predecessor, declared a forty percent (40%)
stock dividend on November 28, 1995, and does not presently anticipate paying
cash dividends in the foreseeable future. It is anticipated that earnings of the
Company, if any, will be retained for use in the business of the Company for an
indefinite period. Payments of dividends in the future, if any, will depend,
among other things, on the Company's ability to generate earnings, its need for
capital, and its financial condition. Declaration of dividends in the future
will remain within the discretion of the Company's Board of Directors which will
review its dividend policy from time to time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Since inception, the Company's cash requirements have exceeded its cash
flows from operations and, at March 31, 1999, the Company had a working capital
deficit of $14,685,800. As a result, the Company has depended on loans and sales
of securities to fund its operations. The Company must increase its net sales to
obtain sufficient cash flows from operations to meet its cash requirements. The
Company is dependent upon the proceeds of securities offerings and loans to
implement its growth strategy and finance its short-term working capital
requirements. Subsequent to the date of the 1999 Merger, the Company has
continued to sustain substantial losses and has had substantially reduced sales
of its golf products.
During the year ended March 31, 1999, the Company raised an aggregate of
$121,819, net of offering costs, through borrowings and the sale of capital
stock, as follows: (i) the Company sold 30,785 shares of Common Stock at an
average price of $4.16 per share; and (ii) the Company issued promissory notes
in the aggregate amount of $4,505,292 bearing interest at rates ranging from
13.5% to 15% per annum and issued 99,375 shares of Common Stock to the lenders
in connection with these loans.
At March 31, 1999, the Company had outstanding borrowings of $5,054,220,
of which the Company was in default on $4,404,220 of outstanding indebtedness.
At March 31, 1999, the Company had customer refunds payable of $3,155,021,
deferred revenue of $1,188,186 and an allowance for returns of $115,353.
Other assets at March 31, 1999 included principally deferred direct
response advertising costs of $90,000 and a loan receivable of $15,000 from a
corporation owned by the former CEO and President of the Company until October
14, 1999.
As a result of the Company's limited sales and significant liabilities,
the Company anticipates that it will be heavily dependent upon sales of its
equity or debt securities over the next twelve months. There can be no assurance
that the Company will be successful in raising such additional capital or that
if available it will be on terms acceptable to the Company. In addition, there
can be no assurance that if the Company cannot raise additional
24
<PAGE> 28
capital, that the Company's revenues from operations will be sufficient to meet
its working capital, product development costs and capital to satisfy its past
due obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
RESULTS OF OPERATIONS
Net sales for the year ended March 31, 1999 were $5,641,134, an increase
of 18% as compared to net sales of $4,768,032 for the year ended March 31, 1998.
Net sales were derived from gross sales of $13,006,761 and $9,567,902 for the
years ended March 31, 1999 and 1998, respectively. The increase in net sales was
due to increased telemarketing and infomercial activity. Substantially all sales
in the years ended March 31, 1999 and 1998 were generated by telemarketing.
The Company recorded allowances for returns of 57% and 50% of net sales
for the years ended March 31, 1999 and 1998, respectively. The Company
establishes allowances for returns at the time of recording sales based on its
historical return rates.
Cost of goods sold was $2,960,620 for the year ended March 31, 1999, as
compared to $1,973,105 for the year ended March 31, 1998 and gross margins were
47% and 59% of net sales, respectively, during these quarters. The decrease in
gross margin was due principally to a higher volume of demo sales and increases
in component cost of golf clubs.
Operating expenses were $13,198,553 for the year ended March 31, 1999, an
increase of 100% as compared to operating expenses of $6,568,875 for the year
ended March 31, 1999.
Telemarketing, infomercial and selling expenses were $8,366,183 for the
year ended March 31, 1999, an increase of 73% from selling expenses of
$4,827,930 for the year ended March 31, 1998. These expenses include production
and advertising and commissions, royalties and related fees, salaries, wages and
benefits of management personnel involved in sales and marketing, customer
service and sales support, fees paid to the credit card processor and lead
generation costs. These expenses increased primarily due to additional personnel
and costs associated with infomercial advertising.
General and administrative expenses were $4,747,400 for the year ended
March 31, 1999, an increase of 178% as compared to general and administrative
expenses of $1,706,917 for the year ended March 31, 1998. General and
administrative expenses include primarily salaries and benefits of executive
officers and administrative personnel, consulting fees, rent and utilities. The
increase in these expenses were primarily due to costs of an attempted initial
public offering, lease abandonments and litigation.
Interest expense was $6,383,257 for the year ended March 31, 1999, an
increase of 243% as compared to interest expense of $1,861,299 for the year
ended March 31, 1998. This increase was due to an increase in the amount of
outstanding indebtedness during the period and an increase in non-cash
consideration for extension of existing indebtedness. Non-cash interest expense
increased to $6,354,104 for the year ended March 31, 1999 from $1,768,152 for
the year ended March 31, 1998 due to the greater amortization of original issue
discount and debt issuance costs incurred in connection with various financings,
and costs incurred in connection with the extension of the maturity date of
existing indebtedness in the prior period.
As a result of the foregoing, the Company incurred a net loss of
$17,186,903 for the year ended March 31, 1999, as compared to a net loss of
$5,624,514 for the year ended March 31, 1998.
PLAN OF OPERATIONS FOR THE COMPANY
Please see the description of plan of operations for the Company under
Item I, "Business Strategy" above.
YEAR 2000
The Company has reviewed its operations and administrative systems
relative to year 2000 ("Y2K") matters. The Company's review includes a series of
initiatives to ensure that all of the Company's computer equipment and
25
<PAGE> 29
software will function properly into the next millennium. Computer hardware and
software includes systems generally thought of as information-technology
dependent, such as accounting, data processing, and telephone equipment ("IT
systems"), as well as systems not obviously information-technology dependent,
such as fax machines and security systems ("non-IT systems"). These systems may
contain embedded technology, which requires Company review, including broad
identification, assessment, remediation and testing efforts.
The Company performed a review of its operational and administrative
systems and as a result of that analysis updated its word processing and
accounting software to become fully Y2K compliant. Furthermore, the Company has
made arrangements to employ a Y2K consultant to examine the Company's network
systems and update or replace portions of the system to render it compliant by
December 31, 1999.
Based upon its identification and assessment efforts to date, the Company
believes that its IT systems will not require material replacement or
modification other than the updates which have already been made or scheduled.
However, in the ordinary course of business, the Company periodically replaces
computer equipment and software, and in so doing, seeks to acquire only Y2K
compliant software and hardware. The Company plans to complete its assessment of
its non-IT systems during December 1999. The Company presently believes that its
planned modifications or replacements of existing IT systems and non-IT systems
will be completed on a timely basis so as to avoid any of the potential year
2000-related disruptions or malfunctions of the computer equipment and software
it has identified.
The Company intends to complete its survey of vendors and services
providers by December 1999 to determine where external Y2K compliance or
noncompliance might materially affect the Company's operations.
At this point in the review process, the Company cannot reasonably
estimate the cost of achieving Y2K compliance; however, the Company does not
anticipate the cost of implementing its Y2K efforts to be material. The Company
plans to determine the Y2K readiness of its key suppliers, identify alternative
sources for materials and services in the event that lack of Y2K compliance is
indicated, and make inquiries regarding the Y2K readiness of any potential
strategic partners. Management is continuing to examine the Y2K issues as they
potentially impact the Company, and will be developing contingency plans as
necessary.
There can be no assurances that the failure of the Company or any third
parties to achieve Y2K compliance would not have a material adverse effect on
the Company. A contingency plan has not yet been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. However, given the fact the Company is involved in an
internet driven business and the Company relies on computer driven programs for
its sales and operations, Y2K compliance is essential to the continuing success
of the Company.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements. Factors that could cause
actual results to differ materially include, among others: general economic
conditions, changes in laws and government regulations, fluctuations in demand
for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements, as itemized below, appear in a
separate section of this report following Item 13.
Report of Independent Certified Public Accountant F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the fiscal years ended
March 31, 1999 and 1998 F-3
26
<PAGE> 30
Consolidated Statements of Cash Flows for the fiscal years
ended March 31, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Deficit for
the two year period ended March 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 28, 1999 the Company's Board of Directors approved the
engagement of Grant Thornton, LLP ("Grant Thornton") as its new independent
auditors as well as the termination of Scheifley & Associates, P.C., the
Company's previous accountants. The approval of the engagement of Grant Thornton
was reported on a Current Report on Form 8-K filed with the Commission on
November 3, 1999, which is hereby incorporated by reference.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following individuals currently comprise the new Board of Directors
and Executive Officers since October 14, 1999 pursuant to the Succession Plan
and Agreement:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas P. Gallagher 41 Chairman of the Board
Marc B. Player 38 Chief Executive Officer and Director
Carl Casareto 41 Executive Vice President and Treasurer
Pamela J. Campbell 44 Director
Barbara Nunez 39 Controller and Corporate Secretary
</TABLE>
THOMAS P. GALLAGHER - CHAIRMAN OF THE BOARD
Mr. Gallagher has served as the Chairman of the Board of Directors since October
14, 1999. Mr. Gallagher was the Chief Executive Officer of the Company for a
brief period following the execution of the Succession Plan and Agreement on
October 14, 1999. Mr. Gallagher is a partner in the law firm of Gallagher,
Briody & Butler in Princeton, New Jersey. From February 1991 until April 1996,
Mr. Gallagher was a partner in the law firm of Mason, Briody, Gallagher & Taylor
of Princeton, New Jersey. Mr. Gallagher practices in the areas of federal and
state securities laws, mergers and acquisitions and general corporate law. Mr.
Gallagher is admitted to the Bar in the State of New Jersey as well as the U.S.
District Court, District of New Jersey. Mr. Gallagher serves as counsel to a
number of e-commerce start-ups as well as companies in the telecommunications
and manufacturing sectors. Mr. Gallagher is a member of the Board of Visitors of
Capital University Law School in Columbus, Ohio and the Board of Directors of
Angel Productions, Inc. Angel Productions is a new age programming company that
develops programming for broadcast, cable, theatre and internet applications.
MARC B. PLAYER - CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Player has been a member of the Board of Directors since October 14, 1999
and the Company's Chief Executive Officer since October 28, 1999. Mr. Player has
served as Chief Executive Officer and a director of the Gary Player Group, Inc.
since 1984. Mr. Player also served as President of Sports International, a
company he formed in 1986. Sports International was the exclusive representative
in South Africa of International Management Group, one of the foremost sports
management firms in the world. Sports International was acquired by
International Management Group in 1991. He received his education at King Edward
VII School and Weston Agricultural College in Natal. Mr. Player is the son of
Gary Player.
CARL CASARETO - EXECUTIVE VICE PRESIDENT AND TREASURER
Mr. Casareto has served as the Executive Vice President and Treasurer of the
Company since October 14, 1999. Mr. Casareto was the Chief Financial Officer and
Director of Consolidated Capital of North America, Inc., a public company
involved in acquiring and operating value-added steel manufacturing firms, and
its subsidiaries, from June 1997 to August, 1999. From December, 1995 to June
1997, Mr. Casareto was the President of TELALINK Corporation, where he oversaw
the operations and business development. Prior to his employment with TELALINK
27
<PAGE> 31
Mr. Casareto worked for TELACU, a $100 million operating conglomerate as its
Chief Financial Officer and Senior Vice President of Finance. Mr. Casareto also
has ten years of experience as a CPA for Grant Thornton LLP where he retired as
a partner in October, 1989.
PAMELA J. CAMPBELL - DIRECTOR
Ms. Campbell has been the controller of the Gary Player Group since February
1985. She also assists Marc Player in the day-to-day running of the Gary Player
Group as well as Sports International. In 1994, Ms. Campbell relocated to the
Palm Beach office of the Gary Player Group as controller, where she was
responsible for setting up offices in the United States and the establishment of
the financial and operating systems in the initial startup of the Gary Player
Group and their golf equipment division. Ms. Campbell has been a director of
the Company since October 14, 1999.
BARBARA NUNEZ- CONTROLLER AND CORPORATE SECRETARY
Ms. Nunez has been the Controller of the Company since June, 1999 and the
Corporate Secretary since October, 1999. From October 1998 until June 1999, Ms.
Nunez was the assistant controller for Saba Petroleum, a public energy company
in which position she oversaw the management of the financial and personnel
operations. She additionally operated her own firm, J& S Bookkeeping Services,
from July, 1990 through 1998, during which time Ms. Nunez provided accounting,
management and bookkeeping services on an independent contractor basis to small
businesses.
The following table sets forth information concerning the directors and
executive officers of the Company as of March 31, 1999. The individuals listed
below no longer serve the Company in the aforementioned capacities.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alfonso J. Cervantes, Jr. 49 President, Chief Executive
Officer and Chairman of the Board
Joseph A. DePanfilis 43 Executive Vice President
Richard S. Schonfeld 54 Chief Financial Officer
Kent Krausman 39 Senior Vice President and Director
Robert J. Friedland 42 Director
</TABLE>
ALFONSO J. CERVANTES - PRESIDENT, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE BOARD
Mr. Cervantes was a founding stockholder of the Company at its incorporation in
October 1995, and an officer and director since July 1996. He is also President
and Chief Executive Officer of Trilogy Capital Group, Inc., a privately held
California corporation principally engaged in the reorganization of distressed
middle market companies, both out of court or pursuant to Chapter proceedings.
He has held this position since its formation in January 1991. In 1994, Mr.
Cervantes served as President and Chief Executive Officer of International
Paging Corporation. Prior to Trilogy, Mr. Cervantes had principally been engaged
in media-related financing activities. Mr. Cervantes is a member of the National
Golf Foundation.
JOSEPH A. DEPANFILIS - EXECUTIVE VICE PRESIDENT
Mr. DePanfilis was employed by the Company from September 1997 as Executive Vice
President, Chief Financial Officer and Chief Operating Officer until July 20,
1999. From April 1996 until his employment by Golf One, Mr. DePanfilis was
employed by Gateway Worldwide Communications, Inc., San Luis Obispo, California,
which was engaged in marketing international communications services in 25
countries. From 1990 until 1996, Mr. DePanfilis was Financial Controller of RF
Technology, Inc. in Norwalk, CT which was engaged in the manufacturing of
microwave communications equipment for the television and broadcast industries.
RICHARD S. SCHONFELD - CHIEF FINANCIAL OFFICER
Richard Schonfeld was employed by the Company from February 1, 1999 until May,
1999. Mr. Schonfeld is a licensed CPA in California. In 1995 he became Chief
Financial Officer of Myriad Group, Inc., a startup Professional Employer
Organization. From 1989 until 1995 he was Executive Director of a specialized
tax practice. In 1985 he joined NI Industries in the capacity of Assistant
Controller. NI Industries was a defense industry vendor. From 1980
28
<PAGE> 32
to 1985 he was Controller for a wholly-owned subsidiary of City Investing
Company which manufactured guidance systems and hardware under government
contracts.
ROBERT J. FRIEDLAND - DIRECTOR OF THE COMPANY
Mr. Friedland is President, Chief Executive Officer and majority shareholder of
Kittrich Corporation. Kittrich, formed by Mr. Friedland and which commenced
operations in 1978, is based in Los Angeles and is a manufacturer and
distributor of consumer products including shelf and window coverings,
stationery products and insecticidal products. Mr. Friedland resigned on October
14, 1999.
KENT KRAUSMAN - SENIOR VICE PRESIDENT
Mr. Krausman became an officer and director of Grafix in November, 1997 and
resigned from his positions with the Company on September 1, 1999. He has been a
licensed Colorado attorney since May, 1985. Mr. Krausman operated his own law
firm, since January, 1987. His firm specializes in securities, corporate
finance, and public company reporting. Mr. Krausman acted as special counsel to
Sherman & Howard, LLC, from January, 1991 through September, 1993. Mr. Krausman
owned the Galleria Theatre (as well as the smaller Encore Theatre) in the Denver
Center for the Performing Arts. He was the Chief Operating Officer and Executive
Producer of those facilities.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own, directly or
indirectly, more than ten percent (10%) of the registered class of the Company's
equity securities to file reports of ownership and changes in ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers. Officers, directors and greater than ten
percent (10%) beneficial owners are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
No Section 16(a) filings have been made on behalf of the officers,
directors and 10% beneficial owners of the Company as of the date of this
report.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid by the Company during the three years ended on March 31, 1999 to (i) the
Chief Executive Officer of the Company and (ii) all other executive officers of
the Company, or any of its subsidiaries, who were serving in such capacity on
March 31, 1999 and received total salary and bonus in excess of $100,000 during
fiscal year ended March 31, 1999 (collectively, "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS SECURITIES
NAME AND PRINCIPAL COMPENSATION UNDERLYING
POSITION(1) YEAR SALARY BONUS OPTIONS/SARS (#)
<S> <C> <C> <C> <C>
Alfonso J. Cervantes, Jr., 1999 150,000 0 0
President and CEO 1998 104,039 1540 0
</TABLE>
- ---------------------------
(1) Mr. Cervantes became the Chief Executive Officer and President in November,
1997.
STOCK INCENTIVE PLAN
The Company issued options which were not under any specific plan of the
Company to certain former employees of Rhino, in connection with the Company's
acquisition of such subsidiary in a stock purchase concluded
29
<PAGE> 33
in June, 1996. All of the options for 29,500 shares of Common Stock of the
Company were granted on June 28, 1996, and were exercisable at $2.50 for a
period which was the earlier of (i) the employee's termination or (ii) three
years from the date of grant, and have now expired. No options were exercised by
any of the optionees prior to expiration.
As of March 31, 1999, the Company did not have any stock option plans.
COMPENSATION OF DIRECTORS
For the fiscal year ended March 31, 1999 members of the Board of Directors
did not receive specific compensation for attendance at meetings of the Board of
Directors. However, on February 10, 1999 the Board of Directors approved the
issuance of 30,000 shares of Common Stock to Steven Sparks for his service as a
member of the Board of Directors through January, 1999. In addition in July,
1999 the Board of Directors approved of the issuance of 10,000 shares of Common
Stock per year for service by employee/directors and 20,000 shares of Common
Stock for outside directors. Accordingly, Mr. Cervantes received 40,000 shares
of Common Stock recognizing his services as a director for 1996, 1997, 1998,
1999. In addition, Mr. Friedland received 80,000 shares of Common Stock for his
four years of services on the Board of Directors and Mr. Krausman received
30,000 shares of Common Stock in recognition of his service as a director of the
Company. As stated above, Mr. Cervantes and Friedland resigned from the Board of
Directors on October 14, 1999 and Mr. Krausman resigned on September 1, 1999.
EMPLOYMENT AGREEMENTS
Pursuant to his position of President, Chief Executive Officer and
Chairman of the Board through October, 1999, Mr. Cervantes had an employment
agreement with Golf One dated May 31, 1998 which had been assumed by the
Company, and provided, as amended, that, for a term of two years from the date
of the 1999 Merger, as the Company's President, CEO and Chairman of the Board,
he agreed to devote all of his time and effort to the Company. In consideration
of his services, Mr. Cervantes was to receive (i) $150,000 in base salary the
first year of the term and $165,000 for the second year of the term; (ii) a
bonus to be determined by the Company's Board of Directors at its discretion;
(iii) annual automobile expenses not to exceed $12,000 a year; and (iv) an
option for 100,000 shares of Common Stock. Mr. Cervantes' employment agreement
also contained certain termination provisions for cause, disability, death or
change in control, severance provisions and non-compete and confidentiality
provisions. Mr. Cervantes' base salary in the May, 1998 employment agreement was
increased from the previous annual salary of $115,000 per year to $150,000. Mr.
Cervantes was also granted 80,000 shares of Common Stock of the Company in
consideration and recognition of his personal guarantee on in excess of $3
million of Company debt. On October 14, 1999, Mr. Cervantes tendered his
resignation to the Company for all of his positions and received certain
allowances in consideration therefor pursuant to the terms of the Succession
Plan and Agreement. Pursuant to Succession Plan and Agreement, the Company
acknowledged that Mr. Cervantes' employment agreement was being terminated by
the Company without cause, provided, however, Mr. Cervantes agreed not to pursue
or institute any action against the Company for termination without cause unless
the Company or any subsidiary instituted an action against Mr. Cervantes (other
than an action for breach of the Succession Plan and Agreement or certain other
claims that the Company may raise).
Kent Krausman, the former President and CEO of the Company prior to the
1999 Merger had an employment agreement with Gary Player Direct, the Company,
dated April 1, 1999, for a term of two years ending March 31, 2001. Pursuant to
the terms of the agreement and in consideration of the performance of his duties
as Senior Vice President of the Company, which was to involve not more than
twenty (20) hours per week, he would receive a monthly compensation of $5,000,
an annual incentive bonus commensurable with other executive level bonuses to be
determined by the Company's Board of Directors, and reimbursement for all
reasonable travel and business-related expenses. Mr. Krausman's agreement also
included certain termination, disability, death and non-compete provisions. The
Company ceased making payments under Mr. Krausman's employment agreement in
August 1999. Mr. Krausman resigned from the Company on September 1, 1999.
Joseph DePanfilis, the Company's Executive Vice President until July,
1999, had an employment agreement with Golf One dated May 31, 1998 for a term of
a year through June 1, 1999. In consideration of devoting all of his time and
effort to the Company in his duties of Executive Vice President, he was to
receive (i) an annual base salary of $85,000; (ii) a bonus of $5,000 upon the
effective date of the agreement; (iii) an automobile allowance of not more than
$6,000 annually; (iv) reimbursement for all reasonable business expenses; and
(v) an option for 25,000 shares of common stock. Mr. DePanfilis' agreement also
included certain termination provisions for cause, disability, or death and
confidentiality and non-compete provisions. The employment agreement was
modified on
30
<PAGE> 34
April 9, 1999 to become effective on March 29, 1999 and to waive the required
$5,000 payment upon consummation of the 1999 Merger.
Messrs. Cervantes and Friedland, an officer and director and a director of
the Company until October, 1999, respectively, both had indemnification
agreements with Golf One dated May 22, 1998 (the "Indemnification Agreement").
The Indemnification Agreements provide indemnification against any third party
proceedings, any proceeding by or in the right of the Company, for serving as a
witness in any proceeding by reason of the individual's status as a director,
officer, employee or agent of the Company and for any expenses incurred during
the individual's involvement with or in defending such proceedings. Such
Indemnification Agreements terminated upon the individual's written resignation
or removal. A form of the Indemnification Agreements with Messrs. Cervantes and
Friedland is attached hereto as an exhibit. The Company intends to provide a
similar indemnification agreement to Mr. Krausman covering his services as a
director and officer of the Company through September 1, 1999.
Each of the current directors and officers of the Company have
Indemnification Agreements with the Company, and a copy of each such agreements
was filed as an exhibit to a Current Report on Form 8-K dated October 25, 1999.
Employment agreements for each employee or consulting agreements may be
renewed or extended, and compensation may be increased on an annual basis at the
discretion of the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1999 with
respect to the equity securities of the Company known by the Company to be
beneficially owned by each beneficial owner of more than five percent of the
Company's Common Stock, by each director and Named Executive Officer at March
31, 1999 (as defined in applicable SEC regulations), and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS(2)(3)
- ---------------------- --------------------- ----------------------
<S> <C> <C>
Alfonso J. Cervantes, Jr. 367,283(4) 6.1%
Joseph A. DePanfilis 28,900(5) .5%
Richard S. Schonfeld 0 --
Kent Krausman 187,333(6) 3.1%
Robert J. Friedland 190,319(7) 3.1%
Capital Fund Leasing, LLC(8) 1,000,000 16.7%
Total 1,773,835 29.5%
All directors and officers
as a group 773,835 12.8%
</TABLE>
- ---------------------------
(1) Unless otherwise indicated, the address of all executive officers and
directors is c/o Gary Player Direct, Inc., 710 Aerovista, Suite B, San
Luis Obispo, California 93401.
(2) Includes any Class A, B or C Common Stock Purchase Warrants issued and
outstanding at March 31, 1999.
(3) Based upon 5,794,758 shares of Common Stock outstanding pursuant to the
1999 Merger issuances at March 31, 1999.
(4) Includes (i) 202,283 shares of Common Stock issued as founder's shares;
(ii) 80,000 shares of Common Stock issued for employee compensation; (iii)
40,000 shares of Common Stock to be issued for director's compensation;
and (iv) 45,000 shares of Common Stock issued in consideration of Mr.
Cervantes' personal guarantees of the Company's debt.
(5) Includes (i) 15,000 shares of Common Stock underlying Class A Common Stock
Purchase Warrants issued November 20, 1997 and exercisable through
March 31, 2000; and (ii) 13,900 shares of Common Stock.
(6) Includes (i) 157,333 shares of Common Stock; and (ii) 30,000 shares of
Common Stock to be issued for his services as a director of the Company.
(7) Includes (i) 7,500 shares of Common Stock underlying Class A Common Stock
Purchase Warrants issued February 26, 1996 and exercisable through
March 31, 2000; (ii) 15,000 shares of Common Stock underlying
31
<PAGE> 35
Class A Common Stock Purchase Warrants issued June 12, 1997; (iii) 30,000
shares of Common Stock underlying Class A Common Stock Purchase Warrants
issued November 1, 1997; (iv) 80,000 shares of Common Stock issued in
consideration of directors services; and (v) 57,819 shares of Common
Stock.
(8) Capital Fund Leasing, LLC's address is 9140 Ravenna Road, Unit 2,
Twinsburg, Ohio 44087.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1996, the Company made a loan of $142,160 to Trilogy, a venture
capital and consulting firm owned by Alfonso J. Cervantes, Jr., in lieu of fees
payable to Trilogy for services rendered in connection with Golf One's formation
and its acquisition of Rhino and financing activities in June, 1996. Mr.
Cervantes was a director of Golf One at the time of the loan. The loan is
evidenced by a promissory note which bears interest at the rate of 1% over the
prime rate, and is due and payable as follows: (i) twelve months of accrued
interest only was payable on December 31, 1998; (ii) principal and accrued
interest are payable monthly commencing January 1, 1998 based on a 10-year
amortization schedule until December 31, 2002; and (iii) the remaining balance
of principal and accrued interest is payable on December 31, 2002. Mr. Cervantes
pledged 5,000 shares of his Common Stock as collateral for the loan. This loan
was forgiven at October 14, 1999 in connection with the execution of the
Succession Plan and Agreement and the 5,000 pledged shares were cancelled by the
Company.
In October 1996, Alfonso J. Cervantes, Jr. transferred an aggregate of
27,083 shares of Common Stock owned by him to certain of the Company's lenders
in consideration of their agreement to extend the maturity date of a loan in the
principal amount of $400,000 to the Company.
Alfonso J. Cervantes, Jr. personally guaranteed the repayment by the
Company of certain indebtedness in the aggregate principal amount of $750,000.
In November 1997 and February, 1999, as consideration for his personal
guarantee, the Company issued 17,500 and 80,000 shares of Common Stock to Mr.
Cervantes, respectively.
In November 1997, the Company entered into an asset purchase agreement
with GPG, pursuant to which the Company would acquire the assets of
the golf equipment operations of GPG, including the Player Licenses. The
Company's Chief Executive Officer and a director, Marc Player, and Pamela J.
Campbell, directors of the Company, are officers and directors of GPG. The
parties are currently negotiating an amended and restated APA. There can be no
assurance that the Company will be able to consummate the APA and acquire the
Player Licenses.
At September 30, 1998, and due primarily to the Asian recession and the
Citizen situation, the Company encountered significant liquidity problems. The
Company did not have sufficient revenues to service its debt and other
obligations. On February 11, 1999, the Company completed a debt restructuring
with Monte Ahuja, a director of Grafix at the time of the debt restructuring,
whereby approximately $2.8 million of the Company's debt was retired, such debt
had been incurred by the Company with Mr. Ahuja, a corporation affiliated with
Mr. Ahuja (Transtar Industries, Inc.), and Huntington Bank, the Company's former
credit lender. In connection with the refinancing, the Company entered into a
new two year promissory note with Mr. Ahuja, in the principal amount of $650,000
and issued in the aggregate 550,000 shares of restricted Common Stock to Mr.
Ahuja. This new note is secured by the receivables and inventory of the Company.
Interest accrues on the new note for the two-year period, and the entire note,
with accrued interest, is due on February 11, 2001. This loan was not converted
into Common Stock of the Company in connection with the loan conversions which
occurred pursuant to the 1999 Merger.
In November of 1998, the Company obtained a loan in the amount of
$2,000,000 from Capital Fund. The loan bore interest at the rate of 15% per
annum and was to be repaid on the earlier of (i) the date of the Company's
initial public offering or (ii) December 31, 1998. In connection with the Loan,
the Company entered into a one year Consulting Agreement with James A. Capwill
providing for the payment of $15,000 and the issuance of warrants to purchase
215,000 shares of the Company's Common Stock.
Capital Fund made additional loans to the Company of $360,815, $206,180
and $75,000 in January and February of 1999. On February 12, 1999, the
outstanding loans, plus accrued interest, attorneys fees and other charges were
refinanced by execution of a Partially Convertible Promissory Note in the
principal amount of $3.3 million bearing interest at 16% per annum (the "16.0%
Note").
On March 29, 1999, Capital Fund purchased 1,000,000 shares of the
Company's Common Stock for total consideration of $1,000,000 or $1.00 per share.
The shares were issued on June 1, 1999.
The Company is currently in default in payment of both the 16.0% Note and
the Consulting Agreement.
In April, 1999, the Company entered into a certain agreement with PayPro
Resources, Inc., whereby PayPro
32
<PAGE> 36
agreed to lend $79,269 to the Company under the terms of a client service
agreement, which agreement required a personal guaranty by the Company's CEO at
the time, Mr. Cervantes. The loan is evidenced by a promissory note and is
subordinated to a senior secured loan in the amount of $1,000,000.
All future transactions, including loans, between the Company and its
officers, directors and stockholders holding 5% or more of the Company's
outstanding voting securities will be on terms no less favorable to the Company
than could be obtained in arm's length transactions from unaffiliated third
parties. Further, all such transactions, and the forgiveness of indebtedness
owed by such persons to the Company, must be approved by a majority of the
Company's independent directors who do not have an interest in the transaction
and who have access, at the Company's expense, to the Company's or to
independent legal counsel.
CONSULTING AGREEMENTS
In connection with the financing that was made between the Company and
Capital Fund Leasing LLC, the Company entered into a one year Consulting
Agreement with James A. Capwill providing for the payment of $15,000 and the
issuance of Class C Common Stock Purchase Warrants to purchase 215,000 shares of
the Company's Common Stock. Consulting Agreement between the Company and James
A. Capwill was amended pursuant to the refinancing of the original loan and
subsequent loans made by Capital Fund Leasing in February, 1999, to extend the
term of the Consulting Agreement through December 31, 1999 and provide for
payment of an additional sum of $82,500 over the term.
The Company has a consulting agreement with the Garvey Management Group
and Steve Garvey dated April 1, 1997 to employ Mr. Garvey to promote the
Company's marketing, sale and distribution of its products and in consideration
of such services, Mr. Garvey was to receive the right to purchase 12,000 shares
of Common Stock at $.01 per share as well as a monthly consulting fee. The term
of such agreement was for a year through March 31, 1998 and for that term, Mr.
Garvey is the Company's exclusive representative and may not promote other golf
clubs or related apparel for other companies. The Consulting Agreement between
the Company and Mr. Garvey is still in effect, and 6,000 shares of Common Stock
were issued to a designee of Mr. Garvey in connection with the agreement.
The Company has a consulting agreement with Mr. Norman Kunin, a founder
and former executive officer of the Company, dated November 1, 1997 and
subsequently modified on September 22, 1998, February 22, 1999 and July 6, 1999.
The original agreement was for a term of twelve months ending January 31, 1999,
which was extended through to January 31, 2000. In consideration of his services
to the Company, Mr. Kunin was to receive (i) $60,000 annually; (ii) automobile
expenses up to $1,000 per month; health insurance and fringe benefits; (iv) home
office allowance of $250.00 each month; (v) reimbursement for reasonable
business expenses; and (vi) a portion of the initial public offering shares. Mr.
Kunin also received the benefit of an indemnification agreement previously
entered into during Mr. Kunin's employment as an executive officer of the
Company. The consulting agreement was modified to extend the term of the
agreement and the indemnification agreement and to increase Mr. Kunin's
compensation to $6,000 per month and the issuance of a bonus of an aggregate of
65,000 shares of Common Stock of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report:
3.1 Certificate of Incorporation of Gary Player Direct, Inc. (formerly
known as Grafix Corporation) (incorporated by reference to Grafix
Corporation's Current Report on Form 8-K filed August 7, 1998,
Exhibit 3.0)
3.2 By-Laws of Gary Player Direct, Inc. (formerly known as Grafix
Corporation) (incorporated by reference to Grafix Corporation's
Current Report on Form 8-K filed August 7, 1998, Exhibit 3.1)
3.3 Certificate of Amendment of Certificate of Incorporation of Gary
Player Direct, Inc. dated May 3, 1999 and filed May 10, 1999
3.4 Articles of Incorporation of Rhino Marketing, Inc.
3.5 By-Laws of Rhino Marketing, Inc.
33
<PAGE> 37
3.6 Articles of Incorporation of Gran Prix Marketing, Inc.
3.7 By-Laws of Gran Prix Marketing, Inc.
4.1 Specimen Common Stock Certificate of Gary Player Direct, Inc.
4.2 Specimen Class A Warrant Certificate of Gary Player Direct, Inc.
4.3 Specimen Class B Warrant Certificate of Gary Player Direct, Inc.
4.4 Specimen Class C Warrant Certificate of Gary Player Direct, Inc.
10.1 Certificate of Merger between Grafix Corporation and Golf One
Industries, Inc. dated March 29, 1999 (incorporated by reference to
Gary Player Direct, Inc.'s Current Report on Form 8-K dated April
14, 1999, Exhibit 2.1)
10.2 Agreement and Plan of Merger dated March 26, 1999 between Grafix
Corporation and Golf One Industries, Inc. (incorporated by reference
to Gary Player Direct, Inc.'s Current Report on Form 8-K dated April
14, 1999, Exhibit 2.0)
10.3 Employment Agreement between Alfonso J. Cervantes Jr. and Golf One
Industries, Inc. dated May 31, 1998
10.4 Employment Agreement between Kent Krausman and Gary Player Direct,
Inc. dated April 1, 1999
10.5 Employment Agreement between Joseph DePanfilis and Golf One
Industries, Inc. dated May 31, 1998, as modified on April 9, 1999
10.6 Lease Agreement between Rhino Marketing, Inc. and Comstream
Corporation dated January 20, 1995 for the Santa Maria, California
facility
10.7 Lease Agreement between Golf One Industries, Inc. and Fugro West,
Inc. dated June 24, 1997 for the Ventura, California facility
10.8 Lease Agreement between Rhino Marketing, Inc. and Volny Investment
Co. dated October 5, 1995 for the San Luis Obispo, California
facility
10.9 Lease Agreement between Golf One Industries, Inc. and Barclay
Associates dated November 25, 1998 for the Irvine, California
facility
10.10 Indemnification Agreement between Golf One Industries, Inc. and
Alfonso J. Cervantes, Jr. dated May 22, 1998(1)
10.11 Direct Marketing Agreement between Golf One Industries, Inc. and
Gary Player Golf Equipment, Inc. dated November 1, 1996
10.12 Amendment No. 1 to the Direct Marketing Agreement dated November 9,
1999(incorporated by reference to the Company's Quarterly Report on
10-QSB for the period ended December 31, 1998)
10.13 Amendment No. 2 to the Direct Marketing Agreement dated November 11,
1999
10.14 Asset Purchase Agreement between Golf One Industries, Inc. and the
Gary Player Group, Inc. dated November 1, 1997
10.15 Amendment No. 1 to the Asset Purchase Agreement between Golf One
Industries, Inc. and the Gary Player Group, Inc. dated March 13,
1998
10.16 Amendment No. 2 to the Asset Purchase Agreement between Golf One
Industries, Inc. and the Gary Player Group, Inc. dated July, 1998
34
<PAGE> 38
10.17 Amendment No. 3 to the Asset Purchase Agreement between Golf One
Industries, Inc. and the Gary Player Group, Inc. dated August 28,
1998
10.18 Amendment No. 4 to the Asset Purchase Agreement between Golf One
Industries, Inc. and the Gary Player Group, Inc. dated March 2, 1999
10.19 Licensing Agreement between World Services Establishment and Gary
Player Group, Inc. dated November 1, 1997
10.20 Form of Licensing Agreement between Golf One Industries, Inc. and
Gary Player dated November 1, 1997
10.21 Card Services International Merchant Account Agreement dated August
27, 1996 with Rhino Marketing, Inc.(2)
10.22 Note Purchase Agreement between Golf One Industries, Inc. and
Capital Fund Leasing dated November 5, 1998
10.23 Note Purchase Agreement between Golf One Industries, Inc. and
Capital Fund Leasing dated February 12, 1999
10.24 Agreement between Grafix Corporation, Monte Ahuja, Transtar, Inc.
and Golf Acquisition Group, LLC dated February 11, 1999
10.25 Promissory Note between Grafix Corporation and Monte Ahuja dated
February 11, 1999(3)
10.26 Promissory Note between Grafix Corporation and Transtar Industries,
Inc. dated February 11, 1999(4)
10.27 Form of Bridge Loan Agreement between Golf One Industries, Inc. and
____________ dated _________, 1998(5)
10.28 Agreement between Direct Media, Inc. and Golf One Industries, Inc.
dated October 7, 1998
10.29 Agreement between Tradewell, Inc. and Golf One Industries, Inc dated
December 16, 1998
10.30 Strategic Alliance between Caudill Productions, Inc. and Golf One
Industries, Inc. dated January 25, 1999
10.31 Consulting Agreement between Golf One Industries, Inc. and James
Capwill dated November 5, 1998
10.32 First Amendment to the Consulting Agreement between Golf One
Industries, Inc. and James A. Capwill dated February 12, 1999
10.33 Form of Unit Purchase Agreement between Golf One Industries, Inc.
and ____________ dated __________, 1997(6)
10.34 Consulting Agreement between Golf One Industries, Inc. and Garvey
Management Group and Steve Garvey dated April 1, 1997
10.35 Partially Convertible Promissory Note between Golf One Industries,
Inc. and Capital Fund Leasing, LLC dated February 12, 1999(7)
10.36 Consulting and Indemnity Agreement between Golf One Industries, Inc.
and Stone Pine Investment Banking dated October 31, 1998
10.37 Modification to the Consulting Agreement between Golf One
Industries, Inc. and Stone Pine
35
<PAGE> 39
Investment Banking dated March 25, 1999
10.38 Credit Services Agreement dated April 2, 1999 and Promissory Note
dated April 20, 1999 between Golf One Industries, Inc. and PayPro
Resources, Inc.
10.39 Consulting Agreement dated November 1, 1997 between Golf One
Industries, Inc. and Norman Kunin
10.40 Modification Agreement dated September 22, 1998 to the Consulting
Agreement between Golf One Industries, Inc. and Norman Kunin
10.41 Extension and Modification Agreement dated February 22, 1999 between
Golf One Industries, Inc. and Norman Kunin
10.42 Second Extension and Modification Agreement dated July 6, 1999
between Golf One Industries, Inc. and Norman Kunin
10.43 Promissory Note dated March 14, 1999 between Golf One Industries,
Inc. and Michael Freilich
11.1 Earnings Per Share Calculation
21.1 List of Subsidiaries
27.1 Financial Data Schedule
- -----------------------------------
(1) The same form of which indemnification agreement was executed with Robert
Friedland on May 22, 1998
(2) The same form of which merchant agreement was executed with Gran Prix
Marketing, Inc./Golf One Industries, Inc. on November 10, 1997
(3) The promissory note executed with Mr. Ahuja is included in Exhibit A to
the Agreement between Grafix, Ahuja and Golf Acquisition Group, LLC, which
agreement is Exhibit 10.17 filed herewith.
(4) The promissory note executed with Transtar Industries, Inc. is included in
Exhibit A to the Agreement between Grafix, Ahuja and Golf Acquisition
Group, LLC, which agreement is Exhibit 10.17 filed herewith.
(5) The same form of which agreement was entered into with several parties who
were bridge loan lenders during May, 1998.
(6) The same form of which agreement was entered into with several parties who
were unit purchasers during September, 1997 through January, 1998.
(7) The promissory note executed with Capital Fund Leasing is included in
Exhibit A to the Note Purchase Agreement between Golf One Industries and
Capital Fund Leasing, which agreement is Exhibit 10.23 filed herewith.
(b) Reports on Form 8-K during the quarter ended March 31, 1999:
Current Report on Form 8-K dated March 29, 1999 as filed with the
Securities and Exchange Commission on April 14, 1999
36
<PAGE> 40
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GARY PLAYER DIRECT, INC.
Date: December 7, 1999 By: /s/ Marc B. Player
______________________________
Marc B. Player
Chief Executive Officer
By: /s/ Carl Casareto
______________________________
Carl Casareto
Executive Vice President
and Treasurer
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas P. Gallagher
____________________________ Chairman of the Board December 7, 1999
Thomas P. Gallagher
/s/ Marc. B. Player
____________________________ Director December 7, 1999
Marc. B. Player
/s/ Pam J. Campbell
____________________________ Director December 7, 1999
Pam J. Campbell
</TABLE>
37
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Gary Player Direct, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Gary Player
Direct, Inc. and Subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' deficit, 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 referred to above present fairly, in
all material respects, the consolidated financial position of Gary Player
Direct, Inc. and Subsidiaries as of March 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The factors discussed in
Note B to the financial statements raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Los Angeles, California
November 24, 1999
F-1
<PAGE> 42
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
Current Assets
Cash $ 249,545 $ 129,008
Accounts receivable 2,001 49,284
Inventories 355,226 408,491
Prepaid expenses and other 230,041 103,423
------------ ------------
Total current assets 836,813 690,206
Furniture, fixtures, property and equipment, net 241,856 158,486
Other assets 807,791 781,983
------------ ------------
Total Assets $ 1,886,460 $ 1,630,675
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 7,332,273 $ 2,505,624
Notes payable, net of unamortized
discount of $0 and $790,857 respectively 4,352,647 2,306,643
Capital lease obligation 51,573 --
Customer refunds, deferred revenue
and allowance for returns 4,837,136 2,278,479
--------- ------------
Total current liabilities 16,573,629 7,090,746
---------- ------------
Notes payable, less current portion 650,000 --
Commitments and contingencies -- --
Stockholders' Deficit
Common stock, par value $.001 per share
- authorized 50,000,000 shares, issued
and outstanding 5,794,758 and 1,700,770 shares,
respectively 5,795 1,701
Preferred stock, par value $.001 per share --
authorized 5,000,000 shares -- --
Series B convertible Preferred stock --
authorized, 750,750 shares:
572,649 shares issued and outstanding -- 573
Additional paid in capital 13,012,466 5,645,472
Common stock subscribed (60,711) --
Accumulated deficit (28,294,719) (11,107,817)
------------ ------------
Total Stockholders' Deficit (15,337,169) (5,460,071)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,886,460 $ 1,630,675
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 43
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Gross Sales $ 13,006,761 $9,567,902
Less allowances for returns 7,744,203 4,799,870
------------ ------------
Net Sales 5,262,558 4,768,032
Cost of goods sold 2,960,620 1,973,105
------------ ------------
Gross Profit 2,301,938 2,794,927
Operating expenses
Telemarketing and infomercial expenses 4,757,073 3,142,639
Selling expenses 3,609,110 1,685,291
General and administrative 4,747,400 1,706,917
Depreciation and amortization 84,970 34,028
------------ ------------
Total operating expenses 13,198,553 6,568,875
------------ ------------
Operating loss (10,896,615) (3,773,948)
Other expenses (income)
Interest expense 6,383,257 1,861,299
Other, net (92,970) (10,733)
------------ ------------
Total other expenses 6,290,287 1,850,566
NET LOSS $(17,186,902) $ (5,624,514)
============ ============
Net loss attributable to common shares
Net loss $(17,186,902) $ (5,624,514)
Preferred dividends -- (155,799)
============ ============
$ (17,186,902) $ (5,780,313)
============ ============
Weighted average shares of common stock outstanding 2,163,477 1,484,147
============ ============
Net loss per share - Basic and diluted $ (7.94) $ (3.89)
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 44
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net loss $(17,186,902) $ (5,624,514)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for obsolete inventory -- 87,270
Provision for uncollectible receivables -- (36,489)
Depreciation and amortization 83,452 34,028
Writeoff of offering cost 984,161 --
Amortization of discount on debt 1,550,857 1,681,763
Writeoff of offering cost -- --
Issuance of Class A warrants for extension of notes payable 8,750 129,750
Issuance of common stock for consulting services 336,000 80,000
Loss on disposal of fixed assets 128,695 --
Employee stock based compensation 321,000 --
Stock based loan extension consideration 3,576,133 --
Vendor stock based forgiveness 231,141 --
Changes in assets and liabilities:
Accounts receivables 47,283 112,924
Inventories 53,265 (302,334)
Prepaid expenses and other (126,618) (92,628)
Other assets (188,783) 493,304
Accounts payable and accrued liabilities 3,515,117 567,088
Customer refunds payable, deferred
revenue and allowance for returns 2,558,657 1,147,176
------------ ------------
Net cash used in operating activities $ (4,107,792) $ (2,709,275)
------------ ------------
Cash flows from investing activities:
Purchases of equipment $ (226,885) $ (163,542)
Cash received in reverse acquisition 44,641 --
Net cash used in investing activities (182,244) (163,542)
Cash flows from financing activities:
Proceeds from notes payable 4,505,292 2,030,639
Payments on notes payable (323,107) (364,056)
Proceeds from issuance of common and preferred stock 1,061,108 1,020,015
Payments on capital lease obligations (11,534) --
Offering costs incurred (821,186) --
------------ ------------
Net cash provided by financing activities 4,410,573 2,686,598
------------ ------------
Net increase (decrease) in cash 120,537 (186,219)
Cash at beginning of period 129,008 315,227
------------ ------------
Cash at end of period $ 249,545 $ 129,008
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 29,153 $ 93,147
============ ============
Supplemental disclosure of noncash investing and
financing activity:
Net liabilities assumed from Grafix merger $ 2,337,704 $ --
============ ============
Debt and accrued interest converted to 1,182,116 shares of
class A common stock $ 3,767,962 $ --
============ ============
99,375 shares of class A common stock issued to debtors for
loan inducement $ 760,000 $ --
============ ============
Capital lease agreements $ 63,107 $ --
============ ============
Shares of Class A common stock issued to subscribers $ 60,711 $ --
============ ============
Shares of preferred stock converted into shares of Class A
common stock $ 573 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 45
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE TWO YEARS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Preferred stock Common stock Common Stock Additional Accumulated
Shares Amount Shares Amount Subscriptions Paid-in Capital Deficit
------ ------ ------ ------ ------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Balance at March 31, 1997 546,747 $547 1,227,388 $1,228 $275,000 $1,776,991 $(5,483,303)
-------------------------------------------------------------------------------------
Class A common stock warrants
issued in connection with
Series B preferred stock
issuance, common stock
issuances, as employee
incentives and in exchange
for consulting services. -- -- -- -- -- 223,898 --
Class B common stock warrants
issued in connection with
extensions of notes payable. -- -- -- -- -- 435,000 --
Issuance of Series B preferred
stock, net of issuance costs
of $20,932. 25,902 26 -- -- -- 65,296 --
Issuance of common stock at
$5.00 per share, net of
issuance costs of $247,387. -- -- 225,400 226 -- 879,387 --
Issuance of common stock at
$8.00 per share, net of
issuance costs of $67,050. -- -- 56,625 52 (275,000) 879,387 --
Issuance of common stock in
connection with notes payable. -- -- 228,900 229 -- 353,898 --
Issuance of common stock as
payment for consulting fees. -- -- 12,250 12 -- 79,988 --
Common stock cancelled in
connection with litigation
settlement. -- -- (45,793) (46) -- 43 --
Net loss for the year. (5,624,514)
------- ---- --------- ------ -------- ---------- ------------
Balance at March 31, 1998 572,649 $573 1,700,770 $1,701 $ -- $5,645,472 $(11,107,817)
======= ==== ========= ====== ======== ========== ============
</TABLE>
F-5
<PAGE> 46
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT - CONTINUED
FOR THE TWO YEARS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Preferred stock Common stock Common Stock Additional Accumulated
Shares Amount Shares Amount Subscriptions Paid-in Capital Deficit
------ ------ ------ ------ ------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
Balance at March 31, 1998 572,649 $573 1,700,770 $1,701 $ -- $5,645,472 $(11,107,817)
------------------------------------------------------------------------------------
Class B common stock warrants
issued in connection with
extension of notes payable. -- -- -- -- -- 8,750 --
Class B common stock warrants
exercised in connection with
settlement of notes payable. -- -- 73,417 73 -- 74 --
Issuance of common stock in
connection with settlement of -- -- 1,182,115 1,183 -- 3,891,538 --
notes payable.
Issuance of common stock in
connection with extension of -- -- 1,303,205 1,303 -- 3,973,810 --
notes payable.
Issuance of common stock in
connection with issuance of -- -- 99,375 99 -- 759,845 --
new notes payable.
Issuance of common stock as
payment for consulting fees. -- -- 90,200 90 -- 335,910 --
Issuance of common stock as
payment for employee -- -- 86,250 86 -- 320,914 --
compensation.
Issuance of common stock in
connection with settlement of -- -- 67,185 67 -- 231,074 --
vendor payables.
Issuance of common stock in
connection with preferred (572,649) (573) 286,324 286 -- 287 --
stock conversion.
Shares redeemed in settlement of
litigation. -- -- (105,382) (105) --
Issuance of common stock -- -- 30,785 31 -- 121,788 --
Effect of recapitalization,
merger between Grafix Corp. -- -- 980,514 981 -- (2,337,707) --
and Golf One Industries, Inc.
Common Stock subscribed -- -- -- -- (60,711) 60,711 --
Net loss for the year. (17,186,902)
========= ===== ========== ======= ======== ============ =============
Balance at March 31, 1999 -- $ -- 5,794,758 $5,795 $(60,711) $13,012,466 $(28,294,719)
========= ===== ========== ======= ======== ============ =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE> 47
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE A - COMPANY BACKGROUND
Gary Player Direct, Inc. (the "Company") is engaged principally in the direct
marketing within the United States and Canada of Gary Player brand golf clubs
pursuant to an exclusive license from the Gary Player Group, Inc. ("GPG"). The
Company's golf clubs are currently marketed and sold under the names Gary Player
Black Knight and Gary Player.
On March 29, 1999, the Company completed a merger (the "1999 Merger"), in which
the Company formerly known as Golf One, Inc., d/b/a Gary Player Direct ("Golf
One") was acquired by and merged with and into Grafix Corporation ("Grafix") and
the merged Company changed its name to "Gary Player Direct, Inc." Pursuant to
the terms of the Agreement of Merger, Grafix issued 3,642,990 shares of its
Common Stock to Golf One's shareholders and lenders, resulting in a change of
control of the legal entity, Grafix. As part of the merger, the Company effected
a 1-for-20 reverse split of its issued and outstanding Common Stock. As of March
31, 1999, the Company had 5,794,758 shares of Common Stock issued and
outstanding, including the 3,817,244 shares owned by Golf One's former
shareholders and lenders. See NOTE L.
The 1999 Merger was accounted for as a recapitalization of Golf One through
the"reverse acquisition" of Grafix, a non-operating entity. The stockholders of
Golf One had voting control of the combined entity after the transaction. In a
reverse acquisition, the accounting treatment differs from the legal form of the
transaction, as the continuing legal entity (Grafix) is not considered to be the
acquirer and the financial statements of the combined entity (the Company) are
those of the accounting acquirer (Golf One), including any comparative prior
year financial statements presented by the combined entity after the business
combination. Accordingly, the 1998 financial statements of the Company are the
historical financial statements of Golf One, with accompanying disclosure
concerning the change in capital structure affected by the acquisition. In
connection with the recapitalization, the Company assumed $2.3 million of net
liabilities of Grafix.
Golf One, Inc. was incorporated in Delaware in October 1995. In November 1995,
the Company acquired Rhino Marketing, Inc. ("Rhino"), which was engaged in the
direct marketing of golf clubs and accessories. On October 10, 1995, Rhino
entered into a licensing agreement with Robert Mann, a well-known golf
professional, to endorse the Rhino Rifle brand name golf clubs and accessories.
Rhino commenced sales of golf clubs under the Bob Mann brand name in November,
1995 and terminated the Mann licensing agreement in January, 1997. After the
termination of this licensing agreement in January, 1997, the Company
discontinued active operations of Rhino.
The Company's second subsidiary, Gran Prix, was formed by the Company in
January, 1997 as a wholly-owned subsidiary of the Company, and commenced sales
of golf clubs and related golf products and accessories under the Gary Player
Gran Prix brand name in February, 1997. Such sales were made through
direct-marketing pursuant to an exclusive long-term direct marketing agreement
(the "Licensing Agreement") between the Company and Gary Player Golf Equipment,
Inc. ("GPGE"), a division of the Gary Player Group, Inc. ("GPG"). The Gary
Player Gran Prix line of golf products was discontinued by Gran Prix on or about
the date of the 1999 Merger.
As a result of the 1999 Merger, substantially all of the operations of the
Company relate to the operations of the Gary Player line of branded products and
the focus of the Company's activities going forward will be the development of
revenue from manufacturing, marketing, licensing and distributing golf equipment
and apparel resulting from licenses (the "Player Licenses") acquired from GPG.
In November 1996, the Company entered into a 20-year direct marketing agreement
(the "Licensing Agreement"), with GPG, pursuant to which the Company obtained
the exclusive right to market and sell golf clubs and golf accessories and
apparel under the name "Gary Player" on a direct marketing basis in the United
States and Canada.
Grafix Corporation designed, developed, assembled and distributed golf products,
clothing and accessories worldwide utilizing the Carrera (R) brand name and
logo, pursuant to an exclusive licensing agreement with Carrera Optyl GmbH, a
subsidiary of Safilo SpG ("Safilo"), owner of the Carrera brand name. Grafix's
operations ceased on or about September 30, 1998.
In connection with the 1999 Merger, the legal entity changed its fiscal year end
from September 30th to March 31st, which is the fiscal year end of Golf One.
F-7
<PAGE> 48
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has incurred substantial losses
from operations since inception. In addition, the Company has used, rather than
provided, cash in its operations and at March 31, 1999, the Company has a
deficit working capital of $15,736,816 and a stockholders' deficit of
$15,337,169. As discussed in Notes E and K, the Company is also in default on
the payment of certain notes payable and its Licensing Agreement with GPG, and
is subject to significant litigation, claims and assessments. These matters,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn, is
dependent upon the Company's ability to meet its financial requirements on a
continuing basis, to maintain adequate financing, and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management's plans to address these matters are summarized below. There can be
no assurance that management will be successful in resolving these matters, or
that the Company will be able to maintain operations until March 31, 2000.
A new Board of Directors was elected on October 14, 1999, and a new management
team was put into place. Since then, the Company has been attempting to
identify, resolve and settle any unpaid amounts. Management has been successful
in settling many obligations or obtaining extended payment terms. There can be
no assurance that all significant obligations can be resolved satisfactorily.
Until October 14, 1999, GPG's relationship with the Company was that of a
licensor of the Gary Player name under the Licensing Agreement. The twenty year
Licensing Agreement provides for the direct marketing of Gary Player branded
golf equipment and accessories in North America principally through
telemarketing activities by the Company. Effective as of October 14, 1999 Marc
Player, Mr. Player's son, and Pamela Campbell, the Controller of GPG, were
appointed two of the three members of the Board of Directors of the Company
along with Thomas P. Gallagher who became the Chairman of the Board of
Directors. Also, as of October 14, 1999, the Company's Licensing Agreement with
GPG was in default as a result of the Company's failure to satisfy certain
provisions of the Licensing Agreement including the failure to make certain
royalty payments, the failure to meet certain sales minimums and the failure to
pay miscellaneous other charges under the Licensing Agreement. As of November 9,
1999 and November 11, 1999, the Company and GPG executed certain amendments to
the Licensing Agreement and the Company is no longer in default as of the date
of this report. The Company has made payments to GPG and Marc Player totaling
$555,000 between October 14, 1999 and November 16, 1999.
The Company anticipates selling additional Common Stock under Regulation S to
fund its operating plan. The offering is dependent upon the Company
re-activating its listing on the NASD Bulletin Board. Additional capital
transactions will likely be required to meet the Company's funding needs. There
can be no assurance that the Company will be able to re-activate its listing in
a timely manner, or to successfully complete the offering.
The Company plans to pursue a marketing strategy directed more towards internet
sales, which management believes will lower the overall cost of sales and
marketing for the Company, while increasing revenues worldwide. Complete
implementation of the Company's internet strategy will require significant
additional capital. There can be no assurance that management will be able to
obtain the necessary capital or that its efforts will be successful.
As a result of the Company's limited sales and significant liabilities, the
Company anticipates that it will be heavily dependent upon sales of its equity
or debt securities over the next twelve months. There can be no assurance that
the Company will be successful in raising such additional capital or that if
available it will be on terms acceptable to the Company. In addition, there can
be no assurance that if the Company cannot raise additional capital, that the
Company's revenues from operations will be sufficient to meet its working
capital, product development costs and capital to satisfy its past due
obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
F-8
<PAGE> 49
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Rhino Marketing, Inc. ("Rhino") and Gran Prix
Marketing, Inc. ("Gran Prix"). All significant inter-company balances and
transactions have been eliminated in consolidation.
2. Inventories
Inventories primarily consist of videos, golf club components and finished golf
clubs, which are all stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out method.
3. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation and
amortization is provided for using the straight-line method over the estimated
useful lives of the related assets (3 to 5 years).
4. Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases at enacted rates when such amounts are expected to be realized or settled.
5. Revenue Recognition
The Company recognizes revenue when products are shipped. Amounts collected in
advance of shipment are recorded as deferred revenues. The Company generally
allows customers to return items purchased within sixty days of receipt.
Allowances for returns are recorded at the time of recording the sale based upon
historical return rates experienced by the Company.
6. Direct Response Advertising
The Company capitalizes costs relating to direct-response advertising. These
costs are amortized over the expected period of use of advertisement related to
the expenditures.
7. Loss Per Common Share
Loss per common share is based upon the weighted average number of shares of
Common Stock outstanding. The preferred dividend requirements on the Series B
Convertible Preferred Stock are deducted in computing loss per common share. The
effect of outstanding warrants is anti-dilutive for all periods presented. See
NOTE F.
8. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the 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.
Significant estimates used in preparation of the accompanying consolidated
financial statements include the allowance for returns, the accrual for
litigation, and the accrual for remaining costs on vacated leased facilities.
Actual results could differ from those estimates.
F-9
<PAGE> 50
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE D - FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment is comprised of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
---- ----
<S> <C> <C>
Office equipment and fixtures $ 83,708 $ 120,958
Production equipment and fixture 71,171 9,944
Computer software 45,397 147,940
Telemarketing equipment and fixtures 92,625 22,294
--------- ---------
292,901 301,136
Less accumulated depreciation and amortization (51,045) (142,650)
--------- ---------
$ 241,856 $ 158,486
========= =========
</TABLE>
NOTE E - OTHER ASSETS
Other assets is comprised of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
---- ----
<S> <C> <C>
Loan receivable - other $ 15,000 $168,872
Infomercial production costs 90,000 301,099
Deferred offering costs -- 162,975
Deferred debt issuance cost -- 117,021
Deferred acquisition costs 300,275 --
Prepaid advertising credits 390,239 --
Other 12,277 32,016
-------- --------
$807,791 $781,983
======== ========
</TABLE>
F-10
<PAGE> 51
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE F - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Payables consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Trade payables $ 4,865,311 $ 1,186,794
Payroll, vacation and payroll taxes 1,359,135 640,359
Royalties 290,620 135,053
Interest 301,746 356,871
Lease abandonment 430,000 --
Other 85,461 186,547
----------- -----------
$ 7,332,273 $ 2,505,624
=========== ===========
</TABLE>
NOTE G - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
March 31 March 31
1999 1998
---- ----
<S> <C> <C>
11% notes (1) $ 281,893 $ 417,500
12% collateralized note (2) -- 200,000
11% note (3) -- 250,000
11% notes(4) 150,000 200,000
Bank Loan(5) -- 150,000
11% note(6) 100,000 880,000
13.5% collateralized note(7) -- 1,000,000
Secured note(8) 650,000 --
13.5% unsecured note(9) 200,000 --
15% Partially convertible unsecured note (10) 3,300,000 --
Note guarantee(11) 229,954 --
Unsecured note(12) 40,800 --
15% notes(13) 50,000 --
----------- -----------
Less unamortized discount on debt -- (790,857)
----------- -----------
5,002,647 2,306,643
Less current portion (4,352,647) (2,306,643)
----------- -----------
$ 650,000 $ --
=========== ===========
</TABLE>
________________
(1) During 1995 and 1996, the Company borrowed $800,000 from unrelated parties
pursuant to notes bearing interest at 11% per annum. The notes were due and
payable on the earlier of November 8, 1996 or the completion of the private
placement of Series B Convertible Preferred Stock. As additional consideration
for the original borrowings, the Company issued warrants to purchase 5,883
shares of Common Stock at $2.21 per share for each $25,000 borrowed or a total
of 188,256 shares. These warrants were valued at $60,190, and recorded as a
discount on debt. The discount was amortized over the expected life of the debt.
During the three months ended March 31, 1997 and the year ended December 31,
1996, principal and interest amounting to $33,217 and $308,135 was converted to
approximately 40,000 and 93,000 shares of Series B Convertible Preferred Stock,
respectively. At March 31, 1998, the Company was delinquent on the outstanding
balance of these notes. As consideration for an extension of these notes in
1997, the Company issued warrants to purchase 36,250 shares of Common Stock
during January 1997. During the fiscal year ended March 31, 1999 payment of
$15,607 in cash and the issuance of 31,675 shares reduced the balance owing on
these notes to $281,893.
(2) The Company borrowed $400,000 from several lenders pursuant to a note
bearing interest at a rate of 12% per annum due and payable November 8, 1996. An
affiliate of one of these lenders later became, but no longer is, a director of
the Company. During 1996, the Company reached an agreement with the Director to
extend the maturity of the note until November 30, 1997. The note was paid in
full, in cash, during fiscal year ended March 31, 1999.
(3) The note was due on the earlier of December 31, 1996 or ten days after the
Company's initial public offering. The Company was delinquent on this note at
March 31, 1998. As additional consideration for the original borrowing under
F-11
<PAGE> 52
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
this note and for the extension of the maturity date, the Company issued 18,750
shares of Common Stock. Provisions of the note agreement increased the interest
rate by 4% per annum (aggregate 15% note) in the event of default. The note is
collateralized by 100% of the common stock of Rhino. The note was converted to
equity and 81.375 shares were issued to satisfy this obligation in connection
with the 1999 Merger.
(4) In 1996, the Company borrowed $150,000 from an unrelated lender pursuant to
a note bearing interest at a rate of 11% per annum and due at the earlier of
June 1, 1997 or the sale of a minimum of $250,000 of the Series B Convertible
Preferred Stock. In 1997, the Company reached an agreement with the lender to
extend the maturity of the note to the earlier of June 30, 1998 or the closing
of the Company's initial public offering ("IPO"). As consideration for this
extension, the Company issued 10,000 shares of Common Stock that were valued at
$8.00 per share and recorded as a discount on debt. This note is still
outstanding and is past its maturity date. The Company is in discussion with
this note holder to extend and modify the terms of this obligation.
In 1997, the Company borrowed $50,000 from an unrelated lender pursuant to a
note bearing interest at a rate of 11% per annum and due at the earlier of
December 31, 1997 or the closing of the Company's IPO. Later that year, the
maturity date was extended to the tenth day of the thirteenth month following
the closing of the Company's IPO. On May 6, 1999, the Company issued 24,125
shares of Common Stock in satisfaction of this obligation.
(5) These borrowings are with a bank for a maximum of $150,000 bearing interest
at the bank's prime rate (7.75% at March 31, 1999) plus one percent. The
Company was delinquent on this loan at March 31, 1998. This note was paid in
full by a third party guarantor during the fiscal year. See (11).
(6) During the fiscal year ended March 31, 1998, the Company borrowed $880,000
from unrelated parties under notes bearing interest at 11% per annum and due at
the earlier of six months from the date of the notes or the closing of the
Company's IPO. As additional consideration for the notes, the Company issued
44,000 shares of Common Stock, which were valued at $8.00 per share, and issued
an additional 44,000 shares of Common Stock, which were valued at $8.00 per
share to a consultant/director who located investors in the offering. The value
of these shares aggregating $704,000 was recorded as a discount on debt. This
additional consideration results in an effective interest rate of 171%. The
maturity of the notes ranged from April 13, 1998 through July 21, 1998. As of
March 31, 1999 the remaining balance was $100,000. The Company paid $102,500 in
cash and issued 185,175 shares of Common Stock to retire $780,000 of these
obligations. The $100,000 balance is currently in litigation. See NOTE K.
(7) In March 1998, the Company borrowed $1,000,000 from an unrelated party
pursuant to a note bearing interest at a rate of 13.5% per annum and maturing on
the earlier of the third business day after the closing of the IPO or December
31, 1998. The obligation was collateralized by all assets of the Company. The
interest rate increased to 15% on and after August 1, 1998 and the Company was
required to issue 3,125 shares of Common Stock on the first day of each calendar
month commencing August 1998 that the loan is not repaid. As additional
consideration for the note, the Company issued 38,128 shares of Common Stock
that were valued at $610,000 and recorded as a discount on debt. The agreement
stipulates that the number of shares shall be adjusted so as to equal $610,000
divided by the IPO price. This additional consideration results in an effective
interest rate of 223%. This loan was converted to equity in connection with the
1999 Merger in consideration for 383,767 shares of Common Stock. This is in
addition to 92,081 shares of Common Stock issued previously as loan extension
compensation. This shareholder has threatened litigation with respect to the
conversion of his shares. See NOTE K.
F-12
<PAGE> 53
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
(8) The Company entered into a new two year promissory note with a previous
principal shareholder of Grafix, in the face amount of $650,000. This new note
is secured by the receivables and inventory of the Company. Interest accrues on
the new note for the two year period, and the entire note, with accrued
interest, is due on February 11, 2001. Additionally, the Company issued to the
shareholder 550,000 shares of its Common Stock.
(9) On April 30, 1998 the Company borrowed $200,000 from unrelated parties
pursuant to notes that bear interest at 13.5%. As additional consideration for
the notes, 12,500 shares of Common Stock were issued in connection with the
issuance of the notes. The maturity date on the notes was December 31, 1998. The
notes are in default and legal proceedings were commenced. The Company has been
negotiating with the parties. See NOTE K.
(10) On February 12, 1999, the Company borrowed $3,300,000 from an unrelated
lender pursuant to a partially convertible note bearing interest at 16%. Under
the terms of the note, the holder has the right, at his sole option, to receive
interest paid in cash or common shares at a price equal to $1.00 per share. The
note called for a first maturity on April 30, 1999 of $1,000,000 of which said
payment shall first be applied to accrued interest and then to principal. The
Company is in default under this note and is in discussions with the note holder
to restructure the terms of the note.
(11) Under a guarantee agreement, certain parties were required to satisfy a
bank loan to the Company, as referenced in paragraph (5) above, and advanced
$145,000 to retire the debt. The parties have filed an action to recover
principal, interest and penalties from the Company. See NOTE K.
(12) A $40,800 note was issued by the Company as an offset to an equal amount
due to a vendor for past due accounts payable. The note was issued on February
1, 1999 and bears interest at the Prime rate (7.75% at March 31, 1999) plus
three percent. Terms of the note call for monthly principal payments of $6,800
plus interest. The note has a due date of July 20, 1999. To date, the Company
has not made payments according to the repayment terms.
(13) Prior to March 31, 1999, the Company issued $50,000 in notes to three
unrelated parties. The notes bear interest at 15% interest and were granted
8,750 shares as additional consideration for the loans. These notes are in
default and the Company is discussing terms with the note holders for additional
extensions.
F-13
<PAGE> 54
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE H - CUSTOMER REFUNDS PAYABLE, DEFERRED REVENUE AND
ALLOWANCE FOR RETURNS
Customer refunds payable, deferred revenue and allowance for returns is
comprised of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Customer refunds payable $3,155,021 $ 937,517
Deferred revenue 1,188,186 723,459
Allowance for returns 493,929 617,503
---------- ----------
$4,837,136 $2,278,479
========== ==========
</TABLE>
Reserve for returns are established based on historical experience and
management's estimates.
NOTE I - INCOME TAXES
Through March 31, 1999, the Company incurred net operating losses (the "NOL's")
for tax purposes of approximately $41 million which may be used to reduce
federal taxable income through the year 2019. Net operating loss carryforwards
for the State of California are approximately $20.5 million and are generally
available to reduce taxable income through the year 2004.
The availability of the Company's net operating loss carryforwards are subject
to limitation where there is a 50% or more positive change in the ownership of
the Company's Common Stock. Prior to the merger, Golf One had numerous ownership
changes which may severely limit the utilization of their NOL's. Grafix' NOL's
will be severely limited because of the 1999 Merger. Such NOL's may be further
limited in their use due to future changes in ownership based upon management's
plans.
Deferred income taxes result from the effect of transactions that are recognized
in different periods for financial and tax reporting purposes. They relate
primarily to net operating losses and allowance for returns. The Company had
total deferred tax assets of approximately $15,752,200 and $3,340,000 at March
31, 1999 and March 31, 1998, respectively. These deferred tax assets were fully
offset by a valuation allowance, as the realization cannot be reasonably
assured.
NOTE J - LEASE COMMITMENTS
The Company conducts its operations and warehouses certain of its products in
leased facilities classified as operating leases. The following is a schedule of
the future minimum rental payments under such operating leases.
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000 $15,696
2001 17,168
2002 7,754
2003 7,433
2004 3,522
-------
TOTAL $51,573
=======
</TABLE>
Rent expense for the years ended March 31, 1999 and 1998 was approximately
$249,000, and $189,000, respectively. The Company terminated its Santa Maria
lease during July, 1999 and abandoned three other real estate and two equipment
leases subsequent to the fiscal year end. The Santa Maria lease is classified
as an operating lease and expires in 2004. The Company has recognized an
expense of $315,000 to accrue for the remaining costs under the lease reduced
by estimated sublease income. The schedule of future minimum lease payments
excludes these amounts. See NOTE K.
F-14
<PAGE> 55
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE K - LITIGATION
The Company has been notified of a claim under the license agreement between
Grafix and Carrera Optyl Marketing GmbH ("Carrera"). The claim is for payment of
an aggregate of $532,500 of unpaid royalties asserted by Carrera, the licensor.
The claim also asserts the cancellation of the license agreement as of August
24, 1999, which may prevent the Company from any further activity using the
Carrera name. The Company intends to seek a mutually satisfactory resolution of
this matter with the licensor. The amount has been accrued as of March 31,
1999.
In January 1999 a lawsuit was brought in the District Court, City and County of
Denver, State of Colorado by Patrick Burke, a golf professional under contract
with the Company. The suit seeks monetary damages related to an alleged breach
of a 1994 independent contractor agreement and other damages. The Company has
accrued the full amount of the claim ($135,000) which has been included in
accounts payable and accrued liabilities in the accompanying consolidated
balance sheets.
The Company has been notified of a claim by Cardservice International, Inc.
("CSI"), a provider of credit card processing services. Rhino, a subsidiary of
Golf One, entered into a merchant account agreement with CSI in August, 1996 and
Gran Prix entered into an agreement with CSI on November 10, 1997, which
agreements were assumed by the Company in the 1999 Merger. CSI alleges a breach
by the Company of the merchant account agreements and is currently withholding
the proceeds from sales by the Company as payment against amounts owing for
customer charge-backs and returns. The Company hopes to negotiate a payment plan
with CSI to allow proceeds to be remitted to the Company. The full unpaid claim
is included in the accompanying consolidated balance sheets. The Company is
negotiating to receive a portion of the current sales paid by credit card
through CSI while the debt is being repaid.
The Company has been notified of a potential claim by Mr. Jack Cancellieri, who
provided a $1,000,000 bridge loan to the Company in March of 1998. See NOTE G.
The loan was converted into shares of Common Stock of the Company in connection
with the 1999 Merger. Mr. Cancellieri is alleging fraudulent inducement in
connection with the conversion of his loan in April 1999. The Company is
attempting to settle this matter through the issuance of additional shares of
Common Stock.
Gran Prix has an outstanding obligation to the Internal Revenue Service ("IRS")
for unpaid taxes, interest, and penalties in the amount of $1,134,000.00. The
Company reached an initial agreement in September, 1999 with the IRS to make
monthly payments of $30,000 to satisfy this obligation. Management is attempting
to obtain more favorable terms to make the payments.
The Company has been notified of a claim arising from loans made to Golf One by
Nissho Iwai American Corporation, Nissho Iwai Logistics, Autrans Corp., and N.I.
Logistics American Corp. (collectively "Nissho"). A settlement agreement was
reached between the Company and Nissho in March 1999, however, the Company is in
breach of that agreement. The amount outstanding to these parties at March 31,
1999 is approximately $870,000 and is included in Accounts Payable in the
accompanying consolidated balance sheets. The Company intends to renegotiate
with Nissho to fulfill its obligations under the settlement agreement.
On or about May 5, 1998 a lawsuit was brought against the Company and Rhino in
California Superior Court for Santa Barbara County by ComStream Corporation,
former landlord to
F-15
<PAGE> 56
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
Rhino. The dispute arises from a default by Rhino under a sublease for the
former premises it occupied in Santa Maria, California. ComStream obtained a
judgment against Rhino in the amount of $248,242.50. Subsequently, the parties
entered into a settlement agreement under which ComStream would accept $138,250
provided the amount agreed to in the agreement is paid in certain installments
and a dispute exists as to how much is owed by the Company for certain repairs
which were made to the property after the Company vacated the premises. The
Company has recorded for the estimated liability, including the unpaid
settlement balance.
On or about May 11, 1999 a lawsuit was brought against the Company in California
Superior Court for Los Angeles County by Robert Murphy, The Murphy Family Trust,
Alex Trebek, Gargoyle Productions, Inc., Futura Investments, Inc., Donald
Bergman, Future Investments, Inc. Defined Pension Plan and Rescor, Inc.
(collectively "Murphy"). See NOTE F. A judgment against the Company was obtained
by Murphy in the amount of $229,954.16 and if the Company did not satisfy the
judgment, a receiver was to be appointed by the Court. The Company made an
initial payment of $25,000 to Murphy in exchange for which Murphy agreed to
temporarily forego its right to have a receiver appointed as of December 1, 1999
and give the Company additional time to fully satisfy the claim. The unpaid
balance of the notes totals $229,954 at March 31, 1999. The Company successfully
settled the Murphy matter for $205,954.16 including partial payment in cash and
in 100,000 shares of the Company's Common Stock on November 30, 1999 and the
cancellation of Class B Warrants held by Murphy.
On or about June 2, 1999 a lawsuit was brought against the Company in California
Superior Court for Santa Maria County by Higgins Family, L.P., Intercontinental
Acceptance Corp., Corporate Communications Network, Inc. and Stephen E. Hoffman
to collect $200,000 plus interest due under notes made to the Company in May,
1998. The Company is attempting to negotiate a settlement of this matter.
On or about February 19, 1999 a lawsuit was brought against the Company in the
Supreme Court of the State of New York, New York County by Packquisition Corp.
The suit seeks $175,000 due for services rendered in connection with printing
services. The parties reached a settlement agreement prior to March 31, 1999
whereby Packquisition agreed to accept a payment of $55,000 as full satisfaction
of the debt. The Company is currently in default of the settlement agreement at
March 31, 1999, however, it fully intends to satisfy its obligations under the
settlement agreement.
The Company has been notified of a claim by Direct Media, Inc. in the amount of
$138,632 arising from non-payment for services rendered to the Company. The debt
is currently in collection and the Company intends to initiate negotiations
directly with Direct Media to satisfy this debt. The Company has recorded the
liability in accounts payable in the accompanying consolidated balance sheets.
The Company has been notified of a potential claim arising from a $100,000 loan
made to the Company by Mr. Daniel A. Stephenson. On or about August 3, 1999, a
settlement agreement was reached between Mr. Stephenson and the Company whereby
the Company would repay a portion of the debt and the remainder of the debt
would be converted to shares of Common Stock of the Company. If payment is not
made in accordance with the settlement agreement a judgment will be entered
against the Company.
The Company has been notified of a potential claim arising from two loans
totaling $45,000 made to the Company by Dr. Michael I. Freilich on or about
March 14, 1999 and May 20, 1999. The Company negotiated an extension of these
loans until November 15, 1999. The Company intends to settle this matter with
Dr. Freilich before litigation ensues.
F-16
<PAGE> 57
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(CONTINUED)
The Company is aware of a claim by the State of California Employment
Development Department (the "EDD") for $90,000 in payroll taxes owed by Gran
Prix. The Company is negotiating a payment plan with the EDD and intends to
satisfy the obligation by June 30, 2000. This amount has been accrued for as of
March 31, 1999 and included in accrued liabilities in the accompanying
consolidated balance sheets.
On or about January 11, 1997 a lawsuit was brought against the Company and Rhino
in District Court, 224th Judicial District, Bexar County, Texas by PTS, TV, Inc.
for breach of the contract for infomercial services. On or about February 9,
1999 a judgment was entered in Texas against the Company and Rhino Marketing in
the amount of $69,036.96. On or about September 30, 1999 the judgment was also
entered in California. The Company has recorded an accrual for the estimated
liability of this claim as of March 31, 1999.
On or about July 28, 1999 a lawsuit was brought against the Company in the
California Superior Court for Ventura County by Fugro West, a former landlord of
the Company. The suit seeks damages for unpaid rent and repair costs. On or
about July 19, 1999, Fugro West obtained a judgment against the Company pursuant
to its action against the Company for unlawful detainer. In addition, Fugro West
has brought an action based upon the Company's abandonment of the lease and is
seeking the amount due for future rent payments. Fugro West claims total
approximately $77,000. The Company has recorded an accrual for the estimated
liability of this claim as of March 31, 1999.
On or about April 30, 1999 a lawsuit was brought against the Company in
California Superior Court for Santa Maria County by Andrew F. Pollet and Sally
M. Pollet Revocable Trust (collectively "Pollet"). The suit seeks repayment of
amounts loaned to the Company by Pollet aggregating $47,500. See Note G. A
stipulation for judgment against the Company was entered on or about April 1999
for $61,694. The stipulation provided that enforcement of the judgment would be
postponed provided payment was made by April 30, 1999. No payment was ever made
and judgment was entered pursuant to the stipulation. The Company has paid
approximately half of the judgment but continues to be currently in default. The
Company has recorded an accrual for the estimated liability as of March 31,
1999.
On or about June 21, 1999 a lawsuit was brought against the Company in
California Superior Court for San Diego County by Grafalloy, L.P. for
non-payment for goods provided to the Company. A judgment was entered against
the Company on or about September 13, 1999 for $59,700.26 and a judgment lien on
personal property was filed with the Secretary of State of California on
September 21, 1999. The Company intends to initiate settlement negotiations with
Grafalloy to resolve this matter. The Company has recorded an accrual for the
estimated liability of this claim as of March 31, 1999.
On or about July, 1999 a lawsuit was brought against the Company in California
Superior Court for Santa Barbara County by NEC America, Inc. for failure to make
payments on equipment leased in the amount of $58,281.03. The parties have been
ordered by the Court to attend a case management conference on December 7, 1999
at which time the Company hopes to negotiate a settlement with NEC America. The
Company has recorded an accrual for the estimated liability of this claim as of
March 31, 1999.
On or about July 14, 1999 the Company was assessed a fine by the State of
California Department of Industrial Relations-Division of Labor Standards
Enforcement for lapse of workmen's compensation insurance in the amount of
$57,000.00. The Company has not made any payments in satisfaction of this debt
but intends to fully satisfy this obligation within the next twelve months. The
Company has recorded an accrual for this liability as of March 31, 1999.
F-17
<PAGE> 58
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
The Company is aware of a potential claim by The Towbes Group, Inc. ("Towbes"),
a former landlord of the Company. On or about, November 23, 1998 the Company
entered into a lease agreement with Towbes and paid a security deposit upon
execution of the lease. The Company never took possession of the premises and
ultimately defaulted under the lease. The Company believes that the lease has
been terminated and the security deposit has been forfeited to Towbes as
liquidated damages. The Company set forth its position in a letter to Towbes on
or about March 31, 1999. There has been no further action on this claim. See
Note J.
Hawthorne Direct, Inc. ("Hawthorne") received an arbitration award on August 16,
1999 in the amount of $40,125.59 for non-payment of media services provided to
the Company. On or about July 16, 1998, the parties entered into a Media
Services Agreement pursuant to which any dispute between the parties was to be
submitted to binding arbitration with the American Arbitration Association. The
non-payment issue was submitted to arbitration on or about August 16, 1999. The
Company settled this matter on November 23, 1999 with the payment of $7,500 and
an agreement to make monthly payments commencing on January 23, 2000 at the rate
of $3,000 per month until the full amount of this claim has been paid. The full
liability of $40,000 has been accrued at March 31, 1999.
On or about July 19, 1999 a lawsuit was brought against the Company in
California Superior Court for San Luis Obispo County by Eaton Corporation for
non-payment of goods sold which obligation has been reduced to a promissory note
in the amount of $29,195.74. This amount has been accrued for as of March 31,
1999.
In addition, certain lenders, vendors, suppliers and professionals have either
threatened or instituted actions against the Company resulting from the
non-payment of loans or non-payment for services or goods provided by these
third parties to Company and its subsidiaries. Management believes that
potential liabilities for these claims have been properly recorded at March 31,
1999.
The Company has received correspondence from certain parties that were
shareholders of Grafix Corporation prior to the merger with Golf One requesting
an adjustment of their shareholdings on the asserted grounds that Golf One had
furnished misleading financial information to the Carrera shareholders.
Subsequent correspondence proposes to reduce this number significantly. The
Company's newly elected Board and management are evaluating these proposals as
well as the potential for counter-claims against the principal pre-merger Grafix
shareholders, directors, and officers. The Company does not at this time foresee
litigation arising out of these issues nor any material adverse effect upon the
Company resulting from the potential claims and/or counter-claims.
Additionally, certain former directors and officers have sent letters to the
Company requesting the payment of certain outstanding fees, salaries, and
expenses incurred during their tenure as directors and/or officers. Management
has recorded a liability for the estimated amounts payable at March 31, 1999.
The Company is aware of numerous pending and threatened legal actions by
customers of the Company who never received ordered merchandise or who returned
merchandise pursuant to the Company's guarantee and never received a refund.
Furthermore, the Company has been contacted by the Attorney General's office in
several states in connection with these consumer issues. The Company is
presently assessing the situation and has been attempting to resolve these
claims as they arise.
F-18
<PAGE> 59
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE L - EQUITY TRANSACTIONS
On May 3, 1999, the Company effected a reverse split of its Common Stock at the
rate of approximately 1-for-20 in accordance with the terms of the 1999 Merger,
the Company exchanged one share of its Common Stock for two shares of Golf One's
Common Stock on May 12, 1999. All per share data and references to Common Stock
in the consolidated financial statements have been retroactively restated for
the reverse split.
In May 1998, the Company obtained secured loans (the "May Loans") in the
aggregate amount of $1,450,000 from certain lenders including Thomas P.
Gallagher, Ritch Gaiti, Augustine Fund, L.P., IAC, Higgins Family LP., Corporate
Communications Network, Inc., Stephen E. Hoffman and William Schuler. In
connection with these loans, the Company issued an aggregate of 90,625 shares of
Common Stock to the lenders which the Company valued at $725,000. In addition,
the Company agreed to issue an additional 10,272 shares of Common Stock on
September 30, 1998 and November 30, 1998 if the loans have not been repaid, and
144,793 shares of Common Stock were issued to such lenders in connection with
these provisions through March 24, 1999. In connection with these loans, (i)
each lender represented to the Company, and the Company believed, that he was an
Accredited Investor, (ii) the certificates representing the securities issued to
the lenders contain an appropriate restrictive legend regarding resale, and
(iii) the Company did not engage in any general solicitation or general
advertisement. The issuance and sale of these securities was made in reliance on
Section 4(2) of the Act as a transaction not involving any public offering. The
Company paid a finder's fee of $130,000 to a consultant in connection with these
loans. The May Loans were cancelled in March 1999 in connection with the 1999
Merger and the Company issued 465,999 shares of Common Stock to these lenders.
Messrs. Gallagher, Gaiti, Schuler and Leach received an additional 116,986
shares of the Company's Common Stock pursuant to the Succession Plan and
Agreement relating to the conversion of their $1.0 million May loans plus
accrued interest.
In July 1998, the Company issued 2,500 shares of Common Stock to Frank Norton,
as part of the consideration for software developed by Mr. Norton for the
Company. In June 1998, Frank Norton became the Company's Director of Management
Information Services. In connection with this issuance, the Company believed
that Mr. Norton was a sophisticated investor and had adequate access, through
his employment or other relationships with the Company, to sufficient
information about the Company to make an informed investment decision. Mr.
Norton represented to the Company that he was acquiring the securities for his
own account for investment purposes and not with a view to or for sale in
connection with any distribution of the securities. The certificates
representing the securities issued to Mr. Norton contain appropriate restrictive
legends regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering.
In July 1998, the Company issued 10,000 shares of Common Stock to Robert Rein,
Esq., of the law firm of Saphier, Rein & Walden, who served as legal counsel to
the Company at the time of issuance, in consideration of legal services rendered
by Mr. Rein. In connection with this issuance, Mr. Rein represented to the
Company, and the Company believed, that he was an Accredited Investor. In
addition, Mr. Rein represented to the Company that he was purchasing the
securities for his own account for investment purposes and not with a view to or
for sale in connection with any distribution of the securities. The certificates
representing the securities issued to Mr. Rein contain appropriate restrictive
legends regarding resale. The issuance and sale of these securities was made in
reliance on Section 4(2) of the Act as a transaction not involving any public
offering.
In connection with the 1999 Merger, the Company issued to Richard Casey 24,125
shares of Common Stock in exchange for the conversion of his loan of $62,356 in
principal and accrued interest. In connection with this issuance, Mr. Casey
represented to the Company, and the Company believes, that he is an Accredited
Investor and that he is acquiring the securities for his own account for
investment purposes and not with a view to or for sale in connection with any
distribution of the securities. The certificate representing the securities to
be issued to Mr. Casey will contain appropriate restrictive legends regarding
resale. No underwriting fees, brokerage or other fees or commissions will be
paid in connection with this exchange. The issuance and sale of these securities
will be made in reliance on Section 3(a)(9) of the Act as a security exchanged
by the Company with an existing security holder exclusively.
F-19
<PAGE> 60
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
In November of 1998, the Company obtained a loan in the amount of $2,000,000
from Capital Fund Leasing, LLC (Capital Fund"). The loan bore interest at the
rate of 15% per annum and was to be repaid on the earlier of (i) the date of the
Company's initial public offering or (ii) December 31, 1998. In connection with
the loan, the Company entered into a one year Consulting Agreement with James A.
Capwill providing for the payment of $15,000 and the issuance of Class C Common
Stock Purchase Warrants to purchase 215,000 shares of the Company's Common
Stock.
Capital Fund made additional loans to the Company of $360,815, $206,180 and
$75,000 in January and February of 1999. On February 12, 1999, the outstanding
loans, plus accrued interest, attorneys fees and other charges were refinanced
by execution of a Partially Convertible Promissory Note in the principal amount
of $3.3 million bearing interest at 16% per annum (the "16.0% Note"). In
connection with the refinancing, the Consulting Agreement between the Company
and James A. Capwill was amended to extend the term through December 31, 1999
and provide for payment of an additional sum of $82,500 over the term.
The Company is currently in default in payment of both the 16.0% Note and the
Consulting Agreement.
On March 14, 1999, the Company obtained an additional loan from Dr. Michael
Freilich, and executed a promissory note in the principal amount of $25,000 with
fifteen percent (15%) annual interest. In consideration of the loan, the Company
agreed to issue 5,000 shares of Common Stock to Dr. Freilich.
The Company issued an aggregate of 73,417 shares of Common Stock for the
conversion of approximately 440,500 Class A Common Stock Purchase Warrants held
by approximately 32 warrant holders of the Company. In connection with this
exchange, each of the warrant holders represented to the Company that he was an
Accredited Investor and/or that such person had a pre-existing personal or
business relationship with one or more of the Company's officers or directors
and had the knowledge and experience in financial and business matters that
enabled such person to evaluate the merits and risks of the investment in the
securities and in protecting such persons interest in the transaction. The
Company believes that each of the warrant holders is an Accredited Investor
and/or a sophisticated purchaser. Each of the warrant holders represented to the
Company that such person was acquiring the securities for its own account for
investment purposes and not with a view to or for sale in connection with any
distribution of the securities. No underwriting fees, brokerage or other fees or
commissions were paid in connection with the exchange. The certificates
representing the securities issued to these persons contain appropriate
restrictive legends regarding resale. The issuance and sale of these securities
will be made in reliance on Section 3(a)(9) of the Act as a security exchanged
by the Company with its existing security holders exclusively.
On February 10, 1999, the Company's Board of Directors approved the issuance of
30,000 shares of Common Stock to Steven Sparks, a former director of the
Company, in consideration of his services to the Company as a director and
consultant.
In connection with the 1999 Merger, the Company issued 67,186 shares of Common
Stock for conversion of $268,741.00 in principal and interest on loans and/or
outstanding debt owing to certain vendors to the Company.
Golf One had authorized 5,000,000 shares of preferred stock and has designated
750,750 shares as Series B Convertible Preferred Stock. Series B Convertible
Preferred Stock was cumulative, non-participating convertible stock. The
dividend rate on these shares was $0.2667 per share. Cumulative dividends in
arrears were $0 and $155,799 at March 31, 1999 and 1998, respectively. These
shares were converted into 286,324 shares of Common Stock of the Company
effective as of the 1999 Merger date.
The Company has issued a total of 1,052,655 and 1,029,275 warrants to purchase
Common Stock at March 31, 1999 and 1998, respectively. During year ended March
31, 1999, 23,380 additional warrants were issued and 456,750 were executed or
cancelled in connection with debt settlements. The outstanding warrant balance
at March 31, 1999 was 595,905. These warrants expired September 30, 1999.
The following activity related to Grafix Corporation pre-merger date and is
included in the 980,514 shares labeled "Effect of Recapitalization" in the
Consolidated Statement of Stockholders Deficit:
(1) During the year ended March 31, 1998 Grafix issued 3,434 shares of its
Common Stock for services valued at $45,549.
(2) Note holders were issued 10,083 shares of Grafix Common Stock during the
year ended March 31, 1998 in conjunction with repayment of their respective
notes.
(3) Grafix issued 10,640 shares of Common Stock in exchange for outstanding
subscriptions during the year ended March 31, 1998.
F-20
<PAGE> 61
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
(4) Grafix was a defendant, along with its major shareholder, in a civil lawsuit
filed by its former president. The suit seeks compensatory and punitive damages
of $2.5 million for among claims breach of contract and improper dismissal.
During 1998, the suit was settled by the shareholder who paid an aggregate of
$270,000 to the former officer. The Company has recorded the full amount of the
settlement as an expense in its statement of operations and has accounted for
the payment as a contribution of capital by the shareholder.
(5) During the year ended March 31, 1999 Grafix issued 40,501 shares of its
Common Stock to an officer, an employee and others for services valued at
$149,916.
(6) On February 11, 1999, the Company completed a debt restructuring with its
then principal shareholder of Grafix Corporation, whereby approximately $2.8
million of the Company's debt was retired, including $1,400,000 due to a bank
and guaranteed by the shareholder and approximately $1,400,000 of notes payable
to the shareholder or to a company under his control. The Company entered into a
new two year promissory note with the shareholder, in the face amount of
$650,000. This new note is secured by the receivables and inventory of the
Company. Interest accrues on the new note for the two year period, and the
entire note, with accrued interest, is due on February 11, 2001. Additionally,
the Company issued to the shareholder 550,000 shares of its restricted Common
Stock to complete the restructuring.
(7) On March 29, 1999, Capital Fund purchased 1,000,000 shares of the Company's
Common Stock in a Regulation D (Rule 504) private placement at a purchase price
of $1.00 per share or total consideration of $1,000,000. These shares were
recorded at their fair value of $2.60 per share at March 29, 1999.
NOTE M - STOCK BASED COMPENSATION
Management has determined to continue to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and adopt
the pro forma disclosure requirements of Statement of Accounting Standards No.
123, Accounting for Stock-Based Compensation.
NOTE N - RELATED PARTY TRANSACTIONS
During 1996, the Company advanced amounts under interest bearing open accounts
to an affiliated company in which one of the Company's former directors is a
principal. Unpaid amounts bear interest at 10% per annum. The outstanding
balance, including unpaid interest, was approximately $15,000 and $157,000 at
March 31, 1999 and March 31, 1998, respectively.
See NOTE G for related party notes payable.
F-21
<PAGE> 62
GARY PLAYER DIRECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(CONTINUED)
NOTE O - EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recent Pronouncements: SFAS No. 130, "Reporting Comprehensive Income",
establishes guidelines for all items that are to be recognized under accounting
standards as components of comprehensive income to be reported in the financial
statements. The statement is effective for all periods beginning after December
15, 1997 and financial statements for earlier periods will be required for
comparative purposes. The adoption of SFAS No. 130 has had no impact on the
Company, as the Company has not engaged in transactions that would generate
other comprehensive income as defined in the statement.
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. To date, the Company has operated in one business segment
as defined by the statement.
NOTE P - SUBSEQUENT EVENTS
Effective as of October 14, 1999 Marc Player, Mr. Player's son, and Pamela
Campbell, the Controller of GPG, were appointed two of the three members of the
Board of Directors of the Company along with Thomas P. Gallagher who became the
Chairman of the Board of Directors. Also, as of October 14, 1999, the Company's
Direct Marketing Agreement (the "Licensing Agreement") with GPG was in default
as a result of the Company's failure to satisfy certain provisions of the
Licensing Agreement including the failure to make certain royalty payments, the
failure to meet certain sales minimums and the failure to pay miscellaneous
other charges under the Licensing Agreement. As of November 9, 1999, the Company
and GPG executed certain amendments to the Licensing Agreement and the Company
is no longer in default as of the date of this report. The Company has made
payments to GPG and Marc Player totaling $555,000 from October 14, 1999 to
November 16, 1999.
During August through September 30, 1999 the Company sold 737,647 shares of
Common Stock at an average price of $1.35 per share, resulting in net proceeds
of $993,814 through a Regulation S offering. The Company anticipates selling
additional Regulation S shares in this private placement during the remainder of
the fiscal year ending March 31, 2000.
On October 14, 1999, Mr. Cervantes tendered his resignation to the Company for
all of his positions and received certain allowances in consideration therefor
pursuant to the terms of the Succession Plan and Agreement. Pursuant to
Succession Plan and Agreement, the Company acknowledged that Mr. Cervantes'
employment agreement was being terminated by the Company without cause,
provided, however, Mr. Cervantes agreed not to pursue or institute any action
against the Company for termination without cause unless the Company or any
subsidiary instituted an action against Mr. Cervantes (other than an action for
breach of the Succession Plan and Agreement or certain other claims that the
Company may raise).
F-22
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GARY PLAYER DIRECT, INC.
The undersigned, being the Chief Executive Officer, President and
Secretary of Gary Player Direct, Inc., (the "Corporation") DOES HEREBY CERTIFY
as follows:
1. The name of the Corporation is Gary Player Direct, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended
to effect a twenty (20) for one (1) reverse split of all of the
Corporation's issued common stock, par value $.001 per share (the
"Common Stock"), whereby, automatically upon the filing of this
Amendment with the Secretary of State of the State of Delaware, each
twenty (20) issued shares of Common Stock shall be changed into one (1)
share of Common Stock, and, in that connection, to reduce the stated
capital of the Corporation.
3. In order to effectuate the amendment set forth in Paragraph 2 above:
(a) All of the Corporation's issued Common Stock, having a par
value of $.001 per share, is hereby changed into new Common
Stock having a par value of $.001 per share, on the basis of
one (1) new share of Common Stock for each twenty (20) shares
of Common Stock issued as of the date of filing of the
Amendment with the Secretary of State for the State of
Delaware, provided, however, that no fractional shares of
Common Stock shall be issued pursuant to such change. Each
shareholder who would otherwise be entitled to a fractional
share as a result of such change shall have only a right to
receive, in lieu of any fractional shares otherwise issuable
upon conversion, the number of outstanding shares issued
rounded up to the next whole share.
(b) The Corporation's 200,000,000 authorized shares of Common
Stock, having a par value of $.001 per share, shall not be
changed;
(c) The Corporation's 5,000,000 authorized shares of preferred
stock, having a par value of $.01 per share, shall not be
changed, and
(d) The Corporation's stated capital shall be reduced by an
amount equal to the aggregate par value of the shares of
Common Stock issued prior to the effectiveness of this
Amendment which, as a result of the reverse split provided for
herein, are no longer issued shares of Common Stock.
4. The foregoing amendments of the Certificate of Incorporation of the
Corporation have been duly adopted by the Corporation's Board of
Directors and Stockholders in accordance with the provisions of Section
242 of the Delaware General Corporation Law.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have subscribed this document on
the date set forth below.
Dated: May 3, 1999 _______________________________________
Alfonso J. Cervantes, Jr.
Chief Executive Officer, President
and Secretary
<PAGE> 1
EXHIBIT 3.4
ENDORSED
FILED
IN THE OFFICE OF THE SECRETARY OF STATE
OF THE STATE OF CALIFORNIA
JAN 30 1995
/s/ Bill Jones
BILL JONES, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
RHINO MARKETING, INC.
I. NAME
The name of the corporation is Rhino Marketing, Inc.
II. PURPOSE
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by California Corporations
Code.
III. INITIAL DIRECTOR
The name and address of the person appointed to act as the initial director
is:
Jeff Fischer
3171 Half Dome Drive
Pleasanton, California 94566
IV. AGENT FOR SERVICE OF PROCESS
The name and address in this state of the corporation's initial agent for
service of process is:
Michael W. Stelzer
722 Marsh Street, #176
San Luis Obispo, California 93401
V. COMPLEX STOCK STRUCTURE
The corporation is authorized to issue two classes of shares to be
designated "preferred" and "common" herein referred to as "preferred shares" or
"preferred stock" and "common shares" or "common stock" respectively. The total
number of common shares authorized is 10,000,000 shares. The number of preferred
shares authorized is 10,000,000. The preferred shares may be issued in one or
more series. The Board of Directors is authorized to fix the number of any such
series of preferred shares and to determine the designation of any such series.
The Board of Directors is further authorized to determine or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon any wholly
unissued series of preferred shares and, within
<PAGE> 2
the limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series.
EXECUTION
IN WITNESS WHEREOF, the undersigned, who are the incorporator and initial
director of this corporation, respectively, have executed these Articles of
Incorporation on January 19, 1995.
/s/ Jeff Fischer
----------------------
Jeff Fischer
Initial Director
ACKNOWLEDGMENT
State of California
County of San Luis Obispo
On January 19, 1995, before me Renita L. Smith, personally appeared
Jeff Fischer personally known to me to be the person whose name is
subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
[OFFICIAL SEAL] /s/ Renita L. Smith
Renita L. Smith -------------------
Notary Public, California Renita L. Smith
San Joaquin County
My Comm. Expires Nov. 3, 1995
2
<PAGE> 1
EXHIBIT 3.5
================================================================================
MINUTES
AND
BY LAWS
OF
RHINO MARKETING, INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF
CALIFORNIA
================================================================================
<PAGE> 2
BY-LAWS OF
RHINO MARKETING, INC.
A corporation organized pursuant to the California
Corporations Code of 1977, as amended.
ARTICLE I - OFFICES
The principal executive office of the corporation shall be located at
2811 Airpark Dr., Santa Maria, CA 93455
The Board of Directors (hereinafter referred to as the Board) shall
have the authority to change the principal executive office. The corporation may
have such other offices, either within or without the State of California as the
Board may designate or as the business of the corporation may from time to time
require.
ARTICLE II - SHAREHOLDERS MEETINGS
1. PLACE OF MEETINGS
Meetings of shareholders shall be held at the principal executive
office of the corporation or at any other place designated by the Board or by
consent, in writing, of all persons entitled to vote thereat, given before or
after the meeting and filed with the Secretary.
2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held on the 31st day of
January in each year, beginning with the year 1996 at 10:00 o'clock A.M., for
the purpose of electing directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall be
a legal holiday such meeting shall be held on the next succeeding business day.
3. SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time by the
Board, Chairman of the Board, President, a Vice President, Secretary or by
holders of shares entitled to cast not less than 10 percent of the votes at the
meeting. Except as hereafter provided notice shall be given in the same manner
as notice for an annual meeting. Upon receipt of a mailed or personally
delivered written
<PAGE> 3
request addressed to the Chairman of the Board, President, Vice President or
Secretary by any person (other than the Board), entitled to call a special
meeting of shareholders the officer shall cause to be given to the shareholders
entitled to vote, a notice that a meeting will be held at a time requested by
the person(s) calling the meeting, not less than 25 nor more than 60 days after
receipt of such request. The person entitled to call the meeting may give the
notice if the notice was not given within 20 days after receipt of the request.
4. NOTICE OF MEETING AND REPORTS
Notice of annual or special meetings shall be given in writing not less
than 10 nor more than 60 days before the date of the meeting, to shareholders
entitled to vote thereat by the Secretary or an Assistant Secretary, or if there
be no such officer, or in the case of neglect or refusal, by any director or
shareholder. The notice or any reports shall be given personally or by mail or
other means of written communication as provided in Corp. C. Sec. 601 and shall
be sent to the shareholder's address appearing on the books of the corporation,
or supplied to the corporation by the shareholder for the purpose of notice. In
the absence thereof, notice shall be deemed to have been given if mailed to the
principal executive office of the corporation or published at least once in a
newspaper of general circulation in the county in which the principal executive
office is located.
Notice of any meeting of shareholders shall specify the place, the day
and the hour of meeting, and (a) in case of a special meeting, the general
nature of the business to be transacted and no other business may be transacted,
or (b) in the case of an annual meeting, those matters which the directors at
date of mailing intend to present for action by the shareholders. At any
meetings where directors are to be elected, notice shall include the names of
the nominees, if any, intended at date of notice to be presented by management
for election.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication. The
officer giving such notice or report shall prepare and file an affidavit or
declaration thereof. It shall not be necessary to give any notice of adjournment
or of the business to be transacted at an adjourned meeting other than by
announcement at the meeting at which such adjournment is taken; however, when a
meeting is adjourned for 45 days or more, notice of the adjourned meeting shall
be given in the same manner as an original meeting.
5. QUORUM
At any meeting of shareholders a majority of the outstanding shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
if less than said number of the outstanding
<PAGE> 4
shares are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
6. VOTING
The shareholders entitled to notice of any meeting or to vote any
meeting shall be only the persons in whose names shares stand on the share
records of the corporation on the record date determined in accordance with
these by-laws.
If no record date is determined, (a) the record date for determining
shareholders entitled to notice of, or to vote at a meeting of shareholders
shall be at the close of business on the business day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held, (b) the record
date for determining shareholders entitled to give consent to corporate actions
in writing without a meeting when no prior action by the Board is necessary,
shall be the day on which the first written consent is given, and (c) the record
date for determining shareholders for any other purpose shall be at the close of
business on the day which the Board adopts the resolution relating thereto, or
the 60th day prior to the date of such other action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for
each share held, except for the election of directors. In an election for
directors, if a candidate's name has been placed in nomination prior to the
voting and one or more names has been placed in nomination prior to the voting
and one or more shareholders has given notice at the meeting prior to the voting
of the shareholder's intent to cumulate the shareholder's votes, then every
shareholder entitled to vote may cumulate votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of shares which the shareholder is entitled to vote, or distribute the votes on
the same principle among as many candidates as the shareholder chooses. The
candidates receiving the highest number of votes up to the number of directors
to be elected shall be elected. Upon the demand of any shareholder made before
the voting begins, the election of directors shall be by ballot.
<PAGE> 5
7. PROXIES
Every person entitled to vote shares may do so by one or more persons
authorized by proxy in writing executed by such shareholder and filed with the
Secretary.
Every proxy continues in full force and effect until revoked by the
person executing it prior to the vote pursuant thereto, provided however, that
no proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy.
8. WAIVERS AND CONSENTS
Actions taken at a meeting of shareholders however called and noticed,
where a quorum is present in person or by proxy are as valid as if taken after
regular call and notice, provided that each person entitled to vote either
before or after the meeting signs a written waiver of notice or consent to the
holding of the meeting or an approval of the minutes thereof. All waivers,
consents and approvals shall be made part of the minutes of the meeting. Neither
the business to be conducted nor the purpose of any regular or special meeting
must be set forth in any waiver of notice, except as provided by Corp. C. Sec.
601(f). Attendance shall constitute a waiver of notice unless objection is made
as provided in Corp. C. Sec. 601(e).
9. ACTION WITHOUT MEETING
Any action which may be taken at an annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action taken, shall be signed by the
shareholders of outstanding shares 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 thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholders' approval of (a) a contract or
other transaction between the corporation and one or more of its directors or
another corporation, firm or association in which one or more of its directors
has a material financial interest pursuant to Corp. C. Sec. 310, (b)
indemnification of an agent of the corporation, pursuant to Corp. C. Sec. 317,
(c) the principal terms of a reorganization pursuant to Corp. C. Sec. 1201, and
(d) a plan of distribution as part of the winding up of the corporation pursuant
to Corp. C. Sec. 2007, without a meeting by less than unanimous written consent,
shall be given at least ten (10) days before the consummation of the action
authorized by such approval.
<PAGE> 6
Prompt notice shall be given of any other corporate action taken by
shareholders without a meeting by less than a unanimous written consent to those
shareholders entitled to vote who have not consented in writing.
Notwithstanding any of the foregoing provisions of this section,
directors may not be elected by written consent except by the unanimous written
consent of all shares entitled to vote for the election of directors.
A written consent may be revoked by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the Secretary of the corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
10. ORGANIZATION OF MEETINGS
The President, or in the absence of the President, any Vice President,
shall call the meeting of the shareholders to order and shall act as chairman of
the meeting. In the absence of the President and all of the vice presidents,
shareholders shall appoint a chairman for such meeting. The Secretary shall act
as secretary of all meetings of the shareholders, but in the absence of the
Secretary the Chairman may appoint any person to act as Secretary of the
meeting.
The order of business at all meetings of the shareholders, shall be as
follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of the minutes of the preceding meeting.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Unfinished business.
8. New business.
<PAGE> 7
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the corporation shall be managed and its
corporate powers exercised by its Board of Directors. The directors shall in all
cases act as a board, and they may adopt such rules and regulations for the
conduct of their meetings and the management of the corporation as they may deem
proper, not inconsistent with these By-Laws, the Articles of Incorporation, the
California Corporations Code and any shareholders' agreement relating to any of
the affairs of the corporation as long as it remains a close corporation.
2. NUMBER AND TENURE
The number of directors of the corporation shall be five (5) Each
director shall hold office until the next annual meeting of shareholders and
until the director's successor shall have been elected and qualified. The number
of directors may be changed only by an amendment of the Articles of
Incorporation or by a by-law adopted by the shareholders amending this section.
3. MEETINGS
Immediately following each annual meeting of shareholders the Board
shall hold a regular meeting for the purpose of organization, election of
officers, and the transaction of other business.
Regular or special meetings of the Board shall be held at any place
within or without the State of California which has been designated from time to
time by the Board. In the absence of such designation, regular meetings shall be
held at the principal executive office of the corporation. Call and notice of
all regular meetings of the Board are hereby dispensed with.
Special meetings of the Board for any purpose or purposes may be called
at any time by the Chairman, the President, any Vice President, the Secretary,
or by any two directors.
Special meetings of the Board shall be held upon four days' written
notice or 48 hours' notice given personally or by telephone or telegraph.
If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the director at the director's address
shown in the records of the corporation, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. The attendance of a director
<PAGE> 8
at a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Directors may participate in a meeting using communication equipment,
provided that all participants can hear each other.
4. QUORUM
A majority of the authorized number of directors is a quorum for the
transaction of business, except to adjourn. Action taken by a majority of the
directors present at a meeting held at which a quorum is present is an act of
the Board of Directors unless a greater number is required by law or the
Articles of Incorporation. A meeting at which a quorum is initially present may
continue to transact business despite the withdrawal of directors if any action
taken is approved by at least a majority of the required quorum for such
meeting.
5. VACANCIES IN THE BOARD OF DIRECTORS
A director may resign effective upon giving written notice to the
Chairman, the President, the Secretary or the Board, unless the notice specifies
a later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
Vacancies, except those existing as a result of a removal of a
director, may be filled by a majority of the remaining directors, and each
director so elected shall hold office until the next annual meeting and until
such director's successor has been elected and qualified.
A vacancy shall be deemed to exist in case of the death, resignation,
or removal of any director, or if the authorized number of directors be
increased, or if the shareholders fail at any annual or special meeting of
shareholders at which any director or directors are elected, to elect the full
authorized number of directors to be voted for at that meeting. The Board may
declare vacant the office of a director who has been declared of unsound mind by
an order of court or convicted of a felony.
The shareholders may elect a director at any time to fill a vacancy not
filled by the directors. Any such election by written consent requires the
consent of a majority of the outstanding shares entitled to vote. A reduction of
the authorized number of directors shall not cause the removal of any director
prior to the expiration of the director's term of office.
<PAGE> 9
6. REMOVAL
Directors may be removed without cause if the removal is approved by a
majority of all the outstanding shares entitled to vote. The remaining directors
may elect a successor to complete the unexpired term of the director so removed.
7. WAIVER OF NOTICE
Action taken at a meeting of the Board, however called and noticed or
wherever held, are as valid as though taken at a meeting duly held after regular
call and notice if a quorum be present and if, either before or after the
meeting, each of the directors not present signs, a written waiver of notice, a
consent to holding such meeting or an approval of the minutes thereof. All such
waivers, consents, or approvals shall be filed with the minutes of the meeting.
8. ADJOURNMENT
A majority of the directors present, whether or not a quorum, is
present, may adjourn any director's meeting to another time and place. Notice of
the time and place of holding an adjourned meeting need not be given to absent
directors if the time and place be fixed at the meeting adjourned, except if the
meeting is adjourned for more than 24 hours. In such case notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
9. COMPENSATION
No compensation shall be paid to directors, as such, for their
services, but by resolution of the Board a fixed sum and expenses for actual
attendance at each regular or special meeting of the Board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
10. ACTION TAKEN WITHOUT MEETING
Any action required or permitted to be taken by the Board may be taken
without a meeting if all members of the Board shall individually or collectively
consent in writing to such action. The consent or consents shall have the same
effect as a unanimous vote of the Board and shall be filed with the minutes of
the proceedings of the Board.
11. COMMITTEES
Committees of the Board consisting of two or more directors may be
appointed by resolution passed by a majority of the Board. Committees shall have
such powers as shall be expressly delegated to them by resolution of the Board,
except those powers expressly made non-delegable by Corp. C. Sec. 311.
<PAGE> 10
ARTICLE IV - OFFICERS
1. OFFICERS
The officers of the corporation shall be a president, a secretary and a
chief financial officer. A chairman of the Board, one or more vice presidents
and assistant officers as may be deemed necessary, may be elected or appointed
by the directors. A person may hold more than one office but may not execute,
acknowledge or verify an instrument in more than one capacity.
2. ELECTION AND TERM OF OFFICE
The officers of the corporation shall be elected annually at the first
meeting of the directors held after each annual meeting of the shareholders.
Each officer shall hold office until a successor is elected and qualified or
until death, resignation or removal.
3. REMOVAL
Any officer or agent elected or appointed by the Board may be removed
by the Board whenever in their judgment the best interests of the corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
4. RESIGNATION
An officer may resign at any time upon written notice given to the
Board, the President, or the Secretary. A resignation shall take effect on the
day of receipt or any other time specified in the notice. Acceptance of a
resignation shall not be necessary to make it effective.
5. CHAIRMAN OF THE BOARD
The Chairman of the Board, if there shall be one, shall preside at all
meetings of the Board and exercise and perform such other powers and duties as
may be authorized from time to time by the Board.
6. PRESIDENT
Subject to such powers, if any, as may be given by the Board to the
Chairman of the Board, if there be one, the President shall be the chief
executive officer of the corporation and shall, subject, to the control of the
Board, have general supervision, direction and control of the business and
officers of the corporation. The President shall preside at all meetings of the
shareholders and in the absence
<PAGE> 11
of the Chairman, or if there be none, at all meetings of the Board. The
President shall be ex officio a member of all the standing committees, including
the executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of President of the corporation, and
shall have such other powers and duties as may be prescribed by the Board or by
the By-Laws.
7. VICE PRESIDENT
In the absence or disability of the President, the Vice Presidents, in
order of their rank as fixed by the Board, or if not ranked, the Vice President
designated by the Board shall perform all the duties of the President, and when
so acting shall have all the powers of, and be subject to all the restrictions
upon the President. The Vice Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board or by the By-Laws.
8. SECRETARY
The Secretary shall keep, or cause to be kept, a book of minutes at the
principal executive office or such other place as the Board may designate. The
book of minutes shall include minutes of all meetings of directors and
shareholders with the time and place of holding, whether regular or special, and
if special, how authorized, the notice thereof given, the names of those present
at directors' meetings, and the number of shares present or represented at
shareholders' meetings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, if any,
a share register, or duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered by cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and directors required by the By-Laws or by law,
and shall keep the seal of the corporation in safe custody, and shall have such
other powers and perform such other duties as may be prescribed by the Board or
by the By-Laws.
9. CHIEF FINANCIAL OFFICER
The Treasurer is the chief financial officer and shall keep and
maintain, or cause to be kept and maintained in accordance with generally
accepted accounting principles, adequate and correct accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts,
<PAGE> 12
disbursements, gains, losses, capital, earnings (or surplus) and shares. The
books of account shall at all reasonable times be open to inspection by any
director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the Board. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board, shall render to the President and Directors, whenever
they request it, an account of all transactions and of the financial condition
of the corporation, and shall have such other powers and perform such other
duties as may be prescribed by the Board or by the By-Laws.
10. COMPENSATION OF OFFICERS
The salaries of the officers shall be fixed, from time to time, by the
Board.
ARTICLE V - CORPORATE RECORDS AND REPORTS
1. RECORDS
The corporation shall maintain adequate and correct accounts, books,
and records of its business and properties in accordance with generally accepted
accounting principles. All of such books, records and accounts shall be kept at
its principal executive office.
The original or a copy of these By-Laws, as amended to date, certified
by the Secretary, shall be kept at the Corporation's principal executive office.
2. INSPECTION BY SHAREHOLDERS
The share register, accounting books and records and minutes of
proceedings of the shareholders, the Board and committees of the Board shall be
open to inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate. Inspection and copying may
be made in person, by agent, or by attorney.
Shareholders shall also have the right to inspect the original or
certified copy of these By-Laws, as amended to date, kept at the corporation's
principal executive office, at all reasonable times during business hours.
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
<PAGE> 13
3. INSPECTION BY DIRECTORS
Each director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and also all of its subsidiary
corporations. Inspection by a director may be made in person or by agent or
attorney and includes the right to copy and obtain extracts.
4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Corp. C. Sec. 1501 is
hereby expressly waived.
5. CONTRACTS, ETC.
The Board of Directors, except as otherwise provided in the By-Laws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so
authorized by the Board, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement, or to pledge
its credit, or to render it liable for any purpose or to any amount.
6. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person(s) and in such manner as shall be
determined from time to time by the Board.
ARTICLE VI - SHARES
1. CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be in such form
as shall be determined by the Board. Certificates shall be signed by the
President and by the Secretary or by such other officers authorized by law and
by the Board. They shall state the name of the record holder of the shares
represented thereby, the total authorized issue, the number of shares
represented by the particular certificate, the designation, if any, and class
or series of shares represented thereby, and any statement or legend required
by the California Corporations Code. All certificates for shares shall be
consecutively numbered and issued in consecutive order with the date of
issuance entered thereon.
<PAGE> 14
Any or all the signatures on the certificates may be made by facsimile
provided that they are countersigned by a transfer agent or transfer clerk and
registered by an incorporated bank or trust company, either domestic or
foreign, as registrar of transfers.
2. TRANSFER ON THE BOOKS
Upon surrender to the Secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its share register.
3. LOST OR DESTROYED CERTIFICATES
Any person claiming a share certificate to be lost or destroyed shall make
an affidavit or affirmation of that fact and shall, if the Board so require,
give the corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the shares
represented by the lost certificate, whereupon a new certificate may be issued
in the same tenor and for the same number of shares as the one alleged to be
lost or destroyed.
4. RECORD DATE AND CLOSING OF TRANSFER BOOKS
The Board may fix in advance a record date for the determination of the
shareholders entitled to notice of and to vote at any meeting of shareholders,
or entitled to receive payment of any dividend or distribution, or any
allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall not be more than sixty (60) nor less
than ten (10) days prior to the date of the meeting or event for the purpose
for which it is fixed. When a record date is fixed, only shareholders of record
on that date are entitled to notice of and to vote at the meeting, or to
receive the dividend, distribution, or allotment of rights, or to exercise the
rights as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date. The Board may close the books
of the corporation against transfers of shares during the whole or any part of
a period of not more than sixty (60) days prior to the date of a shareholders'
meeting, or the date when the right to any dividend, distribution, or
allotment of rights vests, or the effective date of any change, conversion or
exchange of shares.
<PAGE> 15
ARTICLE VII - MISCELLANEOUS
1. INDEMNIFICATION
The corporation shall have the power to indemnify any person who was or is
a party or is threatened to be made a party to any proceeding by reason of the
fact that such person is or was an agent of the corporation, against expenses,
judgments, fines, settlements and other amounts, actually and reasonably
incurred in connection with such proceeding if the person acted in good faith,
reasonably believing the acts to be in the best interest of the corporation and
having no reason to believe the conduct unlawful. The corporation shall advance
the expenses reasonably expected to be incurred by such agent in defending any
such proceeding upon receipt of the undertaking required by Corp. C. Sec.
317(f). The definition of "agent", "proceeding" and "expenses" in Corp. C. Sec.
317 shall apply herein.
2. CONSTRUCTION, DEFINITIONS AND REFERENCES
The general provisions, rules of construction and definitions contained in
the General Provisions of the California Corporations Code and in the
California General Corporation Law shall govern the construction of these
By-Laws, unless the context requires otherwise. Corp. C. Sec. references herein
refer to the equivalent sections of the General Corporation Law, effective
January 1, 1977, as amended.
3. CORPORATE SEAL
The Board shall provide a corporate seal which shall be circular in form
and shall have inscribed thereon the name of the corporation, the state of
incorporation, the date of incorporation and the words "Corporate Seal" or
"incorporated."
ARTICLE VIII - AMENDMENTS
By-Laws may be adopted, amended or repealed either by affirmative vote of
a majority of the outstanding shares entitled to vote or by the Board. A By-Law
changing the number of directors must be approved by the shareholders. Each
adopted, amended or repealed by-law shall be inserted at the appropriate place
in the original or certified copy of the By-Laws kept at the principal
executive office of the corporation and the date of such adoption, amendment
and repeal shall be noted therein.
<PAGE> 16
CERTIFICATION OF THE ADOPTION OF THE BY-LAWS
The undersigned, Secretary of the corporation, hereby certifies that the
foregoing is a true and correct copy of the By-Laws of the corporation adopted
as of 2-1 1995 by:
X the Board of Directors of the corporation.
---
the Incorporators of the corporation.
---
the Shareholders entitled to exercise a majority of the voting power of
--- the corporation.
Dated: 2-1 1995 /s/ [illegible signature]
---------------------
Secretary
<PAGE> 1
EXHIBIT 3.6
ARTICLES OF INCORPORATION
OF
GRAN PRIX MARKETING INC.
ENDORSED FILED
In the office of the
ARTICLE I Secretary of State
of the State of
California
The name of this Corporation is: Jan 15, 1997
Bill Jones, Secretary
"Gran Prix Marketing, Inc." of State
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The name and complete address in the State of California of this
Corporation's initial agent for service of process is:
A.J. Cervantes
2811 Airpark Drive
Sun Mark, CA 93455
ARTICLE IV
(a) The liability of the directors of this Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
(b) This Corporation is authorized to provide for, whether by
bylaw, agreement or otherwise, the indemnification of agents (as defined in
Section 317 of the California General Corporation Law) of this Corporation in
excess of that expressly permitted by such Section 317 for those agents, for
breach of duty to this Corporation and its shareholders to the extent
permissible under California law (as now or hereafter in effect). In furtherance
and not in limitation of the powers conferred by statute:
(i) this Corporation shall have the power to purchase and
maintain insurance on behalf of any agent of this Corporation against any
liability asserted against or
<PAGE> 2
incurred by the agent in such capacity or arising out of the agent's status as
such, whether or not this Corporation would have the power to indemnify the
agent against such liability under the provisions of these Articles of
Incorporation, or at law; and
(ii) this Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the fullest extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or elsewhere.
No such bylaw, agreement or other form of indemnification
shall be interpreted as limiting in any manner the rights which such agents
would have to indemnification in the absence of such bylaw, agreement or other
form of indemnification.
(c) Any repeal or modification of the foregoing provisions of
this Article IV by the shareholders of this Corporation shall not adversely
affect any right or protection of a director of this Corporation existing at the
time of such repeal or modification.
ARTICLE V
This Corporation is authorized to issue one class of shares,
designated Common Stock, par value $.001 per share ("Common Stock"). The number
of shares of Common Stock authorized to be issued is 10,000.
IN WITNESS WHEREOF, the undersigned has executed the foregoing
Articles of Incorporation this 8th day of January, 1997.
/s/ Christine Morigi
------------------------------
Christine Morigi, Incorporator
2
<PAGE> 1
EXHIBIT 3.7
BYLAWS
OF
GRAN PRIX MARKETING, INC.
A California Corporation
<PAGE> 2
BYLAWS
OF
GRAN PRIX MARKETING, INC.
A California Corporation
Page
----
ARTICLE I - CORPORATE OFFICES
Section 1. Principal Executive Office. 1
Section 2. Other Offices. 1
ARTICLE II - SHAREHOLDERS MEETINGS
Section 1. Place of Meetings. 1
Section 2. Annual Meetings. 1
Section 3. Special Meetings. 2
Section 4. Notice and Reports to Shareholders. 2
Section 5. Quorum. 3
Section 6. Adjourned Meeting and Notice Thereof. 3
Section 7. Voting. 4
Section 8. Validation of Defectively Called
or Noticed Meetings. 5
Section 9. Action Without Meeting. 6
Section 10. Proxies. 7
Section 11. Inspectors of Election. 7
Section 12. Record Date. 8
ARTICLE III - DIRECTORS
Section 1. Powers. 8
Section 2. Number and Qualifications. 9
Section 3. Election and Term of Office. 9
Section 4. Vacancies. 9
Section 5. Place of Meeting. 10
Section 6. Regular Meetings. 10
i
<PAGE> 3
Page
----
Section 7. Special Meetings. 11
Section 8. Quorum and Required Vote. 11
Section 9. Validation of Defectively Called
or Noticed Meetings. 11
Section 10. Adjournment. 12
Section 11. Action without Meeting. 12
Section 12. Fees and Compensation. 12
Section 13. Committees. 12
ARTICLE IV - OFFICERS
Section 1. Officers. 13
Section 2. Election of Officers. 13
Section 3. Subordinate Officers. 13
Section 4. Removal and Resignation of Officers. 14
Section 5. Vacancies in Officers. 14
Section 6. Chairman of the Board. 14
Section 7. President. 14
Section 8. Vice Presidents. 14
Section 9. Secretary. 15
Section 10. Chief Financial Officer. 15
ARTICLE V - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
Section 1. Agents, Proceedings and Expenses. 16
Section 2. Actions Other Than by the Corporation 16
Section 3. Actions by the Corporation. 16
Section 4. Successful Defense by Agent. 17
Section 5. Required Approval. 17
ii
<PAGE> 4
Page
----
Section 6. Advance of Expenses. 18
Section 7. Other Contractual Rights. 18
Section 8. Limitations. 18
Section 9. Insurance. 18
Section 10. Fiduciaries of Corporate Employee
Benefit Plan 19
ARTICLE VI - RECORDS AND REPORTS
Section 1. Maintenance and Inspection of
Share Register. 19
Section 2. Maintenance and Inspection of Bylaws. 20
Section 3. Maintenance and Inspection of
Other Corporate Records. 20
Section 4. Inspection by Directors. 21
Section 5. Annual Report to Shareholders. 21
Section 6. Financial Statements. 21
Section 7. Annual Statement of General Information. 22
Section 8. Checks, Drafts, Evidences of Indebtedness. 22
Section 9. Corporate Contracts and Instruments;
How Executed. 23
Section 10. Certificates for Shares. 23
Section 11. Lost Certificates. 23
Section 12. Representation of Shares of Other
Corporations. 23
Section 13. Stock Purchase Plans 24
Section 14. Construction and Definitions. 24
ARTICLE VII - AMENDMENT 24
iii
<PAGE> 5
Bylaws
Bylaws for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation, of
Gran Prix Marketing, Inc.
(a California corporation)
ARTICLE I
CORPORATE OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation is hereby fixed and located at:
2811 Airpark Drive
Santa Maria, California 93455
The Board is hereby granted full power and authority to change the principal
executive office from one location to another. Any such change shall be noted in
the Bylaws opposite this Section, or this Section may be amended to state the
new location.
Section 2. OTHER OFFICES. Branch or subordinate business offices may at
any time be established by the Board at any place or places.
ARTICLE II
SHAREHOLDERS MEETINGS
Section 1. PLACE OF MEETINGS. Meetings of the shareholders shall be held
at the principal executive office of the corporation, or at any other place
within or without the State of California as may from time to time be
designated for that purpose either by the Board or by the written consent of
all persons entitled to vote thereat and not present at the meeting, given
either before or after the meeting and filed with the Secretary of the
corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be
held on such date and at such time as may be fixed by the Board; provided,
however, that if such day is a legal holiday, then at the same time and place
in the next day thereafter ensuing which is a full business day. At the annual
meeting the shareholders shall elect directors, consider reports of the affairs
of the corporation, and transact any other proper business.
1
<PAGE> 6
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders for the
purpose of taking any action which the shareholders are permitted to take under
the General Corporation Law of the State of California (herein, as the same may
from time to time hereafter be amended, referred to as the "General Corporation
Law") may be called at any time by the Chairman of the Board or the President,
or by the Board, or by any Vice President, or by one or more shareholders
entitled to cast not less than 10 percent of the votes of the meeting. Upon
request in writing to the Chairman of the Board, President, Vice President or
Secretary by any person (other than the Board) entitled to call a special
meeting of shareholders that a special meeting be held for any proper purpose,
the officer receiving the request shall forthwith cause notice to be given to
the shareholders entitled to vote that a meeting will be held at the time
requested by the person or persons calling the meeting, not less than 35 nor
more than 60 days after the receipt of the request. If the notice is not given
within 20 days after receipt of the request, the persons entitled to call the
meeting may give the notice.
Section 4. NOTICE AND REPORTS TO SHAREHOLDERS. Written notice of each
meeting of shareholders, annual or special, shall be given to each shareholder
entitled to vote thereat, not less than 10 nor more than 60 days before the date
of the meeting. The notice of each such annual or special meeting of
shareholders shall state the place, the date, and the hour of the meeting, and
(1) in the case of a special meeting, the general nature of the business to be
transacted at the meeting (and no other business may be transacted at the
meeting), or (2) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intend to present for action by
the shareholders and any proper matter may be presented at the meeting for
action, provided, however, that the notice shall specify the general nature of a
proposal, if any, to take action with respect to approval of (i) a contract or
other transaction with an interested director pursuant to Section 310 of the
General Corporation Law, (ii) amendment of the Articles of Incorporation
pursuant to Section 902 of the General Corporation Law, (iii) a reorganization
of the corporation pursuant to Section 1201 of the General Corporation Law, (iv)
voluntary dissolution of the corporation pursuant to Section 1900 of the General
Corporation Law or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, if any, pursuant to Section
2007 of the General Corporation Law. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
Notice of a shareholders' meeting or any report shall be given either
personally or by first-class mail (or in the case the corporation's outstanding
shares are held of record by 500 or more persons on the record date for the
shareholders' meeting, notice
-2-
<PAGE> 7
may be sent by third-class mail) or other means of written communication,
charges prepaid, addressed to such shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, the notice or report shall be
deemed to have been given if sent to that shareholder by mail or other means of
written communication addressed to the place where the principal executive
office of the corporation is situated, or if published at least once in some
newspaper of general circulation in the county in which said principal
executive office is located. The notice of report shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication. An affidavit of mailing of any notice or
report in accordance with the provisions of this Section, executed by the
Secretary, Assistant Secretary or any transfer agent of the corporation shall
be prima facie evidence of the giving of the notice.
If any notice or any report addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders.
Section 5. QUORUM. A majority of the shares entitled to vote, present in
person or by proxy, shall constitute a quorum for the transaction of business
at any meeting of shareholders. Except as provided in the next sentence, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless a vote of a greater number is required by the General
Corporation Law or the Articles of Incorporation. The shareholders present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 6. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares present,
either in person or by proxy, but in the absence of a quorum no other business
may be transacted at
-3-
<PAGE> 8
such meetings, except as expressly provided in Section 5 of this Article with
respect to the right of the shareholders present at a duly called or held
meeting to continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
When any shareholders' meeting, either annual or special, is adjourned to
another time and place, it shall not be necessary to give any notice of the
time and place of the adjourned meeting or of the business to be transacted
thereat, other than any announcement of the time and place thereof at the
meeting at which such adjournment is taken; provided, however, that if any such
shareholders' meeting is adjourned for 45 days or more, or if after adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
Section 7. VOTING. The shareholders entitled to notice of any meeting or
to vote at any such meeting shall only be persons to whose names shares stand
on the stock records of the corporation at the record date determined in
accordance with Section 12 of this Article; provided, however, that if no such
record date shall be fixed by the Board, only persons in whose names shares
stand on the stock records of the corporation at the close of business on the
business day next preceding the day on which notice of the meeting is given or
if such notice is waived, at the close of business on the business day next
preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for
such meeting.
Voting shall in all cases be subject to the provisions of Sections 702
through 704, inclusive, of the General Corporation Law (relating to voting of
shares held by fiduciaries, held in the name of a corporation, or held in joint
ownership).
The shareholders' vote may be viva voce or by ballot; provided, however,
that all elections for directors must be by ballot upon demand made by a
shareholder at the meeting and before the voting begins.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes for any one or more candidates
unless the candidate's or candidates' names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of such shareholder's intention to cumulate votes; provided, that if any
shareholder has given such notice, then every shareholder entitled to vote at
the election may cumulate votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes
-4-
<PAGE> 9
to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates,
as the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 8. VALIDATION OF DEFECTIVELY CALLED OR NOTIFIED MEETINGS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, or who, although
present, has, at the beginning of the meeting, properly objected to the
transaction of any business because the meeting was not lawfully called or
convened or to particular matters of business legally required to be included
in the notice, but not so included, signs a written waiver of notice, or a
consent to the holding of such meeting, or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that the waiver of notice or consent shall state the general nature of
the proposal of any action taken or proposed to be taken with respect to
approval of (i) a contract or other transaction with an interested director
pursuant to Section 310 of the General Corporation Law, (ii) amendment of the
Articles of Incorporation pursuant to Section 902 of the General Corporation
Law, (iii) a reorganization of the corporation pursuant to Section 1201 of the
General Corporation Law, (iv) voluntary dissolution of the corporation pursuant
to Section 1900 of the General Corporation Law, or (v) a distribution and
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, pursuant to Section 2007 of the General Corporation Law. If
such statement is not included in such written waiver of notice or consent,
then any shareholder approval at the meeting, other than unanimous approval of
those entitled to vote, to any such matters shall be invalid. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at the meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that attendance at a
meeting is not a waiver of any right to object to the consideration of any
matter legally required to be included in the notice of meeting, but not so
included, if that objection is expressly made at the meeting and before any
vote is taken on such matter.
-5-
<PAGE> 10
Section 9. ACTION WITHOUT MEETING. Any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, except as hereinafter set forth, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. Notwithstanding the foregoing,
directors may not be elected without a meeting by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors provided, however, that a director may be elected at any time to fill
a vacancy on the Board (other than a vacancy created by the removal of a
director) that has not been filled by the directors by the written consent of
the holders of a majority of the outstanding shares entitled to vote for the
election of directors. Any shareholder giving a written consent, or the
shareholder's proxy holder, or a transferee of the shares, or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the Secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary, but not thereafter. Such revocation
is effective upon its receipt by the Secretary of the corporation.
If the consents of all shareholders entitled to vote have not been
solicited in writing, or if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote and who have not consented in writing to the
action authorized by such approval. Such notice shall be given, and shall be
deemed to have been given, in the same manner as provided in Section 4 of this
Article. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the General Corporation Law, (ii) indemnification of agents of the corporation
pursuant to Section 317 of the General Corporation Law, (iii) a reorganization
of the corporation pursuant to Section 1201 of the General Corporation Law, or
(iv) a distribution and dissolution other than in accordance with the rights of
outstanding preferred shares pursuant to Section 2007 of the General Corporation
Law, the notice shall be given at least 10 days before the consummation of any
action authorized by such approval.
Unless, as provided in Section 12 of this Article, the Board has fixed a
record date for the determination of shareholders entitled to notice of and to
give such written consent, the record date for such determination shall be the
day on which the first written consent is given. All such written consents shall
be filed with the Secretary of the corporation and shall be maintained in the
corporate records.
-6-
<PAGE> 11
Section 10. PROXIES. Every person entitled to vote shares shall have the
right to do so either in person or by one or more persons authorized by a
written proxy executed by such shareholder or his duly authorized agent and
filed with the Secretary of the corporation. Any proxy duly executed which does
not state that it is irrevocable shall continue in full force and effect until
(i) an instrument revoking it is filed with the Secretary of the corporation or
a duly executed proxy bearing a later date is presented to the meeting prior to
the vote pursuant thereto, (ii) the person executing the proxy attends the
meeting and votes in person, or (iii) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided, however, that no proxy shall be valid
after the expiration of 11 months from the date of its execution, unless
otherwise provided in the proxy. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
705(e) and Section 705(f) of the General Corporation Law.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof. If
no inspectors of election are so appointed, the chairman of any such meeting
may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares present in person or by proxy shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or refuses to act, the vacancy may, and
on the request of any shareholder or a shareholder's proxy shall, be filled by
appointment by the Board in advance of the meeting, or at the meeting by the
chairman of the meeting.
The duties of such inspector shall be as prescribed by Section 707 of the
General Corporation Law and shall include: determining the number of shares
outstanding and voting power of each; the shares represented at the meeting; the
existence of a quorum; the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining when the polls shall close;
determining the result; and performing such acts as may be proper to conduct the
election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all.
Section 12. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to
-7-
<PAGE> 12
notice of any meeting or to vote or entitled to give consent to corporate
action in writing without a meeting, to receive any report, to receive any
dividend or distributions or any allotment of rights, or to exercise rights in
respect of any other lawful action. The record date so fixed shall be not more
than 60 days nor less than 10 days prior to the date of any meeting nor more
than 60 days prior to any other event for the purposes of which it is fixed.
When a record date is so fixed, only shareholders, of record at the close of
business on that date are entitled to notice of and to vote at any such
meeting, to give consent without a meeting, to receive any report, to receive
dividends, distributions or allotments of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws as to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate power shall be exercised by or under the direction of
the Board. The Board may delegate the management of the day-to-day operation of
the business of the corporation to a management company or other persons,
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board. Without prejudice to such powers, but subject to the same limitation, it
is hereby expressly declared that the directors shall have the following powers
in addition to other powers enumerated in these Bylaws:
(a) To select and remove all officers, agents and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these Bylaws; fix their
compensation; and require from them security for faithful service;
(b) To conduct, manage and control the affairs and business of the
corporation, and to make rules and regulations therefor consistent with law,
with the Articles of Incorporation and with these Bylaws;
(c) To change the principal executive office or the principal business
office in the State of California from one location to another; to fix and
locate from time to time one or more other offices of the corporation within or
without the State of California; to cause the corporation to be qualified to do
-8-
<PAGE> 13
business and to conduct business in any other state, territory, dependency or
country; and to designate any place within or without the State of California
for the holding of any shareholders' meeting or meetings, including annual
meetings;
(d) To adopt, make and use a corporate seal; to prescribe the forms
and certificates of stock; and to alter the form of the seal and certificates;
(e) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be lawful;
(f) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities therefor.
Section 2. NUMBER AND QUALIFICATIONS. The number of directors shall be two
(2) until changed by a duly adopted amendment to the Articles of Incorporation
or by a ByLaw amending this Section 2 approved by the affirmative vote of a
majority of the outstanding shares entitled to vote; provided, however, that an
amendment to the Articles or a ByLaw reducing the number of directors to a
number less than five cannot be adopted if the votes cast against its adoption
at a meeting or the shares not consenting to its adoption in the case of action
by written consent are equal to more than 16-2/3% of the outstanding shares
entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of the shareholders but if such annual meeting is not held
or the directors are not elected thereat, the directors may be elected at a
special meeting of shareholders held for that purpose. Each director shall hold
office until the next annual meeting and until a successor has been elected and
qualified.
Section 4. VACANCIES. A vacancy or vacancies in the Board shall be deemed
to exist in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail, at any
annual or special meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board, unless the
notice specifies a later date for the effectiveness of such resignation. If the
Board accepts the resignation of a director tendered to take effect at a future
time, the Board or the shareholders shall have the power to elect a
9
<PAGE> 14
successor to take office when the resignation is to become effective.
Vacancies in the Board (other than a vacancy created by the removal of a
director) may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the next annual meeting and until such director's
successor has been elected; subject, however, to the right of any shareholder
or shareholders of the corporation holding at least 5% in the aggregate of the
outstanding voting shares of the corporation, in accordance with the provisions
of Section 305(c) of the General Corporation Law, to a special meeting to elect
the entire Board in the event that after the filling of any such vacancy by the
directors, the directors elected by the shareholders shall constitute less
than a majority of the directors then in office.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, and shall have the right, to
the exclusion of the directors, to fill any vacancy or vacancies created by the
removal of one or more directors. The election of any director or directors to
fill a vacancy or vacancies created by the removal of one or more directors
shall require the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or
the unanimous written consent of all shares entitled to vote for the election
of directors.
No reduction of the authorized number of directors shall have the effect
of removing any directors prior to the expiration of his term of office.
Subject to the provisions of Section 303(a) of the General Corporation
Law, any or all of the directors may be removed from office, without cause, if
such removal is approved by a vote of a majority of the outstanding shares
entitled to vote.
Section 5. PLACE OF MEETING. Regular and special meetings of the Board
shall be held at any place within or without the State of California which has
been designated from time to time by resolution of the Board or by written
consent of the members of the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual meeting
of shareholders, the Board shall hold a regular meeting at the place of that
annual meeting or at such other place as shall be fixed by the Board for the
purpose of organization, election of officers and the transaction of other
business.
-10-
<PAGE> 15
Other regular meetings of the Board shall be held without call at such
time and place as the Board may from time to time deem appropriate; provided,
however, should the day fall upon a legal holiday, then said meeting shall be
held at the same time on the next day thereafter ensuing which is a full
business day. Call and notice of regular meetings of the Board are hereby
dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary or by any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone or by telegraph or mail, charges prepaid addressed to each director
at that director's address as it is shown on the records of the corporation
or, if it is not so shown on such records or is not readily ascertainable, at
the place at which the meetings of the directors are regularly held. In case
such notice is mailed, it shall be deposited in the United States mail in the
place in which the principal executive office of the corporation is located at
least four days prior to the time of the holding of the meeting. In case such
notice is delivered personally or by telephone or telegraph, it shall be
delivered personally or to the telegraph company at least 10 hours before the
time of the holding of the meeting. The notice need not specify the place of
the meeting, if the meeting is to be held at the principal executive office of
the corporation, or the purpose of the meeting.
Section 8. QUORUM AND REQUIRED VOTE. Presence of a majority of the
authorized number of directors at a meeting of the Board constitutes a quorum
for the transaction of business, except to adjourn as hereinafter provided.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, and such members shall be
considered present in person, as long as all members participating in such
meeting can hear one another. Subject to the provisions of Section 5(a) of
Article V of these Bylaws, every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of a
director or directors, provided that any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 9. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of the Board, however called and noticed or
wherever held, shall be as valid as though made or performed at a meeting duly
held after regular call and notice, if a quorum is present and if, either
before or after the meeting, each of the directors not present or who, though
present,
-11-
<PAGE> 16
has prior to the meeting or at its commencement protested the lack of proper
notice to such director, signs a written waiver of notice or a consent to
holding such meeting or approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 10. ADJOURNMENT. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place is fixed at the meeting adjourned;
provided, however, that if the meeting is adjourned for more than 24 hours,
notice of adjournment to another time or place shall be given prior to the time
of the adjourned meeting to the directors who are not present at the time of
the adjournment.
Section 11. ACTION WITHOUT MEETING. Any action by the Board may be taken
without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of the Board.
Section 12. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board.
Section 13. COMMITTEES. The Board may appoint one or more committees, each
consisting of two or more directors, and delegated to such committees any of
the authority of the Board except with respect to:
(a) The approval of any action for which the General Corporation Law,
the Articles of Incorporation or these Bylaws all require shareholders' approval
or approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on the
Board or on any committee;
(d) The amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
-12-
<PAGE> 17
(f) A distribution to the shareholders of the corporation except at a
rate or in a periodic amount or within a price range determined by the Board; or
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be designated by resolution adopted by a majority
of the authorized number of directors and may be designated an Executive
Committee or by such other name as the Board shall specify. The appointment of
members and alternate members of any such committee shall require the
affirmative vote of a majority of the authorized number of directors. The Board
shall have the power to prescribe the manner in which proceedings of any such
committee shall be conducted. In the absence of any such prescription, such
committee shall have the power to prescribe the manner in which its proceedings
shall be conducted. Unless the Board or such committee shall otherwise provide,
the regular and special meetings and other actions of any such committee shall
be governed by the provisions of this Article applicable to meetings and actions
of the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a President,
a Secretary and a Chief Financial Officer. The corporation may also have, at the
discretion of the Board, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 of this Article. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen annually by the Board, and each
shall serve at the pleasure of the Board, subject to the rights, if any, of an
officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board may appoint, and may empower the
President to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority and
perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
-13-
<PAGE> 18
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Without prejudice to the
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the Board, at any regular or
special meeting of the Board, or, except in case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the
Board.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice, the acceptance of
the resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board. If there is no President, the Chairman of the
Board shall in addition be Chief Executive Officer of the corporation and shall
have the powers and duties prescribed in Section 7 of this Article.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board to the Chairman of the Board, if there be such an
officer, the President shall be the General Manager and Chief Executive Officer
of the corporation and shall, subject to the control of the Board, have general
supervision, direction and control of the business and the officers of the
corporation. The President shall preside at all meetings of the shareholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board. The President shall have the general powers and duties
of management usually vested in the office of president and general manager of
a corporation, and shall have such other powers and duties as may be prescribed
by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board, the President
or the Chairman of the Board.
-14-
<PAGE> 19
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, at
the principal executive office or such other place as the Board may direct, a
book of minutes of all meetings and actions of directors, committees of
directors, and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the Board, a share register, or a duplicate share
register, showing the names of all shareholders and their addresses, the number
and classes of share held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board required by the Bylaws or by law to be given,
and he shall keep the seal of the corporation, if one be adopted, in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of
the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares, and shall
send or cause to be sent to the shareholders of the corporation such financial
statements and reports as are bylaw or these Bylaws required to be sent to
them. The books of account shall at all reasonable times be open to inspection
by any director.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the Board. The Chief Financial Officer shall disburse the
funds of the corporation as may be ordered by the Board, shall render to the
President and directors, whenever they request it, an account of all
transactions undertaken as Chief Financial Officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
-15-
<PAGE> 20
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purposes of this
Article, "agent" means any person who is or was a director, officer, employee or
other agent of the corporation, or is or was a director, officer, employee or
other agent of the corporation as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or complete action or proceeding,
whether civil, criminal administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing a
right to indemnification under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of the corporation, against expenses, judgements, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if that person acted in good faith and in a manner that
person reasonably believed to be in the best interests of the corporation, and
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any proceeding by
judgement, order, settlement, 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 the person reasonably believed to be
in the best interests of the corporation or that the person had reasonable cause
to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. The corporation shall indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that that person is or was
an agent of the corporation, against expenses actually and reasonably incurred
by that person in connection with the defence or settlement of that action if
that person acted in good faith, in a manner that person believed to be in the
best interests of the corporation and its shareholders. No indemnification shall
be made under this Section 3 for any of the following:
-16-
<PAGE> 21
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable to the corporation in the performance of
that person's duty to the corporation and its shareholders, unless and only to
the extent that the court in which that proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
that person is fairly and reasonably entitled to indemnification for expenses
and then only to the extent that the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a pending
action, without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
the corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this
Article, any indemnification under this Article shall be made by the
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article by any of the following:
(a) A majority vote of a quorum consisting of directors who are not
parties to the proceeding;
(b) If a quorum as described in Section 5(a) of this Article is not
obtainable, by independent legal counsel in a written opinion;
(c) Approval by the affirmative vote of a majority of the shares of
the corporation represented and voting at a duly held meeting at which a quorum
is present (which shares voting also constitute at least a majority of the
required quorum) or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to
vote thereon; or
(d) The court in which the proceeding is or was pending, on
application made by the corporation or the agent or the attorney or other
person rendering services in connection with the
-17-
<PAGE> 22
defense, whether or not such application by the agent, attorney or other person
is opposed by the corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance if it shall be determined ultimately that the
agent is not entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office, to the extent
such additional rights to indemnification are authorized in the Articles of
Incorporation of the corporation. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and
administrators of the person. Nothing contained in this Article shall affect any
right to indemnification to which persons other than directors and officers of
this corporation or any subsidiary hereof may be entitled by contract or
otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Section 4 or Section 5(c), in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Articles of
Incorporation, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
Section 9. INSURANCE. The corporation shall, if so authorized by the Board,
purchase and maintain insurance on behalf of any agent of the corporation or its
subsidiaries selected by the Board in its authorization, or designated in the
policy of insurance so purchased, against such liabilities asserted against or
incurred by the agent (in his capacity as agent or arising out of his status as
such) as may be set forth in such authorization or in such policy of insurance,
in each case upon such terms and conditions, and subject to such limitations, as
the Board in its sole and absolute discretion determines to be appropriate, its
general authorization to purchase or maintain any policy of insurance to
conclusively establish that it has determined all of
-18-
<PAGE> 23
the terms, conditions, and limitations set forth in the policy of insurance in
the form so purchased to be appropriate, and the power to purchase and maintain
such insurance shall exist regardless of whether the corporation would have the
power to indemnify the agent against the insured liabilities under the provision
of this Article. The fact that the corporation owns all or a portion of the
shares of the company issuing a policy of insurance shall not render this
subdivision inapplicable if either of the following conditions are satisfied:
(a) the purchase and maintenance of the policy is authorized by the
Articles of Incorporation of the association and is limited to the extent
provided in subdivision (d) of Section 204 of the General Corporation Law;
(b) (1) the company issuing the insurance policy is organized,
licensed and operated in a manner that complies with the insurance laws and
regulations applicable to its jurisdiction or organization, (2) the company
issuing the policy provides procedures for processing claims that do not permit
the company to be subject to the direct control of the corporation, and (3) the
policy issued provides for some manner of risk sharing between the issuer and
purchaser of the policy, on one hand, and some unaffiliated person or persons,
on the other hand, such as by providing for more than one unaffiliated owner of
the company issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or reinsurer.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. The provisions
of this Article shall not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in that
person's capacity as such, even though that person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit the power of the corporation, upon and in the event of a
determination of the Board to indemnify any trustee, investment manager or other
fiduciary of an employee benefit plan, and the corporation may thereupon
indemnify and purchase and maintain insurance on behalf of any such trustee,
investment manager or other fiduciary.
ARTICLE VI
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation
shall keep at its principal executive office, or at the office of this transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board, a record of its shareholders, giving the names and addresses of all
-19-
<PAGE> 24
shareholders and the number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least 5% in the
aggregate of the outstanding voting shares of the corporation may (i) inspect
and copy the records of shareholders' names and addresses and shareholdings
during usual business hours on five business days' prior written demand on the
corporation, and (ii) obtain from the transfer agent, if any, for the
corporation on written demand and on the tender of such transfer agent's usual
charges for such list, a list of the shareholders' names and addresses, who are
entitled to vote for the election of directors and their shareholdings, as of
the most recent record date for which the list has been compiled or as of a date
specified by the shareholder after the date of demand. This list shall be made
available to any such shareholder by the transfer agent on or before the later
of 5 days after the demand is received or the date specified in the demand as
the date as of which the list is to be compiled. The record of shareholders
shall also be open to inspection on the written demand of any shareholder or
holder of a voting trust certificate, at any time during usual business hours
for a purpose reasonably related to the holder's interests as a shareholder or
as the holder of a voting trust certificate. Any inspection and copying under
this Section 1 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office the original or a copy of the Bylaws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable time during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of the Bylaws as
amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the Board and any committee or committees of the Board shall be kept at such
place or places designated by the Board or, in the absence of such designation,
at the principal executive office of the corporation. The minutes shall be kept
in written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust certificate at
any reasonable time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. The inspection may be made in person or by an agent or
attorney, and shall include the
-20-
<PAGE> 25
right to copy and make extracts. These rights of inspection shall extend to the
records of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute
right at any reasonable time to inspect all books, records and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. This inspection by a director may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. Unless otherwise expressly
required by the General Corporation Law or by this Section 5, the annual report
to shareholders referred to in Section 1501 of the General Corporation Law is
hereby expressly waived and dispensed with; provided, that nothing herein set
forth shall be construed to prohibit or restrict the right of the Board to issue
such annual or other periodic reports to the shareholders of the corporation as
they may from time to time consider appropriate.
In the event that the corporation shall have 100 or more shareholders of
record (determined as provided in Section 605 of the General Corporation Law) at
the close of any fiscal year of the corporation, the Board shall cause a report
to be sent to the shareholders not later than 120 days after the close of said
fiscal year, and each fiscal year thereafter ensuing. The report shall be sent
at least 15 days (or 35 days if sent by third-class mail as permitted by Section
4 of Article II) before the annual meeting of shareholders to be held during the
next fiscal year in the manner specified in Section 4 of Article II of these
Bylaws for reports to shareholders of the corporation. The annual report shall
contain a balance sheet as of the end of the fiscal year and an income statement
and statement of changes in financial position for the fiscal year, accompanied
by any report of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that the statements were
prepared without audit from the books and records of the corporation. The annual
report shall also contain a brief description, as required by Section 1501(b) of
the General Corporation Law, of (i) any transaction with interested officers,
directors or shareholders during the previous fiscal year; and (ii) any
indemnification or advance made during the fiscal year to any officer or
director of the corporation.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for 12 months
-21-
<PAGE> 26
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If any shareholder or shareholders holding at least 5% of the outstanding
shares of any class of stock of the corporation makes a written request to the
corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the then current fiscal year ended more than
30 days before the date of the request, and a balance sheet of the corporation
as of the end of that period, the Chief Financial Officer shall cause that
statement to be prepared, and shall deliver personally or mail that statement
or statements to the person making the request within 30 days after the receipt
of the request. If the corporation has not sent to the shareholders its annual
report for the last fiscal year, this report shall likewise be delivered or
mailed to the requesting shareholder or shareholders within 30 days after the
request.
If the corporation has not sent to the shareholders its annual report for
the last fiscal year, upon the written request of any shareholder made to the
corporation for an income statement for the fiscal year ended more than 120
days before the date of the request, the Chief Financial Officer shall cause
that statement to be prepared, together with a statement of change in financial
position and a balance sheet as of the end of that period and shall deliver
personally or mail all such statements to the person making the request within
30 days after receipt of the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheet referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall
each year during the calendar month in which its Articles of Incorporation were
originally filed with the California Secretary of State, or at any time during
the immediately preceding 5 calendar months, file with the California Secretary
of State a statement on the prescribed form and in compliance with Section 1502
of the General Corporation Law.
Section 8. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the
-22-
<PAGE> 27
corporation, shall be signed or endorsed by such person or persons and in such
manner as, from time to time, shall be determined by resolution of the Board.
Section 9. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board, except as otherwise provided in these Bylaws may authorize any officer
or officers or agent or agents to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, subject to the
provisions of Section 313 of the General Corporation Law, unless so authorized
or ratified by the Board or within the agency power of an officer, or officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
Section 10. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of the shares are fully paid, and the Board may authorize
the issuance of certificates for shares as partly paid provided that
certificates representing such shares shall state the amount of the
consideration to be paid for them and the amount paid. All certificates shall
be signed in the name of the corporation by the Chairman of the Board or the
President or Vice President and by the Chief Financial Officer or an Assistant
Treasurer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent or registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an officer, transfer
agent or registrar at the date of issue.
Section 11. LOST CERTIFICATES. Except as provided in this Section 11,
no new certificate for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The Board may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
Section 12. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the President, any Vice
-23-
<PAGE> 28
President or any other person authorized by resolution of the Board or by any
of the foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any of these officers in person or by any person authorized
to do so by proxy duly executed by these officers.
Section 13. STOCK PURCHASE PLANS. The corporation may adopt and carry
out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons by paying for such
shares by compensation for services rendered promissory notes, or otherwise.
Section 14. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
the General Corporation Law shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
ARTICLE VII
AMENDMENT
These Bylaws may be amended or repealed either by approval of the
outstanding shares entitled to vote or by the approval of the Board; provided,
however, that after the issuance of shares, and subject to the provisions of
Section 2 of Article III of these Bylaws, a Bylaw specifying or changing a
fixed number of directors or the maximum or minimum number or changing from a
fixed to a variable Board or vice versa may be adopted only by approval of a
majority of the outstanding shares entitled to vote; and provided further that
a Bylaw which authorizes the Board to fill any vacancy or vacancies occurring
in the Board by reason of the removal of directors may be adopted only by
approval of a majority of the outstanding shares entitled to vote.
-24-
<PAGE> 29
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify that:
(1) I am the duly elected and acting Secretary of Gran Prix Marketing,
Inc., a California corporation (the "Corporation"); and
(2) The foregoing Bylaws, comprising twenty-four (24) pages, constitute
the Bylaws of the Corporation as of January 15, 1997, as duly adopted by the
written consent of the Incorporator.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of this 15th day
of January, 1997.
/s/ A.J. Cervantes
-------------------------
A.J. Cervantes, Secretary
-25-
<PAGE> 1
Exhibit 4.1
================== [LOGO] ===================
| Number | Gary Player | Shares |
| | ----------- | |
================== DIRECT ==================
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AUTHORIZED: 200,000,000 COMMON SHARES, $.001 PAR VALUE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT CUSIP 72811Q 10 0
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES, PAR VALUE $.001, OF
GARY PLAYER DIRECT, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to the Articles of Incorporation, to all of which the holder
by acceptance hereby assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in
facsimile by its duly authorized officer and the facsimile seal of the
Corporation to be duly affixed hereto.
Dated: ==================
| GARY PLAYER |
| DIRECT, INC. |
| CORPORATE SEAL | /s/ Alfonso J. Cervantes, Jr.
| DELAWARE |
================= PRESIDENT/SECRETARY
Countersigned:
CORPORATE STOCK TRANSFER, INC.
370 - 17th Street, Suite 2350, Denver, Colorado 80202
By: _______________________________________________
Transfer Agent and Registrar Authorized Officer
<PAGE> 2
GARY PLAYER DIRECT, INC.
CORPORATE STOCK TRANSFER, INC.
TRANSFER FEE: $15.00 PER CERTIFICATE
- ------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT - ........... Custodian for ...............
TEN ENT -- as tenants by the entireties (Cust.) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as
tenants in common Act of ..................................
(State)
</TABLE>
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
For value received ..................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________
/ /
/_______________________/
PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE
................................................
................................................
................................................
......................................... Shares
of the Common Stock represented by the within
Certificate and do hereby irrevocably constitute
and appoint
................................................
................................................
Attorney to transfer the said stock on the books
of the within-named Corporation, with full power
of substitution in the premises.
Dated .................. 19 ..........
SIGNATURE GUARANTEED: X
-------------------------------
X
-------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM.
<PAGE> 1
EXHIBIT 4.2
SPECIMEN
GOLF-ONE INDUSTRIES, INC.
NEITHER THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
APPLICABLE STATE SECURITIES LAWS BY REASON OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS, AND MAY NOT BE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
_____ Warrants Certificate Number: _____
GOLF ONE INDUSTRIES, INC.
CLASS A COMMON STOCK PURCHASE WARRANTS
Golf One Industries, Inc. a Delaware corporation (the "Company"), certifies that
for value received _______________ , is the registered holder (the "Holder") of
_______________ (________) Class A Common Stock Purchase Warrants of the Company
(the "Warrants"). Each Warrant entitles the Holder to purchase from the Company,
at any time prior to the Expiration Date (as hereinafter defined), one share of
the Common Stock of the Company (subject to adjustment as hereinafter provided)
(the "Conversion Shares") at _____, on the terms and conditions hereinafter
provided. This Warrant is issued pursuant to a Unit Purchase Agreement (the
"Unit Purchase Agreement") between the Company and the original Holder thereof.
1. Exercise
1. The "Exercise Price" shall be $2.00 per share provided, however,
that if the Company sells shares of its Common Stock in one or a series of
related transactions in which the aggregate sales price exceeds $1,500,000 at
any time after November 30, 1995 and on or prior to March 31, 1996, and the
average sale price per share (the "Sales Price") is less than $3.33 the Exercise
Price shall be reduced to 60% of the Sales Price.
1.2 Time of Exercise. The Warrants may be exercised in whole or in
part at any time on or before December 31, 1998 (the "Expiration Date") after
which time the Warrants shall expire and be of no further force or effect.
1.3 Manner of Exercise. The Warrants are exercisable by delivery to
the Company of the following (the "Exercise Documents") (i) this Certificate;
(ii) a written notice of election to exercise the Warrants; (iii) a certificate
confirming that the representations and warranties of the original holder of the
Warrants in the Unit Purchase Agreement are true and
<PAGE> 2
correct as of the date of exercise; and (iv) the Purchase Price (and any
applicable transfer taxes).
Within 30 days following receipt of the foregoing, the Company shall
execute and deliver to the Holder a certificate or certificates representing the
aggregate number of Conversion Shares purchased by the Holder. No fractional
shares of Common Stock or scrip shall be issued upon exercise of the Warrants.
If more than one Warrant is exercised at any one time by the Holder, the number
of full shares of Common Stock issuable upon exercise thereof shall be computed
on the basis of the aggregate number of the Warrants so exercised. If the
computation for determining the number of shares of Common Stock issuable upon
exercise of the Warrants shall result in other than a whole number, the Company
shall pay to the Holder an amount equal to the fair value of the fractional
share, such certificate or certificates shall be deemed to have been issued and
the Holder shall be deemed to become a record holder of such Conversion Shares
as of the date of receipt by the Company of all the Exercise Documents. If less
than all of the Warrants evidenced by this Certificate are exercised, the
Company will, upon exercise, execute and deliver to the Holder a new certificate
evidencing the Warrants not so exercised.
1.4 Compliance with Applicable Federal and State Securities Laws.
Notwithstanding any provision of this Certificate to the contrary, the Company
shall not be obligated to issue Conversion Shares upon exercise of the Warrants
if such issuance would be a violation of federal or applicable state securities
laws.
2. Adjustments of Exercise Price and Number and Kind of Conversion Shares.
2.1 In the event that the Company shall at any time hereafter (i) pay
a dividend in Common Stock or securities convertible into Common Stock; (ii)
subdivide or split its outstanding Common Stock; (iii) combine its outstanding
Common Stock into a smaller number of shares; or (iv) issue additional shares of
Common Stock without consideration in a transaction substantially similar to or
having an effect of the transactions described in clauses (i), (ii) and (iii)
above, then the number of Conversion Shares to be issued immediately after the
occurrence of any such event shall be adjusted so that the Holder thereafter may
receive the number of shares of Common Stock it would have owned immediately
following such action if it had exercised the Warrants immediately prior to such
action and the Purchase Price shall be adjusted to reflect such proportionate
increases or decreases in the number of Conversion Shares.
2.2 In case of any reclassification of the outstanding shares of
Common Stock the (other than a change covered by Section 2.1 hereof or a change
which solely affects the par value of such shares) or in the case of any merger
or consolidation or merger in which the Company is not the continuing
corporation and which results in any reclassification or capital reorganization
of the outstanding shares), the Holder shall have the right thereafter (until
the Expiration Date) to receive upon the exercise hereof, for the same aggregate
Purchase Price payable hereunder immediately prior to such event, the kind and
amount of shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation by a Holder of
the number of shares of Common Stock obtainable upon the exercise of the
Warrants immediately prior to such event; and if any reclassification also
results in a change in shares covered by Section 2.1, then such adjustment shall
be made pursuant to both this Section 2.2 and Section 2.1. The provisions of
<PAGE> 3
this Section 2.2 shall similarly apply to successive reclassifications, capital
reorganizations and mergers or consolidations, sales or other transfers.
3. Transfer. Subject to compliance with applicable securities laws and
the conditions set forth in the Unit Purchase Agreement, the Warrants are
transferable, on the books of the Company maintained for such purpose by Holder
in person, or by duly authorized attorney, upon surrender of this Certificate
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. If less than all of the
Warrants evidenced by this Certificate are transferred, the Company will, upon
transfer, execute and deliver to the Holder a new certificate evidencing the
Warrants not so transferred.
4. Registration Rights.
4.1 If the Company shall determine to register any Common Stock
under the Securities Act of 1933 (the "Securities Act") for sale in connection
with a public offering of Common Stock for cash, the Company will give written
notice thereof to the Holder and will use its best efforts to effect the
registration under the Securities Act of all of the Conversion Shares which
Holder may request in a writing delivered to the Company within 15 days after
the notice given by the Company, provided, however, if the representative of the
underwriters of the offering shall refuse in writing to include in such offering
all of the shares requested by included by the Company and others, the shares
to be included shall be allocated first to the Company and then among the others
based on the respective number of shares of Common Stock held by such persons.
If the Company decides not to, and does not, file a registration statement with
respect to such registration, or thereafter determines to withdraw the same
before the effective date thereof, the Company will promptly so inform the
Holder, and the Company will not be obligated to complete the registration of
the Conversion Shares included therein.
4.2 The Holder agrees not to effect any public sale or distribution
of Conversion Shares (regardless of whether the Conversion Shares are included
in the registration) during the period beginning ten days prior to and ending
180 days (or such shorter period as may be permitted by the representative of
the underwriters) after the effective date of any registration statement filed
by the Company for a public offering of any of its securities (except as part of
such registration). This covenants shall survive the exercise of the Warrants.
4.3 The Holder may not include Conversion Shares in any registration
statement unless the Holder (i) if the offering is being underwriting, agrees to
sell such Conversion Shares on the basis provided in any underwriting
arrangement approved by the Company and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting, and furnishes to
the Company such information as the Company may require from the Holder for
inclusion in the registration statement (and the prospectus included therein).
4.4 If the Holder desires to include in a registration statement
Conversion Shares which have not been issued, the Holder shall exercise such
portion of the Warrants as may be necessary to provide Holder with such
Conversion Shares provided that such exercise may be made contingent upon the
closing of the sale of Conversion Shares pursuant to such registration.
3
<PAGE> 4
4.5. The Company shall bear and pay all expenses incurred in
effecting any registration pursuant to this Section 4, including without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Company and expenses of any audits incidental to or required by any such
registration; provided that the Holder shall bear any legal expenses for its
own counsel and underwriting discounts or broker commissions relating to the
sale of its Conversion Shares.
4.6. The Company shall not be obligated to offer to the Holder the
right to include Conversion Shares in a registration statement pursuant to this
Section 4 more than one time; provided, however, that it shall be deemed that
the Company has not made such an offer to the Holder if either (i) the Holder
has requested that its Conversion Shares be included in a registration statement
and the representative of the underwriters has not permitted the inclusion of
all such Shares or (ii) the registration statement related to such Conversion
Shares shall not become effective.
5. Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, such
number of shares of Common Stock as shall from time to time be issuable upon
exercise of the Warrants. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit the exercise of the
Warrants, the Company shall promptly seek such corporate action as may
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
6. Notice and Addresses. All notices, requests, consents and other
communications required hereunder shall be in writing and by first class mail
or by registered or certified mail, postage prepaid, return receipt requested,
and (other than in connection with the exercise of the Warrants) shall be
deemed to have been duly made when deposited in the mails upon mailing by first
class mail or by registered or certified mail, postage prepaid, return receipt
requested: if addressed to the Holder, at the last address of such Holder on
the books of the Company; and if addressed to the Company at 2811 Airpark
Drive, Santa Maria, California 93455 or such other address as the Company may
designate in writing.
7. No Rights as Shareholder. The Holder shall have no rights as a
shareholder of the Company with respect to the Conversion Shares until the
receipt by the Company of all of the Exercise Documents. Except as may be
provided by Section 2 of this Certificate, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date the Company receives all of the Exercise Documents.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed
by its duly authorized officer on ______________, 1997
GOLF ONE INDUSTRIES, INC.
By:_______________________________
Its:______________________________
<PAGE> 1
EXHIBIT 4.3
SPECIMEN
NEITHER THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
APPLICABLE STATE SECURITIES LAWS BY REASON OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS, AND MAY NOT BE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
_________ Warrants Certificate Number _________
GOLF ONE INDUSTRIES, INC.
CLASS B COMMON STOCK PURCHASE WARRANTS
This certifies that, for value received, _____ or registered assigns, is the
registered holder (the "Holder") of ______ Warrants of Golf One Industries,
Inc., a Delaware Corporation (the "Company"). Each Warrant entitles the Holder
to purchase from the Company, at any time (within two years from date of issue)
(the "Expiration Date"), one share of the Common Stock of the Company for $.10
(the "Exercise Price") (subject to adjustment as hereinafter provided) (the
"Conversion Shares"), on the terms and conditions hereinafter provided.
1. Exercise
1.1 Manner of Exercise. The Warrants are exercisable by delivery to
the Company of the following (The "Exercise Documents") (i) this certificate;
(ii) a written notice of election to exercise the Warrants; (iii) a certificate
confirming that the representations and warranties of the original holder of the
Warrants in the Agreement are true and correct as of the date of exercise; and
(iv) the Exercise Price (and any applicable transfer taxes).
Within 30 days following receipt of the foregoing, the Company shall
execute and deliver to the Holder a certificate or certificates representing the
aggregate number of Conversion Shares purchased by the Holder. No fractional
share of Common Stock or scrip shall be issued upon exercise of the Warrants. If
more than one Warrant is exercised at any one time by the Holder, the number of
full shares of Common Stock issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Warrants so exercised. If the computation
for determining the number of shares of Common Stock issuable upon exercise of
the Warrants shall result in other than a whole number, the Company shall pay to
the Holder an amount equal to the fair value of the fractional share, such
certificate or certificates shall be deemed to have been issued and the Holder
shall be deemed to become a record Holder of such Conversion Shares as of the
date of receipt by the Company of all the Exercise Documents. If less than all
of the Warrants evidenced by this Certificate are exercised, the Company will,
upon exercise, execute and deliver to the Holder a new certificate evidencing
the Warrants not so exercised.
<PAGE> 2
1.2 Compliance with Applicable Federal an State Securities laws.
Notwithstanding any provision of this Certificate to the contrary, the Company
shall not be obligated to issue Conversion Shares upon exercise of the Warrants
if such issuance would be a violation of federal or applicable state securities
Laws.
2. Adjustments of Exercise Price and Number and Kind of Conversion Shares.
2.1 In the event that the Company shall at any time hereafter (i) pay a
dividend in Common Stock or securities convertible into Common Stock; (ii)
subdivide or split its outstanding Common Stock; (iii) combine its outstanding
Common Stock into a smaller number of shares; or (iv) issue additional shares of
Common Stock without consideration in a transaction substantially similar to or
having an effect of the transactions described in clauses (i), (ii) and (iii)
above, then the number of Conversion Shares to be issued immediately after the
occurrence of any such event shall be adjusted so that the Holder thereafter may
receive the number of shares of Common Stock it would have owned immediately
prior to such action if it had exercised the Warrants immediately prior to such
action and the Purchase Price shall be adjusted to reflect such proportionate
increases or decreases in the number of Conversion Shares.
2.2 In case of any reclassification of the outstanding shares of
Common Stock (other than a change covered by Section 2.1 hereof or a change
which solely affects the par value of such shares) or in the case of any merger
or consolidation or merger in which the Company is not the continuing
corporation and which results in any reclassification or capital reorganization
of the outstanding shares), the Holder shall have the right thereafter (until
the Expiration Date) to receive upon the exercise hereof, for the same aggregate
Exercise Price payable hereunder immediately prior to such event, the kind and
amount of shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, by a Holder
of the number of shares of Common Stock obtainable upon the exercise of the
Warrants immediately prior to such event; and if any reclassification also
results in a change in shares covered by Section 2.1, then such adjustments
shall be made pursuant to both this Section 2.2 and Section 2.1. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications,
capital reorganizations and mergers or consolidations, sales or other transfers.
3. Transfer. Subject to compliance with applicable securities laws and the
conditions set forth in the Agreement, the Warrants are transferable, on the
books of the Company maintained for such purpose by Holder in person, or by duly
authorized attorney, upon surrender of this certificate properly endorsed and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. If less than all the Warrants Evidenced by this Certificate
are transferred, the Company will, upon transfer, execute and deliver to the
Holder a new certificate evidencing the Warrants not so transferred.
4. Reservation of Shares. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, such number
of shares of Common Stock as shall from time to time be issuable upon exercise
of the Warrants. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to permit the exercise of the Warrants, the
Company shall promptly seek such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
<PAGE> 3
5. Notice and Address. All notices, requests, consents and other
communications required hereunder shall be in writing and by first class mail or
by registered or certified mail, postage prepaid, return receipt requested, and
(other than in connection with the exercise of the Warrants) shall be deemed to
have been duly made when deposited in the mails upon mailing by first class or
by registered or certified mail, postage prepaid, return receipt requested; if
addressed to the Holder at the last address of such Holder on the books of the
Company, and if addressed to the Company at 2811 Airpark Dr. Santa Maria Ca.
93455 or such other address as the Company may designate in writing.
6. No Rights as Shareholder. The Holder shall have no rights as a
shareholder of the Company with respect to the Conversion Shares until the
receipt by the Company of all of the Exercise Documents. Except as may be
provided by Section 2 of this Certificate, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date the Company receives all of the Exercise Documents.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by its
duly authorized officer on __________.
GOLF ONE INDUSTRIES, INC.
By:
--------------------------
Its:
--------------------------
<PAGE> 1
EXHIBIT 4.4
SPECIMEN
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS MAY NOT BE
EXERCISED OFFERED OR SOLD UNLESS, IN EACH CASE, THE WARRANTS AND WARRANT SHARES
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED AND ENCUMBERED EXCEPT PURSUANT TO THE PROVISIONS CONTAINED
HEREIN.
CLASS C WARRANTS TO PURCHASE COMMON STOCK
Golf One Industries, Inc., a Delaware corporation (the "Company") hereby
grants to _________ (the "Holder") __________ transferable warrants (the
"Warrants") for the purchase of common stock of the Company (the "Common
Stock"), with each whole Warrant entitling the Holder to purchase one share of
Common Stock (each a "Warrant Share" and collectively the "Warrant Shares") on
the terms and subject to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any time
and from time to time from the date hereof until 5:00 Pacific Time on the date
which is three years from the date of the closing of the Company's initial
public offering of Common Stock pursuant to a Registration Statement filed with,
and declared effective by, the Securities and Exchange Commission (the "Exercise
Period").
2. EXERCISE PRICE. The initial exercise price of each whole Warrant shall
be equal to 70% of the Fair Market Value (as defined below) of the Company's
common stock on the date of exercise. "Fair Market Value" means the average
closing sale price for the twenty trading days immediately preceding the
Exercise Date (as defined below) or, if there is no last sale reporting for the
Common Stock at such time, then the value as determined in good faith by the
Board of Directors of the Company.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms provided
herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. The Holder shall be deemed the record owner of such Warrant Shares as
of and from the close of business on the date on which this certificate is
surrendered together with the completed Notice of Exercise and payment in full
as required above (the "Exercise Date"). The Company agrees that the Warrant
Shares so purchased shall be issued as soon as practicable thereafter. It shall
be a condition to the exercise of the Warrants that the Holder or any transferee
hereof provide an opinion of counsel reasonably satisfactory to the Company
that the Warrants
<PAGE> 2
and the Warrant Shares to be delivered upon exercise thereof have been
registered under the Securities Act or that an exemption from the registration
requirements of the Securities Act is available.
4. FRACTIONAL INTEREST. In lieu of issuing fractional shares of Common
Stock upon exercise of the Warrants, the Company may pay the Holder a cash
amount determined by multiplying the fraction of a share otherwise issuable by
the Fair Market Value of one share of Common Stock.
5. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have any
rights as a stockholder of the Company with regard to the Warrant Shares prior
to the Exercise Date for any actual purchase of Warrant Shares.
6. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrant Shares
issuable upon the exercise of the Warrants have been registered under the
Securities Act or any state securities laws. The Holder acknowledges by signing
this certificate that, as of the date of this Warrant and at the time of
exercise that: (a) the Holder has acquired the Warrant or the Warrant Shares, as
the case may be, for the Holder's own account; (b) the Holder has acquired the
Warrants or the Warrant Shares, as the case may be, for investment and not with
a view to distribution; and (c) either the Holder has a pre-existing personal
or business relationship with the Company or its executive officers, or by
reason of the Holder's business or financial experience the Holder has the
capacity to protect the Holder's own interests in connection with the
transaction. The Holder agrees, by acceptance of this certificate, that any
Warrant Shares purchased upon exercise of the Warrants may have to be held
indefinitely or until an exemption from registration is available, as evidenced
by an opinion of counsel reasonably satisfactory to the Company. The Holder, by
acceptance of this certificate, consents to the placement of a restrictive
legend (the "Legend") on the certificates representing any Warrant Shares that
are purchased upon exercise of the Warrants during the applicable restricted
period under Rule 144 or any other applicable restricted period under the
Securities Act. The Legend shall be in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, UNLESS IN THE WRITTEN LEGAL OPINION (APPROVED BY THE COMPANY)
OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT
REQUIRED.
7. RESERVATION OF SHARES. The Company agrees that, at all times during the
Exercise Period, the Company will have authorized and reserved, for the
exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
2
<PAGE> 3
8. ADJUSTMENT FOR CHANGES IN CAPITAL STOCK. If the Company at any time
during the Exercise Period shall, by subdivision, combination or
reclassification of securities, change any of the securities into which the
Warrants are exercisable into the same or a different number of securities of
any class or classes, the Warrants shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares if the Warrant Shares
had been outstanding immediately prior to such subdivision, combination, or
reclassification.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to the Company, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the original
certificate if mutilated, the Company will make and deliver a new certificate of
like tenor in lieu of the original certificate.
10. ASSIGNMENT. The Warrants may be transferred subject to the provisions
of Section 6.
11. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
between Delaware residents entered into and to be performed entirely within the
State of Delaware. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged or
terminated only by a written instrument signed by both the Company and the
Holder. All notices and other communications from the Company to the Holder
shall be mailed by first-class registered or certified mail, postage pre-paid,
to the address furnished to the Company in writing by the last Holder who shall
have furnished an address to the Company in writing.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by its
duly authorized officer on __________, 1998
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes, Jr.
Its: PRESIDENT
3
<PAGE> 1
EXHIBIT 10.3
GOLF ONE INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into
as of May 31, 1998 by and between Golf One Industries, Inc., a Delaware
corporation (the "COMPANY"), and Alfonso J. Cervantes ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company.
Employee hereby accepts such employment. Employee shall have the title of
President, but may have any title determined by the Board of Directors provided
that Employee always has a title which is no less senior than President.
(b) Employee's duties and responsibilities shall be those incident to
the position(s) described in Section 1(a) as set forth in the Bylaws of the
Company and those which are normally and customarily vested in such office(s) of
a corporation; provided, however, that Employee shall report directly to the
Board and not to the Chief Executive Officer of the Company. In addition,
Employee's duties shall include those duties and services for the Company and
its affiliates as the Board shall, in its sole and absolute discretion, from
time to time reasonably direct which are not inconsistent with Employee's
position described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy
and efforts to the business of the Company and will use Employee's best efforts
and abilities faithfully and diligently to promote the Company's business
interests. For so long as Employee is employed by the Company, Employee shall
not, directly or indirectly, either as an employee, employer, consultant, agent,
investor, principal, partner, stockholder (except as the holder of less than 1%
of the issued and outstanding stock of a publicly held corporation), corporate
officer or director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
whatsoever with the business of the Company Group, as such businesses are now or
hereafter conducted.
2. DEFINITIONS
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE OF CONTROL" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
<PAGE> 2
"COMPANY GROUP" shall mean the Company and each Person which the
Company directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical
or mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Employee agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Employee shall have suffered a disability and Employee hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Employee is not legally competent, Employee's
legal guardian or duly authorized attorney-in-fact will act in Employee's stead
for the purposes of submitting Employee to the examinations, and providing the
authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 9 of this
Agreement.
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 15 days of written
notice thereof from the Company (except for breaches of Sections 1(c), 6 or 7 of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to cure); or
(b) Employee is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Employee is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Employee commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to subordinate employees; or
(e) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's
2
<PAGE> 3
position as a senior or executive officer, or continued and repeated substantive
failure to perform duties assigned by or pursuant to this Agreement; or
(f) Employee continues to neglect his duties after receipt of notice
thereof from the Company (and the Company need give such notice only once).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"RELOCATION EXPENSES" shall mean reasonable expenses of moving
Employee's household goods and possessions in relocating from Los Angeles to
Santa Maria, based upon three competitive estimates from nationally recognized
moving companies submitted to the Company for review and approval by the Company
prior to incurring such expenses.
"TERM" shall mean the period commencing on the Effective Date and
ending at the close of business on the business day immediately preceding the
second annual anniversary of the Effective Date.
3. COMPENSATION AND BENEFITS
For so long as Employee shall be employed by the Company, Employee
shall receive the compensation and benefits set forth in this Section 3.
(a) Salary. The Company shall pay Employee a base salary at an annual
rate of $150,000 for the first year following the Effective Date and $165,000
thereafter. The Board may, but shall not be obligated to, increase Employee's
base salary from time to time. The base salary shall be payable in installments
in the same manner and at the same times the Company pays base salaries to other
executive officers of the Company, but in no event less frequently than equal
monthly installments.
(b) Bonus. Employee shall be entitled to such bonuses as the Board in
its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
from the Company for the reasonable out-of-pocket costs and expenses which
Employee incurs in connection with the performance of Employee's duties and
obligations under this Agreement in a manner consistent with the Company's
practices and policies therefor.
(d) Employee Benefit Plans. Employee shall be entitled to participate
in any pension, savings and group term life, medical, dental, disability, and
other group benefit plans which the Company makes available to its employees
generally. If the Company does not maintain long-term disability insurance for
Employee, the Company will pay on behalf of Employee up to $2,000 per year for
the purchase of a long-term disability insurance policy for Employee.
3
<PAGE> 4
(e) Vacation. Employee shall be entitled to four weeks paid vacation,
which shall accrue in accordance with, and be subject to limitations under, the
Employee Handbook.
(f) Automobile Allowance. Employer shall provide to Employee use of a
late model luxury automobile and shall pay gas, insurance, customary maintenance
and repairs on such automobile, up to a cost of $12,000 per year (including
leasing cost of the automobile).
(g) Options. Effective as of the Effective Date, Employee shall receive
an option under the Company's 1998 Stock Option Plan to purchase up to 100,000
shares of Common Stock (such number, and the number set forth below, to be
adjusted for any stock splits, dividends or reverse stock splits effected after
the date hereof and on or prior to the Effective Date), on the following terms:
(i) the exercise price shall be the initial public offering price of the Common
Stock in the IPO; (ii) the option shall vest on the first annual anniversary of
the Effective Date (with accelerated vesting in the event of a sale of the
Company or termination of employment by the Company pursuant to Section 4(e) of
this Agreement); and (iii) the option shall terminate on the earlier to occur
of: (A) the fifth annual anniversary of the Effective Date and 90 days following
termination of Employee's employment (or the date of termination of employment
if termination is by the Company For Cause or one year following termination of
employment if termination is by reason of death or Disability); and (B) a sale
of the Company. The option shall be evidenced by an agreement in the standard
form in effect as of the Effective Date, as approved by the Board of Directors
in connection with the Plan.
(h) Disability. In the event of any Disability, if Employee shall
receive payments as a result of such Disability under any disability plan
maintained by the Company or from any government agency, the Company shall be
entitled to deduct the amount of such payments received from base salary payable
to Employee during the period of such Disability.
(i) Withholding. The Company may deduct from any compensation payable
to Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after the Term and at least 30 days
after the delivery of that notice); provided, however, that in the event
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
4
<PAGE> 5
(b) upon the death of Employee;
(c) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(d) upon delivery to Employee of written notice of termination by the
Company For Cause;
(e) upon delivery to Employee of written notice of termination by the
Company without cause; or
(f) upon the date set forth in a written notice of termination from
Employee to the Company delivered no later than 10 days following the occurrence
of a Change of Control of the Company, which date shall be after the Change of
Control and at least 30 days after delivery of that notice; provided, however,
that in the event Employee delivers such notice to the Company, the Company
shall have the right to accelerate such termination by written notice thereof to
Employee (and such termination by the Company shall be deemed to be a
termination of employment pursuant to this Section 4(f), and not a termination
pursuant to Section 4(d) or 4(e) hereof).
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) prior to the end of the Term, the Company shall: (i)
continue to pay to Employee the salary which Employee would have earned through
the end of the Term as if Employee's employment had not terminated; (ii) shall
pay for Employee's (and his immediate family's) participation in group medical,
life, dental, disability and similar plans through the end of the Term, to the
extent permitted by the plan; and (iii) pay to Employee any bonus to
which he may become entitled under the Officer Bonus Plan.
(b) If Employee's employment is terminated by Employee pursuant to
Section 4(f) prior to the end of the Term, the Company shall: (i) within five
days following termination, pay to Employee an amount equal to the amount of
salary which Employee would have earned from the date of termination through the
end of the Term had Employee's employment not terminated (which payment shall be
a lump sum without discount); (ii) pay for Employee's (and his immediate
family's) participation in group medical, life, dental, disability and similar
plans through the end of the Term, to the extent permitted by the plan; and
(iii) pay to Employee any bonus to which he may become entitled under the
Officer Bonus Plan.
(c) If Employee's employment is terminated for any reason other than by
the Company without cause prior to the end of the Term or by Employee pursuant
to Section 4(f), the Company shall pay to Employee (or Employee's estate or
beneficiary, as the case may be): (i) any unpaid base salary through the date of
termination of employment, and (ii) any bonus to which he may become entitled
under the Officer Bonus Plan. All rights and benefits which Employer or his
estate may have under employee benefit plans in which Employee shall be
participating at the date of termination of employment shall be determined in
accordance with such plans.
5
<PAGE> 6
(d) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (by the Company For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(e) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract.
(f) Employee acknowledges that in the event of termination of
Employee's employment for any reason, neither Employee (nor Employee's estate,
heirs, beneficiaries or others claiming through Employee) shall not be entitled
to any severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Employee shall not be
entitled to any benefits under any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee acknowledges and agrees that: (i) due to Employee's previous
experience in the industry in which the Company operates, being employed by the
Company will allow Employee to acquire valuable knowledge not otherwise
available to the public regarding the nature, requirements and character of, and
the design, manufacturing, processes and methods of pricing used in, the Company
Group's business and regarding the names and requirements of, and the Company's
course of dealing with, the Company Group's customers; (ii) as a result of
employment with the Company, Employee will be brought in personal contact with
the Company Group's customers and as a result Employee will establish business
goodwill, which is a valuable asset of the Company; (iii) having this knowledge
of the Company Group's business and its customers and this acquaintance with the
Company Group's customers places Employee in an unfair competitive position as
to the Company Group if Employee engages in a competing business in his own
behalf or for another; (iv) the Company Group is engaged in the sale and
distribution of golf equipment, golf apparel and related products to customers;
and (v) the provisions of this Section 6 are reasonable as to time, scope and
territory and in all other respects, and such provisions are reasonably
necessary to secure the protection of the business or goodwill of the Company
and do not prevent Employee from supporting himself and his dependents upon
termination of his employment with the Company. Accordingly, Employee covenants
and agrees that while in the Company's employ and for a period expiring one year
after the termination for any reason of Employee's employment with the Company:
(a) Employee will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or advisory services
to, or participate in or be connected with the management or control of any
business in any state or territory in which the
6
<PAGE> 7
Company Group sells or markets its products at the time of the termination of
Employee's employment, which business is engaged in the direct marketing of any
golf equipment, golf apparel or related products of the general type sold and
distributed by the Company Group at the time of termination of Employee's
employment;
(b) Employee will not, directly or indirectly, influence or attempt to
influence any customer of the Company Group to reduce or discontinue its
purchases of any products from the Company Group or to divert such purchases to
any Person other than the Company Group.
(c) Employee will not, directly or indirectly, interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company Group and any of its respective suppliers, principals, distributors,
lessors or licensors; and
(d) Employee will not, directly or indirectly, solicit any employee of
the Company Group to work for any Person.
For purposes of this Section 6, "Competition with the Company Group"
shall mean direct competition for customers who are purchasers or users of golf
equipment, apparel, or related products of the type sold and distributed by the
Company Group.
7. CONFIDENTIALITY.
Employee agrees not to disclose or use at any time (whether during or
after Employee's employment with the Company) for Employee's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Employee's breach of this covenant. Employee agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company Group except that he may retain personal notes, notebooks,
diaries, rolodexes and addresses and phone numbers. Employee further agrees that
he will not retain or use for his account at any time any trade names, trademark
or other proprietary business designation used or owned in connection with the
business of any member of the Company Group.
8. MISCELLANEOUS
(a) Notices. all notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
7
<PAGE> 8
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, Ca 93455
Attn: Board of Directors
If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails. any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted
8
<PAGE> 9
in calculating the amount of a judgment for purposes of determining whether a
party is entitled to recover its costs or attorneys' fees.
9. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). This Agreement shall terminate without
becoming effective: (i) by written notice from the Company to Employee, or by
Employee to the Company, given prior to the effectiveness of the registration
statement in connection with IPO if the IPO shall not be completed by September
30, 1998; (ii) if Employee shall die or suffer a Disability prior to the
Effective Date; or (iii) by written notice from the Company if Employee shall
take or omit any action which, if Employee was then employed by the Company,
would be the basis for termination of employment by the Company For Cause.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Joseph A. DePanfilis
---------------------------
Its: CFO
--------------------------
/s/ Alfonso J. Cervantes
------------------------------
Alfonso J. Cervantes
9
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Agreement, dated April 1, 1999, is by and between GARY PLAYER DIRECT,
INC. (the "Corporation") and KENT D. KRAUSMAN (the "Employee").
The Corporation desires to employ the Employee and the Employee desires to
be employed by the Corporation, upon the terms and conditions set forth in this
Agreement.
The parties hereby enter into this Agreement to set forth their mutual
promises and understandings, and mutually acknowledge the receipt and
sufficiency of valuable consideration in addition to the mutual promises,
conditions and understandings set forth below.
ARTICLE I
EMPLOYMENT DUTIES
AND RESPONSIBILITIES
Section 1.1 Employment. The Corporation hereby employs the Employee. The
Employee accepts such employment and agrees to abide by the Articles of
Incorporation, By-Laws and the decisions of the Board of Directors of the
Corporation.
Section 1.2 Term of Employment. The term of this Agreement shall be for
a period of two (2) years commencing on the 1st day of April, 1999.
Section 1.3 Duties and Responsibilities. The Employee is employed
pursuant to the terms of this Agreement and agrees to devote his time,
attention, skill, energies and efforts to the faithful performance of his
duties under this Agreement. The Employee shall serve as a Senior Vice
President of the Corporation, and shall perform such duties as may be
determined and assigned to him by the Board of Directors of the Corporation.
The Employee agrees to dedicate up to (20) hours per week of his work time to
the affairs of the Corporation in his capacity as defined herein.
-1-
<PAGE> 2
Section 1.4 Working Facilities. The Employee shall be furnished with
materials, equipment, facilities and services suitable to the position and
adequate for the performance of the duties of the Employee under this Agreement.
The parties anticipate that the Employee shall discharge his duties hereunder
from his offices in Denver, Colorado.
Section 1.5 Expenses. Employee shall be reimbursed for reasonable travel
and other business-related expenses incurred in the furtherance of the business
of the Corporation in accordance with the general policy of the Corporation as
adopted from time to time by the Board. Reimbursement of expenses shall be made
by the Corporation upon submission by Employee of a statement itemizing the
expenses incurred or such other verification as the Corporation may reasonably
request.
Section 1.6 Review by Corporation. The Employee agrees that all work
performed pursuant to this Agreement shall be subject to the review and study of
the Corporation.
ARTICLE II
COMPENSATION
Section 2.1 Base Salary. The Corporation shall pay to the Employee during
the term of this Agreement a monthly salary of $5,000.00 payable in accordance
with the Corporation's usual payment practices, but not less frequently than
monthly.
Section 2.2 Bonus. In addition to the annual salary, the Employee shall
receive an incentive bonus, to be determined by the Corporation's Board of
Directors, which shall be commensurate with other executive-level bonuses.
Such bonus shall be paid within sixty (60) days after each fiscal year end
of the Corporation.
All such compensation shall be subject to customary withholding taxes and
other employment taxes as required with respect thereto.
Section 2.3 Incentive Stock Option. The Employee shall be granted an
incentive stock option pursuant to the Corporation's Incentive Stock Option
Plan.
-2-
<PAGE> 3
ARTICLE III
TERM OF EMPLOYMENT
AND TERMINATION
Section 3.1 Term. This Agreement shall be for a period of two years
commencing on its effective date, subject, however, to termination during such
period as provided in this Article. This Agreement shall be renewed
automatically for succeeding periods of one year on the same terms and
conditions as contained in this Agreement unless either the Corporation, by its
Board of Directors, or the Employee shall, at least 30 days prior to the
expiration of the initial two year term or at least 30 days prior to the
expiration of any subsequent one year period, give written notice to the other
party of the intention not to renew this Agreement.
Section 3.2 Termination by Employee or Termination by the Corporation
Without Cause. The Employee may terminate this Agreement at any time upon
giving 30 days' written notice to the Board of Directors. In such event, the
Employee, if requested by the Board of Directors, shall continue to render the
services required under this Agreement and shall be paid the compensation set
forth in this Agreement up to the date of termination.
The Board of Directors, without cause, may terminate this Agreement at any
time upon giving 30 days' written notice to the Employee. In such event, the
Employee, if requested by the Board of Directors, shall continue to render the
services required under this Agreement and shall be paid the compensation set
forth in this Agreement up to the date of termination. Provided however, if the
Corporation terminates the employment without cause during the initial two-year
term, the Employee shall receive severance pay equal to the monthly
compensation due hereunder multiplied by a number equal to the number of full
months remaining under the initial two-year term divided by three. Said payments
shall be payable on a monthly basis thereafter until paid in full.
-3-
<PAGE> 4
Section 3.3 Termination With Cause. The Board of Directors of the
Corporation may terminate the Employee at any time without notice by reason of
misconduct by the Employee or for other cause contrary to the best interests of
the Corporation immediately upon written notice, for good cause, which for the
purposes of this Agreement shall mean:
(a) the intentional and continued failure by Employee to
substantially perform his duties pursuant to this Agreement after a written
demand by the Corporation identifying the manner in which it believes Employee
has not substantially performed his duties; or
(b) a breach of this Agreement, or
(c) indictment of a criminal proceeding against Employee or
commission of an act involving a felony or moral turpitude; or
(d) the commission of common law fraud, embezzlement, theft or
unethical business conduct against the Corporation or conduct involving a third
party which, directly or indirectly significantly impairs the reputation of, or
harms, the Corporation, its subsidiaries or affiliates; or
(e) the commission of intentional wrongful damage to property of the
Corporation; or
(f) a breach of Employee's fiduciary obligations to the Corporation
or its subsidiaries; or
(g) any willful acts by the Employee which are knowingly not in the
best interests of the Corporation.
Neither the Employee nor his heirs shall be entitled to receive from the
Corporation, its successors or assigns, upon, after or as a result of any
termination of Employee's employment and/or termination or expiration of this
Agreement pursuant to any provision of this paragraph, any type of salary
continuation, severance payment, bonus or any further compensation or benefits.
Section 3.4 Termination Upon Disability of Employee. In the event the
Employee, by reason of physical or mental disability (excluding transitory
illnesses), shall be unable to perform the services required of Employee
hereunder for a continuous thirty (30) day period or for more than sixty (60)
days in any twelve-
-4-
<PAGE> 5
month period, the Board of Directors may terminate employment upon ten (10)
days' prior written notice. In the event of a disagreement concerning the
existence of any such disability, the determination shall be made by two
physicians, one designated by the Corporation and one by the Employee. If these
two physicians cannot agree, they shall appoint a third physician and the
determination of the majority shall be conclusive and binding on the
Corporation and the Employee. All costs so incurred shall be borne equally by
the Corporation and such Employee.
Section 3.5 Termination Upon Death of Employee. This Agreement is
terminated in the event of the Employee's death.
ARTICLE IV
PROPRIETARY INFORMATION INVENTIONS AGREEMENT
AND NON-COMPETE
The Employee shall execute a Proprietary Information Inventions Agreement
and a Non-Compete Agreement in the form attached hereto and incorporated herein
by reference as Exhibit A.
ARTICLE V
GENERAL MATTERS
Section 5.1 Colorado Law. It is the intention of the parties hereto that
this Agreement and its performance hereunder be construed in accordance with
and pursuant to the laws of the State of Colorado and that, in any action,
special proceeding, or other proceeding that may be brought arising out of, in
connection with, or by reason of this Agreement, the law of the State of
Colorado shall be applicable and shall govern to the exclusion of any forum,
without regard to the jurisdiction in which any action or special proceeding
may be instituted.
Section 5.2 No Waiver. No provision of this Agreement may be waived
except by an agreement in writing signed by the waiving party. A waiver of any
term or provision shall not be construed as a waiver of any other term or
provision.
-5-
<PAGE> 6
Section 5.3 Amendment. This Agreement may be amended, altered or revoked
at any time, in whole or in part, by filing with this Agreement a written
instrument setting forth such changes, signed by all of the parties.
Section 5.4 Effect of Agreement. The terms of this Agreement shall be
binding upon and inure to the benefit of the Employee and the Corporation and
their heirs, personal representatives, successors and assigns to the extent
that any such benefits survive or may be assigned under the terms of this
Agreement. Notwithstanding anything to the contrary herein the Employee's
services contracted under this Agreement are personal to the Employee and shall
not be assignable.
Section 5.5 Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements contained in this Agreement shall
survive the termination of this Agreement.
Section 5.6 Construction. Throughout this Agreement the singular shall
include the plural, and the plural shall include the singular, and the
masculine and neuter shall include the feminine, wherever the context so
requires.
Section 5.7 Text to Control. The headings of articles and sections are
included solely for convenience or reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
Section 5.8 Severability. If any provision of this Agreement is declared
by any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions. On the contrary, such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions never had been inserted in
the Agreement.
Section 5.9 Complete Agreement. This Agreement contains the complete
agreement concerning the employment arrangement between the parties and shall,
as of the effective date hereof, supercede all other agreements between the
parties, whether oral or written. The parties acknowledge that neither of them
has made any representations with respect to the subject matter of this
Agreement, including the execution and
-6-
<PAGE> 7
delivery hereof, except such representations as are specifically set forth
herein, and each of the parties hereto acknowledges that he or it has relied on
his or its own judgment in entering into this Agreement. The parties hereto
further acknowledge that any statement or representation that may have
heretofore been made by either of them to the other are of no effect and that
neither of them has relied thereon in connection with his or its dealings with
the other.
Dated this 1st day of April, 1999.
GARY PLAYER DIRECT, INC.:
By: /s/ Alfonso J. Cervantes, Jr.
------------------------------
Alfonso J. Cervantes, Jr.,
President and CFO
EMPLOYEE:
/s/ Kent D. Krausman
---------------------------------
Kent D. Krausman
-7-
<PAGE> 1
EXHIBIT 10.5
GOLF ONE INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into
as of May 31, 1998 by and between Golf One Industries, Inc., a Delaware
corporation (the "COMPANY"), and Joseph DePanfilis ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company.
Employee hereby accepts such employment. Employee shall have such title or
titles as the Board may from time to time determine. Employee shall initially
have the title of Chief Financial Officer and Executive Vice President.
(b) Employee's duties and responsibilities shall be those incident to
the position(s) described in Section 1(a) as set forth in the Bylaws of the
Company and those which are normally and customarily vested in such office(s) of
a corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Board or the President shall,
in its or sole and absolute discretion, from time to time reasonably direct
which are not inconsistent with Employee's position described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy
and efforts to the business of the Company and will use Employee's best efforts
and abilities faithfully and diligently to promote the Company's business
interests. For so long as Employee is employed by the Company, Employee shall
not, directly or indirectly, either as an employee, employer, consultant, agent,
investor, principal, partner, stockholder (except as the holder of less than 1%
of the issued and outstanding stock of a publicly held corporation), corporate
officer or director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner
whatsoever with the business of the Company Group, as such businesses are now or
hereafter conducted.
2. DEFINITIONS
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE OF CONTROL" of the Company shall be deemed to have occurred if,
following the IPO, (i) a Person or group of Persons (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) acquires more than
50% of the outstanding voting securities of the Company, or (ii) the Company
sells all or substantially all of its assets.
"COMPANY GROUP" shall mean the Company and each Person which the
Company directly or indirectly Controls.
<PAGE> 2
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical
or mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 30 consecutive days, or 60 days
during any one six month period. Employee agrees to submit to a reasonable
number of examinations by a medical doctor advising the Company as to whether
Employee shall have suffered a disability and Employee hereby authorizes the
disclosure and release to the Company and its agents and representatives all
supporting medical records. If Employee is not legally competent, Employee's
legal guardian or duly authorized attorney-in-fact will act in Employee's stead
for the purposes of submitting Employee to the examinations, and providing the
authorization of disclosure.
"EFFECTIVE DATE" shall mean the closing date of the IPO.
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of basis for termination of
Employee's employment with the Company, that:
(a) Employee breaches any obligation, duty or agreement under this
Agreement, which breach is not cured or corrected within 15 days of written
notice thereof from the Company (except for breaches of Sections 1(c), 6 or 7 of
this Agreement, which cannot be cured and for which the Company need not give
any opportunity to care); or
(b) Employee is grossly negligent in the performance of services to the
Company Group, or commits any act of personal dishonesty, fraud, embezzlement,
breach of fiduciary duty or trust against the Company Group; or
(c) Employee is indicted for, or convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud, a crime involving moral turpitude, or
a felony under federal or applicable state law; or
(d) Employee commits any act of personal conduct that, in the
reasonable opinion of the Board, gives rise to any member of the Company Group
of a material risk of liability under federal or applicable state law for
discrimination or sexual or other forms of harassment or other similar
liabilities to subordinate employees; or
(e) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's position as a senior or executive officer, or
continued and repeated substantive failure to perform duties assigned by or
pursuant to this Agreement; or
2
<PAGE> 3
(f) Employee continues to neglect his duties after receipt of notice
thereof from the Company (and the Company need give such notice only once).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"RELOCATION EXPENSES" shall mean reasonable expenses, not to exceed
$6,000, of moving Employee's household goods and possessions to a permanent
residence in San Luis Obispo, California or the in vicinity thereof.
"TERM" shall mean the period commencing on the date hereof and ending
at the close of business on the business day immediately preceding the first
annual anniversary of the Effective Date.
3. COMPENSATION AND BENEFITS
For so long as Employee shall be employed by the Company, Employee
shall receive the compensation and benefits set forth in this Section 3.
(a) Salary. The Company shall pay Employee a base salary at an annual
rate of $85,000 until the Effective Date and $90,000 thereafter. The Board may,
but shall not be obligated to, increase Employee's base salary from time to
time. The base salary shall be payable in installments in the same manner and at
the same times the Company pays base salaries to other executive officers of the
Company, but in no event less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to a bonus of $5,000 upon the
Effective Date. In addition, if the Effective Date occurs, Employee shall be
entitled to such other bonuses as the Board in its sole discretion from time to
time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
from the Company for the reasonable out-of-pocket costs and expenses which
Employee incurs in connection with the performance of Employee's duties and
obligations under this Agreement in a manner consistent with the Company's
practices and policies therefor.
(d) Employee Benefit Plans. Employee and his spouse and dependents
shall be entitled to participate in any pension, savings and group term life,
medical, dental, disability, and other group benefit plans which the Company
makes available to its employees generally.
(e) Vacation. Employee shall be entitled to three weeks paid vacation
per year for the first and second years of Employee's employment, and four weeks
per year thereafter (based on the date Employee commenced employment with the
Company). Vacation shall accrue in accordance with, and be subject to
limitations under, the Employee Handbook.
<PAGE> 4
(f) Automobile Allowance. Employer shall provide to Employee use of a
late model luxury automobile and shall pay gas, insurance, customary maintenance
and repairs on such automobile, up to a cost of $6,000 per year (including
leasing cost of the automobile).
(g) Options. Effective as of the Effective Date, Employee shall receive
an option under the Company's 1998 Stock Option Plan to purchase up to 25,000
shares of Common Stock (such number, and the number set forth below, to be
adjusted for any stock splits, dividends or reverse stock splits effected after
the date hereof and on or prior to the Effective Date), on the following terms:
(i) the exercise price shall be the initial public offering price of the Common
Stock in the IPO; (ii) the option shall vest on the first annual anniversary of
the Effective Date (with accelerated vesting in the event of a sale of the
Company or termination of employment by the Company pursuant to Section 4(e) of
this Agreement); and (iii) the option shall terminate on the earlier to occur
of: (A) the fifth annual anniversary of the Effective Date and 90 days
following termination of Employee's employment (or the date of termination of
employment if termination is by the Company For Cause or one year following
termination of employment if termination is by reason of death or Disability);
and (B) a sale of the Company. The option shall be evidenced by an agreement in
the standard form in effect as of the Effective Date, as approved by the Board
of Directors in connection with the Plan.
(h) Disability. In the event of any Disability, if Employee shall
receive payments as a result of such Disability under any disability plan
maintained by the Company or from any government agency, the Company shall be
entitled to deduct the amount of such payments received from base salary payable
to Employee during the period of such Disability.
(i) Withholding. The Company may deduct from any compensation payable
to Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
(j) Relocation Expenses. Upon submission of appropriate bills, invoices
and other documentation as may reasonably be requested by the Company, the
Company shall pay the Relocation Expenses incurred by Employee within 30 days of
written request for payment of such Expenses; provided, however, that at the
time of such request, Employee's employment shall not have been terminated by
(i) Employee or (ii) the Company For Cause.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on May
31, 1998 and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after the Term and at least 30 days
after the delivery of that notice); provided, however, that in the event
Employee delivers such notice to the Company, the Company
<PAGE> 5
shall have the right to accelerate such termination by written notice thereof to
Employee (and such termination by the Company shall be deemed to be a
termination of employment pursuant to this Section 4(a), and not a termination
pursuant to Section 4(d) or 4(e) hereof);
(b) upon the death of Employee;
(c) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(d) upon delivery to Employee of written notice of termination by the
Company For Cause;
(e) upon delivery to Employee of written notice of termination by the
Company without cause; or
(f) upon the date set forth in a written notice of termination from
Employee to the Company delivered no later than 10 days following the occurrence
of a Change of Control of the Company following the Effective Date, which date
shall be after the Change of Control and at least 30 days after delivery of that
notice; provided, however, that in the event Employee delivers such notice to
the Company, the Company shall have the right to accelerate such termination by
written notice thereof to Employee (and such termination by the Company shall be
deemed to be a termination of employment pursuant to this Section 4(f) and not
a termination pursuant to Section 4(d) or 4(e) hereof).
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(e)
(by the Company without cause) prior to the Effective Date, the Company shall:
(i) continue to pay to Employee the salary which Employee would have earned
through October 31, 1998 as if Employee's employment had not terminated; (ii)
shall pay for Employee's (and his immediate family's) participation in group
medical, life, dental, disability and similar plans through the end of the Term,
to the extent permitted by the plan; and (iii) pay to Employee any unpaid bonus
or incentive compensation which has been earned by Employee at the time of
termination of employment. If Employee's employment is terminated pursuant to
Section 4(e) (by the Company without cause) on or after the Effective Date and
prior to the end of the Term, the Company shall: (i) continue to pay to Employee
the salary which Employee would have earned through the end of the Term as if
Employee's employment had not terminated; (ii) shall pay for Employee's (and his
immediate family's) participation in group medical, life, dental, disability and
similar plans through the end of the Term, to the extent permitted by the plan;
and (iii) pay to Employee any unpaid bonus or incentive compensation which has
been earned by Employee at the time of termination of employment.
(b) If Employee's employment is terminated by Employee pursuant to
Section 4(f) prior to the end of the Term, the Company shall: (i) within five
days following termination, pay to Employee an amount equal to the amount of
salary which Employee would have earned from the date of termination through the
end of the Term had Employee's employment not terminated (which payment shall be
a lump sum without discount); (ii) pay for Employee's (and his immediate
family's) participation in group medical, life, dental, disability and similar
plans through the end
<PAGE> 6
of the Term, to the extent permitted by the plan; and (iii) pay to Employee any
unpaid bonus or incentive compensation which has been earned by Employee at the
time of termination of employment.
(c) If Employee's employment is terminated for any reason other than by
the Company without cause prior to the end of the Term or by Employee pursuant
to Section 4(f), the Company shall pay to Employee (or Employee's estate or
beneficiary, as the case may be): (i) any unpaid base salary through the date of
termination of employment, and (ii) any unpaid bonus or incentive compensation
which has been earned by Employee at the time of termination of employment. All
rights and benefits which Employer or his estate may have under employee benefit
plans in which Employee shall be participating at the date of termination of
employment shall be determined in accordance with such plans.
(d) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (by the Company For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(e) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract.
(f) Employee acknowledges that in the event of termination of
Employee's employment for any reason, neither Employee (nor Employee's estate,
heirs, beneficiaries or others claiming through Employee) shall not be entitled
to any severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Employee shall not be
entitled to any benefits under any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee acknowledges and agrees that: (i) due to Employee's previous
experience in the industry in which the Company operates, being employed by the
Company will allow Employee to acquire valuable knowledge not otherwise
available to the public regarding the nature, requirements and character of, and
the design, manufacturing, processes and methods of pricing used in, the Company
Group's business and regarding the names and requirements of, and the Company's
course of dealing with, the Company Group's customers; (ii) as a result of
employment with the Company, Employee will be brought in personal contact with
the Company Group's customers and as a result Employee will establish business
goodwill, which is a valuable asset of the Company; (iii) having this knowledge
of the Company Group's business and its customers and this acquaintance with the
Company Group's customers places Employee in an
<PAGE> 7
unfair competitive position as to the Company Group if Employee engages in a
competing business in his own behalf or for another; (iv) the Company Group is
engaged in the sale and distribution of golf equipment, golf apparel and related
products to customers; and (v) the provisions of this Section 6 are reasonable
as to time, scope and territory and in all other respects, and such provisions
are reasonably necessary to secure the protection of the business or goodwill of
the Company and do not prevent Employee from supporting himself and his
dependents upon termination of his employment with the Company. Accordingly,
Employee covenants and agrees that while in the Company's employ and for a
period expiring one year after the termination for any reason of Employee's
employment with the Company:
(a) Employee will not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render consulting or advisory services
to, or participate in or be connected with the management or control of any
business in any state or territory in which the Company Group sells or markets
its products at the time of the termination of Employee's employment, which
business is engaged in the direct marketing of any golf equipment, golf apparel
or related products of the general type sold and distributed by the Company
Group at the time of termination of Employee's employment;
(b) Employee will not, directly or indirectly, influence or attempt to
influence any customer of the Company Group to reduce or discontinue its
purchases of any products from the Company Group or to divert such purchases to
any Person other than the Company Group.
(c) Employee will not, directly or indirectly. interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company Group and any of its respective suppliers, principals, distributors,
lessors or licensors; and
(d) Employee will not, directly or indirectly, solicit any employee of
the Company Group to work for any Person.
For purposes of this Section 6, "competition with the Company Group"
shall mean direct competition for customers who are purchasers or users of golf
equipment, apparel, or related products of the type sold and distributed by the
Company Group.
7. CONFIDENTIALITY.
Employee agrees not to disclose or use at any time (whether during or
after Employee's employment with the Company) for Employee's own benefit or
purposes or the benefit or purposes of any other Person any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, financial methods, plans, or the business
and affairs of the Company Group generally, provided that the foregoing shall
not apply to information which is not unique to the Company Group or which is
generally known to the industry or the public other than as a result of
Employee's breach of this covenant. Employee agrees that upon termination of his
employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company Group except that he may retain
<PAGE> 8
personal notes, notebooks, diaries, rolodexes and addresses and phone numbers.
Employee further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of any member of the Company Group.
8. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
(collectively, "Notices") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses
If to the Company, to:
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Attn: Chief Executive Officer
If to Employee:, to:
Employee's address as set forth on the books and records of
the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. Without limiting the
foregoing, this Agreement supersedes those certain term sheets and/or
agreements dated August 12, 1997, November 1, 1997 and December 1, 1997. No
representations, oral or otherwise, express or implied, other than those
contained in this Agreement have been relied upon by any party to this
Agreement.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California.
<PAGE> 9
(e) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
--------------------------------
Alfonso J. Cervantes,
Chief Executive Officer
/s/ Joseph A. DePanfilis
--------------------------------
Joseph DePanfilis
<PAGE> 10
GOLF ONE INDUSTRIES, INC.
MODIFICATION
This modification dated as April 9, 1999 confirms the understanding between
Joseph A. DePanfilis ("Employee") and Golf One Industries, Inc., predecessor
corporation to Gary Player Direct, Inc. (formerly Grafix Corp. d/b/a Carrera
Golf), a Delaware corporation, (the "Company") with respect to the employment
agreement of May 31, 1998, ("Agreement") attached hereto:
1. the employment agreement takes effect as of March 29, 1999,
the merger date of Golf One Industries, Inc. and Grafix Corp.
d/b/a Carrera Golf,
2. the Employee hereby waives the company obligation of $5,000.00
at merger date;
3. all other terms and conditions of the Agreement shall remain
in force and effect.
GOLF ONE INDUSTRIES INC. GRAFIX CORP. d/b/a
By: /s/ Alfonso J. Cervantes CARRERA GOLF
-------------------------------- By: /s/ Kent D. Krausman
--------------------------------
Its: President Its: President/CEO
-------------------------------- --------------------------------
EMPLOYEE: Joseph A. DePanfilis
/s/ Joseph A. DePanfilis
- -------------------------------------
<PAGE> 1
Exhibit 10.6
STANDARD SUBLEASE
American Industrial Real Estate Association
1. PARTIES. This Sublease, dated, for reference purposes only, January 20,
1995, is made by and between Comstream Corporation, a California Corporation
(herein called "Sublessor") and Rhino Marketing Inc., a California Corporation
(herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Barbara, State of California, commonly known as a portion of 2811
Airpark Drive; Santa Maria, California and described as approximately 23,000
square feet of office/industrial space ("Subleased Premises") in a larger
two-story building known as County Assessor's Parcel Number 111-230-64 ("Master
Leased Premises"). See Exhibit A.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for approximately forty-five
(45) months commencing on February 1, 1995 and ending on October 31, 1998
unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties
shall be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to
all provisions hereof, such occupancy shall not advance the termination date
and Sublessee shall pay rent for such period at the initial monthly rates set
forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $10,350.00 in advance on the first day of each month of the
term hereof. Sublessee shall pay Sublessor upon the execution hereof $0.00 as
rent for N/A.
(See Addendum Paragraph A for Rent Schedule).
Rent for any period during the term hereof which is for less than
one month shall be a prorata portion of the monthly installment. Rent shall be
payable in lawful money of the United States to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor may
designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $10,350.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to restore
said deposit to the full amount hereinabove stated and Sublessee's failure to
do so shall be a material breach of this Sublease. Sublessor shall not be
required to keep said deposit separate from its general accounts. If Sublessee
performs all of Sublessee's obligations hereunder, said deposit, or so much
thereof as has not theretofore been applied by Sublessor, shall be returned,
without payment of interest or other increment for its use to Sublessee (or at
Sublessor's option, to the last assignee, if any, of Sublessee's interest
hereunder) at the expiration of the term hereof, and after Sublessee has
vacated the Premises. No trust relationship is created herein between Sublessor
and Sublessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for offices,
telemarketing and manufacturing as permitted under the zoning designation and
applicable laws and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's
sole cost and expense, rectify any such violation. In the event that Sublessee
does not give to Sublessor written notice of the violation of this warranty
within 1 year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a),
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated October 10, 1991 wherein Gordon E. Evans,
Trustee is the lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: Paragraphs 8.3 (Property Insurance) and 10.1 (Real Property
Taxes) except that Sublessee shall pay to Sublessor any increases in the
preceding over first year of the Sublease ("Base Year"). (See also Sublease
Paragraph B).
<PAGE> 2
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee
for any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event
Master Lessor shall undertake the obligations of Sublessor under this Sublease
from the time of the exercise of said option to termination of this Sublease
but Master Lessor shall not be liable for any prepaid rents nor any security
deposit paid by Sublessee, nor shall Master Lessor be liable for any other
defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
Beaver-Free Corp. a licensed real estate broker, (herein called "Broker"), a fee
as set forth in a separate agreement between Sublessor and Broker, or in the
event there is no separate agreement between Sublessor and Broker, the sum of
$[separate agreement] for brokerage services rendered by Broker to Sublessor in
this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time
of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal, upon the execution of any new lease, as to a new lease transaction
or the exercise of a right of first refusal to lease; or at the close of escrow,
as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the Broker
named herein who seeks to enforce a right hereunder.
<PAGE> 3
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here.]
ADDENDUM
A. RENT SCHEDULE:
2/1/95 - 2/28/95: $0.00 / month
3/1/95 - 1/31/96: $10,350.00 / month
2/1/96 - 1/31/97: $11,500.00 / month
2/1/97 - 10/31/98: $12,650.00 / month
Sublessee will pay Rent on the first of the month, when due. Occupancy
for the month of February, 1995 shall be Rent free.
B. INDUSTRIAL GROSS SUBLEASE:
It is the intent of the parties that this is an Industrial Gross
Sublease. Sublessor shall remain responsible for the Base Year
Property Insurance, Base Year Real Property Taxes, and maintenance for
all portions of the Master Leased Premises excluding the Subleased
Premises. The Subleased Premises shall include Sublessee's proportion
share (63%) of the existing parking area with individual spaces to
remain unreserved and un-assigned.
C. SECURITY SYSTEM AND TELEPHONE EQUIPMENT:
Sublessee shall have the use of the existing telephone switch and
equipment (in its current condition) and the existing security system
throughout the term of the sublease.
D. TENANT IMPROVEMENTS:
Prior to commencement, Sublessor, at Sublessor's cost, shall repair
all roof leaks and water damage and deliver the existing improvements
clean and free of debris with utility systems in working order.
EXHIBIT A (SITE PLAN), ATTACHED.
EXHIBIT I (MASTER LEASE), ATTACHED.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION RELATING THERETO.
<TABLE>
<S> <C>
Comstream Corporation
EXECUTED AT a California Corporation
- ----------------------------------- ---------------------------------------
ON 2/25/95 BY /s/ [Illegible]
- ----------------------------------- ---------------------------------------
ADDRESS c/o Comstream
10130 Barnes Canyon Road BY
- ----------------------------------- ---------------------------------------
San Diego, CA 92121 "SUBLESSOR" (CORPORATE SEAL)
- ----------------------------------- Rhino Marketing, Inc.
EXECUTED AT a California Corporation
- ----------------------------------- ---------------------------------------
ON 1/25/95 BY /s/ [Illegible]
- ----------------------------------- ---------------------------------------
ADDRESS 2511 Airpark Drive
Santa Maria, CA BY
- ----------------------------------- ---------------------------------------
EXECUTED AT "SUBLESSEE" (CORPORATE SEAL)
- ----------------------------------- Gordon E. Evans, Trustee
ON ---------------------------------------
- ----------------------------------- BY
ADDRESS ---------------------------------------
- ----------------------------------- BY
- ----------------------------------- ---------------------------------------
- ----------------------------------- "MASTER LESSOR" (CORPORATE SEAL)
EXECUTED AT Mississaugu, Ontario Spar Aerospace Inc.
- ----------------------------------- ---------------------------------------
ON 2/20/95 a Delaware Corporation
- ----------------------------------- ---------------------------------------
ADDRESS 5090 Explorer Drive /s/ Chris Jarvis, Treasurer
- ----------------------------------- ---------------------------------------
Mississaugu, Ontario L4W 4X6 "GUARANTORS"
- -----------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form. AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071 (213) 687-8777.
<PAGE> 4
AIRPARK DRIVE
SITE PLAN
("Master Leased Premises")
[FLOOR PLANS]
<PAGE> 1
STANDARD INDUSTRIAL SUBLEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AIR LOGO]
EXHIBIT 10.7
1. PARTIES. This Sublease, dated, for reference purposes only, June 24, 1997,
is made by and between Fugro West, Inc. (herein called "Sublessor") and Golf
One Industries, Inc.(herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Ventura, State of California, commonly known as 5855 Olivas Park Drive,
Ventura and described as a suite consisting of approximately 2,200 square feet,
a portion of an approximate 15,700 square foot complex.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for six (6) months commencing
on July 1, 1997 and ending on December 31, 1997 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to Sublessee;
provided, however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee may, at
Sublessee's option, by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
from all obligations thereunder. If Sublessee occupies the Premises prior to
said commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $2,574.00, in advance, on the 1st day of each month of the
term hereof. Sublessee shall pay Sublessor upon the execution hereof $7,722.00
as rent for July 1997 and Security Deposit.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Sublessor at the address stated herein or
to such other persons or at such other places as Sublessor may designate in
writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $5,148.00 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for General office
use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Sublease is executed. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated June 1, 1990 wherein Olivas Partners is the
lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom:
<PAGE> 2
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to CB
Commercial Real Estate Group, Inc., a licensed real estate broker, (herein
called "Broker"), a fee as set forth in a separate agreement between Sublessor
and Broker, or in the event there is no separate agreement between Sublessor
and Broker, the sum of $926.64 for brokerage services rendered by Broker to
Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time
of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof,
shall be deemed to have assumed the respective obligations of Sublessor or
Master Lessor under this paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the Broker
named herein who seeks to enforce a right hereunder.
<PAGE> 3
12. ADDITIONAL PROVISIONS. [IF THERE ARE NO ADDITIONAL PROVISIONS DRAW A LINE
FROM THIS POINT TO THE NEXT PRINTED WORD AFTER THE SPACE LEFT HERE. IF THERE ARE
ADDITIONAL PROVISIONS PLACE THE SAME HERE.]
12.1 One (1) three (3) year option to extend:
1/1/98 to 12/31/98 @ $2,750/mo.
1/1/99 to 12/31/99 @ $2,970/mo.
1/1/00 to 12/31/00 @ $2,970/mo.
12.2 Lease will be on a "Modified Gross" basis, with Tenant responsible for
interior janitorial and for pro-rata share of utility costs.
12.3 Security Deposit will be kept in an interest bearing account and one
(1) month portion will be refunded after one (1) year if Tenant is not, nor has
not been in default.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING
THERETO.
Executed at Ventura, CA Fugro West, Inc.
---------------------------- ---------------------------------
on June 30, 1997 By /s/ [ILLEGIBLE], President
------------------------------------- ------------------------------
address By
--------------------------------- ------------------------------
- ---------------------------------------- "Sublessor" (Corporate Seal)
Executed at Golf One Industries, Inc.
---------------------------- ---------------------------------
on By /s/ [ILLEGIBLE]
------------------------------------- ------------------------------
address By
--------------------------------- ------------------------------
- ---------------------------------------- "Sublessee" (Corporate Seal)
Executed at Ventura, CA Olivas Partners
---------------------------- ---------------------------------
on June 30, 1997 By /s/ [ILLEGIBLE], Partner
------------------------------------- ------------------------------
address By
--------------------------------- ------------------------------
- ---------------------------------------- "Master Lessor" (Corporate Seal)
Executed at
---------------------------- ---------------------------------
on
------------------------------------- ---------------------------------
address
--------------------------------- ---------------------------------
- ---------------------------------------- "Guarantors"
<PAGE> 4
ADDENDUM TO THAT STANDARD INDUSTRIAL SUBLEASE DATED JUNE 24, 1997 BY AND
BETWEEN FUGRO WEST, INC., AS LESSOR AND GOLF ONE INDUSTRIES, INC., AS LESSEE
FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 5855 OLIVAS PARK DRIVE, VENTURA,
CALIFORNIA.
HAZARDOUS MATERIALS:
Landlord shall represent and warrant that the site and buildings are free
and clear of toxic and/or hazardous materials. As in any real estate
transaction, it is recommended that you consult with a professional such as
a civil engineer, industrial hygienist or other person, with experience in
evaluating the condition of the property including the possible presence of
asbestos, hazardous materials and underground storage tanks. Owner agrees
to disclose to Broker and to prospective purchasers and tenants any and all
information which Owner has regarding present and future zoning and
environmental matters affecting the Property and regarding the condition of
the Property including, but not limited to, structural, mechanical and
soils conditions, the presence and location of asbestos, PCB transformers,
other toxic, hazardous or contaminated substances, and underground storage
tanks, in, on, or about the Property. Broker is authorized to disclose any
such information to prospective purchasers or tenants.
ADA:
Please be advised that an owner or tenant of real property may be subject
to the Americans With Disabilities Act (the ADA), a Federal law codified at
42 USC Section 12101 et seq. Among other requirements of the ADA that could
apply to your property, Title III of the ADA requires owners and tenants of
"public accommodations" to remove barriers to access by disabled persons
and provide auxiliary aids and services for hearing, vision or speech
impaired persons by January 26, 1992. The regulations under Title III of
the ADA are codified at 28 CFR Part 36. We recommend you review the ADA and
regulations as CB Commercial cannot give you legal advice on these issues.
TD JR
- -------- --------
INITIALS INITIALS
<PAGE> 1
EXHIBIT 10.8
AEROVISTA PARK
LEASE AGREEMENT
SUMMARY LEASE PROVISIONS
Unit Space No. 2 Aerovista Pl. Unit B
Unit Size: 2,660 square feet
Date of Lease: October 5, 1995
Landlord: Volny Investment Company,
a California limited partnership.
Tenant: RHINO MARKETING, INC. a California corporation.
Tenant's Trade Name: RHINO GOLF
- ------------------------------------------------------------------------------
Lease Term: Month to Month
Term Commencement Date: November 1, 1995
Rent Commencement Date: 30 days after Term Commencement Date.
Gross Monthly Rent: Months 1-6 = $1,650.00 per month
Months 7-12 = $1,800.00 per month
Operating Expenses: Landlord shall be responsible for common area
maintenance expenses, real estate taxes and
building insurance during the term of the lease.
Tenant shall be responsible for the maintenance of
the interior portion of the premises and HVAC
equipment exclusively serving the Tenant's
premises
Security Deposit: $1,650.00
Use of Leases Premises: Tele-marketing activities
Notices: Landlord Tenant
Volny Investment Company Rhino Marketing, Inc.
c/o Arnold A. Vony Jeff Fischer, President
862 Meinecke Ave. Suite 204 2811 Airpark Drive
San Luis Obispo, CA 93405 Santa Maria, CA 93455
805 543-3767 805 436-1600
* See attached letter of October 20, which is incorporated in this lease -- from
Rhino to Volny Marketing
<PAGE> 2
COMMERCIAL LEASE
AEROVISTA PARK
This lease is made and entered into this 8th day of October, 1995 by and
between Volny Investment Company a California limited partnership (hereinafter
referred to as "Landlord") and RHINO MARKETING, INC. a California corporation.
(hereinafter referred to as "Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
on the terms and conditions hereinafter set forth, that certain real property
and the building and other improvements located thereon situated in County of
San Luis Obispo, State of California, commonly known as 2 AEROVISTA PLACE, UNIT
B (said real property is hereinafter called the "Premises").
1. TERM
1.1 The term of this Lease shall be the period set forth in the Summary
Lease Provisions ("Lease term") commencing on the date set forth in the Summary
Lease Provisions ("Commencement Date").
1.2 THIS RENTAL AGREEMENT MAY BE TERMINATED BY EITHER PARTY BY
DELIVERING WRITTEN NOTICE OF INTENT TO TERMINATE 60 DAYS PRIOR TO SAID
TERMINATION DATE.
2. RENT
2.1 Tenant shall pay to Landlord as rent for the Premises, the amount set
forth in the Summary Lease Provisions ("Monthly Rent") in advance on the first
day of each month during the term hereof. Rent shall be payable without notice
or demand and without any deduction, off-set, or abatement in lawful money of
the United States to the Landlord at the address stated herein for notices or to
such other persons or such other places as the Landlord may designate to Tenant
in writing. If the Commencement Date occurs on a day other than the first day of
a calendar month, then the monthly rent for the fraction of the month starting
with the Commencement Date shall be paid on such Commencement Date, prorated on
the basis of a 30-day month.
2.2 Rent Adjustment
The monthly rent payable hereunder shall be increased 12 months after
the Lease Commencement Date hereof, and every 12 months thereafter (the
Adjustment Month) during the term thereof, in an amount equal to the greater of:
(i) the monthly rent for the preceding 12 month period plus 3% thereof, or (ii)
the increase in monthly rent as determined by increases in the Consumer Price
Index. In no event shall the rent increase more than 6% for any 12 month period.
For purposes hereof, "the Index" means the Consumer Price Index for
All Urban Consumers (base year 1967 = 100) for San Francisco, California,
published by the U.S. Bureau of Labor Statistics. The increase in monthly rent
using the Index shall be determined by multiplying the monthly rent as a
fraction, the denominator of which is the Index for the third month prior to
the month in which this Lease commences and numerator is the Index for the
corresponding month immediately preceding the Annual Adjustment Month.
If the Index is changed after the term commences, that Index shall be
converted in accordance with the conversion factor published by the United
States Bureau of Labor Statistics. If the Index is discontinued or revised
during the term, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as
would be obtained if the Index had not been discontinued or revised.
3. SECURITY DEPOSIT
Tenant shall deposit with Landlord upon the execution of this Lease the
amount set forth in the Summary Lease Provisions ("Security Deposit") as
security for the Tenants full and faithful performance of the provisions of
this Lease. If Tenant fails to pay rent or other charges due hereunder or
otherwise defaults with respect to any provision of this Lease, Landlord may
use the security deposit, or any portion of it, to cure the default or
compensate Landlord for all damages sustained by Landlord resulting from
<PAGE> 3
tenants default. Tenant shall immediately on demand pay to Landlord the sum
equal to that portion of the security deposit expended or applied by Landlord
which was provided for in this paragraph so as to maintain the security deposit
in the sum initially deposited with the Landlord. Landlord shall not be
required to keep the security deposit separate from its general account nor
shall Landlord be required to pay Tenant any interest on the security deposit.
If Tenant performs all of Tenant's obligations under this Lease, the security
deposit or that portion thereof which has not been previously applied by the
Landlord, shall be returned to Tenant within fourteen (14) days after the
expiration of the term of this Lease, or after Tenant has vacated the Premises,
whichever is later. Upon any adjustment of rent, Tenant shall pay additional
funds to Landlord sufficient to increase the total security deposit to equal
the current monthly rent amount.
4. USE
The Premises shall be used and occupied by Tenant for purposes in
connection with the business described in Summary Lease Provisions and for no
other purpose without the Landlord's prior written consent.
Tenant shall not do, bring, or keep anything in or about the Premises that
will cause a cancellation of any insurance covering the Premises or the building
in which the Premises are located. If the rate of any insurance carried by the
Landlord is increased as a result of Tenant's use, Tenant shall pay to Landlord
within ten (10) days after written demand from Landlord, the amount of any such
increase. Tenant shall comply with all laws concerning the Premises or Tenant's
use of the Premises, including without limitation, the obligation at Tenant's
cost to alter, maintain, or restore the Premises in compliance and conformity
with all laws relating to the condition, use, or occupancy of the Premises by
Tenant during the term of this Lease. Tenant shall not use or permit the use of
the Premises in any manner that will tend to create waste or a nuisance or, if
there shall be more than one tenant of the building containing the Premises,
which shall unreasonably disturb any other tenant.
Tenant hereby accepts the Premises in their condition existing as of the
date that Tenant possesses the Premises, subject to all applicable zoning,
municipal, county and state laws, ordinances, regulations governing or
regulating the use of the Premises and accepts this lease subject thereto and
to all matters disclosed thereby. Tenant hereby acknowledges that neither the
Landlord nor the Landlord's agent has made any representation or warranty to
Tenant as to the suitability of the Premises for the conduct of Tenant's
business.
4.1 Indemnity.
Tenant shall indemnify Landlord against and hold Landlord harmless
from any all costs, claims, or liability arising from: (a) Tenant's use of the
Premises; (b) the conduct of the Tenant's business or anything else done or
permitted by Tenant to be done in or about the Premises; (c) any breach or
default in the performance of Tenant's obligations under this Lease; (d) any
misrepresentation of breach of warrantee by Tenant under this Lease; or (e)
other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with
any such claim. As a material part of the consideration to Landlord, Tenant
hereby assumes all risk of damage to premises or injury to persons in or about
the Premises arising from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except for any claim arising out of
Landlord's gross negligence or willful misconduct.
5. TAXES
5.1 Real Property Taxes
Landlord shall pay real property taxes.
2
<PAGE> 4
5.2 Personal Property Taxes
Tenant shall pay prior to the delinquency all taxes assessed against and
levied upon the trade fixtures, furnishings and equipment and other personal
property of Tenant contained in the Premises. Tenant shall endeavor to cause
such trade fixtures, furnishings and equipment and all other personal property
to be assessed and billed separately from the property of the Landlord. If any
of Tenant's said personal property shall be assessed with the Landlord's
property, Tenant shall pay to Landlord the taxes attributable to Tenant within
ten (10) days after receipt of a written statement from Landlord setting forth
the taxes applicable to Tenant's property.
6. UTILITIES
Tenant shall make all arrangements and pay for all water, sewer, gas, heat,
light, power, telephone, cable TV and all other utility services supplied to the
Premises together with any taxes thereon and for all connection charges. If any
such services are not separately metered to Tenant, the Tenant shall pay a
reasonable proportion, to be determined by Landlord, of all charges jointly
metered with other premises.
7. MAINTENANCE AND REPAIRS
7.1 Landlord's Obligations
Except as provided in Article 10, and except for damages caused by any
negligent or intentional act or omission of Tenant, Tenant's agents, employees,
or invitees, Landlord at its sole cost and expense shall keep in good condition
and repair the foundations, exterior walls, and exterior roof of the Premises.
Landlord shall also maintain at its sole cost the common areas of the property
including parking areas, landscape, fencing, retention ponds and any other item
not within the premises or of the sole use of the Tenant.
LANDLORD SHALL HAVE THE HVAC SYSTEM INSPECTED BY A LICENSED HVAC
CONTRACTOR PRIOR TO TENANT TAKING POSSESSION OF THE PREMISES. INSPECTION REPORT
SHALL BE DELIVERED TO TENANT. LANDLORD SHALL MAKE ANY REPAIRS REQUIRED TO
DELIVER THE SYSTEM IN PROPER OPERATING CONDITION.
7.2 Tenant's Obligations
Subject to the provisions of Article 7.1 and Article 10, Tenant at
Tenant's sole cost and expense shall keep in good order, condition and repair
the Premises and every part thereof, including, without limitation, all Tenant's
personal property, fixtures, signs, store fronts, plate glass, show windows,
doors, interior walls, interior ceiling, heating and air conditioning systems
and lighting facilities.
If Tenant fails to perform Tenant's obligations as stated herein,
Landlord may at its option (but shall not be required to), enter the Premises,
ten (10) days after written notice to Tenant, put the same in good order,
condition and repair, of which the total costs thereof plus interest thereon at
the rate of ten (10) percent, and amortized over a 1 year period shall become
due and payable as additional rental to Landlord together with Tenant's monthly
rental installments.
8. ALTERATIONS AND ADDITIONS
Tenant shall not, without the Landlord's prior written consent, make any
alterations, improvements or additions in or about the Premises except for
non-structural work which does not exceed $1,000.00 in cost. As a condition to
giving any such consent, the Landlord may require the Tenant to remove any such
alterations, improvements, or additions at the expiration of the term, and to
restore the Premises to their prior condition by giving Tenant thirty (30) days
written notice prior to the expiration of the term that Landlord requires Tenant
to remove any such alterations, improvements or additions that Tenant has made
to the Premises. If Landlord so elects, Tenant at its sole cost shall restore
the Premises to the condition designated by Landlord in its election before the
last day of the term of the lease.
Before commencing any work relating to the alterations, additions, or
improvements affecting the Premises, Tenant shall notify Landlord in writing of
the expected date of commencement of such work so that Landlord can post and
record the appropriate notices of non-responsibility to protect Landlord from
3
<PAGE> 5
any labor or mechanic's liens, material man liens, or any other liens. In any
event, Tenant shall pay, when due, all claims for labor and materials furnished
to or for Tenant at or for use in the Premises. Tenant shall not permit any
mechanic's liens or material man's liens to be levied against the Premises for
any labor or material furnished to Tenant or claimed to have been furnished to
Tenant or Tenant's agents or contractors in connection with work of any
character performed or claimed to have been performed on the Premises by or at
the direction of Tenant. Tenant shall have the right to assess the validity of
any such lien if, immediately on demand by Landlord, Tenant procures and
records a lien release bond meeting the requirements of California Civil Code
Section 3143 and shall provide for the payment of any sum that the claimant may
recover on the claim (together with the costs of suit, if it is recovered in
the action).
Unless the Landlord requires their removal as set forth above, all
alterations, improvements or additions which are made on the Premises by the
Tenant shall become the property of the Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding
the provisions of this paragraph, Tenant's trade fixtures, furniture,
equipment, and other machinery, other than that which is affixed to the
Premises so that it cannot be removed without material or structural damage to
the Premises, shall remain the property of the Tenant and removed by Tenant at
the expiration of the term of this Lease.
9. INSURANCE; INDEMNITY
9.1 Fire Insurance.
Landlord at its cost shall maintain during the term of this Lease on
the Premises a policy or policies of standard fire and extended coverage
insurance to the extent of at least ninety (90%) percent of full replacement
value thereof. Said insurance policies shall be issued in the names of Landlord.
Tenant at its cost shall maintain during the term of this Lease on
all its personal property, Tenant's improvements, and alterations in or about
the Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of their full
replacement value. The proceeds from any such policy shall be used by Tenant
for the replacement of personal property or the restoration of Tenant's
improvements or alterations.
9.2 Liability and Hazard Insurance
Tenant at its sole cost and expense shall maintain during the term of
this Lease public liability and property damage insurance with a single
combined liability limit of one million ($1,000,000.00) dollars, and property
damage limits of not less than one hundred thousand ($100,000.00) dollars,
insuring against all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the
Premises. Both public liability insurance and property damage insurance shall
insure performance by Tenant of the indemnity provisions in Article 9.4 below,
but the limits of such insurance shall not, however, limit the liability of
Tenant hereunder. Both Landlord and Tenant shall be named as additional
insureds, and the policies shall contain cross-liability endorsements.
Certificates of insurance evidencing such coverage as well as additional
insured endorsements shall provide for a 30 day notification of cancellation of
coverage. Such evidence of coverage must be on file with Landlord prior to
occupancy of the Premises. If Tenant shall fail to procure and maintain such
insurance the Landlord may, but shall not be required to, procure and maintain
same at the expense of Tenant and the cost thereof, together with interest
thereon at the rate of ten (15%) percent per annum, shall become due and
payable as additional rental to Landlord together with Tenant's next rental
installment.
9.3 Waiver of Subrogation
Tenant and Landlord each waives any and all rights of recovery
against the other, or against the officers, employees, agents, and
representatives of the other, for loss of or damage to such waiving party or
its property or the property of others under its control, where such loss or
damage is insured against under any insurance policy in force at the time of
such loss or damage. Each party shall cause each insurance policy obtained by
it hereunder to provide that the insurance company waives all right of recovery
by way of subrogation against either party in connection with any damage
covered by any such policy.
4
<PAGE> 6
9.4 Hold Harmless
Tenant shall indemnify and hold Landlord harmless from and against
any and all claims arising from Tenant's use, occupancy, or hazardous waste
contamination of the Premises or from the conduct of its business or from any
activity, work, or things which may be permitted or suffered by Tenant in or
about the Premises including all damage, costs, attorney's fees, expenses and
liabilities incurred in the defense of any claim or action or proceeding arising
therefrom. Except for Landlord's willful or grossly negligent conduct, Tenant
hereby assumes all risk of damage to property or injury to person in or about
the Premises from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord.
9.5 Exemption of Landlord from Liability
Except for Landlord's willful or grossly negligent conduct, Tenant
hereby agrees that Landlord shall not be liable for any injury to Tenant's
business or loss of income therefrom or for damage to the goods, wares,
merchandise, or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Premises; nor shall Landlord be
liable for injury to the person of Tenant, Tenant's employees, agents,
contractors, or invitees, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes sprinklers, wires, appliances,
plumbing, air-conditioning, or lighting fixtures, or from any other cause,
whether such damage results from conditions arising upon the Premises or upon
other portions of the building in which the Premises are a part, or from any
other sources or places. Landlord shall not be liable to Tenant for any damages
arising from any act or neglect of any other tenant, if any, of the building in
which the Premises are located.
10. DAMAGE OR DESTRUCTION
10.1 Damage - Insured
If, during the term of this Lease, the Premises and/or the building
and other improvements in which the Premises are located are totally or
partially destroyed rendering the Premises totally or partially inaccessible or
unusable, and such damage or destruction was caused by a casualty covered under
an insurance policy required to be maintained hereunder, Landlord shall restore
the Premises and/or the building and other improvements in which the Premises
are located into substantially the same condition as they were in immediately
before such damage or destruction, provided that the restoration can be made
under the existing laws and can be completed within one hundred twenty (120)
working days after the date of such destruction or damage. Such destruction or
damage shall not terminate this Lease.
If the restoration cannot be made in said 120 day period, then within
fifteen (15) days after the parties hereto determine that the restoration cannot
be made in the time stated in this paragraph, Tenant may terminate this Lease
immediately by giving notice to Landlord and the Lease will be deemed canceled
as of the date of such damage or destruction. If Tenant fails to terminate this
Lease and the restoration is permitted under existing laws, Landlord, at it's
option, may terminate this Lease or restore the Premises and/or any other
improvements in which the Premises are located within a reasonable time and this
Lease shall continue in full force and effect. If the existing laws do not
permit the restoration, either party can terminate this Lease immediately by
giving notice to the other party.
Notwithstanding the above, if the Tenant is the insuring party and if
the insurance proceeds received by the Landlord are not sufficient to effect
such repair, Landlord shall give notice to Tenant of the amount required in
addition to the insurance proceeds to effect such repair. Tenant may, at
Tenant's option, contribute the required amount, but upon failure to do so
within thirty (30) days following such notice, Landlord's sole remedy shall be,
at Landlord's option and with no liability to Tenant, to cancel and terminate
this Lease. If Tenant shall contribute such amount to Landlord within said
thirty (30) day period, Landlord shall make such repairs as soon as reasonably
possible and this Lease shall continue in full force and effect. Tenant shall in
no event have any right to reimbursement for any amount so contributed.
10.2 Damage - Uninsured
In the event that the Premises are damaged or destroyed by a casualty
which is not covered by the fire and extended coverage insurance which is
required to be carried by the party designated in Article 9.1 above, the
Landlord shall restore the same; provided that if the damage or destruction is
to an extent greater than ten (10%) percent of the then replacement cost of the
improvements on the Premises (exclusive of Tenant's trade fixtures and equipment
and exclusive of foundations and footings), the
5
<PAGE> 7
Landlord may elect not to restore and to terminate this Lease. Landlord must
give to Tenant written notice of its intention not to restore within thirty
(30) days from the date of such damage or destruction and, if not given,
Landlord shall be deemed to have elected to restore and in such event shall
repair any damage as soon as reasonably possible. In the event that Landlord
elects to give such notice of Landlord's intention to cancel and terminate this
Lease, Tenant shall have the right, within ten (10) days after receipt of such
notice, to given written notice to Landlord of Tenant's intention to repair
such damage at Tenant's expense, without reimbursement from Landlord, in which
event the Lease shall continue in full force and effect and Tenant shall
proceed to make such repairs as soon as reasonably possible. If the Tenant does
not give such notice within such (10) day period, this Lease shall be canceled
and be deemed terminated as of the date of the occurrence of such damage or
destruction.
10.3 Damage Near the End of the Term
If the Premises are totally or partially destroyed or damaged during
the last twelve (12) months of the term of the Lease, Landlord may, at
Landlord's option, cancel and terminate this Lease as of the date of the cause
of such damage by given written notice to Tenant of Landlord's election to do
so within 30 days after the date of the occurrence of such damage; provided,
however, that, if the damage or destruction occurs within the last 12 months of
the term and if within fifteen (15) days after the date of such damage or
destruction Tenant exercises any option to extend the term provided herein,
Landlord shall restore the Premises if obligated to do so as provided in
Article 10.2 or 10.3 above.
10.4 Abatement of Rent
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repairs or restores them pursuant to the provisions of this
Article 10, the rent payable hereunder for the period during which such damage,
repair or restoration continues shall be abated in proportion to the degree to
which Tenant's reasonable use of the Premises is impaired. Except for the
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damages suffered by reason of any such damage, destruction, repair or
restoration.
10.5 Trade Fixtures and Equipment
If Landlord is required or elects to restore the Premises as provided
in this Article, Landlord shall not be required to restore Tenant's
improvements, trade fixtures, equipment or alterations made by Tenant, such
excluded items being the sole responsibility of Tenant to restore hereunder.
10.6 Total Destruction - Multi-Tenant Building
If the Premises are a part of a multitenant building and there is
destruction to the Premises and/or the building of which the Premises are a part
that exceeds fifty (50%) percent of the then replacement value of the Premises
and/or the building in which the Premises are a part from any cause whether or
not covered by the insurance described in Article 9 above, Landlord may, at its
option, elect to terminate this Lease (whether or not the Premises are
destroyed) so long as Landlord terminates the leases of all other tenants in the
building of which the Premises are a part, effective as of the date of such
damage or destruction.
11. CONDEMNATION
If the Premises or any portion thereof are taken by the power of eminent
domain, or sold by Landlord under the threat of exercise of said power (all
of which is herein referred to as "condemnation"), this Lease shall terminate
as to the part so taken as of the date the condemning authority takes title or
possession, whichever occurs first. If more than twenty (20%) percent of the
floor area of any buildings on the Premises not covered with buildings, is
taken by condemnation, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes possession by notice in writing of such
election within twenty (20) days after Landlord shall have notified Tenant of
such taking or, in the absence of such notice, then within twenty (20) days
after the condemning authority shall have taken possession.
If this Lease is not terminated by either Landlord or Tenant as provided
herein above, then it shall remain in full force and effect as to the portion
of the Premises remaining, provided that the rental shall be reduced in
proportion to the floor area of the buildings taken within the Premises as
bears to the total floor area of all buildings located on the Premises. In the
event this Lease is not so terminated, then Landlord
6
<PAGE> 8
agrees at Landlord's sole cost and expense, to as soon as reasonably possible
restore the Premises to a complete unit of like quality and character as
existed prior to the condemnation.
All awards for the taking of any part of the Premises or any payment made
under the threat of the exercise of the power of eminent domain shall be the
property of the Landlord, whether made as compensation for the diminution of
the value of the leasehold or for the taking of the fee or as severance
damages; provided, however, that Tenant shall be entitled to any award for loss
of or damage to Tenant's trade fixtures and removable personal property.
Each party hereby waives the provisions of Code of Civil Procedure
1265.130 allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Premises.
Rent shall be abated or reduced during the period from the date of taking
until the completion of restoration by Landlord, but all other obligations of
Tenant under this Lease shall remain in full force and effect. The abatement or
reduction of the rent shall be based on the extent to which the restoration
interferes with Tenant's use of the Premises.
12. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage, or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises without Landlord's prior written
consent which shall not be unreasonably withheld. Any attempted assignment,
transfer, mortgage, encumbrance, or subletting without such consent shall be
void and shall constitute a breach of this Lease. If Tenant is a corporation,
any dissolution, merger, consolidation or other reorganization of Tenant, or
the sale or other transfer of a controlling percentage of the capital stock of
Tenant, or the sale of at least fifty-one (51%) percent of the value of the
assets of Tenant, shall be deemed a voluntary assignment. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one (51%) percent of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding, and entitled to
vote for the election of directors. This paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter. Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder for the term of this Lease. The
acceptance of rent by Landlord from any other person shall not be deemed a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting.
13. DEFAULT
13.1 Events of Default
The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
1) Failure to pay rent when due, if the failure continues for five
(5) days after written notice has been given to Tenant.
2) Abandonment and vacation of the Premises (failure to occupy the
Premises for fourteen (14) consecutive days shall be deemed an abandonment and
vacation).
3) Failure to perform any other provision of this Lease if the
failure to perform is not cured within thirty (30) days after written notice
thereof has been given to Tenant by Landlord. If the default cannot reasonably
be cured within said thirty (30) day period, Tenant shall not be in default
under this Lease if Tenant commences to cure the default within the thirty (30)
day period and diligently prosecutes the same to completion.
4) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless the same is dismissed
within sixty (60) days; the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in the Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where such seizure is not discharged within thirty (30)
days.
7
<PAGE> 9
23. ATTORNEY'S FEES
If either Landlord or Tenant becomes a party to any litigation or
arbitration concerning this Lease, the Premises, or the building or other
improvements in which the Premises are located, by reason of any act or
omission of the other party or its authorized representatives and not by reason
of any act or omission of the party that becomes a party to that litigation or
any act or omission of its authorized representatives, the party that causes
the other party to become involved in the litigation shall be liable to that
party for reasonable attorney's fees and court costs incurred by it in the
litigation.
If either party commences an action against the other party arising out of
or in connection with this Lease, the prevailing party shall be entitled to
have and recover from the losing party reasonable attorney's fees and costs of
suit.
24. LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease shall mean only the owner or
owners at the time in question of the fee title or a Lessee's interest in a
ground lease of the Premises, and in the event of any transfer of such title or
interest, Landlord herein named (and in any subsequent transfers to the then
successor) shall be relieved from and after the date of such transfer of all
liability in respect to Landlord's obligations thereafter to be performed. The
obligations contained in this Lease to be performed by Landlord shall be
binding upon the Landlord's successors and assigns, only during their
respective periods of ownership.
25. WAIVERS
No waiver by Landlord of any provision hereof shall be deemed a waiver of
any other provision hereof or of any subsequent breach by Tenant of the same or
any other provision. Landlord's consent to or approval of any shall not be
deemed to render unnecessary the obtaining of Landlord's consent to or approval
of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord
shall not be a waiver of any preceding breach by Tenant of any provision
hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of its acceptance of such rent.
26. INCORPORATION OF PRIOR AGREEMENTS
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified only in writing, and
signed by the parties in interest at the time of such modification.
27. TIME
Time is of the essence of this Lease.
28. SEVERABILITY
The unenforceability, invalidity, or illegality of any provision of this
Lease shall not render the other provisions hereof unenforceable, invalid or
illegal.
29. ESTOPPEL CERTIFICATES
Each party, within ten (10) days after notice from the other party, shall
execute and deliver to the other party a certificate stating that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. The certificate shall also state the
amount of minimum monthly rent, the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid rent, if any, as
well as acknowledging that there are not, to that party's knowledge, any
uncured defaults on the part of the other party, or specifying such defaults,
if any, which are claimed. Failure to deliver such a certificate within the ten
(10) day period shall be conclusive upon the party failing to deliver
11
<PAGE> 10
the certificate to the benefit of the party requesting the certificate that this
Lease is in full force and effect, that there are no uncured defaults hereunder,
and has not been modified except as may be represented by the party requesting
the certificate.
30. COVENANTS AND CONDITIONS
Each provision of this Lease performable by Tenant shall be deemed both a
covenant and a condition.
31. SINGULAR AND PLURAL
When required by the context of this Lease, the singular shall include the
plural.
32. JOINT AND SEVERAL OBLIGATIONS
"Party" shall mean Landlord and Tenant; and if more than one person or
entity is the Landlord or Tenant, the obligations imposed on that party shall
be joint and several.
33. ADDENDUM
Any addendum attached hereto and either signed or initialed by the parties
shall be deemed a part hereof and shall supersede any conflicting terms or
provisions contained in this Lease.
34. MISCELLANEOUS
34.1 Water and Sewer System.
The premises is currently served by the Fiero Lane Water Company, a
private water and sewer system providing water and sewage treatment and
disposal. Tenant shall be provided adequate water and sewer services for normal
operations. Any excessive use of the water and sewer services is prohibited
without written consent of the Landlord.
No contaminates of any kind shall be allowed to enter the sewage
system. Tenant is responsible for utilizing solid and fluid waste filtering or
self-contained recovery systems that will prevent the introduction of
contaminates into the sewer system or premises.
34.2 Exterior Areas.
Tenant shall not be permitted to use the exterior areas of the
building containing the premises for storage, operations or any other purpose
other than vehicle parking without the written consent of Landlord. Consent to
use of areas exterior to the premises shall be subject requirements of the
local municipality as well as the Landlord.
34.3 Municipality.
It is understood that the premises is presently in the County of San
Luis Obispo but may at some time be annexed into the City of San Luis Obispo.
34.5 Parking.
Landlord shall provide parking in accordance with governing agency
requirements. Parking of vehicles is allowed only in marked spaces. No
designated parking shall be provided. No storage or parking of non-road worthy
vehicles is allowed.
12
<PAGE> 11
34.6 Hazardous and Inflammable Material Storage.
Any hazardous and/or inflammable materials shall be handled and
stored in accordance with the environmental protection agency, fire department
jurisdiction standards and any other governing agencies requirements. All costs
for compliance with said standards and requirements will be solely at the
Tenant's cost. No non-allowable chemicals or waste shall be allowed to drain or
flushed into the sewer system. Periodic testing is conducted by the Water
Company and Environmental Agencies.
Tenant shall take every available precaution not to violate any of the
Hazardous Waste regulations and should any violation take place, Tenant shall
be fully liable for the clean-up costs, penalties, and any other expenses or
detrimental injury to the Premises, adjacent property and Landlord. Landlord
shall be held harmless from such violations, cleanup and costs.
35. CORPORATE AUTHORITY
If the tenant is a corporation, each person signing this Lease on behalf
of Tenant represents and warrants that he has full authority to do so and that
this Lease binds the corporation. Within 30 days after this lease is signed,
Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's
Board of Directors authorizing the execution of this Lease or other evidence of
such authority reasonably acceptable to Landlord.
The parties hereto have executed this Lease on the date first written
above.
LANDLORD: TENANT:
VOLNY INVESTMENT COMPANY RHINO MARKETING, Inc.
a California limited partnership a California corporation
by: /s/ Arnold A. Volny by: /s/ Jeff Fischer
----------------------------- ------------------------
Arnold A. Volny Jeff Fischer, President
Volny Construction, Inc.
a California Corporation
General Partner
13
<PAGE> 1
Exhibit 10.9
AIRPORT PLAZA LEASE
Date: November 25, 1998
Landlord: Barclay Associates
a California Partnership
Landlord's Address: 300 Drakes Landing Road, Suite 100
Greenbrae, CA 94904-3123
Tenant: GOLF ONE INDUSTRIES, INC. DBA GARY PLAYER
Tenant's Address: 2091 Business Center Drive, Suite #210
Irvine, CA 92715
Property: 2091-2101 Business Center Drive, Irvine, CA 92715
Building: That certain office building located at 2091
Business Center Drive and situated on the
Property, and the landscaping, parking facilities,
and all other improvements and appurtenances to
the Property.
Leased Premises: Approximately 3,424 SQFT rentable square feet of
office space located on the SECOND floor of the
Building and commonly known as Suite #210, as
outlined on the Floor Plan attached hereto as
Exhibit "B".
Permitted Use: General Office Use
Lease Term: THREE YEARS (3) years and ZERO MONTHS (0) months
Scheduled Commencement Date: DECEMBER 15, 1998
Monthly Basic Rent: FOUR THOUSAND NINE HUNDRED SIXTY FIVE AND 00/100
DOLLARS ($4,965.00)
Security Deposit: FIVE THOUSAND SIX HUNDRED FIFTY AND 00/100
DOLLARS ($5,650.00)
Base Year Costs: 1998 actual Operating Cost per rentable square
foot adjusted to 95% occupancy.
Building Hours: Twenty-four access to Suite. HVAC from 6:30 a.m.
to 7:00 p.m., Monday through Friday.
Parking Spaces: FOURTEEN SPACES
Parking Charge: N/A
Guarantors: N/A
Broker: BRIT CORPORATION AND GRUBB & ELLIS
Metropolitan Area: Irvine, California
Late Charge Percentage: Ten Percent (10%)
<PAGE> 2
Riders: 1 - Hazardous Materials
- ------- 2 - Additional Provisions
Exhibits
--------
A - Floor Plan
D - Building Rules and Regulations
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This indemnification Agreement ("AGREEMENT") is made as of this 22nd day of
May, 1998, by and between Golf One Industries, Inc., a Delaware corporation (the
"COMPANY"), and Alfonso J. Cervantes ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers, employees and agents, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase in
corporate litigation in general, subjecting directors, officers, employees, and
agents to expensive litigation risk at the same time that the availability and
coverage of liability insurance his been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employers and agents of the Company may not be willing to continue to serve as
directors, officers, employees and agents without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection permitted
by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to serve
the Company, at the Company's will (or under separate written agreement approved
by the Board of Directors of the Company, if such agreement exists), in the
capacity Indemnitee currently serves the Company, as long as Indemnitee is duly
appointed or elected and qualified in accordance with the applicable provisions
of the Bylaws of the Company or any subsidiary of the Company or (subject to any
employment agreement between Indemnitee and the Company) until such time as
Indemnitee tenders a written resignation or is removed in accordance with the
Bylaws; provided, however, that nothing contained in this Agreement is intended
to or shall create any right (express or implied) to continued employment by
Indemnitee.
<PAGE> 2
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
Indemnitee is or was 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 Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, and expenses of investigations), judgments, fines and amounts paid in
settlement (if such settlement is approved in advance by the Company) actually
and reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while a director, officer,
employee or agent, or by reason of the fact that Indemnitee is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or suit is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
2
<PAGE> 3
entitled to indemnity for expenses and then only to the extent that the court
shall determine; (ii) if Indemnitee is a director, to the extent that the
action or contemplated action seeks monetary damages for breach of Indemnitee's
duties to the Company and its stockholders in circumstances under which
Indemnitee's personal liability therefor has been eliminated as a result of the
provisions of Section 102(b)(7) of the Delaware General Corporation Law; or
(iii) if Indemnitee is an agent other than a director, to the extent that, were
Indemnitee a director, Indemnitee would have the right to be indemnified under
Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and 2(b)(iii)
above, indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 2(a) or (b) or in defense of any claim, issue
or matter therein, Indemnitee shall be indemnified against expenses (including,
without limitation, attorneys' fees, disbursements and retainers, accounting and
witness fees, travel and deposition costs, and expenses of investigations)
actually and reasonably incurred by Indemnitee in connection therewith.
(d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's status as a director, officer, employee or agent of the Company, a
witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, Indemnitee shall be indemnified against
expenses actually and reasonably incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil, criminal, administrative or investigative
action, suit or proceeding referenced in Section 2(a) or (b) hereof (but not
amounts actually paid in settlement of any such action, suit or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice, in accordance with Section 14 hereof, of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
3
<PAGE> 4
(c) PROCEDURE. Any indemnification and advances provided for in Section
2 and this Section 3 shall be made no later than 30 days after receipt of the
written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
30 days after a written request for payment thereof has first been received by
the Company, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and,
subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be
paid for the expenses (including attorneys' fees) of bringing such action. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that Indemnitee has not met the standards of
conduct which make it permissible under applicable law for the Company to
indemnify Indemnitee. Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Section 3(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the intention of the parties that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceedings against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ separate counsel in any such proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a
4
<PAGE> 5
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any change
in any applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its board of directors or its officers,
employees or agents, such change, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested Directors, the Delaware General
Corporation Law or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action, suit or proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees and/or agents under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. If the Company does not maintain a policy or
policies of officers and directors liability insurance with a reputable
insurance company(ies), upon written
5
<PAGE> 6
request of Indemnities, the Company shall, from time to time, make the good
faith determination whether or not it is practicable for the Company to obtain
and maintain such a policy or policies of insurance. Officers and directors
liability insurance would cover, among other things, coverage for losses from
wrongful acts and/or to ensure the Company's performance of its obligations
under this Agreement. The Company shall not be obligated to make such
determination more than once in any 12-month period based on written requests
from Indemnities and any other persons with similar rights. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all such policies
of liability insurance, Indemnitee shall be named as an insured in such a manner
as to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a director;
or of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the Company's employees, if Indemnitee is not a director or
officer but is an employee; or of the Company's agents, if Indemnitee is not a
director, officer or employee but is an agent. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the
Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or otherwise as required under Section 145
of the Delaware General Corporation Law, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret
6
<PAGE> 7
this Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was not made in
good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities
of any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been paid
directly to Indemnitee by an insurance carrier under a policy of officers' and
directors' liability insurance or other policy of insurance maintained by the
Company;
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute;
(e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which is
contrary to public policy or which a court of competent jurisdiction has finally
determined to be unlawful.
(f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for
liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any cost and/or expenses incurred by Indemnitee following
the time such settlement reasonably could have been effected, if Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any action, suit or proceeding (or investigation or appeal thereof) recommended
in good faith, in writing, by the Company; or
(g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any
breach by Indemnitee of any employment agreement between Indemnitee and the
Company or any of its subsidiaries.
10. CONSTRUCTION OF CERTAIN PHRASES.
For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and/or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
7
<PAGE> 8
For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on Indemnitee with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company or any subsidiary of
the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to
have acted in a manner "not opposed to the best interest of the Company" as
referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
8
<PAGE> 9
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware.
17. CALIFORNIA LAW. To the extent that the Company is subject to the
provisions of Section 317 of the California General Corporation Law pursuant to
Section 2115 of the California General Corporation Law, nothing in this
Agreement shall be deemed to require the Company to take any action which would
cause it to be in violation of Section 317 of the California General Corporation
Law.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GOLF ONE INDUSTRIES, INC., a Delaware
corporation, as the Company
By: /s/ Joe DePanfilis
--------------------------
Name: Joe DePanfilis
--------------------------
Title: Chief Financial Officer
--------------------------
Notice Address:
2811 Airpark Drive
Santa Maria, CA 93455
AGREED TO AND ACCEPTED:
INDEMNITEE:
/s/ Alfonso J. Cervantes
- ------------------------------
Alfonso J. Cervantes
Notice Address:
- ------------------------------
- ------------------------------
- ------------------------------
10
<PAGE> 1
EXHIBIT 10.11
DIRECT MARKETING AGREEMENT
BY AND AMONG
GOLF ONE INDUSTRIES, INC.
AND
GARY PLAYER GOLF EQUIPMENT, INC.
<PAGE> 2
DIRECT MARKETING AGREEMENT
DIRECT MARKETING AGREEMENT dated this 1st day of November, 1996 by and
among Gary Player Golf Equipment, Inc., a Florida corporation ("GPGE"), whose
address is 3930 RCA Boulevard, Suite 3001, Palm Beach, Florida, 33410, and Golf
One Industries, Inc., a Delaware corporation ("GOLF ONE"), whose address is 2811
Airpark Drive, Santa Maria, California 93455. Capitalized terms used in the
Recitals shall have the meanings set forth in this Agreement.
WHEREAS, Golf One is in the business of manufacturing, marketing and
selling golf clubs on a Direct Marketing Basis;
WHEREAS, GPGE has the exclusive right to use the name "Gary Player" in
the Exploitation on a Direct Marketing Basis of Direct Marketing Products;
WHEREAS, GPGE desires that Golf One manufacture, market and sell and
otherwise Exploit a line of golf clubs incorporating the words "by Gary Player"
in conjunction with a specific name or names and related symbols, designs and
logos;
WHEREAS, GPGE may desire to assign its rights and obligations under
this Agreement to Gary Player Holdings, an entity to be formed.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto do hereby agree as follows:
1
<PAGE> 3
1. GRANT OF RIGHTS; DEFINITIONS
(a) GPGE hereby grants to Golf One, effective immediately, the
exclusive right and license (the "RIGHT") for the Term to use the Mark in the
Exploitation on a Direct Marketing Basis of Direct Marketing Products, in the
Licensed Territory; provided, however, that the right to market and distribute
Golf Accessories shall be limited to promotional purposes only. The Right shall
include and encompass without limitation each and every Intellectual Property
Right arising or existing in connection with, with respect to, or embodied in,
the Mark and the Direct Marketing Products. Notwithstanding anything herein to
the contrary, it is understood that GPGE retains the rights to use the name
"Gary Player" (other than in combination with the words, names or symbols
constituting a Mark hereunder) in the Exploitation on a Direct Marketing Basis
of products, goods and services other than golf clubs; provided, however, that
the foregoing shall not be deemed to authorize GPGE to Exploit (and GPGE agrees
not to Exploit) the Mark for any purpose other than as contemplated by Section
17 hereunder.
(b) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"AFFILIATE" shall mean, with respect to any specified Person, (a) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person
and/or, (b) any other Person who is a 10% equity holder, director, officer,
partner or trustee of the specified Person or a Person described in clause (a)
of this definition or any spouse or relative of the specified Person or any such
other Person.
"ARTWORK" shall mean photographs, film footage and video footage.
2
<PAGE> 4
"COMPONENT COST" with respect to a set of golf clubs shall mean the
purchase price paid by Golf One for the components of such golf clubs,
including, without limitation, heads, shafts and grips; "Component Cost" shall
include, in addition to the purchase price for the components, taxes, shipping,
handling, insurance and other payments to third parties in connection with the
purchase of such components; provided, however, that the Component Cost shall
not include any compensation expense or overhead of Golf One.
"CONFIDENTIAL INFORMATION" with respect to Golf One shall mean any
information which is provided to or made available to any GPGE Representative in
connection with this Agreement and the transactions contemplated hereby, except
information which is generally available to the public other than as a result of
disclosure by a GPGE Representative or was otherwise available to GPGE on a
non-confidential basis prior to disclosure to a GPGE Representative.
"DIRECT MARKETING BASIS" shall mean, in the context of marketing and
sales of Direct Marketing Products, marketing and sales through infomercials,
telemarketing, Internet or other computer systems, direct mail, CD-ROM, and
other direct response marketing channels.
"DIRECT MARKETING PRODUCTS" shall mean (i) golf clubs, including, but
not limited to Woods, Irons and Specialty Clubs, including Drivers, Wedges,
Chippers and Putters, which incorporate the Mark; and (ii) Golf Accessories
which incorporate the Mark.
"EXHIBIT" shall mean to produce, transmit, broadcast, telecast, cable
cast, display, exhibit, project, perform, reproduce, publicize, or otherwise
use.
"EXPLOIT" shall mean use, promote, advertise, affix, copy, Exhibit,
distribute, manufacture, sell, market, rent, modify, create derivative works
from, practice or otherwise
3
<PAGE> 5
exploit in all forms in any and all media.
"FULLY DILUTED SHARES OUTSTANDING" as of any date shall mean the sum of
(a) the number of shares of Common Stock of Golf One outstanding on such date,
plus (b) the number of shares of Common Stock of Golf One subject to options or
warrants which are outstanding as of such date; and (c) the number of shares of
Common Stock of Golf One which may be issued upon conversion of securities
outstanding on such date.
"GOLF ACCESSORIES" shall mean any product used in connection with golf
including, without limitation, hats, clothing, towels, umbrellas, bags, balls
and videos relating to golf.
"GPGE REPRESENTATIVE" shall mean GPGE, Player, any Affiliate of GPGE or
Player, and all officers, directors, employees, agents, advisors,
representatives and attorneys for GPGE, Player or any Affiliate of GPGE or
Player.
"INITIAL PUBLIC OFFERING" shall be the initial public offering by Golf
One of Common Stock pursuant to a registration statement filed with and declared
effective by Securities and Exchange Commission under the Securities Act.
"INITIAL QUARTER" shall mean the earlier of the calendar quarter
commencing April 1, 1997 and ending June 30, 1997 or the calendar quarter in
which Golf One first has Net Receipts.
"INTELLECTUAL PROPERTY RIGHTS" shall mean each and every right now or
hereafter recognized and enforced under the trademark, service mark, copyright,
patent, trade secret and all other intellectual and/or industrial property laws,
whether existing by statute and/or at common law, of each jurisdiction within
the Licensed Territory.
"LICENSED TERRITORY" shall mean the United States and Canada and such
other territories
4
<PAGE> 6
which may be added pursuant to Section 4 of this Agreement.
"MARK" shall mean the words "by Gary Player" used in combination with
one or more other words, derivatives of such combinations, and those certain
other names, symbols, designs, logos, trademarks and service marks which are
deemed part of the "Mark" pursuant to Section 5 of this Agreement.
"MINIMUM ROYALTY" for any Royalty Year shall mean the following: (i)
$200,000 for the first Royalty Year; and (ii) for each successive Royalty Year,
an amount equal to 120% of the Minimum Royalty for the prior Royalty Year;
provided, however, that the Minimum Royalty for any year shall not exceed $2.5
million. For example, the Minimum Royalty for the second Royalty Year shall be
120% multiplied by $200,000, or $240,000. There is no Minimum Royalty prior to
the first Royalty Year.
"MINIMUM SALES REQUIREMENT" for any Royalty Year shall mean Net
Receipts equal to or greater than the Minimum Royalty for such Year divided the
applicable Royalty Rate.
"NET RECEIPTS" during any period shall mean all amounts received by
Golf One from the sale of Direct Marketing Products during such period excluding
amounts attributable to actual out-of-pocket payments for taxes and shipping,
less Refunds received during such period.
"PACKAGING" shall mean any packaging, wrapping, advertising,
promotional or other materials associated with Direct Marketing Products.
"PERSON" shall mean individual, corporation, partnership, association,
limited liability company, trust or other entity.
"REFUNDS" shall mean amounts refunded by Golf One for product returns,
damaged
5
<PAGE> 7
products, cancelled orders or otherwise relating to Direct Marketing Products.
"ROYALTY QUARTER" shall mean a calendar quarter commencing with the
Initial Quarter.
"ROYALTY RATE" shall mean 7% with respect to the first $5,000,000 of
Net Receipts, and 6% with respect to Net Receipts in excess of $5,000,000.
"ROYALTY STATEMENT" shall mean a Royalty Statement as defined in
Section 2(c) of this Agreement.
"ROYALTY YEAR" shall mean a one-year period during the Term which
commences on the first day of the Initial Quarter or any annual anniversary
thereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TERM" The term of the License shall be for a period stated as the Term
on Schedule A to this Agreement.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration.
2. CONSIDERATION
(a) Golf One shall pay to GPGE a non-recoupable marketing fee equal to
$25,000 each quarter during the Term, commencing with the date of this
Agreement.
(b) Golf One shall pay to GPGE royalties based on Net Receipts, as
described in this Section 2. Within 30 days following the end of each Royalty
Quarter commencing with the Initial Quarter, Golf One shall pay to GPGE as
royalties an amount equal to:
(i) the greater of (A) an amount equal to (I) the applicable Royalty
Rate multiplied by 100% of Net Receipts for such Royalty Year through the end of
such Royalty Quarter, minus
6
<PAGE> 8
(II) as a reserve, the applicable Royalty Rate multiplied by 35% of Net Receipts
during such Royalty Quarter; or (B) the Minimum Royalty for such Royalty Year
multiplied by a fraction, the numerator of which is the number of Royalty
Quarters during such Royalty Year which have passed through the end of such
Royalty Quarter and the denominator of which is 4; minus
(ii) all royalties paid prior to that date by Golf One to GPGE with
respect to such Royalty Year.
An example of the royalty calculation is set forth in Exhibit B to this
Agreement.
(c) Golf One shall send to GPGE a complete and detailed royalty statement
("ROYALTY STATEMENT") together with any payment for the amount of royalties due
to GPGE shown on such Statement within 30 days following the end of each
calendar quarter during the Term. Each such Royalty Statement shall set forth
the applicable Royalty Rate, quantities sold and Net Receipts (or range of Net
Receipts) for each type of Direct Marketing Product sold during such period and
the amounts of Refunds by type of Direct Marketing Product during such period.
Each Royalty Statement shall be certified by a principal officer of Golf One as
being true, accurate and complete and Golf One shall simultaneously therewith
pay to GPGE such sums as indicated in the Statement for the period to which the
Statement refers as may be due and payable to GPGE. In the event, however, GPGE
desires and so notifies Golf One, Golf One shall make any and all of such
payments by wire and cable transfer to such bank account(s) or similar
institutional banking association in the United States and United Kingdom as
GPGE may designate in writing from time to time. Each such statement and payment
shall be conclusive and binding upon GPGE unless GPGE shall object within two
years following receipt of such statement.
7
<PAGE> 9
(d) As further consideration for the Right, upon the Company issues and
sells its Common Stock in its Initial Public Offering by Golf One, Golf One
agrees to issue to GPGE a number of shares of its Common Stock equal to $300,000
divided by the initial public offering price (rounded to the nearest whole
share), provided, however, that in no event shall the number of shares of Common
Stock exceed 3% of the number of Fully Diluted Shares Outstanding as of such
date. GPGE makes the representations, warranties and covenants set forth in
Exhibit C to this Agreement in connection with its acquisition of the Common
Stock. GPGE agrees not to Transfer any of such shares prior to the end of one
year from the date of the Initial Public Offering.
(e) Golf One shall be solely responsible for and shall pay all taxes and
duties of whatsoever nature (except for income taxes payable by GPGE in respect
of monies received under this Agreement including any estimated income tax
payment) and GPGE shall have no responsibilities or liability therefor.
3. BOOKS AND RECORDS
(a) Golf One agrees to keep accurate books and records covering all
transactions relative to this Agreement. At any time within two (2) years after
any Royalty Statement is rendered to GPGE hereunder, upon reasonable prior
notice, GPGE shall have the right to examine Golf One's books and records to the
extent reasonably necessary to determine the accuracy and completeness of the
information on such Statement or sales invoice and compliance by Golf One with
the Agreement. Such examination shall be made during Golf One's usual business
hours at the place where such books and records are maintained. Except as
provided in
8
<PAGE> 10
Section 3(b), such examination shall be at the cost and expense of GPGE. In no
event, however, shall GPGE have the right to examine Golf One's books and
records more than one time per six-month period.
(b) In the event that any such examination and inspection for any quarter
or quarters (the "EXAMINED PERIOD") shall indicate that Golf One shall have
underpaid GPGE's royalties by an amount in excess of three percent (3%) of the
royalties which should have been paid to GPGE for the Examined Period (an
"ERROR"), Golf One shall pay the reasonable costs of such inspection and
examination, up to $10,000 per examination. Golf One shall have the right to
retain its own independent third party arbitrator to make a separate and
independent inspection and examination. In the event that either GPGE's
examination or Golf One's third party examination reveals no Errors, GPGE shall
be solely responsible for all costs of the inspection and examination.
Acceptance of any sum by or on behalf of GPGE from Golf One shall not in any
manner be construed as a waiver by GPGE of any claim pertaining to the validity
of the computation of such payment nor a waiver of any breach by Golf One of any
provision of this Agreement.
(c) GPGE agrees, on behalf of itself and each GPGE Representative, that
each GPGE Representative (i) will treat confidentially all Confidential
Information, (ii) will not disclose any Confidential Information to any other
Person except other GPGE Representatives who are necessary to assist in the
examination, and (iii) will not use any of the Confidential Information for any
reason or purpose other than to determine compliance by Golf One with the
provisions of this Agreement. GPGE agrees to be responsible for, and indemnify
and hold Golf One harmless
9
<PAGE> 11
from, any consequences from failure of any GPGE Representative to comply with
the requirements of this Section 3(c).
4. RIGHT OF FIRST REFUSAL
(a) GPGE may not license the right to use the Mark in the Exploitation of
Direct Marketing Products on a Direct Marketing Basis in any territory (an
"ADDITIONAL TERRITORY") outside of the Licensed Territory without first offering
to Golf One such license. Such offer shall be made by written notice from GPGE
to Golf One, which notice shall set forth the principal terms and conditions of
such license, including, without limitation, the royalty rate and any minimum
royalty. Golf One shall have 30 days from receipt of such notice to advise GPGE
whether it desires to accept such license and must demonstrate to the reasonable
satisfaction of GPGE that it (either alone or with one or more partners) will be
able to Exploit the Mark in such Additional Territory. If Golf One indicates
that it desires to accept such license, the parties shall execute and amendment
to this Agreement reflecting any material terms and conditions of such license,
provided, however, that the term of such license shall be the "Term" of the
Right under this Agreement. If Golf One does not notify GPGE within such 30-day
period that it desires to accept such license, GPGE may, at any time within 90
days following such 30-day period, grant to another Person the license to use
the Mark in connection with the Exploitation on a Direct Marketing Basis of
Direct Marketing Products in such additional territory on terms and conditions
not less favorable to GPGE than set forth in such notice; provided, however,
that such license agreement shall contain appropriate safeguards and other
protections which prohibit such licensee from using the Mark in any capacity
other than through the Exploitation of Direct
10
<PAGE> 12
Marketing Products on a Direct Marketing Basis in such Additional Territory and
shall give GPGE the right to terminate such license if such prohibitions are
violated (and GPGE agrees to terminate such license in such event). Promptly
following the grant of any such license, GPGE shall notify Golf One of the
license, the name of the licensee, the Additional Territory covered by the
license and the terms and conditions of the license.
5. THE MARK
(a) The parties shall agree on such logos, symbols, designs, service marks
and trademarks as may be appropriate to fully Exploit the use of the words "by
Gary Player" in connection with Direct Marketing Products, all of which logos,
symbols, designs, service marks and trademarks shall be deemed to be part of the
"Mark."
(b) The parties recognize and acknowledge that consumer preferences for
golf clubs change over time, as a result of changing golf club technology,
changing preferences for appearance (size, weight, style, color, etc.) and other
factors. The parties presently anticipate that Golf One and GPGE shall respond
to these changing preferences by modifying the golf clubs (and, as necessary,
Golf Accessories). To promote such modifications, and to distinguish the "old"
from the "new" line of golf clubs, Golf One may use derivations of any existing
name which indicate new models or versions of such clubs. These derivations are
all deemed to be part of the "Mark".
(c) GPGE and Golf One also recognize and agree that to changes in consumer
preferences for the reasons described above may be so significant that a name
may lose its marketing appeal as being associated with obsolete, outdated or
technologically inferior golf
11
<PAGE> 13
clubs. In such circumstances, a derivative name as contemplated by Section 5(b)
above may not be sufficient to distinguish the existing line of clubs from a new
line. In such circumstances, the parties agree to identify and utilize another
name including the name "by Gary Player," including related symbols, designs,
logos, service marks and trademarks for the Direct Marketing Products. GPGE will
not unreasonably withhold its approval of any new name selected by Golf One.
Under no circumstances shall any new name, logo, symbol, design, service mark or
trademark be a name, symbol, logo, design, service mark or trademark which is
otherwise used by GPGE.
(d) GPGE and Golf One acknowledges that they contemplate creating a new
line of golf clubs incorporating the Mark at least every 18 months during the
Term of this Agreement.
(e) Golf One may, but shall not be obligated to, at its cost and expense
cause each Mark to be registered in the name of GPGE in the United States at the
United States Patent and Trademark Office and in any other country or
jurisdiction in the Licensed Territory. GPGE shall cooperate with Golf One in
such registrations (including executing all such filings).
6. RESTRICTIONS
(a) Golf One recognizes the great value of the goodwill associated with the
Mark and acknowledges that it has no rights with respect to such Mark except as
set forth herein. Other than as set forth herein, all use thereof shall inure to
the benefit of GPGE. All rights with respect to the Mark not licensed hereunder
are expressly reserved by, and for, GPGE.
(b) Other than for reasonable and necessary use of the Mark in connection
with Exploitation on a Direct Marketing Basis of Direct Marketing Products, Golf
One will not enter
12
<PAGE> 14
into any agreement relating to the Mark and/or GPGE for commercial tie-ups
relating to the Direct Marketing Products, nor will Golf One give away any
Direct Marketing Products as premiums or otherwise except in the normal course
of business without GPGE's prior written consent. It is understood that the
normal course of business includes the creation and distribution of Golf
Accessories. Notwithstanding the foregoing sentence of this sub-paragraph, in
the event Golf One is unable to sell the Direct Marketing Products through
normal wholesale or retail commercial channels by virtue of the Direct Marketing
Product(s) being damaged goods (i.e. smoke, flood or similar catastrophe), Golf
One and GPGE shall mutually agree on an appropriate method of disposition of
such goods; provided, that the appropriate royalties are computed and paid to
GPGE as elsewhere herein provided on sales of such damaged goods; and provided,
further, that such method of disposition shall not unreasonably disparage the
Mark.
(c) Golf One, pursuant to this Agreement, shall manufacture Direct
Marketing Products which conform to the standards and specifications required by
this Agreement. Any golf clubs constituting Direct Marketing Products shall
conform to U.S.G.A. specifications. Golf One and GPGE agree to develop a
standard form for GPGE's approval of components and suppliers which shall
include, but not be limited to, specifications and manufacturing standards. GPGE
shall not unreasonably withhold its approval in any circumstance. GPGE shall
cooperate with Golf One in identifying appropriate sources for components of
Direct Marketing Products and Golf Accessories and shall assist where possible
and reasonable in the design of golf clubs constituting Direct Marketing
Products; provided, however, that Golf One shall be primarily responsible for
sourcing. In the event Golf One breaches the foregoing provisions of this
Section
13
<PAGE> 15
6, GPGE shall deliver written notice of same to Golf One, setting forth in
reasonable detail the alleged violation by Golf One. Golf One shall thereupon
have thirty (30) days in which to cease such violation or completely cure such
breach in accordance with the provisions of Section 16(b) below. It is
specifically understood and agreed that Golf One's provision of notification to
the manufacturer of its product regarding any of the foregoing alleged
violations constitutes immediate cessation of production and cure of any such
breach by Golf One.
7. GOLF ONE'S ADDITIONAL RESPONSIBILITIES
(a) It is the essence of this Agreement that Golf One shall manufacture,
distribute and sell the Direct Marketing Products in an ethical manner and in
accordance with the provisions and the intent of this Agreement, and shall not
willfully engage in unfair or anti-competitive business practices. The Direct
Marketing Products shall be manufactured, distributed and sold in accordance in
all material respects with all applicable international, national, federal,
state and local laws, treaties and government orders and regulations. Golf One's
policy of sale, distribution, and exploitation shall be of a high standard and
such policy shall in no manner reflect materially adversely upon GPGE.
(b) Golf One shall not cause or permit any expenses to be charged to GPGE
without GPGE's prior approval in writing in each instance.
(c) Golf One shall exercise its best efforts to manufacture sufficient
quantities of the Direct Marketing Products to meet the market demand for them
and shall diligently and continuously distribute and offer for sale the Direct
Marketing Products to fulfill the orders for them; provided, however, that this
shall not prevent Golf One from determining not to
14
<PAGE> 16
manufacture or offer for sale certain Products for reasons deemed advisable by
Golf One, including, without limitation, that the Products are outdated or
obsolete or that it is not economic to continue to carry that line in light of
weak product demand, increasing manufacturing, marketing and sale costs and/or
the profit margin is not consistent with Golf One's general requirements or
opportunity costs.
(d) Golf One shall not have the Direct Marketing Products manufactured for
it by a third party unless said third party enters into an agreement with Golf
One making it subject to the terms of Section 6(c) of this Agreement.
(e) Golf One hereby indemnifies and agrees to hold GPGE and its successors
and affiliates harmless from any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by GPGE arising out of breach by Golf One of any warranty,
representation or covenant hereunder. GPGE shall give Golf One prompt notice of
any third party claim or suit for which Golf One may incur indemnity liability
hereunder. Golf One shall have the option to undertake and conduct the defense
of any claim made or suit so commenced. GPGE shall not settle any such claim or
suit without Golf One's prior written consent. Golf One may not settle any claim
or suit without GPGE's prior written consent, which written consent will not be
unreasonably withheld, unless such settlement involves only the payment of
money, which payment is made by Golf One.
8. PROTECTION OF THE MARK
Golf One shall take all action reasonably necessary or desirable to protect
the Mark in accordance with this Section 8. Each party hereto shall notify the
other in writing of any
15
<PAGE> 17
infringement or imitation of the Direct Marketing Products and/or the Mark which
come to such party's attention. At GPGE's reasonable request Golf One shall
take, at Golf One's expense, all reasonable steps short of litigation to stem
the flow of material infringements on the Direct Marketing Products and/or the
Mark. Golf One shall have the right to commence or prosecute any products,
suits, actions or proceedings in its and/or GPGE's name and shall notify GPGE in
writing of any infringements or imitations by others of the Mark or any elements
thereof which may come to Golf One's attention and upon which Golf One desires
to litigate. GPGE shall also have such right. If both parties desire to litigate
such infringement, they shall cooperate and each shall bear and pay one-half of
the expense. GPGE shall from time to time at the request of Golf One execute,
file and/or record such notices, applications or documents with various
governmental agencies (such as the United States Copyright Office and United
States Patent and Trademark Office) which would enable Golf One to maintain such
actions in its own name. Golf One shall not enter into any settlement of any
claim, suit, action or proceeding without GPGE's approval which shall not be
unreasonably withheld. All monetary recoveries of any such claim, suit, action
or proceeding commenced or prosecuted by Golf One, GPGE or Golf One and GPGE
together shall be applied first to reimburse the parties for their actual
out-of-pocket costs and expenses in connection with such claim, action, suit or
proceeding, and then shall be shared based on the actual costs and expenses
incurred by each party in such claim, action, suit or proceeding.
Notwithstanding the foregoing, in the event of any matter arising out of
misrepresentation by GPGE, GPGE shall bear all costs and expenses of such
proceeding and shall be entitled to any monetary recovery.
16
<PAGE> 18
9. GPGE'S WARRANTIES AND COVENANTS
(a) GPGE warrants and represents as follows: (i) GPGE has all right, power
and authority to enter into this Agreement and grant the Right; (ii) GPGE has
all rights to use the Mark in the Exploitation of Direct Marketing Products;
(iii) except pursuant to the Right, no Person has any right to use the Mark in
the Exploitation of Direct Marketing Products or to Exploit the Direct Marketing
Products, and there are no licenses presently outstanding for the use of the
Mark in the Exploitation of the Direct Marketing Products; (iv) the Exploitation
of the Mark and Direct Marketing Products as contemplated by this Agreement will
not violate or infringe upon the rights (including, but not limited to, the
Intellectual Property Rights) of any Persons in the Licensed Territory,
including, but not limited to, North America and any other territory in which
GPGE or any licensee of GPGE has previously Exploited the Mark and/or Direct
Marketing Products and, to the best knowledge of GPGE, any other territory; (v)
all existing Direct Marketing Products were developed, produced and manufactured
in accordance with all laws and regulations and do not infringe upon or violate
the rights (including Intellectual Property Rights and rights of privacy) of any
Person, (vi) except as set forth in Schedule A with respect to Gary Player, the
Exploitation of any existing Direct Marketing Products as contemplated by this
Agreement, including the use of the Artwork in connection therewith, will not
require any payments to GPGE, Player, any Affiliate of GPGE or Player, or any
director, officer or employee of GPGE; and (vii) set forth in Schedule A is a
true and correct list of all registrations of the Mark and the jurisdictions in
which the Mark is registered.
(b) GPGE agrees that from and after the date hereof until the expiration or
17
<PAGE> 19
termination of this Agreement, GPGE shall not directly or indirectly use the
Mark in the Exploitation of any Direct Marketing Products, or Transfer any right
to use the Mark in the Exploitation of Direct Marketing Products.
(c) GPGE hereby indemnifies and agrees to hold Golf One and its successors
and affiliates harmless from any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by Golf One arising out of breach by GPGE of any warranty,
representation or covenant hereunder or any action or inaction of Player or any
Affiliate of GPGE if such action or inaction would have constituted a breach of
any warranty, representation or covenant had such member been a party to this
Agreement and made the representations, warranties and covenants of GPGE
hereunder. Golf One shall give GPGE prompt notice of any third party claim or
suit for which GPGE may incur indemnity liability hereunder. GPGE shall have the
option to undertake and conduct the defense of any claim made or suit so
commenced. Golf One shall not settle any such claim or suit without GPGE's prior
written consent. GPGE may not settle any claim or suit without Golf One's prior
written consent, which written consent will not be unreasonably withheld, unless
such settlement involves only the payment of money, which payment is made by
GPGE.
(d) Subject to medical impairments rendering Player unable to perform, GPGE
agrees to cause Player to appear in a minimum number of videos, infomercials and
Programs as set forth in Schedule A attached hereto. GPGE represents that it has
the power and authority to cause Player to be so available and that Player is
not presently subject to any medical impairment or condition which could result
in a medical impairment rendering him unable to perform.
18
<PAGE> 20
(e) Under no circumstances whatsoever during the Term of this Agreement, or
any extensions, will GPGE, either itself or in conjunction with any other party,
directly or indirectly, compete with, or circumvent or infringe upon, Golf One"s
direct marketing and/or Exploiting of any Direct Marketing Products and/or the
Mark.
10. SAMPLES
(a) Golf One shall submit to GPGE no less than three (3) prototype samples
of each Direct Marketing Product together with Packaging for GPGE's written or
faxed approval. GPGE's response to said request for approval shall occur within
fifteen (15) business days after receipt of samples; failure to disapprove such
request within such 15-day period shall be deemed approval. Golf One shall not
manufacture, distribute, advertise, or sell any type of Direct Marketing Product
unless and until GPGE shall have approved (or been deemed to approve) said type
of Direct Marketing Product and type of Packaging in writing in each instance,
which approval shall not be unreasonably withheld.
(b) Golf One shall provide GPGE with up to an aggregate of ten (10) samples
of each type of Direct Marketing Product and the Packaging at no charge to GPGE.
(c) Golf One shall sell GPGE additional quantities of Direct Marketing
Products, not to exceed five (5) sets of golf clubs during every six-month
period, upon receipt of GPGE's written request therefor, at the Component Cost
plus Ten Percent (10%); such sales shall not be subject to royalties under this
Agreement.
11. RESERVATION OF RIGHTS
GPGE reserves all rights pertaining to the Mark except as specifically
granted to Golf
19
<PAGE> 21
One hereunder. GPGE acknowledges that it has not reserved any rights except
following expiration or termination of the Right and as contemplated by Section
17 of this Agreement.
12. ARTWORK
(a) GPGE shall furnish Golf One all necessary Artwork for Exploitation of
Direct Marketing Products. Golf One shall have the right to use the Artwork to
Exploit the Right on a royalty-free basis except for the royalties expressly
provided in Section 2 of this Agreement. All Artwork of any celebrities which
may be furnished to Golf One hereunder and not embodied in Direct Marketing
Products or utilized for advertising purposes shall be returned to GPGE. GPGE
shall own and retain the common-law and statutory, if any, copyright in each and
all Artwork furnished. Golf One shall not make or cause to be made any
additional prints for any purpose whatsoever without approval from GPGE, which
approval shall not be unreasonable withheld, and upon GPGE's request, Golf One
shall deliver to GPGE the negatives of all such unused photographs.
(b) In the event GPGE produces or causes the production of, or otherwise
creates or causes the creation of, Artwork and related designs and layouts for
the use and at the prior written request of Golf One, then Golf One shall
reimburse GPGE for all reasonable costs incurred, including but not limited to,
insurance and shipping of any such items, and the reproduction of such items by
GPGE, within 30 days of written request therefor by GPGE.
13. COPYRIGHT/TRADEMARK NOTICES
Golf One shall print, stamp or mold such notices of trademark, service mark
and copyright which GPGE may reasonably from time to time designate on each
Direct Marketing
20
<PAGE> 22
Products newly produced hereunder, each package or container used in connection
therewith and all advertisements pertained thereto.
14. INSURANCE
GPGE represents that it maintains standard product liability insurance with
an aggregate coverage of not less than $5,000,000, providing reasonable
protection against any all claims, demands and causes of action arising out of
defects or failure to perform, alleged or otherwise, of products. GPGE shall
cause Golf One to be a named insured under such policy, and shall provide to
Golf One evidence thereof. Such policy or binder shall provide that the policy
may not be canceled, or Golf One deleted as a named insured, without at least 30
days prior written notice to Golf One. Within 30 days following receipt of such
evidence and a copy of the premium notice, Golf One shall reimburse GPGE for the
additional premium which GPGE must pay as a result of causing Golf One to be a
named insured under GPGE's policy for aggregate coverage of $5,000,000. Golf One
may, by written notice to GPGE, at any time during the Term, advise GPGE that it
has obtained product liability insurance for coverage of not less than
$5,000,000, in which case GPGE may remove Golf One as a named insured and shall
reimburse Golf One for any premium which Golf One paid which is returned by the
insurance company or would have been returned had GPGE caused the insurance
company to remove Golf One as a named insured.
15. INVENTORY ON TERMINATION
Upon the expiration or earlier termination of this Agreement, Golf One
shall provide GPGE with a statement indicating the remaining Direct Marketing
Products in inventory, in
21
<PAGE> 23
process of manufacture or subject to non-cancelable orders as of said expiration
or termination date ("REMAINING PRODUCTS") and Golf One's cost or estimated cost
of the Remaining Products including shipping. Golf One shall have the right to
sell any Remaining Products for a period of six (6) months after expiration or
earlier termination of this Agreement and shall account to GPGE for any such
sales during said sell-off period in the manner provided in this Agreement.
Notwithstanding the foregoing, Golf One shall not have the right, other than
with respect to Remaining Products, to manufacture any additional items of
Direct Marketing Product or issue any further licenses with respect to said
Direct Marketing Products. Golf One shall account for and pay royalties to GPGE
for any income collected as a result of sales of the Direct Marketing Products
which income may be received or otherwise paid or collected by Golf One
subsequent to said sell-off period. Upon the expiration of such sell-off period,
Golf One shall destroy any remaining inventory and shall certify same by sworn
affidavit executed by the appropriate officer of Golf One.
16. TERMINATION
(a) Golf One shall have the right, upon thirty (30) days prior written
notice to GPGE, to terminate this Agreement in the event that governmental
regulations or other causes arising out of a state of national emergency or war,
or causes beyond Golf One's control, render Golf One's performance under this
Agreement materially impaired. In the event of such termination, the sell-off
provisions of Section 15 above shall apply.
(b) In the event that either party defaults in any material respect under
any of the material terms or conditions set forth herein, including but not
limited to payments, the injured
22
<PAGE> 24
party shall send a thirty (30)-day notice (ten (10)-day notice if the alleged
default is non-payment of money) to cure by either certified or registered mail
return receipt requested to the defaulting party. Failure by the defaulting
party to cure the default within thirty (30) days (or ten(10) days if the
alleged default is non-payment of money) of receipt of the notice to cure shall
give the right to the injured party, in its sole discretion, to terminate this
Agreement in its entirety.
(c) If Golf One does not meet the Minimum Sales Requirement for two
consecutive Royalty Years, GPGE shall have the right to terminate this Agreement
by written notice to Golf One within 60 days following the end of the second
such Royalty Year.
(d) The termination of this Agreement for any reason will not have any
effect on: (i) the legal rights of GPGE to collect any amounts due and owing
under this Agreement or to collect royalties for all components sold by Golf One
subsequent to termination of this Agreement in the event the GPGE is not the
defaulting party and there are no offsets in favor of Golf One against such
amounts; and (ii) the rights of Golf One to sell its remaining inventory in
accordance with Section 15 hereof or Golf One"s rights to indemnification under
Section 7 hereof.
(e) Notwithstanding any termination of this Agreement, Golf One shall
continue to account to GPGE pursuant to the provisions of this Agreement, for
all sums which may be due and payable to GPGE.
(f) If GPGE files a petition in bankruptcy or is adjudicated bankrupt, or
becomes insolvent or makes an assignment for the benefit of creditors or other
similar arrangement or discontinues business, or if a receiver is appointed for
it or its business, this Agreement shall not
23
<PAGE> 25
terminate upon the occurrence of any such event and GPGE shall not have the
authority to Transfer any rights of any nature for the use of the Mark or any
Direct Marketing Product in conflict with this Agreement or to reject any rights
hereunder.
(g) If Golf One files a petition in bankruptcy or is adjudicated bankrupt,
or becomes insolvent or makes an assignment for the benefit of creditors or
other similar arrangements or discontinues business, or if a receiver is
appointed for it or its business, this Agreement shall terminate upon the
occurrence of such event.
17. RETAIL SALES BY GPGE
(a) The parties acknowledge that they contemplate developing a new line of
golf clubs containing the Mark at least every 18 months during the term of this
Agreement, as set forth and contemplated in Section 5 of this Agreement. GPGE
shall have the right, but not the obligation, to market and sell on a retail
basis each line of golf clubs containing the Mark (a "LINE") on the later to
occur of: (i) with respect to the first Line (A) the earlier to occur of June
30,1998 or 18 months following the date Golf One first has Net Receipts from
sales of such Line; and (B) the date Golf One first has Net Receipts from a
second line of golf clubs containing the Mark; and (ii) with respect to each
subsequent Line (A) 18 months following the date Golf One first has Net Receipts
from sales of such Line; and (B) the date Golf One first has Net Receipts from a
subsequent line of golf clubs containing the Mark. GPGE acknowledges that none
of such clubs may be sold directly or indirectly by GPGE or Persons purchasing
for GPGE on a Direct Marketing Basis. Notwithstanding the foregoing, GPGE shall
have the right to market and sell a line of golf clubs 18 months after the date
Golf One first has Net Receipts with respect to such line if Golf One has not
proposed a new line of golf clubs prior to the end of such 18-month period
(regardless of whether GPGE approves such line or the mark or name proposed for
such
24
<PAGE> 26
line).
(b) At any time after the date GPGE has the right to effect retail sales of
a Line of golf clubs, GPGE may place an order to purchase clubs from Golf One.
Golf One agrees to sell each set of clubs to GPGE at a price equal to the sum
of: (i) lesser of: (A) the Component Cost of such clubs divided by 70%, or (B)
30% of the latest suggested retail sales price of the clubs as published by Golf
One, and (i) all shipping and insurance charges in connection with delivery of
such clubs.
(c) GPGE shall pay the purchase price for each set of clubs which it orders
no later than 45 days from the later to occur of: (i) the date Golf One delivers
an invoice for the set of clubs; and (ii) the date the set of clubs is shipped
to GPGE.
(d) Golf One shall be entitled to offset against all amounts due GPGE under
this Agreement, the amount of any outstanding invoices for golf clubs purchased
by GPGE which are more than 45 days past due, provided that such clubs have been
shipped to GPGE prior to the date of such offset.
18. NOTICES
Notices by either party to the other shall be given by certified or
registered mail, return receipt requested, by telegram with proof of delivery,
by confirmation, all charges prepaid, by overnight delivery service charges
prepaid, or by facsimile transmission. All statements, payments and notices
shall be given at the respective addresses of GPGE and Golf One as set forth in
the first page of this Agreement unless written notice of change of address is
given. Courtesy copies of any notice to GPGE shall be sent to law offices of
Holland & Knight, Orlando, Florida. Any notice shall be deemed effective upon
receipt.
19. INDEPENDENT RELATIONSHIP
25
<PAGE> 27
This Agreement does not constitute and shall not be construed to constitute
an agency, a partnership, a joint venture or employment agreement between GPGE
and Golf One. Golf One shall not have authority to obligate or bind GPGE in any
manner whatsoever, subject to the provisions stated herein and only as GPGE may
specifically approve in writing prior thereto. GPGE and Golf One shall be deemed
independent contractors in all respects.
20. ASSIGNMENTS
GPGE may assign its rights under this Agreement to any person, firm,
partnership or corporation which is able to, and does, warrant and represent
ownership of all rights warranted and represented by GPGE herein and which shall
be obligated to all of the terms of this Agreement as GPGE and which shall enter
into a binding written agreement with Golf One to that effect; provided,
however, that GPGE may assign its rights to payments under this Agreement; and
provided further that any such assignment shall not act to relieve GPGE of its
obligations and duties under this Agreement. Notwithstanding the foregoing, none
of Player's obligations hereunder may be assigned as all such obligations are
unique and personal and the parties agree that they cannot be performed by
anyone other than Player. Golf One shall not assign to anyone the right to
manufacture, market and sell any Direct Marketing Product without the prior
written consent of GPGE, which consent will not unreasonably be withheld and
provided that such Person enters into such agreements as are contemplated by
this Agreement. Notwithstanding the foregoing, all rights and obligations of
Golf One under this Agreement may be assigned to any subsidiary, to any entity
controlled directly or indirectly by the Person(s) in control of the Person
holding the Right, or in connection with the merger or the sale of all or
substantially all of the assets by the Person(s) holding the Right; provided,
however, that in connection with any such merger or sale the surviving party in
the merger, if other than such
26
<PAGE> 28
Person, or the purchaser in connection with the sale, is not an Excluded
Purchaser. For purposes of this Agreement, an "EXCLUDED PURCHASER" is a Person:
(i) whose sales of golf clubs in the United States exceeded 10% of the total
sales of golf clubs in the United States during the calendar year prior to the
sale or merger date, based on industry reports (or, if no such report is
available for such prior calendar year, the most recent prior calendar year for
which such report is available); (ii) whose corporate name includes the name of
any recognized professional golfer; or (iii) which has over 25% of its capital
stock owned by a recognized professional golfer. Any assignee permitted pursuant
to the terms of this Section 20 must be capable of fulfilling all terms of this
Agreement and, further any such assignment shall not act to relieve the assignor
of its obligations and duties under this Agreement.
21. APPROVALS
Any approvals required by GPGE or requested of GPGE pursuant to the terms
hereof shall be given by facsimile or certified mail to Golf One within a
reasonable time from date of receipt by GPGE of the materials required for it to
determine whether or not approval shall be rendered. In the event no response by
GPGE is made within thirty (30) days from receipt of said materials, the
approval requested by Golf One shall be deemed given by GPGE.
22. CONSTRUCTION
This Agreement shall be governed and construed under and in accordance with
the laws of the State of Florida. Each party hereto agrees to submit itself to
the jurisdiction of the Federal or State courts located in Palm Beach and
Florida in any action which may arise out of this Agreement and said courts
shall have exclusive jurisdiction over all disputes between GPGE and Golf One
pertaining to this Agreement and all matters related thereto. In this regard,
any process in any action or proceeding commenced in the courts of the State of
California or the Federal
27
<PAGE> 29
Courts therein arising out of any claim, dispute or disagreement under this
Agreement may, among other methods, be served upon any party by delivering or
mailing the same, via registered or certified mail, addressed to either party at
the address provided herein for notices; and such delivery or mail service shall
be deemed to have the same force and effect as personal service within the State
of California or the State of Florida.
23. CUMULATIVE REMEDIES
The rights and remedies granted hereunder are cumulative and the exercise
of any one or more of said remedies shall not act to waive any right of GPGE to
exercise any other remedies available to it herein or otherwise as a matter of
law.
24. COUNTERPARTS
This Agreement may be signed in counterparts by the parties and when each
party has executed an identical copy of this Agreement, the Agreement shall
become a binding and enforceable instrument with the same force and effect as if
all parties hereto had executed the same copy of the Agreement.
25. MISCELLANEOUS
This Agreement constitutes the entire understanding between the parties
hereto and shall not be modified or amended unless in writing signed by both
parties hereto. The delay or failure of either party to enforce any of said
party's rights under this Agreement shall not be deemed a continuing waiver of
such rights and said party may, within such as is provided by applicable law,
commence appropriate suits, actions or proceedings to enforce any or all such
rights.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first above written.
28
<PAGE> 30
GARY PLAYER GOLF EQUIPMENT, INC.
By:_____________________________
Its:____________________________
GOLF ONE INDUSTRIES, INC.
By:__________________________
Its:______________________
29
<PAGE> 31
SCHEDULE A TO DIRECT MARKETING AGREEMENT
BETWEEN
GARY PLAYER GOLF EQUIPMENT, INC. AND GOLF ONE INDUSTRIES, INC.
1. TERM - Five (5) years with options to renew for three (3) successive five
(5) year terms (provided that the Agreement has not been terminated by GPGE
because of breach or default by Golf One). In connection with each renewal, Golf
One and GPGE shall in good faith consider each other's requests for
modifications of the terms of this Agreement designed to improve the operation
and overall effectiveness of the Exploitation of the Right; provided, however,
that neither party shall be obligated agree to any change.
2. VIDEOS, INFOMERCIALS AND PROGRAMS:
GPGE represents that Gary Player ("Player") agrees to be available for and
appear in (and GPGE will so cause Player to be available for and appear in) a
minimum of two (2) Infomercials in the first 12 months following the execution
of this Agreement and a minimum of one (1) Infomercial in each 12 month period
thereafter for the Term of this Agreement, for up to a maximum of two (2) days.
Player shall also be available for up to one day (or at Player's election, two
half days) per year for videos for the promotion of Direct Marketing Products.
Player shall be available during normal business hours for the requisite amount
of time at some time within 90 days of request therefor from Golf One, if such
availability can be anywhere in the world, or within six months of request
therefor from Golf One, if such availability is required to be in the United
States. The need for subsequent promotional videos and Infomercials shall be
determined on a mutual basis.
Golf One shall have final script approval for any and all videos and
Infomercials provided, however, that Golf One shall permit GPGE to review all
scripts and shall revise scripts pursuant to reasonable objections from GPGE.
Videos and Infomercials produced hereunder shall be produced and distributed in
accordance with and adhere to policies, procedures and standards established by
Golf One in consultation with GPGE, including, but not limited to, methods of
telemarketing, which shall include verification procedures to ensure consistent
and professional delivery of services which are equal to or greater than the
minimum standard acceptable in the respective industry. The copyright to all
videos and Infomercials shall be owned by Golf One.
Player shall be entitled to $25,000 for the two days of service ($12,500
per day) during the first 12 months following the execution of the Agreement,
and shall be entitled to the Daily Fee for each additional day of service during
the Term. The Daily Fee, which shall be payable on the day of service, shall be
$25,000 for each day during the first three years of the Term, $35,000 for each
day during the second three years of the Term, $50,000 for each day during the
third three years of the Term and $70,000 for each day during the fourth three
years of the Term
30
<PAGE> 32
and $90,000 for each day during any additional years of the Term. In addition,
if Golf One requires such service to be performed in a location (the "Services
Location") which is more than 100 miles from the location Player was otherwise
scheduled to be, Player shall be entitled to first class transportation to and
from the Services Location and first class accommodations at the Services
Location during the period he is required to perform the services.
For these purposes, a "day" shall be considered 8.5 hours, and shall
include two 15 minute breaks and a one-hour lunch break.
3. COPYRIGHT REGISTRATIONS, TRADEMARK REGISTRATIONS AND PATENTS (OR PATENTS
PENDING)
None
31
<PAGE> 33
EXHIBIT B TO DIRECT MARKETING AGREEMENT
BETWEEN
GARY PLAYER GOLF EQUIPMENT, INC. AND GOLF ONE INDUSTRIES, INC.
Hypothetical Calculation of Royalty Payments Assume:
<TABLE>
<CAPTION>
Net Receipts Cumulative
------------ ----------
<S> <C> <C>
Q1 $500,000 $500,000
Q2 $1,000,000 $1,500,000
Q3 $2,000,000 $3,500,000
Q4 $1,000,000 $4,500,000
</TABLE>
Royalty Calculation:
<TABLE>
<CAPTION>
<S> <C>
Q1 Greater of 7% ($500,000) - (7% x 35% x $500,000) $22,750
or 1 x $50,000 50,000
------
50,000
Minus Prior Royalties 0
------
Royalties paid Q1 $50,000
======
Q2 Greater of 7% ($1,500,000) - (7% x 35% x $1,000,000) $ 80,500
or 2 x $50,000 100,000
-------
100,000
Minus Prior Royalties 50,000
------
Royalties Paid Q2 $ 50,000
========
Q3 Greater of 7% ($3,500,000) - (7% x 35% x $2,000,000) $196,000
or 3 x $50,000 150,000
-------
196,000
Minus Prior Royalties 100,000
------
Royalties Paid Q3 $ 96,000
======
Q4 Greater of 7% ($4,500,000) - (7% x 35% x $1,000,000) $290,500
or 4 x $50,000 200,000
-------
290,500
Minus Prior Royalties 196,000
-------
Royalties Paid Q4 $ 94,500
========
</TABLE>
32
<PAGE> 34
EXHIBIT C TO DIRECT MARKETING AGREEMENT
BETWEEN
GARY PLAYER GOLF EQUIPMENT, INC. AND GOLF ONE INDUSTRIES, INC.
Representations in connection with acquisition of right to receive Common Stock
of Golf One.
GPGE represents, warrants and agrees as follows:
(i) it has such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of an investment in
the shares (the "SHARES") of Common Stock of Golf One and has the capacity to
protect its own interest in connection with the purchase of the Shares;
(ii) it has the financial ability to bear the economic risk of its
investment, has adequate means for providing for its current needs and
foreseeable contingencies, has no need now, and anticipates no need in the
foreseeable future, to sell the Shares and is able to hold the Shares for an
indefinite period of time;
(iii) it is purchasing the Shares for its own account and not with a
view to or for sale in connection with any resale or distribution of such Shares
in violation of the Securities Act;
(iv) at no time was it presented with or solicited by any leaflet,
public promotional meeting, circular, newspaper or magazine article, radio or
television advertisement or any other form of general advertising or
solicitation for the purchase of the Shares;
(v) it understands that the Shares it acquires must be held
indefinitely unless the Transfer of such Shares is registered under the
Securities Act and that transferability of the Shares will be limited as
provided by this Agreement and applicable federal and state securities laws;
(vi) it is an "accredited investor" as that term is defined in
Regulation D promulgated under the Securities Act;
(vii) it and its representatives have been afforded full and free
access to corporate books, financial statements, records, contracts, documents,
and other information concerning the Golf One and its offices and facilities,
have been afforded an opportunity to ask such questions of Golf One's officers
and employees concerning Golf One's business, operations, financial condition,
assets, liabilities and other relevant matters as it has deemed necessary or
desirable, and have been given all such information as has been requested, in
order to evaluate the merits and risks of the prospective investment
contemplated herein;
(viii) it agrees not to Transfer the Shares, or any interest therein,
except pursuant to an effective registration statement under the Securities Act
or unless Golf One shall have received a
33
<PAGE> 35
written opinion of counsel, in form and substance satisfactory to Golf One, to
the effect that the Transfer may be effected without registration under the
Securities Act; as a further condition to any such disposition, except in the
event that such disposition is made pursuant to an effective registration
statement under the Securities Act, if in the opinion of Golf One's counsel any
disposition of the Shares by the contemplated transferee thereof would not be
exempt from the registration and prospectus delivery requirements of the
Securities Act, Golf One may require the contemplated transferee to furnish it
with an investment letter setting forth such information and agreements as may
be reasonably requested by it to insure compliance by such transferee with the
Securities Act;
(ix) It understands and agrees that the following statement will be affixed
as a legend on all certificates representing the Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE ISSUER, IS AVAILABLE.
34
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Grant of Rights; Definitions.............................................................................. 2
2. Consideration............................................................................................. 6
3. Books and Records......................................................................................... 8
4. Right of First Refusal.................................................................................... 10
5. The Mark.................................................................................................. 11
6. Restrictions.............................................................................................. 12
7. Golf One's Additional Responsibilities.................................................................... 14
8. Protection of the Mark.................................................................................... 15
9. GPGE's Warranties and Covenants........................................................................... 16
10 Samples .................................................................................................. 18
11. Reservation of Rights..................................................................................... 19
12. Artwork................................................................................................... 19
13. Copyright/Trademark Notices............................................................................... 20
14. Insurance................................................................................................. 20
15. Inventory on Termination.................................................................................. 21
16. Termination............................................................................................... 22
17. Retail Sales by GPGE...................................................................................... 23
18. Notices................................................................................................... 25
19. Independent Relationship.................................................................................. 25
20. Assignments............................................................................................... 25
21. Approvals................................................................................................. 27
22. Construction.............................................................................................. 27
23. Cumulative Remedies....................................................................................... 27
24. Counterparts.............................................................................................. 28
25. Miscellaneous............................................................................................. 28
</TABLE>
<PAGE> 37
ASSIGNMENT AND ASSUMPTION AGREEMENT
FEBRUARY 28, 1997
Reference is made to that certain Direct Marketing Agreement (the
"Agreement") dated October 31, 1996 by and between Golf One Industries, Inc.
("Golf One") and Gary Player Golf Equipment, Inc. Golf One does hereby assign
all of its right, title and interest in and to the Agreement to Gran Prix
Marketing, Inc., a California corporation (a wholly owned subsidiary of Golf
One), and Gran Prix hereby assumes all of the duties and obligations of Golf
One under the Agreement.
GOLF ONE INDUSTRIES, INC.
By: /s/ illegible signature
-------------------------------
Its: President
-------------------------------
GRAN PRIX MARKETING, INC.
By: /s/ illegible signature
-------------------------------
Its: President
-------------------------------
<PAGE> 1
EXHIBIT 10.13
Gary Player Direct, Inc.
710 Aerovista, Suite B
San Luis Obispo, CA 93401
November 11, 1999
VIA FACSIMILE: 561-624-0304
Mr. Marc B. Player
Gary Player Group, Inc.
3930 RCA Boulevard
Suite 3001
Palm Beach, Florida 33410
RE: AMENDMENT TO DIRECT MARKETING AGREEMENT
Dear Marc:
This letter relates to the letter amendment dated of November
9, 1999 to the Direct Marketing Agreement dated as of the 1st day of November,
1996 (the "Direct Marketing Agreement"). Notwithstanding paragraph 4 of the
letter amendment, it is intended that GPGE shall have the right to terminate the
Direct Marketing Agreement under Section 16(c) for failure to meet the Minimum
Sales Requirement. However, for purposes of that subsection, the first Royalty
Year shall be deemed to commence on January 1, 2000. Thus, GPGE may not
terminate the Agreement unless the Company fails to meet the Minimum Sales
Requirement for both 2000 and 2001, or any two consecutive years thereafter.
If the above meets with your approval, kindly execute where indicated
below and return to me by facsimile and regular mail.
Sincerely,
/s/ Thomas P. Gallagher
Thomas P. Gallagher, Chairman of
the Board of Directors
Agreed and Accepted:
GARY PLAYER GROUP, INC.
By: /s/ Marc B. Player
----------------------
Marc B. Player
<PAGE> 1
EXHIBIT 10.14
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") is made and entered
into as of the 1st day of November, 1997 by and between Golf One Industries,
Inc., a Delaware corporation (the "COMPANY"), and Gary Player Group, Inc., a
Florida corporation (the "SELLER"), with reference to the following facts:
A. On the terms and subject to the conditions of this Agreement, Seller
desires to sell to the Company, and the Company desires to purchase from Seller,
certain assets of Seller.
B. The Company intends to effect a public offering of its Common Stock
and change its name to Gary Player Golf, Inc.
NOW, THEREFORE, with reference to the foregoing facts, the Company and
Seller agree as follows:
1. DEFINITIONS.
All terms defined in this Agreement shall have the defined meanings
when used herein or in any agreement, note, certificate, report, or other
document made or delivered pursuant hereto, unless otherwise defined or the
context otherwise requires. The following terms shall have the following
meanings:
"ACTION" means any litigation, action, suit, proceeding, arbitration or
claim before any court or Governmental Authority, or investigation by any
Governmental Authority.
"ADVANCES" shall have the meaning set forth in Section 5(d) of this
Agreement.
"AFFILIATE" shall mean, with respect to any specified Person, (a) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(b) any other Person who is a director, officer, partner or trustee of the
specified Person or a Person described in clause (a) of this definition or any
spouse of the specified Person or any such other Person, (c) any relative of the
specified Person or any other Person described in clause (b) of this definition,
or (d) any Person of which the Specified Person and/or any one or more of the
Persons specified in clause (a),(b) or (c) of this definition, individually or
in the aggregate, beneficially own 10% or more of any class of voting securities
or otherwise have a substantial beneficial interest.
1
<PAGE> 2
"ARTWORK" shall mean photographs, film footage and video footage of
Player participating in golf tournaments, exhibitions and other public
appearances in his capacity as a golf professional.
"ASSETS" shall mean those certain assets of Seller identified in
Exhibit A to this Agreement.
"ASSUMED CONTRACTS" shall mean the Contracts identified as "Assumed
Contracts" in Exhibit B to this Agreement.
"ASSUMED LIABILITIES" shall mean those certain liabilities and
obligations of Seller identified in Exhibit C to this Agreement.
"BEST KNOWLEDGE" with respect to any Person shall mean and include (i)
actual knowledge of the Person, including, the actual knowledge of any of the
officers or directors of such Person and the administrators of any of the
facilities operated by such Person or any of its Subsidiaries and (ii) that
knowledge which a prudent businessperson could have obtained in the management
of his business after making due inquiry, and after exercising due diligence,
with respect thereto.
"BLACK KNIGHT" which is the Black Knight Trust, a Guernsey Trust.
"BUSINESS CONDITION" of any Person shall mean the condition, earnings,
results of operations, business, properties or prospects of such Person.
"CLOSING" shall mean the closing of the transactions contemplated by
this Agreement.
"COMMON STOCK" shall mean the common stock, $.001 par value per share,
of the Company.
"COMPANY" shall mean Golf One Industries, Inc., a Delaware corporation.
"COMPANY CONTRACT" shall mean any Contract to which any Company Party
is a party or otherwise bound, or to which any asset or property of any Company
Party is subject.
"COMPANY CURRENT BALANCE SHEET" shall mean the consolidated balance
sheet of the Company as of August 31, 1997.
"COMPANY FINANCIAL STATEMENTS" shall mean: (i) the audited consolidated
balance sheets of the Company as of March 31, 1997, December 31, 1996 and
December 31, 1995 and related statements of operations, cash flows and
stockholders' equity for the periods
2
<PAGE> 3
then ended; and (ii) the unaudited consolidated balance sheet of the
Company as of August 31, 1997 and related statement of operations five-months
then ended.
"COMPANY MATERIAL CONTRACT" shall mean any Contract pursuant to which
the Company: (i) licenses the right to use a trademark, tradename, patent or
copyright (other than from Seller); (ii) employs an officer; (iii) has
outstanding Indebtedness in excess of $50,000; (iv) has agreed to sell assets of
the Company (other than inventory in the ordinary course of business) with an
aggregate fair market value in excess of $100,000; and (v) has leased real or
personal property requiring monthly payments after the date hereof in excess of
$10,000, unless such Contract may be cancelled by the Company without penalty
upon not more than 60 days prior written notice.
"COMPANY PARTY" shall mean the Company and any Subsidiary of the
Company.
"CONTRACT" shall mean any written or oral note, bond, debenture,
mortgage, license, agreement, commitment, contract or understanding.
"COSTS" shall mean out-of-pocket costs and expenses including without
limitation attorneys' fees and disbursements and court costs.
"DM AGREEMENT" shall mean that certain Direct Marketing Agreement dated
October 30, 1996 by and between Seller and the Company.
"EQUITY SECURITIES" of any Person shall mean the capital stock of such
Person and/or any Stock Equivalents of such Person.
"EXHIBIT" shall mean to produce, transmit, broadcast, telecast, cable
cast, display, exhibit, project, perform, reproduce, publicize, or otherwise
use.
"EXPLOIT" shall mean use, promote, advertise, affix, copy, Exhibit,
distribute, manufacture, sell, market, rent, modify, create derivative works
from, practice or otherwise exploit in all forms in any and all media.
"EXPLOITATION" shall have a correlative meaning.
"GOLF EQUIPMENT" shall mean golf clubs (including woods, and irons) and
hats, apparel, towels, umbrellas, bags, balls, videos and other products
pertaining to the playing of golf or the marketing, sale and distribution of
golf clubs.
"GOLF TRAINING BUSINESS" shall mean the business and operations of the
Gary Player Golf Academy and any other live golf instruction and/or training
business in which Seller from time to time engages.
3
<PAGE> 4
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GPGE" shall mean golf equipment operations of Seller.
"INDEBTEDNESS" of a Person shall mean (a) indebtedness of such Person
for money borrowed whether secured or unsecured, (b) the undrawn face amount of,
and unpaid reimbursement obligations in respect of, all letters of credit issued
for the account of such Person, (c) all indebtedness of the types referred to in
clauses (a) and (b) above of another Person which is guaranteed directly or
indirectly by such Person or secured by the assets of such Person and (g)
renewals, extensions, refundings, deferrals, restructurings, amendments and
modifications of any such indebtedness, obligation or guarantee.
"IPO" shall mean the initial public offering of Common Stock by the
Company pursuant to a registration statement filed with, and declared effective
by, the SEC under the Securities Act.
"IPO PRICE" shall mean the initial public offering price of a share of
Common Stock in the IPO.
"LAW" shall mean any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority or otherwise,
including any judicial or administrative order, consent, decree or judgment.
"LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"NOTE" shall mean a promissory note of the Company delivered by the
Company to Seller at the Closing, which note shall be dated the date of the
Closing, shall be in the principal amount of $750,000 and shall be substantially
in the form of the note attached as Exhibit D to this Agreement.
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, Governmental Authority or other entity.
4
<PAGE> 5
"PLAYER" shall mean Gary Player.
"PLAYER ACKNOWLEDGEMENT AND AGREEMENT" shall mean that certain letter
dated the date hereof from Gary Player to the Company relating to certain
matters in connection with the Player Agreement and this Agreement.
"PLAYER AGREEMENT" shall mean that certain Agreement dated the date
hereof by and between Seller and Gary Player pursuant to which Player has
granted to Seller the exclusive perpetual right to use the Player Name (as
defined in such Agreement) in the Exploitation of Endorsed Products (as defined
in such Agreement).
"PURCHASE PRICE" shall have the meaning set forth in 2(b) of this
Agreement.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the SEC
thereunder.
"SELLER" shall mean Gary Player Group, Inc., a Florida corporation.
"SELLER CONTRACT" shall mean any Contract to which any Seller Party is
a party or otherwise bound, or to which any property or asset of any Seller
Party is subject.
"SELLER CURRENT BALANCE SHEET" shall mean the unaudited balance sheet
of GPGE as of June 30, 1997, as provided to the Company.
"SELLER FINANCIAL STATEMENTS" shall mean: (i) the balance sheets of
GPGE as of December 31, 1996 and December 31, 1995 and related statements of
operations and cash flows for the years then ended; and (ii) the unaudited
balance sheet of GPGE as of June 30, 1997 and related statement of operations
and cash flows for the six-months then ended.
"SELLER PARTY" shall mean Seller and any Subsidiary of Seller.
"SHARES" shall mean the shares of Common Stock issued to Seller as part
of the Purchase Price.
"STOCK EQUIVALENTS" of any Person shall mean options, warrants, calls,
rights, commitments, convertible securities and other securities pursuant to
which the holder, directly or indirectly, has the right to acquire (with or
without additional consideration) capital stock or equity of such Person.
"SUBSIDIARY" of any Person shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors
5
<PAGE> 6
or other persons performing similar functions are owned directly or indirectly
by such Person.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration.
"WSE AGREEMENT" shall mean that certain WSE License Agreement dated the
date hereof by and between Seller and World Services Entertainment ("WSE")
pursuant to which WSE has granted to Seller the exclusive perpetual right to use
the Player Name (as defined in such Agreement) in the Exploitation of Endorsed
Products (as defined in such Agreement) in the world except for the United
States and its possessions, Canada and Great Britain.
2. AGREEMENT OF PURCHASE AND SALE; CLOSING.
(a) On the terms and subject to the conditions of this Agreement,
Seller agrees to sell the Assets to the Company at the Closing, the Company
agrees to purchase the Assets from the Seller at the Closing (the
"ACQUISITION").
(b) The purchase price (the "PURCHASE PRICE") for the Assets shall be:
(i) a number of shares of the Common Stock equal to $3,000,000
divided by the IPO Price (the "SHARES");
(ii) the Note; and
(iii) the assumption of the Assumed Liabilities (provided that
in no event shall the amount of Assumed Liabilities exceed $1,100,000 less any
Advances used to offset such Liabilities as contemplated by Section 5(d) of this
Agreement).
(c) The Closing shall be held at the offices of Troop Meisinger Steuber
& Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles, California 90024 to be
effective as of the effectiveness of the registration statement filed under the
Securities Act with respect to the IPO. At the Closing:
(i) The Company shall deliver to Seller a certificate or
certificates evidencing the Shares;
(ii) Seller shall deliver to the Company such assignments,
bills of sale and other documents or instruments of transfer as the Company may
reasonably request in order to Transfer the Assets to the Company; and
6
<PAGE> 7
(iii) the Company will execute and deliver to the Seller such
documents and instruments as Seller may reasonably request to evidence the
assumption of the Assumed Liabilities by the Company.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Except as set forth in the Seller Disclosure Schedule delivered by
Seller to the Company concurrently herewith, Seller represents and warrants to
the Company as follows (which representations and warranties shall survive for a
period of three years from the Closing, except for the representations and
warranties contained in Sections 3(a), (b), (e), (h) and (j), which shall
survive indefinitely):
(a) Organization and Capitalization of Seller.
Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida and has all requisite
corporate power and corporate authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted. Complete and
correct copies of Seller's current Articles of Incorporation and Bylaws have
been delivered to the Company or its attorneys. Black Knight is the sole
stockholder of Seller.
(b) Authority; Enforceability.
(i) This Agreement has been duly authorized by all necessary
corporate action of Seller, including, without limitation, the authorization and
approval by Black Knight. This Agreement has been duly executed and delivered by
Seller and, assuming it is duly executed and delivered by the Company,
constitutes a valid and legally binding obligation of Seller enforceable against
Seller in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally, or the availability
of equitable remedies.
(ii) The execution and delivery by Seller of this Agreement do not,
and compliance by Seller with the provisions hereof will not, (A) conflict with
or result in a breach or default under any of the terms, conditions or
provisions of any Seller Contract; or (B) violate any Law applicable to any
Seller; or (C) result in the creation or imposition of any Lien on any asset of
any Seller.
(c) Assets.
(i) Seller has good and marketable title to the Assets, free and
clear of all Liens except for (A) Liens that are reflected in the Seller Current
Balance Sheet; (B) Liens for current taxes not yet delinquent; (C) assets sold
or transferred in the ordinary course of business and consistent with prudent
business practice since the date of the Seller
7
<PAGE> 8
Current Balance Sheet; (D) restrictions imposed by Law; and (E) easements and
restrictions which are neither individually nor in the aggregate material to
Seller. At the Closing, the Company shall receive good and marketable title to
the Assets, free and clear of all Liens (other than Liens created by the Company
and the Liens contemplated by clauses (A) and (E) above (collectively, the
"PERMITTED LIENS").
(ii) The inventory included in the Assets will be current and
readily merchantable and does not contain and will not contain any amount of
obsolete or damaged goods which have not been written down or reserved to their
market value in accordance with generally accepted accounting principles.
(iii) All accounts receivable reflected in the Current Balance
Sheet: (A) constitute bona fide and valid rights of Seller to collect payments
from other Persons; (B) represent credit extended in a manner consistent with
Seller's trade practices; (C) are not subject to any defense, counterclaim or
offset; and (D) except for reserves for returns and bad debts set forth in the
Seller Current Balance Sheet, to the knowledge of Seller are fully collectable.
(iv) Except pursuant to the Assumed Contracts, no Person has the
right or license to use the name "Gary Player," or the image or likeness of Gary
Player, in the Exploitation of Golf Equipment, either directly in connection
with the Exploitation of Golf Equipment, or indirectly through the use of the
name "Gary Player" as a corporate, partnership, association, trust, limited
liability company, joint venture, dba or tradename which engages in the
Exploitation of Golf Equipment.
(d) Assumed Contracts.
(i) True and correct copies of each Assumed Contract, including all
amendments and modifications thereof and waivers thereunder, have been delivered
to the Company or its counsel. The Assumed Contracts constitute all Contracts
pursuant to which any Seller Party receives income or revenues from GPGE's
business and/or the Transfer of the right to use the name "Gary Player," or the
logo, image or likeness of Gary Player. Each Assumed Contract is in full force
and effect, and is the valid and binding obligation of Seller and each other
party to the Contract. Seller has performed all of the obligations required to
be performed by it to date under each Assumed Contract, and Seller is not in
breach of or default under any Assumed Contract. To the Best Knowledge of
Seller, each other party to each Assumed Contract has performed all of the
obligations required to be performed by it to date under such Contract and is
not in breach of or in default under such Contract, and no event has occurred or
circumstance exists which, with notice or lapse of time or both, would
constitute a breach of or default under any Assumed Contract.
(ii) Schedule 3(e) to this Agreement sets forth the revenues from
each Assumed Contract during each calendar quarter from the calendar quarter
ended March 31, 1995 to the calendar quarter ended September 30, 1997, and, to
the knowledge of Seller, the amounts owed to Seller under each Assumed Contract
as of September 30, 1997.
8
<PAGE> 9
(e) Player Agreement and WSE Agreement.
(i) The Player Agreement has been duly executed and delivered by
Seller and Player and constitutes a valid and legally binding obligation of
Seller and Player enforceable against Seller and Player, respectively, in
accordance with its terms. Neither Seller nor Player is in breach of or default
under the Player Agreement, and no event has occurred or circumstance exists
which, with notice or lapse of time or both, would constitute a breach of or
default under the Player Agreement.
(ii) The WSE Agreement has been duly executed and delivered by
Seller and WSE and constitutes a valid and legally binding obligation of Seller
and WSE enforceable against Seller and WSE, respectively, in accordance with its
terms. Neither Seller nor WSE is in breach of or default under the WSE
Agreement, and no event has occurred or circumstance exists which, with notice
or lapse of time or both, would constitute a breach of or default under the WSE
Agreement.
(f) Financial Statements. The Seller Financial Statements are complete
and correct, have been prepared from the books and records of Seller in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except for changes specified therein and except
that unaudited financial statements are not accompanied by notes, and present
fairly the financial position of GPGE as of the dates thereof and the results of
operations and cash flows of GPGE for the periods specified therein.
(g) Litigation and Proceedings. There is no pending or, to the
knowledge of Seller, threatened Action (or basis for any Action) to which Seller
is a party or involving any of the Assets, and Seller is not subject to any
judgment, order, writ, injunction, decree or regulatory directive or agreement,
which Action could have a material adverse effect on the Business Condition of
GPGE.
(h) Brokers. Seller has not retained or otherwise engaged or employed
any broker, finder or any other person, or paid or agreed to pay any fee or
commission to any agent, broker, finder or other person, for or on account of
acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
(i) Creditor Issues. The Transfer of the Assets to the Company is not
being made with the actual intent to hinder, delay or defraud any creditor of
Seller. Seller believes it is receiving reasonably equivalent value in exchange
for the Transfer of the Assets. Seller is not engaged or about to engage in a
business or a transaction following the Closing for which the remaining assets
of Seller would be unreasonably small in relation to the business or
transaction, and Seller has not incurred, and does not believe that it would
incur, debts beyond its ability to pay them as they become due. Seller is not
insolvent and will not become insolvent as a result of the transactions
contemplated by this Agreement.
9
<PAGE> 10
(j) Securities Matters.
(i) Seller has been advised that the Shares will be neither
registered under the Securities Act nor qualified under any state securities
law, on the ground that no distribution or public offering of the Shares is to
be effected, and that in this connection the Company is relying in part on the
representations of Seller and Player set forth in this Section 3. Seller
understands that the Shares may not be resold unless they are registered under
the Securities Act or an exemption from registration is available.
(ii) Seller will acquire the Shares solely for its own account, for
investment purposes, and not with a view to or for sale in connection with any
distribution of the Shares.
(iii) Seller is able to bear the economic risk of an investment in
the Shares.
(iv) Seller (i) is an experienced and sophisticated investor, is
able to fend for itself in the transactions contemplated by this Agreement, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of acquiring the Shares, or (ii) by
reason of the business or financial experience of its professional advisors who
are unaffiliated with the Company, could be reasonably assumed to have the
capacity to protect its own interests in connection with an investment in the
Shares.
(v) Seller has had, during the course of this transaction, the
opportunity to ask questions of, and receive answers from, the Company and its
management concerning the business of the Company Group and acknowledges that it
and its representatives have received all such information as it considers
necessary for evaluating the risks and merits of acquiring the Shares and for
verifying the accuracy of any information furnished to them or to which they had
access.
(vi) Seller is an "accredited investor" for purposes of Regulation
D promulgated by the SEC under the Securities Act.
10
<PAGE> 11
(k) Material Misstatements and Omissions. No representations and
warranties by Seller in this Agreement, nor any exhibit, schedule or certificate
furnished by Seller to the Company pursuant to this Agreement, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(l) Assumed Liabilities. The amount of the Assumed Liabilities at the
Closing will not exceed $1,100,000 less any Advances used to offset such
Liabilities as contemplated by Section 5(d) of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Seller as follows (which
representations and warranties shall survive for a period of three years from
the Closing, except for the representations and warranties contained in Sections
4(a)(i), (b), (c) and (h), which shall survive indefinitely):
(a) Organization and Capitalization of Company.
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and corporate authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted.
Complete and correct copies of Company's current Certificate of Incorporation
and Bylaws have been delivered to the Company or its attorneys.
(ii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where the nature of its
properties and business requires such qualification.
(iii) The authorized capital stock of the Company consists solely
of 10,000,000 shares of Common Stock, of which 2,955,575 shares are outstanding
at the date of this Agreement, and 5,000,000 shares of Preferred Stock, of which
191,579 shares have been designated "Series A Convertible Preferred Stock," none
of which are outstanding, and 750,750 shares have been designated "Series B
Convertible Preferred Stock," of which 568,895 shares are outstanding on the
date hereof.
(b) Authority; Enforceability.
(i) This Agreement has been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and delivered
by Company and constitutes a valid and legally binding obligation of Company and
enforceable against Company respectively in accordance with its terms, subject
to the effect of
11
<PAGE> 12
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally, or the
availability of equitable remedies.
(ii) The execution and delivery by Company of this Agreement do
not, and compliance by Company with the provisions hereof will not, (A) conflict
with or result in a breach or default under any of the terms, conditions or
provisions of any Company Contract; or (B) violate any Law applicable to any
Company Party; or (C) result in the creation or imposition of any Lien on any
asset of any Company Party.
(c) The Shares. The Shares have been authorized and upon issuance in
accordance with this Agreement will be validly issued, fully paid and
non-assessable free and clear of all Liens (other than Liens which have been
created by Seller).
(d) Subsidiaries. Rhino Marketing, Inc. and Gran Prix Marketing, Inc.
are Subsidiaries of Company. Except for those two capacities so identified,
Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any other Person and no Company Contract obligates
or gives any Company Party the right to make any such investment.
(e) Financial Statements. The Company's Financial Statements are
complete and correct, have been prepared from the books and records of the
Company in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except for changes specified therein
and except that unaudited financial statements are not accompanied by notes, and
present fairly the financial position of the Company and its consolidated
Subsidiaries as the dates thereof and the results of operations and cash flows
of the Company and its consolidated Subsidiaries for the periods specified
therein.
(f) Litigation and Proceedings. Except as separately disclosed to
Seller in writing, there is no pending or, to the knowledge of the Company,
threatened Action (or basis for any Action) to which any Company Party is a
party or otherwise involving any Company Party, and no Company Party is subject
to any judgment, order, writ, injunction, decree or regulatory directive or
agreement, which Action could have a material adverse effect on the Business
Condition of the Company.
(g) Contracts. The Company has separately provided to Seller a list of
all Company Material Contracts and true and correct copies of such Contracts.
(h) Brokers. The Company has not retained or otherwise engaged or
employed any broker, finder or any other person, or paid or agreed to pay any
fee or commission to any agent, broker, finder or other person, for or on
account of acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
12
<PAGE> 13
(i) Material Misstatements and Omissions. No representations and
warranties by the Company in this Agreement, nor any exhibit, schedule or
certificate furnished by the Company to Seller pursuant to this Agreement
contains or will contain any untrue statement of material fact or omits or will
omit any material fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
5. PRE-CLOSING COVENANTS.
(a) Conduct of Business. Prior to the Closing, except as contemplated
by this Agreement, unless the Company has consented in writing thereto, Seller
agrees to:
(i) conduct its operations with respect to GPGE according to its
ordinary and usual course of business;
(ii) not to Transfer any Assets, except any inventory in the
ordinary course of business at the customary prices for such inventory, without
discount except discounts in the ordinary course of business;
(iii) not to amend, modify or terminate, or grant any waiver of any
right under, any Assumed Contract, the Player Agreement or the WSE Agreement,
and not to make any payment under the Player Agreement or WSE Agreement which is
not required to be made strictly in accordance with the terms of the Player
Agreement or WSE Agreement;
(iv) comply with all of its obligations and duties under any
Assumed Contract and the Player Agreement and not to create or permit to exist
any default or event of default on behalf of any Seller Party under any Assumed
Contract, the Player Agreement or the WSE Agreement or any event or circumstance
which, with lapse of time or notice, or both, would constitute a default under
an Assumed Contract, the Player Agreement or the WSE Agreement;
(v) not to enter any Contract to Exploit, or Exploit any of its
rights under, the Player Agreement or the WSE Agreement, or other rights to use
the name of "Gary Player" in connection with the Exploitation of Golf Equipment;
(vi) with respect to GPGE, use its best efforts to preserve intact
its business organization and goodwill, keep available the services of its
officers and employees and maintain satisfactory relationships with those
Persons having business relationships with it; and
(vii) not incur any Indebtedness other than in the ordinary course
of business.
13
<PAGE> 14
(b) Inspection of Records. From the date hereof to the Closing, Seller
and the Company shall allow the duly authorized officers, attorneys, accountants
and other representatives of the other access at all reasonable times to the
records and files, correspondence, audits and properties, as well as to all
information in each case relating the business and affairs of GPGE and the
Company, respectively.
(c) IPO. Seller shall provide to the Company such information
reasonably requested by the Company in order for the Company to complete the
registration statement in connection with the IPO. If it is necessary to audit
the financial statements of Seller in connection with the IPO: (i) such audit
will be at the expense of the Company; and (ii) Seller will cooperate fully with
the auditors and will cause its management to make such representations and
warranties regarding its financial information as the auditors may reasonably
request to complete the audit. Seller represents to the Company that it knows of
no reason why its financial statements for 1995, 1996 and 1997 could not be
audited.
(d) Advances to Seller. Upon the request of Seller, the Company will
make advances (the "ADVANCES") to Seller of up to an aggregate of $250,000 upon
the terms and subject to the conditions of this Section 5(d). The Advances will
be evidenced by a Note in form and substance reasonably satisfactory to the
Company. Advances repaid cannot be reborrowed. The Company will advance up to
$50,000 per month commencing with one month following the date of this
Agreement; provided, however that each Advance must be in an integral multiple
of $10,000; and provided, further, however, that if the Company issues Equity
Securities to obtain "bridge financing" for IPO from institutional investor
generating net proceeds of not less than $1,000,000 after the date hereof, the
monthly limitation will not be applicable (although the aggregate limitation
will remain applicable. The Company shall not be obligated to make an Advance if
Seller is in breach of or in default under this Agreement. The Advances will
accrue interest at a rate of 6% per annum from the date advanced. Seller will
use the proceeds of the Advances: (i) up to $100,000 of the Advances may be used
to pay operating expenses of GPGE; and (ii) the balance of the Advance shall be
used to repay Assumed Liabilities. The amount of Assumed Liabilities shall be
reduced by the amount of the Advances used to reduce Assumed Liabilities. The
Advances (including interest) shall be repaid as follows: (i) if this Agreement
terminates without the occurrence of the Closing, the Advances shall be repaid
by offsets of payment obligations under the DM Agreement; and (ii) if the
Closing occurs, the Advances shall be repaid: (A) to the extent the Advances
were used to reduce the Assumed Liabilities, by the corresponding reduction in
the amount of Assumed Liabilities; and (B) to the extent the Advances were not
used to reduce Assumed Liabilities, through offset against the first payment(s)
due on the Note. Notwithstanding the foregoing, the Advances shall become
immediately due and payable if Seller: (i) Transfers its rights under the DM
Agreement, either voluntarily or involuntarily upon foreclosure of a security in
the DM Agreement; or (ii) breaches or defaults in any of its representations,
warranties, covenants or agreements under this Agreement. Repayment of the
Advances will be subordinate to repayment of the loan in the amount of $500,000
from Mercator International Limited bearing interest at a rate of LIBOR, as such
loan presently exists (but not to any additional loans or advances from Mercator
after the
14
<PAGE> 15
date hereof) (the "MERCATOR LOAN"), and the Company may make any payments due
under the DM Agreement directly to Mercator to be applied against reduction of
the Mercator Loan.
The obligation to make the Advances shall terminate upon the termination of
this Agreement or the Closing.
(e) Assumed Liabilities. Seller and the Company will attempt to have
some or all of the Assumed Liabilities converted into Common Stock effective as
of the Closing; provided, however, that the terms and conditions of such
conversion shall be within the sole and absolute discretion of Company.
(f) Use of Player Name. On and after the Closing, the Company may amend
its corporate name to "Gary Player Golf, Inc." Seller shall, and shall cause
Player to, execute and deliver such consents and approvals as the Company may
reasonably request to permit Company to qualify to do business in such
jurisdictions as the Company requests under the name "Gary Player Golf, Inc."
(g) Acquisition Proposals. During the period from the date hereof and
extending through the earlier of termination of the this Agreement or the
Closing, Seller agrees that (i) Seller shall direct and cause Seller's officers,
directors, employees, shareholders, agents and representatives (including,
without limitation, any investment banker, attorney or accountant) not to,
initiate, solicit, intentionally encourage or accept the submission of any
proposal or offer with respect to a merger, acquisition, sale, consolidation or
similar transaction involving the Assets (any such proposal or offer being
hereinafter referred to as an "ACQUISITION PROPOSAL") or engage in any
negotiations or discussions concerning, or provide any confidential information
or data to, any Person relating to an Acquisition Proposal and (i) Seller will
notify the Company immediately if any such inquiries or proposals are received
by, any such information is received from, or any such negotiations or
discussions are sought to be initiated or continued with, Seller.
(h) DM Agreement. Seller and the Company agree that as of the Closing,
the DM Agreement shall be terminated and cancelled; provided, however, that such
termination and cancellation shall not accelerate repayment of the Advances.
(i) Right of First Refusal. Seller hereby grants to the Company a right
of first refusal to purchase the Golf Training Business and/or its material
assets. To effect this right of first refusal, Seller agrees not to sell,
transfer or assign the Golf Training Business (including any material assets of
such Business) without first offering to sell, transfer or assign such Business
and assets to the Company. Each such offer shall: (i) be in writing; (ii) shall
remain open for at least 30 days from the date of transmittal; (iii) shall state
its exact termination date; (iv) shall state the price (which must be payable in
cash, promissory note and/or common stock of the Company), closing date and all
of the terms and conditions of the proposed sale, transfer of assignment; and
(v) shall make reference to this Section 5(i).
15
<PAGE> 16
The Company may accept the offer by delivering written notice of acceptance
to Seller prior to the termination date of the offer. The notice of acceptance
shall set forth a date for the closing of the purchase and sale, which date
shall be a business day not later than 30 days after the Company delivers notice
of acceptance to Seller. Seller shall make customary representations and
warranties regarding the Golf Training Business and/or assets, as applicable
(similar to the representations and warranties made in this Agreement) or any
more stringent representations, warranties and/or indemnities if set forth in
the offer. The Closing shall take place at the principal offices of the Company.
If the offer is not accepted, Seller shall be free for a period of 90 days
thereafter to dispose of the Golf Training Business at the same or higher price
and upon the terms and conditions specified in such offer (including no less
favorable representations, warranties and indemnities). If Seller does not
dispose of the Golf Training Business within the 90-day period, such Business
shall again be subject to all provisions of this Section 5(i).
The rights of the Company shall terminate if this Agreement is terminated
with the occurrence of the Closing.
6. CLOSING CONDITIONS OF THE COMPANY.
The obligation of Company to complete the Acquisition is subject to the
satisfaction of the following conditions, unless waived in writing by the
Company at or prior to the Closing:
(a) The representations and warranties of Seller shall be true and
correct in all material respects as of the Closing as if made at and as of the
Closing;
(b) Seller shall have complied in all material respects with its
covenants and agreements under this Agreement;
(c) The Company shall have received good and marketable title to the
Assets, free and clear of all Liens (other than Liens created by the Company and
the Permitted Liens);
(d) The amount of the Assumed Liabilities shall not exceed $1,100,000
less any Advances used to offset such Liabilities as contemplated by Section
5(d) of this Agreement.
(e) Seller shall have taken all actions required of Seller to terminate
the DM Agreement.
7. CLOSING CONDITIONS OF SELLER.
16
<PAGE> 17
The obligation of Seller to complete the Acquisition is subject to the
satisfaction of the following conditions, unless waived in writing by Seller on
or prior to the Closing:
(a) The representations and warranties of the Company shall be true and
correct in all material respects as of the Closing as if made at and as of such
date;
(b) The Company shall have complied in all material respects with its
covenants and agreements under this Agreement;
(c) The registration statement filed by the Company under the
Securities Act in connection with the IPO shall have been declared effective by
the SEC; and
(d) Gary Player, Joseph J. White and Marc B. Player shall have been
appointed as directors of the Company, and Gary Player shall have been appointed
Chairman of the Board of the Company, each appointment to be effective
immediately following the Closing.
8. POST CLOSING COVENANTS.
(a) Restrictions on Transfer of Shares. Seller agrees not to Transfer
any Shares except pursuant to an effective registration statement under the
Securities Act or an exemption from registration. As a further condition to any
such Transfer, except in the event that such Transfer is made pursuant to an
effective registration statement under the Securities Act, if in the reasonable
opinion of counsel any Transfer of the Securities by the contemplated transferee
thereof would not be exempt from the registration and prospectus delivery
requirements of the Securities Act, the Company may require the contemplated
transferee to furnish an investment letter setting forth such information and
agreements as may be reasonably requested by the Company to ensure compliance by
such transferee with the Securities Act. Each certificate evidencing the Shares
will bear the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE
REGISTERED HOLDER OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER."
(b) Following the closing of the IPO, without the written consent of
Player, the Company agrees to maintain directors and officers liability
insurance in an amount not less than $5,000,000 until the earlier to occur of
the third anniversary of the closing of the IPO and the date Gary Player is no
longer a director of the Company. The Company will use
17
<PAGE> 18
commercially reasonable efforts to have a commitment for such insurance in place
as of the Closing.
(c) To the extent that Seller has (and has all necessary rights to) any
Artwork which the Company believes would be useful in the Exploitation of
Endorsed Products (as defined in the Player Agreement and the WSE Agreement,
Seller shall furnish such Artwork to the Company on a royalty-free basis. The
Company shall be responsible for all shipping charges in connection with the
transportation of such Artwork for the Company, shall safekeep such Artwork and
shall be responsible for it while in transit, and after use of such Artwork, the
Company shall return such Artwork to Seller. It is understood that such Artwork
may not be reproduced for sale but just used in connection with the
advertisement and promotion of Endorsed Products. Any use of such Artwork is
subject to Seller's prior approval.
9. TERMINATION.
This Agreement may be terminated prior to the Closing and without
consummation of the Acquisition, under the following circumstances:
(a) Seller may terminate this Agreement if there is a material breach
or default by the Company of any representation, warranty, covenant or agreement
under this Agreement, which breach or default is not cured or corrected within
30 days after written notice thereof from Seller;
(b) The Company may terminate this Agreement if there is a material
breach or default by Seller of any representation, warranty, covenant or
agreement under this Agreement, which breach or default is not cured or
corrected within 30 days after written notice thereof from the Company;
(c) Seller or the Company may terminate this Agreement if the Closing
shall not have occurred on or prior to March 31, 1998; provided that a party may
not terminate this Agreement if the Closing fails to occur by March 31, 1998
because of its breach or default.
Any termination of this Agreement must be by written notice to the
other party. The termination of this Agreement shall not relieve any party from
liability for any breach or default arising prior to termination.
10. MISCELLANEOUS.
(a) Notices. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission
(which must be confirmed) or by United States first class, registered or
certified mail, postage prepaid, addressed to the
18
<PAGE> 19
party at the address set forth on the signature page of this Agreement. Any
Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails . Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c) Assignment. No party may assign this Agreement, and any attempted
or purported assignment or any delegation of any party's duties or obligations
arising under this Agreement to any third party or entity shall be deemed to be
null and void, and shall constitute a material breach by such party of its
duties and obligations under this Agreement. This Agreement shall inure to the
benefit of and be binding upon any successors of each party by way of merger or
consolidation.
(d) Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement.
(e) Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California without giving effect to the principles of conflicts of law
thereof.
(f) Severability. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(g) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
19
<PAGE> 20
(i) Attorneys' Fees. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a default in
the performance by any party to this Agreement of its obligations under this
Agreement, the prevailing party shall recover all of such party's attorneys'
fees incurred in each and every such action, suit, arbitration or other pro
ceeding, including any and all appeals or petitions therefrom. As used in this
Section, attorneys' fees shall be deemed to mean the full and actual costs of
any legal services actually performed in connection with the matters involved
calculated on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined in
any statute or rule of court.
(j) Further Assurances. The parties to this Agreement shall upon
request take any and all actions and execute any and all documents reasonably
necessary to effectuate the terms and intent of this Agreement.
(k) Judicial Interpretation. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
(l) Force Majeure. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is prevented from
performing any such obligations due to causes or events beyond its control,
including, without limitation, acts of God, fire, flood, earthquake, strike or
other labor problem, injunction or other legal restraint, present or future law,
governmental order, rule or regulation, then such delay or nonperformance shall
be excused and the time for performance thereof shall be extended to include the
period of such delay or nonperformance.
(m) Arbitration. All disputes, controversies or differences which are
not settled by common accord shall be conclusively settled by arbitration in Los
Angeles, California, in accordance with the rules of the American Arbitration
Association, and judgment and the award rendered by the arbitration panel may be
entered in any court or tribunal of competent jurisdiction. In any arbitration
proceeding conducted pursuant to this Section, both parties shall have the right
to discovery, to call witnesses and to cross-examine the other party's witnesses
(either through legal counsel, expert witnesses or both). All decisions of the
arbitration panel shall be final, conclusive and binding upon all parties, and
shall not be subjected to judicial review.
(n) Damages. If the Closing occurs, any damages, costs or other amounts
payable by Seller hereunder (other than repayment of the Advances) may be paid
by cash, by
20
<PAGE> 21
surrender to the Company of a number of Shares having a then current fair market
value equal to such damages, costs or amounts, of a combination of the
foregoing.
IN WITNESS WHEREOF, this Agreement has been made and entered into as of
the date and year first above written.
GOLF ONE INDUSTRIES, INC.,
a Delaware corporation
By:
--------------------------
Its:
--------------------------
GARY PLAYER GROUP, INC.,
a Florida corporation
By:
--------------------------
Its:
--------------------------
Agreed to by The Black Knight Trust, a
Guernsey Trust, the sole shareholder of Seller
By:
-------------------------------------------
, Trustee
21
<PAGE> 22
EXHIBIT A
ASSETS
1. Player Agreement
2. WSE Agreement
3. Assumed Contracts
4. Inventory as of the Closing
5. Accounts receivable as of the Closing
6. Office furniture and fixtures, computer equipment and production equipment
as of Closing
<PAGE> 23
EXHIBIT B
ASSUMED CONTRACTS
1. Agreement, dated January 1, 1996, by and between Gary Player Golf Equipment
Inc. and YGM Marketing Pte Ltd.
2. Agreement, dated November 15, 1996, by and between Gary Player Golf
Equipment Inc. and Toppoint Corporation Limited.
3. Licensing Agent Agreement, dated September 24, 1996, by and between Gary
Player Golf Equipment Inc. and International Apparel Marketing Corporation.
4. Agreement, dated January 17, 1997, by and between Gary Player Golf
Equipment Inc. and Scorpion Asia Pacific Pte., Ltd.
5. Agreement, dated October 1, 1996, by and between Gary Player Golf Equipment
Inc. and Robern Skiwear Inc.
6. Licensing Agreement, dated July 1, 1997, by and between Gary Player Group,
Inc., dba Gary Player Golf Equipment, and Cali-Fame of Los Angeles, Inc.
7. Agreement, dated July 1, 1997, by and between Gary Player Group, Inc., dba
Gary Player Golf Equipment, and PT. Bintoro Agung.
23
<PAGE> 24
EXHIBIT C
ASSUMED LIABILITIES
1. Accounts Payable of GPGE incurred in the ordinary course of business of
GPGE and existing as of the Closing, but not including any accounts payable
to any Affiliate of GPGE.
2. The Mercator Loan (as defined in Section 5(d) of this Agreement).
<PAGE> 25
EXHIBIT D
PROMISSORY NOTE
$750,000.00 __________________, 199_
Santa Maria, California
FOR VALUE RECEIVED, the undersigned Golf One Industries, Inc., a
Delaware corporation ("PAYOR"), promises to pay to Gary Player Group, Inc., a
Florida corporation ("GPG"), or order ("PAYEE"), in lawful money of the United
States, the aggregate principal amount of Seven Hundred Fifty Thousand Dollars
($750,000.00), together with interest on the unpaid principal amount from time
to time outstanding at a rate equal to 6.0% per annum. This Note is delivered is
pursuant to that certain Asset Purchase Agreement dated November 1, 1997 by and
between Payor and GPG.
This Note shall be paid as follows:
(1) $250,000.00 shall be paid on [the date one day following the
closing of the IPO];
(2) $250,000.00 plus accrued and unpaid interest shall be paid on [the
end of the 11th month following the closing of the IPO]; and
(3) The balance of the Note, including accrued and unpaid interest,
shall be paid on [the end of the 22nd month following the closing of the IPO].
All payments on this Note shall be applied first to the payment of
accrued and unpaid interest at the date of such payment and the balance, if any,
shall be applied to the payment of principal. All payments shall be made at 3930
RCA Boulevard, Suite 3001, Palm Beach Gardens, Florida 33410, or such other
address as the Payee from time to time notifies the Payor in writing.
The Payor agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the Payee in enforcing the obligations
of the Payor under this Note.
No delay or omission on the part of the Payee in exercising any rights
under this Note shall operate as a waiver of such right or of any other right of
such Payee, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
The Payor and every endorser or guarantor of this Note regardless of the time,
order or place of signing waives presentment, demand, protest and notice of
every kind and assents to any extension or postponement of the time of payment
<PAGE> 26
or any other indulgence, to any substitution, exchange or release of collateral,
and to the addition or release of any other party or person primarily or
secondarily liable.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the Payor has duly executed and delivered this Note
as of the date and year first above written.
GOLF ONE INDUSTRIES, INC.
By:__________________________________
Its:________________________
<PAGE> 1
EXHIBIT 10.15
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 to Asset Purchase Agreement (this "AMENDMENT") is made
and entered into as of the 13th day of March, 1998 by and between Golf One
Industries, Inc., a Delaware corporation (the "COMPANY"), and Gary Player Group,
Inc., a Florida corporation ("SELLER"), with reference to the following facts:
A. The Company and Seller are parties to that certain Asset Purchase
Agreement dated November 1, 1997 (the "PURCHASE AGREEMENT").
B. Section 9(c) of the Purchase Agreement provides that either Seller or
the Company may terminate the Purchase Agreement if the Closing (as defined
therein) shall not have occurred on or prior to March 31, 1998.
C. The Seller and the Company desire to amend Section 9(c) to change the
date to July 31, 1998.
NOW THEREFORE, with reference to the foregoing facts, the Company and the
Seller agree as follows:
1. Amendment to Section 9(c).
Section 9(c) is hereby amended by changing the date set forth therein
from "March 31, 1998" to "July 31, 1998."
2. No Other Amendments.
Except as set forth in this Amendment, all the terms and provisions of
the Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment is made and entered as of the date
and the year first above written.
GOLF ONE INDUSTRIES, INC., GARY PLAYER GROUP, INC.,
a Delaware corporation a Florida corporation
By: ___________________________ By: _______________________
Alfonso J. Cervantes,
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.16
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This Amendment No. 2 to Asset Purchase Agreement (this "AMENDMENT") is made
and entered into as of the __th day of July, 1998 by and between Golf One
Industries, Inc., a Delaware corporation (the "COMPANY"), and Gary Player Group,
Inc., a Florida corporation ("SELLER"), with reference to the following facts:
A. The Company and Seller are parties to that certain Asset Purchase
Agreement dated November 1, 1997 (the "PURCHASE AGREEMENT") and to the Amendment
to the Purchase Agreement dated March 13, 1998 ("AMENDMENT NO. 1").
B. Section 9(c) of the Purchase Agreement, as amended by Amendment No. 1,
provides that either Seller or the Company may terminate the Purchase Agreement
if the Closing (as defined therein) shall not have occurred on or prior to July
31, 1998.
C. The Seller and the Company desire to amend Section 9(c) to change the
date to August 31, 1998.
NOW THEREFORE, with reference to the foregoing facts, the Company and
Seller agree as follows:
1. Amendment to Section 9(c).
Section 9(c) is hereby amended by changing the date set forth therein
from "July 31, 1998" to "August 31, 1998."
2. No Other Amendments.
Except as set forth in this Amendment, all the terms and provisions of
the Purchase Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, this Amendment is made and entered as of the date
and the year first above written.
GOLF ONE INDUSTRIES, INC., GARY PLAYER GROUP, INC.,
a Delaware corporation a Florida corporation
By: ___________________________ By: _________________________
Alfonso J. Cervantes, Joseph White
Chief Executive Officer President
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 3 TO ASSET PURCHASE AGREEMENT
This Amendment No. 3 to Asset Purchase Agreement (this "AMENDMENT") is made
and entered into as of the 28th day of August, 1998 by and between Golf One
Industries, Inc., a Delaware corporation (the "COMPANY"), and Gary Player Group,
Inc., a Florida corporation ("SELLER"), with reference to the following facts:
A. The Company and Seller are parties to that certain Asset Purchase
Agreement dated November 1, 1997 (the "PURCHASE AGREEMENT"), as amended.
B. The Seller and the Company desire to amend certain sections of the
Purchase Agreement.
C. The Company desires to give its consent as required under Section
5(a)(iii) of the Purchase Agreement to Amendment No.1 to the WSE Agreement and
Amendment No. 1 to the Player Agreement.
NOW THEREFORE, with reference to the foregoing facts, the Company and
Seller agree as follows:
1. Amendment to Section 1.
Section 1 is amended to eliminate the definition of the term "Note."
2. Amendment to Section 2.
Section 2 is hereby amended to read in its entirety as follows:
"2. AGREEMENT OF PURCHASE AND SALE; CLOSING.
(a) ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS AGREEMENT,
SELLER AGREES TO SELL THE ASSETS TO THE COMPANY AT THE CLOSING, THE COMPANY
AGREES TO PURCHASE THE ASSETS FROM THE SELLER AT THE CLOSING (THE
"ACQUISITION").
(b) THE PURCHASE PRICE (THE "PURCHASE PRICE") FOR THE ASSETS SHALL
BE:
(i) A NUMBER OF SHARES OF THE COMMON STOCK EQUAL TO $4,000,000
DIVIDED BY THE IPO PRICE (THE "SHARES");
(ii) $250,000 PAYABLE WITHIN THREE DAYS OF THE CLOSING OF THE
IPO; AND
<PAGE> 2
(iii) THE ASSUMPTION OF THE ASSUMED LIABILITIES (PROVIDED THAT
IN NO EVENT SHALL THE AMOUNT OF ASSUMED LIABILITIES EXCEED $1,100,000 LESS ANY
ADVANCES USED TO OFFSET SUCH LIABILITIES AS CONTEMPLATED BY SECTION 5(d) OF THIS
AGREEMENT).
(c) THE CLOSING SHALL BE HELD AT THE OFFICES OF TROOP STEUBER
PASICH REDDICK & TOBEY, LLP, 2029 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA
90067 TO BE EFFECTIVE AS OF THE EFFECTIVENESS OF THE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT WITH RESPECT TO THE IPO. AT THE CLOSING:
(i) THE COMPANY SHALL DELIVER TO SELLER A CERTIFICATE OR
CERTIFICATES EVIDENCING THE SHARES;
(ii) SELLER SHALL DELIVER TO THE COMPANY SUCH ASSIGNMENTS,
BILLS OF SALE AND OTHER DOCUMENTS OR INSTRUMENTS OF TRANSFER AS THE COMPANY MAY
REASONABLY REQUEST IN ORDER TO TRANSFER THE ASSETS TO THE COMPANY; AND
(iii) THE COMPANY WILL EXECUTE AND DELIVER TO THE SELLER SUCH
DOCUMENTS AND INSTRUMENTS AS SELLER MAY REASONABLY REQUEST TO EVIDENCE THE
ASSUMPTION OF THE ASSUMED LIABILITIES BY THE COMPANY."
3. AMENDMENT TO SECTION 9(c).
SECTION 9(c) IS HEREBY AMENDED BY CHANGING THE DATE SET FORTH THEREIN FROM
"AUGUST 31, 1998" TO "SEPTEMBER 30, 1998."
4. CONSENT AS REQUIRED UNDER SECTION 5(a)(iii).
THE COMPANY HEREBY ACKNOWLEDGES AND AGREES AS FOLLOWS:
1. THE COMPANY CONSENTS TO THE SELLER ENTERING INTO AMENDMENT NO. 1
TO THE WSE AGREEMENT, DATED AUGUST __, 1998.
2. THE COMPANY CONSENTS TO THE SELLER ENTERING INTO AMENDMENT NO. 1
TO THE PLAYER AGREEMENT, DATED AUGUST __, 1998.
EXCEPT AS SET FORTH IN THIS AMENDMENT, ALL THE TERMS AND PROVISIONS OF THE
PURCHASE AGREEMENT SHALL REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
<PAGE> 3
IN WITNESS WHEREOF, THIS AMENDMENT IS MADE AND ENTERED AS OF THE DATE AND
THE YEAR FIRST ABOVE WRITTEN.
GOLF ONE INDUSTRIES, INC., GARY PLAYER GROUP, INC.,
A DELAWARE CORPORATION A FLORIDA CORPORATION
BY: ___________________________ BY: _____________________
ALFONSO J. CERVANTES, JOSEPH WHITE
CHIEF EXECUTIVE OFFICER PRESIDENT
3
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 4 TO ASSET PURCHASE AGREEMENT
This Amendment No. 4 to Asset Purchase Agreement (this "AMENDMENT") is made
and entered into as of the 2nd day of March, 1999 by and between Golf One
Industries, Inc., a Delaware corporation (the "COMPANY"), and Gary Player Group,
Inc., a Florida corporation ("SELLER"), with reference to the following facts:
A. The Company and Seller are parties to that certain Asset Purchase
Agreement dated November 1, 1997 (the "PURCHASE AGREEMENT"), as amended.
B. The Seller and the Company desire to amend certain sections of the
Purchase Agreement.
NOW THEREFORE, with reference to the foregoing facts, the Company and
Seller agree as follows:
1. Amendment to Section 1.
Section 1 is hereby amended to add the following definitions:
"'Carrera' shall mean Grafix Corporation d/b/a Carrera Golf.
"'Financial Contingencies' shall mean the following conditions: (i) the
closing of the Merger and (ii) the Company and/or Carrera obtaining equity
and/or debt financing, following the date hereof, of at least an aggregate of
$2.5 million.
'Merger' shall mean the merger of the Company into Carrera or a subsidiary
of Carrera.
'Note' shall mean a promissory note of the Company delivered by the Company
to Seller at the Closing, which note shall be dated the date of the Closing,
shall be in the principal amount of $750,000 and shall be substantially in the
form of the note attached as Exhibit D to this Agreement."
2. Amendment to Section 2.
Section 2 is hereby amended to read in its entirety as follows:
"2. AGREEMENT OF PURCHASE AND SALE; CLOSING.
(a) ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS AGREEMENT,
SELLER AGREES TO SELL THE ASSETS TO THE COMPANY AT THE CLOSING, THE COMPANY
AGREES TO PURCHASE THE ASSETS FROM THE SELLER AT THE CLOSING (THE
"ACQUISITION").
(b) THE PURCHASE PRICE (THE "PURCHASE PRICE") FOR THE ASSETS SHALL
BE:
<PAGE> 2
(i) 375,000 SHARES OF CONVERTIBLE PREFERRED STOCK WITH AN
AGGREGATE LIQUIDATION PREFERENCE OF $3,000,000 (THE TERMS OF WHICH ARE DEFINED
IN EXHIBIT A TO THIS AMENDMENT) OF THE COMPANY OR CARRERA (THE "SHARES");
(ii) THE NOTE; AND
(iii) THE ASSUMPTION OF THE ASSUMED LIABILITIES (PROVIDED THAT
IN NO EVENT SHALL THE AMOUNT OF ASSUMED LIABILITIES EXCEED $1,100,000 LESS ANY
ADVANCES USED TO OFFSET SUCH LIABILITIES AS CONTEMPLATED BY SECTION 5(d) OF THIS
AGREEMENT).
(c) THE CLOSING SHALL BE HELD AT THE OFFICES OF TROOP STEUBER PASICH
REDDICK & TOBEY, LLP, 2029 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067 TO
BE EFFECTIVE ON THE BUSINESS DAY SPECIFIED BY THE COMPANY'S AT OR FOLLOWING THE
SATISFACTION OF THE FINANCIAL CONTINGENCIES. AT THE CLOSING:
(i) THE COMPANY SHALL DELIVER TO SELLER A CERTIFICATE OR
CERTIFICATES EVIDENCING THE SHARES;
(ii) SELLER SHALL DELIVER TO THE COMPANY SUCH ASSIGNMENTS, BILLS
OF SALE AND OTHER DOCUMENTS OR INSTRUMENTS OF TRANSFER AS THE COMPANY MAY
REASONABLY REQUEST IN ORDER TO TRANSFER THE ASSETS TO THE COMPANY; AND
(iii) THE COMPANY WILL EXECUTE AND DELIVER TO THE SELLER SUCH
DOCUMENTS AND INSTRUMENTS AS SELLER MAY REASONABLY REQUEST TO EVIDENCE THE
ASSUMPTION OF THE ASSUMED LIABILITIES BY THE COMPANY."
3. Amendment to Section 5.
Section 5(c) is hereby amended as follows:
"(c) Merger. Seller shall provide to the Company such information
reasonably requested by the Company in order for the Company to complete a
Merger. If it is necessary to audit the financial statements of Seller in
connection with a Merger: (i) SUCH AUDIT WILL BE AT THE EXPENSE OF THE COMPANY;
AND (ii) SELLER WILL COOPERATE FULLY WITH THE AUDITORS AND WILL CAUSE ITS
MANAGEMENT TO MAKE SUCH REPRESENTATIONS AND WARRANTIES REGARDING ITS FINANCIAL
INFORMATION AS THE AUDITORS MAY REASONABLY REQUEST TO COMPLETE THE AUDIT."
4. Amendment to Section 7.
Section 7 is hereby amended to read in its entirety as follows:
"7. CLOSING CONDITIONS OF SELLER.
<PAGE> 3
THE OBLIGATION OF SELLER TO COMPLETE THE ACQUISITION IS SUBJECT TO THE
SATISFACTION OF THE FOLLOWING CONDITIONS, UNLESS WAIVED IN WRITING BY SELLER ON
OR PRIOR TO THE CLOSING:
(a) THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHALL BE TRUE AND
CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING AS IF MADE AT AND AS OF SUCH
DATE;
(b) THE COMPANY SHALL HAVE COMPLIED IN ALL MATERIAL RESPECTS WITH ITS
COVENANTS AND AGREEMENTS UNDER THIS AGREEMENT;
(c) GARY PLAYER, MARC B. PLAYER AND A THIRD DIRECTOR DESIGNATED BY THE
GARY PLAYER GROUP SHALL HAVE BEEN APPOINTED AS DIRECTORS OF THE COMPANY, AND
GARY PLAYER SHALL HAVE BEEN APPOINTED CHAIRMAN OF THE BOARD OF THE COMPANY, EACH
APPOINTMENT TO BE EFFECTIVE IMMEDIATELY FOLLOWING THE CLOSING;
(d) THE FINANCIAL CONTINGENCIES SHALL HAVE BEEN SATISFIED; AND
(e) THE COMPANY SHALL HAVE PAID TO SELLER ALL AMOUNTS DUE AND OWING TO
SELLER UNDER THE DIRECT MARKETING AGREEMENT, BY AND BETWEEN THE COMPANY AND
SELLER, DATED NOVEMBER 1, 1996."
5. Amendment to Section 8.
Section 8 is hereby amended by the addition of Subsections (d), (e) and (f)
as follows:
"(d) For the 12 month period following the Closing, the Company shall pay
to the Seller $5,000 on a monthly basis in arrears for administrative and
overhead expenses.
(e) At the Closing, the Company shall pay to Marc Player $25,000
representing the reimbursement of expenses incurred by Marc Player in
preparation of the Company's terminated initial public offering.
(f) At or following the Closing, the Company shall pay to the Seller
$15,000 representing the reimbursement of expenses incurred by Joseph White in
connection with his relocation to California and subsequent relocation to
Florida and other services performed by him for the Company, upon receipt of
either of the following: (i) a release signed by Joseph White which
UNCONDITIONALLY RELEASES AND FOREVER DISCHARGES THE COMPANY FROM ANY AND ALL
CLAIMS, ACTIONS, DEMANDS, OBLIGATIONS, LIABILITIES, DAMAGES, COSTS, EXPENSES AND
CAUSES OF ACTION, WHETHER KNOWN OR UNKNOWN, ARISING OUT OF OR RELATING FROM OR
RELATING IN ANY WAY TO THAT CERTAIN EMPLOYMENT AGREEMENT, DATED MAY 31, 1998, BY
AND BETWEEN THE COMPANY AND JOSEPH WHITE (THE "EMPLOYMENT AGREEMENT") AND THE
TRANSACTIONS CONTEMPLATED BY THE EMPLOYMENT AGREEMENT, OR (ii) AN INDEMNITY FROM
THE SELLER IN A FORM APPROVED BY THE COMPANY WHICH INDEMNIFIES THE COMPANY
AGAINST ANY CLAIMS MADE BY JOSEPH WHITE FOR THE REIMBURSEMENT OF EXPENSES UNDER
THE EMPLOYMENT AGREEMENT OR OTHERWISE."
3
<PAGE> 4
6. Amendment to Section 9(c).
Section 9(c) is hereby amended as follows:
"(c) Seller or the Company may terminate this Agreement if the Closing has
not occurred on or prior to April 30, 1999; provided that a party may not
terminate this Agreement if the Closing fails to occur by April 30, 1999 because
of its breach or default."
Except as set forth in this Amendment, all the terms and provisions of the
Purchase Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, this Amendment is made and entered as of the date and
the year first above written.
GOLF ONE INDUSTRIES, INC., GARY PLAYER GROUP, INC.,
a Delaware corporation a Florida corporation
By: ___________________________ By: ________________________
Alfonso J. Cervantes, Its:
Chief Executive Officer
4
<PAGE> 5
EXHIBIT A
CONVERTIBLE PREFERRED STOCK
5
<PAGE> 1
EXHIBIT 10.19
WSE LICENSE AGREEMENT
This Agreement (this "AGREEMENT") is made and entered into as of the
1st day of November, 1997 by and between World Services Establishment, a
Liechtensein corporation ("WSE"), and Gary Player Group, Inc., a Florida
corporation ("GPG"), with reference to the following facts:
A. WSE has the sole and exclusive license in perpetuity to use and
sublicense the Player Name in the Exploitation of Endorsed Products in the
Territory (as such terms are hereinafter defined).
B. Gary Player is famous throughout the world as a champion
professional golfer, international celebrity and spokesperson whose endorsement
of products and services has great intrinsic and commercial value.
C. On the terms and subject to the conditions of this Agreement, WSE
desires to grant to Licensee the sole and exclusive right and license to use the
Player Name in the Territory in the Exploitation of Endorsed Products (as such
terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto do hereby agree as follows:
1 GRANT OF RIGHTS; DEFINITIONS
(a) On the terms and subject to the conditions in this Agreement, WSE
hereby grants to Licensee the sole and exclusive right and license (the
"LICENSE") in perpetuity to use the Player Name in the Exploitation of Endorsed
Products throughout the Territory. The License shall commence as of the
Effective Date. The License shall include and encompass without limitation each
and every Intellectual Property Right arising or existing in connection with,
with respect to, or embodied in, the Player Name in connection with the use of
such Player Name in the Exploitation of Endorsed Products.
(b) WSE reserves the right to: (i) produce or cause to be produced, in
connection with the Gary Player Golf Academy, instructional golf videos and
other golf instruction products and aids in any media incorporating the Player
Name ("GOLF INSTRUCTION PRODUCTS") and market and sell Golf Instruction Products
other than on a Direct Marketing Basis (except as provided below); and (ii)
produce, market and sell biographical videos and other biographical products
incorporating the Player Name. Except for the Existing DM Licenses, WSE may
market and sell Golf Instruction Products on a Direct Marketing Basis only
through Licensee, in which event Licensee shall reasonably cooperate with WSE.
WSE and Licensee shall share on an equal basis all Net Revenues from the sale of
Golf Instruction Products on a Direct Marketing Basis. "NET REVENUES" from the
sale of Golf Instruction Products shall mean revenues from such sales less the
related cost of goods sold, including sales commissions. WSE agrees not to renew
or extend any Existing DM License, and will use commercially reasonable efforts
transfer such business to Licensee (but WSE shall not be obligated to breach any
Existing DM License).
<PAGE> 2
"AFFILIATE" shall mean, with respect to any specified Person, (a) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(b) any other Person who is a director, officer, partner or trustee of the
specified Person or a Person described in clause (a) of this definition or any
spouse of the specified Person or any such other Person, (c) any relative of the
specified Person or any other Person described in clause (b) of this definition,
or (d) any Person of which the Specified Person and/or any one or more of the
Persons specified in clause (a),(b) or (c) of this definition, individually or
in the aggregate, beneficially own 10% or more of any class of voting securities
or otherwise have a substantial beneficial interest.
"AGREEMENT YEAR" shall mean a year period commencing with the Effective
Date or an annual anniversary of the Effective Date and terminating one year
thereafter.
"ARTWORK" shall mean photographs, film footage and video footage of
Player participating in golf tournaments, exhibitions and other public
appearances in his capacity as a golf professional.
"ASSET PURCHASE AGREEMENT" shall mean that certain Asset Purchase
Agreement dated as of the date hereof by and between GPG and Golf One pursuant
to which, among other things, GPG has agreed to sell, transfer and assign
certain assets, including its rights under this Agreement, to Golf One.
"DIRECT MARKETING BASIS" shall mean marketing and sales through
infomercials, telemarketing, Internet or other computer systems, direct mail,
CD-ROM, and other direct response marketing channels.
"EFFECTIVE DATE" shall mean date of the closing of the purchase and
sale of the assets contemplated by the Asset Purchase Agreement.
"ELECTRONIC MEDIA" shall mean all forms of electronic, magnetic,
digital, optical and laser-based information storage and retrieval systems,
floppy diskette-based software, CD-ROM, interactive software and compact discs,
floptical disks, ROM Card, silicon chip, on-line electronic or satellite-based
data transmission and other such systems, and any other device or medium for
electronic reproduction, publication, distribution or transmission, whether now
or hereafter known or developed.
"ENDORSED PRODUCTS" shall mean (i) golf clubs, including, but not
limited to Woods, Irons and Specialty Clubs, including Drivers, Wedges, Chippers
and Putters; and (ii) Golf Accessories.
"EXHIBIT" shall mean to produce, transmit, broadcast, telecast, cable
cast, display, exhibit, project, perform, reproduce, publicize, or otherwise
use.
<PAGE> 3
"EXISTING DM LICENSES" shall mean the licenses identified on Exhibit B
to this Agreement as "Existing DM Licenses."
"EXISTING LICENSES" shall mean the licenses described in Exhibit B to
this Agreement other than Existing DM Licenses.
"EXPLOIT" shall mean use, promote, advertise, affix, copy, Exhibit,
distribute, manufacture, sell, market, sublicense, rent, modify, create
derivative works from, practice or otherwise exploit in all forms in any and all
media.
"GOLF ACCESSORIES" shall mean hats, apparel, towels, umbrellas, bags,
balls, audiotapes, videotapes and other products pertaining to the playing of
golf or the marketing, sale and distribution of golf clubs.
"GOLF ONE" shall mean Golf One Industries, Inc., a Delaware
corporation.
"INITIAL QUARTER" shall mean the period commencing the Effective Date
and terminating on the last day of the calendar quarter in which the Effective
Date occurs.
"INTELLECTUAL PROPERTY RIGHTS" shall mean each and every right now or
hereafter recognized and enforced under trademark, service mark, copyright,
patent, trade secret and all other intellectual laws, whether existing by
statute and/or at common law, of each jurisdiction within the world.
"LICENSEE" shall mean the Licensee under this Agreement, which
initially be GPG, and shall be Golf One and its successors and permitted assigns
from and after the Effective Date.
"LICENSE FEE" shall have the meaning set forth in Section 2(a) of this
Agreement.
"MARKETING MATERIALS" shall mean brochures, advertisements, pictures,
photos, films, infomercials, commercials, videos and similar materials used to
market, advertise and promote the Endorsed Products which utilize or incorporate
the Player Name.
"MEDIA PRODUCTION" shall mean television programs and broadcasts, radio
programs and broadcasts, television or radio series, newscasts, documentaries,
video productions, video tapes, video discs, sound tracks, motion picture
productions, and any other form of media production that has been, or may in the
future be, conceived, developed or invented, by any process, instrumentation or
device now known or hereafter developed.
"NET RECEIPTS" during any period shall mean (i) gross revenues of
Licensee from the sale of Endorsed Products throughout the world during such
period less (ii) discounts, incentives, applicable advertising, freight, duty
and commissions, less (iii) all Refunds during such period which are not offset
against Return Reserves, less (iv) all Return Reserves established during such
period with respect to sales of Endorsed Products during such period, plus (v)
all Return Reserves in effect at the beginning of such period which shall not be
used to offset Refunds
<PAGE> 4
during such period. With respect to sales of Endorsed Products by Licensee which
are not manufactured or produced by Licensee or sold only for the account of
Licensee, "gross revenues" shall mean only the selling commissions and fees
received by Licensee, and not the gross revenues from the sale of the Endorsed
Products. For example, if Licensee sublicenses to a third party the right to
incorporate the Player Name on golf hats, and then Licensee acts as sales,
distribution and/or marketing agent for such golf hats on a Direct Marketing
Basis (and collects the full price for such hats from customers), "gross
revenues" shall include only that portion of the sales price for such golf hats
as may be retained by Licensee in connection with the sale of such golf hats.
Net Receipts shall not include revenues from the sale of Golf Instruction
Products produced or on behalf of WSE which are sold by Licensee on a Direct
Marketing Basis, as contemplated by Section 1(b) of this Agreement.
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
"PLAYER" shall mean Gary Player, a professional golfer.
"PLAYER AGREEMENT" shall mean that certain Player License Agreement
dated the date hereof by and between Player and GPG pursuant to which Player has
granted to GPG the exclusive perpetual right to use the Player Name in the
Exploitation of Endorsed Products outside the Territory.
"PLAYER NAME" shall mean the name "Gary Player," the initials, voice,
signature and likeness of Player, the Knight's Head Logo, the trademark BLACK
KNIGHT(TM) and any other trademark presently or hereafter used by Player in
connection with Endorsed Products.
"PLAYER PERCENTAGE" for any Royalty Year shall mean the percentage
obtained by dividing the Subject Net Receipts for such Royalty Year by the Net
Receipts for such Year.
"PLAYER/WSE LICENSE" shall mean that certain Memorandum of Agreement
dated as of January 1, 1967 between Player and WSE, as amended by that certain
Amendment Agreement dated January 1, 1987, that certain letter dated January 1,
1997 and that certain letter dated April 17, 1998.
"REFUNDS" shall mean amounts refunded by Licensee to customers for any
reason, including for product returns, damaged products, canceled orders or
otherwise relating to Endorsed Products.
"RETURN RESERVE" shall mean reserves reasonably maintained by the
Company from time to time for Refunds.
"ROYALTY QUARTER" shall mean a calendar quarter, provided that the
first Royalty Quarter shall be Initial Quarter.
<PAGE> 5
"ROYALTY STATEMENT" shall mean a Royalty Statement as defined in
Section 2(b) of this Agreement.
"ROYALTY YEAR" shall mean a period commencing April 1 and terminating
the following March 31; provided that the first Royalty Year shall be the period
commencing on the Effective Date and ending on the following March 31 and the
last Royalty Year (if any) shall be the period ending on the date this Agreement
terminates and commencing on the immediately prior April 1.
"SUBJECT NET RECEIPTS" shall mean Net Receipts from sales in the
Territory.
"TERRITORY" shall mean all parts of the world other than the United
States of America and its possessions, Canada, the Commonwealth of Puerto Rico
and each country or territory in the continent of Africa which is lies
completely south of the Equator.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration.
2. REMUNERATION
(a As full and complete consideration for the License as set forth
herein, and for WSE making available the ancillary marketing services of Player
to be performed hereunder, Licensee shall pay to WSE the following amounts set
forth in Sections 2(b) and 2(c).
(b Licensee shall pay to WSE the following endorsement fees (the
"LICENSE FEES"):
<TABLE>
<CAPTION>
AGREEMENT YEAR AMOUNT
<S> <C>
1 $112,500
2 $150,000
3 $187,500
4 $225,000
5-10 $262,500 (per year)
</TABLE>
The obligation to pay License Fees shall terminate on the earlier to
occur of: (i) the first date that Player has not played in at least 10
internationally televised professional golf tournaments in the prior 12 months
(the "TOURNAMENT TEST") and is no longer the Chairman of the Board of Golf One;
and (i) the tenth anniversary of the Effective Date; provided, however, that if
prior to the end of the fifth Agreement Year a Removal Event occurs, Player
shall be entitled to continue to receive the License Fees through the end of the
fifth Agreement Year following the Agreement Year immediately prior to the
Agreement Year in which the Removal Event occurs provided he continues to meet
the Tournament Test. A "REMOVAL EVENT" shall be deemed to
<PAGE> 6
occur if: (i) Player is removed by the shareholders of Golf One without cause as
Chairman of the Board of Golf One or (ii) at any shareholders' meeting at which
Player's position as director is up for election, Player is not re-elected by
the shareholders as a director of Golf One (assuming he has continued to serve
through the date of such meeting). The License Fee for each Agreement Year shall
be paid in four equal installments on a quarterly basis within 30 days following
the end of each calendar quarter during the Year, commencing with the first
calendar quarter which ends in such Year. The payment for any period which is
not a full calendar quarter shall be prorated other than in the period in which
this Agreement is terminated by Player pursuant to Section 8(b) of this
Agreement.
(c In addition to the License Fee, each Royalty Year Licensee shall
pay to WSE a royalty (the "ROYALTY") equal to the Player Percentage for such
Royalty Year multiplied by the sum of: (i) 3% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of $10,000,000
and are less than or equal to $20,000,000; (ii) 2% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of
$20,000,000; and (iii) 3% of Net Receipts from Net Sales of Endorsed Products
other than on a Direct Marketing Basis. The $10,000,000 and $20,000,000 amounts
shall be prorated for the first and last Royalty Years. The Royalty shall be
advanced on a quarterly basis, within 30 days from the end of each Royalty
Quarter, based on the good faith estimate of the Player Percentage determined
for the year-to-date. It is understood that notwithstanding any advances of the
Royalty, the actual Royalty for any Royalty Year shall be determined in
accordance with the formula set forth in first sentence of this Section 2(c),
and that the final payment of the Royalty for such Royalty Year shall be the
difference between the amount of the Royalty determined in accordance with such
first sentence and the amounts previously advanced. If the amount of Royalty
advanced for any Royalty Year shall exceed the actual Royalty determined in
accordance with such first sentence, Licensee shall offset such excess against
future Royalties or other obligations payable under this Agreement; provided,
however, that if the amount of overpayment exceeds 10% of the total Royalty for
such Royalty Year, the Company may demand the refund of such of excess from
Licensor.
(d Within 30 days following the end of each Royalty Quarter, Licensee
shall deliver to WSE a royalty statement (a "ROYALTY STATEMENT") setting forth
the Net Receipts for the Quarter and the calculation of the Royalty, which
Statement shall be certified by an executive officer of Licensee as being true
and complete. Each Royalty Statement shall be conclusive and binding upon WSE as
to the amount of the Royalty for the Royalty Quarter covered by such Statement
unless WSE shall object in writing within two years following receipt of such
Royalty Statement. Upon reasonable prior notice, WSE shall have the right to
examine Licensee's books and records (but in no more than twice each Royalty
Year) to the extent reasonably necessary to determine the accuracy and
completeness of the information on such Statement. Such examination shall be
made during Licensee's usual business hours at the place where such books and
records are maintained. Unless such examination and inspection results in a
determination that Licensee underpaid the Royalty in either of the two prior
Royalty Years by more than the greater of 5% of the Royalty actually due or
$2,500, such examination shall be at the cost and expense of WSE. If such
examination or inspection shows that the Royalty in either of the two prior
Royalty Years shall
<PAGE> 7
have underpaid by more than the greater of 5% of the Royalty actually due or
$2,500, all costs and expenses for such examination, up to $10,000 per
examination, shall be paid by Licensee.
3. WSE APPROVALS
(a Licensee agrees that all uses of the Player Name in connection with
the Exploitation of Endorsed Products in the Territory, including in connection
with Marketing Materials and the quality of the Endorsed Products, will be
subject to prior approval of WSE, which approval will not be unreasonably
withheld. It is understood that, with respect to the use of the Player Name,
each approval shall relate to the use of the Player Name in connection with the
form and content of the Marketing Materials and/or the incorporation of the
Player Name on Endorsed Products, and that once given, no further approval shall
be required with respect to multiple uses of approved uses the Player Name or
immaterial variances in the Marketing Materials (immateriality be determined by
reference to the materiality of such change to WSE). Any approvals required by
WSE or requested of WSE pursuant to the terms hereof shall be given by confirmed
facsimile or certified mail to Licensee within a reasonable time from the date
of receipt by WSE of the materials for which approval is requested. In the event
no response by WSE is received by Licensee within 10 days from receipt of such
materials by WSE, the approvals shall be deemed given. All sublicenses, other
than those in effect on the date hereof, must permit Licensee (and indirectly
WSE) the same right of approval unless otherwise agreed in writing by WSE. WSE
may from time to time delegate to one person, or any one of several persons, its
approval rights by written notice to Licensee, in which event until such
delegation is withdrawn by written notice to Licensee, all approvals may be
granted by such person or persons.
(b Licensee shall own the copyright to all Marketing Materials. WSE
shall take any action reasonably requested by Licensee to confirm such
ownership. Licensee acknowledges that it does not own the Player Name.
4. WSE'S WARRANTIES AND COVENANTS
<PAGE> 8
(a WSE warrants and represents as follows: (i) WSE has all right,
power and authority to enter into this Agreement and grant the License; (ii) WSE
has the exclusive rights to use the Player Name in the Exploitation of Endorsed
Products in the Territory; (iii) except pursuant to this Agreement and the
Existing Licenses, no Person has any right to use the Player Name in the
Exploitation of Endorsed Products in the Territory and there are no licenses or
other rights presently outstanding for the use of the Player Name in the
Exploitation of the Endorsed Products in the Territory; (iv) the Exploitation of
the Player Name in connection with Endorsed Products contemplated by this
Agreement will not violate or infringe upon the rights (including, but not
limited to, the Intellectual Property Rights) of any Persons anywhere in the
world; (v) the use of the Player Name as contemplated by this Agreement will not
require any payments to any Person other than to WSE pursuant to this Agreement;
and (vi) WSE has provided to Licensee a true and correct copy of the Player/WSE
License; the Player/WSE License is in full force and effect, constitutes a valid
and legally binding obligation of Player and WSE, enforceable against Player and
WSE in accordance with its terms, and neither Player nor WSE is in breach of or
in default under the Player/WSE License and in no event has occurred or
circumstance exists which, with notice or lapse of time or both, would
constitute a breach of or default under the Player/WSE License. Licensee
acknowledges that WSE makes no representations with respect to the use of any
other Intellectual Property Rights in connection with any Marketing Materials or
the Exploitation of the Player Name.
(b WSE agrees that from and after the date hereof, WSE shall not
directly or indirectly use the Player Name in the Exploitation of any Endorsed
Products, or Transfer any right or license to use the Player Name in the
Exploitation of Endorsed Products.
(c Notwithstanding anything to the contrary contained herein, it is
mutually understood that WSE has no control over, and is not responsible for:
(i the media, including without limitation, any news, media
photographs or other depictions of Player that may appear from time to time;
(ii the content of the advertising or sponsorship portion not
directly involving WSE of:
(A any Media Production;
(B any athletic tournament, game or outing; or
(C any other event, including without limitation, any live
artistic, literary, dramatic, theatrical or musical
production or charitable event, in which Player
participates or with which he is otherwise associated.
(iii the products and services endorsed, promoted, advertised or
publicized by any other team, league or association for which Player may play or
with respect to which he may become associated or by any of their respective
successors and assigns;
<PAGE> 9
all or any of which may use Player's name, fame, nickname, initials, autograph,
voice, video or film portrayals, facsimile or original signature, photograph,
likeness and image or facsimile image, without Player's consent and in any or
all of which Player may appear or participate. Licensee agrees that WSE shall
not be, and shall not be deemed to be, in contravention or breach of any of the
provisions hereof as a result of any or all of the foregoing or arising in
connection therewith.
(d The restrictions set forth in this Agreement are not intended to
preclude and shall not preclude Player from appearing in the sports,
entertainment, news or information portion of:
(i any form of Media Production; or
(ii any professional golf tournament; or
(iii any other entertainment event, including without limitation,
any live artistic, literary, dramatic, theatrical or musical production;
in which or in connection with which products or services are advertised,
publicized, featured or otherwise dealt with that are the same as or similar to
or competitive with Endorsed Products or that are sponsored by competitors of
Licensee, provided that Player's participation is not for the endorsement of
such products or services.
(e WSE is not responsible for initiating action against, enjoining or
otherwise attempting to dissuade any Person not licensed by WSE, including
without limitation, any former licensee of WSE, the media or any advertiser,
promoter or other entity, which in contravention of this Agreement or otherwise
makes unauthorized use of anything, including without limitation, any
unauthorized use of the Player Name in promoting or advertising any product (or
products) or services whatsoever, including without limitation, any products
which are the same as or similar to or directly competitive with Endorsed
Products. WSE shall not incur any liability to Licensee or any Person arising
out of any such activity by any such Person. WSE agrees that at Licensee's sole
cost and expense, it shall give such reasonable assistance to Licensee as may be
required to cause any such Person to cease and desist from such activities, or
in connection with any lawsuit or other proceeding by Licensee against such
Person.
(f To the extent that WSE has (and has all necessary rights to) any
Artwork which Licensee believes would be useful in the Exploitation of Endorsed
Products, WSE shall furnish such Artwork to Licensee on a royalty-free basis.
Licensee shall be responsible for all shipping and handling charges in
connection with such Artwork, shall safekeep such Artwork and be responsible for
it while in transit, and after use of such Artwork, Licensee shall return such
Artwork to WSE. It is understood that such Artwork may not be reproduced for
sale but just used in connection with the advertisement and promotion of
Endorsed Products. Any such use of Artwork is subject to WSE's prior approval
pursuant to Section 3(a) of this Agreement. To the extent that any Artwork is
owned by Persons other than WSE, upon request of Licensee, WSE shall provide
such consents or approvals to such other Persons as may be necessary for
Licensee to acquire (at no cost or expense to WSE) the right to use such
Artwork.
<PAGE> 10
(g WSE agrees: (i) not to amend or modify the Player/WSE License
without the prior written consent of: (A) GPG until such time as GPG has
assigned this Agreement to Golf One and (B) Golf One unless and until the Asset
Purchase Agreement shall be terminated without the closing of the transactions
contemplated thereby, in which event the agreement in this Section 4(g)(i) shall
terminate; and (ii) that should the Player/WSE License terminate, this Agreement
shall be deemed to be an agreement between Player and GPG (or its assignee),
without further action of any Person, and thereafter WSE shall have no rights
under this Agreement and Player shall succeed to the rights of WSE.
5. INDEMNIFICATION; LIABILITY
(a WSE agrees to indemnify and hold Licensee and its successors and
permitted assigns, and their respective Affiliates ("LICENSEE INDEMNIFIED
PARTY") harmless from and against any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by any Licensee Indemnified Party arising out of breach by WSE of any
warranty, representation or covenant hereunder or the use pursuant to this
Agreement by such Licensee Indemnified Party of the Player Name.
(b Licensee agrees to indemnify and hold WSE and its successors and
permitted assigns, and their respective Affiliates, including Player if Player
assumes the obligations of WSE pursuant to Section 4(g) ("PLAYER INDEMNIFIED
PARTY") harmless from and against any and all claims, losses, damages,
liabilities and expenses (including attorneys fees and court costs) suffered or
incurred by any Player Indemnified Party arising out of a breach by Licensee of
any warranty, representation or covenant hereunder, from the Exploitation by
Licensee of the Endorsed Products, from Endorsed Products, from the use of the
Player Name and from the violation of any law, rule or regulation in connection
with the Exploitation of the Player Name (other than claims, losses, damages,
liabilities and expenses (including attorneys fees and court costs) related to a
breach by WSE of any of its representations, warranties or covenants under this
Agreement, such as an infringement claim against Licensee for infringement of
another Person's rights based solely on the use by Licensee of the Player Name
other than with the respect to use of other Intellectual Property Rights in
connection therewith).
(c In no event shall any party to this Agreement be liable to the
other for punitive, indirect or special damages.
6. INSURANCE. From and after the Effective Date, Licensee shall provide
and maintain, at its own expense, commercial general liability insurance,
including product liability and advertising injury coverage, with limits of not
less than $5,000,000, and shall cause such policy to be endorsed to state that
WSE is an additional named insured thereunder. A certificate of insurance
evidencing such coverage shall be furnished to WSE within 30 days following the
Effective Date. Such insurance policy shall provide that the insurer shall not
terminate or materially modify such policy or remove WSE as an additional named
insured without prior written notice to WSE at least 30 days in advance thereof.
<PAGE> 11
7. RESERVATION OF RIGHTS
WSE reserves all rights pertaining to the Player Name which it holds
pursuant to the Player/WSE License except as specifically granted to Licensee
hereunder.
8. TERMINATION
(a Licensee shall have the right, upon 30 days prior written notice to
WSE, to terminate this Agreement in the event that governmental regulations or
other causes arising out of a state of national emergency or war, or causes
beyond Licensee's control, render Licensee's performance under this Agreement
materially impaired.
(b In the event that either party defaults in any material respect
under any of the material terms or conditions set forth herein, including but
not limited to payments, the non-defaulting party shall send a notice to cure by
either certified or registered mail return receipt requested to the defaulting
party. Failure by the defaulting party to cure the default within 30 days of
receipt of the notice to cure shall give the right to the non-defaulting party,
in its sole discretion, to terminate this Agreement.
(c Licensee shall have the right to terminate this Agreement upon
written notice to WSE in the event that the Player Agreement shall be terminated
other than termination by Player in accordance with the Player Agreement as a
result of the default by Licensee under the Player Agreement.
(d WSE shall have the right to terminate this Agreement after the
Effective Date in the event of termination of the Player Agreement by Player as
a result of the default by Licensee under such Agreement following the Effective
Date.
(e Promptly following termination of this Agreement, Licensee shall
provide WSE with a statement indicating the remaining Endorsed Products in
inventory, in process of manufacture or subject to non-cancelable orders as of
the termination date ("REMAINING PRODUCTS"). Unless this Agreement is terminated
by WSE pursuant to Section 8(b) or 8(d) hereof or by Licensee pursuant to
Section 8(a) or 8(h), Licensee shall have the right to sell any Remaining
Products for a period of six months after termination of this Agreement (the
"SELL-OFF PERIOD"). Notwithstanding the foregoing, Licensee shall not have the
right, other than with respect to Remaining Products, to manufacture any
additional Endorsed Products. No License Fee shall accrue during the Sell-Off
Period provided that the Royalty shall accrue during the Sell-Off Period and be
payable as contemplated by Section 2(b) of this Agreement. Upon the expiration
of the Sell-Off Period, or termination by WSE pursuant to Section 8(b) or 8(d)
of this Agreement, Licensee shall destroy any remaining inventory and shall
certify same by declaration executed by an executive officer of Licensee.
(f The termination of this Agreement for any reason will not have any
effect on: (i) the rights of WSE to collect any amounts due and owing under this
Agreement; (ii) the rights of Licensee to sell its remaining inventory in
accordance with Section 8(e) except as provided in
<PAGE> 12
Section 8(e) hereof; (iii) the rights to indemnification pursuant to Section 5
of this Agreement; and (iv) the rights to damages or other legal or equitable
relief for breaches or defaults occurring prior to the termination of the
Agreement.
(g If WSE files a petition in bankruptcy or is adjudicated bankrupt,
or becomes insolvent or makes an assignment for the benefit of creditors or
other similar arrangement or discontinues business, or if a receiver is
appointed for it or its business, this Agreement shall not terminate upon the
occurrence of any such event and WSE shall not have the authority to Transfer
any rights of any nature for the use of the Player Name or any Endorsed Products
in conflict with this Agreement or to reject any rights hereunder.
(h If Licensee files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangements or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall terminate
upon the occurrence of such event.
9. MISCELLANEOUS.
(a Notices. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, confirmed facsimile
transmission or by United States first class, registered or certified mail,
postage prepaid, addressed to the party at the address set forth on the
signature page of this Agreement. Any Notice, other than a Notice sent by
registered or certified mail, shall be effective when received; a Notice sent by
registered or certified mail, postage prepaid return receipt requested, shall be
effective on the earlier of when received or the fifth day following deposit in
the United States mails. Any party may from time to time change its address for
further Notices hereunder by giving notice to the other party in the manner
prescribed in this Section.
(b Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement. This Agreement may not be amended prior to
the Effective Date without the prior written consent of Golf One unless and
until the Asset Purchase Agreement is terminated.
(d Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California without giving effect to the principles of conflicts of law
thereof.
<PAGE> 13
(e Severability. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(f Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(h Attorneys' Fees. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a default in
the performance by any party to this Agreement of its obligations under this
Agreement, the prevailing party shall recover all of such party's attorneys'
fees incurred in each and every such action, suit, arbitration or other
proceeding, including any and all appeals or petitions therefrom. As used in
this Section, attorneys' fees shall be deemed to mean the full and actual costs
of any legal services actually performed in connection with the matters involved
calculated on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined in
any statute or rule of court.
(i Further Assurances. The parties to this Agreement shall upon
request take any and all actions and execute any and all documents reasonably
necessary to effectuate the terms and intent of this Agreement.
(j Judicial Interpretation. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
(k Independent Relationship. This Agreement does not constitute and
shall not be construed to constitute an agency, a partnership or a joint venture
agreement between WSE and Licensee. Licensee shall not have authority to
obligate or bind WSE in any manner whatsoever, subject to the provisions stated
herein and only as WSE may specifically approve in writing prior thereto. WSE
and Licensee shall be deemed independent contractors in all respects.
(l Assignments. WSE may not Transfer its rights or obligations under
this Agreement except that WSE may assign its right to receive the License Fee
and the Royalty. Licensee may not Transfer its rights or obligations under this
Agreement except: (i) to a subsidiary or to a Person who controls Licensee;
and/or (ii) through a merger or consolidation of Licensee with another Person
(other than an Excluded Purchaser); and/or (iii) the sale by Licensee of all or
substantially all of its assets to another Person (other than an Excluded
Purchaser); and/or (iv)
<PAGE> 14
GPG may assign its rights and obligations to Golf One pursuant to the Asset
Purchase Agreement. For purposes of this Agreement, an "EXCLUDED PURCHASER" is a
Person: (i) whose sales of golf clubs in the United States exceeded 10% of the
total sales of golf clubs in the United States during the calendar year prior to
the sale or merger date, based on industry reports (or, if no such report is
available for such prior calendar year, the most recent prior calendar year for
which such report is available); (ii) whose corporate name includes the name of
any recognized professional golfer; or (iii) which has over 25% of its capital
stock owned by a recognized professional golfer. Any assignee permitted pursuant
to the terms of this Section 8(l) must be capable of fulfilling all terms of
this Agreement and, further, except for the assignment from Licensee to Golf
One, no such assignment shall act to relieve the assignor of its obligations and
duties under this Agreement. Upon the request of Golf One following the
assignment of this Agreement to Golf One, WSE and Golf One shall enter into a
new contract, identical to this Agreement, deleting references to GPG.
(m Force Majeure. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is prevented from
performing any such obligations (other than, in all events, the payment of
money) due to causes or events beyond its control, including, without
limitation, acts of God, fire, flood, earthquake, strike or other labor problem,
injunction or other legal restraint, present or future law, governmental order,
rule or regulation, then such delay or nonperformance shall be excused and the
time for performance thereof shall be extended to include the period of such
delay or nonperformance.
(n Arbitration. All disputes, controversies or differences which are
not settled by common accord shall be conclusively settled by arbitration in Los
Angeles, California, in accordance with the rules of the American Arbitration
Association, and judgment and the award rendered by the arbitration panel may be
entered in any court or tribunal of competent jurisdiction. In any arbitration
proceeding conducted pursuant to this Section, both parties shall have the right
to discovery, to call witnesses and to cross-examine the other party's witnesses
(either through legal counsel, expert witnesses or both). All decisions of the
arbitration panel shall be final, conclusive and binding upon all parties, and
shall not be subjected to judicial review. The arbitration provisions of this
Agreement shall not prevent any party from obtaining injunctive relief from a
court of competent jurisdiction to enforce the obligations for which such party
may obtain provisional relief pending any decision on such merits by an
arbitrator.
(o Remedies. In the event either party materially breaches this
Agreement, Licensee and WSE agree that, in addition to any and all other
remedies available at law or in equity, the non-breaching party shall be
entitled to injunctive relief to the extent permitted by law from further
violation of this Agreement, during any proceeding as well as on final
determination thereof, without prejudice to any other right of either party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GARY PLAYER GROUP, INC.
By:_____________________________
<PAGE> 15
Its:____________________________
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
WORLD SERVICES ESTABLISHMENT
By: ___________________________
Its: ____________________________
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
ACKNOWLEDGMENT AND AGREEMENT
The undersigned, the licensor under the Player/WSE License, hereby
acknowledges and agrees as follows:
1. The undersigned consents to WSE entering into this Agreement, and
acknowledges that this Agreement and the rights granted hereunder are consistent
with the Player/WSE License;
2. The undersigned agrees that the Player/WSE License shall not be
modified or amended in any manner without the prior written consent of: (i) GPG
until such time as GPG has assigned this Agreement to Golf One and (ii) Golf One
unless and until that certain Asset Purchase Agreement dated November 1, 1997
(the "Asset Purchase Agreement") between Golf One and GPG shall be terminated
without the closing of the transactions contemplated thereby, in which event
these restrictions will terminate;
3. The undersigned agrees that if for any reason the Player/WSE License
shall be terminated, this Agreement shall remain in full force and effect and,
without any further action, the undersigned shall be deemed to have assumed all
of the obligations and duties of WSE under this Agreement and shall have
succeeded to all of the rights, whether contingent, accrued or future, of WSE
under this Agreement; in this connection, the undersigned agrees to execute such
documents and instruments as shall be reasonably requested by GPG (or its
successor) to evidence such assumption;
4. The undersigned agrees to take no action that would be inconsistent
with the rights of GPG or Golf One under this Agreement or the undersigned's
ability to fully and faithfully
<PAGE> 16
perform the obligations of WSE under this Agreement should the undersigned
succeed to the rights and obligations of WSE under this Agreement as provided in
Section 3 of this Agreement;
5. The undersigned acknowledges and agrees that none of his covenants
or agreements under this Acknowledgment and Agreement may be modified, amended,
rescinded or terminated without the prior written consent of Golf One, unless
the Asset Purchase Agreement shall be terminated without the closing of the
transactions contemplated thereby, in which event this restriction shall
terminate.
-------------------
Gary Player
<PAGE> 17
EXHIBIT A TO AGREEMENT
BETWEEN
GARY PLAYER GROUP, INC. AND GARY PLAYER
[INTENTIONALLY LEFT BLANK]
Exhibit A - 1
<PAGE> 18
EXHIBIT B
EXISTING LICENSES AND EXISTING DM LICENSES
Existing Licenses:
1. Agreement, dated January 1, 1996, by and between Gary Player Golf Equipment
Inc. and YGM Marketing Pte Ltd.
2. Agreement, dated November 15, 1996, by and between Gary Player Golf
Equipment Inc. and Toppoint Corporation Limited.
3. Licensing Agent Agreement, dated September 24, 1996, by and between Gary
Player Golf Equipment Inc. and International Apparel Marketing Corporation.
4. Agreement, dated January 17, 1997, by and between Gary Player Golf
Equipment Inc. and Scorpion Asia Pacific Pte., Ltd.
5. Agreement, dated October 1, 1996, by and between Gary Player Golf Equipment
Inc. and Robern Skiwear Inc.
6. Licensing Agreement, dated July 1, 1997, by and between Gary Player Group,
Inc., dba Gary Player Golf Equipment, and Cali-Fame of Los Angeles, Inc.
7. Agreement, dated July 1, 1997, by and between Gary Player Group, Inc., dba
Gary Player Golf Equipment, and PT. Bintoro Agung.
Existing DM Licenses:
1. Endorsement Agreement, dated August 1, 1997 by and between Richter
Innovative Corporation and Gary Player Group, d.b.a. Gary Player Golf
Equipment Inc.
EXHIBIT B - 1
<PAGE> 1
Exhibit 10.20
PLAYER LICENSE AGREEMENT
This Agreement (this "AGREEMENT") is made and entered into as of the
1st day of November, 1997 by and between Gary Player ("PLAYER"), an individual,
and Gary Player Group, Inc., a Florida corporation ("GPG"), with reference to
the following facts:
A. Player is famous throughout the world as a champion professional
golfer, international celebrity and spokesperson whose endorsement of products
and services has great intrinsic and commercial value.
B. Player has the right to provide for the use of the Player Name (as
hereinafter defined) as provided for in this Agreement.
C. On the terms and subject to the conditions of this Agreement, Player
desires to grant to Licensee the sole and exclusive right and license to use the
Player Name in the Territory in the Exploitation of Endorsed Products (as such
terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereto do hereby agree as follows:
1 GRANT OF RIGHTS; DEFINITIONS
(a On the terms and subject to the conditions in this Agreement, Player
hereby grants to Licensee the sole and exclusive right and license (the
"LICENSE") in perpetuity to use the Player Name in the Exploitation of Endorsed
Products throughout the Territory. The License shall commence as of the
Effective Date. The License shall include and encompass without limitation each
and every Intellectual Property Right arising or existing in connection with,
with respect to, or embodied in, the Player Name in connection with the use of
such Player Name in the Exploitation of Endorsed Products. The License shall
also include the right to use "Gary Player" as part of Licensee's corporate
name, subject to approval of the full corporate name by Player, which approval
will not be unreasonably withheld (and Player hereby approves the name "Gary
Player Golf, Inc.").
(b Player reserves the right to: (i) produce or cause to be produced,
in connection with the Gary Player Golf Academy, instructional golf videos and
other golf instruction products and aids in any media incorporating the Player
Name ("GOLF INSTRUCTION PRODUCTS") and market and sell Golf Instruction Products
other than on a Direct Marketing Basis (except as provided below); and (ii)
produce, market and sell biographical videos and other biographical products
incorporating the Player Name. Except for the Existing DM Licenses, Player may
market and sell Golf Instruction Products on a Direct Marketing Basis only
through Licensee, in which event Licensee shall reasonably cooperate with
Player. Player and Licensee shall share on an equal basis all Net Revenues from
the sale of Golf Instruction Products on a Direct Marketing Basis. "NET
REVENUES" from the sale of Golf Instruction Products shall mean revenues from
such sales less the related cost of goods sold, including sales commissions.
Player agrees not to renew or extend
<PAGE> 2
any Existing DM License, and will use commercially reasonable efforts transfer
such business to Licensee (but Player shall not be obligated to breach any
Existing DM License).
(c For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"AFFILIATE" shall mean, with respect to any specified Person, (a)
any other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(b) any other Person who is a director, officer, partner or trustee of the
specified Person or a Person described in clause (a) of this definition or any
spouse of the specified Person or any such other Person, (c) any relative of the
specified Person or any other Person described in clause (b) of this definition,
or (d) any Person of which the Specified Person and/or any one or more of the
Persons specified in clause (a),(b) or (c) of this definition, individually or
in the aggregate, beneficially own 10% or more of any class of voting securities
or otherwise have a substantial beneficial interest.
"AGREEMENT YEAR" shall mean a year period commencing with the
Effective Date or an annual anniversary of the Effective Date and terminating
one year thereafter.
"ARTWORK" shall mean photographs, film footage and video footage of
Player participating in golf tournaments, exhibitions and other public
appearances in his capacity as a golf professional.
"ASSET PURCHASE AGREEMENT" shall mean that certain Asset Purchase
Agreement dated as of the date hereof by and between GPG and Golf One pursuant
to which, among other things, GPG has agreed to sell, transfer and assign
certain assets, including its rights under this Agreement, to Golf One.
"DIRECT MARKETING BASIS" shall mean marketing and sales through
infomercials, telemarketing, Internet or other computer systems, direct mail,
CD-ROM, and other direct response marketing channels.
"EFFECTIVE DATE" shall mean date of the closing of the purchase and
sale of the assets contemplated by the Asset Purchase Agreement.
"ELECTRONIC MEDIA" shall mean all forms of electronic, magnetic,
digital, optical and laser-based information storage and retrieval systems,
floppy diskette-based software, CD-ROM, interactive software and compact discs,
floptical disks, ROM Card, silicon chip, on-line electronic or satellite-based
data transmission and other such systems, and any other device or medium for
electronic reproduction, publication, distribution or transmission, whether now
or hereafter known or developed.
"ENDORSED PRODUCTS" shall mean (i) golf clubs, including, but not
limited to Woods, Irons and Specialty Clubs, including Drivers, Wedges, Chippers
and Putters; and (ii) Golf Accessories.
<PAGE> 3
"EXHIBIT" shall mean to produce, transmit, broadcast, telecast,
cable cast, display, exhibit, project, perform, reproduce, publicize, or
otherwise use.
"EXISTING DM LICENSES" shall mean the licenses identified on
Exhibit B to this Agreement as "Existing DM Licenses."
"EXISTING LICENSES" shall mean the licenses described in Exhibit B
to this Agreement other than Existing DM Licenses.
"EXPLOIT" shall mean use, promote, advertise, affix, copy, Exhibit,
distribute, manufacture, sell, market, sublicense, rent, modify, create
derivative works from, practice or otherwise exploit in all forms in any and all
media.
"GOLF ACCESSORIES" shall mean hats, apparel, towels, umbrellas,
bags, balls, audiotapes, videotapes and other products pertaining to the playing
of golf or the marketing, sale and distribution of golf clubs.
"GOLF ONE" shall mean Golf One Industries, Inc., a Delaware
corporation.
"INITIAL QUARTER" shall mean the period commencing the Effective
Date and terminating on the last day of the calendar quarter in which the
Effective Date occurs.
"INTELLECTUAL PROPERTY RIGHTS" shall mean each and every right now
or hereafter recognized and enforced under trademark, service mark, copyright,
patent, trade secret and all other intellectual laws, whether existing by
statute and/or at common law, of each jurisdiction within the world.
"LICENSEE" shall mean the Licensee under this Agreement, which
initially be GPG, and shall be Golf One and its successors and permitted assigns
from and after the Effective Date.
"LICENSE FEE" shall have the meaning set forth in Section 2(a) of
this Agreement.
"MARKETING MATERIALS" shall mean brochures, advertisements,
pictures, photos, films, infomercials, commercials, videos and similar materials
used to market, advertise and promote the Endorsed Products which utilize or
incorporate the Player Name.
"MEDIA PRODUCTION" shall mean television programs and broadcasts,
radio programs and broadcasts, television or radio series, newscasts,
documentaries, video productions, video tapes, video discs, sound tracks, motion
picture productions, and any other form of media production that has been, or
may in the future be, conceived, developed or invented, by any process,
instrumentation or device now known or hereafter developed.
"NET RECEIPTS" during any period shall mean (i) gross revenues of
Licensee from the sale of Endorsed Products throughout the world during such
period less (ii) discounts, incentives, applicable advertising, freight, duty
and commissions, less (iii) all Refunds during such
3
<PAGE> 4
period which are not offset against Return Reserves, less (iv) all Return
Reserves established during such period with respect to sales of Endorsed
Products during such period, plus (iv) all Return Reserves in effect at the
beginning of such period which shall not be used to offset Refunds during such
period. With respect to sales of Endorsed Products by Licensee which are not
manufactured or produced by Licensee or sold only for the account of Licensee,
"gross revenues" shall mean only the selling commissions and fees received by
Licensee, and not the gross revenues from the sale of the Endorsed Products. For
example, if Licensee sublicenses to a third party the right to incorporate the
Player Name on golf hats, and then Licensee acts as sales, distribution and/or
marketing agent for such golf hats on a Direct Marketing Basis (and collects the
full price for such hats from customers), "gross revenues" shall include only
that portion of the sales price for such golf hats as may be retained by
Licensee in connection with the sale of such golf hats. Net Receipts shall not
include revenues from the sale of Golf Instruction Products produced by or on
behalf of Player which are sold by Licensee on a Direct Marketing Basis, as
contemplated by Section 1(b) of this Agreement.
"PERSON" shall mean an individual or a partnership, corporation,
trust, association, limited liability company, governmental authority or other
entity.
"PLAYER NAME" shall mean the name "Gary Player," the initials,
voice, signature and likeness of Player, the Knight's Head Logo, the trademark
BLACK KNIGHT(TM) and any other trademark presently or hereafter used by Player
in connection with Endorsed Products.
"PLAYER PERCENTAGE" for any Royalty Year shall mean the percentage
obtained by dividing the Subject Net Receipts for such Royalty Year by the Net
Receipts for such Year.
"PLAYER/WSE LICENSE" shall mean that certain Memorandum of
Agreement dated as of January 1, 1967 between Player and WSE, as amended by that
certain Amendment Agreement dated January 1, 1987, that certain letter dated
January 1, 1997 and that certain letter dated April 17, 1998.
"REFUNDS" shall mean amounts refunded by Licensee to customers for
any reason, including for product returns, damaged products, canceled orders or
otherwise relating to Endorsed Products.
"RETURN RESERVE" shall mean reserves reasonably maintained by the
Company from time to time for Refunds.
"ROYALTY QUARTER" shall mean a calendar quarter, provided that the
first Royalty Quarter shall be Initial Quarter.
"ROYALTY STATEMENT" shall mean a Royalty Statement as defined in
Section 2(b) of this Agreement.
"ROYALTY YEAR" shall mean a period commencing April 1 and
terminating the following March 31; provided that the first Royalty Year shall
be the period commencing on the
4
<PAGE> 5
Effective Date and ending on the following March 31 and the last Royalty Year
(if any) shall be the period ending on the date this Agreement terminates and
commencing on the immediately prior April 1.
"SUBJECT NET RECEIPTS" shall mean Net Receipts from sales in the
Territory.
"TERRITORY" shall mean the United States of America and its
possessions, Canada, the Commonwealth of Puerto Rico and each country or
territory in the continent of Africa which is lies completely south of the
Equator.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration.
"WSE" shall mean World Services Establishment, a Liechtensein
corporation.
"WSE AGREEMENT" shall mean that certain WSE License Agreement dated
the date hereof by and between GPG and WSE pursuant to which WSE has granted to
GPG the exclusive perpetual right to use the Player Name in the Exploitation of
Endorsed Products in the world except for the Territory.
2. REMUNERATION
(a As full and complete consideration for the License as set forth
herein, and for the ancillary marketing services of Player to be performed
hereunder, Licensee shall pay to Player the following amounts set forth in
Sections 2(b) and 2(c).
(b Licensee shall pay to Player the following license fees (the
"LICENSE FEES"):
AGREEMENT YEAR AMOUNT
1 $37,500
2 $50,000
3 $62,500
4 $75,000
5-10 $87,500 (per year)
The obligation to pay License Fees shall terminate on the earlier
to occur of: (i) the first date that Player has not played in at least 10
internationally televised professional golf tournaments in the prior 12 months
(the "TOURNAMENT TEST") and is no longer the Chairman of the Board of Golf One;
and (ii) the tenth anniversary of the Effective Date; provided, however, that if
prior to the end of the fifth Agreement Year a Removal Event occurs, Player
shall be entitled to continue to receive the License Fees through the end of the
fifth Agreement Year
5
<PAGE> 6
following the Agreement Year immediately prior to the Agreement Year in which
the Removal Event occurs provided he continues to meet the Tournament Test. A
"REMOVAL EVENT" shall be deemed to occur if: (i) Player is removed by the
shareholders of Golf One without cause as Chairman of the Board of Golf One or
(ii) at any shareholders' meeting at which Player's position as director is up
for election, Player is not re-elected by the shareholders as a director of Golf
One (assuming he has continued to serve through the date of such meeting). The
License Fee for each Agreement Year shall be paid in four equal installments on
a quarterly basis within 30 days following the end of each calendar quarter
during the Year, commencing with the first calendar quarter which ends in such
Year. The payment for any period which is not a full calendar quarter shall be
prorated other than the period in which this Agreement is terminated by Player
pursuant to Section 8(b) of this Agreement.
(c In addition to the License Fee, each Royalty Year Licensee shall
pay to Player a royalty (the "ROYALTY") equal to the Player Percentage for such
Royalty Year multiplied by the sum of: (i) 3% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of $10,000,000
and are less than or equal to $20,000,000; (ii) 2% of Net Receipts from sales of
Endorsed Products on a Direct Marketing Basis which are in excess of
$20,000,000; and (iii) 3% of Net Receipts from Net Sales of Endorsed Products
other than on a Direct Marketing Basis. The $10,000,000 and $20,000,000 amounts
shall be prorated for the first and last Royalty Years. The Royalty shall be
advanced on a quarterly basis, within 30 days from the end of each Royalty
Quarter, based on the good faith estimate of the Player Percentage determined
for the year-to-date. It is understood that notwithstanding any advances of the
Royalty, the actual Royalty for any Royalty Year shall be determined in
accordance with the formula set forth in first sentence of this Section 2(c),
and that the final payment of the Royalty for such Royalty Year shall be the
difference between the amount of the Royalty determined in accordance with such
first sentence and the amounts previously advanced. If the amount of advanced
for any Royalty Year shall exceed the actual Royalty determined in accordance
with such first sentence, Licensee shall offset such excess against future
Royalties or other obligations payable under this Agreement; provided, however,
that if the amount of overpayment exceeds 10% of the total Royalty for such
Royalty Year, the Company may demand the refund of such of excess from Licensor.
(d Within 30 days following the end of each Royalty Quarter, Licensee
shall deliver to Player a royalty statement (a "ROYALTY STATEMENT") setting
forth the Net Receipts for the Quarter and the calculation of the Royalty, which
Statement shall be certified by an executive officer of Licensee as being true
and complete. Each Royalty Statement shall be conclusive and binding upon Player
as to the amount of the Royalty for the Royalty Quarter covered by such
Statement unless Player shall object in writing within two years following
receipt of such Royalty Statement. Upon reasonable prior notice, Player shall
have the right to examine Licensee's books and records (but in no more than
twice each Royalty Year) to the extent reasonably necessary to determine the
accuracy and completeness of the information on such Statement. Such examination
shall be made during Licensee's usual business hours at the place where such
books and records are maintained. Unless such examination and inspection results
in a determination that Licensee underpaid the Royalty in either of the two
prior Royalty Years by more than the greater of 5% of the Royalty actually due
or $2,500, such examination shall be at the cost and expense of Player.
6
<PAGE> 7
If such examination or inspection shows that the Royalty in either of the two
prior Royalty Years shall have underpaid by more than the greater of 5% of the
Royalty actually due or $2,500, all costs and expenses for such examination, up
to $10,000 per examination, shall be paid by Licensee.
(e) Licensee shall have the right to offset against any License Fee the
amount of any cash compensation and fees paid or payable to Player for serving
as director and/or officer of Licensee which have not previously been so offset.
3. PLAYER APPROVALS
(a Licensee agrees that all uses of the Player Name in connection with
the Exploitation of Endorsed Products in the Territory, including in connection
with Marketing Materials and the quality of the Endorsed Products, will be
subject to prior approval of Player, which approval will not be unreasonably
withheld. It is understood that, with respect to the use of the Player Name,
each approval shall relate to the use of the Player Name in connection with the
form and content of the Marketing Materials and/or the incorporation of the
Player Name on Endorsed Products, and that once given, no further approval shall
be required with respect to multiple uses of approved uses of the Player Name or
immaterial variances in the Marketing Materials (immateriality be determined by
reference to the materiality of such change to Player). Any approvals required
by Player or requested of Player pursuant to the terms hereof shall be given by
confirmed facsimile or certified mail to Licensee within a reasonable time from
the date of receipt by Player of the materials for which approval is requested.
In the event no response by Player is received by Licensee within 10 days from
receipt of such materials by Player, the approvals shall be deemed given. All
sublicenses, other than those in effect on the date hereof, must permit Licensee
(and indirectly Player) the same right of approval unless otherwise agreed in
writing by Player. Player may from time to time delegate to one person, or any
one of several persons, his approval rights by written notice to Licensee, in
which event until such delegation is withdrawn by written notice to Licensee,
all approvals may be granted by such person or persons.
(b Licensee shall own the copyright to all Marketing Materials. Player
shall take any action reasonably requested by Licensee to confirm such
ownership. Licensee acknowledges that it does not own the Player Name.
4. PLAYER'S WARRANTIES AND COVENANTS
7
<PAGE> 8
(a Player warrants and represents as follows: (i) Player has all
right, power and authority to enter into this Agreement and grant the License;
(ii) Player has all rights to use the Player Name in the Exploitation of
Endorsed Products in the Territory; (iii) except pursuant to this Agreement, the
Existing Licenses and the Player/WSE License, no Person has any right to use the
Player Name in the Exploitation of Endorsed Products in the Territory and there
are no licenses or other rights presently outstanding for the use of the Player
Name in the Exploitation of the Endorsed Products in the Territory; (iv) the
Exploitation of the Player Name in connection with Endorsed Products
contemplated by this Agreement and the Player/WSE License will not violate or
infringe upon the rights (including, but not limited to, the Intellectual
Property Rights) of any Persons anywhere in the world; (v) the use of the Player
Name as contemplated by this Agreement will not require any payments to any
Person other than to Player pursuant to this Agreement; (vi) Player has provided
to Licensee a true and correct copy of the Player/WSE License; the Player/WSE
License is in full force and effect, constitutes a valid and legally binding
obligation of Player and WSE, enforceable against Player and WSE in accordance
with its terms, and neither Player nor WSE is in breach of or in default under
the Player/WSE License and in no event has occurred or circumstance exists
which, with notice or lapse of time or both, would constitute a breach of or
default under the Player/WSE License. Licensee acknowledges that Player makes no
representations with respect to the use of any other Intellectual Property
Rights in connection with any Marketing Materials or the Exploitation of the
Player Name.
(b Player agrees that from and after the date hereof, Player shall not
directly or indirectly use the Player Name in the Exploitation of any Endorsed
Products, or Transfer any right or license to use the Player Name in the
Exploitation of Endorsed Products.
(c Player has developed a valuable right in the Player Name which is
an integral part of this Agreement and is subject to the exclusive License
granted to Licensee hereunder. To facilitate Licensee's use of the License
pursuant to this Agreement, Player agrees to: (i) serve as spokesman for each
Endorsed Product; (ii) actively promote Endorsed Products and (iii) subject to
medical impairments rendering Player unable to perform, provide the services
described in Exhibit A to this Agreement. Licensee acknowledges that the
covenants under Sections 4(c)(i) and (ii) shall not require Player to perform
any specific amount of time of service.
(d Notwithstanding anything to the contrary contained herein, it is
mutually understood that Player has no control over, and is not responsible for:
(i the media, including without limitation, any news, media
photographs or other depictions of Player that may appear from time to time;
(ii the content of the advertising or sponsorship portion not
directly involving Player of:
(A any Media Production;
(B any athletic tournament, game or outing; or
8
<PAGE> 9
(C any other event, including without limitation, any live
artistic, literary, dramatic, theatrical or musical
production or charitable event, in which Player
participates or with which he is otherwise associated.
(iii the products and services endorsed, promoted, advertised or
publicized by any other team, league or association for which Player may play or
with respect to which he may become associated or by any of their respective
successors and assigns;
all or any of which may use Player's name, fame, nickname, initials, autograph,
voice, video or film portrayals, facsimile or original signature, photograph,
likeness and image or facsimile image, without Player's consent and in any or
all of which Player may appear or participate. Licensee agrees that Player shall
not be, and shall not be deemed to be, in contravention or breach of any of the
provisions hereof as a result of any or all of the foregoing or arising in
connection therewith.
(e The restrictions set forth in this Agreement are not intended to
preclude and shall not preclude Player from appearing in the sports,
entertainment, news or information portion of:
(i any form of Media Production; or
(ii any professional golf tournament; or
(iii any other entertainment event, including without limitation,
any live artistic, literary, dramatic, theatrical or musical production;
in which or in connection with which products or services are advertised,
publicized, featured or otherwise dealt with that are the same as or similar to
or competitive with Endorsed Products or that are sponsored by competitors of
Licensee, provided that Player's participation is not for the endorsement of
such products or services.
(f Player is not responsible for initiating action against, enjoining
or otherwise attempting to dissuade any Person not licensed by Player, including
without limitation, any former licensee of Player, the media or any advertiser,
promoter or other entity, which in contravention of this Agreement or otherwise
makes unauthorized use of anything, including without limitation, any
unauthorized use of the Player Name in promoting or advertising any product (or
products) or services whatsoever, including without limitation, any products
which are the same as or similar to or directly competitive with Endorsed
Products. Player shall not incur any liability to Licensee or any Person arising
out of any such activity by any such Person. Player agrees that at Licensee's
sole cost and expense, he shall give such reasonable assistance to Licensee as
may be required to cause any such Person to cease and desist from such
activities, or in connection with any lawsuit or other proceeding by Licensee
against such Person.
(g To the extent that Player has (and has all necessary rights to) any
Artwork which Licensee believes would be useful in the Exploitation of Endorsed
Products, Player shall furnish
9
<PAGE> 10
such Artwork to Licensee on a royalty-free basis. Licensee shall be responsible
for all shipping and handling charges in connection with such Artwork, shall
safekeep such Artwork and be responsible for it while in transit, and after use
of such Artwork, Licensee shall return such Artwork to Player. It is understood
that such Artwork may not be reproduced for sale but just used in connection
with the advertisement and promotion of Endorsed Products. Any such use of
Artwork is subject to Player's prior approval pursuant to Section 3(a) of this
Agreement. To the extent that any Artwork is owned by Persons other than Player,
upon request of Licensee, Player shall provide such consents or approvals to
such other Persons as may be necessary for Licensee to acquire (at no cost or
expense to Player) the right to use such Artwork.
5. INDEMNIFICATION; LIABILITY
(a Player agrees to indemnify and hold Licensee and its successors and
permitted assigns, and their respective Affiliates ("LICENSEE INDEMNIFIED
PARTY") harmless from and against any and all claims, losses, costs, damages,
liabilities and expenses (including attorneys' fees and court costs) suffered or
incurred by any Licensee Indemnified Party arising out of breach by Player of
any warranty, representation or covenant hereunder or the use pursuant to this
Agreement by such Licensee Indemnified Party of the Player Name.
(b Licensee agrees to indemnify and hold Player and his heirs and
permitted assigns, and their respective Affiliates ("PLAYER INDEMNIFIED PARTY")
harmless from and against any and all claims, losses, damages, liabilities and
expenses (including attorneys fees and court costs) suffered or incurred by any
Player Indemnified Party arising out of a breach by Licensee of any warranty,
representation or covenant hereunder, from the Exploitation by Licensee of the
Endorsed Products, from Endorsed Products, from the services of Player
hereunder, from the use of the Player Name and from the violation of any law,
rule or regulation in connection with the Exploitation of the Player Name (other
than claims, losses, damages, liabilities and expenses (including attorneys fees
and court costs) related to a breach by Player of any of its representations,
warranties or covenants under this Agreement, such as an infringement claim
against Licensee for infringement of another Person's rights based solely on the
use by Licensee of the Player Name other than with the respect to use of other
Intellectual Property Rights in connection therewith).
(c In no event shall any party to this Agreement be liable to the
other for punitive, indirect or special damages.
6. INSURANCE. From and after the Effective Date, Licensee shall provide and
maintain, at its own expense, commercial general liability insurance, including
product liability and advertising injury coverage, with limits of not less than
$5,000,000, and shall cause such policy to be endorsed to state that Player is
an additional named insured thereunder. A certificate of insurance evidencing
such coverage shall be furnished to Player within 30 days following the
Effective Date. Such insurance policy shall provide that the insurer shall not
terminate or materially modify such policy or remove Player as an additional
named insured without prior written notice to Player at least 30 days in advance
thereof.
10
<PAGE> 11
7. RESERVATION OF RIGHTS
Player reserves all rights pertaining to the Player Name except as
specifically granted to Licensee hereunder. Without limiting the generality of
the foregoing, Player may Exploit the Player Name in all forms of Electronic
Media other than in connection with the Exploitation of Endorsed Products.
8. TERMINATION
(a Licensee shall have the right, upon 30 days prior written notice to
Player, to terminate this Agreement in the event that governmental regulations
or other causes arising out of a state of national emergency or war, or causes
beyond Licensee's control, render Licensee's performance under this Agreement
materially impaired.
(b In the event that either party defaults in any material respect
under any of the material terms or conditions set forth herein, including but
not limited to payments, the non-defaulting party shall send a notice to cure by
either certified or registered mail return receipt requested to the defaulting
party. Failure by the defaulting party to cure the default within 30 days of
receipt of the notice to cure shall give the right to the non-defaulting party,
in its sole discretion, to terminate this Agreement.
(c Licensee shall have the right to terminate this Agreement upon
written notice to Player in the event that the WSE Agreement shall be terminated
other than termination by WSE in accordance with the Agreement as a result of
the default by Licensee under the WSE Agreement.
(d Player shall have the right to terminate this Agreement after the
Effective Date in the event of termination of the WSE Agreement by WSE as a
result of the default by Licensee under such Agreement following the Effective
Date.
(e Promptly following termination of this Agreement, Licensee shall
provide Player with a statement indicating the remaining Endorsed Products in
inventory, in process of manufacture or subject to non-cancelable orders as of
the termination date ("REMAINING PRODUCTS"). Unless this Agreement is terminated
by Player pursuant to Section 8(b) or 8(d) hereof or by Licensee pursuant to
Section 8(a) or 8(h) hereof, Licensee shall have the right to sell any Remaining
Products for a period of six months after termination of this Agreement (the
"SELL-OFF PERIOD"). Notwithstanding the foregoing, Licensee shall not have the
right, other than with respect to Remaining Products, to manufacture any
additional Endorsed Products. No License Fee shall accrue during the Sell-Off
Period provided that the Royalty shall accrue during the Sell-Off Period and be
payable as contemplated by Section 2(b) of this Agreement. Upon the expiration
of the Sell-Off Period, or termination by Player pursuant to Section 8(b) or
8(d) of this Agreement, Licensee shall destroy any remaining inventory and shall
certify same by declaration executed by an executive officer of Licensee.
11
<PAGE> 12
(f The termination of this Agreement for any reason will not have any
effect on: (i) the rights of Player to collect any amounts due and owing under
this Agreement; (ii) the rights of Licensee to sell its remaining inventory in
accordance with Section 8(e) except as provided in Section 8(e) hereof; (iii)
the rights to indemnification pursuant to Section 5 of this Agreement; and (iv)
the rights to damages or other legal or equitable relief for breaches or
defaults occurring prior to the termination of the Agreement.
(g If Player files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangement or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall not terminate
upon the occurrence of any such event and Player shall not have the authority to
Transfer any rights of any nature for the use of the Player Name or any Endorsed
Products in conflict with this Agreement or to reject any rights hereunder.
(h If Licensee files a petition in bankruptcy or is adjudicated
bankrupt, or becomes insolvent or makes an assignment for the benefit of
creditors or other similar arrangements or discontinues business, or if a
receiver is appointed for it or its business, this Agreement shall terminate
upon the occurrence of such event.
(i Upon termination of the License for any reason, if Licensee's
corporate name includes the Player Name or a derivative or variation thereof,
Licensee shall, as promptly as practicable, but in no event later than 90 days
following termination of the License, amend its corporate name to a name not
including the Player Name.
9. MISCELLANEOUS.
(a Notices. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, confirmed facsimile
transmission or by United States first class, registered or certified mail,
postage prepaid, addressed to the party at the address set forth on the
signature page of this Agreement. Any Notice, other than a Notice sent by
registered or certified mail, shall be effective when received; a Notice sent by
registered or certified mail, postage prepaid return receipt requested, shall be
effective on the earlier of when received or the fifth day following deposit in
the United States mails . Any party may from time to time change its address for
further Notices hereunder by giving notice to the other party in the manner
prescribed in this Section.
(b Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement. This
12
<PAGE> 13
Agreement may not be amended prior to the Effective Date without the prior
written consent of Golf One unless and until the Asset Purchase Agreement is
terminated.
(d Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California without giving effect to the principles of conflicts of law
thereof.
(e Severability. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(f Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(h Attorneys' Fees. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a default in
the performance by any party to this Agreement of its obligations under this
Agreement, the prevailing party shall recover all of such party's attorneys'
fees incurred in each and every such action, suit, arbitration or other
proceeding, including any and all appeals or petitions therefrom. As used in
this Section, attorneys' fees shall be deemed to mean the full and actual costs
of any legal services actually performed in connection with the matters involved
calculated on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined in
any statute or rule of court.
(i Further Assurances. The parties to this Agreement shall upon
request take any and all actions and execute any and all documents reasonably
necessary to effectuate the terms and intent of this Agreement.
(j Judicial Interpretation. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
(k Independent Relationship. This Agreement does not constitute and
shall not be construed to constitute an agency, a partnership, a joint venture
or employment agreement between Player and Licensee. Licensee shall not have
authority to obligate or bind Player in any manner whatsoever, subject to the
provisions stated herein and only as Player may specifically approve
13
<PAGE> 14
in writing prior thereto. Player and Licensee shall be deemed independent
contractors in all respects.
(l Assignments. Player may not Transfer its rights or obligations
under this Agreement except that Player may assign its right to receive the
License Fee and the Royalty. Licensee may not Transfer its rights or obligations
under this Agreement except: (i) to a subsidiary or to a Person who controls
Licensee; and/or (ii) through a merger or consolidation of Licensee with another
Person (other than an Excluded Purchaser); and/or (iii) the sale by Licensee of
all or substantially all of its assets to another Person (other than an Excluded
Purchaser); and/or (iv) GPG may assign its rights and obligations to Golf One
pursuant to the Asset Purchase Agreement. For purposes of this Agreement, an
"EXCLUDED PURCHASER" is a Person: (i) whose sales of golf clubs in the United
States exceeded 10% of the total sales of golf clubs in the United States during
the calendar year prior to the sale or merger date, based on industry reports
(or, if no such report is available for such prior calendar year, the most
recent prior calendar year for which such report is available); (ii) whose
corporate name includes the name of any recognized professional golfer; or (iii)
which has over 25% of its capital stock owned by a recognized professional
golfer. Any assignee permitted pursuant to the terms of this Section 8(l) must
be capable of fulfilling all terms of this Agreement and, further, except for
the assignment from Licensee to Golf One, no such assignment shall act to
relieve the assignor of its obligations and duties under this Agreement. Upon
the request of Golf One following the assignment of this Agreement to Golf One,
Player and Golf One shall enter into a new contract, identical to this
Agreement, deleting references to GPG.
(m Force Majeure. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is prevented from
performing any such obligations (other than, in all events, the payment of
money) due to causes or events beyond its control, including, without
limitation, acts of God, fire, flood, earthquake, strike or other labor problem,
injunction or other legal restraint, present or future law, governmental order,
rule or regulation, then such delay or nonperformance shall be excused and the
time for performance thereof shall be extended to include the period of such
delay or nonperformance.
(n Arbitration. All disputes, controversies or differences which are
not settled by common accord shall be conclusively settled by arbitration in Los
Angeles, California, in accordance with the rules of the American Arbitration
Association, and judgment and the award rendered by the arbitration panel may be
entered in any court or tribunal of competent jurisdiction. In any arbitration
proceeding conducted pursuant to this Section, both parties shall have the right
to discovery, to call witnesses and to cross-examine the other party's witnesses
(either through legal counsel, expert witnesses or both). All decisions of the
arbitration panel shall be final, conclusive and binding upon all parties, and
shall not be subjected to judicial review. The arbitration provisions of this
Agreement shall not prevent any party from obtaining injunctive relief from a
court of competent jurisdiction to enforce the obligations for which such party
may obtain provisional relief pending any decision on such merits by an
arbitrator.
(o Remedies. In the event either party materially breaches this
Agreement, Licensee and Player agree that, in addition to any and all other
remedies available at law or in equity, the non-breaching party shall be
entitled to injunctive relief to the extent permitted by law from further
violation of this Agreement, during any proceeding as well as on final
determination thereof,
14
<PAGE> 15
without prejudice to any other right of either party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GARY PLAYER GROUP, INC.
By:_____________________________
Its:____________________________
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
________________________________
GARY PLAYER
3930 RCA Boulevard
Suite 3001
Palm Beach Gardens, Florida 33410
15
<PAGE> 16
EXHIBIT A TO AGREEMENT
BETWEEN
GARY PLAYER GROUP, INC. AND GARY PLAYER
SERVICES:
Player agrees to provide to Licensee each Agreement Year the number of
days of Services requested by Licensee, up to six days per Agreement Year (the
"MAXIMUM DAYS"). "Services" shall include, among other things, appearing in
infomercials, videos, commercials and other advertisements, appearing at or
playing in golf tournaments on behalf of Licensee and attending other
promotional functions for Endorsed Products in order to perform the ancillary
marketing services required by this Agreement. Except for night time promotional
activities, Player shall not be required to render Services except during normal
business hours.
Licensee shall give reasonable advance notice of any request for
Services, it being generally understood that at least 30 days advance notice
shall be required. Licensee acknowledges that Player often has other commitments
to play in golf tournaments, and Licensee shall schedule the taping or filming
of infomercials, videos and commercials to accommodate Player's professional and
personal schedule.
Licensee shall have final script approval for any and all videos,
infomercials and commercials; provided, however, the Licensee shall permit
Player to review all scripts and shall revise scripts pursuant to reasonable
objections from Player. Videos, infomercials and commercials produced hereunder
shall be produced and distributed in all material respects in accordance with
and adhere to policies, procedures and standards established by Licensee in
consultation with Player, which shall include verification procedures to ensure
consistent and professional delivery of services which are equal to or greater
than the minimum standard acceptable in the respective industry. The copyright
to all Marketing Materials (other than the Player Name) shall be owned by
Licensee.
Player shall provide the Maximum Days of Services per Agreement Year
without additional compensation from Licensee. If Licensee requires Services to
be performed in a location (the "Services Location") which is more than 100
miles from the location Player was otherwise scheduled to be, Player shall be
entitled to first class transportation (or the cash equivalent thereof) to and
from the Services Location and first class accommodations at the Services
Location during the period he is required to perform the services.
If Player and Licensee agree that Player will provide more than the
Maximum Days of Services in an Agreement Year, Player shall be paid a fee of
$25,000 for each additional day, payable one half no later than three business
days prior to the schedule date for such additional services, and one half on
the date of performance of such services.
Exhibit A - 1
<PAGE> 17
For these purposes, a "day" shall be considered 8.5 hours, and shall
include two 15 minute breaks and a one-hour lunch break.
Player shall not be required to participate in any activities which (i)
would subject Player to federal or state securities laws, (ii) would impose a
fiduciary duty upon Player to Licensee's shareholders, (iii) would cause Player
to violate any laws, (iv) would cause injury to Player or (v) may subject Player
to public disrepute. Licensee further understands that Licensee's failure to
utilize services of Player hereunder shall not result in any reduction in
payments to Player hereunder, nor shall any unused appearances from one
Agreement Year be carried forward to another Agreement Year. The obligations of
Player to provide Services hereunder are subject to the condition that payments
to Player are current and up to date and Licensee is not otherwise in breach of
any material provisions of the Agreement; provided that if there is a good faith
dispute regarding whether payments are current or Licensee is in breach, Player
shall continue to provide services until such dispute is resolved. If Player
confirms his availability for any appearance and Player is unable to appear due
to illness, injury or other emergency beyond the control of Player, such
non-appearance is not a breach of this Agreement and Player shall not be
responsible for any expenses incurred due to such nonappearance. In such event,
Player and Licensee shall attempt in good faith to reschedule the appearance
date (which could be in a subsequent Agreement Year, at no additional charge to
Licensee).
If at any time during the term of the Agreement Licensee elects to
feature Player in a television commercial in connection with the advertisement,
promotion and sale of Endorsed Products, Licensee shall pay any pension, welfare
and other charges as may be levied by any union(s) having jurisdiction over
Player's appearance in such television commercial(s) which amounts shall be in
addition to any other amounts required to be paid hereunder.
Exhibit A - 2
<PAGE> 18
EXHIBIT B
EXISTING LICENSES AND EXISTING DM LICENSES
Existing Licenses:
1. Agreement, dated January 1, 1996, by and between Gary Player Golf Equipment
Inc. and YGM Marketing Pte Ltd.
2. Agreement, dated November 15, 1996, by and between Gary Player Golf
Equipment Inc. and Toppoint Corporation Limited.
3. Licensing Agent Agreement, dated September 24, 1996, by and between Gary
Player Golf Equipment Inc. and International Apparel Marketing Corporation.
4. Agreement, dated January 17, 1997, by and between Gary Player Golf
Equipment Inc. and Scorpion Asia Pacific Pte., Ltd.
5. Agreement, dated October 1, 1996, by and between Gary Player Golf Equipment
Inc. and Robern Skiwear Inc.
6. Licensing Agreement, dated July 1, 1997, by and between Gary Player Group,
Inc., dba Gary Player Golf Equipment, and Cali-Fame of Los Angeles, Inc.
7. Agreement, dated July 1, 1997, by and between Gary Player Group, Inc., dba
Gary Player Golf Equipment, and PT. Bintoro Agung.
Existing DM Licenses:
1. Endorsement Agreement, dated August 1, 1997 by and between Richter
Innovative Corporation and Gary Player Group, d.b.a. Gary Player Golf
Equipment Inc.
EXHIBIT B - 1
<PAGE> 1
Exhibit 10.21
CARDSERVICE INTERNATIONAL
MERCHANT AGREEMENT
This Agreement ("Agreement") is entered into by and between the undersigned
MERCHANT ("Merchant"), FIRST NATIONAL BANK OF CENTRAL FLORIDA, in Longwood,
Florida, FDIC insured ("Acquirer") represented by its Registered Agent,
CARDSERVICE INTERNATIONAL, INC. ("CSI") an Independent Sales Organization and
Merchant Services Provider for Acquirer. The guarantor(s) signing this Agreement
is also a party as a continuing guarantor(s) pursuant to paragraph 3.14. To the
maximum degree permitted by law and by Visa and MasterCard rules and
regulations, it is the intention of the parties that the rights of Acquirer set
forth in this Agreement or arising from this Agreement, may be exercised by CSI.
Merchant, CSI and Acquirer make this Agreement in consideration of the mutual
covenants set forth herein.
This Agreement shall not be effective until it, and the Merchant's Application,
are approved by Acquirer. Therefore, CSI's field agent's signature hereon
constitutes only an offer made on behalf of, and is contingent upon approval by
Acquirer and CSI. This offer shall automatically expire after thirty (30) days
unless both Merchant and CSI's corporate office have also signed this Agreement.
If Merchant reasonably anticipates that it will have sales volume in excess of
$10,000 per month in combined Visa and MasterCard transactions, Merchant at the
request of Acquirer and CSI, shall submit its current financial statement with
this Agreement and it shall be one of the factors on which acceptance of this
Agreement shall be conditioned. Merchant acknowledges that this Agreement is
premised upon Merchant having a floor limit of ZERO dollars.
By entering into this Agreement, Merchant agrees to comply with and be subject
to, all Visa and MasterCard rules and regulations as they may exist from time to
time, including but not limited to chargeback procedures and the resolution of
any disputes relating thereto. Any violation of Visa and MasterCard rules and
regulations by Merchant shall constitute a breach of this Agreement and may, at
the option of Acquirer and CSI, be grounds for terminating this Agreement.
ARTICLE 1 - 1.01 HONORING CARDS
(a) Merchant shall honor, in accordance with the terms and conditions
of this Agreement and in accordance with all Visa and MasterCard rules and
regulations in existence at the time of the transaction, without discrimination,
all valid Visa and MasterCard credit cards ("Cards") when properly presented as
payment by Merchant's customers ("Cardholder") in connection with bona fide,
legal business transactions. If Merchant does not transact business with the
general public, e.g. a private club, Merchant shall be deemed to have complied
with this non-discrimination rule if it honors all valid Cards of Cardholders
who have purchasing privileges or memberships with Merchant.
(b) Merchant shall not, through an increase in price or otherwise,
impose a surcharge on a Cardholder who elects to use a Card in lieu of payment
by cash, check or similar means. Merchant may offer discounts for the purpose of
inducing payment by cash, check or other means not involving the use of a Card
provided that the discount is offered to all prospective buyers.
(c) Merchant shall not establish minimum or maximum transaction
amounts.
ARTICLE 1 - 1.02 ADVERTISING
(a) Merchant shall display any advertising or promotional materials
provided by Acquirer and CSI so as to be readily visible to Merchant's
customers. This material will be designed to inform the public that Cards will
be honored at Merchant's place of business. Merchants that do not deal with the
general public, as well as companies subject to government regulation
prohibiting such advertising or promotion or other Merchants expressly exempted
by MasterCard International, Inc. ("MasterCard") or Visa U.S.A., Inc. ("Visa")
are excluded from this advertising display requirement.
(b) Merchant shall not display or use advertising or promotional
materials which suggest, implicitly or explicitly that Merchant only honors
Cards issued by Acquirer.
(c) Merchant shall have the right to use or display the proprietary
names and symbols associated with Cards only while this Agreement is in effect
or until Merchant is notified by Acquirer and CSI, MasterCard or Visa to stop
such usage.
(d) Merchant shall only use the proprietary names and symbols
associated with Cards to indicate that Cards are accepted for payment and shall
not indicate, directly or indirectly, that Acquirer and CSI, MasterCard or Visa
endorses Merchant's products or services.
<PAGE> 2
ARTICLE 1 - 1.03 CARD EXAMINATION AND CARD RECOVERY
Before accepting any card, Merchant shall:
(a) Check the date on which the Card becomes valid and the date on
which the card expires. Merchant shall not accept any card that is not yet valid
or that has expired; and
(b) Examine the signature on each Cardholder's Card. Merchant shall not
honor any Card when the signature on the sales draft does not correspond to the
signature on the Card.
(c) Merchant shall not record such personal Cardholder information,
such as home or business telephone number, a home or business address, driver's
license, or other such identification onto the sales draft unless such
information is required under specific circumstances included in Visa of
MasterCard rules and regulations. Should Merchant believe that this
identification information is necessary, this information may be recorded onto a
separate sales invoice.
(d) Examine all Card security features such as, by way of example only,
a hologram included on the Card. Merchant shall use its best efforts to retain,
by reasonable and peaceful means, any Card which appears to be counterfeit,
fraudulent or stolen when:
(i) Merchant is directed to do so by Acquirer and CSI's
designated authorization center; or
(ii) Merchant has, or shall have, reasonable grounds to
believe that a Card is counterfeit, fraudulent, or stolen.
Merchant's obligation to retain or recover a Card does not
authorize Merchant to commit any breach of the peace or to cause any injury to
persons or property and Merchant in fact agrees not to commit any such breach of
the peace or to cause any injury to persons and/or property.
ARTICLE 1 - 1.04 PRIOR AUTHORIZATION
Prior to accepting Card for payment, Merchant shall use due diligence to verify
that Cardholder is authorized to use the Card presented and that such Card is
genuine.
(a) In addition to the requirements set forth elsewhere in this
Agreement, as part of Merchant's due diligence, Merchant shall obtain prior
authorization for every transaction processed through Merchant's electronic
terminal or, if such authorization is not reasonably possible, then
authorization shall be obtained by telephone. Merchant shall follow all
instructions received in the authorization process. After receiving
authorization, Merchant may consummate only the transaction authorized and must
post the authorization number on the sales draft. Whenever authorization is
obtained by a method other than through the electronic terminal, the Merchant
shall execute a sales draft with the Cardholder's signature and the credit card
information imprinted on to the draft.
(b) Obtaining authorization shall not, by itself, satisfy Merchant's
obligation to exercise due diligence. Neither shall authorization constitute a
waiver by Acquirer and CSI of any other procedures required of Merchant by this
Agreement or any Visa or MasterCard rules or regulations. Authorization shall
not validate a transaction which would otherwise be invalid. Authorization shall
not validate a transaction involving the use of an expired card or a transaction
wherein Cardholder's signature does not match or has not been authorized by
Cardholder. Merchant shall remain duly liable for any chargeback and fees
relating to an invalid transaction, whether or not prior authorization was
obtained.
ARTICLE 1 - 1.05 DELIVERY OF COPY SALES DRAFT
Merchant shall deliver a true and complete copy of the sales draft, credit draft
or other transaction memorandum to the Cardholder at the time of the
transaction.
ARTICLE 1 - 1.06 ENTRY AND PRESENTMENT OF TRANSACTION
Merchant shall transmit a daily batch to Acquirer and CSI containing all sales
data relevant to electronic transactions, except that:
(a) When authorization is obtained by telephone, Merchant shall enter
the data obtained from the Cardholder Authorization Center onto a manually
imprinted sales draft and forthwith transmit this data into its electronic
terminal. The transaction shall be communicated to Acquirer
2
<PAGE> 3
and CSI in such form as Acquirer and CSI may from time to time specify or as may
be required under any applicable law, rules or regulations.
(b) Merchant shall present no sales data until the goods have been
shipped or the services performed and Merchant has otherwise performed all of
its principal obligations to the Cardholder in connection with the transaction.
If Acquirer and CSI request a copy of such sales draft, credit draft or other
transaction memorandum or evidence, Merchant shall provide Acquirer and CSI with
said copy, no later then three calendar days from the date of request.
ARTICLE 1 - 1.07 MULTIPLE TRANSACTION RECORDS; PARTIAL CONSIDERATION
Merchant shall include on one transaction record the entire amount due for each
transaction, unless:
(a) The Cardholder pays the balance of the amount due at the time of
transaction in cash, or by check; or
(b) All or some goods or services are to be delivered or performed at a
later date and Cardholder signs the separate sales drafts, one of which
represents a deposit and the second of which represents payments of the balance
and the "balance" sales draft is completed only upon delivery of goods or
performance of the services. In such case, Merchant agrees:
(i) to note on the sales draft the words "deposit" or
"balance", as appropriate; and
(ii) not to present the "balance" sales draft until all goods
are delivered or all services are performed.
(c) In accordance with Visa and MasterCard regulations, Merchant shall
not divide a single transaction. By way of example only, a single transaction
shall not be divided into two (2) or more smaller transactions.
ARTICLE 1 - 1.08 TELEPHONE ORDERS, MAIL ORDERS AND PREAUTHORIZED ORDERS
(a) If a Card transaction is made in such a manner that the credit card
is not present at the time of the transaction as, by way of example, a telephone
order ("TO"), or mail order ("MO"), or preauthorized order ("PO"), the sales
draft may be completed without a Cardholder's signature or a Card imprint. In
such case, however, Merchant agrees:
(i) to print legibly on the sales draft sufficient information to
identify Merchant and the Cardholder, including all embossed
information on Card, including but not limited to Merchant's
name and address, Cardholder's name and any other names which
appear on the Card, Cardholder's account number, expiration
date and any effective date on the Card; and
(ii) to print legibly on the signature line of the sales draft the
letters "TO", "MO", or "PO", as appropriate; and
(iii) in the case of a preauthroized order, to require Cardholder to
execute and deliver to Merchant a written preauthorization,
which Merchant must retain and make available to Acquirer upon
request; and
(iv) not to deliver goods or perform services covered by a
preauthorization after being notified that the
preauthorization has been canceled, declined or that the Card
is not to be accepted.
(b) In any non-imprinted transaction, either manual or electronic,
Merchant acts solely at its own risk and shall waive the right to dispute any
chargeback arising from a failure to produce to Acquirer an imprinted draft.
ARTICLE 1 - 1.09 PREAUTHORIZED LODGING AND VEHICLE RENTAL TRANSACTIONS
Regardless of the terms and conditions of any written preauthorization form, the
sales draft amount of any lodging or vehicle rental transaction which has been
preauthorized shall include only that portion of the transaction, including any
applicable taxes, evidencing a bona fide renting of real or personal property by
Merchant to a Cardholder and shall not include any consequential charges.
Nothing herein is intended to restrict Merchant from enforcing the terms and
conditions of its preauthorization form through means other than a Card
transaction.
ARTICLE 1 - 1.10 RETURNS AND ADJUSTMENTS; CREDIT DRAFTS
(a) If Merchant has a policy of permitting refunds, exchanges, returns
or adjustments for cash customers, Merchant shall maintain the same policy for
persons making purchases through use
3
<PAGE> 4
of a Card. However, Merchant may restrict its refund or return policy as to any
Card transaction if Merchant discloses such policy to Cardholder in writing
before obtaining Cardholder's signature. Disclosure may be made by printing on
appropriate notice (such as "No Refunds or Exchanges") on all copies of the
sales draft.
(b) Except as provided above, if Merchant accepts any goods for return,
any services are terminated or canceled; or Merchant allows any price adjustment
(other than involuntary refunds required by applicable airline or other tariffs
or otherwise by law), then Merchant shall not make any cash refund. Instead,
Merchant shall electronically complete and transmit promptly to Acquirer the
credit data evidencing the refund or adjustment, and deliver to the Cardholder a
true and complete copy of the credit draft at the time the refund or adjustment
is made, together with the date and amount of the credit, in sufficient detail
to identify the transaction. Merchant shall imprint or legibly reproduce on each
credit draft the embossed information from the Card and from Merchant's
imprinter. The amount on the credit draft may not exceed the amount of the
original transaction as reflected on the sales draft.
(c) IN CONJUNCTION WITH EACH CREDIT TRANSACTION, MERCHANT SHALL HAVE
SUFFICIENT FUNDS AVAILABLE TO ACQUIRER TO COVER THE AMOUNT OF SUCH TRANSACTION,
AND ANY RELATED FEES.
ARTICLE 1 - 1.11 CASH PAYMENTS
Merchant shall not receive any payments from a Cardholder for charges included
on any transaction resulting from use of any Card. Neither shall Merchant
receive any payments from a Cardholder to prepare and present a credit draft for
the purpose of effecting a deposit to the Cardholder's account.
ARTICLE 1 - 1.12 CASH ADVANCES
Merchant shall not use at its location or through its electronic terminal,
Merchant's own credit card or any credit card which Merchant is authorized to
use, such use is deemed A Cash Advance. Cash Advances are prohibited and can
result in immediate termination and addition to the Combined Terminated Merchant
file.
ARTICLE 1 - 1.13 REFINANCING EXISTING DEBT
Merchant shall not process any transaction representing the refinancing of an
existing obligation of a Cardholder including, but not limited to, obligations:
(a) Previously owed Merchant except where the refinancing results from
a conversion of Merchant's existing credit program to a MasterCard or Visa
program and appropriate documentation is provided to Acquirer and CSI.
(b) Arising from the dishonor of a Cardholder's personal check; or
(c) Representing the collection of any other pre-existing indebtedness.
ARTICLE 1 - 1.14 RELEASE OF CARDHOLDER ACCOUNT INFORMATION
Unless required by law, Merchant shall not, under any circumstances, sell,
purchase, provide or otherwise disclose Cardholder's account information or
other Cardholder's personal information to anyone except Issuer or Acquirer and
CSI.
ARTICLE 1 - 1.15 PURGED TRANSACTIONS
Merchant acknowledges that batches or transactions that are not closed and
transmitted within forty-five (45) days shall be automatically purged and erased
from the processing system and are not recoverable. Merchant shall indemnify and
hold harmless Acquirer and CSI for any and all loss sustained by Merchant for
said purged transactions.
ARTICLE 1 - 1.16 MONTHLY VOLUME AND AVERAGE TICKET
In so far as Merchant represents that it reasonably anticipates a monthly Card
sales volume and an average ticket amount as set forth at the end of this
Agreement, any monthly volume in excess of
4
<PAGE> 5
stated volume will cause the account to be reviewed and may result in the
possible interruption of service and/or the delay of transmission of funds.
ARTICLE 2 - PRESENTMENT, PAYMENT AND CHARGEBACK
ARTICLE 2 - 2.01 TRANSMISSION OF DATA
Instead of depositing paper sales or credit drafts with Acquirer, Merchant shall
transmit all sales data and credit data to Acquirer and CSI by means of magnetic
tape or electronic data. "Sales data" refers to information transmitted by
Merchant which is contained in a sales draft or the electronic or magnetic tape
record that is the equivalent of such a sales draft. "Credit data" refers to the
information transmitted by Merchant contained in a credit draft or the
electronic or magnetic tape record that is the equivalent of such a credit
draft. All data ("Transaction Records") transmitted shall be in medium, form and
format approved in advance by Acquirer and CSI and shall be pre-sorted and
organized according to Acquirer and CSI's instructions. It shall include all
information which appears on the sales or credit draft. All references in the
Agreement to "sales drafts", "credit drafts", "sales data" or "credit data"
shall include, as applicable, transaction Records transmitted electronically or
on magnetic tape, or in original format.
ARTICLE 2 - 2.02 ACCEPTANCE AND DISCOUNT
Subject to Merchant not being in default of this Agreement and Subject to
Acquirer's chargeback rights, Acquirer agrees to accept valid transaction
records from Merchant during the terms of this Agreement and to pay Merchant the
total amount represented by the transaction records, less any applicable
discounts, fees and other charges agreed to by the parties and all set-off
rights Acquirer may have. Any payment by Acquirer to Merchant shall not be final
but shall be subject to subsequent review and verification by Acquirer. Upon
thirty (30) days written notice to Merchant, Acquirer and CSI retain the right
to change the fees as set forth in this Agreement.
ARTICLE 2 - 2.03 ENDORSEMENT
Merchant shall endorse any Transaction Records it presents to Acquirer and CSI.
If Merchant fails to do so, Merchant shall be deemed to have endorsed any
Transaction and/or Records it presents to Acquirer and CSI in favor of Acquirer
and CSI and Merchant hereby appoints Acquirer and CSI, acting either jointly or
alone, as its attorney in fact to supply such endorsement on Merchant's behalf.
ARTICLE 2 - 2.04 CHARGEBACK
After acceptance by Acquirer and CSI, Merchant shall nevertheless repay Acquirer
the amount represented by the transaction record, plus any applicable chargeback
or related fee, if Acquirer has been charged back by another financial
institution or if any one or more of the following circumstances exist:
(a) The transaction record or any material or information on a sales or
credit draft (such as, by way of example only, the account number, expiration
date of the Card, Merchant description, transaction description or notation of
prior authorization for the transaction amount or date is illegible, incomplete
or otherwise not discernible, is not endorsed or is not delivered to Acquirer
and CSI within the required time limits;
(b) The Cardholder account number was declined or was not authorized on
the transaction date and Merchant failed to reject the transaction;
(c) The sales draft does not contain the imprint of a Card that was
valid, effective, and unexpired on the transaction date;
(d) The transaction was one for which prior credit authorization was
required and prior credit authorization was not obtained or a valid
authorization number is not correctly and legibly included on the transaction
record;
(e) The transaction record is a duplicate of all items previously paid;
(f) The Cardholder disputes the execution of the transaction record,
the sale, delivery, quality or performance of the goods or services purchased,
or alleges that a credit adjustment was requested and refused or that a credit
adjustment was issued by Merchant but not posted to Cardholder's account;
5
<PAGE> 6
(g) The price of the goods or service shown on the transaction record
differs from the amount shown on the copy of the sales draft or the receipt
delivered to the Cardholder at the time of the transaction;
(h) Acquirer and CSI reasonably determines that Merchant has violated
any terms, condition, covenant, warranty or other provision of this Agreement in
connection with the Transaction Record or the transaction to which it relates;
(i) Acquirer and CSI reasonably determines that the Transaction Record
is fraudulent or that the related transaction is not a bona fide transaction in
Merchant's ordinary course of business, or is subject to any claim or legality,
cancellation, rescission, avoidance, or offset for any reason whatsoever,
including without limitation, negligence, fraud or dishonesty on the part of
Merchant or Merchant's agents or employees;
(j) The transaction record arises from a mail or telephone order
transaction which the Cardholder disputes entering into or authorizing or which
involves an account number that never existed or that has expired and has not
been renewed; or
(k) Merchant fails to provide Acquirer and CSI with any sales draft or
credit draft in accordance with this Agreement. Acquirer and CSI shall, within a
reasonable time following notice of chargeback of a transaction to Merchant,
return to Merchant any sales draft or other evidence of the transaction.
(l) Multiple authorization attempts were made by Merchant for a single
transaction.
(m) In violation of Visa and MasterCard regulations, Merchant has
divided a single transaction.
ARTICLE 2 - 2.05 CHARGEBACK AND DOCUMENTATION RETRIEVAL FEE
Merchant shall pay Acquirer a $10.00 fee for each chargeback, credit or debit,
presentment. Merchant shall pay a $10.00 fee for each Documentation Retrieval
Request. The amount of these fees are subject to change by Acquirer and CSI upon
Acquirer and CSI giving Merchant thirty (30) days notice of any change.
ARTICLE 2 - 2.06 WITHHOLDING
If Acquirer and CSI reasonably believes that any of the circumstances listed in
paragraph 2.04 exists or are likely to exist with respect to any Transactions or
Record which Acquirer has accepted and forwarded to Cardholder's issuing bank
for payment, Acquirer may withhold from payments due Merchant under this
Agreement the Transaction Record amount less any discount until such time that:
(a) Acquirer is itself charged back by the issuing bank for the
transaction. In such event, Acquirer shall retain the funds and return the
transaction record to Merchant pursuant to the chargeback procedure of paragraph
2.04; or
(b) The period of time by which Cardholder must dispute the transaction
record and the issuing bank exercise its chargeback rights against Acquirer has
expired; or
(c) Acquirer and CSI otherwise determine to its satisfaction that a
chargeback on the Transaction Record will not occur. Upon termination of this
Agreement, Acquirer may withhold payment to Merchant for such period of time
reasonably determined by Acquirer and CSI as necessary to establish a reserve to
cover any chargebacks, credit drafts and uncollected discounts or fees that may
result from transactions previously processed and appearing after the
termination date.
ARTICLE 2 - 2.07 DISPUTES WITH CARDHOLDER
All disputes between Merchant and any Cardholder relating to any Card
transaction shall be settled between Merchant and such Cardholder. Merchant
shall, in accordance with paragraph 3.06, indemnify Acquirer, CSI, Visa and
MasterCard from any claim or suit brought by Cardholder relating to any
transaction with Merchant.
6
<PAGE> 7
ARTICLE 2 - 2.08 EXCESSIVE CHARGEBACKS & RETRIEVAL REQUESTS
Merchant agrees that if Acquirer and CSI are presented, during any monthly
period, with:
(a) Chargebacks relating to Merchant's transactions processed by
Acquirer in excess of three percent (3%) of the average monthly dollar amount of
such transactions, or;
(b) Documentation retrieval requests in excess of four percent (4%) of
the total number of transactions processed.
Such chargebacks or retrieval requests shall be conclusively deemed to be
excessive under applicable Visa regulations. Acquirer and CSI may thereupon
terminate this Agreement or take such other action as may be authorized herein
or by applicable Visa or MasterCard regulations. The percentage figure in this
paragraph shall not be deemed to be, nor shall be, a limitation of Acquirer's
rights to establish a reserve pursuant to the terms of this Agreement. Merchant
agrees that the amount or extent of any such reserve shall be based on Acquirer
and CSI's reasonable estimation of the need for it, in light of circumstances
known to them at the time.
ARTICLE 3 - TERMINATION, MODIFICATION, AND COMPLIANCE WITH LAW
ARTICLE 3 - 3.01 COMPLIANCE WITH LAW
Merchant shall comply with all laws, ordinances and regulations applicable to
Merchant, Merchant business and any Card transaction, including without
limitation, all state and federal consumer credit and consumer protection
statutes and regulations. Neither Acquirer nor CSI shall have any obligation to
notify or advise Merchant of the existence of such laws or changes in such laws.
ARTICLE 3 - 3.02 MODIFICATION
(a) This Agreement is subject to such modifications, changes and/or
additions as may be required, or determined by Acquirer and CSI to be required,
by reason of any state or federal statute, judicial decision, Visa or MasterCard
rule or regulations, or the regulation or authority of any federal agency having
jurisdiction over Acquirer and CSI or Merchant. Such modifications, changes and
additions may be made unilaterally by Acquirer and CSI, shall be in writing and
shall be effective immediately upon dispatch by Acquirer and CSI.
(b) This Agreement may only be modified as approved in writing by the
Acquirer and the corporate office of CSI. No field agent of Acquirer or CSI is
authorized to make any modification to this Agreement or to make any
representation which is not set forth in this Agreement.
ARTICLE 3 - 3.03 REFUND OR REVOCATION OF CREDIT AND REPAYMENT BY MERCHANT
Acquirer may refuse to accept any sales draft or revoke its prior acceptance it
entered in one or more of the following circumstances:
(a) The transaction giving rise to the sales draft was not made in
compliance with all terms and conditions of this agreement, as well as all
applicable laws, rules or regulations;
(b) The Cardholder disputes his or her liability to Acquirer or other
Issuer for any reason including, but not limited to, those chargeback rights
enumerated in Visa and MasterCard operating regulations in effect from time to
time; or
(c) The transaction giving rise to the sales draft was not a bona fide
transaction directly between Merchant and Cardholder. Merchant shall not accept
any transaction on behalf of any person or persons, or any business other than
the Merchant of record.
(d) No Merchant shall process any transaction accumulated prior to the
issuance of a Merchant Number.
If such refusal or revocation occurs, Merchant shall, in addition to any
penalties and fees, immediately repay Acquirer the full amount credited by
Acquirer to Merchant's account on the basis of such sales draft.
7
<PAGE> 8
ARTICLE 3 - 3.04 TERMINATION
This Agreement may be terminated without cause by either party upon prior
written notice to the other party. Notice by Merchant must be given to CSI or
Acquirer at the corporate address indicated in Section 4.13. Notice to a field
agent or the CSI Sales department shall not constitute notice. Merchant shall
remain responsible for all charges, including those incurred within the month of
cancellation. Merchant shall remain responsible for all charges until
notification from Merchant is received by Acquirer and CSI.
(a) Acquirer and CSI may terminate this Agreement without prior notice,
whether written or otherwise, in the event Merchant is or becomes bankrupt or is
unable to pay its debts as they become due, or if Acquirer and CSI reasonably
determines that Merchant has violated any term, condition, covenant, or warranty
of this Agreement or if Acquirer and CSI determine, in its sole discretion, that
Merchant has abused its privileges under this Agreement. MERCHANT EXPRESSLY
ACKNOWLEDGES THAT IDENTIFICATION ON THE COMBINED TERMINATED MERCHANT FILE IS
GROUNDS FOR IMMEDIATE TERMINATION OF SERVICE.
(b) Upon the effective date of any termination, Merchant's rights
hereunder to make Card transactions, to deposit transactions with Acquirer and
CSI and to use sales draft forms, credit draft forms, promotional material
and/or any other items provided or made available through Acquirer and CSI shall
cease. However, Merchant's obligations in connection with any Transaction Record
accepted by Acquirer and CSI before or after termination shall survive such
termination including, without limitation, Merchant's chargeback obligations.
(c) following the effective date of termination, Merchant shall
maintain funds on deposit in an account available to Acquirer for a reasonable
time. Based upon Cardholder and Issuer chargeback rights, an amount of funds
reasonably adequate to cover all chargeback deposit charges, refunds and fees
incurred by Acquired and CSI pursuant to this Agreement, Visa or MasterCard
operating regulations of any processing facility shall be maintained in such
account. Acquirer is hereby irrevocably authorized by Merchant to charge such
account, or other accounts maintained by Merchant, for the amount of such
matters. Merchant shall pay Acquirer for all such matters upon demand by
Acquirer, together with all costs and expenses incurred by Acquirer and CSI,
including reasonable attorney's fees.
ARTICLE 3 - 3.05 TERMINATION AND COMBINED TERMINATED MERCHANT FILE
MERCHANT EXPRESSLY ACKNOWLEDGES that a Combined Terminated Merchant File
("CTMF") is maintained by Visa and MasterCard containing the business name and
names and identification of principals of Merchants which have been terminated
for one or more of the reasons specified in Visa or MasterCard operating
regulations. Examples would be, but are not limited to, fraud, counterfeit
drafts, unauthorized transactions, excessive chargeback and retrieval requests,
laundering or where a high security risk exists.
MERCHANT ACKNOWLEDGES THAT ACQUIRER AND CSI ARE REQUIRED TO REPORT THE BUSINESS
NAME OF THE MERCHANT AND THE NAMES AND IDENTIFICATION OF ITS PRINCIPALS TO THE
CTMF WHEN A MERCHANT IS TERMINATED FOR ONE OR MORE OF THE REASONS SPECIFIED IN
VISA OR MASTERCARD OPERATING REGULATIONS. MERCHANT EXPRESSLY AGREES AND CONSENTS
TO SUCH REPORTING BY ACQUIRER AND CSI.
ARTICLE 3 - 3.06 INDEMNIFICATION
Merchant and Guarantor shall, jointly and severally, indemnify, defraud, and
hold harmless Acquirer and CSI, Visa and MasterCard against and in respect to
any and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties, and
reasonable attorneys' fees, that Acquirer and CSI, Visa and MasterCard shall
incur or suffer, that arise, result from, or result from, or relate to any
breach of, or failure by Merchant to perform any of its representations,
warranties, covenants or agreements in this Agreement or in any schedule,
supplemental agreement, appendix or other instrument furnished or to be
furnished to Merchant under this Agreement.
8
<PAGE> 9
ARTICLE 3 - 3.07 LIMITATION OF LIABILITY
Acquirer and CSI's liability to Merchant with respect to any Card transaction
shall not exceed the amount represented by the transaction record in connection
with that transaction, less any applicable discount or fees. Acquirer and CSI
shall in no event be liable for any incidental or consequential damages
whatsoever.
ARTICLE 3 - 3.08 ENTIRE AGREEMENT; WAIVER
This Agreement, together with supplemental agreements, appendixes and schedules
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
ARTICLE 3 - 3.09 RESERVE ACCOUNT
In addition to the security interest and chargeback rights granted to Acquirer
by Merchant, Merchant hereby authorizes Acquirer to establish a Reserve Account,
with or without prior notice to Merchant, at any time prior to, of or other
termination of this Agreement, to ensure Acquirer's recovery of any liabilities
owed it or reasonably anticipated to be owned if by Merchant pursuant to this
Agreement.
(a) Such liabilities include, but are not limited to those arising out
of actual and/or potential post-termination chargebacks, as well as all other
post-termination fees, charges and expenses due or anticipated to be due
Acquirer from Merchant.
(b) Merchant agrees that if Acquirer does establish the Reserve
Account, it shall be in any amount Acquirer deems reasonable under the
circumstances. The Reserve Account may be funded and/or replenished by
Acquirer's withholding or withdrawing from, or freezing all or any part of, the
Commercial Account and/or accounts maintained by Merchant with Acquirer. Unless
Acquirer agrees otherwise in writing with Merchant, the Reserve Account shall
not bear interest.
(c) Acquirer may enforce its security interest in the Reserve Account
without notice or demand. Acquirer's right to sums owed it by Merchant pursuant
to this Agreement shall in no way be limited by the balance or existence of the
Reserve Account. Acquirer's rights with respect to the Reserve Account, as well
as the security interests granted Acquirer under this Agreement, shall survive
the termination of this Agreement.
ARTICLE 3 - 3.10 LAW
This Agreement shall be construed in accordance with, and governed by,
California law as applied to contracts that are executed and performed entirely
in California. The parties stipulate that the exclusive venue for any action,
between them shall be within the county of Los Angeles in the State of
California.
ARTICLE 3 - 3.12 ASSIGNABILITY
Merchant may not assign this Agreement, or any rights hereunder, directly or by
operation of Law, without the prior written consent of Acquirer and CSI. For
purpose of this Agreement, assignment shall include, but not be limited to,
transfer of control of Merchant and any ownership change which results in a new
majority owner.
ARTICLE 3 - 3.13 ATTORNEY'S FEES AND COSTS
Merchant shall be liable for and shall indemnify and reimburse Acquirer and CSI
for any and all attorneys' fees and other costs and expenses paid or incurred by
Acquirer and CSI in the enforcement of this Agreement, or in collecting any
amounts due from Merchant to Acquirer and CSI hereunder or resulting from any
breach of any of the terms or conditions of this Agreement.
9
<PAGE> 10
ARTICLE 3 - 3.14 GUARANTORS
As a primary inducement to Acquirer and CSI to enter into this Agreement with
Merchant, the undersigned Guarantor(s), by signing this Agreement, jointly and
severally, unconditionally and irrevocably, guarantee the continuing full and
faithful performance and payment by Merchant of each of its duties and
obligations to Acquirer and CSI pursuant to this Agreement, as it now exists or
as it may be amended from time to time, whether before or after termination or
expiration and whether or not Guarantor has received notice of any amendment. If
Merchant breaches this Agreement, Acquirer and CSI may proceed directly against
Guarantor or any other person or entity responsible for the performance of this
Agreement, without first exhausting its remedies against any other person or
entity responsible therefore to it, or any security held by Acquirer.
ARTICLE 3 - 3.15 FORCE MAJEURE
Acquirer and CSI shall have no liability to Merchant for delay or failure to
perform any part of this Agreement on account of an act of God or the public
enemy, fire, explosion, flood, earthquake, riot, war, sabotage, accident,
embargo or any circumstances of like or different character beyond Acquirer and
CSI's reasonable control or by interruption or delay in transportation,
inadequacy or shortage or failure of supply of materials, utilities or equipment
breakdown, labor trouble, or compliance with any order, direction, action, or
request of any governmental officer, department or agency.
ARTICLE 3 - 3.16 CUMULATIVE REMEDIES
All remedies of Acquirer and CSI hereunder are cumulative and may be exercised
concurrently or separately. The exercise of any one remedy shall not be deemed
to be on election of such remedy and shall not preclude the exercise of any
other remedy. No failure on the part of Acquirer and CSI to exercise and no
delay in exercising, any right to remedy hereunder shall operate as a waiver of
such right or remedy.
ARTICLE 3 - 3.17 BREACH OF OTHER AGREEMENTS
This Agreement is the principal agreement between Merchant and Acquirer and CSI.
In order to further effectuate the subject matter of this Agreement, the parties
acknowledge that a number of additional agreements may be entered into between
them. Merchant hereby agrees that Merchant's breach of any of those additional
agreements shall also constitute a breach of this Agreement.
ARTICLE 3 - 3.18 FIDUCIARY RELATIONSHIP
As provided in California Financial Code Section 952 as it now exists and as it
may be amended from time to time, whenever Merchant has a deposit held arising
from or subject to this Agreement with any bank which, pursuant to this
Agreement, Merchant is not entitled to, Merchant's entitlement to such deposit
shall be as a fiduciary of Acquirer and CSI until any claim by Acquirer and CSI
has been resolved. Merchant agrees that its failure to repay, within 20 calendar
days of notification, to Acquirer and CSI funds Merchant is not entitled to
shall result in a presumption that Merchant intends to misappropriate such
funds.
ARTICLE 3 - 3.19 SECURITY INTEREST & MERCHANT PERFORMANCE REQUIREMENT
To secure Merchant's performance under this Agreement, including without
limitation Merchant's obligations arising out of Chargebacks, Merchant hereby
grants, pursuant to the California Uniform Commercial Code, Acquirer and CSI a
security interest on Merchant's electronic terminal, printer, imprinter and
imprinter plate. Further Merchant grants to Acquirer a Security Interest in
sales drafts, credit cards, and in all deposits, regardless of source, made to
Merchant's account established or designated and maintained pursuant to this
Agreement, as well as in the proceeds of those deposits, and in all other
accounts maintained by Merchant. Acquirer may enforce this security interest as
applicable by:
(a) Making an immediate debt (charge) to any account, without notice or
demand of any kind; and/or interrupting the electronic transmission of funds to
any account through the Automated Clearing House (ACH) system; and/or
10
<PAGE> 11
(b) Freezing the entire account, without notice or demand of any kind,
upon Acquirer and CSI's reasonable determination that Merchant has breached any
term of this Agreement; and /or
(c) Taking possession of any or all of Merchant's sales drafts,
verification and confirmation of transactions; and/or (d) Taking possession of
any and/or all of Merchant's electronic terminals, printers, imprinters and
imprinter plates.
Merchant shall provide any statement or notice that Acquirer and CSI determines
to be necessary to preserve and protect Acquirer's security interest. Merchant's
granting of this security interest in no way limits Merchant's liabilities to
Acquirer and CSI under this Agreement.
ARTICLE 3 - 3.20 SEVERABILITY
If any provision of this agreement is held invalid or unenforceable by any court
of final jurisdiction, it is the intent of the parties that all other provisions
of this Agreement be construed to remain fully valid, enforceable and binding on
the parties.
ARTICLE 3 - 3.21 MERCHANT NAME AND BUSINESS TYPE
Changes, by way of example only, business name change, business telephone and/or
address change, or any banking information shall be submitted, in writing to
Acquirer and CSI by Merchant under the terms provided in this agreement.
Merchant represents that it is engaged in the business as denoted at the end of
this Agreement. Merchant shall not process Credit Card transactions for any
other type of business.
ARTICLE IV - MISCELLANEOUS
ARTICLE 4 - 4.01 IMPRINTERS AND TERMINALS
Merchant shall have imprinter(s) and terminals used to process Card
transactions, and shall maintain them in good working order and shall notify
Acquirer and CSI prior to any change of the imprinted or programmed information.
All imprinters, terminals or other equipment provided to Merchant by CSI shall
remain the property of CSI until fully paid for. Merchant hereby grants to CSI a
security interest in such equipment for so long as any amount remains to be
paid.
ARTICLE 4 - 4.02 FORMS
Merchant shall use only such forms or modes of transmission for sales data as
are provided or approved in advance by Acquirer and CSI. Merchant shall not use
forms or equipment available through CSI except in connection with Card
transactions hereunder. CSI will make sales drafts and forms available by fee
and on order of Merchant.
ARTICLE 4 - 4.03 RECORDS
Merchant shall preserve a copy of the actual paper sales drafts and credit
drafts for at least one year after the date Merchant presents the transaction
date to Acquirer and CSI. Merchant shall retain original transaction data or
make microfilm copies of both sides of such actual paper Transaction Records,
and store for a minimum of three (3) years. Within three (3) days of receipt of
Acquirer and CSI's request, Merchant shall provide to Acquirer and CSI, at
Merchant's cost, either the actual paper Transaction Record, if requested by
Acquirer and CSI, or a legible microfilm thereof comparable in size to the
actual paper transaction records. In addition, Merchant shall, within three (3)
calendar days of Acquirer and CSI's request, provide any other documentary
evidence available to Merchant and reasonably requested by Acquirer and CSI to
meet its obligations under law, including but not limited to its obligations
under the Fair Credit Reporting Act, or its obligations to otherwise respond to
questions concerning Cardholder accounts.
ARTICLE 4 - 4.04 CHANGE IN TRANSMISSION METHOD
Merchant shall give Acquirer and CSI at least thirty days' prior written notice
of its desire to alter in any material respect its medium of transmission of
sales data and credit data to Acquirer and CSI. Any change shall be subject to
Acquirer's and CSI's prior approval. Following termination, for so
11
<PAGE> 12
long as Merchant is required to retain the same, Merchant shall, promptly upon
request, provide Acquirer and CSI with all original and microfilm copies of
records required to be retained at the time of termination.
ARTICLE 4 - 4.05 SUPPLEMENTARY DOCUMENTS
References to "this Agreement" include any supplementary agreements, addendum,
appendices and amendments and any other agreements, schedules, appendices and
amendments promulgated by Acquirer and CSI and furnished to Merchant from time
to time.
ARTICLE 4 - 4.06 DISCOUNT PERCENTAGE
Merchant shall pay Acquirer discount percentages, batch header fees and
transaction fees for processing the credit card drafts. The discount percentages
shall include consideration for Qualifying, Mid-Qualifying and Non-Qualifying
transactions. Merchant hereby authorizes Acquirer to debit any of the Merchant's
Accounts for payment of any and all fees and the discount percentage which shall
be paid at the rate established as set forth at the end of this Agreement. Said
discount percentage may be revised from time to time upon thirty (30) days
written notice to Merchant.
ARTICLE 4 - 4.07 MONTHLY MINIMUM
Merchant shall pay a minimum monthly charge of $25.00 or such other sum as may
be determined by Acquirer and CSI from time to time upon thirty (30) days notice
to Merchant.
ARTICLE 4 - 4.08 CUSTOMER SERVICE FEE
Merchant shall pay to Acquirer and CSI a customer service fee of $10.00 per
month, or such other sum as may be determined by Acquirer and CSI from time to
time upon thirty (30) days notice to Merchant.
ARTICLE 4 - 4.09 REJECT FEE
Merchant acknowledges that failure by Merchant to maintain sufficient funds in
its checking account to execute its obligations under this Agreement will result
in the imposition of a Reject Fee in the amount of $15.00 per item or $25.00 per
daily batch as applicable. This fee is subject to change as may be determined by
Acquirer and CSI from time to time upon thirty (30) days notice to Merchant.
ARTICLE 4 - 4.10 DOCUMENTATION FEE
If Acquirer and CSI is required to provide documentation, by way of example
only, statement copies, etc., Merchant shall pay to CSI a fee of $2.00 per page
provided to Merchant. This fee is subject to change as may be determined by
Acquirer and CSI from time to time upon thirty (30) days notice to Merchant.
ARTICLE 4 - 4.11 AMENDMENT
Acquirer and CSI may amend this Agreement at any time by mailing written notice
to Merchant of any amendment at least thirty (30) days prior to the effective
date of the amendment. The amendment shall become effective on the date
specified by Acquirer and CSI unless Acquirer and CSI receives Merchant's notice
of termination of this Agreement before such effective date.
ARTICLE 4 - 4.12 MERCHANT ACCOUNT
In order to facilitate the transfer of payments between the parties hereto,
Merchant may maintain a commercial deposit account with Acquirer. Said account
shall be subject to such terms and conditions (including, without limitation,
the imposition of service charges and fees) as may be agreed to by Acquirer and
Merchant. In the absence of any express written agreement, the standard terms
and conditions applicable to commercial deposit accounts offered by Acquirer
shall apply. As amounts become payable to Acquirer and/or CSI or to Merchant
under this Agreement, Acquirer may, unless otherwise agreed in writing, make
payments to or receive payments from Merchant by crediting or debiting such
account without prior notice. If such a commercial deposit account is not
12
<PAGE> 13
maintained by Merchant, payment between the parties shall be made in a manner
satisfactory to Acquirer and CSI.
ARTICLE 4 - 4.13 NO NOTES
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given on the date of
service if delivered personally. If Merchant transmits the said information by
U.S. Mail, postage pre-paid, notice shall be deemed served upon confirmed
receipt by Acquirer and CSI. If service by facsimile transmission is used,
Merchant shall mail the original of the communication to the receiving party on
the date of transmission, by first class mail, postage pre-paid and it shall be
deemed served on the day of confirmed receipt by Acquirer and CSI.
If Acquirer and/or CSI present service by facsimile transmission, service is
deemed to have been duly give on the day of transmission. If facsimile
transmission is not used, notice shall be given by, first class mail, postage
pre-paid and it shall be deemed served on the day of mailing. All communications
must be addressed as follows:
Cardservice International, Incorporated
Attention: Customer Service
P.O. Box 2310
Agoura Hills, CA 91376-2310
Facsimile (818) 880-9898
Communications to Merchant shall be addressed to the address appearing below
Merchant's signature. Any party may change its address for purposes of this
paragraph by giving the other parties written notice of the new address in the
manner set forth above.
ARTICLE 4 - 4.14 EFFECT OF HEADINGS
The subject headings of the paragraphs and subparagraphs of this Agreement are
included for convenience only and shall not affect the construction or
interpretation of any of its provisions.
ARTICLE 4 - 4.15 POINT-OF-SALE TERMINAL SERVICES
The Point-of-Sale Terminal (POS) can be utilized to obtain various services,
some of which originated with Acquirer and CSI, and others which are provided by
a third party. These services include authorization and electronic draft capture
for major credit cards, and other data needed to process information
electronically. Merchant agrees that when the services do not originate with
Acquirer or CSI, Merchant will abide by the regulations of the third party,
provided that said regulations do not contradict or infringe upon Visa,
MasterCard, Acquirer, and CSI regulations. Merchant agrees to release Acquirer
and CSI from all liability for any damage to Merchant arising for services which
do not originate from Acquirer and/or CSI.
ARTICLE 4 - 4.16 ADHERENCE
Merchant agrees to be responsible and liable for adhering to all provisions of
this Agreement without exception and in full. Failure to abide by the provisions
herein constitute grounds for possible interruption or termination of service.
ARTICLE 4 - 4.16 CHANGE OF BANKING INFORMATION
Merchant shall notify CSI of any change in business checking account, change of
bank, or any other banking information. Merchant shall pay CSI a fee in the
amount of $25.00, for each checking account charge.
BANKCARD RATE ________________% TRANSACTION FEE __________________
MONTHLY VOLUME $________________ AVERAGE TICKET $_________________
13
<PAGE> 14
MERCHANT
____________________________________ Type of Business (Be Specific) ___________
Merchant Name
By:_______________________________ _____________________ Date _____/_____/____
Signature Title
____________________________________________________________ (___)____________
(Business Address) Street City State Zip Telephone
ARTICLE 4 - 4.18 GUARANTOR
If Merchant is a corporation, then a principal of said corporation must sign as
a guarantor.
Name ____________________ Signature _____________________ Date _____/_____/____
____________________________________________________________ (___)____________
(Residence) Street City State Zip Telephone
I certify that on _____/_____/_____ I performed an on-site Merchant location
inspection. Furthermore, I certify that the business activity of the location
inspected is congruent with the business typed indicated above. I am reasonably
satisfied that the person(s) executing this Agreement on behalf of Merchant are
in fact authorized to do so.
Cardservice Sales
Representative _______________________ _____________________ Date ___/___/___
Print Name Signature
CARDSERVICE INTERNATIONAL, INC.
26775 Malibu Hills Road
Agoura Hills, CA 91301
TEL: (818) 878-8000
& (800) 456-5989
FAX: (818) 880-9898 Agreement Accepted at
Agoura Hills, CA by:___________________ Date __/__/__
and
ACQUIRER
Tacoma County Bank
237 South Main
Box 890
Red Bluff, CA 96080 Agreement Approved by:_________________ Date __/__/__
14
<PAGE> 1
EXHIBIT 10.22
NOTE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 5th day of November 1998,
between GOLF ONE INDUSTRIES, INC., a Delaware corporation (the "Company") and
CAPITAL FUND LEASING, LLC, an Ohio limited liability company (the "Purchaser").
RECITAL
WHEREAS, the Company has authorized the issuance and sale of the
Company's 15% Notes up to an aggregate principal amount of $2,000,000 having the
terms set forth in Exhibit A attached hereto (the "Notes"); and
WHEREAS, the Purchaser desires to purchase, and the Company desires to
issue, the Notes on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Purchaser agree as
follows:
1. PURCHASE AND SALE OF NOTES. Subject to the terms and conditions
contained in this Agreement, at the First Closing and Second Closing (as
hereinafter defined) the Purchaser shall purchase from the Company and the
Company shall sell to the Purchaser the Notes in the amount of $2,000,000, which
shall be payable via wire transfer to the Company's designated account (not
later than the next business day after each Closing).
2. CLOSING.
2.1 Closing Dates. The closing of the purchased and sale of the Notes
shall take place as follows: (i) with respect to the first $1,000,000, on or
about November 5, 1998 (the "First Closing") and (ii) with respect to the second
$1,000,000 on or about November 13, 1999 (the "Second Closing") or such other
days as agreed to by the parties (the "Closing Dates").
2.2 Items to be Delivered to Purchaser. The following shall be
delivered by the Company to the Purchaser on each Closing Date:
(a) the Note in the amount of $1,000,000 purchased by the
Purchaser;
(b) a legal opinion of counsel to the Company acceptable to
the Purchaser;
(c) At the First Closing, a certificate of the secretary or an
assistant secretary of the Company certifying (i) an attached complete
and correct copy of its articles of incorporation, (ii) an attached
complete and correct copy of its bylaws, and (iii) an attached complete
and correct copy of resolutions duly adopted by its board of directors
authorizing the execution, delivery and performance of this Agreement
and the Notes;
<PAGE> 2
(d) At the Second Closing, a Certificate of the Chief
Financial Officer of the Company certifying that there has been no
material adverse change in the Company's financial condition since the
date of the First Closing; and
(e) At the Second Closing, a Certificate of the Company's
Secretary certifying that there has been no changes made or
contemplated to the Company's Certificate of Incorporation or Bylaws
since the date of the First Closing.
2.3 Items to be Delivered to the Company. On each Closing Date, the
Purchaser shall deliver to the Company $1,000,000 by wire transfer to the
account designated by the Company,
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company
represents and warrants that as of the date of this Agreement and as of the
Closing Dates:
(a) Existence. The Company is a corporation duly organized and
in good standing under the laws of the State of Delaware and is duly
qualified to do business and is in good standing in all states where
such qualification is necessary, except for those jurisdictions in
which the failure to qualify would not, in the aggregate, have a
material adverse effect on the Company's financial condition, results
of operations or business.
(b) Authority. The execution and delivery by the Company of
this Agreement and the Notes (i) are within the Company's corporate
powers; (ii) are duly authorized by the Company's board of directors;
(iii) are not in contravention of the terms of the Company's
certificate of incorporation or bylaws; (iv) are not in contravention
of any law or laws; (v) except for the filing of a Form D Notice with
the Securities and Exchange Commission and any exemption filing related
thereto which may be required pursuant to applicable state securities
or "blue sky" laws, do not require any governmental consent,
registration or approval; (vi) do not contravene any contractual or
governmental restriction binding upon the Company; and (vii) will not
result in the imposition of any lien, charge, security interest or
encumbrance upon any property of the Company under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which the Company is a party or by
which the Company or any of the Company's property may be bound or
affected.
(c) Binding Effect. This Agreement and the Notes have been
duly authorized, executed and delivered by the Company and constitute
the valid and legally binding obligation of the Company, enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
-2-
<PAGE> 3
(d) Capitalization. The authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock, per value $.0001
per share, 4,105,102 shares of which are issued and outstanding and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of
which the following Preferred Shares are authorized, issued and
outstanding: Series B Convertible Preferred Stock authorized 750,750
shares, 572,649 shares issued and outstanding.
(e) Disclosure Documents. The Company has furnished the
Purchaser with the following Disclosure Documents (the "Disclosure
Documents"):
1) The Company's Registration Statement on
Form SB-2 as filed with the Securities and
Exchange Commission on May 27, 1998 (the
"Registration Statement");
2) Confidential Disclosure Memorandum of the
Company to the Purchaser dated as of the
date hereof, supplementing and modifying
certain of the information contained in the
Registration Statement; and
3) The Company's Consolidated Statement of
Operations for the five months ended August
31, 1998 and Consolidated Balance Sheet as
of August 31, 1998 (the "Interim Financial
Statements").
Except as disclosed in the Disclosure Documents, since March 31, 1998
the Company has not incurred any material liability except in the
ordinary course of its business consistent with past practice and there
has not been any change in the business, financial condition or results
of operations of the Company which has had a material adverse effect on
the Company. The Financial Statements contained in the Registration
Statement and the Interim Financial Statements are accurate, complete
and have been prepared in accordance with the books and records of the
Company and in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present (subject, in
the case of the unaudited statements, to normal, recurring audit
adjustments that are not material) the consolidated financial position
of the Company as at the dates thereof and the consolidated results of
its operations and cash flows for the periods then ended.
(f) Litigation. There is neither pending nor, to the Company's
knowledge, threatened any action, suit, proceeding or claim, or any
basis therefor, to which the Company is or may be named as a party or
its property is or may be subject other than routine litigation in the
ordinary course of business or which calls into question any of the
transactions contemplated by this Agreement.
-3-
<PAGE> 4
(g) Securities Matters. Subject to the accuracy of the
representations of the Purchaser set forth in Section 3.2 hereof, the
offer, sale and issuance of the Notes as contemplated by this Agreement
are exempt from the registration requirements of the Securities Act of
1933 as amended (the "Securities Act"). The Company has complied and
will comply with all applicable state "blue sky" or securities laws in
connection with the offer, sale and issuance of the Notes as
contemplated by this Agreement.
3.2 Representations and Warranties of the Purchaser. The Purchaser
represents and warrants that as of the date of the execution of this Agreement:
(a) Authorization. This Agreement constitutes a valid and
legally binding obligation of the Purchaser.
(b) Investment Representations. (i) The Purchaser has received
and reviewed the Company's Disclosure Documents and the Purchaser or
the Purchaser's designated representatives have concluded a
satisfactory due diligence investigation of the Company and have had an
opportunity to review the documents provided by the Company and to have
all of their questions related thereto satisfactorily answered.
(ii) The Purchaser acknowledges that the Notes are
speculative and involve a high degree of risk and the
Purchaser represents that it is able to sustain the loss of
the entire amount of its investment.
(iii) The Purchaser (or its members and/or officers)
has previously invested in unregistered securities and has
sufficient financial and investing expertise to evaluate and
understand the risks of the Notes.
(iv) The Purchaser has received from the Company, and
is relying on, no representations or projections (except as
set forth in this Agreement or the Disclosure Documents) with
respect to the Company's business and prospects.
(v) The Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act.
(vi) The Purchaser is engaged, as a substantial part
of its business or operations, in purchasing or holding
securities.
(vii) The Purchaser is acquiring the Notes for
investment purposes only without intent to distribute the
same, and acknowledges that the Notes have not been registered
under the Securities Act and applicable state securities laws,
and accordingly, constitute "restricted securities" for
purposes of the Securities Act and such state securities laws.
-4-
<PAGE> 5
(viii) The Purchaser acknowledges that it will not be
able to transfer the Notes except upon compliance with the
registration requirements of the Securities Act and applicable
state securities laws or exemptions therefrom.
(ix) The certificates and/or instruments evidencing
The Notes will contain a legend to the foregoing effect.
4. MERCHANDISE CREDIT. Purchaser and/or its designees shall be
entitled to a credit in the amount of $10,000 for the purchase from the Company
of any Gary Player golf equipment at any time after the First Closing and Second
Closing have occurred.
5. MISCELLANEOUS.
5.1 Confidentiality. (a) The Purchaser agrees to keep confidential any
and all non-public information delivered or made available to the Purchaser by
the Company except for disclosures, as necessary, made by the Purchaser to the
Purchaser's officers, directors, employees, agents, counsel and accountants each
of whom shall be notified by the Purchaser of this confidentiality covenant and
for whom the Purchaser shall be liable in the event of any breach of this
covenant by any such individual or individuals; provided, however, that nothing
herein shall prevent the Purchaser from disclosing such information (a) upon the
order of any court or administrative agency, (b) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Purchaser, (c)
which has been publicly disclosed or (d) to any of its members provided that any
such members agree in writing (with a copy provided to the Company) to be bound
by confidentiality provisions in form and substance substantially as are
contained herein. In the event of a mandatory disclosure as described in clause
(a) and/or (b) of the preceding sentence, the Purchaser shall promptly notify
the Company in writing of any applicable order, request or demand for such
information, cooperate with the Company if and to the extent that the Company
elects to seek an appropriate protective order or other relief from such order,
request, or demand, and disclose only the minimal amount of information
ultimately required to be disclosed. The Purchaser shall not use for its own
benefit, nor permit any other person to use for such person's benefit, any of
the Company's non-public information including, without limitation, in
connection with the purchase and/or sale of the Company's securities.
(b) The Company shall in no event disclose non-public
information to the Purchaser, advisors to or representatives of the
Purchaser unless prior to disclosure of such information the Company
marks such information as "Non-Public Information-Confidential" and
provides the Purchaser, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any
non-public information hereunder, require the Purchaser's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Purchaser.
-5-
<PAGE> 6
(c) Nothing herein shall require the Company to disclose
non-public information to the Purchaser or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any Purchasers who purchase stock
in the Company in a public offering, to money managers or to securities
analysts.
5.2 Legends. To the extent applicable, each note, certificate or other
document evidencing the Notes to be purchased and sold pursuant to this
Agreement shall be endorsed with the legends set forth below, and the Purchaser
on behalf of itself and each holder of the Notes covenants that, except to the
extent such restrictions are waived by the Company, it shall not transfer the
Notes without complying with the restrictions on transfer described in the
legends endorsed on such note or certificate:
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Note, the legend required by such
state authority.
5.3 Costs and Expenses. The Company shall reimburse Purchaser for its
reasonable legal fees and expenses in connection with the purchase of the Notes
up to a maximum of $6,000. The Company shall be responsible for all of its fees
and expenses in connection with this transaction.
5.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of the parties hereto.
5.5 Survival. All agreements, covenants, representations and
warranties made by the Company or by the Purchaser herein shall survive the
execution and delivery of this Agreement.
5.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
-6-
<PAGE> 7
5.7 Counterparts: Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
5.8 Entire Agreement, Amendments. This Agreement and the Exhibits
contain the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other representations and understandings oral
or written, with respect to the subject matter hereof. No amendment,
modification, alteration, or waiver of the terms of this Agreement or consent
required under the terms of this Agreement shall be effective unless made in a
writing, which makes specific reference to this Agreement and which has been
signed by the Company and the Purchaser. Any such amendment, modification,
alteration, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5.9 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when delivered in hand, deposited in the mail, or sent by facsimile, with
confirmation (if sent by facsimile on a non-business day, receipt shall be
deemed to have occurred on the next succeeding business day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed as follows, unless and until either of
such parties notifies the other in accordance with this Section of a change of
address:
if to the Company: Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, California 93455
Att: Secretary
Tel: (805) 346-1600
Fax: (805) 348-0104
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Att: Thomas P. Gallagher
Tel: (609) 452-6000
Fax. (609) 452-0090
if to the Purchaser: Capital Fund Leasing, LLC
9140 Ravenna, Road, Unit 2
Twinsburg, Ohio 44087
Att: James A. Capwill
Tel: 330-425-7555
Fax: 330-425-7486
-7-
<PAGE> 8
with copies to: Jacobs & Associates
33595 Bainbridge Road, Suite 201
Solon, Ohio 44139
Att: David W. Abbuhl
Tel: (440) 349-3301
Fax: (440) 349-3382
5.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
5.11 Maximum Interest. It is expressly stipulated and agreed to be the
intent of the Company and the Purchaser at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Purchaser to contract
for, charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of the Note results in the
Company's having paid any interest in excess of that permitted by law, then it
is the Company's and the Purchaser's express intent that all excess cash amounts
theretofore collected by Purchaser be credited on the principal balance of the
Note (or if the Note has been or would thereby be paid in full, refunded to the
Company), and the provisions of this Agreement immediately be deemed reformed
and the amounts thereafter collectible hereunder reduced, without the necessity
of the execution of any new document, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder. The right to accelerate maturity of the Note does not include the
right to accelerate any interest which has not otherwise accrued on the date of
such acceleration, and the Purchaser does not intend to collect any unearned
interest in the event of acceleration.
-8-
<PAGE> 9
IN WITNESS WHEREOF, This Agreement has been duly executed as of the day
and year first above written.
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes
----------------------------------------
Alfonso J. Cervantes
President and Chief Execute Officer
CAPITAL FUND LEASING INC.
By. ___________________________________
Name: James A. Capwill
Title: Managing Member
-9-
<PAGE> 10
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. ____ _______ , 1998
GOLF ONE INDUSTRIES, INC.
15% NOTE
FOR VALUE RECEIVED, Golf One Industries, Inc., a Delaware corporation
(the "Company") hereby promises to pay to the order __________ of _______ having
an address at ________ (the "Holder"), or registered assigns, the principal sum
of One Million Dollars ($1,000,000.00), and to pay interest from the date hereof
on the principal sum at the rate of 15% per annum based on a 365-day year, such
interest to accrue from the date hereof. The principal and accrued interest
shall be paid in full on or before the earlier of (i) the closing of the
Company's initial public offering of common stock or (ii) December 31, 1998 (the
"Maturity Date").
This Note is one of an authorized issue of $2,000,000 aggregate amount
of 15% Notes of the Company (collectively, the "Notes") issued pursuant to a
Note Purchase Agreement dated as of November , 1998 between the Company and the
Holder (the "Note Purchase Agreement"). The Holder of this Note is entitled to
the benefits of the Note Purchase Agreement and to enforce the agreements of the
Company contained therein. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Note Purchase Agreement.
All payments shall be paid in lawful money of the United States of America at
the principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company.
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Notes together with accrued interest to the redemption date.
<PAGE> 11
2. [INTENTIONALLY OMITTED]
3. REGISTRATION. The Company shall maintain at its principal office
a register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $20,000.
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note and, if requested by the
Company in the case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the amount of
the unpaid principal of such Note, and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of: (i) any of the events specified in Section 6(a) hereof and the
failure to cure such default within five (5) days after receipt of written
notice thereof from the Holder; (ii) any of the events specified in Section 6(b)
hereof and the failure to cure such default within ten (10) days after receipt
of written notice thereof from the Holder; or (iii) any of the events specified
in Section 6(c) hereof (any of the foregoing being an "Event of Default"):
2
<PAGE> 12
(a) Failure to make any principal or interest payment required
under this Note on the due date of such payment;
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. LATE FEES. If the principal balance and accrued interest on this
Note are not paid in full at the Maturity Date, then the Company shall
immediately upon demand pay to the holder a late charge equal to ten percent
(10%) of the entire amount of principal and/or accrued interest unpaid as of the
Maturity Date. If the principal balance and accrued interest on this Note are
not paid in full before March 31, 1999, then the Company shall immediately upon
demand pay to the Holder an additional late charge equal to ten percent (10%) of
the entire amount of principal and/or accrued interest unpaid as of March 30,
1999. Such late fees shall be paid regardless of whether this Note has been, or
could be, declared in default and shall be in addition to all other remedies
available to the Holder.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (c) of Section 6, then the Note shall
be automatically accelerated and immediately due and payable at the
option of Holder, without notice or demand, and said amount shall
accrue interest from the date of default at the rate of seventeen
percent (17%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of seventeen percent (17%) per annum; and
(c) the Holder shall have all of the rights and remedies, at
law and in equity, by statute or otherwise, and no remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law,
in equity, by statute or otherwise.
9. CHANGES; PARTIES. This note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
3
<PAGE> 13
10. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
11. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4
<PAGE> 14
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
GOLF ONE INDUSTRIES, INC.
By:
Alfonso J. Cervantes
President and Chief Executive Officer
5
<PAGE> 15
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. 1 November 5, 1998
GOLF ONE INDUSTRIES, INC.
15% NOTE
FOR VALUE RECEIVED, Golf One Industries, Inc., a Delaware corporation
(the "Company") hereby promises to pay to the order of Capital Fund Leasing, LLC
having an address at 9140 Ravenna Road, Twinsburg, Ohio 44087 (the "Holder"), or
registered assigns, the principal sum of One Million Dollars ($1,000,000.00),
and to pay interest from the date hereof on the principal sum at the rate of 15%
per annum based on a 365-day year, such interest to accrue from the date hereof.
The principal and accrued interest shall be paid in full on or before the
earlier of (i) the closing of the Company's initial public offering of common
stock or (ii) December 31, 1998 (the "Maturity Date").
This Note is one of an authorized issue of $2,000,000 aggregate amount
of 15% Notes of the Company (collectively, the "Notes") issued pursuant to a
Note Purchase Agreement dated as of November 5, 1998 between the Company and the
Holder (the "Note Purchase Agreement"). The Holder of this Note is entitled to
the benefits of the Note Purchase Agreement and to enforce the agreements of
the Company contained therein. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Note Purchase Agreement.
All payments shall be paid in lawful money of the United States of America at
the principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company.
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Notes together with accrued interest to the redemption date.
<PAGE> 16
2. [INTENTIONALLY OMITTED]
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $20,000,
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note and, if requested by the
Company in the case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the can of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the amount
of the unpaid principal of such Note, and dated the date to which interest has
been paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of: (i) any of the events specified in Section 6(a) hereof and the
failure to cure such default within five (5) days after receipt of written
notice thereof from the Holder; (ii) any of the events specified in Section 6(b)
hereof and the failure to cure such default within ten (10) days after receipt
of written notice thereof from the Holder; or (iii) any of the events specified
in Section 6(c) hereof (any of the foregoing being an "Event of Default"):
2
<PAGE> 17
(a) Failure to make any principal or interest payment required
under this Note on the due date of such payment;
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. LATE FEES. If the principal balance and accrued interest on this
Note are not paid in full at the Maturity Date, then the Company shall
immediately upon demand pay to the holder a late charge equal to ten percent
(10%) of the entire amount of principal and/or accrued interest unpaid as of
the Maturity Date. If the principal balance and accrued interest on this Note
are not paid in full before March 31, 1999, then the Company shall immediately
upon demand pay to the Holder an additional late charge equal to ten percent
(10%) of the entire amount of principal and/or accrued interest unpaid as of
March 30, 1999. Such late fees shall be paid regardless of whether this Note has
been, or could be, declared in default and shall be in addition to all other
remedies available to the Holder.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event
of Default:
(a) specified in clause (c) of Section 6, then the Note shall
be automatically accelerated and immediately due and payable at the
option of Holder, without notice or demand, and said amount shall
accrue interest from the date of default at the rate of seventeen
percent (17%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the Note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of seventeen percent (17%) per annum; and
(c) the Holder shall have all of the rights and remedies, at
law and in equity, by statute or otherwise, and no remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law,
in, equity, by statute or otherwise.
9. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
3
<PAGE> 18
10. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
11. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4
<PAGE> 19
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes
-------------------------------------
Alfonso J. Cervantes
President and Chief Executive Officer
5
<PAGE> 20
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. 2 November 16, 1998
GOLF ONE INDUSTRIES, INC.
15% NOTE
FOR VALUE RECEIVED. Golf One Industries, Inc., a Delaware corporation
(the "Company") hereby promises to pay to the order of Capital Fund Leasing, LLC
having and address at 9140 Ravenna Road, Twinsburg, Ohio 44087 (the "Holder"),
or registered assigns, the principal sum of One Million Dollars ($1,000,000.00),
and to pay interest from the date hereof on the principal sum at the rate of 15%
per annum based on a 365-day year, such interest to accrue from the date hereof.
The principal and accrued interest shall be paid in full on or before the
earlier of (i) the closing of the Company's initial public offering of common
stock or (ii) December 31, 1998 ( the "Maturity Date").
This Note is one of an authorized issue of $2,000,000 aggregate amount
of 15% Notes of the Company (collectively, the "Notes") issued pursuant to a
Note Purchase Agreement dated as of November 5, 1998 between Company and the
Holder (the "Note Purchase Agreement"). The Holder of this Note is entitled to
the benefits of the Note Purchased Agreement and to enforce the agreements of
the Company contained therein. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Note Purchase Agreement.
All payments shall be paid in lawful money of the United States of America at
the principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than 10 days' notice at any time as a
whole only and not in part, at a price equal to the outstanding principal of
the Notes together with accrued interest to the redemption date.
<PAGE> 21
2. [INTENTIONALLY OMITTED]
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $20,000.
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Note and, if requested by
the Company in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the amount of
the unpaid principal of such Note, and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of (i) any of the events specified in Section 6(a) hereof and the
failure to cure such default within five (5) days after receipt of written
notice thereof from the Holder; (ii) any of the events specified in Section 6(b)
hereof and the failure to cure such default within ten(10) days after receipt of
written notice thereof from the Holder; or (iii) any of the events specified in
Section 6(c) hereof (any of the foregoing being an "Event of Default"):
2
<PAGE> 22
(a) Failure to make any principal or interest payment required
under this Note on the due date of such payment:
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. LATE FEES. If the principal balance and accrued interest on this
Note are not paid in full at the Maturity Date, then the Company shall
immediately upon demand pay to the holder a late charge equal to ten percent
(10%) of the entire amount of principal and/or accrued interest unpaid as of
the Maturity Date. If the principal balance and accrued interest on this Note
are not paid in full before March 31, 1999, the Company shall immediately
upon demand pay to the Holder an additional late charge equal to ten percent
(10%) of the entire amount of principal and/or accrued interest unpaid as of
March 30, 1999. Such late fees shall be paid regardless of whether this Note has
been, or could be, declared in default and shall be in addition to all other
remedies available to the Holder.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (c) of Section 6, the Note shall be
automatically accelerated and immediately due and payable at the option
of Holder, without notice or demand, and said amount shall accrue
interest from the date of default at the rate of seventeen percent
(17%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the Note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of seventeen percent (17%) per annum: and
(c) the Holder shall have all of the rights and remedies, at
law and in equity, by statue or otherwise, and no remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law,
in, equity, by statue or otherwise.
9. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall insure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
3
<PAGE> 23
10. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
11. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4
<PAGE> 24
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes
------------------------------
Alfonso J. Cervantes
President and Chief Executive Officer
5
<PAGE> 25
GOLF ONE INDUSTRIES, INC.
Certificate of the Chief Executive Officer
Pursuant to the Note Purchase Agreement dated as of November 5, 1998,
the undersigned Chief Executive Officer of Golf One Industries, Inc., a Delaware
corporation (the "Company"), hereby certifies that there has been no material
negative change in the financial condition of the Company since November 5,
1998.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: November 16, 1998
/s/ Alfonso J. Cervantes, Jr.
------------------------------------
Alfonso J. Cervantes, Jr.
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.23
NOTE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 12 day of February, 1999 between
Golf One Industries, Inc., a Delaware corporation (the "Company") and Capital
Fund Leasing, LLC, an Ohio limited liability company (the "Purchaser").
WHEREAS, the Company has authorized the issuance and sale of the Company's
16.0% Partially Convertible Notes up to an aggregate principal amount of
$3,300,000 having the terms set forth in Exhibit A attached hereto (the
"Notes"); and
WHEREAS, the Purchaser desires to purchase Notes in the principal amount
of $3,300,000;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Purchaser agree
as follows:
1. PURCHASE AND SALE OF NOTES. Subject to the terms and conditions contained
in this Agreement, at the Closing (as hereinafter defined) the Purchaser shall
purchase from the Company and the Company shall sell to the Purchaser the Notes.
2. CLOSING.
2.1 Closing Date. The closing of the purchase and sale of Notes in the
principal amount of $3,300,000 (the "Closing") shall take place on February 12,
1999 or such other day as agreed to by the parties.
2.2 Items to be Delivered to Purchaser. The following shall be
delivered by the Company to the Purchaser on each Closing Date:
(a) the Notes purchased by the Purchaser;
(b) a certificate of the secretary or an assistant secretary of the
Company certifying an attached complete and correct copy of resolutions duly
adopted by its board of directors authorizing the execution, delivery and
performance of this Agreement and the Notes;
2.3 Items to be Delivered to the Company. The net purchase price shall
be delivered by wire transfer to the account designated by the Company by the
Purchaser to the Company on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company
represents and warrants that as of the date of this Agreement:
(a) Existence. The Company is a corporation duly organized and in
good standing under the laws of the State of Delaware and is duly qualified to
do business and is in good standing in all states where such qualification is
necessary, except for those jurisdictions in which the failure to qualify would
not, in the aggregate, have a material
<PAGE> 2
adverse effect on the Company's financial condition, results of operations or
business.
(b) Authority. The execution and delivery by the Company of this
Agreement and the Notes (i) are within the Company's corporate powers; (ii) are
duly authorized by the Company's board of directors; (iii) are not in
contravention of the terms of the Company's certificate of incorporation or
bylaws; (iv) are not in contravention of any law or laws; (v) do not require
any governmental consent, registration or approval; (vi) do not contravene any
contractual or governmental restriction binding upon the Company; and (vii) will
not result in the imposition of any lien, charge, security interest or
encumbrance upon any property of the Company under any existing indenture,
mortgage, deed of trust, loan or credit agreement or other material agreement
or instrument to which the Company is a party or by which the Company or any of
the Company's property may be bound or affected.
(c) Binding Effect. This Agreement and the Notes have been duly
authorized, executed and delivered by the Company and constitute the valid and
legally binding obligation of the Company, enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
(d) Capitalization. The authorized capital stock of the Company consists
of 10,000,000 authorized shares of Common Stock, par value $.001 per share,
3,690,761 shares of which are issued and outstanding and 5,000,000 authorized
shares of Preferred Stock, par value $.001 per share, of which the following
Preferred Shares are issued and outstanding: 572,649 shares of Series B
Convertible (which are each convertible to one share of Common Stock). The
shares of common stock issuable upon partial conversion of the Notes (the
"Conversion Shares") and/or the shares of common stock issuable in lieu of cash
interest payments on the Notes (the "Interest Shares") (together the "Shares")
have been duly and validly authorized and reserved for issuance and, when
issued and delivered in accordance with the terms of this Agreement, will be
duly and validly issued, fully paid and non-assessable. The Company shall at
all times have authorized, reserved and set aside 125,000 Common Shares for the
partial conversion the Notes, as provided therein.
(e) Litigation. There is neither pending nor, to the Company's knowledge
and belief, threatened any action, suit, proceeding or claim, or any basis
therefor, to which the Company is or may be named as a party or its property is
or may be subject other than routine litigation in the ordinary course of
business or which calls into question any of the transactions contemplated by
this Agreement.
(g) Securities Matters. Subject to the accuracy of the representations of
the Purchaser set forth in Section 3.2 hereof, the offer, sale and issuance of
the Notes and the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933 as amended (the
"Securities Act"). The Company has complied and will comply with all applicable
state "blue sky" or securities laws in connection with the offer, sale and
issuance of the Notes and the Shares as contemplated by this Agreement. The
Company agrees to include the Shares, at its expense, in any future
registration statement it files.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
represents and warrants that as of the date of the execution of this Agreement:
(a) Authorization. This Agreement constitutes a valid and legally binding
obligation of such Purchaser.
-2-
<PAGE> 3
(h) Investment Representations. (i) The Purchaser has concluded a
satisfactory due diligence investigation of the Company and had an opportunity
to review the documents provided by the Company and to have all of their
questions related thereto satisfactorily answered.
(ii) The Purchaser acknowledges that the Notes and the Shares are
speculative and involve a high degree of risk and the Purchaser represents that
it is able to sustain the loss of the entire amount of its investment.
(iii) The Purchaser (or its members and/or officers) has previously
invested in unregistered securities and has sufficient financial and investing
expertise to evaluate and understand the risks of the Notes and the Shares.
(iv) The Purchaser has received from the Company, and is relying on,
no representations (except as set forth in this Agreement) or projections with
respect to the Company's business and prospects.
(v) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(vi) The Purchaser is acquiring the Notes and the Shares for
investment purposes only without intent to distribute the same, and
acknowledges that the Notes and the Shares have not been registered under the
Securities Act and applicable state securities laws, and accordingly,
constitute "restricted securities" for purposes of the Securities Act and such
state securities laws.
(vii) The Purchaser acknowledges that it will not be able to transfer
the Notes and the Shares except upon compliance with the registration
requirements of the Securities Act and applicable state securities laws or
exemptions therefrom.
(viii) The certificates and/or instruments evidencing the Notes and
the Shares will contain a legend to the foregoing effect.
4. MISCELLANEOUS.
4.1 Confidentiality. (a) The Purchaser agrees to keep confidential any and
all nonpublic information delivered or made available to the Purchaser by the
Company except for disclosures, as necessary, made by the Purchaser to the
Purchaser's officers, directors, employees, agents, counsel and accountants each
of whom shall be notified by the Purchaser of this confidentiality covenant and
for whom the Purchaser shall be liable in the event of any breach of this
covenant by any such individual or individuals; provided, however, that nothing
herein shall prevent the Purchaser from disclosing such information (i) upon the
order of any court or administrative agency, (ii) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Purchaser, (iii)
which has been publicly disclosed or (iv) to any of its members provided that
any such members agree in writing (with a copy provided to the Company) to be
bound by confidentiality provisions in form and substance substantially as are
contained herein. In the event of a mandatory disclosure as described in clause
(i) and/or (ii) of the preceding sentence, the Purchaser shall promptly notify
the Company in writing of any applicable order, request or demand for such
information, cooperate with the Company if and to the extent that the Company
elects to seek an appropriate protective order or other relief from such order,
request, or demand, and disclose only the minimal amount of
-3-
<PAGE> 4
information ultimately required to be disclosed. The Purchaser shall not use
for its own benefit, nor permit any other person to use for such person's
benefit, any of the Company's non-public information including, without
limitation, in connection with the purchase and/or sale of the Company's
securities.
(b) The Company shall in no event disclose non-public information to the
Purchaser, advisors to or representatives of the Purchaser unless prior to
disclosure of such information the Company marks such information as
"Non-Public Information - Confidential" and provides the Purchaser, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Purchaser's
advisors and representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Purchaser.
(c) Nothing herein shall require the Company to disclose non-public
information to the Purchaser or its advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
third parties.
4.2 Legends. To the extent applicable, each note, certificate or other
document evidencing the Notes to be purchased and sold pursuant to this
Agreement and any Shares issued shall be endorsed with the legends set forth
below, and the Purchaser on behalf of itself and each holder of the Notes
covenants that, except to the extent such restrictions are waived by the
Company, it shall not transfer the Notes or Shares without complying with the
restrictions on transfer described in the legends endorsed on such note or
certificate:
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED
UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND
FROM ATTORNEYS REASONABLY ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) If required by the authorities of any state in connection with the
issuance or sale of the Note or the Shares, the legend required by such state
authority.
4.3 Costs and Expenses. The Company shall reimburse Purchaser for its
reasonable travel expenses and its reasonable legal fees and expenses in
connection with the purchase of the Notes. The Company shall be responsible for
all of its fees and expenses in connection with this transaction.
4.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of the parties hereto.
-4-
<PAGE> 5
4.5 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Purchaser herein shall survive the execution and
delivery of this Agreement.
4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS
OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4.7 Counterparts: Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
4.8 Entire Agreement, Amendments. This Agreement and the Exhibits
contain the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other representations and understandings, oral
or written, with respect to the subject matter hereof. No amendment,
modification, alteration, or waiver of the terms of this Agreement or consent
required under the terms of this Agreement shall be effective unless made in a
writing, which makes specific reference to this Agreement and which has been
signed by the Company and each Purchaser. Any such amendment, modification,
alteration, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
4.9 Notices. All communications or notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered in hand, deposited in the mail, or sent by facsimile with
confirmation (if sent by facsimile on a nonbusiness day, receipt shall be
deemed to have occurred on the next succeeding business day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed to such addresses as the parties shall
designate in writing from time to time.
4.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
4.11 Maximum Interest. It is expressly stipulated and agreed to be the
intent of the Company and the Purchaser at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Purchaser to contract
for, charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious
any amount of money or other consideration called for hereunder, or contracted
for, charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of the Note results in the
Company's having paid any interest in excess of that permitted by law, then it
is the Company's and the Purchaser's express intent that all excess cash
amounts theretofore collected by Purchaser be credited on the principal balance
of the Note (or if the Note has been or would thereby be paid in full, refunded
to the Company), and the provisions of this Agreement immediately be deemed
reformed and the amounts thereafter collectible hereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount.
-5-
<PAGE> 6
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. 001 February 12, 1999
GOLF ONE INDUSTRIES, INC.
16% PARTIALLY CONVERTIBLE NOTE
FOR VALUE RECEIVED, Golf One Industries, Inc., a Delaware corporation (the
"Company") hereby promises to pay to the order of Capital Fund Leasing, LLC, an
Ohio limited liability company having an address at 9140 Ravenna Road, Unit 2,
Twinsburg, OH 44087 (the "Holder"), or registered assigns, the principal sum of
Three Million Three Hundred Thousand Dollars ($3,300,000.00), and to pay
interest from the date hereof on the principal sum remaining unpaid at the rate
of sixteen percent (16.00%) per annum based on a 365-day year, such interest to
accrue from the date hereof and together with the whole amount of the principal
hereof shall be payable as provided herein. Principal and interest shall be
payable in lawful money of the United States of America at the principal office
of the Holder or at such other place as the Holder may designate from time to
time in writing to the Company. Notwithstanding the foregoing, the Holder shall
have the right, at its sole option, to receive interest due in Common Shares of
the Company based on a price equal to one dollar ($1.00) per share (the
"Interest Shares") up and until the Maximum Number of Shares (defined below)
have been issued.
On April 30, 1999 (the "First Maturity Date") the Company shall pay to the
Holder the sum of at least $1,000,000.00 (the "Initial Payment"), said payment
to be applied first to accrued interest hereunder and then to the outstanding
principal balance.
Provided that it is not and has never been in default under this Note, the
Company may, at its election, extend the First Maturity Date to September 30,
1999 (the "Second Maturity Date"). The Company shall make such election by (i)
giving written notice of such to the Holder hereof at least twenty-one (21) days
prior to the First Maturity Date, and (ii) paying to the Holder hereof on or
before the First Maturity Date an extension fee equal to ten percent (10.00%) of
the unpaid amount of the Initial Payment. If the Company shall fail to timely
give such written notice to the Holder hereof, the Holder may, in its absolute
discretion, elect to permit the Company to have such extension upon the
Company's payment of a late notice fee equal to two percent (2.00%) of the
unpaid amount of the Initial Payment. In addition, the Company shall promptly
reimburse the Holder's reasonable legal fees and out of pocket expenses incurred
to review and monitor such extension. During such extension period, the Company
shall make on the last business day of each month payments of at least
$150,000.00 per month to the Holder hereof, such payments to be applied first to
accrued interest hereunder and then to the outstanding principal balance.
If, from the date of this Note and until to the payment in full of all
accrued interest and the outstanding principal balance hereof, the Company
closes upon any private placement or placements of debt or equity (the "Private
Placements") which in total exceed $500,000.00 in net receipts to or on behalf
of the Company, then the Company shall, within two (2) business days of the
closing of the Private Placement first exceeding such $500,000.00 aggregate and
within two (2) business days of the closing of each subsequent Private
Placement, pay to the Holder hereof an amount equal to the lesser of (i)
twenty-five percent (25.00%) of the aggregate of such Private Placements (less
any prior
<PAGE> 7
amounts which have been paid to the Holder hereof pursuant to this Private
Placement provision), or (ii) the total of the then outstanding principal
balance and accrued interest hereunder. Such payments shall be applied first to
accrued interest hereunder and then to the outstanding principal balance. At
the option of the Company, any such payments made pursuant to this Private
Placement provision on or before April 30, 1999, may be credited toward the
Initial Payment.
Upon the earlier of (i) the Second Maturity Date, (ii) within two (2)
business days of the Company's closing upon secured financing totaling in
excess of $3,000,000.00 (the "Secured Financing"), or (iii) within two (2)
business days of the Company's closing upon each public offering of debt or
equity (the "Public Offering"), the entire outstanding principal balance and
accrued interest shall be immediately due and payable.
Notwithstanding anything herein to the contrary, however, in the event
that the net amount made available to the Company through the Secured Financing
and/or the Public Offering is less than the then outstanding principal balance
and accrued interest on this Note, then the outstanding principal balance and
accrued interest hereunder shall be immediately due and payable up to such net
amount and the Company agrees to immediately pay such net amount to the Holder
hereof (said payment to be applied first to accrued interest hereunder and then
to the outstanding principal balance). The remaining balance of this Note after
such payment shall then become due and payable pursuant to the terms of hereof.
Provided that it is not and has never been in default under this Note and
provided that neither the Secured Financing nor Public Offering has closed, the
Company may, at its election, extend the Second Maturity Date of this Note for
up to two (2) extension periods as follows:
First Extension: To December 15, 1999.
Second Extension: To February 15, 2000.
The Company shall make such election by (i) giving written notice of such
to the Holder hereof at least twenty-one (21) days prior to the original or
extended Second Maturity Date, as applicable, and (ii) paying to the holder
hereof on or before such original or extended Second Maturity Date, as
applicable, all unpaid accrued interest through such original or extended
Second Maturity Date, as applicable, plus an extension fee equal to fifteen
percent (15.00%) of the then outstanding principal balance of this Note. If the
Company shall fail to timely give such written notice to the Holder hereof, the
Holder may, in its absolute discretion, elect to permit the Company to have
such extension upon the Company's payment of a late notice fee equal to two
percent (2.00%) of the then outstanding principal balance of this Note. During
such Extension periods, the Company shall make on the last business day of each
month (i) payments of accrued interest and (ii) principal payments of at least
$150,000.00 per month to the Holder hereof. In addition, the Company shall
promptly reimburse the holder's reasonable legal fees and out of pocket
expenses incurred to review and monitor each such extension.
This Note is one of an authorized issue of $3,300,000 aggregate amount of
16% Partially Convertible Notes of the Company (collectively, the "Notes")
issued pursuant to a Note Purchase Agreement dated as of February 12, 1999
between the Company and the Holder (the "Note Purchase Agreement"). The Holder
of this Note is entitled to the benefits of the Note Purchase Agreement and to
enforce the agreements of the Company contained therein. Capitalized terms used
herein and not otherwise defined shall have the meaning ascribed thereto in the
Note Purchase Agreement.
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than ten (10) days' notice, at any time
in whole or in part, at a price equal to the outstanding principal of the Notes
together with accrued interest to the redemption date.
-2-
<PAGE> 8
2. CONVERSION. (a) From time to time and at any time after the date hereof
and prior to payment in full, the outstanding principal amount of this Note,
and all accrued and unpaid interest thereon, in whole or in increments of at
least $5,000 of principal or interest, may be converted by the Holder into
Common Shares of the Company (the "Conversion Shares") at the Conversion Price
equal to one dollar ($1.00) per share; provided, however that no more than
125,000 Common Shares (the "Maximum Number of Shares") may be converted
hereunder.
(b) In order to effect the conversion permitted under this Note, the
Holder shall issue a notice of conversion substantially in the form
attached hereto (the "Notice of Conversion") which may be by facsimile and
surrender the Note for conversion if the Note is not already in possession
of the Company. Each conversion of all or any portion of the Note will be
deemed to have been effected as of the close of business on the date on
which the Note has been surrendered at the principal office of the Company.
At such time as such conversion has been effected, to the extent that any
portion of the Note is converted, the rights of the Holder with
respect to such portion of the Note shall cease and the Holder shall be
deemed to have become the holder of record of the shares of Conversion
Shares represented thereby.
(c) No fractional Common Shares shall be issued upon conversion of the
Note. In lieu of any fractional share to which the Holder would otherwise
be entitled, the Company shall round up to the nearest whole Common Share.
(d) Within ten days after a conversion has been effected, the Company
will deliver to the Holder:
(i) a certificate or certificates representing the number of
Conversion Shares issuable by reason of conversion in the name of the
Holder and in such denomination or denominations as the Holder has
specified; and
(ii) a new Note representing any principal balance which was not
converted into Conversion Shares in connection with such conversion;
all other terms and conditions of the Note will remain in full force
and effect.
(c) The issuance of certificates for Conversion Shares upon conversion
of the Note and/or interest will be delivered by the Company within ten
(10) days of the date of conversion or the interest payment due date and
will be made without charge to the Holder for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of Conversion Shares. In the event the
certificates are not delivered within such ten day period, the Company
shall pay to the Holder a penalty of $2,000.00 per day in cash for each day
thereafter until the date such certificates are delivered to the Holder.
(f) The Company shall at all times have authorized, reserved and set
125,000 Common Shares for the conversion hereunder.
(g) The Conversion Price in effect at any time and the number and kind
of securities purchasable upon the exercise of the Note shall be subject to
adjustment from time to time upon the happening of certain events as
follows after the date hereof and through and including the Maturity Date:
-3-
<PAGE> 9
(i) In case the Company shall (1) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (2) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (3) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Conversion Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock immediately prior to such action.
(ii) Whenever the Conversion Price is adjusted pursuant to
Subsection (i) above, the number of Conversion Shares purchasable upon
conversion of the Note shall simultaneously be adjusted by
multiplying the number of Conversion Shares initially issuable upon
conversion of the Note by the Conversion Price in effect on the date
hereof and dividing the product so obtained by the Conversion Price,
as adjusted.
(iii) All calculations under this Section 2(g) shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(iv) Whenever the Conversion Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the
adjusted Conversion Price and adjusted number of Conversion Shares
issuable upon exercise of the Note to be mailed to the Holder, at its
last address appearing in the Company's register. The Company may
retain a firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section 2(g). In
the case of a dispute as to the adjustment of the Conversion Price,
the parties hereto agree to arbitrate the same in an office of the
American Arbitration Association in Cleveland, Ohio utilizing its
commercial arbitration rules with an arbitrator selected by the
parties or in the event that they are unable to do so, by the American
Arbitration Association.
(h) In the event of a merger, reorganization, recapitalization or
similar event of or with respect to the Company (a "Corporate Change")
(other than a Corporate Change in which all or substantially all of the
consideration received by the holders of the Company's equity securities
upon such Corporate Change consists of cash or assets other than securities
issued by the acquiring entity or any affiliate thereof), this Note shall
be convertible at the option of the Holder into such class and type or
securities as the holder would have received had the Holder converted the
Note immediately prior to such Corporate Change, as appropriately adjusted
to equitably reflect the Conversion Price and any stock dividend, stock
split or share combination of the Common Stock after such corporate event.
(i) In the event any adjustment to the number of Conversion Shares
shall be made hereunder, the Maximum Number of Shares shall be similarly
adjusted on a pro rata basis.
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent
and the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the particulars
of all transfers, exchanges and replacements of Notes. No transfer of a Note
shall be valid
-4-
<PAGE> 10
unless the registered holder or his or its duly appointed attorney request such
transfer to be made on such register, upon surrender thereof for exchange as
hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions on
transfer set forth in the Note Purchase Agreement, the registered holder of any
Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $5,000.
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilated of any Note and, if requested by the
Company in case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new note, of like tenor, in the amount of
the unpaid principal of such Note, and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of (i) any failure to make any payment required under this Note on
the due date of such payment, (ii) any Event of Default as defined in either the
Note Purchase Agreement entered into between the Company and Capital Fund
Leasing, LLC on February 10, 1999, or (iii) the insolvency of, business failure
of, or an assignment for the benefit of creditors by or the filing of a petition
under bankruptcy, insolvency, or debtor's relief law, or for any re-adjustment
of indebtedness, composition or extension by the Company, or commenced against
the Company which is not discharged within sixty (60) days from the date of the
filing thereof. In the event of any such default hereunder, this Note shall be
automatically accelerated and immediately due and payable at the option of the
holder hereof, without notice or demand, and shall thereafter bear interest at
twenty four percent (24.00%) per annum, compounded daily. In addition, the
holder hereof shall have all of the rights and remedies, at law and in equity,
by statute or otherwise, and no remedy herein conferred is intended to be
exclusive of any other remedy and each remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter existing
at law, in equity, by statute or otherwise.
7. CHANGES, PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
8. WAIVER OF PRESENTMENT. The Company hereby waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
-5-
<PAGE> 11
9. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to be
the intent of the Company and Holder at all times to comply with the applicable
law governing the maximum rate of interest payable on or in connection with all
indebtedness and transactions hereunder (or applicable United States federal law
to the extent that it permits Holder to contract for, charge, take, reserve or
receive a greater amount of interest). If the applicable law is ever judicially
interpreted so as to render usurious any amount of money or other consideration
called for hereunder, or contracted for, charged, taken, reserved or received
with respect to any loan or advance hereunder, or if acceleration of the
maturity of this Note or the indebtedness hereunder or if any prepayment by the
Company results in the Company's having paid any interest in excess of that
permitted by law, then it is the Company's and Holder's express intent that all
excess cash amounts theretofore collected by Holder be credited on the principal
balance of this Note (or if this Note has been or would thereby be paid in full,
refunded to the Company), and the provisions of this Note immediately be deemed
reformed and the amounts thereafter collectible hereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder. The right to accelerate maturity of this Note does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and Holder does not intend to collect any
unearned interest in the event of acceleration.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS
OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year set forth above.
SIGNED IN THE PRESENCE OF:
Golf One Industries, Inc.
a Delaware corporation
By:
-------------------------------
Alfonso J. Cervantes
President and Chief Executive Officer
- ------------------------------
-6-
<PAGE> 12
NOTICE OF CONVERSION
TO: Golf One Industries, Inc.
The undersigned, the holder of the foregoing Note, hereby surrenders such Note
for conversion into shares of Common Shares of Golf One Industries, Inc. to the
extent of $___________ unpaid principal amount of such Note, and requests that
the certificates for such shares be issued in the name of, and delivered to,
_____________________ whose address is ______________________________________.
Dated:__________________
<PAGE> 1
EXHIBIT 10.24
AGREEMENT
AMONG
GOLF ACQUISITION GROUP, LLC
MONTE AHUJA
GRAFIX CORPORATION
AND
TRANSTAR INDUSTRIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE TRANSACTION................................................. 2
SECTION 1.1 Transaction................................................. 2
SECTION 1.2 Option; Proxy............................................... 2
SECTION 1.3 New CRRA Notes.............................................. 2
SECTION 1.4 Closing..................................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF M AHUJA...................... 3
SECTION 2.1 Ownership of CRRA Notes..................................... 3
SECTION 2.2 Authority of M Ahuja; Non-Contravention..................... 3
SECTION 2.3 Authority of Transtar; Non-Contravention.................... 3
SECTION 2.4 Organization, Standing and Power............................ 3
SECTION 2.5 Investment Representations and Warranties................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF GAG......................... 5
SECTION 3.1 Organization, Standing and Power............................ 5
SECTION 3.2 Authority; Non-Contravention................................ 5
SECTION 3.3 Investment Representations and Warranties................... 5
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CRRA.............. 6
SECTION 4.1 Organization, Standing and Power............................ 6
SECTION 4.2 Capital Structure........................................... 7
SECTION 4.3 Notes....................................................... 7
SECTION 4.4 Authority; Non-Contravention................................ 7
SECTION 4.5 SEC Documents............................................... 7
SECTION 4.6 No Shares Registered Under Exchange Act..................... 8
SECTION 4.7 Ordinary Course of Business................................. 8
SECTION 4.8 No Undisclosed Material Liabilities......................... 8
SECTION 4.9 Litigation.................................................. 8
SECTION 4.10 Governmental Licenses and Permits; Compliance with Law..... 8
SECTION 4.11 Brokers.................................................... 8
SECTION 4.12 Disclosure................................................. 9
ARTICLE V ADDITIONAL AGREEMENTS........................................... 9
SECTION 5.1 Expenses.................................................... 9
SECTION 5.2 Reasonable Commercial Efforts............................... 9
SECTION 5.3 Public Announcements........................................ 9
</TABLE>
i
<PAGE> 3
SECTION 5.4 Current Public Information.......................................9
SECTION 5.5 M Ahuja's Limited Representations and Warranties.................9
SECTION 5.6 Trickle-Out Agreement............................................9
ARTICLE VI CLOSING............................................................10
SECTION 6.1 Actions Prior to Closing........................................10
SECTION 6.2 Actions to be Taken at Closing..................................10
SECTION 6.3 Actions to be Taken After Closing...............................10
ARTICLE VII GENERAL PROVISIONS................................................11
SECTION 7.1 Survival of Representations, Warranties and Agreements..........11
SECTION 7.2 Notices.........................................................11
SECTION 7.3 Interpretation..................................................12
SECTION 7.4 Counterparts....................................................12
SECTION 7.5 Entire Agreement; No Third-Party Beneficiaries..................12
SECTION 7.6 Severability....................................................12
SECTION 7.7 Remedies........................................................12
SECTION 7.8 Attorneys' Fees.................................................13
SECTION 7.9 Governing Law...................................................13
SECTION 7.10 Rules of Construction..........................................13
SECTION 7.11 Assignment.....................................................13
SECTION 7.12 Captions and Headings..........................................13
SECTION 7.13 No Oral Change.................................................13
SECTION 7.14 Non-Waiver.....................................................13
SECTION 7.15 Time of Essence................................................13
SECTION 7.16 Binding Effect.................................................13
SECTION 7.17 Exhibits.......................................................13
SECTION 7.18 Facsimile Signatures...........................................13
* * *
ii
<PAGE> 4
EXHIBITS
EXHIBIT A NEW AHUJA NOTE
EXHIBIT B NEW TRANSTAR NOTE
EXHIBIT C SECURITY AGREEMENT
EXHIBIT D IRREVOCABLE PROXY
EXHIBIT E OPINION OF GOLF ACQUISITION GROUP, LLC'S COUNSEL
EXHIBIT F OPINION OF CRRA'S COUNSEL
SCHEDULES
SCHEDULE A CRRA DISCLOSURE SCHEDULE
iii
<PAGE> 5
AGREEMENT
AGREEMENT, dated as of February 11, 1999 (this "Agreement"), among Golf
Acquisition Group, LLC, a Colorado limited liability company ("GAG"), Monte
Ahuja, an individual ("M Ahuja"), Grafix Corporation, a Delaware corporation
doing business as Carrera Golf ("CRRA") and Transtar Industries, Inc., an Ohio
corporation ("Transtar"). GAG, M Ahuja, CRRA and Transtar are hereinafter
collectively referred to as the "Parties."
WITNESSETH:
WHEREAS, M Ahuja is the principal stockholder of CRRA and currently owns
4,000,000 of 6,825,113 shares of common stock currently outstanding of CRRA
(the "CRRA Common Shares"); and
WHEREAS, CRRA has aggregate outstanding debt payable to M Ahuja and
Transtar of approximately $1,298,310, consisting of an aggregate principal
amount of $1,125,000 and accrued interest at February 11, 1999 of approximately
$173,310, pursuant to the following promissory notes: (1) a promissory note
dated January 10, 1997 in the principal amount of $500,000 payable to M Ahuja
(the "Ahuja Notes"); (2) a promissory note dated August 31, 1998 in the
principal amount of $375,000 payable to M Ahuja, of which $200,000 plus
interest is still owing; (3) a promissory note dated August 5, 1997 in the
principal amount of $225,000 payable to Transtar; (4) a promissory note dated
November 21, 1997 in the principal amount of $100,000 payable to Transtar; and
(5) a promissory note dated December 2, 1997 in the principal amount of
$100,000 payable to Transtar (notes 3, 4 and 5 are collectively referred to
herein as the "Transtar Notes" and, collectively with the Ahuja Notes, the
"CRRA Notes"); and
WHEREAS, CRRA also has outstanding debt which, prior to February 10, 1999,
was payable to Huntington Bank, Cleveland, Ohio ("Huntington") in the principal
amount of $1,400,000 pursuant to a promissory note dated May 31, 1998 (the
"Huntington Note") (together with all accrued interest thereon through the
date of payment, the "Huntington Debt"); and
WHEREAS, on February 10, 1999, M Ahuja purchased the Huntington Note from
Huntington; and
WHEREAS, the Parties have proposed that at the Closing (as defined herein)
the following will occur: (1) M Ahuja shall exchange $86,000 of the principal
amount of the Ahuja Notes for 10,000,000 newly-issued CRRA Common Shares (the
"New CRRA Shares"); (2) M Ahuja shall exchange $8,600 of the principal amount
of the Ahuja Notes for 1,000,000 newly issued CRRA Common Shares (the
"Additional CRRA Shares"); (3) M Ahuja and Transtar shall exchange the
Huntington Note, the Transtar Notes, and the remainder of the Ahuja Notes for
two new promissory notes to be executed by CRRA, one in favor of M Ahuja, in
the principal amount of $545,000 and in the form of Exhibit A attached hereto
(the "New Ahuja Note") and one in favor of Transtar in the principal amount of
$105,000 and in the form of Exhibit B attached hereto (the "New Transtar Note"
and collectively with the New Ahuja Note, the "New CRRA Notes") such New CRRA
Notes to be secured by the inventory and accounts receivable of CRRA and
1,000,000 CRRA Common Shares to be issued by CRRA; and (4) M Ahuja shall sell
GAG 11,500,000 shares of CRRA Common Stock owned by M Ahuja for $100,000 (all
actions pursuant to this Agreement and the exhibits hereto are collectively
referred to herein as the "Transaction"); and
WHEREAS, the Parties desire to make certain representations, warranties
and agreements in connection with the Transaction and also to prescribe various
conditions to consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
1
<PAGE> 6
ARTICLE I
THE TRANSACTION
SECTION 1.1 Transaction. At the Closing, (i) M Ahuja shall deliver
evidence of purchase of the Huntington Note to CRRA and (ii) M Ahuja and
Transtar shall cancel the Huntington Note, Transtar Notes, and the Ahuja Notes
by marking each such note "cancelled" and delivering them to CRRA. In
consideration for the cancellation and the delivery of the Huntington Note, the
Ahuja Notes, and the Transtar Note by M Ahuja and Transtar, at the Closing CRRA
shall (i) execute and deliver to M Ahuja the New Ahuja Note in the principal
amount of $545,000, in exchange for the Huntington Note and all but $94,600 of
the principal amount of the Ahuja Notes, (ii) execute and deliver to Transtar
the New Transtar Note in the principal amount of $105,000 in exchange for the
Transtar Notes, (iii) issue to M Ahuja the 10,000,000 New CRRA Shares in
exchange for $86,000 of the principal amount of the Ahuja Notes, and (iv) issue
to M Ahuja, for himself and on behalf of Transtar, the 1,000,000 Additional
CRRA Shares subject to Section 1.2 below in exchange for $8,600 of the
principal amount of the Ahuja Notes. Upon receipt by M Ahuja of the New CRRA
Shares, M Ahuja shall immediately transfer 11,500,000 CRRA Common Shares
(including the 10,000,000 New CRRA Shares) (together with related stock power)
to GAG. In consideration for the transfer of the New CRRA Shares to GAG, GAG
shall pay to M Ahuja $100,000 in cash, by certified or bank cashier's check
payable to the order of, or by wire transfer of same-day funds pursuant to
instructions of, M Ahuja.
SECTION 1.2 Option; Proxy. M Ahuja and Transtar agree that if the
principal and any accrued interest payable on the New CRRA Notes is paid when
due, the 1,000,000 Additional CRRA Shares shall be returned to CRRA provided
that upon the occurrence of an Event of Default under either of the New CRRA
Notes, M Ahuja shall not be obligated to return the Additional CRRA Shares
under any circumstances. From the Closing Date until February 11, 2001, CRRA
shall have the right to vote the Additional CRRA Shares pursuant to the
Irrevocable Proxy attached hereto as Exhibit D, provided, however, in the event
of an Event of Default has occurred under either of the New CRRA Notes, such
Proxy will immediately terminate.
SECTION 1.3 New CRRA Notes. The New CRRA Notes shall accrue interest at the
rate of 10% per annum and the principal amount and accrued interest under the
New CRRA Notes shall be due and payable on February 11, 2001. The New CRRA Notes
shall be secured by the inventory and accounts receivable of CRRA, as set forth
in the security agreement attached hereto as Exhibit C.
SECTION 1.4 Closing. The following shall take place simultaneously with
the execution of this Agreement (the "Closing") at the offices of Baker &
Hostetler LLP, counsel for M Ahuja, at 10:00 a.m., local time, on February 11,
1999 or at such other time and place as the Parties hereto shall agree (the
"Closing Date"):
(1) Delivery of evidence of purchase of the Huntington Note by M Ahuja to
CRRA;
(2) Cancellation and delivery of the Huntington Note, the Transtar Notes,
and the Ahuja Notes to CRRA;
(3) Exchange of $86,000 of the Ahuja Notes for the issuance of the New
CRRA Shares to M Ahuja;
(4) Delivery of the New Ahuja Note by CRRA to M Ahuja;
(5) Delivery of the New Transtar Note by CRRA to Transtar;
(6) Payment of $100,000 to M Ahuja by GAG for 11,500,000 CRRA Common
Shares owned by M Ahuja;
(7) Issuance of the Collateral Shares to M Ahuja to be held as collateral
security pursuant to the Pledge Agreement; and
2
<PAGE> 7
(8) Execution of the Security Agreement and the Pledge Agreement by
the parties thereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF M AHUJA
M Ahuja represents and warrants to GAG as follows:
SECTION 2.1 Ownership of CRRA Notes. M Ahuja (or in the case of the
Transtar Notes, Transtar) beneficially holds the Huntington Note and the CRRA
Notes free and clear of any restrictions on transfer (other than restrictions
under the Securities Act of 1933, as amended (the "Securities Act") and state
securities laws), taxes, Liens (as defined in this Section), options, warrants,
purchase rights, contracts, commitments, equities, claims and demands. Neither M
Ahuja nor Transtar is a party to (i) any option, warrant, purchase right, or
other contract or commitment that could require him or it to sell, transfer, or
otherwise dispose of the Huntington Note or any CRRA Notes (other than pursuant
to this Agreement) or (ii) any voting trust, proxy, or other agreement or
understanding with respect to the Huntington Note or the CRRA Notes. For
purposes of this Agreement, "Liens" means liens, mortgages, pledges, security
interests, encumbrances, claims or charges of any kind.
SECTION 2.2 Authority of M Ahuja; Non-Contravention. M Ahuja has all
requisite power and authority to enter into this Agreement and the Security
Agreement (the "Transaction Documents") and to consummate the Transaction. The
Transaction Documents have been duly executed and delivered by M Ahuja and
(assuming the valid authorization, execution and delivery of the Transaction
Documents by CRRA) constitute valid and binding obligations of M Ahuja
enforceable against him in accordance with their terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of general principles of equity regardless of whether enforceability is
considered in a proceeding in equity or at law. No filing or registration with,
or authorization, consent or approval of, any domestic (federal and state),
foreign or supranational court, commission, governmental body, regulatory
agency, authority of tribunal (a "Governmental Entity") is required by or with
respect to M Ahuja in connection with the execution and delivery of the
Transaction Documents by M Ahuja or is necessary for the consummation by M Ahuja
of the Transaction or any other transaction contemplated by this Agreement.
SECTION 2.3 Authority of Transtar; Non-Contravention. Transtar has
all requisite power and authority to enter into the Transaction Documents and
to consummate the Transaction. The Transaction Documents have been duly executed
and delivered by Transtar and (assuming the valid authorization, execution and
delivery of this Agreement by GAG and CRRA) constitute valid and binding
obligations of Transtar enforceable against it in accordance with their terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws of general
applicability relating to or affecting the enforcement of creditors' rights and
by the effect of general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to Transtar in connection with the
execution and delivery of the Transaction Documents by Transtar or is necessary
for the consummation by Transtar of the Transaction or any other transaction
contemplated by this Agreement.
SECTION 2.4 Organization, Standing and Power. Transtar is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. Transtar is duly qualified to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on Transtar.
"Material Adverse Change" or "Material Adverse Effect" means, with respect to an
entity, any change or effect that is or, so far as can reasonably be determined,
is likely to be materially adverse to the assets, properties, condition
(financial or otherwise), business or results of operations of that entity.
3
<PAGE> 8
SECTION 2.5 Investment Representations and Warranties.
(a) Investment Intent. M Ahuja will acquire the New CRRA Shares, the
New Ahuja Note and the Additional CRRA Shares and Transtar will acquire the New
Transtar Note (collectively the "New Securities") solely for his or its own
account, as the case may be, for investment and not with a view to or for sale
or distribution of the New Securities (except for the transfer of the New CRRA
Shares to GAG pursuant to the terms of this Agreement) and not with any present
intention of selling, offering to sell or otherwise disposing of or distributing
the New Securities or any portion thereof in any transaction (except for the
transfer of the New CRRA Shares to GAG pursuant to the terms of this Agreement)
other than a transaction registered under the Securities Act and any applicable
state securities laws or a transaction exempt from such registration.
(b) Transfer Restrictions. The sale or transfer of the New
Securities to M Ahuja and Transtar, as the case may be, has not been registered
under the Securities Act or any state securities laws, and, therefore, the New
Securities must be held indefinitely by M Ahuja or Transtar, as the case may be,
unless subsequently registered under the Securities Act and any applicable state
securities laws or an exemption from such registration is available. The share
certificate(s) and the promissory notes representing the New Securities will be
stamped with the following legend (or substantially equivalent language)
restricting transfer:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 or the laws of any state
and may not be offered, sold, transferred, pledged or hypothecated in
the absence of such registration, or the availability of an exemption
from such registration.
(c) Other Actions. Neither M Ahuja nor Transtar has engaged or will
engage, directly or indirectly, in any general solicitation of purchasers or
offerees of the New Securities in connection with the transactions contemplated
by this Agreement. Neither M Ahuja nor Transtar has taken or permitted to be
taken on his or its behalf any action that would render the transactions
contemplated by this Agreement ineligible for exemption from registration under
the Securities Act.
(d) Access to Information and Advisors; Accreditation Status.
(1) M Ahuja, individually and on behalf of Transtar, has been advised
by counsel of the legal implications and effect of the acquisition of the New
Securities under the Securities Act and of the circumstances under which he or
Transtar may dispose of the New Securities under the Securities Act.
(2) M Ahuja has a net worth in excess of $1,000,000 or annual
individual income for each of the two most recent years preceding the Closing
Date and anticipated income for the current year in excess of $200,000 or joint
income with his spouse in excess of $300,000 for the same periods.
(3) Transtar is a corporation with total assets in excess of
$5,000,000 and was not formed for the specific purpose of acquiring the New
Transtar Note.
(4) Prior to signing this Agreement, M Ahuja, individually and on
behalf of Transtar, was given the opportunity to ask detailed questions and
receive satisfactory answers concerning (i) the terms and conditions of this
Agreement, and (ii) CRRA, its business and the risks associated with CRRA and an
investment in New Securities. All such questions have been answered to M Ahuja's
satisfaction, and M Ahuja has been supplied with all additional information and
documents requested and deemed necessary by him to make an investment decision
with respect to the New Securities being acquired pursuant to this Agreement.
(5) Prior to signing this Agreement, M Ahuja, individually and on
behalf of Transtar, had the opportunity to consult with his legal counsel,
investment advisor and other advisors to the extent desired by him as to his
investment and Transtar's investment. M Ahuja, individually and on behalf of
Transtar, represents that he, alone or with his purchaser representative, has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment in the
New Securities.
4
<PAGE> 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GAG
GAG represents and warrants to M Ahuja, Transtar and CRRA as follows:
SECTION 3.1 Organization, Standing and Power. GAG is a LLC duly
organized, validly existing and in good standing under the laws of jurisdiction
of its organization and has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. GAG
is duly qualified to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature of
its activities makes such qualification necessary, except where the failure to
be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on GAG.
SECTION 3.2 Authority; Non-Contravention. GAG has all requisite power
and authority to enter into this Agreement and to consummate the Transaction.
This Agreement has been duly executed and delivered by GAG and (assuming the
valid authorization, execution and delivery of this Agreement by M Ahuja, CRRA
and Transtar) constitutes a valid and binding obligations of GAG enforceable
against it in accordance with its terms, except to the extent enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws or general applicability relating to or affecting
the enforcement of creditors' rights and by the effect of general principles of
equity regardless of whether enforceability is considered in a proceeding in
equity or law. The execution and delivery of this Agreement by GAG does not, and
the consummation of the transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof 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 to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of GAG under, any provision of (i) GAG's
charter documents or other documents that govern the operation of GAG, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
GAG (except for this Agreement) or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to GAG or any of its respective
properties or assets, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights, liens, losses, security interests,
charges or encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on GAG, materially impair the ability of GAG to perform
its obligations hereunder or prevent the consummation of the Transaction or any
of the transactions contemplated by this Agreement. No filing or registration
with, or authorization, consent or approval of, any Governmental Entity is
required by or with respect to GAG in connection with the execution and delivery
of this Agreement by GAG or is necessary for the consummation by GAG of the
Transaction and the other transactions contemplated by this Agreement.
SECTION 3.3 Investment Representations and Warranties.
(a) Investment Intent. GAG will acquire the 11,500,000 CRRA Common
Shares (the "GAG CRRA Shares") solely for its own account for investment and not
with a view to or for sale or distribution of the GAG CRRA Shares or any portion
thereof and not with any present intention of selling, offering to sell or
otherwise disposing of or distributing the GAG CRRA Shares or any portion
thereof in any transaction, other than a transaction registered under the
Securities Act and any applicable state securities laws or a transaction exempt
from such registration requirements.
(b) Transfer Restrictions.
(1) The sale of the GAG CRRA Shares has not been registered under the
Securities Act or any state securities laws, and, therefore, the GAG CRRA Shares
must be held indefinitely unless subsequently registered under the Securities
Act and any applicable state securities laws or an exemption from such
registration is available.
(2) The share certificate representing the GAG CRRA Shares will be
stamped with the following legend (or substantially equivalent language)
restricting transfer:
5
<PAGE> 10
The securities represented by this certificate have not been registered
under the Securities Act of 1933 or the laws of any state and may not be
offered, sold, transferred, pledged or hypothecated in the absence of such
registration, or the availability of an exemption from such registration.
(c) Other Actions. GAG has not engaged and will not engage, directly or
indirectly, in any general solicitation of purchasers or offerees of the GAG
CRRA Shares in connection with the transactions contemplated by this Agreement.
GAG has not taken or permitted to be taken on its behalf any action that would
render the transactions contemplated by this Agreement ineligible for exemption
from registration under the Securities Act.
(d) Access to Information and Advisors; Accreditation Status.
(1) The Manager of GAG has been advised by counsel of the legal
implications and effect of the acquisition of the GAG CRRA Shares under the
Securities Act and of the circumstances under which GAG may dispose of the GAG
CRRA Shares under the Securities Act.
(2) GAG is a limited liability company which was not formed for the
specific purpose of acquiring the GAG CRRA Shares. GAG has only one member, who
is the Manager of GAG. The member of GAG has contributed all of the funds to
GAG which are being used for the purchase of the GAG CRRA Shares.
(3) The Manager of GAG has had full opportunity to review documents filed
by CRRA (the "CRRA SEC Documents") with the Securities and Exchange Commission
(the "SEC").
(3) In making the decision to invest in the GAG CRRA Shares, the Manager
of GAG has relied and will rely solely on the information in the CRRA SEC
Documents, and their own independent investigation.
(4) Prior to signing this Agreement, the Manager of GAG was given the
opportunity to ask detailed questions and receive satisfactory answers
concerning (i) the terms and conditions of this Agreement, and (ii) CRRA, its
business and the risks associated with CRRA and an investment in the GAG CRRA
Shares. All such questions have been answered to his satisfaction, and they have
been supplied with all additional information and documents requested and
deemed necessary by him to make an investment decision with respect to the GAG
CRRA Shares being acquired pursuant to this Agreement.
(5) Prior to signing this Agreement, the Manager of GAG had the
opportunity to consult with GAG's legal counsel, investment advisor and other
advisors to the extent desired as to GAG's investment in the GAG CRRA Shares.
The Manager of GAG represents that he, alone or with his purchase
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the
prospective investment in the GAG CRRA Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CRRA
CRRA represents and warrants to GAG, M Ahuja and Transtar as follows:
SECTION 4.1 Organization, Standing and Power. CRRA is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. CRRA is duly qualified to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on CRRA.
6
<PAGE> 11
SECTION 4.2 Capital Structure. As of the date hereof, the authorized
capital stock of CRRA consists of 50,000,000 shares of common stock and
5,000,000 shares of preferred stock. As of February 11, 1999, 6,825,113 shares
of such common stock and no shares of such preferred stock were issued and
outstanding. All issued and outstanding shares of common stock of CRRA are
validly issued, fully paid and non-assessable and not subject to preemptive
rights. All of the 10,000,000 New CRRA Shares issuable pursuant to the
Transaction in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights.
SECTION 4.3 Notes. The CRRA Notes have been duly and validly authorized and
executed by CRRA and constitute the valid and binding obligations of CRRA. The
New CRRA Notes issuable pursuant to the Transaction in accordance with this
Agreement will be, when so issued, duly and validly authorized and executed by
CRRA and will constitute the valid and binding obligations of CRRA.
SECTION 4.4 Authority; Non-Contravention. CRRA has all requisite corporate
power and authority to enter into the Transaction Documents and to consummate
the Transaction. The Transaction Documents have been duly executed and delivered
by CRRA and (assuming the valid authorization, execution and delivery of this
Agreement by GAG, M Ahuja, Transtar and the Security Agreement by M Ahuja and
Transtar and the Pledge Agreement by M Ahuja and Transtar) constitute valid and
binding obligations of CRRA enforceable against it in accordance with their
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws of general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity regardless
of whether enforceability is considered in a proceeding in equity or at law. The
execution and delivery of the Transaction Documents by CRRA does not, and the
consummation of the Transaction contemplated hereby and thereby and compliance
with the provisions hereof and thereof 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 to the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of CRRA under, any provision of (i) the Articles of
Incorporation, as amended, or Bylaws of CRRA, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to CRRA (except for the Transaction
Documents and the New CRRA Notes) or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to CRRA or any of its respective
properties or assets, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights, liens, losses, security interests,
charges or encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on CRRA, materially impair the ability of CRRA to
perform its obligations hereunder or prevent the consummation of the
Transaction. No filing or registration with, or authorization, consent or
approval of, any Governmental Entity is required by or with respect to CRRA in
connection with the execution and delivery of the Transaction Documents by CRRA
or is necessary for the consummation by CRRA of the Transaction and the other
transactions contemplated by this Agreement.
SECTION 4.5 SEC Documents. CRRA has filed all required documents with the
SEC since January 1, 1997 (the "Recent CRRA SEC Documents"). CRRA has not filed
its Annual Report on Form 10-KSB for the fiscal year ended September 30, 1998
and has filed a Form 15 with the SEC under the Exchange Act to suspend its duty
to file reports under Section 15(d) of the Exchange Act. As of their respective
dates, the Recent CRRA SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Recent CRRA SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
CRRA included in the Recent CRRA SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-QSB of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly present the consolidated financial position
of CRRA and its consolidated subsidiaries, if any, as at the dates thereof and
the consolidated results of their operations and statements of cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
There is no liability or obligation of any kind, whether accrued, absolute,
fixed or contingent, of CRRA or any subsidiary of which CRRA has knowledge
7
<PAGE> 12
and which is required by generally accepted accounting principles to be
reflected or reserved against or otherwise disclosed in the most recent
financial statements of CRRA included in the Recent CRRA SEC Documents which is
not so reflected or reserved against that individually or in the aggregate
would have a Material Adverse Effect on CRRA. For purposes of this Agreement,
"CRRA Balance Sheet" means the consolidated balance sheet as of June 30, 1998,
set forth in the Quarterly Report on Form 10-QSB of CRRA for the fiscal quarter
ended June 30, 1998, and "CRRA Balance Sheet Date" means June 30, 1998.
SECTION 4.6 No Shares Registered Under Exchange Act. None of the
classes or series of capital stock of CRRA is currently registered under
Section 12 of the Exchange Act.
SECTION 4.7 Ordinary Course of Business. CRRA has conducted its
business in the ordinary course since its inception and through the date of
this Agreement. GAG has reviewed the Recent CRRA SEC Documents and subsequent
financial reports for the periods through October 31, 1998, and, as a result of
that review, is aware of all changes in CRRA's business results since October
31, 1998. CRRA has informed GAG of any material changes in CRRA's business
that have occurred since October 31, 1998.
SECTION 4.8 No Undisclosed Material Liabilities. Except for (i)
interest accrued on the CRRA Notes and the Huntington Note and (ii) the
incurrence of additional debt from M Ahuja in the remaining principal amount of
$200,000 pursuant to a promissory note dated July 15, 1998, and accrued
interest thereon, there have been no liabilities or obligations (whether
pursuant to contracts or otherwise) of any kind whatsoever incurred by CRRA or
any subsidiary of CRRA since the CRRA Balance Sheet Date, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(a) liabilities or obligations (i) disclosed or provided for in the CRRA
Balance Sheet or in the notes thereto, or (ii) disclosed in the Recent CRRA SEC
Documents filed prior to the date hereof;
(b) liabilities or obligations which, individually and in the aggregate,
have not had and are not reasonably likely to have a Material Adverse Effect on
CRRA;
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby; or
(d) liabilities incurred by CRRA in the normal course of business and
disclosed in CRRA's Quarterly Report on Form 10-QSB and unaudited financial
statements delivered to GAG through the date of this Agreement.
SECTION 4.9 Litigation. Except as disclosed in Schedule A -- CRRA
Disclosure Schedule attached hereto, there is no suit, action, investigation or
proceeding pending or, to the knowledge of CRRA, threatened against CRRA at law
or in equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, and there is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, board, bureau, agency, instrumentality or arbitrator to which CRRA
is subject.
SECTION 4.10 Governmental Licenses and Permits; Compliance with Law.
CRRA has not received notice of any revocation or modification of any federal,
state, local or foreign governmental license, certification, tariff, permit,
authorization or approval, the revocation or modification of which would have a
Material Adverse Effect on CRRA. To the knowledge of CRRA, the conduct of the
business of CRRA complies with all statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees or arbitration awards applicable thereto,
except for violations or failures to comply, if any, that, individually or in
the aggregate, would not have a Material Adverse Effect on CRRA.
SECTION 4.11 Brokers. No broker, investment banker or other person is
entitled to any broker's, finder'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 CRRA.
8
<PAGE> 13
SECTION 4.12 Disclosure. No representation or warranty by CRRA contained
in this Agreement, and no statement contained in any document, certificate or
other instrument delivered to or to be delivered by or on behalf of CRRA
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Expenses. Whether or not the Transaction is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Party incurring such
costs and expenses, provided that GAG agrees that the fees and expenses of
counsel for M Ahuja incurred in connection with the Transaction shall be paid
by GAG in an amount not to exceed $2,000.
SECTION 5.2 Reasonable Commercial Efforts. Upon the terms and subject to
the conditions set forth in this Agreement, each of the Parties hereto agrees
to use all reasonable commercial 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, in the most expeditious manner practicable, the Transaction
and the other transactions contemplated by this Agreement and the prompt
satisfaction of the conditions hereto, including (a) the obtaining of all
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
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 Entity, (b) the obtaining of all necessary consents, approvals or
waivers from third parties, (c) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, and (d) the execution and delivery of
any additional instruments necessary to consummate the transactions
contemplated by this Agreement.
SECTION 5.3 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, the Parties will consult with each other, and
will undertake reasonable efforts to agree upon the terms of such press
release, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or by obligations pursuant to any listing agreement with a securities
trading market.
SECTION 5.4 Current Public Information. GAG agrees that it will use its
best efforts to cause CRRA to (i) become and continue to be subject to the
reporting requirements of Section 13 of the Exchange Act either by way of
Section 12 or Section 15(d) thereof, and (ii) to file all periodic and other
reports required to be filed by CRRA pursuant to the Exchange Act for a period
of at least three years following termination of the Pledge Period in order for
M Ahuja to be able to sell any of the New Securities in accordance with the
requirements of the Securities Act, including Rule 144.
SECTION 5.5 M Ahuja's Limited Representations and Warranties. The
Parties to this Agreement acknowledge and agree that M Ahuja shall have no
personal liability for any representation, warranty, covenant or agreement
contained in this Agreement and made by any Party, other than the
representations and warranties of M Ahuja contained in Article II of this
Agreement.
SECTION 5.6 Trickle-Out Agreement. For the period beginning on the
Closing Date and ending on the second anniversary of the Closing Date (the
"Trickle-Out Period"), M Ahuja agrees that sales in the market by him of the
2,500,000 CRRA Common Shares (the "Remaining CRRA Shares") he will own
immediately after consummation of the Transaction shall be limited as follows:
(i) during each calendar month M Ahuja may not sell more than 250,000 of the
Remaining CRRA Shares (assuming that such sales are otherwise permitted under
the Securities Act, including Rule 144, and any applicable state securities
laws). After the second anniversary of the Closing Date, M Ahuja may freely
sell any of the Remaining Shares he still owns at such time, provided such
sales are in accordance with the requirements of the Securities Act, including
Rule 144, and any applicable state securities laws. M Ahuja acknowledges that
for the period of time he is considered an "affiliate" of CRRA (as defined under
9
<PAGE> 14
the Securities Act), whether during the Trickle-Out Period or after, any sale
of his CRRA Common Shares will be subject to Rule 144 promulgated under the
Securities Act, including certain volume limitations on sales by affiliates.
ARTICLE VI
CLOSING
SECTION 6.1 Actions Prior to Closing. Not later than one (1) business day
in advance of the Closing Date, counsel for the Parties shall review the
conditions to consummation of the transactions contemplated hereby and the
manner in which it is proposed that each such condition shall be filled
(including the form and substance of all opinions, certificates and other
instruments to be received by the parties, respectively). If it is determined
that all conditions have been satisfied, the Parties shall execute this
Agreement.
SECTION 6.2 Actions to Be Taken at Closing.
(a) M Ahuja shall deliver evidence of purchase of the Huntington Note to
CRRA;
(b) M Ahuja and Transtar shall mark the Huntington Note, Transtar Notes,
and Ahuja Notes "cancelled";
(c) M Ahuja and Transtar shall deliver the cancelled Huntington Note,
Transtar Notes, and Ahuja Notes to CRRA;
(d) CRRA shall deliver the New Ahuja Note to M Ahuja;
(e) CRRA shall deliver the New Transtar Note to Transtar;
(f) GAG shall pay $100,000 to M Ahuja;
(g) M Ahuja shall deliver to CRRA a letter of resignation as the Chairman
of the Board of and as a member of the Board of Directors of CRRA;
(h) Vir K. Sondhi shall deliver to CRRA a letter of resignation as a
Director of the Board of CRRA;
(i) GAG shall deliver to M Ahuja an opinion of the Manager of and counsel
to Golf Acquisition Group, LLC addressed to M Ahuja, with the opinions listed in
Exhibit E attached hereto;
(j) CRRA shall deliver to M Ahuja and GAG the opinion of Krausman LLC,
its counsel, with the opinions listed in Exhibit F attached hereto;
(k) GAG shall deliver to M Ahuja a Certificate of Good Standing (or its
equivalent) from the appropriate governmental authority in Colorado;
(l) CRRA shall deliver to M Ahuja and GAG a Certificate of Good Standing
(or its equivalent) from the appropriate governmental authority in Colorado; and
(m) The Security Agreement substantially in the form attached hereto as
Exhibit C shall be executed by and delivered to the parties thereto.
SECTION 6.3 Actions to be Taken After Closing.
(a) Within five (5) days of the Closing Date, CRRA shall issue to M Ahuja
a stock certificate or certificates evidencing the 10,000,000 New CRRA Shares;
10
<PAGE> 15
(b) Within five (5) days of the Closing Date, M Ahuja shall deliver
to GAG a stock certificate or certificates, duly endorsed (or with a stock
power) evidencing 11,500,000 CRRA Common Shares;
(c) Within five (5) days of the Closing Date, CRRA shall issue to M
Ahuja a stock certificate or certificates evidencing 1,000,000 CRRA Common
Shares to be held by M Ahuja for himself and Transtar as collateral security
pursuant to the Pledge Agreement; and
(d) Within five (5) days of the Closing Date, M Ahuja shall deliver
an irrevocable proxy in the form attached hereto as Exhibit D
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing Date.
SECTION 7.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) If to GAG to:
Cliff Cozier, Manager
Golf Acquisition Group, LLC
7430 E. Caley Ave., Suite 100
Englewood, CO 80111
Telecopy No.: (303) 773-8821
with a copy to:
(b) If to CRRA, to:
Grafix Corporation d/b/a Carrera Golf
2331 West Hampden Avenue, #145
Englewood, Colorado 80110
Attention: Kent Krausman
Telecopy No.: (303) 738-3245
(c) If to M Ahuja, to:
Monte Ahuja
c/o Transtar Industries, Inc.
7350 Young Drive
Walton Hills, OH 44164
Telecopy No.: 440-232-2327
11
<PAGE> 16
with a copy to:
Baker & Hostetler LLP
303 East 17th Avenue, Suite 1100
Denver, Colorado 80203
Attention: Thomas H. Maxfield
Telecopy No.: (303) 861-2307
(d) If to Transtar, to:
Transtar Industries, Inc.
7350 Young Drive
Walton Hills, OH 44164
Attention: Monte Ahuja
Telecopy No.: 440-232-2327
with a copy to:
Baker & Hostetler LLP
303 East 17th Avenue, Suite 1100
Denver, Colorado 80203
Attention: Thomas H. Maxfield
Telecopy No.: (303) 861-2307
SECTION 7.3 Interpretation. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. The words "include", "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. All
representations and warranties contained herein which are made to the
"knowledge" of GAG or CRRA shall mean to the actual knowledge of GAG's or
CRRA's executive officers, respectively.
SECTION 7.4 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
SECTION 7.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the
exhibits and schedules hereto (a) constitutes the entire agreement among the
Parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) are not intended to confer upon
any other person any rights or remedies hereunder.
SECTION 7.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic business and other purposes of such void or unenforceable provision.
SECTION 7.7 Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred
12
<PAGE> 17
hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy.
SECTION 7.8 Attorneys' Fees. In any action at law or suit in equity to
enforce this Agreement or the rights of any of the parties hereunder, the
prevailing party or parties in such action or suit shall be entitled to receive
a reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
SECTION 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal court within the State of Ohio, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Ohio for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
SECTION 7.10 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
documents will be construed against the party drafting such agreement or
document.
SECTION 7.11 Assignment. No Party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the Parties.
SECTION 7.12 Captions and Headings. The Article and paragraph headings
through this Agreement are for convenience and reference only, and shall in no
way be deemed to define, limit or add to the meaning of any provision of this
Agreement.
SECTION 7.13 No Oral Change. This Agreement and any provision hereof may
not be waived, changed, modified or discharged orally, but it can be changed by
any agreement in writing signed by the Party against whom enforcement of any
waiver, change, modification or discharge is sought.
SECTION 7.14 Non-Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition or provision of this Agreement shall be
deemed to have been made unless expressed in writing and signed by the Party
against whom such waiver is charged; and (i) the failure of any party to insist
in any one or more cases upon the performance of any of the provisions,
covenants or conditions of this Agreement or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the future
of any such provisions, covenants or conditions; (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition or provisions
hereof shall not be deemed a waiver of such breach or failure; and (iii) no
waiver by any Party of one breach by another Party be construed as waiver with
respect to any other or subsequent breach.
SECTION 7.15 Time of Essence. Time is of the essence in this Agreement and
of each and every provision hereof.
SECTION 7.16 Binding Effect. This Agreement shall inure to and be binding
upon the heirs, executors, personal representatives, successor and assigns of
each Party to this Agreement.
SECTION 7.17 Exhibits. As of the execution hereof, the Parties hereto
have provided each other with the exhibits and schedules provided for
hereinabove, including any items referenced thereon or required to be attached
thereto. Any material changes to the exhibits and schedules shall be
immediately disclosed to the other Parties. All such exhibits or schedules are
incorporated herein and made a part of this Agreement.
SECTION 7.18 Facsimile Signatures. Facsimile signatures of the Agreement
and all documents relating to this Agreement shall constitute approval and
acceptance of said documents as if such documents bore original signatures.
13
<PAGE> 18
IN WITNESS WHEREOF, GAG, CRRA, M Ahuja and Transtar have executed this
Agreement to be as of the date first written above.
GOLF ACQUISITION GROUP, LLC
By: /s/ Cliff Cozier
------------------------
Name: Cliff Cozier
Title: Manager
GRAFIX CORPORATION
By: /s/ Kent Krausman
--------------------------
Name: Kent Krausman
Title: President
M AHUJA
------------------------------
Monte Ahuja
TRANSTAR INDUSTRIES, INC.
By:
--------------------------
Name: Monte Ahuja
Title:
-------------------
<PAGE> 19
IN WITNESS WHEREOF, GAG, CRRA, M Ahuja and Transtar have executed this
Agreement to be as of the date first written above.
GOLF ACQUISITION GROUP, LLC
By:_________________________
Name: Cliff Cozier
Title: Manager
GRAFIX CORPORATION
By:_________________________
Name: Kent Krausman
Title: President
M AHUJA
/s/ Monte Ahuja
____________________________
Monte Ahuja
TRANSTAR INDUSTRIES, INC.
By: /s/ Monte Ahuja
____________________________
Name: Monte Ahuja
Title:______________________
14
<PAGE> 20
THE SECURITIES REPRESENTED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE AND MAY NOTE BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
PROMISSORY NOTE
$545,000 FEBRUARY 11, 1999
FOR VALUE RECEIVED the undersigned, Grafix Corporation, a Delaware
corporation ("Maker"), hereby promises to pay to the order of Monte Ahuja
("Payee"), at the address set forth below for notices to Payee, or such other
place as Payee may from time to time designate, the principal sum of Five
Hundred Forty-Five Thousand Dollars ($545,000.00) together with interest on the
outstanding unpaid balance of such principal sum at the rate of 10% per annum
(the "Interest Rate").
The principal amount of and accrued interest on this Note shall be due and
payable on February 11, 2001 (the "Payment Date"). Maker may prepay this Note at
any time or from time to time prior to such maturity schedule, either in whole
or in part, without premium or penalty of any kind and any such prepayment shall
not delay or postpone any subsequent payment.
Maker waives all exemption rights under any applicable law and also waives
presentment for payment, demand, notice of nonpayment, valuation, appraisement,
protest, dishonor, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notices and without further notice, hereby consents
to renewals, extensions or partial payments either before or after maturity.
Maker further agrees to pay all reasonable costs of collection, including
court costs, expenses and reasonable attorney's fees regardless of whether or
not involving litigation and/or appellate, administrative or bankruptcy
proceedings, in case the principal of this Note or any interest or Default
Interest (as defined herein) thereon is not paid when due, whether suit be
brought or not.
No delay or omission on the part of Payee hereof in exercising any right
hereunder shall operate as a waiver of such right or any other right under this
Note, nor shall any waiver on one occasion be construed as a bar to or waiver of
any such right on any future occasion. No waiver shall be effective unless in
writing and signed by Payee.
It is not intended hereby to charge interest at a rate in excess of the
maximum rate of interest that Payee may charge Maker under applicable usury and
other laws, but if, notwithstanding, interest in excess of such rate shall be
paid hereunder, the excess shall be retained by Payee as cash collateral for the
payment of this Note, unless such retention is not permitted by law, in which
case the Interest Rate on this Note shall be adjusted to the maximum permitted
under applicable law during the period or periods that the Interest Rate
otherwise provided herein would exceed such rate.
The entire principal balance of this Note plus accrued interest and all
other obligations of Maker to Payee, direct or indirect, shall become
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, anything contained
herein to the contrary not withstanding, if any one of the following Events of
Default shall occur and shall not have been remedied: (i) Maker shall fail to
pay, within five (5) days after the Payment Date, the principal of this Note and
all accrued interest on this Note due on such Payment Date, or to pay when due
(whether by acceleration, maturity or otherwise) any other sums payable under
this Note; (ii) an Event of Default has occurred under that certain promissory
note dated February 11, 1999 with Maker as maker and Transtar Industries, Inc.,
an Ohio corporation, as payee; (iii) Maker shall commence a voluntary case under
the United States Bankruptcy Code (as now or hereafter in effect)(the
"Bankruptcy Code"); or (iv) Maker shall fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code.
1
<PAGE> 21
Upon the occurrence of an Event of Default, the principal of this Note
shall bear interest at a rate equal to the lesser of (i) two points higher than
Interest Rate then in effect on the unpaid principal balance of this Note or
(ii) the highest amount permitted by law ("Default Interest"). Any accrued
Default Interest on the unpaid principal balance of or accrued interest on the
Note shall be paid quarterly in arrears, commencing on the last day of the
month in which the Event of Default occurs and continuing thereafter quarterly
on the last day of each final month of the quarter until this Note is paid in
full. Default Interest on this Note shall be computed on the actual number of
days elapsed over a 360-day year; i.e., 1/360th of a full year's Default
Interest shall accrue for each day any loan evidenced by this Note is
outstanding.
Payment of principal and interest (including Default Interest) is secured
by the inventory and accounts receivable and certain securities of Maker, all
as more fully described in a Security Agreement dated February 11, 1999 between
Maker, Payee and Transtar Industries, Inc., an Ohio corporation ("Transtar").
This Note is also subject to the provisions of that certain Agreement dated
February 11, 1999 by and among Maker, Payee, Transtar and Golf Acquisition
Group, LLC, a Colorado limited liability company, and Maker and Payee shall
have such rights as are set forth in that Agreement.
All of the stipulations, promises and agreements in this Note contained by
or on behalf of Maker and Payee shall bind their successors and assigns,
whether so expressed or not, and inure to the benefit of the successors and
assigns of the Maker and Payee.
If any provision of this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.
All notices or demands required or permitted hereunder shall be in writing
and shall be deemed given when actually delivered or on the third business day
following the day on which the same shall have been mailed by registered or
certified mail, postage prepaid, addressed as follows:
If to Maker: Grafix Corporation
2331 West Hampden Avenue, #145
Englewood, Colorado 80110
Attention: Kent Krausman
Telecopy No.: (303) 738-3245
If to Payee: Monte Ahuja
c/o Transtar Industries, Inc.
7350 Young Drive
Walton Hills, OH 44164
Telecopy No.: 440-232-2327
In either case Thomas H. Maxfield
with a copy to: Baker & Hostetler LLP
303 East 17th Avenue, Suite 1100
Denver, Colorado 80203
Telephone: (303) 861-0600
Facsimile: (303) 861-2307
Either the Maker or Payee may change its respective address by giving
notice of such change to the other party in the manner provided herein. For
this purpose only, unless and until such written notice is actually received,
the address specified for each party shall be deemed to continue in effect for
all purposes.
The laws of the State of Colorado shall govern the validity, construction
enforcement and interpretation of this Note.
2
<PAGE> 22
MAKER HEREBY AND PAYEE BY ITS ACCEPTANCE OF THIS NOTE, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE MAKING THE LOAN EVIDENCED BY THIS
NOTE.
Executed this 11 day of February, 1999.
MAKER:
GRAFIX CORPORATION
/s/ Kent D. Krausman
----------------------------
By: Kent Krausman
Title: President
<PAGE> 23
THE SECURITIES REPRESENTED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
PROMISSORY NOTE
$105,000 FEBRUARY 11, 1999
FOR VALUE RECEIVED the undersigned, Grafix Corporation, a Delaware
corporation ("Maker"), hereby promises to pay to the order of Transtar
Industries, Inc., an Ohio corporation ("Payee"), at the address set forth below
for notices to Payee, or such other place as Payee may from time to time
designate, the principal sum of One Hundred Five Thousand Dollars ($105,000.00)
together with interest on the outstanding unpaid balance of such principal sum
at the rate of 10% per annum (the "Interest Rate").
The principal amount of and accrued interest on this Note shall be due and
payable on February 11, 2001 (the "Payment Date"). Maker may prepay this Note at
any time or from time to time prior to such maturity schedule, either in whole
or in part, without premium or penalty of any kind and any such prepayment shall
not delay or postpone any subsequent payment.
Maker waives all exemption rights under any applicable law and also waives
presentment for payment, demand, notice of nonpayment, valuation, appraisement,
protest, dishonor, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notices and without further notice, hereby consents
to renewals, extensions or partial payments either before or after maturity.
Maker further agrees to pay all reasonable costs of collection, including
court costs, expenses and reasonable attorney's fees regardless of whether or
not involving litigation and/or appellate, administrative or bankruptcy
proceedings, in case the principal of this Note or any interest or Default
Interest (as defined herein) thereon is not paid when due, whether suit be
brought or not.
No delay or omission on the part of Payee hereof in exercising any right
hereunder shall operate as a waiver of such right or any other right under this
Note, nor shall any waiver on one occasion be construed as a bar to or waiver of
any such right on any future occasion. No waiver shall be effective unless in
writing and signed by Payee.
It is not intended hereby to charge interest at a rate in excess of the
maximum rate of interest that Payee may charge Maker under applicable usury and
other laws, but if, notwithstanding, interest in excess of such rate shall be
paid hereunder, the excess shall be retained by Payee as cash collateral for the
payment of this Note, unless such retention is not permitted by law, in which
case the Interest Rate on this Note shall be adjusted to the maximum permitted
under applicable law during the period or periods that the Interest Rate
otherwise provided herein would exceed such rate.
The entire principal balance of this Note plus accrued interest and all
other obligations of Maker to Payee, direct or indirect, shall become
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, anything contained
herein to the contrary not withstanding, if any one of the following Events of
Default shall occur and shall not have been remedied: (i) Maker shall fail to
pay, within five (5) days after the Payment Date, the principal of this Note and
all accrued interest on this Note due on such Payment Date, or to pay when due
(whether by acceleration, maturity or otherwise) any other sums payable under
this Note; (ii) an Event of Default has occurred under that certain promissory
note dated February 11, 1999 with Maker as maker and Monte Ahuja as payee; (iii)
Maker shall commence a voluntary case under the United States Bankruptcy Code
(as now or hereafter in effect) (the "Bankruptcy Code"); or (iv) Maker shall
fail to controvert in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the Bankruptcy
Code.
1
<PAGE> 24
Upon the occurrence of an Event of Default, the principal of this Note
shall bear interest at a rate equal to the lesser of (i) two points higher than
Interest Rate then in effect on the unpaid principal balance of this Note or
(ii) the highest amount permitted by law ("Default Interest"). Any accrued
Default Interest on the unpaid principal balance of or accrued interest on the
Note shall be paid quarterly in arrears, commencing on the last day of the
month in which the Event of Default occurs and continuing thereafter quarterly
on the last day of each final month of the quarter until this Note is paid in
full. Default Interest on this Note shall be computed on the actual number of
days elapsed over a 360-day year; i.e., 1/360th of a full year's Default
Interest shall accrue for each day any loan evidenced by this Note is
outstanding.
Payments of principal and interest (including Default Interest) is secured
by the inventory and accounts receivable and certain securities of Maker, all
as more fully described in a Security Agreement dated February 11, 1999 between
Maker, Payee and Monte Ahuja ("M Ahuja"). This Note is also subject to the
provisions of that certain Agreement and dated February 11, 1999 by and among
Maker, Payee and M Ahuja and Golf Acquisition Group, LLC, and Maker and Payee
shall have such rights as are set forth in that Agreement.
All of the stipulations, promises and agreements in this Note contained by
or on behalf of Maker and Payee shall bind their successors and assigns,
whether so expressed or not, and inure to the benefit of the successors and
assigns of the Maker and Payee.
If any provision of this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.
All notices and demands required or permitted hereunder shall be in
writing and shall be deemed given when actually delivered or on the third
business day following the day on which the same shall have been mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Maker: Grafix Corporation
8250 S. Akron Street, Suite 203
Englewood, Colorado 80112
Attention: Kent Krausman
Telecopy No.: (303) 738-3245
If to Payee: Transtar Industries, Inc.
7350 Young Drive
Walton Hills, OH 44164
Attention: Monte Ahuja
Telecopy No.: 440-232-2327
In either case Thomas H. Maxfield
with a copy to: Baker & Hostetler LLP
303 East 17th Avenue, Suite 1100
Denver, Colorado 80203
Telephone: (303) 861-0600
Facsimile: (303) 861-2307
Either the Maker or Payee may change its respective address by giving
notice of such change to the other party in the manner provided herein. For
this purpose only, unless and until such written notice is actually received,
the address specified for each party shall be deemed to continue in effect for
all purposes.
The laws of the State of Colorado shall govern the validity, construction
enforcement and interpretation of this Note.
2
<PAGE> 25
MAKER HEREBY AND PAYEE BY ITS ACCEPTANCE OF THIS NOTE, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE MAKING THE LOAN EVIDENCED BY THIS
NOTE.
Executed this 11 day of February, 1999.
MAKER:
GRAFIX CORPORATION
/s/ Kent D. Krausman
--------------------
By: Kent Krausman
Title
3
<PAGE> 26
EXHIBIT C
SECURITY AGREEMENT
THIS AGREEMENT is made as of the 11th day of February, 1999, by and among
Grafix Corporation, a Delaware corporation ("Debtor"), Monte Ahuja ("M Ahuja")
and Transtar Industries, Inc., an Ohio corporation ("Transtar" and together
with M Ahuja, the "Secured Parties").
RECITALS:
1. Simultaneously herewith Debtor has issued two promissory notes dated
February 11, 1999, one to M Ahuja in the principal amount of $545,000 (the "New
Ahuja Note") and one to Transtar in the principal amount of $105,000 (the "New
Transtar Note" and together with the New Ahuja Note, the "New Notes");
2. The New Notes have been issued by Debtor to the Secured Parties as
partial consideration for the cancellation and delivery by the Secured Parties
of certain outstanding indebtedness of Debtor payable to the Secured Parties;
and
3. Debtor desires to grant the security hereinafter set forth to secure
the New Notes.
NOW, THEREFORE, the parties, intending to be legally bound, in
consideration of the premises and other good and valuable consideration, agree
as follows:
1. Obligations.
The obligations hereby secured consist of the indebtedness of Debtor
to the Secured Parties under the New Notes (the "Obligations").
2. Grant of Security.
In order to secure the due payment and performance of all the
Obligations, the Debtor hereby assigns, mortgages, pledges, hypothecates,
transfers and sets over to the Secured Parties and grants to the Secured
Parties a first lien upon and security interest in all of Debtor's inventory,
whether now owned or hereafter acquired, and all accounts receivable, all
hereinafter referred to as the "Collateral," including without limitation, all
items set forth on Schedule I annexed hereto.
3. Debtor's Title; Liens and Encumbrances.
Debtor represents and warrants that it is, or to the extent that this
Agreement states that the Collateral is to be acquired after the date hereof,
will be, the owner of the Collateral, having good and marketable title thereto,
free from any and all liens, security interests, encumbrances or claims. Debtor
will not create or assume or permit to exist any such lien, security interest,
encumbrance or claim on or against the Collateral except as created by this
Security Agreement, and Debtor will promptly notify the Secured Parties of any
such other claim, lien, security interest or other encumbrance made or asserted
against the Collateral and will defend the Collateral against any such claim,
lien, security interest or other encumbrance.
4. Location of Collateral and Records.
Debtor represents and warrants that it has no place of business,
offices where Debtor's books of account and records are kept, or places where
the Collateral is used, stored or located, except as set forth on Schedule II
annexed hereto, and covenants that Debtor will promptly notify the Secured
Parties of any change in the foregoing representation. Debtor shall at all
times maintain its records as to the Collateral at its chief place of business
at the address referred to on Schedule II and at none other. Debtor further
covenants that except for
C-1
<PAGE> 27
Collateral delivered to the Secured Parties or an agent for the Secured
Parties, Debtor will not store, use or locate any of the Collateral at any
place other than as listed on Schedule II hereto.
5. Perfection of Security Interest.
Debtor will join with the Secured Parties in executing one or more
financing statements pursuant to the Uniform Commercial Code or other notices
appropriate under applicable law in form satisfactory to the Secured Parties
and will pay all filing or recording costs with respect thereto, and all costs
of filing or recording this Agreement or any other instrument, agreement or
document executed and delivered pursuant hereto (including the cost of all
federal, state or local mortgage, documentary, stamp or other taxes), in each
case, in all public offices where filing or recording is deemed by the Secured
Parties to be necessary or desirable. Debtor hereby authorizes the Secured
Parties to take all action (including, without limitation, the filing of any
Uniform Commercial Code financing statements or amendment thereto without the
signature of Debtor) which the Secured Parties may deem necessary or desirable
to perfect or otherwise protect the liens and security interests created
hereunder and to obtain the benefits of this Agreement. Transtar hereby
authorizes M Ahuja to take all such actions referred to in the preceding
sentence on its behalf.
6. General Covenants.
Debtor shall:
(a) Pay all taxes and maintain all insurance; and
(b) Promptly execute and deliver to the Secured Parties
such further assignments, security agreements or other instruments, documents,
certificates and assurances and take such further action as the Secured Parties
may from time to time by necessary to perfect, protect or enforce their
security interest in the Collateral or otherwise to effectuate the intent of
this Agreement.
7. Insurance.
Debtor shall deliver to the Secured Parties copies of, or
certificates of the issuing companies with respect to, endorsements of any and
all policies of insurance owned by Debtor covering or in any manner relating to
the Collateral, in form and substance satisfactory to Secured Parties, naming
the Debtor as an additional insured party as their interest may appear and
indicating that the policy will not be terminated, or reduced in coverage or
amount, without at least ten (10) days prior written notice from the insurer to
the Secured Parties.
8. Fixtures.
If the Collateral or any part thereof is or is to become attached or
affixed to any real estate, it is intended that the Secured Parties have a
security interest therein.
9. Rights and Remedies on Default.
In the event of the occurrence and continuance of any Event of
Default as hereinafter defined, the Secured Parties shall have any and all
rights afforded to secured parties under the Uniform Commercial Code or other
applicable law. Transtar authorizes M Ahuja to act on its behalf in exercising
any of the rights Transtar has as a secured party under the Uniform Commercial
Code or other applicable law. Debtor and the Secured Parties agree that, as to
any proceeds received by the Secured Parties from any sale or other disposition
of the Collateral, the rights of each of the Secured Parties to such proceeds
to satisfy the Obligations shall be determined as follows: (i) M Ahuja shall be
entitled to the amount of such proceeds equal to (a) the total amount of such
proceeds multiplied by (b) a fraction, the numerator of which is the total
principal and accrued interest outstanding under the New Ahuja Note at such
time as the proceeds are realized and the denominator of which is the total
principal and accrued interest outstanding under the New Notes at such time as
the proceeds are realized; and (ii) Transtar shall be entitled to the amount of
such proceeds equal to (a) the total amount of such proceeds multiplied by (b)
a fraction, the numerator of which is the total principal and accrued interest
outstanding under the New Transtar Note at such
C-2
<PAGE> 28
time as the proceeds are realized and the denominator of which is the total
principal and accrued interest outstanding under the New Notes at such time as
the proceeds are realized.
10. Costs and Expenses.
Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and legal expenses incurred by the
Secured Parties, in connection with enforcing, foreclosing, retaking, holding,
storing, processing, selling or otherwise realizing upon the Collateral and the
Secured Parties' security interest therein, whether through judicial proceedings
or otherwise, or in defending or prosecuting any actions or proceedings arising
out of or related to the transactions to which this Agreement relates, shall be
borne and paid by Debtor on demand by the Secured Parties and until so paid
shall be added to the principal amount of the Obligations and shall bear
interest at the rate prescribed in the New Notes.
11. Consent to File Financing Statement. Debtor agrees to give its
consent to the Secured Parties to file a financing statement or financing
statements in any jurisdictions in which such filing would be necessary to
perfect the security interest granted hereby.
12. Power of Attorney.
Debtor authorizes M Ahuja and does hereby make, constitute and
appoint M Ahuja, with full power of substitution, as Debtor's true and lawful
attorney-in-fact, with power, in its own name, after the occurrence and during
the continuance of any Event of Default as specified in the New Notes, to
endorse any notes, checks, drafts, money orders, or other instruments of
payment (including payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into possession of the
Secured Parties; to sign and endorse any invoice, freight or express bill, bill
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; to demand, collect, receipt for, compromise, settle and
sue for monies due in respect of the Collateral, and, generally, to do at the
Secured Parties' option and at Debtor's expense, at any time, or from time to
time, all acts and things which the Secured Parties deem necessary to protect,
preserve and realize upon the Collateral and the Secured Parties' security
interest therein in order to effect the intent of this Agreement and of the New
Notes all as fully and effectively as Debtor might or could do; and Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be
outstanding. Transtar agrees to the appointment of M Ahuja as such
attorney-in-fact and authorizes M Ahuja to act on Transtar's behalf with
respect to the actions outlined in this Section 12.
13. Notices.
Any notice required hereunder shall be deemed duly given if deposited
in the mails, postage prepaid and sent by certified mail, addressed to a party
at the address set forth below or at such other address as such party shall
have specified by notice given in the same manner.
14. Events of Default.
For purposes of this Agreement, "Event of Default" shall mean an
Event of Default as defined in the New Notes.
15. Miscellaneous.
(a) Beyond the safe custody thereof, the Secured Parties shall
have no duty as to the collection of any Collateral in their possession or
control or in the possession or control of any agent or nominee of the Secured
Parties, or any income thereon or as to the preservation of rights against
prior parties or any other right pertaining thereto.
C-3
<PAGE> 29
(b) No course of dealing between Debtor and the Secured Parties, nor
any failure to exercise, nor any delay in exercising, on the part of the Secured
Parties, any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
(c) All of the Secured Parties' rights and remedies with respect to
the Collateral, whether established hereby or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.
(d) The provisions of this Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
(e) This Agreement is subject to modification only by a writing
signed by the parties.
(f) The benefits and burdens of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties; provided, however, that the rights and obligations of Debtor under
this Agreement shall not be assigned or delegated without the prior written
consent of the Secured Parties, and any purported assignment or delegation
without such consent shall be void.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the state of Colorado.
16. Term of Agreement.
The term of this Agreement shall commence on the date hereof and this
Agreement shall continue in full force and effect, and be binding upon Debtor,
until all of the Obligations have been fully paid and performed and such
payment and performance has been acknowledged in writing by the Secured
Parties, whereupon this Agreement shall terminate.
C-4
<PAGE> 30
WITNESS the execution hereof under seal as of the day and year first above
written.
GRAFIX CORPORATION
By:__________________________
Kent Krausman
President
MONTE AHUJA
___________________________
TRANSTAR INDUSTRIES, INC.
By:___________________________
Monte Ahuja
___________________
C-5
<PAGE> 31
SCHEDULE I
List of Collateral
All accounts receivable and inventory of Debtor, including, without
limitation, all goods, merchandise, and other personal property now owned or
hereafter acquired by the Debtor that are held for sale or lease, or are
furnished or to be furnished under any contract of service or are raw
materials, work in process, supplies or materials used or consumed in the
Debtor's business and all accounts, and all products thereof, and
substitutions, replacements, additions, accessions thereto or proceeds thereof
and proceeds of insurance thereon.
C-6
<PAGE> 32
SCHEDULE II
TO
SECURITY AGREEMENT
Chief Place of Business of Debtor:
Offices Where Records are Kept:
Other Locations Where Collateral is Stored, Used or Located:
C-7
<PAGE> 33
EXHIBIT D
PLEDGE AGREEMENT
THIS AGREEMENT, made as of the 11th day of February, 1999 by and between
Golf Acquisition Group, LLC, a Colorado limited liability company ("Pledgor"),
Monte Ahuja ("M Ahuja") and Transtar Industries, Inc., an Ohio corporation
("Transtar" and together with M Ahuja, "Pledgees").
RECITALS
1. Simultaneously herewith Grafix Corporation, a Delaware corporation
("CRRA") has issued two promissory notes dated February 11, 1999, one to M
Ahuja in the principal amount of $545,000 (the "New Ahuja Note") and one to
Transtar in the principal amount of $105,000 (the "New Transtar Note" and
together with the New Ahuja Note, the "New Notes") (the obligations under the
New Notes hereinafter referred to as the "Obligations");
2. The New Notes have been issued by CRRA to Pledgees as partial
consideration for the cancellation and delivery by Pledgees of certain
outstanding indebtedness of CRRA payable to Pledgees; and
3. The Pledgor has agreed to secure the performance by CRRA of all
Obligations with all of Pledgor's right, title and interest in the Pledged
Stock, as hereinafter defined.
NOW THEREFORE, in consideration of the premises and the mutual promises
hereinafter contained and other good and valuable consideration, the parties
hereby agree as follows:
1. Pledge.
As collateral security for the due payment and performance of the
Obligations, the Pledgor does hereby pledge, assign, hypothecate, deliver and
set over to Pledgees and hereby deposits with M Ahuja, to hold for himself and
Transtar, a certificate for the securities listed on the attached Exhibit 1
(the "Pledged Stock") and hereby grants to Pledgees a security interest in the
Pledged Stock and in the proceeds thereof. The certificate is to be held by M
Ahuja in accordance with the terms and provisions of this Agreement. M Ahuja
does hereby acknowledge receipt of said certificate for the purpose of securing
the Obligations. Transtar agrees to allow M Ahuja to hold such certificate for
himself and on behalf of Transtar pursuant to the terms of this Agreement for
the purpose of securing the Obligations.
2. Absence of Liens.
The security delivered by the Pledgor under this Agreement is free of
any lien, restriction or other encumbrance and is in proper form for transfer
and accompanied by stock transfer powers duly executed in blank.
3. Right to Vote.
At all times during the terms of this Agreement, Pledgor shall have
the right to vote upon, or to give any consent in respect of, the Pledged Stock
for all purposes.
4. Right to Receive Dividends.
At all times during the term of this Agreement, Pledgees shall be
entitled to receive and hold all dividends and distributions on the Pledged
Stock as collateral security for the due payment and performance of the
Obligations. Pledgor hereby authorizes and directs CRRA to pay such dividends
and distributions to the Pledgees.
D-1
<PAGE> 34
5. Remedies in Default.
Upon the occurrence of an Event of Default, M Ahuja, for himself
and on behalf of Transtar, (a) shall give written notice signed by M Ahuja to
the Pledgor of the default, and (b) shall have and shall exercise, in respect to
the Pledged Stock, all the rights of, and remedies available to, a secured party
under Article 9 of the Colorado Uniform Commercial Code (as from time to time
amended) and any other applicable laws, including, without limitation, the right
to sell, convert into money, and apply as specified in Section 6 hereof, the
Pledged Stock. Transtar agrees that M Ahuja shall have the sole right to
exercise the rights listed in this Section 5 for himself and on Transtar's
behalf and apply any proceeds as specified in Section 6 hereof. At any sale the
Pledgees may purchase all or any part of the Pledged Stock.
6. Application of Proceeds.
The proceeds received by the Pledgees from any sale or other
disposition of the Pledged Stock pursuant hereto shall be applied as follows:
(a) First, to the payment of all advances, costs and expenses,
incurred in connection with (i) any such sale or
disposition, (ii) the enforcement of the provisions hereof,
and (iii) the collection of any of the Obligations;
(b) Second, to the payment of the Obligations. Pledgor and the
Pledgees agree that, as to any proceeds received by the
Pledgees from any sale or other disposition of the Pledged
Stock, the rights of each of the Pledgees to such proceeds
to satisfy the Obligations shall be determined as follows:
(i) M Ahuja shall be entitled to the amount of such proceeds
equal to (a) the total amount of such proceeds multiplied by
(b) a fraction, the numerator of which is the total
principal and accrued interest outstanding under the New
Ahuja Note at such time as the proceeds are realized and the
denominator of which is the total principal and accrued
interest outstanding under the New Notes at such time as the
proceeds are realized; and (ii) Transtar shall be entitled
to the amount of such proceeds equal to (a) the total amount
of such proceeds multiplied by (b) a fraction, the numerator
of which is the total amount of such proceeds multiplied by
(b) a fraction, the numerator of which is the total
principal and accrued interest outstanding under the New
Transtar Note at such time as the proceeds are realized and
the denominator of which is the total principal and accrued
interest outstanding under the New Notes at such time as the
proceeds are realized;
(c) Third, to the payment of any other amounts required by
applicable law, including without limitation, Section
9-504(1)(c) of the Uniform Commercial Code of the State of
Colorado; and
(d) Fourth, to the Pledgor, to the extent of the surplus
proceeds, if any.
7. Termination of this Agreement.
Unless otherwise sold or converted pursuant to the terms of
Sections 5 and 6 above, when all Obligations have been paid in full, this
Agreement shall cease and terminate, and the Pledged Stock shall automatically
revert to the Pledgor and the estate, rights, title and interests of Pledgees
therein shall cease, determine and become void. Thereupon, on the Pledgor's
demand and at his cost and expense, Pledgees shall execute proper instruments,
acknowledging satisfaction of an discharging this Agreement, and shall redeliver
to the Pledgor the Pledged Stock.
8. Amendments.
D-2
<PAGE> 35
Amendments of this Agreement may be made, or compliance with any
warranty, covenant, or condition herein set forth may be omitted or waived only
by a written instrument duly executed by the Pledgor and Pledgees.
9. Pledgor Representations and Warranties.
The Pledgor represents and warrants:
(a) That it has the power to execute, deliver and perform this
Agreement, and has taken all necessary action to authorize the execution,
delivery and performance hereof;
(b) That no consent or approval of any person and no consent,
license, approval, authorization or declaration of any governmental authority,
bureau or agency, is or will be required in connection with the execution,
delivery, performance, validity or enforcement of this Agreement; and
(c) That the execution and delivery of this Agreement and
performance hereunder will not violate any provision of law and will not
conflict with or result in a breach of any order, writ, injunction, ordinance,
resolution, decree, or other similar document or instrument of any court or
governmental authority, bureau or agency, or create (with or without the giving
of notice or lapse of time, or both) a default under or breach of any
agreement, bond, note or indenture to which the Pledgor is a party or by which
he is bound or any of his properties or assets is affected, or result in the
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets owned by the Pledgor, except as created hereunder.
10. Notices.
All notices, requests, reports and other communications pursuant to
this Agreement shall be in writing (delivered by hand or sent by certified
mail, return receipt requested, except for routine reports which shall be by
ordinary first-class mail) addressed to the parties hereto at the addresses set
forth below. Any notice, request or communication hereunder shall be deemed to
have been given on the day on which it is delivered by hand to such party at
the address specified below, or, if sent by mail, on the third business day
after the day deposited in the mail, postage prepaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder.
11. Further Assurances.
The Pledgor will promptly make, execute and deliver all such
instruments and will take all such action as Pledgees may reasonably request
for the better assuring to Pledgees of the obligations, rights and security
hereby pledged or intended so to be.
12. Events of Default.
For purposes of this Agreement "Event of Default" shall mean an Event
of Default as defined in the New Notes.
13. Effective Date.
All of the terms and provisions of this Agreement shall become
effective as of the date first above written and shall bind and inure to the
benefit of the signatories and their respective successors and assigns.
14. Choice of Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado. Any provision of this Agreement which is in
conflict with the laws of the State of Colorado shall be null and void without
affecting the remaining provisions of this Agreement, which shall be in full
force and effect.
D-3
<PAGE> 36
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered the day and year first above written.
PLEDGOR:
GOLF ACQUISITION GROUP, LLC
By:
-------------------------------------
Name:
Title:
PLEDGEES:
MONTE AHUJA
-----------------------------------------
TRANSTAR INDUSTRIES, INC.
By:
-------------------------------------
Name: Monte Ahuja
Title:
D-4
<PAGE> 37
EXHIBIT 1
1,000,000 shares of the common stock of Grafix Corporation, a Delaware
corporation
D-5
<PAGE> 38
EXHIBIT E
FORM OF OPINION OF GAG'S COUNSEL
The opinion of counsel will provide the following opinions:
(1) GAG is a limited liability company duly organized, validly existing
and in good standing under the laws of Colorado; has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now conducted; and is duly qualified as a foreign corporation in each state
in which such qualification is required, except where failure to be so
qualified would not have a material adverse effect on the business or financial
condition of GAG.
(2) GAG has the full power, capacity and authority to execute and deliver
and to perform its obligations under the Agreement and the Pledge Agreement
(the "Agreements"). The Agreements have been duly executed and delivered by
GAG, and, assuming the valid authorization and execution of the Agreements by
the parties thereto, constitute the valid and binding obligations of GAG,
enforceable in accordance with its terms, except (i) as enforceability may be
affected by bankruptcy, insolvency, reorganization, arrangement, moratorium or
similar laws affecting the rights of creditors generally; (ii) as enforceability
may be affected by the exercise of judicial discretion in accordance with
general principles of equity (whether applied by a court of law or of equity);
(iii) as enforceability may be affected by the covenant of good faith and fair
dealing implied in every contract; (iv) as enforceability may be affected by
a court refusing to enforce or limiting application of a contract or any clause
of a contract that the court finds to be unreasonable under the circumstances
existing at the time the contract was made; and (v) no opinion is expressed as
to the availability of any specific legal or equitable remedy.
(3) The execution, delivery and performance of the Agreements, and the
transactions provided for therein, have been duly and validly authorized by all
necessary actions of GAG, and no other actions on the part of GAG or its
managers or members except as set forth in the Agreements, are required.
(4) To the best of his knowledge, neither the execution and delivery of
the Agreements, nor the consummation of the transactions contemplated thereby
will: (i) conflict with any provisions of the Articles of Organization or
Operating Agreement of GAG; (ii) require any consent, approval, authorization,
or permit of, or filing with or notification to, any governmental or regulatory
authority which has not been obtained; (iii) result in a default (or give rise
to any penalty, right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, lease, mortgage, license,
agreement or instrument or obligation to which GAG is a party or by which GAG
may be bound or to which any of the assets of GAG may be subject; or, (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to GAG.
E-1
<PAGE> 39
EXHIBIT F
FORM OF OPINION OF CRRA'S COUNSEL
The opinion of counsel will provide the following:
(1) CRRA is a corporation duly organized, validly existing under the
laws of the State of Delaware; has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now conducted;
and is duly qualified as a foreign corporation in each state in which such
qualification is required, except where failure to be so qualified would not
have a material adverse effect on the business or financial condition of CRRA.
(2) Immediately prior to the consummation of the Transaction, there
were 6,825,113 shares of CRRA common stock, and -0- shares of CRRA preferred
stock, issued and outstanding as of the date of this opinion. The shares of
CRRA common stock outstanding are duly authorized and validly issued, fully
paid and non-assessable. The outstanding shares of CRRA common stock are owned
beneficially and of record and are not owned or held in violation of any
statutory preemptive right or, to the best of his knowledge, any contractual or
similar preemptive right. All of the 10,000,000 New CRRA Shares issuable
pursuant to the Transaction in accordance with the Agreement will be when so
issued duly authorized, validly issued, fully paid and not assessable and owned
beneficially and of record by M Ahuja, prior to the transfer to GAG, and not
owned or held in violation of any statutory preemptive right or, to the best of
his knowledge, any contractual or similar preemptive right.
(3) CRRA has the full corporate power, capacity and authority to
execute and deliver and to perform its obligations under the Agreement and the
Security Agreement (the "Agreement"). The Agreements have been duly executed
and delivered by CRRA, and, assuming the valid authorization and execution of
the Agreements by the parties thereto, constitute the valid and binding
obligations of CRRA, enforceable in accordance with its terms, except (i) as
enforceability may be affected by bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws affecting the rights of creditors
generally; (ii) as enforceability may be affected by the exercise of judicial
discretion in accordance with general principles of equity (whether applied by
a court of law or of equity); (iii) as enforceability may be affected by the
covenant of good faith and fair dealing implied in every contract; (iv) as
enforceability may be affected by a court refusing to enforce or limiting
application of a contract or any clause of a contract that the court finds to
be unreasonable under the circumstances existing at the time the contract was
made; and (v) no opinion is expressed as to the availability of any specific
legal or equitable remedy.
(4) The execution, delivery and performance of the Agreements, and the
transactions provided for therein, have been duly and validly authorized by all
necessary corporate actions of CRRA, and no other corporate actions on the part
of CRRA or its directors or shareholders, except as set forth in the
Agreements, are required.
(5) To the best of his knowledge and except as specifically disclosed in
the Schedule A - CRRA Disclosure Schedule to the Agreement: (i) there are no
actions, suits, investigations or proceedings by or against CRRA; and (ii)
there are no claims, actions, suits, investigations or proceedings pending or
threatened by or against CRRA, at law or in equity, or before any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality in which any claim has been made or asserted against
CRRA, the business or assets of CRRA, or the issued and outstanding shares of
CRRA common stock.
(6) To the best of his knowledge, neither the execution and delivery of
the Agreements, nor the consummation of the transactions contemplated thereby
will: (i) conflict with any provisions of the Certificate of Incorporation or
Bylaws of CRRA; (ii) require any consent, approval, authorization, or permit
of, or filing with or notification to, any governmental or regulatory authority
which has not been obtained, except for the filing of a Form 8-K with the SEC
by CRRA following the closing; (iii) result in a default (or give rise to any
penalty, right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, lease, mortgage, license,
agreement or instrument or obligation to which CRRA is a party or by which CRRA
may be bound or to which any of the assets of CRRA may be subject; or, (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to CRRA.
F-1
<PAGE> 40
(7) The CRRA Notes referenced in the Agreement were duly and validly
authorized and executed by CRRA, and constitute valid and binding obligations
of CRRA. The New CRRA Notes issuable pursuant to the Transaction in accordance
with the Agreement will be, when so issued, duly and validly authorized and
executed by CRRA and will constitute valid and binding obligations of CRRA.
F-2
<PAGE> 41
SCHEDULE B
CRRA DISCLOSURE SCHEDULE
Section Number Disclosure(s)
5.9 Karani, et al. v. Grafix Time Corporation, et al, Cuyahoga
County Court of Common Pleas, Cleveland, Ohio,
Case No. 97344765-CV;
Walker v. Grafix Time Corporation, County Court of Law #2,
Tarrant County, Texas, Case No 805064600002.
1
<PAGE> 1
Exhibit 10.27
LOAN AGREEMENT
This Loan Agreement (this "AGREEMENT") is made this ---- day of May, 1998
by and between ---------------------("LENDER") and Golf One Industries, Inc.
("BORROWER"), with reference to the following facts:
A. Borrower is an experienced investor who from time to time provides
funds to privately held, development stage companies.
B. Borrower is seeking up to a maximum of $2,500,000 of secured debt
financing in order to, among other things, retire certain outstanding
indebtedness, pay certain accounts payable, make a loan to Gary Player Golf,
Inc. and effect an initial public offering of its Common Stock ("IPO").
C. On the terms and subject to the conditions of this Agreement, Lender is
willing to provide $----- of such financing.
NOW, THEREFORE, with reference to the foregoing facts and in consideration
of the covenants and agreements hereinafter set forth, Lender and Borrower agree
as follows:
1. LOAN
(a) Lender has concurrently herewith made to Borrower a loan (the "LOAN")
in the principal amount of $----. In consideration of the Loan, Borrower: (i)
has executed and delivered to Lender: (A) a note (the "NOTE"); (B) a security
agreement (the "SECURITY AGREEMENT"); and (C) -------- shares (the "SHARES") of
its Common Stock.
(b) If the number of Shares (as adjusted for any stock dividend, reverse
stock split or stock split of the Company's Common Stock after the date hereof
and prior to the IPO) multiplied by the initial public offering price of the
Common Stock in the IPO (the "IPO PRICE") shall be different than $------, or
50% of principal amount of Note, Borrower and Lender shall adjust the number of
Shares (either by Borrower issuing more shares or Lender tendering shares to the
Company) so that the number of Shares shall equal $------ divided by the IPO
Price, rounded to the nearest whole number of shares as adjusted.
(c) In the event the IPO is not consummated by September 30, 1998, Lender
shall issue to Borrower ------ shares of Lender's Common Stock (the "September
Shares"). If the number of September Shares (as adjusted for any stock dividend,
reverse stock split or stock split of the Company's Common Stock after the date
hereof and prior to the IPO) multiplied by the IPO Price shall be different than
$------, or 5% of the principal amount of the Note, Borrower and Lender shall
adjust the number of Shares (either by Borrower issuing more shares or Lender
tendering shares to the Company) so that the number of Shares shall equal
$------ divided by the IPO Price, rounded to the nearest whole number of shares
as adjusted.
<PAGE> 2
(d) In the event the IPO is not consummated by November 30, 1998, Lender
shall issue to Borrower ____ shares of Lender's Common Stock (the "November
Shares"). If the number of November Shares (as adjusted for any stock dividend,
reverse stock split or stock split of the Company's Common Stock after the date
hereof and prior to the IPO) multiplied by the IPO Price shall be different
than $_____, or 5% of principal amount of Note, Borrower and Lender shall
adjust the number of Shares (either by Borrower issuing more shares or Lender
tendering shares to the Company) so that the number of Shares shall equal
$______ divided by the IPO Price, rounded to the nearest whole number of shares
as adjusted.
2. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"NASD" shall mean the National Association of Securities Dealers, Inc.
"SECURITIES" shall mean the Note, the Shares (including any shares of
Common Stock issued pursuant to Section 1(b), (c) or (d) of this Agreement),
and any shares issued as a result of any stock split or stock dividend with
respect to such Shares.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR FINANCING" shall mean the up to $2,500,000 of debt financing
obtained by Borrower after March 1, 1998, which indebtedness is secured by
substantially all of the assets of Borrower.
"SENIOR LENDERS" shall mean the Lender and the other lenders who provide
the Senior Financing.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Note and the
Security Agreement.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender that:
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and is duly qualified as a foreign
corporation in good standing under the laws of each jurisdiction in which it is
required to be qualified because of the business it conducts or the property
that it owns.
2
<PAGE> 3
(b) Borrower has the necessary power, authority and legal right to own or
lease its assets and to engage in its business as now conducted, it has the
necessary power, authority and legal right to enter into and perform the
obligations imposed by the Transaction Documents. The execution and performance
of this Agreement has been duly authorized by all necessary corporate
proceedings.
(c) Each Transaction Document is a valid and binding obligation of
Borrower, enforceable against the Borrower in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally, and to the availability of equitable remedies.
(d) The execution and delivery of the Transaction Documents will not
conflict with, result in a breach of any provision of, or constitute a default
(or an event which would constitute a default upon the giving of any required
notice or upon a lapse of time) under Borrower's Certificate of Incorporation,
By-laws, or the provisions of any agreement, contract or administrative order,
consent decree or other instrument to which the Borrower is a party.
(e) There are no actions, suits or proceedings, pending or threatened,
against the Borrower in any court or before any administrative agency, which
would prevent the Borrower from completing the transactions provided for in
this Agreement.
(f) The authorized capital stock of the Borrower consists of 5,000,000
shares of Preferred Stock and 10,000,000 shares of Common Stock. The Board of
Directors has created two series of Preferred Stock out of the authorized
preferred stock, consisting of 191,579 shares designated as Series A
Convertible Preferred Stock ("SERIES A PREFERRED") and 750,750 shares
designated as Series B Convertible Preferred Stock ("SERIES B PREFERRED"). As
of March 1, 1998, no shares of Series A Preferred were outstanding, 572,649.25
shares of Series B Preferred were outstanding, and 3,246,289 shares of Common
Stock were outstanding. Other than the Series B Preferred and options to
purchase 602,500 shares of the Company's Common Stock and 1,025,282 Class A
warrants to purchase 512,641 shares of the Company's Common Stock and 180,000
Class B warrants to purchase 90,000 shares of the Company's Common Stock, there
are no outstanding securities of the Borrower that are convertible into Common
Stock of the Company.
(g) Disclosure Documents. The Borrower has furnished each Purchaser with a
true and complete copy of the Borrower's financial statements as of March 31,
1998 (the "Financial Statements"). Except as disclosed in the Financial
Statements, since March 31, 1998 the Borrower has not incurred any material
liability except in the ordinary course of its business consistent with past
practice and there has not been any change in the business, financial condition
or results of operations of the Borrower which has had a material adverse
effect on the Borrower. The Financial Statements are accurate, complete and
have been prepared in accordance with the books and records of the Borrower and
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP") (except as may be
indicated in the notes thereto) and fairly present (subject, in the
3
<PAGE> 4
case of the unaudited statements, to normal, recurring audit adjustments that
are not material) the consolidated financial position of the Borrower as at the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended; provided however, each Purchaser acknowledges that the
Financial Statements do not have attached the requisite "Notes to the Financial
Statements" required by GAAP.
(h) Other Agreements. The Borrower has furnished each Purchaser with a
true and complete copy of the Letter of Intent with respect to a proposed
public offering of Common Stock of the Borrower with Whale Securities Co., L.P.
dated January 20, 1998. As of the date hereof, the Borrower has not received
any notice either orally or in writing from Whale of its intent to terminate
its efforts on behalf of the Borrower with respect to the initial public
offering of the Borrower's Common Stock. The Borrower has also furnished each
purchaser with a true and complete copy of the Borrower's Strategic Plan as of
March 1, 1998. The Strategic Plan discloses on page 2 that the Borrower executed
an Asset Purchase Agreement with the Gary Player Group, Inc. ("GPG") on
November 1, 1997 to acquire the principal assets and assume certain liabilities
of GPG. As of the date hereof, there does not exist any default under the Asset
Purchase Agreement by either the Borrower or GPG and neither the Borrower nor
GPG have notified either party, either in writing or orally of any intention to
terminate the Asset Purchase Agreement. Furthermore, the terms of the
acquisition of the assets of Gary Player Golf Equipment Co. from GPG are as set
forth on page 5 of the Strategic Plan. In addition, in November of 1996, the
Borrower and GPG entered into a 20 year direct marketing agreement with the GPG
which authorized the Company to sell on an exclusive basis, golf clubs,
accessories and apparel only through direct marketing channels in the United
States and Canada (hereinafter the "GPG License Agreement"). As of the date
hereof, with respect to the GPG License Agreement (i) it is in full force and
effect; (ii) there exists no defaults thereunder and (iii) neither the Borrower
nor GPG have notified either party, either in writing or orally of any intention
to terminate the GPG License Agreement.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LENDER
Lender represents and warrants to, and agrees with, Borrower as follows:
(a) Lender is acquiring the Securities for its own account, for
investment purposes only.
(b) Lender understands that an investment in the Securities involves a
high degree of risk, and Lender has the financial ability to bear the economic
risk of this investment in the Securities, including a complete loss of such
investment. Lender has adequate means for providing for its current financial
needs and has no need for liquidity with respect to this investment.
(c) Lender is an "accredited investor" as that term is defined in Rule
501(a) under Regulation D promulgated pursuant to the Securities Act.
4
<PAGE> 5
(d) Lender has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Securities and in protecting its own interest in connection with this
transaction.
(e) Lender understands that the Securities have not been registered under
the Securities Act or under any state securities laws. Lender is familiar with
the provisions of the Securities Act and Rule 144 thereunder and understands
that the restrictions on Transfer placed on Securities may result in Lender
being required to hold the Securities for an indefinite period of time.
(f) Neither Lender nor any affiliate of Lender is a "member" of the NASD
nor a controlling shareholder of, a "person associated with" or an "associated
person of" a member of the NASD (as such terms are defined in the NASD rules).
Lender agrees to furnish such information regarding its relationship to an
underwriter(s) in the IPO and any NASD member and any other information
regarding Lender required to be furnished to the NASD in connection with the
IPO.
(g) Lender believes that it has received all the information it considers
necessary or appropriate for deciding whether to invest in the Securities, and
Lender has had an opportunity to ask questions and receive answers from Borrower
and its officers and directors regarding the business, prospects and financial
condition of Borrower.
(h) Lender agrees not to Transfer any of the Securities except pursuant to
an effective registration statement under the Securities Act or an exemption
from registration. As a further condition to any such Transfer, except in the
event that such Transfer is made pursuant to an effective registration statement
under the Securities Act, if in the reasonable opinion of counsel to Borrower
any Transfer of the Securities by the contemplated transferee thereof would not
be exempt from the registration and prospectus delivery requirements of the
Securities Act, Borrower may require the contemplated transferee to furnish
Borrower with an investment letter setting forth such information and agreements
as may be reasonable requested by Borrower to ensure compliance by such
transferee with the Securities Act.
Each certificate evidencing the Securities will bear the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER."
(i) Lender agrees not to Transfer any Shares for a twelve month period
commencing with the effective date (the "EFFECTIVE DATE") of the registration
statement filed by Borrower in connection with the IPO except with the prior
written consent of the representative or
5
<PAGE> 6
representatives (the "REPRESENTATIVE") of the underwriters in connection with
the IPO and the written consent of the Company. In addition, Lender may not
transfer any Shares prior to the Effective Date unless the transferee shall
have agreed in writing to the restrictions on Transfer set forth in this
section. Lender agrees to execute such written agreement as may be requested by
the Representative to confirm its agreements under this Section.
(j) Lender, on behalf of itself and its directors, officers, employees,
representatives and agents (the "LENDER PARTIES"), agrees to hold the
Confidential Information in strictest confidence, to not disclose the
Confidential Information to any person, and to not to utilize the Confidential
Information other than in connection with the transactions contemplated by this
Agreement. If any Lender Party becomes legally compelled to disclose any of the
Confidential Information, the Lender Party will provide to Borrower prompt
written notice before such information is disclosed so that Borrower (with
Lender's reasonable cooperation) may seek an appropriate protective order or
other remedy. If a protective order or other remedy is not obtained, the Lender
Party will furnish only that portion of the information which it is legally
compelled to disclose and will exercise its best efforts to assist Borrower in
obtaining assurance that the recipient of such Confidential Information will
maintain the confidentiality of such Information.
"CONFIDENTIAL INFORMATION" means all information concerning or relating to
the business and operation of Borrower and its subsidiaries including without
limitation, information concerning the business, markets, strategies,
intellectual property, assets, liabilities, financial condition and identity of
its shareholders. Notwithstanding the foregoing, nothing in this Agreement
prohibits or in any way restricts any Lender Party from using, disclosing or
otherwise dealing with: (i) information which at the time of its disclosure is
or which thereafter becomes through no fault of any Lender Party, generally
available to the general public by publication or otherwise; (ii) information
which the Lender Party could show was in its possession at the time of
disclosure; or (iii) information on which can be shown to become available on a
non-confidential basis from a source other than Borrower.
(k) Lender, if an individual, is a resident of the state in which his
address on the signature page of this Agreement, or if an entity, has either
its principal office, or the office at which it has received the offer to
purchase the Securities, and has purchased the Securities, in the state in its
address on the signature page of this Agreement.
5. USURY
Lender acknowledges that Borrower has advised Lender that the amount of
interest paid by Borrower to Lender in this Loan would exceed the maximum rate
of interest permitted under the laws of the state of California and is
therefore usurious. The Company hereby waives any right to a defense of payment
of interest on the Note as a result of usury and agrees not to assert such
defense in any action or proceeding to enforce the Note. Lender acknowledges
and understands that the Company makes no representation that under California
law such waiver and
6
<PAGE> 7
agreement are enforceable against the Company. Lender further represents and
warrants that Lender is aware of the legal ramifications of the Note being
determined to be usurious.
6. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, postage prepaid,
addressed to the party at the address set forth on the signature page of this
Agreement. Any Notice, other than a Notice sent by registered or certified mail,
shall be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier of
when received or the fifth day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c) Successors. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective successors, heirs
and personal representatives.
(d) Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement.
(e) Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED IN ALL RESPECTS BY THE LAW OF THE STATE OF NEW JERSEY AND FOR
ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
JERSEY.
Any and all judicial proceedings brought by the Lender against the Borrower
with respect to this Agreement and the Note may be brought in any court of
competent jurisdiction in the State of New Jersey and any Federal district court
having subject matter jurisdiction and being located in the State of New
Jersey. The Borrower hereby accepts, for itself and its properties, the
non-exclusive jurisdiction of the aforesaid courts and agrees to be bound by any
judgments rendered by such courts in connection with this Agreement. The
Borrower will not move to transfer any such proceeding to any different court.
Any such process may be mailed by registered or certified mail to the Borrower
at the address referred to on the signature page hereof. Nothing herein limits
the right of the Lender to bring proceedings against the Borrower in the courts
of any other jurisdiction.
7
<PAGE> 8
(f) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(h) Attorneys' Fees. If any action or proceeding is brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees to be fixed by the court.
(i) Rules of Construction. Borrower, Lender and their respective counsel
have reviewed and revised the Transaction Documents. The normal rule of
construction providing that ambiguities are to be resolved against the drafting
party shall not be employed in interpreting the Transaction Documents.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed this
Agreement as of the day and year first above written.
BORROWER: LENDER:
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes
----------------------------------- ----------------------------------
Alfonso J. Cervantes, President
Address: Address:
2811 Airpark
Santa Maria, CA 93455
8
<PAGE> 9
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
SECURED PROMISSORY NOTE
Santa Maria, California Principal Amount: $____________
May __, 1998
FOR VALUE RECEIVED Golf One Industries, Inc., a Delaware corporation, having an
address of 2811 Airpark Drive, Santa Maria, California 93455 ("BORROWER"),
unconditionally promises to pay to _______________________, or registered
assigns, ("LENDER") ______________________ together with interest thereon at a
rate of 13.5% per annum from the date hereof. This Note is issued pursuant to
that certain Loan Agreement between Lender and Borrower dated the date hereof
(the "LOAN AGREEMENT"), and is part of a group of notes (the "NOTES") in a
aggregate principal amount of up to $2.5 million issued as part of the Senior
Financing (as defined in the Loan Agreement). Unless otherwise defined herein,
capitalized terms used in this Note shall have the meanings ascribed to them in
the Loan Agreement.
1. Payments: Maturity Date. The principal and interest of this Note shall be
payable on the earlier of (a) the third business day after the closing of the
IPO; or, (b) December 31, 1998 (the "MATURITY DATE"). All payments shall be
sent to Lender's address as set forth in the Loan Agreement, or such address as
later specified by lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Security. To secure payment of the Note, Borrower has executed and
delivered a Security Agreement in favor of the Lender.
4. Default. Any of the following occurrences or acts shall constitute an
event of default ("Event of Default") under this Note:
(a) The failure by the Borrower to pay all or any part of the principal
or any accrued and unpaid interest on this Note within five (5) days of when
due; or
(b) Any material default, breach or misrepresentation under the terms and
provisions of the Loan Agreement not cured within twenty (20) days of notice of
such default, breach or misrepresentation; or
<PAGE> 10
(c) Insolvency of, business failure of, or an assignment for the benefit
of creditors by or the filing of a petition under bankruptcy, insolvency or
debtor's relief law, or for any readjustment of indebtedness, composition or
extension by the Borrower, or commenced against the Borrower which is not
discharged within sixty (60) days; or
(d) The receipt by Borrower of notice (either in writing or orally) of
termination or cancellation of the Asset Purchase Agreement between Gary Player
Group, Inc. ("GPG") and Borrower; or
(e) The receipt by Borrower of notice (either in writing or orally) of
termination or cancellation of the Direct Marketing Agreement between the
Borrower and GPG entered into in November 1996; or
(f) Receipt of notice (either in writing or orally) of Whale Securities
Co., L.P.'s intent to terminate its efforts on behalf of the Borrower with
respect to the initial public offering of the Borrower's common stock; unless
the Borrower is able to secure a commitment from an alternative underwriter of
equal of better standing in the financial community within 45 days of notice of
termination by Whale.
5. Remedies upon Event of Default. Upon the occurrence of an Event of Default:
(a) Specified in clause (c) of Section 4, then the Note shall be
automatically accelerated and immediately due and payable;
(b) Specified in clauses (a), (b), (d), (e) or (f) of Section 4, then the
Lender may declare the Note immediately accelerated, due and payable; and
(c) The Lender shall have all of the rights and remedies, at law and in
equity, by statute or otherwise, and no remedy herein conferred upon the Lender
is intended to be exclusive of any other remedy and each remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law, in, equity, by statute or otherwise.
(d) Any action taken by Lender with respect to the Collateral (as that
term is defined in that certain Security Agreement between Borrower and the
"Senior Lenders", including the Lender, dated the date hereof (the "Security
Agreement")) shall be subject to Section 3(b) of such Security Agreement.
6. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
7. Waiver of Presentment, etc. The Borrower hereby waives presentment for
payment, demand, notice of dishonor, and notice of protest of this Note. The
Borrower hereby consents to any extensions of time, renewals, waivers or
modifications that may be granted by the Lender with respect to the payment or
other provisions of this Note.
<PAGE> 11
8. Costs of collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in
the event of a default whether or not a suit is brought. Borrower waives
demand, protest and notice of maturity and non-payment, and all requirements
necessary to hold Borrower liable hereunder.
9. Miscellaneous. THIS NOTE SHALL BE GOVERNED IN ALL RESPECTS BY THE LAW OF
THE STATE OF NEW JERSEY AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW JERSEY.
Any and all judicial proceedings brought by the Lender against the
Borrower with respect to this Note may be brought in any court of competent
jurisdiction in the State of New Jersey and any Federal district court having
subject matter jurisdiction and being located in the State of New Jersey. The
Borrower hereby accepts, for itself and its properties, the non-exclusive
jurisdiction of the aforesaid courts and agrees to be bound by any judgments
rendered by such courts in connection with this Agreement. The Borrower will
not move to transfer any such proceeding to any different court. Any such
process may be mailed by registered or certified mail to the Borrower at the
address referred to in Section 6 of the Loan Agreement. The Borrower agrees
that service by mail will constitute sufficient notice. Nothing herein limits
the right of the Lender to bring proceedings against the Borrower in the courts
of any other jurisdiction.
BORROWER:
Golf One Industries, Inc.
By: /s/ Alfonso J. Cervantes
-------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
EXHIBIT 10.28
Please read this document carefully! After you thoroughly read and understand
the agreement, please initial at the end of the asterisked (*) paragraphs, sign
and return via fax to Novus. Signing this document is your acceptance of the
agreement outlined below!
LIST RENTAL AGREEMENT
The undersigned List User unconditionally warrants that it (or he/she) will
license and use the following list:
[ ] Golf Digest [ ] Gold World [ ] Golf Digest Women [ ] GSO [ ] Avid Golfer
Prospects [ ] Golf Co. Masterfile
*Whether such list is supplied on Cheshire labels, magnetic tape, cartridge or
diskette, for one time telemarketing only; and that List User will not
disclose, transfer, duplicate, reproduce or retain the list in any form, not
permit any agent, contractor or third party to do so, except in the computer
processing activity necessary to obtain the names in a useable form for the
said one time telemarketing from a list supplied on magnetic tape(s),
immediately after which the names shall be completely erased from all storage
devices upon which they reside, including the magnetic tape(s); nor otherwise
impair the exclusive rights of the List Owner in such list. List User agrees
that it shall not impair any copyright or other proprietary rights in the
names, and List User is strictly prohibited from relicense, resale, or
redistribution of the names. /s/ A C (Initial here)
----------------------------------------
*The use of the list shall be limited solely and exclusively to the specific
telemarketing place agreed to by the List Owner. List User agrees not to name
or imply the name of the list to the subscriber in the telemarketing effort.
/s/ A C (Initial here)
- ----------------------------------------
List User agrees to indemnify and hold harmless Novus Marketing and List Owner
from any and all claims, damages, losses, or expenses, however incurred,
resulting from use of said list contrary to the provisions of this warranty by
List User or any of those parties described above. The prevailing party in any
action shall be entitled to recover all incurred costs incidental to
litigation, including attorney's fees; liability shall not be limited to the
amount of the List User's order.
*It is understood and agreed that List Owner's list has been and will be
monitored to prevent improper and unauthorized uses of the list, by
combination of one or more methods of computer control, and/or planted and/or
varied names and addresses, or a combination of these or other methods; to all
of which List User consents and agrees to telemarket.
/s/ A C (Initial here)
- ----------------------------------------
List User agrees that its use of the list shall comply with all federal, state
and local laws, statutes, rules, regulations and ordinances, and all
telemarketing or other marketing programs shall conform to generally recognized
standards of high integrity and good taste.
List User understands that there is no guarantee by Novus List Management or
List Owner as to the accuracy of the names, and they may contain a degree of
error such that the risk of any loss or injury shall be borne by List User. NLM
and the List Owner shall not be liable to any party for any loss of profits, or
consequential, incidental or punitive damages.
Payment terms are cash upon receipt of invoices unless other arrangements are
agreed to by both parties.
ALL OF THE ABOVE TERMS ARE BINDING ON ALL FUTURE LIST RENTALS, UNLESS
AMENDED IN WRITING BY BOTH PARTIES.
List User expressly agrees to be bound by the foregoing:
President
- -------------------------- ---------------------------
List User Title
/s/ Alfonso J. Cervantes, Jr. GARY PLAYER DIRECT
- ----------------------------- ---------------------------
Authorized Signature Company Name
- --------------------------
Date & Order Number
<PAGE> 1
EXHIBIT 10.29
[TRADEWELL LOGO]
December 16, 1998
GARY PLAYER DIRECT
2811 AIRPARK DRIVE
SANTA MARIA, CA 93455
When executed by both you, Gary Player Direct and us, Tradewell Inc., this
letter will constitute our agreement as follows:
1. You hereby sell to us and we hereby purchase from you the products listed
on the attached Exhibit "A" (the "Products") at a purchase price of
$1,298,098 payable by us as specified in paragraphs 4 and 5 below. Title
shall pass from you to us, free and clear of any liens, claims and
encumbrances upon the execution of this agreement.
2. You will ship the Products F.O.B. Santa Maria to such designees as we shall
hereafter advise from time to time within the next thirty (30) days, it
being understood that shipment shall be made within seven (7) days of our
advice. Upon shipment of the Products, you shall promptly provide us with a
copy of all bills of lading and packing lists. You agree to store and
maintain risk of loss insurance for the Products at your expense for our
benefit until they have been delivered to us and/or our designees.
3. You represent and warrant that the Products are demonstration goods in
merchantable condition with a customary shelf-life when shipped and shall
be fully packaged as is customary with only original factory markings
and/or labels. You further warrant that the Products comply with all laws
and regulations applicable to such products and that the sale and/or
distribution of the Products as contemplated hereunder does not require
qualification by us with any regulatory or governmental agency or
otherwise.
<PAGE> 2
4. In full payment for the Products, we hereby establish on our books a trade
credit to your account in the amount of $1,298,098 and you may use such
trade credit as specified in subparagraphs below:
Media
(a) At your direction and upon your written authorization, we shall
place media on your behalf. A percentage of the "net cost" (as
defined below) of all media acquired by us on your behalf shall be
payable by you in cash. The difference between our cost to you and
the net cost of such media shall be charged against your trade
credit. For purposes of this agreement, "net cost" shall mean (i)
for spot TV, cable TV and radio time, mutually agreed upon costs per
point and (ii) for print advertising, the applicable earned rate
card prices, all applied and adjusted at the time the media is
requested.
Goods And Services
(b) You may advise us from time to time of any goods and services you
require and the price at which the same are available to you. We
will then advise you of our cost to you in cash and trade credits to
obtain such goods and services. Upon your acceptance of the costs
and your payment to us, we will obtain the same for you.
Vendor Trading
(c) You may introduce us to certain vendors who will accept trade
credit in partial payment for goods or services. Upon such vendor's
agreement and your receipt of goods or services, we will establish
trade credit to their account (and reduce trade credit from yours),
it being understood that all commercial terms (including the amount
of trade credit accepted) shall be agreed upon between you and such
vendor. You shall pay to us, in cash, 15% of the trade credit
earned by your vendors, it being understood that we will invoice you
at the end of each quarter with net thirty (30) day payment terms.
(For Example: When you and your vendor agree to an 80/20 cash/trade
ratio as applied to a $1.00 purchase and you receive goods or
services, you would pay $.80 in cash to vendor, $.03 in cash to us,
and $.17 in trade credit reduction -- your vendor receives $.80 in
cash and $.20 in a newly established trade credit from us.)
(d) Our obligations to you under this paragraph 4 (which represents our
sole obligation to you in payment for the Products) shall completely
expire 36 months from the date hereof. To the extent that you
provide us with reasonable opportunities to place available and
barter eligible media or to provide goods or services hereunder, we
shall use our reasonable good faith efforts to provide such media,
goods or services to you. However, we make no representation as to
the availability of any media, goods or services.
[TRADEWELL(R) LOGO]
<PAGE> 3
5. We will pay you, in cash, $65.00 for each full set of Products listed on
Schedule I to the annexed Exhibit A and received by us and/or our designees
as provided herein cash payment shall be made within two (2) business days
after receipt and acceptance of such Products. The trade credits
established herein shall be automatically reduced dollar for dollar by the
amount paid to you.
6. Upon receipt of your payment due us for media, goods and services, you will
not be responsible for payment to any station, publication or applicable
vendor and we will indemnify and hold you harmless from any and all claims
for such payment from any station, publication or applicable vendor.
Regarding broadcast, payment to us shall be made not less than thirty (30)
days prior to broadcast airing. As it pertains to print, payment shall be
thirty (30) days prior to the published closing dates. You agree to
indemnify and hold us harmless from and against any claims, losses,
damages, or liabilities (including, without limitation, reasonable
attorney's fees and expenses) arising from any use of, or defect in, the
Products or any infringement of any trademark, copyright or other
intellectual property claimed to be made by any third party.
7. This letter and the attached Exhibit "A" contain our entire agreement with
respect to the subject matter hereof and may not be modified except in
writing by both parties hereto. Except as specifically provided herein,
neither party has made any representations or warranties. Neither this
agreement nor the credit established herein may be transferred or assigned
by you. The Supreme Court of the State of New York, New York County, and
the United States District Court for the Southern District of New York
shall have exclusive jurisdiction over any dispute arising hereunder.
Very truly yours,
GARY PLAYER DIRECT TRADEWELL, INC.
By: /s/ Alfonso J. Cervantes, Jr. By: /s/ illegible
------------------------------- ------------------------
Title: President Title: President
---------------------------- ----------------------
[TRADEWELL(R) LOGO]
<PAGE> 4
EXHIBIT "A"
Date: December , 1998
TRADEWELL INC.
and
GARY PLAYER DIRECT
<TABLE>
Country of Code Date Shelf Trade
Model # Origin Item Expiration Life *Quantity Value Total
- ------- ------ ---- ---------- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SEE ATTACHED SCHEDULE I AND SCHEDULE II
TOTAL TRADE VALUE $1,298,098
==========
</TABLE>
* The purchase price of the Products set forth in paragraph #1 and the amount of
the credit set forth in paragraph #4 will be appropriately adjusted for any
increase or decrease in the quantity of the Product delivered hereunder based
upon the trade values set forth above. Notwithstanding the forgoing, such
purchase price or credit shall not be increased or decreased by more than 10%,
and the Client shall not be relieved of its obligation hereunder to deliver
at least 90% of each item comprising the Products.
SAMPLE: Tradewell may request, at its discretion, a number of samples of each
item. Details and actual quantities of samples to be coordinated between
your company and our merchandise department.
[TRADEWELL(R) LOGO]
<PAGE> 5
SCHEDULE II - SINGLE CLUBS
<TABLE>
<CAPTION>
TRADE
MODEL ITEM *QUANTITY VALUE TOTAL
----- ---- --------- ----- -----
<S> <C> <C> <C> <C>
LADIES Lob Wedge 4 $65.00 $260
SENIOR Lob Wedge 16 $65.00 $1,040
REGULAR Lob Wedge 123 $65.00 $7,995
FIRM Lob Wedge 35 $65.00 $2,275
STIFF Lob Wedge 348 $65.00 $22,620
X-STIFF Lob Wedge 9 $65.00 $585
SUB-TOTAL 535 $34,775
--------- --- -------
LADIES MAGIC 9.0 Titanium Wood 3 $189.00 $567
SENIOR MAGIC 9.0 Titanium Wood 14 $189.00 $2,646
REGULAR MAGIC 9.0 Titanium Wood 102 $189.00 $19,278
STIFF MAGIC 9.0 Titanium Wood 258 $189.00 $48,762
LADIES MAGIC 10.5 Titanium Wood 1 $189.00 $189
SENIOR MAGIC 10.5 Titanium Wood 55 $189.00 $10,395
REGULAR MAGIC 10.5 Titanium Wood 98 $189.00 $18,552
STIFF MAGIC 10.5 Titanium Wood 69 $189.00 $13,041
LADIES MAGIC 3 Titanium Wood 5 $189.00 $945
SENIOR MAGIC 3 Titanium Wood 1 $189.00 $189
STIFF MAGIC 3 Titanium Wood 48 $189.00 $9,072
STIFF MAGIC 5 Titanium Wood 18 $189.00 $3,402
LADIES CUBIC BALANCE 9.0 Titanium Wood 3 $189.00 $567
SENIOR CUBIC BALANCE 9.0 Titanium Wood 57 $189.00 $10,773
REGULAR CUBIC BALANCE 9.0 Titanium Wood 107 $189.00 $20,223
STIFF CUBIC BALANCE 9.0 Titanium Wood 34 $189.00 $6,426
X-STIFF CUBIC BALANCE 9.0 Titanium Wood 1 $189.00 $189
SENIOR CUBIC BALANCE 10.5 Titanium Wood 45 $189.00 $8,505
REGULAR CUBIC BALANCE 10.5 Titanium Wood 25 $189.00 $4,725
STIFF CUBIC BALANCE 10.5 Titanium Wood 12 $189.00 $2,268
X-STIFF CUBIC BALANCE 10.5 Titanium Wood 2 $189.00 $378
SUB-TOTAL 958 $181,062
--------- --- --------
TOTAL 1,493 $215,837
----- ----- --------
</TABLE>
[TRADEWELL(R) LOGO]
<PAGE> 6
SCHEDULE I - COMPLETE BOXED SETS
--------------------------------
<TABLE>
<CAPTION>
Trade
Model Item *Quantity Value Total
----- ---- --------- ----- -----
<S> <C> <C> <C> <C>
LADIES 3-PW (8 Piece Set) 4 $449.00 $ 1,796
SENIOR 3-PW (8 Piece Set) 46 $449.00 $ 20,654
REGULAR 3-PW (8 Piece Set) 645 $449.00 $ 289,605
FIRM 3-PW (8 Piece Set) 23 $449.00 $ 10,327
STIFF 3-PW (8 Piece Set) 475 $449.00 $ 213,275
X-STIFF 3-PW (8 Piece Set) 6 $449.00 $ 2,694
SUB-TOTAL 1,199 $ 538,351
--------- ----- ----------
SENIOR 3-SW (9 Piece Set) 14 $499.00 $ 6,986
REGULAR 3-SW (9 Piece Set) 411 $499.00 $ 205,089
FIRM 3-SW (9 Piece Set) 6 $499.00 $ 2,994
STIFF 3-SW (9 Piece Set) 659 $499.00 $ 328,841
SUB-TOTAL 1,090 $ 543,910
--------- ----- ----------
TOTAL 2,289 $1,082,261
----- ----- ----------
</TABLE>
PLEASE NOTE THAT ALL EIGHT AND NINE PIECE SETS MUST BE BOXED
------------------------------------------------------------
[TRADEWELL(R) LOGO]
<PAGE> 1
EXHIBIT 10.30
[CAUDILL AND ASSOCIATES INC. LOGO]
PRODUCTION CONTRACT
Date: January 25, 1999
Client: Gary Player Direct
Contact: A.J. Cervantes
Business Address: 2011 Air-Park Drive
City/State/Zip: Santa Monica, CA 93455
Phone: (805) 346-1600 Fax: (805) 348-0104
Product or Service: Production
Type of Campaign: Direct Response
Delivery Date: To Be Determined
Briefly Describe Format: Production of a 30 minute infomercial
Videotape: [X] Film: [ ]
Finished Product will be placed where: To be determined
Total Price: $175,000.00 (Less Payment $50,000.00)
Balance: $125,000.00
Terms: First payment of $41,666.67 is due upon receipt.
Second payment of $41,666.67 is due February 25, 1999.
Final payment of $41,666.67 is due upon delivery of master.
Royalties are 1.5% of Gross Sales.
Signed and Agreed on this 25th day of January, 1999
Client:
Gary Player Direct
By: /s/ A. J. Cervantes
-------------------------
A. J. Cervantes
Producer: /s/ Robert S. Caudill
-----------------------
Robert S. Caudill
Caudill & Associates, Inc.
DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
Please note the terms which appear above and on the reverse side of this
contract. These terms are a part of the contract.
1440 S. State College Blvd., Suite 6-G - Anaheim, CA 92806 - (714) 776-9676
FAX (714) 776-9848 - e-mail: [email protected]
<PAGE> 2
CLIENT/AGENCY
LEGAL STATUS OF AGENCY
Caudill & Associates, Inc. has its principal office and place of business at
1440 S. State College Blvd., Suite 6-G, Anaheim, California 92806.
APPOINTMENT AND AUTHORIZATION OF AGENCY
The client agrees to retain and appoint Caudill & Associates, Inc. to represent
him in carrying out his advertising program, subject to the terms and conditions
of this Agreement.
INDEMNIFICATION AND INSURANCE
The client shall indemnify and hold Caudill & Associates, Inc. harmless from and
against any and all claims, liabilities, or damages arising from the
infringement upon any trademarks, copyrights or patents covered by this
Agreement, including the costs of litigation and counsel fees.
ARBITRATION
Any and all disputes between the parties arising out of this contract, or
regarding the goods sold pursuant to the terms hereof, shall be resolved by
binding arbitration before the American Arbitration Association in the County of
Orange, State of California.
SUBMISSION OF BROADCAST MATERIALS BY ADVERTISER
The Client agrees with Caudill & Associates, Inc. that, in order to obtain the
highest possible degree of excellence in the broadcasting of programs and
announcements, following types of statements and practices will not be used:
1. False or unwarranted claims for any product or service.
2. Infringement on another advertiser's rights through plagiarism or unfair
imitation of either program idea or copy, or any other unfair competitive
goods.
3. Disparagement of competitors or competitive goods.
4. Lotteries or "drawing contest" or any other contest in which the public is
unfair or where fair and competent judging is not provided.
5. Presentation of slanderous, obscene, profane, vulgar, repulsive, or
offensive matter, either in theme or in treatment.
6. Ambiguous statements that may be misleading to the audience.
7. Testimonials which cannot be authenticated.
8. Continuity which describes repellently any internal body functions or
symptomatic results of internal disturbances, or reference to matter which
are not considered acceptable topics in social groups.
9. Announcements or programs which are prejudicial to the public interest or
to the interest of operator or to honest advertising and reputable business
in general.
<PAGE> 1
EXHIBIT 10.31
CONSULTING AGREEMENT
This Consulting and Representation Agreement is made effective the 5th day
of November, 1998 by and between GOLF ONE INDUSTRIES, INC. ("Corporation"), and
JAMES A. CAPWILL ("Consultant").
WHEREAS, the Corporation is in need of the special expertise in connection
with general financial matters; and
WHEREAS, Consultant has knowledge concerning such matters and can be
available from time to time to assist the Corporation regarding its general
financial matters; and
WHEREAS, the Corporation desires to have the benefit of Consultant's
knowledge and experience by retaining him as a consultant pursuant to the terms
hereof.
NOW, THEREFORE, the Corporation and Consultant hereby agrees as follows:
1. Consulting Services. Corporation hereby engages Consultant to provide to
Corporation, during the Term (defined below), such consulting services
respecting Corporation's general financial matters as shall be reasonably
requested of him by Corporation. In his capacity as a consultant hereunder,
Consultant shall occasionally consult with and advise Corporation's Officers or
Board of Directors on such matters. Corporation acknowledges that during the
Term hereof while acting as a consultant to Corporation, Consultant may be
engaged in other business or employment activities (including but not limited to
consulting and other activities with other entities which may be competitors of
Corporation or which do business in the same markets) and that his consulting
duties hereunder are not inconsistent with, and shall not unreasonably
interfere with, such other activities. Accordingly, the parties agree that such
consultations with Consultant hereunder shall be arranged in keeping with their
mutual convenience and provided, whenever possible, by written, telephonic or
other telecommunication media at Corporation's expense and shall not exceed ten
(10) hours in any thirty (30) day period. The parties further agree that
Consultant's duties under this Agreement shall be limited to verbal discussions
and Consultant shall not be required to prepare or deliver written reports or
similar items to Corporation.
2. Term. The term of the consulting arrangement described in this Agreement
shall be for one (1) year, commencing on November 6, 1998 and ending on November
5, 1999 (the "Term").
3. Consideration. As consideration hereunder, Corporation agrees to pay to
Consultant the following:
(a) The sum of FIFTEEN THOUSAND ($15,000.00) DOLLARS, payable
immediately upon the execution of this Agreement; and
<PAGE> 2
(b) A warrant to purchase 215,000 shares of the common stock of
Corporation, such warrant to be in the form of Exhibit A hereto and delivered
to Consultant immediately upon the execution of this Agreement.
The parties also agree that Corporation shall promptly reimburse or
directly pay for the reasonable travel and other out-of-pocket expenses
incurred by Consultant during the performance of his consulting activities
hereunder.
4. Independent Contractor. Corporation and Consultant expressly
acknowledge and agree that Consultant's services shall be as an independent
contractor and nothing contained in this Agreement shall be construed as making
Consultant an employee of Corporation.
5. Confidential Information. Consultant agrees that Consultant shall not
directly or indirectly use or divulge to any third party any of Corporation's
confidential information which is not generally known to the public or industry
in which Corporation is engaged.
6. Miscellaneous. This Agreement shall be construed under and in
accordance with the laws of the State of Ohio and shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes and cancels
all prior or contemporaneous understandings, agreements and discussions
between the parties. Accordingly, the parties do hereby fully expect and
anticipate that any court, arbitrator or mediator, in any hearing or proceeding
in which the interpretation or enforcement of this Agreement is sought or
requested, or otherwise at issue, shall apply strictly the so-called "Rule of
Parol Evidence." No modification, amendment or waiver of any provisions of this
Agreement shall in any event be effective unless the same shall be in writing
and duly executed by all of the parties hereto. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not effect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
All terms and words used in this Agreement, regardless of the number and
gender in which they are used shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context or sense of this Agreement may require.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
dates entered below after their respective signatures.
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes, Jr.
-------------------------------- --------------------------------
Title: President JAMES A. CAPWILL
------------------------------
Date: 11-5-98 Date:
------------------------------- --------------------------------
3
<PAGE> 4
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS MAY NOT BE
EXERCISED OFFERED OR SOLD UNLESS, IN EACH CASE, THE WARRANTS AND WARRANT SHARES
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED AND ENCUMBERED EXCEPT PURSUANT TO THE PROVISIONS CONTAINED
HEREIN.
WARRANTS TO PURCHASE COMMON STOCK
Golf One Industries, Inc., a Delaware corporation (the "Company") hereby
grants to James A. Capwill (the "Holder") Two Hundred Fifteen Thousand (215,000)
transferable warrants (the "Warrants") for the purchase of common stock of the
Company (the "Common Stock"), with each whole Warrant entitling the Holder to
purchase one share of Common Stock (each a "Warrant Share" and collectively the
"Warrant Shares") on the terms and subject to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any time
and from time to time from the date hereof until 5:00 Pacific Time on the date
which is three years from the date of the closing of the Company's initial
public offering of Common Stock pursuant to a Registration Statement filed with,
and declared effective by, the Securities and Exchange Commission (the "Exercise
Period").
2. EXERCISE PRICE. The initial exercise price of each whole Warrant shall
be equal to 70% of the Fair Market Value (as defined below) of the Company's
common stock on the date of exercise. "Fair Market Value" means the average
closing sale price for the twenty trading days immediately preceding the
Exercise Date (as defined below) or, if there is no last-sale reporting for the
Common Stock at such time, then the value as determined in good faith by the
Board of Directors of the Company.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms
provided herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. The Holder shall be deemed the record owner of such Warrant Shares as
of and from the close of business on the date on which this certificate is
surrendered together with the completed Notice of Exercise and payment in full
as required above (the "Exercise Date"). The Company agrees that the Warrant
Shares so purchased shall be issued as soon as
<PAGE> 5
practicable thereafter. It shall be a condition to the exercise of the Warrants
that the Holder or any transferee hereof provide an opinion of counsel
reasonably satisfactory to the Company that the Warrants and the Warrant Shares
to be delivered upon exercise thereof have been registered under the Securities
Act or that an exemption from the registration requirements of the Securities
Act is available.
4. FRACTIONAL INTEREST. In lieu of issuing fractional shares of Common
Stock upon exercise of the Warrants, the Company may pay the Holder a cash
amount determined by multiplying the fraction of a share otherwise issuable by
the Fair Market Value of one share of Common Stock.
5. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have
any rights as a stockholder of the Company with regard to the Warrant Shares
prior to the Exercise Date for any actual purchase of Warrant Shares.
6. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrant
Shares issuable upon the exercise of the Warrants have been registered under
the Securities Act or any state securities laws. The Holder acknowledges by
signing this certificate that, as of the date of this Warrant and at the time
of exercise that: (a) the Holder has acquired the Warrant or the Warrant
Shares, as the case may be, for the Holder's own account; (b) the Holder has
acquired the Warrants or the Warrant Shares, as the case may be, for investment
and not with a view to distribution; and (c) either the Holder has a
pre-existing personal or business relationship with the Company or its
executive officers, or by reason of the Holder's business or financial
experience the Holder has the capacity to protect the Holder's own interests in
connection with the transaction. The Holder agrees, by acceptance of this
certificate, that any Warrant Shares purchased upon exercise of the Warrants
may have to be held indefinitely or until an exemption from registration is
available, as evidenced by an opinion of counsel reasonably satisfactory to the
Company. The Holder, by acceptance of this certificate, consents to the
placement of a restrictive legend (the "Legend")on the certificates
representing any Warrant Shares that are purchased upon exercise of the
Warrants during the applicable restricted period under Rule 144 or any other
applicable restricted period under the Securities Act. The Legend shall be in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, UNLESS IN THE
WRITTEN LEGAL OPINION (APPROVED BY THE COMPANY) OF COUNSEL SATISFACTORY
TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
2
<PAGE> 6
7. RESERVATION OF SHARES. The Company agrees that, at all times during
the Exercise Period, the Company will have authorized and reserved, for the
exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
8. ADJUSTMENT FOR CHANGES IN CAPITAL STOCK. If the Company at any time
during the Exercise Period shall, by subdivision, combination or
reclassification of securities, change any of the securities into which the
Warrants are exercisable into the same or a different number of securities of
any class or classes, the Warrants shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares if the Warrant Shares
had been outstanding immediately prior to such subdivision, combination, or
reclassification.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the original certificate if mutilated, the Company will make and deliver a new
certificate of like tenor in lieu of the original certificate.
10. ASSIGNMENT. The Warrants may be transferred subject to the provisions
of Section 6.
11. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
between Delaware residents entered into and to be performed entirely within the
State of Delaware. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged
or terminated only by a written instrument signed by both the Company and the
Holder. All notices and other communications from the Company to the Holder
shall be mailed by first-class registered or certified mail, postage pre-paid,
to the address furnished to the Company in writing by the last Holder who shall
have furnished an address to the Company in writing.
3
<PAGE> 7
NOTICE OF EXERCISE
To: Golf One Industries, Inc. (the "Company")
1. The undersigned hereby elects to exercise a total of ---------
Warrants for the purchase of a like number of Warrant Shares, and tenders
herewith payment of the Exercise Price for such shares in full.
2. In exercising the Warrants, the undersigned hereby confirms and
acknowledges that: (a) the Warrant Shares are being acquired solely for the
account of the undersigned for investment and not with a view to or for sale in
connection with any distribution; (b) the undersigned has a pre-existing
personal or business relationship with the Company or its executive officers, or
by reason of the undersigned's business or financial experience the undersigned
has the capacity to protect the undersigned's own interests in connection with
the exercise of the Warrants; and (c) the undersigned will not offer, sell or
otherwise dispose of any of the Warrant Shares unless the Warrant Shares have
been registered under the Securities Act or an exemption from such registration
is available, as evidenced by an opinion of counsel reasonably satisfactory to
the Company.
3. Please issue a certificate representing the Warrant Shares in the
name of the Holder and deliver the certificate to the address set forth below.
4. Please issue a new certificate representing the unexercised portion
(if any) of the Warrants in the name of the Holder and deliver the certificate
to the address set forth below.
Dated:
----------------- ---------------------------------------
(Name)
---------------------------------------
(Authorized Signature)
Address for Delivery:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
5
<PAGE> 1
Exhibit 10.32
FIRST AMENDMENT TO CONSULTING AGREEMENT
THIS AMENDMENT ("Amendment") is made this day of February, 1999 between
Golf One Industries, Inc., a Delaware corporation (the "Corporation") and James
A. Capwill ("Consultant").
WHEREAS, on or about November 5, 1998 the Corporation and Consultant
entered into a certain Consulting Agreement (the Original Consulting Agreement)
whereby Consultant was hired to perform certain consulting services for the
Corporation; and
WHEREAS, the parties desire to amend the Original Consulting Agreement, as
provided herein.
NOW, THEREFORE, the Corporation and Consultant agree as follows:
1. Consulting Services. In addition to the services provided in the
Original Consulting Agreement, Consultant agrees (i) to provide the Corporation
with at least one personal appearance of at least one half day in length per
calendar quarter, on dates to be mutually arranged at a location mutually
approved; (ii) to make at least one (1) member of Consultant's staff available
at least one (1) hour per week, on mutually arranged dates, for telephone
consultation regarding the Corporation's general financial matters; (iii) to
introduce the Corporation's president from time to time to persons who
Consultant reasonably believes may have an interest in transacting business
with the Corporation; and (iv) to review such financial documents regarding any
material acquisitions or mergers as the Corporation's president may reasonably
request from time to time and provide verbal comment to the Corporation's
president regarding such review.
2. Term. The Original Consulting Agreement, as amended, is hereby
extended through December 31, 1999. At the option of Consultant, the Original
Consulting Agreement, as amended, may be extended by two months for each month
or part thereof beyond December, 1999 that the Corporation is indebted to
Capital Fund Leasing, LLC, or the successor or assigns thereof.
3. Consideration. In addition to the consideration provided under the
Original Consulting Agreement, the Corporation agrees to pay Consultant the sum
of $82,500.00, payable (i) $15,000.00 upon the execution of this Amendment,
(ii) $7,500.00 per month starting on the first day of April, 1999 and
thereafter on the first day of each month through December, 1999, and (iii)
$7,750.00 per month for each month that the Original Consulting Agreement, as
amended, is extended pursuant to Section 2 of this Amendment.
4. Ratification. The Original Consulting Agreement, as amended by this
Amendment, is hereby ratified and affirmed in full and incorporated herein by
reference.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
Golf One Industries, Inc.,
a Delaware corporation
By: Alfonso J. Cervantes
--------------------------- ---------------------------
James A. Capwill
Its: President
-------------------------
<PAGE> 1
EXHIBIT 10.33
UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (this "AGREEMENT") is made and entered into
as of ____________________, 1996, by and between Golf One Industries, Inc., a
Delaware corporation (the "COMPANY"), and the Purchaser identified on the
signature page ("PURCHASER").
1. Purchase and Sale.
(a) On the terms and subject to the conditions of this Agreement,
Purchaser hereby purchases from the Company, the Company hereby sells to the
Purchaser, the number of Units set forth adjacent to the Purchaser's name on
the signature page of this Agreement. Each Unit consists of a promissory note
to the Company ( a "Note") in the principal amount of $25,000 and warrants (the
"Warrants") to purchase 6,500 shares of the Common Stock of the Company (the
"Warrant Shares"). The Units, the Notes the Warrants and the Warrant Shares are
hereby sometime collectively referred to as the "Securities."
(b) The purchase price for each Unit shall be $25,000 which has been
paid in cash, check or by wire transfer to the Company concurrently herewith.
(c) The Note shall be substantially in the form of Exhibit "A" to
this Agreement. The Warrants shall be substantially in the form of Exhibit "B"
to this Agreement.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware;
(b) The Company has the corporate power and authority to perform its
obligations under this Agreement, and to execute and deliver this Agreement and
the Note. The Note constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with the terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditor's right
generally, usury laws (see Section 5 of this Agreement) or the availability of
equitable remedies; and
(c) The execution and delivery of this Agreement does not, and
compliance by the Company with the provisions hereof will not, conflict with or
result in a
<PAGE> 2
breach or default under any note, bond, mortgage, license, agreement or other
instrument or obligation to which the Company is a party or by which it may be
bound.
3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company as follows:
(a) Purchaser is an "accredited investor" within the meaning of
Regulation D of the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "SECURITIES ACT"); as such, (i) if Purchaser is an
individual, Purchaser has either: (A) a net worth, or a joint net worth with
Purchaser's spouse, at the date hereof in excess of $1,000,000; or (B) income in
excess of $200,000 in each of the two most recent years, or joint income with
Purchaser's spouse in excess of $300,000 in each of those years, with a
reasonable expectation of reaching the same income in the current year; (ii) if
Purchaser is a corporation or partnership, either: (A) it was not formed for the
specific purpose of acquiring the Note and has total assets in excess of
$5,000,000; or (B) all of the equity owners of such corporation or partnership
are individuals who meet their requirements in (i) above; or (iii) Purchaser is
either: (A) a broker/dealer registered under Section 15 of the Securities
Exchange Act of 1934; (B) an insurance company as defined under Section 2(13) of
the Securities Act; (C) an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary (as defined in Section 3(21) of such Act) which is
either a bank, savings and loan association, insurance company or registered
investment advisor; or (D) a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees if the plan has total
assets in excess of $5,000,000.
(b) Purchaser understands that the Company is a start-up corporation
with no assets or operations, except that the Purchaser has the right to acquire
all of the outstanding Common Stock of Rhino Marketing, Inc. pursuant to that
certain Stock Agreement with the shareholder of Rhino; Purchaser further
understands that an investment in the Securities involves a high degree of risk,
and Purchaser is able to bear the risk of an entire loss of his or her
investment in the Securities; Purchaser has such knowledge and experience in
financial business matters that he or she is capable of evaluating the merits
and risks of the investment in the Securities and in protecting his or her own
interest in connection with this transaction.
(c) Purchaser understands that the Securities have not been registered
under the Securities Act or under any state securities laws. Purchaser is
familiar with the provisions of the Securities Act and Rule 144 thereunder and
understands that the restrictions on transfer placed upon Purchaser pursuant to
Section 4. of this Agreement may result in Purchaser being required to hold the
Securities for an indefinite period of time.
2
<PAGE> 3
(d) Purchaser is acquiring the Securities for Purchaser's own account,
and not as a nominee or agent for others, and not with a view to resale or
distribution of any part thereof, and Purchaser has no present intention of
selling or distributing the Securities.
(e) Purchaser believes that it has received all the information it
considers necessary or appropriate for deciding whether to purchase the
Securities. Purchaser further represents that it has had an opportunity to ask
questions and receive answers from Company and its officers and directors
regarding the terms and conditions of the offering and the business, prospects
and financial condition of the Company.
(f) Purchaser is a resident of the state set forth in Purchaser's
address on the signature page of this Agreement.
4. Restrictions on Transfer.
Purchaser acknowledges and agrees that the Securities may not be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of except
pursuant to an effective registration statement under the Securities Act or
unless the Company shall have received a written opinion of counsel, in form and
substance satisfactory to the Company and its counsel, to the effect that the
disposition may be effected without registration under the Securities Act. As a
further condition to any such disposition, except in the event that such
disposition is made pursuant to an effective registration statement under the
Securities Act, if in the reasonable opinion of counsel to the Company any
disposition of the Securities by the contemplated transferee thereof would not
be exempt from the registration and prospectus delivery requirements of the
Securities Act, the Company may require the contemplated transferee to furnish
the Company with an investment letter setting forth such information and
agreements as may be reasonably requested the Company to ensure compliance by
such transferee with the Securities Act.
5. Miscellaneous Provisions.
(a) NOTICES. All notices, requests and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service or by United States first class,
registered or certified mail, postage prepaid, addressed to the party at the
address set forth on the signature page of this Agreement. Any Notice, sent
other than by registered or certified mail, shall be effective when received;
if sent by registered or certified mail it shall be effective upon deposit in
the United States mails. Either party may from time to time change its address
for further Notices hereunder by giving notice to the other party in the manner
prescribed in this Section.
3
<PAGE> 4
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective successors, heirs
and personal representatives.
(d) GOVERNING LAW. This Agreement and the legal relationship between
the parties hereto shall be governed by and be construed in accordance with the
internal laws of the State of California without taking into account provisions
regarding choice of law.
(e) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
4
<PAGE> 5
IN WITNESS HEREOF, this Agreement has been made and entered into as of
the date and year first above written.
GOLF ONE INDUSTRIES, INC.
By:
Its:
2811 Airpark Drive
Santa Maria, California 93455
PURCHASER
By
Address:
Number of Units:
5
<PAGE> 6
GOLF ONE INDUSTRIES, INC.
EXHIBIT "A" TO UNIT PURCHASE AGREEMENT
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
ACQUISITION NOTE
Santa Maria, California , 1996
FOR VALUE RECEIVED, GOLF ONE INDUSTRIES, INC., a Delaware corporation (the
"COMPANY"), hereby promises to pay to ______________, or registered assigns (the
"HOLDER"), in lawful money in the United States of America, the sum of
_______________________ (______), together with simple interest on the unpaid
balance payable on the maturity date at the rate of eleven percent (11%) per
annum.
Maturity Date. The earlier to occur of: (i) the closing of the Company's
acquisition of 100% of the stock of Rhino Marketing, Inc., a California
corporation; and (ii) November 8, 1996.
Payments. All payments on this Note shall be made to the Holder at the
address set forth on the Unit Purchase Agreement or such other address within
the United States as the Holder shall from time to time notify the Company in
writing.
Prepayment. This Note may be prepaid at any time without penalty or
premium.
Governing Law. This Note and the legal relations between the Holder and the
Company shall be governed by and construed in accordance with the internal laws
of the State of California without taking into account provisions regarding
choice of law.
GOLF ONE INDUSTRIES, INC.
By:
Its:
<PAGE> 7
GOLF ONE INDUSTRIES, INC.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL PURCHASER OF THE SECURITIES, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
ACQUISITION NOTE
Santa Maria, California , 1996
FOR VALUE RECEIVED, GOLF ONE INDUSTRIES, INC., a Delaware corporation (the
"COMPANY"), hereby promises to pay to ______________, or registered assigns (the
"HOLDER"), in lawful money in the United States of America, the sum of
_______________________ (______), together with simple interest on the unpaid
balance payable on the maturity date at the rate of eleven percent (11%) per
annum.
Maturity Date. The earlier to occur of: (i) the closing of the Company's
acquisition of 100% of the stock of Rhino Marketing, Inc., a California
corporation; and (ii) November 8, 1996.
Payments. All payments on this Note shall be made to the Holder at the
address set forth below or such other address within the United States as the
Holder shall from time to time notify the Company in writing.
Prepayment. This Note may be prepaid at any time without penalty or
premium.
Governing Law. This Note and the legal relations between the Holder and the
Company shall be governed by and construed in accordance with the internal laws
of the State of California without taking into account provisions regarding
choice of law.
GOLF ONE INDUSTRIES, INC.
By:
Its:
2
<PAGE> 8
UNIT OFFERING
TERMS OF THE
OFFERING: 24 Units, each Unit consisting of a promissory note in the
amount of $25,000 and warrants (the "Warrants") to purchase
6,500 shares of the common stock (the "Common Stock") of
Golf One, Inc., a Delaware corporation (the "Company") or
"Golf"
GROSS PROCEEDS: Maximum - $800,000; Minimum - $25,000
PURPOSE OF
OFFERING: The Company has entered into an agreement (the "Rhino
Acquisition Agreement") to acquire one hundred percent
(100%) of the outstanding stock of Rhino. Rhino is a newly
formed Delaware corporation engaged in the recreational golf
industry. A description of Golf, Rhino and its anticipated
operations is set forth in detail in the Company's Business
Plan of November 1, 1995 (the "Plan") provided herewith as
Exhibit "A." The Rhino Acquisition Agreement contemplates
that the Company will raise not less than $2,000,000 through
the sale of equity securities. The Company intends to obtain
such proceeds through a private placement offering of Common
Stock (the "PPO") as promptly as practicable following
completion of this Offering.
USE OF PROCEEDS: The proceeds from the Unit Offering may be used for. (i) an
interim secured loan to Rhino in the amount of $200,000;
(ii) additional financing to Rhino as Golf management deems
necessary; (iii) offering costs anticipated not to exceed
$75,000; (iv) legal, accounting, commitment and investment
banking fees; and (v) other transaction costs and working
capital.
TERMS OF THE
ACQUISITION NOTE:
PRINCIPAL
AMOUNT: $25,000 per Acquisition Note.
INTEREST: 11% per annum, simple interest or the maximum interest rate
permitted by applicable law, payable on the maturity date.
MATURITY: The earlier to occur of: (i) the closing of the PPO; or,
(ii) November 8, 1996.
<PAGE> 9
WARRANTS: The Warrants will be exercisable of any time on or prior to
December 31, 1998 at a per share price equal to the lesser
of $2.00 or 60% of the price at which the Common Stock is
sold in the PPO. The price per share for the Company's
private placement is currently anticipated at $3.33 which
would result in an exercise price of $2.00.
REGISTRATION
RIGHTS: Each purchaser will be entitled to "piggyback" registration
rights with respect to the Common Stock acquired upon
expense of the Warrants (the "Warrant Stock"). The Business
Plan contemplates that the Company will effect an initial
public offering approximately twelve months following the
closing of the PPO. The Company would, subject to approval
of the underwriters and upon the request of a purchaser,
include the Common Stock underlying the Warrant in the
registration statement for the Offering. No assurance can be
given that the Company will complete a public offering.
INVESTOR
QUALIFICATIONS: Units will be sold only to "accredited investors" under
Regulation D of the Securities and Exchange Commission. Each
purchaser will be required to execute the acknowledgment
attached hereto as Exhibit "B."
STATUS OF
SECURITIES: The Acquisition Note and the Warrants will be "restricted
securities" under the Securities Act of 1933, as amended,
and will be subject to certain restrictions on transfer.
ADDITIONAL
CONSIDERATION: Each Unit purchaser will receive a complete set of custom
fitted Rhino irons and woods, and a three volume video set
of Bob Mann's "Automatic Golf."
<PAGE> 10
GOLF ONE, INC.
NEITHER THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
APPLICABLE STATE SECURITIES LAWS BY REASON OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS, AND MAY NOT BE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
Warrants Certificate Number:
GOLF ONE, INC.
CLASS A COMMON STOCK PURCHASE WARRANTS
Golf One, Inc. a Delaware corporation (the "Company"), certifies that for value
received _____________, is the registered holder (the "Holder") of _____________
(________) Class A Common Stock Purchase Warrants of the Company (the
"Warrants"). Each Warrant entitles the Holder to purchase from the Company, at
any time prior to the Expiration Date (as hereinafter defined), one share of the
Common Stock of the Company (subject to adjustment as hereinafter provided) (the
"Conversion Shares") at ________, on the terms and conditions hereinafter
provided. This Warrant is issued pursuant to a Unit Purchase Agreement (the
"Unit Purchase Agreement") between the Company and the original Holder thereof.
1. Exercise
1.1 The "Exercise Price" shall be $2.00 per share provided, however,
that if the Company sells shares of its Common Stock in one or a series of
related transactions in which the aggregate sales price exceeds $1,500,000 at
any time after November 30, 1995 and on or prior to March 31, 1996, and the
average sale price per share (the "Sales Price") is less then $3.33, the
Exercise Price shall be reduced to 60% of the Sales Price.
1.2 Time of Exercise. The Warrants may be exercised in whole or in part
at any time on or before December 31, 1998 (the "Expiration Date"), after which
time the Warrants shall expire and be of no further force or effect.
1.3 Manner of Exercise. The Warrants are exercisable by delivery to the
Company of the following (the "Exercise Documents") (i) this Certificate (ii) a
written notice of election to exercise the Warrants; (iii) a certificate
confirming that the representations and warranties of the original holder of the
Warrants in the Unit Purchase Agreement are true and
<PAGE> 11
correct as of the date of exercise; and (iv) the Purchase Price (and any
applicable transfer taxes),
Within 30 days Mowing receipt of the foregoing, the Company shall
execute and deliver to the Holder a certificate or certificates representing the
aggregate number of Conversion Shares purchased by the Holder. No fractional
shares of Common Stock or scrip shall be issued upon exercise of the Warrants.
If more than one Warrant is exercised at any one time by the Holder, the number
of full shares of Common Stock issuable upon exercise thereof shall be computed
on the basis of the aggregate number of the Warrants so exercised. If the
computation for determining the number of shares of Common Stock issuable upon
exercise of the Warrants shall result in other than a whole number, the Company
shall pay to the Holder an amount equal to the fair value of the fractional
share, such certificate or certificates shall be deemed to have been issued and
the Holder shall be deemed to become a record holder of such Conversion Shares
as of the date of receipt by the Company of all the Exercise Documents. If less
than all of the Warrants evidenced by this Certificate are exercised, the
Company will, upon exercise, execute and deliver to the Holder a new certificate
evidencing the Warrants not so exercised.
1.4 Compliance with Applicable Federal and State Securities Laws.
Notwithstanding any provision of this Certificate to the contrary, the Company
shall not be obligated to issue Conversion Shares upon exercise of the Warrants
if such issuance would be a violation of federal or applicable state securities
laws.
2. Adjustments of Exercise Price and Number and Kind of Conversion Shares
2.1 In the event that the Company shall at any time hereafter (i) pay a
dividend in Common Stock or securities convertible into Common Stock; (ii)
subdivide or split its outstanding Common Stock; (iii) combine its outstanding
Common Stock into a smaller number of shares; or (iv) issue additional shares of
Common Stock without consideration in a transaction substantially similar to or
having an effect of the transactions described in clauses (i), (ii) and (iii)
above, then the number of Conversion Shares to be issued immediately after the
occurrence of any such event shall be adjusted so that the Holder thereafter may
receive the number of shares of Common Stock it would have owned immediately
following such action if it had exercised the Warrants immediately prior to such
action and the Purchase Price shall be adjusted to reflect such proportionate
increases or decreases in the number of Conversion Shares.
2.2 In case of any reclassification of the outstanding shares of Common
Stock the (other than a change covered by Section 2.1 hereof or a change which
solely affects the par value of such shares) or in the case of any merger or
consolidation or merger in which the Company is not the continuing corporation
and which results in any reclassification or capital reorganization of the
outstanding shares), the Holder shall have the right thereafter (until the
Expiration Date) to receive upon the exercise hereof, for the same aggregate
Purchase Price payable hereunder immediately prior to such event, the kind and
amount of shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, by a Holder
of the number of shares of Common Stock obtainable upon the exercise of the
Warrants immediately prior to such event; and if any reclassification also
results in a change in shares covered by Section 2.1, then such adjustment shall
be made pursuant to both this Section 2.2 and Section 2.1. The provisions of
2
<PAGE> 12
this Section 2.2 shall similarly apply to successive reclassifications, capital
reorganizations and mergers or consolidations, sales or other transfers.
3. Transfer. Subject to compliance with applicable securities laws and
the conditions set forth in the Unit Purchase Agreement, the Warrants are
transferable, on the books of the Company maintained for such purpose by Holder
in person, or by duly authorized attorney, upon surrender of this Certificate
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. If less than all of the Warrants
evidenced by this Certificate are transferred, the Company will, upon transfer,
execute and deliver to the Holder a new certificate evidencing the Warrants not
so transferred.
4. Registration Rights.
4.1 If the Company shall determine to register any Common Stock under
the Securities Act of 1933 (the "Securities Act") for sale in connection with a
public offering of Common Stock for cash, the Company will give written notice
thereof to the Holder and will use its best efforts to effect the registration
under the Securities Act of all of the Conversion Shares which Holder may
request in a writing delivered to the Company within 15 days after the notice
given by the Company; provided, however, if the representative of the
underwriters of the offering shall refuse in writing to include in such offering
all of the shares requested by included by the Company and others, the shares to
be included shall be allocated first to the Company and then among the others
based on the respective number of shares of Common Stock held by such persons.
If the Company decides not to, and does not, file a registration statement with
respect to such registration, or thereafter determines to withdraw the same
before the effective date thereof, the Company will promptly so inform the
Holder, and the Company will not be obligated to complete the registration of
the Conversion Shares included therein.
4.2 The Holder agrees not to effect any public sale or distribution of
Conversion Shares (regardless of whether the Conversion Shares are included in
the registration) during the period beginning ten days prior to and ending 180
days (or such shorter period as may be permitted by the representative of the
underwriters) after the effective date of any registration statement filed by
the Company for a public offering of any of its securities (except as part of
such registration). This covenants shall survive the exercise of the Warrants.
4.3 The Holder may not include Conversion Shares in any registration
statement unless the Holder (i) if the offering is being underwriting, agrees
to sell such Conversion Shares on the basis provided in any underwriting
arrangement approved by the Company and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting, and furnishes to
the Company such information as the Company may require from the Holder for
inclusion in the registration statement (and the prospectus included therein).
4.4 If the Holder desires to include in a registration statement
Conversion Shares which have not been issued, the Holder shall exercise such
portion of the Warrants as may be necessary to provide Holder with such
Conversion Shares provided that such exercise may he made contingent upon the
closing of the sale of Conversion Shares pursuant to such registration.
3
<PAGE> 13
4.5 The Company shall bear and pay all expenses incurred in effecting
any registration pursuant to this Section 4, including without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company and expenses of
any audits incidental to or required by any such registration; provided that the
Holder shall bear any legal expenses for its own counsel and underwriting
discounts or broker commissions relating to the sale of its Conversion Shares.
4.6 The Company shall not be obligated to offer to the Holder the right
to include Conversion Shares in a registration statement pursuant to this
Section 4 more than one time; provided, however that it shall be deemed that the
Company has not made such an offer to the Holder if either (i) the Holder has
requested that its Conversion Shares be included in a registration statement and
the representative of the underwriters has not permitted the inclusion of all of
such Shares or (ii) the registration statement related to such Conversion Shares
shall not become effective.
5. Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, such
number of shares of Common Stock as shall from time to time be issuable upon
exercise of the Warrants. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit the exercise of the
Warrants, the Company shall promptly seek such corporate action as may necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. Notice and Addresses. All notices, requests, consents and other
communications required hereunder shall be in writing and by first class mail or
by registered or certified mail, postage prepaid, return receipt requested, and
(other than in connection with the exercise of the Warrants) shall be deemed to
have been duly made when deposited in the mails upon mailing by first class mail
or by registered or certified mail, postage prepaid, return receipt requested:
if addressed to the Holder, at the last address of such Holder on the books of
the Company; and if addressed to the Company at 2811 Airpark Drive Santa Maria,
California 93455 or such other address as the Company may designate in writing.
7. No Rights as Shareholder. The Holder shall have no rights as a
shareholder of the Company with respect to the Conversion Shares until the
receipt by the Company of all of the Exercise Documents. Except as may be
provided by Section 2 of this Certificate, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date the Company receives all of the Exercise Documents.
4
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its duly authorized officer on _____________, 1996.
GOLF ONE, INC.
By:__________________________
Its:_________________________
5
<PAGE> 1
EXHIBIT 10.34
CONSULTING AGREEMENT
This Consulting Agreement is made and entered into as of the 1st day of
April, 1997 by and between Golf One Industries, Inc. (the "COMPANY"), Garvey
Management Group ("CONSULTANT") and Steve Garvey ("GARVEY") with reference to
the following facts:
A. Consultant is owned and operated by Garvey.
B. Upon the terms and subject to the conditions of this Agreement, the
Company desires to employ the consulting services of Garvey through Consultant
to promote the Company and the marketing, sale and distribution of Company's
golf clubs and related products ("PRODUCTS").
NOW, THEREFORE, with reference to the foregoing facts, the Company and
Consultant agree as follows:
1. Consulting Services. From time to time upon request from the
Company, Consultant will make available the services of Garvey (and Garvey
agrees to be available) to promote the Company and its Products.
2. Term. The term of this Agreement will be April 1, 1997 through March
31, 1998; provided, however, that either party may terminate this Agreement
based on a breach or default by the other party, which breach or default is not
cured within 30 days of written notice thereof.
3. Compensation. In consideration of Consultant performing its services
pursuant to this Agreement, Company shall pay to Consultant $2,500 per month,
payable on the 1st day of each month in advance, commencing April 1, 1997.
4. Stock. In consideration in entering into this Agreement, the Company
has offered to Consultant the right to buy 12,000 shares (the "SHARES") of
Common Stock for $.01 per share (or an aggregate purchase price of $120.00).
Consultant accepts such purchase, and concurrently herewith delivers to the
Company a check in the amount of $120.00. In connection with its purchase of the
Shares, Consultant makes the representations, warranties and agreements set
forth on Exhibit "A".
5. Registration Rights. The Company grants to Consultant registration
rights with respect to the Shares as set forth in Exhibit "A" to this Agreement.
6. Agreement Not to Compete. Consultant and Garvey agree not to
represent any other person or entity engaged in the manufacture, marketing, sale
or distribution of golf clubs or related equipment during the term of this
Agreement.
1
<PAGE> 2
7. Miscellaneous.
(a) NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, postage prepaid,
addressed to the party at the address set forth on the signature page of this
Agreement. Any Notice, other than a Notice sent by registered or certified mail,
shall be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier of
when received or the third day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) ASSIGNMENT. Neither Consultant nor Garvey may assign this
Agreement, and any attempted or purported assignment or any delegation of such
party's duties or obligations arising under this Agreement to any third party or
entity shall be deemed to be null and void, and shall constitute a material
breach by such party of its duties and obligations under this Agreement. This
Agreement shall inure to the benefit of and be binding upon any successors of
each party by way of merger, consolidation or transfer of all or substantially
all of the assets of such party, and any parent, subsidiary or affiliate of such
party to which each party may transfer its rights under and pursuant to this
Agreement.
(c) GOVERNING LAW. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws of the
State of California without giving effect to the principles of conflicts of law
thereof.
(d) SPECIFIC PERFORMANCE. Consultant and Garvey acknowledge that (i)
the Company is engaging Garvey as a consultant pursuant to this Agreement
because Garvey and Consultant have represented that they are not presently
representing or promoting any other person or entity engaged in the manufacture,
marketing, sale or distribution of golf clubs or related equipment; and (ii) the
Company would have extreme difficulty in attempting to prove the actual damages
suffered by it as a result of a breach by Consultant or Garvey of any of its or
his obligations under Section 6 of this Agreement, and that therefore, in
addition to any other remedy at law or in equity, the Company shall be entitled
to seek and receive specific performance and temporary, preliminary and
injunctive relief from any violation of the provisions of this Agreement from
any court of competent jurisdiction without the necessity of proving the actual
amount of damages resulting from such breach.
2
<PAGE> 3
IN WITNESS WHEROF, this Agreement has been made and entered into as of
the date and year above written.
Golf One Industries, Inc.
By: /s/ illegible
----------------------
Its: President
Garvey Management Group
By: /s/ Candace Garvey
----------------------
Candace Garvey
/s/ Steve Garvey
----------------------
Steve Garvey
3
<PAGE> 4
EXHIBIT "A"
Representations and Registration Rights.
I. Representations, Warranties and Agreements
(a) It is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
(b) It understands an investment in the Shares involves a high degree of
risk, and it is able to bear the risk of an entire loss of the investment; it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Shares.
(c) It understands that the Shares have not been registered under the
Securities Act or under any state securities laws. It is familiar with the
provisions of the Securities Act and Rule 144 thereunder and understands that
the restrictions on transfer placed on the Shares may result in it being
required to hold the Shares for an indefinite period of time.
(d) It is acquiring the Shares for the its own account and not as a nominee
or agent for others, and not with a view to resale or distribution of any part
thereof, and it has no present intention of selling or distributing the Shares.
(e) It believes that it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Shares, and it has
had an opportunity to ask questions and receive answers from Company and its
officers and directors regarding the business, prospects and financial condition
of the Company.
(f) It agrees not to sell, assign, transfer or other dispose of
(collectively, "TRANSFER") any of the Shares except pursuant to an effective
registration statement under the Securities Act or an exemption from
registration. As a further condition to any such Transfer, except in the event
that such Transfer is made pursuant to an effective registration statement under
the Securities Act, if in the reasonable opinion of counsel to the Company any
Transfer of the Shares by the contemplated transferee thereof would not be
exempt from the registration and prospectus delivery requirements of the
Securities Act, the Company may require the contemplated transferee to furnish
the Company with an investment letter setting forth such information and
agreements as may be reasonably requested by the Company to ensure compliance by
such transferee with the Securities Act.
EXHIBIT "A" - 1
<PAGE> 5
(g) Each certificate evidencing the Shares will bear the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL PURCHASER OF THE SHARES, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER."
II. Registration Rights
(a) If the Company shall determine to register any Common Stock under the
Securities Act for sale in connection with a public offering of Common Stock for
cash, the Company will give written notice thereof to Consultant and will use
its best efforts to effect the registration under the Securities Act of all of
the Shares which Consultant may request in a writing delivered to the Company
within 15 days after the notice given by the Company; provided, however, if the
representative of the underwriters of the offering shall refuse in writing to
include in such offering all of the shares requested by the Company and others,
the shares to be included shall be allocated first to the Company and then among
the others based on the respective number of shares of Common Stock held by such
persons. If the Company decides not to, and does not file a registration
statement with respect to such registration, or thereafter determines to
withdraw the same before the effective date thereof, the Company will promptly
so inform Consultant, and the Company will not be obligated to complete the
registration of the Shares.
(b) Consultant agrees not to effect any public sale or distribution of
Common Stock (regardless of whether any Shares are included in the registration)
during the period beginning ten days prior to and ending 180 days (or such
shorter period as may be permitted by the representatives of the underwriters)
after the effective date of any registration statement filed by the Company for
a public offering of any of its securities (except as part of such
registration).
(c) Consultant may not include Shares in any registration statement unless
(a) if the offering is being underwritten, it agrees to sell such Shares on the
basis provided in any underwriting arrangement approved by the Company and (b)
it completes and executes all questionnaires, powers of attorney, indemnities
and underwriting agreements, and furnishes to the Company such information, as
the Company or the underwriter may require from it for inclusion in the
registration statement (and the prospectus included therein).
(d) The Company agrees to pay all expenses incurred in effecting any
registration pursuant to this Exhibit 5, including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company and expenses of
any audits incidental to or required by any such registration; provided,
however, that Consultant agrees to pay any legal expenses for its own counsel
and underwriting discounts or broker commissions relating to its sale of Shares.
EXHIBIT "A" - 2
<PAGE> 6
(e) The Company shall not be obligated to offer to you the right to include
Shares in a registration statement more than one time; provided, however, that
it shall be deemed that the Company has not made such an offer if either (a)
Consultant has requested that the Shares be included in a registration statement
and the representative of the underwriters has not permitted the inclusion of
all of such Shares or (b) the registration statement related to such Shares
shall not become effective.
EXHIBIT "A" - 3
<PAGE> 1
Exhibit 10.36
[THE STONE PINE COMPANIES LETTERHEAD]
October 22, 1998
Mr. Alfonso J. Cervantes, Jr.
President
Golf One Industries, Inc.
2811 Airpark Drive
Santa Maria, CA 93455
Dear Mr. Cervantes,
We are pleased to set forth in this agreement (the "Agreement") the terms and
conditions of the retention of Stone Pine Investment Banking, LLC ("Stone
Pine") by Golf One Industries, Inc. (collectively with its affiliates,
successors, subsidiaries or assigns, the "Company").
1. Stone Pine will assist the Company, on a non-exclusive best-efforts basis,
in connection with a proposed financing (the "Financing") of up to
$10,000,000, to be used for the repayment of certain debt and payables,
the continued sourcing of Gary Player golf products and general working
capital. We understand that the Company has filed a Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, for a proposed
public offering of Common Stock (the "IPO"), and that it has been
contemplated that the IPO would be a firm commitment underwriting by Whale
Securities Co., LLP ("Whale"). We further understand that the Company
presently contemplates that the Financing would be effected, at least in
part, pursuant to the Registration Statement and that to the extent not
effected pursuant to the Registration Statement, would be effected
pursuant to exemptions from registration under Regulation S or Regulation
D of the Securities and Exchange Commission ("SEC").
2. In connection with Stone Pine's activities on the Company's behalf, the
Company will cooperate with Stone Pine and will furnish Stone Pine with
all information and data concerning the Company and the Financing (the
"Information") which Stone Pine deems appropriate and will provide Stone
Pine with reasonable access to the Company's officers, directors,
employees, independent accountants and legal counsel. The Company
represents and warrants that all Information will be, as of the time of
delivery to potential investors, complete and correct in all material
respects (when made) and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein not misleading in light of the circumstances
under which such statements are made. The Company acknowledges and agrees
that in rendering its services hereunder, Stone Pine will be using and
relying solely on the Information (and information available from public
sources and other sources deemed reliable by Stone Pine) without
independent verification thereof by Stone Pine or independent appraisal by
Stone Pine of any of the Company's assets. Stone Pine does not assume
responsibility for the accuracy or completeness of the Information or any
other information regarding the Company or the Financing provided by the
Company.
<PAGE> 2
3. Stone Pine and the Company will be subject to and comply with any of the
necessary regulatory requirements and other applicable federal and state
securities laws, completion of any other conditions of the Financing and
satisfactory indemnification for all matters arising out of this Financing.
4. In consideration of its services as set forth above, Stone Pine shall be
entitled to receive, and the Company agrees to pay to Stone Pine the
following compensation:
(a) Upon the execution of this Agreement, a retainer fee of $2,500 to
offset initial marketing expenses.
(b) Upon any closing of any Qualified Sales of securities in the
Financing, the Company shall pay or deliver to Stone Pine: (i) a fee
of 2% of the purchase price for such securities, payable by check;
(ii) an additional fee of 7% of the purchase price for such
securities for each purchaser who was introduced to the Company by
Stone Pine; (iii) Warrants to purchase a number of shares of Common
Stock equal to 2% of the number of shares of Common Stock sold at the
Closing (or number of shares of Common Stock into which such
securities can be converted); and (iv) additional Warrants to purchase
10% of the number of shares of Common Stock into which such securities
can be converted) for each purchaser who was introduced to the Company
by Stone Pine. Each Warrant shall have an exercise price of 125% of
the purchase price (or conversion price) of the shares sold, shall be
exercisable commencing one year after issuance and shall expire on the
earlier to occur of five years from issuance or the closing of a
merger or reorganization involving the Company in which the
shareholders of the Company receive cash or non-marketable securities.
For purposes of this Agreement, "Qualified Sales" are sales of
securities to purchasers introduced to the Company by (i) Stone Pine
or (ii) a broker-dealer introduced to the Company by Stone Pine.
5. Upon the closing of at least $5 million of the Financing or a firmly
underwritten public offering prior to December 31, 1998, the Company will:
(i) enter into a financial advisor agreement with Stone Pine, in form and
substance reasonably acceptable to the Company and Stone Pine, which
provides for financial advisory fees of $5,000 per month for a period of
one year; and (ii) issue to Stone Pine 25,000 shares of Common Stock.
6. Upon the closing of sales of securities in the Financing with an aggregate
purchase price of at least $5 million to purchasers introduced by Stone
Pine, upon written request of Stone Pine made no later than 90 days
following the last of such closings, the Company will appoint one Qualified
Designee of Stone Pine to the Company's Board of Directors, to hold office
until the next succeeding annual meeting of shareholders and his or her
successor has been duly elected and qualified. A Qualified Designee shall
mean a person reasonably acceptable to Golf One who would not be subject to
any disclosure under Item 401(d) of Regulation S-B of the Securities and
Exchange Commission.
7. As a condition to any closing of the sale of securities in the Financing,
the Company must be party to an Employment Agreement with Alphonso J.
Cervantes in substantially the same form as the Employment Agreement dated
May 31, 1998, a copy of which was filed as an Exhibit to the Registration
Statement.
8. The Company agrees to reimburse Stone Pine, on a monthly basis, for all
pre-approved travel and other reasonable out-of-pocket expenses incurred in
connection with this engagement.
-2-
<PAGE> 3
9. Immediately prior to the closings of the Financing, the Company will use its
best efforts to furnish Stone Pine with agreements to the effect that for
six months (6) after the initial closing of a Financing, each Covered Person
will refrain from making any public or private sale or distribution of their
common stock or any warrants, options, or convertible securities of the
company without the prior written consent of Stone Pine. A "Covered Person"
shall be a person who as of the initial closing of the Financing is an
officer or director of the Company or the holder of 5% of more of the
outstanding Common Stock of the Company. In addition, the Company will use
its best efforts to obtain similar agreements from all other shareholders of
the Company. It is understood that Stone Pine may determine not to proceed
with any closing if the foregoing agreements shall not have been received
from the holders of at least 90% of the outstanding Common Stock of the
Company.
10. The Company agrees that Stone Pine will have the right to approve the
initial use of proceeds, from the Financing. Use in accordance with the "Use
of Proceeds" in an Offering Memorandum shall be deemed approved by Stone
Pine.
11. Until the Closing of the Financing or until the termination of this
Agreement, whichever occurs first, the Company will notify Stone Pine
promptly of the occurrence of any event which might materially affect the
Financing or the status of the Company.
12. The Company agrees to the indemnification and other agreements set forth in
the Indemnification Agreement attached hereto, the provisions of which are
incorporated herein by reference and shall survive the termination,
expiration or suppression of this Agreement.
13. This agreement may be terminated at any time by Stone Pine or the Company.
If Stone Pine terminates this Agreement prior to November 30, 1998, it shall
not be entitled to any compensation. If Stone Pine terminates this Agreement
after November 30, 1998, it shall not be entitled to any compensation other
than: (i) the retainer fee contemplated by Section 4(a) of this Agreement
and (ii) the compensation contemplated by Section 4(b) with respect to any
Qualified Sales of securities prior to the date of termination. If the
Company terminates this Agreement, Stone Pine shall be entitled to: (i)
retain any retainer fee paid pursuant to Section 4(a) of the Agreement; (ii)
the compensation contemplated by Section 4(b) with respect to any Qualified
Sales of securities prior to the date of termination; and (iii) the
consulting agreement if an aggregate of $5,000,000 shall have been raised in
the Financing or pursuant to a firm commitment underwriting completed prior
to December 31, 1998.
14. The validity and interpretation of this Agreement shall be governed by the
laws of the State of Colorado. This agreement and all controversies arising
from or relating to performance under this agreement shall be governed by
and construed in accordance with the laws of the State of Colorado, without
giving effect to such state's rules concerning conflicts of laws. The
Company and Stone Pine hereby irrevocably consent to personal jurisdiction
and venue in any court of the State of Colorado or any Federal Court sitting
in Colorado for the purpose of any suit, action or other proceeding arising
out of this agreement or any of the agreements or transactions contemplated
hereby, which is brought by or against the Company or Stone Pine, and hereby
agrees that all claims in respect of any such suit, action or proceeding may
be heard and determined in any such court. The Company and Stone Pine each
hereby irrevocably consent to the service process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Company or Stone Pine at its addresses set forth above, such service to
-3-
<PAGE> 4
become effective ten (10) days after such mailing. ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT OR
CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY WAIVED.
15. The benefits of this Agreement shall inure to the respective successors and
assigns of the parties hereto and the indemnified parties hereunder and
their successors and assigns and representatives, and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be binding
upon their respective successors and assigns.
16. Stone Pine represents that it is an "accredited investor" within the meaning
of Regulation D of the Securities and Exchange Commission. Stone Pine agrees
that as a condition to its receipt of any securities pursuant to this
Agreement, it will sign a representation letter making customary
representations and warranties with respect to securities acquired in a
transaction not registered under the Securities Act of 1933, as amended.
Stone Pine's and the Company's acceptance of the general terms and conditions
set forth in this Agreement does not constitute an agreement by either party to
consummate the transactions described herein, except as to the commitment by the
Company to pay the expenses and termination fees specifically referred to in
this Agreement.
Please confirm that the foregoing is in accordance with our understanding by
signing and returning to Stone Pine the enclosed duplicate of this Agreement.
Very truly yours,
STONE PINE INVESTMENT BANKING, LLC
By: /s/ Paul Bagley
------------------------------
Paul Bagley
Managing Director
AGREED TO AND ACCEPTED BY:
Golf One Industries, Inc. hereby accepts the terms and provisions of, and
agrees to be bound by the terms and provisions of the foregoing letter, as of
this 27 day of October, 1998.
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes, Jr.
------------------------------
Alfonso J. Cervantes, Jr.
President
-4-
<PAGE> 5
GOLF ONE INDUSTRIES, INC.
2811 AIRPARK DRIVE
SANTA MARIA, CA 93455
October 22, 1998
Stone Pine Investment Banking, LLC
31 South Street, 2nd Floor
Morristown, NJ 07960
SUBJECT: INDEMNITY AGREEMENT
Gentlemen:
In connection with the engagement of Stone Pine Investment Banking, LLC ("Stone
Pine") to advise and assist us with the matters set forth in the Agreement dated
the date hereof between us and Stone Pine, we hereby agree to indemnify and hold
harmless Stone Pine, its affiliated companies, and each of Stone Pine's and such
affiliated companies' respective officers, directors, agents, employees and
controlling persons (within the meaning of each of Section 20 of the Securities
Exchange Act of 1934 and Section 15 of the Securities Act of 1933) (each of the
foregoing, including Stone Pine, being hereinafter referred to as an
"Indemnified Person") to the fullest extent permitted by law from and against
any and all losses, claims, damages, expenses (including reasonable fees and
disbursements of counsel), actions (including shareholder derivative actions),
proceedings or investigations (whether formal or informal), or threats thereof
(all of the foregoing being hereinafter referred to as "Liabilities"), based
upon, relating to or arising out of such engagement or any Indemnified Person's
role therein; provided, however, that we shall not be liable under this
paragraph: (a) for any amount paid in settlement of claims without our consent,
which consent shall not be unreasonably withheld, or (b) to the extent that it
is finally judicially determined that such Liabilities resulted primarily from
the willful misconduct, bad faith or gross negligence of the Indemnified Person
seeking Indemnification. In connection with our obligation to indemnify for
expenses as set forth above, we further agree to reimburse each Indemnified
Person for all such expenses (including reasonable fees and disbursements of
counsel) as they are incurred by such Indemnified Person; provided, however,
that if an Indemnified Person is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Liabilities in question resulted primarily from
the willful misconduct, bad faith or gross negligence of such Indemnified
Person.
Promptly after Stone Pine receives notice of the commencement of any action or
other proceeding in respect of which indemnification or reimbursement may be
sought hereunder, Stone Pine will notify us thereof; but the omission to so
notify us shall not relieve us from any obligation hereunder unless, and only
to the extent that, such omission prejudiced us. If any such action or other
proceeding shall be brought against any Indemnified Person, we shall, upon
written notice given reasonably promptly following your notice to us of such
action or proceeding, be entitled to assume the defense thereof at our expense
with counsel chosen by us and reasonably satisfactory to the Indemnified
Person; provided, however, that any Indemnified Person may at its own expense
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, such Indemnified Person shall have the right to employ separate
counsel at our expense and to control its own defense of such
-1-
<PAGE> 6
action or proceeding in the reasonable opinion of counsel to such Indemnified
Person, a conflict or potential conflict exists between us and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall we be required to pay fees and expenses under
this indemnity for more than one firm of attorneys in any jurisdiction in any
one legal action or group of related legal actions.
If the indemnification or reimbursement provided for hereunder is finally
judicially determined by a court of competent jurisdiction to be unavailable to
an Indemnified Person in respect of any Liabilities (other than as a
consequence of a final judicial determination of willful misconduct, bad faith
or gross negligence of such Indemnified Person), then we agree, in lieu of
indemnifying such Indemnified Person, to contribute to the amount paid or
payable by such Indemnified Person as a result of such Liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received, or
sought to be received, by us on the one hand and by such Indemnified Person on
the other from the transactions in connection with which Stone Pine has been
engaged or (ii) if (but only if) the allocation provided in clause (i) of this
sentence is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in such
clause (i) but also the relative fault of us and of such Indemnified Person;
provided, however, that in no event shall the aggregate amount contributed by
the Indemnified Persons exceed the amount of fees actually received Stone Pine
pursuant to such engagement. The relative benefits received or sought to be
received by us on the one hand and by Stone Paine on the other shall be deemed
to be in the same proportion as (a) the total value of the transactions with
respect to which Stone Pine has been engaged bears to (b) the fees paid or
payable to Stone Pine with respect to such engagement.
The rights accorded to Indemnified Persons hereunder shall be in addition to
any rights that any Indemnified Person may have at common law, by separate
agreement or otherwise.
This agreement shall be governed by and construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
entirely in such state. This agreement may not be amended or otherwise modified
except by an instrument signed by both Stone Pine and us. If any provision
hereof shall be determined to be invalid or unenforceable in any respect, such
remainder of the agreement without such determination shall remain in full
force and effect.
The foregoing indemnification agreement shall remain in effect for a period of
ten (10) years subsequent to the termination of Stone Pine's engagement.
Very truly yours,
GOLF ONE INDUSTRIES, INC.
By: /s/ Alfonso J. Cervantes, Jr.
------------------------------------
Alfonso J. Cervantes, Jr.
President
ACKNOWLEDGED AND AGREED TO:
STONE PINE INVESTMENT BANKING, LLC
By: /s/ Paul Bagley
------------------------------------
Paul Bagley
Managing Director
-2-
<PAGE> 1
[GARY PLAYER LETTERHEAD]
Exhibit 10.37
March 25, 1999
Mr. Jeffrey R. Leach
Stone Pine Investment Banking, LLC
410 Seventeenth Street, Suite 400
Denver, Colorado 80202
Dear Mr. Leach:
Pursuant to our agreement, the following sets forth the modification of the
Agreement dated October 22, 1998 between Stone Pine Investment Banking, LLC
("Stone Pine") and Gold One Industries, Inc. ("Gold One"):
1. Stone Pine will be issued 100,000 shares of Common Stock of Golf One after
giving effect to Golf One's 1:2 reverse split as additional consideration
pursuant to Stone Pine's investment banking activities with respect to the
merger of Golf One and Grafix Corporation d/b/a Carrera Golf and the attendant
$1 million private placement financing; and
2. Stone Pine will receive an additional success fee of $50,000 on conclusion
of the $1.0 million and $5.0 million financings.
If this is consistent with our understanding, please sign where indicated below.
Sincerely,
/s/ A.J. Cervantes
--------------------------------------
A.J. Cervantes
President
AGREED AND ACCEPTED
/s/ Jeffrey R. Leach
- -----------------------------------
Jeffrey R. Leach, Managing Director
<PAGE> 1
Exhibit 10.38
PAYPRO RESOURCES, INC.
CLIENT SERVICE AGREEMENT
This SERVICE AGREEMENT (this Agreement) is made effective on the 2 DAY OF APRIL
1999 by and between PAYPRO RESOURCES, INC. (PRI), acting by and through its
duly authorized officer, and GARY PLAYER DIRECT, a California Corporation
acting by and through its duly authorized representative.
WITNESSETH:
WHEREAS, PRI will provide to Company the employees (the Employees) shown on the
Payroll Check Register to work at Company's place of business and perform
services for Company and Company desires to obtain from PRI the Employees to
further the business of Company, subject to the terms and conditions of this
Agreement; and
TERM OF AGREEMENT. The term of this Agreement shall be for a period of 2 years,
commencing on 4-20, 1999 and continuing for one calendar year (the Initial
Term). Either party may terminate this Agreement, with or without cause, and
without payment of any penalty or premium charge, by giving to the other party
written notice thirty (30) days prior to the end of the Initial Term or any
extension thereof. If no written notice is given, then this Agreement will
automatically continue in full force and effect for one year periods at the
same rates and terms specified herein, unless the parties hereto agree in
writing to different rates and terms.
2. WORKERS' COMPENSATION INSURANCE
a) PRI shall furnish and keep in effect at all times during the term of
this Agreement a policy of workers' compensation insurance covering all of the
Employees provided to Company who have completed all new hire employment
documents. Company shall be responsible for providing the correct job
classifications to PRI and any audit adjustment due to incorrect classification
shall be reflected in the Service Fee referenced in paragraph 5. Company agrees
to post workplace notices required under State law in connection with PRI's
workers' compensation status. Company agrees to notify PRI of any injury to an
Employee within twenty-four (24) hours after Company's discovery of said injury.
b) Company shall deposit with PRI an amount equal to percent (0)% of
the projected workers' compensation insurance premium cost.
<PAGE> 2
3. SAFETY
a) Company agrees that it will, at its own expense, comply with all
applicable health and safety laws, regulation, ordinances, directives, and rules
governing any workplace owned or leased or under management by Company where
Employees work.
b) Company agrees to comply promptly with all written recommendations from
PRI or any agent of PRI or any governmental agency having jurisdiction over the
workplace concerning any health or safety hazard. If PRI issues a safety
recommendation or directive with which Company does not desire to comply, either
PRI or Company may terminate this Agreement on the later to occur of; (i) five
(5) working days after delivery of written notice, or (ii) the end of the next
pay period. In any such event, neither party shall have any further duties or
obligations hereunder, except to the extent of Company's duty to pay PRI fees
due PRI through the date of termination, and PRI's duties to pay existing
claims, and to perform its obligations through the date of termination of this
Agreement.
c) Company shall implement the Safety Plan as set forth in the Employee's
Handbook or other acceptable safety plan. Company shall provide and ensure use
of all personal protective equipment, as required by federal, state or local
law, regulation, ordinance, directive, or rule.
d) PRI shall have the right (but not the obligation) to make periodic
safety surveys wherever the Employees are working, at PRI's sole cost. To the
extent possible, such surveys shall be scheduled at times convenient to both PRI
and Company.
e) Company shall abide by the Drug and Alcohol Policy as set forth in the
Employee's Handbook or other drug and alcohol policy accepted in writing by PRI.
4. PERSONNEL AND PAYROLL ADMINISTRATION
a) Company agrees to designate a supervisor (the Supervisor) from the
Employees assigned to fill Job Function Positions for Company. The Supervisor
shall direct operational and administrative matters relating to services
provided to the Employees under this Agreement. The Supervisor shall determine
procedures to be followed by the Employees regarding time and performance of
their work duties.
b) PRI and Company each represents and confirms to the other and generally
that PRI shall have certain duties and obligations with respect to the Employees
as follows:
Page 2
<PAGE> 3
(i) The right to hire, fire, discipline, evaluate, and direct the
work and conduct of the Employees (by and through the designated
Supervisor);
(ii) The responsibility for maintaining and paying premiums related
to employee benefit plans and complying with applicable employee
benefits regulations, COBRA, minimum two year maintenance of
employment and payroll records, and handling of all unemployment
claims, protests and appeal hearings;
(iii) The responsibility for payment of wages and the making of
payments for income tax, social security tax, medicare tax and
unemployment tax to the proper governmental agency or authority
required under State or Federal laws to be made by PRI, and comply
with all Federal, State, and local tax regulations, and promptly
account for same to Company;
(iv) The right of direction and control over safety policies related
to the Employees and the management of any occupational injury claims,
filing or any related procedures;
(v) The responsibility to provide written guidelines as further
described in the Employee's Handbook, a separate attachment hereto, to
facilitate compliance by all parties with the following: Title VII of
the Civil Rights Act of 1964 as amended (Title VII), the Age
Discrimination in Employment Act as amended (ADEA), the Americans with
Disabilities ACT (ADA), Family and Medical Leave Act of 1993, the Fair
Labor Standards Act (FLSA), and EEOC Regulations. Company agrees to
comply with all applicable Federal, State and Local laws and
regulations including, but not limited to the above listed Acts.
Company acknowledges that it shall be responsible for any costs
related to implementation, adherence to and violations of any
applicable laws or regulations.
c) PRI agrees to reimburse Company for direct out-of-pocket expenses,
including any penalties, damages and/or attorney's fees of Company which may
result from PRI's failure to withhold and pay taxes. However, PRI shall not be
liable in any event for Company's loss of profits, business goodwill, or any
other consequential, special, or incidental damages.
5. SERVICES FEES
a) Company shall pay PRI service fees due and payable 48 hours before
paychecks are delivered by PRI to Employees, as set forth below:
Page 3
<PAGE> 4
One time Set-up Fee of $7,500 DUE ON JUNE 1, 1999 PURSUANT TO ADDENDUM.
Administrative Rate of 3.0% OF GROSS PAYROLL, per week. ($100.00
payroll minimum)
Workers' Compensation Fees equal to the percentages of gross wages for
the job classifications shown:
CODES RATES
8810 Clerical 0.55%
8742 Outside Sales 0.65%
3574 Golf Club Mfg. 3.00%
California Unemployment Tax Fee equal to 3.5% of gross wages.
Risk Management Fee 1.0%
California Employee Training Tax and Federal Unemployment, Social Security and
Medicare Taxes at current Federal rates in effect.
Service fees to include the payment and filing of all social security taxes,
Medicare taxes, federal and state unemployment taxes, workers' compensation
premiums and down payments, direct deposit or delivery of paychecks, employee
handbooks and new hire documents, risk management services, claims and employee
benefit administration including a 401(K) plan.
b) If Company believes that any invoice or other communication between
the parties is in error, Company shall use diligence to notify PRI immediately
of such error.
c) Within twenty-four (24) hours after receipt of the invoice, Company
shall deliver to PRI or deposit in PRI's designated bank account payment in full
for such invoice via: (i) bank cashiers or certified check, or (ii) such other
method designated in writing by PRI. Should payment of any sums owed PRI under
this Agreement not be made when due, Company shall pay a late charge of five
percent (5%) on the unpaid balance, but in no event shall the amount of such
service charge exceed the lawful rate of interest which may be charged on such
debt. Checks written on accounts with insufficient funds will be charged all
fees incurred by PRI.
6. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company warrants and represents
to PRI, that:
a) All wages and compensation owed by Company to the Employees have
been paid by Company and any governmental ordered wage settlements will be paid
by Company.
Page 4
<PAGE> 5
b) No separate agreement or arrangement exists with respect to any
Employee that would obligate PRI to any person or entity, except as set forth
in this Agreement.
c) All of Company's pension and profit sharing and employee welfare
benefit plans in existence, if any, are funded and reported current, and are in
compliance with applicable law, and this Agreement shall not be deemed a breach
under the terms of any of those plans.
d) Company will be responsible for paying all costs including wages,
taxes, insurance premiums and accident claims associated with Company's usage
of workers as independent contractors or contract laborers and Company will
file the proper state and federal notices related to same.
7. INDEMNIFICATIONS
a) Upon a showing by Company that Company has complied with the
requirements of Paragraphs 2 and 3. PRI shall indemnify, defend and hold
harmless Company from all suits, actions, demands, damages, losses, or claims
brought or made for or on account of an on-the-job injury suffered by an
Employee.
b) Notwithstanding any other provision of this Agreement, Company agrees
to indemnify, defend and hold harmless PRI, its agents, employees and
representatives, from and against any and all liability, expense and claims for
damages which PRI may incur or become liable for as a result of the acts,
errors or omissions of (i) Company, or (ii) Employees, except as provided by
Paragraph 7(a), even if Employees are deemed negligent in whole or in part.
8. LIABILITY INSURANCE AND FIDELITY BOND
Company shall maintain a general liability insurance policy covering Company's
premises and business operations and automobile liability insurance covering
owned, hired and non-owned automobiles during the term of this Agreement in the
amount of at least $1,000,000 per occurrence. Company shall instruct its
insurer to name PRI as an additional insured and provide PRI with 30 days'
written notice of cancellation.
9. BUSINESS AND SALES TAX
It is agreed by PRI and Company that PRI is not providing any taxable services
to Company and that PRI shall not be responsible for paying any sales or
business tax on employees or services provided to Company.
Page 5
<PAGE> 6
10. CONFIDENTIALITY
During the term of this Agreement, Company will allow PRI (or its designated
representative) to review Company's payroll files or records related to the
Employees, and PRI shall allow Company the same privilege. Neither party shall
disclose to any third party any of the aforesaid business information, either
directly or indirectly, during the term of this Agreement, or at any time
thereafter, except as required during the course and within the limited scope of
this Agreement, or as required by a duly issued subpoena or other legal process;
any such unauthorized disclosure, actual or threatened, shall give rise to all
of the remedies available therefore provided herein.
11. DEFAULT
a) Each of the following, without limitation, shall constitute a breach of
this Agreement by Company or PRI: (1) failure of either party to pay any sums
due within (2) two days after delivery of notice of default; (2) failure of
either party to comply with any other covenant or agreement as set forth
herein, after delivery of written notice and the expiration of (2) two days
opportunity to cure, or, if the same is curable, but not within such time, the
expiration of such time as is reasonable to cure the same through diligent
continuous effort, including, without limitation, the failure to comply with
any recommendation regarding health and safety made by PRI under this Agreement;
or (3) failure to maintain or supply proofs of insurance required under this
Agreement or to timely provide copies thereof; (4) failure to notify either
party of any occurrence known by either party involving an Employee that could
give rise to a claim by the Employee of discrimination, violation of law, or
occupational injury.
b) Upon a default hereunder, the non-defaulting party shall, in addition to
the rights and remedies set forth herein, be entitled to recover its attorney's
fees, and may pursue all rights and remedies available at law or in equity.
12. MISCELLANEOUS
a) This Agreement constitutes the entire agreement between the parties with
regard to this subject matter, and no other agreement, statement, promise or
practice between the parties relating to the subject matter shall be binding on
the parties.
b) THIS AGREEMENT MAY BE CHANGED ONLY BY WRITTEN AMENDMENT SIGNED BY BOTH
PARTIES.
c) Failure or delay by either party to demand performance by the other
party, or to claim a breach of any provision of this Agreement, will not be
construed as waiver of any subsequent breach nor otherwise affect this
Agreement, or any part hereof, or prejudice either party in any subsequent
action.
Page 6
<PAGE> 7
d) Any notice or demand to be given hereunder by either party to the other
shall be effected by personal delivery in writing or by registered or certified
mail, postage prepaid, return receipt requested, and shall be deemed
communicated forty-eight (48) hours after so mailing. Mailed notices shall be
addressed to the party's principal place of business, or as set forth in this
Agreement, but each party may change its address by written notice in accordance
with this paragraph.
e) If any provision of this Agreement, or the application thereof to
any person or circumstance, shall be invalid or unenforceable to any extent,
such provision shall be deleted or modified to the minimum extent necessary to
make its application valid and enforceable, and the remainder of this
Agreement, and the application of such provision to other persons or
circumstances, shall not be affected thereby, and shall be enforced to the
greatest extent permitted by law.
f) No consent or waiver, express or implied, by any party hereto, of or
to any breach or default of or by any other party in performance of his or its
obligation hereunder, shall be deemed to be a consent to, or a waiver of, any
subsequent or other breach or default of such party of the same or any other
obligation of such party hereunder. Failure by one party to complain of any act
or failure of another party to act, or failure to declare the other party in
default, irrespective of how long such failure continues, shall not constitute
waiver by such party of any rights hereunder.
g) The paragraph headings of this Agreement are for references only, and
shall not be considered in interpretation of this Agreement.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this AGREEMENT has been executed this 20th day of April,
1999.
PAYPRO RESOURCES, INC. GARY PLAYER DIRECT
By: /s/ Michael Harvey By: /s/ Alfonso J. Cervantes, Jr.
--------------------- ----------------------------
Address: Address:
2400 East Katella, Suite 1030 2811 Airpark Drive
Anaheim, California 92806 Santa Maria, CA 93455
Federal Tax I.D.: ----------------
Page 7
<PAGE> 8
- -------------------------------------------------------------------------------
BROKER RECORD AUTHORIZATION
TO WHOM IT MAY CONCERN:
This confirms that as of , we have appointed PATRICK MCRAE
INSURANCE SERVICES (OB53998), as our exclusive insurance broker with respect to
our entire insurance program. The appointment of PATRICK MCRAE INSURANCE
SERVICES (OB53998) rescinds all previous appointments and the authority
contained herein shall remain in force until canceled in writing.
PATRICK MCRAE INSURANCE SERVICES (OB53998) is hereby authorized to negotiate
directly with any interested company as respects changes in existing insurance
policies and in closing, changing, increasing or canceling insurance carried
under temporary binders or cover notes. We understand, however, that they will
not share responsibility for any deficiencies in the insurance program to which
this letter applies until they have had a reasonable opportunity to make a
review and we have accepted their recommendations.
This letter also constitutes your authority to furnish the representatives of
PATRICK MCRAE INSURANCE SERVICES (OB53998) with all information they may
request as it pertains to our insurance policies, rates, rating schedules,
surveys, reserves, retentions and all other financial data they may wish to
obtain for their study of our present and future requirements in connection
with the insurance program to which this letter applies. WE REQUEST THAT YOU
WAIVE THE USUAL AND CUSTOMARY WAITING PERIOD IN ORDER TO FACILITATE THE TIMELY
SERVICING OF OUR CURRENT INSURANCE POLICIES.
Very truly yours,
/s/ Alfonso J. Cervantes, Jr. PRESIDENT
- ----------------------------- ---------------------------------
4-20-99
- ---------------------------
DATE
POLICIES TO WHICH THIS AUTHORIZATION APPLIES
Re: GARY PLAYER DIRECT
INSURANCE COMPANY POLICY NUMBER POLICY TERM
- ----------------------- ---------------- -----------------
- ----------------------- ---------------- -----------------
- ----------------------- ---------------- -----------------
Page 8
<PAGE> 9
BROKER OF RECORD
DATE: _____________________________________
CARRIER: _____________________________________
POLICY #: _____________________________________
Our firm has retained the services of Michael P. Harvey of PAYPRO RESOURCES,
INC., California State License #0B01293, a licensed insurance agency, to assist
us in our benefit planning. We hereby appoint Michael P. Harvey as consultant
and Agent of Record for our firm. This letter replaces and rescinds any
previous broker/agent appointments.
We understand that their compensation will come from the insurance carrier in
the form of commissions.
We ask your cooperation in dealing with Michael P. Harvey as our Insurance
Agent. Please provide him with timely information he will need to advise us
with regard to our insurance needs.
Sincerely,
/s/ Alfonso J. Cervantes, Jr.
President
Client
Page 9
<PAGE> 10
ADDENDUM
PROMISSORY NOTE
AND SECURITY AGREEMENT
Amount: $79,269.46 April 20, 1999
FOR VALUE RECEIVED, this Note and Security Agreement ("Note") is executed
by the undersigned, Gary Player Direct, a Delaware corporation ("Maker"). Maker
promises to pay to the order of B. Franklin Insurance Services, Inc., a
California corporation, d/b/a/ PayPro Resources ("Lender"), the principal sum
of Seventy Nine Thousand, Two Hundred and Sixty Nine Dollars and Forty Six
Cents ($79,269.46) (the "Amount Advanced") on the terms set forth hereinbelow.
1. Interest: Finance Charge. The promissory note (the "Note")
shall bear simple interest at the rate of ten percent (10%)
per annum from the inception of the payroll problems. The
Note principal now includes this charge.
2. Term. Maker shall pay Lender the sum of $79,269.46 on or
before June 1, 1999.
3. Security Interest. Maker assigns to Lender, as security, all
of Maker's existing and future right, title and interest in
the property listed in Section 4.1 of this Note. The
security interest is granted to Maker to secure: (a) the
payment of the indebtedness evidenced by the Note, including
all renewals, extensions, and modification thereto; (b) the
payment, performance and observance of all warranties,
obligations, covenants and agreements to be paid, performed
or observed by this Note; and (c) the payment of all other
sums, with interest thereon, advanced or otherwise due or
payable under the terms of this Note. Subject to
modification as set forth.
3.1 Property. The property subject to the security
interest (the "Collateral"), to be evidenced by
the filing of a financing statement pursuant to
the Uniform Commercial Code (See Exhibit "A") with
the California Secretary of State, is as follows:
3.1.1 Equipment. All equipment of Maker.
3.1.2 Accounts Receivable. All account
receivable accounts, chattel paper,
contract rights, commissions,
warehouse receipts, bills of lading,
delivery orders, drafts, acceptances,
notes, securities, and other
instruments, documents, all other
forms of receivables, and all
guaranties and securities of Maker.
3.1.3 Inventory and Other Tangible Personal
Property. All inventory of Maker,
including all goods, merchandise,
materials, raw materials, work in
progress, finished goods, now owned
or hereafter acquired and held for
sale or lease or furnished or to be
furnished under contracts or service
agreements or to be used or consumed
in Maker's business and all other
tangible personal property of Maker.
3.1.4 General Intangibles. All general
intangibles now owned by Maker or
hereafter acquired by Maker.
3.1.5 After-Acquired Property. All property
of the types described in Sections
4.1.1-4.1.4, or similar thereto,
that at any time hereafter may be
acquired by Maker, including but not
limited to all accessions, parts,
additions, and replacements.
<PAGE> 11
4. Representations and Warranties of Maker.
4.1 No Senior Security Interest. Maker represents and warrants that
as of the date hereof, there are currently no security interests
against the Collateral, either evidenced by a UCC-1 filing with
the California Secretary of State, or in any agreement, whether
verbal or written, granting a third party a security interest in
the Collateral. Notwithstanding the above, it is understood that
this loan is subordinated to an anticipated $1,000,000 senior
secured loan.
5. Representations and Warranties of Lender.
5.1 Release of Security Interest. Upon receipt of all outstanding
principal and accrued interest on the Note, Lender agrees to
terminate its security interest by executing a UCC-3 termination
statement and filing same with the California Secretary of State.
6. Designated Places of Payment. Payments are due and payable by the close of
business prior to the close of business each Friday during the term of the
Note at the Company's headquarters located at 2400 East Katella Ave., Suite
1030, Anaheim, CA 92806.
7. Waivers. Except as set forth elsewhere herein, Maker, for itself and its
legal representatives, successors, and assigns, expressly waives
presentment, protest, demand, notice of dishonor, notice of nonpayment,
notice of maturity, notice of protest, notice of intent to accelerate,
notice of acceleration, presentment for the purpose of accelerating
maturity, and diligence in collection.
8. Default. Maker shall be deemed in default if any of the following events
occur: (a) Maker fails to make any payments hereunder when due and fails to
make such payment within twenty (20) days of such due date; (b) the entry of
a decree or order by a court having appropriate jurisdiction adjudging Maker
a bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization or liquidation of Maker under the Federal Bankruptcy Act or
any other applicable federal or state law, or appointing a receiver,
liquidator, assignee or trustee over any substantial portion of Maker's
property, or ordering the winding up or liquidation of Maker's affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) consecutive days; (c) the institution by Maker of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Act or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee or trustee of Maker; (d)
default in the obligation of Maker for borrowed money, other than this Note,
or any event that results in acceleration of the maturity of any
indebtedness of Maker under any note, indenture, contract, or agreement; (e)
Maker fails to comply with any material term, obligation, covenant, or
condition contained herein, within twenty (20) days after receipt of written
notice from Lender demanding such compliance; (f) any representation or
statement made or furnished to Lender by Maker or on Maker's behalf is false
or misleading in any material respect; (g) any levy, seizure, attachment,
lien, or encumbrance of or on Maker's property, other than those existing as
of the date hereof, which is not discharged by Maker within twenty (20)
days; and (h) any sale, transfer, or disposition of a material amount of
Maker's property, other than in the ordinary course of business, without the
written consent of the Lender.
8.1 Cure. Maker shall be provided a cure period of twenty (20) days
from the date of an event of default, as defined in Section 6
hereinabove. In the event Maker fails to cure any default within
<PAGE> 12
such time period, including the payment of all costs and expenses
provided for in this Note, Lender may immediately enforce any and
all rights provided to it under the Note.
9. Late Payment Fees. It would be impracticable to fix the amount of
Lender's extra expense involved in handling a delinquent payment if any
payment is not made when due. Accordingly, Maker agrees to pay to
Lender a late payment charge equal to five percent (5%) of the amount
due on any payment required under this Note which is received by Lender
more than four business (4) days after the due date. Maker agrees that
this charge is a reasonable estimate of extra expenses the Lender will
incur, and is not a penalty.
10. Acceleration: Attorneys' Fees. At the option of Lender, and without
demand or notice, all principal and any unpaid interest shall become
immediately due and payable upon an event of default as set forth in
Section 8 hereinabove. Any reasonable attorneys' fees and bankruptcy
filing relating to the Maker, or any of the other events described in
Section 8 hereinabove, shall be deemed additional indebtedness of the
Maker and added to the principal amount of the Note, irrespective of
whether Lender files suit against Maker.
11. Section Headings. Headings and numbers have been set forth for
convenience only. Unless the contrary is compelled by the context, the
language set forth in each paragraph applies equally to the entire
Note.
12. Amendments in Writing. This Note may only be changed, modified or
amended in writing signed by the Parties.
13. Choice of Law. The Note and all transactions hereunder and evidenced
hereby shall be governed by, construed under, and enforced in
accordance with the laws of the State of California.
14. Waiver of Trial by Jury. For separate and legal consideration received,
Maker hereby waives, to the extent permitted under applicable law, any
right to trial by jury in any action or proceeding relating to the
Note.
Made and Executed at Santa Maria, CA
GARY PLAYER DIRECT
By: /s/ Alfonso J. Cervantes, Jr.
---------------------------------
President
---------------------------------
PERSONALLY GUARANTEED
By: /s/ Alfonso J. Cervantes, Jr.
---------------------------------
<PAGE> 1
Exhibit 10.39
CONSULTING AGREEMENT
THIS AGREEMENT is made as of the 1st day of November, 1997 by and between Golf
One Industries, Inc, a Delaware corporation, ("Golf One"), and Norman A. Kunin
whose address is 154 Abbey Road, Santa Maria, California 93455 ("Consultant").
WHEREAS, Consultant has expertise and experience in the administration of
corporate records and development of new business opportunities; and
WHEREAS, Golf One seeks to retain Consultant to administer certain corporate
records, advise Golf One regarding proper record keeping, filings and compliance
with state and federal regulations, review certain corporate contracts and
documents and to develop corporate and member association business contacts for
Golf One during the Term, as defined below, and for the compensation set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, Golf One and Consultant agree as follows:
1. Term.
(A) The Term of this Agreement shall be for the twelve month
period commencing February 1, 1998 and ending January 31, 1999. Neither party
may terminate this Agreement without the written consent of the other party.
2. Nature and Scope of Services.
(A) During the Term of this Agreement, Consultant will provide
Golf One services with respect to administration and maintenance of certain
corporate records, advise Golf One regarding proper and timely corporate filings
as required under state and federal law, review certain corporate contracts and
documents and to develop group business opportunities for Golf One during the
Term.
Consultant shall have the status of independent contractor. In the fulfillment
of Consultant's responsibilities hereunder, Consultant shall devote such time
and attention to, and use Consultant's best efforts to, manage certain corporate
records and advance the business and welfare of Golf One as Consultant shall
deem reasonably necessary.
(B) It is understood and agreed that the services to be
rendered by Consultant hereunder are nonexclusive.
1
<PAGE> 2
3. Compensation.
(A) In consideration of the services to be rendered by
Consultant hereunder, Golf One hereby agrees to pay Consultant compensation as
follows:
(i) Golf One shall pay Sixty Thousand Dollars
($60,000.00) in twenty four (24) equal payments of Two Thousand Five Hundred
Dollars ($2,500.00) each on the fifteenth (15th) and thirtieth (30th) of each
month of the Term commencing on February 15, 1998 and ending on January 30,
1999; and
(ii) Golf One shall pay Twelve Thousand Dollars
($12,000.00) at the closing of Golf One's Initial Public Offering ("IPO"). Such
payment shall be applied against the total $60,000 compensation less any
payments made pursuant to 3.(A)(i) above, with the balance payable in equal
payments on the fifteenth (15th) and thirtieth (30th) of the month from the
closing date of the IPO to the end of the Term.
(B) Because Consultant is an independent contractor,
Consultant shall be responsible for all of his own federal and state income tax
withholding and any other reporting and payment requirements under any federal
or state regulations, other than any requirements of Golf One to file any forms
related to compensation paid to independent contractors.
4. Expenses.
(A) Automobile expenses: During the Term, Golf One shall
provide Consultant, for Consultant's use, a late model luxury automobile and
shall pay the attendant costs related thereto, including but not limited to,
insurance, repairs, lease payments and other related expenses, including
gasoline. Should such an automobile not be provided during any portion of the
Term of this Agreement, Golf One agrees to reimburse Consultant $1,000.00 per
month plus expenses to support operation of his personal vehicle.
(B) Medical and Health Insurance: Golf One shall provide for
Consultant, under COBRA regulations during the entire Term of this Agreement, at
Golf One's expense, medical, accident and health insurance equivalent to, and at
a cost not to exceed that provided and paid for executive officers of Golf One.
In addition, Golf One shall reimburse to Consultant medical expenses of
Consultant not reimbursed by medical insurance, payable monthly in a timely
manner.
(C) Home Office Allowance: Golf One shall pay to Consultant
Two Hundred Fifty Dollars ($250.00) payable on the first day of each month
during the Term for Consultant's maintaining a home office in order to provide
services to Golf One pursuant to this Agreement.
(D) Reimbursable Business Expenses: Golf One shall reimburse
Consultant for all reasonable pre-approved entertaining, promotional and other
expenses incurred by Consultant while performing Consultant's duties hereunder
during the Term of this Agreement, within fifteen (15) days of submission by
Consultant to Golf One of appropriate vouchers or other evidences of such
expenses.
5. Other Conditions.
(A) Mountaingate Country Club Membership: In consideration for
Consultant transferring $7,000.00 of his investment in the membership of
Mountaingate Country Club, which was utilized for the benefit of Golf One, Golf
One shall accept and be responsible for all
2
<PAGE> 3
present and future obligations of such membership including assignment and/or
transfer of such interest to Golf One or its representative.
(B) Accrued Salaries: Golf One acknowledges accrued salaries
due from Golf One and it's wholly owned subsidiary Rhino Marketing, Inc. through
January 31, 1998 to Consultant during his tenure as a corporate executive
officer, and agrees to pay fifty percent (50%) of such accrued salaries from the
proceeds of it's anticipated $1 million bridge loan financing. Golf One further
agrees to pay the balance of the accrued salaries at the closing of Golf One's
IPO.
(C) The Indemnification Agreement identified as Exhibit B to
Consultant's prior Employment Agreement with Golf One dated February 27, 1996
shall continue through the Term of this Agreement.
6. General Provisions.
(A) Modification and Waiver of Breach: No waiver or
modification of this Agreement shall be binding unless it is in writing signed
by the parties hereto. No waiver of a breach hereof shall be deemed to
constitute a waiver of a future breach, whether of a similar or dissimilar
nature.
(B) Notices: All notices and other communications required or
permitted under this Agreement shall be in writing and duly addressed to whom
such notice or communication is to be given, in the case of:
Consultant: Norman A. Kunin
154 Abbey Road
Santa Maria, California 93455
Golf One: The Board of Directors of
Golf One Industries, Inc
2811 Airpark Drive
Santa Maria, California 93455
(C) Construction of Agreement/Disputes: This agreement shall
be construed in accordance with, and governed by the laws of the State of
California. All disputes hereunder shall be resolved through binding,
non-appealable arbitration, in Santa Barbara County, California, according to
the then prevailing rules of the American Arbitration Association.
(D) Complete Agreement: This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all previous oral and written and
all contemporaneous oral negotiations, commitments, writings and understandings.
(E) Attorney's Fees: Should any litigation be commenced
between the parties hereto concerning this Agreement or the rights and
obligations of Golf One in relation thereto, the party prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum as and for the attorneys' fees in any such
litigation.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
GOLF ONE INDUSTRIES, INC. CONSULTANT
By: /s/ A.J. Cervantes By /s/ Norman A. Kunin
---------------------------------- ------------------------
Norman A. Kunin
Its: President
---------------------------------
4
<PAGE> 1
Exhibit 10.40
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (the "Modification") is made as of the 20th day of
September, 1998 by and between Golf One Industries, Inc., a Delaware
corporation, ("Golf One"), and Norman A. Kunin ("Consultant"), (collectively the
"Parties").
WHEREAS, the Parties have entered into a Consulting Agreement dated as of
November 1, 1997 (the "Agreement") attached as Exhibit A and made an integral
part hereof; and
WHEREAS, the Parties have agreed to modify the Agreement so that the entire
Agreement remains effective including the changes pursuant to this
Modification.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, Golf One and Consultant agree to the following modifications:
1. The term of the Agreement shall extend to one (1) year from the closing
date of the Company's Initial Public Offering, or if an Initial Public
Offering shall not close by December 31, 1998, then to December 31,
1999.
2. In consideration of the services rendered and to be rendered by
Consultant under the Agreement and this Modification, Golf One hereby
agrees to pay Consultant compensation as follows: (A) Golf One shall
pay Six Thousand Dollars ($6,000.00) per month commencing with the
Month of September, 1998 in payments of $3,000.00 each on the 1st and
15th of each month for the remainder of the extended term.
3. The Indemnification Agreement identified as Exhibit B to Consultant's
prior Employment Agreement with Golf One dated February 27, 1996 shall
continue through the extended term of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Modification as of the
day and year first above written.
GOLF ONE INDUSTRIES, INC. CONSULTANT
By: /s/ A.J. Cervantes /s/ Norman A. Kunin
--------------------------- --------------------------
Norman A. Kunin
Its: President
--------------------------
<PAGE> 1
Exhibit 10.41
EXTENSION AND MODIFICATION AGREEMENT
THIS EXTENSION AND MODIFICATION AGREEMENT (the "Extension and Modification") is
made as of the 22nd day of February, 1999 by and between Golf One Industries,
Inc., a Delaware corporation, ("Golf One"), and Norman A. Kunin whose address is
154 Abbey Road, Santa Maria, California 93455 ("Consultant"), (collectively the
"Parties").
WHEREAS, the Parties have entered into a Consulting Agreement dated as of
November 1, 1997 (the "Agreement") attached as Exhibit A and made an integral
part hereof; and
WHEREAS, the Parties have entered into a Modification Agreement dated as of
September 20, 1998 (the "First Modification") attached as Exhibit B and made an
integral part hereof; and
WHEREAS, the Parties have agreed to extend and modify the Agreement and First
Modification so that the entire Agreement and First Modification remain
effective including the changes pursuant to this Extension and Modification;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, Golf One and Consultant agree as follows:
1. The Term of the Agreement shall extend from July 31, 1999 until January
31, 2000.
2. In consideration of the services rendered and to be rendered by
Consultant under the Agreement, the First Modification and this Extension and
Modification, Golf One hereby agrees to further compensate Consultant in
addition to compensation pursuant to the Agreement and First Modification as
follows:
(A) Golf One shall issue as a bonus to Consultant upon the execution of
this Extension and Modification Forty Thousand (40,000) shares of common stock
of Golf One.
3. The Indemnification Agreement identified as Exhibit B to
Consultant's prior Employment Agreement with Golf One dated February 27, 1996
shall continue through the extended term of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Extension and
Modification as of the day and year first above written.
GOLF ONE INDUSTRIES, INC. CONSULTANT
By: /s/ A.J. Cervantes /s/ Norman A. Kunin
--------------------------- --------------------------
Norman A. Kunin
Its: President
--------------------------
<PAGE> 1
Exhibit 10.42
SECOND EXTENSION AND MODIFICATION AGREEMENT
THIS SECOND EXTENSION AND MODIFICATION AGREEMENT (the "Second Extension and
Modification") is made as of the 6th day of July, 1999 by and between Gary
Player Direct, Inc., a Delaware corporation, ("GPD,Inc."), and Norman A. Kunin
whose address is 154 Abbey Road, Santa Maria, California 93455 ("Consultant"),
(collectively the "Parties").
WHEREAS, the Parties (with Golf One Industries, Inc.("Golf One") as predecessor
to GPD, Inc.) have entered into a Consulting Agreement dated as of November 1,
1997 (the "Agreement") attached as Exhibit A and made an integral part hereof;
and
WHEREAS, the Parties (with Golf One as predecessor to GPD, Inc.) have entered
into a Modification Agreement dated as of September 20, 1998 (the "First
Modification") attached as Exhibit B and made an integral part hereof; and
WHEREAS, the Parties (with Golf One as predecessor to GPD, Inc.) have entered
into an Extension and Modification Agreement dated as of the 22nd day of
February, 1999 (the "Extension and Modification") attached as Exhibit C and made
an integral part hereof; and
WHEREAS, the Parties have agreed to extend and modify the Agreement, the First
Modification and the Extension and Modification so that the entire Agreement,
the First Modification and the Extension and Modification remain effective
including the changes pursuant to this Second Extension and Modification;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, GPD, Inc. and Consultant agree as follows:
1. The Term of the Agreement shall extend to the latter of (i) the date upon
which all of Consultant's common stock in GPD, Inc., or any successor thereof,
becomes "unrestricted" and "free trading" as defined in the Securities Act of
1933, or (ii) the date upon which the shares described in (i) above are released
from further restriction, if any, in connection with any "lock up" provisions of
any GPD, Inc. public stock offering.
2. In consideration of the services rendered and to be rendered by Consultant
under the Agreement, the First Modification, the Extension and Modification and
this Second Extension and Modification, GPD, Inc. hereby agrees to further
compensate Consultant in addition to compensation pursuant to the Agreement,
First Modification and Extension and Modification as follows:
(A) GPD, Inc. shall issue as a bonus to Consultant upon the execution
of this Second Extension and Modification Twenty Five Thousand (25,000) shares
of common stock of GPD, Inc.
<PAGE> 2
3. The Indemnification Agreement identified as Exhibit B to Consultant's prior
Employment Agreement with Golf One dated February 27, 1996 shall continue
through the extended term of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Second Extension and
Modification as of the day and year first above written.
GARY PLAYER DIRECT, INC. CONSULTANT
By: /s/ A.J. Cervantes /s/ Norman A. Kunin
--------------------------- --------------------------
Alfonso J. Cervantes, Jr. Norman A. Kunin
Its: President
--------------------------
<PAGE> 1
Exhibit 10.43
PROMISSORY NOTE
Santa Maria, California Principal Amount: $25,000
March 14, 1999
FOR VALUE RECEIVED Golf One Industries, Inc., a Delaware corporation, having an
address of 2811 Airpark Drive, Santa Maria, California 93455 ("BORROWER"),
unconditionally promises to pay to Michael Freilich, a California resident, or
registered assigns, ("LENDER") Twenty Five Thousand Dollars ($25,000) together
with interest thereon at a rate of 15% per annum from the date hereof. This
Note is issued pursuant to an investment in a $25,000 unit purchase.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable 120 days from the date of execution (the "MATURITY DATE"). All payments
shall be sent to Lender's address as set forth in the Loan Agreement, or such
address as later specified by Lender or any successor in writing to Borrower.
2. Shares. The Lender shall receive Five Thousand (5,000) shares of Common
Stock of Borrower.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
BORROWER:
Golf One Industries, Inc.
By: /s/ A.J. CERVANTES
-----------------------------
A.J. Cervantes, President
<PAGE> 1
Exhibit 11.1
EARNINGS PER SHARE CALCULATION
Basic Earnings per Share ("EPS") is computed by dividing net income available
to common stockholders by the weighted average number of common stock shares
outstanding during the year. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted-average number of common stock
shares outstanding during the year plus potential dilutive instruments such as
stock options and warrants. The effect of stock options on diluted EPS is
determined through the application of the treasury stock method, whereby
proceeds received by the Company based on assumed exercises are hypothetically
used to repurchase the Company's common stock at the average market price during
the period.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis since the assumed exercise of common
stock equivalents would have an anti-dilutive effect due to the existence
of operating losses.
<PAGE> 1
Exhibit 21.1
At March 31, 1999, Gary Player Direct, Inc. had the following wholly-owned
subsidiaries as a result of the March 29, 1999 Merger:
1. Rhino Marketing, Inc.
2. Gran Prix Marketing, Inc.
3. G.P. Direct, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 249,545
<SECURITIES> 0
<RECEIVABLES> 2,001
<ALLOWANCES> 0
<INVENTORY> 355,226
<CURRENT-ASSETS> 836,813
<PP&E> 241,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,886,460
<CURRENT-LIABILITIES> 16,573,629
<BONDS> 650,000
0
0
<COMMON> 5,795
<OTHER-SE> (15,342,964)
<TOTAL-LIABILITY-AND-EQUITY> 1,886,460
<SALES> 5,262,558
<TOTAL-REVENUES> 13,006,761
<CGS> 2,960,620
<TOTAL-COSTS> 13,198,553
<OTHER-EXPENSES> 6,290,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,383,257
<INCOME-PRETAX> (17,186,902)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,186,902)
<EPS-BASIC> (7.94)
<EPS-DILUTED> (7.94)
</TABLE>
