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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 September 30, 1998
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.
formerly, GRAFIX CORPORATION
(Name of Small Business Issuer in Its Charter)
91-1999113
DELAWARE (FORMERLY, 93-0943925)
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
710 AEROVISTA, SUITE B, SAN LUIS OBISPO, CALIFORNIA
(formerly, 8250 S. AKRON STREET, SUITE 203, ENGLEWOOD, COLORADO 80112)
(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]
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 ended September 30, 1998
were $1,805,056.00.
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 $353,718.75 as of September 30,
1998. The aggregate market value was based upon the mean between the September
30, 1998 closing bid and asked price for the common stock as quoted by the NASD
Electronic Bulletin Board.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 1998, was 338,256 shares of common stock (giving
effect to the Company's one-for-three split in July, 1998 (effective August
1998) and one-for-twenty split on or about May 3, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PART I
Item 1. Description of Business 1
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants on Accounting 12
and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 12
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial Owners and Management 14
Item 12. Certain Relationships and Related Transactions 15
Item 13. Exhibits and Reports on Form 8K 15
FINANCIAL STATEMENTS
Independent Auditor's Report F-1
Balance Sheet at September 30, 1998 F-2
Statement of Operations for the Years Ended September 30, 1998 and 1997 F-3
Statement of Changes in Stockholders' Equity for the Years Ended September 30, 1998 and 1997 F-4
Statement of Cash Flows for the Years Ended September 30, 1998 and 1997 F-5 to F-6
Notes to Financial Statements F-7 to F-16
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTORY STATEMENT
This report was prepared and filed in October 1999 with respect to the
fiscal year ended September 30, 1998, and accordingly this report addresses and
reflects not only matters relevant to the reporting period -- i.e. the fiscal
year ended September 30, 1998 -- but also certain events and matters during the
period October 1, 1998 through and including the date of this report (the
"Subsequent Period") which management believes are material and/or useful to the
reader's understanding of this report. The events of the Subsequent Period that
are addressed herein are included because this report and reports of the Company
(as defined below) for the quarters ended December 31, 1998, March 31, 1999, and
June 30, 1999 had 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 legal counsel and new auditors both in
October 1999. 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.
Also during the Subsequent Period, on March 29, 1999 the Company
completed a merger (the "1999 Merger") with Golf One Industries, Inc. ("Golf
One"). Pursuant to the terms of the Agreement of Merger, a copy of which was
filed with the Commission as an exhibit to a Current Report on Form 8-K dated
March 29, 1999 which is incorporated herein by reference, Golf One was merged
into the Company. As part of the merger with Golf One, the Company effected a
name change to "Gary Player Direct, Inc." In connection with the 1999 Merger,
the Company issued 3,642,990 shares of its common stock to Golf One's
shareholders and lenders and effectuated a 1:20 reverse stock split of its
issued and outstanding common stock. As a result of the 1999 Merger, Golf One's
shareholders and lenders acquired 80% of the Company. A copy of the Certificate
of Merger filed with the Delaware Secretary of State was filed with the
Commission as an exhibit to the aforementioned 8-K report. 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 acquired from The Gary Player Group, Inc. ("GPG"). As a
result of a lack of financing affecting the Carrera Golf branded products during
the fiscal year end September 30, 1998 and the twelve month period subsequent to
the 1999 Merger and a deterioration in relations between the Company and
Citizen's Trading Group of Japan, ("Citizen") the Company has recognized very
little revenue from the sale of Carrera Golf branded products. The Company is
currently reviewing its relationship with Citizen and its licensing arrangement
with Carrera Optyl GmbH, a subsidiary or Safilo SpG ("Safilo").
The 1999 Merger was accounted for as a purchase of the Company by Golf
One in a "reverse acquisition" because the existing stockholders of the Company
did not have voting control of the combined entity after the 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 past reverse acquisition financial statements of the Company will consist of
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.
As a result of the name change, the Company's Nasdaq trading symbol was
also changed, from "CRRA" to "GPLY" to more accurately reflect the Company's
name following the merger. 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 OTC 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 to have been filed
with the Commission with a Form 8-K-A report have not been filed as of
the date of this report and it is the Company's intention to file such financial
statements with the Commission as soon as practicable as part of a report on
Form 10-KSB for the twelve months ended March 31, 1999.
In addition, other material developments during the Subsequent Period
included the following:
1. The Company's financial statements filed herewith for the year ended
September 30, 1998 reflect discontinued operations of the primary
business activities at September 30, 1998. The Company shows
liabilities in excess of realizable value of assets of $4,287,603 at
September 30, 1998. Subsequent to September 30, 1998, the Company's
management sought to obtain additional financing and or merger
candidates to improve its liquidity and financial viability.
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2. Golf One Industries is in the business of manufacturing and selling
golf equipment under the license names Gary Player and Black Knight.
The Company had sustained substantial losses from operations through
the date of the 1999 Merger. The merged entity resulting from the
1999 Merger, Gary Player Direct, Inc., has continued to sustain
substantial operating losses through September 30, 1999 and through
the date of this report.
3. Subsequent to March 29, 1999, the Company has entered into several
financing agreements, including debt and equity issuances, to provide
liquidity and maintain operations. In spite of these capital raising
activities, the Company has substantial liabilities at September 30,
1999 and through the date of this report including, unpaid federal
and state payroll taxes in excess of $1,000,000, customer refund
liability in excess of $1,000,000, and significant litigation pending
with respect to deficient obligations arising as a result of the
Company's working capital deficit.
4. 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.
5. 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 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; and
5. Complete the acquisition of the assets of the Gary Player Golf
Equipment Division of GPG. 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 by the license agreement to use the Gary Player brand name. The most
successful international golfer of his generation, Mr. Player has achieved the
kind of worldwide recognition reserved for only a handful of figures in the
world of sports. The Company believes that completing the acquisition of the
Gary Player Golf Equipment Division will allow it 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(tm) 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, certain inventory and accounts receivable.
The Company plans to expand its Internet sales strategy over the coming
months, 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 possibly 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.
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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 the 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.
The Company implemented a one-for-three stock split in July 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.
OVERVIEW AND RECENT DEVELOPMENTS
Grafix Time Corporation (the "Company") 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. These product lines were sold in June,
1991. In April, 1991, the Company acquired the rights to develop and market a
unique sunglass product known as Industrial Strength Eyewear ("ISE").
In September, 1993, the Company discontinued its efforts to develop and
market the ISE product line, due to product manufacturing problems and lack of
capital resources. The Company sold the ISE product line in February, 1994.
During June, 1995, the Company negotiated an Asset Purchase Agreement
("APA") with Sports Equipment Technology Company, Inc., a privately-held
Colorado corporation doing business as Carrera (R) Golf ("SETCO"), whereby the
Company would purchase the assets and assume the liabilities of SETCO, subject
to approval of the terms of the APA by the shareholders of the Company and
SETCO. The terms of the APA were approved by the shareholders of the Company on
August 25, 1995, and by the shareholders of SETCO on January 2, 1996, at which
date the merger of the Company and SETCO was deemed effective. The Company has
successfully negotiated settlement of all liabilities, including those acquired
by virtue of the APA with SETCO.
The Company's operations and sales of golf apparel and golf-related
equipment commenced in January, 1996. During the fiscal year ended September 30,
1996, the Company obtained additional financing that was used to develop the
Carrera Golf product lines. In addition, the Company finalized an exclusive
distribution agreement with Citizen Trading Group of Japan ("Citizen"), and
obtained its first orders for golf products from Citizen. Citizen is one of the
largest trading companies in the world and the Company essentially served as
Citizen's "in-house" golf apparel and equipment supplier. Citizen's parent
company, Citizen Watch Co., Ltd. ("Citizen Watch") is one of the largest watch
companies in the world and, more importantly, has the most technologically
advanced liquid metal plating plant in the world. Citizen Watch owns the patent
to the DLC and CNG-14 plating processes used exclusively by the Company. The
Company utilized Citizen's distribution networks, Citizen Watch's patented
liquid metal processes, and benefits throughout Asia and the rest of the world
by association with the Citizen name through the fiscal year ended September 30,
1998. 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.
As of December 31, 1997, Citizen was the Company's primary customer,
accounting for over 90 percent 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 protested this action by Citizen. The
Company has reflected the effect of Citizen's claim in the calculation of loss
from discontinuance of operations in the Company's September 30, 1998 audited
financial statements. As the result of this change in the Company's relationship
with Citizen, the Company is not dependent on any one customer or group of major
customers.
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Citizen's unilateral withholding of certain payments caused a major
disruption in the relationship with Citizen. Management had developed a
marketing plan for 1998 and beyond that contemplated sales in Asia, Europe, and
the United States; however, Citizen's unilateral withholding of significant
amounts payable to the Company has resulted in the Company being unable to
implement this plan. The Company's marketing plan at September 30, 1998 was
dependent upon continuing the relationship with Citizen, and upon obtaining
other sources of financing. The Company had established assembly and other
operations in Denver, Colorado, and has realized only minor initial sales
activity in the United States.
PRODUCTS AND MARKET DISTRIBUTION
During the fiscal year ended September 30, 1998, the Company designed,
developed, assembled and distributed high-quality golf products, golf clothing
and golf accessories worldwide utilizing the Carrera (R) trademark and logo,
pursuant to an exclusive licensing agreement with Carrera Optyl GmbH, a
subsidiary of Safilo SpG ("Safilo"), owner of the "Carrera" brand name. See the
description of such agreement under "Intellectual Property" below. Due to the
changes previously described in the Citizens relationship and the working
capital deficit facing the Company, operations ceased during September 1998.
For the fiscal year ended September 30, 1997, the Company spent $46,550
on research and development. For the fiscal year ended September 30, 1998, the
Company spent $91,101 for research and development on the Carrera product lines.
INTELLECTUAL PROPERTY
By virtue of the Company's January 1997 licensing agreement with
Carrera Optyl Marketing GmbH, the Company acquired the exclusive, long-term
license to use the Carrera(R) name on its golf products. This licensing
agreement runs through December 31, 2001, with automatic renewal for an
additional five-year period, unless terminated earlier by the terms of the
agreement. Under this agreement, the Company is obligated to pay royalties each
year, which includes a minimum annual licensing fee. Any loss of this agreement
could negatively impact the Company's sales and income to the extent the Company
elects to continue to market the Carrera product line. In October 1999 the
Company received written notice of Carrera's claim for unpaid royalties due at
that time in the asserted amount of $532,000. The claim included reference to an
August 1999 termination of the Carrera license agreement. The Company's new
management team and Board are evaluating the Carrera license agreement, the
product line, and the royalty claim and related matters and are developing the
Company's position regarding these matters as of the date of filing of this
report.
A Direct Marketing Agreement between Golf One and Gary Player Golf
Equipment, Inc. grants the Company the exclusive right to use the Gary Player
name in connection with the sale of golf clubs (and distribution of accessories
on a promotional basis) through direct marketing channels in the United States
and Canada. The royalty payable by the Company is 7% of the first $5,000,000 in
sales and 6% of the sales over $5,000,000.
BUSINESS STRATEGY
The Company's business strategy as of September 30, 1998 was to attempt
to resolve its issues with Citizen, identify alternative sources of financing to
address the Company's liquidity issues and identify a potential merger candidate
to provide liquidity and diversified operations.
On March 29, 1999 the Company (then known as Grafix Corporation)
completed a merger (the "1999 Merger") with Golf One Industries, Inc. ("Golf
One"). Pursuant to the terms of the Agreement of Merger, the Company issued
72,859,800 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 1999 Merger with
Golf One, the Company effected a one-for-twenty reverse split of its issued and
outstanding common stock, Golf One was merged into the Company, and the Company
effected a name change to "Gary Player Direct, Inc."
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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; and
5. Complete the acquisition of the assets of the Gary Player Golf
Equipment Division of GPG. 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 by license agreement to use the Gary Player brand name. The most
successful international golfer of his generation, Mr. Player has achieved the
kind of worldwide recognition reserved for only a handful of figures in the
world of sports. The Company believes that completing the acquisition of the
Gary Player Golf Equipment Division will allow it 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(tm) 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, certain inventory and accounts receivable.
The Company plans to expand its Internet sales strategy over the coming
months, 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 compliment or diversify the
Company's existing product mix and possibly 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.
COMPETITION
The market in which the Company does business is highly competitive,
and is served by a number of well-established and well-financed companies with
recognized brand names, as well as new companies with popular products. With
respect to metal woods, the Company's major domestic competitors are Callaway,
Taylor Made, Titleist, Cobra and Ping. In 1998, Orlimar and Adams emerged as new
competitors. With respect to irons, the Company's major domestic competitors are
Callaway, Titleist, Cobra, Taylor Made, and Ping. For wedges, the Company's
major domestic competitors are Ping, Cleveland, and Titleist. New product
introduction and/or price reductions by competitors continue to generate
increased market competition and the Company believes that such competition has
caused it to lose some unit market shares and has negatively affected sales.
While the Company believes that its products and its marketing efforts continue
to be competitive, there can be no assurance that successful marketing
activities by competitors will not negatively impact the Company's future sales.
A manufacturer's ability to compete is in part dependent upon its
ability to satisfy the various subjective requirements of golfers, including the
golf club's look and "feel," and the level of acceptance that the golf club has
among professional and other golfers. The subjective preferences of golf club
purchasers also may be subject to rapid and unanticipated changes. There can be
no assurance as to how long the Company's golf clubs will maintain market
acceptance.
As a result of the recent change of the Board of Directors and the
management of the Company, the Company is evaluating its license agreement
between the Company and Carrera Optyl Marketing GmbH as well as the Company's
Distributorship Agreement with Citizens. The Company anticipates that within the
next 90 days it will decide whether to continue to go forward with the Carrera
line of branded golf products.
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RAW MATERIALS
The Company uses several suppliers for its raw materials and product
components located worldwide including: Eton, U.S. Technologies, Fu-Sheng
Industries, Far East Materials Corporation, Chun-Shin Corporation, and Citizen
Trading Group of Japan. The Company does not anticipate any shortages and is
relatively certain that it would be able to find other suppliers in that event.
EMPLOYEES
The Company had two full-time employees and several other part-time
employees at the Company's location in Colorado as of September 30, 1998.
GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE
The Company's direct marketing operations are 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. and 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 Attorneys 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, and
there can be no assurance that any such laws, if enacted, will not adversely
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' Attorneys
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 the Federal or State consumer protection authorities 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
As of September 30, 1999 the Company's offices are located at 710
Aerovista, San Luis Obispo, California. A subsidiary of the Company has entered
into a lease with respect to this location for approximately 2,660 square feet.
This lease commenced on November 1, 1995 on a month to month rental basis with a
base rent of approximately $24,000 per year. The Company believes that this San
Luis Obispo facility will be suitable for the Company's currently planned
operations. The Company believes that its properties and assets at this facility
are adequately covered by appropriate insurance.
Prior to locating its operations in San Luis Obispo, California, the
Company was located in Santa Maria, California and prior to that in Englewood,
Colorado (commencing April 6, 1998 as reported in an 8-K report dated August 7,
1998) and prior thereto in Fort Worth, Texas.
As of September 30, 1998, the Company leased a 2,500 square foot
office/warehouse at 8250 S. Akron Street, Suite 203, Englewood, Colorado 80112.
Subsequent to September 30, 1998 the Englewood space was vacated by the Company
and the landlord of the Englewood facility has commenced a lawsuit against the
Company relative to this lease. See "Legal Proceedings". In addition as of
September 30, 1998, the Company also rented an office from Alpha Company, Tokyo,
Japan.
ITEM 3. LEGAL PROCEEDINGS
The Company has been notified of a claim under the license agreement
between the Company and Carrera
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Optyl Marketing GmbH ("Carrera"). The claim is for payment of royalties asserted
by Carrera, the licensor. The Company intends to seek a mutually satisfactory
resolution of this matter with the licensor.
On or about December 21, 1998, a lawsuit was commenced in the District
Court of Arapahoe County, Colorado by the Company's landlord to recover amounts
allegedly due under the Company's lease of office space in Englewood, Colorado.
The suit alleges breach of the lease and seeks monetary damages. 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.
On or about December 9, 1997, a lawsuit was commenced against the
Company and a former director in District Court in Cleveland, Ohio by the
Company's former president, Ron Karani, in an action against the Company and a
former director of the Company, relating to the termination of Mr. Karani's
employment in July, 1997. The suit alleged breach of contract, wrongful
discharge and other claims, against the Company and the former director of the
Company. This lawsuit was pending as of September 30, 1998 but was subsequently
fully settled without cost to the Company and dismissed with prejudice.
In September 1997 a lawsuit was commenced in the County Court of
Tarrant County, Texas by J. Russell Walker, the Company's former vice president.
The suit seeks monetary damages related to an alleged breach of a 1996
employment agreement and other damages. The Company is currently negotiating a
settlement of this matter.
On or about January 29, 1999 a lawsuit was commenced 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.
On or about April 20, 1999, a lawsuit was commenced in the District
Court, County of Arapahoe, Colorado by General Motors Acceptance Corporation.
The Company and Kent Krausman were named as defendants in this action. This
action arises from an alleged breach of a lease agreement between the Company
and GMAC. The action essentially seeks repossession of a 1999 GMC Suburban as
well as damages and costs in connection with the action. The Company intends to
settle this matter within the next thirty to sixty days.
The estimated financial effects of these items are included in the
Audited Financial Statements at September 30, 1998 included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 15, 1998, shareholders owning a majority of the then-issued and
outstanding common stock of the Company voted to approve (12,000,000 shares
"For" and no shares "Against") a 1:3 reverse split of the Company's issued and
outstanding common stock, effective August 1, 1998. The approval was reported on
a Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 7, 1998, which Form 8-K is hereby incorporated by reference.
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
September 30, 1998. 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
7
<PAGE> 11
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 Merger with Golf One Industries and Grafix Corporation
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 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 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.
<TABLE>
<CAPTION>
Prices for Common Stock
(adjusted to reflect both
stock splits noted above)
-------------------------
High Low
---------- ---------
<S> <C> <C>
1998
Quarter Ended September 30, 1998 $20.000 $2.000
Quarter Ended June 30, 1998 $ 8.740 $3.120
Quarter Ended March 31, 1998 $ 9.360 $3.120
Quarter Ended December 31, 1997 $15.000 $2.500
1997
Quarter Ended September 30, 1997 $25.000 $2.500
Quarter Ended June 30, 1997 $12.500 $3.740
Quarter Ended March 31, 1997 $18.740 $2.500
Quarter Ended December 31, 1996 $50.000 $2.500
</TABLE>
As of September 30, 1998, there were approximately 358 holders of
record of the Company's common stock and no holders of record of the Company's
preferred shares.
Pursuant to a review of the transfer agent's records by the Company's
new management team, it was determined that there were several issuances and
sales of the Company's equity securities by the Company during the year ended
September 30, 1998 that were not registered under the Securities Act of 1933, as
amended.
In July 1998, the Company issued an aggregate of 34,048 shares of its
common stock, of which 1767 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 9143 shares of
its common stock, of which 5726 were issued to a director and officer of the
Company for services rendered, 1750 shares were issued to an employee of the
Company for services rendered and 1667 shares were issued to other third
parties.
In October 1998, the Company issued an aggregate of 15,925 shares of
its common stock, of which 2711 shares were issued to a director and officer of
the Company for services rendered and 13,214 shares were issued to other third
parties.
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 Securities 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 it
declared a forty percent (40%) stock dividend on November 28, 1995 and does not
presently anticipate paying any further cash dividends in the foreseeable
future. It is anticipated that earnings, 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.
8
<PAGE> 12
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
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 former director of the Company, 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 entered into a new 2-year
promissory note with Mr. Ahuja, in the principal 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 2-year period, and the entire note, with accrued
interest, is due on February 11, 2001. See Note 10 to the financial statements.
On March 29, 1999 the Company (then known as Grafix Corporation)
completed a merger (the "1999 Merger") with Golf One Industries, Inc. ("Golf
One"). Pursuant to the terms of the Agreement of Merger, the Company issued
3,642,990 shares (gives effect to the Company's one-for-twenty split on or about
May 3, 1999) of its common stock to Golf One's shareholders and lenders,
resulting in a change of control of the Company. As part of the 1999 Merger with
Golf One, the Company effected a one-for-twenty reverse split of its issued and
outstanding common stock, Golf One was merged into the Company, and the Company
effected a name change to "Gary Player Direct, Inc."
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; and
5. Complete the acquisition of the assets of the Gary Player Golf
Equipment Division of GPG. 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 by license agreement to use the Gary Player brand name. The most
successful international golfer of his generation, Mr. Player has achieved the
kind of worldwide recognition reserved for only a handful of figures in the
world of sports. The Company believes that completing the acquisition of the
Gary Player Golf Equipment Division will allow it 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(tm) and the Gary Player 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, certain inventory and accounts receivable.
The Company plans to expand its Internet sales strategy over the coming
months, 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 limited 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 possibly 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.
RESULTS OF OPERATIONS
9
<PAGE> 13
During September 1998, the Company discontinued the operation of its
Carrera Golf operations due to its inability to generate profit from the
operations and the absence of adequate financing to continue the operation. The
net liability of the Carrera Golf operations as of September 30, 1998 consisted
of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 201,794
Inventory 653,885
Property & equipment 33,371
License rights 184,211
Accounts payable (819,523)
Accrued expenses (789,396)
Provision for loss from
discontinuance of operation (1,054,634)
-----------
$1,590,292
</TABLE>
For the two years ended September 30, 1998 the operating results of the
Carrera Golf operation were as follows:
<TABLE>
<CAPTION>
1998 1997 % Change
------------ ----------- --------
<S> <C> <C> <C>
Revenues $ 1,805,056 $3,302,881 (54.65%)
Cost of sales 1,178,064 2,089,192 (56.39%)
Administration 2,921,662 1,188,550 245.82%
------------ -----------
Gain (loss) from
Division $(2,294,670) $ 25,139
</TABLE>
PLAN OF OPERATIONS FOR THE COMPANY
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; and
5. Complete the acquisition of the assets of the Gary Player Golf
Equipment Division of the Gary Player Group. There can be no assurance
that the Company will be successful in achieving any of the
above-stated objectives.
Subsequent to the date of the 1999 Merger, the Company has continued to
sustain substantial losses and has had substantially reduced sales of its Gary
Player branded golf products. As of March 31, 1999, the Company's sales revenues
(net of returns and all allowances) for the fiscal year then ended were
approximately $5,800,000 resulting in an estimated loss of approximately
$12,300,000. In addition, at March 31, 1999 the Company had an estimated working
capital deficit of approximately $12,000,000 or total liabilities of
approximately $13,000,000 substantially all of which were past due. (All March
31, 1999 results contained herein are unaudited) At March 31, 1999 and
continuing to the date of this report the Company was a party to a substantial
number of pending and threatened litigation matters, many of which are material.
The Company has also received numerous customer complaints relating to
non-payment of customer refunds or the failure to receive their purchased goods.
The Company was also notified, subsequent to the date of the 1999 Merger, that
it was in default of the Direct Marketing Agreement with The Player Group and
the Asset Purchase Agreement with the Company and the Player Group. The Company,
in connection with the Succession Plan and Agreement, obtained an extension
until October 25, 1999 to amend the Direct Marketing Agreement and the Asset
Purchase Agreement, such that they would no longer be in default. As of the date
of this report, The Player Group has agreed to forebear from exercising any of
their remedies provided the closing on the Asset Purchase Agreement occurs
within the next forty five (45) days.
The near term business strategy is to fully capitalize on the rights
received by license agreement to use the Gary Player brand name. The most
successful international golfer of his generation, Mr. Player has achieved the
kind of worldwide recognition reserved for only a handful of figures in the
world of sports. The Company believes that completing the acquisition of the
Gary Player Golf Equipment Division will allow it to market and sell an expanded
array of golf equipment and accessories worldwide. The assets of the golf
equipment operations of The Gary Player Group ("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(tm) and the Gary Player 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
10
<PAGE> 14
of the Player acquisition, the Company will also acquire existing sub-licenses
based on the Player licenses, certain inventory and accounts receivable.
The Company plans to expand its Internet sales strategy over the coming
months, 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 possibly enter into sub-license agreements
with third parties.
YEAR 2000
The Company has reviewed its operations and administrative systems
relative to Y2K matters. The Company's review includes a series of initiatives
to ensure that all of the Company's computer equipment and 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 telecopier
machines and security systems ("non-IT systems"). These systems may contain
embedded technology, which requires that the Company's review including broad
identification, assessment, remediation and testing efforts.
Based upon its identification and assessment efforts to date, the
Company believes that its IT systems will not require replacement or
modification. However, in the ordinary course of business, the Company
periodically replaces computer equipment and software, and in so doing, seeks to
acquire only year 2000 compliant software and hardware. The Company plans to
complete its assessment of its non-IT systems during November 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 November 1999 to determine where external year 2000 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 year 2000 compliance; however, the Company does
not anticipate the cost of implementing its year 2000 efforts to be material.
The Company plans to determine the year 2000 readiness of its then key
suppliers, identify alternative sources for materials and services in the event
that lack of year 2000 compliance is indicated, and make inquires regarding the
year 2000 readiness of any potential strategic partners. Management is
continuing to examine the year 2000 issues as they potentially impact the
Company, and will be developing contingency plans as necessary.
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 and 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: economic
and competitive conditions in the markets served by the Company affecting the
demand for the Company's products, product pricing, market acceptance, access to
distribution channels, availability of new financing, ability to cure license
defaults, ability to timely file past due SEC reports, and other risks detailed
form time-to-time in the Company's Securities and Exchange Commission filings
and press releases.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements, as itemized below, appear in a
separate section of this report following Item 13.
11
<PAGE> 15
Independent Auditor's Report F-1
Balance Sheet at September 30, 1998 F-2
Statement of Operations for the Years Ended
September 30, 1998 and 1997 F-3
Statement of Changes in Stockholders' Equity for
the Years Ended September 30, 1998 and 1997 F-4
Statement of Cash Flows for the Years Ended
September 30, 1998 and 1997 F-5 to F-6
Notes to Financial Statements F-7 to F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth information concerning the directors and
executive officers of the Company as of September 30, 1998 . As noted above, a
new Board and management team took office in October 1999 and none of the five
individuals referred to in the following table was a director and/or executive
officer of the Company as of the date of filing of this report:
NAME AGE POSITION
Monte Ahuja 50 Chairman of the Board
Kent D. Krausman 39 President, Chief Executive Officer,
Treasurer and Secretary
Ted Honda 52 Executive Vice President and Director
Vir Sondhi 65 Director
Stephen E. Duke 45 Director
All directors hold office until the next annual meeting of shareholders
or until their successors are duly elected and qualified. Officers serve at the
pleasure of the board of directors.
Monte Ahuja is Chairman and CEO of Transtar Industries, Inc. of
Cleveland, Ohio, a company Mr. Ahuja founded in 1975. Transtar is a leading
manufacturer and distributor of automotive transmission replacement parts, with
nineteen locations in the U.S., and worldwide sales in excess of $100 million
annually. Mr. Ahuja has been Chairman of the Board of Trustees of Cleveland
State University since 1992. He is a Trustee of the Cleveland Council on World
Affairs, a Director of the United Way, a Member of the Advisory Council World
Trade Center, and a Member of the Cleveland Committee on Foreign Relations. Mr.
Ahuja is also a Director of the National Solvent Corporation (Medina, Ohio) and
the Enterprise Bank of Solon, Ohio. Mr. Ahuja 's educational background includes
a Bachelor of Science degree in Mechanical Engineering from Punjab University
(India) in 1967, a Master of Science degree in Mechanical Engineering from The
Ohio State University (1970), and an M.B.A. from The Ohio State University
(1975).
Kent D. Krausman became an officer and director of the Company in
November 1997. He has been a licensed Colorado attorney since May, 1985. Mr.
Krausman has owned and operated his own law firm, Krausman LLC, since January,
1987. His firm specialized in securities, corporate finance, and SEC 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. Mr.
Krausman was the Chief Operating Officer and Executive Producer of those
facilities.
12
<PAGE> 16
Ted Honda has almost thirty years' experience in the golf industry. He
has held various executive positions within the industry, including serving as
Executive Vice President of Cosmo World Corporation from 1985 to 1992. In that
capacity, Mr. Honda was responsible for Cosmo World Corporation's entire
operation outside of Japan. Mr. Honda has also been a board member of The Ben
Hogan Company, and managed that company's daily operations. Mr. Honda was the
Vice-Chairman of The Pebble Beach Company, and also managed that company's daily
operations, including preparations for the 1992 U.S. Open. Mr. Honda has served
as the Deputy General Manager of planning and development of General Coast
Enterprises, Inc. ("GCE"). He has been responsible for the acquisition, planning
and construction of eight golf course projects, including three Jack Nicklaus
and five Pete Dye designed courses. Mr. Honda has also served as the General
Manager of the planning department of Olympic Staff Company, Ltd., and was
responsible for the development of custom-made golf clubs and graphite shafts.
GCE is the parent company of Cosmo World and Olympic Group.
Vir Sohdhi is president and Chairman of the Board of NASCO Industries,
Inc., of Medina, Ohio, a privately held company. He also serves as a member of
the Board of Directors of Transtar Industries, Inc., a privately-held company
based in Walton Hills, Ohio. Mr. Sondhi is a graduate of the University of
Cambridge (England), and a graduate of the University of California at Los
Angeles. Mr. Sondhi previously served as Senior Vice President of the Bank of
America and Senior Vice President of the Bank of Montreal. He has also served as
Director of International Operations for Huntington National Bank, Cleveland,
Ohio.
Stephen E. Duke is currently employed by Transtar Industries, Inc., a
privately-owned company based in Walton Hills, Ohio. Mr. Duke was previously
employed at Tremco, Inc., a subsidiary of the B.F. Goodrich Company. Mr. Duke
earned a BSBA degree in accounting from John Carroll University, Cleveland,
Ohio, in 1974, and an EMBA degree from Baldwin Wallace College in 1992. Mr. Duke
is a licensed certified public accountant.
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 September 30, 1998.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid by
the Company during the three years ended on September 30, 1998 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 at
September 30, 1998 and received total salary and bonus in excess of $100,000
during the fiscal year ended September 30, 1998 (collectively, "Named Executive
Officers").
13
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL COMPENSATION OPTIONS/SARS (#)
POSITION YEAR SALARY BONUS
- --------------------------- ---- ------------ ----- -----------------
<S> <C> <C> <C> <C>
Kent D. Krausman, President 1998 $102,949 0 0
and CEO 1997 0 0 0
1996 0 0 0
Ted Honda, Executive 1998 $124,000 0 0
Vice President 1997 $120,000 0 0
1996 $ 96,000 0 0
</TABLE>
STOCK INCENTIVE PLAN
The Company has a stock option plan, but no options have been granted
to any individuals under the plan. The new board of directors intends to cancel
this plan and adopt a 1999 Stock Option Plan.
COMPENSATION OF DIRECTORS
Directors of the Company received no compensation except for
reimbursement of expenses.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of September 30,
1998 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 then current director and Named Executive
Officer (as defined in applicable SEC regulations), and by all then current
directors and executive officers as a group. The table gives effect to an
issuance of 15,925 shares of the Company's common stock, (including 2,711 shares
issued to Kent Krausman) on October 27, 1998 which the Company deems to have
been issued as of September 30, 1998. At September 30, 1998, there were no
record holders of the Company's preferred shares. 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.
<TABLE>
<CAPTION>
Amount and Nature of Shares
Beneficially Owned
Name and Address (adjusted to reflect both
of Beneficial Owner(1) stock splits noted above)(2) Percent of Class(2)
- ---------------------------------- ------------------------------ -------------------
<S> <C> <C>
Ted Honda 6,057 1.79%
Kent Krausman 19,009(3) 5.62%(3)
Monte Ahuja 200,000 59.13%
Vir Sondhi 0 0%
Stephen E. Duke 0 0%
Directors and Executive
Officers as a Group (as of 9/30/98) 225,066 66.54%
</TABLE>
- ---------------
(1) As of September 30, 1998, the address of each beneficial owner was
c/o Grafix Corporation, 8250 S. Akron Street, Suite 203, Englewood,
Colorado 80112.
(2) As of September 30, 1998, there were no outstanding warrants, options or
convertible securities which were exercisable by the beneficial owner with
respect to whom the calculation is made.
(3) Does not include 1,875 shares issued March 19, 1999. The October 15, 1999
shareholder list provided by the Company's transfer agent indicates that as
of that date Mr. Krausman was the record owner of 157,333 shares of the
Company's Common Stock.
CHANGES IN CONTROL
On April 6, 1998, Vir Sondhi resigned as Chairman of the Board of the
Company, but remained as a director of the Company, and the Board of Directors
elected Mr. Monte Ahuja as Chairman of the Board. Raymond Theiss resigned as the
acting President on the same date and the Board of Directors named Kent D.
Krausman President and Chief Executive Officer of the Company, which change in
control was reported in a Current Report on Form 8-K filed with the Securities
and Exchange Commission on August 7, 1998, which Form 8-K is hereby
14
<PAGE> 18
incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All references to the Company's common stock discussed in this section
regarding "Certain Relationships and Related Transactions" have been adjusted to
reflect both stock splits noted above.
The Company has made unsecured non-interest bearing advances to certain
employees which are payable on demand.
At September 30, 1997 the Company was advanced $939,000 against a
$1,000,000 credit line facility with a bank. The credit line bears interest at
the bank's prime rate (8.5% at October 31, 1997), expires on May 31, 1998 and is
personally guaranteed by the Company's principal shareholder. The borrowings
under this credit line facility were retired in the connection with the February
11, 1999 debt restructuring involving Mr. Ahuja.
The Company was advanced $500,000 by its principal stockholder
("M. Ahuja") at September 30, 1997. The unsecured advance is payable on demand
and bears interest at the rate of 10% per annum. If the principal is not paid
within five days after demand, the note will be considered in default and a late
charge of the greater of $250 or 5% of the principal balance plus accrued
interest will come due. In addition, the default interest rate will increase to
15%. On February 11, 1999, the Company refinanced its loan from M. Ahuja,
executing a new secured promissory note payable in two years for $650,000,
secured by the Company's receivables and inventory and accruing annual interest.
See Note 10 to the financial statements. In connection with the refinancing of
the existing debt with M. Ahuja. M. Ahuja also loaned money to the Company in
order to retire the Company's credit line facility and certain other notes.
A company affiliated with M. Ahuja made a $225,000 advance at October
31, 1997. The unsecured advance is payable on demand and bears interest at the
rate of 10% annum. If the principal is not paid within five days after demand
the note will be considered in default and a late charge of the greater of $250
or 5% of the principal balance plus an accrued interest will come due. In
addition, the default interest rate will increase to 15%. On February 11, 1999,
the Company refinanced its loan with the company affiliated with M. Ahuja.
Agreements were made and approved by the Company's Board of Directors
on July 15, 1998 agreeing to issue in the aggregate 15,000 shares of common
stock of the Company, 7,500 shares each to Kent D. Krausman, and George T.
Hellen in consideration of and partial payment for services rendered to the
Company by those two individuals, which share amounts have been adjusted to
reflect the one for twenty stock split. The 15,000 shares were registered in a
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission and effective August 24, 1998, which Form S-8 is hereby incorporated
by reference. Both Krausman and Hellen have informed the Company that they each
intend upon selling a portion of the issued shares from time to time in
negotiated transactions directly, through a broker or otherwise, and that such
shares will be sold at prevailing market prices at the time of the sale through
negotiated prices. The Company will not receive any of the proceeds from the
sales by Krausman or Hellen.
On July 23, 1998, the Company issued 833 shares of restricted common
stock to David R. Hoskinson, an employee, as part of a bonus for joining the
Company. On September 8, 1998, the Company issued 1,750 shares of restricted
common stock to George T. Hellen, an employee, for service rendered and in lieu
of cash payment due under Mr. Hellen's employment contract. From April 1, 1998
through September 30, 1998, the Company issued an additional 7,493 shares of
common stock to Kent D. Krausman as compensation for services rendered.
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 Grafix Corporation
(incorporated by reference to Grafix
15
<PAGE> 19
Corporation's Current Report on Form 8-K dated August
7, 1998)
3.2 By-Laws of Grafix Corporation (incorporated by
reference to Grafix Corporation's Current Report on
Form 8-K dated August 7, 1998)
10.1 Agreement by and between Grafix Time Corporation and
Carrera Optyl Marketing GmbH dated January 29, 1997
(incorporated by reference to Grafix Time
Corporation's Current Report on Form 8-K dated March
12, 1997, Exhibit 2.1)
10.2 Distributorship Agreement dated August 12, 1996 by
and between the Company and Citizen Trading Co.
(filed herewith)
10.3 Merger Agreement between the Grafix Time Corporation
and Grafix Corporation, a Delaware corporation
(incorporated by reference to Grafix Time
Corporation's Current Report on Form 8-K dated August
7, 1998)
10.4 Certificate of Merger between Grafix Time Corporation
and Grafix Corporation (incorporated by reference to
Grafix Corporation's Current Report on Form 8-K dated
August 7, 1998)
10.5 Succession Plan and Agreement dated October 12, 1999,
without exhibits, and effective on October 14, 1999
(incorporated by reference as filed October 25, 1999
with the Company's Report on Form 8-K)
10.6 Lease dated April 27, 1998 between the Company and
Highland Square Center, Ltd. (regarding Englewood,
Colorado office space) (filed herewith)
11.1 Earnings Per Share Calculation (filed herewith)
21.1 Subsidiaries of the Company (filed herewith)
27.1 Financial Data Schedule (filed herewith)
99.1 Press Release dated August 5, 1998 announcing the
merger (incorporated by reference to Grafix
Corporation's Current Report on Form 8-K dated August
7, 1998)
99.2 Press release issued by the Company on October 19,
1999 (incorporated by reference to the Company's
Report on Form 8-K filed October 25, 1999)
99.3 Press release issued by the Company on October 21,
1999 (filed herewith)
(b) Reports on Form 8-K during the quarter ended September 30, 1998:
1. Current Report on Form 8-K filed August 7, 1998 and
incorporated herein by reference.
16
<PAGE> 20
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.
(FORMERLY GRAFIX CORPORATION)
Date: October 29, 1999 By: /s/ Marc B. Player
------------------------
Marc B. Player
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Carl Casareto
------------------------
Carl Casareto
Executive Vice President and Treasurer
Principal Financial Officer and
(Principal Accounting Officer)
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.
Signature Title Date
/s/ Thomas P. Gallagher Chairman of the Board October 29, 1999
- -------------------------
Thomas P. Gallagher
/s/ Marc B. Player Director October 29, 1999
- -------------------------
Marc B. Player
/s/ Pamela Campbell Director October 29, 1999
- -------------------------
Pamela Campbell
17
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Gary Player Direct, Inc. (formerly Graphix Corporation)(formerly Graphix Time
Corporation d/b/a Carrera Golf)
Grafix Corporation
We have audited the balance sheet of Grafix Corporation as of September 30,
1998, and the related statements of operations, changes in stockholders' equity,
and cash flows for each of the two years in the period 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Grafix Corporation as of
September 30, 1998, and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations, and has negative working capital and a stockholders'
deficit. These factors raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
discussed in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
By: /s/ James E. Scheifley
------------------------------------------
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
October 19, 1999
F-1
<PAGE> 22
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Balance Sheet
September 30, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 19,683
------------
Total current assets 19,683
Property and equipment, at cost, net of
accumulated depreciation of $7,772
7,079
------------
$ 26,762
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,230
Accrued interest 33,015
Net liabilities of discontinued operation 1,590,292
------------
Total current liabilities 1,660,537
Note payable bank, to be refinanced 1,400,000
Shareholder loans 1,253,828
Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued and outstanding --
Common stock, $.001 par value,
50,000,000 shares authorized,
338,256 shares issued and outstanding
338
Additional paid-in capital 11,953,154
Deficit accumulated during development stage (16,241,095)
------------
(4,287,603)
------------
$ 26,762
============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 23
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Statements of Operations
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Costs and expenses:
General and administrative ..................... $ 353,527 $ 93,155
Interest expense ............................... 350,784 113,124
----------- -----------
(Loss) from continuing operations ................ (704,311) (206,279)
(Losses) gain from discontinued operation ..... (2,294,670) 25,139
(Losses) from discontinuance of operation ...... (1,548,757) --
----------- -----------
(3,843,427) 25,139
(Loss) before income taxes and extraordinary item (4,547,738) (181,140)
Provision for income taxes ....................... -- 21,315
----------- -----------
Net (loss) before extraordinary item ............. (4,547,738) (159,825)
Extraordinary item:
Gain from forgiveness of debt, net of
federal income taxes of $21,315) .............. -- 41,378
----------- -----------
Net (loss) ....................................... $(4,547,738) $ (118,447)
=========== ===========
Basic and diluted (loss) per share:
Continuing operations ......................... $ (2.53) $ (0.99)
Discontinued operations........................ (13.79) 0.12
Extraordinary item ............................ -- 0.20
----------- -----------
$ (16.32) $ (0.67)
=========== ===========
Weighted average shares outstanding ............. 278,741 208,007
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Statement of Changes in Stockholders' Equity
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Preferred Stock
ACTIVITY Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance, September 30, 1996 ............ 42,984 43 500,000 $ 5,000
Common stock issued for services ........ 3,434 3
Conversion of debt to common stock ...... 10,083 10
Conversion of preferred stock to common . 200,000 200 (500,000) (5,000)
Common stock issued for subscriptions ... 10,640 11
Net (loss) for the year ................. -- -- --
------------ ------------ ------------ ------------
Balance, September 30, 1997 ............ 267,140 267 -- --
Common stock issued for services ........ 40,501 41
Common stock sold for cash .............. 30,615 31 -- --
Capital contribution by major
stockholder............................. -- --
Net (loss) for the year ................. -- -- -- --
------------ ------------ ------------ ------------
Balance, September 30, 1998 ............ 338,256 $ 338 $ -- $ --
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional Subscriptions
Paid-in To Common Accumulated
ACTIVITY Capital Stock Deficit Total
<S> <C> <C> <C> <C>
Balance, September 30, 1996 ............ $ 10,921,426 $ 192,375 $(11,574,910) $ (456,066)
Common stock issued for services ........ 45,546 45,549
Conversion of debt to common stock ...... 7,590 7,600
Conversion of preferred stock to common . 4,800 --
Common stock issued for subscriptions ... 192,364 (192,375) (0)
Net (loss) for the year ................. (118,447) (118,447)
------------ ------------ ------------ ------------
Balance, September 30, 1997 ............ 11,171,726 -- (11,693,357) (521,364)
Common stock issued for services ........ 149,875 149,916
Common stock sold for cash .............. 361,553 361,584
Capital contribution by major
stockholder............................. 270,000 -- 270,000
Net (loss) for the year ................. -- -- (4,547,738) (4,547,738)
------------ ------------ ------------ ------------
Balance, September 30, 1998 ............ $ 11,953,154 $ -- $(16,241,095) $ (4,287,603)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 25
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Statements of Cash Flows
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
<S> <C> <C>
Net (loss) $(4,547,738) $ (118,447)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,109 3,000
Lawsuit settlement paid by shareholder 270,000
Stock issued for services 149,916 45,549
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 7,000 31,185
(Increase) decrease in net assets of discontinued operation -- (806,211)
Increase (decrease) in accounts payable (41,001) 21,709
Increase (decrease) in net liabilities of discontinued operation 2,726,911
Increase (decrease) in accrued expenses (5,702) (296,012)
----------- -----------
Total adjustments 3,110,233 (1,000,780)
----------- -----------
Net cash (used in)
operating activities (1,437,505) (1,119,227)
----------- -----------
Cash flows from investing activities:
Acquisition of plant and equipment 692 --
----------- -----------
Net cash (used in) investing activities 692 --
----------- -----------
Cash flows from financing activities:
Common stock sold for cash 361,583 --
Proceeds of shareholder loans 528,828 1,040,600
Repayment of notes payable (110,000) (660,000)
Proceeds bank line of credit 461,000 939,000
----------- -----------
Net cash provided by
financing activities 1,241,411 1,319,600
----------- -----------
Increase (decrease) in cash (195,402) 200,373
----------- ----------
Cash and cash equivalents,
beginning of period 215,085 14,712
Cash and cash equivalents,
end of period $ 19,683 $ 215,085
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Statements of Cash Flows
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 227,658 $ 71,811
Cash paid for income taxes $ -- $ --
Non cash investing and financing activities:
Notes converted into common stock $ -- $507,600
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
Note 1. Organization and Summary of Significant Accounting Policies:
The Company was incorporated in New York on April 16, 1986. The Company
previously operated under the names "Mont Blanc Resources, Inc." and "Movies
Marketing, Inc." Its previous business was the distribution of fashion sports
watches and electronic jewelry. These product lines were sold in June 1991.
During April 1991 the Company acquired the rights to continue development of and
begin marketing a unique sunglass product known as "ISE", Industrial Strength
Eyewear. During September 1993, due to product manufacturing problems and
exhaustion of capital reserves, the Company discontinued its efforts to develop
and market the ISE product line and began searching for a buyer for the
business. The sale of the business was completed during February 1994.
On January 2, 1996, the Company completed an asset purchase agreement with
K.W.A.T., Inc. (formerly Sports Equipment Technology Company, Inc., SETCO), a
Colorado development stage corporation engaged in design, manufacture and sale
of golf related equipment and apparel using the licensed trade name "Carrera".
Prior to the merger, SETCO was controlled by certain individuals who also
controlled the Company. Accordingly, the merger was accounted for as a
recapitalization of companies under common control, which most resembles the
"pooling of interests" method of accounting. The Company issued 13,333 shares
of its restricted common stock to effect asset purchase. SETCO's most
significant asset at the merger date was a license agreement with Carrera
International, Inc. for the rights to use its trade name in connection with
marketing the company's products.
The Company's operations and sales of golf related equipment and apparel
commenced during January, 1996 and were discontinued in October 1998 (see Note
2).
During July 1998, the Company was reincorporated in the State of Delaware and
changed its name to Grafix Corporation. The Company declared a 1 share for 3
shares reverse stock split in connection with the recapitalization.
During March 1999 the Company completed a merger transaction with
Golf One Industries, Inc. (see Note 10) and in connection therewith declared a 1
share for 20 shares reverse stock split. The accompanying financial statements
and information presented in the notes thereto have been restated to give effect
to the above described stock splits.
F-7
<PAGE> 28
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
Use of Estimates:
Management of the Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that management uses.
Equipment and Depreciation:
Equipment is recorded at cost and is depreciated based upon estimated useful
lives using the straight-line method. Estimated useful lives are 5 years.
Depreciation charged to operations was $3,000 and $3,109 for the years ended
September 30, 1998 and 1997, respectively.
Loss per share:
Earnings per Share (Basic and Diluted)
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.
Revenue Recognition:
Revenue is recognized at the time the product is shipped. A provision for sales
returns is estimated in the period corresponding to the original sale based on
actual returns experienced in prior periods.
F-8
<PAGE> 29
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
Cash:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and accounts payable and accruals.
The carrying amounts of these financial instruments approximate fair value
because of their short-term maturities. Financial instruments that potentially
subject the Company to a concentration of credit risk consist principally of
cash and accounts receivable, trade.
During the year the Company did not maintain cash deposits at financial
institutions in excess of the $100,000 limit covered by the Federal Deposit
Insurance Corporation.
Advertising Costs:
Advertising Costs:
The Company's policy is to expense advertising costs at first showing.
Long-Lived Assets:
In accordance with Statement of Financial Accounting Standards No. 121
("FAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company reviews for the impairment of
long-lived assets and certain identifiable intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Under FAS 121, an impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. The Company has
identified no such impairment losses.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided in Note 6 information about its stock based
compensation.
F-9
<PAGE> 30
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
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
reclassification 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.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred. The Company adopted SOP
98-1 at its inception. The adoption of SOP 98-1 has had no impact on the
Company, as the Company has not engaged in transactions that would are whose
accounting treatment is prescribed by 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.
Effective December 31, 1998, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and Other Post-retirement Benefits ("SFAS
132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Post-retirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The Company has to date not adopted benefit plans that would
require the disclosures prescribed by the statement.
F-10
<PAGE> 31
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
Management believes that the adoption of SFAS No. 133 will have no impact on the
Company, as the Company has not engaged in transactions that would are whose
accounting treatment is prescribed by the statement.
Note 2. Discontinued Operation
During September 1998, the Company discontinued the operation of its Carrera
Golf operation due to its inability to generate profit from the operation and
the absence of adequate financing to continue the operation.
The net liabilities of the Carrera Golf operation at September 30, 1998 consist
of the following:
<TABLE>
<S> <C>
Accounts receivable $ 201,794
Inventory 653,885
Property & equipment 33,371
License rights 184,211
Accounts payable (819,523)
Accrued expenses (789,396)
Provision for loss from
discontinuance of operation (1,054,634)
-----------
$(1,590,292)
</TABLE>
F-11
<PAGE> 32
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
For the two years ended September 30, 1998 the operating results of the Carrera
Golf operation were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 1,805,056 $ 3,302,881
Cost of sales 1,178,064 2,089,192
Administrative 2,921,662 1,188,550
----------- -----------
Gain (loss) from
division $(2,294,670) $ 25,139
</TABLE>
Note 3. Notes Payable:
The Company had an aggregate of $110,000 in unsecured notes payable to unrelated
individuals at September 30, 1997. During October 1997, the notes plus accrued
interest were repaid in full.
Note 4. Note Payable-Bank Line of Credit:
At September 30, 1997 the Company had received $939,000 against a $1,000,000
credit line facility with a bank. During 1998, the credit line was increased to
$1,400,000 and additional advances of $461,000 were received. The credit line
bears interest at the bank's prime rate (8.3% at September 30, 1998), and is
personally guaranteed by the Company's principal stockholder. The line was
repaid in full in January 1999 (see Note 10).
Note 5. Notes Payable-Stockholder:
The Company has been advanced an aggregate of $725,000 by its principal
stockholder or a Company under his control at September 30, 1997. The advances
bear interest at 10% to 15% per annum and are secured by the Company's
inventory, accounts receivable, and other assets. During 1998, an additional
$575,000 of advances were made and $175,000 was repaid in cash. Additionally,
during 1998, interest aggregating $128,828 was added to the loan balance. A
portion of the advances were converted into common stock during January 1999
(see Note 10).
F-12
<PAGE> 33
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes To Financial Statements
September 30, 1998
(Continued)
Note 6. Stockholders' Equity:
During the year ended September 30, 1997 the Company issued 3,434 shares of its
common stock for services valued at $45,549.
Note holders were issued 10,083 shares of common stock during the year ended
September 30, 1997 in conjunction with repayment of their respective notes.
The Company issued 10,640 shares of common stock in exchange for outstanding
subscriptions during the year ended September 30, 1997.
The Company 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.
During the year ended September 30, 1998 the Company issued 40,501 shares of its
common stock to an officer, an employee and others for services valued at
$149,916.
Additionally during 1998, the Company sold an aggregate of 30,615 shares of its
common stock for cash of $361,584.
Note 7. Commitments and Contingencies:
The Company has been notified of a claim under the license agreement between the
Company 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, however, the full amount of the claim has been
included in the caption "Net liabilities of discontinued operation" in the
accompanying balance sheet.
F-13
<PAGE> 34
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes to Financial Statements
September 30, 1998
(Continued)
On or about December 21, 1998, a lawsuit was brought in the District Court of
Arapahoe County, Colorado by the Company's landlord to recover amounts allegedly
due under the Company's lease of office space in Englewood, Colorado. The suit
alleges breach of the lease and seeks monetary damages. The Company has accrued
the full amount of the claim ($20,266) that has been included in the caption
"Net liabilities of discontinued operation" in the accompanying balance sheet.
In September 1997 a lawsuit was brought in the County Court of Tarrant County,
Texas by J. Russell Walker, the Company's former vice president. The suit seeks
monetary damages related to an alleged breach of a 1996 employment agreement and
other damages. The Company has accrued the expected settlement amount of the
claim ($20,000) that has been included in the caption "Net liabilities of
discontinued operation" in the accompanying balance sheet.
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) that has been included in the
caption "Net liabilities of discontinued operation" in the accompanying balance
sheet.
In April 1999 a lawsuit was brought in the District Court, County of Arapahoe,
State of Colorado by General Motors Acceptance Corporation, pursuant to a motor
vehicle lease contract with the Company. The suit seeks monetary damages related
to an alleged breach of the May 1998 lease agreement and other damages. The
Company has accrued the full amount of the claim ($8,573) that has been included
in the caption "Net liabilities of discontinued operation" in the accompanying
balance sheet.
Note 8. Income Taxes:
The Company has adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred taxes are classified
as current or non-current, depending on the classifications of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse.
F-14
<PAGE> 35
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes to Financial Statements
September 30, 1998
(Continued)
The deferred tax asset (approximately $5,400,000) related to the Company's
operating loss carryforward of approximately $16,000,000 at September 30, 1998
has been fully reserved since the Company believes that it is more likely than
not that future income from operations will not be available to utilize the
deferred tax asset. The net operating loss carryforwards expire through 2012.
The reserve amount increased by approximately $1,400,000 as a result of the
operating loss incurred in 1998. As a result of a significant change in the
ownership of the Company in March 1999 as described in Note 10, the Company's
ability to utilize the tax benefit of the operating loss may be in doubt.
Note 9. Forgiveness of Debt
During the year ended September 30, 1997 the Company had $62,693 of prior period
debt forgiven by creditors.
Note 10. Subsequent Events.
On February 11, 1999, the Company completed a debt restructuring with its then
principal shareholder, 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 2-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 2-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.
On March 29, 1999 the Company completed a merger with Golf One Industries, Inc.
("Golf One"). Pursuant to the terms of the Agreement of Merger, the Company
issued 3,642,990 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 1999
Merger with Golf One, the Company effected a one-for-twenty reverse split of its
issued and outstanding common stock, Golf One was merged into the Company, and
the Company effected a name change to "Gary Player Direct, Inc." The merger is
expected to be accounted for as reverse acquisition.
F-15
<PAGE> 36
Gary Player Direct, Inc.
(formerly Grafix Corporation)
(formerly Grafix Time Corporation d/b/a Carrera Golf)
Notes to Financial Statements
September 30, 1998
(Continued)
Note 11. Basis of Presentation:
The accompanying financial statements have been prepared on a "going concern"
basis which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business.
The Company has incurred losses during the years ended September 30, 1998 and
1997 aggregating $4,547,738 and $118,447, respectively and has negative equity
of $4,287,603 and a working capital deficit of $1,640,854 at September 30, 1998.
During the periods presented the Company has not generated positive cash flow
from operations and there can be no assurance that the trend will not continue.
Profitable operations are dependent upon, among other factors, the Company's
ability to obtain equity or debt financing and its ability to successfully
market its products.
The Company is unable to project a level of revenue that would allow a reversal
of its history of operating losses in the near future. In this regard the
Company discontinued the operation of its Carrera Golf operation and completed
the merger as described in Note 10.
F-16
<PAGE> 1
Exhibit 10.2
DISTRIBUTORSHIP AGREEMENT
This Agreement is made this 12th day of August, 1996, by and between
Grafix Time Corporation doing business and known as Carrera Golf, a corporation
incorporated and existing by virtue of the laws of New York and having its
principal place of business at 4155 E. Jewell Avenue, Suite 500, Denver,
Colorado 80222, hereafter "Carrera Golf", and Citizen Trading Co., Ltd., a
corporation incorporated and existing by virtue of the laws of Japan and having
its principal place of business at 13-8, Higashi-Ueno 2-chome, Taito-ku, Tokyo
110, Japan, hereafter "Distributor".
Article I - Definitions
For purposes of this Agreement the following definitions shall apply:
"Product(s)" shall mean Golf clubs, Golf balls, Golf bags, Golf gloves, Golf
shoes, Golf headwear, Golf apparels and Golf-related accessories which are
manufactured, directly or by contract, by Carrera Golf from time to time.
"Point(s) of Sale" shall mean all places where the Products are sold within the
Territory.
"Trademark" shall mean all registered trademarks and other trademarks, trade
names, logos and symbols used by Carrera Golf in connection with the sale and
distribution of the Products (as hereinbefore defined) and as amended from time
to time by Carrera Golf.
"Territory" shall mean Japan.
CHAPTER 1: DISTRIBUTION
Article II - Appointment as Sole and Exclusive Distributor
Carrera Golf hereby designates and appoints the Distributor as its sole
and exclusive distributor of the Products within the Territory for distribution
through the Points of Sale subject to the terms and conditions of this
Agreement and the Distributor accepts such appointment and agrees to act as
sole and exclusive distributor.
Article III - Distributor's Obligation Referring to Marketing
1. Marketing Policy
The Distributor shall offer, sell and distribute the Products in
accordance with the marketing policy as from time to time established by mutual
agreement by the parties hereto for the Territory.
<PAGE> 2
The Distributor shall spend at least 10% of its annual purchases of the
Products (price ex Factory) in the advertising and promotion of the Products
according to the preceding subparagraph of this Article. Evidence of its
advertising and publicity costs shall be sent by the Distributor to Carrera Golf
within 45 days after the end of each calendar year. If during any given semester
the Distributor did not use the full amount of said 10%, according to the plans,
the remaining balance thereof is due to Carrera Golf which shall use its within
the following calendar year for additional publicity in the Territory. The
following costs are not considered as advertising or publicity expenses within
the meaning of this subparagraph without prior formal approval of Carrera Golf:
costs in connection with the after sales service, salaries and expenses for the
infrastructure of Distributor's publicity department, training of the staff in
the marketing department and expenses for publicity material available at
Carrera Golf, but bought elsewhere.
All press releases prepared by the Distributor shall be sent to Carrera
Golf for approval.
Article IV - Distributor's Obligation of Sale
1. Sales Organization
The Distributor agrees to establish and maintain a marketing organization
sufficient to develop the market and make sales of the Products at the Points of
Sale throughout the whole Territory.
2. Inventory
The Distributor agrees to maintain at all times during the term of this
Agreement an adequate level of inventory as to the quantity and the variety of
designs of the Products in order to meet the market demands of the Territory.
The Distributor agrees that its inventory shall at all times correspond to
at least the sales of thirty (30) days, but not more than ninety (90) days,
being understood that such amount of sales shall be calculated on the sales over
the period of the last six (6) months.
The Distributor agrees that Carrera Golf shall have the right to inspect
the Distributor's inventory by its duly authorized representatives during normal
business hours. Should the inventory not correspond to the market demands in the
Territory (by quantity and/or models), then the Distributor and Carrera Golf
shall agree together on the measures to be taken, being understood that all
special measures need to the formal approval of Carrera Golf.
3
<PAGE> 3
Article V Distributor's Obligation of Information
The Distributor shall supply Carrera Golf with all necessary information
regarding:
a) its orders in hand at the end of each month, split up into
different models;
b) its monthly turnover in volume;
c) its monthly stock situation (quantities) split up by models;
d) forecast by month for each collection;
e) analyses of existing Points-of-Sales and all the changes thereof;
f) changes of major customers;
g) report on Products replaced under warranty;
h) report on Products returned from the Points of Sale for other than
warranty reasons.
All information according to paragraphs (a)-(c) and (f)-(h) shall be sent
to Carrera Golf by facsimile by the tenth (10th) working day after the end of
each month at the latest.
In the phase of introduction of new models (during the first eight weeks
since the market launch), the information regarding the stock levels and the
sales through figures (see paragraphs (b) and (c) above) of the different
models shall be sent to Carrera Golf every month. The forecast according to
paragraph (d) has to be submitted to Carrera Golf within three (3) weeks after
presentation of any new collection to it by Carrera Golf.
Furthermore, the Distributor shall supply to Carrera Golf by facsimile by
the twentieth (20th) day after the end of each calendar quarter, information
regarding the general economic situation in the Territory and in particular
regarding the activities of the major competitors.
Article VI Distributor's Obligation Referring to Warranty Policy
1. Warranty
The products are sold to the end user subject to an international warranty
substantially in the form of Schedule A attached hereto, as amended from time
to time at the sole discretion of Carrera Golf covering a period of twelve (12)
months after their sale to the end user.
4
<PAGE> 4
The Distributor agrees to carry out all warranty obligations on the
Products free to charge to the end user and irrespective of the place (in or
out of the Territory) in which they were sold, provided, however, that all
charges and costs in connection with this warranty service shall be borne and
reimbursed by Carrera Golf.
The Distributor shall inform Carrera Golf about all relevant legal aspects
concerning the sale and distribution of the Products and relevant consumer
protection within the Territory.
Should any claim, demand or suit be made or filed against the Distributor
and/or its customers as a result of any defect, whether patent or latent, in
the Products, under the theory of breach of warranty, express or implied, or
under the theory of products liability, Carrera Golf shall indemnify and hold
the Distributor and/or its customers harmless for any claims, losses, damages,
suits, demands or proceedings.
Replacement products may be selected by Distributor within sixty (60) days
starting at the end of the calendar quarter from a special replacement list
published from time to time by Carrera Golf. It is understood that Carrera Golf
shall keep and maintain the same style or model of a defective Product at least
for the period covered by the Warranty. On request from Carrera Golf, the
Distributor shall return, at the expense of Carrera Golf, to Carrera Golf any
defective Product which was replaced. Carrera Golf may inspect the defective
Products in the Distributor's premises at any time during normal business hours
(quality audit).
The Distributor is obliged to analyze and keep records of all returns, and
in particular of the warranty returns, in order to secure and prove the quality
level of the Carrera Golf products.
2. After Sales Service
The Distributor agrees to establish and maintain an after sales and
replacement service in the Territory in accordance with after service rules to
be agreed upon by the parties hereto. Such service shall be competently
managed, efficient, prompt and reasonable in cost with regard to Products not
covered by the warranty. The Distributor also agrees to maintain, at its own
expense, an adequate stock of original spare parts.
Article VII - Distributor's Obligation to Refrain from Distribution or
Production of Competitive Products
The Distributor shall not without the prior written consent of Carrera
Golf (i) during the duration of this Agreement and one year after its
termination manufacture, distribute or sell in any manner whatsoever products
which are directly in competition with the Products, and (ii) during the
duration of the Agreement and after its termination use any design for any
Product whether subject or not of this Agreement.
5
<PAGE> 5
Article VIII - Distributor's Obligation of Procuring Import and Other Licenses
The Distributor agrees to obtain and maintain current and in effect during
the duration of this Agreement all import and other licenses required by
applicable law/or any political authority division or regulatory body to enable
the Distributor to carry on the business of importer and distributor of the
Products in the Territory.
Article IX - Carrera Golf's Obligation to Respect Sole Distributor
Carrera Golf agrees and undertakes to procure for the duration of this
Agreement that:
i) Carrera Golf will not appoint any other distributor for the
Products in the Territory; and
ii) it will not sell the Products in the Territory to any other
party in the Territory.
Article X - Carrera Golf's Obligation to make Deliveries
1. Terms of Delivery
Carrera Golf agrees that any order for Products by the Distributor,
(provided the ordered models are still manufactured or are for sale) will be
shipped and delivered ex factory within the period agreed to by the parties
hereto after receipt of the Distributor's order, and to inform the Distributor
in the event that the delivery terms must be extended.
It is agreed that the Distributor shall accept all deliveries made within
a thirty (30) day period after the agreed period of delivery provided that such
delivery will be made within the same calendar year. Should Carrera Golf not
make delivery within thirty (30) days after the agreed period of delivery, the
Distributor shall have the right to cancel such order. Alternatively, should
Carrera Golf not make delivery within forty-five (45) days after the agreed
period of delivery, the Distributor may, in its sole discretion, either cancel
such order or accept such order with a ten percent (10%) reduction in the price
of such order.
2. Pricing
All Products shipped by Carrera Golf shall be delivered ex factory and
invoiced in U.S. dollars. All costs for shipping, insurance, custom duties and
sales or other applicable taxes and any other fees shall be borne by the
Distributor.
6
<PAGE> 6
Prices for all Products shipped shall be those prevailing at the date of
shipment, and Carrera Golf reserves the right to modify its list prices for any
of the Products at any time, but will give the Distributor at least one (1)
month prior notice of any price changes. In case of price changes, the
Distributor shall have the right to request that the price applicable to the
order accepted by Carrera Golf shall not be affected by the said price changes
or to modify its orders, it being understood that the ordered quantities may
not be reduced more than fifty percent (50%). Additional quantities shall be
supplied if available.
3. Payment Condition
All payments required under this Agreement shall be made in U.S. dollars
within twenty (20) days following the end of the month in which the Products
are shipped. Said payments shall be made via wire transfer to a bank designated
by Carrera Golf. If the above payment terms are not met, Carrera Golf may
decide that the Products shall only be shipped against Irrevocable Letters of
Credit made through and confirmed by a bank acceptable to Carrera Golf and
issued seven (7) days prior to the date of shipment of the Products.
4. Standard Warranty and Other Usual Conditions
All orders of the Distributor are subject to the standard Warranty and
other usual conditions of Carrera Golf and such other terms and conditions of
Carrera Golf in effect of the time that each order is made by Distributor.
Article XI - Carrera Golf's Contribution to Direct Marketing Expenditure
Not later than forty-five (45) days after the end of each calendar
quarter, the Distributor shall submit to Carrera Golf a detailed statement of
all direct marketing, advertising and promotion expenses (excluding any in
store fixturing and displays) incurred during the calendar quarter ended
including but not restricted to invoices for such activities, copies of all
printed advertising with description of the media and any collateral materials
which might have been produced. Carrera Golf shall reimburse to the Distributor
such sum equal to one-half of the included expenses as described above, but not
exceeding five percent (5%) of the quarterly purchase of the Products by the
Distributor.
7
<PAGE> 7
CHAPTER 2: TRADEMARK
Article XII -- Right to use Trademark
Carrera Golf hereby grants to the Distributor the right during the
duration of this Agreement to use the Trademark in connection with the
distribution and sale of the Products in accordance with the terms of this
Agreement. Carrera Golf shall register the trademark within the Territory. The
parties acknowledge that Distributor has a master license to use the Carrera
brand for all types of goods except optical frames, sunglasses, helmets and
goggles.
Article XIII -- Distributor's Obligation in use and Defense of Trademark
The Distributor acknowledges Carrera Golf's right, title and interest in
and to the Trademark as it relates to the Products.
The Distributor shall not in any manner, directly or indirectly, represent
that it has ownership in the Trademark or the registration thereof and
acknowledges that the use of the Trademark shall not create to the Distributor
any right, title or interest in or to the Trademark subject to the terms and
conditions set forth herein.
The Distributor shall use the following footnote in his publicity and on
his promotion material
Carrera Golf(R)
such footnote being amended from time to time as Carrera Golf may request.
The Distributor must inform Carrera Golf at any time immediately if
products imitating Carrera Golf Products appear on the market or if other
products are sold in a manner causing unlawful damage to Carrera Golf or
endangering its interests.
The Distributor shall inform on as many details as possible, such as
relevant points of sale, promotion materials, products, photos, copies of
bills, manufacturer and distributors.
Carrera Golf will take appropriate steps, but the Distributor is obliged
to assist in any manner requested by Carrera Golf including to act and proceed
in its own name; the cost of such actions will be borne by Carrera Golf.
Carrera Golf has the permanent right to direct all actions and other legal
proceedings, to withdraw or to settle at any time.
During the duration of the Agreement and after termination of this
Agreement, the Distributor shall not register, use and/or allow registration
and/or use of the Carrera Golf Trademark and designs and copyrights for any
goods or services.
8
<PAGE> 8
In case any third party makes a claim against the Distributor and/or its
customers or users of the Products in connection with any of the Trademarks,
Carrera Golf shall settle the disputes at its expense and indemnify and hold
harmless the Distributor, its customers and the users from losses and damages to
be incurred due to the claims.
CHAPTER 3: DURATION, MISCELLANEOUS AND JURISDICTION
Article XIV - Effective Date and Duration of the Agreement
This Agreement shall remain in full force and effect for a period of time
ending on December 31, 2001 and thereafter shall be renewed for additional terms
of one (1) year unless (i) either party gives a notice to the other in writing
not less than six (6) months in advance not to renew this Agreement and (ii)
this Agreement is not earlier terminated for good cause as hereinafter defined.
Each party shall have the right at any time by giving notice to the other
party to terminate this Agreement forthwith in the event that:
(a) the other party commits a breach of its obligations under this
Agreement, and such breach continues for a period of thirty (30) days
after notice of such a breach has been given; or
(b) the other party stops its operation and activities or a substantial
part of it or enters into liquidation; or
(c) the other party enters into an arrangement with creditors, or makes an
assignment for the benefit of creditors, or becomes subject to a
bankruptcy, receivership or trusteeship proceeding, or suffers or
permits any execution of judgment to be levied on any of its assets,
or becomes insolvent or otherwise ceases to a going concern; or
(d) the other party shall assign, transfer, pledge, hypothecate, mortgage,
lease or similarly dispose of, not in the ordinary course of business,
all or substantially all of its assets.
In addition, Carrera Golf shall have the right at any time by giving
written notice to the Distributor to terminate this Agreement forthwith in the
event that:
(a) the Distributor merges with another company other than its controlling
shareholders; or
(b) the majority ownership of the actual shareholders of the Distributor
should pass to one or more new owners, except where Carrera Golf has
given its prior consent.
9
<PAGE> 9
Upon any termination of this Agreement, Carrera Golf shall have an option
to repurchase the stock of Products or a part of it according to the following
terms and conditions:
(a) Carrera Golf shall have the right to purchase the Products at the net
price invoiced by Carrera Golf minus the following write-downs:
0% - when delivered during the last six months however the handling-
fees will be charged to the Distributor
25% - when delivered during 6 to 12 months before termination
40% - 12-18 months before termination
60% - 18-24 months before termination
70% - 25 months and earlier
(b) The Distributor shall advise Carrera Golf within fifteen (15) days
after any expiration or termination of the Agreement of the amount,
composition and prices of its remaining inventory of Products and
Carrera Golf shall have thirty (30) days thereafter to exercise the
option granted herein by giving the Distributor written notice of
such exercise.
(c) If Carrera Golf does not exercise its purchase option as aforesaid,
the Distributor shall be free to sell its inventory of Products during
a period of six (6) months after Carrera's Golf obligation has lapsed.
Article XV - Miscellaneous Provisions
1. Relationship Between the Parties
It is understood and agreed that in giving effect to this Agreement the
Distributor shall not be or be deemed an agent or employee of Carrera Golf for
any purpose and that its relation to Carrera Golf shall be that of independent
contractor. Nothing in this Agreement shall constitute a partnership or joint
venture between the parties. The Distributor shall not have the right to enter
into contracts nor to incur expenses, warranties or liabilities on behalf of
Carrera Golf (except the international standard warranty of Carrera Golf).
2. Assignment
This Agreement shall bind the parties hereto and may not be assigned by
either party without the prior written consent of the other party.
10
<PAGE> 10
3. Notices
All notices required or permitted under this Agreement shall be given in
writing and shall be deemed effective when given by personal delivery or mail,
postage prepaid, registered or certified air mail, addressed to the parties at
their respective addresses as set forth below, or to such other address as each
party may specify by written notice from time to time:
Carrera Golf The Distributor:
4155 E. Jewell Avenue Citizen Trading Co., Ltd.
Suite 500 13-8, Higashi-Ueno 2-chome
Denver, CO 80222 Taito-ku, Tokyo 110
Japan
4. Force Majeure
In the event that lawful performance of this Agreement or any part thereof
by either party hereby shall be rendered impossible by or as a consequence of
any law or any act of any government or political subdivision thereof having
jurisdiction over such party, such party shall not be considered in default by
reason of any failure to perform its obligation until a reasonable time after
such law or act has ceased.
Any delays in or failure by any party hereto in the performance of any
obligation hereunder shall be excused if and to the extent caused by
occurrences beyond such party's reasonable control, including Act of God,
strikes or other labor disturbances, war, whether declared or not, sabotage, or
any other cause which cannot be reasonably controlled by such party, until a
reasonable time after such occurrence has ended.
5. Entire Agreement
This Agreement contains the entire understanding between the parties
hereto and no amendment, modification or waiver of any provision hereof shall
be valid unless in writing and signed by both parties hereto.
Any previous agreement between the parties with respect to the subject
matter of this Agreement is hereby terminated.
In the event that any provision of this Agreement should be unlawful due
to any law, regulation or international treaty or other edicts this shall not
affect the other provisions of this Agreement. The parties agree that such
unlawful provision shall be deemed to be replaced by another lawful provision
which shall be as close as possible in purpose and economic content to the
unlawful provision.
11
<PAGE> 11
Article XVI -- Effects of Termination
Upon the effective date of termination of this Agreement for any reason
whatsoever except for the case in which the Distributor has the right to sell
its inventory of the Products after the termination, the Distributor will
immediately cease and desist from all use of the Trademark as it relates to the
Products and promptly return to Carrera Golf, or otherwise dispose of in
accordance with Carrera Golf's instructions all advertising and promotion
material, and all technical documents, instruction, catalogues, price lists and
similar material related to the Products.
Upon termination of this Agreement for any reason whatsoever except for the
breach by Carrera Golf of its obligations hereunder, no indemnity shall be due
or paid by Carrera Golf to the Distributor for (i) loss of profits, (ii)
goodwill, (iii) creation of clientele and/or market, (iv) advertising or sales
costs, (v) termination of employees of Distributor or (vi) like expenses.
Article XVII -- Applicable Law and Place of Jurisdiction
This Agreement shall be governed by, and interpreted and construed in
accordance with the laws of the State of New York.
Any and all disputes arising in connection with this Agreement shall be
submitted solely to the courts of the jurisdiction in which the defendant in
such action is located.
CARRERA GOLF:
By: /s/ [illegible]
----------------------------------
CITIZEN TRADING CO., LTD.
By: /s/ [illegible]
---------------------------------
12
<PAGE> 12
Schedule A
WARRANTY
Carrera Golf warrants that the Carrera golf clubs will be free of defects
in materials and workmanship for one (1) year from the date of original retail
purchase. Any defect, malfunction or failure of these products to conform to
this warranty will be remedied in a manner later described as the responsibility
of Carrera Golf. Carrera Golf reserves the right to inspect returned
merchandise for evidence of misuse. When the product being warranted has been
out of the product line for a period of one (1) year or more, Carrera Golf
reserves the right to replace said product with the equivalent product.
RESPONSIBILITY OF CARRERA GOLF
Carrera Golf's responsibility under this warranty shall be to repair, at
its expense with no charge to the consumer, the products covered hereby which
are actually defective, malfunctioning or otherwise constitute a violation of
warranty. Carrera Golf's obligations of repair or replacement, or refund at its
option, are conditioned upon the consumer's return of the defective product to
Carrera Golf or a Carrera Golf Distributor. Repair by other than Carrera Golf
or a Carrera Golf Distributor voids this warranty.
RESPONSIBILITY OF THE CONSUMER
The consumer's sole responsibility under this warranty shall be, in the
instance of a warranty claim, to notify Carrera Golf or a Carrera Golf
Distributor of the defect, malfunction or other manner in which the terms of
the warranty is violated. The consumer may secure performance of the warranty
under obligations hereunder by, in writing:
1. Specifying the product involved (by model and registration number or
other factor sufficient for Carrera Golf to identify the product), where, when
and from whom the product was purchased.
2. Describing the nature of the defect, malfunction or other violation
of the warranty.
3. Delivering this notification, together with the defective product, to
a Carrera Distributor, or mailing the notification and defective product to:
Carrera Golf
2901 Suffolk Ct. E.
Suite 130
Fort Worth, TX 76133
<PAGE> 1
Exhibit 10.6
STANDARD COMMERCIAL LEASE
ARTICLE 1.00 - BASIC LEASE TERMS
1.01 PARTIES. This lease agreement ("Lease") is entered into by and between
the following Landlord and Tenant:
Highland Square Center, Ltd., a Colorado limited partnership, ("Landlord")
Grafix Time Corporation, a New York corporation, DBA Carrera Golf, ("Tenant")
1.02 LEASED PREMISES. In consideration of the rents, terms, provisions
and covenants of this Lease, Landlord hereby leases, lets and demises to Tenant
the following described premises ("Leased Premises"), a part of Highland Square
Office/Showroom Complex, 8100-8250 South Akron Street, Englewood, Colorado
80112 (the "Property"):
(Approximate Leasable Sq. Ft.) 2,624
(Name of Property) Highland Square
(Street address/suite no.) 8250 S. Akron Street, #203
(City, State and Zip) Englewood, CO 80112
(See Exhibit "D" attached)
1.03 TERM. Subject to and upon the conditions set forth herein, the term
of this Lease shall commence May 1, 1998 (the "Commencement Date"), and shall
terminate 36 months thereafter.
1.04 BASE RENT AND SECURITY DEPOSIT. Base Rent is $* per month. Security
deposit is $5,900, payable upon execution of this Lease.
<TABLE>
<CAPTION>
Annual Base Rent Monthly
per RSF Base Rent
---------------- ---------
<S> <C> <C>
Year 1 $8.50 $1.858.67
Year 2 $8.75 $1,913.33
Year 3 $9.00 $1,968.00
</TABLE>
1.05 ADDRESSES.
<TABLE>
<CAPTION>
Landlord's Address Tenant's Address Make Payments To
------------------ ---------------- ----------------
<S> <C> <C>
Highland Square Center, Ltd. Carrera Golf Highland Square #4
c/o Global Pacific Properties, Inc. 8250 S. Akron St., #203 c/o Global Pacific Properties, Inc.
5161 E. Arapahoe Road, #320 Englewood, CO 80112 5161 E. Arapahoe Rd., Ste. 320
Littleton, Colorado 80122 Littleton, CO 80122
</TABLE>
1.06 PERMITTED USE. General and executive headquarters office and storage
of benign, non-toxic, non-hazardous inventory items only. No manufacturing or
regular assembly operations of any nature shall be conducted. Under no
circumstances shall any retail or telemarketing activities be conducted in, on
or about the Leased Premises.
1.07 EXPENSE STOP. $0.00
1.08 PARKING. Tenant shall have the right to use seven (7) surface,
striped, unreserved parking spaces for the primary Term hereof, and no other
parking rights. Tenant may not park in any areas other than designated striped
parking areas on the Property.
ARTICLE 2.00 RENT
2.01 BASE RENT. Tenant agrees to pay monthly as Base Rent during the
term of this Lease the sum of money set forth in Section 1.04 of this Lease,
which amount shall be payable to Landlord at the address shown above, or such
other address as Landlord shall from time to time indicate in writing. One
monthly installment of Base Rent shall be due and payable on the date of
execution of this Lease by Tenant for the first month's rent and a like monthly
installment shall be due and payable on or before the first day of each
calendar month succeeding the Commencement Date (or Completion Date only if
Tenant is not already in occupancy of the Leased Premises) during the term of
this Lease; provided, if the Commencement Date (or the
1
EXHIBIT A
<PAGE> 2
Completion Date only if Tenant is not already in occupancy of the Leased
Premises) should be a date other than the first day of a calendar month, the
monthly rental set forth above shall be prorated to the end of that calendar
month and all succeeding installments of rent shall be payable on or before the
first day of each succeeding calendar month during the term of this Lease.
Tenant shall pay, as additional rent, all other sums due under this Lease.
2.02 OPERATING EXPENSES. In the event Landlord's Operating Expenses for
the Property of which the Leased Premises are a part shall, in any calendar
year during the term of this Lease, exceed the Expense Stop set forth in
Section 1.07 of this Lease. Tenant agrees to pay as additional rent Tenant's
pro rata share of such excess Operating Expenses. Landlord may invoice Tenant
monthly for Tenant's pro rata share of the estimated Operating Expenses for
each calendar year, which amount shall be adjusted each year based upon
anticipated Operating Expenses. Within nine months following the close of each
calendar year, Landlord shall provide Tenant an accounting showing in
reasonable detail all computations of additional rent due under this section.
In the event the accounting shows that the total of the monthly payments made
by Tenant exceeds the amount of additional rent due by Tenant under this
section, the accounting shall be accompanied by a credit against the next
monthly rental payment. In the event the accounting shows that the total of the
monthly payments made by Tenant is less than the amount of additional rent due
by Tenant under this section, the accounting shall be accompanied by an invoice
for the additional rent. Notwithstanding any other provision in this Lease,
during the year in which the Lease terminates, Landlord, prior to the
termination date, shall have the option to invoice Tenant for Tenant's pro rata
share of the excess Operating Expenses based upon the previous year's Operating
Expenses. If this Lease shall terminate on a day other than the last day of a
calendar year, the amount of any additional rent payable by Tenant applicable
to the year in which such termination shall occur shall be prorated based on
the ratio that the number of days from the commencement of the calendar year to
and including the termination date bears to 365. Provided Tenant is not in
default of the Lease, Tenant shall have the right, at its own expense and
within a reasonable time, to audit Landlord's books relevant to the additional
rent payable under this section. Tenant agrees that any information or
agreements related to such audit shall be held by Tenant, its employees, agents
and contractors in strictest confidence. Tenant shall indemnify and hold
harmless Landlord from and against any claims, damages, costs or liabilities
incurred by Landlord in connection with any breach of this confidentiality
clause by Tenant, its employees, agents or contractors. As a precondition to
any audit by Tenant hereunder, Landlord may require any Tenant-related auditor
or other agent to sign a confidentiality agreement on Landlord's form. Tenant
agrees to pay any additional rent due under this section within ten days
following receipt of the invoice or accounting showing additional rent due.
Landlord's failure to timely meet any requirements of this Paragraph 2.02 shall
in no way constitute a waiver of its rights to collect such Operating Expenses
from Tenant and Tenant shall be bound to perform its obligations hereunder in
any event.
2.03 DEFINITION OF OPERATING EXPENSES. The term "Operating Expenses"
includes all expenses incurred by Landlord with respect to the maintenance and
operation of the Property of which the Leased Premises are a part, including,
but not limited to, the following: maintenance, repair and replacement costs;
security; management fees; wages and benefits payable to employees of Landlord
whose duties are directly connected with the operation and maintenance of the
buildings; all services, utilities, supplies, repairs, replacements or other
expenses for maintaining and operating the common parking and plaza areas; the
cost of any repair and/or capital improvement made to the Property by Landlord
after the beginning of the year in which the date of this Lease commences,
which repair and/or improvement is required by or under any governmental
authority, statute, law or regulation now in effect or imposed or enacted in
the future; the cost, including interest, amortized over its useful life, an
installation of any device or other equipment which is intended to improve the
operating efficiency of any system within the Leased Premises with the intent
to reduce Operating Expenses; all other expenses which would generally be
regarded as operating and maintenance expenses; all real property taxes and
installments of special assessments, including dues and assessments by means of
deed restrictions and/or owners' associations which accrue against the Property
of which the Leased Premises are a part during the term of this Lease; and all
insurance premiums Landlord is required to pay or deems necessary to pay,
including public liability insurance, with respect to the Property. The term
Operating Expenses does not include the following: repairs, restoration or
other work occasioned by fire, wind, the elements or other casualty only to the
extent such costs are covered by insurance proceeds; income and franchise taxes
of Landlord; expenses incurred in leasing to or procuring of lessees, leasing
commissions, advertising expenses and expenses for the renovating of space for
new lessees; interest or principal payments on any mortgage or other
indebtedness of Landlord; compensation paid to any employee of Landlord above
the grade of senior property manager; any capital costs not addressed above as
inclusions in Operating Expenses; or Operating Expenses which are the
responsibility of Tenant.
2.04 LATE PAYMENT CHARGE, INTEREST AND COSTS. Other remedies for
nonpayment of rent notwithstanding, if the monthly rental payment is not
received by Landlord on or before the fifth day of the month for which the
rent is due, or if any other payment due Landlord from Tenant is not received
by Landlord on or before the fifth day following the due date, a late payment
charge of five percent of such past due amount shall become due and payable in
addition to any other amounts owed under this Lease. In addition, any rent or
other amounts not paid on or before the fifth day following the due date shall
bear interest at 1 1/2% per month, retroactive to the due date, until fully
paid. Tenant shall indemnify Landlord against and hereby agrees to pay all
costs and charges (including legal fees and private investigator costs)
lawfully incurred by Landlord in enforcing payment thereof, in obtaining
possession of the Leased Premises after default of Tenant or upon expiration on
earlier termination of the Term of the Lease, or in enforcing any covenant,
provision or agreement of Tenant herein contained.
2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance
premiums paid by Landlord for the Property as caused by Tenant's use of the
Leased Premises in a manner other than as set forth in Section 1.06, or if
Tenant vacates the Leased Premises and causes an increase in such premiums,
than Tenant shall pay as additional rent the amount of such increase to
Landlord.
2.06 SECURITY DEPOSIT. The security deposit set forth above shall be held
by Landlord for the performance of Tenant's covenants and obligations under this
Lease, it being expressly understood that the deposit shall not be considered
an advance payment of rental or a measure of Landlord's damage in case of
default by Tenant. Upon the occurrence of any event of default by Tenant or
breach by Tenant of Tenant's covenants under this Lease, Landlord may, from
time to time, without prejudice to any other remedy, use the security deposit
to the extent necessary to make good any arrears of rent, or to repair any
damage or injury, or pay any expense or liability incurred by Landlord as a
result of the event of default or breach of covenant, and any
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remaining balance of the security deposit shall be returned by Landlord to
Tenant upon termination of this Lease. If any portion of the security deposit
is so used or applied, Tenant shall upon ten days written notice from Landlord,
deposit with Landlord by cash or cashier's check, an amount sufficient to
restore the security deposit to its original amount.
2.07 HOLDING OVER. If Tenant remains in possession of all or any part of
the Leased Premises after the expiration of the Lease Term hereof, with or
without the consent of Landlord, but without written agreement regarding such
holding over, such tenancy shall be from month-to-month only, and not a renewal
hereof or an extension for any further Lease Term, and such month-to-month
tenancy may be terminated by Landlord or Tenant on the last day of any calendar
month by delivery of at least ten (10) days advanced written notice to the
other. Such month-to-month tenancy shall be subject to every term, covenant and
agreement contained herein, except that the Base Rent shall immediately increase
to an annual rate equal to the greater of market rent or 150% of the rent
payable by Tenant immediately preceding said holding over. Nothing contained in
this Article shall be construed to limit or impair any of Landlord's right of
re-entry or eviction or constitute a waiver thereof. In addition to the payment
of the increased Base Rent as set forth above and any other amounts due under
the Lease, Tenant shall be liable to Landlord for, and shall pay to Landlord
upon Landlord's demand an amount equal to all costs, losses, claims or
liabilities (including attorney's and private investigator's fees) which
Landlord may incur as a result of Tenant's failure to surrender possession of
the Leased Premises to Landlord upon the expiration or earlier termination of
the Lease.
2.08. SURVIVAL. The provisions of this Article 2.00 (as well as other
lease provisions that survive) shall survive the termination of the Lease.
ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Tenant warrants and represents to Landlord that the Leased
Premises shall be used and occupied only for the purpose as set forth in
Section 1.06. At no time shall Tenant permit more than one person per 200
square feet of finished office area within the Leased Premises to occupy the
Leased Premises. Tenant shall occupy the Leased Premises, conduct its business
and control its agents, employees, invitees and visitors in such a manner as is
lawful, reputable and will not create a nuisance. Tenant shall not permit any
operation which emits any odor or matter which is toxic or hazardous or which
intrudes into other portions of the Property, use any apparatus or machine
which makes undue noise or causes vibration in any portion of the Property or
otherwise interfere with, annoy or disturb any other tenant in its normal
business operations or Landlord in its management of the Property. Tenant shall
neither permit any waste on the Leased Premises nor allow the Leased Premises
to be used in any way which would be hazardous to the environment or present a
fire danger that would, in any way increase or render void the fire insurance
on the Property. Tenant shall not bring onto the Property any toxic or
hazardous substance or material. Landlord shall not be liable to Tenant for
failure to enforce the terms of this article upon Tenant or other occupants of
the Property.
3.02 SIGNS. No sign of any type or description shall be erected, placed
or painted in or about the Leased Premises or project except those signs
submitted to Landlord in writing and approved by Landlord in writing, and which
signs are in conformance with Landlord's sign criteria established for the
project. Tenant hereby grants Landlord license to enter onto the Leased
Premises at any time, and to remove and dispose of any and all signs not in
compliance with this Section 3.02 and charge Tenant the cost of such removal
and/or disposal.
3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's
sole cost and expense, shall comply with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over use, condition and occupancy of the Leased Premises. Tenant
will comply with the rules and regulations of the Property adopted by Landlord
which are set forth on a schedule attached to this Lease. Landlord shall have
the right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care, cleanliness,
preservation of good order and operation or use of the Property or the Leased
Premises. All changes and amendments to the rules and regulations of the
Property will be sent by Landlord to Tenant in writing and shall thereafter be
carried out and observed by Tenant.
3.04 WARRANTY OF POSSESSION. Landlord warrants that it has the right and
authority to execute this Lease, and Tenant, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in
this Lease, shall have possession of the Leased Premises during the full term
of this Lease as well as any extension or renewal thereof. Landlord shall not
be responsible for the acts or omissions of any other tenant or third party that
may interfere with Tenant's use and employment of the Leased Premises.
3.05 INSPECTION. Landlord or its authorized agents shall at any and all
reasonable times have the right to enter the Leased Premises or to be provided
by Landlord, to show the Leased Premises to prospective purchasers or tenants,
and to alter, improve or repair the Leased Premises or any other portion of the
Property, or to remove therefrom and dispose of any toxic or hazardous materials
not approved by Landlord in writing. Tenant shall reimburse any cost incurred by
Landlord resulting from such repairs or removal and disposition. Tenant hereby
waives any claim for damages for injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or use of the Leased Premises, and any
other loss occasioned thereby. Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Leased Premises.
Tenant shall not change Landlord's lock system or in any other manner prohibit
Landlord from entering the Leased Premises. Landlord shall have the right to use
any and all means which Landlord may deem proper to open any door in an
emergency without liability therefore.
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ARTICLE 4.00 UTILITIES AND SERVICE
4.01 PROPERTY SERVICES. Landlord shall provide the normal utility service
connections to the Property. Tenant shall pay the cost of all utility services,
including, but not limited to, initial connection charges and all charges for
gas and electricity. Landlord will provide water and sanitary and storm sewer
service to the Leased Premises, in which case Tenant agrees to pay all costs
caused by Tenant introducing excessive pollutants or solids other than ordinary
human waste into the sanitary sewer system, including permits, fees and charges
levied by any governmental subdivision for any such pollutants or solids. Tenant
shall be responsible for the installation and maintenance of any dilution tanks,
holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps
or similar devices as may be required by any governmental subdivision for
Tenant's use of the sanitary sewer system. If the Leased Premises are in a
multi-occupancy building, Tenant shall pay all surcharges levied due to Tenant's
use of sanitary sewer or waste removal services insofar as such surcharges
affect Landlord or other tenants in the Property. In the event Tenant uses water
for other than restroom purposes and human consumption, an additional monthly
water charge will be billed to Tenant at Landlord's option. Landlord shall not
be required to pay for any utility services, supplies or upkeep in connection
with the Leased Premises or Property, other than for common area lighting.
Landlord's cost of providing the services set forth in this section are subject
to the additional rent provisions in Section 2.02.
4.02 THEFT OR BURGLARY. Landlord shall not be liable to Tenant for losses
to Tenant's property or personal injury caused by criminal acts or entry by
unauthorized persons into the Leased Premises or the Property.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01 LANDLORD REPAIRS. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Leased
Premises or the project during the term of this Lease except as are set forth in
this section. Landlord shall maintain only the roof, foundation, parking areas,
landscaped areas, common areas, and the structural soundness of the exterior
walls (excluding windows, window glass, plate glass and doors). Landlord's costs
of maintaining the items set forth in this section are subject to recovery
pursuant to the additional rent provisions in Section 2.02. Landlord shall not
be liable to Tenant, except as expressly provided in this Lease, for any damage
or inconvenience, and Tenant shall not be entitled to any abatement or reduction
of rent by reason of any repairs, alterations or additions made by Landlord
under this Lease.
5.02 TENANT MAINTENANCE. Subject to Landlord's prior written approval of
all specifications, materials, finishes, colors and design criteria, Tenant
shall, exclusively, through the use of Landlord's contractors and at Tenant's
sole cost and expense, maintain, repair and replace all other parts of the
Leased Premises in good repair and condition, including, but not limited to,
heating, ventilating and air conditioning systems, fire sprinkler system, dock
bumpers, dock levelers, pest control and extermination, and trash pick-up and
removal. Tenant shall pay for any damage caused by any act or omission of Tenant
or Tenant's agents, employees, invitees, licensees or visitors. If the Leased
Premises are in a multi-occupancy building or project, Landlord reserves the
right to perform, on behalf of Tenant, trash pick-up and removal; Tenant agrees
to pay Landlord, as additional rent, Tenant's pro rata share of the cost thereof
within ten days from receipt of Landlord's invoice, or Landlord may by monthly
invoice direct Tenant to prepay the estimated costs for the current calendar
year, and such amount shall be adjusted annually. If Tenant fails to make the
repairs or replacements promptly as required herein, Landlord may, at its
option, make the repairs and replacements and the cost of such repairs and
replacements shall be charged to Tenant as additional rent and shall become due
and payable by Tenant within ten days from receipt of Landlord's invoice. Costs
incurred under this section are the total responsibility of Tenant and do not
constitute Operating Expenses under Section 2.02.
5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance that are
the responsibility of Landlord pursuant to any provision of this Lease must be
made in writing to Landlord at the address in Section 1.05.
5.04 TENANT DAMAGES. Tenant shall not allow any damage to be committed on
any portion of the Leased Premises or Property, and at the termination of this
Lease, by lapse of time or otherwise, Tenant shall deliver the Leased Premises
to Landlord in as good condition as existed at the Commencement Date of this
Lease, ordinary wear and tear excepted. The cost and expense of any repairs
necessary to restore the condition of the Leased Premises shall be borne by
Tenant, and shall be paid by Tenant within 10 days at Landlord's invoice
therefor.
5.05 MAINTENANCE CONTRACT. Tenant shall, at its sole cost and expense,
during the term of this Lease maintain a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for the servicing of
all hot water, heating and air conditioning systems and equipment within the
Leased Premises and on the roof of the Building (any access to the roof
requiring Landlord's prior approval) and in any way servicing the Leased
Premises. The maintenance contractor and contract must be approved by Landlord
and must include monthly servicing, replacement of filters, replacement or
adjustment of drive belts, periodic lubrication and oil change and any other
services suggested by the equipment manufacturer. Landlord may, at its option,
provide the preventative maintenance for these services and the cost for these
services shall be charged to Tenant.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 LANDLORD IMPROVEMENTS. If construction to the Leased Premises is to be
performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Leased Premises, in
accordance with the Work Letter Agreement attached as Exhibit B.
6.02 TENANT IMPROVEMENTS. Tenant shall not cause or allow to be made any
alterations or physical additions in or to the Leased Premises (including,
without limitation, carpet and other flooring replacement or additions) without
first obtaining
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the written consent of Landlord, which consent may, in the sole and absolute
discretion of Landlord, be withheld. Any such improvements (only to the extent
fully approved by Landlord in writing) shall be constructed by Landlord's
contractor, which contractor shall be under contract with and under the sole
supervision of Landlord. Such Landlord approved improvements shall be
documented by adequate plans and specifications, which plans and specifications
shall be created by Landlord's space planner and engineer and are subject to
Landlord's discretionary approval. The entire cost associated with such
improvements and such plans and specifications shall be paid for exclusively by
Tenant, with the estimated cost being paid by Tenant, at Landlord's option,
within 18 hours of Landlord's notice to Tenant of such estimated cost, and, in
any event, prior to commencement of any construction or plans and
specifications respectively. Any excess of actual cost over such estimate shall
be paid by Tenant within ten (10) days of Landlord's invoice therefor. Any
alterations, physical additions or improvements to the Leased Premises made by
Tenant shall at once become the property of Landlord and shall be surrendered
to Landlord upon the termination of this Lease; provided, however, Landlord, at
its option, may require Tenant to remove any physical additions and/or repair
any alterations in order to restore the Leased Premises to the condition
existing at the time Tenant took possession, all costs of removal and/or
alterations to be borne by Tenant. This clause shall not apply to moveable
equipment or furniture owned by Tenant, which may be removed by Tenant at the
end of the term of this Lease if Tenant is not then in default of the Lease and
if such equipment and furniture are not then subject to any other rights, liens
and interest of Landlord. Tenant acknowledges that Landlord's contractor may be
conducting construction to the Leased Premises while Tenant is occupying them.
Tenant hereby releases, holds harmless, indemnifies and agrees to defend
Landlord from any damage, injury, inconvenience, loss of productivity,
environmental or noise pollution or any other problem Tenant experiences by
virtue of such construction work being conducted in occupied space.
Additionally, Tenant covenants that it will assure that construction area
within the Leased Premises is free and clear of any objects, including, without
limitation, personnel, furniture, fixtures, equipment, boxes, trash or any
other objects, throughout the duration of the construction process.
6.03 MECHANICS LIEN. Tenant will not permit any mechanic's or
materialman's lien(s) or other lien to be placed upon the Leased Premises or
the Property and nothing in this Lease shall be deemed or construed in any way
as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person for the performance of any labor or the
furnishing of any material to the Leased Premises, or any part thereof, nor as
giving Tenant any right, power, or authority to contract for or permit the
rendering of any services or the furnishing of any materials that would give
rise to any mechanic's, materialman's or other lien against the Leased
Premises. In the event any such lien is attached to the Leased Premises, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to, obtain the release of or otherwise discharge the same. Any
amount paid by Landlord for any of the aforesaid purposes shall be paid by
Tenant to Landlord on demand as additional rent.
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the Leased Premises should be totally
destroyed by fire or other casualty, or if the Leased Premises should be
damaged so that rebuilding cannot reasonably be completed within ninety working
days after the date of written modification by Tenant to Landlord of the
destruction, this Lease shall terminate and the rent shall be abated for the
unexpired portion of the Lease, effective as of the date of the written
notification.
7.02 PARTIAL DESTRUCTION. If the Leased Premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed within ninety working days from the date of written modification by
Tenant to Landlord of the destruction, this Lease shall not terminate, and
Landlord shall at its expense (provided adequate insurance proceeds are
available to Landlord to pay the entire cost) proceed with reasonable diligence
to rebuild or repair the Property or other improvements to substantially the
same condition in which they existed prior to the damage. If the Leased
Premises are to be rebuilt or repaired and are untenantable in whole or in part
following the damage, and the damage or destruction was not caused or
contributed to by act or negligence of Tenant, its agents, employees, invitees
or those for whom Tenant is responsible, the rent payable under this Lease
during the period for which the Leased Premises are untenantable shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. In the event that Landlord fails to complete the necessary
repairs or rebuilding within ninety working days from the date of written
notification by Tenant to Landlord of the destruction, Tenant may at its option
terminate this Lease by delivering written notice of termination to Landlord,
whereupon all rights and obligations under this Lease shall cease to exist.
7.03 PROPERTY INSURANCE. Landlord shall at all times during the term of
this Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring
the Property against all risk of direct physical loss in an amount equal to at
least ninety percent of the full replacement cost of the building structure and
its improvements as of the date of the loss; provided, Landlord shall not be
obligated in any way or manner to insure any personal property (including, but
not limited to, any furniture, machinery, goods or supplies) of Tenant upon or
within the Leased Premises, any fixtures installed or paid for by Tenant upon
or within the Leased Premises, or any improvements which Tenant may construct
on the Leased Premises. Tenant shall have no right in or claim to the proceeds
of any policy of insurance maintain by Landlord even though the cost of such
insurance is borne by Tenant as set forth in Article 2.00.
7.04 TENANT'S INSURANCE. During the Term, Tenant shall maintain, with
insurers reasonably satisfactory to Landlord, at its own expense and provide
insurance certificates evidencing the following to Landlord without demand or
notice upon signing this Lease and upon any policy renewal or replacement:
(a) Fire insurance with extended coverage and water damage
insurance in amounts equal to the full replacement value of Tenant's
improvements and all property in the Leased Premises which is not owned by
Landlord, with Landlord and Global Pacific Properties, Inc. named as additional
insureds;
(b) Liability insurance, with Landlord and Global Pacific
Properties, Inc. named as an additional insureds,
Initial: KDK
PRS
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against claims for death, personal injury and property damage in or about the
Leased Premises, in amounts of $1,000,000 for death, illness or injury to one
or more persons, and $500,000 for property damage, in respect to each
occurrence.
(c) Worker's Compensation insurance covering all persons employed by
Tenant in or about the Leased Premises, including contract labor for tenant
activities for tenant activities; and
(d) Business Interruption Insurance with coverage equal to six (6)
month's gross income of Tenant.
7.05 WAIVER OF SUBROGATION. Except as provided in Section 7.06 below,
Landlord and Tenant hereby waive and release each other of and from any and all
right of recovery, claim, action or cause of action, against each other, their
agents, officers and employees, for any loss or damage that may occur to the
Leased Premises, improvements to the Property of which the Leased Premises are a
part, or personal property within the Property, by reason of fire or the
elements, regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, officers and employees. Landlord and Tenant agree
immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed, if necessary, to prevent the invalidation
of the insurance coverages by reason of the mutual waivers.
7.06 HOLD HARMLESS. Landlord shall not be liable to Tenant or Tenant's
employees, agents, invitees, licensees or visitors, or to any other person for
an injury to person or damage to property on or about the Leased Premises
caused by any act or omission of Tenant, its agents, servants or employees, or
of any other person entering upon the Leased Premises under express or implied
invitation by Tenant, or caused by the improvements located on the Leased
Premises becoming out of repair, the failure or cessation of any service
provided by Landlord (including security service and devices), or caused by
leakage of gas, oil, water or steam or by electricity emanating from the Leased
Premises. Tenant agrees to indemnify and hold harmless Landlord of and from any
loss, attorney's fees, expenses or claims arising out of Tenant's negligence,
fraud or intentional misconduct.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the Leased
Premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the Leased Premises for the purpose for which it is then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease effective on the date physical possession is taken by the
condemning authority. Tenant shall have no claim to the condemnation award or
proceeds in lieu thereof.
8.02 PARTIAL TAKING. If a portion of the Leased Premises shall be taken
for any public or quasi-public use under any governmental law, ordinance, or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in Section 8.01 above, to the extent
that condemnation proceeds are available to Landlord, Landlord shall at
Landlord's sole risk and expense, restore and reconstruct the Property and
other improvements on the Leased Premises to the extent necessary to make it
reasonably rentable. The rent payable under this Lease during the unexpired
portion of the term shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. Tenant shall have no claim to the
condemnation award or proceeds in lieu thereof.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LANDLORD ASSIGNMENT. Landlord shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
to the Property. Any such sale, transfer or assignment shall operate to release
Landlord from any and all liabilities under this Lease arising after the date of
such sale, assignment or transfer.
9.02 TENANT ASSIGNMENT. Tenant shall not assign, in whole or in part, this
Lease, or allow it to be assigned, in whole or in part, by operation of law or
otherwise (including without limitation by transfer of a majority interest of
stock, merger, or dissolution, which transfer of majority interest of stock,
merger or dissolution shall be deemed an assignment) or mortgage or pledge the
same, or sublet the Leased Premises, in whole or in part, without the prior
written consent of Landlord, and in no event shall any such assignment or
sublease ever release Tenant or any guarantor from any obligation or liability
hereunder. Under no circumstances shall Tenant be permitted to sublet the Leased
Premises or assign or otherwise convey its rights under this Lease to any other
tenant in the Property or to any prospective tenant with which prospective
tenant Landlord is negotiating. No assignee or sublessee of the Leased Premises
or any portion thereof may assign or sublet the Leased Premises or any portion
thereof.
9.03 CONDITIONS OF ASSIGNMENT. If Tenant desires to assign or sublet all or
any part of the Leased Premises, it shall so notify Landlord at least thirty
days in advance of the date on which Tenant desires to make such assignment or
sublease. Tenant shall provide Landlord with a copy of the proposed assignment
or sublease, and such information as Landlord might request concerning the
proposed sublessee or assignee to allow Landlord to make informed judgments as
to the financial condition, reputation, operations and general desirability of
the proposed subleasee or asignee and the greater of $400 or Landlord's actual
out-of-pocket cost to reimburse Landlord's cost of reviewing such documentation
and the sublease or assignment. Within fifteen days after Landlord's receipt of
Tenant's proposed assignment or sublease and all required information concerning
the proposed sublessee or assignee, Landlord shall have the following options:
(1) cancel this Lease as to the Leased Premises or portion thereof proposed to
be assigned or sublet; (2) consent to the proposed assignment or sublease, and,
if the rent due and payable by any assignee or sublessee under any such
permitted assignment or sublease (or a combination of the rent payable under
such assignment or sublease plus any bonus or any other consideration or any
payment
6
<PAGE> 7
incident thereto) exceeds the rent payable under this Lease for such space.
Tenant shall pay to Landlord all such excess rent and other excess
consideration within ten days following receipt thereof by Tenant; (or (3)
refuse, in its sole and absolute discretion and judgment, to consent to the
proposed assignment or sublease, which refusal shall be deemed to have been
exercised unless Landlord gives Tenant written notice providing otherwise. Upon
the occurrence of an event of default, if all or any part of the Leased
Premises are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or provided by law, may, at its option, collect
directly from the assignee or sublessee all rents becoming due to Tenant by
reason of the assignment or sublease, and Landlord shall have a security
interest in all property on the Leased Premises to secure payment of such sums.
Any collection directly by Landlord from the assignee or sublessee shall not be
construed to constitute a novation on a release of Tenant or any guarantor from
the further performance of its obligations under this Lease.
9.04 SUBORDINATION. Tenant accepts this Lease subject and subordinate to
any recorded mortgage or deed of trust then presently existing or hereafter
created upon the Property or project and to all existing recorded restrictions,
covenants, easements and agreements with respect to the Property. Landlord is
hereby irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any first mortgage or deed of trust lien hereafter
placed on the Leased Premises, and Tenant agrees upon demand to execute
additional instruments subordinating this Lease as Landlord may require. In the
interests of Landlord under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any first mortgage or deed
of trust lien on the Leased Premises. Tenant shall be bound to the transferee
(sometimes called the "Purchaser") at the option of the Purchaser, under the
term, covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and effect
as if the Purchaser were Landlord under this Lease, and, if requested by the
Purchaser, Tenant agrees to attorn to the Purchaser, including the first
mortgagee under any such mortgage if it be the Purchaser, as its Landlord.
Tenant shall not record this Lease under any circumstances.
9.05 ESTOPPEL CERTIFICATES. Tenant agrees to furnish, from time to time,
within ten days after receipt of a request from Landlord or Landlord's
mortgagee, a statement certifying, if applicable, the following: Tenant is in
possession of the Leased Premises; the Leased Premises are acceptable; the Lease
is in full force and effect; the Lease is unmodified; Tenant claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one month and will not be prepaid for
more than one month in advance; there is no existing default by reason of some
act or omission by Landlord; and such other matters as may be reasonably
required by Landlord or Landlord's mortgagee. Tenant's failure to deliver such
statement, in addition to being a default under this Lease, shall be deemed to
establish conclusively that this Lease is in full force and effect except as
declared by Landlord, that Landlord is not in default of any of its obligations
under this Lease, and that Landlord has not received more than one month's rent
in advance.
ARTICLE 10.00 LIENS
10.01 LANDLORD'S LIEN. As security for payment of rent, damages and all
other payments required to be made by this Lease, Tenant hereby grants to
Landlord a lien upon all property of Tenant now or subsequently located upon the
Leased Premises. If Tenant abandons or vacates any substantial portion of the
Leased Premises or is in default in the payment of any rentals, damages or other
payments required to be made by this Lease or is in default of any other
provision of this Lease, Landlord may enter upon the Leased Premises by picking
or changing locks if necessary, and take possession of all or any part of the
personal property, and may sell all or any part of the personal property at a
public or private sale, in one or successive sales, with or without notice, to
the highest bidder for cash, and, on behalf of Tenant, sell and convey all or
part of the personal property to the highest bidder, delivering to the highest
bidder all of Tenant's title and interest in the personal property sold. The
proceeds of the sale of the personal property shall be applied by Landlord
toward the reasonable costs and expenses of the sale, including attorney's fees,
and then toward the payment of all sums then due by Tenant to Landlord under the
terms of this Lease. Any excess remaining shall be paid to Tenant (if Tenant may
be reasonably located without expense to or significant effort by Landlord) or
any other person entitled thereto by law (if said person may be reasonably
located without expense to or significant effort by Landlord).
10.02 UNIFORM COMMERCIAL CODE. This Lease is intended as and constitutes
a security agreement within the meaning of the Uniform Commercial Code of the
state in which the Leased Premises are situated. Landlord, in addition to the
rights prescribed in this Lease, shall have all of the rights, titles, liens
and interests in and to Tenant's property, now or hereafter located upon the
Leased Premises, which may be granted a secured party, as that term is defined,
under the Uniform Commercial Code to secure to Landlord payment of all sums due
and the full performance of all Tenant's covenants under this Lease. Tenant
will on request execute and deliver to lessor a financing statement for the
purpose of perfecting Landlord's security interest under this Lease or Landlord
may file this Lease or a copy thereof as a financing statement. Unless
otherwise provided by law and for the purpose of exercising any right pursuant
to this section. Landlord and Tenant agree that reasonable notice shall be met
if such notice is given by ten days written notice, certified mail, return
receipt requested, to Landlord or Tenant at the addresses specified herein.
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 DEFAULT BY TENANT The following shall be deemed to be events of
default by Tenant under this Lease: (1) Tenant shall fail to pay when due any
installment of rent or any other payment required pursuant to this Lease; (2)
Tenant shall abandon any substantial portion of the Leased Premises; (3) Tenant
shall fail to comply with any term, provision or covenant of this Lease; and
other than for the payment of rent, which default shall require no notice, the
failure is not cured within ten days after written notice to Tenant, (4) Tenant
shall file a petition or be adjudged bankrupt or insolvent under any applicable
federal or state bankruptcy or insolvency law or admit that it cannot meet its
financial obligation as they become due; or a receiver or trustee shall be
appointed for all or substantially all of the assets of Tenant; or Tenant shall
make a transfer in fraud of creditors or shall make all assignment for the
benefit of creditors; or (5) Tenant shall do or permit to be done any act
which results in a lien being filed against the Leased Premises on the Property
and/or project of which the Leased Premises are a part.
Initial: KDK
[ILLEGIBLE COPY]
7
<PAGE> 8
11.02 REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of any event of
default set forth in this Lease, Landlord shall have the option to pursue any
one or more of the remedies set forth herein without any notice or demand. (1)
Landlord may enter upon and take possession of the Leased Premises, by picking
or changing locks if necessary, and lock out, expel and remove Tenant and any
other person who may be occupying all or any part of the Leased Premises without
being liable for any claim for damages and without relieving Tenant from the
obligation to pay rent and other charges due under this Lease, except to the
extent of rent received from reletting the Leased Premises. To relet the Leased
Premises on behalf of Tenant and receive the rent directly by reason of the
reletting. Tenant agrees to pay Landlord on demand any deficiency that may arise
by reason of any reletting of or failure to relet the Leased Premises: further,
Tenant agrees to reimburse Landlord for any expenditures made by Landlord in
order to relet the Leased Premises, including, but not limited to, remodeling
and repair costs. (2) Landlord may enter upon the Leased Premises, by picking or
changing locks if necessary, without being liable for any claim for damages, and
do whatever Tenant is obligated to do under the terms of this Lease. Tenant
agrees to reimburse Landlord on demand for any expenses which Landlord may incur
in effecting compliance with Tenant's obligations under this Lease; further,
Tenant agrees that Landlord shall not be liable for any damages resulting to
Tenant from affecting compliance with Tenant's obligations under this Lease
caused by the negligence of Landlord or otherwise. (3) Landlord may terminate
this Lease, in which event Tenant shall immediately surrender the Leased
Premises to Landlord, and if Tenant fails to surrender the Leased Premises,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Leased
Premises, by picking or changing locks if necessary, and lock out, expel or
remove Tenant and any other person who may be occupying all or any part of the
Leased Premises without being liable for any claim for damages. Tenant agrees to
pay on demand the amount of all loss and damage which Landlord may suffer by
reason of the termination of this Lease under this section, whether through
inability to relet the Leased Premises on satisfactory terms or otherwise.
Notwithstanding any other remedy set forth in this Lease, in the event Landlord
has made rent concessions of any type or character, or waived any Base Rent, and
Tenant fails to take possession of the Leased Premises on the Commencement or
Completion Date or otherwise defaults at any time during the terms of this
Lease, the rent concessions, including any waived Base Rent, shall be cancelled
and the amount of the Base Rent or other rent concessions shall be due and
payable immediately as if no rent concessions or waiver of any Base Rent had
ever been granted. A rent concession or waiver of the Base Rent shall not
relieve Tenant of any obligation to pay any other charge due and payable under
this Lease including without limitation any sum due under Section 2.02.
Notwithstanding anything contained in this Lease to the contrary, this Lease may
be terminated by Landlord only by mailing or delivering written notice of such
termination to Tenant, and no other act or omission of Landlord shall be
construed as a termination of this Lease.
ARTICLE 12.00 RELOCATION
12.01 RELOCATION OPTION. In the event Landlord determines to utilize the
Leased Premises for other purposes during the term of this Lease, Tenant agrees
to relocate to other space in the Property designated by Landlord, provided such
other space is of equal size to or larger size than the Leased Premises.
12.02 EXPENSES. Landlord shall pay all out-of-pocket expenses of any such
relocation, including the expenses of moving and reconstruction of all Tenant
furnished and Landlord furnished improvements to bring the relocated to space to
a reasonably comparable condition to the relocated from space. In the event of
such relocation, this Lease shall continue in full force and effect without any
change in the terms or conditions of this Lease, but with the new location
substituted for the old location set forth in Section 1.02 of this Lease.
ARTICLE 13.00 DEFINITIONS
13.01 ABANDON. "Abandon" means the vacating of all or a substantial portion
of the Leased Premises by Tenant, whether or not Tenant is in default of the
rental payments due under this Lease.
13.02 ACT OF GOD OR FORCE MAJEURE. An "act of God" or "force Majeure" is
defined for purposes of this Lease as strikes, lockouts, sitdowns, material or
labor restrictions by any governmental authority, unusual transportation delays,
riots, floods, washouts, explosions, earthquakes, fire, storms, whether
(including wet grounds or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections and any other cause not reasonably
within the control of Landlord and which by the exercise of due diligence
Landlord is unable, wholly or in part, to prevent or overcome.
13.03 PROPERTY. "Property" as used in this Lease means the property
and/or project described in Section 1.02, including the Leased Premises and the
land upon which any improvements are situated.
13.04 COMMENCEMENT DATE. "Commencement Date" shall be the date set forth in
Section 1.03. The Commencement Date shall constitute the commencement of the
term of this Lease for all purposes, whether or not Tenant has actually taken
possession, except as specified below in Section 13.05.
13.05 COMPLETION DATE. "Completion Date" shall be the date on which the
improvements erected and to be erected upon the Leased Premises, shall have been
substantially completed in accordance with the plans and specifications
described in Article 6.00. Provided that Tenant is not already in occupancy of
the Leased Premises, subject to the provisions of Exhibit B herein (Work Letter
Agreement) and provided Tenant does not cause any delays, the Completion Date
shall constitute the commencement of the term of this Lease for all purposes.
Landlord shall use its best efforts to establish the Completion Date as the
Commencement Date set forth in Section 1.03. In the event that the improvements
have not in fact been completed as of that date, Landlord shall have a
reasonable time in which to complete construction. If Tenant causes any delays,
or as otherwise provided therein, the provisions of Exhibit B (Work Letter
Agreement) shall control. Provided that Tenant is not already in occupancy of
the Leased Premises, upon substantial completion of construction, Tenant shall
deliver to Landlord a letter accepting the Leased Premises as suitable for the
purposes for which they are let and the date specified in such letter shall
8
<PAGE> 9
be the date of substantial completion and shall constitute the commencement of
the term of this Lease. Whether or not Tenant has executed such letter of
acceptance, taking possession of the Leased Premises by Tenant shall be deemed
to establish conclusively that the improvements have been completed in
accordance with the plans and specifications, are suitable for the purposes for
which the Leased Premises are let, and that the Leased Premises are in good and
satisfactory condition as of the date possession was so taken by Tenant.
Notwithstanding the preceding in this Paragraph 13.05, if Tenant is already in
occupancy of the Leased Premises, all of Tenant's obligations under the Lease
shall commence no later than the Commencement Date, irrespective of the
completion status of any improvements to the Leased Premises.
13.06 SQUARE FEET. "Square feet" or "square foot" as used in this Lease
includes the area contained within the Leased Premises together with a common
area percentage factor of the Leased Premises proportionate to the total
building area.
ARTICLE 14.00 MISCELLANEOUS
14.01 NO WAIVER. Failure of Landlord to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Landlord shall have the right to declare the default at any time and take such
action as is lawful or authorized under this Lease. Pursuit of any one or more
of the remedies set forth in Article 11.00 above shall not preclude pursuit of
any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or
waiver of any rent or damages accruing to Landlord by reason of the violation
of any of the terms, provisions or covenants of this Lease. Failure by
Landlord to enforce one or more of the remedies provided upon an event of
default shall not be deemed or construed to constitute a waiver of the default
or of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease.
14.02 ACT OF GOD. Landlord shall not be required to perform any covenant
or obligation in this Lease, or be liable in damages to Tenant, so long as the
performance or non-performance of the covenant or obligation is delayed, caused
or prevented by an act of God, or force majeure or by Tenant.
14.03 ATTORNEY AND PRIVATE INVESTIGATOR FEES. In the event Tenant defaults
in the performance of any of the terms, covenants, agreements or conditions
contained in this Lease and Landlord places in the hands of an attorney the
enforcement of all or any part of this Lease, the collection of any rent due or
to become due or recovery of the possession of the Leased Premises and/or
retains a private investigator for services related thereto, Tenant agrees to
pay Landlord's costs of collection, including, without limitation, attorney and
investigator costs, whether suit is actually filed or not.
14.04 SUCCESSORS. This Lease shall be binding upon and inure to the benefit
of Landlord and Tenant and their respective heirs, personal representatives,
successors and assigns, such assigns subject to the provisions of Section 9.02.
It is hereby covenanted and agreed that should Landlord's interest in the Leased
Premises cease to exist for any reason during the term of this Lease, then
notwithstanding the happening of such event this Lease nevertheless shall remain
unimpaired and in full force and effect, and Tenant hereunder agrees to attorn
to the then owner of the Leased Premises.
14.05 RENT TAX. If applicable in the jurisdiction where the Leased
Premises are situated, Tenant shall pay and be liable for all rental, sales
and use taxes or other similar taxes, if any, levied or imposed by any city,
state, county or other governmental body having authority, such payments to be
in addition to all other payments required to be paid to Landlord by Tenant
under the terms of this Lease. Any such payment shall be paid concurrently with
the payment of the rent, additional rent, Operating Expenses or other charge
upon which the tax is based as set forth above.
14.06 CAPTIONS. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
14.07 NOTICE. All rent and other payments required to be made by Tenant
shall be payable to Landlord at the address set forth in Section 1.05, or at any
other address within the United States as Landlord may specify from time to time
by written notice. All payments required to be made by Landlord to Tenant shall
be payable to Tenant at the address set forth in Section 1.05, or at any other
address within the United States as Tenant may specify from time to time by
written notice. Any notice or document required or permitted to be delivered by
the terms of this Lease shall be deemed to be delivered (whether or not actually
received) when deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth in Section 1.05.
14.08 SUBMISSION OF LEASE. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Landlord
and Tenant.
14.09 CORPORATE AUTHORITY. If Tenant executes this Lease as a corporation,
partnership, limited liability company or other formal entity, each of the
persons executing this Lease on behalf of Tenant does hereby personally
represent and warrant that Tenant is a duly authorized and existing corporation
partnership, limited liability company or other formal entity, that Tenant is
qualified to do business in the state in which the Leased Premises are located,
that the corporation, partnership, limited liability company or other formal
entity, has full right and authority to enter into this Lease, and that each
person signing on behalf of the corporation, partnership, limited liability
company or other formal entity, is authorized to do so. In the event any
representation or warranty is false, all persons who execute this Lease shall
be liable, individually, as Tenant.
14.10 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid, or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
9
<PAGE> 10
14.11 LANDLORD'S LIABILITY. If Landlord shall be in default under this
Lease and, if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
right, title and interest of Landlord in the Property as the same may then be
encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interest in the Property as herein expressly
provided.
14.12 INDEMNITY. Tenant agrees to indemnify and hold harmless Landlord
from and against any liability or claim, whether meritorious or not, arising
with respect to any broker whose claim arises by, through or on behalf of
Tenant, except as disclosed to Landlord in writing prior to the time that space
planning or lease negotiations have commenced.
14.13 NO RECORDING BY TENANT. Under no circumstances shall Tenant record
this Lease.
ARTICLE 15.00 AMENDMENT AND LIMITATIONS OF WARRANTIES
15.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY Tenant, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE
OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
15.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY Landlord AND Tenant.
15.03 LIMITATION OF WARRANTIES. Landlord AND Tenant EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS
LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET
FORTH IN THIS LEASE.
ARTICLE 16.00 OTHER PROVISIONS
16.01 SECURITY DEPOSIT. Provided that Tenant has not been in default of
the Lease at any time during the Term up to that point, Landlord shall credit
to Tenant's account one-third of Tenant's then-remaining Security Deposit after
the end of the first year of the Lease or after Tenant has achieved a positive
net worth and positive net income (pursuant to audited GAAP financial
statements), whichever last occurs. Further, provided that Tenant has not been
in default of the Lease at any time during the Term up to that point, the
positive difference between the remaining Security Deposit and $1,968 shall be
credited to Tenant's account after the end of the second year of the Lease or
after Tenant has achieved a positive net worth and positive net income
(pursuant to audited GAAP financial statements), whichever last occurs. If
Tenant is in default of the Lease at any time prior to any credit to Tenant
described above in this Paragraph 16.01 being made, no such credits (of future
credits) shall be made; Landlord shall retain any remaining Security Deposit
for the entire Term; and Tenant shall, in any event, be required to comply with
all other provisions of the Lease related to the Security Deposit, including,
without limitation, Paragraph 2.06 thereof. Under no circumstances shall
Tenant's Security Deposit be less than $1,968 at any time.
16.02 COMMON AREA RESTROOMS. Tenant agrees to share with the tenant in
Suite 204, equally, the use and maintenance of the restrooms marked as Area A
on the attached Exhibit E. Landlord shall have no liability or obligation
whatsoever related to Tenant's shared use or maintenance of said restroom.
ARTICLE 17.00 SIGNATURES
SIGNED at Arapahoe County this 27th day of April, 1998
Landlord Tenant
HIGHLAND SQUARE CENTER, LTD. GRAFIX TIME CORPORATION,
a Colorado limited partnership a New York Corporation
By: KAI Brothers, Inc., general partner
By: BR Bauvare By: Kent D. Krausman
-------------------------- ----------------------
Title: Vice President Title: President/CEO
----------------------- -------------------
10
<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
Grafix Corporation, as of September 30, 1998, had no subsidiaries. As a
result of the merger (as described herein) of Grafix Corporation and Golf One
Industries, Inc., the subsidiaries of Golf One Industries, Inc. became wholly
owned subsidiaries of the Company, which are as follows:
1. Rhino Marketing, Inc.
2. Gran Prix Marketing, Inc.
3. Digital-Golf.com, Inc.
4. G.P. Direct, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 19,683
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,683
<PP&E> 7,079
<DEPRECIATION> 7,772
<TOTAL-ASSETS> 26,762
<CURRENT-LIABILITIES> 1,660,537
<BONDS> 2,653,828
0
0
<COMMON> 338
<OTHER-SE> (4,287,941)
<TOTAL-LIABILITY-AND-EQUITY> 26,762
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 704,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (704,311)
<DISCONTINUED> 3,843,422
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,547,738)
<EPS-BASIC> (16.32)
<EPS-DILUTED> (16.32)
</TABLE>
<PAGE> 1
Exhibit 99.3
TO BUSINESS AND RETAILING EDITORS:
Gary Player Direct Changes Symbol to GPLY;
Not Available on OTC Bulletin Board Until Commission Filings Completed
SAN LUIS OBISPO, Calif., Oct. 21 /PRNewswire/ -- Gary Player Direct, Inc.
(Over the Counter Market: GPLY), Thursday, announced that the Company's shares
are currently not eligible for quotation on the NASD OTC Bulletin Board. The
Company stated that market makers for the Company's securities are not
currently permitted to publish OTC Bulletin Board quotations until such time as
the Company is current in its reporting requirements with the Securities and
Exchange Commission; however, last trade information may be obtained for the
Company's stock at web sites such as http://www.bloomberg.com. The Company also
stated that trading information for the Company's 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. Carl Casareto, the
Company's Executive Vice President and Treasurer, stated, "We fully anticipated
this action and we are actively working to complete the required financial
statements and the Company intends to file all 1998 reports next week with the
balance of the 1999 reports filed in November 1999." Mr. Casareto also stated,
"There are no minimum financial requirements for the re-quoting of our
securities on the NASD Bulletin Board once our financial statements are current.
It is my understanding that it will take approximately three business days
following the completion of our reports for market makers to again provide
quotations for the Company's securities on the Bulletin Board."
Gary Player Direct is an international golf company with the strategic plan
of establishing itself as a premier manufacturer and distributor of premium men
and women's golf equipment, apparel and accessories principally under the Gary
Player brand name through e-commerce, direct response television, direct mail
sales and international licensing. These products will also be featured in the
coming months on http://www.garyplayerdirect.com, the Company's new Internet
site, which will incorporate full e-commerce capabilities, as well as news,
information and golf instruction for golfers of all ages and skills.
The statements in this press release relating to matters that are not
historical are forward-looking statements which involve risks and uncertainties
including, without limitation, economic and competitive conditions in the
markets served by the Company affecting the demand for the Company's products,
product pricing, market acceptance, access to distribution channels,
availability of new financing, ability to cure license defaults, ability to
timely file past due SEC reports, and other risks detailed from time-to-time in
the Company's Securities and Exchange Commission filings and press releases.
These risks could cause actual results to differ materially from those
anticipated or described herein.
SOURCE Gary Player Direct, Inc.
-0- 10/21/1999
/CONTACT: Carl Casareto, Executive Vice President of Gary Player Direct,
Inc., 805-788-1011/
/Web site: http://www.garyplayerdirect.com/
(GPLY)
