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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Quarterly Period Ended June 30, 1999
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 033-07811NY
GARY PLAYER DIRECT, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 93-0943925
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
710 AEROVISTA, SUITE B, SAN LUIS OBISPO, CALIFORNIA 93401
(Address of Principal Executive Offices)
(805) 783-1011
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of: June 30, 1999: 5,951,008
Common Stock
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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GARY PLAYER DIRECT, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - for the Three Months ended
June 30, 1999 (Unaudited) and the fiscal year ended
March 31, 1999. 3
Consolidated Statements of Operations - for the Three Months
ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows - for the Three Months
ended June 30, 1999 and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements - June 30, 1999 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
</TABLE>
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PART I - FINANCIAL INFORMATION
GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
June 30, 1999 March 31, 1999
(unaudited)
<S> <C> <C>
Current Assets
Cash $ 42 $ 249,545
Accounts receivable 27,351 2,001
Inventories 347,162 355,226
Prepaid expenses and other 73,508 230,041
------------ ------------
Total current assets 448,063 836,813
Furniture, fixtures, property and equipment, net 229,141 241,856
Other Assets 856,931 807,791
------------ ------------
Total assets $ 1,534,135 $ 1,886,460
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 8,115,172 $ 7,332,273
Notes payable 4,648,316 4,404,220
Customer refunds, deferred revenue and allowance for returns 4,381,615 4,837,136
------------ ------------
Total current liabilities 17,145,103 16,573,629
Notes Payable, less current portion 650,000 650,000
Stockholders' Deficit
Common stock, par value $.001 per share - authorized
50,000,000 shares, issued and outstanding 5,951,008 and 5,959 5,795
5,794,758 shares at June 30 and March 31, 1999
respectively -- --
Preferred stock, par value, $.001 per share - authorized 5,000,000 shares
Series B convertible preferred stock - authorized, 750,750 shares -- --
Additional paid in capital 13,513,790 13,012,466
Common stock subscribed -- (60,711)
Accumulated deficit (29,780,717) (28,294,719)
------------ ------------
Total Stockholders' Deficit (16,260,968) (15,337,169)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,534,135 $ 1,886,460
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
JUNE 30, JUNE 30,
1999 1998
=========== ===========
<S> <C> <C>
Gross Sales $1,439,689 $5,067,006
Less allowances for returns 769,974 2,213,939
----------- -----------
Net Sales 669,715 2,853,067
Cost of goods sold 380,233 1,174,424
----------- -----------
Gross Profit 289,482 1,678,643
Operating expenses
Telemarketing and infomercial expenses 429,105 1,492,606
Selling expenses 335,289 888,722
General and administrative 635,461 409,487
Depreciation and amortization 17,858 17,051
Litigation settlement expense -- 23,333
----------- -----------
Total operating expenses 1,417,713 2,831,199
----------- -----------
Operating loss (1,128,231) (1,152,556)
Other expenses
Interest expense 355,223 1,396,741
Other (income) expense, net 2,544 (31,654)
----------- -----------
Total other expenses 357,767 1,365,087
----------- -----------
NET LOSS $(1,485,998) $(2,517,643)
=========== ===========
Weighted average shares of common stock outstanding 5,849,758 1,751,958
=========== ===========
Net loss per share - Basic and diluted $(0.25) $(1.44)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net loss $(1,485,998) $(2,517,643)
Adjustments to reconcile net loss to net cash
used in operating activities:
Allowance for uncollectible receivables -- 20,306
Depreciation and amortization 17,858 17,051
Amortization of discount on debt -- 1,278,357
Issuance of Class A warrants for new notes payable 100,000 --
Issuance of common stock for consulting services 236,250 --
Issuance of common stock to employees 30,000 --
Issuance of common stock for loan extensions 15,000 --
Issuance of common stock for vendor settlements 45,000 --
Issuance of common stock for loan fees 88,751 --
Changes in assets and liabilities:
Accounts receivables (25,350) (44,932)
Inventories 8,064 (407,222)
Prepaid expenses and other 156,533 (235,410)
Other assets (49,140) (474,263)
Accounts payable and accrued liabilities 769,386 788,693
Customer refunds, deferred revenue and allowance for returns (455,521) 364,374
----------- -----------
Net cash used in operating activities (549,167) $(1,210,690)
----------- -----------
Cash flows from investing activities:
Purchases of equipment (5,143) (103,870)
Cash flows from financing activities:
Proceeds from issuance of debt 249,269 1,387,500
Proceeds from sale of stock -- 18,000
Proceeds from common stock subscribed 60,711 --
Payments on capital lease (5,173) --
----------- -----------
Net cash provided by financing activities 304,807 1,405,500
----------- -----------
Net increase (decrease) in cash (249,503) 90,940
Cash at beginning of period 249,545 129,008
----------- -----------
Cash at end of period $ 42 $ 219,948
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest -- 4,255
----------- -----------
Supplemental disclosure of noncash financing activity:
Issuance of common stock for note extensions $ 15,000 $ 0
----------- -----------
Issuance of common stock for new notes payable $ 88,751 $ 744,944
----------- -----------
Issuance of common stock for consulting fees $ 236,250 $ 0
----------- -----------
Issuance of common stock for employee services $ 30,000 $ 0
----------- -----------
Issuance of common stock for vendor settlements $ 4,000 $ 0
----------- -----------
Issuance of warrants for new note payable $ 100,000 $ 0
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GARY PLAYER DIRECT, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999
-------------
(UNAUDITED)
-----------
1. GENERAL
The accompanying unaudited interim financial statements of Gary Player Direct,
Inc. (the "Company") include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all significant intercompany transactions,
accounts and profits. These statements include all adjustments (consisting
solely of normal recurring adjustments) which, in the opinion of management, are
necessary to fairly present the financial position of the Company as of June 30,
1999 and the results of its operations and its cash flows for the three months
ended June 30, 1999 and 1998. The results of operations for this interim period
are not necessarily indicative of results to be expected for the full year.
These interim financial statements should be read in conjunction with the
Summary of Significant Accounting Policies and other Notes to Financial
Statements included in the Company's annual audited financial statements for the
year ended March 31, 1999. Certain prior year amounts have been reclassified to
conform with the current period presentation.
2. DESCRIPTION OF BUSINESS
The Company is engaged principally in the direct marketing within the United
States and Canada of Gary Player brand golf clubs pursuant to an exclusive
license from the Gary Player Group, Inc. ("GPG"). The Company's golf clubs are
currently marketed and sold under the names Gary Player Black Knight and Gary
Player.
On March 29, 1999, Grafix Corporation completed a merger with Golf One, in which
Golf One merged with and into Grafix, and the Company changed its name to "Gary
Player Direct, Inc." Pursuant to the terms of the Agreement of Merger, the
Company issued 3,817,244 shares of its common stock to Golf One's shareholders
and lenders, resulting in a change of control of the Company. As part of the
merger with Golf One, the Company effected a 1-for-20 reverse split of its
issued and outstanding common stock. As of March 31, 1999, the Company had
5,794,758 shares of common stock issued and outstanding, including the 3,817,244
shares owned by Golf One's former shareholders and lenders.
The Company as Grafix Corporation designed, developed, assembled and distributed
golf products, clothing and accessories worldwide utilizing the Carrera (R)
brand name and logo, pursuant to an exclusive licensing agreement with Carrera
Optyl GmBh, a
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subsidiary of Safilo SpG ("Safilo"), owner of the Carrera brand name. The
Company has discontinued Grafix's operations including the sale of Carrera Golf
brand products. Upon closing of the 1999 Merger, the Company's operations, which
had ceased on or about September 30, 1998, became that of those conducted by
Golf One since 1995.
Golf One, Inc. was incorporated in Delaware in October 1995. In November 1995,
the Company acquired Rhino Marketing, Inc. ("Rhino"), which was engaged in the
direct marketing of golf clubs and accessories. On October 10, 1995, Rhino
entered into a licensing agreement with Robert Mann, a well-known golf
professional, to endorse the Rhino Rifle brand name golf clubs and accessories.
Rhino commenced sales of golf clubs under the Bob Mann brand name in November,
1995 and terminated the Mann licensing agreement in January, 1997. After the
termination of this licensing agreement in January, 1997, the Company
discontinued active operations of Rhino.
The Company's second subsidiary, Gran Prix, was formed by the Company in
January, 1997 as a wholly-owned subsidiary of the Company, and commenced sales
of golf clubs and related golf products and accessories under the Gary Player
Gran Prix brand name in February, 1997. Such sales were made through
direct-marketing pursuant to an exclusive long-term direct marketing agreement
between the Company and Gary Player Golf Equipment, Inc. ("GPGE"). The Gary
Player Gran Prix line of golf products was discontinued by Gran Prix on or about
the date of the 1999 Merger.
As a result of the 1999 Merger, substantially all of the operations of the
Company relate to the operations of the Gary Player line of branded products and
the focus of the Company's activities going forward will be the development of
revenue from manufacturing, marketing, licensing and distributing golf equipment
and apparel resulting from licenses (the "Player Licenses") acquired from The
Gary Player Group, Inc. ("GPG"). .In November 1996, the Company entered into a
20-year direct marketing agreement ("the Licensing Agreement"), with GPG,
pursuant to which the Company obtained the exclusive right to market and sell
golf clubs and golf accessories and apparel under the name "Gary Player" on a
direct marketing basis in the United States and Canada.
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 transaction. In a reverse
acquisition, the accounting treatment differs from the 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 transaction. Accordingly, the 1998
financial statements of the Company will consist of the comparative historical
financial statements of Golf One, with accompanying disclosure concerning
the change in capital structure effected by the acquisition.
In connection with the 1999 Merger, the Company changed its fiscal year-end from
September 30 to March 31, which is the fiscal year end of Golf One.
3. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has incurred substantial losses
from operations since inception. In addition, the Company has used, rather than
provided, cash in its operations and at June 30, 1999, the Company has a
deficit working capital of $16,467,074 and a stockholders' deficit of
$16,260,968. As discussed in Notes 4 and 7, the Company is also in default on
the payment of certain notes payable and its Licensing Agreement with GPG, and
is subject to significant litigation, claims and assessments. These matters,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is
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dependent upon continued operations of the Company, which in turn, is dependent
upon the Company's ability to meet its financial requirements on a continuing
basis, to maintain adequate financing, and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management's plans to address these matters are summarized below. There can be
no assurance that management will be successful in resolving these matters, or
that the Company will be able to maintain operations until March 31, 2000.
A new Board of Directors was elected on October 14, 1999, and a new management
team was put into place. Since then, the Company has been attempting to
identify, resolve and settle any unpaid amounts. Management has been successful
in settling many obligations or obtaining extended payment terms. There can be
no assurance that all significant obligations can be resolved satisfactorily.
Until October 14, 1999, Gary Player Group's ("GPG") relationship with the
Company was that of a licensor of the Gary Player name under the Licensing
Agreement. The twenty year Licensing Agreement provides for the direct marketing
of Gary Player branded golf equipment and accessories in North America
principally through telemarketing activities by the Company. Effective as of
October 14, 1999 Marc Player, Mr. Player's son, and Pamela Campbell, the
Controller of GPG, were appointed two of the three members of the Board of
Directors of the Company along with Thomas P. Gallagher who became the Chairman
of the Board of Directors. Also, as of October 14, 1999, the Company's Licensing
Agreement with GPG was in default as a result of the Company's failure to
satisfy certain provisions of the Licensing Agreement including the failure to
make certain royalty payments, the failure to meet certain sales minimums and
the failure to pay miscellaneous other charges under the Licensing Agreement. As
of November 9, 1999 and November 11, 1999, the Company and GPG executed certain
amendments to the Licensing Agreement and the Company is no longer in default as
of the date of this report. The Company has made payments to GPG and Marc Player
totaling $555,000 between October 14, 1999 and November 16, 1999.
The Company anticipates selling additional Common Stock under Regulation S to
fund its operating plan. The offering is dependent upon the Company
re-activating its listing on the NASD Bulletin Board. Additional capital
transactions will likely be required to meet the Company's funding needs. There
can be no assurance that the Company will be able to re-activate its listing in
a timely manner, or to successfully complete the offering.
The Company plans to pursue a marketing strategy directed more towards internet
sales,
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which management believes will lower the overall cost of sales and marketing for
the Company, while increasing revenues worldwide. Complete implementation of the
Company's internet strategy will require significant additional capital. There
can be no assurance that management will be able to obtain the necessary capital
or that its efforts will be successful.
As a result of the Company's limited sales and significant liabilities, the
Company anticipates that it will be heavily dependent upon sales of its equity
or debt securities over the next twelve months. There can be no assurance that
the Company will be successful in raising such additional capital or that if
available it will be on terms acceptable to the Company. In addition, there can
be no assurance that if the Company cannot raise additional capital, that the
Company's revenues from operations will be sufficient to meet its working
capital, product development costs and capital to satisfy its past due
obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
4. SHORT-TERM DEBT
During the quarter ended June 30, 1999, the Company obtained several loans from
different private parties to fund its operations.
On April 20, 1999, the Company entered into an agreement with PayPro Resources,
Inc. ("PayPro"), whereby PayPro agreed to lend $79,269 to the Company under the
terms of a client service agreement, which agreement required a personal
guaranty by Mr. Alfonso J. Cervantes, Jr., the Company's CEO at the time of
issuance ("Cervantes"). The loan is evidenced by a promissory note dated April
20, 1999 with annual interest accruing at 10%. The Company is currently in
default of such loan.
On May 17, 1999, the Company obtained a loan from Mr. Richard Casey ("Casey"),
in the amount of $40,000 (the "Casey May Loan"). In consideration of the Casey
May Loan, the Company executed a promissory note in the amount of $40,000 with
annual interest accruing at 12%, and issued 10,000 shares of common stock to
Casey. The Casey May Loan is due on July 16, 1999.
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On May 17, 1999, the Company obtained a loan from Dr. Michael Freilich
("Freilich"), in the amount of $20,000 (the "Freilich May Loan"). In
consideration of the Freilich May Loan, the Company executed a promissory note
in the amount of $20,000 with annual interest accruing at 15%, and issued 7,500
shares of common stock to Freilich. The Freilich May Loan was extended on June
22, 1999 for an additional thirty (30) days in consideration of the issuance of
an additional 5,000 shares of common stock.
On June 1, 1999, the Company obtained a loan from Mr. Thomas Imming ("Imming"),
in the amount of $10,000 (the "Imming Loan"). In consideration of the Imming
Loan, the Company executed a promissory note in the amount of $10,000 with
annual interest accruing at 10%, and issued 5,000 shares of common stock to
Imming. The Imming Loan was due on June 17, 1999. The Company is currently in
default of the Imming Loan.
On June 6, 1999, in return for a loan from Lava Investments Limited in the
amount of $50,000 (the "Lava Loan"), the Company executed a secured convertible
promissory note in the amount of $75,000 with interest at 10% per annum in favor
of Lava. The note was secured with a UCC-1 financing statement and guaranteed by
Cervantes. The note issued to Lava is due on July 6, 1999. As further
consideration for making the loan, Lava was granted a warrant to purchase
100,000 shares of the Company's common stock at $1.00 per share. The Company is
currently in default on the Lava Loan.
On June 10, 1999, the Company obtained a loan from Mid-American General Agency,
Inc. ("Mid-American"), in the amount of $50,000 (the "Mid-American Loan"). In
consideration of the Mid-American Loan, the Company executed a promissory note
in the amount of $50,000 with annual interest accruing at 12%, and issued 25,000
shares of common stock to Mid-American. The Mid-American Loan is due on
September 8, 1999.
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5. EQUITY TRANSACTIONS
On May 21, 1999, the Company issued 10,000 shares of the Company's Common Stock
to a Mr. Hirsch in consideration for services rendered to the Company. The
shares were valued at $3.00 per share by the Company.
On May 21, 1999, the Company issued 10,000 shares to Joseph DePanfilis - an
officer of the Company in consideration for services rendered to the Company.
These shares were valued at $3.00 per share.
On May 21, 1999, the Company issued 15,000 shares of the Company's Common Stock
as a security deposit for the entering into of a lease agreement. These shares
were valued at $3.00 per share.
On May 27, 1999, the Company issued 18,750 shares of the Company's Common Stock
to a Mr. Cox in consideration for consulting services rendered and to be
rendered to the Company in the fiscal quarter ended June 30, 1999. These shares
were valued at $3.00 per share.
On June 2, 1999, Mr. Gary Kucher entered in a consulting agreement with the
Company to provide consulting services for a one year period in consideration
for the issuance of 50,000 shares of the Company's Common Stock. The Company was
obligated to register these shares under the Securities Act of 1933, as amended
(the "Act") within thirty days of their issuance. In addition, the consulting
agreement provides for certain monetary penalties in the event that the shares
are not timely registered under the Act. These shares have been valued by the
Company at $3.00 per share.
Refer to additional equity transactions entered into by the Company in footnote
4.
6. LOSS PER SHARE
Common share equivalents were not considered as they would be anti-dilutive and
had no impact on the loss per share for the three-month periods presented. There
were no dilutive stock options or warrants for the three-month periods ended
June 30, 1999 and 1998.
7. SUBSEQUENT EVENTS
On July 6, 1999, the Company obtained an additional loan from Casey in the
amount of $20,000 (the "Casey July Loan"). In consideration of the Casey July
Loan, the Company executed a promissory note in the amount of $20,000 with
annual interest accruing at 10% and issued 25,000 shares of common stock to
Casey. Pursuant to a Modification Agreement dated September 15, 1999 the
maturity dates of the Casey May Loan and the Casey July Loan were extended to
November 15, 1999 in consideration of the issuance of an additional 15,000
shares of common stock of the Company. The Company is currently in default of
the Casey May Loan and the Casey July Loan.
On August 16, 1999, the Company extended the maturity dates on the Freilich May
Loan and the previous March Loan in the amount of $25,000 to September 1 and 6,
1999, respectively, in consideration of the issuance of an additional 17,500
shares of common stock of the Company. On September 13, 1999, the Company once
again extended the maturity dates on the Freilich May and March Loans through
November 15, 1999 in consideration of the issuance of an additional 2,500 shares
of common stock of the Company. The Company is currently in default of such
loans.
On July 14, the Company executed an amendment to the Lava Loan extending the
time of payment of the Lava Loan to July 21, 1999 in consideration for payment
of an extension fee of $6,250 and issuance of 10,000 shares of the Company's
Common Stock. The note was not repaid by July 21, 1999, and in accordance with
the terms of the note the Company issued another 10,000 shares of the Company's
common stock and paid a $12,500 extension fee to Lava. The Lava Loan was paid in
full on or about September of 1999.
Pursuant to a Modification Agreement dated September 27, 1999, the maturity date
of the Mid-American Loan was extended to December 7, 1999 in consideration of
the issuance of an additional 15,000 shares of common stock of the Company.
Effective as of October 14, 1999 Marc Player, Mr. Player's son, and Pamela
Campbell, the Controller of GPG, were appointed two of the three members of the
Board of Directors of the Company along with Thomas P. Gallagher who became the
Chairman of the Board of Directors. Also, as of October 14, 1999, the Company's
Licensing Agreement with GPG was in default as a result of the Company's failure
to satisfy certain provisions of the Licensing Agreement including the failure
to make certain royalty payments, the failure to meet certain sales minimums and
the failure to pay miscellaneous other charges under the Licensing Agreement. As
of November 9, 1999, the Company and GPG executed certain amendments to the
Licensing Agreement and the Company is no longer in default as of the date of
this report. The Company has made payments to GPG and Marc Player totaling
$555,000 between October 14, 1999 and November 16, 1999.
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During August through September 30, 1999, the Company sold 737,647 shares of
common stock to an offshore accredited investor resulting in net proceeds of
$993,814 through a Regulation S offering. The Company anticipates selling
additional Regulation S shares in this private placement during the remainder of
the fiscal year ending March 31, 2000.
On October 14, 1999, Mr. Cervantes tendered his resignation to the Company for
all of his positions and received certain allowances in consideration therefore
pursuant to the terms of the Succession Plan and Agreement. Pursuant to the
Succession Plan and Agreement the Company acknowledged that Mr. Cervantes'
employment agreement was being terminated by the Company without cause,
provided, however, Mr. Cervantes agreed not to pursue or institute any action
against the Company for termination without cause unless the Company or any
subsidiary instituted an action against Mr. Cervantes (other than an action for
breach of the Succession Plan and Agreement or certain other claims that the
Company may raise).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report was prepared and filed in December 1999, and accordingly
this report addresses and reflects not only matters relevant to the reporting
period during the period ended June 30, 1999, but also certain events and
matters during the period July 1, 1999 through and including the date of this
report (the "Subsequent Period") which management believes are material and
useful to the reader's understanding of this report. The events of the
Subsequent Period that are addressed herein are included because this report and
the quarterly report of the Company for the quarter ended September 30, 1999
have not been filed with the Securities and Exchange Commission ("Commission")
as of the date of this report. The events of the Subsequent Period included a
substantial transition in the Company's Board and management, and the
Company's engagement of new auditors during October, 1999, which has been
described in the description of new management and directors in the Company's
1999 Annual Report on Form 10-KSB ("1999 Form 10-KSB"), Item 9, "Directors,
Executive Officers, Promoters and Control Persons, Compliance with Section 16(a)
of the Exchange Act". 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.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Since inception, the Company's cash requirements have exceeded its cash
flows from operations and, at June 30, 1999, the Company had a working capital
deficit of $16,697,040. As a result, the Company has depended on loans and sales
of securities to fund its operations. The Company must increase its net sales to
obtain sufficient cash flows from operations to meet its cash requirements. The
Company is dependent upon the proceeds of securities offerings and loans to
implement its growth strategy and finance its short-term working capital
requirements. Subsequent to the date of the 1999 Merger, the Company has
continued to sustain substantial losses and has had substantially reduced sales
of its golf products.
At June 30, 1999, the Company had outstanding borrowings of $5,298,316,
of which the Company was in default on $4,648,316 of the outstanding
indebtedness.
At June 30, 1999, the Company had customer refunds payable, deferred
revenue and an allowance for returns totalling $4,381,615.
Other assets at June 30, 1999 included principally deferred direct
response advertising costs of $90,000, a loan receivable of $15,000 from a
corporation owned by the former CEO and President of the Company until October
14, 1999, deferred acquisition costs of $300,274 and advertising credits of
$390,239.
As a result of the Company's limited sales and significant liabilities,
the Company anticipates that it will be heavily dependent upon sales of its
equity or debt securities over the next twelve months. There can be no assurance
that the Company will be successful in raising such additional capital or that
if available it will be on terms acceptable to the Company. In addition, there
can be no assurance that if the Company cannot raise additional capital, that
the Company's revenues from operations will be sufficient to meet its working
capital, product development costs and capital to satisfy its past due
obligations. Accordingly, if the Company is not successful in funding its
operations over the next twelve months through the sale of its equity or debt
securities, the Company reserves the right to restructure its operations by any
means available including the possibility of some form of creditor protection
for the Company or one or more of its subsidiaries. In addition, it is likely
that any financing conducted by the Company will cause substantial dilution to
the Company's existing shareholders.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to June 30, 1998
Net sales for the three months ended June 30, 1999 were $669,715, a decrease of
76% as compared to net sales of $2,853,067 for the three months ended June 30,
1998. Net sales were derived from gross sales of $1,439,680 and $5,067,006 for
the three months ended June 30, 1999 and 1998, respectively. The decrease in net
sales was due to lack of working capital. Substantially all sales in the three
months ended June 30, 1999 and 1998 were generated by telemarketing.
The Company recorded allowances for returns of 53% and 44% of net sales for
the three months ended June 30, 1999 and 1998, respectively. The Company
establishes allowances for returns at the time of recording sales based on its
historical return rates.
Cost of goods sold was $380,233 for the three months ended June 30, 1999, as
compared to cost of goods sold of $1,174,424 for the three months ended June 30,
1998, and the gross margins were 43% and 58% of net sales, respectively, during
these quarters. The decrease in gross margin was due principally to lower sales
volumes.
As of April 1, 1999, the Company commenced the development of a new program
whereby it offers new purchasers of clubs certain incentives to "waive" the
60-day buy-back right. These buy-back waivers can include bonus clubs, golf
balls, golf tip videos, and under certain circumstances, cash discounts. The
objective of this program is to reduce returns of the Company's products.
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Operating expenses were $1,417,713 for the quarter ended June 30, 1999, an
decrease of 49% as compared to operating expenses of 2,831,199 for the
quarter ended June 30, 1998.
Telemarketing, infomercial, and selling expenses were $764,394 for the three
months ended June 30, 1999, a decrease of 68% from selling expenses of
$2,381,328 for the three months ended June 30, 1998. These expenses include
production and advertising and commissions, royalties, and related fees,
salaries, wages and benefits of management personnel involved in sales and
marketing, customer service and sales support, fees paid to the credit card
processor and lead generation costs. These expenses decreased in the three
months ended June 30, 1999 due principally to a reduction in sales due to
working capital constraints.
General and administrative expenses were $635,461 for the three months
ended June 30, 1999, an increase of 55% as compared to general and
administrative expenses of $409,487 for the three months ended June 30, 1998.
General and administrative expenses include primarily salaries and benefits of
executive officers and administrative personnel, consulting fees, rent and
utilities. The increase in these expenses was due principally to issuance of
shares to consultants for services rendered during the quarter.
Interest expense was $355,223 for the three months ended June 30, 1999, a
decrease of 74% as compared to interest expense of $1,396,741 for the three
months ended June 30, 1998.
As a result of the foregoing, the Company incurred a net loss of $1,485,998 for
the three months ended June 30, 1999, as compared to a net loss of $2,517,643
for the three months ended June 30, 1998.
PLAN OF OPERATIONS FOR THE COMPANY
On March 29, 1999, Grafix Corporation completed a merger (the "1999
Merger") with Golf One, in which Golf One merged with and into the Company, and
the Company changed its name to "Gary Player Direct, Inc." Pursuant to the terms
of the Agreement of Merger, a copy of which was filed as an exhibit in a Current
Report on Form 8-K filed with the Securities and Exchange Commission on April
14, 1999, and which is incorporated herein by reference, the Company issued
3,817,244 shares of its common stock to Golf One's shareholders and lenders,
resulting in a change of control of the Company. As part of the merger with Golf
One, the Company effected a 1:20 reverse split of its issued and outstanding
common stock. As of March 31, 1999, the Company had 5,794,758 shares of common
stock issued and outstanding, including the 3,817,244 shares owned by Golf One's
former shareholders. The Company's NASD trading symbol was changed from "CRRA"
to "GPLY" to reflect the Company's changed name following the 1999 Merger.
As part of the 1999 Merger, Messrs. Arnold Guttenberg and Clifford
Cozier resigned as directors of the Company. Mr. Kenneth Krausman remained as
the sole director of the Company, and Mr. Alfonso J. Cervantes and Mr. Robert J.
Friedland were appointed directors of the Company. The Board of Directors also
appointed Mr. Cervantes as President, Chief Executive Officer, Chairman of the
Board and Secretary of the Company, Mr. Joseph A. DePanfilis as Executive Vice
President, Mr. Richard S. Schonfeld as Chief Financial Officer and Treasurer,
and Mr. Krausman as Senior Vice President, Business and Legal Affairs. Mr.
Krausman resigned from all of his positions with the Company on September 1,
1999. Messrs. Cervantes and Friedland resigned from all of their positions on
October 14, 1999 in connection with a certain Succession Plan and Agreement
effective on October 14, 1999. Messrs. DePanfilis and Schonfeld also resigned in
July, 1999 and May, 1999, respectively.
As a result of the 1999 Merger, substantially all of the operations of
the Company relate to the operations of the Gary Player line of branded products
and the focus of the Company's activities going forward will be the development
of revenue from manufacturing, marketing, licensing and distributing golf
equipment and apparel resulting from licenses (the "Player Licenses") acquired
from The Gary Player Group, Inc. ("GPG"). As a result of a lack of financing
affecting the Carrera Golf branded products during the fiscal year ended
September 30, 1998 and for the subsequent period up until the 1999 Merger and a
deterioration in relations between the Company and Citizen's Trading Group of
Japan ("Citizen"), the Company has not recognized revenue from the sale of
Carrera Golf branded products since September 30, 1998. The Company is currently
reviewing its relationship with Citizen and its licensing arrangement with
Carrera.
The 1999 Merger was accounted for as a purchase of the Company by Golf
One in a "reverse acquisition" because the pre-existing stockholders of the
Company did not have voting control of the combined entity after the 1999
Merger. In a reverse acquisition, the accounting treatment differs from the
legal form of the transaction, as the continuing legal entity is not considered
to be the acquirer and the financial statements of the combined entity are those
of the accounting acquirer (Golf One), including any comparative prior year
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<PAGE> 15
financial statements presented by the combined entity after the business
combination. Accordingly, the financial statements of the Company presented
herein are the comparative historical financial statements of Golf One, the
accounting acquirer, with accompanying disclosure concerning the change in
capital structure effected at the acquisition date.
In connection with the 1999 Merger, the Company changed its fiscal year
end from September 30th to March 31st, which is the fiscal year end of Golf One.
Other material developments during the Subsequent Period include the
Company's execution of an agreement to transition the Company's prior management
and Board of Directors. Effective October 14, 1999, the Company entered into a
Succession Plan and Agreement (the "Succession Plan and Agreement") pursuant to
which the existing Board of Directors and senior management of the Company were
replaced with new directors and senior management. Additional information
regarding the Succession Plan and Agreement is contained in a press release
issued by the Company on October 19, 1999 which was filed as an exhibit to a
Current Report on Form 8-K filed October 25, 1999. The Succession Plan and
Agreement was also filed with the Commission as an exhibit to the aforementioned
8-K report.
As of October, 1999 and following the implementation of the Succession
Plan and Agreement, the Company and the new Board and management team have
adopted immediate near-term and long-term business strategies. The immediate
strategies address the following objectives:
1. Bring the Company current in its Securities and Exchange
Commission reporting obligations;
2. Restructure existing obligations with creditors and taxing
authorities;
3. Access additional capital through available equity sources;
4. Modify business operations to attain profitability including the
introduction of certain new products; and
5. Complete the acquisition of the assets of the golf equipment
division of GPG (the "Player Acquisition"), which division is
known as Gary Player Golf Equipment ("GPGE").
There can be no assurance that the Company will be successful in achieving any
of the above-stated objectives.
The near-term business strategy is to fully capitalize on the rights
received by the direct marketing agreement to use the Gary Player brand name
executed on November 1, 1996 between the Company and GPGE, Inc. ("GPGE"), a
division of GPG (the "Licensing Agreement"). One of the most successful
international golfers of his generation, Mr. Player has achieved the kind of
worldwide recognition reserved for only a handful of figures in the world of
sports. Should the Company complete the acquisition of the golf equipment
division of GPG, the Company will be in a position to market and sell an
expanded array of golf equipment and accessories worldwide. The assets of the
golf equipment operations of GPG include principally two licenses which together
give the Company the perpetual, worldwide, exclusive right to use the name and
likeness of Gary Player, the professional golfer, and ancillary marks, including
Black Knight and the Knight's Head Logo, in connection with the manufacture,
marketing and distribution of golf clubs, accessories and apparel for an annual
license fee and a royalty payable based on net receipts. As part of the Player
Acquisition, the Company will also acquire existing sub-licenses based on the
Player Licenses and accounts receivable. The inventory previously owned by GPG
has been transferred to the Company as part of the terms of the Company's
Licensing Agreement.
The Company is exploring the possibility of expanding 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 if the Company completes the
Player Acquisition, enter into sub-license agreements with third parties. There
can be no assurance that the Company will be successful in achieving any, or
all of the above-stated objectives.
The Company implemented a one-for-three stock split in July 1998 and a
one-for-twenty stock split in May 1999. In addition, Golf One shareholders
received one (1) share of the Company's Stock for each two (2) Golf One shares
owned at the date of the 1999 Merger. Unless otherwise indicated, all references
to the Company's Common Stock in this report give effect to both of these stock
splits.
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The Company's Strategic Plan is to position the Company as an
internet-driven direct marketing golf equipment company in addition to its
telemarketing sales. The Strategic Plan also calls for the expansion of
international marketing activities to fully exploit the Gary Player name.
Until October 14, 1999, GPG's relationship with the Company was that of
a licensor of the Gary Player name for the direct marketing of Gary Player
branded golf equipment and accessories in North America principally through
telemarketing activities. Effective as of October 14, 1999, Marc Player, Mr.
Player's son, and Pamela Campbell, the Controller of GPG, were appointed two of
the three members of the Board of Directors of the Company along with Thomas P.
Gallagher, who became the Chairman of the Board of Directors. Also, as of
October 14, 1999, the Company's Licensing Agreement with GPG was in
default as a result of the Company's failure to satisfy certain provisions of
the Licensing Agreement including the failure to make certain royalty
payments, the failure to meet certain sales minimums and the failure to pay
miscellaneous other charges under the Licensing Agreement. As of November
9, 1999, and November 11, 1999, the Company and GPG executed certain amendments
to the Licensing Agreement and the Company is no longer in default as of
the date of this report. The Company has made payments to GPG and Marc Player
totaling $555,000 since October 14, 1999.
In addition, Gary Player, GPG and the Company anticipate finalizing the
Asset Purchase Agreement ("APA") which will allow the Company to market, sell,
distribute and sublicense premium golf equipment and accessories worldwide under
the Gary Player name. Upon the completion of the APA, GPG will be one of the
largest shareholders of the Company. On October 28, 1999, Marc Player became the
interim Chief Executive Officer of the Company. Furthermore, Mr. Gary Player
plans to become more actively involved in the design of the Company's golf
equipment and in assisting the Company in forming strategic relationships to
assist the Company in many areas including advertising and internet sales. Mr.
Gary Player has also pledged to assist the Company in making available his
worldwide business and financial contacts to create licensing and acquisition
opportunities for the Company.
INTERNET MARKETING
A historically unprecedented amount of publicity has been generated
about the internet and its impact on the American culture and commerce in the
last several years. Management believes it is well positioned to capitalize on
this fundamental paradigm shift in the commercial and informational processes of
the American and international consumer through the merger of Grafix and Golf
One.
The Company's strategy for its internet advertising is to create a
highly interactive and graphically attractive internet site integrating
animation, live and recorded video, interactivity and commerce to inform,
entertain, and provide a convenient and enjoyable place for e-commerce via the
Gary Player Pro Shop, while concurrently creating a lower cost sales and
marketing channel for the Company. The strategic plan is designed to increase
revenues, lower corporate expense, increase margins and result in an inexpensive
generator of leads as well as an overall marketing tool.
Within the context of the Company's plan is the aggressive development
of an e-mail database of golfers, both domestic and internationally. This data
base will lend itself to the creation of "The Gary Player VIP e-club," offering
golfers a broad array of services ranging from monthly newsletters and golf
tips, announcements of new products, discounted clubs and accessories, and news
information. The e-communications will have a number of embedded links to the
Company's website, allowing the golfer to inspect the product, check competitive
price points, obtain news, order products and ultimately check the status of
existing orders. With respect to ordering products, the customers will be able
to custom design their own equipment utilizing point and click technology to
specify components such as shafts, heads and grips. The Company is currently
evaluating vendors and other professionals who can develop the Company's
internet site to accomplish the above goals.
To generate significant traffic for the Company's website, in addition
to the e-marketing program described above, the Company intends to implement a
multi-pronged approach: (i) utilize Gary Player as a spokesman to promote the
website in all media; (ii) produce and broadcast quarterly thirty minute
"webcasts" concurrent with major tournaments such as the Masters or the British
Open featuring Gary Player during which he will detail the tournament history,
the course upon which the tournament is being held, some of the history of
golf's legends, and provide tips for viewers who log on; (iii) use print and
electronic advertising; (iv) utilize Company infomercials (being developed) to
promote the website; and (v) pursue a campaign to form strategic alliances with
numerous high traffic sites, ranging from sports to business, designed to link
traffic flows and in certain cases share revenue.
In addition to creating more widespread internet presence through
expansion of its existing website, the Company is launching a program to
identify and acquire high traffic golf-content internet sites which can be
consolidated under the Gary Player brand name.
Golf One has already implemented a number of web-based promotional
programs designed to generate direct marketing
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leads. These programs, which include sweepstakes and product giveaways, were
carried on Golf One's web site as well as on other web sites whereby Golf One
sponsored an annual Gary Player sweepstakes inviting visitors to the Golf One
web site to enter sweepstakes for a chance to win golf clubs, other golf
products and, for first place winners, the opportunity to play nine holes of
golf with Gary Player. The information obtained from the sweepstakes entry forms
is then used by the Company in its telemarketing efforts and contributes to a
mailing list for the Company's catalogs.
The Company intends to invest a significant portion of the proceeds of
any financing received from any public or private offerings to increase
advertising of its website and create or obtain additional content for its
internet activities.
STRATEGIC ACQUISITIONS
The Company has commenced a program to identify and acquire certain golf
related companies or assets of companies which are consistent with its strategic
plan of increasing revenues and earnings. These acquisitions will be sought
pursuant to certain specific profiles which range from strategic synergy to
valuation and financing availability.
OTHER MARKETING AND EXPANSION STRATEGIES
- - Increase Direct Response Television Marketing. The Company believes that
direct response television will generate substantial additional inbound sales
which, by definition, decreases product returns as a percentage of sales. Direct
response television includes infomercials and direct response commercials. This
direct marketing channel generates sales through customers calling the Company
as compared to telemarketing, where the Company initiates the call. In addition
to generating sales, direct response television is expected to increase consumer
awareness of the Company's products and brand name, thereby enhancing the
effectiveness of other marketing activities. In December 1998, Golf One entered
into a strategic alliance with Caudill and Associates, a prominent international
infomercial producer and direct marketer. Pursuant to the terms of the
agreement, Golf One completed principal photography in December 1998 with Gary
Player for an approximately thirty minute infomercial for its Black Knight Par
Saver state-of-the-art wedges and a two minute direct response commercial for
the Heavy Hitter, a training aid.
- - Create and Distribute Mail Order Product Catalogs. The Company believes that
it can increase sales and exposure as well as drive sales to its internet site
through targeted mailings of product catalogs to existing and potential
customers. The Company anticipates that its catalogs will feature products of
both the Company and its sublicensees as well as other manufacturers.
- - Establish International Marketing Operations. Golf One's marketing of Gary
Player products has been limited to the United States and Canada under its
Licensing Agreement with GPGE. The proposed Player Acquisition will allow
the Company to expand into global marketing. The Company expects that its
international marketing efforts will focus on sublicensing, joint venture and
other arrangements for the marketing and distribution of Gary Player golf
products on a territory and/or product specific basis. The Company believes that
Mr. Player's international reputation will be valuable in creating international
interest in the Company's products.
- - Increase Advertising and Trade Show Participation. The Company believes that
its overall sales efforts will be enhanced by greater consumer recognition of
the Company and its products. The Company intends to increase its expenditures
on print advertising in various golf and golf-related publications and golf and
direct marketing industry trade shows to create consumer awareness.
- - Telemarketing Activities. Virtually all of Golf One's sales have been
generated through telemarketing prior to the launch of its website in the spring
of 1999, which has led to excessive product returns. The Company will begin to
focus more on internet driven sales and streamline its telemarketing efforts by
updating its technology and increasing training of its sales representatives.
Prior to the 1999 Merger, Golf One began this process by consolidating its
telesales operations, terminating a significant number of telemarketers, as well
as a number of middle managers, resulting in the substantial reduction of its
overhead.
YEAR 2000
The Company has reviewed its operations and administrative systems
relative to year 2000 ("Y2K") matters. The Company's review includes a series of
initiatives to ensure that all of the Company's computer equipment and software
will function properly into the next millennium. Computer hardware and software
includes systems generally thought of as information-technology dependent, such
as accounting, data processing, and telephone equipment ("IT systems"), as well
as systems not obviously information-technology dependent, such as fax machines
and security systems ("non-IT systems"). These systems may contain embedded
technology which require the Company's review, including broad identification,
assessment, remediation and testing efforts.
The Company performed a review of its operational and administrative
systems and as a result of that analysis updated its word processing and
accounting software to become fully Y2K compliant. Furthermore, the Company has
made arrangements to
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employ a Y2K consultant to examine the Company's network systems and update or
replace portions of the system to render it compliant by December 31, 1999.
Based upon its identification and assessment efforts to date, the
Company believes that its IT systems will not require material replacement or
modification other than the updates which have already been made or scheduled.
However, in the ordinary course of business, the Company periodically replaces
computer equipment and software, and in so doing, seeks to acquire only Y2K
compliant software and hardware. The Company plans to complete its assessment of
its non-IT systems during December 1999. The Company presently believes that its
planned modifications or replacements of existing IT systems and non-IT systems
will be completed on a timely basis so as to avoid any of the potential year
2000-related disruptions or malfunctions of the computer equipment and software
it has identified.
The Company intends to complete its survey of vendors and services
providers by December 1999 to determine where external Y2K compliance or
noncompliance might materially affect the Company's operations.
At this point in the review process, the Company cannot reasonably
estimate the cost of achieving Y2K compliance; however, the Company does not
anticipate the cost of implementing its Y2K efforts to be material. The Company
plans to determine the Y2K readiness of its key suppliers, identify alternative
sources for materials and services in the event that lack of Y2K compliance is
indicated, and make inquires regarding the Y2K readiness of any potential
strategic partners. Management is continuing to examine the Y2K issues as they
potentially impact the Company, and will be developing contingency plans as
necessary.
There can be no assurance that the failure of the Company or any third
parties to achieve Y2K compliance would not have a material adverse effect on
the Company. A contingency plan has not yet been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. However, given the fact the Company is involved in an
internet driven business and the Company relies on computer driven programs for
its sales and operations, Y2K compliance is essential to the continuing success
of the Company.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new
"safe harbor" for certain forward-looking statements. Statements contained in
this report that are not historical facts are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those stated in the forward-looking statements. Factors that
could cause actual results to differ materially include, among others: general
economic conditions, changes in laws and government regulations, fluctuations in
demand for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see Item 3, "Legal Proceedings" of the 1999 Form 10-KSB filed
with the Securities and Exchange Commission on December 7, 1999 for a
description of the Company's litigation during the quarter ended June 30, 1999.
ITEM 2. CHANGES IN SECURITIES
On May 3, 1999 the Company amended its Certificate of Incorporation to
effect a twenty (20) for one (1) reverse split of all the Company's issued
common stock, par value $.001 per share. The Certificate of Amendment to the
Certificate of Incorporation was filed with the Company's 1999 Form 10-KSB as
Exhibit 3.3.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Please see Item 3, "Legal Proceedings" and Note G and Note K to the
Consolidated Financial Statements of the 1999 Form 10-KSB filed with the
Securities and Exchange Commission on December 7, 1999 for a description of
the Company's defaults upon senior securities.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the
quarter ended June 30, 1999
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 1999, the Company obtained several
loans from different private parties to fund its operations.
On April 20, 1999, the Company entered into a certain agreement with
PayPro Resources, Inc. ("PayPro"), whereby PayPro agreed to lend $79,269 to the
Company under the terms of a client service agreement, which agreement required
a personal guaranty by Mr. Alfonso J. Cervantes, Jr., the Company's CEO at the
time of issuance ("Cervantes"). The loan is evidenced by a promissory note dated
April 20, 1999 with annual interest accruing at 10%. The Company is currently in
default of such loan.
On May 17, 1999, the Company obtained a loan from Mr. Richard Casey
("Casey"), in the amount of $40,000 (the "Casey May Loan"). In consideration of
the Casey May Loan, the Company executed a promissory note in the amount of
$40,000 with annual interest accruing at 12%, and issued 10,000 shares of common
stock to Casey. The Casey May Loan was due on July 16, 1999. On July 6, 1999,
the Company obtained an additional loan from Casey in the amount of $20,000 (the
"Casey July Loan"). In consideration of the Casey July Loan, the Company
executed a promissory note in the amount of $20,000 with annual interest
accruing at 10% and issued 25,000 shares of common stock to Casey. Pursuant to a
Modification Agreement dated September 15, 1999 the maturity dates of the Casey
May Loan and the Casey July Loan were extended to November 15, 1999 in
consideration of the issuance of an additional 15,000 shares of common stock of
the Company. The Company is currently in default of the Casey May Loan and the
Casey July Loan.
On May 17, 1999, the Company obtained a loan from Dr. Michael Freilich
("Freilich"), in the amount of $20,000 (the "Freilich May Loan"). In
consideration of the Freilich May Loan, the Company executed a promissory note
in the amount of $20,000 with annual interest accruing at 15%, and issued 7,500
shares of common stock to Freilich. The Freilich May Loan was extended on June
22, 1999 for an additional thirty (30) days in consideration of the issuance of
an additional 5,000 shares of common stock. On August 16, 1999, the Company
extended the maturity dates on the Freilich May Loan and the previous March Loan
in the amount of $25,000 to September 1 and 6, 1999, respectively, in
consideration of the issuance of an additional 17,500 shares of common stock of
the Company. On September 13, 1999, the Company once again extended the maturity
dates on the Freilich May and March Loans through November 15, 1999 in
consideration of the issuance of an additional 2,500 shares of common stock of
the Company. The Company is currently in default of such loans.
On June 1, 1999, the Company obtained a loan from Mr. Thomas Imming
("Imming"), in the amount of $10,000 (the "Imming Loan"). In consideration of
the Imming Loan, the Company executed a promissory note in the amount of $10,000
with annual interest accruing at 10%, and issued 5,000 shares of common stock to
Imming. The Imming Loan was due on June 17, 1999. The Company is currently in
default of the Imming Loan.
On June 6, 1999, in return for a loan from Lava Investments Limited
("Lava") in the amount of $50,000 (the "Lava Loan"), the Company executed a
secured convertible promissory note in the amount of $75,000 with interest at
10% per annum in favor of Lava. The note was secured with a UCC-1 financing
statement and guaranteed by Cervantes. The note issued to Lava was due on July
6, 1999. As further consideration for making the loan, Lava was granted a
warrant to purchase 100,000 shares of the Company's common stock at $1.00 per
share. The Company defaulted on the Lava Loan. On July 14, an amendment was
executed extending the time of payment to July 21, 1999 in consideration for
payment of an extension fee of $6,250 and issuance of 10,000 shares of the
Company's common stock. The note was not repaid by July 21, 1999 and in
accordance with the terms of the note the Company issued another 10,000 shares
of the Company's common stock to Lava and made an extension payment of $12,500.
The Lava Loan was paid in full in September 1999.
On June 10, 1999, the Company obtained a loan from Mid-American General
Agency, Inc. ("Mid-American"), in the amount of $50,000 (the "Mid-American
Loan"). In consideration of the Mid-American Loan, the Company executed a
promissory note in the amount of $50,000 with annual interest accruing at 12%,
and issued 25,000 shares of common stock to Mid-American. The Mid-American Loan
was due on September 8, 1999. Pursuant to a Modification Agreement dated
September 27, 1999, the maturity date of the Mid-American Loan was extended to
December 7, 1999 in consideration of the issuance of an additional 15,000 shares
of common stock of the Company.
During the quarter ended June 30, 1999, the Company issued shares of the
Company's Common Stock to various individuals and entities.
On May 21, 1999, the Company issued 10,000 shares of the Company's
common stock to a Mr. Hirsch in consideration for services rendered to the
Company. The shares were valued at $3.00 per share by the Company.
On May 21, 1999, the Company issued 10,000 shares of the Company's
common stock to Joseph Depanfilis an officer of the Company, in consideration
for services rendered to the Company. These shares were valued at $3.00 per
share.
On May 21, 1999, the Company issued 15,000 shares of the Company's
common stock as a security deposit for the entering into of a lease agreement.
These shares were valued at $3.00 per share.
On May 27, 1999, the Company issued 18,750 shares of the Company's
common stock to a Mr. Cox in consideration for consulting services rendered and
to be rendered to the Company in the fiscal quarter ended June 30, 1999. These
shares were valued at $3.00 per share.
On June 2, 1999, Mr. Gary Kucher entered in a consulting agreement with
the Company to provide consulting services for a one year period in
consideration for the issuance of 50,000 shares of the Company's Common Stock.
The Company was obligated to register these shares under the Securities Act of
1933, as amended (the "Act") within thirty days of their issuance. In addition,
the consulting agreement provides for certain monetary penalties in the event
that the shares are not timely registered under the Act. These shares have been
valued by the Company at $3.00 per share.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Amendment of Certificate of Incorporation of Gary
Player Direct, Inc. (Incorporated by reference to Gary Player
Direct, Inc.'s Annual Report on Form 10-KSB filed December 7,
1999, Exhibit 3.3)
10.1 Promissory Note between Gary Player Direct, Inc. and Richard
Casey dated May 17, 1999
10.2 Promissory Note between Gary Player Direct, Inc. and Richard
Casey dated July 6, 1999
10.3 Modification Agreement dated September 15, 1999 to the
Promissory Notes between Gary Player Direct, Inc. and Richard
Casey dated May 17, 1999 and July 6, 1999
10.4 Promissory Note between Gary Player Direct, Inc. and
Mid-American General Agency, Inc. dated June 10, 1999
10.5 Modification Agreement dated September 27, 1999 to the
Promissory Note between Gary Player Direct, Inc. and
Mid-American General Agency, Inc. dated June 10, 1999
10.6 Credit Services Agreement dated April 2, 1999 and Promissory
Note dated April 20, 1999 between Golf One Industries, Inc. and
PayPro Resources, Inc. (Incorporated by reference to Gary Player
Direct, Inc.'s Annual Report on Form 10-KSB filed December 7,
1999, Exhibit 10.38)
10.7 Promissory Note between Gary Player Direct, Inc. and Tom Imming
and Dale Imming dated June 16, 1999
10.8 Term Sheet for $1,000,000 Private Placement between Gary Player
Direct, Inc. and Capital Fund Leasing, LLC dated March 29, 1999
10.9 Note Purchase Agreement between Gary Player Direct, Inc. and
Lava Investments Limited dated June, 1999
10.10 10% Convertible Note between Gary Player Direct, Inc. and Lava
Investments Limited dated June, 1999 (1)
10.11 Warrants to Purchase Common Stock between Gary Player Direct,
Inc. and Lava Investments Limited dated June, 1999 (2)
10.12 Amendment to the 10% Convertible Note and Note Purchase
Agreement between Gary Player Direct, Inc. and Lava Investments
Limited dated July, 1999
10.13 Guaranty by A.J. Cervantes dated June, 1999
10.14 Security Agreement between Gary Player Direct, Inc. and Lava
Investments Limited dated June 7, 1999
10.15 Security Agreement between Gary Player Direct, Inc. and Senior
Lender dated June 3, 1999
10.16 Consulting Agreement between Gary Player Direct, Inc. and Gary
Kucher dated June 2, 1999
10.17 Promissory Note between Gary Player Direct, Inc. and Michael
Freilich dated May 17, 1999
10.18 Confirmation Letter to Frederick M. Luper, receiver for Capital
Fund Leasing, LLC, dated December 2, 1999
27.1 Financial Data Schedule
</TABLE>
- ----------
(1) The 10% Convertible Note is included as Exhibit A to the Agreement between
the Company and Lava, which Agreement is Exhibit 10.9 filed herewith.
(2) The Warrants to Purchase Common Stock are included as Exhibit B to the
Agreement between the Company and Lava, which Agreement is Exhibit 10.9 filed
herewith.
b) Form 8-K Reports during the Quarter Ended June 30, 1999
Current Report on Form 8-K dated April 14, 1999.
20
<PAGE> 21
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GARY PLAYER DIRECT, INC.
By: /s/ Marc B. Player
--------------------------------------
Marc B. Player,
Chief Executive Officer
(Principal Executive Officer)
/s/ Carl Casareto
--------------------------------------
Carl Casareto,
Executive Vice President and Treasurer
(Principal Financial Officer)
Date: December 7, 1999
21
<PAGE> 1
Exhibit 10.1
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount $40,000
May 17, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a publicly-held Delaware
corporation, having an address of 710 Aerovista, Suite B, San Luis Obispo,
California 93401 ("BORROWER"), unconditionally promises to pay to Richard Casey,
a registered assigns, ("LENDER") Forth Thousand Dollars ($40,000) together with
interest thereon at a rate of 12% per annum from the date hereof.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable at ninety (90) days from the date hereof (the "MATURITY DATE"). All
payments shall be sent to Lender's address as set forth below, or such address
as later specified by Lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All Payments made under this Note shall be
applied first against payment of interest accrued to the date of any payment
and then against principal due.
4. Grant of Security Interest and Subordination. Effective on the closing
date, Borrower shall grant to the Lender a security interest in all of the
assets of Borrower to secure the prompt repayment of the principal, interest
and costs of collection of the note. The security interest shall be subordinate
existing secured indebtedness due and owing by the Borrower. Borrower shall
cause the filing of a UCC-1 financing statement with the State of California
and shall forward a certified copy of the filing to Lender.
5. Common Stock to be Issued to Lender or His Designees. In connection with
the Loan, Borrower shall issue to the Lender Common Stock in the amount of
10,000 shares with said shares issued pursuant to Rule 144 as promulgated by
the Securities and Exchange Commission.
6. Personal Guarantee. The principal, interest and costs of collection of
the note shall be unconditionally guaranteed by A.J. Cervantes, Jr as set forth
below.
7. Costs of Collection. Borrower shall pay all costs of collection of
Lender, together with reasonable attorney's fees and costs, to enforce this
Note in the event of a default whether or not a suit is brought. Borrower
waives demand, protest and notice of maturity and non-payment, and all
requirements necessary to hold Borrower liable hereunder.
<PAGE> 2
8. Miscellaneous. This Note shall be governed by, and construed in
accordance with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
--------------------------------
Alfonso J. Cervantes, President
GUARANTOR:
A. J. Cervantes, Jr., Individually
/s/ Alfonso J. Cervantes
--------------------------------
LENDER:
Richard Casey
232 North Kingshighway, #1902
St. Louis, MO 63108
<PAGE> 1
Exhibit 10.2
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REQUESTED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo,
California Principal Amount: $20,000.00
July 6, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("Borrower"), unconditionally promises to pay to Richard Casey, an individual,
or registered assigns, ("Lender") Twenty Thousand Dollars ($20,000.00) together
with interest thereon at a rate of 10% per annum from the date hereof. As
additional consideration, Borrower will issue 25,000 shares of Borrower's common
stock. Unless otherwise defined herein, capitalized terms used in this Note
shall have the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable thirty (30) days from the date of execution of the Note (the "Maturity
Date"). All payments shall be sent to Lender's address as set forth in the Loan
Agreement, or such address as later specified by Lender or any successor in
writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty or
premium.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice o maturity and non-payment, and all requirements necessary to
hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER: GUARANTOR:
Gary Player Direct, Inc.
/s/ Alfonso J. Cervantes
--------------------------------
Alfonso J. Cervantes, Individually
By: /s/ Alfonso J. Cervantes
-------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.3
GARY PLAYER DIRECT, INC.
710 Aerovista, Suite B
San Luis Obispo, CA 93401
September 15, 1999
Richard Casey
232 North Kingshighway, #1902
St. Louis, MO 63108
RE: Modification of $40,000 and $20,000 Promissory Notes
Dear Richard:
This will confirm our understanding, more formally referred to as the
Modification Agreement, with respect to the above referenced loans (the
"Loans") in the aggregate principal amount of Sixty Thousand Dollars ($60,000)
made by Richard Casey ("Lender") to Gary Player Direct, Inc. ("Borrower"). We
have agreed as follows:
1. The Maturity Date of the Loans shall be extended to November 15, 1999;
2. As consideration for the extension of the Maturity Dates, Borrower will
issue a total of Fifteen Thousand (15,000) shares of Borrower's Common
Stock (the "Extension Shares") as additional consideration. These Extension
Shares are being issued in addition to the shares issued pursuant to the
original Loans.
If the foregoing confirms our understanding, please execute where indicated
below. Upon receipt of this Modification Agreement, Borrower will cause the
issuance of common stock certificate representing the Extension Shares.
Sincerely,
Gary Player Direct, Inc. Acknowledged and Agreed
/s/ Alfonso J. Cervantes, Jr. /s/ Richard Casey
- ----------------------------- --------------------------------
By: Alfonso J. Cervantes, Jr. Richard Casey
<PAGE> 1
Exhibit 10.4
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $50,000
June 10, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a publicly-held Delaware
corporation, having an address of 710 Aerovista, Suite B, San Luis Obispo,
California 93401 ("BORROWER"), unconditionally promises to pay to Mid-American
General Agency, Inc., or registered assigns, ("LENDER") Fifty Thousand Dollars
($50,000) together with interest thereon at a rate of 12% per annum from the
date hereof.
1. Payments: Maturity Date. The principal and interest of this Note shall be
payable ninety (90) days from the date hereof (the "MATURITY DATE"). All
payments shall be sent to Lender's address as set forth below, or such address
as later specified by Lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty
or premium.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
4. Grant of Security Interest and Subordination. Effective on the closing
date, Borrower shall grant to Lender a security interest in all of the assets
of Borrower to secure the prompt repayment of the principal, interest and costs
of collection of the note. The security interest shall only be subordinate to
two liens granted by the Borrower in connection with approximately $725,000 of
indebtedness due and owing by the Borrower. Borrower shall cause the filing of a
UCC-1 financing statement with the State of California within five days from
the date hereof and shall forward a certified copy of the filing to Lender.
5. Common Stock to be Issued to Lender or His Designees. In connection with
the Loan, Borrower shall issue to the Lender Common Stock in the amount of
25,000 shares with said shares issued pursuant to Rule 144 as promulgated by
the Securities and Exchange Commission.
6. Personal Guarantee. The principal, interest and costs of collection of the
note shall be unconditionally guaranteed by A.J. Cervantes, Jr as set forth
below.
7. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
<PAGE> 2
8. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
------------------------------------
Alfonso J. Cervantes, President
GUARANTOR:
A.J. Cervantes, Jr., Individually
/s/ A.J. Cervantes, Jr.
---------------------------------------
LENDER:
Mid-American General Agency, Inc.
#52 Maryland Plaza
St. Louis, MO 63108
Fed ID: 43-1227293
2
<PAGE> 1
Exhibit 10.5
GARY PLAYER DIRECT, INC.
710 Aerovista, Suite B
San Luis Obispo, CA 93401
September 27, 1999
Barry T. Cervantes
Mid-American General Agency, Inc.
52 Maryland Plaza
St. Louis, MO 63108
RE: Modification to $50,000 Promissory Note dated June 10, 1999
Dear Barry:
This will confirm our understanding, more formally referred to as the
"Modification Agreement", with respect to the above referenced Loan (the
"Loan") in the principal amount of Fifty Thousand Dollars ($50,000) made by you
as Lender to Gary Player Direct, Inc. ("Borrower") on June 10, 1999. We have
agreed as follows:
1. The Maturity Date of the Loan shall be extended by Ninety (90) days to
December 7, 1999.
2. As consideration for the extension of the Maturity Date, Borrower will
issue a total of Fifteen Thousand (15,000) shares of Borrower's Common
Stock (the "Extension Shares") as additional consideration. These Extension
Shares are being issued in addition to the shares issued pursuant to the
original Loan.
If the foregoing confirms our understanding, please execute where indicated
below. Upon receipt of this Modification Agreement, Borrower will cause the
issuance of one common stock certificate representing the Extension Shares.
Sincerely,
Gary Player Direct, Inc. Acknowledged and Agreed
Mid-American General Agency, Inc.
/s/ Alfonso J. Cervantes, Jr. /s/ Barry T. Cervantes
- ----------------------------- -----------------------------
By: Alfonso J. Cervantes, Jr. Barry T. Cervantes, President
<PAGE> 1
Exhibit 10.7
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
PROMISSORY NOTE
San Luis Obispo, California Principal Amount: $10,000
June 16, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a Delaware corporation, having an
address of 710 Aerovista, Suite B, San Luis Obispo, California 93401
("BORROWER"), unconditionally promises to pay to Tom Imming and Dale Imming,
individuals, or registered assigns, ("LENDER") Ten Thousand Dollars ($10,000)
together with interest thereon at a rate of 10% per annum from the date hereof.
As additional consideration, Borrower will issue Five Thousand (5000) shares of
Borrower's common stock.
Unless otherwise defined herein, capitalized terms used in this Note shall have
the meanings ascribed to them in the Loan Agreement.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable ninety (90) days from the date hereof (the "MATURITY DATE"). All
payments shall be sent to Lender's address, or such address as later specified
by Lender or any successor in writing to Borrower.
2. Prepayment. Borrower may prepay any amounts due hereunder without penalty or
premium.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
4. Costs of Collection. Borrower shall pay all costs of collection of Lender,
together with reasonable attorney's fees and costs, to enforce this Note in the
event of a default whether or not a suit is brought. Borrower waives demand,
protest and notice of maturity and non-payment, and all requirements necessary
to hold Borrower liable hereunder.
5. Miscellaneous. This Note shall be governed by, and construed in accordance
with, the laws of the State of California.
BORROWER:
Gary Player Direct, Inc.
By: /s/ Alfonso J. Cervantes
------------------------------
Alfonso J. Cervantes, President
<PAGE> 1
Exhibit 10.8
Gary Player Direct, Inc.
March 29, 1999 Term Sheet
$1,000,000 Private Placement
to
Capital Fund Leasing, LLC
Per our understanding, the following sets forth the terms of the financing:
1. Financing: $1 million;
2. Form: Common Stock
3. Price: $1.00 per share
<PAGE> 1
EXHIBIT 10.9
NOTE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 7th day of June 1999, between
GARY PLAYER DIRECT, INC. (the "Company") and ROY TASHI (the "Purchaser").
RECITAL
WHEREAS, the Company has authorized the issuance and sale of the
Company's 10% Convertible Notes up to an aggregate principal amount of $75,000
having the terms set forth in Exhibit A attached hereto (the "Note"); and
WHEREAS, the Purchaser desires to purchase, and the Company desires to
issue, the Note on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Purchaser agree as
follows:
1. PURCHASE AND SALE OF THE NOTE.
1.1 Subject to the terms and conditions contained in this Agreement, at
the Closing (as hereinafter defined) the Purchaser shall purchase from the
Company and the Company shall sell to the Purchaser the Note for $75,000 (the
"Loan Amount") which shall be payable via wire transfer to the Company's
designated account in the amount of $50,000.00 (not later than the next business
day after the date hereof).
1.2 Grant of Security Interest and Subordination. Effective on the
Closing Date, the Company shall grant to the Purchaser a security interest in
all of the assets of the Company to secure the prompt repayment of the
principal, interest and costs of collection of the Note. The security interest
shall only be subordinate to one lien granted by the Company in connection with
approximately $650,000.00 of indebtedness due and owing by the Company.
1.3 Warrants to be Issued to Purchaser or His Designees. In connection
with the purchase of the Note, the Company shall issued to the Purchaser, Common
Stock Purchase Warrants having the terms set forth in Exhibit B attached hereto
(the "Warrant") entitling the Purchaser to purchase 100,000 shares of the
Company's Common Stock at an exercise price equal to $1.00. The Warrant shall
have and exercise period of five (5) years from its issuance date.
- 1 -
<PAGE> 2
1.4 Guarantee by Cervantes. The principal, interest and costs of
collection of the Note shall be unconditionally guaranteed by Mr. A.J. Cervantes
pursuant to a guarantee agreement to be executed on the Closing Date (the
"Guarantee Agreement"). The Guarantee Agreement shall also secure any and all
additional advances made by the Purchaser from and after the Closing Date.
2. CLOSING.
2.1 Closing Date. The closing of the purchase and sale of the Notes
(the "Closing") shall take place on June __, 1999 or such other day as agreed to
by the parties (the "Closing Date").
2.2 Items to be Delivered to Purchaser. The following shall be
delivered by the Company to the Purchaser on the Closing Date:
(a) the Note purchased by the Purchaser;
(b) the Security Agreement;
(c) the Guarantee Agreement executed by Mr. A.J.
Cervantes;
(d) a certificate of the secretary or an assistant secretary
of the Company certifying (i) an attached complete and correct copy of
its articles of incorporation, (ii) an attached complete and correct
copy of its bylaws, and (iii) an attached complete and correct copy of
resolutions duly adopted by its board of directors authorizing the
execution, delivery and performance of this Agreement and the Note.
2.3 Items to be Delivered to the Company. On the Closing Date, the
Purchaser shall deliver to the Company the Loan Amount by wire transfer to the
account designated by the Company.
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company
represents and warrants that as of the date of this Agreement:
(a) Existence. The Company is a corporation duly organized and
in good standing under the laws of the State of Delaware and is duly
qualified to do business and is in good standing in all states where
such qualification is necessary, except for those jurisdictions in
which the failure to qualify would not, in the aggregate, have a
material adverse effect on the Company's financial condition, results
of operations or business.
-2-
<PAGE> 3
(b) Authority. The execution and delivery by the Company of
this Agreement and the Note (i) are within the Company's corporate
powers; (ii) are duly authorized by the Company's board of directors;
(iii) are not in contravention of the terms of the Company's
certificate of incorporation or bylaws; (iv) are not in contravention
of any law or laws; (v) except for the filing of a Form D Notice with
the Securities and Exchange Commission and any exemption filing related
thereto which may be required pursuant to applicable state securities
or "blue sky" laws, do not require any governmental consent,
registration or approval; (vi) do not contravene any contractual or
governmental restriction binding upon the Company; and (vii) will not
result in the imposition of any lien, charge, security interest or
encumbrance upon any property of the Company under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which the Company is a party or by
which the Company or any of the Company's property may be bound or
affected.
(c) Binding Effect. This Agreement and the Note have been duly
authorized, executed and delivered by the Company and constitute the
valid and legally binding obligation of the Company, enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(d) Capitalization. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, par value $.0001
per share, 5,632,776 shares of which are issued and outstanding and
5,000,000 shares of authorized Preferred Stock, par value $0.001 per
share, of which none are issued or outstanding. The shares of common
stock issuable upon conversion of the Note (the "Conversion Shares")
and the shares issuable upon exercise of the Warrant granted to
Purchaser in connection with the Note (collectively the "Shares") have
been duly and validly authorized and reserved for issuance and, when
issued and delivered in accordance with the terms of this Agreement,
will be duly and validly issued, fully paid and non-assessable. The
Company shall at all times have authorized, reserved and set aside a
sufficient number of Common Shares for the conversion of the Note and
for payment of interest on the Note by issuing Interest Shares.
(e) Disclosure Documents. The Company has furnished the
Purchaser with a Disclosure Schedule attached hereto and made a part
hereof.
Except as disclosed in the Disclosure Schedule, the Company has not
incurred any material liability except in the ordinary course of its
business consistent with past practice and there has not been any
change in the business, financial condition or results of operations of
the Company which has had a material adverse effect on the Company. The
Financial Statements in the Disclosure Schedule are accurate, complete
and have been prepared in accordance with the books and records of the
Company and in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present (subject, in
the case of
-3-
<PAGE> 4
the unaudited statements, to normal, recurring audit adjustments that
are not material) the consolidated financial position of the Company as
at the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended.
(f) Litigation. Except as disclosed in the Disclosure
Schedule, there is neither pending nor, to the Company's knowledge,
threatened any action, suit, proceeding or claim, or any basis
therefor, to which the Company is or may be named as a party or its
property is or may be subject other than routine litigation in the
ordinary course of business or which calls into question any of the
transactions contemplated by this Agreement.
(g) Securities Matters. Subject to the accuracy of the
representations of the Purchaser set forth in Section 3.2 hereof, the
offer, sale and issuance of the Note and the Shares as contemplated by
this Agreement are exempt from the registration requirements of the
Securities Act of 1933 as amended (the "Securities Act"). The Company
has complied and will comply with all applicable state "blue sky" or
securities laws in connection with the offer, sale and issuance of the
Note and the Shares as contemplated by this Agreement. The Company will
become subject to the reporting requirements of the Securities and
Exchange Commission Act of 1934, as amended, within thirty (30) days of
the date hereof.
3.2 Representations and Warranties of the Purchaser. The Purchaser
represents and warrants that as of the date of the execution of this Agreement:
(a) Authorization. This Agreement constitutes a valid and
legally binding obligation of the Purchaser.
(b) Investment Representations. (i) The Purchaser has received
and reviewed the Company's Disclosure Documents and the Purchaser or
the Purchaser's designated representatives have concluded a
satisfactory due diligence investigation of the Company and have had an
opportunity to review the documents provided by the Company and to have
all of their questions related thereto satisfactorily answered.
(ii) The Purchaser acknowledges that the Note and the
Shares are speculative and involve a high degree of risk and
the Purchaser represents that it is able to sustain the loss
of the entire amount of its investment.
(iii) The Purchaser (or its members and/or officers)
has previously invested in unregistered securities and has
sufficient financial and investing expertise to evaluate and
understand the risks of the Note and the Shares.
-4-
<PAGE> 5
(iv) The Purchaser has received from the Company, and
is relying on, no representations or projections (except as
set forth in this Agreement or the Disclosure Documents) with
respect to the Company's business and prospects.
(v) The Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act.
(vi) The Purchaser is acquiring the Note and the
Shares for investment purposes only without intent to
distribute the same, and acknowledges that the Note and the
Shares have not been registered under the Securities Act and
applicable state securities laws, and accordingly, constitute
"restricted securities" for purposes of the Securities Act and
such state securities laws.
(vii) The Purchaser acknowledges that it will not be
able to transfer the Note and the Shares except upon
compliance with the registration requirements of the
Securities Act and applicable state securities laws or
exemptions therefrom.
(viii) The certificates and/or instruments evidencing
the Note and the Shares will contain a legend to the foregoing
effect.
4. PURCHASER REGISTRATION OF SHARES. The Shares issuable upon
conversion of the Note as well as the Shares issuable upon exercise of the
Warrant shall receive piggyback registration rights. If and when the Company
registers shares of its common stock, the Company covenants that the Purchaser
shall be included in the Registration Statement as a selling shareholder with
respect to the Shares.
5. MISCELLANEOUS.
5.1 Confidentiality. (a) The Purchaser agrees to keep confidential any
and all non-public information delivered or made available to the Purchaser by
the Company except for disclosures, as necessary, made by the Purchaser to the
Purchaser's officers, directors, employees, agents, counsel and accountants each
of whom shall be notified by the Purchaser of this confidentiality covenant and
for whom the Purchaser shall be liable in the event of any breach of this
covenant by any such individual or individuals; provided, however, that nothing
herein shall prevent the Purchaser from disclosing such information (a) upon the
order of any court or administrative agency, (b) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Purchaser, (c)
which has been publicly disclosed or (d) to any of its members provided that any
such members agree in writing (with a copy provided to the Company) to be bound
by confidentiality provisions in form and substance substantially as are
contained herein. In the event of a mandatory disclosure as described in clause
(a) and/or (b) of the preceding sentence, the Purchaser shall promptly notify
the Company in writing of any applicable order, request or demand for such
information, cooperate with the Company if and to the extent that the Company
elects to seek an appropriate protective order or other relief from such order,
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<PAGE> 6
request, or demand, and disclose only the minimal amount of information
ultimately required to be disclosed. The Purchaser shall not use for its own
benefit, nor permit any other person to use for such person's benefit, any of
the Company's non-public information including, without limitation, in
connection with the purchase and/or sale of the Company's securities.
(b) The Company shall in no event disclose non-public
information to the Purchaser, advisors to or representatives of the
Purchaser unless prior to disclosure of such information the Company
marks such information as "Non-Public Information - Confidential" and
provides the Purchaser, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any
non-public information hereunder, require the Purchaser's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Purchaser.
(c) Nothing herein shall require the Company to disclose
non-public information to the Purchaser or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any Purchasers who purchase stock
in the Company in a public offering, to money managers or to securities
analysts.
5.2 Legends. To the extent applicable, each note, certificate or other
document evidencing the Notes to be purchased and sold pursuant to this
Agreement and any Shares issued shall be endorsed with the legends set forth
below, and the Purchaser on behalf of itself and each holder of the Note
covenants that, except to the extent such restrictions are waived by the
Company, it shall not transfer the Note or Shares without complying with the
restrictions on transfer described in the legends endorsed on such note or
certificate:
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Note or the Shares, the legend
required by such state authority.
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<PAGE> 7
5.3 Costs and Expenses. The Company shall reimburse Purchaser for its
reasonable legal fees and expenses in connection with the purchase of the Note.
The Company shall be responsible for all of its fees and expenses in connection
with this transaction.
5.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of the parties hereto.
5.5 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Purchaser herein shall survive the execution and
delivery of this Agreement.
5.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
5.7 Counterparts: Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
5.8 Entire Agreement, Amendments. This Agreement and the Exhibits
contain the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other representations and understandings, oral
or written, with respect to the subject matter hereof. No amendment,
modification, alteration, or waiver of the terms of this Agreement or consent
required under the terms of this Agreement shall be effective unless made in a
writing, which makes specific reference to this Agreement and which has been
signed by the Company and the Purchaser. Any such amendment, modification,
alteration, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5.9 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when delivered in hand, deposited in the mail, or sent by facsimile, with
confirmation (if sent by facsimile on a non-business day, receipt shall be
deemed to have occurred on the next succeeding business day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed as follows, unless and until either of
such parties notifies the other in accordance with this Section of a change of
address:
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<PAGE> 8
if to the Company: Gary Player Direct, Inc.
2811 Airpark Drive
Santa Maria, California 93455
Att: Secretary
Tel: (805) 346-1600
Fax: (805) 348-0104
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Att: Thomas P. Gallagher
Tel: (609) 452-6000
Fax: (609) 452-0090
if to the Purchaser: Roy Tashi
Level 50
101 Collins Street
Melbourne, Vic. 3000 Australia
Tel: 011-61-3-9653-9455
Fax: 011-61-3-9822-5564
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Att: Thomas P. Gallagher
Tel: (609) 452-6000
Fax: (609) 452-0090
5.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
5.11 Maximum Interest. It is expressly stipulated and agreed to be the
intent of the Company and the Purchaser at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Purchaser to contract
for, charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of the Note results in the
Company's having paid any interest in excess of that permitted by law, then it
is the Company's and the Purchaser's
-8-
<PAGE> 9
express intent that all excess cash amounts theretofore collected by Purchaser
be credited on the principal balance of the Note (or if the Note has been or
would thereby be paid in full, refunded to the Company), and the provisions of
this Agreement immediately be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder. The right to
accelerate maturity of the Note does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration, and
the Purchaser does not intend to collect any unearned interest in the event of
acceleration.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
GARY PLAYER DIRECT, INC.
By: /s/ A.J. Cervantes
-------------------------------------
Alfonso J. Cervantes
President and Chief Executive Officer
/s/ Roy Tashi
----------------------------------------
Roy Tashi
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<PAGE> 10
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. 1 June 7, 1999
GARY PLAYER DIRECT, INC.
10% CONVERTIBLE NOTE
FOR VALUE RECEIVED, Gary Player Direct, Inc., a Delaware corporation
(the "Company") hereby promises to pay to the order of Roy Tashi having an
address at Level 50, 101 Collins Street, Melbourne Vic. 3000 Australia (the
"Holder"), or his registered assigns, the principal sum of Seventy Five Thousand
Dollars ($75,000.00), and to pay interest from the date hereof on the principal
sum at the rate of 10% per annum based on a 365-day year, such interest to
accrue from the date hereof (the "Closing Date"). The principal and accrued
interest shall be paid in full on or before the earlier of (i) thirty (30) days
from the Closing Date, or (ii) the occurrence of an Event of Default as defined
herein (the "Maturity Date") subject to extension as described in Section 7(b)
below.
This Note is an authorized issue of $75,000 aggregate amount of 10%
Notes of the Company (collectively, the "Notes") issued pursuant to a Note
Purchase Agreement dated as of June 7, 1999 between the Company and the Holder
(the "Note Purchase Agreement"). The Holder of this Note is entitled to the
benefits of the Note Purchase Agreement and to enforce the agreements of the
Company contained therein. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Note Purchase Agreement.
All payments shall be paid in lawful money of the United States of America at
the principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company.
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<PAGE> 11
1. PREPAYMENT. The Company may prepay and redeem the Note, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Note together with accrued interest to the Maturity Date.
2. CONVERSION RIGHTS. The Note and any and all interest payable thereon
shall be convertible, at the option of the Holder, at any time (i) prior to the
Maturity Date or (ii) within five (5) business days after receipt of written
notice of redemption by the Company into shares of Common Stock of the Company
at a price equal to $1.00 per share.
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Note and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $20,000.
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note and, if requested by the
Company in the case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the
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<PAGE> 12
amount of the unpaid principal of such Note, and dated the date to which
interest has been paid, in lieu of such lost, stolen, destroyed or mutilated
Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of: (i) any of the events specified in Section 6(a); (ii) any of the
events specified in Section 6(b) hereof and the failure to cure such default
within ten (10) days after receipt of written notice thereof from the Holder; or
(iii) any of the events specified in Section 6(c) hereof (any of the foregoing
being an "Event of Default"):
(a) Failure to make any principal or interest payment required
under this Note on the due date of such payment;
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. LATE FEES.
(a) If the principal balance and accrued interest on this Note
are not paid in full at the Maturity Date, then the Company shall
immediately upon demand pay to Holder a late charge equal to ten
percent (10%) of the entire amount of principal and/or accrued interest
unpaid as of the Maturity Date. If the principal balance and accrued
interest on this Note are not paid in full before 15 days from the
Maturity Date, then the Company shall immediately upon demand pay to
the Holder an additional late charge equal to ten percent (10%) of the
entire amount of principal and/or accrued interest unpaid as of such
date. Such late fees shall be paid regardless of whether this Note has
been, or could be, declared in default and shall be in addition to all
other remedies available to the Holder;
(b) Provided, however, the Maturity Date may be extended for
an additional period of thirty (30) days at any time on or prior to the
Maturity Date upon the payment by the Company of $12,500.00 via wire
transfer of immediately available funds to an account designated by
Holder.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (c) of Section 6, then the Note shall
be automatically accelerated and immediately due and payable at the
option of Holder, without notice or
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<PAGE> 13
demand, and said amount shall accrue interest from the date of default
at the rate of seventeen percent (17%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the Note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of seventeen percent (17%) per annum; and
(c) the Holder shall have all of the rights and remedies, at
law and in equity, by statute or otherwise, and no remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law,
in, equity, by statute or otherwise.
9. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
10. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
11. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4
<PAGE> 14
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
GARY PLAYER DIRECT, INC.
By: /s/ A.J. Cervantes
--------------------------------------
Alfonso J. Cervantes
President and Chief Executive Officer
5
<PAGE> 15
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS MAY NOT BE
EXERCISED OFFERED OR SOLD UNLESS, IN EACH CASE, THE WARRANTS AND WARRANT SHARES
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED AND ENCUMBERED EXCEPT PURSUANT TO THE PROVISIONS CONTAINED
HEREIN.
WARRANTS TO PURCHASE COMMON STOCK
GARY PLAYER DIRECT, INC., a Delaware corporation (the "Company") hereby
grants to ROY TASHI (the "Holder") One Hundred Thousand (100,000) transferable
warrants (the "Warrants") for the purchase of common stock of the Company (the
"Common Stock"), with each whole Warrant entitling the Holder to purchase one
share of Common Stock (each a "Warrant Share" and collectively the "Warrant
Shares") on the terms and subject to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any
time and from time to time until 5:00 Pacific Time on the date five (5) years
from the date of issuance (the "Exercise Period").
2. EXERCISE PRICE. The exercise price of each whole Warrant shall be
equal to $1.00.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms
provided herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. The Holder shall be deemed the record owner of such Warrant Shares as
of and from the close of business on the date on which this certificate is
surrendered together with the completed Notice of Exercise and payment in full
as required above (the "Exercise Date"). The Company agrees that the Warrant
Shares so purchased shall be issued as soon as practicable thereafter. It shall
be a condition to the exercise of the Warrants that the Holder or any transferee
hereof provide an
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<PAGE> 16
opinion of counsel reasonably satisfactory to the Company that the Warrants and
the Warrant Shares to be delivered upon exercise thereof have been registered
under the Securities Act or that an exemption from the registration requirements
of the Securities Act is available.
4. FRACTIONAL INTEREST. In lieu of issuing fractional shares of Common
Stock upon exercise of the Warrants, the Company may pay the Holder a cash
amount determined by multiplying the fraction of a share otherwise issuable by
the Exercise Price as defined herein of one share of Common Stock.
5. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have
any rights as a stockholder of the Company with regard to the Warrant Shares
prior to the Exercise Date for any actual purchase of Warrant Shares.
6. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrant
Shares issuable upon the exercise of the Warrants have been registered under the
Securities Act or any state securities laws. The Holder acknowledges by signing
this certificate that, as of the date of this Warrant and at the time of
exercise that: (a) the Holder has acquired the Warrant or the Warrant Shares, as
the case may be, for the Holder's own account; (b) the Holder has acquired the
Warrants or the Warrant Shares, as the case may be, for investment and not with
a view to distribution; and (c) either the Holder has a pre-existing personal or
business relationship with the Company or its executive officers, or by reason
of the Holder's business or financial experience the Holder has the capacity to
protect the Holder's own interests in connection with the transaction. The
Holder agrees, by acceptance of this certificate, that any Warrant Shares
purchased upon exercise of the Warrants may have to be held indefinitely or
until an exemption from registration is available, as evidenced by an opinion of
counsel reasonably satisfactory to the Company. The Holder, by acceptance of
this certificate, consents to the placement of a restrictive legend (the
"Legend") on the certificates representing any Warrant Shares that are purchased
upon exercise of the Warrants during the applicable restricted period under Rule
144 or any other applicable restricted period under the Securities Act. The
Legend shall be in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, UNLESS IN THE
WRITTEN LEGAL OPINION (APPROVED BY THE COMPANY) OF COUNSEL SATISFACTORY
TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
7. REGISTRATION RIGHTS. The Holder shall receive piggyback registration
rights for any Warrant Shares issuable upon the exercise of the Warrants such
that these shares shall be included in any registration statement being filed by
the Company under the Securities Act of
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<PAGE> 17
1933, as amended; provided, however, in the event the Warrant Shares issuable
upon the exercise of the Warrants are not registered under the Securities Act of
1933, as amended, within nine months from and after the issuance date of the
Warrants, the Company shall file a Registration Statement under the Securities
Act of 1933, as amended, registering the Warrant Shares such that such Shares
shall be freely tradeable within not later than nine months from and after the
issuance date of the Warrants. In the event that the Warrant Shares are not so
registered within nine months, the Company shall agree to pay the holder thereof
$4,000 for each 30-day period that the Warrant Shares are not so registered.
8. RESERVATION OF SHARES. The Company agrees that, at all times during
the Exercise Period, the Company will have authorized and reserved, for the
exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
9. ADJUSTMENT FOR CHANGES IN CAPITAL STOCK. If the Company at any time
during the Exercise Period shall, by subdivision, combination or
reclassification of securities, change any of the securities into which the
Warrants are exercisable into the same or a different number of securities of
any class or classes, the Warrants shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares if the Warrant Shares
had been outstanding immediately prior to such subdivision, combination, or
reclassification.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to the Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the original
certificate if mutilated, the Company will make and deliver a new certificate of
like tenor in lieu of the original certificate.
11. ASSIGNMENT. The Warrants may be transferred subject to the
provisions of Section 6 of this Certificate.
12. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of New Jersey applicable to contracts
between New Jersey residents entered into and to be performed entirely within
the State of New Jersey. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged or
terminated only by a written instrument signed by both the Company and the
Holder. All notices and other communications from the Company to the Holder
shall be mailed by first-class registered or certified mail, postage pre-paid,
to the address furnished to the Company in writing by the last Holder who shall
have furnished an address to the Company in writing.
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
June 10, 1999.
GARY PLAYER DIRECT, INC.
Dated: June 10, 1999 By: /s/ A.J. Cervantes
----------------- ---------------------------------------
A.J. Cervantes,
President and Chief Executive Officer
Dated: June 10, 1999 By: /s/ Roy Tashi
----------------- ---------------------------------------
Roy Tashi
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<PAGE> 19
NOTICE OF EXERCISE
To: Gary Player Direct, Inc. (the "Company")
1. The undersigned hereby elects to exercise a total of ___________
Warrants for the purchase of a like number of Warrant Shares, and tenders
herewith payment of the Exercise Price for such shares in full.
2. In exercising the Warrants, the undersigned hereby confirms and
acknowledges that: (a) the Warrant Shares are being acquired solely for the
account of the undersigned for investment and not with a view to or for sale in
connection with any distribution; (b) the undersigned has a pre-existing
personal or business relationship with the Company or its executive officers, or
by reason of the undersigned's business or financial experience the undersigned
has the capacity to protect the undersigned's own interests in connection with
the exercise of the Warrants; and (c) the undersigned will not offer, sell or
otherwise dispose of any of the Warrant Shares unless the Warrant Shares have
been registered under the Securities Act or an exemption from such registration
is available, as evidenced by an opinion of counsel reasonably satisfactory to
the Company.
3. Please issue a certificate representing the Warrant Shares in the
name of the Holder and deliver the certificate to the address set forth below.
4. Please issue a new certificate representing the unexercised portion
(if any) of the Warrants in the name of the Holder and deliver the certificate
to the address set forth below.
Dated: _____________ _________________________________
(Name)
_________________________________
(Authorized Signature)
Address for Delivery:
_________________________________
_________________________________
_________________________________
_________________________________
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<PAGE> 1
EXHIBIT 10.12
AMENDMENT
This Amendment dated July 14th, 1999 to the 10% Convertible Note and
Note Purchase Agreement (collectively the "Note") by and between Gary Player
Direct, Inc. (the "Company") and Mr. Roy Tashi (the "Holder") and guaranteed by
Mr. A.J. Cervantes, President of the Company (the "Guarantor").
WHEREAS, the parties to this Amendment executed a 10% Convertible Note
and Note Purchase Agreement dated June 7, 1999 for $75,000; and
WHEREAS, the Company was in default under the Note as of July 6, 1999;
and
WHEREAS, this Amendment is to confirm the receipt of $6,250 by
California counsel for the Holder and acceptance by the Holder of the $6,250 as
payment for the extension of the Maturity Date as through Wednesday, July 21,
1999.
NOW, THEREFORE, in consideration of the extension through July 21,
1999, the parties agree to the following terms:
1. The Company shall issue the Holder 10,000 shares of Common Stock of
the Company within three (3) business days of the execution of this Amendment.
2. If the full amount due under the Note, $75,000, or a payment
pursuant to paragraph 7(b) of the Note of $12,500 to extend the Maturity Date
thirty (30) days is not received via wire transfer in the trust account for the
Holder's California counsel, Shiv Grewal, on or before July 21, 1999 at the
close of business, the Company will be in default under the Note and the Holder
will be forced to pursue the remedies to which he is entitled under the Note
including the institution of an action against you as the guarantor of the Note.
3. Should the Company extend the Maturity Date for an additional 30
days, notwithstanding the payment of $12,500 required for extension under the
Note, the Company shall additionally issue to Holder another 10,000 shares of
Common Stock of the Company in consideration of the 30 day extension within 3
business days from the date of extension.
4. Any and all filings required under the reporting provisions of the
Securities Exchange Act of 1934 shall be filed by the Company with the
Securities and Exchange Commission on or before August 1, 1999, or the Company
will be in default under the Note for breach of the Company's representation
contained in paragraph 3.1(g) of the Note Purchase Agreement.
5. All expenses and costs incurred in connection with this extension
shall be paid by the Company, which expenses aggregate $580.00 to date, and are
payable upon execution of this Amendment to Gallagher, Briody & Butler.
1
<PAGE> 2
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
GARY PLAYER DIRECT, INC.
By: /s/ A.J. Cervantes
--------------------------
A. J. Cervantes, President
ROY TASHI
/s/ Roy Tashi
-----------------------------
2
<PAGE> 1
EXHIBIT 10.13
GUARANTY
THIS GUARANTY dated as of June 7, 1999, is made and delivered by A.J.
Cervantes ("Guarantor") in favor of Roy Tashi the holder of the Note (the
"Noteholder").
A. Gary Player Direct, Inc. ("GPD") has issued a convertible note in
the aggregate principal amount of $75,000 (the "Note").
B. The payment of the Note (the "Obligation") is secured by the
collateral of GPD evidenced by a Security Agreement between the parties
(collectively, the "Collateral").
C. Any term used herein and not defined shall have the meaning set
forth in the Note Purchase Agreement dated June ___, 1999 between Guarantor and
the Noteholder.
D. To induce the Noteholder to purchase the Note, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor is willing to guarantee the performance of certain
obligations of GPD, on the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and
intending to be legally bound hereby, the undersigned agrees as follows:
1. For consideration, the adequacy and sufficiency of which is
acknowledged, the Guarantor unconditionally guarantees the payment and
performance of GPD's obligations under the Note and the payment of all
liabilities of GPD to Noteholder, whether absolute or contingent, matured or
unmatured, direct or indirect, similar or dissimilar, due or to become due
arising under the Note (all such payment and performance obligations are
hereinafter referred to as the "Obligations"). Guarantor's liability under this
Guaranty for GPD's Obligations shall not exceed at any one time the sum of the
following (the "Guarantied Liability Amount"): (a) Seventy-Five Thousand and
no/100 Dollars ($75,000) for Obligations representing principal ("Principal
Amount"), (b) all interest, fees and like charges owing and allocable to the
Principal Amount under the Note, and (c) all costs, attorneys' fees, and
expenses of Noteholder relating to or arising out of the enforcement of the
Obligations and this Guaranty or any collection proceedings.
2. This Agreement may not be assigned by any party hereto without the
prior written consent of the other parties. This Agreement shall inure to the
benefit of and bind Noteholder, its successors and assigns and the undersigned,
their respective heirs, executors, administrators and successors in interest.
3. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when two or more
1
<PAGE> 2
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
4. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this agreement shall be prohibited or invalid under
applicable law, such provisions shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such or the
remaining provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed this Agreement as
of the date set forth above.
GUARANTOR:
/s/ A.J. Cervantes
------------------------
A.J. Cervantes
NOTEHOLDER:
/s/ Roy Tashi
------------------------
Roy Tashi
2
<PAGE> 1
EXHIBIT 10.14
SECURITY AGREEMENT
This Security Agreement (the "AGREEMENT") is made and entered into as
of the 7th day of June, 1999 by Gary Player Direct, Inc. ("BORROWER"), in favor
of Roy Tashi, hereinafter referred to as "Junior Lender" and all persons and
entities heretofore and hereafter receiving this Agreement in his, her, or its
capacity as a "Junior Lender" subordinate only to the "Senior Lender" identified
on Schedule A attached hereto (collectively, the "LENDERS"). The Junior Lender
has provided to Borrower loans in an aggregate principal amount of up to $75,000
outstanding at any date (the "JUNIOR FINANCING").
1. SECURITY INTEREST.
(a) To secure the due and punctual payment of all amounts due under the
Senior Financing, Borrower hereby grants to the Junior Lender a security
interest in all of its assets (the "COLLATERAL"). The Collateral shall include,
without limitation:
(i) All goods now owned or hereafter acquired by Borrower or
in which Borrower has or may hereafter acquire any interest;
(ii) All equipment now owned or hereafter acquired by
Borrower;
(iii) All inventory now owned or hereafter acquired by
Borrower;
(iv) All accounts, contract rights and general intangibles now
owned or hereafter created or acquired by Borrower, all receivables, goodwill,
trademarks, trade styles, trade names, customers lists and business records;
(v) All documents, instruments and chattel paper now owned or
hereafter acquired by Borrower; and
(vi) All monies, deposit accounts, certificate of deposit and
securities of Borrower now or hereafter in Borrower's or its agents' possession.
(b) Junior Lender's security interest in the Collateral shall be a
continuing lien and shall include the proceeds and products of the Collateral,
including, but not limited to, the proceeds of any insurance thereon.
(c) Borrower, represents and warrants to the Junior Lender that the
Collateral is free and clear of all mortgages, encumbrances, liens and security
interests except the permitted liens which are listed on Schedule B attached
hereto.
2. COVENANTS AND FURTHER ASSURANCES.
<PAGE> 2
(a) Borrower agrees to take any and all actions as may be reasonably
requested by the Junior Lender to perfect, protect and evidence the security
interest of the Junior Lender in the Collateral, including, without limitation:
(i) the filing of financing statements and other instruments; (ii) the delivery
of possession of that portion of the Collateral with respect to which a security
interest may be perfected by possession; and (iii) delivery of notices to banks,
insurance companies and others where notice may be required to perfect a
security interest.
(b) Borrower shall: (i) keep and maintain the Collateral free and clear
of all liens, encumbrances and security interests of third parties other than
the Permitted Liens and shall defend the Collateral at its cost and expense
against any such lien, encumbrance or security interest; (ii) comply in all
material respects, with all laws, statutes and regulations pertaining to
Collateral and its use and operation; (iii) properly care for, house, store and
maintain the Collateral in good condition, free of misuse, abuse and
deterioration, other than normal wear and tear; and (iv) permit the Junior
Lender or any representative thereof to examine and make copies of the records
and visit the properties of Borrower and discuss the business and operations of
Borrower with any employee or representative thereof.
3. EVENTS OF DEFAULT AND REMEDIES.
(a) The failure to pay the Junior Financing when due shall constitute
an event of default by Borrower under this Agreement. Upon the occurrence of an
event of default under this Agreement, the Junior Lender shall have all rights
and remedies of a secured party under the Uniform Commercial Code and other
rights and remedies to which the Lenders may be entitled under applicable law.
(b) Any action taken by the Junior Lender with respect to the
Collateral, including any sale or disposition of the Collateral, shall be for
the benefit of all the Lenders and the net proceeds of any such sale available
to the Lenders shall be allocated among the Lenders on a pro rata basis.
4. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, postage prepaid,
addressed to the party at the address set forth on the signature page of this
Agreement. Any Notice, other than a Notice sent by registered or certified mail,
shall be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier of
when received or the fifth day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any
2
<PAGE> 3
and all prior discussions, negotiations, commitments and understandings, whether
oral or otherwise, related to the subject matter of this Agreement are hereby
merged herein.
(c) SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective successors, heirs
and personal representatives.
(d) GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New Jersey without giving effect to the principles of
conflicts of law thereof.
(e) SEVERABILITY. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision of the remaining provisions of this Agreement.
(f) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(h) ATTORNEYS' FEES. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees to be fixed by the court.
GARY PLAYER DIRECT, INC.
By: /s/ A.J. Cervantes
-------------------------------
Alfonso J. Cervantes, President
2811 Airpark Drive,
Santa Maria, CA 93455
3
<PAGE> 4
SCHEDULE A
SENIOR LENDERS
Montee Ahujha for $650,000.00
4
<PAGE> 5
SCHEDULE B
PERMITTED LIENS
1. UCC-1 Financing Statement filed in 1999 for the security interest held
by Montee Ahujha for $650,000.00 in the gross assets of the Company
5
<PAGE> 1
EXHIBIT 10.15
SECURITY AGREEMENT
This Security Agreement (the "AGREEMENT") is made and entered into as
of the 3rd day of June, 1999 by Gary Player Direct, Inc. ("BORROWER"), in favor
of the person or entity designated below as "Senior Lender" and all persons and
entities heretofore and hereafter receiving this Agreement in his, her, or its
capacity as a "Senior Lender" (collectively, the "SENIOR LENDERS"). The Senior
Lenders have provided to Borrower loans in an aggregate principal amount of up
to $75,000 outstanding at any date (the "SENIOR FINANCING"). The Senior Lenders
are identified on Scheule A attached hereto.
1. SECURITY INTEREST.
(a) To secure the due and punctual payment of all amounts due under the
Senior Financing, Borrower hereby grants to the Senior Lenders a security
interest in all of its assets (the "COLLATERAL"), except for the capital stock
of Rhino Marketing, Inc., a wholly owned subsidiary of Borrower which has ceased
operations. The Collateral shall include, without limitation:
(i) All goods now owned or hereafter acquired by Borrower or
in which Borrower has or may hereafter acquire any interest;
(ii) All equipment now owned or hereafter acquired by
Borrower;
(iii) All inventory now owned or hereafter acquired by
Borrower;
(iv) All accounts, contract rights and general intangibles now
owned or hereafter created or acquired by Borrower, all receivables, goodwill,
trademarks, trade styles, trade names, customers lists and business records;
(v) All documents, instruments and chattel paper now owned or
hereafter acquired by Borrower; and
(vi) All monies, deposit accounts, certificate of deposit and
securities of Borrower now or hereafter in Borrower's or its agents' possession.
(b) Lender's security interest in the Collateral shall be a continuing
lien and shall include the proceeds and products of the Collateral, including,
but not limited to, the proceeds of any insurance thereon.
(c) Borrower, represents and warrants to the Senior Lenders that the
Collateral is free and clear of all mortgages, encumbrances, liens and security
interests except the following ("PERMITTED LIENS"): (i) security interest in
favor of Donald Bergman, as agent for several lenders (the "EXISTING LENDERS")
in connection with a loan in the principal amount of $200,000
<PAGE> 2
made by the Existing Lenders, which loan is evidenced by a promissory note dated
June 28, 1996 (the "EXISTING LOAN"); and (ii) purchase money security interests,
which security interests may be directly in favor of the Seller or in favor of a
third-party which shall have financed the acquisition of such goods, equipment
or inventory.
2. COVENANTS AND FURTHER ASSURANCES.
(a) Borrower agrees to take any and all actions as may be reasonably
requested by the Senior Lenders to perfect, protect and evidence the security
interest of the Senior Lenders in the Collateral, including, without limitation:
(i) the filing of financing statements and other instruments; (ii) the delivery
of possession of that portion of the Collateral with respect to which a security
interest may be perfected by possession; and (iii) delivery of notices to banks,
insurance companies and others where notice may be required to perfect a
security interest.
(b) Borrower shall: (i) keep and maintain the Collateral free and clear
of all liens, encumbrances and security interests of third parties other than
the Permitted Liens and shall defend the Collateral at its cost and expense
against any such lien, encumbrance or security interest; (ii) comply in all
material respects, with all laws, statutes and regulations pertaining to
Collateral and its use and operation; (iii) properly care for, house, store and
maintain the Collateral in good condition, free of misuse, abuse and
deterioration, other than normal wear and tear; and (iv) permit the Senior
Lenders or any representative thereof to examine and make copies of the records
and visit the properties of Borrower and discuss the business and operations of
Borrower with any employee or representative thereof.
3. EVENTS OF DEFAULT AND REMEDIES.
(a) The failure to pay the Senior Financing when due shall constitute
an event of default by Borrower under this Agreement. Upon the occurrence of an
event of default under this Agreement, the Senior Lenders shall have all rights
and remedies of a secured party under the Uniform Commercial Code and other
rights and remedies to which the Senior Lenders may be entitled under applicable
law.
(b) Any action taken by the Senior Lenders with respect to the
Collateral, including any sale or disposition of the Collateral, shall be for
the benefit of all the Senior Lenders and the net proceeds of any such sale
available to the Senior Lenders shall be allocated among the Senior Lenders on a
pro rata basis.
(c) Any action taken by the Senior Lenders with respect to the
Collateral shall be taken only by action approved by a majority in principal
amount of the Senior Financing then outstanding. Any consent or approval of the
Senior Lenders, or any notice required to be given by the Senior Lenders, may be
given only by a Senior Lender(s) holding a majority in principal amount of the
Senior Financing then outstanding.
2
<PAGE> 3
4. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, postage prepaid,
addressed to the party at the address set forth on the signature page of this
Agreement. Any Notice, other than a Notice sent by registered or certified mail,
shall be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier of
when received or the fifth day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c) SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective successors, heirs
and personal representatives.
(d) GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of California without giving effect to the principles of
conflicts of law thereof.
(e) SEVERABILITY. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision of the remaining provisions of this Agreement.
(f) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
3
<PAGE> 4
(h) ATTORNEYS' FEES. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees to be fixed by the court.
GARY PLAYER DIRECT, INC.
By:__________________________________
Alfonso J. Cervantes, President
2811 Airpark Drive,
Santa Maria, CA 93455
4
<PAGE> 5
SCHEDULE A
SENIOR LENDERS
Roy Tashi
5
<PAGE> 1
EXHIBIT 10.16
CONSULTING AGREEMENT BETWEEN
GARY PLAYER DIRECT, INC.
AND GARY KUCHER
THIS CONSULTING AGREEMENT is made as of the 2nd day of June, 1999
between GARY PLAYER DIRECT, INC. and its successors or assigns (the
"Corporation") and GARY KUCHER ("Consultant").
WHEREAS, the Corporation is in need of the special expertise of
Consultant in connection with general financial and related matters; and
WHEREAS, Consultant is recognized for its credentials, judgment and
experience in such fields, and the parties desire to enter into this Agreement
for their mutual benefit.
1. RESPONSIBILITIES OF CONSULTANT. In consideration for the benefits
provided in paragraph 2 of this Agreement:
(a) Consultant will be designated a corporate consultant to
the Corporation;
(b) Consultant will provide general financial and related
consulting services to the Corporation; and
(c) Consultant will be available on as needed basis in order
to perform such duties for the Corporation as are herein identified.
2. COMPENSATION TO CONSULTANT. In consideration for the consulting
services provided by Consultant as specified in Section 1 above, and other good
and valuable consideration, the Corporation agrees to issue to Consultant or its
designee, on June 3, 1999, 50,000 shares of the common stock of the Corporation
(the "Shares") as full payment for the services to be rendered hereunder.
<PAGE> 2
3. REGISTRATION ON FORM S-8. The Corporation agrees to cause the Shares
to be registered under the Securities Act of 1933, as amended, by including the
Shares in a registration statement on Form S-8 to be filed by the Corporation
with the Securities and Exchange Commission within thirty (30) days of June 3,
1999. All expenses incurred in connection with the registration of the Shares
shall be paid by the Corporation. In the event that the S-8 Registration
Statement is not filed and effective within thirty (30) days from and after June
2, 1999, the Company hereby agrees to pay an additional $10,000.00 in cash for
failing to file such Registration Statement and for each additional 30-day
period thereafter that such Registration Statement is not filed the Company
hereby agrees to make a payment in the amount of $5,000.00 to the Consultant.
4. DURATION. This Agreement will be in effect for a period commencing
on the date hereof and ending on June 2, 2000.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
GARY PLAYER DIRECT, INC.
By:_____________________________________
Name: Alfonso J. Cervantes
Title: President and Chief Executive
Officer
_______________________________________
Gary Kucher
2
<PAGE> 1
PROMISSORY NOTE Exhibit 10.17
Santa Maria, California Principal Amount: $20,000
May 17, 1999
FOR VALUE RECEIVED Gary Player Direct, Inc., a publicly held Delaware
corporation, having an address of 2811 Airpark Drive, Santa Maria, California
93455 ("BORROWER"), unconditionally promises to pay to Michael Freilich, a
California resident, or registered assigns, ("LENDER") Twenty Thousand Dollars
($20,000) together with interest thereon at a rate of 15% per annum from the
date hereof.
1. Payments; Maturity Date. The principal and interest of this Note shall be
payable no later than 30 days from the date hereof (the "MATURITY DATE"). All
payments shall be sent to Lender's address as set forth in the Loan Agreement,
or such address as later specified by Lender or any successor in writing to
Borrower.
2. Shares. The Lender shall receive Seven Thousand Five Hundred (7500) shares
of Common Stock of Borrower.
3. Application of Payment. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
BORROWER:
Gary Player Direct, Inc.
By: /s/ A.J. Cervantes
____________________________
A.J. Cervantes, President
<PAGE> 2
[GARY PLAYER LETTERHEAD]
June 22, 1999
Michael I. Freilich, M.D.
8737 Beverly Blvd., Suite 403
Los Angeles, CA 90048
RE: Loan Agreement
Michael:
This will confirm our agreement with respect to a certain loan (the "Loan") in
the aggregate amount of $20,000 made by you, as Lender to Gary Player Direct,
Inc. ("Borrower"). We have agreed as follows:
1. The Maturity date of the Loan is extended for 30 days;
2. Borrower will issue Five Thousand shares (5000) of Borrower's Common Stock
as additional consideration.
If the foregoing confirms our agreement, please execute where indicated below.
On receipt of this agreement, Borrower will cause the issue of the Common Stock
certificate. Please return the executed acknowledgment to 805.348.0104.
Sincerely,
By: /s/ A.J. Cervantes
_____________________
President
Its: _____________________
ACKNOWLEDGED AND AGREED
THIS ____ DAY OF June, 1999
/s/ Michael Freilich
__________________________
Michael Freilich
<PAGE> 3
Gary Player Direct, Inc.
701 Aerovista Place, Suite B
San Luis Obispo, CA 93401
August 16, 1999
Michael I. Freilich, M.D.
8737 Beverly Blvd., Suite 403
Los Angeles, CA 90048
Re: Loan Agreements
Michael:
This will confirm our agreement with respect to two loans (the "Loans") in the
aggregate amount of $45,000 made by you, as lender, to Gary Player Direct, Inc.
("Borrower"), one in the principal amount of $25,000 (the "Initial Loan") and
one in the principal amount of $20,000 (the "Second Loan"). We have agreed as
follows:
1. The Maturity date of the Initial Loan is extended to September 6, 1999;
2. The Maturity date of this Second Loan is extended to September 1, 1999;
3. As consideration for the extension of the Maturity dates, Borrower will
issue a total of Seventeen Thousand shares (17,500) of Borrower's Common
Stock as additional consideration. These shares represent shares which are
being issued in addition to the shares issued pursuant to the original
investment.
If the foregoing confirms our agreement, please execute where indicated below.
On receipt of this agreement, Borrower will cause the issue of one Common Stock
certificate representing the aggregate shares due to you. Please return the
executed acknowledgment to 805.348.0104.
Sincerely,
ACKNOWLEDGED AND AGREED
THIS DAY OF August, 1999
/s/ Michael Freilich
--------------------------
Michael Freilich
By: /s/ A.J. Cervantes
----------------------
Its: President
-----------------
cc: Norman Kunin
Brian McPherson
Barbara Nunez
<PAGE> 4
GARY PLAYER DIRECT, INC.
710 AEROVISTA, SUITE B
SAN LUIS OBISPO, CA 93401
September 13, 1999
Michael I. Freilich, M.D.
8737 Beverly Blvd., Suite 403
Los Angeles, CA 90048
RE: Modification of $25,000 and $20,000 Promissory Notes
Dear Michael:
This will confirm our understanding, more formally referred to as the
Modification Agreement, with respect to the above referenced loans (the
"Loans") in the aggregate principal amount of Forty Five Thousand Dollars
($45,000) made by Michael I. Freilich ("Lender") to Gary Player Direct, Inc.
("Borrower"). We have agreed as follows:
1. The Maturity Date of the Loans shall be extended to November 15, 1999;
2. As consideration for the extension of the Maturity Dates, Borrower will
issue an additional Two Thousand Five Hundred (2,500) shares of Borrower's
Common Stock (the "Additional Extension Shares") as additional
consideration. These Additional Extension Shares are being issued in
addition to the shares issued pursuant to the original Loans and prior
extension agreements which aggregate Twenty Two Thousand Five Hundred
(22,500) shares. As a result, it is expressly understood between Lender and
Borrower an aggregate Twenty Five Thousand (25,000) additional shares is
due to Lender as consideration for the Loans. It is also expressly
understood between Lender and Alfonso J. Cervantes, individually, that his
personal guarantee of the Loans will be in full force and effect until such
time as the Loans and all consideration are paid in full.
If the foregoing confirms our understanding, please execute where indicated
below. Upon receipt of this Modification Agreement, Borrower will cause the
issuance of common stock certificate representing the aggregate shares.
Sincerely,
Gary Player Direct, Inc. Acknowledged and Agreed
/s/ Alfonso J. Cervantes /s/ Michael I. Freilich MD
- -------------------------------- ------------------------------
By: Alfonso J. Cervantes, Jr., Michael I. Freilich
/s/ Alfonso J. Cervantes
- ---------------------------------
Alfonso J. Cervantes, individually
<PAGE> 1
Exhibit 10.18
[GALLAGHER, BRIODY & BUTLER - LETTERHEAD]
December 2, 1999
VIA FACSIMILE: 614-464-2425
Frederick M. Luper, Esq.
William B. Logan, Jr., Esq.
Luper, Sheriff & Niedenthal
1200 Le Veque Tower
50 West Broad Street
Columbus, Ohio 43215
RE: CAPITAL FUND LEASING, LLC/GARY PLAYER DIRECT, INC.
Gentlemen:
As discussed earlier this evening, Gary Player Direct, Inc. (the
"Company") desires to confirm the following regarding a transaction between the
Company and Capital Fund Leasing, LLC ("CFL").
The Company's records indicate that the Company received $1,000,000 from
CFL on March 29, 1999 as the subscription price for 1,000,000 shares of the
Company's common stock registered in the name of Capital Fund Leasing, LLC. The
shares were subsequently issued by the transfer agent on or about June 1, 1999.
Enclosed for your reference and file are copies of (a) the Company's Board
resolution as delivered to the transfer agent to authorize the issuance of the
1,000,000 shares, (b) the Company's original issuance instruction letter to the
transfer agent dated May 28, 1999 regarding these shares, and (c) the transfer
agent's invoice to the Company dated June 1, 1999 reflecting the processing of
the original issuance instructions.
<PAGE> 2
[Gallagher, Briody & Butler Letterhead]
Frederick M. Luper, Esq.
William B. Logan, Jr., Esq.
December 2, 1999
Page 2
We ask that Fred, in his capacity as receiver for CFL, confirm the
above-described equity transaction in order to facilitate the completion of the
Company's March 31, 1999 audit by signing this letter below and returning the
same to our office via fax at 609-452-0090.
Please call Tom Gallagher or me if you have any questions regarding this
matter. We appreciate your attention to this.
Sincerely,
/s/ John Butler
-----------------------------------
John Butler
JB/jb
Enc.
cc: Carl Casareto, Executive Vice President
The foregoing is confirmed.
/s/ Frederick M. Luper
- --------------------------------------------
Frederick M. Luper, As Receiver
for Capital Fund Leasing, LLC
Dated: December 3, 1999
<TABLE> <S> <C>
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