<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended August 31, 1996 Commission File Number 0-921
------------------------- -----------
THE ARNOLD PALMER GOLF COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0331019
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6201 Mountain View Road, Ooltewah, Tennessee 37363
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 423-238-5890
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes x . No .
--------- ---------
As of September 25, 1996, the number of shares outstanding of the issuer's
common stock was 2,926,805.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Part I. Financial Information
Balance Sheets - August 31, 1996 and March 2, 1996 1
Statements of Operations - Three and Six Months
Ended August 31, 1996 and August 26, 1995 2
Statements of Cash Flows - Six Months Ended
August 31, 1996 and August 26, 1995 3
Notes to Financial Statements 4 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 -10
Part II. Other Information 11
Signature Page 12
</TABLE>
<PAGE> 3
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BALANCE SHEETS
AUGUST 31, 1996 AND MARCH 2, 1996
($ in thousands)
<TABLE>
<CAPTION>
ASSETS
- ------
August 31, 1996 March 2, 1996
--------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash 32 10
Trade receivables 6,447 4,534
less: allowance for doubtful accounts (576) (758)
------ ------
Net receivables 5,871 3,776
Inventories, net 9,698 9,896
Current portion of note receivable - 1,126
Prepaid expenses and other 808 759
------ ------
Total current assets 16,409 15,567
Property, plant and equipment 3,902 3,931
less: accumulated depreciation (2,692) (2,743)
------ ------
Net property, plant and equipment 1,210 1,188
Other assets:
Investment in NBHI 5,000 -
Non-current assets of discontinued operations 265 265
Goodwill 455 85
Other 1,622 1,455
------ ------
7,342 1,805
------ ------
TOTAL ASSETS 24,961 18,560
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term obligations 59 71
Short-term borrowings from bank 12,046 10,096
Accounts payable 2,117 1,718
Accrued liabilities 2,148 2,409
------ ------
Total current liabilities 16,370 14,294
Long-term obligations, net of
current maturities 3,918 4,600
Redeemable preferred stock 5,000 -
Stockholders' equity (deficit):
Common stock, $.50 par value,
10,000,000 shares authorized,
2,926,805 and 2,634,991 shares issued
and outstanding at August 31, 1996
and March 2, 1996, respectively 1,463 1,317
Additional paid-in capital 5,991 4,794
Accumulated deficit (7,781) (6,445)
------ ------
Total stockholders' equity (deficit) (327) (334)
------ ------
TOTAL LIABILITIES & STOCK-
HOLDERS' EQUITY (DEFICIT) 24,961 18,560
====== ======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 4
Page 2 Form 10-Q
STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
(Unaudited)
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
Aug 31, 1996 Aug 26, 1995 Aug 31, 1996 Aug 26, 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 5,688 4,837 16,918 13,089
Cost of sales 4,307 3,909 11,998 9,632
------ ----- ------ ------
Gross profit 1,381 928 4,920 3,457
Selling and marketing expenses 1,748 1,083 3,723 2,399
General and administrative expenses 950 523 1,838 1,042
------ ----- ------ ------
Income (loss) from operations (1,317) (678) (641) 16
Other income (expense), net (234) 416 303 563
------ ----- ------ ------
Income (loss) before interest and income taxes (1,551) (262) (338) 579
Interest expense 476 723 998 1,606
------ ----- ------ ------
Income (loss) from continuing operations before income taxes (2,027) (985) (1,336) (1,027)
Provision for income taxes - - - -
------ ----- ------ ------
Income (loss) from continuing operations (2,027) (985) (1,336) (1,027)
Discontinued operations - - - 348
------ ----- ------ ------
Net income (loss) (2,027) (985) (1,336) (679)
====== ===== ====== ======
Net income (loss) per share from:
Continuing operations (0.69) (0.38) (0.47) (0.39)
Discontinued operations - - - 0.13
------ ----- ------ ------
(0.69) (0.38) (0.47) (0.26)
====== ===== ====== ======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 5
Page 3 Form 10-Q
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
August 31, 1996 August 26, 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss (1,336) (679)
Adjustments to reconcile net income to net cash
used for operating activities -
Depreciation and amortization 253 482
Gain on sale of assets (100) (30)
Writedown of note receivable 794 -
Changes in operating assets and liabilities -
Receivables (1,942) 2,742
Inventories 282 870
Prepaid expenses and other (117) 112
Accounts payable 229 (2,794)
Accrued liabilities (169) (972)
------ ------
Net cash used for operating activities (2,106) (269)
------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property, plant and equipment (167) (89)
Proceeds from sale of property, plant & equipment 122 1,761
Payments received on note receivable - 1,400
Other 258 335
------ ------
Net cash provided by investing activities 213 3,407
------ ------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings from bank 1,950 (2,546)
Principal payments on long-term obligations (35) (617)
------ ------
Net cash provided (used) by financing activities 1,915 (3,163)
------ ------
NET CHANGE IN CASH 22 (25)
CASH, beginning of period 10 34
------ ------
CASH, end of period 32 9
====== ======
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest 462 645
====== ======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 6
Page 4 Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The quarterly financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission for interim financial information. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the Company's latest annual report on Form 10-K. In the opinion of
management of the Company, all adjustments necessary, consisting only of normal
recurring adjustments, to present fairly (1) the financial position of The
Arnold Palmer Golf Company as of August 31, 1996; (2) the results of its
operations and its cash flows for the six months ended August 31, 1996 and
August 26, 1995; and (3) the results of its operations for the three months
ended August 31, 1996 and August 26, 1995, have been included. The results of
operations for the interim periods are not necessarily indicative of the
results for the full year.
Reference is also made to the Company's annual report on Form 10-K for the
fiscal year ended March 2, 1996, for a discussion of the Company's significant
accounting policies.
NOTE 2
INCOME TAXES:
The Company has federal tax loss carryforwards of approximately $23.8 million
at March 2, 1996. There was no current income tax provision or benefit
recorded during the six months ending August 31, 1996 due to the losses
sustained by the Company.
<PAGE> 7
Page 5 Form 10-Q
NOTE 3
SHORT-TERM BORROWINGS:
Short-term borrowings consist of advances under a $15.0 million line of credit
with a bank which matures on February 28, 1997. There are no financial
covenants under the line of credit, which is unconditionally guaranteed by a
significant shareholder and director of the Company (the "Guarantor"). Advances
under the line of credit bear interest at LIBOR plus 2 points (7.437% at August
31, 1996) on the first $6 million outstanding, 7.844% on the next $3.7 million
outstanding, and 7.656% on the next $1.0 million outstanding. Outstanding
amounts in excess of $10.7 million bear interest at the prime rate less .50%
(7.75% at August 31, 1996). At August 31, 1996, $12.0 million was outstanding
under the line of credit.
As consideration to the Guarantor for the January 1995 guarantee of the
Company's previous line of credit, the Company issued an $850,000 convertible
subordinated note and a warrant to purchase up to 390,000 common shares of the
Company. Additionally, the Guarantor was given preemptive rights through
January 27, 2000, with respect to future issuances by the Company sufficient to
enable the Guarantor to maintain his fully diluted common stock ownership
percentage. The $850,000 subordinated note plus accrued interest was converted
to 191,814 shares of common stock in April 1996.
NOTE 4
NET INCOME (LOSS) PER COMMON SHARE:
The computation of net income (loss) per common share and common equivalent
share is based on the monthly weighted average number of common shares
outstanding during the period after adding common stock equivalents (stock
options) having a dilutive effect.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
AUG 31, 1996 AUG 26, 1995 AUG 31, 1996 AUG 26, 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 2,926,805 2,624,991 2,839,918 2,603,963
Effect of assumed exercise of
stock options (where dilutive) -- -- -- --
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 2,926,805 2,624,991 2,839,918 2,603,963
========= ========= ========= =========
</TABLE>
<PAGE> 8
Page 6 Form 10-Q
NOTE 5
INVENTORIES:
Inventories as of August 31, 1996 and March 2, 1996, were as follows (in
thousands):
<TABLE>
<CAPTION>
August 31, 1996 March 2, 1996
--------------- -------------
<S> <C> <C>
Inventories:
Raw materials $ 4,851 $ 4,270
Work-in-process 374 372
Finished goods 4,473 5,254
------- -------
$ 9,698 $ 9,896
======= =======
</TABLE>
NOTE 6
SUBORDINATED NOTES AND COMMON STOCK WARRANTS:
On November 3, 1994, the Company completed a private placement of $5.0 million
aggregate principal amount of 6% subordinated notes (the "Notes") due 1999, and
warrants to purchase up to 1,000,000 shares of common stock of the Company at a
price of $5.50 per share (the "Warrants"). The Notes were recorded net of the
aggregate discount of $1,662,000 which gives effect to the original issue
discount attributed to the Notes and the assigned value of the Warrants. The
Notes and Warrants were issued to certain members of the Board of Directors, an
officer of the Company, and certain shareholders of the Company. The securities
are restricted.
The Notes have a stated interest rate of 6% and all principal and unpaid
interest is due November 3, 1999. Interest payments through December 31, 1995
were deferred at the option of the Company. Certain interest payments continue
to be deferred at the option of the Note holders. The Notes are subordinated
to all senior indebtedness and are included in long-term obligations in the
accompanying balance sheet at August 31, 1996.
The Warrants are exercisable for five years and vest 70% upon funding of the
Notes, 90% after one year, and 100% after two years. The value assigned to the
Warrants was $1,662,000 or $1.662 per share. The holders of the Warrants will
have one demand registration right for the purpose of registering the stock
underlying the Warrants for resale pursuant to the Securities Act of 1933. The
value assigned to the Warrants was credited to additional paid-in capital.
<PAGE> 9
Page 7 Form 10-Q
NOTE 7
INVESTMENT IN NEVADA BOB'S HOLDINGS, INC./ISSUANCE OF PREFERRED STOCK:
In August 1996, the Company purchased 625,000 mandatorily redeemable,
convertible shares of Series D Preferred Stock ("Series D Shares") of Nevada
Bob's Holdings, Inc. ("NBHI") for $5.0 million. The shares are convertible to
common shares at any time at the currently effective conversion rate (as
defined). If the Series D Shares are not converted to common shares of NBHI by
August 21, 2000, NBHI shall redeem 33 1/3% of the shares annually over a three
year period at $12.00 per share plus unpaid dividends. This investment is
classified as held-to-maturity and is accounted for using the cost method of
accounting.
To fund this investment, the Company issued 833,333 shares of its Series NB
Preferred Stock ("NB Shares") to a substantial shareholder and director. The
NB Shares have a stated value of $6 per share and are convertible at any time
to common stock on a one to one ratio. The NB Shares are entitled to
cumulative dividends equal to 30% of the earnings realized by the Company from
its investment in NBHI's Series D Shares. The NB Shares shall have a
preference in liquidation of $5.0 million plus accumulated dividends and are
required to be redeemed upon redemption or sale of the Series D Shares of NBHI.
NOTE 8
IMPAIRMENT OF NOTE RECEIVABLE:
The Company's $1.1 million note receivable from the purchaser of the Duckster
apparel division was scheduled for repayment October 10, 1996. The payment was
not made and the Company is in negotiations with the holder of the note
regarding this delinquent obligation. In lieu of payment, the holder has
offered to turn over certain manufacturing equipment to the Company which the
Company believes has a fair value of approximately $400,000. No agreement
regarding the compromise of the obligation has been reached. Due to the
uncertainty of the realization of the note, the Company has established a
reserve for $800,000. The net value expected to be realized is included in
other non-current assets in the accompanying balance sheet.
<PAGE> 10
Page 8 Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
For purposes of this Form 10-Q, second quarter 1996 relates to the quarter
ended August 31, 1996, while second quarter 1995 relates to the quarter ended
August 26, 1995.
The Company had working capital on August 31, 1996 of $39,000 and a current
ratio of one to one. This compares to working capital of $1.3 million as of
fiscal year end March 2, 1996 and $2.1 million as of first quarter ending June
1, 1996. Included in working capital at year end March 2, 1996 was a current
note receivable from DeLong Sportswear in the amount of $1.1 million plus
accrued interest as the final payment for its purchase of the Company's
Duckster apparel division. Maturity on the principal and accrued interest was
October 10, 1996. Subsequent to the quarter ending August 31, 1996, the
Company was informed that DeLong Sportswear would not be able to meet its
obligation with respect to the note at the date of maturity. In lieu of
payment, DeLong has offered to transfer certain manufacturing equipment to the
Company which carries a fair market value of approximately $0.4 million. The
Company thus established a reserve as of quarter ending August 31, 1996 for the
remaining $0.8 million, although no agreement with DeLong regarding a
compromise of its obligation to the Company has yet been reached. The principal
amount of the DeLong note plus accrued interest is shown net of the reserve in
other non-current assets in the accompanying balance sheet.
Cash was generated primarily from a $3.8 million reduction in accounts
receivable during the Company's second quarter of 1996. The cash generated was
used to finance a second quarter increase in inventory of $1.0 million, reduce
short-term borrowings and accounts payable by $1.6 million, and to fund second
quarter 1996 operating losses of $2.0 million.
The Company believes that receivable collections and availability under the
current $15 million line of credit will be sufficient to support normal working
capital requirements for the remainder of the fiscal year. However, the
Company anticipates the need for additional financing for working capital
purposes during the first quarter of the fiscal year ending September 30, 1997.
The Company expects such working capital requirements to be met through a
temporary increase in its existing line of credit.
RESULTS OF OPERATIONS
The tables below show sales performance by product line and market segment for
the second quarter of 1996 and year to date through the second quarter of 1996,
compared to the same periods in 1995.
<PAGE> 11
Page 9 Form 10-Q
Sales By Product Line
($'s in millions)
<TABLE>
<CAPTION>
2nd Qtr YTD
------------------------------ -------------------------------
1996 1995 % Change 1996 1995 % Change
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clubs 2.8 2.2 + 27.3 9.5 5.9 + 61.0
Bags 2.5 2.5 -- 6.8 7.0 - 2.9
Outlet 0.2 0.1 +100.0 0.3 0.2 + 50.0
Other 0.2 -- -- 0.3 -- --
------------------------------ -------------------------------
Total 5.7 4.8 + 18.8 16.9 13.1 + 29.0
------------------------------ -------------------------------
</TABLE>
Sales By Market Segment
($'s in millions)
<TABLE>
<CAPTION>
2nd Qtr YTD
------------------------------ -------------------------------
1996 1995 % Change 1996 1995 % Change
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pro 3.0 2.3 + 30.4 8.8 6.0 + 46.7
Retail 2.3 2.4 - 4.2 7.5 6.9 + 8.7
Outlet 0.2 0.1 +100.0 0.3 0.2 + 50.0
Other 0.2 -- -- 0.3 -- --
----------------------------- ------------------------------
Total 5.7 4.8 + 18.8 16.9 13.1 + 29.0
----------------------------- ------------------------------
</TABLE>
Club sales continued its strong performance during the second quarter of 1996
with a 27.3% increase over the second quarter of 1995. Year to date pro club
sales were $4.4 million, an increase of 139.9% over second quarter 1995 year to
date. Year to date club sales to the retail market increased 21.6% through
second quarter 1996. Although year to date total bag sales were down slightly
from $7.0 million in 1995 to $6.8 million in 1996, pro bag sales increased 5.7%
to $4.3 million for the six months ending August 31, 1996, from $4.1 million
for the same period in 1995. Retail bag sales decreased to $2.4 million for
the six months ending August 31, 1996 from $3.0 million for the comparable
period in 1995. Sales of pro line golf equipment represented 52.1% of the
Company's total sales for the six months ended August 31, 1996, as the Company
continues to focus its growth in the pro line of products sold to on-course pro
shops and off-course golf equipment stores. For the comparable six month
period in 1995, pro line golf equipment represented 45.8% of the Company's
total sales. The more favorable product mix is reflected in the Company's
gross profit for the second quarter and six months ending August 31, 1996.
Gross profit for the second quarter of 1996 was 24.3% compared to 19.2% for the
second quarter of 1995. Gross profit for the six months ending August 31, 1996
was $4.9 million, or 29.1% on total sales of $16.9 million. For the comparable
six months period of 1995, gross profit was $3.5 million on $13.1 million in net
sales, or 26.4%.
<PAGE> 12
Page 10 Form 10-Q
Selling, marketing, and general and administrative expenses for the second
quarter of 1996 increased $1.1 million over the second quarter of 1995, and
increased $2.1 million for the six months period ending August 31, 1996 over
the comparable six months period in 1995. The current year increase is in line
with the Company's planned expenditures for this time period. In addition to
increased sales commissions and royalty expenses due to the current year's
sales growth, promotional and advertising and other selling expenses, primarily
in sales management, increased approximately $1.0 million for the six months
ending August 31, 1996 over the six months ending August 26, 1995. Increased
expenditures in general and administrative expenses is due primarily to
training and implementation expenses, as the Company continues to move forward
with replacing its information systems with new software and hardware upgrades.
Other income for the quarter ending August 31, 1996 includes a charge of $0.8
million for the reserve established relative to the DeLong note receivable
previously discussed in this Form 10-Q. The decrease in interest expense for
the second quarter of 1996 and the six months ending August 31, 1996, was due
primarily to reductions in non-cash interest expense related to the conversion
of subordinated notes and the exercise of stock purchase warrants.
<PAGE> 13
Page 11 Form 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
See Exhibit Index on page 13 of this Form 10-Q.
(b) Reports on Form 8-K -
The Registrant filed a report on Form 8-K dated July 15, 1996
regarding the name change of the Company from "ProGroup, Inc."
to "The Arnold Palmer Golf Company".
The Registrant filed a report on Form 8-K dated August 23,
1996 regarding its purchase of 625,0000 shares of Series D
Preferred Stock of Nevada Bob's Holdings, Inc. ("Nevada
Bob's") for $5 million, and its sale of 833,333 shares of its
Series NB Preferred Stock to a substantial shareholder and
director for $5 million, which was utilized to purchase the
Nevada Bob's Preferred Stock.
<PAGE> 14
Page 12 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ARNOLD PALMER GOLF COMPANY
----------------------------------------
(Registrant)
/s/ George H. Nichols
----------------------------------------
George H. Nichols
President and Chief Operating Officer
/s/ David J. Kirby
----------------------------------------
David J. Kirby
Vice President Finance
(Chief Accounting Officer)
Date October 14, 1996
----------------------
<PAGE> 15
Page 13 Form 10-Q
Exhibit Index
Exhibit
Number Description
3.1 Articles of Amendment to the Restated Charter of ProGroup,
Inc. dated July 15, 1996.
3.2 Articles of Amendment to the Restated Charter of The Arnold
Palmer Golf Company dated August 16, 1996.
10.1 Purchase/Sale Agreement and Bill of Sale by and between
National Golf Suppliers, Inc. and the Company dated June 28,
1996.
10.2 Marketing and Distribution Agreement by and between Nevada
Bob's Pro Shop, Inc. and the Company dated August 21, 1996.
10.3 Sublicense Agreement by and between Nevada Bob's Pro Shop,
Inc. and the Company dated August 21, 1996.
10.4 Series D Preferred Stock Purchase Agreement by and between
Nevada Bob's Holdings, Inc. and the Company dated August 21,
1996.
10.5 Investor Rights Agreement by and between Nevada Bob's
Holdings, Inc. and the Company dated August 21, 1996.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 3.1
ARTICLES OF AMENDMENT TO THE RESTATED CHARTER
OF
PROGROUP, INC.
Pursuant to the provisions of Section 48-20-106 of the
Tennessee Business Corporation Act, the undersigned corporation adopts the
following articles of amendment to its restated charter:
1. The name of the corporation is:
ProGroup, Inc.
2. The text of the amendment adopted is:
Part I, Paragraph 1. of the Restated Charter is deleted, and
the following is inserted in lieu thereof:
The name of the corporation is
THE ARNOLD PALMER GOLF COMPANY
3. The corporation is a for-profit corporation.
4. The amendment was duly adopted by resolution of the
shareholders on July 15, 1996.
5. The amendment is to be effective when filed by the Secretary
of State.
Dated: July 15, 1996.
PROGROUP, INC.
By: /s/ George H. Nichols
-----------------------------
George H. Nichols
President and
Chief Operating Officer
<PAGE> 1
Exhibit 3.2
Exhibit A
ARTICLES OF AMENDMENT
TO THE RESTATED CHARTER
OF THE ARNOLD PALMER GOLF COMPANY
Pursuant to the provisions of Section 48-20-106 and 48-16-102
of the Tennessee Business Corporation Act, the undersigned corporation adopts
the following Articles of Amendment to its Restated Charter:
1. The name of the corporation is:
The Arnold Palmer Golf Company
2. The text of the amendment adopted is:
A new Paragraph 6.C. shall be added to Part I of the Restated
Charter, which shall read as follows:
Series NB Preferred Stock. The corporation is authorized to
issue 833,333 shares of "Series NB Preferred Stock," par value
$.50 per share, with the following powers, preferences,
rights, qualifications, limitations and restrictions:
1. Conversion. Each outstanding share
of Series NB Preferred Stock shall be convertible at any time
into one share (the "Conversion Number") of common stock, $.50
par value, of the corporation (the "Common Stock"). Each
conversion of shares of Series NB Preferred Stock into shares
of Common Stock will be effected by the surrender of the
certificate or certificates representing the shares to be
converted, at the principal office of the corporation at any
time during normal business hours, together with a written
notice by the holder of such shares stating the number of
shares of Series NB Preferred Stock that are being converted
into shares of Common Stock. Upon receipt of such notice by
the corporation, the rights of any such holder with respect to
the converted Series NB Preferred Stock shall cease and the
holder will be deemed to have become the holder of record of
the shares of Common Stock issuable upon conversion.
<PAGE> 2
At such time, the corporation will issue and deliver, in
accordance with the surrendering holder's instructions, the
certificate or certificates for the Common Stock issuable upon
conversion and a certificate representing any shares of Series
NB Preferred Stock that were represented by the certificate or
certificates delivered to the corporation in connection with
such conversion but that were not converted. The issuance of
certificates for the Common Stock upon conversion will be made
without charge to the holder or holders of such shares for any
issuance tax (except stock transfer taxes) in respect thereof
or other costs incurred by the corporation in connection with
such conversion. In the event the corporation shall at any
time after the date the shares of Series NB Preferred stock
are issued (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each
such case, the Conversion Number in effect immediately after
such event shall be the Conversion Number in effect
immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event, and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
2. Dividends.
(a) The holders of the Series NB
Preferred Stock shall be entitled to receive, in preference to
the holders of Common Stock and any other junior stock,
cumulative dividends equal to thirty percent (30%) of the
earnings realized by the corporation from the corporation's
holdings of Series D Preferred Stock of Nevada Bob's Holdings,
Inc. (the "Series D Preferred Stock"). The corporation's
earnings from the Series D Preferred Stock shall include
dividends received by the corporation on the Series D
Preferred Stock, amounts received in excess of $5,000,000 on
the redemption of the Series D Preferred Stock, and any gain
realized by the corporation on the common stock of Nevada
Bob's Holdings, Inc. ("Nevada Bob's") (assuming a
2
<PAGE> 3
$5,000,000 cost basis) in the event the Series D Preferred
Stock has been converted into common stock of Nevada Bob's.
(b) Cumulative dividends on the
Series NB Preferred Stock shall be payable upon (i) conversion
of the Series NB Preferred Stock to Common Stock (payable at
the option of the corporation in cash, Common Stock (valued at
the average closing price for the 30 trading days immediately
prior to payment as reported on the National Association of
Securities Dealers Automated Quotation System or such other
national securities exchange on which the Common Stock is
traded, and if no such public trading market exists for the
Common Stock, the valuation of the Common Stock shall be based
upon the written opinion of an investment banking firm
selected by the corporation's board of directors) or Series D
Preferred Stock or common stock of Nevada Bob's in the case of
a conversion of the Series D Preferred Stock (valued as
determined by the corporation's board of directors)) or (ii) a
redemption of the Series NB Preferred Stock as provided in
paragraph 3 below.
3. Redemption. The corporation shall be
required to redeem the Series NB Preferred Stock on a pro rata
basis upon (a) a redemption by Nevada Bob's of the Series D
Preferred Stock, or (b) upon a sale by the corporation of its
holdings of Series D Preferred Stock or common stock of Nevada
Bob's in the case of a conversion of the Series D Preferred
Stock. The Series NB Preferred Stock shall be redeemed at a
price equal to $5,000,000 plus cumulative dividends (as
determined in accordance with paragraph 2 hereof) on the
Series NB Preferred Stock.
4. Liquidation. In the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the corporation, the holders of Series NB
Preferred Stock shall be entitled to receive in full out of
the assets of the corporation, including its capital, before
any amount shall be paid or distributed among the holders of
shares of Common Stock or any other junior stock, $5,000,000
plus cumulative dividends (as determined in accordance with
paragraph 2
3
<PAGE> 4
hereof) of the Series NB Preferred Stock (the "Series NB
Liquidation Preference"). In the event the assets of the
corporation available therefor are insufficient to permit the
payment in full of the Series NB Liquidation Preference, then
such assets shall be distributed ratably to the holders of the
Series NB Preferred Stock. After payment to the holders of
Series NB Preferred Stock of the Series NB Liquidation
Preference, the holders of Series NB Preferred Stock shall
have no right or claim to any of the remaining assets of the
corporation.
5. Voting Rights. The holders of shares
of Series NB Preferred Stock shall have the following voting
rights:
(a) Each share of Series NB
Preferred Stock shall entitle the holder thereof to one vote
on all matters submitted to a vote of the shareholders of the
corporation; and
(b) Except as otherwise provided
herein, by law or in the Restated Charter, the holders of
shares of Series NB Preferred Stock and the holders of shares
of Common Stock shall vote together as one class on all
matters submitted to a vote of shareholders of the
corporation.
6. Registration Rights.
(a) Corporation Registration.
(i) Whenever the corporation
proposes to register any of its Shares, either for
its own account or the account of a security holder
or holders, under the Securities Act of 1933 (the
"Securities Act"), other than a registration on Form
S-8 relating to employee benefit plans or in
connection with a business combination transaction on
Form S-8 or S-4 (or any successor to Form S-8 or
S-4), and the registration form to be used may be
used for the registration of shares of Common Stock
received by the former holder of Series NB Preferred
Stock (the "Shareholder") upon a conversion of the
Series NB Preferred Stock (the "Shares"), the
corporation will give
4
<PAGE> 5
prompt written notice to the Shareholder of its
intention to effect such a registration and will
include in such registration (and any related
qualification under blue sky laws or other
compliance) all the Shares with respect to which the
corporation has received a written request for
inclusion therein within 20 days after receipt of the
corporation's notice. The Shareholder shall be
entitled to participate in an unlimited number of
such registrations.
(ii) If the registration of which the
corporation gives notice is for a registered public
offering involving an underwriting, the corporation
shall so advise the Shareholder as part of the
written notice given pursuant to paragraph 6(a)(i).
In such event, the right of the Shareholder to
registration pursuant to this paragraph 6(a) shall be
conditioned upon its participation in such
underwriting and the inclusion of the Shares in the
underwriting to the extent provided herein. When
proposing to distribute its Shares through such
underwriting, the Shareholder shall (together with
the corporation and any and all other shareholders
distributing their securities through such
underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected
for such underwriting by the corporation.
Notwithstanding any other provision of this paragraph
6, if the managing underwriter determines that
marketing factors require a limitation of the number
of shares to be underwritten, it shall so advise the
Shareholder in writing specifying the marketing
factors imposing a limitation on the number of shares
to be underwritten, and the managing underwriter may
limit the Shares to be included in such registration
on a pro rata basis with all other securities to be
included in such registration other than those being
registered for the corporation's own account.
(iii) The corporation shall have the
right to terminate or withdraw any registration
initiated by it under this paragraph
5
<PAGE> 6
6(a) prior to the effectiveness of such registration
whether or not the Shareholder has elected to include
any Shares in such registration. If the Shareholder
disapproves of the final terms of any underwriting
undertaken pursuant to this paragraph 6(a), the
Shareholder may elect to withdraw therefrom by
written notice to the corporation and the managing
underwriter. If the Shareholder so elects, the
corporation shall either (a) withdraw the Shares from
registration, or (b) substitute newly issued shares
of the corporation for the Shares in such
registration.
(b) Demand Registration. Following
a conversion of the Series NB Preferred Stock into Common
Stock, the Shareholder shall have the right to demand that the
corporation register the Shares under the Securities Act. Upon
receipt of a written notice of demand from the Shareholder
specifying the number of Shares to be registered, the
corporation will use its best efforts to effect the
registration of the Shares and to cause the Shares to be
qualified in such jurisdictions as the Shareholder may
reasonably request; provided, however, that the corporation
shall not be required to effect more than one registration
pursuant to this paragraph 6(b). The substantive provisions of
paragraph 6(a)(ii) shall be applicable to the registration
initiated under this paragraph 6(b).
(c) Registration Procedures. In the
case of each registration, qualification or compliance
effected by the corporation pursuant to this paragraph 6, the
corporation shall keep the Shareholder advised in writing as
to the initiation of each registration, qualification and
compliance and as to the completion thereof. At its expense,
the corporation shall:
(i) prepare and file with the
Securities and Exchange Commission (the "SEC") a
registration statement with respect to such
securities and use its best efforts to cause such
registration statement to become and remain effective
for at least three hundred sixty five (365) days,
provided that no such registration shall constitute a
shelf regis-
6
<PAGE> 7
tration under Rule 415 promulgated by the SEC under
the Securities Act;
(ii) enter into a written
underwriting agreement in customary form and
substance reasonably satisfactory to the corporation,
the Shareholder and the managing underwriter or
underwriters of the public offering of such
securities, if the offering is to be underwritten in
whole or in part;
(iii) furnish to the Shareholder and
to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such
underwriters may reasonably request in order to
facilitate the public offering of such securities;
(iv) use its best efforts to register
or qualify the securities covered by such
registration statement under such state securities or
blue sky laws of such jurisdiction as the Shareholder
may reasonably request within ten (10) days prior to
the original filing of such registration statement,
except that the corporation shall not for any purpose
be required to execute a general consent to service
of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so
qualified;
(v) notify the Shareholder
promptly after it shall receive notice thereof of the
time when such registration statement has become
effective or a supplement to any prospectus forming a
part of such registration statement has been filed;
(vi) notify the Shareholder promptly
of any request by the SEC for the amending or
supplementing of such registration statement or
prospectus or for additional information;
(vii) prepare and file with the SEC
promptly upon the request of the Share-
7
<PAGE> 8
holder any amendments or supplements to such
registration statement or prospectus which, in the
reasonable opinion of counsel for the Shareholder, is
required under the Securities Act or the rules and
regulations thereunder in connection with the
distribution of the Shares by the Shareholder;
(viii) prepare and promptly file with
the SEC, and promptly notify the Shareholder of the
filing of, any such amendments or supplements to such
registration statement or prospectus as may be
necessary to correct any statements or omissions if,
at the time when a prospectus relating to such
securities is required to be delivered under the
Securities Act, any event has occurred as the result
of which any such prospectus or any other prospectus
as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made;
(ix) in case the Shareholder or any
underwriter for the Shareholder is required to
deliver a prospectus at a time when the prospectus
then in effect may no longer be used under the
Securities Act, prepare promptly upon request such
amendment or amendments to such registration
statement and such prospectuses as may be necessary
to permit compliance with the requirements of the
Securities Act;
(x) advise the Shareholder
promptly after it shall receive notice or obtain
knowledge thereof of the issuance of any stop order
by the SEC suspending the effectiveness of such
registration statement or the initiation or
threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such
stop order should be issued; and
(xi) at the request of the
Shareholder, furnish on the effective date of
8
<PAGE> 9
the registration statement and, if such registration
includes an underwritten public offering at the
closing provided for in the underwriting agreement,
(i) an opinion, dated each such date, of the counsel
representing the corporation for the purposes of such
registration, addressed to the underwriters, if any,
and to the Shareholder, covering such matters with
respect to the registration statement, the prospectus
and each amendment or supplement thereto, proceedings
under state and federal securities laws, other
matters relating to the corporation, the securities
being registered and the offer and sale of such
securities as are customarily the subject of opinions
of issuer's counsel provided to underwriters in
underwritten public offerings; and (ii) use its best
efforts to obtain a letter dated each such date, from
the independent public accountants of the
corporation, to the extent that such accountants are
willing to provide such a letter, addressed to the
underwriters, if any, and to the Shareholder, stating
that they are independent public accountants within
the meaning of the Securities Act and that in the
opinion of such accountants the financial statements
and other financial data of the corporation included
in the registration statement or the prospectus or
any amendment or supplement thereto comply in all
material respects with the applicable accounting
requirements of the Securities Act, and additionally
covering such other financial matters, including
information as to the period ending not more than
five (5) business days prior to the date of such
letter with respect to the registration statement and
prospectus, as the underwriters or the Shareholder
may reasonably request.
(d) Expenses of Registration. All
expenses, except Selling Expenses (as defined below), incurred
by the corporation in complying with this paragraph 6,
including, without limitation, all registration, qualification
and filing fees, printing expenses, courier and shipping
charges, escrow fees, fees and disbursements of counsel for
the corporation, blue sky fees and
9
<PAGE> 10
expenses and the expense of any special audits incident to or
required by any such registration, shall be borne by the
corporation. All Selling Expenses relating to Shares
registered on behalf of the Shareholder pursuant to this
paragraph 6 shall be borne by the Shareholder. "Selling
Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the Shares
registered by the Shareholder and all fees and disbursements
of counsel for the Shareholder.
3. The amendment was duly adopted by the Board of
Directors of the corporation on August 16, 1996. Shareholder approval of the
amendment was not required.
DATED: August 16, 1996 THE ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
------------------------------
George H. Nichols
President and Chief
Operating Officer
10
<PAGE> 1
Exhibit 10.1
PURCHASE/SALE AGREEMENT
AND
BILL OF SALE
THIS AGREEMENT made as of the 28th day of June, 1996, by and
between National Golf Suppliers, Inc., a Delaware corporation ("Seller"), and
ProGroup, Inc. d/b/a The Arnold Palmer Golf Company, a Tennessee corporation
("Purchaser").
By this instrument Seller intends to transfer, convey and
deliver to Purchaser as of the date hereof all of the assets of Seller used in
the operation of its business (the "Business").
NOW, THEREFORE, for and in consideration of the issuance of
100,000 shares of the common stock, par value $.50 per share, of Purchaser (the
"Purchaser Shares") and for other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Seller hereby sells, transfers, assigns and conveys
to Purchaser, its successors and assigns forever, all of Seller's right, title
and interest, legal or equitable, in and to the assets listed in the Asset List
on Exhibit A attached hereto (the "Assets"). The Assets shall include without
limitation the following assets, properties and rights of Seller:
(i) all machinery, equipment, inventories,
supplies, personal property, furniture, fixtures and furnishings;
(ii) all trademarks, tradenames, including the
tradename "National Golf Suppliers" and any derivation thereof,
computer systems, software, operating manuals, trade secrets,
know-how, inventories, licenses, business permits and certificates (to
the extent transferable) and customer lists;
(iii) all inventories of the Business in the hands
of Seller or suppliers which the Seller is committed to purchase as of
the date hereof;
(iv) all cash held in the Bank as of the date of
this Agreement and all accounts receivable, excluding accounts
receivable from affiliates and accounts receivable more than 60 days
beyond their invoice dates, relating to, or arising from the operation
of the Business;
(v) all operating data and records of Seller used
in the Business, including information, files, records, data, employee
files, plans, contracts and recorded information, customer and
supplier lists, customer pricing information,
<PAGE> 2
credit records, correspondence, office supplies, budgets and similar
documents and records; and
(vi) all good will and customer relationships
applicable to the Business.
To Have and To Hold, all of the foregoing Assets, unto
Purchaser, its successors and assigns forever.
2. Seller does hereby warrant, covenant and agree that:
(i) Seller has the right, power and capacity to
sell, transfer, convey and assign the Assets; the execution and
delivery by Seller of this Bill of Sale and the consummation by Seller
of the transactions contemplated hereby have been duly approved, and
no other action on the part of Seller is necessary to approve and
authorize the execution and delivery of this Bill of Sale or to
consummate the transactions contemplated hereby.
(ii) At the closing, Seller will have good and
marketable title to the Assets free and clear of all liens,
encumbrances, interests, rights, claims or equities in favor of any
other person; will warrant and defend the sale of the Assets against
all and every person whomsoever claiming or to claim against any or
all of the Assets; will take all steps necessary to put Purchaser, its
successors and assigns, in actual possession and operating control of
the Assets; and will, from time to time, execute and deliver to
Purchaser such additional documents, certificates and conveyances as
Purchaser may reasonably require to accomplish or perfect the transfer
of the Assets.
(iii) The accounts receivable of the Seller listed
as part of the Assets on Exhibit A are valid and genuine; have arisen
solely out of bona fide sales and deliveries of goods, performance of
services and other business transactions in the ordinary course of
business consistent with past practice; are not subject to valid
defenses, discounts, set-offs or counterclaims, are no more than 60
days beyond their invoice dates.
3. Seller acknowledges and agrees that the parties
hereto intend to transfer to Purchaser the Business as a going concern. Seller
agrees that, at any time, and from time to time after the date hereof, it will,
upon the request of Purchaser, execute and deliver all such further documents
and take all such further actions as may be required for better conveyance,
transfer and assignment of the assets, properties and rights intended to be
conveyed, transferred and assigned.
2
<PAGE> 3
4. Seller understands and acknowledges that the
Purchaser Shares have not been, and will not be, registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering. As a
result, the Purchaser Shares will be, when issued, "restricted securities" as
that term is defined in Rule 144 under the Securities Act, and must be held for
a minimum of two years from the date of issuance prior to any resale of the
Purchaser Shares in reliance on Rule 144 under the Securities Act. Seller is
(i) acquiring the Purchaser Shares solely for its own account for investment
purposes and not with a view to the distribution thereof, (ii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iii) has received certain information concerning the Purchaser and
has had the opportunity to obtain additional information as desired in order to
evaluate the merits and risks inherent in holding the Purchaser Shares and (iv)
is able to bear the economic risk and lack of liquidity inherent in holding the
Purchaser Shares. Seller understands that it has no right to demand that the
Purchaser register the Purchaser Shares under the Securities Act or under any
state securities laws, but Seller shall have an unlimited number of piggyback
registration rights with respect to registration statements filed by the
Purchaser on Forms S-2 or S-3 with respect to the Purchaser Shares until the
earlier to occur of (i) Seller owning in the aggregate less than 10,000
Purchaser Shares or (ii) Seller being able to sell the Purchaser Shares free of
the volume limitations of Rule 144. If Purchaser intends to file a registration
statement on Forms S-2 or S-3 while the piggyback registration rights granted
herein are in force, it shall so notify Seller and within 10 days of receipt of
such notice Seller shall advise Purchaser the number of Purchaser Shares, if
any, it wishes to include in the registration statement. Such shares shall
thereafter be included in such registration statement unless the underwriter
(if any) advises Purchaser that market conditions will not permit the inclusion
of all such shares in the registration statement in which case each person
(including Purchaser) intending to include shares for registration in such
registration statement shall have the number of shares to be registered
proportionately reduced. All the costs and expenses of the filing of a
registration statement as described herein shall be borne by Purchaser. If
Seller includes Purchaser Shares in a registration statement filed pursuant
hereto, Seller shall, if an underwritten public offering, sign the
underwriter's customary form of underwriting agreement and provide the
underwriter all information reasonably requested regarding Seller for inclusion
in the registration statement.
3
<PAGE> 4
5. (i) At any time until the second anniversary of this
Agreement, the Seller may make one request for registration under the
Securities Act of all or part of their Registrable Securities on the
applicable registration form of the Purchaser's choosing. A request
for a Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated
per share price range for such offering. A registration requested
pursuant to this paragraph 5(i) is referred to herein as a "Demand
Registration."
(ii) The Seller will be entitled to request one
Demand Registration at any time until the second anniversary of this
Agreement in which it will pay all expenses up to $20,000. A
registration will not count as a permitted Demand Registration
hereunder until it has become effective and no Demand Registration
will count as a permitted Demand Registration unless the Seller is
able to register and sell at least 90% of the Registrable Securities
requested to be included in such registration; provided that in any
event the Seller will pay all Registration Expenses (as hereinafter
defined) up to a total amount of $20,000 in connection with any
registration initiated whether or not it has become effective.
(iii) The Purchaser will not include in any Demand
Registration any securities which are not Registrable Securities
without the prior written consent of the Seller. If a Demand
Registration is an underwritten offering and the managing underwriters
advise the Purchaser in writing that in their opinion the number of
Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold
therein without adversely affecting the marketability of the offering,
the Purchaser will include in such registration prior to the inclusion
of any securities which are not Registrable Securities the number of
Registrable Securities requested to be included which in the opinion
of such underwriters can be sold without adversely affecting the
marketability of the offering.
(iv) The Purchaser may postpone for up to six
months the filing or the effectiveness of a registration statement for
a Demand Registration if the Purchaser reasonably determines that such
Demand Registration would adversely affect any proposal or plan by the
Purchaser to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender
offer or similar transaction; provided that in such event, the Seller
will be entitled to withdraw its request, and, if such request is
withdrawn, such Demand Registration will not count as a
4
<PAGE> 5
permitted Demand Registration hereunder. The Seller still will pay all
Registration Expenses in connection with such registration.
(v) All expenses incident to the Purchaser's
performance of or compliance with its obligations concerning a Demand
Registration, including without limitation, all registration and
filing fees, fees and expenses of compliance with securities or blue
sky laws, printing expenses, messenger and delivery expenses, and fees
and disbursements of counsel for the Purchaser and all independent
certified public accountants, underwriters (excluding discounts and
commissions) and other professionals retained by the Purchaser (all
such expenses being herein called "Registration Expenses"), will be
borne by the Seller up to a total amount of $20,000, except that the
Purchaser will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any
annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be
registered on each securities exchange or which similar securities
issued by the Purchaser are then listed or on the NASD automated
quotation system.
IN WITNESS WHEREOF, Seller and Purchaser have caused this
Agreement to be executed effective as of the date first above written.
NATIONAL GOLF SUPPLIERS, INC.
By: /s/ William D. Rueckert
------------------------------
Title: Treasurer
------------------------
PROGROUP, INC., d/b/a
THE ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
------------------------------
Title: President and COO
------------------------
5
<PAGE> 1
Exhibit 10.2
MARKETING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made this 21st day of August, 1996, by
and between THE ARNOLD PALMER GOLF COMPANY, a Tennessee corporation having its
principal place of business at 6201 Mountain View Road, Ooltewah, Tennessee
37363 ("APGC"), and NEVADA BOB'S PRO SHOP, INC., a Delaware corporation having
its principal place of business at 4043 S. Eastern, Las Vegas, Nevada 89119
("Distributor"), under the following circumstances:
APGC is engaged in the manufacture, marketing and
distribution of golf products, including Arnold Palmer golf equipment and Hot-Z
golf bags and luggage. The Distributor is the owner and franchisor of Nevada
Bob's retail golf shops ("Nevada Bob's"), in which the Distributor and its
franchisees sell golf clubs, bags and related products. On the terms and
conditions hereinafter set forth, APGC desires to appoint Distributor to market
and sell the products described on Schedule 1 attached hereto (the "Products")
(as such Schedule shall be amended from time to time by APGC and Distributor,
it being acknowledged that APGC will offer to add to such Schedule such golf
products as it makes generally available to its other distributors) and
Distributor desires to be appointed a distributor for the marketing and sale of
the Products.
NOW, THEREFORE, in consideration of the mutual covenants
and obligations contained in this Agreement the parties hereto, intending to be
legally bound, do hereby agree as follows:
ARTICLE I
GRANT AND ACCEPTANCE OF RIGHTS
1.1 Grant and Acceptance. On the terms and conditions
provided in this Agreement, APGC grants to Distributor, and Distributor hereby
accepts such grant, the right to sell the Products to customers at Nevada Bob's
that are owned or franchised by Distributor and to conduct all activities
reasonably related thereto including the advertising and promotion of the
Products. APGC will grant the same rights to franchisees of Distributor who
place orders with APGC for Products. APGC acknowledges that Distributor's
rights include the right to sell Products through catalogs and mail
solicitation on a worldwide basis. In addition and without limitation to the
rights otherwise granted herein, Distributor shall have the non-exclusive right
to create Web sites other types of sites now or hereafter known or developed
for the purpose of promoting, advertising, merchandising, selling and offering
for sale Products through on-line means or through other electronic means now
or hereafter known or developed provided that Distributor shall furnish APGC
draft copies of its Web site pages or material for other types of sites, or
permit APGC to access such
<PAGE> 2
Web site pages or material for other types of sites in beta format prior to
making them available to the public, for approval in accordance with the
provisions of Section 2.2 hereof.
1.2 Market. APGC's grant of the rights herein to
Distributor to market and sell the Products is only for Nevada Bob's that are
owned or franchised by Distributor and for no other market, and shall be for
anywhere in the world that Distributor or its franchisees operate Nevada Bob's
stores, except as expressly provided herein.
1.3 Non-Exclusivity. Nothing in this Agreement shall
either preclude Distributor from marketing, distributing or selling products
that are similar to the Products or APGC from marketing, distributing or
selling the Products through distributors other than Distributor.
ARTICLE II
APGC'S OBLIGATIONS
2.1 Support and Information. APGC shall at its own
expense provide sales and marketing support as reasonably requested by
Distributor and so generally made available to its other distributors
throughout the term of this Agreement, including:
(a) assistance and advice for the employees of
Distributor in the demonstration and sales of the Products;
(b) marketing advice and assistance;
(c) prompt response to all inquiries and
reasonable requests for assistance from Distributor; and
(d) making available for Distributor's use such
advertising and publicity material and Product literature which may have been
generated by APGC.
2.2 Advertising. APGC shall permit Distributor and its
franchisees to advertise the Products utilizing the registered trademarks of
APGC and offer sales promotions within guidelines and restrictions approved in
advance by APGC.
2.3 Delivery of Products. Subject to availability (short
stock situations to be reasonably allocated among all distributors), APGC shall
accept orders and promptly supply the Products to the Distributor and its
franchisees in accordance with orders received from the Distributor and the
terms set forth in Article IV hereof.
2
<PAGE> 3
ARTICLE III
DISTRIBUTOR'S OBLIGATIONS
3.1 Commercially Reasonable Efforts. The Distributor
shall at all times use commercially reasonable efforts to market, promote and
sell the Products at Nevada Bob's that are owned by Distributor in order to
stimulate and increase interest in the Products by appropriate means,
including:
(a) development of a marketing program, which
shall include but not be limited to advertisement of the Products in golf
magazines, newspapers, other periodicals and media;
(b) maintaining an inventory of the Products
reasonably anticipated to satisfy the demand therefor;
(c) prominently featuring the Products within
each Nevada Bob's owned by Distributor; and
(d) employment and training of qualified sales
personnel to ensure that the Products are aggressively promoted and sold by the
Distributor.
3.2 Installation of Kiosks. The Distributor shall install
in each Nevada Bob's owned by the Distributor no later than 90 days following
the date of this Agreement and in each Nevada Bob's constructed by Distributor
during the term of this Agreement a free standing kiosk (the Distributor's cost
of which kiosk will be borne equally by the parties up to a maximum in the case
of APGC of $900 (which can be adjusted at Nevada Bob's request on each
anniversary of this Agreement based upon any increases in the Department of
Labor's announced cost of living index, Atlanta area), each of which shall
comply with the following requirements:
(a) the kiosk will include a minimum of 24 square
feet and shall be of a shape agreed upon by the parties, which may vary with
each Nevada Bob's store;
(b) the kiosk will be dedicated exclusively to
display of the Products, including a prominent display of the Arnold Palmer
name;
(c) the kiosks shall be fully stocked with a
representative mix of the Products, which shall be displayed in an orderly and
appealing manner;
(d) the kiosk will be located "left center" upon
a customer's entry into a Nevada Bob's or, if in Distributor's reasonable
discretion, "left center" is not available, a site reasonably determined by
Distributor to be of equal prominence.
3
<PAGE> 4
(e) the kiosk will be free-standing and not built
into or on a wall, and will be located within close proximity to the putting
green in each Nevada Bob's store;
(f) the construction of the kiosk will be from
materials approved in writing by APGC; and
(g) the kiosk will be in the form of the
schematic attached hereto as Schedule 2.
3.3 Franchisees of Nevada Bob's. Distributor shall
strongly recommend and encourage that its franchisees install kiosks in their
Nevada Bob's in conformity with the requirements of Section 3.2 hereof and
market and sell the Products, including, without limitation participation in
all programs and campaigns for the promotion, marketing and sale of the
Products. Orders for Products by such franchisees will be placed directly by
such franchisees with APGC, and Distributor will have no responsibilities
associated with same.
ARTICLE IV
TERMS AND CONDITIONS OF SALE
4.1 Standard Terms. All sales of Products to Distributor
by APGC shall be subject to the terms and conditions of this Agreement in
effect at the time of such sale. Any purchase orders issued by Distributor that
contain provisions that are in addition to or inconsistent or conflict with any
provisions of this Agreement or any of APGC's standard terms and conditions of
sale as they may exist from time to time are hereby rejected by APGC and shall
have no force or effect unless APGC specifically consents to such provision in
writing.
4.2 Reports and Orders. Distributor shall submit orders
for the Products to APGC for acceptance at mutually satisfactory periods. Such
orders shall be subject to acceptance by APGC. Accepted orders for any Products
not shipped during the month for which delivery was scheduled will remain in
effect unless canceled in whole or in part by either party upon written notice
to the other.
4.3 Prices.
(a) Distributor shall pay APGC for each shipment
of the Products at the lowest distributor prices (including any applicable
discounts and promotions) established by APGC and in effect at the time of the
order. Distributor shall be responsible for the payment of all excise, sales,
use, property and other taxes levied with respect to the Products sold to
Distributor hereunder, other than taxes imposed or measured by APGC's income.
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<PAGE> 5
(b) APGC has the right at any time to change its
lowest distributor prices and specifications applicable to the Products and to
issue new applicable price lists or bulletins. If APGC changes the prices or
specifications applicable to any of the Products and such change is a result of
circumstances beyond APGC's control such as raw material or components
shortages, such changed prices or specifications shall apply to the Products
ordered by Distributor and not shipped by APGC at the time such change is made
effective by APGC; otherwise, the prices and specifications in effect on the
date of the order shall be honored. APGC shall give written notice to
Distributor of any change increasing the price to be paid by Distributor before
shipping any Products to which such change is applicable. Upon receipt of such
notice, Distributor may cancel or modify orders for the Products to which any
such change applies, provided written notice of cancellation is delivered to
APGC within 15 days after receipt by Distributor of APGC's notice. All
undelivered orders not canceled as provided herein shall remain in effect for
delivery in accordance with said change. Decreases in lowest distributor prices
after order, but prior to shipment, will be applied to the relevant orders.
4.4 Payment. Payment for the Products purchased by
Distributor shall be net 30 days from the invoice date, or terms otherwise
agreed upon by the parties in writing. A penalty of 1.5% per month or, if less,
the maximum permitted by applicable law per month shall be added to any overdue
amounts owed to APGC over 30 days. Distributor shall pay all collection
charges.
4.5 Title and Risk of Loss. Title to the Products shall
pass to Distributor and delivery is deemed to occur upon APGC's delivery of the
Products (or are otherwise agreed in writing by the parties) FOB factory. APGC
shall not be liable to Distributor for any loss or damage to any of the
Products purchased hereunder after delivery thereof by APGC to Distributor or
to a carrier for shipment to Distributor, whichever shall first occur, and
Distributor shall be responsible for filing all claims for loss of or damage to
any of the Products purchased hereunder while in the possession of any carrier.
APGC shall, however, provide reasonable assistance to Distributor in processing
all such claims.
4.6 Shipments
(a) APGC will endeavor, whenever practicable, to
follow Distributor's requests with regard to route and method of shipment. When
Distributor does not specify a route and method of shipment, APGC reserves the
right to ship the Products purchased by Distributor hereunder by whatever mode
of transportation by whatever route and from whatever point it reasonably may
select.
(b) Distributor will be invoiced by APGC for all
charges, including transportation charges, for the delivery of conforming
Products made to Distributor hereunder.
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(c) Distributor shall be responsible for and
shall pay any and all charges for demurrage, storage, or other charges accruing
after arrival of such shipment at destination.
(d) If diversions of shipments are made upon
Distributor's request or are made by APGC as a result of Distributor's failure
or refusal for any reason to accept shipments made pursuant to Distributor's
orders, Distributor agrees to pay the additional charges and expenses incident
to such diversions, but in no event shall Distributor pay APGC an amount in
excess of the charges or expenses incident to returning shipments to their
original shipping points.
4.7 Product Changes. APGC may change the design or
specifications of any of the Products at any time without notice to Distributor
and without obligation to make the same or any similar change upon any Products
previously purchased by or shipped to Distributor. However, there will be no
changes, without Distributor's reasonable approval, in Products that are part
of so-called "Special Make-Up Programs" (i.e. Products devised by mutual
agreement for exclusive distribution by Distributor and through Distributor's
franchisees).
4.8 Delayed Payments. Notwithstanding anything to the
contrary contained in this Agreement, APGC reserves the right to cease
accepting orders from and supplying Products to the Distributor in the event of
any delay in payment by the Distributor to APGC of any uncontested money due to
APGC and 30 days have elapsed since a notice to that effect has been served on
the Distributor.
ARTICLE V
WARRANTIES
5.1 Warranty. APGC warrants that the Products sold
pursuant to this Agreement shall be free from defects in material and
workmanship under normal use and service when delivered to Distributor and for
a period of 12 months from the date of sale of the Products by Distributor to
its customer unless otherwise specified in writing on a particular Product. The
Products (including their sale by Distributor) and the packaging and trademarks
used therewith do not infringe any third party intellectual property rights,
and comply with all applicable laws and regulations. All labelling of the
Products is correct and complete.
5.2 No Other Warranties. Except as expressly provided in
this Agreement, APGC makes no warranties with respect to the Products, either
express or implied, including without limitation, the implied warranties of
merchantability and fitness for a particular purpose.
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5.3 Limitation of Liability. In no event shall either
party be liable for any special, incidental, consequential or exemplary damages
in connection with, or arising out of, the performance of this Agreement or for
breach of warranty.
ARTICLE VI
TERM AND TERMINATION
6.1 Term. Subject to the termination provisions of this
Agreement, this Agreement will continue in effect from the date hereof for a
period of five years, and will be automatically renewed for successive one-year
periods thereafter unless terminated in accordance with the provisions of this
Agreement.
6.2 Termination.
(a) APGC or Distributor may notify the other
party that this Agreement will terminate as of the end of the term of this
Agreement or any annual renewal thereof by giving the other party at least 90
days prior written notice of such termination.
(b) If a party shall fail to fulfill or comply
with any term or provision of this Agreement, the other party may terminate
this Agreement following written notice of such termination and opportunity to
cure. Such notice of termination shall be delivered to Distributor not less
than 30 days prior to the effective date of termination.
(c) Either APGC or Distributor may terminate this
Agreement immediately by delivering to the other party written notice of such
termination in the event of the happening of any of the following:
(1) liquidation or dissolution of
Distributor or APGC, as the case may be;
(2) insolvency; filing of voluntary
petition in bankruptcy; filing of a petition to have such party
declared bankrupt, provided it is not vacated within thirty (30)
days from date of filing; appointment of a receiver or trustee,
provided such appointment is not vacated within thirty (30) days
from date of filing; or execution of an assignment for benefit of
creditors; or
(3) any assignment or attempted
assignment of any interest in this Agreement (other than in
connection with the sale of all or substantially all of the assets
or more than 50% of the equity interest of such party other than to
a "competitor", as defined herein of the other party) without the
other party's written consent. A competitor for purposes of this
Section 6.2 shall mean a
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<PAGE> 8
company that manufactures and sells golf equipment and related
products.
ARTICLE VII
TERMINATION CONSEQUENCES
7.1 Obligations of Distributor. On the termination of
this Agreement, the Distributor undertakes:
(a) to return to APGC all Product samples and
advertising material used in connection with the sale of the Products provided
to Distributor by APGC for promotion of the Products pursuant to the terms of
this Agreement except to the extent used in the sale of Products as permitted
pursuant to clause (c) below;
(b) to return to APGC all originals and copies of all
documents and information in any form containing or covering in any way any
part of APGC's intellectual property except to the extent used in the sale of
Products as permitted pursuant to clause (c) below; and
(c) to cease carrying on the marketing and sale of
the Products under the terms of this Agreement (other than sales of existing
inventory of the Products that are not repurchased pursuant to Section 7.3
hereof).
7.1A Obligations of APGC. On the termination of this
Agreement, APGC undertakes to return to Distributor all originals and copies of
all documents and information in any form containing or covering in any way any
part of Distributor's intellectual property.
7.2 Final Accounting; Payment. Not later than 30 days
after the receipt of notice terminating this Agreement, APGC or Distributor
shall pay to the other party any sums due under this Agreement, and the
termination or expiration of this Agreement shall not relieve either party from
its obligations to make payment of any sums then owing to the other.
7.3 Unsold Products. APGC shall have the option to
purchase from the Distributor all unsold Products then in the ownership of the
Distributor which it desires to purchase by notifying the Distributor of its
decision within 15 days of termination. The purchase price for APGC's
repurchase of such Products shall be the purchase price at which such Product
was purchased from APGC (determined on a FIFO basis) less all prior refunds,
credits, rebates, allowances, discounts and other payments made by APGC with
respect thereto. Delivery by Distributor of all the Products repurchased by
APGC shall be in accordance with APGC's instructions and at APGC's cost.
Notwithstanding the above,
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Distributor will have the right after termination to fill any orders received
from its customers prior to APGC effecting its rights to purchase Distributor
inventory and to fill any orders as required by applicable law.
ARTICLE VIII
INDEMNITY
The parties shall indemnify and hold each other harmless
from any and all loss or expenses including reasonable attorneys fees, incurred
or suffered as a result of any claim of loss or damage made against the other
which shall arise from or be the result of a breach of this Agreement or the
negligent acts or omissions of the other.
ARTICLE IX
TRADE SECRETS
Except with the express written consent of the other party,
Distributor and APGC each agree that it will not, either during the term of
this Agreement or anytime thereafter, directly or indirectly, use or disclose
for its own benefit or the benefit of any other person, firm or entity, any of
APGC's or Distributor's legally protectible trade secrets, as the case may be,
whether or not said information was acquired, learned, obtained or developed by
APGC or Distributor, as the case may be, alone or in conjunction with others.
For purposes of this Agreement, trade secrets shall be, and those employees or
other agents to whom it has been confided, and is by law the property of APGC
or Distributor, as they include all trade secret information relating to design
and manufacturing procedures, techniques, programs, processes, methods, and
marketing studies. It is the intent hereof that APGC and Distributor shall not
divulge or use except for the purposes hereof any such information of the other
party which is unpublished or not otherwise readily available to the public or
which is not general information in the golf club and products industry.
ARTICLE X
MISCELLANEOUS
10.1 Representation as to Authority. Each of the parties
warrants its power and authority to enter into this Agreement and that it has
obtained all necessary approvals to do so.
10.2 Entire Agreement. This Agreement together with the
Schedules and other documents referred to herein contain the entire agreement
between the parties concerning the subject matter hereof, and supersedes any
prior agreement between the parties whether written or oral concerning its
subject matter.
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10.3 Modification. No addition or modification of this
Agreement shall be binding upon APGC or Distributor unless made in writing and
signed by a duly authorized representative.
10.4 Force Majeure. Neither party shall be liable for
delays in performance due to acts of God, acts of national emergency, wars,
strikes, riots, prohibitive governmental regulations or any other cause beyond
the control of the parties which prevents, hinders or delays the performance of
such party.
10.5 Severability. In the event that any provision of
this or any other agreement entered into contemporaneously with this Agreement
is declared by any judicial or other competent authority to be void, voidable,
illegal or otherwise unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect.
10.6 Notices. Any notice to be served on either of the
parties by the other shall be delivered by hand or be sent by registered or
certified mail return receipt requested, to the addresses indicated in the
preamble to this Agreement (or to such other addresses as the parties shall
specify by written notice). If mailed, notices shall be deemed to have been
received by the addressee within 72 hours after mailing, postage prepaid.
10.7 No Partnership. The parties are not partners or
joint venturers nor is the Distributor able to act as agent of APGC.
10.8 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto. This Agreement or any part of this
Agreement may not be assigned by either party without the prior written consent
of the other party, which consent shall not be unreasonably withheld.
10.9 Controlling Law and Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware.
10.10 Rights Cumulative. All rights granted to either of
the parties shall be cumulative and no exercise by either of the parties of any
right under this Agreement shall restrict or prejudice the exercise of any
other right granted or otherwise available to it.
10.11 Waiver. The failure by APGC or the Distributor to
enforce at any time or for any period any one or more of the terms or
conditions of this Agreement shall not be a waiver of them or of the right at
any time subsequently to enforce all terms and conditions of this Agreement.
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10.12 Arbitration. In the event of a dispute between the
parties hereto, such parties agree to submit the matter to binding arbitration
to be conducted under the auspices of the American Arbitration Association
(hereinafter referred to as "AAA").
(a) The dispute shall be resolved in accordance with
the Commercial Arbitration Rules in effect for AAA, which form of rules
pertaining on the date of the demand for arbitration shall apply and govern the
arbitration proceeding.
(b) The arbitration shall be held in the State of
Delaware at such place as shall be designated by the arbitrator. Delaware law,
both substantive and procedural, shall govern the proceedings.
(c) All procedural rules for arbitration shall be
strictly followed in resolving disputes under this Agreement, whether by the
arbitrator, or by a court of competent jurisdiction in enforcing such
provisions.
(d) The dispute shall be resolved by a single
arbitrator. The arbitrator shall be a member of the Delaware State Bar,
actively engaged in the practice of law for at least ten (10) years, with
expertise in the process of deciding disputes and/or interpreting contracts (in
the particular field of law involving the subject controversy). If the parties
cannot agree on an arbitrator after having been presented with three (3) lists
of potential candidates by AAA, AAA shall select an arbitrator from among its
commercial arbitration panel members who are retired Delaware judges.
(e) The parties may resort to the courts for
injunctive relief pending arbitration, without thereby waiving arbitration.
(f) The arbitration shall be conducted in the English
language in Delaware, according to the rules of evidence contained in Delaware
law.
(g) In rendering the award, the arbitrator shall
determine the rights and obligations of the parties according to the
substantive and procedural laws of Delaware, as though the arbitrator was a
court of competent jurisdiction in Delaware.
(h) The award must be accompanied by a written
statement of decision. The award will be final and binding in the absence of
manifest mistake or fraud. Judgment on the award may be entered in any court of
competent jurisdiction.
(i) The arbitrator shall have the discretion to order
a pre-hearing exchange of information by the parties,
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including, without limitation, production of requested documents, exchange of
summaries of testimony of proposed witnesses, an examination by deposition of
parties and third-party witnesses.
(j) Any prevailing party is entitled to recover costs
(and expenses) which shall include reasonable attorneys' fees as well as the
fees and expenses of the arbitrators and the administrative fees of AAA. A
"prevailing party" shall be a party in whose favor any portion of the award is
rendered and that is determined by the arbitrator to be the prevailing party.
(k) The arbitrator shall have the authority to employ
the law and motion process and to award any remedy or relief that a court of
the State of Delaware could order or grant, including, without limitation,
rescission, specific performance of any obligation created under the agreement,
the awarding of punitive damages, the issuance of an injunction, or the
imposition of sanctions for abuse or frustration of the arbitration or judicial
process.
(l) The issue of fraud is the inducement of a
contract containing an arbitration clause, such as this contract, may be
decided by the arbitrator and not by the court, unless it is alleged that fraud
permeated the entire contract.
IN WITNESS WHEREOF, the parties have signed this Agreement
to be effective as of the date first above written.
APGC:
THE ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
--------------------------------
Title: President
-----------------------------
DISTRIBUTOR:
NEVADA BOB'S PRO SHOP, INC.
By: /s/ John N. Baldwin
--------------------------------
Title: President and CEO
-----------------------------
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<PAGE> 1
Exhibit 10.3
SUB-LICENSE AGREEMENT
THIS SUB-LICENSE AGREEMENT, made and entered into as of
this 21st day of August, 1996 (the "Effective Date"), by and between THE
ARNOLD PALMER GOLF COMPANY, a Tennessee corporation ("APGC"), P.O. Box 796,
6201 Mountain View Road, Ooltewah, Tennessee 37363-0796, and NEVADA BOB'S PRO
SHOP, INC., a Delaware corporation, ("Licensee"), 4043 S. Eastern, Las Vegas,
Nevada 89119.
W I T N E S E T H:
WHEREAS, APGC holds the license to use the name, likeness
and endorsement of Arnold Palmer (hereinafter called "Palmer") in connection
with the advertisement, promotion, and sale of a wide range of golf equipment
and accessories;
WHEREAS, APGC has been granted such rights together with
the right to sublicense such rights; and
WHEREAS, consistent therewith, APGC and Licensee desire
that Licensee be granted the right to use the name, likeness, and endorsement
of Palmer in connection with the advertisement, promotion and sale by Licensee
of the golf products defined herein in the territories designated.
NOW, THEREFORE, for and in consideration of the premises
and of the mutual promises and conditions herein contained, the parties do
hereby agree as follows:
1. DEFINITIONS. As used herein, the following
terms shall be defined as set forth below:
(a) "Palmer Identification" shall mean
any words or symbols, photographic representations, images, likeness or
<PAGE> 2
endorsements which identify Palmer in any way including, but not limited to,
those trademark registrations and applications attached as Exhibit A which are
owned or controlled by Arnold Palmer Enterprises, Inc. ("Enterprises") and/or
Palmer, consisting of the name ARNOLD PALMER, the facsimile signature of Arnold
Palmer, and the Arnold Palmer Umbrella Logo, or any combination of the
foregoing (the "Existing Marks").
(b) "Qualifying Licensed Products"
shall mean the following products manufactured by or for Licensee (except for
"Products" as defined in the Marketing and Distribution Agreement of even date
between the parties) golf shoes (synthetic and leather), golf balls, golf
accessories (golf gloves, travel bags, head covers, pull carts, umbrellas,
towels and golfer's aids) and any other product approved in writing from time
to time by APGC, provided any such product has affixed to the product itself or
its container or the packaging therefor a label or other identification which
includes some part of the Palmer Identification.
(c) "First Cost" shall mean the "cost of
goods sold" (determined in accordance with applicable accounting rules as
applied on a consistent basis by Licensee) for the applicable Qualifying
Licensed Products, less returns, cash discounts and payment discounts, and
excluding amounts paid by Licensee for sales, use and similar taxes, customs
duties, freight and shipping charges and insurance with respect to the
applicable Qualifying Licensed Products.
(d) "Territory" shall mean anywhere in
the world where the Licensee or its franchisees maintain retail golf pro shops
under the name "Nevada Bob's" and anywhere in the world
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where Licensee sells products through catalog or mail order except the
following countries where the Master Agreement (as hereinafter defined)
precludes the sale of the Qualifying Licensed Products: golf gloves - Japan and
mainland China; golf shoes - Canada and Japan.
(e) "Master Agreement" shall mean the Agreement
dated as of March 1, 1992, as amended, between APGC and Enterprises.
2. GRANT OF LICENSE.
(a) Upon the terms and conditions set forth
herein and subject to the payment of royalties and advertising allowances as
set forth herein, APGC hereby grants to Licensee, during the Contract Period
(as hereinafter defined), a nonassignable, non-exclusive (except as provided
below) license to use the Palmer Identification in the Territory in conjunction
with the sourcing, importing, exporting, manufacture, promotion, advertising,
merchandising, sale and offering for sale and distribution of Qualifying
Licensed Products. During the term of this Agreement, Licensee's rights to use
the Palmer Identification on each type of Qualifying Licensed Product shall be
exclusive in the categories of off-course golf pro retailers, off-course sports
retailers and mass merchandisers such as Sears, K-Mart or Wal-Mart. Licensee is
authorized to permit its franchisees to use the Palmer Identification in the
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Territory in connection with the promotion, advertising, merchandising, sale
and offering for sale and distribution of Qualifying Licensed Products, subject
to compliance with the provisions of Section 5 hereof. Licensee shall have the
non-exclusive right to use the Palmer Identification in the Territory in
connection with creating Web sites or other types of sites now or hereafter
known or developed for the purpose of promoting, advertising, merchandising,
selling and offering for sale Qualifying Licensed Products through on-line
means or through other electronic means now or hereafter known or developed,
provided that Licensee shall furnish APGC draft copies of its Web site pages or
material for other types of sites, or permit APGC to access such Web site pages
or material for other types of sites in beta format prior to making them
available to the public, for approval in accordance with the provisions of
Section 5 hereof.
(b) During the term hereof, Licensee agrees to
stock and agrees to, recommend and endorse that each of its franchisees stock
mutually acceptable levels of Qualifying Licensed Products in their Nevada
Bob's golf shops throughout the Territory. A representative of APGC and
Licensee shall meet at least annually and reasonably agree in writing on the
levels of inventory of Qualifying Licensed Products for the Licensee owned
Nevada Bob's golf shops for the coming year. Should the parties be unable to so
reasonably agree, it shall be grounds for the termination of this Agreement in
accordance with Section 11 hereof.
(3) TERM OF AGREEMENT. The term of this Agreement
shall be for a period commencing on the Effective Date continuing until the
fifth anniversary of the Effective Date, and will be automatically renewed for
successive one year periods thereafter unless terminated in accordance with the
provisions of this Agreement.
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3. RELATIONSHIP TO MASTER LICENSE.
(a) APGC represents and warrants to Licensee
that it is authorized, pursuant to the terms of the Master Agreement, to enter
into this Agreement with Licensee and that the rights granted to Licensee
herein do not violate any third party rights.
(b) APGC shall have the right, in its sole
discretion, to elect to terminate this Agreement at any time if the Master
Agreement, by its terms, is properly terminated.
4. PAYMENTS. Licensee agrees to pay APGC
royalties on a per unit basis of Qualifying Licensed Products sold during the
term hereof in accordance with the following schedule:
<TABLE>
<CAPTION>
Product Royalty
------- -------
<S> <C>
Golf Ball $ .40 per dozen
Golf Shoes (Synthetic) $ .75 per pair
Golf Shoes (Leather) $1.50 per pair
Accessories 5% of First Cost
</TABLE>
Such royalty payments shall be made on a quarterly basis, within 20 days
following the conclusion of each quarter during the term hereof, commencing
August 1, 1996, based upon the date of associated Net Sales received by
Licensee.
APGC has the option to terminate this Agreement upon 10
days prior written notice in the event that the Licensee is delinquent (i.e.,
payments are not received within 20 days after the conclusion of each quarter)
in quarterly royalty payments and fails to cure during the notice period.
Delinquent royalties will accrue interest at the highest rate allowed by law
(not to exceed 2% over the prime rate of Citibank, N.A.), commencing on the
first day following the day on which the royalty payment was due and
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continuing until the delinquent royalty and all accrued interest are paid.
5. ADVERTISING APPROVALS. Licensee agrees to
reasonable approvals by APGC over advertising of Qualifying Licensed Products
intended to be distributed in connection with the Palmer Identification. APGC
agrees that any item submitted for approval hereunder may be deemed by Licensee
to have been approved if Licensee does not receive the disapproval of the same
by APGC in writing within ten (10) business days after receipt thereof by APGC.
Licensee shall use commercially reasonable efforts to cause its franchisees to
also seek the approvals of APGC that Licensee is required to obtain hereunder.
Once approval has been obtained, further approvals need not be obtained for
additional or repeat use of the same materials.
Licensee shall not, without APGC's written consent, make
any form of comparative claims vis-a-vis competitor's products in its
promotional advertising activities in connection with the Qualifying Licensed
Products.
6. TRADEMARKS.
(a) Licensee agrees that it will not, during the
term of this Agreement or thereafter, attack the validity of the Palmer
Identification or any trademark thereon, or this Agreement.
(b) Licensee acknowledges APGC's representation
of its right to license the Palmer Identification and Enterprises and Palmer's
title to the Palmer Identification and Existing Marks and shall not at any time
do or permit to be done any act or thing which in any way impairs the rights of
APGC, Enterprises or Palmer.
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(c) It is the intention of the parties that all
use of the Palmer Identification shall inure to the benefit of APGC,
Enterprises and Palmer.
(d) No element of the Palmer Identification shall
be incorporated into a common graphic device in direct association with
Licensee trade names, logos, or other marks.
(e) Licensing will use the following notice
somewhere in its advertising or promotional materials and somewhere on the
packaging for Qualifying Licensed Products, but Licensee has no obligation to
use such notice in (I) any such print advertisements that are less than
one-half page of a standard size magazine or newspaper page and where, in
Licensee's reasonable judgment, use of such notice will interfere with the
advertisement, and (ii) any such radio or television advertising. When used,
the following notice will be in a type size that is readable by a consumer, but
without the requirement that it be prominently displayed on any such
advertising or promotional materials:
[particular Palmer Identification] is a trademark of Arnold
Palmer Enterprises, Inc. and used under license to Nevada
Bob's Pro Shop, Inc.
Licensee will also use on all Qualifying Licensed Products any logo supplied by
APGC which designates the Qualifying Licensed Products as "officially licensed
merchandise" (or similar statement); subject to the first sentence of this
Section 6(f) Licensee will use the Palmer Identification only in the manner
specified by APGC, Enterprises and Palmer.
(f) That portion of any artwork or other
materials (and the ideas embodied therein) that embodies the Palmer
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<PAGE> 8
Identification conceived under or resulting from this Agreement, including but
not limited to copyrighted materials and trademarks, trade names, service marks
and service names or the like, whether developed by Licensee or on behalf of
Licensee ("Work Product") is the exclusive property of APGC. APGC shall be free
to use such Work Product in any manner it may choose (but subject to Licensee's
exclusive rights hereunder), without payment of additional consideration to
Licensee. Licensee agrees to assign, transfer and set over to APGC all rights,
title and interest in such Work Product whether now known or hereafter devised.
Specifically, but not to limit the above, Licensee assigns to APGC, its
successors and assigns, worldwide exclusive ownership of and right, title and
interest in all copyrights to such Work Product, recognizes such Work Product
as "work for hire" under the copyright laws of the United States and will take
all requested steps necessary to protect such copyrights on behalf of APGC.
Licensee agrees to obtain the proper and necessary releases or other agreements
from its employees and/or independent contractors who develop such Work
Product. If Licensee desires to develop any different design for any mark,
symbol, logo, character or other element included within the Palmer
Identification, it shall first obtain APGC's prior written approval. Any such
design shall be included in the Palmer Identification licensed hereunder,
provided APGC, Enterprises or Palmer shall own all the rights in such new
design. All uses thereof shall inure to the exclusive benefit of APGC,
Enterprises, or Palmer. APGC may register and protect the same in its own name
or the name of Enterprises or Palmer as it sees fit.
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<PAGE> 9
(g) Licensee acknowledges that from time to time
and without notice to Licensee it may be necessary or desirable for APGC to
modify certain elements of the Palmer Identification used in connection with
Qualifying Licensed Products, to add additional elements to the marks
comprising the Palmer Identification, or to discontinue use of some or all of
the elements of the Palmer Identification. Accordingly, APGC does not represent
or warrant that the Palmer Identification or any elements thereof will be
maintained or used in any particular fashion. Any new elements or modifications
to existing elements of the Palmer Identification following the execution of
this agreement shall be included as part of the Palmer Identification.
(h) Licensee recognizes the value and good will
associated with the Palmer Identification and acknowledges that the Palmer
Identification and all rights therein and good will pertaining thereto belong,
as between the parties, exclusively to APGC, Enterprises, or Palmer. Licensee
agrees that, in exercising its rights hereunder, it shall not conduct any
activity or produce any goods which in any way bring into question Licensee's
ethics or lawful practices, nor shall Licensee do anything which damages or
reflects adversely upon APGC, Enterprises or Palmer, the Qualifying Licensed
Products, or the Palmer Identification. Licensee further recognizes and
acknowledges that the trademarks comprising the Palmer Identification have
acquired secondary meaning in the mind of the public.
(i) The license granted hereunder is conditioned
upon Licensee's full and complete compliance with the provisions of the
trademark, patent and copyright laws of each country in the
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Territory and, subject to the following sentence, Licensee agrees to bear any
cost which may be necessary for it to comply with such trademark laws in regard
to its use of the Palmer Identification in any country in the Territory
including but not limited to recording Licensee as a registered user of
trademarks comprising the Palmer Identification. In the event there has been
no previous registration of a trademark comprising the Palmer Indemnification
for Qualifying Licensed Products per applicable classification in any foreign
country in the Territory and/or if it is necessary to file any registered user
applications listing Licensee as a permissible user of the trademarks
comprising the Palmer Identification in any such countries and Licensee has
notified APGC of its intended use of such trademarks no less than three months
prior to intended use, then APGC shall, at Licensee's request, if it determines
it is commercially reasonable to do so, register (at APGC's expense) such
trademark in the appropriate class (e.g. international class 28 for sporting
goods, and any necessary local class or classes) in the name of APGC,
Enterprises or Palmer and/or file the necessary registered user applications.
Notwithstanding the preceding sentence, APGC hereby agrees that it shall be
"commercially reasonable" pursuant to the preceding sentence to register any
trademark comprising the Palmer Identification in any country upon the request
of Licensee if Licensee has at least one store in that country, and that APGC
will therefore bear the expense of any such registration in any such country.
APGC also agrees that it is commercially reasonable to register the trademarks
listed on Exhibit A attached hereto in the countries listed opposite such
trademarks, and APGC hereby undertakes to do
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so, at APGC's expense, promptly after the execution of this Agreement. APGC
may, in its discretion, abandon any registered trademarks in countries in which
Licensee ceases to maintain a Nevada Bob's store.
(j) Licensee agrees to provide APGC with such
reasonable assistance as APGC may require in the procurement of any protection
of APGC, Enterprises, or Palmer's rights to the Palmer Identification.
(k) Licensee shall not use or permit the Palmer
Identification to be used or exploited in any manner that is deceptive or
misleading or that reflects unfavorably upon the good name, goodwill,
reputation, or image of APGC, Enterprises or Palmer.
(l) Licensee shall ensure that the Palmer
Identification is used by it solely on or in connection with Qualifying
Licensed Products. In particular, Licensee shall restrict the use of the Palmer
Identification in its advertising, including radio and television broadcasts,
point-of-sale materials, printed materials and the like, to indicate clearly
that the Palmer Identification relates only to Qualifying Licensed Products,
and not to any other product manufactured, distributed, sold or advertised by
Licensee. Licensee shall not use the Palmer Identification in such a manner
that confusion may arise in the public mind as to the products for which
Licensee has been granted the license to use the Palmer Identification.
(m) Licensee shall not attempt to register in its
name any Palmer Identification alone or as a part of its own
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trademark nor shall Licensee use or attempt to register any marks confusingly
similar to the Palmer Identification.
(n) Licensee agrees that the Qualifying Licensed
Products on which it will use the Palmer Identification shall be of a standard
of quality equally as high as that of a specimen made available for APGC's
inspection prior to beginning full production and shall meet or exceed any and
all government standards, regulations, guidelines, rules, laws or the like
regarding such Qualifying Licensed Products. APGC shall have the ability to
inspect Licensee's and Licensee's franchisees' facilities at any time during
normal business hours with prior notice.
(o) Licensee shall make available a reasonable
number of samples of the Qualifying Licensed Products (including each variation
thereof) for APGC's inspection and approval prior to production, marketing or
sale of Qualifying Licensed Products. Licensee shall also provide a reasonable
number of samples taken from actual production of Qualifying Licensed Products
at reasonable intervals during the term for the purposes of product review and
quality control. Prior to use, Licensee also agrees to provide APGC samples of
all packaging, promotional materials, advertisements, and any other materials
containing the Palmer Identification for inspection and approval.
(p) If at any time the Qualifying Licensed
Products fall below the standard of quality of samples of proof by APGC, APGC
shall have the right to immediately terminate this Agreement unless
modifications reasonably satisfactory to APGC are made within 120 days from
notice of disapproval. In any event, APGC can require Licensee to immediately
discontinue the use of the Palmer
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Identification in connection with the sale of the non-conforming products.
(q) Licensee shall bear any and all costs related
to any product recall of Qualifying Licensed Products, whether voluntary or
required by governmental entities or APGC. APGC shall have the ability to
declare such a recall if in its sole but reasonable discretion and after
consultation with Licensee that, in good faith, any product recall is necessary
for any reason of public health, safety, welfare, or damage to reputation or
goodwill. In the event of such a recall, Licensee will consult with APGC, and
obtain APGC's approval, regarding all aspects of handling such recall.
(r) Licensee represents that the Qualifying
Licensed Products will be manufactured for Licensee by the companies listed in
Exhibit B to this Agreement. Licensee agrees to notify APGC, and obtain APGC's
approval (not to be unreasonably withheld), prior to changing the manufacturers
listed on Exhibit B.
(s) If the Qualifying Licensed Products will be
imported into the United States, then Licensee represents such products will
not be imported from countries which the United States State Department
prohibits U.S. companies doing business with, and Licensee will advise APGC
promptly in writing of all import companies it intends to use.
(t) Licensee undertakes not to use the Palmer
Identification in the manufacture, advertising or promotion of products other
than Qualifying Licensed Products and Licensee shall discontinue such
manufacture, advertising and promotion immediately
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upon receipt of written notice from APGC that such products are not included
within the definition of Qualifying Licensed Products.
(u) If Licensee wishes to use the Palmer
Identification with new types or classes of products that Licensee believes are
included in Qualifying Licensed Products, Licensee shall consult with APGC. No
such new types or classes of products shall be deemed to be a part of
Qualifying Licensed Products without APGC's prior written approval.
(v) Licensee agrees to use commercially reasonable
efforts to market and sell the Qualifying Licensed Products within the
Territory during the term of this Agreement. Notwithstanding the fact that the
Licensee may be making the payments required by Section 4 hereof, if Licensee
is not using commercially reasonable efforts to market and sell the Qualifying
Licensed Products, APGC may terminate this Agreement in accordance with the
provisions of Section 10 hereof.
7. TRADEMARK PROTECTION AND INDEMNITY.
(a) In the event a third party should
make or file any claim for trademark infringement, passing off or unfair
competition on account of Licensee's use of the Palmer's Identifications in any
trademark class or classes in the Territory, Licensee shall promptly notify
APGC of such claim, and thereafter APGC shall undertake diligent efforts at its
own expense to have such claim withdrawn, settled or defended. In this
connection, Licensee shall, at its own expense, cooperate with and assist
APGC's efforts, including, at APGC's request, providing APGC with evidence of
Licensee's use of the Palmer Identification in advertising, labels, packaging,
and otherwise. APGC shall
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indemnify and hold Licensee harmless against any and all losses, liability,
damages, costs, and expenses (including reasonable attorneys' fees and
expenses) which Licensee may become liable or become compelled to pay in
connection with any action, claim or proceeding against Licensee by reason of
the fact that the use of a Palmer Identification in accordance with this
Agreement is alleged to infringe or infringes upon the trademark or other
intellectual property rights of a third party. APGC shall, at its sole expense
and in accordance with its own reasonable business judgment, take whatever
steps it deems necessary and appropriate to finally dispose of such claim
(including, at APGC's election, defending any legal action to final judgment).
(b) Each party shall promptly notify the
other in writing of any infringement of the Palmer Identification of which it
becomes aware. APGC and/or Enterprises, shall have the obligation to take such
action to stop such infringement and otherwise act promptly to protect the
Palmer Identification. APGC shall bear all expenses connected with the
foregoing. If APGC and/or Enterprises refuse to take action with respect to the
infringement or protection of the Palmer Identification, at its option and in
addition to its other rights hereunder, Licensee may take action to stop such
infringement provided Licensee can reasonably establish that such action is
necessary to protect its rights in the Palmer Identification. In such case,
Licensee's obligation to pay royalties to APGC shall be suspended until such
time as Licensee has recouped all of its legal fees and expenses (with credit
being given for payment to Licensee of any monetary damages, attorneys' fees,
costs, and expenses) as may have been
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reasonably necessary to preserve Licensee's interest in the Palmer
Identification. Each party agrees to cooperate fully with the other, and if
requested, shall join the other as a party to any such action. However, it is
understood that if a party is requested to join in any such action, the legal
fees and expenses for such action will still be borne by the requesting party.
Any recovery as a result of such action shall be shared by the parties based on
damages incurred.
(c) Licensee agrees to protect,
indemnify and save harmless APGC from and against any and all expenses,
damages, claims, suits, actions, judgments, and costs whatsoever, including
reasonable attorneys' fees, arising out of any claim or action for personal
injury or death involving alleged defects in Licensee's products. It is agreed
that Licensee shall, to the extent available, provide and maintain, at its own
expense, product liability insurance with limits and terms consistent with its
ordinary business practices. Within thirty (30) days after execution of this
Agreement, Licensee will provide APGC with a certificate of insurance naming
APGC as an insured party and requiring that the insurer shall not terminate or
materially modify such insurance policy without appropriate written notice to
APGC.
(d) Licensee shall refrain from use of
the Palmer Identification outside the Territory and shall take reasonable
efforts to prevent the unauthorized use of the Palmer Identification on its
products outside the Territory. Any use by Licensee of any Existing Mark or any
other element of the Palmer Identification, in any trademark class or classes
in any country or jurisdiction outside of the Territory shall be at the sole
risk and
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expense of Licensee, and APGC shall not have any obligation or liability to
Licensee in this connection, and if any claim is made by any third party with
respect to such use by Licensee, Licensee shall be solely responsible to
settle, defend or compromise such claim at its sole cost and expense.
8. CONDITIONS APPLICABLE TO INDEMNITIES. In any
case where an indemnity is given under this Agreement, the indemnitor shall
have the right to control the legal defense of the claim or action giving rise
to the indemnity, including the right to select counsel of its choice (subject
to the reasonable approval of the indemnitee) and to compromise or settle any
such claim or action. The indemnitee shall have the right, at its own cost and
expense, to retain its own attorneys in connection with any such matter. Each
indemnity hereunder will survive termination of this Agreement.
9. BOOKS AND RECORDS. Licensee shall keep
accurate and complete records and books of account showing all Qualified
Licensed Products sold by Licensee and its franchisees pursuant to this
Agreement. Upon at least five (5) calendar days' advance notice and the
execution of a confidentiality agreement, APGC, or representatives of APGC,
shall have the right no more than biannually to inspect and make copies (at
APGC's expense) of the books and records of Licensee but only insofar as they
shall relate to the computation of royalties to be paid APGC hereunder. APGC
will maintain the confidentiality of such books and records. In the event that
any such inspections show an under reporting and underpayment in excess of five
percent (5%) for any twelve (12) month period, then Licensee shall pay the cost
of such examination
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plus interest at the maximum rate allowed by law (but not to exceed 2% over the
prime rate of Citibank, N.A.) on the underpaid amount, accruing from the date
the payment was due.
10. TERMINATION FOR BREACH. If, during the term
of this Agreement, a party shall fail to perform any obligation hereunder or
breach any term or provision of this Agreement, the other party shall have the
right to terminate this Agreement by providing written notice to such party.
Such termination shall be effective thirty (30) days following such party's
receipt of such notice (during which time such party may attempt to cure such
failure to perform), except in the case of a breach of the obligation set forth
in Section 4, which shall be effective within 10 days of receipt of written
notice from APGC, during which time Licensee may cure the failure to make
timely payments.
11. TERMINATION BY LICENSEE. If, during the term
of this Agreement, Arnold Palmer (I) dies, (ii) commits any act or is engaged
in any conduct outside of his professional golf activities which in Licensee's
good faith opinion destroys or significantly lessens the value of the Palmer
Identification for the purposes contemplated hereunder, or (iii) is charged
with and indicted or convicted of a felony involving moral turpitude, Licensee
shall have the right to terminate this Agreement by providing written notice to
APGC. Such termination shall be effective thirty (30) days following APGC's
receipt of such notice.
12. EFFECTS OF TERMINATION. Subject to the
provisions below, upon the termination of this Agreement for any reason, all of
the rights of Licensee to the use of Palmer Identification shall cease. Upon
such termination, Licensee shall
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discontinue manufacture, advertising, sale, distribution and promotion of
Qualifying Licensed Products, except that:
(a) Licensee shall be permitted to use
the Palmer Identification in accordance with the provisions of this Agreement
to fulfill any orders received as a result of Licensee's catalogs or other
advertising and promotional media then in circulation.
(b) For six months following
termination, Licensee shall be permitted to sell or otherwise distribute (in a
manner consistent with the reputation of the Palmer Identification) (I) its
inventory of all Qualifying Licensed Products, (ii) all items previously
ordered which purchase orders cannot be canceled without penalty to or a claim
against Licensee and (iii) all items required to fill binding orders
outstanding at the time of such termination which sales orders cannot be
canceled without penalty to or a claim against Licensee.
Notwithstanding anything herein to the contrary or any
termination of the Master Agreement or this Agreement, for so long as Licensee
shall have any rights under this Section 13, it shall continue to perform all
of its obligations hereunder.
13. ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto. This Agreement or any part
of this Agreement may not be assigned by either party without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
14. NOTICE. Any notice, report or other
communication hereunder shall be given in writing and such writings and any
payment hereunder shall be sent to the addressee party at
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the address stated below or as changed by written notice given by such party.
To the extent it is valid and complete, any such notice, report, other
communication or payment shall be effective as of the date received, unless
sent by telecopier, with receipt confirmed, in which case it shall be effective
as of the date mailed, or by internationally recognized overnight courier,
postage prepaid, in which case it shall be effective one business day after the
date of deposit with such internationally recognized overnight courier.
Addresses shall be:
THE ARNOLD PALMER GOLF COMPANY:
The Arnold Palmer Golf Company
6201 Mountain View Road
Ooltewah, TN 37363
Attention: George H. Nichols
Fax No. (423) 238-8295
with a copy to:
Miller & Martin
1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Attention: A. Alexander Taylor II
Fax No. (423) 785-8480
Licensee:
Nevada Bob's Pro Shop, Inc.
4043 S. Eastern
Las Vegas, NV 89119
Attention: John N. Baldwin
Fax No. (702) 451-9378
With a copy to:
Howard, Rice, Nemerovski, Canady,
Robertson, Falk & Rabkin
Three Embarcadero Center, Seventh Floor
San Francisco, CA 94111
Attention: Ronald H. Star
Fax No. (415) 399-3041
15. ENTIRE AGREEMENT. This Agreement sets forth
the entire agreement and understanding between the parties as to
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the subject matter hereof and merges all prior discussions between them, and
neither of the parties shall be bound by any conditions, definitions,
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein, or as duly set forth on or
subsequent to the effective date hereof in writing and signed by a proper and
duly authorized representative of the party to be bound thereby.
16. AMENDMENT. No amendment or other variation to
this Agreement shall be effective unless it is in writing, is dated and is
signed by a duly authorized representative of each of the parties hereto.
17. GOVERNING LAW. This Agreement shall be
governed by the laws of the State of Delaware, and for all purposes shall be
interpreted in its entirety in accordance with the laws of such state.
19. ARBITRATION; ATTORNEYS FEES. In the event of a
dispute between the parties hereto, such parties agree to submit the matter to
binding arbitration to be conducted under the auspices of the American
Arbitration Association (hereinafter referred to as "AAA").
(a) The dispute shall be resolved in accordance
with the Commercial Arbitration Rules in effect for AAA, which form of rules
pertaining on the date of the demand for arbitration shall apply and govern the
arbitration proceeding.
(b) The arbitration shall be held in the State
of Delaware, at such place as shall be designated by the arbitrator. Delaware
law, both substantive and procedural, shall govern the proceedings.
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(c) All procedural rules for arbitration shall
be strictly followed in resolving disputes under this Agreement, whether by the
arbitrator, or by a court of competent jurisdiction in enforcing such
provisions.
(d) The dispute shall be resolved by a single
arbitrator. The arbitrator shall be a member of the Delaware State Bar,
actively engaged in the practice of law for at least ten (10) years, with
expertise in the process of deciding disputes and/or interpreting contracts (in
the particular field of law involving the subject controversy). If the parties
cannot agree on an arbitrator after having been presented with three (3) lists
of potential candidates by AAA, AAA shall select an arbitrator from among its
commercial arbitration panel members who are retired Delaware judges.
(e) The parties may resort to the courts for in
junctive relief pending arbitration, without thereby waiving arbitration.
(f) The arbitration shall be conducted in the
English language in Delaware, according to the rules of evidence contained in
Delaware law.
(g) In rendering the award, the arbitrator
shall determine the rights and obligations of the parties according to the
substantive and procedural laws of Delaware, as though the arbitrator was a
court of competent jurisdiction in Delaware.
(h) The award must be accompanied by a written
statement of decision. The award will be final and binding in the absence of
manifest mistake or fraud. Judgment on the award may be entered in any court of
competent jurisdiction.
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(I) The arbitrator shall have the discretion to
order a pre-hearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, an examination by deposition of parties and
third-party witnesses.
(j) Any prevailing party is entitled to
recover costs (and expenses) which shall include reasonable attorney's fees as
well as the fees and expenses of the arbitrators and the administrative fees of
AAA. A "prevailing party" shall be a party in whose favor any portion of the
award is rendered and that is determined by the arbitrator to be the prevailing
party.
(k) The arbitrator shall have the authority to
employ the law and motion process and to award any remedy or relief that a
court of the State of Delaware could order or grant, including, without
limitation, rescission, specific performance of any obligation created under
the agreement, the awarding of punitive damages, the issuance of an injunction,
or the imposition of sanctions for abuse or frustration of the arbitration or
judicial process.
(l) The issue of fraud in the inducement of a
contract containing an arbitration clause, such as this contract, may be
decided by the arbitrator and not by the court, unless it is alleged that fraud
permeated the entire contract.
(m) Should litigation or arbitration be
initiated by either party to this Agreement to enforce its rights hereunder,
the prevailing party shall be entitled to recover its attorneys fees and costs
incurred in connection with such action.
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20. SEVERABILITY. If any provision or provisions
of this Agreement shall be held to be illegal, invalid or unenforceable, the
validity, the legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
21. WAIVER OF DEFAULT. The waiver of any default
under this Agreement by either party shall not constitute a waiver of any
rights or any subsequent default.
22. CONSTRUCTION. Nothing contained herein shall
be construed so as to constitute the parties as entering upon a joint venture
or partnership or shall constitute either party hereto as agent for the other
for any purpose or in any sense whatsoever.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective as of the date first above written.
THE ARNOLD PALMER GOLF COMPANY NEVADA BOB'S PRO SHOP, INC.
By: /s/ George H. Nichols By: /s/ John N. Baldwin
------------------------ ---------------------------
George H. Nichols John N. Baldwin
President & COO President & CEO
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Exhibit 10.4
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of August 21, 1996, by and between Nevada Bob's Holdings, Inc., a
Delaware corporation (the "Company"), and The Arnold Palmer Golf Company, a
Tennessee corporation (the "Investor").
In consideration of the promises herein made and on the terms and
subject to the conditions herein contained, the Company and the Investor agree
as follows:
SECTION 1
Contribution to the Company
1.1 Purchase and Sale of Stock. The Company will sell to the Investor,
and the Investor will purchase from the Company, a total of 625,000 shares of
the Company's Series D Preferred Stock, ("Preferred Shares") at the per share
purchase price of $8.00 and an aggregate purchase price of $5,000,000 (the
"Purchase Price"). The Preferred Shares will have and be subject to all the
rights, preferences, privileges and restrictions with respect to the Series D
Preferred Stock set forth in the form of the Company's Fourth Amended and
Restated Certificate of Incorporation attached hereto as Exhibit A (the
"Amended Certificate").
1.2 Closing. The purchase and sale of the Preferred Shares will take
place at 10:00 a.m. PDT on August 21, 1996, at the offices of Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, Three
Embarcadero Center, Seventh Floor, San Francisco, California, or such other
time and such place as the Company and the Investor mutually agree (which time
and place are designated the "Closing").
SECTION 2
Representations and Warranties of the Company
Except as set forth on SCHEDULE 2 the Company hereby represents and
warrants to, and agrees with, the Investor as follows:
2.1 Organization and Standing; Certificate and By-Laws. The Company is
a corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. The Company has
all requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as presently conducted and as proposed
to be conducted. The Company is duly qualified
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to do business as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the Company's
execution, delivery and performance of this Agreement, the transactions
contemplated hereby and the Company's business generally. The Company has
furnished the Investor with copies of its Restated Certificate of Incorporation
in effect as of the date hereof (the "Restated Certificate") and Bylaws, as
amended. Said copies are true, correct and complete and contain all amendments
through the date hereof.
2.2 Corporate Power. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and to carry out and
perform its obligations under the terms of this Agreement.
2.3 Affiliates. Other than Nevada Bob's Pro Shop, Inc., the Company has
no Affiliates and does not otherwise own or control, directly or indirectly,
any equity interest in any corporation, association, partnership, trust, limited
liability company or other business entity. "Affiliate" means any corporation,
association, partnership, trust, limited liability company or other business
entity that the Company, directly or indirectly, controls; and "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity through the majority
ownership of voting securities.
2.4 Capitalization. The authorized capital of the Company consists of:
(i) twenty-one million five hundred thousand (21,500,000) shares of Common
Stock, twenty million (20,000,000) shares of which are designated as Series A
Common Stock and one million five hundred thousand (1,500,000) shares of which
are designated as Series B Common Stock; and (ii) ten million (10,000,000)
shares of Preferred Stock, six hundred twenty-nine thousand (629,000) shares of
which are designated as Series A Preferred Stock, eight thousand (8,000) shares
of which are designated as Series B Preferred Stock and four hundred four
thousand two hundred twenty-six (404,226) shares of which are designated as
Series C Preferred Stock and eight million nine hundred fifty-eight thousand
seven hundred seventy-four (8,958,774) shares of which are undesignated
Preferred Stock. The number of issued and outstanding shares of each series of
Common Stock and Preferred Stock is as follows: (i) six million eight hundred
sixty-one thousand (6,861,000) shares of Series A Common Stock, (ii) one
million five hundred thousand (1,500,000) shares of Series B Common Stock,
(iii) six hundred twenty-nine thousand (629,000) shares of Series A Preferred
Stock, (iv) eight thousand (8,000) shares of Series B Preferred Stock and (v)
four hundred four thousand two hundred twenty-six (404,226) shares of Series C
Preferred Stock. The outstanding shares of Common Stock and Preferred Stock
have been duly authorized and validly issued, and are fully paid and
non-assessable, with no preemptive rights. All outstanding securities of the
Company were issued in compliance with applicable federal and state securities
laws. Except for (i) the conversion privileges of Steven Cinelli, (ii) the
right of first refusal of Kasumi Sports World, Inc, with respect to certain
shares issued by the Company to third
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<PAGE> 3
parties, as provided in the Contribution and Investor Rights Agreement dated
January 31, 1996 between Kasumi Sports World, Inc. and the Company and (iii) as
otherwise provided herein, there are no outstanding obligations, warrants,
preemptive rights or other agreements or commitments to which the Company is a
party, or by which the Company is otherwise bound, providing for the issuance
of any additional shares or for the purchase of shares of the Company's stock.
2.5 Authorization. The execution, delivery and performance by the
Company of this Agreement, and all other agreements or instruments executed and
delivered by the Company in connection with the transactions contemplated
hereunder, including the Amended Certificate (i) have been duly authorized by
all necessary corporate action and duly executed and delivered by the Company
and (ii) will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws or court decisions relating to or affecting the rights of
creditors generally.
2.6 Material Liabilities. The Company has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in SCHEDULE 2; (ii) liabilities
and obligations which have been incurred in the ordinary course of business
which are not, in the aggregate, materially adverse to the Company and (iii)
liabilities and obligations under sales, procurement, leases and other
contracts and arrangements entered into in the ordinary course of business.
2.7 Litigation, etc. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency, nor, to the best of the Company's knowledge,
threatened, except as set forth in SCHEDULE 2.
2.8 Compliance with Other Instruments, None Burdensome, etc. The
Company is not, and will not be, in violation of any term of its Restated
Certificate (or the Restated Certificate, as amended upon filing of the Amended
Certificate) or By-Laws, or, in any material respect, of any term or provision
of any material mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree, and is not in violation of any order, statute,
rule or regulation applicable to the Company where such violation would
materially and adversely affect the Company. The execution, delivery and
performance of and compliance with this Agreement have not resulted and will
not (i) result in any material violation of, or material conflict with, or
constitute a material default under, the Company's Restated Certificate (or the
Restated Certificate, as amended after filing of the Amended Certificate) or
By-Laws or any of its material agreements, or (ii) give rise to or result in the
creation of any mortgage, pledge, lien, encumbrance, charge or right of any
third party upon any of the properties or assets of the Company or under any
provision of any law, regulation, ordinance or other legal requirement or any
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judgment, injunction, order, governmental permit, license or decree applicable
to the Company, which would materially and adversely affect the Company.
2.9 Registration Rights. Except pursuant to the Contribution and
Investors' Rights Agreement dated January 31, 1996 between the Company and
Kasumi Sports World, Inc. and as otherwise provided herein, the Company is not
under any contractual obligation to register under the Securities Act of 1933,
as amended (the "Securities Act"), any of its presently outstanding securities
or any of its securities which may hereafter be issued.
2.10 Govenmental Consents. No consent, approval, qualification, order
or authorization of, or filing with, any local, state or federal governmental
authority is required on the part of the Company in connection with the
Company's execution, delivery or performance of this Agreement, except the
filing of the Amended Certificate with the Secretary of State of the State of
Delaware and taking such action as may be necessary to secure an exemption
under applicable state securities laws from qualification of the issuance of
the Preferred Shares to the Investor.
2.11 Brokers and Finders. No agent, broker, investment banker or other
firm or person acting on behalf or under the authority of the Company is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee from the Company in connection with any of the transactions
contemplated by this Agreement,
2.12 Financial Statements. Company has delivered to Investor the
audited balance sheets of the Company and Nevada Bob's Pro Shop, Inc.,
respectively, as of December 31, 1995 and related consolidated statements of
income, shareholder's equity and cash flows for the year ended December 31,
1995 for each company ("Financial Statements"), and the unaudited consolidated
balance sheet of the Company and Nevada Bob's Pro Shop, Inc. as of, and
unaudited consolidated statements of income and cash flows for the four-month
period ended April, 1996, The Financial Statements have been prepared in
accordance with GAAP consistently applied and fairly present the financial
condition and results of operations of the Company and Nevada Bob's Pro Shop,
Inc., respectively, as of the respective dates thereof and for the respective
periods covered thereby. The unaudited financial statements were prepared in
accordance with GAAP consistently applied and present fairly the financial
position and results of operations of the Company and Nevada Bob's Pro Shop,
Inc. taken as a whole as of the date and for the period covered thereby, except
for the absence of complete footnotes.
2.13 Disclosure. The financial projections contained in the Company's
draft Private Placement Memorandum dated June _, 1996 in the section entitled
"Projected Financial Performance" were prepared based on assumptions of fact
and opinion as to future events that the officers and directors of the Company,
at the time of delivery of the Memorandum to the
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Investor, believed to be reasonable and in good faith. Those financial
projections, as with any projections, are dependent on a variety of assumptions
the realization of which are not within the Company's control. Accordingly, the
projections are inherently uncertain and the Company's performance may vary
substantially from the projections.
SECTION 3
Representations and Warranties of the Investor.
The Investor hereby represents and warrants to, and agrees with, the
Company as follows;
3.1 Organization and Standing. The Investor is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Tennessee and is in good standing under such laws.
3.2 Corporate Power. The Investor has all requisite legal and corporate
power and authority to execute and deliver this Agreement, and all other
agreements or instruments executed and delivered by the Investor in connection
with the transactions contemplated hereunder, and to carry out and perform its
obligations under the terms thereof.
3.3 Authorization. The execution, delivery and performance by the
Investor of this Agreement, and all other agreements or instruments executed
and delivered by the Investor in connection with the transactions contemplated
hereunder (i) have been duly authorized by all necessary corporate action and
duly executed and delivered by the Investor and (ii) will constitute valid and
legally binding obligations of the Investor, enforceable against the Investor
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or court
decisions relating to or affecting the rights of creditors generally.
3.4 Investment. The Investor is acquiring the Preferred Shares for
investment for its own account, not as nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. It
understands that the Preferred Shares have not been registered under the
Securities Act or qualified under applicable state securities law by reason of
their issuance in a transaction exempt from the registration requirements of
the Securities Act and the qualification requirements of the applicable states,
the availability of which exemptions depends upon, among other things, the bona-
fide nature of the investment intent and the accuracy of the Investor's
representations as expressed herein.
3.5 Rule 144, The Investor acknowledges that the Preferred Shares must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. The Investor is
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aware of the provisions of Rule 144 promulgated under the Securities Act, which
permit the limited resale of securities purchased in a private placement,
subject to the satisfaction of certain conditions, including, among other
things, the existence of a public market for the securities, the availability
of certain current public information about the Company, the resale occurring
not less than two (2) years after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction"
or in transactions directly with a "market maker" and the number of shares
being sold during any three (3) month period not exceeding specified
limitations.
3.6 No Public Market. The Investor understands that no public market
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities,
3.7 Accredited Investor. The Investor hereby represents and warrants
that the following statement shall be true and correct as of the date of
execution of this Agreement: the Investor is an "accredited investor" as
defined by Rule 501(a) promulgated by the Securities and Exchange Commission.
3.8 Risk. The Investor understands that an investment in the Company
entails a significant degree of risk. The Investor represents that it is
experienced in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development and has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its investment in the Company.
3.9 Access to Information. The Investor, alone or with the Investor's
advisors, has had full and complete access to information concerning the
Company, including the opportunity to discuss the business, management and
financial affairs of the Company with the Company's management and to review
the Company's facilities and business plan.
3.10 Brokers and Finders. No agent, broker, investment banker or other
firm or person acting on behalf of or under the authority of the Investor is or
will be entitled to any broker's or finder's fee or any other commission or
similar from the Investor in connection with any of the transactions
contemplated by this Agreement.
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SECTION 4
Conditions of Investors' Obligations at Closing.
The obligations of the Investor under Section 1 of this Agreement are
subject to the fulfillment at or before the Closing of each of the following
conditions, any of which may be waived in writing by the Investor:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 of this Agreement will be true, correct
and complete on and as of the Closing with the same effect as if made on and as
of the Closing, except that, with respect to Section 2.4, the Preferred Shares
shall have been authorized and issued.
4.2 Performance. The Company will have performed or fulfilled all
agreements, obligations and conditions contained herein required to be
performed or fulfilled by the Company at or before the Closing, including
without limitation delivery to the Investor of executed certificates evidencing
the Preferred Shares being acquired by the Investor hereunder.
4.3 Blue Sky Compliance. The Company will have complied with the state
securities or Blue Sky laws applicable to the offer and sale of the Preferred
Shares to the Investor.
4.4 0pinion of Company's Counsel. The Investor will have received from
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation,
counsel for the Company, a favorable opinion, dated the date of the Closing.
4.5 Proceedings Satisfactory; Compliance Certificate. All corporate and
legal proceedings taken by the Company in connection with the transactions
contemplated by this Agreement and all documents and papers relating to such
transactions will be satisfactory to the Investor, in the reasonable exercise
of the judgment of the Investor. The Company will have delivered to the Investor
an officer's certificate dated as of the Closing certifying that the conditions
set forth in Sections 4.1 and 4.2 have been satisfied.
4.6 Investor's Rights Agreement. The Company will have executed and
delivered the Investor's Rights Agreement, in the form attached hereto as
Exhibit B.
4.7 Sub-license Agreement. The Company will have executed and delivered
the Sub-license Agreement, in the form attached hereto as EXHIBIT C.
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4.8 Marketing and Distribution Agreement. The Company will have
executed and delivered the Marketing and Distribution Agreement, in the form
attached hereto as EXHIBIT D.
4.9 Consents, Permits, and Waivers. The Company will have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreement (except for such as may be
properly obtained subsequent to the Closing).
SECTION 5
Conditions of the Company's Obligations at Closing.
The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment at or before the Closing of each of the following
conditions, any of which may be waived in writing by the Company:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 will be true on and as of the Closing
with the same effect as though said representations and warranties had been
made on and as of the Closing.
5.2 Performance. The Investor will have performed or fulfilled all
agreements, obligations and conditions contained herein required to be
performed or fulfilled by the Investor at or before the Closing, including
without limitation, delivery to the Company of the Purchase Price, in the form
of immediately available funds.
5.3 Blue Sky Compliance. The Company will have complied with the state
securities or Blue Sky laws applicable to the offer and sale of the Preferred
Shares to the Investors.
5.4 Proceedings Satisfactory; Compliance Certificate. The Investor will
have delivered to the Company an officer's certificate dated as of the Closing
certifying that the conditions set forth in Sections 5.1 and 5.2 have been
satisfied.
5.5 Investor's Rights Agreement. The Investor will have executed and
delivered the Investor's Rights Agreement, in the form attached hereto as
EXHIBIT B.
5.6 Sub-license Agreement. The Investor will have executed and
delivered the Sub-license Agreement, in the form attached hereto as EXHIBIT C.
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5.7 Marketing and Distribution Agreement. The Investor will have
executed and delivered the Marketing and Distribution Agreement, in the form
attached hereto as EXHIBIT D.
SECTION 6
Post-Closing Covenant of the Company
The Company shall file the Amended Certificate promptly following the
Closing.
SECTION 7
Limitations on Actions; Limitation of Liability
Any action by either party hereto for breach by the other party hereto
of any obligation, representation or warranty hereunder must be commenced
within twenty four (24) months of the date of execution of this Agreement, or
the aggrieved party shall be deemed to have waived any right to bring any such
action; provided, however, that (i) such representations and warranties need
only be accurate as of the date of execution and delivery of this agreement
and as of the Closing and (ii) such limitation will not apply to any breach of
Section 2.4 for which the time period shall be governed by applicable law. In
no event shall either party hereto be liable to the other party hereto for any
lost revenues, lost profits, lost savings, or indirect, consequential,
incidental, special or punitive damages, arising out of or relating to: (i) any
material misrepresentation or material breach of any representation or
warranty made by such party in this Agreement or in any written statement,
certificate or schedule furnished by such party pursuant to the provisions of
this Agreement; and (ii) any material breach of any covenant, agreement or
obligation of such party contained in this Agreement or any other agreement,
instrument or document executed by such party in connection with this
Agreement.
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SECTION 8
Miscellaneous
8.1 Further Actions. Each party hereto agrees that it will, at any time
and from time to time after the date hereof, upon reasonable request of the
other party hereto, do, execute, perform, acknowledge and deliver all such
further acts, deeds, assignments, certificates, transfers, conveyances and
assurances as may be reasonably required for the consummation of the
transactions contemplated hereunder.
8.2 Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware without reference to conflicts of
law principles.
8.3 Dispute Resolution-Arbitration. In the event of a dispute between
the parties hereto, such parties agree to submit the matter to binding
arbitration to be conducted under the auspices of the American Arbitration
Association (hereinafter referred to as "AAA").
(a) The dispute shall be resolved in accordance with the
Commercial Arbitration Rules in effect for AAA, which form of rules pertaining
on the date of the demand for arbitration shall apply and govern the
arbitration proceeding.
(b) The arbitration shall be held in the State of Delaware, at
such place as shall be designated by the arbitrator. Delaware law, both
substantive and procedural, shall govern the proceedings.
(c) All procedural rules for arbitration shall be strictly
followed in resolving disputes under this Agreement, whether by the arbitrator,
or by a court of competent jurisdiction in enforcing such provisions.
(d) The dispute shall be resolved by a single arbitrator. The
arbitrator shall be a member of the Delaware State Bar, actively engaged in the
practice of law for at least ten (10) years, with expertise in the process of
deciding disputes and/or interpreting contracts (in the particular field of law
involving the subject controversy). If the parties cannot agree on an
arbitrator after having been presented with three (3) lists of potential
candidates by AAA, AAA shall select an arbitrator from among its commercial
arbitration panel members who are retired Delaware judges.
(e) The parties may resort to the courts for injunctive relief
pending arbitration, without thereby waiving arbitration.
(f) The arbitration shall be conducted in the English language
in Delaware, according to the rules of evidence contained in Delaware law.
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(g) In rendering the award, the arbitrator shall determine the
rights and obligations of the parties according to the substantive and
procedural laws of Delaware, as though the arbitrator was a court of competent
jurisdiction in Delaware.
(h) The award must be accompanied by a written statement of
decision. The award will be final and binding in the absence of manifest
mistake or fraud. Judgment on the award may be entered in any court of
competent jurisdiction.
(i) The arbitrator shall have the discretion to order a
pre-hearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, an examination by deposition of parties and
third-party witnesses.
(j) Any prevailing party is entitled to recover costs (and
expenses) which shall include reasonable attorney's fees as well as the fees
and expenses of the arbitrators and the administrative fees of AAA. A
"prevailing party" shall be a party in whose favor any portion of the award is
rendered and that is determined by the arbitrator to be the prevailing party.
(k) The arbitrator shall have the authority to employ the law
and motion process and to award any remedy or relief that a court of the State
of Delaware could order or grant, including, without limitation, rescission,
specific performance of any obligation created under the agreement, the
awarding of punitive damages, the issuance of an injunction, or the imposition
of sanctions for abuse or frustration of the arbitration or judicial process.
(l) The issue of fraud in the inducement of a contract
containing an arbitration clause, such as this contract, may be decided by the
arbitrator and not by the court, unless it is alleged that fraud permeated the
entire contract.
8.4 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
without the consent of the Company.
8.5 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
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8.6 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed at such address as the Investor and the Company shall have
furnished to each other in writing. Each such notice or other communication
shall for all purposes of this Agreement be treated as effective or having been
given when delivered if delivered personally, or, if sent by mail, at the
earlier of its receipt or seventy-two (72) hours after the same has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and mailed as aforesaid.
8.7 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to the Investor,
upon any breach or default of the Company under this Agreement, shall impair
any such right, power or remedy of the Investor nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of the Investor of any breach or default
under this Agreement, or any waiver on the part of the Investor of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to the
Investor, shall be cumulative and not alternative.
8.8 Expenses. The Company and the Investor shall each bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
8.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
8.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing
or interpreting this Agreement.
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The foregoing Agreement is hereby executed as of the date first above
written.
NEVADA BOB'S HOLDINGS, INC.
/s/ John N. Baldwin
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By: John N. Baldwin
Its: President
THE ARNOLD PALMER GOLF
COMPANY
/s/ George H. Nichols
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By: George H. Nichols
Its: President
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<PAGE> 1
Exhibit 10.5
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of August
21, 1996, by and between Nevada Bob's Holdings, Inc., a Delaware corporation
(the "Company"), and The Arnold Palmer Golf Company, a Tennessee corporation
(the "Shareholder").
SECTION 1
Restrictions on Transferability of Securities;
Registration Rights
1.1 Certain Definitions. As used in Sections 1, 2, 3 and 4 of this
Agreement, the following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities
Act.
"Common Equivalent Basis" shall mean the basis upon which the
Shareholder's percentage of the equity in the Company is computed,
determined as follows: divide: (i) the number of shares of Series A
Common Stock (other than Conversion Stock) owned by the Stockholder
plus the number of shares of Conversion Stock which the Stockholder
owns or to which the Stockholder is entitled; by (ii) the number of
shares of Series A Common Stock outstanding plus the number of shares
of Series A Common Stock issuable upon conversion (at the then
applicable conversion rate) of all then outstanding shares of
convertible Preferred Stock and Common Stock.
"Common Stock" shall mean the authorized shares of Common
Stock, $0.001 par value per share, of the Company.
"Conversion Stock" shall mean the Series A Common Stock issued
or issuable pursuant to conversion of the Series D Preferred stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Preferred Stock" shall mean the authorized shares of Preferred
Stock, $0.001 per value per share, of the Company.
"Registrable Securities" shall mean (i) the Conversion Stock of
the Shareholder, (ii) any Common Stock acquired by the Shareholder
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pursuant to its exercise of its right of first refusal under Section
2.1 hereof and (iii) any Common Stock issued or issuable in respect of
items (i) and (ii) of this paragraph upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock
otherwise issued or issuable with respect to the Series D Preferred
Stock or the Conversion Stock of the Shareholder; provided, however,
that the shares of Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been
(1) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or (2) sold or are
available for sale in the opinion of counsel to the Company in a single
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are or may be removed upon
the consummation of such sale.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration
statement.
"Registration Expenses" shall mean all expenses, except Selling
Expenses as defined below, incurred by the Company in complying with
Sections 1.5 and 1.6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, courier
and shipping charges, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special
audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be
paid in any event by the Company).
"Restricted Securities" shall mean any Registrable Securities
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
securities registered by the Shareholder and all fees and disbursements
of counsel for the Shareholder.
"Series A Common Stock" shall mean the shares of Common Stock
designated "Series A Common Stock".
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"Series D Preferred Stock" shall mean the shares of Preferred
Stock of the Company designated "Series D Preferred Stock".
1.2 Restrictions on Transferability.
(a) The Series D Preferred Stock and the Conversion Stock of the
Shareholder shall not be sold, assigned, transferred or pledged except
upon satisfaction of the conditions specified in this Section 1, which
conditions are, among other things, intended to ensure compliance with
the provisions of the Securities Act. The Shareholder shall cause any
proposed purchaser, assignee, transferee or pledgee of the Series D
Preferred Stock or Conversion Stock held by the Shareholder to agree to
take and hold such securities subject to the provisions and conditions
of this Section 1.
(b) The Shareholder may transfer or assign the registration
rights granted by the Company under this Section 1 only to a transferee
or assignee of not less than 100,000 shares of Registrable Securities
(as adjusted for stock dividends, combinations or splits with respect to
such shares), provided that (i) the Company is given written notice at
the time of or within a reasonable time after said transfer or
assignment, stating the name and address of the transferee or assignee
and identifying the securities with respect to which such registration
rights are being transferred or assigned and (ii) the transferee or
assignee of such rights assumes in writing the obligations of the
Shareholder under this Section 1 and any other obligations that the
transferee or assignee may be obligated to assume under any other
sections of this Agreement.
1.3 Restrictive Legend. Each certificate representing (a) the Series D
Preferred Stock, (b) any Common Stock of the Shareholder issued pursuant to the
conversion of the Series D Preferred Stock, (c) any securities acquired by the
Shareholder pursuant to its exercise of its right of first refusal under
Section 2.1 hereof and (d) any other securities issued in respect of the Series
D Preferred Stock, the Conversion Stock or the Series A Common Stock of the
Shareholder upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required by the Company
under Section 3.1 of this Agreement and any other legends that the Company
determines are necessary or appropriate under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION
OF
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COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED. COPIES OF THE AGREEMENTS TO WHICH THE CORPORATION IS A PARTY
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
The Shareholder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Series A Common
Stock, Series D Preferred Stock or the Conversion Stock of the Shareholder in
order to implement the restrictions on transfer established in this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1.4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless there
is in effect a registration statement under the Securities Act covering the
proposed transfer, the holder thereof shall give written notice to the Company
of such holder's intention to effect such transfer, sale, assignment or
pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall
be accompanied, at such holder's expense by either (a) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (b) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company, subject in every case to the right of first refusal of the Company set
forth in Section 3.1. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.3 above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
1.5 Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders,
other
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<PAGE> 5
than (i) a registration relating solely to employee benefit plans or
(ii) a registration relating solely to a transaction pursuant to Rule
145 of the Securities Act (a "Rule 145 Transaction"), the Company will:
(1) promptly give to the Shareholder and/or its assigns
written notice thereof; and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests made within twenty
(20) days after receipt of such written notice to the Company, by
the Shareholder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting,
the Company shall so advise the Shareholder as part of the written
notice given pursuant to Section 1.5(a)(1). In such event the right of
the Shareholder to registration pursuant to this Section 1.5 shall be
conditioned upon its participation in such underwriting and the
inclusion of the Shareholder's Registrable Securities in the
underwriting to the extent provided herein. When proposing to
distribute its securities through such underwriting, the Shareholder
shall (together with the Company and any and all other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 1.5, if the managing underwriter
determines that marketing factors require a limitation of the number of
shares to be underwritten, it shall so advise the Shareholder in
writing specifying the marketing factors imposing a limitation on the
number of shares to be underwritten, and the managing underwriter may
limit the Registrable Securities to be included in such registration on
a pro-rata basis with all other securities to be included in such
registration other than those being registered for the Company's own
account.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under
this Section 1.5 prior to the effectiveness of such registration
whether or not any holder has elected to include securities in such
registration. If the Shareholder disapproves of the final terms of any
underwriting undertaken pursuant to this Section 1.5, the Shareholder.
may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. If the Shareholder so elects, the Company
shall either (i) withdraw such Registrable Securities from registration
or (ii) substitute newly issued shares of the Company for such
Registrable Securities in such registration.
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1.6 Registration on Form S-3.
(a) If the Shareholder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3)
for public offering of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed One Million U.S. Dollars
(US$1,000,000), and the Company is then entitled to use Form S-3 under
applicable Commission rules to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form
and to cause such Registrable Securities to be qualified in such
jurisdictions as the Shareholder may reasonably request; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this Section 1.6 in any twelve (12) month
period or in the excess of two (2) registrations under this Section
1.6. The substantive provisions of Section 1.5(b) shall be applicable
to each registration initiated under this Section 1.6.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.6; (i) in any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction and except as may be required
by the Securities Act; (ii) if the Company, within ten (10) days of the
receipt of the request of the Shareholder, gives notice of its bona
fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request
(other than with respect to a registration statement relating to a Rule
145 Transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of
Registrable Securities); (iii) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following, the effective
date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145
Transaction or with respect to an employee benefit plan), provided that
the Company is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective or (iv) if the
Company shall furnish to the Shareholder a certificate signed by the
President of the Company stating that in the good faith Judgment of the
Board of Directors it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one
hundred twenty (120) days from the receipt of the Shareholder's request
to file such registration.
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<PAGE> 7
1.7 Limitations on Subsequent-Registration Rights. From and after the
date hereof, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless (a) such new registration rights, including
standoff obligations, are on a pari passu basis with those rights of the
Shareholder hereunder; or (b) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted to the
Shareholder hereunder. The Company will notify the Shareholder of any such
rights so granted.
1.8 Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.5 and 1.6, shall be
borne by the Company. All Selling Expenses relating to securities registered on
behalf of the Shareholder pursuant to Sections 1.5 and 1.6 shall be borne by
the Shareholder.
1.9 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company shall keep the Shareholder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company shall:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for at
least one hundred twenty (120) days, provided that no such registration
shall constitute a shelf registration under Rule 415 promulgated by the
Commission under the Securities Act;
(b) Enter into a written underwriting agreement in customary
form and substance reasonably satisfactory to the Company, the
Shareholder and the managing underwriter or underwriters of the public
offering of such securities, if the offering is to be underwritten in
whole or in part;
(c) Furnish to the Shareholder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdiction as the Shareholder may reasonably
request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process
or
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<PAGE> 8
to qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified;
(e) Notify the Shareholder promptly after it shall receive
notice thereof of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) Notify the Shareholder promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) Prepare and file with the Commission promptly upon the
request of the Shareholder any amendments or supplements to such
registration statement or prospectus which, in the reasonable opinion
of counsel for the Shareholder, is required under the Securities Act or
the rules and regulations thereunder in connection with the
distribution of the Registrable Securities by the Shareholder;
(h) Prepare and promptly file with the Commission, and promptly
notify the Shareholder of the filing of, any such amendments or
supplements to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered
under the Securities Act, any event has occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading
in light of the circumstances in which they were made;
(i) In case the Shareholder or any underwriter for the
Shareholder is required to deliver a prospectus at a time when the
prospectus then in effect may no longer be used under the Securities
Act, prepare promptly upon request such amendment or amendments to such
registration statement and such prospectuses as may be necessary to
permit compliance with the requirements of the Securities Act;
(j) Advise the Shareholder promptly after it shall receive
notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued; and
(k) At the request of the Shareholder, furnish on the effective
date of the registration statement and, if such registration includes
an underwritten public offering at the closing provided for in the
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<PAGE> 9
underwriting agreement, (i) an opinion, dated each such date, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the Shareholder, covering
such matters with respect to the registration statement, the prospectus
and each amendment or supplement thereto, proceedings under state and
federal securities laws, other matters relating to the Company, the
securities being registered and the offer and sale of such securities
as are customarily the subject of opinions of issuer's counsel provided
to underwriters in underwritten public offerings; and (ii) use its best
efforts to obtain a letter dated each such date, from the independent
public accountants of the Company, to the extent that such accountants
are willing to provide such a letter, addressed to the underwriters, if
any, and to the Shareholder, stating that they are independent public
accountants within the meaning of the Securities Act and that in the
opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act, and additionally covering such other financial
matters, including information as to the period ending not more than
five (5) business days prior to the date of such letter with respect to
the registration statement and prospectus, as the underwriters or the
Shareholder may reasonably request.
1.10 Indemnification.
(a) The Company shall indemnify the Shareholder, each of its
officers, directors and partners, and each person controlling the
Shareholder within the meaning of Section 15 of the Securities Act,
with respect to the registration, qualification or compliance which has
been effected pursuant to this Section 1, and each underwriter, if any,
and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including,
reasonable attorneys', accountants' and expert witnesses' fees,
reasonable costs and expenses of investigation, and the reasonable
costs and expenses of enforcing the indemnification (individually, a
"Loss" and collectively, "Losses"), including, without limitation,
Losses resulting from the defense, settlement and/or compromise of a
claim and/or demand and/or assessment), arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated
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<PAGE> 10
under the Securities Act applicable to the Company in connection with
any such registration, qualification or compliance, provided that the
Company will not be liable in any such case to the extent that any Loss
arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an
instrument duly executed by the Shareholder, controlling person of the
Shareholder or underwriter and stated to be specifically for use
therein.
(b) The Shareholder shall, if its Registrable Securities are
included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors and officers and each person controlling the Company within
the meaning of Section 15 of the Securities Act, each underwriter, if
any, of the Company's securities covered by such a registration
statement, each person who controls the underwriter within the meaning
of Section 15 of the Securities Act, against all Losses arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly
executed by the Shareholder and stated to be specifically for use
therein. Notwithstanding the foregoing, the liability of the
Shareholder under this subsection (b) shall be limited to an amount
equal to the initial public offering price of the shares sold by the
Shareholder, unless such liability arises out of or is based on willful
conduct by the Shareholder.
(c) The party entitled to indemnification under this Section
1.10 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
withheld) and the Indemnified Party may participate in such defense at
such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 1.10
unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action and provided
further, that the
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<PAGE> 11
Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. The
Indemnifying Party, in the defense of any such claim or litigation,
shall not, except with the consent of the Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect to such claim or litigation.
1.11 STANDOFF AGREEMENT. The Shareholder agrees, so long as it holds
at least one percent (1%) of the Company's outstanding voting equity
securities, in connection with the initial public offering of the Company's
securities upon request of the Company or the underwriters managing an
underwritten offering, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of registration as may be requested by the underwriters; provided, that
each officer and director of the Company who owns at least one percent (1%) of
the Company's outstanding voting equity securities also agrees to such
restrictions; and provided further that the terms and conditions of any such
standoff agreement offered to the Shareholder shall be no less favorable than
those offered to any other shareholder of the Company.
1.12 TERMINATION OF REGISTRATION RIGHTS. The right of the Shareholder
to request registration pursuant to Section I shall terminate on such date as
the Shareholder is entitled to immediately sell all shares of Registrable
Securities held by the Shareholder under Rule 144 during any 90 day period.
SECTION 2
SHAREHOLDER'S RIGHT OF FIRST REFUSAL
2.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to the
Shareholder (the "Holder") the right of first refusal to purchase its pro rata
share of all or any part of any New Securities (as defined in this Section 2.1)
which the Company may, from time to time, propose to sell and issue, but only
if and to the extent that the exercise of such right of first refusal is
necessary for Shareholder to maintain its Equity Interest.
(a) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company including Common Stock and
Preferred Stock, whether now authorized or not, and rights, options or
warrants to purchase said shares of Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, con-
vertible into said shares of Common Stock or Preferred Stock. Notwith-
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<PAGE> 12
standing the foregoing, "New Securities" does not include (i)
securities offered to the public generally pursuant to a registration
statement or pursuant to Regulation A under the Securities Act; (ii)
securities issued in the acquisition of another corporation by the
Company by merger, stock purchase, or other reorganization whereby the
Company or its shareholders own not less than fifty-one percent (51%)
of the voting power of the surviving or successor corporation; (iii)
securities issued in connection with the purchase by the Company of
substantially all of the assets of another company; (iv) securities
issued in connection with the acquisition by the Company of a franchise
territory from any of its franchisees; (v) securities issued in
connection with any debt financing by the Company in which the majority
of the consideration received is borrowed funds; (vi) securities issued
pursuant to any rights or agreements, including without limitation
convertible securities, options and warrants, provided that the rights
of first refusal established by this Section 2.1 apply with respect to
the initial sale or grant by the Company of such rights or agreements;
(vii) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company and (viii) stock issued pursuant to
any rights or options under any stock option plan or other similar
stock plan for officers, directors, employees, independent contractors
or agents of the Company not to exceed thirty percent (30%) of the
total fully-diluted Common Stock then outstanding.
(b) In the event the Company proposes to undertake an issuance
of New Securities, it shall inform Holder of the fact of such proposed
issuance at least thirty (30) days in advance of the closing of such
issuance or if the closing of any such issuance will occur within
thirty (30) days of the time that the Company initially proposes to
undertake it, the Company will inform Holder of the fact of such
proposed issuance promptly after it determines to undertake it, and, in
addition, it shall give Holder written notice (the "Formal Notice") of
its intention to undertake such issuance, describing the type of New
Securities, and the price and terms upon which the Company proposes to
issue the same. Holder shall have fifteen (15) days from the date of
receipt of the Formal Notice to agree to purchase up to Holder's pro
rata share (determined on a fully diluted basis; i.e. assuming the
conversion of all convertible securities and the exercise of all
outstanding options and warrants) of such New Securities for the price
and upon the terms specified in the Formal Notice by giving written
notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event Holder fails to exercise such right of first
refusal within said fifteen (15) day period, the Company shall have
ninety (90) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities not elected to be purchased by
Holder at the price and upon the terms no more favorable to the
purchasers of such securities
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<PAGE> 13
than specified in the Company's notice. In the event the Company has not
sold the New Securities or entered into an agreement to sell the New
Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from
the date of said agreement), the Company shall not thereafter issue or
sell any of such New Securities without first offering such securities
in the manner provided above.
(d) The right of first refusal under this Section 2.1 shall
terminate upon the earliest to occur of (i) the closing of the sale of
shares of Common Stock of the Company to the public incident to a
registration statement (but excluding registrations relating to employee
interest or a Rule 145 Transaction filed with and declared effective by
the Commission; or (ii) Shareholder holding less than three percent
(3%) of the equity of the Company on a Common Equivalent Basis.
SECTION 3
COMPANY'S RIGHT OF FIRST REFUSAL
3.1 RIGHT OF FIRST REFUSAL. In addition to any other limitation on
transfer created by applicable securities laws, while the Shareholder holds any
Common Stock or Preferred Stock of the Company (the "Shareholder Stock"), the
Shareholder will not assign, encumber or dispose of the Shareholder Stock or
any interest therein, except as provided below:
(a) If the Shareholder intends (or is required by operation of
law or other involuntary transfer) to sell or transfer in any manner
any Shareholder Stock to another party (the "Third Party"), the
Shareholder first will offer to sell the same number (but not less) of
such Shareholder Stock to the Company or its assignee at the same
price, and upon the same terms (or terms as similar as reasonably
possible) as the Shareholder is proposing to dispose or is to dispose,
of said Shareholder Stock; provided, however, that if such transfer
does not establish a price, then the price will be fair market value as
determined by the Board of Directors of the Company. The Company or
its assignee may elect to purchase some or all of such Shareholder
Stock upon such terms within a period of thirty (30) days following
receipt by the Company of written notice from the Shareholder of the
terms and conditions of said proposed sale or transfer. If the Company
(or its assignee) does not purchase all of such Shareholder Stock
within such period, the Shareholder may sell any such Shareholder Stock
not so purchased upon the same terms (or terms as similar as reasonably
possible) to the identified Third Party. In the event such Shareholder
Stock is not disposed of by the Shareholder upon terms substantially
the same as offered to the Company within sixty (60) days following
expiration of the thirty (30) day period of the Company's right of
first refusal, the
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<PAGE> 14
Shareholder Stock will once again be subject to the right of first
refusal, as herein provided.
(b) In the event of a transfer by operation of law or other
involuntary transfer, the person acquiring the Shareholder Stock will
promptly notify the Secretary of the Company of such transfer and the
Company's right of first refusal will commence upon receipt by the
Company of written notice by the person acquiring the Shareholder
Stock.
(c) Sections 3.1(a) and 3.1(b) shall not apply to (i) any
pledge by the Shareholder of the Shareholder Stock to a Third Party as
security, (ii) any transfer by the Shareholder to a Third Party in
connection with that Shareholder's estate planning, (iii) any transfer
by the Shareholder to a Third Party who is a member of that
Shareholder's immediate family, so long as, in each case, the Third
Party transferee signs a joinder agreement reasonably acceptable to the
Company's counsel pursuant to which the Third Party transferee agrees
in writing that any transfer of the Shareholder Stock by such Third
Party transferee shall be subject to the right of first refusal and
notification requirements set forth in Sections 3.1(a) and 3.1(b) and
any other restrictions on transfer set forth in this Agreement (For the
purpose of the preceding sentence, "immediate family" shall mean the
wife or husband of the Shareholder, as the case may be, and any of the
children of the Shareholder), or (iv) any transfer by the Shareholder
to the Thomas Carter Lupton Trust f/b/o John T. Lupton and issue or
any person who is a controlling person of the Shareholder (a
"Controlling Person") so long as, in each case, (a) the Controlling
Person signs a joinder agreement reasonably acceptable to the Company's
counsel pursuant to which the Controlling Person expressly agrees that
any transfer of the Shareholder Stock by such Controlling Person shall
be subject to the right of first refusal and notification requirements
set forth in Sections 3.1(a) and 3.1(b) and any other restrictions on
transfer set forth in this Agreement (For the purpose of this sentence,
"controlling person" shall mean a director, president or chief
executive officer of the Shareholder or a person who owns ten percent
or more of the outstanding equity of the Shareholder calculated on a
common equivalent basis), and (b) the Controlling Person does not
control any company that is a competitor of the Company (For the
purpose of this sentence, "competitor" shall mean a company that
operates or franchises retail stores that sell golf equipment and
related products.).
(d) The rights of first refusal contained herein will
terminate upon the closing of the sale of shares of Common Stock to the
public incident to a registration statement (but excluding registrations
relating to employee interests or Rule 145 Transactions) filed with and
declared effective by the Commission.
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<PAGE> 15
(e) Certificates, representing all of the Shareholder Stock
shall be imprinted with a legend satisfactory to counsel to the Company
referring to the restriction on transfer set forth in this Section 3.1.
SECTION 4
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
4.1 Financial Information.
(a) The Company shall mail the following reports to the
Shareholder for so long as the Shareholder and/or its assigns are
holders of not less than one percent (1%) of the equity of the Company
on a Common Equivalent Basis:
(1) As soon as practicable after the end of each fiscal
year, and in any event within one hundred twenty (120) days
thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of
changes in financial position of the Company and its
subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles applicable in the
United States and setting forth in each case in comparative form
the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants of national
standing selected by the Company.
(2) As soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal
year of the Company and in any event within sixty (60) days
thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated
statements of changes in financial position of the Company and
its subsidiaries, if any, for such a period and for the current
fiscal year to date, prepared in accordance with generally
accepted accounting principles applicable in the United States
(other than for accompanying notes), all in reasonable detail
and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial or accounting officer of
the Company.
(3) With reasonable promptness after being approved by
the Company's Board of Directors, and in all events prior to the
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commencement of the relevant fiscal year, a copy of the
Company's annual business plan and budget.
(b) The covenants set forth in Sections 4.1(a)(1), 4.1(a)(2)
and 4.1(a)(3) shall terminate and be of no further force and effect at
such time as the Company is required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.
(c) The Shareholder acknowledges that, under this Section 4.1,
it will acquire information about the, Company, its business activities
and operations, its technical information and trade secrets, of a
highly confidential and proprietary nature. The Shareholder agrees to
hold such information in strict confidence and shall not reveal the
same to any third party or use the same in any way, except to third
party professional advisors on a need-to-know basis but only if such
third party professional advisors agree to keep such information
confidential upon receipt thereof.
SECTION 5
Miscellaneous
5.1 Further Actions. Each party hereto agrees that it will, at any time
and from time to time after the date hereof, upon reasonable request of the
other party hereto, do, execute, perform, acknowledge and deliver all such
further acts, deeds, assignments, certificates, transfers, conveyances and
assurances as may be reasonably required for the consummation of the
transactions contemplated hereunder.
5.2 Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware without reference to conflicts of
law principles.
5.3 Dispute Resolution--Arbitration. In the event of a dispute between
the parties hereto, such parties agree to submit the matter to binding
arbitration to be conducted under the auspices of the American Arbitration
Association (hereinafter referred to as "AAA").
(a) The dispute shall be resolved in accordance with the
Commercial Arbitration Rules in effect for AAA, which form of rules pertaining
on the date of the demand for arbitration shall apply and govern the
arbitration proceeding.
(b) The arbitration shall be held in the State of Delaware, at
such place as shall be designated by the arbitrator. Delaware law, both
substantive and procedural, shall govern the proceedings.
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<PAGE> 17
(c) All procedural rules for arbitration shall be strictly
followed in resolving disputes under this Agreement, whether by the
arbitrator, or by a court of competent jurisdiction in enforcing such
provisions.
(d) The dispute shall be resolved by a single arbitrator. The
arbitrator shall be a member of the Delaware State Bar, actively engaged in the
practice of law for at least ten (10) years, with expertise in the process of
deciding disputes and/or interpreting contracts (in the particular field of law
involving the subject controversy). If the parties cannot agree on an
arbitrator after having been presented with three (3) lists of potential
candidates by AAA, AAA shall select an arbitrator from among its commercial
arbitration panel members who are retired Delaware judges.
(e) The parties may resort to the courts for injunctive relief
pending arbitration, without thereby waiving arbitration.
(f) The arbitration shall be conducted in the English language
in Delaware, according to the rules of evidence contained in Delaware law.
(g) In rendering the award, the arbitrator shall determine the
rights and obligations of the parties according to the substantive and
procedural laws of Delaware, as though the arbitrator was a court of competent
jurisdiction in Delaware.
(h) The award must be accompanied by a written statement of
decision. The award will be final and binding in the absence of manifest
mistake or fraud. Judgment on the award may be entered in any court of
competent jurisdiction,
(i) The arbitrator shall have the discretion to order a
prehearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, an examination by deposition of parties and
third-party witnesses.
(j) Any prevailing party is entitled to recover costs (and
expenses) which shall include reasonable attorney's fees as well as the fees
and expenses of the arbitrators and the administrative fees of AAA. A
"prevailing party" shall be a party in whose favor any portion of the award is
rendered and that is determined by the arbitrator to be the prevailing party.
(k) The arbitrator shall have the authority to employ the law
and motion process and to award any remedy or relief that a court of the State
of Delaware could order or grant, including, without limitation, rescission,
specific performance of any obligation created under the agreement, the
awarding of punitive damages, the issuance of an injunction, or the imposition
of sanctions for abuse or frustration of the arbitration or judicial process.
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(1) The issue of fraud in the inducement of a contract
containing an arbitration clause, such as this contract, may be decided by the
arbitrator and not by the court, unless it is alleged that fraud permeated the
entire contract.
5.4 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof, including without limitation Section 1 hereof, shall inure
to the benefit of, and be binding upon, the permitted successors, assigns,
heirs, executors and administrators of the parties hereto without the consent
of the Company; provided, however, that the rights of Shareholder pursuant to
Section 2 hereof are personal to Shareholder and may not be assigned to, or
exercised by or for the benefit of, any third party (whether or not such third
party purchases shares of Series D Preferred Stock from Shareholder) without
the prior written consent of the Company.
5.5 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
5.6 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed at such address as the Shareholder and the Company shall
have furnished to each other in writing. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
or having been given when delivered if delivered personally, or, if sent by
mail, at the earlier of its receipt or seventy-two (72) hours after the same
has been deposited in a regularly maintained receptacle for the deposit of the
United States mail, addressed and mailed as aforesaid.
5.7 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to the
Shareholder, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of the Shareholder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the
Shareholder of any breach or default under this Agreement, or any waiver on the
part of the Shareholder of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set for in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Shareholder, shall be cumulative and not alternative.
-18-
<PAGE> 19
5.8 Expenses. The Company and the Shareholder shall each bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby, except as otherwise specifically provided
with respect to expenses of registration under Section I hereof.
5.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
5.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing Agreement is hereby executed as of the date first above
written.
NEVADA BOB'S HOLDINGS, INC.
/s/ John N. Baldwin
--------------------------------------
By: John N. Baldwin
Its: President
THE ARNOLD PALMER GOLF
COMPANY
/s/ George H. Nichols
--------------------------------------
By: George H. Nichols
Its: President
-19-
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