UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File Number 0-18204
AJAY SPORTS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 39-1644025
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(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
1501 E. Wisconsin Street
Delavan, Wisconsin 53115 (262 )728-5521
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(Address of Principal Executive Offices (Registrant's Telephone
including Zip Code) Number, including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Units (each consisting of 5 shares of Common Stock and 2 Warrants)
Common Stock Purchase Warrants
Series C 10% Cumulative Convertible Preferred Stock
Indicate by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
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<PAGE>
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by nonaffiliates as of
April 20, 2000 was $1,623,812. The number of shares outstanding of the
Registrant's $.01 par value common stock at April 20, 2000 was 4,091,091.
Documents Incorporated by Reference
None
<PAGE>
Ajay Sports, Inc.
Index
December 31, 1999
PART I. Page
Item 1. Description of Business 4-9
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10-11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis 13-15
Item 8. Financial Statements F-1 - F-18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III.
Item 10 Directors and Executive Officers of the Registrant 16-17
Item 11. Executive Compensation 17-18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19-21
Item 13. Certain Relationships and Related Transactions 21-22
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 10-K 23-26
SIGNATURE PAGE 27
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PART I
Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
has acquired, disposition of any current business of the Company, and the
Company's relationship with Williams Controls, Inc., a related company. These
forward-looking statements are subject to the business and economic risks faced
by the Company. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described in this report.
Item 1. Description of Business
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General
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Ajay Sports, Inc. (the "Company") markets and distributes golf clubs, golf
bags, golf gloves, golf accessories, hand-pulled golf carts and casual living
furniture. The Company is presently one of the larger United States distributors
of golf products as well as one of the nation's larger manufacturers of golf
bags. The Company also owns Pro Golf Discount(R) the world's largest franchiser
of "golf only" retail stores, with over 165 stores in the United States, Canada,
and the Philippines.
The Company operates the mass-market golf segment of its business through
Ajay Leisure Products, Inc. ("Ajay") a wholly owned subsidiary. Leisure Life,
Inc. ("Leisure Life"), another wholly owned operating subsidiary, manufactures
and markets casual living furniture. Palm Springs Golf, Inc. ("Palm Springs"),
another wholly owned operating subsidiary, markets golf clubs, golf bags, golf
gloves, accessories and carts for distribution to the off-course pro shop
markets. Prestige Golf Corp. ("Prestige"), another wholly owned subsidiary,
purchases current in-line and closeout golf equipment for distribution mainly
through Pro Golf Discount(R) stores and an Internet site, ProGolf.com. Pro Golf
International, Inc. ("PGI"), a majority-owned subsidiary, was formed during 1999
and owns 100% of the outstanding stock of Pro Golf of America, Inc. ("PGOA") and
a majority of the stock of ProGolf.com, Inc. ("PG.com"). PGOA is the franchiser
of Pro Golf Discount(R) retail golf stores. ProGolf.com is a development stage
company that recently began selling golf equipment and other golf-related
products and services over the Internet. All references to the Company include
Ajay, Leisure Life, Palm Springs, Prestige, PGI, PGOA, and PG.com unless
otherwise specified.
Ajay's products primarily are sold nationwide to large retailers such as
discount stores, department stores, catalog showrooms and other mass merchandise
and sports specialty outlets. The products manufactured by Ajay are sold under
the Spalding(R), Palm Springs(R), Pro Classic(R), Leisure Life(R), Pro USA(R),
and private label brand names. As of March 1999 the Company added the licensed
name "Gary Player" for use in marketing its golf product lines. Leisure Life's
furniture products are sold through independent retailers, hardware store
cooperatives and larger chains of home and garden stores. Palm Springs' products
are sold through off-course golf specialty shops. PGOA provides services to its
franchisees in exchange for initial franchise fees and ongoing royalties based
on a percentage of retail sales. The Company enhances its traditional sales and
distribution methods by its recently introduced Internet sites.
The Company was organized under Delaware law on August 18, 1988. Its
administrative office is located at 7001 Orchard Lake Road, Suite 424, W.
Bloomfield, MI 48322, where its telephone number is (248) 851-5651, and its
executive and principal manufacturing and distribution facilities are located at
1501 E. Wisconsin Street, Delavan, Wisconsin 53115, (262) 728-5521. The Company
also operates a sewing facility in Mexicali, Mexico and a manufacturing and
distribution facility at 215 4th Avenue North, Baxter, TN 38544, headquarters
for its Leisure Life subsidiary. Headquarters for Ajay, Palm Springs and
Prestige are located at 1501 E. Wisconsin St., Delavan, WI 53115. Headquarters
for PGI, PGOA and PG.com are located at 32751 Middlebelt Road, Farmington Hills,
MI 48334.
<PAGE>
Business Strategies
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The Company's strategies are to maintain and improve its position as a
leading supplier of golf clubs, golf bags, golf carts, golf accessories and
leisure indoor and outdoor furniture, to improve its position as the global
leader in retail golf sales at its Pro Golf Discount franchised stores, and to
have a golf category-killer website for internet sales of golf equipment and
related products and services. The Company believes that the following
competitive strengths contribute to its position as a market leader:
Strong Brand Recognition. Spalding(R), Palm Springs(R), Pro Classic(R), Gary
Player(R), and Pro Golf Discount(R) are highly recognized names in the golf
industry and the Company believes that many of its products hold strong market
positions. The Company believes that its brand recognition and market position
enhance the ability to sell products through various channels, including mass
merchandisers, regional retailers, golf specialty and sporting good specialty
retailers. From 1983 through 1998 a significant portion of the Company's
revenues resulted from the sale of products manufactured and sold pursuant to a
license agreement with Spalding Sports Worldwide ("Spalding"). In March 1999 the
Company began an 18-month phase out of products bearing the Spalding name. This
phasing out process has resulted in sharply decreased sales by the Company
during 1999 because Spalding had been the Company's primary brand sold to mass
merchants. As the phase-out is completed, in place of Spalding branded products,
the Company will be offering its newly licensed Gary Player branded products. As
a complement to the Gary Player license, PGOA has contracted with international
golf legend Gary Player to be its corporate spokesperson for at least the next
two years The Company is in the process of determining the primary market it
will target with its Gary Player branded products. Previous sales of Spalding
branded products traditionally sold to mass merchants have not been successfully
transitioned to new sales of Gary Player branded products; however, in light of
the Company's acquisition of the Pro Golf businesses during 1999, the Company is
carefully considering the markets available for its new lines of Gary Player
branded products.
Reputation for Quality. The Company believes that the performance of its
products equals or exceeds the performance of its competitors' products at each
price point. To assure the quality of its products, the Company continually
invests in technical design and support, and tests and monitors the performance
of its products. At its own facilities, the Company relies on its skilled and
experienced work force for quality control. To assure the quality of products
sourced from third-party manufacturers, the Company has established and works to
maintain close, long-term relationships that emphasize service, quality,
reliability, loyalty and commitment. In addition, the Company maintains a
sourcing presence in its largest foreign source markets to assure quality,
reliability, new product ideas and a constant commercial interface. Its Pro Golf
Discount(R) franchised stores have an international reputation for quality name
brand and private label golf merchandise at the best prices.
Tradition of Innovation. Throughout its history, the Company has tried to
maintain a tradition of new product development. In spite of this, sales in
several product categories have been declining in recent years. New bag styles,
new accessories, new gloves, new golf clubs, new furniture and other new product
designs for 2000 are meeting with good response from the Company's customers
although, in general, sales and orders have not yet increased.
Breadth of Product Lines. The Company offers a wide selection of golf bags,
golf gloves, golf carts and golf accessories, and a growing list of outdoor and
indoor casual living furniture. Through its variety of product lines, the
Company offers mass merchants and regional retailers the ability to fulfill
product demands and needs from a single source. The Company's product lines
establish it as one of the nation's leading manufacturers of golf bags along
with being a leader in the golf related accessories category. Its line of golf
bags consists of approximately 25 models, which vary by size, color, type of
material and related features. The line of golf related accessories consists
mainly of consumable items such as tees, gloves, head covers, practice balls,
spikes, golf ball retrievers, umbrellas and golf training devices. The accessory
category includes approximately 100 individual items. The Company is trying to
improve its sourcing channels with the goal of having broader selections of
golf-related merchandise at better wholesale and retail margins. However, during
1999 and into 2000 the Company has lacked the cash availability necessary to
expand its product lines.
Golf carts, golf bags, golf gloves and related accessories historically have
accounted for approximately 96% of Ajay's gross sales. Golf clubs historically
through 1997 accounted for 65% of Palm Springs' sales. Since 1998, Palm Springs
has emphasized bags, accessories, gloves and carts over clubs. Leisure Life's
sales consist 100% of indoor and outdoor leisure furniture. With the acquisition
of PGOA, franchise fees and royalties are expected to account for a significant
portion of future Ajay revenues.
<PAGE>
Growth Opportunities
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The Company believes that its strong brand recognition, reputation for
quality, tradition of innovation and breadth of product lines position it to
take advantage of opportunities for future growth including:
Increased Distribution. Through 1995, the Company's products were sold to
customers primarily through mass merchants and regional retailers. With its
acquisition of the business of Palm Springs in October 1995, the Company gained
a new channel of distribution through off-course golf specialty shops. The
Company has been unsuccessful in exploiting this new channel during 1996 through
1999 particularly in golf club sales. The Company is focusing on improving
results in this channel and is trying to regain its former sales position by the
year 2001, largely through increased sales of products to the Pro Golf Discount
stores and to internet retailers, including PG.com.
New Product Development. The Company believes that it is important to
increase its sales of products through design improvements and modifications to
existing products as well as the development and introduction of new products.
The Company has continued to introduce new and redesigned products to the
market. In late 1999 the Company began utilizing the expertise of outside
representatives, in particular those associated with PGOA, to help redesign its
golf bag line for the year 2000.
The Company is seeking contract sewing of products that utilize the Company's
existing manufacturing capabilities, specifically its cut and sew operations,
with the goal of increasing sales and plant utilization during the summer and
fall to offset the excess capacity created by the historical seasonality of the
golf lines. Contracts received during the first quarter of 2000 have potential
to meet or exceed the Company's near-term goals for cut and sew manufacturing
utilization.
Leisure Life introduced a new line of swing, rocker and stationary furniture
for the 1999 sales year. This line was less expensive than its previous line of
furniture and incorporated improved product performance features, design
features, improved illustration based instructions, improved packaging, improved
quality and several cost reduction features and thus offered better value to the
end customer. New products, including a stained furniture line, have met with
broad market acceptance through the first quarter of 2000.
In spite of its increased distribution and new product development efforts,
the Company experienced a contraction of its sales base during 1999. The major
contributing factors to the contraction were brought on by golf industry
competitive factors and the Company's poor liquidity and inability to
consistently deliver product on a timely basis. Other factors that the Company
believes hurt its ability to increase its customer base included the trend for
customers to increase their importing of Asian golf products directly, and a
relatively flat year in golf retail sales, which also resulted in excess
manufacturers inventories of golf bags and additional close outs on these bags.
Sports Business
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Golf, which is the primary market for the Company's businesses other than
Leisure Life, continues to be a popular form of recreation. According to the
National Golf Foundation ("NGF"), a trade association, there were 3.4% less
rounds of golf played in 1998 than 1997 which was up 14.6% from 1996. The pace
of golf course development also continues steadily. NGF reports that 448 golf
courses were opened for play in 1998 compared to 429 in 1997 marking the fourth
consecutive year where openings exceeded 400. According to NGF market research,
the number of U. S. golfers is approximately 26.4 million. This group consists
of 78% male and 22% female and 74% are between the ages of 17 and 60. The
Company believes there is a great opportunity for increased participation by
females and golfers under 18 and over 60, and that there is a great opportunity
for increased participation by minorities. These beliefs are based on expected
increased interest by younger players, increased emphasis on women's golf and
improvements in health, leisure time, increasing numbers of people moving into
the over 60 group, and the success and increased visibility of minority golfers
such as Tiger Woods and Notah Begay.
Licensing. A significant portion of Ajay's revenues result from the sale of
products manufactured and sold pursuant to various license agreements, the loss
of which could have a material adverse effect on the Company's business.
<PAGE>
Since 1983, Ajay has sold golf bags, hand-pulled golf carts and a range of
general sports accessories through a license agreement with Spalding.
Approximately 75% of Ajay's total sales related to products sold under the
Spalding license agreement during the years ended December 31, 1998 and 1997,
respectively. The changing golf market combined with the high cost of Ajay
maintaining the Spalding license prompted Ajay to implement a new licensing
strategy. In March 1999, Ajay reached an agreement with Spalding Worldwide and
began an 18-month phase out period of its Spalding licensed products and will
discontinue offering Spalding branded products after September 30, 2000. As a
result of this phase out, during 1999 approximately 46% of Ajay's total sales
related to products sold under the Spalding license agreement. This percentage
is expected to continue its decline through September 2000. Another strategic
change was for Ajay to obtain rights to a new brand name focused specifically on
the golf niche. In early 1999, Ajay entered into a 5-year license agreement with
the Gary Player Group, Inc. to use the Gary Player name on Ajay's golf products
throughout the United States.
Gary Player is one of the best-known golfers of all time. He is one of only four
golfers to achieve golf's "Grand Slam" (The Masters, U. S. Open, PGA and British
Open championships). In addition to his playing career, Gary Player and the
organization bearing his name are involved in golf course design and other golf
and charitable activities. Gary Player Design has developed over 100
championship courses throughout the world. Gary Player is regarded as the
International Ambassador of Golf. His courteous demeanor and integrity have
earned high respect as one of golf's greatest sportsmen and gentlemen. The
combination of Gary Player's success in golf tournaments worldwide, his personal
integrity and the universal feeling that he represents everything good about the
game of golf has caused the Gary Player name to become one of the strongest
brands in golf. The Company plans to capitalize on this brand awareness in its
future product development and is working toward developing the Gary Player
brand for marketing products. In October 1999, PGOA contracted with Gary Player
for him to be Pro Golf's international spokesman through at least December 31,
2001. Gary now wears the "Pro Golf" name on his golf outerwear and appears in
much of the Pro Golf advertising.
During 1999, Ajay not only began shifting its primary branded products away
from Spalding and toward the Gary Player name, it also sought to move toward
less dependence on the mass merchant markets and more on off golf course
specialty stores, including the Pro Golf Discount franchised stores. Sales
decreased for 1999, reflecting not only the transition in product branding but
also the Company's tight cash flow position which affected Ajay's ability to
source and manufacture products at a level which would ease the transition.
Manufacturing and Design. While the Company is now importing much of the
product it sells, some preliminary production of Ajay's golf bags is undertaken
at its Delavan, Wisconsin facility, where raw materials are fabricated in
preparation for sewing and assembly at its Mexicali, Mexico facility. In
addition, Ajay supplements in-house production through utilization of
subcontractors to produce products according to its specifications. Final
manufacturing, assembly and distribution for Ajay and Palm Springs products
occur at facilities located in Delavan, Wisconsin. Prestige products are also
warehoused in and shipped from Delavan.
Design features, such as color, decals, specialized components and decorative
accessories often determine whether a golf product model is successful. In order
to attract and retain consumers the Company updates and refines these design
features on a continuous basis, both in-house and in conjunction with its
foreign suppliers. The Company has also introduced a program for its customers
whereby it designs packaging to fit with its customer's image and private label
names. This new program has received favorable response so far, although new
sales have been slow.
The Company's lines of various accessory products are purchased primarily
from foreign sources, principally from the Pacific Rim, and are prepackaged or
repackaged for domestic distribution. The packaging designed by Ajay and Palm
Springs highlights the various features of the products. The Company's
hand-pulled golf carts are manufactured in-house and overseas. The Company is
not dependent upon any single source for any of its significant products.
Marketing and Distribution. Ajay's product lines traditionally have been
distributed primarily through discount stores, department stores, catalog stores
and other mass merchandise outlets. The Company also sells through most major
chain retailers and off-course golf specialty shops. The Company's largest
customer is Wal-Mart, which accounted for approximately 25% of the Company's
sales in 1999. The second largest customer accounted for 7% of the Company's
sales. The loss of these accounts would have a material adverse effect on the
Company's results. The Company believes its relationship with these customers is
good.
<PAGE>
Except for certain major accounts, manufacturers' representatives working on
a commission basis service many of Ajay's accounts. Ajay services its major
accounts through a combination of manufacturers' representatives and its own
in-house sales force. Palm Springs and Prestige service their customers through
their in-house and regional sales representatives. As a result of the reduced
sales and poor liquidity at the Company during 1999, its sales force has been
scaled back both in-house and with outside representatives. Management is
currently reviewing its needs in these areas and devising a plan for moving
forward during 2000 and 2001 to increase sales and broaden the Company customer
base. The Company's management regularly consults with major customers to
discuss merchandising plans and programs, anticipated needs and product
development. PGOA services its franchisees through its in-house support staff,
and its staff is constantly attending trade shows and speaking with outside
vendors to keep in the forefront of golf and retail innovation and technology.
The Company believes that Ajay, Palm Springs, Leisure Life and PGOA have good
name recognition in the industry and attempts to expand that recognition through
participation in trade shows, advertising in trade publications and supplying
literature and catalogs to the retail trade and consumers. PGOA's franchisees
spend approximately $10,000,000 annually on local and national advertising,
which helps expand recognition of the Pro Golf brand name. PG.com intends to
supplement this advertising with substantial advertising of its own beginning in
the latter half of 2000.
Leisure Furniture Business
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Demographic changes have driven a shift for the last ten years toward a
casual living lifestyle. This is evidenced by the proliferation of decks,
patios, and sunrooms. Americans are spending more of their leisure time in a
relaxed casual manner. This has led to a need for more leisure time furniture.
Leisure furniture, used on porches, decks, patios, in sun rooms and yards has
traditionally consisted of aluminum, resin, wrought iron and low to medium
priced wood products. The designs of wood products have not been stylish or
particularly comfortable for seating. Leisure Life's "In Motion" furniture
products, which feature contoured slings, adjustability and comfort, have been
received favorably in the leisure furniture market.
Leisure Life's furniture is constructed of a high-grade pine, which is
pressure-treated and kiln-dried to prevent deterioration, warping, and bending
and to withstand varying climate conditions. The seating products utilize a
patented suspension seating system that permits simple adjustment to accommodate
users of different heights and weights. This system also incorporates an
ergonomically designed sling and deep cushion seating to provide lower back
support. Management believes that its seating products are superior in comfort
to any other leisure furniture seating. A patented suspension system is used on
swings, rocking chairs, stationary chairs, love seats, and couches.
In addition to the seating products, Leisure Life also manufactures cocktail
and end tables, a bench, canopies, A-frames, potting tables, shelving and
bookcases as a coordinated line of leisure furniture. Management believes that a
coordinated casual wood furniture line can be marketed for indoor as well as
outdoor use.
Manufacturing. The pressure treated pine purchased by Leisure Life is planed,
cut, drilled, and sanded in the Baxter, Tennessee facility to form product
components. Small portions of the wood pieces are purchased pre-manufactured.
Fabric for pillows, cushions, slings and canopies are cut and sewn in-house and
by third party subcontractors for final assembly in the Baxter, Tennessee
facility. Furniture items are packaged in kits containing the wood frame pieces,
slings, pillows, and necessary hardware, requiring the customer to assemble the
final product.
Marketing and Distribution. Currently, Leisure life supplies nearly 3,500
storefronts worldwide and supplies to 20 distributors in various countries
around the world. Large chains such as Wal-Mart, Sam's, Lowes, Meijers and Price
Costco represent 29% of Leisure Life's customer storefront base and 50% of its
sales. Independent nurseries, hardware stores, pool and patio shops, home
centers, department stores, mail order catalogs and casual furniture stores,
along with their respective co-op's and specialty distributors carry Leisure
Life swings, swing sets, seating and rockers. Export distribution also continues
to grow. Wood furniture, as an outdoor category, represents a greater portion of
sales in Great Britain, Europe, Japan, Korea, and the Far East than in the U. S.
market. Pressure treated Southern Yellow Pine is very competitive with Teak,
Mahogany, or any other solid wood outdoor furniture.
<PAGE>
Inventories and Backlog
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Due to the relatively short lapse of time between placement of orders for
products and shipments, the Company normally does not consider its backlog of
orders to be significant to its business. Because of rapid delivery requirements
of its customers, the Company maintains significant quantities of finished goods
inventories to provide acceptable service levels to its customers. Inventory
turnover in mass-market products is lower than for furniture and reflects
maintenance of high service standards for its mass-market customer base and the
shorter manufacturing time cycle for furniture products.
The Company's products tend to be very seasonal in nature. Shipments from
February to May, historically have been significantly higher than the rest of
the year, due to the nature of the golf and furniture businesses. Management
expects that the indoor leisure furniture line including shelving being
developed will have higher shipments in the fall. To reflect the seasonality of
the business, inventories will tend to be higher from November to May.
Competition
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The market in which the Company does business, while very fragmented, is
highly competitive, and is served by a number of well-established and
well-financed companies with recognized brand names, as well as new companies
with popular products. New product introductions and/or price reductions by
competitors continue to generate increased market competition. While the Company
believes that its products, its marketing efforts, and its franchised stores
will continue to be competitive, there can be no assurance that successful
marketing efforts by competitors will not negatively impact the Company's future
revenues. Additionally, the Company faces much competition from other internet
companies which sell golf equipment and services similar to those PG.com will be
offering, and at the present time the Company believes that online sales of golf
equipment is not a material percentage of total golf sales.
Ajay competes in the golf bag, cart and accessory business with several other
domestic companies including Wilson, Gold Eagle, Dunlop, Palmer, Pro Select,
Highlander, Knight and others. Increased imports of low cost competitive
products, primarily from Asia, continue to subject domestic producers to intense
price competition and have created extreme price sensitivity, while also
providing a source of competitive products for the Company to offer.
Palm Springs competes for specialty golf store retail space with over 50
competitors. Retail golf specialty stores carry many lines. The premium brands
are represented by names such as Callaway, Ping, Taylor - Made, Cleveland, Tommy
Armour, and Orlimar. Other competitors are Datrek, Belding, Burton, Sun
Mountain, Ogio, Izzo, Miller, and Gold Eagle. Palm Springs offers a line of high
quality and feature filled products which sell at moderate price levels and
offer consumers high value to price ratios. Palm Springs also has begun
distributing bags under Pro Golf's trademark names of Excalibur and Unique to
the Pro Golf Discount franchised stores.
Leisure Life has had limited but growing operations. At this time, Leisure
Life, as compared to the large number of manufacturers of indoor and outdoor
furniture, is not a significant competitor. In Leisure Life's niche market there
are no dominant furniture manufacturers supplying, on a national basis,
comparable cushioned, suspended sling back comfort products specifically
targeted for porches, decks, patios, and sun rooms. There are several small
firms supplying on a regional basis. Competition includes Richie Industries,
Palmetto Mfg., Lakeland Mills, Rivenwood and Atwood. Management does not believe
that there are any other similar wood furniture products that are adjustable.
However, there is competition for display space in stores, along with
competition from other wood, resin, aluminum, cushion, and plastic furniture
products.
<PAGE>
Raw Materials and Components
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Basic materials such as vinyl, nylon, steel and aluminum tubing, plastics and
paint used in the golf product manufacturing and assembly process are purchased
primarily from domestic sources. Many of the component parts such as golf club
head covers, graphite shafts, club heads, golf gloves, light weight carry golf
bags and various other golf accessories are obtainable economically only from
foreign suppliers and, therefore, are subject to changes in price as a result of
fluctuations in foreign currencies against the U.S. dollar. Alternative sources
for raw materials and component supplies are available and the Company
anticipates no significant difficulty in obtaining raw materials or components,
although some such purchases may be at increased prices.
Leisure Life purchases pressure treated pine, fabric, cushion stuffing, and
miscellaneous hardware used in the manufacturing and assembly process from
domestic sources. Alternative sources for raw materials are available and
Leisure Life has not experienced difficulty in obtaining raw materials.
Patents and Trademarks
- ----------------------
Ajay, Leisure Life, Palm Springs, and PGOA own several patents and trademarks
and have proprietary knowledge relating to their product lines. Management does
not believe that the loss of any of its patents would have a material adverse
effect on its businesses.
Employees
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As of March 28, 2000, the Company had a total of 198 employees: 50 employees
at the Delavan, Wisconsin facility, 98 employees at the Mexicali, Mexico
facility, 30 employees at the Baxter, Tennessee facility, and 20 employees at
its Farmington Hills, Michigan office. The Company considers its current
relations with its employees to be good.
Item 2. Description of Property
-----------------------
The Company's executive, and Ajay's primary manufacturing, assembly and
warehouse facility, is located in Delavan, Wisconsin, and consists of 186,300
square feet of office, manufacturing and warehousing space. This space is leased
from an unaffiliated third party under a long-term lease arrangement expiring
June 2001, with an option to renew for an additional ten-year period. The
Company has an option to purchase the property at its fair market value at the
end of either the initial or renewal lease term.
Through its wholly-owned subsidiary, Ajay Leisure de Mexico, S.A. de C.V.,
Ajay leases an additional manufacturing facility consisting of approximately
30,000 square feet in Mexicali, Mexico. The lease expires on January 14, 2005.
Leisure Life owns its manufacturing, assembly, and warehouse facility in
Baxter, Tennessee, which consists of approximately 40,000 square feet of
manufacturing and warehousing space, located on 2.8 acres. The property carries
a mortgage in the amount of $172,800.
PGOA leases approximately 8,000 square feet of office space in Farmington
Hills, Michigan under an operating lease with its former owners. The lease is a
36-month operating lease that expires on March 31, 2002, with one option to
renew for an additional five years. In March 2000, PGOA leased an additional
3,150 square feet of adjacent space, which it intends to sublease to an
affiliated company. PGOA has an option, exercisable between April 2, 2000 and
March 31, 2002, to purchase the building at fair market value.
These facilities adequately meet the Company's production capacity
requirements. The Company, on average, utilizes approximately 60% of its
facility square footage. In order to avoid periodic total plant shutdowns, the
Company adjusts its product production schedules to maintain sufficient
inventory levels and to maintain a full work force. The Company also attempts to
enter into short-term leases for unused space in its Delavan, Wisconsin
facility.
Item 3. Legal Proceedings
-----------------
The Company is involved in various legal proceedings that are normal to its
businesses, including product liability and workers' compensation claims. As a
result of its tight cash flow, the Company is late on payments due to several of
its vendors and is involved in various collection actions against it and may
face additional actions of this type. The Company believes that none of this
litigation is likely to have a material adverse effect on its financial
condition or operations. The Company faces the risk of exposure to product
liability claims if consumers using the Company's products are injured in
connection with their use. While the Company will continue to attempt to take
appropriate precautions, there can be no assurance that it will avoid
significant product liability exposure. Based on historical experience, Ajay,
Leisure Life, Palm Springs, Prestige, PGOA and PG.com have product liability
insurance coverage, which the Company believes is adequate.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock and Units were traded on the Nasdaq Small Cap
Market until September 4, 1998 at which time these securities were delisted and
began to trade on the OTC Bulletin Board (the "OTCBB"). The Company's Series C
10% cumulative convertible preferred stock also trades on the OTCBB. At the same
time the Company's common stock and units were delisted from the Nasdaq Smallcap
Market, the company's warrants were also delisted. No trading information exists
for the warrants. The following table sets forth the range of high and low trade
prices for the last two years. Historic prices have been converted to give
effect to a reverse 1:6 common stock split effective August 14, 1998.
TRADE PRICES
COMMON STOCK
1998 HIGH LOW
- ---- ---- ----
First Quarter $ 1.50 $ .78
Second Quarter $ 2.28 $ .78
Third Quarter $ 3.78 $ .75
Fourth Quarter $ 1.03 $ .34
1999
First Quarter $ 1.06 $ .69
Second Quarter $ 2.63 $ .69
Third Quarter $ 2.06 $ .81
Fourth Quarter $ .94 $ .47
UNITS
1998
First Quarter N/A N/A
Second Quarter $ 3.78 $ 3.78
Third Quarter $18.78 $ 8.28
Fourth Quarter N/A N/A
1999
First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
SERIES C PREFERRED STOCK
1998
First Quarter $ 4.00 $ 2.38
Second Quarter $ 4.75 $ 3.25
Third Quarter $ 6.13 $ 2.75
Fourth Quarter $ 3.00 $ 2.25
1999
First Quarter $ 3.00 $ 2.00
Second Quarter $ 5.88 $ 2.00
Third Quarter $ 5.00 $ 2.50
Fourth Quarter $ 3.13 $ 1.50
<PAGE>
Holders
- -------
The number of record holders of the Company's common stock, units, warrants
and Series C preferred stock according to the Company's transfer agent, as of
December 31, 1999 are as follows:
Common Stock 369
Preferred C 9
Warrant A 66
Based on a street name shareholder listing, the Company believes that its
round lot common shareholders total approximately 900.
Dividends
- ---------
Holders of shares of Common Stock are entitled to dividends when, and if,
declared by the Board of Directors out of funds legally available. The Company
has not paid any dividends on its Common Stock and intends to retain future
earnings to finance the development and expansion of its business. The Company's
future dividend policy is subject to the discretion of the Board of Directors
and will depend upon a number of factors, including future earnings, capital
requirements, bank credit agreement restrictions and the financial condition of
the Company.
Holders of the Company's Series B Cumulative Convertible Preferred Stock
are entitled to cumulative dividends at an annual rate of 8% based on a stated
value of $100 per Series B share, or $8 per Series B share per year.
Holders of the Company's Series C Cumulative Convertible Preferred Stock are
entitled to cumulative dividends at an annual rate of $1.00 per share. Due to a
shortage of operating funds to run the business, dividends have not been paid
since January 1997. Until the Company has cash available for dividends, it does
not anticipate declaring or paying dividends on its Series C preferred stock.
<PAGE>
Item 6. Selected Financial Data
------------------------
The following table presents summary historical consolidated
financial data derived from audited financial statements of the Company (in
thousands, except per share amounts).
Year Ended December 31,
Statement of Operations: 1999 1998 1997 1996 1995
-------- --------- -------- ------- --------
Net sales $14,340 $22,925 $30,330 $24,341 $18,728
Cost of sales 12,790 19,477 26,585 20,759 15,291
-------- --------- -------- ------- --------
Gross profit 1,550 3,448 3,745 3,582 3,437
Selling, general and
administrative expenses 4,866 3,868 5,837 5,067 3,247
-------- --------- -------- -------- -------
Operating income (loss) (3,316) (420) (2,092) (1,485) 190
Nonoperating income (expense):
Interest expense - net (1,625) (1,139) (1,280) (1,103) (801)
Other, net 638 84 (144) (38) ( 41)
Minority interest in (loss)
of subsidiary 6 - - - -
Income (loss) from operations before
income taxes (4,297) (1,475) (3,516) (2,626) (652)
Income tax expense (benefit) (1,833) - - (893)
-------- --------- --------- -------- -------
Net (loss) $(2,464) $(1,475) $(3,516) $(1,733) $ (444)
======== ========= ========= ======== =======
Net (loss) per common share @ $ (.70) $ (0.47) $ (1.01) $(0.55) $(0.18)
======== ========= ========= ======== =======
Weighted average common and common
stock equivalent shares
outstanding @ 4,013 3,909 3,879 3,874 3,787
======== ========= ========= ======== =======
Cash dividends per common share - - - - -
December 31,
Balance sheet data: 1999 1998 1997 1996 1995
-----------------------------------------------
Working capital $ 1,707 $ 5,652 $ 8,200 $ 3,348 $ 6,323
Total assets $25,733 $13,083 $16,614 $18,495 $ 8,486
Long term debt $18,043 $ 7,538 $ 3,229 $ 5,196 $ 5,111
@ Current and prior years restated to reflect result of reverse 1 for 6 common
stock split effective August 14, 1998.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Results of Operations
- ---------------------
Net Sales
Net sales in 1999 were $14.3 million, a decrease of $8.6 million, or 38%
when compared to 1998 sales. The sales decrease in the golf product line was
$9.5 million or a 50% decrease. Mass market golf sales declined $11.6 million
and sales to specialty golf stores decreased by $0.6 million. Revenues of PGOA,
which include franchise fees, royalties, and other income for the six month
period from the date of acquisition through December 31, 1999 accounted for $1.7
million of the $14.3 million total, or 11.8%. Furniture sales increased $0.9
million or 25.9%. Lower sales in the mass-merchant channel represent fewer sales
to existing customers as a result of a weak market during the second half of
1999 and the mass-merchants continuing to increase the amount of product they
were importing directly from Asia. The Company believes sales were further
decreased because it is phasing out sales of Spalding branded products and will
discontinue these products after September 30, 2000. These sales reductions
caused negative cash flow, which delayed the start up of new commitments for
2000 and reduced the volume of sales of new lines. Sales to specialty golf
stores were off due to excesses of golf bag inventories resulting in large
volumes of closeouts and contraction of the Company's sales force. Furniture
sales increased due to expansion of Leisure Life's product line and customer
base. Historically, mass-market sales have been Ajay's core business.
Sales in 1998 were $22.9 million, a decrease of $7.4 million or 24% compared
to 1997. The sales decrease in the golf product line was $6.8 million or a 26%
decrease. Mass-market golf sales declined $3.7 million and sales to specialty
golf stores decreased by $3.1 million. Furniture sales decreased due to weak
economic conditions in Asia and competition from foreign imports.
Gross Margin
The Company's 1999 gross margin decreased 56% to $1,550,000 compared to
$3,448,000 for the 1998 year. Gross margin as a percent of sales decreased to
10.8% as compared to 15.0% of sales for 1998. The gross profit amount decrease
of 56% was a result of a sales volume decrease of 38%, which caused
manufacturing overhead allocated to inventory to rise on a percentage basis. The
Company's poor liquidity also caused higher product costs including product
substitutions and additional freight charges for rush deliveries.
The Company's 1998 gross margin decreased 8% to $3,448,000 compared to
$3,582,000 for the 1997 year. Gross margin as a percent of sales declined to
12.3% as compared to 14.7% of sales for 1997. Contributing to this decline were
three factors. The first was the lack of sufficient operating liquidity during
1998, which resulted in increased costs in manufacturing, logistics and product
substitutions. The second factor was the poor performance of Palm Springs' golf
club product line in the marketplace. The final factor was the closing of the
Palm Springs facility in California and consolidating it into Delavan,
Wisconsin. These factors reduced gross profit margin by approximately 2.0%, 1.6%
and 0.7% respectively.
Selling, General and Administrative Expenses
SG&A for 1999 was $4.9 million and 33.9% of sales compared to $3.9 million
and 16.9% of sales for 1998. The large percentage increase was caused by reduced
sales. During the second half of 1999, the Company began a cost reduction
program designed to bring costs in line with the reduced sales levels. The
Company is still working to reduce certain expenses, including rent for parts of
its Delavan WI facility which are not fully utilized, insurance, and labor
costs.
During 1998, consolidating Palm Springs into the Delavan operation saved $1.2
million. A further reduction of $570,000 in mass-market golf resulted from sales
volume decreases, a reduction in the work force and efficiency improvements.
<PAGE>
As a percent of sales, SG&A was 19.2% for 1997, an increase of $770,000 or
15.2% compared to 1996. The largest contributor to increased expenses was the
legal, accounting and other costs associated with refinancing the Company, which
contributed nearly one percent to SG&A.
Interest Expense
Interest expense for 1999 was $1,625,000, an increase of $486,000 from 1998
total of $1,139,000 . The increase resulted from lower sales and additional
borrowings to meet working capital needs. Interest expense was $1,280,000 for
1997.
Income Taxes
The Company had no income tax liability during the years ended December 31,
1999, 1998 and 1997.
Financial Condition
- -------------------
At December 31, 1999, the Company had working capital of $1,707,000, compared
with $5,652,000 at December 31, 1998. This $3,945,000 decrease resulted from
lower inventories and increased receivables and payables as a result of lower
sales levels during 1999, the Prestige Golf billing activities for major golf
suppliers of Pro Golf Discount franchised stores, and poor cash flow which
caused the Company to be past due with some of its vendors. The ratio of current
assets to current liabilities at December 31, 1999 was 1.24 compared to 3.0 at
December 31, 1998.
Inventories at December 31, 1999 were $4.0 million compared to $5.7 million
at December 31, 1998. Trade accounts receivable were $3.2 million at December
31, 1999 compared to $1.9 million at December 31, 1998.
At December 31, 1999 and 1998, net fixed assets were $1,693,000 and
$1,708,000, respectively. The decrease reflects depreciation in excess of
capital expenditures.
Capital Resources
- -----------------
The Company expended $281,000 in 1999 for capital expenditures, with $57,000
of that total used for golf bag and accessory operations and the remainder
allocated to the Pro Golf group of companies for office equipment and start-up
equipment and software development costs of ProGolf.com.
Liquidity
- ---------
Cash flow from operations for 1999 was negative by $725,000. The negative
operating cash flow was primarily caused by reductions in sales. The Company
expects that cash flow from operations will continue to be poor throughout the
first half of 2000.
The Company's liquidity varies with the seasonality of its business, which,
in turn, influences its financing requirements. The seasonal nature of the
Company's sales creates fluctuating cash flow, due to the temporary build-up of
inventories in anticipation of, and receivables during, the peak seasonal period
that historically has been from February through May of each year. The Company
has relied on Williams and bank revolving credit facilities in the past and
continues to rely heavily on revolving credit facilities and loans from related
parties and affiliated companies for its working capital requirements.
<PAGE>
On June 30, 1998, the Company restructured its credit facility with Wells
Fargo Bank, National Association ("Wells") to separate its credit facility from
that of Williams Controls, Inc. and its subsidiaries ("Williams"). The credit
facility as restructured provides for maximum borrowing capacity of $10,025,000,
consisting of a revolving credit facility of up to $9,500,000 and a term loan of
$525,000. As a result of this transaction, the Company no longer has joint and
several liabilities, cross collateral agreements or guarantees with Williams
with respect to Williams' Wells Fargo facility. The interest rate is prime plus
1% on the revolver and prime plus 1.5% on the term loan. The Company has a
temporary credit line in the amount of $750,000, which may became a permanent
loan as of May 15, 2000 with availability subject to a percentage of the fair
market value of the underlying collateral. The Company presently needs
additional capital, and is in the process of raising it through private sales of
securities of PGI and PG.com; with the goal of effecting a public offering of
PG.com stock in late 2000 or at the earliest possible time it obtains a
commitment from an underwriter to take ProGolf.com public.
In connection with the restructuring of the Wells Fargo Bank credit
facility, the Company entered into an agreement in June 1998 with Williams under
which Williams advanced $2,000,000 in cash and securities. As a result of these
additional investments plus Williams' assumption of certain liabilities and
potential additional payments to the bank, the debt and equity investments could
reach $8,650,000 with an initial 3-year effective annual cost of 8.75% inclusive
of interest, dividends and fees. On June 30, 1998, Williams converted $5,000,000
of this debt into 6,000,000 shares of a newly created series of preferred stock
of the Company, the series D cumulative convertible non-voting preferred stock.
Series D is convertible into 3,333,333 shares of the Company's common stock. No
dividends are accrued or payable on the Series D preferred stock through July
31, 2001. Beginning August 1, 2001, he dividend on this series of preferred
stock will be 17% and will increase to 24% on August 1, 2002. Rather than pay
these significant dividends, the Company's plan is to raise additional capital
and redeem the Series D preferred stock. The Company delivered a promissory note
to Williams for the unconverted portion of the debt. This note is secured by a
lien on the Company's assets, which is junior to the liens held by the Company's
bank lenders. This note accrues interest at the rate of 16% per annum, which
interest will become due and payable on December 31, 2000 with all remaining
principal and interest due at maturity on August 1, 2001. The Company has also
committed to pay Williams an annual administrative fee of $90,000 and annual
management fees of $80,000 for sourcing products overseas. Williams continues to
own 686,274 shares of the Company's common stock, representing approximately 16%
of the outstanding common stock of the Company. Williams also holds options to
purchase an additional 1,851,813 shares of common stock, and continues to have
rights, which were negotiated in 1994, to utilize for a fair market fee, excess
floor space and related resources in the Company's manufacturing facilities in
Wisconsin and Mexico.
The combination of the Wells and Williams refinancing agreements resulted in
a short-term improved working capital position, which enabled the Company to pay
down past due accounts payable and temporarily increased liquidity, providing
the Company with additional availability under its bank credit facility.
However, continued operating losses negatively affected the Company's liquidity
during 1999 and the Company has experienced severe cash shortfalls, which have
caused it to miss delivery dates and subsequently lose sales in 1999 and into
2000. This trend is expected to continue in the short-term.
During late 1999 and into 2000, the Company began selling equity in PGI in a
private placement offering and entered into an agreement to acquire developed
and undeveloped real estate for existing and planned golf-related activities,
including golf domes with retail stores inside. As of April 14, 2000, the
Company had committed to issue 138,750 shares of PGI stock at $60 per share,
which represents 12.18% of the total shares of PGI stock outstanding at that
date. Of the new shares committed to, $375,000 cash had been received with
signed subscription documents, $870,000 was a conversion of subordinated debt
into common stock, and the remaining $7,080,000 a combination of equity
securities and golf-related real property.
<PAGE>
The Company anticipates significant additional cash flows resulting from
the debt conversions and the rents and fees to be received from the golf
properties during the initial twelve-month period beginning July 1, 2000. These
revenues are expected to increase in the future after the start-up period is
over. Additionally, the dome and retail store combination is planned as the new
PGOA franchise of the future and could substantially increase revenues and cash
flow of the Company's PGOA operations.
The Company also began an offering of PG.com common stock at $2.50 per
share in during April 2000 to raise up to $12,500,000 in gross offering
proceeds. If the maximum offering is sold, the shares sold in this offering will
represent approximately 33% of the total PG.com common shares outstanding after
the offering. Proceeds from these private placements will be used for working
capital, acquisitions, and growth.
Year 2000 Compliance
- --------------------
State of Readiness. During the past two years, the Company was actively
involved in finding and correcting Y2K problems within its information
technology structure. The Company's main computing system, an IBM AS/400, is
certified by IBM to be Y2K compliant. The Company's proprietary software that
runs on the AS/400 is Y2K compliant.
Personal computers were evaluated using a software tool provided by IBM.
This evaluation phase was completed during 1999. Internal systems and equipment
that depend upon embedded microchips were certified to be Y2K compliant.
The Company contacted all of its suppliers to determine their Y2K status. A
majority responded positively, and alternate sources were found where needed.
The Company experienced no significant problems with the Y2K year change issue
and does not anticipate any major problems internally or with any of its
suppliers going forward.
Costs.The Company hired a full-time programmer/analyst in February 1998, to
help with the Y2K conversion. The Company upgraded its EDI translation software
to accommodate the EDI Y2K solution, Version 4010. The Company's Y2K costs
related to information technology that were beyond the scope of normal
operations were not significant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company holds only one market risk instrument. This is common stock
classified as marketable securities and carried as a current asset in the amount
of $348,000 as of December 31, 1999. This stock is subject to equity price risk.
The full carrying value represents the market value of 166,719 shares of
Williams Controls, Inc. common stock valued at $2.08 per share, which is the
last trade for 1999. This stock is traded on the Nasdaq national market. The
shares were received as part of the restructuring agreement with Williams dated
June 30, 1998. These shares have been pledged to Wells Fargo as collateral for
the Company's loans. High and low closing prices per share for 1999 were $3.25
and $2.00 respectively. Between January 1, 2000 and March 31, 2000 the lowest
closing price for these shares has been $2.00 per share.
<PAGE>
Item 8. Financial Statements
--------------------
Financial statements are attached hereto following Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
----------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the registrant
--------------------------------------------------
The Registrant's directors and executive officers as of April 13, 2000 are as
follows:
Positions and
Name Age Offices with Date first
Company Elected
- ------------------- --- ------------------------------ -----------
Anthony B. Cashen 64 Director 1993
Robert R. Hebard 47 Director & Corporate Secretary 1989
Thomas W. Itin 65 Chairman, CEO & President 1993
Ronald N. 43 Chief Financial Officer and 1999
Silberstein Chief Administrative Officer
Anthony B. Cashen. Mr. Cashen has served as a director of the Company since
1993. For more than the past five years until his retirement in December 1999,
Mr. Cashen has served as a managing partner or senior partner of LAI Ward
Howell, a publicly held management consulting and executive recruiting firm
located in New York City. He has served as Secretary, Treasurer and Director of
LBO Capital Corp., a publicly held company, since its inception. He currently
serves as a Director of Immucell Corp., and Williams Controls, Inc., both
publicly held companies. Previously, Mr. Cashen had been an officer and
principal of the investment firms A. G. Becker, Inc. and Donaldson, Lufkin and
Jenrette, Inc. He received an MBA from the Johnson Graduate School of Management
at Cornell University, and a Bachelor of Science degree from Cornell University.
Robert R. Hebard. Mr. Hebard has served as a director of the Company since 1989
and Secretary of the Company since September 1990. From June 1993 to the
present, he has been Chairman of the Board and President of Enercorp, Inc., a
publicly traded business development company under the Investment Company Act of
1940, as amended. From June 1986 to January 1992, Mr. Hebard was First Vice
President and Director of Product Management for Comerica Bank, and from
February 1992 to October 1992 he was Director of Retail Marketing for the merged
Comerica/Manufacturers Bank. Mr. Hebard also currently serves as Vice President
of Woodward Partners, Inc., a real estate development company in West
Bloomfield, Michigan. From 1993 to the present, Mr. Hebard has served as Chief
Executive Officer of CompuSonics Video Corp., a publicly held company. He
received an MBA from Canisius College and a Bachelor of Science degree from
Cornell University.
<PAGE>
Thomas W. Itin. Mr. Itin was elected Chairman of the Board and President of the
Company in June of 1993, and is the Company's largest single stockholder. Mr.
Itin has been a director of Williams Controls, Inc., a publicly held company
since its inception in November 1988. He has also served as Chairman of the
Board and Chief Executive Officer of Williams since March 1989 and also as
President and Treasurer since June 1993. Mr. itin serves on the Cornell
University Council and is Chariman of the Technology Transfer Committee. He has
served as Chairman of the Board, Chief Executive Officer and Chief Operating
Officer of LBO Capital Corp. since its inception. Mr. Itin has been Chairman,
President and Owner of TWI International, Inc. since he founded the firm in
1967. TWI International acts as a consultant for mergers, acquisitions,
financial structuring, new ventures and asset management. Mr Itin also has been
Owner and Principal Officer of Acrodyne Corporation since 1962. He received a
Bachelor of Science degree from Cornell University and an MBA from New York
University.
Ronald N. Silberstein has been Chief Financial Officer of the Company since
August 1999. Mr. Silberstein is a Certified Public Accountant and, prior to
joining the Company, was a partner in the CPA firm of Hirsch Silberstein &
Subelsky, P.C., a firm that he co-founded in 1993, where he consulted with
public and private companies on accounting, tax, and operational issues. Mr.
Silberstein was the partner in charge of the audit when Hirsch Silberstein &
Subelsky, P.C. acted as the Company's independent auditors. Prior to 1993, Mr.
Silberstein was a partner in a local Michigan CPA firm. From 1979 to 1988, he
was a staff accountant with various CPA firms in Southeast Michigan, including
the Detroit office of Ernst & Young. He received a Bachelor of Business
Administration degree from the University of Michigan in 1979.
There are no family relationships between any director or executive officer.
Item 11. Executive Compensation
----------------------
Summary of Cash and Certain Other Compensation
- ----------------------------------------------
The following table shows, for the years ending December 31, 1999, 1998 and
1997, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid or accrued for those years, to each of the
executive officers of the Company who received compensation from all capacities
in which they serve:
Summary Compensation Table
- --------------------------------------------------------------------------------
Annual Long-Term
Compensation Compensation
Securities
Name and Principal Position Year Salary Underlying
Options (# Shares)
- --------------------------------------------------------------------------------
Thomas W. Itin 1999 $ 1 (1) -
Director and Principal 1998 $ 1 (1) -
Executive Officer of the 1997 $ 1 (1) -
Company, and Director and
Principal Executive Officer of
Ajay Leisure Products, Inc.
- --------------------------------------------------------------------------------
Ronald N. Silberstein
Chief Financial Officer and 1999 $50,884 (2) 50,000
Chief Administrative Officer
of the Company 1998 N/A
1997 N/A
- --------------------------------------------------------------------------------
Clarence H. Yahn 1999 $ 76,154 (3) -
Director of the Company and 1998 $120,000 -
President of Ajay Leisure 1997 $117,502 -
Products
- --------------------------------------------------------------------------------
<PAGE>
(1) See "Employment contracts" below.
(2) Mr. Silberstein joined the Company on August 1, 1999. His annual base salary
is $126,000.
(3) Mr. Yahn left employment with the Company and his position on the Board of
Directors effective July 31, 1999.
Options/SAR Grants
- ------------------
During 1999, no options or SARs were granted to the executive officers named in
the Summary Compensation Table other than Mr. Silberstein's.
Aggregated Option Exercises and Fiscal Year End Option Value
The table below summarizes options, the number of securities underlying
unexercised stock options at December 31, 1999 which are held by the executive
officers listed in the Summary Compensation Table. No options were exercised
during the year and at year-end none were in-the-money.
Aggregated Option Exercises in 1999 and December 31, 1999 Option Values
------------------------------------------------
Number of Securities Underlying
Unexercised Options / FY - End (#)
------------------------------------
Name Exercisable Unexercisable
------------------------------------------------
Thomas W. Itin 0 0
CEO
------------------------------------------------
Ronald N. 0 50,000
Silberstein
CFO/CAO
------------------------------------------------
The Company does not have any restricted stock, long-term incentive, defined
benefit or pension plans.
<PAGE>
Compensation of Directors
- -------------------------
Directors are not paid a fee for attending regular Board of Directors meetings.
However, they are reimbursed for expenses incurred in attending such board
meetings.
Under the 1994 Stock Option Plan, the non-employee directors who are members of
the Compensation Committee are to receive grants of 834 non-statutory stock
options under the plan at each Annual Meeting. There were no grants during 1999
to members of the Compensation Committee because an Annual Meeting was not held.
Employment Contracts
- --------------------
The Company has an employment arrangement with Mr. Itin under which he served as
the President and Chief Executive Officer of the Company at a salary of $1 per
year from 1994 through 1999. Mr. Itin has no obligation to continue this
arrangement although he has not given the Company any notice of intent to change
the arrangement in the near term.
Item 12 Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The table below sets forth, as of March 29, 2000, the number of shares of Common
Stock beneficially owned by each director and executive officer (named in the
Summary Compensation Table) of the Company individually, all such executive
officers and directors as a group, and each beneficial owner of more than five
percent of the Common Stock. The following stockholders have sole voting and
investment power with respect to their holdings unless otherwise footnoted.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Number of Shares Beneficially Percentage of Class
Owned (1)
- ---------------- ------------------------------ --------------------
Thomas W. Itin 2,758,197 (2)(3)(5) 50.8%
7001 Orchard Lake Road, (6)(9)
Suite 424
West Bloomfield, MI 48322
Williams Controls Industries, 5,871,420 (4) 64.2%
Inc.
14100 SW 72nd Avenue
Portland, OR 97224
TICO 1,990,747 (5) 38.9%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
Acrodyne Profit Sharing Trust 462,246 (6) 10.9%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
Robert R. Hebard 6,666 (7) 0.2%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
Enercorp, Inc. 315,634 (8) 8.0%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
LBO Capital Corp. 280,001 (9) 7.0%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
Ronald N. Silberstein 53,350 (10) 0.7%
7001 Orchard Lake Road,
Suite 424
West Bloomfield, MI 48322
Anthony B. Cashen 4,778 (11) 0.1%
101 Old Ox Rd.
Ghent, NY 12075
All executive officers and 2,822,587 (2)(3)(7) 54.2%
directors (10)(11)
as a group
(5 persons)
</TABLE>
<PAGE>
1) Where persons listed on this table have the right to acquire additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
March 31, 2000, these additional shares are deemed to be outstanding for
the purpose of computing the percentage of Common Stock owned by such
persons, but are not deemed to be outstanding for the purpose of computing
the percentage owned by any other person. Percentages are based on
4,091,091 shares outstanding.
(2) Mr. Itin may be deemed to be a "control person" of the Company. Includes
Common Stock and shares of Common Stock issuable upon the exercise of
presently exercisable warrants and the conversion of presently convertible
Preferred Stock beneficially owned by Mr. Itin's spouse and affiliates of
Mr. Itin as follows:
Entity Shares Description
- ------ ------ ------------
TICO 833,340 Common Stock
First Equity Corporation 25,203 Common Stock
Acrodyne Profit Sharing Trust 462,246 Common Stock and warrants
LBO Capital Corp. 280,001 Common Stock and warrants
-------
1,600,790
TICO (12,500 shares of Series
B preferred stock convertible Series "B" Preferred
at one share for 92.5926 1,157,407 Stock conversion
shares of Common Stock) ---------
2,758,197
Mr. Itin disclaims beneficial ownership in the securities owned by LBO
Capital Corp. and First Equity Corporation in excess of his pecuniary
interest. Mr. Itin's spouse owns an 80% equity interest in First Equity
Corp., and Mr. Itin owns 57% of the outstanding common stock of LBO Capital
Corp., a company with its common stock registered under Section 12(g) of
the Securities Exchange Act of 1934 (the "Exchange Act"). Mr. Itin is also
Chairman of the Board and President of LBO Capital.
(3) Does not include 686,274 Common Shares, 1,851,813 options and 3,333,333
shares available from series D preferred on conversion owned by Williams
Controls, Inc. Mr. Itin is Chairman of the Board, President, Chief
Executive Officer, Chief Operating Officer, Treasurer and 30.5% beneficial
owner of Williams Controls, Inc. Even though Mr. Itin is a Director of
Williams Controls, he abstains from voting on matters pertaining to the
Company in meetings of the Directors of Williams Controls.
(4) Includes 1,851,813 shares of Common Stock issuable upon the exercise of
outstanding stock options and 3,333,333 shares available from Series D
preferred on conversion.
See "Certain Relationships and Related Transactions."
(5) Includes 1,157,407 shares of Common Stock issuable upon conversion of
12,500 shares of presently convertible Series B Preferred Stock, at a rate
of 92.5926 shares of Common Stock for every one share of preferred stock.
TICO is a Michigan partnership of which Mr. Itin is the Managing Partner.
(6) Includes 266,167 shares of Common Stock issuable upon exercise of options.
Mr. Itin is trustee and beneficiary of Acrodyne Profit Sharing Trust.
<PAGE>
(7) Does not include ownership of Enercorp, Inc. Mr. Hebard is the Chairman and
President of Enercorp.
Includes 278 vested shares issuable upon the exercise of stock options
granted under the 1994 stock option plan.
(8) Includes the following Common Stock and shares of Common Stock issuable
upon the conversion of presently convertible Preferred Stock owned by
Enercorp, Inc., a Colorado corporation, with its Common Stock registered
under Section 12(g) of the Exchange Act:
Common Stock 310,785
2,000 shares of Series C preferred stock,
convertible at one preferred share for 2.4242
shares of Common Stock 4,849
---------
315,634
(9) Includes 33,334 shares of Common Stock issuable upon exercise of warrants.
LBO Capital Corporation is a Colorado corporation of which Mr. Itin is a
56% shareholder, Chairman of the Board of Directors, and President.
(10) Includes 50,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(11) Includes 2,778 vested shares of Common Stock issuable upon the exercise of
outstanding stock options granted under the 1994 Stock Option Plan.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers, directors, and persons who
beneficially own more than 10% of the Company's Common Stock to file, with the
SEC, initial reports of beneficial ownership on Form 3, reports of changes in
beneficial ownership on Form 4, and annual statements of changes in beneficial
ownership on Form 5. Persons filing such reports are required under the
regulations promulgated by the SEC pursuant to Section 16 to furnish the Company
with copies of such reports. Based solely upon a review of the copies of the
reports received by the Company during the fiscal year ended December 31, 1999,
the Company believes that all reports were timely filed.
Item 13 Certain Relationships and Related Transactions
----------------------------------------------
Since 1994, Williams Controls, Inc. has made loans and provided capital to the
Company to assist the Company in meeting its financing requirements. Williams
owns 686,274 shares of the Company's common stock and holds options to purchase
an additional 1,851,813 shares of common stock exercisable at $1.08 per share
through August 1, 2000. Thomas W. Itin, the Company's Chairman, President, Chief
Executive Officer, Treasurer and beneficial owner of approximately 50.8% of the
Company's common stock, is also the Chairman, President, Chief Executive
Officer, Treasurer and beneficial owner of approximately 29.4%of the common
stock of Williams. Another director of the Company, Anthony B. Cashen serves as
a member of the Board of Directors of Williams.
From July 1997 to July 1998, the Company and its subsidiaries (the "Company
parties") were parties with Williams and its subsidiaries (the "Williams
parties") to a joint credit facility from Wells Fargo Bank, National Association
(the "Joint Wells Loan"). The proceeds of this joint financing were used to
repay the loans of the Williams parties and partially repay loans of the Company
parties from a previous bank lender, United States National Bank ("U. S. Bank").
In connection with the Joint Wells Loan, Williams provided the Company a loan in
the amount of $2,268,000 (the "Williams Bridge Loan") and U. S. Bank provided
the Company a bridge loan in the amount of $2,340,000 (the "USB Bridge Loan").
The Company is the primary obligor on the USB Bridge Loan promissory note and it
is guaranteed in full by the Williams parties, and by the Company's Chairman,
personally, up to $1,000,000.
<PAGE>
As of June 30, 1998, the Joint Wells Loan was restructured to separate the loans
to the Company parties and the Williams parties. This restructuring eliminated
joint and several liability to Wells, as well as cross collateral and guarantee
agreements, between the Company parties and the Williams parties as they related
to the Joint Wells Loan. The Company's new credit facility with Wells allows the
Company parties to borrow up to the lesser of $9,500,000 or the Borrowing Base
(as defined in the credit agreement) and matures on June 30, 2001. The Borrowing
Base is calculated periodically based on a formula including eligible accounts
receivable, eligible inventory and certain letters of credit as determined by
Wells.
In connection with the transaction with Wells to separate the loans of the
Company parties and the Williams parties effected June 30, 1998, Williams (a)
advanced an additional $2,000,000 in the form of cash and marketable securities,
(b) purchased notes payable of approximately $948,000 by the Company to other
affiliated parties, Enercorp, Inc. and First Equity Corporation, which evidenced
loans provided by those parties during 1997 when the Company required additional
capital, (c) and agreed to convert $5,000,000 of the amount owed by the Company
to Williams into 6,000,000 shares of a newly created class of preferred stock of
the Company, its Series D cumulative convertible preferred stock. In connection
with these transactions with Williams, the Company delivered a promissory note
to Williams for the full amount owed to Williams after conversion of $5,000,000
into the Series D preferred stock (the "Williams Note"). The Williams Note is
secured by a lien on substantially all of the assets of the Company parties,
which lien is subordinate to the liens of U. S. Bank and Wells.
The Williams note accrues interest at the rate of 16% per annum. As currently
structured, the interest first will become payable on December 31, 2000, and all
remaining principal and interest will be due at maturity on August 1, 2001. At
December 31, 1999, the Company owed $2,087,000 under the Williams Note. In
addition, it owed $1,365,000 to U. S. Bank under the USB Bridge Loan. If the
Company is unable to meet its repayment obligations under the USB Bridge Loan
and Williams agrees to and makes payments on the USB Bridge Loan on the
Company's behalf, any payments made by Williams would result in an increase in
the amount the Company owes to Williams.
The Series D preferred stock is convertible at the option of Williams into
3,333,333 shares of the Company's common stock. No dividends accrue on the
Series D preferred stock until after July 31, 2001. The dividend rate on the
Series D preferred stock will be 17% per annum commencing August 1, 2001 and
will increase to 24% in 2002. The Series D preferred stock is redeemable by the
Company and the Company will attempt to raise capital from new sources in order
to redeem the Series D preferred stock in lieu of paying these premium dividend
rates.
The Company has also entered into agreements with Williams that require annual
payments of $90,000 for administrative fees and $80,000 for management fees for
sourcing products overseas on the Company's behalf. These annual obligations
continue for two more years.
During 1999, Williams reimbursed the Company approximately $114,000 for
management services provided to Williams by an officer of the Company from 1997
through early 1999.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
-----------------------------------------------------------------
(a) 1. Financial Statements:
Ajay Sports, Inc. and Subsidiaries
Consolidated Financial Statements of Ajay
Sports, Inc. and Subsidiaries:
Reports of Independent Accountants
Consolidated Balance Sheets - December 31, 1999
and 1998
Consolidated Statements of Operations - Years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997
Notes to Financial Statements
2. Financial Statement Schedules:
Ajay Sports, Inc. and Subsidiaries:
Schedule II - Valuation and Qualifying Accounts - Years ended December 31,
1999, 1998 and 1997
3. Exhibits required by Item 601 of Regulation S-K
The following exhibits designated with a "+" symbol represent the
Company's Management Contracts or Compensatory Plans or arrangements
for executive officers:
Exhibit 3.1 (a) Articles of Incorporation and amendments thereto.
(1)
Exhibit 3.1 (b) Certificate of Designations of Rights
and Preferences of the Series B 8% Cumulative
Convertible Preferred Stock of Ajay Sports, Inc. (6)
Exhibit 3.1 (c) Certificate of Designations of Rights and
Preferences of the Series C 10% Cumulative Preferred
Stock of Ajay Sports, Inc. (7)
Exhibit 3.1 (d) Certificate of Designations of Rights and
Preferences of the Registrant's Series D Cumulative
Convertible Non-Voting Preferred Stock (11)
Exhibit 3.1 (e) Certificate of Amendment to Restated Certificate
of Incorporation Dated August 11, 1998 for common stock split
effective August 14, 1998. (12)
<PAGE>
Exhibit 3.2 Bylaws (1)
Exhibit 10.1 (a) License Agreement dated April 14,
1992 between Spalding Sports Worldwide and Ajay
Leisure Products, Inc. (2)
Exhibit 10.1 (b) First Amendment to the April 14, 1992 Spalding License
Agreement dated April 2, 1993 (3)
Exhibit 10.1 (c) Second Amendment to the April 14, 1992 Spalding License
Agreement dated July 1, 1994 (6)
Exhibit 10.1 (d) Third Amendment to the April 14, 1992 Spalding License
Agreement dated June 5, 1995 (7)
Exhibit 10.1 (e) License Agreement dated March 8, 1999 between
Spalding Sports Worldwide, Inc. and Ajay Leisure Products, Inc. (12)
Exhibit 10.2 Williams/Ajay Loan and Joint Venture Implementation Agreement
dated May 6, 1994 as amended by Letter Agreement dated April 3, 1995 (6)
Exhibit 10.3 1994 Stock Option Plan (5)
Exhibit 10.4 1995 Stock Bonus Plan (5)
Exhibit 10.5 (a) Revolving Loan Agreement dated July 25, 1995
Between Ajay Sports, Inc. and United States National Bank of
Oregon, including Guaranties, Security Agreements, and Other
Loan Documents (7)
Exhibit 10.5 (b) First Amendment to the July 25, 1995 Revolving Loan
Agreement dated October 2, 1995, including amendment to Bulge Loan Note,
Supplement to Guaranty and Amendment to Revolving Loan Note (8)
Exhibit 10.6 Consent Reaffirmation and Release Agreement
with U. S. Bank and Promissory Note of the Registrant (9)
Exhibit 10.7 Security Agreement dated July 14, 1997, among Registrant and
its subsidiaries, as debtors, and Williams Controls and its subsidiaries
as secured parties (10)
<PAGE>
Exhibit 10.8(a) Credit Agreement, dated June 30, 1998, by and among the
Registrant and its subsidiaries and Wells Fargo Bank, NA including
Promissory Notes, Security Agreements and other Loan Documents (the
"1998 Wells Fargo Credit Agreement") (11)
Exhibit 10.8(b) Amendment No. 1, dated February 2, 1999, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(c) Amendment No. 2, dated June 2, 1999 to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(d) Amendment No. 3, dated July 8, 1999, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(e) Amendment No. 4, dated July 14, 1999 to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(f) Amendment No. 5, dated August 5, 1999, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(g) Amendment No. 6, dated August 16, 1999 to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(h) Amendment No. 7, dated December 1, 1999, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(i) Amendment No. 8, dated January 16, 2000, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(j) Amendment No. 9, dated February 1, 2000, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(k) Amendment No. 10, dated March 1, 2000 to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.8(l) Amendment No. 11, dated April 1, 2000, to the 1998
Wells Fargo Credit Agreement. Filed Herewith
Exhibit 10.9 Restructuring agreement, dated June 30, 1998, by
and among Registrant and its subsidiaries and Williams Controls,
Inc. including promissory note (11)
<PAGE>
Exhibit 10.10 License Agreement dated March 8, 1999 between
Gary Player Group, Inc. and Ajay Leisure Products, Inc. (12)
Exhibit 10.11(a) Master Revolving Note dated June 22, 1999, in the
principal amount of $8.5 million between Pro Golf International, Inc. as
borrower and Comerica Bank as lender (the "Comerica Note")
Filed Herewith
Exhibit 10.11(b) Amendment No. 1 to Comerica Note. Filed Herewith
Exhibit 10.11(c) Amendment No. 2 to Comerica Note. Filed Herewith
Exhibit 10.11(d) Amendment No. 3 to Comerica Note Filed Herewith
Exhibit 10.11(e) Form of Guaranty for the Comerica Note, as signed by
the Registrant Filed Herewith
Exhibit 10.11(f) Form of Guaranty for the Comerica Note, as signed by each
of Thomas W. and Shirley B. Itin, Colorado Ridge Corporation,
Tico, Acrodyne Corporation, Sico, Pro Golf of America, Inc. and Woodward
Partners Filed Herewith
Exhibit 10.11(g) Form of Security Agreement under the Comerica Note
as signed by Pro Golf of America, Inc. and Pro Golf International, Inc.
Filed Herewith
Exhibit 10.12(a) Form of Subordinated Promissory Note (Maker Pro Golf
International, Inc.) Filed Herewith
Exhibit 10.12(b) Form of Comerica Subordination Agreement
Filed Herewith
Exhibit 10.13 Stock Purchase Agreement and Amendments related to the
Registrant's purchase of Pro Golf of America, Inc. (13)
Exhibit 10.14 Sale of Assets and Assignments related to the
Registrant's purchase of assets from State of the Art Golf Company, Inc.
(13)
Exhibit 10.15 Warrants issued to former shareholders of Pro Golf of
America, Inc. (13)
Exhibit 21.0 List of Subsidiaries Filed Herewith
Exhibit 23.1 Consent of Hirsch Silberstein & Subelsky, PC
Filed Herewith
Exhibit 23.2 Consent of J L Stephan Co., PC Filed Herewith
Exhibit 27.0 Financial Data Schedule Filed Herewith
<PAGE>
Notes Related to Exhibits Incorporated by Reference
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-18 No. 33-30760.
(2) Incorporated by reference from the Registrant's Form 10-K filed for the
year ended December 31, 1991. (SEC File No. 0-18204)
(3) Incorporated by reference from the Registrant's Form 10-K filed for
December 31, 1992. (SEC File No. 0-18204)
(4) Incorporated by reference from the Registrant's Form 10-K filed for
December 31, 1993. (SEC File No. 0-18204)
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-8, No. 33-89,650.
(6) Incorporated by reference from the Registrant's form 10-K filed for
December 31, 1994. (SEC File No. 0-18204)
(7) Incorporated by reference from the Registrant's Registration Statement on
Form S-2, File No. 33-58753.
(8) Incorporated by reference from the Registrant's Form 10-Q for the Quarterly
period ended September 30, 1995. (SEC file No. 0-18204)
(9) Incorporated by reference from the Registrant's Form 10-Q for the Quarterly
period ended June 30, 1997. (SEC file No. 0-18204)
(10) Incorporated by reference from the Registrant's 10-K filed for December 31,
1997. (SEC file No. 0-18204)
(11) Incorporated by reference from the Registrant's Form 10-Q for the Quarterly
period ended June 30, 1998. (SEC file No. 0-18204)
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998 (SEC file No. 0-18204)
(13) Incorporated by reference from the Registrant's Current Report on Form 8-K,
Date of Report June 23, 1999 as filed with the SEC on July 8, 1999 (SEC
File No. 0-18204)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Ajay Sports, Inc. has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in
West Bloomfield, Michigan on the 13th day of April, 2000.
AJAY SPORTS, INC.
By: \s\Thomas W. Itin
-------------------------
Thomas W. Itin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURES TITLE DATE
- ----------- ----- ----
\s\Thomas W. Itin Director April 28, 2000
- ----------------- and Principal --------------
Thomas W. Itin Executive Officer
\s\Ronald N. Silberstein Chief Financial April 28, 2000
- ------------------------- Officer and Principal --------------
Ronald N. Silberstein Accounting Officer
\s\Robert R. Hebard Director April 28, 2000
- -------------------- --------------
Robert R. Hebard
\s\Anthony B. Cashen Director April 28, 2000
- -------------------- --------------
Anthony B. Cashen
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
of Ajay Sports, Inc.
We have audited the accompanying balance sheet of Ajay Sports, Inc., as of
December 31, 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year then ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Ajay Sports, Inc. as of December 31,
1998 and 1997 were audited by other auditors whose reports dated March 12, 1999
and March 13, 1998 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ajay Sports, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information on Schedule II is presented for
purposes of complying with rules of the Securities and Exchange Commission and
is not a required part of the basic financial statements. This information has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the 1999 financial data required to be set forth therein in relation to the
basic financial statements taken as whole.
J L Stephan Co, PC
- ------------------------
Traverse City, Michigan
April 7, 2000
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
of Ajay Sports, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ajay Sports,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. We have also
audited the related consolidated financial statement schedules listed in the
index in Item 14 of this Form 10-K for each of the three years in the period
ended December 31, 1998. Theses consolidated financial statements and financial
statemnt schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standars require the we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that or audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statement schedules referred to above
present fairly, in all material respects, the financial position of Ajay Sports,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
\s\Hirsch Silberstein & Subelsky, P.C.
- ---------------------------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
March 12, 1999
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of December 31, 1999 and 1998
(in thousands, except share amounts)
December 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
----------- -----------
Current assets:
Cash $ 101 $ 6
Marketable securities - available for sale 348 396
Accounts receivable, net of allowance of $558 and $95,
respectively 3,247 1,889
Inventories 3,969 5,680
Prepaid expenses and other 1,179 485
----------- -----------
Total current assets 8,844 8,456
Fixed assets, net 1,693 1,708
Other assets 7,037 179
Deferred tax benefit 6,582 1,119
Goodwill 1,577 1,621
----------- -----------
Total assets $ 25,733 $ 13,083
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 995 $ 199
Accounts payable 5,043 2,225
Accrued expenses 1,099 380
----------- -----------
Total current liabilities 7,137 2,804
Notes payable to affiliates - long term 2,087 1,587
Notes payable to banks - long term 13,886 5,951
Notes payable - long term 2,070 -
Commitments and contingencies - -
----------- -----------
25,180 10,342
----------- -----------
Minority interest in subsidiary 24 -
----------- -----------
Stockholders' equity:
Preferred stock - 10,000,000 shares authorized
Series B, $0.01 par value, 12,500 shares
outstanding at liquidation value 1,250 1,250
Series C, $0.01 par value, 217,939 and
264,177 shares outstanding, respectively,
at stated value 2,179 2,642
Series D, $0.01 par value, 6,000,000 shares 60 60
Common stock, $0.01 par value, 100,000,000 shares
authorized, 4,091,091 and 3,956,815 shares
outstanding, respectively 41 40
Additional paid-in capital 15,500 14,762
Accumulated deficit (18,470) (16,006)
Accumulated other comprehensive income (31) (7)
----------- -----------
Total stockholders' equity 529 2,741
----------- -----------
Total liabilities and stockholders' equity $ 25,733 $ 13,083
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts)
Year Ended
--------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
---------- ---------- ----------
Operating data:
Net sales $ 14,340 $ 22,925 $ 30,330
Cost of sales 12,790 19,477 26,585
---------- ---------- ----------
Gross profit 1,550 3,448 3,745
Selling, general and administrative
expenses 4,866 3,868 5,837
---------- ---------- ----------
Operating (loss) (3,316) (420) (2,092)
---------- ---------- ----------
Nonoperating income (expense):
Interest expense (1,625) (1,139) (1,280)
Other, net 638 84 (144)
---------- ---------- ----------
Total non operating expense (987) (1,055) (1,424)
---------- ---------- ----------
(Loss) before minority interest and
income taxes (4,303) (1,475) (3,516)
Minority interest in (loss) of subsidiary 6 - -
---------- ---------- ----------
(Loss) before income taxes (4,297) (1,475) (3,516)
Income tax (benefit) (1,833) - -
---------- ---------- ----------
Net (loss) $ (2,464) $ (1,475) $ (3,516)
========== ========== ==========
Basic and diluted earnings per share (a) $ (0.70) $ (0.47) $ (1.01)
========== ========== ==========
Weighted average common shares
outstanding (b) 4,013 3,909 3,879
========== ========== ==========
Net loss as reported above (2,464) (1,475) (3,516)
Undeclared cumulative preferred dividends (341) (380) (396)
---------- ---------- ----------
Loss applicable to common stock $ (2,805) $ (1,855) $ (3,912)
========== ========== ==========
(a) Computed by dividing net loss after deducting undeclared,
cumulative preferred stock dividends, by the weighted average
number of common shares outstanding.
(b) Current and prior years restated to reflect result of reverse 1:6
common stock split effective August 14, 1998.
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Add'l Accum Total
--------------- ------------ Paid-in Accum Comprehensive Stockholders'
Shares Amount Shares Amount Capital (Deficit) Income (Loss) Equity
-------- ------ -------- ------- -------- ---------- ------------ -----------
Balances at December 31,1996 3,086,706 $4,212 3,879,007 $ 233 $9,313 $ (11,015) $ - $ 2,743
Net loss - - - - - (3,516) - (3,516)
-------- ------ --------- ------- -------- ---------- ------------ ------------
Balances at December 31, 1997 3,086,707 4,212 3,879,007 233 9,313 (14,531) - (773)
Common stock reverse 1:6 split - - 250 (194) 194 - - -
Other adjustments - - - (4) - - - (4)
Preferred stock converted into
common stock (31,993) (320) 77,558 1 319 - - -
Debt converted into
preferred stock 6,000,000 60 - - 4,940 - - 5,000
COMPREHENSIVE INCOME
Net loss - - - - - (1,475) - (1,475)
Other Comprehesive Income (Loss) - - - - - - (7) (7)
--------- ------ -------- ------- -------- --------- ------------ ------------
Balances at December 31, 1998 6,276,677 3,952 3,956,815 40 14,762 (16,006) (7) 2,741
Preferred stock converted into
common stock (46,238) (463) 134,276 1 738 - - 276
COMPREHENSIVE INCOME
Net Loss (2,464) (2,464)
Other Comprehesive Income (Loss) (24) (24)
-------- ------ -------- ------- --------- --------- ----------- -------------
Balances at December 31, 1999 6,230,439 $3,489 4,091,09 $ 41 $15,500 $ (18,470) (31) $ 529
======== ======== ======== ======= ========= ========== =========== =============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997
(in thousands)
<S> <C> <C> <C>
December 31,
------------------------------
1999 1998 1997
-------- --------- --------
Cash flows from operating activities:
Net (loss) $ (2,464) $ (1,475) $ (3,516)
Adjustments to reconcile to net cash flows
from operating activities:
(Gain) loss on sale of assets (7) - 42
Depreciation and amortization 335 381 358
Income tax provision (1,833) - -
(Increase) decrease in marketable securities 48 (396) -
(Increase) decrease in accounts receivable, net (1,358) 3,171 214
Decrease in inventories 1,711 718 1,559
(Increase) decrease in prepaid expenses (694) (181) 58
(Increase) decrease in other assets - (75) 202
Increase(decrease) in accounts payable 2,818 (979) 97
Increase (decrease) in accrued expenses 719 (303) 186
-------- --------- --------
Net cash provided by (used in) operating
activities (725) 861 (800)
-------- --------- --------
Cash flows from investing activities:
Acquisitions of property plant and equipment (281) (319) (250)
Disposal of equipment 19 - -
-------- --------- --------
Net cash (used in) investing activities (262) (319) (250)
-------- --------- --------
Cash flows from financing activities:
Net increase in advances from affiliates 500 2,215 3,487
Net increase (decrease) in bank notes payable 306 (2,978) (2,193)
Dividends paid - - (74)
Minority interest in subsidiary 300
Unrealized losses from securities (24) (7) -
-------- --------- --------
Net cash provided by (used in) financing
activities 1,082 (770) 1,220
-------- --------- --------
Net increase (decrease) in cash 95 (228) 170
Cash at beginning of period 6 234 64
-------- --------- --------
Cash at end of period $ 101 $ 6 $ 234
======== ========= ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
</TABLE>
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Ajay Sports, Inc. ("Sports") and its wholly-owned operating
company subsidiaries, Ajay Leisure Products, Inc. ("Ajay"), Leisure Life,
Inc. ("Leisure"), Palm Springs Golf, Inc. ("Palm Springs"), Prestige Golf
Corp. ("Prestige"), and majority-owned subsidiaries, Pro Golf
International, Inc. ("PGI"), Pro Golf of America, Inc. ("PGOA"), and
ProGolf.com, Inc. ("PG.com") collectively referred to herein as the
"Company". All significant intercompany balances and transactions have been
eliminated.
INVENTORIES - Inventories are stated at the lower of cost or market with
cost determined using the first-in, first-out method.
FIXED ASSETS - Fixed assets are stated at cost, less accumulated
depreciation of $1,834,000 and $1,329,000 as of December 31, 1999 and 1998
respectively. Fixed assets of the Company consist primarily of machinery
and equipment, office equipment, and a building. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets, which range from three to thirty-nine years.
GOODWILL - The Company has recorded goodwill as a result of the 1995
acquisitions of Palm Springs and Korex. The goodwill is being amortized
over forty years. Amortization expense related to the goodwill was $43,900
for the year ended December 31, 1999. As of each annual year-end date,
management assesses whether there has been an impairment in the carrying
value of goodwill. This assessment involves comparing the unamortized
goodwill carrying value with undiscounted cumulative estimated future cash
flows expected to be derived from utilization of the intangibles underlying
the related goodwill. To the extent that undiscounted cumulative cash flow
is expected to exceed the carrying value of goodwill, the asset is
considered to be unimpaired.
OTHER ASSETS - Other assets at December 31, 1999 and 1998 consist of
trademarks and brand names held by PGI (1999 only) and patents and
trademarks held and applied for by Leisure, and additionally, at December
31, 1998 a lawsuit judgment. Amortization expense related to trademarks and
patents is being deducted straight-line over the estimated useful lives of
these assets. Amortization expense related to the other assets was $193,000
for the year ended December 31, 1999.
PRODUCT LIABILITY AND WARRANTY COSTS - Product liability exposure is
insured with insurance premiums provided during the year. Product warranty
costs are based on experience and attempt to match such costs with the
related product sales.
REVENUE RECOGNITION -The Company recognizes revenue from sales of product
when title to the product has passed, which is generally the date the
product is shipped. PGOA recognizes Initial Franchise Fee revenue when all
material services or conditions relating to the sale have been
substantially performed or satisfied by the franchiser.
<PAGE>
INCOME TAXES - Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities,
using enacted statutory rates applicable to future years.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
COMMON STOCK - The Company reverse split its common stock in a 1-for-6
ratio effective with commencement of trading on August 14, 1998. As a
result of this transaction, all historic data in the financial statements
that reference common shares, options, earnings per share or preferred
conversion ratios have been restated to reflect this split as if it
preceded all prior reporting. Historic actual common shares outstanding at
December 31, 1997 were 23,274,039 and were restated to 3,879,007 in this
report.
2. RELATED PARTY TRANSACTIONS
--------------------------
The Company's related parties include the following:
First Equity Corporation ("First Equity") - First Equity is owned by a
family member of the president, chief executive officer, and chairman of
the Company. First Equity held, at December 31, 1997, demand notes in the
amount of $748,000 as a result of loans made to the company in 1996 and
1997. Williams assumed these notes in the financial restructuring in 1998.
First Equity made short-term working capital loans to Ajay during 1999,
with interest at various market rates. The balance due on these loans at
December 31, 1999 was $445,647, including accrued interest of $5,647.
Enercorp, Inc. ("Enercorp") - is a business development company engaged in
the business of investing in and providing managerial assistance to
developing companies. The Company's president, chief executive officer,
chairman and principal shareholder is a significant shareholder in
Enercorp. Enercorp holds 310,787 common shares acquired in 1994 and 1995
and 2,000 shares of series C preferred stock. Enercorp held at December 31,
1997, demand notes in the amount of $200,000 as a result of loans made to
the Company. Williams assumed these notes in the financial restructuring in
1998. During 1999, Enercorp loaned PGI $420,000 under a 13 month, 10%
subordinated note. In February, 2000 Enercorp converted the note and
accrued interest of $27,000 into 7,450 shares of PGI at $60 each.
Williams Controls, Inc. ("Williams") - Williams has the same chairman as
the Company, which individual is a major shareholder of each company.
Williams owns 686,274 shares of the Company's common stock, 1,851,813
common stock options and 6,000,000 shares of Series D cumulative
convertible preferred stock as of December 31, 1999, convertible into
3,333,333 shares of the Company's common stock.
During 1996 and 1997 the Company paid Williams 0.50% per annum of the
outstanding revolving loan balances in consideration for providing its
guarantee of a revolving loan from U. S. Bank. Fees totaled $39,750 and
$60,411 for the years ended December 31, 1997 and 1996 respectively. From
July 11, 1997 through June 30, 1998 the Company and Williams shared a joint
and several loan obligation. On June 30, 1998, the Company restructured its
credit facility with Wells Fargo Bank, N.A. ("Wells") to separate its
credit facility from that of Williams. As a result of this transaction, the
Company will no longer have joint and several liability, cross collateral
agreements or guarantees with Williams.
<PAGE>
In connection with the restructuring of the Wells credit facility, the
Company was advanced $2,000,000 additional funds by Williams in the form of
a long term note and marketable securities and Williams converted
$5,000,000 of Company debt into a newly created series D cumulative
convertible preferred stock.
The Company's interest expense paid to Williams was $62,900 and $346,000
for the years ended December 31, 1999 and 1998 respectively. (See Note 4).
The Company received 166,719 shares of Williams as part of the
restructuring agreement with Williams dated June 30, 1998. These shares
have been pledged to Wells Fargo as collateral for the Company's loans. The
common stock is classified as marketable securities available for sale
and are valued at $2.08 per share, which is the last trade for 1999.
During 1999, the Company had borrowings from affiliated parties, in
addition to those mentioned above, to finance its acquisition of PGOA and
PG.com. These borrowings totalled $450,000, with interest at an annual rate
of 10%. In February, 2000, these borrowings (and accrued interest totalling
$30,000) were converted into 8,000 shares of PGI common stock at $60 per
share. During 1997 and 1996 the Company borrowed from related and
affiliated parties until it obtained bank financing in mid 1997. As of
December 31, 1997, the Company owed $4,372,000 to related and affiliated
parties at interest rates ranging from 9.0% to 9.5%. These notes were
converted to preferred stock in 1998. (See Note 4).
3. INVENTORIES
-----------
Inventories consist of the following (in thousands):
December 31
1999 1998
-------- --------
Raw materials $ 827 $ 1,493
Work-in-progress 903 1,052
Finished goods 2,239 3,135
-------- --------
Total $ 3,969 $ 5,680
======== ========
4. DEBT
----
On December 31, 1999 the Company's total debt was $19,038,000 owed to
banks, Williams, and other affiliates. This compares to $7,724,000 for
December 31, 1998. The increase from 1998 is principally due to debt
incurred to purchase the Pro Golf companies. From July 11, 1997 until June
30, 1998 the Company shared in a combined credit agreement with Williams
(the "Joint Loan"). As of June 30, 1998 the Company restructured its credit
facility with Wells to separate from the joint and several credit facility
with Williams. This new credit facility eliminates cross collateral and
guarantee agreements involving the Company and Williams. The revolving loan
facility allows the Company to borrow up to the lesser of $9,500,000 or the
Borrowing Base. The Borrowing Base consists of a formula including certain
eligible receivables, inventories and letters of credit at rates
established by Wells. The present credit agreement matures June 30, 2001.
The proceeds from the Joint Loan were used to repay the Company's and
Williams then outstanding loans from the previous lender, U. S. Bank,
except for a bridge loan in the total amount of $2,140,000 to the Company
by U. S. Bank. This bridge loan is to be repaid from the sale of assets
and/or excess cash flows of Williams and/or the Company, and is guaranteed
up to $1,000,000 by the Company's president. The balance owed on this
bridge loan at December 31, 1999 is $1,365,000. In connection with the 1998
credit facility restructuring, the Company was advanced $2,000,000 of
additional funds by Williams and Williams converted $5,000,000 of company
debt into preferred stock.
<PAGE>
The Company's Bank borrowings consisted of the following (dollars in
thousands):
December 31,
Revolving credit facility: 1999 1998
-------- --------
Balance $ 3,862 $ 3,467
Interest rate 8.5% 8.75%
Unused amount of facility $ -0- $ 350
Average amount outstanding
during the period $ 4,258 $ 4,997
Weighted average interest rate 8.2% 9.1%
Maximum amount outstanding
during the period $ 5,295 $ 6,771
Master revolving note:
Balance $ 8,425 $ -
Weighted average interest rate 9.0% -
Average amount outstanding
during the period $ 8,479 $ -
Outstanding commercial letters of credit totaled approximately $309,000 and
$60,000 at December 31, 1999 and 1998 respectively.
Other December 31, 1999 debt consisted of $2,087,900 from related and
affiliated parties, a $412,500 machinery and equipment term loan with Wells
Fargo, the $1,364,538 (bridge) term loan with U. S. Bank, a $173,000 real
estate loan, a $8,425,000 bridge loan with Comerica Bank, and $1,200,000
with private individuals.
At December 31, 1999 the Company was liable to Comerica Bank in the amount
of $8,425,000 on a master revolving note entered into to effect the
acquisition of Pro Golf of America, Inc. and ProGolf.com, Inc. The note has
been extended through April 30, 2000. The Company anticipates refinancing
this loan into an amortizing long-term loan during the second quarter 2000.
(See Note 16).
Debt payments are as scheduled (dollars in thousands):
2000 995
2001 6,354
2002 1,000
2003 10,689
2004 and thereafter -0-
The seasonal nature of the Company's sales creates fluctuating demands on
its cash flow, due to the temporary build-up of inventories in
anticipation of, and receivables subsequent to, the peak seasonal period
which historically has been from February through May of each year. The
Company has relied and continues to rely heavily on its revolving credit
facility and loans from related parties and affiliated companies for its
working capital requirements. (See Note 16).
<PAGE>
5. INCOME TAXES
------------
As discussed in Note 2, the Company adopted SFAS No. 109 at the beginning
of 1992. There was no cumulative effect of this accounting change and its
adoption had no impact on 1992 net income.
The actual income tax expense (benefit) differs from the statutory income
tax expense (benefit) as follows (in thousands):
Year Ended December 31,
-----------------------
1999 1998 1997
------ ------ -----
Statutory tax expense
(benefit) $(1,833) $( 502) $(1,195)
Utilization of net
operating loss
carry forward - - -
Loss producing no current
tax benefit - 502 1,195
-------- ------- ---------
$(1,833) $ - $ -
======== ======= =========
The components of the net deferred tax asset/liability were as follows (in
thousands):
December 31,
------------
1999 1998
---- ----
Deferred tax assets:
Accrued expenses $ 45 $ 45
Reserves 78 151
NOL carry forwards 6,473 4,766
------ ------
Sub total $ 6,596 $ 4,962
Deferred tax liability,
principally depreciation and
amortization (13) (99)
Valuation allowance - (3,744)
Net $ 6,583 $ 1,119
======= =======
At December 31, 1999, the Company assessed its past earnings history and
trends, sales backlog, budgeted sales, and expiration dates of carry
forwards and has determined that it is more likely than not that 100% of
deferred tax assets will be realized. This change versus 1998 is
principally due to the profits to be realized from operations of PGOA and
PG.com. The valuation allowance of $3,744,000 at December 31, 1998 was
maintained on deferred tax assets which the Company had determined to be
more likely than not unrealizable at that time.
<PAGE>
The Company had net operating loss carry forwards for Federal tax purposes
of approximately $18,567,000 at December 31, 1999, which expire in varying
amounts in the years 2006 through 2019. Substantial operating loss carry
forwards are available to offset future state taxable income of the
Company, which expire in varying amounts in the years 2006 through 2019.
Future changes in ownership, as defined by section 382 of the Internal
Revenue Code, could limit the amount of net operating loss carry forwards
used in any one year.
6. STOCKHOLDERS' EQUITY
--------------------
(a) Preferred Stock
In October 1994 the Company created its Series B 8% cumulative convertible
preferred stock and allowed for its exchange, on a share-for-share basis,
with the Company's Series A preferred stock. The holder exchanged 29,500
shares of Series A preferred stock for 29,500 shares of the newly issued
Series B preferred stock and immediately converted 17,000 shares of its
Series B preferred stock for 5,040,000 (840,000 post split) shares of the
common stock of the Company, as the Series B preferred stock allowed for a
conversion rate of 1 share of Series B preferred stock for 294.12 shares of
the Company's common stock. In November 1997, the conversion rate on the
remaining 12,500 Series B shares was revised to 555.56 and after the 1:6
reverse common stock split of August 14, 1998 the conversion rate as of
December 31, 1998 is 92.5926.
In July 1995 the Company sold 325,000 shares of Series C 10% cumulative
convertible preferred stock and 325,000 warrants in a registered public
offering. The Series C preferred stock is convertible into shares of the
Company's common stock at a conversion rate of 2.42424 common shares for
each share of preferred stock. Cumulative dividends are payable on the
Series C preferred stock at an annual rate of $1.00 per share. The warrants
are redeemable by the Company at $0.05 per warrant under certain
conditions. The terms of these warrants are identical to the Company's
publicly held warrants to purchase common stock. In 1995 the Company used
the $2.8 million of net proceeds for inventory and accounts receivable
financing and to acquire certain assets of Korex and Palm Springs.
At December 31, 1999, 1998 and 1997, dividends in arrears on the 8%
cumulative convertible preferred Series B stock were $1,106,575, $1,006,575
and $906,575 respectively. Dividends on the Series C cumulative convertible
preferred stock were declared and paid through December 31, 1996. No
dividends were declared or paid for 1999, 1998 or 1997. At December 31,
1999, 1998 and 1997, dividends in arrears on the 10% cumulative convertible
preferred Series C stock were $817,232, $576,174 and $296,000. The Company
has dedicated all available funds to support continuing operations of the
Company until sufficient cash availability allows declaration and payment
of dividends.
(b) Stock issued to officers
The Company has a stock incentive plan for officers of the Company, under
which up to 150,000 shares of the Company's stock may be granted annually.
No stock was issued to officers under this plan in 1999, 1998 or 1997.
<PAGE>
(c) Stock Issued for Acquisitions
In 1994 the Company acquired the outstanding common stock of Leisure Life,
Inc. for 1,500,000 (post split 250,000) shares of its common stock to the
owner of Leisure Life. During the periods 1995, 1996 and 1997 one half of
the originally issued shares were returned to the Company due to unmet
performance requirements.
(d) Warrants and Options
A summary of activity related to warrants and options to purchase
Company common stock is as follows:
Warrants and Price
Options (i) Per Share(i)
------- ------------ -------------
Balance, December 31, 1996 2,767,935 $ 2.04 - 6.00
Issued to Employees 8,334 2.40 (ii)
Expired (27,500) 2.40 - 3.75
Repriced options (2,151,313) 2.04 - 3.00 (iii)
Repriced options 2,151,313 1.08 (iii)
---------
Balance, December 31, 1997 2,748,769 $ 1.08 - 6.00
Expired (122,287) 2.40 - 4.125
Issued to Directors 1,668 1.50 (iv)
------------
Balance, December 31, 1998 2,628,150 $ 1.08 - 6.00
Issued to Employees 50,000 1.00
Expired 83,334 2.40 - 4.125
------
Balance, December 31, 1999 2,594,816 $ 1.00 - 6.00
<PAGE>
(i) All options were adjusted for the effect of a 1:6 reverse common stock
split effective August 14, 1998.
(ii) Employee stock options of which none were vested.
(iii) All non-public, non-employee, non-board member options were repriced
to $.18 market in November 1997.
(iv) Director options - 67% vested.
7. MAJOR CUSTOMERS
---------------
The Company operates in three lines of business, the manufacture and
distribution of sports equipment, outdoor leisure furniture, and
franchising. The Company's customers are principally in the retail sales
market. The Company performs ongoing credit evaluations of its customers'
financial conditions and does not generally require collateral.
Sales to customers which represent over 10% of the Company's net sales are
as follows:
Year ended December 31,
--------------------------
Customer 1999 1998 1997
A 25% 28% 30%
B * 26% 15%
C * * 11%
* Amounts are less than 10% of net sales.
<PAGE>
8. BUSINESS SEGMENT REPORTING
--------------------------
The relative contributions to net sales, operating profit and identifiable
assets of the Company's two industry segments for the years ended December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
GOLF
-------------------------------------------
Mass Specialty
1999 Furniture Merchant Golf Stores Franchise Corporate Consolidated
-------------- --------- --------- ----------- --------- --------- ------------
Sales $ 4,766 $ 6,751 $ 1,080 $ 1,743 $ - $ 14,340
Oper profit/(loss) (398) (2,370) (191) 469 (704) (3,194)
Assets 2,487 2,345 6,338 14,563 - 25,733
Depn/Amort 151 223 51 318 - 425
Capital Exp. - 57 - 224 - 281
GOLF
-------------------------------------------
Mass Specialty
1998 Furniture Merchant Golf Stores Franchise Corporate Consolidated
-------------- --------- --------- ----------- --------- --------- -------------
Sales $ 3,785 $ 17,916 $ 1,224 - $ - $ 22,925
Operating profit/(loss) (241) 863 (494) - (548) (420)
Assets 2,673 8,564 1,846 - - 13,083
Depreciation/Amortization 92 229 60 - - 381
Capital Expenditures 175 144 - - - 319
</TABLE>
9 . GARY PLAYER AND SPALDING LICENSE AGREEMENTS
-------------------------------------------
On March 8, 1999 the Company entered into a new license agreement with Gary
Player Group, Inc. The Company will work toward developing the Gary Player
brand for marketing its products. The Gary Player agreement has a 5-year
term and covers golf bags, gloves, carts and certain other golf accessories
sold into the U. S. market. This agreement requires an annual $25,000
rights fee and a minimum annual royalty of $5,000 for the sixteen months
commencing on March 8, 1999 through June 30, 2000 and increases annually by
$5,000 for each of the remaining 4 years of the contract.
Ajay had operated since 1983 under a license from Spalding Sports Worldwide
to utilize the Spalding trademark in conjunction with the sale and
distribution of golf bags, golf gloves, hand pulled golf carts and certain
other golf accessories in the United States. On March 8, 1999, the Company
announced a limited extension of its existing agreement to provide a
phaseout period of up to 18 months for its Spalding labeled products. The
Company agreed to pay Spalding $240,000 during the phase out period. The
prior agreement contained a minimum annual royalty of $550,000 plus 2%
advertising of which 1% was paid direct.
Earned royalty expense due Spalding was $160,000, $448,000 and $553,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
<PAGE>
10. LEASES
------
Future aggregate minimum lease payments under noncancelable operating
leases with initial or remaining terms in excess of one year are as follows
(dollars in thousands):
2000 719
2001 507
2002 213
2003 175
2004 and thereafter 149
-------
$1,763
=======
Total rental expense ($000) under operating leases was $652, $605 and $701
for the years ended December 31, 1999, 1999 and 1997, respectively.
11. NET (LOSS) PER COMMON SHARE
----------------------------
Earnings or loss per share has been computed by dividing net income or
loss, after reduction for preferred stock dividends in 1999 ($341,000),
1998 ($380,000), and 1997 ($396,000) by the weighted average number of
common shares outstanding. No exercise of outstanding warrants was assumed
in 1999, 1998 or 1997, since any exercise of warrants would be
antidilutive.
SFAS No. 128, "Earnings Per Share", became effective for fiscal years
ending after December 15, 1997. This statement replaces the presentation of
primary earnings per share ("EPS") with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires reconciliation of the numerator and denominator of the basic EPS
computations to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared the earnings of
the entity.
12. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid for interest was $1,124,526, $1,209,693 and $776,077 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Non cash financing and investing transactions were as follows:
In exchange for acquiring in 1994 all of the common stock of Leisure
Life, Inc. the Company issued 1,500,000 (post split 250,000) shares of
its common stock to the owner of Leisure Life. During the periods
1995, 1996 and 1997 one half of the originally issued shares were
returned to the Company due to unmet performance requirements.
<PAGE>
In 1997 there were no stock transactions.
During 1998 preferred stock in the quantity of 31,993 shares were
converted into 77,558 shares of common stock.
During 1998 long-term debt of $5,000,000 was converted into 6,000,000
shares of Series D preferred stock.
The Company added new leases during 1998 and 1997 that represent asset
values respectively, if purchased, of approximately $103,000 and
$57,000 and result in annual lease payments of $27,000 and $18,732
with terms expiring up to the year 2003.
During 1999 Series C preferred stock in the quantity of 46,238 shares
were converted into 112,085 shares of common stock.
The Company borrowed $10,750,000 from a bank and others to acquire
PGOA and acquired PGD Online, LLC during 1999.
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has net losses before taxes of $4,297,000,
$1,475,000 and $3,516,000 for the years ended December 31, 1999, 1998 and
1997. A bank loan to one of the Companies subsidiaries has been extended to
April 30, 2000. The Company has is seeking a long-term extension of this
loan, and to raise equity capital. The Company's ability to continue as a
going concern is partially dependent on ability of management to
successfully implement these plans. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The Company is subject to certain claims in the normal course of business
which management intends to vigorously contest. The outcomes of these
claims are not expected to have a material adverse affect on the Company's
consolidated financial position or results of operations. (See Notes 4
and 9).
14. ACQUISITIONS
------------
In June 1999, Ajay, through a newly formed majority owned subsidiary (PGI)
acquired 100% of the outstanding ownership interests of PGOA and PG.com.
This acquisition was accounted for using the purchase method of accounting.
The results of operations of the acquired companies have been included in
Ajay's consolidated financial statements from the date of acquisition.
Intercompany accounts and transactions between the acquired companies and
Ajay, as applicable, have been eliminated.
The acquisition price of $10,500,000 was paid in cash and financed through
borrowings with a bank ($8,500,000) affiliated companies ($870,000) and
private individuals ($1,200,000). The portion of the purchase price in
excess of net book value was allocated to "Trademarks" and, net of the
related income tax benefit and related trademark amortization, is shown in
the consolidated balance sheet with "Other assets".
15. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1998, the Accounting Standards Committee of the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance for an enterprise on accounting
for the costs of computer software developed or obtained for internal use.
The Company adopted this statement during the year ended December 31, 1999
and has capitalized software costs according to the provisions of the
standard. These costs are amortized on a straight-line basis over the
useful life of the software once it is placed into service.
<PAGE>
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
The statement was amended by SFAS No. 137 and will be effective for
financial statements for fiscal years beginning after June 15, 2000. The
Company believes SFAS No. 133 will not have a material impact on its
financial statements or accounting policies. The Company will adopt the
provisions of SFAS No. 133 in the first quarter of 2001.
16. SUBSEQUENT EVENTS
-----------------
During late 1999 and into 2000, the Company began selling equity in PGI in
a private placement offering and entered into an agreement to acquire
developed and undeveloped real estate for existing and planned golf-related
activities, including golf domes with retail stores inside. As of April 14,
2000, the Company had committed to issue 138,750 shares of PGI stock at $60
per share, which represents 12.18% of the total shares of PGI stock
outstanding at that date. Of the new shares committed to, $375,000 cash had
been received with signed subscription documents, $870,000 was a conversion
of subordinated debt into common stock, and the remaining $7,080,000 a
combination of equity securities and golf-related real property.
The Company anticipates substantial additional cash flows resulting from
the debt conversions and the rents and fees to be received from the golf
properties during the initial twelve-month period beginning July 1, 2000.
These revenues are expected to increase in the future after the start-up
period is over. Additionally, the dome and retail store combination is
planned as the new PGOA franchise of the future and could substantially
increase revenues and cash flow of the Company's PGOA operations.
The Company began an offering of PG.com common stock in late April 2000 to
raise up to $12,500,000 in gross offering proceeds. If the maximum offering
is sold, the shares sold in this offering will represent approximately 33%
of the total PG.com common shares outstanding after the offering. Proceeds
from these private placements will be used for working capital,
acquisitions, and growth.
Effective March 15, 2000 PGI obtained an extension through April 30, 2000
on its master revolving note with Comerica Bank. PGI anticipates
refinancing this loan into a long-term amortizing loan during the second
quarter of 200.
<PAGE>
Schedule II
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998, and 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Balance
Beginning Charged to Deducted from at end
Balance expense Reserve of period
--------- ---------- ------------- ----------
Reserve for Product Warranty:
Year ended:
December 31, 1999 $103 $271 $295 (1) $ 79
December 31, 1998 152 70 119 103
December 31, 1997 85 309 242 152
Reserve for Doubtful Receivables:
Year ended:
December 31, 1999 $318 (3) $263 $23 (2) $558
December 31, 1998 243 50 198 95
December 31, 1997 140 355 252 243
Reserve for Inventory Obsolescence:
Year ended:
December 31, 1999 $300 $350 $257 $393
December 31, 1998 425 292 417 300
December 31, 1997 491 398 464 425
Notes:
(1) Represents amounts paid for product warranty claims.
(2) Represents amounts charged off as uncollectible.
(3) Includes $223 balance on books of company which was acquired in June, 1999
</TABLE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT entered into as of February 2,
1999 by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC.,
a Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, and
AJAY LEISURE PRODUCTS, INC., a Delaware corporation, (each individually referred
to as "Borrower" and all collectively referred to as "Borrowers"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
Borrowers and Bank are parties to that certain Credit Agreement dated as
of June 30, 1998 ("Agreement"). Borrowers and Bank desire to revise the
Agreement in the manner set forth herein to provide for a seasonal overadvance
for the period of February through June, 1999.
All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank agree as follows:
1. Definitions of "Additional Amount" and "Available Credit." Section 1.1
of the Agreement is hereby amended by adding the following definition
of "Additional Amount and revising the definition of "Available
Credit" in its entirety as follows:
"Additional Amount" means, (i) during the months of February through
May, 1999, the lesser of $750,000 or 15% of the Borrowing Base, and (ii)
during June, 1999, the lesser of $375,000 or 7.5% of the Borrowing Base
"Available Credit" means, at any time, the amount by which the
aggregate of the outstanding principal amount of the Revolving Loans at
such time and the Letter of Credit Obligations at such time is less than
the lesser of (i) $9,500,000 or (ii) the Borrowing Base plus the
Additional Amount.
2. Revision of Section 3.1(a). The first sentence of Section 3.1(a) of
the Agreement is hereby amended in its entirety to read as follows:
On the terms and subject to the conditions contained in this
Agreement, Bank agrees to make loans (each a "Revolving Loan") to
Borrowers from time to time until the Maturity Date in an aggregate amount
not to exceed at any time outstanding the lesser of (i) $9,500,000 or (ii)
the Borrowing Base plus the Additional Amount.
<PAGE>
3. Revision of Section 3.4(a). Section 3.4(a) of the Agreement is hereby
amended in its entirety to read as follows:
(a) Interest. Except as otherwise provided in the next sentence, the
outstanding principal balance of the Revolving Loans shall bear interest
at a fluctuating rate per annum equal to the aggregate of the Base Rate in
effect from time to time plus 100 basis points, provided, however, upon
the occurrence of a Rate Reduction Event, the number of basis points will
be reduced from 100 to 75 provided, further, upon the occurrence
thereafter of a Loss, the number of basis points will be increased from 75
to 100. The portion of the outstanding principal balance of the Revolving
Loans which is an advance of Additional Amount shall bear interest at a
fluctuating rate per annum equal to the aggregate of the Base Rate in
effect from time to time plus 200 basis points. The outstanding principal
balance of the Term Loan shall bear interest at a fluctuating rate per
annum equal to the aggregate of the Base Rate in effect from time to time
plus 125 basis points. The foregoing notwithstanding, the rate of interest
applicable at all times during the continuation of an Event of Default
shall be the applicable rate set forth above plus an additional 200 basis
points. All fees, expenses and other amounts not paid when due shall bear
interest (from the date due until paid) at a fluctuating rate per annum
equal to the Base Rate in effect from time to time plus 300 basis points.
4. Control Agreement. On or before March 1, 1999, Borrowers shall cause
Ajay Parent and Ajay Parent's securities intermediary to execute and
deliver to Bank a control agreement containing terms acceptable to
Bank for the purpose of perfecting (by control) Bank's security
interest in the 156,719 shares of Williams Controls, Inc.'s common
stock owned by Ajay Parent. Borrowers' failure to cause such agreement
to be delivered to Bank on or before March 1, 1999 shall be an Event
of Default.
5. Accommodation Fee. As consideration for Bank entering into this First
Amendment to Credit Agreement, Borrowers hereby agree to pay Bank an
accommodation fee of $5,000 upon the execution of this First
Amendment.
6. Effective Date. This First Amendment shall be effective upon the
execution of this First Amendment by Borrowers and Bank, and the
payment by Borrowers of the accommodation fee.
<PAGE>
7. Ratification. Except as otherwise provided in this First Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
8. One Agreement. The Agreement, as modified by the provisions of this
First Amendment, shall be construed as one agreement.
9. Counterparts. This First Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
10. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:__________________________ By:_____________________________
Title:_______________________ Title:__________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:__________________________ By:_____________________________
Title:_______________________ Title:__________________________
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:______________________________
Title:___________________________
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT entered into as of June __, 1999
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, and AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, (each individually referred to
as "Borrower" and all collectively referred to as "Borrowers"), and WELLS FARGO
CREDIT, INC., successor in interest to Wells Fargo Bank, National Association
("Bank").
RECITALS
Borrowers and Bank are parties to that certain Credit Agreement dated as
of June 30, 1998, as amended by the First Amendment to Credit Agreement dated
February 2, 1999 ("Agreement"). Borrowers and Bank desire to revise the
Agreement in the manner set forth herein to extend the seasonal overadvance
through August, 1999.
All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank agree as follows:
1. Revised Definitions. The terms "Additional Amount" and "Bank" are
hereby amended in their entirety to read as follows:
"Additional Amount" means, (i) during the months of February through
June, 1999, the least of (A) $750,000, (B) 15% of the Borrowing Base or
(C) 200% of the market value (as determined by Bank) of the stock of
Williams Controls, Inc. which is the subject of a first, perfected Lien in
favor of Bank ("Williams Stock"), and (ii) during July, 1999, the least of
(A) $375,000, (B) 7.5% of the Borrowing Base or (C) the market value (as
determined by Bank) of the Williams Stock.
"Bank" means Wells Fargo Credit, Inc.
2. Accommodation Fee. As consideration for Bank entering into this Second
Amendment to Credit Agreement, Borrowers hereby agree to pay Bank an
accommodation fee of $2,500 upon the execution of this Second
Amendment.
3. Effective Date. This Second Amendment shall be effective upon the
execution of this Second Amendment by Borrowers and Bank, and the
payment by Borrowers of the accommodation fee.
4. Ratification. Except as otherwise provided in this Second Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
<PAGE>
5. One Agreement. The Agreement, as modified by the provisions of this
Second Amendment, shall be construed as one agreement.
6. Counterparts. This Second Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
7. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:_________________________ By:______________________________
Title:______________________ Title:___________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:_________________________ By:______________________________
Title:______________________ Title:___________________________
WELLS FARGO CREDIT, INC.
By:______________________________
Title:___________________________
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT entered into as of July 9, 1999
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, and AJAY
LEISURE PRODUCTS, INC., a Delaware corporation (each individually referred to as
"Borrower" and all collectively referred to as "Borrowers"), and WELLS FARGO
CREDIT, INC., successor in interest to Wells Fargo Bank, National Association
("Bank").
RECITALS
Borrowers and Bank are parties to that certain Credit Agreement dated as
of June 30, 1998, as amended by two prior amendments ("Agreement"). Borrowers
and Bank desire to revise the Agreement in the manner set forth herein.
All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank agree as follows:
1. Revised Definitions. The terms "Additional Amount" and "Bank" are
hereby amended in their entirety to read as follows:
"Additional Amount" means, (i) during the months of February through
July, 1999, the least of (A) $750,000, (B) 15% of the Borrowing Base
or (C) 200% of the market value (as determined by Bank) of the stock
of Williams Controls, Inc. which is the subject of a first,
perfected Lien in favor of Bank ("Williams Stock"), and (ii) during
August, 1999, the least of (A) $375,000, (B) 7.5% of the Borrowing
Base or (C) the market value (as determined by Bank) of the Williams
Stock.
"Bank" means Wells Fargo Credit, Inc.
2. Accommodation Fee. As consideration for Bank entering into this Third
Amendment to Credit Agreement, Borrowers hereby agree to pay Bank an
accommodation fee of $1,000 upon the execution of this Third
Amendment.
3. Effective Date. This Third Amendment shall be effective upon the
execution of this Third Amendment by Borrowers and Bank, and the
payment by Borrowers of the accommodation fee.
4. Ratification. Except as otherwise provided in this Third Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
<PAGE>
5. One Agreement. The Agreement, as modified by the provisions of this
Third Amendment, shall be construed as one agreement.
6. Counterparts. This Third Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
7. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:_____________________________ By:_______________________________
Title:__________________________ Title:____________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:_____________________________ By:_______________________________
Title:__________________________ Title:____________________________
WELLS FARGO CREDIT, INC.
By:_______________________________
Title:____________________________
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT entered into as of July 14, 1999
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC.,
successor in interest to Wells Fargo Bank, National Association ("Bank").
RECITALS
Borrowers (other then Prestige Golf Corp.) and Bank are parties to that
certain Credit Agreement dated as of June 30, 1998, as amended by three prior
amendments ("Agreement"). Borrowers and Bank desire to revise the Agreement in
the manner set forth herein.
All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank agree as follows:
1. Additional Borrower. Prestige Golf Corp. is hereby made a party to the
Agreement as a Borrower.
2. Revised Definitions. The following defined terms are hereby amended in
their entirety to read as follows:
"A/R Advance Rates" means the following (or such other
rates as Bank may designate from time to time in its sole
discretion) with respect to the Eligible Accounts of each
Borrower listed below: (i) 80% for Palm Springs Golf, Inc. and
Prestige Golf Corp. and (ii) 85% for Leisure Life, Inc. and Ajay
Leisure Products, Inc.
"Borrower" means any one of Ajay Sports, Inc., Leisure
Life, Inc., Palm Springs Golf, Inc., Ajay Leisure Products, Inc.
and Prestige Golf Corp. and "Borrowers" shall refer collectively
to all of them.
3. Accommodation Fee. As consideration for Bank entering into this Fourth
Amendment to Credit Agreement, Borrowers hereby agree to pay Bank an
accommodation fee of $2,500 upon the execution of this Fourth
Amendment.
4. Effective Date. This Fourth Amendment shall be effective upon the
execution of this Fourth Amendment by Borrowers and Bank, and the
payment by Borrowers of the accommodation fee.
<PAGE>
5. Ratification. Except as otherwise provided in this Fourth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
6. One Agreement. The Agreement, as modified by the provisions of this
Fourth Amendment, shall be construed as one agreement.
7. Counterparts. This Fourth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
8. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT entered into as of August 5, 1999
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC.,
successor in interest to Wells Fargo Bank, National Association ("Bank").
RECITALS
Borrowers and Bank are parties to that certain Credit Agreement dated as
of June 30, 1998, as amended by four prior amendments ("Agreement"). Borrowers
and Bank desire to revise the Agreement in the manner set forth herein.
All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Bank agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means (i) during the months of February through
August, 1999, the least of (A) $750,000, (B) 15% of the Borrowing Base or (C)
200% of the market value (as determined by Bank) of the stock of Williams
Control, Inc. which is the subject of a first, perfected Lien in favor of Bank
("Williams Stock"), and (ii) during September, 1999, the market value of the
Williams Stock as determined by Bank on each Wednesday (beginning September 1)
based on the market value of the Williams Stock at the close of the preceding
Business Day.
3. Accommodation Fee. As consideration for Bank entering into this Fifth
Amendment to Credit Agreement, Borrowers hereby agree to pay Bank an
accommodation fee of $2,500 on September 1, 1999.
4. Effective Date. This Fifth Amendment shall be effective as of August
5, 1999 upon the execution of this Fifth Amendment by Borrowers and
Bank.
<PAGE>
5. Ratification. Except as otherwise provided in this Fifth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
6. One Agreement. The Agreement, as modified by the provisions of this
Fifth Amendment, shall be construed as one agreement.
7. Counterparts. This Fifth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
8. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:______________________________ By:__________________________________
Title:___________________________ Title:_______________________________
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT entered into as of August 16,
1999 by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC.,
a Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC.,
successor in interest to Wells Fargo Bank, National Association ("Wells Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by five prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means (i) through and including November 30,
1999, $750,000, and (ii) thereafter, $0.
2. Additional Reporting. On or before September 15, 1999, Ajay Parent
shall deliver to Wells Fargo a detailed projections satisfactory to
Wells Fargo for the period of September 1, 1999 through December 31,
1999 setting forth Borrowers' projected, consolidated income, cash
flow and borrowing availability under the Agreement (as amended
hereby) for each month of such period and the projected consolidated
balance sheet as of the end of each month of such period. If Borrowers
failure to provide such projections by September 15, 1999, the
Additional Amount shall be reduced to zero effective September 16,
1999.
3. Accommodation Fee. As consideration for Wells Fargo entering into this
Sixth Amendment to Credit Agreement, Borrowers hereby agree to pay
Wells Fargo an accommodation fee of $500.
4. Effective Date. This Sixth Amendment shall be effective as of August
16, 1999 upon: (i) the execution of this Sixth Amendment by Borrowers
and Wells Fargo; (ii) payment of the accommodation fee; (iii)
execution and delivery to Wells Fargo of a personal guaranty from
Thomas W. Itin ("Itin") on terms acceptable to the Wells Fargo; and
(iv) delivery of Itin's personal financial statement in form and
substance satisfactory to the Wells Fargo.
<PAGE>
5. Ratification. Except as otherwise provided in this Sixth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
6. One Agreement. The Agreement, as modified by the provisions of this
Sixth Amendment, shall be construed as one agreement.
7. Counterparts. This Sixth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
8. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Sixth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:______________________________ By:_______________________________
Title:___________________________ Title:____________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:______________________________ By:_______________________________
Title:___________________________ Title:____________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:______________________________ By:_______________________________
Title:___________________________ Title:____________________________
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT effective as of December 1,
1999, by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE,
INC., a Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation,
AJAY LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC. ("Wells
Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by six prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means (i) $750,000 through December 30, 1999;
(ii) $700,000 December 31, 1999 through January 16, 2000; (iii) $650,000
January 17, 2000 through January 31, 2000; and (iv) $0 thereafter.
2. Amendment to Section 10.1(n) Event of Default. Section 10.1(n) is
hereby amended to delete the name Clarence H. Yahn and to insert in
its place the name Tom Leonard.
3. Accommodation Fee. As consideration for Wells Fargo entering into this
Seventh Amendment to Credit Agreement, Borrowers hereby agree to pay
Wells Fargo an accommodation fee of $2,000.
4. Effective Date. This Seventh Amendment shall be effective as of
December 1, 1999 upon: (i) the execution of this Seventh Amendment by
Borrowers and Wells Fargo; (ii) payment of the accommodation fee; and
(iii) delivery by Borrowers to Wells Fargo of 16,667 shares of the
common stock of Pro Golf International, Inc.
<PAGE>
5. Ratification. Except as otherwise provided in this Seventh Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
6. One Agreement. The Agreement, as modified by the provisions of this
Seventh Amendment, shall be construed as one agreement.
7. Counterparts. This Seventh Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
8. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Seventh Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:_______________________________ By:__________________________________
Title:____________________________ Title:_______________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:_______________________________ By:__________________________________
Title:____________________________ Title:_______________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:_______________________________ By:__________________________________
Title:____________________________ Title:_______________________________
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT effective as of January 16,
2000, by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE,
INC., a Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation,
AJAY LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC. ("Wells
Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by seven prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means, between January 17, 2000 and January 31,
2000, the lesser of $750,000 or 85% of the market value of the 306,719
shares of Williams Controls, Inc. stock pledged to Wells Fargo as
Collateral. The market value of the pledged stock shall be determined
based on the list price on Nasdaq at the close of each business day. After
January 31, 2000, "Additional Amount" shall mean $0.
2. Effective Date. This Eighth Amendment shall be effective as of January
16, 2000 upon: (i) the execution of this Eighth Amendment by Borrowers
and Wells Fargo; and (ii) delivery by Borrowers to Wells Fargo of
150,000 shares of the common stock of Williams Controls, Inc.
3. Ratification. Except as otherwise provided in this Eighth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
4. One Agreement. The Agreement, as modified by the provisions of this
Eighth Amendment, shall be construed as one agreement.
<PAGE>
5. Counterparts. This Eighth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
6. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Eighth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:_________________________________ By:__________________________________
Title:______________________________ Title:_______________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:_________________________________ By:__________________________________
Title:______________________________ Title:_______________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:_________________________________ By:__________________________________
Title:______________________________ Title:_______________________________
NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT effective as of February 1, 2000,
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC. ("Wells
Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by eight prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means, between February 1, 2000 and February 29,
2000, the lesser of $750,000 or 85% of the market value of the 306,719
shares of Williams Controls, Inc. stock pledged to Wells Fargo as
Collateral based on the list price on Nasdaq at the close of business on
the most recent Friday. After January 31, 2000, "Additional Amount" shall
mean $0.
2. Accommodation Fee. As consideration for Wells Fargo entering into this
Ninth Amendment, Borrowers hereby agree to pay Wells Fargo an
accommodation fee of $4,000 on March 1, 2000.
3. Effective Date. This Ninth Amendment shall be effective as of February
1, 2000 upon: (i) the execution of this Ninth Amendment by Borrowers
and Wells Fargo; and (ii) execution and delivery by Acrodyne
Corporation, a Michigan corporation, to Wells Fargo of the Pledge
Agreement between Pledgor and Wells Fargo and delivery of the 150,000
shares of the common stock of Williams Controls, Inc. which are the
subject of the Pledge Agreement.
4. Ratification. Except as otherwise provided in this Ninth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
<PAGE>
5. One Agreement. The Agreement, as modified by the provisions of this
Ninth Amendment, shall be construed as one agreement.
6. Counterparts. This Ninth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
7. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Ninth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:________________________________ By:___________________________________
Title:_____________________________ Title:________________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:________________________________ By:___________________________________
Title:_____________________________ Title:________________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:________________________________ By:___________________________________
Title:_____________________________ Title:________________________________
TENTH AMENDMENT TO CREDIT AGREEMENT
THIS TENTH AMENDMENT TO CREDIT AGREEMENT effective as of March 1, 2000, by
and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC.
("Wells Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by nine prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means, between March 1, 2000 and March 31, 2000,
the lesser of $750,000 or 85% of the market value of the 306,719 shares of
Williams Controls, Inc. stock pledged to Wells Fargo as Collateral based
on the list price on Nasdaq at the close of business on the most recent
Friday. After March 31, 2000, "Additional Amount" shall mean $0.
2. Accommodation Fee. As consideration for Wells Fargo entering into this
Tenth Amendment, Borrowers hereby agree to pay Wells Fargo an
accommodation fee of $2,000 on April 1, 2000.
3. Effective Date. This Tenth Amendment shall be effective as of March 1,
2000 upon: (i) the execution of this Tenth Amendment by Borrowers and
Wells Fargo; and (ii) execution and delivery by Acrodyne Corporation,
a Michigan corporation, to Wells Fargo of the Pledge Agreement between
Pledgor and Wells Fargo and delivery of the 150,000 shares of the
common stock of Williams Controls, Inc. which are the subject of the
Pledge Agreement.
4. Ratification. Except as otherwise provided in this Tenth Amendment,
all of the provisions of the Agreement are hereby ratified and
confirmed and shall remain in full force and effect.
<PAGE>
5. One Agreement. The Agreement, as modified by the provisions of this
Tenth Amendment, shall be construed as one agreement.
6. Counterparts. This Tenth Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement.
7. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Tenth Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:_______________________________ By:___________________________________
Title:____________________________ Title:________________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:_______________________________ By:___________________________________
Title:____________________________ Title:________________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:_______________________________ By:___________________________________
Title:____________________________ Title:________________________________
ELEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS ELEVENTH AMENDMENT TO CREDIT AGREEMENT effective as of April 1, 2000,
by and among AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY
LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a
Delaware corporation, (each individually referred to as "Borrower" and all
collectively referred to as "Borrowers"), and WELLS FARGO CREDIT, INC. ("Wells
Fargo").
RECITALS
Borrowers and Wells Fargo are parties to that certain Credit Agreement
dated as of June 30, 1998, as amended by ten prior amendments ("Agreement").
Borrowers and Wells Fargo desire to revise the Agreement in the manner set forth
herein. All capitalized terms used herein and not otherwise defined herein shall
have the meaning attributed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Borrowers and Wells Fargo agree as follows:
1. Revised Definition. The definition of "Additional Amount" is hereby
amended in its entirety to read as follows:
"Additional Amount" means, during each period set forth below, the
lesser of $750,000 or the percentage set forth below of the market value
of the 306,719 shares of Williams Controls, Inc. stock pledged to Wells
Fargo as Collateral based on the list price on Nasdaq at the close of
business on the date set opposite such period below, and thereafter,
"Additional Amount" means $0.
Period Valuation Percentage
Date
April 1 - 16, 2000 March 31, 2000 85%
April 17 - 30, 2000 April 14, 2000 90%
May 1 - 7, 2000 April 28, 2000 95%
May 8 - 15, 2000 May 5, 2000 100%
2. Inventory Appraisal. Before May 15, 2000, Borrowers shall deliver to
Wells Fargo an appraisal of the orderly liquidation value of all of
Borrowers' Inventory, said appraisal to be conducted by an appraiser
acceptable to Wells Fargo and to be in form and substance acceptable
to Wells Fargo. Borrowers' failure to deliver such an appraisal shall
constitute an Event of Default.
<PAGE>
3. Accommodation Fee. As consideration for Wells Fargo entering into this
Eleventh Amendment, Borrowers hereby agree to pay Wells Fargo an
accommodation fee of $5,000 on ___________, 2000.
4. Effective Date. This Eleventh Amendment shall be effective as of April
1, 2000 upon the execution of this Eleventh Amendment by Borrowers and
Wells Fargo.
5. Ratification. Except as otherwise provided in this Eleventh Amendment,
all of the provisions of the Agreement and the other Loan Documents
are hereby ratified and confirmed and shall remain in full force and
effect.
6. One Agreement. The Agreement, as modified by the provisions of this
Eleventh Amendment, shall be construed as one agreement.
7. Counterparts. This Eleventh Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same agreement. Delivery of an executed
signature page of this Eleventh Amendment by facsimile transmission
shall be effective as delivery of a manually executed counterpart
hereof.
8. Oregon Statutory Notice.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Eleventh Amendment to
Credit Agreement as of the date first above written.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
PALM SPRINGS GOLF, INC. AJAY LEISURE PRODUCTS, INC.
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
PRESTIGE GOLF CORP. WELLS FARGO CREDIT, INC.
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
Master Revolving Note
Variable Rate-Demand -- Optional Advances (Business and Commercial Loans Only)
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION
$8,500,000 June , 1999 ON NUMBER
----
DEMAND
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay on the earlier to occur of
, 1999 and DEMAND to the order of Comerica Bank ("Bank"), at any office of the
Bank in the State of Michigan, Eight Million Five Hundred Thousand Dollars
(U.S.) (or that portion of it advanced by the Bank and not repaid as later
provided) with interest until demand or until Default, as later defined, at a
per annum rate equal to the Bank's prime rate from time to time in effect plus 1
% per annum and after that at a rate equal to the rate of interest otherwise
prevailing under this Note plus 3% per annum (but in no event in excess of the
maximum rate permitted by law). The Bank's "prime rate" is that annual rate of
interest so designated by the Bank and which is changed by the Bank from time to
time. Interest rate changes will be effective for interest computation purposes
as and when the Bank's prime rate changes. Interest shall be calculated on the
basis of a 360-day year for the actual number of days the principal is
outstanding. Unless sooner demanded, accrued interest on this Note shall be
payable on the first day of each month commencing
August 1, 1999 . If the frequency of interest payments is not otherwise
specified, accrued interest on this Note shall be payable monthly on the first
day of each month, unless sooner demanded. If any payment of principal or
interest under this Note shall be payable on a day other than a day on which the
Bank is open for business, this payment shall be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. A late payment charge equal to 5% of each late payment
may be charged on any payment not received by the Bank within 10 calendar days
after the payment due date, but acceptance of payment of this charge shall not
waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full. At no time shall the Bank be under any
obligation to make any advances to the undersigned pursuant to this Note
(notwithstanding anything expressed or implied in this Note or elsewhere to the
contrary, including without limit if the Bank supplies the undersigned with a
borrowing formula) and the Bank, at any time and from time to time, without
notice, and in its sole discretion, may refuse to make advances to the
undersigned without incurring any liability due to this refusal and without
affecting the undersigned's liability under this Note for any and all amounts
advanced.
<PAGE>
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has(have) given or give(s) Bank a deed of trust or
mortgage covering California real property, that deed of trust or mortgage shall
not secure this Note or any other indebtedness of the undersigned (or any of
them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (i) fail(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any such guarantor and the Bank; or (iii) become(s) insolvent or
the subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies, becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation or a limited liability company) is the subject
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law.
<PAGE>
The undersigned acknowledge(s) that this Note matures upon issuance, and that
the Bank, at any time, without notice, and without reason, may demand that this
Note be immediately paid in full. The demand nature of this Note shall not be
deemed modified by reference to a Default in this Note or in any agreement to a
default by the undersigned or to the occurrence of an event of default
(collectively an "Event of Default"). For purposes of this Note, to the extent
there is reference to an Event of Default this reference is for the purpose of
permitting the Bank to accelerate Indebtedness not on a demand basis and to
receive interest at the default rate provided in the document evidencing the
relevant Indebtedness. It is expressly agreed that the Bank may exercise its
demand rights under this Note whether or not an Event of Default has occurred.
The Bank, with or without reason and without notice, may from time to time make
demand for partial payments under this Note and these demands shall not preclude
the Bank from demanding at any time that this Note be immediately paid in full.
All payments under this Note shall be in immediately available United States
funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns. The undersigned waive(s) presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or intent
to accelerate, and all other notices and agree(s) that no extension or
indulgence to the undersigned (or any of them) or release, substitution or
nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without notice,
shall affect the obligations of any of the undersigned. The undersigned waive(s)
all defenses or right to discharge available under Section 3-605 of the Michigan
Uniform Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations or any interest in, any or all of the Indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the Indebtedness. The undersigned agree(s) that the Bank may
provide information relating to this Note or relating to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note upon
demand for any and all costs and expenses (including without limit, court costs,
legal expenses and reasonable attorney fees, whether inside or outside counsel
is used, whether or not suit is instituted and, if suit is instituted, whether
at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF MICHIGAN AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
<PAGE>
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM, OR THE HIGHEST
APPLICABLE USURY CEILING, WHICHEVER IS LESS.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
Pro Golf International, Inc.
- --------------------------------------
OBLIGOR NAME TYPED/PRINTED
By:______________________ Its:___________________
SIGNATURE OF TITLE (if applicable)
By:_______________________ Its:___________________
SIGNATURE OF TITLE (if applicable)
By:_______________________ Its:___________________
SIGNATURE OF TITLE (if applicable)
By:_______________________ Its:___________________
SIGNATURE OF TITLE (if applicable)
7001 Orchard Lake Road, West Bloomfield Michigan 48322
- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
For Bank Use Only
CCAR #
LOAN OFFICER LOAN GROUP NAME OBLIGOR NAME
INITIALS
- --------------------------------------------------------------------------------
LOAN OFFICER ID. LOAN GROUP NO. OBLIGOR NO. NOTE NO. AMOUNT
NO.
- --------------------------------------------------------------------------------
Amendment to Note
This Amendment to Note ("Amendment"), made, delivered, and effective as of
September 7, 1999, by and between Pro Golf International, Inc. ("Borrower") and
COMERICA BANK ("Bank").
WHEREAS, Borrower and Bank are parties to that certain Master Revolving Note in
the original principal amount of $8,500,000 dated June 22, 1999 ("Note"); and
WHEREAS, Bank and Borrower desire to amend the Note as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Amendment, Borrower and Bank agree as follows:
1. The reference to "September 7, 1999" in the first sentence of the Note is
deleted and "November 8, 1999" is inserted in lieu thereof. The indebtedness
outstanding under the Note shall now be due and payable in full on the earlier
of November 8, 1999 and DEMAND by Bank.
2. Borrower is responsible for all costs incurred by Bank, including without
limit reasonable attorney fees, with regard to the preparation and execution
of this Amendment.
3. The execution of this Amendment shall not be deemed to be a waiver of any
Default or Event of Default.
4. All the terms used in this Amendment which are defined in the Note shall have
the same meaning as used in the Note, unless otherwise defined in this
Amendment.
5. Borrower waives, discharges, and forever releases Bank, Bank's employees,
officers, directors, attorneys, stockholders, and their successors and
assigns, from and of any and all claims, causes of action, allegations or
assertions that Borrower has or may have had at any time up through and
including the date of this Amendment, against any or all of the foregoing,
regardless of whether any such claims, causes of action, allegations or
assertions are known to Borrower or whether any such claims, causes of
action, allegations or assertions arose as result of Bank's actions or
omissions in connection with the Note, or any amendments, extensions or
modifications thereto, or Bank's administration of the debt evidenced by the
Note or otherwise. Nothing set forth in this Amendment shall be deemed to
modify the demand nature of the Note.
6. This Amendment is not an agreement to any further or other amendment of the
Note.
7. Borrower expressly acknowledges and agrees that except as expressly amended
in this Amendment, the Note, as amended, remains in full force and effect and
is ratified, confirmed and restated.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on
the date set forth above.
Name(s) of Borrower(s): Pro Golf International, Inc.
By:_____________________________ By:________________________________
SIGNATURE OF SIGNATURE OF
Its:____________________________ Its:_______________________________
TITLE (IF APPLICABLE) TITLE (IF APPLICABLE)
COMERICA BANK
By:_______________________________
SIGNATURE OF
Its:______________________________
TITLE
[continued on next page]
<PAGE>
The above Amendment to Note is consented to by the undersigned Guarantors as of
September 7, 1999.
Ajay Sports, Inc.
Woodward Partners, Inc.
Pro-Golf of America, Inc.
Colorado Ridge Corporation
Acrodyne Corporation
By:____________________________________________
Thomas W. Itin, President of each of the above entities
Tico
By:____________________________________________
Thomas W. Itin, Managing Partner
Sico
By:____________________________________________
Shirley B. Itin, Managing Partner
- -----------------------------------------------
Thomas W. Itin, individually
- -----------------------------------------------
Shirley B. Itin, individually
Amendment No. 2 to Note
This Amendment to Note ("Amendment"), made, delivered, and effective as of
November 8, 1999, by and between Pro Golf International, Inc. ("Borrower") and
COMERICA BANK ("Bank").
WHEREAS, Borrower and Bank are parties to that certain Master Revolving Note in
the original principal amount of $8,500,000 dated June 22, 1999, as previously
amended as of September , 1999 ("Note"); and
WHEREAS, Bank and Borrower further desire to amend the Note as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Amendment, Borrower and Bank agree as follows:
1. The reference to "November 8, 1999" in the first sentence of the Note is
deleted and "March 15, 2000" is inserted in lieu thereof. The indebtedness
outstanding under the Note shall now be due and payable in full on the earlier
of March 15, 2000 and DEMAND by Bank.
2. Upon execution of this Amendment, Borrower shall pay Bank a non-refundable
amendment fee of $300,000 ("Amendment Fee") which fee shall be deemed fully
earned upon payment. Notwithstanding that the amendment fee is
non-refundable, Bank agrees as follows:
a. If on or before March 15, 2000 Borrower furnishes Bank with evidence
satisfactory to Bank that from the date hereof through March 15, 2000,
Borrower has raised $2,000,000 in capital in the form of equity or
subordinated debt (pursuant to written subordination agreements
satisfactory to Bank in the exercise of its sole, but reasonable,
discretion), Bank shall rebate $100,000 (and not more than $100,000) of
the Amendment Fee to Borrower.
b. If on or before March 15, 2000 Borrower furnishes Bank with evidence
satisfactory to Bank that from the date hereof through March 15, 2000,
Borrower has raised at least $1,000,000 but less than $2,000,000 in
capital in the form of equity or subordinated debt (pursuant to written
subordination agreements satisfactory to Bank in the exercise of its sole,
but reasonable, discretion), Bank shall rebate $50,000 (and not more than
$50,000) of the Amendment Fee to Borrower.
c. If on or before March 15, 2000, Borrower refinances through Bank its
indebtedness outstanding under the Note such that at least $8,000,000 of
the principal amount outstanding under the Note is refinanced as an
amortizing term loan and the balance thereof is replaced by a line of
credit based on a formula of Borrower's accounts and/or inventory pursuant
to loan documents satisfactory to Bank in the exercise of its sole, but
reasonable, discretion, Bank shall rebate $50,000 (and not more than
$50,000) of the Amendment Fee to Borrower, in addition to any other rebate
made under subpart a or b of this Section 2.
d. In no event shall Borrower be entitled to a rebate of the Amendment Fee
under both subparts a and b of this Section 2. In no event shall Borrower
be entitled to any rebate under this Section 2 if Borrower fails to raise
less than $1,000,000 in capital in accordance with the provisions of this
Section 2.
<PAGE>
3. Borrower is responsible for all costs incurred by Bank, including without
limit reasonable attorney fees, with regard to the preparation and execution
of this Amendment.
4. The execution of this Amendment shall not be deemed to be a waiver of any
Default or Event of Default.
5. All the terms used in this Amendment which are defined in the Note shall have
the same meaning as used in the Note, unless otherwise defined in this
Amendment.
6. Borrower waives, discharges, and forever releases Bank, Bank's employees,
officers, directors, attorneys, stockholders, and their successors and
assigns, from and of any and all claims, causes of action, allegations or
assertions that Borrower has or may have had at any time up through and
including the date of this Amendment, against any or all of the foregoing,
regardless of whether any such claims, causes of action, allegations or
assertions are known to Borrower or whether any such claims, causes of
action, allegations or assertions arose as result of Bank's actions or
omissions in connection with the Note, or any amendments, extensions or
modifications thereto, or Bank's administration of the debt evidenced by the
Note or otherwise.
7. This Amendment is not an agreement to any further or other amendment of the
Note. This Amendment shall become effective upon execution by the parties and
payment by Borrower of the amendment fee required under paragraph 2 above.
Nothing set forth in this Amendment is intended nor shall be deemed to modify
the demand basis of the Note and Borrower acknowledges and agrees that Bank,
with or without reason and without notice, may demand that the Note be
immediately paid in full. Nothing set forth in this Amendment shall
constitute a commitment on the part of Bank to refinance any of the
indebtedness outstanding under the Note or otherwise extend any credit
facility to Borrower.
8. Borrower expressly acknowledges and agrees that except as expressly amended
in this Amendment, the Note, as amended, remains in full force and effect and
is ratified, confirmed and restated.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on
the date set forth above.
Name(s) of Borrower(s): Pro Golf International, Inc.
By:______________________________ By:_______________________________
SIGNATURE OF SIGNATURE OF
Its:_____________________________ Its:______________________________
TITLE (IF APPLICABLE) TITLE (IF APPLICABLE)
COMERICA BANK
By:______________________________
SIGNATURE OF
Its:_____________________________
TITLE
The above Amendment to Note is consented to by the undersigned Guarantors as of
November 8, 1999.
Ajay Sports, Inc.
Woodward Partners, Inc.
Pro-Golf of America, Inc.
Colorado Ridge Corporation
Acrodyne Corporation
By:____________________________________________
Thomas W. Itin, President of each of the above entities
TICO
By:____________________________________________
Thomas W. Itin, Managing Partner
SICO
By:____________________________________________
Shirley B. Itin, Managing Partner
- -----------------------------------------------
Thomas W. Itin, individually
- -----------------------------------------------
Shirley B. Itin, individually
Amendment No. 3 to Note and Waiver
This Amendment to Note and Waiver ("Amendment"), made, delivered, and
effective as of March 15, 2000, by and between Pro Golf International, Inc.
("Borrower") and COMERICA BANK ("Bank").
WHEREAS, Borrower and Bank are parties to that certain Master Revolving Note in
the original principal amount of $8,500,000 dated June 22, 1999, as previously
amended by Amendment No. 1 to Note dated as of September ___, 1999 and Amendment
No. 2 to Note dated as of November 8, 1999 (as so amended, the "Note"); and
WHEREAS, Bank and Borrower further desire to amend the Note as set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Amendment, Borrower and Bank agree as follows:
1. The reference to "March 15, 2000" in the first sentence of the Note is
deleted and "April 30, 2000" is inserted in lieu thereof. The indebtedness
outstanding under the Note shall now be due and payable in full on the
earlier of April 30, 2000 and DEMAND by Bank.
2. Borrower hereby acknowledges that the amendment fee required to be paid by
Borrower under the terms of paragraph 2 of Amendment No. 2 to Note dated as
of November 8, 1999 executed by Borrower and Bank ("Amendment No. 2") has not
been paid by Borrower. Bank hereby waives the requirement that Borrower pay
such fee to Bank. The parties hereby agree that the provisions of paragraph 2
of Amendment No. 2 (including, without limitation, subparagraphs a. through
d. thereof) are hereby terminated and of no further force and effect.
3. In consideration of the amendments and waivers set forth in paragraphs 1 and
2 above, Borrower shall pay Bank on or before April 30, 2000, a
non-refundable amendment and waiver fee of $250,000 ("Amendment Fee") which
fee shall be deemed fully earned upon execution of this Amendment. In no
event shall Borrower be entitled to any rebate or refund of all or any
portion of the Amendment Fee.
4. Borrower is responsible for all costs incurred by Bank, including without
limit reasonable attorney fees, with regard to the preparation and execution
of this Amendment.
5. The execution of this Amendment shall not be deemed to be a waiver of any
Default or Event of Default.
<PAGE>
6. All the terms used in this Amendment which are defined in the Note shall have
the same meaning as used in the Note, unless otherwise defined in this
Amendment.
7. Borrower waives, discharges, and forever releases Bank, Bank's employees,
officers, directors, attorneys, stockholders, and their successors and
assigns, from and of any and all claims, causes of action, allegations or
assertions that Borrower has or may have had at any time up through and
including the date of this Amendment, against any or all of the foregoing,
regardless of whether any such claims, causes of action, allegations or
assertions are known to Borrower or whether any such claims, causes of
action, allegations or assertions arose as result of Bank's actions or
omissions in connection with the Note, or any amendments, extensions or
modifications thereto, or Bank's administration of the debt evidenced by the
Note or otherwise.
8. This Amendment is not an agreement to any further or other amendment of the
Note. This Amendment shall become effective upon execution by the parties and
payment by Borrower of the amendment fee required under paragraph 2 above.
Nothing set forth in this Amendment is intended nor shall be deemed to modify
the demand basis of the Note and Borrower acknowledges and agrees that Bank,
with or without reason and without notice, may demand that the Note be
immediately paid in full. Nothing set forth in this Amendment shall
constitute a commitment on the part of Bank to refinance any of the
indebtedness outstanding under the Note or otherwise extend any credit
facility to Borrower.
9. Borrower expressly acknowledges and agrees that except as expressly amended
in this Amendment, the Note, as amended, remains in full force and effect and
is ratified, confirmed and restated.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on
the date set forth above.
Name(s) of Borrower(s): Pro Golf International, Inc.
By:_______________________________ By:__________________________________
SIGNATURE OF SIGNATURE OF
Its:______________________________ Its:_________________________________
TITLE (IF APPLICABLE) TITLE (IF APPLICABLE)
COMERICA BANK
By:______________________________________
SIGNATURE OF
Its:______________________________________
TITLE
The above Amendment No. 3 to Note and Waiver is consented to by the undersigned
Guarantors as of March 15, 2000.
Ajay Sports, Inc.
Woodward Partners, Inc.
Pro-Golf of America, Inc.
Colorado Ridge Corporation
Acrodyne Corporation
By:____________________________________________
Thomas W. Itin, President of each of the above entities
TICO
By:____________________________________________
Thomas W. Itin, Managing Partner
SICO
By:____________________________________________
Shirley B. Itin, Managing Partner
- -----------------------------------------------
Thomas W. Itin, individually
- -----------------------------------------------
Shirley B. Itin, individually
Guaranty
As of June ___, 1999, the undersigned, for value received, unconditionally and
absolutely guarantee(s) to Comerica Bank ("Bank"), a Michigan banking
corporation, payment when due, whether by stated maturity, demand, acceleration
or otherwise, of all existing and future indebtedness ("Indebtedness") to the
Bank of Pro Golf International, Inc., a Delaware corporation ("Borrower").
Indebtedness includes without limit any and all obligations or liabilities of
the Borrower to the Bank, whether absolute or contingent, direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, known or
unknown; any and all indebtedness, obligations or liabilities for which Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; and
all costs of collecting Indebtedness, including, without limit, attorney fees.
Any reference in this Guaranty to attorney fees shall be deemed a reference to
reasonable fees, charges, costs and expenses of both in-house and outside
counsel and paralegals, whether or not a suit or action is instituted, and to
court costs if a suit or action is instituted, and whether attorney fees or
court costs are incurred at the trial court level, on appeal, in a bankruptcy,
administrative or probate proceeding or otherwise. All costs shall be payable
immediately by the undersigned when incurred by the Bank, without demand, and
until paid shall bear interest a the highest per annum rate applicable to any of
the Indebtedness, but not in excess of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned under this Guaranty is
UNLIMITED unless specifically limited in the Additional Provisions of this
Guaranty, and this obligation (whether unlimited or limited to the extent
specified in the Additional Provisions) shall include, IN ADDITION TO any
limited amount of principal guaranteed, all interest on that limited
amount, and all costs incurred by the Bank in collection efforts against
the Borrower and/or the undersigned or otherwise incurred by the Bank in
any way relating to the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agree(s) that (a) this limitation
shall not be a limitation on the amount of Borrower's Indebtedness to the
Bank; (b) any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at, or prior to, the time of
the payment; and (c) the liability of the undersigned to the Bank shall at
all times be deemed to be the aggregate liability of the undersigned under
this Guaranty and any other guaranties previously or subsequently given to
the Bank by the undersigned and not expressly revoked, modified or
invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty of payment and not of
collection and remains effective whether the Indebtedness is from time to
time reduced and later increased or entirely extinguished and later
reincurred. The undersigned deliver(s) this Guaranty based solely on the
undersigned's independent investigation of (or decision not to investigate)
the financial condition of Borrower and is (are) not relying on any
information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or
later. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the Bank after the
financial condition of the Borrower, or the Borrower's ability to pay debts
as they mature, has deteriorated.
<PAGE>
3. APPLICATION OF PAYMENTS: The undersigned authorize(s) the Bank, either
before or after termination of this Guaranty, without notice to or demand
on the undersigned and without affecting the undersigned's liability under
this Guaranty, from time to time to: (a) apply any security and direct the
order or manner of sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the Bank, in such order
as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies
otherwise. The undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements upon request.
4. SECURITY: The undersigned grant(s) to the Bank a security interest in and
the right of setoff as to any and all property of the undersigned now or
later in the possession of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has
(have) against the Borrower (other than any claim under a deed of trust or
mortgage covering California real property) with full right on the part of
the Bank, in its own name or in the name of the undersigned, to collect and
enforce these claims. The undersigned agree(s) that no security now or
later held by the Bank for the payment of any Indebtedness, whether from
the Borrower, any guarantor, or otherwise, and whether in the nature of a
security interest, pledge, lien, assignment, setoff, suretyship, guaranty,
indemnity, insurance or otherwise, shall affect in any manner the
unconditional obligation of the undersigned under this Guaranty, and the
Bank, in its sole discretion, without notice to the undersigned, may
release, exchange, enforce and otherwise deal with any security without
affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the
Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment
of the Indebtedness, and the undersigned is (are) not relying upon any
asset(s) in which the Bank has or may have a lien or security interest for
payment of the Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is guaranteed by two or more
guarantors, the obligation of the undersigned shall be several and also
joint, each with all and also each with any one or more of the others, and
may be enforced at the option of the Bank against each severally, any two
or more jointly, or some severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the guarantors for any
consideration which it deems adequate, and may fail or elect not to prove a
claim against the estate of any bankrupt, insolvent, incompetent or
deceased guarantor; and after that, without notice to any guarantor, the
Bank may extend or renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantor(s). The undersigned
acknowledge(s) that the effectiveness of this Guaranty is not conditioned
on any or all of the indebtedness being guaranteed by anyone else.
<PAGE>
6. TERMINATION: Any of the undersigned may terminate their obligation under
this Guaranty as to future Indebtedness (except as provided below) by (and
only by) delivering written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written acknowledgement of
delivery; provided, however, the termination shall not be effective until
the opening of business on the fifth (5th) day ("effective date") following
written acknowledgement of delivery. Any termination shall not affect in
any way the unconditional obligations of the remaining guarantor(s),
whether or not the termination is known to the remaining guarantor(s). Any
termination shall not affect in any way the unconditional obligations of
the terminating guarantor(s) as to any Indebtedness existing at the
effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any
Borrower loan with the Bank existing at the effective date of termination
(whether advances or readvances by the Bank after the effective date of
termination are optional or obligatory), or any modifications, extensions
or renewals of any of this Indebtedness, whether in whole or in part, and
as to all of this Indebtedness and modifications, extensions or renewals of
it, this Guaranty shall continue effective until the same shall have been
fully paid. The Bank has no duty to give notice of termination by any
guarantor(s) to any remaining guarantor(s). The undersigned shall indemnify
the Bank against all claims, damages, costs and expenses, including,
without limit, attorney fees, incurred by the Bank in connection with any
suit, claim or action against the Bank arising out of any modification or
termination of a Borrower loan or any refusal by the Bank to extend
additional credit in connection with the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior revocation, termination, surrender
or discharge of this Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the effectiveness of this
Guaranty, and of all liens, pledges and security interests securing this
Guaranty, shall automatically continue or be reinstated in the event that
any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded under any applicable state
or federal law, including, without limitation, laws pertaining to
bankruptcy or insolvency, in which case this Guaranty, and all liens,
pledges and security interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or rescinded payment
or credit had not been received or given by the Bank, and whether or not
the Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of this
Guaranty and the liens, pledges and security interests securing it, the
undersigned agree(s) upon demand by the Bank, to execute and deliver to the
Bank those documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of the undersigned to do so shall not
affect in any way the reinstatement or continuation. If the undersigned
do(es) not execute and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed (which appointment is
coupled with an interest) the true and lawful attorney of the undersigned
(with full power of substitution) to execute and deliver such documents in
the name and on behalf of the undersigned.
<PAGE>
8. WAIVERS: The undersigned waive(s) any right to require the Bank to: (a)
proceed against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property security held
from the Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Michigan or other applicable Uniform
Commercial Code; or (c) pursue any other remedy in the Bank's power. The
undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any Indebtedness, and
agree(s) that the Bank may, once or any number of times, modify the terms
of any Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the unconditional
obligation of the undersigned under this Guaranty.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such
waiver is by this reference incorporated into each security agreement,
collateral assignment, pledge and/or other document from the undersigned now
or later securing this Guaranty and/or the Indebtedness, and acknowledge(s)
that as of the date of this Guaranty no such defense or setoff exists.
9. WAIVER OF SUBROGATION: The undersigned waive(s) any and all rights (whether
by subrogation, indemnity, reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to this Guaranty.
10. SALE/ASSIGNMENT: The undersigned acknowledge(s) that the Bank has the right
to sell, assign, transfer, negotiate, or grant participations in all or any
part of the Indebtedness and any related obligations, including, without
limit, this Guaranty, without notice to the undersigned and that the Bank
may disclose any documents and information which the Bank now has or later
acquires relating to the undersigned or to the Borrower in connection with
such sale, assignment, transfer, negotiation, or grant. The undersigned
agree(s) that the Bank may provide information relating to this Guaranty or
relating to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
11. GENERAL: This Guaranty constitutes the entire agreement of the undersigned
and the Bank with respect to the subject matter of this Guaranty. No waiver,
consent, modification or change of the terms of the Guaranty shall bind any
of the undersigned or the Bank unless in writing and signed by the waiving
party or an authorized officer of the waiving party, and then this waiver,
consent, modification or change shall be effective only in the specific
instance and for the specific purpose given. This Guaranty shall inure to
the benefit of the Bank and its successors and assigns and shall be binding
on the undersigned and the undersigned's heirs, legal representatives,
successors and assigns including, without limit, any debtor in possession or
trustee in bankruptcy for any of the undersigned. The undersigned has (have)
knowingly and voluntarily entered into this Guaranty in good faith for the
purpose of inducing the Bank to extend credit or make other financial
accommodations to the Borrower. If any provision of this Guaranty is
unenforceable in whole or in part for any reason, the remaining provisions
shall continue to be effective. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12. HEADINGS: Headings in this Agreement are included for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
<PAGE>
13. ADDITIONAL PROVISIONS: The total obligations of the undersigned under this
Guaranty shall be limited to $2,000,000 plus interest thereon and all costs
of collecting the same, including attorneys fees.
14. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, Guarantor(s) has (have) signed and delivered this Guaranty
the day and year first written above.
GUARANTOR(S): AJAY SPORTS, INC.
-------------------------
GUARANTOR NAME TYPED/PRINTED
WITNESSES:
- ----------------------------------- By:
-------------------------------
SIGNATURE OF SIGNATURE OF
Its:
------------------------------
TITLE (IF APPLICABLE)
- ----------------------------------- By:
SIGNATURE OF -------------------------------
SIGNATURE OF
Its:
------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
7001 Orchard Lake Road, Suite 424
---------------------------------
STREET ADDRESS
West Bloomfield Michigan 48322
---------------------------------
CITY STATE ZIP CODE
Guaranty
As of June , 1999, the undersigned, for value received, unconditionally and
absolutely guarantee(s) to Comerica Bank ("Bank"), a Michigan banking
corporation, payment when due, whether by stated maturity, demand, acceleration
or otherwise, of all existing and future indebtedness ("Indebtedness") to the
Bank of Pro Golf International, Inc., a Delaware corporation ("Borrower").
Indebtedness includes without limit any and all obligations or liabilities of
the Borrower to the Bank, whether absolute or contingent, direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, known or
unknown; any and all indebtedness, obligations or liabilities for which Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; and
all costs of collecting Indebtedness, including, without limit, attorney fees.
Any reference in this Guaranty to attorney fees shall be deemed a reference to
reasonable fees, charges, costs and expenses of both in-house and outside
counsel and paralegals, whether or not a suit or action is instituted, and to
court costs if a suit or action is instituted, and whether attorney fees or
court costs are incurred at the trial court level, on appeal, in a bankruptcy,
administrative or probate proceeding or otherwise. All costs shall be payable
immediately by the undersigned when incurred by the Bank, without demand, and
until paid shall bear interest a the highest per annum rate applicable to any of
the Indebtedness, but not in excess of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned under this Guaranty is
UNLIMITED unless specifically limited in the Additional Provisions of this
Guaranty, and this obligation (whether unlimited or limited to the extent
specified in the Additional Provisions) shall include, IN ADDITION TO any
limited amount of principal guaranteed, all interest on that limited
amount, and all costs incurred by the Bank in collection efforts against
the Borrower and/or the undersigned or otherwise incurred by the Bank in
any way relating to the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agree(s) that (a) this limitation
shall not be a limitation on the amount of Borrower's Indebtedness to the
Bank; (b) any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at, or prior to, the time of
the payment; and (c) the liability of the undersigned to the Bank shall at
all times be deemed to be the aggregate liability of the undersigned under
this Guaranty and any other guaranties previously or subsequently given to
the Bank by the undersigned and not expressly revoked, modified or
invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty of payment and not of
collection and remains effective whether the Indebtedness is from time to
time reduced and later increased or entirely extinguished and later
reincurred. The undersigned deliver(s) this Guaranty based solely on the
undersigned's independent investigation of (or decision not to investigate)
the financial condition of Borrower and is (are) not relying on any
information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or
later. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the Bank after the
financial condition of the Borrower, or the Borrower's ability to pay debts
as they mature, has deteriorated.
<PAGE>
3. APPLICATION OF PAYMENTS: The undersigned authorize(s) the Bank, either
before or after termination of this Guaranty, without notice to or demand
on the undersigned and without affecting the undersigned's liability under
this Guaranty, from time to time to: (a) apply any security and direct the
order or manner of sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the Bank, in such order
as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies
otherwise. The undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements upon request.
4. SECURITY: The undersigned grant(s) to the Bank a security interest in and
the right of setoff as to any and all property of the undersigned now or
later in the possession of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has
(have) against the Borrower (other than any claim under a deed of trust or
mortgage covering California real property) with full right on the part of
the Bank, in its own name or in the name of the undersigned, to collect and
enforce these claims. The undersigned agree(s) that no security now or
later held by the Bank for the payment of any Indebtedness, whether from
the Borrower, any guarantor, or otherwise, and whether in the nature of a
security interest, pledge, lien, assignment, setoff, suretyship, guaranty,
indemnity, insurance or otherwise, shall affect in any manner the
unconditional obligation of the undersigned under this Guaranty, and the
Bank, in its sole discretion, without notice to the undersigned, may
release, exchange, enforce and otherwise deal with any security without
affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the
Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment
of the Indebtedness, and the undersigned is (are) not relying upon any
asset(s) in which the Bank has or may have a lien or security interest for
payment of the Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is guaranteed by two or more
guarantors, the obligation of the undersigned shall be several and also
joint, each with all and also each with any one or more of the others, and
may be enforced at the option of the Bank against each severally, any two
or more jointly, or some severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the guarantors for any
consideration which it deems adequate, and may fail or elect not to prove a
claim against the estate of any bankrupt, insolvent, incompetent or
deceased guarantor; and after that, without notice to any guarantor, the
Bank may extend or renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantor(s). The undersigned
acknowledge(s) that the effectiveness of this Guaranty is not conditioned
on any or all of the indebtedness being guaranteed by anyone else.
<PAGE>
6. TERMINATION: Any of the undersigned may terminate their obligation under
this Guaranty as to future Indebtedness (except as provided below) by (and
only by) delivering written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written acknowledgement of
delivery; provided, however, the termination shall not be effective until
the opening of business on the fifth (5th) day ("effective date") following
written acknowledgement of delivery. Any termination shall not affect in
any way the unconditional obligations of the remaining guarantor(s),
whether or not the termination is known to the remaining guarantor(s). Any
termination shall not affect in any way the unconditional obligations of
the terminating guarantor(s) as to any Indebtedness existing at the
effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any
Borrower loan with the Bank existing at the effective date of termination
(whether advances or readvances by the Bank after the effective date of
termination are optional or obligatory), or any modifications, extensions
or renewals of any of this Indebtedness, whether in whole or in part, and
as to all of this Indebtedness and modifications, extensions or renewals of
it, this Guaranty shall continue effective until the same shall have been
fully paid. The Bank has no duty to give notice of termination by any
guarantor(s) to any remaining guarantor(s). The undersigned shall indemnify
the Bank against all claims, damages, costs and expenses, including,
without limit, attorney fees, incurred by the Bank in connection with any
suit, claim or action against the Bank arising out of any modification or
termination of a Borrower loan or any refusal by the Bank to extend
additional credit in connection with the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior revocation, termination, surrender
or discharge of this Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the effectiveness of this
Guaranty, and of all liens, pledges and security interests securing this
Guaranty, shall automatically continue or be reinstated in the event that
any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded under any applicable state
or federal law, including, without limitation, laws pertaining to
bankruptcy or insolvency, in which case this Guaranty, and all liens,
pledges and security interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or rescinded payment
or credit had not been received or given by the Bank, and whether or not
the Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of this
Guaranty and the liens, pledges and security interests securing it, the
undersigned agree(s) upon demand by the Bank, to execute and deliver to the
Bank those documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of the undersigned to do so shall not
affect in any way the reinstatement or continuation. If the undersigned
do(es) not execute and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed (which appointment is
coupled with an interest) the true and lawful attorney of the undersigned
(with full power of substitution) to execute and deliver such documents in
the name and on behalf of the undersigned.
<PAGE>
8. WAIVERS: The undersigned waive(s) any right to require the Bank to: (a)
proceed against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property security held
from the Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Michigan or other applicable Uniform
Commercial Code; or (c) pursue any other remedy in the Bank's power. The
undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any Indebtedness, and
agree(s) that the Bank may, once or any number of times, modify the terms
of any Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the unconditional
obligation of the undersigned under this Guaranty.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such
waiver is by this reference incorporated into each security agreement,
collateral assignment, pledge and/or other document from the undersigned now
or later securing this Guaranty and/or the Indebtedness, and acknowledge(s)
that as of the date of this Guaranty no such defense or setoff exists.
9. WAIVER OF SUBROGATION: The undersigned waive(s) any and all rights (whether
by subrogation, indemnity, reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to this Guaranty.
10. SALE/ASSIGNMENT: The undersigned acknowledge(s) that the Bank has the right
to sell, assign, transfer, negotiate, or grant participations in all or any
part of the Indebtedness and any related obligations, including, without
limit, this Guaranty, without notice to the undersigned and that the Bank
may disclose any documents and information which the Bank now has or later
acquires relating to the undersigned or to the Borrower in connection with
such sale, assignment, transfer, negotiation, or grant. The undersigned
agree(s) that the Bank may provide information relating to this Guaranty or
relating to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
11. GENERAL: This Guaranty constitutes the entire agreement of the undersigned
and the Bank with respect to the subject matter of this Guaranty. No waiver,
consent, modification or change of the terms of the Guaranty shall bind any
of the undersigned or the Bank unless in writing and signed by the waiving
party or an authorized officer of the waiving party, and then this waiver,
consent, modification or change shall be effective only in the specific
instance and for the specific purpose given. This Guaranty shall inure to
the benefit of the Bank and its successors and assigns and shall be binding
on the undersigned and the undersigned's heirs, legal representatives,
successors and assigns including, without limit, any debtor in possession or
trustee in bankruptcy for any of the undersigned. The undersigned has (have)
knowingly and voluntarily entered into this Guaranty in good faith for the
purpose of inducing the Bank to extend credit or make other financial
accommodations to the Borrower. If any provision of this Guaranty is
unenforceable in whole or in part for any reason, the remaining provisions
shall continue to be effective. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12. HEADINGS: Headings in this Agreement are included for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
<PAGE>
13. ADDITIONAL PROVISIONS: None.
14. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, Guarantor(s) has (have) signed and delivered this Guaranty
the day and year first written above.
WITNESSES: GUARANTOR(S):
- --------------------------------- By:_______________________________
SIGNATURE OF SIGNATURE OF THOMAS W. ITIN
- --------------------------------- By:_______________________________
SIGNATURE OF SIGNATURE OF SHIRLEY B. ITIN
WOODWARD PARTNERS, INC.
By:_______________________________
Its:______________________________
PRO GOLF OF AMERICA, INC.
By:_______________________________
Its:______________________________
COLORADO RIDGE CORPORATION
By:_______________________________
Its:______________________________
TICO, a Michigan co-partnership
By:_______________________________
Its:______________________________
<PAGE>
SICO, a Michigan co-partnership
By:_______________________________
Its:______________________________
ACRODYNE CORPORATION
By:_______________________________
Its:______________________________
GUARANTOR'S ADDRESS:
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322
Security Agreement
(All Assets)
As of June __, 1999, for value received, the undersigned ("Debtor") grants to
Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Pro Golf International,
Inc. ("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts, general intangibles, chattel
paper, contract rights, deposit accounts, documents and
instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(e) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property
(except real property which is not a fixture) which are now or later
in possession or control of Bank, or as to which Bank now or later
controls possession by documents or otherwise, and
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights
of any kind (including but not limited to stock splits, stock
rights, voting and preferential rights), products, and proceeds of
or pertaining to the above including, without limit, cash or other
property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank
to examine, inspect, and copy any of Debtor's books and records.
Debtor shall, at the request of Bank, mark its records and the
Collateral to clearly indicate the security interest of Bank under
this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject
to a security interest in favor of Bank, Debtor shall be deemed to
have warranted that (a) Debtor is the lawful owner of the Collateral
and has the right and authority to subject it to a security interest
granted to Bank; (b) none of the Collateral is subject to any
security interest other than that in favor of Bank and there are no
financing statements on file, other than in favor of Bank; and (c)
Debtor acquired its rights in the Collateral in the ordinary course
of its business.
<PAGE>
2.3 Debtor will keep the Collateral free at all times from all claims,
liens, security interests and encumbrances other than those in favor
of Bank. Debtor will not, without the prior written consent of Bank,
sell, transfer or lease, or permit to be sold, transferred or
leased, any or all of the Collateral, except for Inventory in the
ordinary course of its business and will not return any Inventory to
its supplier. Bank or its representatives may at all reasonable
times inspect the Collateral and may enter upon all premises where
the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue a
perfected and first security interest of Bank in the Collateral.
Debtor agrees that Bank has no obligation to acquire or perfect any
lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not
relying upon assets in which the Bank may have a lien or security
interest for payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges which
at any time are or may become a lien, charge, or encumbrance upon
any Collateral, except to the extent contested in good faith and
bonded in a manner satisfactory to Bank. If Debtor fails to pay any
of these taxes, assessments, or other charges in the time provided
above, Bank has the option (but not the obligation) to do so and
Debtor agrees to repay all amounts so expended by Bank immediately
upon demand, together with interest at the highest lawful default
rate which could be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect
it from loss, damage, or deterioration from any cause. Debtor has
and will maintain at all times (a) with respect to the Collateral,
insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and
other insurance as may be required by law or reasonably required by
Bank, all of which insurance shall be in amount, form and content,
and written by companies as may be satisfactory to Bank, containing
a lender's loss payable endorsement acceptable to Bank. Debtor will
deliver to Bank immediately upon demand evidence satisfactory to
Bank that the required insurance has been procured. If Debtor fails
to maintain satisfactory insurance, Bank has the option (but not the
obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest at
the highest lawful default rate which could be charged by Bank on
any Indebtedness.
<PAGE>
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts Receivable,
Debtor shall be deemed to have warranted that except as otherwise
indicated (a) each of those Accounts Receivable is valid and
enforceable without performance by Debtor of any act; (b) each of
those account balances are in fact owing, (c) there are no setoffs,
recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts
Receivable represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have been
endorsed and/or delivered by Debtor to Bank, (e) Debtor has not
received with respect to any Account Receivable, any notice of the
death of the related account debtor, nor of the dissolution,
liquidation, termination of existence, insolvency, business failure,
appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against,
the account debtor, and (f) as to each Account Receivable, the
account debtor is not an affiliate of Debtor, the United States of
America or any department, agency or instrumentality of it, or a
citizen or resident of any jurisdiction outside of the United
States. Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and collect
all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account Receivable
without the prior written consent of Bank. Debtor shall, at Bank's
request, arrange for verification of Accounts Receivable directly
with account debtors or by other methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is
to regulate or improve health, safety, or the environment
("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of (a) the ultimate sale
or exchange thereof; or (b) presentation, collection, renewal, or
registration of transfer thereof; or (c) loading, unloading,
storing, shipping, transshipping, manufacturing, processing or
otherwise dealing with it preliminary to sale or exchange; such
redelivery shall be in trust for the benefit of Bank and shall not
constitute a release of Bank's security interest in it or in the
proceeds or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will deliver
with such request a duly executed financing statement in form and
substance satisfactory to Bank. Any proceeds of Collateral coming
into Debtor's possession as a result of any such redelivery shall be
held in trust for Bank and immediately delivered to Bank for
application on the Indebtedness. Bank may (in its sole discretion)
deliver any or all of the Collateral to Debtor, and such delivery by
Bank shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of any
Collateral to Bank at any time with such endorsements or assignments
of the Collateral as Bank may request.
<PAGE>
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its
nominees; (b) receive or collect by legal proceedings or otherwise
all dividends, interest, principal payments and other sums and all
other distributions at any time payable or receivable on account of
the Collateral, and hold the same as Collateral, or apply the same
to the Indebtedness, the manner and distribution of the application
to be in the sole discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or consolidation
agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and
accept other property in exchange for the Collateral and hold or
apply the property or money so received pursuant to this Agreement.
2.11 Bank may assign any of the Indebtedness and deliver any or all of
the Collateral to its assignee, who then shall have with respect to
Collateral so delivered all the rights and powers of Bank under this
Agreement, and after that Bank shall be fully discharged from all
liability and responsibility with respect to Collateral so
delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial
condition of Borrower and is not relying on any information
furnished by Bank. Debtor assumes full responsibility for obtaining
any further information concerning the Borrower's financial
condition, the status of the Indebtedness or any other matter which
the undersigned may deem necessary or appropriate now or later.
Debtor waives any duty on the part of Bank, and agrees that Debtor
is not relying upon nor expecting Bank to disclose to Debtor any
fact now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or financial
condition of any guarantor of the Indebtedness, the occurrence of
any default with respect to the Indebtedness, or otherwise,
notwithstanding any effect such fact may have upon Debtor's risk or
Debtor's rights against Borrower. Debtor knowingly accepts the full
range of risk encompassed in this Agreement, which risk includes
without limit the possibility that Borrower may incur Indebtedness
to Bank after the financial condition of Borrower, or Borrower's
ability to pay debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and directors
from and against any and all claims, damages, fines, expenses,
liabilities or causes of action of whatever kind, including without
limit consultant fees, legal expenses, and attorney fees, suffered
by any of them as a direct or indirect result of any actual or
asserted violation of any law, including, without limit,
Environmental Laws, or of any remediation relating to any property
required by any law, including without limit Environmental Laws.
<PAGE>
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral until
Bank shall direct Debtor to the contrary. Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully
and promptly cooperate and assist Bank in the collection and
enforcement of all Collateral and to hold in trust for Bank all
payments received in connection with Collateral and from the sale,
lease or other disposition of any Collateral, all rights by way of
suretyship or guaranty and all rights in the nature of a lien or
security interest which Debtor now or later has regarding
Collateral. Immediately upon and after such notice, Debtor agrees to
(a) endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other disposition
of any Collateral or arising from any other rights or interests of
Debtor in the Collateral, in the form received by Debtor without
commingling with any other funds, and (b) immediately deliver to
Bank all property in Debtor's possession or later coming into
Debtor's possession through enforcement of Debtor's rights or
interests in the Collateral. Debtor irrevocably authorizes Bank or
any Bank employee or agent to endorse the name of Debtor upon any
checks or other items which are received in payment for any
Collateral, and to do any and all things necessary in order to
reduce these items to money. Bank shall have no duty as to the
collection or protection of Collateral or the proceeds of it, nor as
to the preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral in the
possession of Bank. Debtor agrees to take all steps necessary to
preserve rights against prior parties with respect to the
Collateral. Nothing in this Section 3.1 shall be deemed a consent by
Bank to any sale, lease or other disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or not
any Event of Default exists) the Indebtedness shall be on a
"remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post Office lock
box (the "Lock Box"), to which Bank shall have exclusive access and
control. Debtor expressly authorizes Bank, from time to time, to
remove contents from the Lock Box, for disposition in accordance
with this Agreement. Debtor agrees to notify all account debtors and
other parties obligated to Debtor that all payments made to Debtor
(other than payments by electronic funds transfer) shall be
remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be titled
as designated by Bank (the "Cash Collateral Account") to which Bank
shall have exclusive access and control. Debtor agrees to notify all
account debtors and other parties obligated to Debtor that all
payments made to Debtor by electronic funds transfer shall be
remitted to the Cash Collateral Account, and Debtor, at Bank's
request, shall include a like statement on all invoices. Debtor
shall execute all documents and authorizations as required by Bank
to establish and maintain the Lock Box and the Cash Collateral
Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of
Debtor to Bank on account of partial or full payment of, or with
respect to, any Collateral shall, at Bank's option, (i) be applied
to the payment of the Indebtedness, whether then due or not, in such
order or at such time of application as Bank may determine in its
sole discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any loss or
damage which Debtor may suffer as a result of Bank's processing of
items or its exercise of any other rights or remedies under this
Agreement, including without limitation indirect, special or
consequential damages, loss of revenues or profits, or any claim,
demand or action by any third party arising out of or in connection
with the processing of items or the exercise of any other rights or
remedies under this Agreement. Debtor agrees to indemnify and hold
Bank harmless from and against all such third party claims, demands
or actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
<PAGE>
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an "Event
of Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness when
due, or such portion of it as may be due, by acceleration or
otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or
commitment between Borrower, Debtor, or any guarantor of any of the
Indebtedness ("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of
Borrower, Debtor, or any Guarantor shall be, or shall prove to have
been, false or materially misleading when made, given, or furnished;
or
(d) Any loss, theft, substantial damage or destruction to or of any
Collateral, or the issuance or filing of any attachment, levy,
garnishment or the commencement of any proceeding in connection with
any Collateral or of any other judicial process of, upon or in
respect of Borrower, Debtor, any Guarantor, or any Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any Guarantor of any
substantial portion of its assets or property or voluntary suspension
of the transaction of business by Borrower, Debtor, or any Guarantor,
or death, dissolution, termination of existence, merger,
consolidation, insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Debtor, or any Guarantor; or
commencement of any proceedings under any state or federal bankruptcy
or insolvency laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the appointment of a receiver,
trustee, court appointee, sequestrator or otherwise, for all or any
part of the property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or itself insecure,
in good faith believing that the prospect of payment of the
Indebtedness or performance of this Agreement is impaired or shall
fear deterioration, removal, or waste of Collateral.
<PAGE>
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all of
the Indebtedness to be immediately due and payable, and shall have
and may exercise any one or more of the following rights and
remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions of
the Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all
amounts then due and owing as Indebtedness, and to collect the same
out of any Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all
Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without
being responsible for loss or damage to such Collateral, hold,
operate, sell, lease, or dispose of all or any Collateral at one or
more public or private sales, leasings or other disposition, at places
and times and on terms and conditions as Bank may deem fit, without
any previous demand or advertisement; and except as provided in this
Agreement, all notice of sale, lease or other disposition, and
advertisement, and other notice or demand, any right or equity of
redemption, and any obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to sell, lease, or
otherwise dispose of the Collateral or as to the application by Bank
of the proceeds of sale or otherwise, which would otherwise be
required by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under the power of
sale, by virtue of judicial proceedings or otherwise, it shall not be
necessary for Bank or a public officer under order of a court to have
present physical or constructive possession of Collateral to be sold.
The recitals contained in any conveyances and receipts made and given
by Bank or the public officer to any purchaser at any sale made
pursuant to this Agreement shall, to the extent permitted by
applicable law, conclusively establish the truth and accuracy of the
matters stated (including, without limit, as to the amounts of the
principal of and interest on the Indebtedness, the accrual and
nonpayment of it and advertisement and conduct of the sale); and all
prerequisites to the sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the receipt of the officer
making the sale under judicial proceedings or of Bank shall be
sufficient discharge to the purchaser for the purchase money, and the
purchaser shall not be obligated to see to the application of the
money. Any sale of any Collateral under this Agreement shall be a
perpetual bar against Debtor with respect to that Collateral.
<PAGE>
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct
payment of it to Bank. Bank may, itself, upon the occurrence of any
Event of Default so notify and direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon all
expenses authorized by the Uniform Commercial Code and all
reasonable attorney fees and legal expenses incurred by Bank; the
balance of the proceeds of the sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest, then
to principal, then to remaining Indebtedness and the surplus, if
any, shall be paid over to Debtor or to such other person(s) as may
be entitled to it under applicable law. Debtor shall remain liable
for any deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum
to which Bank may be entitled for the breach of this Agreement by
Debtor. Nothing in this Agreement shall reduce or release in any way
any rights or security interests of Bank contained in any existing
agreement between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank in
enforcing any of its rights under this Agreement shall operate as a
waiver of any other default or of the same default on a future
occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the name,
place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or acquittances for
any moneys due or to become due on any Collateral and to endorse any
item representing any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or desirable
by Bank to evidence, perfect, or continue the security interests
granted in this Agreement; and
(c) to do and perform any act on behalf of Debtor permitted or required
under this Agreement.
<PAGE>
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to
Bank at any place designated by Bank which is reasonably convenient
to Bank and Debtor.
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by
law shall be given to, or made upon, Debtor at the first address
indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written notice of
all contemplated changes in Debtor's name, chief executive office
location, and/or location of any Collateral, but the giving of this
notice shall not cure any Event of Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility under
any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness
and any related obligations, including without limit this Agreement.
In connection with the above, but without limiting its ability to
make other disclosures to the full extent allowable, Bank may
disclose all documents and information which Bank now or later has
relating to Debtor, the Indebtedness or this Agreement, however
obtained. Debtor further agrees that Bank may provide information
relating to this Agreement or relating to Debtor to the Bank's
parent, affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank
to Debtor can be set off and applied by Bank on any Indebtedness at
any time(s) either before or after maturity or demand without notice
to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed against
any person or property; (b) give notice of the terms, time and place
of any public or private sale of personal property security held
from Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Uniform Commercial Code; or (c)
pursue any other remedy in the Bank's power. Debtor waives notice of
acceptance of this Agreement and presentment, demand, protest,
notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned
might otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any number of
times, modify the terms of any Indebtedness, compromise, extend,
increase, accelerate, renew or forbear to enforce payment of any or
all Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting in
any manner the unconditional obligation of Debtor under this
Agreement. Debtor unconditionally and irrevocably waives each and
every defense and setoff of any nature which, under principles of
guaranty or otherwise, would operate to impair or diminish in any
way the obligation of Debtor under this Agreement, and acknowledges
that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other
document from Debtor now or later securing the Indebtedness, and
acknowledges that as of the date of this Agreement no such defense
or setoff exists.
<PAGE>
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts
paid or the value of any Collateral given by Debtor pursuant to this
Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement,
Debtor agrees that a written notice given to Debtor at least five
days before the date of the act shall be reasonable notice of the
act and, specifically, reasonable notification of the time and place
of any public sale or of the time after which any private sale,
lease, or other disposition is to be made, unless a shorter notice
period is reasonable under the circumstances. A notice shall be
deemed to be given under this Agreement when delivered to Debtor or
when placed in an envelope addressed to Debtor and deposited, with
postage prepaid, in a post office or official depository under the
exclusive care and custody of the United States Postal Service or
delivered to an overnight courier. The mailing shall be by overnight
courier, certified, or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness
of this Agreement shall automatically continue or be reinstated in
the event that any payment received or credit given by Bank in
respect of the Indebtedness is returned, disgorged, or rescinded
under any applicable law, including, without limitation, bankruptcy
or insolvency laws, in which case this Agreement, shall be
enforceable against Debtor as if the returned, disgorged, or
rescinded payment or credit had not been received or given by Bank,
and whether or not Bank relied upon this payment or credit or
changed its position as a consequence of it. In the event of
continuation or reinstatement of this Agreement, Debtor agrees upon
demand by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the public
records or otherwise) this continuation or reinstatement, although
the failure of Debtor to do so shall not affect in any way the
reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and
assigns and to any other holder who derives from Bank title to or an
interest in the Indebtedness or any portion of it, and shall bind
Debtor and the heirs, legal representatives, successors, and assigns
of Debtor. Nothing in this Section 5.10 is deemed a consent by Bank
to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities
given to or conferred upon Bank are made or given jointly and
severally.
<PAGE>
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or,
absent definition in Article 9, in any other Article) of the Uniform
Commercial Code. "Uniform Commercial Code" means Act No. 174 of the
Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of any
right or power under this Agreement, shall preclude other or further
exercise of the rights and powers under this Agreement. The
unenforceability of any provision of this Agreement shall not affect
the enforceability of the remainder of this Agreement. This
Agreement constitutes the entire agreement of Debtor and Bank with
respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same
shall be in writing and signed by Debtor and an authorized officer
of Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan, without
regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in this
Agreement prevent Bank from making demand, without notice and with
or without reason, for immediate payment of any or all of that
Indebtedness at any time(s), whether or not an Event of Default has
occurred.
5.15 Debtor's chief executive office is located and shall be maintained at
7001 Orchard Lake Road, Suite 424
-----------------------------------
STREET ADDRESS
West Bloomfield Michigan 48322 Oakland
--------------------------------------------------------------------
CITY STATE ZIP CODE COUNTY
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at
- --------------------------------------------------------------------------------
STREET ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
CODE COUNTY
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement under the Uniform Commercial
Code and may be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions of
the Uniform Commercial Code, but the obligations contained in Section
2.13 of this Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE
INDEBTEDNESS.
<PAGE>
. Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
PRO GOLF OF AMERICA, INC.
By:________________________________________________________________
SIGNATURE OF
Its:_______________________________________________________________
TITLE (If applicable)
By:________________________________________________________________
SIGNATURE OF
Its:_______________________________________________________________
TITLE (If applicable)
THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION UNDER SUCH ACT
AND THE RULES AND REGULATIONS THEREUNDER.
SUBORDINATED PROMISSORY NOTE
$__________________ June ___, 1999
FOR VALUE RECEIVED, PRO GOLF INTERNATIONAL, INC., a Delaware corporation
("Debtor"), promises to pay to the order of ___________________________("Payee")
the principal sum of _____________________________________ ($_______________)
plus interest on the unpaid principal balance hereof as follows:
(a) from the date hereof and continuing for a period of thirteen
(13) months from the execution of this Note, (i) the unpaid principal
balance hereof shall bear interest at the rate of ten percent (10%), and
(ii) payment of accrued and unpaid interest hereunder shall be due and
payable on the last day of each calendar quarter hereunder, commencing
with the payment on June 30, 1999.
(b) the unpaid principal balance hereof, together with any accrued
and paid interest due thereon, shall be due and payable in full on the
last day of the calendar month which is thirteen (13) months from the
execution of this Note.
Payment of both principal and interest hereunder shall be made to Payee at
_____________ _______________ or at such other place as shall from time to time
be designated by Payee in writing.
This Subordinated Promissory Note may be prepaid at any time or times, in
whole or in part, without premium or penalty. All prepayments hereunder shall be
applied first to accrued and unpaid interest on the principal balance
outstanding hereunder at the rate specified above, and the remainder to
principal.
The payment of this Note is subordinated pursuant to that certain
Subordination Agreement dated the date hereof by and among Payee and Comerica
Bank (together with such other institutional lenders as may provide financing to
Maker from time to time, the "Senior Lender") and to such other subordination
agreements, if any, as Payee may enter into with a Senior Lender from time to
time (the "Subordination Agreement").
<PAGE>
Debtor shall be deemed to be in default hereunder upon the first to occur
of any of the following events (a "Default"): (i) Debtor shall fail to make any
payment of interest or principal hereunder, and such failure shall remain
uncured for ten (10) days following delivery to Debtor of written notice
thereof; or (ii) Debtor shall fail to perform any other of its obligations
hereunder, and such failure shall remain uncured for ten (10) days following
delivery to Debtor of written notice thereof; or (iii) any representation or
warranty made by Debtor in this Subordinated Promissory Note shall prove to have
been false or misleading in any material respect as of the date hereof; or (iv)
Debtor shall become insolvent, shall make an assignment for the benefit of
creditors, or shall admit in writing the inability to pay its debts as they
mature; or (v) Debtor shall apply for, consent to or acquiesce in the
appointment of a trustee, receiver, or other custodian for itself, or for any of
its property; or (vi) any bankruptcy, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law shall be instituted by or
against Debtor unless any of the foregoing acts shall have been stayed,
dismissed or discharged, as the case may be, within thirty (30) days after the
occurrence thereof; or (vii) Debtor shall cease to conduct its business
substantially as currently conducted, or shall be dissolved or liquidated.
Effective immediately upon the occurrence of a Default, the entire unpaid
principal balance hereof and all accrued and unpaid interest thereon shall
become immediately due and payable without demand, notice or legal process of
any kind, and Payee may proceed to exercise any other rights and remedies
against Debtor under this Subordinated Promissory Note. Payee's remedies as
provided in this Subordinated Promissory Note shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of Payee, and may be exercised as often as occasion therefor shall
arise. Failure of Payee, for any period of time or on more than one occasion, to
exercise Payee's option to accelerate this Subordinated Promissory Note shall
not constitute a waiver of the right to exercise the same at any time thereafter
in the event of any subsequent Default. No act of omission or commission of
Payee, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of such right, remedy or
recourse or any other right, remedy or recourse at any time. A waiver or release
with reference to any one event shall not be construed as a waiver or release of
any subsequent event or as a bar to any subsequent exercise of Payee's rights or
remedies hereunder and any waiver or release hereunder shall be effected only
through a written document executed by Payee and then only to the extent
specifically recited therein.
Debtor shall pay to Payee on demand all attorneys' fees, court costs and
other costs and expenses incurred by Payee in connection with the collection or
enforcement of this Subordinated Promissory Note.
This Subordinated Promissory Note shall inure to the benefit of Payee and
Payee's successors and assigns, and shall be binding upon Debtor and its
successors and assigns.
This Subordinated Promissory Note shall be governed by and construed in
accordance with the internal laws of the State of Michigan, without regard to
conflict of laws principles.
Debtor hereby waives presentment for payment, notice of dishonor, protest
and notice of protest.
<PAGE>
All notices required under this Subordinated Promissory Note will be in
writing and will be transmitted by personal delivery, first class mail, or
overnight courier to the addresses for the parties appearing in this
Subordinated Promissory Note, or to such other addresses as the parties may
specify from time to time in writing. Every notice shall be deemed to have been
duly given or served on the date on which personally delivered, in person or by
overnight courier service, or five days after the same shall have been deposited
in the United States mail, registered or certified mail requested.
IN WITNESS WHEREOF, Debtor has set its hand on the date first above
written.
PRO GOLF INTERNATIONAL, INC.,
a Delaware corporation
By:_______________________________
Its:______________________________
Address:
7001 Orchard Lake Road
West Bloomfield, Michigan 48322
-------------------------------
Subordination Agreement
(All Indebtedness and Liens)
_____________________________("Borrower") is indebted to the undersigned
("Creditor") in the principal sum of__________________________________ Dollars
($____________ ) evidenced by an open account a promissory note other
(describe)_______________________ which indebtedness is unsecured secured
by_______________________________, and Creditor is or may become financially
interested in Borrower and desires to aid Borrower in obtaining or having
continued financial accommodations, whether by way of loan, commitment to loan,
discounting of instruments, extensions of credit or the obtaining of any other
financial aid from Comerica Bank ("Bank").
In order to induce the Bank to extend or to continue to extend financial
accommodations to Borrower from time to time, whether by way of a loan,
commitment to loan, discounting of instruments, extension of credit or otherwise
and in consideration of any of these financial accommodations, Creditor agrees
as follows:
1. Any and all obligations and liabilities of Borrower to Creditor, including,
without limit, principal and interest payments, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due or to
become due, now existing or later arising and whatever the amount and however
evidenced (the "Subordinated Indebtedness"), are subordinated in right of
payment to any and all obligations and liabilities of Borrower to the Bank,
including, without limit, principal and interest payments, whether direct or
indirect, absolute or contingent, joint or several, secured or unsecured, due
or to become due, now existing or later arising and however evidenced,
together with all other sums due thereon and all costs of collecting the same
(including, without limit, reasonable attorney fees) for which Borrower is
liable (the "Senior Indebtedness").
2. Creditor will not ask for, demand, sue for, take or receive (by way of
voluntary payment, acceleration, set-off or counterclaim, foreclosure or
other realization on security, dividends in bankruptcy or otherwise), or
offer to make any discharge or release of, any of the Subordinated
Indebtedness, and Creditor waives any such rights with respect to the
Subordinated Indebtedness nor shall Creditor exercise any rights of
subrogation or other similar rights with respect to the Senior Indebtedness.
3. Creditor will not exercise any of Creditor's rights in any collateral now or
later securing the Subordinated Indebtedness. All rights of Creditor in any
collateral now or later securing the Subordinated Indebtedness are
subordinated to all rights of the Bank now or later existing in any of the
same collateral securing the Senior Indebtedness.
4. Creditor authorizes and empowers the Bank to demand, enforce payment by legal
proceedings, receive and give acquittances for the Subordinated Indebtedness
and to exercise all rights of Creditor in any security (other than a deed of
trust, mortgage or security interest covering real property or a principal
dwelling) now or later held for the Subordinated Indebtedness. As collateral
for the Senior Indebtedness, Creditor hereby pledges, assigns and grants to
Bank a security interest in the Subordinated Indebtedness, any collateral or
other security (other than a deed of trust, mortgage or security interest
covering real property or a principal dwelling) for the Subordinated
Indebtedness, and all claims or demands of Creditor in connection therewith,
with full right on the part of the Bank, in its own name or in the name of
Creditor, to collect and enforce these claims or demands, by suit, proof of
debt in bankruptcy, or in any other proceeding involving dissolution,
insolvency, liquidation or an adjustment of the indebtedness of Borrower. The
Bank has no obligation to the Creditor to take any steps with regard to these
claims or demands, the Subordinated Indebtedness, or any collateral or other
security for the Subordinated Indebtedness.
5. Should any payment, distribution or security or proceeds from these be
received by Creditor upon or with respect to the Subordinated Indebtedness
prior to the satisfaction in full of the Senior Indebtedness, Creditor shall
immediately deliver same to the Bank in the form received (except for
endorsement or assignment by Creditor where required by the Bank), for
application on the Senior Indebtedness (whether or not then due and in such
order of maturity as Bank elects) and, until so delivered, the same shall be
held in trust by Creditor as the property of the Bank.
<PAGE>
6. Creditor represents and warrants that it has not made or permitted to be made
and shall not make or permit any assignment, transfer, pledge, or disposition
for collateral purposes or otherwise, of all or any part of the Subordinated
Indebtedness or any collateral or other security for the Subordinated
Indebtedness so long as this Agreement remains in effect. Creditor shall, on
the date of this Agreement or promptly upon receipt if not yet delivered to
Creditor, deliver to the Bank, endorsed if required by the Bank, all notes
and other instruments evidencing any Subordinated Indebtedness. Creditor
agrees to execute all financing statements deemed necessary by the Bank to
perfect the Bank's rights and interests under this Agreement. The Bank is to
have all the rights and remedies of a secured creditor under the Michigan
Uniform Commercial Code, as amended from time to time, with respect to such
interests. Creditor further makes, constitutes and appoints Bank its true and
lawful attorney-in-fact with full power of substitution to take any action in
furtherance of this Agreement, including, but not limited to, the signing of
financing statements, endorsing of instruments, and the execution and
delivery of all documents and agreements necessary to obtain or accomplish
any protection for or collection or disposition of any part of any
collateral. Such appointment shall be deemed irrevocable and coupled with an
interest.
7. This Agreement constitutes a continuing agreement of subordination, even
though at times Borrower is not indebted to the Bank. The Bank may continue,
in reliance on this Agreement, without notice to Creditor, to lend monies,
extend credit, modify, renew or make other financial accommodations, to or
for the account of Borrower until the fifth (5th) day ("effective date")
following written acknowledgment by an officer of the Bank that the Bank
received written notice of revocation of this Agreement from Creditor. Any
such notice of revocation shall not be effective as to any Senior
Indebtedness existing at the effective date of revocation or any Senior
Indebtedness created after that pursuant to any commitment or agreement of
the Bank or pursuant to any Borrower loan (whether advances or readvances by
the Bank after the effective date of revocation are optional or obligatory)
existing at the effective date of revocation or any modifications or renewals
of any such Senior Indebtedness, whether in whole or in part. Possession by
the Bank of any note or other evidence of indebtedness made, endorsed or
guaranteed by Borrower shall be conclusive evidence (but not the only means
of establishing) that Borrower is indebted to the Bank.
8. Creditor shall indemnify the Bank against all claims, damages, costs, and
expenses, including, without limit, reasonable attorneys' fees, incurred by
the Bank in connection with any suit, claim or action against the Bank
arising out of any modification or termination of a Borrower loan or any
refusal by the Bank to extend additional credit relating to the revocation of
this Agreement.
<PAGE>
9. Creditor delivers this Agreement based solely on Creditor's independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by the Bank.
Creditor assumes full responsibility for obtaining any further information
concerning Borrower's financial condition, the status of the Senior
Indebtedness or any other matter which Creditor may deem necessary or
appropriate now or later. Creditor waives any duty on the part of the Bank,
and agrees that Creditor is not relying upon nor expecting the Bank to
disclose to Creditor any fact now or later known by the Bank, whether
relating to the operations or condition of Borrower, the existence,
liabilities or financial condition of any guarantor of the Senior
Indebtedness, the occurrence of any default with respect to the Senior
Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Creditor's risk or Creditor's rights against Borrower. Creditor
knowingly accepts the full range of risk encompassed in this Agreement, which
risk includes, without limit, the possibility that Borrower may incur Senior
Indebtedness to the Bank after the financial condition of Borrower, or its
ability to pay Borrower's debts as they mature, has deteriorated. Creditor
acknowledges and agrees that the Bank's rights under this Agreement are not
conditioned upon pursuit by the Bank of any remedy the Bank may have against
Borrower or any other person or any other security. The absence of Borrower's
signature at the end of this Agreement shall in no way impair or affect the
validity of this Agreement.
10.The Bank, in its sole discretion, without notice to Creditor, may release,
exchange, enforce and otherwise deal with any security now or later held by
the Bank for payment of the Senior Indebtedness or release any party now or
later liable for payment of the Senior Indebtedness without affecting in any
manner the Bank's rights under this Agreement. Creditor acknowledges and
agrees that the Bank has no obligation to acquire or perfect any lien on or
security interest in any asset(s), whether realty or personalty, to secure
payment of the Senior Indebtedness, and Creditor is not relying upon assets
in which the Bank has or may have a lien or security interest for payment of
the Senior Indebtedness.
11.Notwithstanding any prior revocation, termination, surrender, or discharge
of this Agreement in whole or in part, the effectiveness of this Agreement
shall automatically continue or be reinstated in the event that any payment
received or credit given by the Bank in respect of the Senior Indebtedness is
returned, disgorged, or rescinded under any applicable state or federal law,
including, without limitation, laws pertaining to bankruptcy or insolvency,
in which case this Agreement, shall be enforceable against the Creditor as if
the returned, disgorged, or rescinded payment or credit had not been received
or given by the Bank, and whether or not the Bank relied upon this payment or
credit or changed its position as a consequence of it. In the event of
continuation or reinstatement of this Agreement, the Creditor agrees upon
demand by the Bank to execute and deliver to the Bank those documents which
the Bank determines are appropriate to further evidence (in the public
records or otherwise) this continuation or reinstatement, although the
failure of the Creditor to do so shall not affect in any way the
reinstatement or continuation.
<PAGE>
12.Creditor waives any right to require the Bank to: (a) proceed against any
person or property; (b) give notice of the terms, time and place of any
public or private sale of personal property security held from Borrower or
any other person, or otherwise comply with the provisions of Section 9-504 of
the Michigan or other applicable Uniform Commercial Code; or (c) pursue any
other remedy in the Bank's power. Creditor waives notice of acceptance of
this Agreement and presentment, demand, protest, notice of protest, dishonor,
notice of dishonor, notice of default, notice of intent to accelerate or
demand payment of any Senior Indebtedness, any and all other notices to which
the undersigned might otherwise be entitled, and diligence in collecting any
Senior Indebtedness, and agrees that the Bank may, once or any number of
times, modify the terms of any Senior Indebtedness, compromise, extend,
increase, accelerate, renew or forbear to enforce payment of any or all
Senior Indebtedness, or permit the Borrower to incur additional Senior
Indebtedness, all without notice to Creditor and without affecting in any
manner the unconditional obligations of Creditor under this Agreement.
13.Creditor acknowledges that the Bank has the right to sell, assign, transfer,
negotiate or grant participations or any interest in, any or all of the
Senior Indebtedness and any related obligations, including without limit this
Agreement. In connection with the above, but without limiting its ability to
make other disclosures to the full extent allowable, the Bank may disclose
all documents and information which the Bank now or later has or acquires
relating to Creditor and this Agreement, however obtained. Creditor further
agrees that the Bank may disclose such documents and information to Borrower.
Creditor further agrees that the Bank may provide information relating to
this Agreement or relating to Creditor to the Bank's parent, affiliates,
subsidiaries and service providers.
14.No waiver or modification of any of its rights under this Agreement shall be
effective unless the waiver or modification shall be in writing and signed by
an authorized officer on behalf of the Bank. Each waiver or modification
shall be a waiver or modification only with respect to the specific matter to
which the waiver or modification relates and shall in no way impair the
rights of the Bank or the obligations of Creditor to the Bank in any other
respect.
15.This Agreement shall bind and be for the benefit of Creditor and the Bank
and their respective successors and assigns, and shall be construed according
to the laws of the State of Michigan, without regard to conflict of laws
principles. If this Agreement is executed by two or more persons, it shall
bind each of them individually as well as jointly.
16.The term "Borrower", as used in this Agreement, includes any person,
corporation, partnership or other entity which succeeds to the interests or
business of Borrower named above, and the terms "Senior Indebtedness" and
"Subordinated Indebtedness" include indebtedness of any successor Borrower to
the Bank and Creditor.
17.Creditor agrees to reimburse the Bank upon demand for any and all costs and
expenses (including, without limit, court costs, legal fees, and reasonable
attorney fees whether inside or outside counsel is used, whether or not suit
is instituted and, if instituted, whether at the trial or appellate level, in
a bankruptcy, probate or administrative proceeding, or otherwise) incurred in
enforcing any of the duties and obligations of Creditor under this Agreement.
18.Creditor waives any defense against the enforceability of this Agreement
based upon or arising by reason of the application by Borrower of the
proceeds of any Indebtedness for purposes other than the purposes represented
by Borrower to the Bank or intended or understood by the Bank or Creditor.
Creditor waives all rights to require the Bank to marshall the Collateral or
any other property the Bank may at any time have as security for the
Indebtedness and waives all right to require the Bank to first proceed
against any guarantor or other person before proceeding against the
Collateral.
<PAGE>
19.The relative priorities of the Bank and Creditor in the Collateral as set
forth in this Agreement control irrespective of the time, method or order of
attachment or perfection of the liens and security interests acquired by the
parties in the Collateral and irrespective of the priorities as would
otherwise be determined by reference to the Uniform Commercial Code or other
applicable laws. Creditor shall not contest the validity, priority or
perfection of the Bank's security interest in the Collateral (regardless of
whether the Bank's security interest in the Collateral is valid or
perfected). The priorities of any liens or security interests of the parties
in any property of the Borrower other than the Collateral are not affected by
this Agreement and shall be determined by reference to applicable law. The
Bank's rights under this Agreement are in addition to, and not in
substitution of, its rights under any other subordination agreement with
Creditor.
20. Special Provisions: [None if left blank.]
- -------------------------------------
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT.
IN WITNESS WHEREOF, Creditor has caused this Agreement to be executed as of
___________________________.
___________________________ CREDITOR'S ADDRESS
[CREDITOR]
BY:
---------------------------- --------------------------------
SIGNATURE OF STREET ADDRESS
ITS:
---------------------------- --------------------------------
TITLE (if applicable) CITY STATE
---------------------------------
ZIP
<PAGE>
BORROWER'S ACKNOWLEDGMENT
____________________________________ ("Borrower") accepts notice of
subordination created by this Agreement and agrees that it will take no action
inconsistent with this Agreement and that, except with the prior written
approval of Bank, no payment or distribution shall be made by Borrower on or
with respect to the Subordinated Indebtedness, so long as this Agreement remains
in effect. Borrower agrees that the Bank may, at its option, without notice and
without limiting Bank's other rights, upon any breach by Creditor of, or
purported termination by the Creditor of, this Agreement, declare all Senior
Indebtedness to be immediately due and payable and/or terminate any commitments
of Bank to Borrower.
______________________________ BORROWER'S ADDRESS
[BORROWER]
BY:
-------------------------------- --------------------------------
SIGNATURE OF STREET ADDRESS
ITS:
-------------------------------- --------------------------------
TITLE (if applicable) CITY STATE
--------------------------------
ZIP
Dated:__________________________
LIST OF SUBSIDIARIES
SUBSIDIARIES STATE OF INCORPORATION
Ajay Leisure Products, Inc. Delaware
Leisure Life, Inc. Tennessee
Palm Springs Golf, Inc. Colorado
Prestige Golf Corp. Delaware
Pro Golf International, Inc. Delaware
Pro Golf of America, Inc. Michigan
ProGolf.com, Inc. Delaware
INDEPENDENT AUDITORS CONSENT
We hereby consent to the incorporation by reference in the Registration
Statements of Ajay Sports, Inc. and Subsidiaries on form S-3 Registration No.
333-11365 and form S-8 of our report dated March 12, 1999, appearing in this
Annual Report on Form 10-K of Ajay Sports Inc. and Subsidiaries for the year
ended December 31, 1999.
HIRSCH SILBERSTEIN & SUBELSKY, P.C.
Farmington Hills, Michigan
April 21, 2000
J L Stephan Co PC
Certified Public Accountants
862 East Eighth Street
Traverse City, Michigan 49686
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement of
Ajay Sports, Inc. and Subsidiaries on Form S-8 of our report dated April 7,
2000, appearing in this Annual Report on Form 10-K of Ajay Sports, Inc. and
Subsidiaries for the year ended December 31, 1999.
J L Stephan Co P.C.
- --------------------
J L Stephan Co P.C.
Traverse City, Michigan
April 7, 2000
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2,179
1,250
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