SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event report) December 31, 1997
GOLF TRAINING SYSTEMS, INC.
Delaware
(State or other jurisdiction of incorporation)
0-25332 58-1963120
(Commission (IRS Employer
File Number) Identification No.)
3400 Corporate Way, Suite G, Duluth, Georgia 30136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 623-6400
<PAGE>
Item 5. Other events
Effective December 31, 1997, the Company entered into a short term
$1,000,000 secured credit facility with John H. Laeri, Jr., a resident of
Connecticut. The facility included the issuance of a six-month warrant to Mr.
Laeri to purchase 1,000,000 shares of the common stock of the Company for a
purchase price of $250,000.00. An initial $750,000.00 advance under the credit
facility was funded to the Company on January 6, 1998, and disbursement of the
$250,000.00 balance of the credit facility is subject to conditions which
include the Company's progress in obtaining approval from the holders of its
common stock for an increase in the Company's authorized common stock to support
the convertible preferred stock and warrant to be issued in connection with
refinancing the bridge loan. The Company anticipates holding a shareholders'
meeting in the first quarter of calendar year 1998 to seek such approval.
Exhibits:
10. Material Contracts
Senior Note dated December 31, 1997
Security Agreement dated December 31, 1997
Certificate of Designation of Series B-1 Preferred Stock
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 9, 1998
GOLF TRAINING SYSTEMS, INC.
By: /S/ Daniel A. Gordon
------------------------
Daniel A. Gordon
Chief Executive Officer
SENIOR NOTE
U. S. $1,000,000.00 Effective as of December 31, 1997
FOR VALUE RECEIVED, the undersigned, GOLF TRAINING SYSTEMS, INC., a
Delaware corporation (hereinafter referred to as "Maker"), promises to pay to
the order of JOHN H. LAERI, JR. (hereinafter, together with his successors and
assigns, referred to as "Holder"), at his office at 9 Burr Road, Westport,
Connecticut 06880-4220, or at such other place as Holder hereof may from time to
time designate in writing, in lawful money of the United States of America, the
principal sum of One Million and No/100 Dollars ($1,000,000.00) or such lesser
amount as may be borrowed hereunder, together with interest on the principal
balance from time to time outstanding during the term of this Note at a rate of
Ten percent (10%) per annum. Interest will be calculated on the basis of each
calendar month being equal to one-twelfth of a calendar year with interest
computed for any partial month on the actual number of days elapsed during such
month. All payments made hereon shall be applied first to accrued and unpaid
interest and the remainder to principal.
Maker acknowledges Holder's disbursement of Seven Hundred Fifty Thousand
Dollars ($750,000.00) of the indebtedness evidenced hereby. Maker further
acknowledges and agrees that Holder shall not be obligated to disburse the
remaining Two Hundred Fifty Thousand Dollars ($250,000.00) of the indebtedness
hereof except in accordance with the terms of that certain Loan Agreement of
even date herewith between Maker and Holder (the "Loan Agreement").
This Note shall mature and the entire outstanding principal balance hereof,
together with all then accrued and unpaid interest, shall be due and payable on
June 30, 1998. Notwithstanding the foregoing, this Note shall mature earlier
than June 30, 1998 and certain sums, in addition to the entire principal balance
hereof and all then accrued and unpaid interest, shall then be due and payable
in the circumstances and as further described in Section 2 of the Loan
Agreement.
This Note is secured by certain collateral documents including without
limitation a certain Security Agreement (the "Senior Security Agreement") of
even date herewith between Holder and Maker. Reference is made to such
collateral documents for a statement of certain obligations of the Maker, a
description of the properties, pledged and assigned, the nature and extent of
the security and the rights of the parties under the collateral documents in
respect of such security, and for a statement of certain terms and conditions
under which the maturity of this Note may be accelerated. This Note, the Senior
Security Agreement, the above-referenced Loan Agreement, such collateral
documents and all other documents evidencing or securing the indebtedness hereof
are herein collectively referred to as the "Loan Documents." Upon the occurrence
of an Event of Default (as defined in the Senior Security Agreement), at the
Holder's option, the entire unpaid principal balance of this Note, together with
all accrued and unpaid interest thereon shall immediately become due and
payable, without notice or demand, and Holder shall have all rights and remedies
stated in this Note and the Loan Documents. Such rights or remedies shall be
cumulative, and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedy.
In the event that Holder institutes legal proceedings to enforce this Note
or refers the same to an attorney-at-law for enforcement or collection after
default or maturity, Maker agrees to pay to Holder, in addition to any
indebtedness due and unpaid, all reasonable costs and expenses of such
proceedings, including reasonable attorneys' fees actually incurred.
<PAGE>
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of the debt evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Holder for the use,
forbearance or retention of the money advanced or to be advanced hereunder
exceed the highest lawful rate permissible under applicable laws ("Maximum
Rate") in accordance with the written agreement of the parties. Determination of
the rate of interest for the purpose of determining whether this Note is
usurious under applicable law shall be made by amortizing, prorating, allocating
and spreading in equal parts during the period of the full stated term of this
Note, all interest or other sums deemed to be interest at any time contracted
for, charged or received from Maker in connection with this Note. Maker or any
endorsers or other parties now or hereafter becoming liable for payment of this
Note shall never be required to pay interest on this Note at a rate in excess of
the Maximum Rate, and the provisions of this paragraph shall control over all
other provisions of this Note and any other instruments now or hereafter
executed in connection herewith which may be in apparent conflict herewith. If,
from any circumstances whatsoever, fulfillment of any provision hereof or of any
other agreement evidencing or securing the debt, at the time performance of such
provisions shall be due, shall involve the payment of interest in excess of that
authorized by law, the obligation to be fulfilled shall be reduced to the limit
so authorized by law, and if from any circumstances Holder shall ever receive as
interest an amount which would exceed the Maximum Rate applicable to Maker, such
amount which would be excessive interest shall, at the option of Holder, be
applied against the unpaid principal balance on this Note or, if this Note has
been paid in full, be repaid by Holder to Maker.
Holder shall not by an act of omission or commission be deemed to waive any
of its rights or remedies hereunder unless such waiver be in writing and signed
by an authorized officer of Holder and then only to the extent specifically set
forth therein; a waiver on one occasion shall not be construed as continuing or
as a bar to or waiver of such right or remedy on any other occasion. All
remedies conferred upon Holder by this Note or any other instrument or agreement
connected herewith or related hereto shall be cumulative and none is exclusive,
and such remedies may be exercised concurrently or consecutively at Holder's
option.
Maker hereby consents and agrees that Holder may at any time, and from time
to time, without notice to or further consent from Maker, either with or without
consideration, release, surrender or impair any property or other security of
any kind or nature whatsoever held by Holder securing this Note; grant releases,
compromises and indulgences with respect to this Note or the other Loan
Documents as to any persons or entities now or hereafter liable thereunder or
hereunder; release any endorser of this Note, the Loan Documents or any other of
the Loan Documents; or take or fail to take any action of any type whatsoever.
No such action which Holder shall take or fail to take in connection with this
Note or the Loan Documents, or any of them, nor any course of dealing with or
any other person, shall be deemed to release Maker's obligations hereunder,
affect this Note in any way or afford any Maker any recourse against Holder.
Maker hereby waives (a) any defense that may arise by reason of the lack of
authority of any other person or entity, or the failure of Holder to file or
enforce a claim against the estate (either in bankruptcy, or any other
proceeding) of Maker; (b) any defense based upon failure of Holder to commence
an action against Maker (other than a defense based on a statute of
limitations); (c) any duty on the part of Holder to disclose to Maker any facts
it may now or hereafter know regarding Maker; (d) demand for payment of any of
the indebtedness or performance of any of the obligations hereby evidenced; (e)
protest and notice of dishonor or of default to Maker or to any other party with
respect to the indebtedness; (f) any and all other notices whatsoever to which
Maker might otherwise be entitled; and (g) any defense based on lack of due
diligence by Holder in collection, protection, perfection or realization upon
any collateral securing the indebtedness evidenced by this Note.
<PAGE>
The liability of Maker under this Note shall be direct and immediate and
not conditional or contingent upon the pursuit of any remedies against any other
person, nor against security or liens available to Holder, its successors,
successors-in-title, endorsees or assigns. Maker waives any right to require
that an action be brought against any other person or to require that resort be
had to any security held by Holder.
Every person or entity at any time liable for the payment of the debt
evidenced hereby, waives presentment for payment, demand, notice of non-payment
of this Note, notice of intent to accelerate, notice of acceleration of the
maturity hereof, protest and notice of protest and consents that Holder may
extend the time of payment of any part of the whole of the debt at any time at
the request of any other person or entity liable.
Time is of the essence with respect to all of Maker's obligations and
agreements under this Note.
This Note and all provisions, conditions, promises and covenants hereof
shall be binding in accordance with the terms hereof upon Maker, its successors
and assigns, provided nothing herein shall be deemed a consent to any assignment
or conveyance which is restricted or prohibited by the terms of this Note or the
Loan Documents.
All notices to Maker and Holder hereunder shall be deemed to have been
sufficiently given or served for all purposes when sent pursuant to the notice
requirements in the Senior Security Agreement.
This Note shall be governed and construed under the laws of the State of
Georgia.
IN WITNESS WHEREOF, Maker has signed, sealed and delivered this Note as of
the date first hereinabove written.
MAKER:
GOLF TRAINING SYSTEMS, INC., a
Delaware corporation
By: /s/ Daniel A. Gordon
----------------------
Title: Chief Executive Officer
Attest: /s/ Thomas B. Adams
-------------------
Title: Assistant Secretary
(CORPORATE SEAL)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made and entered into
effective as of the 31st day of December, 1997, by and between GOLF TRAINING
SYSTEMS, INC. (hereinafter referred to as "Debtor"), and JOHN H. LAERI, JR., and
his assigns (hereinafter referred to as "Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor is presently engaged in the business of developing and
marketing sports instruction materials (the "Business");
WHEREAS, Debtor has executed a Senior Note (the "Note") in favor of Secured
Party, dated of even date herewith, in the maximum face principal amount of
$1,000,000.00; and
WHEREAS, in order to secure the obligations of Debtor under the Note and
all other obligations now or hereafter owing from Debtor to Secured Party, the
Debtor desires to grant a security interest in the collateral described below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confessed, the parties hereto
agree as follows:
1. Security Interest. To provide security for the due and punctual
performance of all of the Debtor's obligations under the Note and all other
documents or instruments evidencing or securing the indebtedness of the Note
(collectively, with the Note, the Loan Agreement of even date herewith and this
Agreement, referred to herein as the "Loan Documents"), including, without
limitation, payment in full of the principal and interest on the Note, costs and
attorneys' fees, all indebtedness to be incurred by Debtor to Secured Party with
respect to the Note and further to secure any other indebtedness now or
hereafter owing by Debtor to Secured Party (hereinafter the "Obligations"), the
Debtor hereby mortgages, pledges, assigns, transfers, sets over, conveys and
delivers to Secured Party and grants to Secured Party first and best security
interests (the "Security Interests") in all of the following rights, interests
and properties (all of which are collectively hereinafter referred to as the
"Collateral"):
(a) Inventory. All of the Debtor's inventory of every description which is
held by the Debtor for sale or lease or is furnished by the Debtor under any
contract of service or is held by the Debtor as raw materials, work in process,
or materials used or consumed in a business, whether now owned or hereafter
acquired, wherever located, and as the same may now and hereafter from time to
time be constituted, together with all cash and non-cash proceeds and products
thereof (the "Inventory").
(b) Accounts. All of the Debtor's accounts (including, without limitation,
all notes, notes receivable, drafts, acceptances, and similar instruments and
documents) whether now owned or hereafter acquired, together with (i) all cash
and non- cash proceeds thereof and (ii) all returned, rejected, or repossessed
goods, the sale or lease of which shall have given or shall give rise to an
account, and all cash and non-cash proceeds and products of all such goods (the
"Accounts").
<PAGE>
(c) General Intangibles. All of the Debtor's general intangibles
(including, without limitation, any proceeds from insurance policies), patents
and applications therefor, unpatented inventions, trade secrets, copyrights,
contract rights, goodwill, literary rights, rights to performance, rights under
licenses, choses-in-action, claims, information contained in computer media
(such as data bases, source and object codes, and information therein),
trademarks and applications therefor, trade names, including the right to make,
use, and vend goods utilizing any of the foregoing, and permits, licenses,
certifications, authorizations and approvals, and the rights of the Debtor
thereunder, issued by any governmental, regulatory, or private authority,
agency, or entity whether now owned or hereafter acquired, together with all
cash and non-cash products thereof.
(d) Chattel Paper. All of the Debtor's chattel paper, whether now owned or
hereafter existing, acquired, or created, together with (i) all moneys due and
to become due thereafter, (ii) all cash and non-cash proceeds thereof, and (iii)
all returned, rejected, or repossessed goods, the sale or lease of which shall
have given or shall give rise to chattel paper, and all cash and non-cash
proceeds and products of all such goods (the "Chattel Paper").
(e) All Equipment and Fixtures. All of the Debtor's equipment (including
all motor vehicles) and fixtures, whether now owned or hereafter acquired,
together with (i) all additions, parts, fittings, accessories, special tools,
attachments, and accessions now and hereafter affixed thereto and/or used in
connection therewith, (ii) all replacements thereof and substitutions therefor,
and (iii) all cash and non-cash proceeds and products thereof (the "Equipment").
Until payment in full of all Obligations, the Secured Party's Security
Interests in the Collateral granted hereby shall continue in full force and
effect.
<PAGE>
2. Representations and Warranties.
Debtor represents and warrants to Secured Party that:
(a) Debtor has all requisite authority to execute and deliver this
Agreement and this Agreement is enforceable in accordance with its terms;
(b) Debtor's books and records concerning the Collateral are kept at the
principal office of Debtor;
(c) No financing statement covering the Collateral, or any part thereof, is
currently on file with any filing officer except for one statement in favor of
AT&T filed in Gwinnett County, Georgia which has not been terminated
notwithstanding that the obligation secured thereby has been satisfied;
(d) No other security agreement is currently in effect and no security
interest, other than the Security Interests herein granted, has attached to or
has been perfected in the Collateral or in any part thereof except with respect
to obligations that have been satisfied;
(e) the principal place of business of Debtor is 3400 Corporate Way, Suite
G, Duluth, Georgia 30136;
(f) Debtor has not acquired any of the Collateral in the past twelve (12)
months from any third party outside of the ordinary course of business or as
part of a bulk sale; and
(g) All of the Collateral that has a physical location is normally located
within the State of Georgia;
3. Covenants.
(a) Debtor covenants and agrees to:
(i) comply with all covenants and agreements set forth in the Loan
Documents;
(ii) deliver to Secured Party, at such intervals as Secured Party
reasonably may require, such documents, lists, descriptions, certificates, and
other information as may be necessary or proper to keep Secured Party fully
informed with respect to the description of the Collateral;
(iii) from time to time promptly execute and deliver to Secured Party all
such other assignments (including but not limited to recordable specific
assignments of property for which collateral assignments are filed for public
record in offices other than the offices for the filing of Uniform Commercial
Code financing statements), certificates, supplemental documents, and financing
statements, and do all other acts or things, as Secured Party may reasonably
request in order to more fully evidence and perfect the Security Interests;
(iv) promptly notify Secured Party of any material and adverse change in
any fact or circumstances warranted or represented by Debtor in this Agreement
or in any other Loan Documents in connection with the Collateral;
(v) promptly notify Secured Party of any claim, action or proceeding which
could affect Debtor's title to or materially and adversely affect the value of
the Collateral, or any part thereof, or the effectiveness of the Security
Interests, and, at the request of Secured Party, appear in and defend, at
Debtor's expense, any such action or proceeding;
<PAGE>
(vi) promptly, after being requested by Secured Party, pay to Secured Party
the amount of all expenses, including attorneys' fees and other legal expenses,
reasonably incurred by Secured Party in enforcing the Security Interests; and
(vii) do all things reasonably necessary or appropriate to enable Secured
Party fully to exercise its rights under this Agreement;
(viii) keep and maintain the Equipment in good working order and repair,
normal wear and tear excepted, and, where appropriate, replace the same with
equipment of a like kind that is in good working order and repair;
(b) Debtor covenants and agrees that without the prior written consent of
Secured Party, Debtor will not:
(i) sell, assign, lease or transfer, voluntarily or by operation of law,
any of the Collateral except in the ordinary course of operation of the
Business, or materially modify or extend the terms of sale or Accounts;
(ii) create in favor of anyone, except Secured Party, any other security
interest in any of the Collateral, or in any part thereof, or otherwise encumber
or permit the same to become subject to any lien, attachment, execution,
sequestration, or other legal or equitable process which is not removed within
sixty (60) days, provided Debtor has commenced significant curative actions
within thirty (30) days;
(iii) permit any part of the Collateral to be subjected to any unpaid
charge, including rent and taxes, or any subsequent interest of a third party,
whether such interest is created voluntarily or involuntarily, which is not
cured within sixty (60) days, provided Debtor has commenced significant curative
actions within thirty (30) days; or
(iv) remove, or permit to be removed, Debtor's records concerning the
Collateral from Debtor's offices; or
(v) remove all or any portion of the Collateral from the location specified
in sub-paragraph 2(g) above except for (i) replacement or repair of Collateral
in the ordinary course of operation of the Business and (ii) the sale of any of
the Collateral in the ordinary course of business; or
(vi) dissolve Debtor's corporate existence or liquidate or merge or
consolidate Debtor into any other corporation or form of entity.
4. Accounts, etc.
(a) Until such time as the Secured Party shall notify the Debtor in writing
of the revocation of such power and authority, the Debtor, as agent for the
Secured Party, will, at its own expense, diligently collect, as and when due,
all amounts owing under the Accounts, including the taking of such action with
respect to such collection as the Secured Party reasonably may request from time
to time; provided, however, that until an Event of Default shall occur or would
occur but for the passage of time, or giving of notice, or both, the Debtor may
use or consume in the ordinary course of its business any such collections on
the Accounts in any lawful manner not inconsistent with this Agreement and the
other Loan Documents. After an Event of Default shall occur, the Secured Party
shall have the authority and right (but not the obligation) to notify any
parties obligated on any of the Accounts to make payment to the Secured Party of
any amounts due or to become due thereunder, and enforce collection of
performance under any of the Accounts by suit or otherwise, and surrender,
release, or exchange all or any part thereof, or compromise or extend or renew
for any period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. After an Event of Default and upon request of
the Secured Party, the Debtor will, at its own expense, notify any parties
obligated on any of the Accounts to make payments to the Secured Party and will
hold in trust and immediately forward to the Secured Party all payments received
by the Debtor in the form received, with all necessary endorsements thereon for
collection by the Secured Party.
<PAGE>
(b) If all or any part of the Collateral at any time consists of Inventory,
Accounts, or Chattel Paper, at any time and from time to time after the
occurrence of an Event of Default hereunder: the Debtor will, upon the request
of the Secured Party, deposit or cause to be deposited to a bank account
designated by the Secured Party and from which the Secured Party alone has power
of access and withdrawal (the "Collateral Account") all checks, drafts, cash,
and other remittances in payment or on account of payment of such Inventory,
Accounts, or Chattel Paper and the cash proceeds of any returned goods, the sale
or lease of which gave rise to an Account or Chattel Paper (all of the foregoing
herein collectively referred to as "Items of Payment"); the Debtor shall deposit
the Items of Payment for credit to the Collateral Account within two (2)
business days of the receipt thereof, and in precisely the form received, except
for the endorsement of the Debtor where necessary to permit the collection of
the Items of Payment, which endorsement the Debtor hereby agrees to make;
pending such deposit, the Debtor will not commingle any of the Items of Payment
with any of its other funds or property but will hold them separate and apart;
and the Secured Party may at any from time to time apply the whole or any part
of the collected funds credited to the Collateral Account against the Debtor's
Obligations or credit such collected funds to a banking account of the Debtor
with the Secured Party, the order and method of such application to be in the
discretion of the Secured Party.
5. Default. The occurrence of one or more of the following events shall, at
the option of Secured Party, constitute an "Event of Default" hereunder:
(a) if Debtor fails to pay any of the Obligations or any installment
thereof or interest thereon that is due within ten (10) days after demand;
(b) if any warranty or representation of Debtor contained herein or in any
other Loan Document shall prove to be materially false or misleading when given;
(c) if Debtor fails to perform or keep any of the other covenants,
agreements or warranties contained herein or in any other Loan Document and
fails to cure same within thirty (30) days following notice from Secured Party
to cure, unless a different time period is expressly specified for any
particular covenant in which case the general thirty (30) day cure period shall
not apply; or
(d) any Event of Default under the Loan Agreement.
6. Default Remedies. Upon the occurrence of an Event of Default, in
addition to any and all other rights and remedies which Secured Party may then
have hereunder, including, but not limited to, the rights set forth in Section 4
herein, or under the Uniform Commercial Code of the State of Georgia, or any
other pertinent jurisdiction (the "Code"), or otherwise, Secured Party may, at
its option:
(a) reduce its claim to judgment or foreclose or otherwise enforce the
Security Interests, in whole or in part, by any available judicial procedure;
(b) require Debtor, upon the receipt of any revenue, income, profits or
other sums in which a security interest is granted by this Agreement or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, to hold the same in trust for Secured Party in
precisely the form received, and to forthwith, endorse, transfer and deliver any
such sums or instruments, or both, to Secured Party for prompt application to
the payment of the Obligations in a manner satisfactory to Secured Party;
(c) require Debtor to assemble and make available to Secured Party, at the
expense of Debtor, the Collateral at any place mutually convenient to Debtor and
Secured Party;
<PAGE>
(d) remove all or any part of the Collateral from any premises on which any
part may be located for the purpose of effecting a sale or any disposition
thereof (and with respect to motor vehicles, Secured Party may use Debtor's
license plates);
(e) enter upon the premises wherever the Collateral may be, freely and
without being deemed to disrupt the peace, and take possession of the
Collateral, and demand and receive such possession from any person or
organization which has possession thereof, and to take such measures as it may
deem necessary or proper for the care or protection thereof, including the right
to remove all or any portion of the Collateral, and with or without taking such
possession may sell or cause to be sold, whenever Secured Party shall decide, in
one or more sales or parcels, at such price as Secured Party may deem adequate,
and for cash or, on credit or for future delivery, without assumption of any
credit risk, all or any portion of the Collateral, at any broker's board or at
public or private sale (whether such sale is conducted by Secured Party or a
private auction company hired by Secured Party), without demand of performance
or notice of intention to sell or of time or place of sale (except ten [10]
days' prior written notice to Debtor of the time and place of any public sale or
sales or of the time after which any private sale or sales or other intended
disposition is to be made and only such other notice as may be required by
applicable statute and cannot be waived, which notice Debtor hereby
acknowledges, shall be considered commercially reasonable for all purposes), and
Secured Party or any other person may be the purchaser of all or any portion of
the Collateral so sold and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any equity of redemption, of
Debtor, and such demand, notice, claim, right or equity being hereby expressly
waived and released. In any action hereunder, Secured Party shall be entitled to
the appointment of a receiver without notice, to take possession of all or any
portion of the Collateral and to exercise such powers as the court shall confer
upon the receiver. Without limiting the scope or definition of commercial
reasonableness, Debtor agrees that any disposition of any Collateral pursuant
hereto shall be commercially reasonable within the meaning of Section 9-504 of
the Code as in effect in the jurisdiction or jurisdictions where such Collateral
is located.
(f) at its discretion, retain the Collateral in satisfaction of the
Obligations whenever the circumstances are such that Secured Party is entitled
to do so under the Code;
(g) exercise any and all other rights, remedies, and privileges it may have
under the Note or any other Loan Documents; and
Debtor hereby irrevocably makes, constitutes and appoints Secured Party or
any of its officers or designees its true and lawful attorney-in-fact, upon the
occurrence of an Event of Default (A) to enforce all rights of Debtor under and
pursuant to any agreements relating to the Collateral, all for the sole benefit
of Secured Party, or (B) to enter into and perform such agreements as may be
necessary in order to carry out the provisions of this Agreement, or to carry
out the terms, covenants and conditions of this Agreement which are required to
be observed or performed by Debtor, or (C) to execute such other and further
grants, mortgages, pledges and assignments of the Collateral as Secured Party
may reasonably require for the protecting or maintaining of the Security
Interests granted to Secured Party by this Agreement. Debtor hereby ratifies and
confirms all that Secured Party, as such attorney-in-fact, or its substitutes,
shall do by virtue of this power of attorney. Debtor hereby waives all rights to
marshalling of assets or sale in inverse order of alienation, including any such
rights with respect to the Collateral.
Secured Party shall not be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral, wherever
the same may be located and regardless of the cause thereof, unless the same
shall happen through the gross negligence or willful misconduct of Secured
Party. Secured Party shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delivery of any kind
incurred with respect to any instrument received in payment for the Collateral
or for any damage resulting therefrom. In no event shall Secured Party be liable
in any manner or for anything in connection with this Agreement other than to
account for moneys actually received by it in accordance with the terms hereof.
<PAGE>
7. Application of Proceeds. If an Event of Default shall have occurred and
be continuing, all proceeds received from the sale or other disposition of any
of the Collateral shall be applied by Secured Party as follows:
First: to the payment of all costs and expenses incurred in connection with
any such sale of the Collateral, including, without limitation, all court costs
and the reasonable fees and expenses of agents and of counsel for Secured Party
in connection therewith, and to the payment of all costs and expenses reasonably
paid or incurred by Secured Party hereunder, to the extent that such advances,
costs and expenses shall not have been paid to Secured Party upon its demand
therefor;
Second: to the payment of interest on the Note then due and payable, then
the payment of all principal on the Note whether at the stated maturity thereof
or by acceleration or otherwise in such order as Secured Party elects;
Third: to the payment in full of all other Obligations; and
Fourth: the balance, if any, of such proceeds remaining after payment in
full of the foregoing items shall be remitted to Debtor or as a court of
competent jurisdiction may otherwise direct.
8. Taxes; Financing Statements; Certificates of Title. At its option,
Secured Party may discharge past due sales, use or property (but not income)
taxes, liens, or security interests and license fees, assessments or other
encumbrances at any time levied or placed on any of the Collateral and may pay
for the maintenance and preservation thereof, and Debtor agrees to reimburse
Secured Party on demand for any payment made or any expense reasonably incurred
by Secured Party pursuant to the foregoing authorization; provided, however,
that nothing in this Section 8 or its exercise may be interpreted as excusing
Debtor from performance of any covenants or other promises with respect to such
past due taxes, liens, security interests or other encumbrances unless Debtor is
contesting the same pursuant to a legal contest that suspends any right of
foreclosure, nor shall it be interpreted as an assumption by Secured Party of
such obligations.
Debtor hereby authorizes Secured Party to file financing statements and any
amendments thereto or continuations thereof.
At the closing, or at any time thereafter until all Obligations have been
satisfied in full, at Secured Party's request, Debtor shall deliver to Secured
Party all the necessary documentation reasonably requested by Secured Party for
Secured Party to record its position as a perfected lienholder.
9. Remedies Cumulative, Etc. The rights, remedies and benefits of Secured
Party herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which Secured Party may have under this Agreement,
the Note, any other Loan Document or at law, in equity, by statute or otherwise.
Without limiting the generality of the foregoing, Secured Party shall have all
rights and remedies of a secured creditor under Article 9 of the Uniform
Commercial Code in the jurisdiction or jurisdictions where any of the Collateral
is located.
<PAGE>
10. Expenses, Etc. Debtor will pay to Secured Party all reasonable expenses
(including reasonable attorneys fees actually incurred and court costs) of, or
incidental to, the enforcement of any of the provisions of this Agreement or any
actual or attempted sale, or any exchange, enforcement, collection, compromise
or settlement of any of the Collateral or receipt of the proceeds thereof, and
the care of the Collateral and defending or asserting the rights and claims of
Secured Party in respect thereof, by litigation or otherwise, including expenses
of insurance; and all such expenses shall be secured by this Agreement.
11. No Delay, Waiver, Etc. No delay on the part of Secured Party in
exercising any power or right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise thereof or the exercise of any other power or right.
Debtor hereby waives presentment, notice of dishonor and protest of all
instruments included in or evidencing the liability of Debtor and any and all
other notices and demands whatsoever (except notices specifically provided for
herein), whether or not relating to such instruments.
12. Modification, Successors and Assigns, Etc. No amendment hereof shall be
effective unless contained in a written instrument signed by the parties hereto.
This Agreement shall be binding upon the permitted successors and assigns of
Debtor and shall inure to the benefit of the successors and assigns of Secured
Party.
13. Notices, Etc. Any notices, requests or demands hereunder shall be
deemed to have been sufficiently given on the first business day following
delivery to a reputable overnight delivery service (e.g. FedEx) for which a
return receipt is available addressed as indicated below, with next business day
delivery properly requested and paid for:
Debtor:
Golf Training Systems, Inc.
3400 Corporate Way
Suite G
Duluth, Georgia 30136
Attention: Daniel A. Gordon, Chief Executive
Officer
With a required copy to:
Edward H. Brown, Esq.
Schreeder, Wheeler & Flint
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Secured Party:
John H. Laeri, Jr.
c/o Meadowcroft Associates, Inc.
9 Burr Road
Westport, Connecticut 06880-4220
With a required copy to:
Edward E. Steiner, Esq.
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East 4th Street
Cincinnati, Ohio 45202
<PAGE>
14. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of Georgia, and shall be governed by and construed
in accordance with the laws of the State of Georgia.
15. Severability. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
of this Agreement, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of this Agreement; and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement.
16. Counterparts. This Agreement may be executed in a number of identical
counterparts, each of which for all purposes is to be deemed an original, and
all of which constitute collectively, one agreement; but in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart. Any telecopy or facsimile copy of this Agreement signed by
Debtor shall be for all purposes equivalent to an original "wet ink copy" of
this Agreement signed by Debtor.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly executed
(by its authorized officers, where applicable), all as of the day and year first
above written.
DEBTOR:
Signed, sealed and delivered GOLF TRAINING SYSTEMS, INC., a
in the presence of: Delaware corporation
/s/Karetha A. Milton By: /s/Daniel A.Gordon
- --------------------- -----------------------
Witness Title: Chief Executive Officer
Samuel F. Boyte Attest: /s/Thomas B. Adams
- --------------------- --------------------------
Notary Public Title: Assistant Secretary
My commission expires:______
(NOTARIAL SEAL)
(CORPORATE SEAL)
GOLF TRAINING SYSTEMS, INC.
CERTIFICATE OF DESIGNATION OF SERIES B-1 PREFERRED STOCK
Golf Training Systems, Inc., a Delaware corporation (the "Corporation"),
does hereby certify that the Board of Directors of the Corporation, pursuant to
authority expressly vested in the Board of Directors by its Certificate of
Incorporation and in accordance with the General Corporation Law of Delaware,
has adopted the following resolution creating a Series B-1 issue of Preferred
Stock:
RESOLVED, that eight (8) of the 3,000,000 authorized shares of Preferred
Stock of the Corporation shall be designated Series B-1 Preferred Stock, $.01
par value per share, and shall possess the rights, preferences and other terms
as set forth below:
1. Designation and Initial Number. The class of shares of Preferred Stock
hereby authorized shall be designated the "Series B-1 Preferred Stock". As used
hereinafter, the term "Preferred Stock" without designation shall refer to
shares of Series B-1 Preferred Stock. The authorized shares of the Preferred
Stock may be issued only in exchange (share-for-share) for the Corporation's
Series B Convertible Preferred Stock.
2. Dividends. The holders of the Series B-1 Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds at the time legally available for payment of dividends by the Corporation,
a dividend at a rate equal to $2,500 per share per annum (computed on the basis
of a 360-day year, 30-day month) on a cumulative basis from the date of issuance
of such shares, which shall be payable quarterly on January 31, April 30, July
31, and October 31, in each year commencing October 31, 1997, before any
dividends shall be set apart or paid on any other class or series of capital
stock for such period other than the Corporation's Series D Convertible
Preferred Stock. Dividends for each calendar quarter commencing prior to January
1, 2000 shall, at the discretion of the Corporation's Board of Directors, be
paid in cash or by the issuance of shares of the Corporation's Common Stock,
valued for the payment of such dividends at the below defined "Conversion Price"
per share.
The Series B-1 Preferred Stock is subordinate to the Corporation's Series D
Convertible Preferred Stock and on a parity with the Corporation's Series C
Convertible Preferred Stock with respect to cash payment of dividends.
If any dividend on the Preferred Stock shall for any reason not be paid (by
cash or issuance of shares of the Corporation's Common Stock) at the time such
dividend shall become due, then such dividend in arrears shall be paid as soon
as payment of same shall be permissible under the provisions of the General
Corporation Law of Delaware. Until any dividend in arrears is paid, dividends
shall continue to accrue on each share at a rate equal to $3,250 er share per
annum on all dividends in arrears commencing 10 days after the dividend payment
date until such dividend payments in full are made.
In the event the Corporation fails to pay any dividend for two consecutive
quarters commencing after December 31, 2001, each holder shall have the right,
in addition to the redemption rights set forth in, but subject to, the
limitations set forth in Section 3 below, to require the Corporation to redeem
the Preferred Stock issued to such holder upon at least 30 days' prior written
notice to the Corporation by each holder of record of the Preferred Stock to be
redeemed by the Corporation, paying a redemption price of $25,000 per share of
Preferred Stock, plus all accrued and unpaid dividends thereon, at the date
affixed for redemption, in cash, for each share of outstanding Preferred Stock
so redeemed.
<PAGE>
For purposes of this Section 2, the date on which the Corporation issued
the shares of its Series B Preferred Stock that are exchanged to acquire Series
B-1 Preferred Stock shall be deemed to be the "date of issuance" of the shares
of Series B-1 Preferred Stock regardless of how many times transfer of such
shares of either shall be made on stock records maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such shares (whether by reason of transfers of such shares or for any
other reason).
3. Redemption and Put Option. The Corporation shall redeem all of the
outstanding Series B-1 Preferred Stock upon the closing of a public offering of
capital stock of the Corporation (exclusive of offerings prior to July 1, 1999,
limited to holders of the Corporation's Common Stock or public offerings
pursuant to registration statements on Form S-4 or Form S-8), upon at least 30
days' prior written notice to the holders of record of the Preferred Stock to be
redeemed, by paying a redemption price of $25,000 per share of Preferred Stock,
plus all accrued and unpaid dividends thereon, at the date fixed for redemption,
in cash, for each share of outstanding Preferred Stock so redeemed. Prior to the
date fixed for redemption, each holder may elect to exercise its conversion
rights under Paragraph 5 hereof.
Each holder, at its option, may require the Corporation to redeem on a
cumulative basis up to one-third of the Series B-1 Preferred Stock held by such
holder on the third anniversary, up to two-thirds of the Series B-1 Preferred
Stock held by such holder (less any such shares redeemed on the third
anniversary) on the fourth anniversary, and up to all of the remaining Series
B-1 Preferred Stock held by such holder on the fifth anniversary of the date of
issuance of the outstanding Series B-1 Preferred Stock so redeemed upon at least
60 days' prior written notice to the Corporation by each holder of record of the
Preferred Stock to be redeemed, by the Corporation paying a redemption price of
$25,000 per share of Preferred Stock, plus all accrued and unpaid dividends
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<PAGE>
thereon, at the date fixed for redemption, in cash, for each share of
outstanding Preferred Stock so redeemed.
The redemption rights granted in this Section 3 and elsewhere herein are
subject to the limitation that such redemption rights may not be exercised while
the Corporation has any Series D Convertible Preferred Stock outstanding or
Series C Convertible Preferred Stock outstanding or is subject to any obligation
to issue Series D Convertible Preferred Stock or Series C Convertible Preferred
Stock.
4. Liquidation or Dissolution. The Series B-1 Preferred Stock is
subordinate in liquidation preference to the Corporation's "Senior Securities"
(which Senior Securities are limited to the Corporation's Series D Convertible
Preferred Stock). In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the affairs of the Corporation, the holders of the
issued and outstanding Series B-1 Preferred Stock shall be entitled to receive
for each share of Series B-1 Preferred Stock on a parity basis with the
Corporation's outstanding issue of Series A Preferred Stock and subsequently
issued Series C Convertible Preferred Stock (collectively, the "Parity
Securities"), before any distribution of the assets of the Corporation shall be
made to the holders of any other class or series of capital stock other than the
Corporation's Senior Securities, a dollar amount equal to $25,000 per share of
Series B-1 Preferred Stock, plus all declared and unpaid dividends thereon to
the date fixed for distribution, without interest. If, upon such liquidation,
dissolution, or winding-up, the assets of the Corporation that are
distributable, as aforesaid, among the holders of the Series B-1 Preferred Stock
(after distribution to holders of the Corporation's Senior Securities) shall be
insufficient to permit the payment to them of said amount and the amounts due to
holders of the Parity Securities, the entire assets (after distribution to
holders of the Corporation's Senior Securities) shall be distributed ratably
among the holders of the Series B-1 Preferred Stock and the Parity Securities in
accordance with their respective liquidation preference amounts. A consolidation
or merger of the Corporation, a share exchange, a sale, lease, exchange or
transfer of all or substantially all of its assets as an entirety, or any
purchase or redemption of stock of the Corporation of any class, shall not be
regarded as a "liquidation, dissolution, or winding-up of the affairs of the
Corporation" within the meaning of this Section 4.
5. Voluntary Conversion. The holders of Series B-1 Preferred Stock shall
have conversion rights as follows:
(A) Each holder of Series B-1 Preferred Stock may at any time or from time
to time convert such Preferred Stock into the Common Stock of the Corporation,
on presentation and surrender to the Corporation of the certificate(s) of the
Preferred Stock to be so converted.
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<PAGE>
(B) Each holder of Series B-1 Preferred Stock shall have the right to
convert such Preferred Stock into Common Stock of the Corporation on and subject
to the following terms and conditions:
(i) Each share of Series B-1 Preferred Stock shall be convertible into that
number of shares of Common Stock equal to $25,000 divided by $0.83333 per share
of Common Stock (the "Conversion Price"), as may be adjusted as hereinafter
provided.
(ii) In order to voluntarily convert Series B-1 Preferred Stock into Common
Stock, the holder thereof shall on any business day surrender at the office of
the Corporation, the certificate(s) or certificates representing such shares,
duly endorsed to the Corporation or in blank, and give written notice to the
Corporation at said office of the number of said shares which such holder elects
to convert pursuant to the form attached hereto as Exhibit A. Series B-1
Preferred Stock shall be deemed to have been converted immediately prior to the
close of business on the day of such surrender for conversion, and the person(s)
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder(s) of such Common Stock at such
time. As promptly as practicable on or after the date of any conversion, the
Corporation shall issue and deliver the certificate(s) representing the number
of shares of Common Stock issuable upon such conversion (together with cash in
lieu of any fraction of a share, as provided in subparagraph (H) hereinbelow),
to the person(s) entitled thereto. In the case of the conversion of only a part
of the shares of any holder of Series B-1 Preferred Stock, the Corporation shall
also issue and deliver to such holder a new certificate of Series B-1 Preferred
Stock representing the number of shares of such Series B-1 Preferred Stock not
converted by such holder.
(C) The Conversion Price as hereinabove provided shall be subject to
adjustments as follows:
(i) In case the Corporation shall (a) pay a dividend on its Common Stock in
shares of its Common Stock, (b) subdivide its outstanding shares of Common Stock
into a greater number of shares, (c) combine its outstanding shares of Common
Stock into a lesser number of shares, or (d) issue by reclassification of its
shares of Common Stock any shares of its capital stock, the number of shares of
Common Stock into which the Series B-1 Preferred Stock is convertible, in effect
immediately prior thereto, shall be adjusted so that the holder of a share of
Series B-1 Preferred Stock surrendered for conversion after the record date
fixing shareholders to be affected by such event shall be entitled to receive,
upon conversion, the number of shares of Common Stock, which such holder would
have owned or have been entitled to receive after the happening of such event
had such share of Series B-1 Preferred Stock been converted immediately prior to
the record date in the case of such dividend or the
4
<PAGE>
effective date in the case of any such subdivision, combination or
reclassification. An adjustment made pursuant to this subparagraph (C)(i) shall
be made whenever any such events shall happen, but shall become effective
retroactively after such record date or such effective date, as the case may be,
as to shares of Series B-1 Preferred Stock converted between such record date or
effective date and the date of happening of any such event.
(ii) In case the Corporation shall, within 3 years from the date of the
closing of the Corporation's private offering of the Series B Convertible
Preferred Stock pursuant to that certain Private Placement Compilation
Memorandum dated July 29, 1997 but in no event later than October 29, 2000, (a)
issue rights or warrants to all holders of the Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the Conversion Price as in effect from time to time, or (b) issue or sell any
shares of Common Stock (or be deemed to have issued any shares of Common Stock
as provided herein), without consideration or for consideration per share less
than the Conversion Price, then in each case the Conversion Price in effect
immediately prior to such issuance automatically and forthwith shall be adjusted
or readjusted (to the nearest cent) as follows:
(a) The Conversion Price shall be automatically lowered to the greater of
(i) the price per share which is less than the Conversion Price for the issuance
(or deemed issuance) that triggers adjustment of the Conversion Price or
(ii)$0.60 per share (such greater price being referred to herein as the
"Adjusted Conversion Price") for that number of shares of Common Stock into
which the Series B-1 Preferred Stock is convertible which shall be calculated by
multiplying (i) the number of shares of Common Stock into which the Series B-1
Preferred Stock is convertible prior to the foregoing adjustment to the
Conversion Price by (ii) a fraction whose numerator is the lesser of (aa) the
below described denominator or (bb) the total number of shares of Common Stock
sold or deemed to be sold in a subsequent transaction and whose denominator is
the number of shares of Common Stock into which the Series B-1 Preferred Stock
was originally convertible. The balance of the shares of Common Stock into which
the Series B-1 Preferred Stock is convertible shall continue to be subject to
the Conversion Price in effect prior to the foregoing adjustment to the
Conversion Price.
(b) In the event there is any subsequent event under this subparagraph
(C)(ii) which triggers an adjustment to the Conversion Price as provided herein,
the adjustment to the Conversion Price shall first affect those shares of Common
Stock of the Corporation to which the Series B-1 Preferred Stock is convertible
which have not been subject to adjustment hereunder and any adjustment(s)
thereafter shall first affect those shares of Common Stock with the highest
Adjusted Conversion Price.
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<PAGE>
(iii) For the purpose of any adjustment of the number of shares of Common
Stock purchasable on the conversion of the Series B-1 Preferred Stock pursuant
to this Section 5, the following provisions shall be applicable:
(a) In the case of the issuance of Common Stock for cash, the consideration
received upon such issuance shall be deemed to be the gross amount of cash paid
therefor.
(b) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration received upon such issuance
other than cash shall be deemed to be the fair market value thereof.
(c) In the case of the issuance of Common Stock without consideration, the
consideration received upon such issuance shall be deemed to be $0.01 per share.
(d) In the case of the issuance of (I) options to purchase or rights to
subscribe for Common Stock, (II) securities by their terms convertible into or
exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of Common Stock deliverable upon
the exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby; and
(2) the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
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<PAGE>
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights.
(iv) All adjustments under this subparagraph (C) shall be made to the
nearest cent.
(D) No adjustment of the Conversion Price shall be made in any of the
following cases:
(i) upon the grant or exercise of stock options hereafter granted, or upon
the issuance of shares upon exercise of rights to purchase shares under any
employee, officer, or director stock option plans now or hereafter authorized,
to the extent that the aggregate of the number of shares which may be purchased
under such option plans is less than or equal to 15 percent of the number of
shares of Common Stock outstanding on January 1 of the year of the grant;
(ii) shares of Common Stock issued upon the conversion of this Series B-1
Preferred Stock or any presently outstanding convertible security of the
Corporation;
(iii) shares issued by way of dividend or other distribution on Common
Stock excluded from the calculation of the adjustment under this subparagraph
(D) or on Common Stock resulting from any subdivision or combination of Common
Stock so excluded;
(iv) shares issued pursuant to all stock options and warrants outstanding
on the date of filing of this instrument in the office of the Secretary of State
in accordance with the provisions of the General Corporation Law of Delaware;
(v) offerings prior to July 1, 1999, of the Corporation's Common Stock that
are made exclusively to all holders of the Corporation's Common Stock.
(E) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall prepare a certificate signed by the chief financial officer of
the Corporation setting forth the Adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based. As promptly as
practicable, the Corporation shall cause a copy of the certificate referred to
in this subparagraph (E) to be mailed to each holder of record of issued and
outstanding Series B-1 Preferred Stock at the address of such holder appearing
on the Corporation's books.
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<PAGE>
(F) The Corporation shall pay all taxes that may be payable in respect of
the issue or delivery of Common Stock on conversion of Series B-1 Preferred
Stock pursuant hereto, but shall not pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of the Common Stock in a name
other than that in which the Series B-1 Preferred Stock so converted was
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax, or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(G) Upon conversion of any shares of Series B-1 Preferred Stock, the
holders of the shares of Series B-1 Preferred Stock so converted shall not be
entitled to receive any dividends declared with respect to such shares of Series
B-1 Preferred Stock unless such dividends shall have been declared by the Board
of Directors and the record date for such dividends shall have been on or before
the date such shares shall have been converted. No payment or adjustment shall
be made on account of dividends declared and payable to holders of Common Stock
of record on a date prior to the date of conversion.
(H) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any shares of Series B-1 Preferred Stock. If more
than one share of Series B- 1 Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of such shares so surrendered. If the conversion of any share of Series B-1
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the current market price of the Common Stock on the day of
conversion shall be paid to such holder in cash by the Corporation.
(I) The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized Common Stock, for the purpose of
effecting the conversion of the issued and outstanding Series B-1 Preferred
Stock, the full number of shares of Common Stock then deliverable in the event
and upon the conversion of all of the Preferred Stock then issued and
outstanding. All shares of Common Stock which may be issued upon conversion of
Series B-1 Preferred Stock shall be fully paid and nonassessable.
6. Mandatory Conversion.
(A) The Corporation may, at its option, require all (but not less than all)
the shares of Series B-1 Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the Conversion Rate set forth in
Section 5 hereof, upon the occurrence of any of the following:
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<PAGE>
(i) Upon conversion of at least 67 percent of the shares of Series B-1
Preferred Stock issued hereunder into shares of Common Stock; or
(ii) The approval by the holders of the Corporation's Common Stock of the
merger or consolidation of the Corporation with an entity over which the holders
of the Corporation's Common Stock do not have, collectively, at least
seventy-five percent (75%), directly or indirectly, the voting control that they
had over the Corporation prior to such transaction.
(B) All holders of record of shares of Series B-1 Preferred Stock will be
given at least ten (10) days prior written notice of the date fixed and the
place designated for such mandatory conversion of such shares of Preferred Stock
pursuant to the provisions hereof. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Series B-1 Preferred
Stock and such holder's address last shown on the Corporation's records. On or
before the date fixed for conversion, each holder of shares of Series B-1
Preferred Stock shall surrender his or its certificate or certificates for all
such shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to the terms hereof. On the date fixed
for such mandatory conversion, all rights with respect to the Series B-1
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series B-1 Preferred Stock has been converted. If so requested by the
Corporation, certificates surrendered for such mandatory conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the date of such mandatory conversion and the surrender of the certificate or
certificates for Series B-1 Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such mandatory conversion in accordance with the provisions hereof
and cash as provided hereinabove with respect to any fraction of a share of
Common Stock otherwise issuable upon such mandatory conversion.
(C) All certificates evidencing shares of Series B-1 Preferred Stock which
are required to be surrendered for mandatory conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been returned and canceled and the
shares of Series B-1 Preferred Stock represented thereby converted into
9
<PAGE>
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date. The
Corporation may thereafter take such appropriate action as may be necessary to
reduce the authorized Preferred Stock accordingly.
7. Voting Rights. Except as otherwise provided herein or by law, shares of
Series B-1 Preferred Stock shall have no right to vote on any matter to be voted
on by the stockholders of the Corporation.
8. Registration Rights. Shares of Series B-1 Preferred Stock shall have no
registration rights in connection with federal and state securities laws.
9. Changes Affecting Preferred Stock. The rights, preferences, privileges
and restrictions granted to or imposed upon the Series B-1 Preferred Stock may
not be amended, altered or repealed, and no class or series of capital stock or
securities convertible into capital stock other than the Corporation's Series D
Convertible Preferred Stock and Series C Convertible Preferred Stock shall be
authorized which has superior rights to the Preferred Stock as to dividends or
distribution of assets upon liquidation, without the consent of the holders of
at least 67 percent of the outstanding shares of Series B-1 Preferred Stock.
10. No Implied Limitations. Nothing herein shall limit, by inference or
otherwise, the discretionary right of the Board of Directors to divide any or
all of the shares of any preferred or special classes into series and, within
the limitations set forth under the General Corporation Law of Delaware, to fix
and determine the relative rights and preferences of the shares of any series so
established, to the full extent provided in the Certificate of Incorporation of
the Corporation.
11. General Provisions. In addition to the above provisions with respect to
the Series B-1 Preferred Stock, the Corporation will not avoid or seek to avoid
the observance or performance of any of the provisions and terms hereunder and
will at all times in good faith carry out all of the provisions and terms of
this instrument.
12. Notices. All notices required or permitted to be given by the
Corporation with respect to the Series B-1 Preferred Stock shall be in writing,
and if delivered by first class United States mail, postage prepaid, to the
holders of the Series B-1 Preferred Stock at their last addresses as they shall
appear upon the books of the Corporation, shall be conclusively presumed to have
been duly given, whether or not the shareholder actually receives such notice;
provided, however, that failure to duly give such notice by mail, or any defect
in such notice, to the holders of any stock designated for redemption, shall not
affect the validity of the
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proceedings for the redemption of any other shares of Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series B-1 Preferred Stock to be executed and acknowledged by its
duly authorized officers as to December 31, 1997.
GOLF TRAINING SYSTEMS, INC.
By: /s/ Daniel A. Gordon
------------------------
Daniel A. Gordon
Chief Executive Officer
Attest: /s/Thomas B. Adams
--------------------------
Title: Assistant Secretary
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series B-1 Preferred Stock, represented by stock certificate No(s). ____________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of GOLF TRAINING SYSTEMS, INC. (the "Corporation") according to the
conditions of the Certificate of Designation of Series B-1 Preferred Stock, as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto.*
The undersigned acknowledges that all offers and sales by the undersigned
of the shares of Common Stock issuable to the undersigned upon conversion of the
Series B-1 Preferred Stock must be made, pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "Act") or pursuant to an
exemption from registration under the Act.
Date of Conversion: ____________________
Applicable Conversion Price: _____________
Number of Shares of
Common Stock to be Issued: _______________
Signature: ______________________________
Name: ____________________________________
Address: ________________________________
--------------------------------
* No Shares of Common Stock will be issued until the original Series B-1
Preferred Stock Certificate(s) to be converted and the Notice of Conversion are
received by the Corporation.
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