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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM ___________ TO ____________
COMMISSION FILE NUMBER 1-12532
RENAISSANCE GOLF PRODUCTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 86-0664849
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12187 SOUTH BUSINESS PARK DRIVE, SUITE 100,
DRAPER, UTAH 84020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (801) 501-0200
-----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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None None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK -- $.001 PAR VALUE
(TITLE OF CLASS)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 ___
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-KSB. [ ]
Revenues of the registrant for the fiscal year ended December 31, 1998 were
$6,987,509.
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on December 31, 1998 was approximately $2,111,070 based upon the
average of the bid and asked prices of the Common Stock, as reported by the
National Quotation Bureau Incorporated.
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The number of shares of the Common Stock of the registrant outstanding as
of December 31, 1998 was 7,474,653.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
All statements, other than statements of historical fact, included in this
Form 10-KSB, including the statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Renaissance Golf Products, Inc. (the "Company") to be
materially different from any future results, performance, or achievements
expressed or implied by such statements contained in this Form 10-KSB. Such
potential risks and uncertainties include, without limitation, competitive
pricing and other pressures from other golf equipment manufacturers, economic
conditions generally and in the Company's primary markets, consumer spending
patterns, perceived quality and value of the Company's products, availability of
capital, cost of labor (foreign and domestic), cost of raw materials, occupancy
costs, and other risk factors detailed herein and in other of the Company's
filings with the Securities and Exchange Commission. The Company assumes no
obligation to update the forward-looking statements or to update the reasons
actual results could differ from those projected in such statements. Readers are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 1. BUSINESS
OVERVIEW
The Company designs, develops, assembles, and distributes high-quality golf
products and golf accessories in North and South America, Europe, the Middle
East, and Africa (the "Licensed Territory") utilizing the Fila trademark and
logo under license from Fila Sport S.p.A. of Biella, Italy ("Fila Sport"), a
subsidiary of Fila Holding, S.p.A. Fila Sport has cultivated a high quality
image for its athletic footwear, active sportswear, and leisure and casual wear,
and the Company capitalizes on the worldwide identification with other products
bearing the Fila trademark. The Company has the exclusive right to market golf
products bearing the Fila trademark in the Licensed Territory with the exception
of head wear and towels, which are marketed on a non-exclusive basis in the
Licensed Territory.
The Company's products include golf clubs, bags, balls, gloves, head wear,
headcovers, travel covers, umbrellas, towels, and other golf accessories. The
Company offers full lines of both men's and women's woods and irons. The Company
also sells putters, wedges, utility woods, and oversized woods. Golf club
components are manufactured by independent suppliers, primarily in the United
States and the Far East, and are assembled and distributed by the Company.
The Company also runs the World Golf Corporation (WGC"), a wholly owned
subsidiary, through which it operates golf tour events throughout the U.S. under
the name of The World Golf Tour. WGC developed a handicapping system for golf
which assists in leveling the playing field for golfers of all handicaps.
Marketing of golf tour events occurs principally through word-of-mouth.
Participants invite friends and golfing acquaintances to participate in tour
events. The Company currently conducts tournaments for men and women and intends
to offer tours to junior players and other specialty categories in the future.
Each tour event utilizes the Company's proprietary handicapping system to
determine event winners who receive cash, prizes, or both. WGC is a network
marketing company. Interested individuals are encouraged to become independent
distributors of tournament participation and golf equipment.
The Company was originally incorporated in Arizona in July 1990 and
commenced sales in January 1991. In September 1993, the Company was
reincorporated in Delaware. In November 1993, the Company completed an initial
public offering of its shares. The Company's securities are traded on the OTC
Electronic Bulletin Board under the symbols "FGLF."
In October 1996, the Company, through a private placement (the
"Financing"), sold 100 "Units" at an issue price of $25,000 per Unit, each Unit
consisted of a convertible Debenture; and 15,625 Unit Shares at a price of $.80
per share for a total of $12,500 for the Unit Shares. The Unit Shares were
ultimately subject to a 4:1 reverse stock split ("Reverse Split"), approved by
the stockholders at the annual meeting of stockholders held on October 24, 1997
and effectuated on November 12, 1997. The Debentures were ultimately converted
pursuant to their conversion provision on December 15, 1997 at the rate of $.50
per share after the closing price of the Company's Common Stock exceeded $1.50
per share for 20 consecutive trading days. In conjunction with the Financing,
the
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Company experienced a change of control which included the Company
appointing a new Chairman of the Board, and reconstituting the Board of
Directors.
Since the time of the Financing, the Company has entered into a series of
Loan and Credit Agreements with the AKA Charitable Remainder Unitrust #1
("AKA"). The first line of credit was for a maximum amount of up to $1,000,000,
and the second line of credit provides for the Company to draw the maximum
aggregate principal amount of the lesser of $5,000,000, or 80% of the Company's
current assets. The Company was not in compliance with conditions of the Loan
and Credit Agreement on December 31, 1998 by having drawn on the credit line
beyond 80% of the Company's current assets and having not made interest payments
for approximately five months. To remedy any potential defaults under the loan
with AKA, the Company entered into an agreement with AKA on January 11, 1999 to
issue shares of its Common Stock in lieu of any cash payment of interest due or
to become due on or before June 30, 1999.
Subsequent to the year end, in March 1999, the Company issued to AKA
50,000 shares of Convertible Preferred Stock for $1,000,000. The Shares are
convertible at any time into shares of Common Stock at the rate of 20 shares
of Common Stock for one share of Preferred Stock. In the event the Company
fails to comply with the repayment terms of the loan agreements with AKA, the
conversion rate increases from 20 to one, to 200 to one. The Preferred Stock
pays dividends at the rate of 5% during 1999 (payable in shares of Common
Stock), and 6% thereafter (payable in shares of Common Stock or cash at AKA's
election).
In addition to the credit lines secured by the Company during the past
several years, a private placement of the Company's shares of Common Stock was
undertaken on March 2, 1998. The Company sold a total of approximately 556,000
units, raising $1,668,000. Each unit consisted of one share of its Common Stock,
par value $.001 per share, and a warrant to purchase one share of Common Stock.
The purchase price was $3.00 per unit. The Warrants are immediately exercisable
and transferable separately from the shares of Common Stock. Each Warrant
entitles its holder to purchase one share of Common Stock at an exercise price
of $5.00 per share, subject to adjustment in certain events. The Warrants may be
exercised at any time and from time to time until December 31, 2002. The Company
has the right to redeem the Warrants at $0.01 per Warrant upon not less than 30
days' notice if the Closing Price of the Common Stock for a period of 20
consecutive trading days, ending not earlier than 10 days prior to the date of
such redemption notice, equals or exceeds $7.00 per share, subject to adjustment
in certain events.
During November 1998, the Company's Class "A" Warrants issued in
conjunction with the Company's initial public offering expired.
BUSINESS STRATEGY
During 1997, the Company re-focused it attention on its best selling
product lines and entered the mass merchandise market. The Company intends to
continue this renewed focus while continuing with its general business strategy
of providing unique, innovative, quality products which utilize and promote the
Fila Sport image.
The Company concentrates its business strategy on developing and
manufacturing innovative, technically-superior golf equipment and bags
identified as premium products by the Fila trademark. The Company markets its
product lines through a network of qualified sales representatives and
distributors in golf specialty shops and more recently in mass merchandise
retail outlets. Some of the elements of the Company's marketing strategy
include:
PRODUCT INNOVATION. The Company designs and markets golf equipment intended
to appeal to both average and skilled golfers. The Company has experienced
minimal returns of its products because of its attention to product design and
manufacturing.
UTILIZING AND PROMOTING THE FILA IMAGE. Because of the success of Fila
Sport in developing a worldwide, premium brand franchise in its athletic
footwear, active sportswear, and leisure and casual wear, the Company believes
it has its products immediately identified with a high-quality,
high-performance, high-fashion image.
PROTECTION OF PROPRIETARY RIGHTS. As the licensee of Fila Sport, the
Company aggressively seeks to protect the mutual interests of the Company and
Fila Sport in the value of the Fila trademark. The Company believes that its WGC
handicapping system, golf club designs, manufacturing processes, and trade names
represent valuable intellectual property rights. The Company will seek to
protect its proprietary interests in licenses, trademarks, trade secrets, trade
dress, patents (if any are obtained), and other intellectual property rights.
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GOLF PRODUCTS
The Company currently offers a variety of golf products including golf
clubs, bags, balls, gloves, head wear, headcovers, travel covers, umbrellas,
towels, and other golf accessories. During 1998, the Company continued to market
its professional line through specialty shops and began to more actively sell
its mass merchandise line through mass retailers.
GOLF BAGS. The Company believes its golf bags complement the current core
business and marketing efforts of Fila Sport and are an item strongly associated
with the fashion and function design concept of Fila Sport. The Company's golf
bags are technically innovative and fashion oriented. Golf bag models feature
full-length club dividers, fur lined tops, four to seven pocket configurations,
deluxe harnesses with padded slings, bottom assist handles, hidden umbrella
wells, towel clips, and matching rain hoods.
The Company's bag line includes a selection from light weight carry golf
bags to cart size golf bags. The 1998 and 1999 models include the following:
PROFESSIONAL SERIES:
Lite Carry and Lite Stand golf bags are offered in five color combinations
with a suggested retail price range of $125.00 to $130.00.
Allegra golf bags for women come in five color combinations and feature
fur-lined, graphite-safe top and three full length dividers with a
suggested retail price of $155.00.
Biella Series golf bags for men come in eight color combinations. This
series has historically been the Company's best seller and is offered at a
suggested retail of $190.00.
Biella II Series 8 1/2" model features men's and women's styles in cordura
and textured nylon fabric, solid core construction, with a hidden valuables
pouch. This bag is a modified version of the Biella model with a hidden
shoe pocket, a very popular feature of the Company's bags. The suggested
retail price is $205.00.
Renaissance Series golf bags have a very stylish design featuring a
built-in shoe pocket that keeps golf shoes separate from the clothing
pocket. This series is offered in seven color combinations for men and five
color combinations for women with a suggested retail of $180.00.
M.D. Plus Series is a men's bag in 720-D nylon fabric offering oversize
pockets to keep shoes and clothing separate. The Suggested retail price is
$240.00.
MASS MERCHANDISE SERIES:
C Series and Lite Stand golf bags are offered in five color combinations
with a suggested retail price range of $78.00 to $128.00.
Tour Series golf bags for both men and women come in six color combinations
with a suggested retail price of $139.00.
Divider series golf bags, featuring 14 individual club full length cloth
dividers for greater shaft protection, are available in men's and women's
styles in fade and water resistant polyester fabric, one full-length
garment compartment, and one oversized utility pocket. The suggested retail
price is $129.00.
CLUBS. Many of the Company's lines of golf clubs include innovations and
refinements developed by management and independent equipment designers, from
whom the Company obtains licenses. Clubs, priced from $340 to $1,500 for a set
of eleven clubs, include the following:
PROFESSIONAL SERIES:
F-2000 Titanium Drivers made with varying degrees of loft are constructed
from cast 6AL4V titanium. Three flexes of shafts are available with the
drivers and the Four Plus fairway wood.
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Men's WGT model irons are forged carbon steel and feature a cavity back
design, providing optimum feel with the forgiveness of a cast club. Retail
pricing for 8 irons in steel shafts is $1,040.00 and in graphite shafts is
$1,280.00. This model is available in 1 iron, 2 iron, 3-pw, and sand wedge.
Men's Tour Oversize Irons are investment cast 4-31 stainless steel and
feature a progressive offset, cavity back radiused sole, and a beveled
leading edge. The irons are available in steel and graphite shafts. Retail
pricing for irons is $850.00 for steel and $1,120.00 for graphite, and for
woods is $240.00 and $375.00 for steel and graphite respectively.
Men's Avatar Oversize Irons and Woods feature woods made from investment
cast 15-5 and 17-4 stainless steel and irons made from investment cast 4-31
stainless steel. The irons are constructed with a modified sole design
which promote smooth take-a-ways and greater playability from the fairway
and rough. Retail pricing for irons is $480.00 for steel and $680.00 for
graphite, and for woods is $240.00 and $375.00 for steel and graphite
respectively.
Men's Oversize Irons and Woods feature woods made from investment cast 15-5
and 17-4 stainless steel and irons made from investment cast 4-31 stainless
steel. The irons are constructed with optimum perimeter weighting for a
larger sweet spot and progressive offset U-grooves for more consistent ball
control. Retail pricing for irons is $440.00 for steel and $656.00 for
graphite, and for woods is $234.00 and $360.00 for steel and graphite
receptively.
Ladies Oversize Irons and Woods feature woods made from investment cast
15-5 and 17-4 stainless steel and irons made from investment cast 4-31
stainless steel. The irons are constructed with optimum perimeter weighting
for a larger sweet spot and progressive offset U-grooves for more
consistent ball control. Retail pricing for irons is $440.00 for steel and
$656.00 for graphite, and for woods is $234.00 and $360.00 for steel and
graphite respectively.
Ladies Milano Irons and Woods feature woods constructed from composition
alloy and irons from cast Z-alloy. Retail pricing for irons is $330.00 for
steel and $450.00 for graphite, and for woods is $150.00 and $210.00 for
steel and graphite respectively.
MASS MERCHANDISE SERIES:
F-100 Oversize for men, recently introduced, include three woods and eight
irons. The oversize woods are manufactured from titanium alloy for maximum
impact response and feature perimeter weighting and an expanded sweet spot.
The oversize irons are investment cast with 4-31 stainless steel with a
cavity-back design. Shafts are available in steel and graphite. The
suggested retail price is $499.00.
Volt for men, introduced in 1997, include three woods and eight irons. The
woods are manufactured from titanium alloy for maximum impact response. The
oversize irons are investment cast with 4-31 stainless steel. Shafts are
available in steel and graphite. The suggested retail price is $549.00.
Lady Volt, introduced in 1997, include three woods and eight irons. The set
features oversized TI Matrix metal woods. The oversize irons are investment
cast with 17-4 stainless steel. Shafts are available in steel and graphite.
The suggested retail price is $499.00.
Junior Series feature four to seven clubs and a lightweight nylon golf bag.
The suggested retail price is from $129.00 to $179.00.
TOURNAMENTS. Dedicated to honesty and integrity in the game of golf, the
Company through WGC offers golfers an opportunity to participate in tournaments
on a level playing field through the use of the Company's proprietary
handicapping system. The Company believes its tour will experience increasing
participation as golfers are exposed to the tournaments through fellow golfers
who enjoy honest competition with an opportunity to win prizes and money. The
Company intends to offer junior tour events and other specialty tournaments in
the future. The Company can provide no assurance that the tour concept will be
accepted by a sufficient number of golfers or be run efficiently enough to be a
financial success.
Other golf products include various utility wedges, putters, golf balls,
and a variety of accessory packs. Accessories include travel covers, headcovers,
umbrellas, golf gloves, caps, visors, bracelets, and straw golf hats.
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Through constant research and development and market planning, the Company plans
to continually develop new products and enhance existing product lines.
MARKET SEGMENTS
MEN'S GOLF PRODUCTS. By offering a full line of clubs suited for men of all
playing abilities, the Company anticipates continuing to supply this market with
product.
WOMEN'S GOLF PRODUCTS. The Company's line for the women's market include a
full package of coordinated bag, headcovers, and equipment in various color
categories focusing on fashion and function.
JUNIOR GOLF PRODUCTS. The Company introduced equipment for children and
teenage golfers during 1997 to capture a portion of this growing market segment.
The Company offers junior sets consisting of a wood, three irons and putter,
designed for the five to nine year old, and a package suited in weight and
length for the ten to 13 year olds including two woods, four irons and a putter.
Both sets include a bag that is smaller in size and lighter in weight than
standard golf bags to accommodate the junior golfer.
MARKETING AND DISTRIBUTION STRATEGY
The Company's historical focus on sales to retail outlets located at golf
courses and golf retail shops specializing in golf products has been redirected
to include the retail sporting goods market. The sporting goods retail market
segment already has an acute awareness of the Fila brand because of clothing and
shoe sales. The Company will continue to produce and supply specialty accounts
with a product line of superior quality, fashion, and technology designed to
maintain the image of the Fila brand in these prestige accounts.
DOMESTIC MARKET. The Company targets golf shops, pro shops, various
specialty shops, and the golf departments of mass merchants as approved by Fila
Sport Italy for the sale of its products. Distribution in the domestic market is
coordinated directly by the Company and through manufacturer's representative
firms and independent sales representatives who are assigned individual
territories and compensated with a commission of 2% to 10% at the time of
shipment. Generally, the Company appoints manufacturer representative firms and
independent sales representatives that do not carry product lines which directly
compete with the product lines offered by the Company; although, some exceptions
are made based on individual representatives and their related territory.
INTERNATIONAL MARKET. The Company currently has a European distributor
which is providing the Company's product to various countries in Europe.
International sales last year totaled approximately $239,351, or 3% of the
Company's total revenues.
NETWORK MARKETING. The Company through WGC currently provides golf products
via network marketing. Network marketing consists of establishing a network of
individuals through word-of-mouth who have an interest in becoming independent
distributors for a company's products. WGC distributors are paid a sales
commission on products they sell and products sold by other individuals who sign
on with the company to become independent distributors through the efforts of
the initial distributor. The Company believes it can effectively market
tournament participation, golf balls, and other related products through a
network marketing structure by providing a high quality product at a price which
is competitive with traditional outlets. The Company can provide no assurance
that it will be successful in the network marketing industry.
FILA LICENSE
In November 1990, the Company entered into a license agreement with Fila
Sport pursuant to which Fila Sport granted the Company the right to design,
manufacture, and market certain golf-related products under the Fila brand name.
The agreement was terminated on June 30, 1996 because the Company was in default
under the agreement. In October 1996, the Company entered into a new license
agreement with Fila Sport (the "License Agreement") which provides that the
Company has the exclusive right to manufacture golf clubs, balls, headcovers,
travel covers, gloves, bags, and umbrellas for sale in North and South America,
Europe, the Middle East, and Africa. The Company has a non-exclusive right to
market golf head wear and towels in the Territory. The terms of the License
Agreement do not limit Fila Sport from manufacturing and marketing articles for
active sport, such as jackets, women's tops, sweaters, all styles of hats, all
styles of towels, sports bags, some of which items may compete with the
Company's products. The initial term of the License Agreement extends through
December 31, 2000 with an option to renew the license for an additional
five-year period. The License Agreement also required that the
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Company pay to Fila Sport $675,000 in past due royalties on or before November
21, 1996. As of December 31, 1998, all past due royalties to Fila Sport were
paid in full.
In consideration for the trademark license, the Company pays Fila Sport a
royalty on net sales. The royalty is 6% of annual net sales up to $7,500,000,
5.5% of annual net sales from $7,500,000 up to $15,000,000, and 5% of annual net
sales in excess of $15,000,000. Annual minimum royalties are due and payable in
installments of 25% of the annual minimum on the 15th day prior to the end of
each calendar quarter. Royalties of $500,000 were paid during 1998. Future
minimum annual royalties are as follows $600,000 in 1999; and $700,000 in 2000.
During the renewal period, minimum annual royalties are as follows: $800,000 in
2001; $900,000 in 2002; and $1,000,000 in each year from 2003 through 2005.
The Company is required to obtain an irrevocable letter of credit in
favor of Fila Sport each year equal to the amount of the applicable minimum
royalty. The 1999 letter of credit has not yet been obtained; although, the
first quarter royalty for 1999 has been paid. The license is terminable by
Fila Sport if, among other things, the Company fails to meet its obligations
under the License Agreement, fails to meet certain agreed upon product
introduction dates in the Licensed Territory, fails to maintain product
liability insurance, or fails to properly utilize the trademark. The Company
also is required to expend in each year for the duration of the License
Agreement an amount equal to 5% of net sales on advertising the Company's
products and 3% of net sales on promotions.
The License Agreement also requires the submission to Fila Sport of
quarterly royalty reports, sample advertising, sample products, price lists, and
an annual marketing and advertising plan. New product design plans and
prototypes must also be submitted to Fila Sport for approval prior to marketing
Fila Sport has the right to withhold approval of marketing approaches or
products if it determines that such new product or promotion would reflect
adversely on Fila Sport or impair the quality or image of the Fila trademark.
The License Agreement may be terminated by Fila Sport in whole, or in part,
upon the occurrence of certain events, including the following: failure to
perform or any material breach of the obligations under the agreement where
there is no remedy within 30 days of the receipt of written notice of intent to
terminate the License Agreement; failure to make timely royalty payments, use
best efforts to meet established product introduction dates, maintain required
levels of product liability insurance, or meet established guidelines for
quality control; failure to meet advertising, promotional, and sales targets
within a country included in the Territory; and sale or disposal of
substantially all of the Company's business or assets to a third party, transfer
of control of the company to a third party, or the cessation of the Company's
relationship with Miles T. Doody.
Further, Fila Sport may terminate the License Agreement if the Company's
financial condition becomes unstable, as evidenced by, among other matters,
insolvency or the Company's inability to pay its debts as they become due. There
can be no assurance that the Company will be able to obtain a sufficient level
of sales to meet the licensing fee requirements or to achieve profit margins
necessary to enable the Company to operate profitably. The loss of the license
would have a material adverse effect on the Company's operations.
COMPETITION
The golf products business is intensely competitive and the Company
competes with numerous companies providing similar products. The Company
believes that there are over 50 companies manufacturing and marketing golf
equipment which each have annual golf equipment sales in excess of $1,000,000.
The Company also believes that the 10 largest golf equipment manufacturers
account for a substantial majority of wholesale golf equipment sales. Most of
the Company's competitors have substantially greater capital resources, depth of
management, and brand name identification in the golf business than the Company.
In addition, there are several golf equipment manufacturers not currently
producing premium quality products which could affect sales if they did so.
A company's ability to compete is in part dependent upon its ability to
satisfy various subjective requirements of golfers, including the look and
"feel" of the equipment and its level of acceptance among professional and other
golfers. Equipment designs and concepts developed by one manufacturer which gain
popularity have been widely imitated by other manufacturers. The subjective
preferences of consumers may also be subject to rapid and unanticipated changes.
There can be no assurances as to the Company's ability to achieve or maintain
market acceptance sufficient to enable the Company to operate profitably. A
decline in the size of the golf equipment market, whether from a decrease in the
popularity of particular equipment or otherwise, could have a material adverse
effect on the Company's business.
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MANUFACTURE AND ASSEMBLY
The components of the Company's golf clubs, primarily club heads, shafts,
and grips, are manufactured by suppliers in the United States and the Far East.
Suppliers are carefully selected and continuously evaluated by the Company on
the basis of the quality of raw materials utilized, quality of the workmanship,
and attention to quality control. The Company believes that its relationships
with key suppliers are good; however, the Company was late with payments to some
of its suppliers during 1998 which could have a negative effect on the Company's
ability to obtain product on account. There are numerous suppliers of
high-quality components and management believes that the loss of a supplier may
result in production delays, but would not have a material adverse impact on the
Company's long-term business.
The Company assembles its golf clubs at its facility in Huntington Beach,
California. During the assembly process, the equipment is spot checked and
tested extensively to assure a quality product. Completed inventory is also
stored at the Company's facility prior to shipment. Bags, gloves, and other golf
accessories sold by the Company are manufactured by independent vendors,
primarily in the Far East. Products are either shipped to the Company's
facilities or drop shipped directly to distributors in the case of international
sales. The Company anticipates that some of its club lines will continue to be
manufactured and assembled in the Far East in an effort to reduce certain
expenses while maintaining a high-quality product. In addition, the Company
anticipates the development of a subcontracting relationship to assemble clubs
in Southern California.
WARRANTY
The Company currently supports all of its golf clubs with a five year
warranty to the original consumer against any defects in workmanship or
material, provided that the product has not been subject to abuse or alteration.
Golf bags are covered by a limited warranty covering manufacturing defects only.
The Company has experienced minimal problems with respect to its products and
the warranty granted.
YEAR 2000 MATTERS
The inability of computers, software, and other equipment utilizing
microprocessors to recognize and properly process date fields containing a two
digit year reference such as "00" for the year 2000 is commonly referred to as
the Year 2000 issue. Any of the Company's computer programs that utilize two
digit years may recognize "00" as the year 1900 rather than the year 2000. Such
recognition problems could cause disruptions of operations, including the
inability to process transactions, send invoices, or engage in similar essential
business activities.
The Company has identified all significant applications that will require
modification to address the Year 2000 issue. Internal and external resources are
being used to make the required modifications and test Company systems for the
year 2000. The modifications process of all significant applications is
substantially complete, and the Company intends to complete modifications this
summer and continue to conduct testing through the end of 1999.
The Company is also communicating with third party vendors to determine
their compliance with the Year 2000 issue. The Company can provide no assurance
that the systems of third parties will be in compliance by the turn of the
century. The inability of the Company to complete modifications and the failure
of third party vendors to complete compliance with the Year 2000 issue, or both,
could have a material adverse effect on the Company's ability to perform
essential business tasks which could have a material adverse effect on the
Company's business.
EMPLOYEES
As of December 31, 1998, the Company employed 29 employees, including two
salaried employees on a full-time basis who are considered executive personnel,
14 salaried full-time employees in administrative, supervisory, and clerical
positions, nine hourly full-time employees, and four part-time employee. None of
the Company's employees are covered by a collective bargaining agreement, the
Company has never experienced a work stoppage, and the Company considers its
labor relations to be excellent.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently occupies approximately 15,000 square feet of office,
manufacturing, and warehouse space located at 12187 South Business Park Drive,
Suite 100, Draper, Utah 84020. The lease provides for rent of $94,636.00 per
year and expires in January 2000. The Company leases an additional 12,000 square
feet of space at 5812 Machine Drive, Huntington Beach, California, for $2,275.00
per month. The lease is month to month.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is currently maintaining a legal action in the Utah Third
District Court on January 6, 1999 entitled Renaissance Golf Products, Inc. vs.
Brad Oliver, case number 990900097, for Breach of Contract, Quantum Meruit,
Fraud and Intentional Interference with Prospective Economic Advantage. The
essence of the case is Brad Oliver receiving inventory valued at approximately
$131,951.04 for resale and not making payment for the goods received. Settlement
discussions are ongoing and the Company intends to obtain a settlement for the
full amount of the goods received by Mr. Oliver. The prospects for obtaining a
judgement against Mr. Oliver for the full amount of the claim are good. The
prospects for collecting any awarded damages from Mr. Oliver are unknown due to
Mr. Oliver's personal financial circumstances.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders for vote during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the period from January 1997 to
March 31, 1999, the high and low bid quotations for the Common Stock as reported
by the OTC Bulletin Board. The prices represent quotations between dealers,
without adjustment for retail markup, mark down or commission, and do not
necessarily represent actual transactions. The table reflects the price as
adjusted for the 1997 4:1 Reverse Split.
COMMON STOCK PRICE ACTUAL AND ADJUSTED
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
1st Quarter $0.6250 $0.2813
1998
1st Quarter 4.5000 2.9375
2nd Quarter 4.0938 2.8750
3rd Quarter 3.0625 1.2500
4th Quarter 1.2813 0.2500
1997
1st Quarter 2.6225 1.1252
2nd Quarter 2.1252 1.1252
3rd Quarter 2.6240 1.0000
4th Quarter 3.8750 1.5625
</TABLE>
- ----------------------
The Company has not paid any cash dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business. As of December 31,
1998, the approximate number of record holders of the Company's Common Stock
275.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
The golf industry and sporting goods industry in general suffered during
1998 due to several factors including adverse whether conditions and the Asian
economic crisis. These conditions resulted in overproduction which led to
inventory accumulation. The Company has suffered along with the industry during
1998, although it has managed to keep its sales constant from last year. The
Company anticipates improved conditions in the golf industry during 1999, but it
cannot predict outside events which may occur to positively or negatively affect
industry or Company sales.
10
<PAGE>
RESULTS OF OPERATIONS
The Company's successful efforts to raise funding for working capital needs
and move to supply the mass merchandise retail market during 1998 resulted in
sales increases over 1997. The Company's operations during 1998 and the first
quarter of 1999 required additional access to working capital. During the first
quarter of 1999, the Company raised $1,000,000 through the sale of 50,000 shares
of Class "A" Preferred Stock to AKA. The capital infusion allowed the Company to
bring its license commitment to Fila current and pay suppliers providing product
for the Company's mass merchandise line.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997. Net sales for the year ended December 31, 1998 were $6,988,000 compared to
$5,375,000 for the comparable period in 1997, an increase of $1,613,000 or 30%.
This increase is attributable to the Company's move into the mass retail channel
and the commencement of operations of the WGC.
Cost of sales increased from $4,822,000 for the year ended December 31,
1997 to $6,194,000 for the comparable period in 1998, an increase of $1,372,000
or 28%. The gross profit margin increased from 10% during 1997 to 11% for the
comparable period in 1998.
Selling, general, and administrative costs were $5,259,000 during 1998
compared to $2,392,000 for the comparable period in 1997, an increase of
$2,867,000 or 120%. This increase in selling, general, and administrative
costs is due mainly to the continuing efforts of the Company to expand
operations into the mass retail market and commencing WGC operations.
The Company experienced a net loss of $5,168,000 during 1998 compared to a
net loss of $1,845,000 for the comparable period in 1997, an increase in losses
of $3,323,000. The increase in losses is attributable to the Company acquiring
two entities to combine into the WGC and commencing network marketing
operations. Additionally, the Company wrote down in excess of $500,000 in
inventory during 1998.
The Company's inventory increased substantially from $758,000 at December
31, 1997 to $2,274,000 at December 31, 1998 as a result of the Company having
sufficient working capital from newly invested capital and borrowed funds to
fund operations and meet inventory purchase requirements. The increase in
inventory is also due to the general industry market conditions during 1998
which created an inventory surplus.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996. Net sales for the year ended December 31, 1997 were $5,375,000 compared to
$2,403,000 for the comparable period in 1996, an increase of $2,972,000 or 124%.
This increase was attributable to the Company's re-focused business strategy and
improved working capital. The Company re-focused its business strategy and
marketing efforts to place greater emphasis on market niches which have been the
most consistently productive since the Company's inception and which were the
most closely aligned with Fila Sport's interests and marketing emphasis;
high-fashion design and value.
Cost of sales increased from $2,488,000 for the year ended December 31,
1996 to $4,822,000 for the comparable period in 1997, an increase of $2,334,000
or 94%.
Selling, general, and administrative costs were $2,392,000, during 1997
compared to $2,425,000 for the comparable period in 1996, a decrease of $33,000
or 1%. This decrease in selling, general, and administrative costs, while
increasing sales by 124%, was due mainly to the continuing efforts of the
Company to reduce operating expenses throughout the restructuring process.
The Company experienced a net loss of $1,845,000 during 1997 compared to a
net loss of $2,541,000 for the comparable period in 1996, a decrease in losses
of $696,000. The increase in sales volume, particularly to mass retailers during
1997, accounted for the decrease in losses. The increase in inventory is also
due to the general industry market conditions during 1998 which created an
inventory surplus.
PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES
Subsequent to the year end in March 1999, the Company issued to AKA 50,000
shares of Convertible Preferred Stock for $1,000,000. The Shares are convertible
at any time into shares of Common Stock at the rate of 20 shares of Common Stock
for one shares of Preferred Stock. In the event the Company fails to comply with
the terms of its loan agreements with AKA, the conversion rate increases from 20
to one, to 200 to one. The Preferred Stock pays dividends at the rate of 5%
during 1999 (payable in shares of Common Stock), and 6% thereafter (payable in
shares of Common Stock or cash at AKA's election).
11
<PAGE>
The Company has entered into a series of credit lines with the AKA
Charitable Remainder Unitrust #1. The first line of credit was for a maximum
amount of up to $1,000,000 and the second line of credit, still being utilized
by the Company, is for a maximum amount of up to $5,000,000. The lines of credit
have provided the Company with an indispensable cash resource to utilize as the
Company has come back from insolvency. Each line of credit bearing interest at
12%.
In addition to the credit lines secured by the Company during the past
several years, a private placement of the Company's shares of Common Stock was
undertaken on March 2, 1998 to raise up to $2,400,000. The Company ultimately
sold a total of approximately 556,000 units, raising $1,668,000.
In October 1998, the Company entered into a promissory note agreement with
a lender to provide the Company with $500,000 of which $50,000 of principal has
been repaid.
The Company's cash from operations is generated by sales of golf products
to distributors at wholesale prices. Sales to domestic accounts are typically
due 30 to 90 days after shipment while sales to international distributors are
paid by letter of credit facilities or by wire transfer upon shipment.
Based upon the operating history, the Company's auditors during the past
several years have expressed concern about the Company's ability to continue
operations. The Company believes these concerns are primarily founded upon the
Company's lack of working capital resulting from the Company operating at a loss
which causes the Company to rely upon outside capital to fund ongoing
operations. During 1998, the Company took action to cut operating expenses by
reducing its work force and bringing certain independent contractor functions in
house. The Company also intends to pursue a new marketing plan to increase
sales. The Company believes these changes will help move existing inventory and
reduce its cash flow concerns, but it is unlikely that these changes alone will
provide sufficient capital to fund ongoing operations.
Net cash used in operating activities for 1998, 1997, and 1996 was
$4,247,000, $4,738,000, and $1,000,000, respectively. Working capital at the end
of 1998, 1997, and 1996, was $(4,239,000), $(810,000), and $(502,000),
respectively. Cash and cash equivalents at December 31, 1998 were $63,000
compared to $776,000 at December 31, 1997. Inventories, net of reserves at
December 31, 1998 were $2,273,601 compared to $758,000 at December 31, 1997.
Also, accounts receivable decreased from $758,000 at December 31, 1997 to
$411,000 at December 31, 1998. Notes payable for $875,000 were outstanding at
December 31, 1998. Total liabilities increased $2,765,000 from December 31, 1997
to December 31, 1998.
The Company strives to maintain a sufficient inventory of golf club
components, bags, and accessories to fulfill orders. Management believes that
all of the golf club components and other products manufactured for the Company
by suppliers are readily available from a variety of sources.
Historically the Company has funded itself through operations, the sale of
stock, and borrowing. Most recently the Company has raised equity through a
private offering of its stock and through negotiation loan agreements as are
outlined in this report. The Company plans to continue to use these methods to
fund operations and agreed with AKA, one of its lenders, to accept equity as
payment for interest and principal due on it's note through June 1999. Potential
investors are also being approached to lend to or invest in the Company. The
Company will need to substantially reduce operations if it is unable to raise
outside capital within the next several months to help fund operations.
In February 1997, FASB issued SFAS No. 128, "Earning Per Share" ("EPS").
SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face
of all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants, and other convertible securities. There was no
effect
12
<PAGE>
on EPS upon the adoption of the provisions of SFAS No. 128 for all years
presented. Loss per common share has been computed on the weighted average
number of common and equivalent shares outstanding. Basic and diluted net loss
per share are approximately the same.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations, or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
ITEM 7. FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to Financial
Statements are attached hereto and filed as a part of this Report under Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Corbin & Wertz acted as the Company's independent public accountants for
the years ending December 31, 1996 and 1997. Upon the recommendation of the
Board of Directors, Corbin & Wertz, located in Irvine, California, was dismissed
effective April 30, 1998 by the Company in order for the Company to appoint
Deloitte & Touche LLP, located in Salt Lake City, Utah, as its principal
accountants following the Company's move to Salt Lake City. The Company filed an
8-K on April 30, 1999, concerning this change of accountants.
Deloitte & Touche LLP performed no audit functions and provided no opinions
concerning the Company's financial condition or statements. Effective March 15,
1999, Deloitte & Touche resigned as the Company's principal accountants.
The Board of Directors has approved the appointment of Jones, Jensen &
Company as its principal accountant, as of March 15, 1999, to prepare the annual
audit. To the knowledge of the Company, at no time has Jones, Jensen & Company
provided any accounting services to the Company prior to this new engagement,
and they have no direct or indirect financial interest in the Company.
During the two most recent fiscal years, there have been no disagreements
with the former accountants on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure of any
reportable event. On March 19, 1999, the Company filed an 8-K, which is
incorporated herein by reference concerning the change of accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") and
NASDAQ. Officers, directors, and greater than 10% beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16 (a) forms
they file. During 1998, the Officers or Directors, none of whom sold any of the
Company securities during 1998, failed to timely file the required forms under
Section 16 (a) indicating total share ownership. During April 1999, the
requisite forms were filed to bring officers, directors, and 10% stockholders
current.
13
<PAGE>
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names, ages and positions of the Company's Directors and executive
officers as of January 1, 1999 are listed below:
<TABLE>
<CAPTION>
Name Age Position With the Company First Elected
- ---- --- ------------------------- -------------
<S> <C> <C> <C>
John B. Hewlett 46 Chairman of the Board, Director 1996
Steven L. Flint 48 President, CEO, CFO, Director 1998
Ralph W. Rasmussen 53 Director 1998
Dennis L. Crockett 47 Director 1996
Kurt A. Moore 41 Executive Vice President 1997
Bruce H. Haglund 47 Secretary 1994
</TABLE>
JOHN B. HEWLETT has served as Chairman of the Board and a Director of the
Company since October 1996. He also served and as Chief Executive Officer from
September 1997 through 1998. Mr. Hewlett is President of Hewlett Financial
Corporation. He has 22 years of experience in the insurance field, specializing
in sales and long and short-term planning. From 1985 to the present, Mr. Hewlett
has been a nationally recognized consultant and seminar leader on closely held
business succession and financial planning. He is a member of the Million Dollar
Round Table, Court of the Table, and one of three Top of the Table members in
the Intermountain West with career insurance sales approaching $640,000,000. Mr.
Hewlett is a member of the National Basketball Association Utah Jazz 100 Club
and Advisory Board.
DR. STEVEN L. FLINT has been a Director of the Company since April 1998 and
became the President, CEO, and CFO during the first quarter of 1999. Dr. Flint
had been the Senior Vice President and Chief Financial Officer of The Alexander
Group, Inc., a national marketing and sales consulting firm since 1993. Dr.
Flint managed all of the firms Human Resources, Legal, Information Technology,
Accounting, and Finance functions for the corporate headquarters and five
regional offices. Before joining the Alexander Group, Dr. Flint was the Chief
Financial Officer for a software firm. He is a former University professor
having taught at Brigham Young University, Stanford University, Amos Tuck
Graduate School of Management at Dartmouth College, and The University of Texas.
He was an Ayers Fellow at the Stonier Graduate School of Banking. Dr. Flint has
served on the board of directors for the Arizona Shakespeare Festival and
Dimensional Visions Group. Dr. Flint has also served as a consultant to a number
of firms in a wide range of industries and is actively involved in numerous
community activities including The Boy Scouts of America and the Mesa Public
Elementary Schools' Advisory Board. Dr. Flint holds B.A. and M.S. degrees from
Brigham Young University and a Ph.D. from the Stanford Graduate School of
Business.
RALPH W. RASMUSSEN JR. has served as a Director of the Company since
January 1998. Mr. Rasmussen graduated from Brigham Young University with a
Bachelor of Science degree in 1969 and a law degree in 1989. From 1969 to 1986,
he provided accounting and business management services for several large
farming operations in southern Idaho. From 1989 to 1996, Mr. Rasmussen practiced
law with the firm of Bradford and Brady in Provo, Utah. In September 1996, Mr.
Rasmussen sold his law practice and began working full time for one of his
clients, the Alan Ashton family and their businesses.
DENNIS L. CROCKETT has been a Director of the Company since October 1996.
He is co-founder and Chief Operations Officer of Broadcast International, Inc.,
a communications firm specializing in the delivery of business information via
satellite, FM wireless and cable television technologies, which recently merged
with Data Broadcasting Corporation. Further, Mr. Crockett co-founded the Instore
Satellite Network, one of the nation's largest private satellite communications
networks providing private audio, video, voice, and data broadcasts to retail
clients including Safeway Stores, Osco/Savon Drug, Lucky Stores, and RE/MAX
Reality. Mr. Crockett is a nationally published composer, arranger, vocalist,
and keyboardist as well as a respected musical producer of both record, radio,
and television entertainment. Mr. Crockett attended Brigham Young University in
Provo, Utah.
KURT A. MOORE has served as the Executive Vice President since September
1997. Mr. Moore worked with Carbon Fiber Products ("CFP"), a publicly traded
company, as a sales manager from 1983 to 1993, and as the company's President
from 1993 to 1995. He also served as a director for CFP from 1992 to 1995.
During 1996, Mr. Moore worked as a mortgage loan officer with Zions Bank and
Bank of Utah. Mr. Moore attended Weber State University from 1975 to 1979, where
he was a marketing major.
BRUCE H. HAGLUND has served as Secretary of the Company since January 1994
and as a Director since 1998. Mr. Haglund is a principal in the law firm of
Gibson, Haglund & Johnson in Orange County, California where he has been engaged
in the private practice of law since 1980. He is member of the Board of
Directors of Santa Barbara
14
<PAGE>
Restaurant Group, Inc. and the Secretary of Metalclad Corporation, a public
company whose stock is traded on the NASDAQ Small Cap Market. Mr. Haglund is
also the Secretary and a member of the Board of Directors of Aviation
Distributors, Inc. and Renaissance Golf Products, Inc., public companies whose
stock is traded on the OTC:BB. He is a graduate of the University of Utah
College of Law.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing the overall performance of the Company.
However, in accordance with corporate governance principles, the Board is not
involved in day-to-day operating details. Members of the Board of Directors are
kept informed of the Company's business through discussions with the Chairman
and other officers, by reviewing analyses and reports sent to them, and by
participating in Board and committee meetings.
All Directors attended more than 75% of the Meetings held during their
tenures as Directors.
COMMITTEES OF THE BOARD
In November 1996, the Board of Directors established a number of
committees, including a Finance Committee, an Audit Committee, and a
Compensation Committee, each of which is briefly described below.
The Finance Committee was established to oversee Company expenditures and
approve contracts entered into by the Company. The committee consists of two
outside Directors, John B. Hewlett and Bruce H. Haglund, and one employee
Director, Steven L. Flint.
The Audit Committee was established to meet with management to consider the
adequacy of the internal controls and the objectivity of financial reporting;
the committee meets with the independent auditors and with appropriate Company
financial personnel about these matters. The committee recommends to the Board
of Directors the appointment of the independent auditors, subject to
ratification by the Stockholders at the Annual Meeting. Both the internal
auditors and the independent auditors periodically meet alone with the committee
and always have unrestricted access to the committee. The committee consists of
two non-employee Directors, Ralph W. Rasmussen and Bruce H. Haglund, and one
employee Director, Steven L. Flint.
The Compensation Committee negotiates employment contracts, recommends to
the Board of Directors compensation for officers, Directors, and employees, and
administers management incentive compensation plans, including stock option
plans. The committee consists of three non-employee Directors, Ralph W.
Rasmussen, Dennis L. Crockett, and Bruce H. Haglund.
COMPENSATION OF DIRECTORS
The Company's policy is not to pay cash compensation to directors for
their services as directors, but reimburses reasonable out-of-pocket expenses
of directors for attendance at meetings. Additionally on October 1, 1998, the
Company granted each Director elected in 1998 an option to purchase 25,000
shares of the Company's Common Stock at $1.25 per share. The options vest in
one quarter increments for each quarter of service rendered and expire on
December 31, 2002.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director,
15
<PAGE>
employee, or other reagent for any liability arising out of his or her actions
in such capacity, regardless of whether the Bylaws permit such indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees),
judgments, fines, and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other Company or enterprise to
which the person provides services at the request of the Company.
At present, there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
ITEM 10. EXECUTIVE COMPENSATION
The Company's compensation programs are designed to link executives'
compensation to the performance of the Company. The annual salary paid to
executives over the past two years reflect fixed amounts that are deemed
competitive or lower the industry standards for executives with comparable
ability and experience in the industry. Additionally, because of cash flow
issues for the Company, executives have not received increases in salary for two
years, and in some instances, executives have taken a salary cut.
COMPENSATION OF OFFICERS
The compensation paid to John B. Hewlett, the Chief Executive Officer
during 1998 and a portion of 1997, and Kenneth W. Craig, the President for a
portion of 1997 are reflected in the Summary Compensation Table. Messrs. Hewlett
and Craig joined the Company in 1996. No other executive officers are listed
because none received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ -----------------------------------------
OTHER AWARDS PAYOUTS
Name and ANNUAL ------------------------- ------------
Principal COMPEN- Restricted options/ LTIP ALL
Position YEAR SALARY ($) BONUS ($) SATION ($) stock ($) SARs (#) Payouts ($) OTHER (1)
- ----------------- ---- ---------- --------- ---------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Hewlett, 1998 -0- -0- -0- -0- 400,000(2) - -
-------------------------------------------------------------------------------------------------------
CHAIRMAN,CEO 1997 -0- -0- -0-(3) -0- 225,000(4) - -
-------------------------------------------------------------------------------------------------------
Kenneth Craig, 1998 -0- -0- -0- -0- -0- - -
-------------------------------------------------------------------------------------------------------
V.P. PRODUCTS(5) 1997 48,000 53,000 -0- -0- 50,000 - -
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) The remuneration described in the table does not include the cost to the
Company of benefits furnished to the named executive officers, including
premiums for health insurance and other personal benefits provided to such
individual that are extended to all employees of the Company in connection
with their employment. The value of such benefits cannot be precisely
determined; however, the executive Officers named above did not receive
other compensation in excess of the lesser of $50,000 or 10% of such
Officers' cash compensation.
(2) A total of $400,000 priced at $4.00.
(3) During 1997, John B. Hewlett's affiliate exercised 400,000 options which it
assigned to a charitable organization.
(4) Priced at $3.00 per Share.
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR--INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year(1) Price ($/Sh) Date
<S> <C> <C> <C> <C>
John B. Hewlett 500,000 100% $4.00 3/17/2008
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's Shares as of December 31, 1999 for (i) each current
Director and each nominee for Director (ii) each named executive officer of the
Company as defined in 402(a)(2) of Regulation S-B of the Securities Act of 1933,
(iii) all persons known by the Company to beneficially own more than 5% of the
Company's voting Shares, and (iv) all Officers and Directors of the Company as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) NUMBER OF SHARES (2) PERCENT OF TOTAL (3)
------------------- -------------------- --------------------
<S> <C> <C>
John B. Hewlett (4) 2,194,792 22.89%
Steven L. Flint (5) 12,500 *
Dennis L. Crockett (6) 369,375 4.87%
Ralph W. Rasmussen (7) 12,500 *
AKA Charitable Trust (8) 846,875 10.62%
Bruce H. Haglund (9) 863,750 11.32%
All officers and Directors (10) 3,452,917 34.91%
as a group (five persons)
</TABLE>
* less than one percent
- -----------------------------------------
(1) Unless otherwise noted, the Company believes that all Shares are
beneficially owned and that all persons named in the table or family
members have sole voting and investment power with respect to all Shares
owned by them. Unless otherwise indicated, the address of each Stockholder
is 12187 South Business Park Drive, Suite 100, Draper, Utah 84020.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options.
(3) Assumes 7,474,653 Shares outstanding plus, for each individual, any
securities that specific person has the right to acquire upon exercise of
presently exercisable stock options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(4) Includes 600,000 Shares issuable to Mr. Hewlett, and affiliates which he
controls, upon the exercise of currently vested stock options at a price of
$0.50 per Share, 1,000,000 Shares issuable at a price of $1.00 per Share,
12,500 shares issuable at $1.25 per Share, and 500,000 Shares issuable at
$4.25 per Share. Mr. Hewlett's address is 2919 East Granite Hollow Street,
Sandy, Utah 84092.
(5) Includes 12,500 Shares issuable upon the exercise of presently exercisable
stock options at a price of $1.25 per Share.
(6) Includes 100,000 Shares issuable upon the exercise of presently exercisable
stock options at a price of $0.50 per Share and 12,500 Shares issuable at
$1.25. Mr. Crockett's address is 7050 Union Park Center, Suite 600,
Midvale, Utah 84047.
(7) Includes 12,500 Shares issuable upon the exercise of presently exercisable
stock options at a price of $1.25 per Share.
(8) Includes 200,000 Shares issuable to AKA upon the exercise of stock options
at a price of $0.50 per Share, 150,000 Shares issuable at $1.00 per Share,
50,000 Shares issuable at $3.00 per Share, and 100,000 Shares issuable at
5.00 per Share. Ralph W. Rasmussen is trustee of the AKA Charitable
Remainder Trust.
(9) Includes 50,000 Shares issuable upon the exercise of presently exercisable
stock options at a price of $0.50 per Share, 100,000 Shares issuable at
$3.00 per Share, and 12,500 Shares issuable at $1.25 per Share. Mr.
Haglund's address is Jamboree Center, 2 Park Plaza, Suite 450, Irvine,
California 92614.
17
<PAGE>
(10) Includes all executive officers and directors.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS SUBSEQUENT TO 1998
Subsequent to the year end, in March 1999 the Company issued to AKA
50,000 shares of Convertible Preferred Stock for $1,000,000. The Shares are
convertible at any time into shares of Common Stock at the rate of 20 shares
of Common Stock for one shares of Preferred Stock. In the event the Company
fails to comply with the repayment terms of the loan agreements with AKA, the
conversion rate increases from 20 to one to 200 to one. The Preferred Stock
pays dividends at the rate of 5% during 1999 (payable in shares of Common
Stock), and 6% thereafter (payable in shares of Common Stock or cash at AKA's
election).
The Company was not in compliance with conditions of the AKA Loan and
Credit Agreement on December 31, 1998 by having drawn on the credit line
beyond 80% of the Company's current assets and having not made interest
payments for approximately five months. To remedy any potential defaults
under the loan with AKA, the Company entered into an agreement with AKA on
January 11, 1999 to issue shares of its Common Stock in lieu of any cash
payment of interest due or to become due on or before June 30, 1999.
TRANSACTIONS DURING 1998
On March 17, 1998, the Board of Directors acted to grant Mr. Hewlett
500,000 options exercisable at $4.00 per Share, which price was greater than the
previous trading day's close of $3.812, for his efforts during 1997 in securing
adequate financing for the Company to permit ongoing operations and for his
efforts in guiding the growth of the Company. The options are exercisable at any
time on or before March 17, 2008 and are not subject to price adjustment.
In March 1998, pursuant to the terms of a stock option agreement, Bruce H.
Haglund exercised 500,000 stock options at $0.50 per share in consideration of
the forgiveness of $250,000 of legal fees owed to Mr. Haglund by the Company,
including principal and accrued interest on a $150,000 note due June 1999 from
the Company to Mr. Haglund for a portion of such fees.
Gibson, Haglund & Johnson billed the Company approximately $125,000 in
legal fees during 1998. Bruce H. Haglund, a principal of the firm, exercised
200,000 stock options at $0.50 per share; and an associate of the firm,
exercised 20,000 stock options at $1.25 per share, in consideration of the
forgiveness of accrued legal fees owed to Gibson, Haglund & Johnson by the
Company.
On May 7, 1997, the Company borrowed $225,000 from Tracy and Glenda Jones
Charitable Support Foundation and entered into a Promissory Note for the capital
received. The note, which was due on or before June 30, 1998, has been assigned
to John B. Hewlett who granted an extension on the due date of the note to on or
before June 30, 1999. The Company also borrowed an additional $125,000 from John
B. Hewlett September 13, 1998 and entered into a Promissory Note for the capital
received. The note is due in one year. The interest rate on each of the notes to
Mr. Hewlett is 12% per annum.
In October 1998, the Company entered into a promissory note agreement with
a lender to provide the Company with $500,000 of which $50,000 of principal has
been repaid.
TRANSACTIONS DURING 1997
In October 1997, the Board of Directors of the Company approved and granted
an aggregate of 500,000 options exercisable at $3.00 per share to key management
personnel and service providers during 1997. The options vested upon grant and
expire ten years after the grant. The following Directors and Officers received
options in the
18
<PAGE>
following amounts: John B. Hewlett, 225,000 options; Wade Mitchell, 50,000
options; Kenneth W. Craig, 50,000 options, Kurt A. Moore, 75,000 options; and
Bruce H. Haglund, 100,000 options. During the first quarter of 1998, the Company
acted to register the shares into which the options can be converted by filing a
Form S-8 with the Securities and Exchange Commission.
During 1997, the Company entered into credit arrangements with the AKA
Charitable Remainder Unitrust #1. The first line of credit was for a maximum
amount of up to $1,000,000 and the second line of credit, still being utilized
by the Company, is for a maximum amount of up to $5,000,000. The lines of credit
have provided the Company with an indispensable cash resource to utilize as the
Company has emerged from near insolvency experienced in the 4th quarter of 1996.
Each line of credit, bearing interest at 12%, has been made possible through the
personal guaranty of the credit line by John B. Hewlett, the Company's Chairman
of the Board and Chief Executive Officer.
In December 1997, pursuant to the terms of a Stock Option Agreement, an
affiliate of John B. Hewlett exercised 400,000 stock options at $0.50 per Share
in consideration of the forgiveness of $200,000 of consulting fees owed to Mr.
Hewlett's affiliate by the Company. The Shares were donated to a charitable
organization controlled by a board of directors consisting of five directors,
one of which is Mr. Hewlett.
During September 1997, the Board of Directors of the Company approved and
granted an aggregate of 150,000 options to Kurt A Moore. These options vest in
one-third increments upon the earlier of achieving certain performance goals or
ratably over ten years and are subject to cancellation upon termination of
employment. The performance goals are that the Company achieves sales of
$8,000,000 in 1998, $12,000,000 in 1999, and $18,000,000 in 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-KSB:
1. Financial Statements for the periods ended December 31, 1997 and
1998:
Independent Auditors' Reports
Balance Sheet
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. Exhibits
The following exhibits are being filed with this Annual Report on Form
10-KSB and/or are incorporated by reference therein in accordance with the
designated footnote references:
<TABLE>
<S> <C>
4.1 Certificate of Determination concerning the rights and preferences
of Series "A" convertible preferred stock.
10.1 Amendment to Loan and Security Agreement dated January 11, 1999.
10.2 AKA Charitable Remainder Unitrust #1 Subscription Agreement to
Purchase 50,000 shares of Series A Preferred Stock.
10.3 Warrant Certificate for the purchase of 1,637,669 shares of Common
Stock at $0.345 per share issued to AKA Charitable Remainder
Unitrust #1 on January 11, 1999.
10.4 Warrant Certificate for the purchase of 600,000 shares of Common
Stock at $0.345 per share issued to AKA Charitable Remainder
Unitrust #1 on January 11, 1999.
10.5 Warrant Certificate for the purchase of 1,000,000 shares of Common
Stock at $1.00 per share issued to AKA Charitable Remainder Unitrust
#1 on March 10, 1999.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
10.6 Amendmentto Warrant Certificates for the purchase of 200,000
Warrants at $1.50 per share, 100,000 Warrants at $2.00 per share,
100,000 warrants at $3.00 per share, and 100,000 warrants at $5.00
per share previously issued to AKA Charitable Remainder Unitrust #1
on October 29, 1997 and June 1, 1998.
10.7 Assignment of Promissory Note to John B. Hewlett.
10.8 Promissory Notes entered into with Alvin Emery.
21.1 List of Subsidiaries.
23.1 Consent of Auditors--Corbin & Wertz.
23.2 Consent of Auditors--Jones, Jensen & Company.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
Change of Accountants filed on April 30, 1998.
Change of Accountants filed on March 19, 1999 as amended.
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report................................................. 3
Consolidated Balance Sheet................................................... 4
Consolidated Statements of Operations........................................ 6
Consolidated Statements of Stockholders' Equity (Deficit).................... 7
Consolidated Statements of Cash Flows........................................ 9
Notes to the Consolidated Financial Statements.............................. 11
</TABLE>
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Renaissance Golf Products, Inc.
We have audited the accompanying consolidated balance sheet of Renaissance Golf
Products, Inc. and Subsidiaries (the "Company") as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Renaissance Golf Products, Inc. and Subsidiaries as of December 31, 1998, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Renaissance Golf Products, Inc. and Subsidiaries will continue as a going
concern. As discussed in Note 1c to the consolidated financial statements,
certain conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning these matters are
also discussed in Note 1c. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 14, 1999
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED BALANCE SHHET
ASSETS
<TABLE>
<CAPTION>
December 31,
1998
-----------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 63,184
Accounts receivable, net of allowance for doubtful accounts 411,311
Inventories, net (Note 2) 2,273,601
Deposits made on inventory (Note 2) 497,838
Prepaid expenses and other current assets 15,900
-----------------
Total Current Assets 3,261,834
-----------------
PROPERTY AND EQUIPMENT, NET (Note 3) 465,413
-----------------
OTHER ASSETS
Goodwill (net) (Note 1) 780,000
-----------------
Total Other Assets 780,000
-----------------
TOTAL ASSETS $ 4,507,247
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
1998
-----------------
<S> <C>
CURRENT LIABILITIES
Revolving line of credit, net of discount (Note 4) $ 4,936,766
Current portion of notes payable (Note 6) 855,000
Accounts payable 772,848
Accrued interest 288,793
Accrued liabilities 403,660
Accrued royalties 243,355
-----------------
Total Current Liabilities 7,500,422
-----------------
LONG-TERM LIABILITIES
Notes payable, less current portion (Note 6) 20,000
-----------------
Total Long-Term Liabilities 20,000
-----------------
Total Liabilities 7,520,422
-----------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 150,000 shares
authorized: 250 shares issued and outstanding 3
Common stock, $0.001 par value, 40,000,000 shares
authorized; 7,498,153 shares issued and outstanding 7,498
Additional paid-in capital 17,870,841
Accumulated deficit (20,891,517)
-----------------
Total Stockholders' Equity (Deficit) (3,013,175)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,507,247
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ending
December 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
NET SALES $ 6,987,509 $ 5,375,160
COST OF SALES 6,194,129 4,821,704
----------------- -----------------
GROSS PROFIT 793,380 553,456
----------------- -----------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,258,662 2,391,659
----------------- -----------------
OPERATING LOSS (4,465,282) (1,838,203)
----------------- -----------------
OTHER INCOME (EXPENSE)
Interest income - 8,111
Interest expense (701,425) (332,467)
----------------- -----------------
Total Other Income (Expense) (701,425) (324,356)
----------------- -----------------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (5,166,707) (2,162,559)
PROVISION FOR INCOME TAXES 900 800
----------------- -----------------
LOSS BEFORE EXTRAORDINARY ITEM (5,167,607) (2,163,359)
EXTRAORDINARY GAIN FROM FORGIVENESS
OF DEBT (NET OF INCOME TAXES OF $-0-) (Note 7) - 318,228
----------------- -----------------
LOSS BEFORE COMPREHENSIVE INCOME (5,167,607) (1,845,131)
OTHER COMPREHENSIVE INCOME - -
----------------- -----------------
NET LOSS $ (5,167,607) $ (1,845,131)
----------------- -----------------
----------------- -----------------
BASIC LOSS PER COMMON SHARE $ (1.95) $ (0.65)
----------------- -----------------
----------------- -----------------
FULLY DILUTED LOSS PER COMMON SHARE $ (0.64) $ (0.65)
----------------- -----------------
----------------- -----------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,655,538 2,855,538
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common Stock Subscribed Additional
----------------------- ----------------------- ----------------------- Paid-In
Shares Amount Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 250 $ 3 1,365,291 $ 1,365 953,125 $ 953 $ 12,524,384
Issuance of common stock,
previously subscribed - - 953,125 953 (953,125) (953) -
Issuance of common stock
for cash - - 703,125 703 - - 561,797
Issuance of common stock
upon conversion of debt - - 1,607,816 1,608 - - 802,300
Common stock subscribed
upon conversion of debt - - - - 1,096,276 1,096 547,038
Common stock subscribed
upon exercise of stock options - - - - 400,000 400 199,600
Issuance of stock options
and warrants - - - - - - 160,375
Fractional share adjustment as
a result of reverse split - - (15,695) (15) - - 15
Net loss for the year ended
December 31, 1997 - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ------------
Balance, December 31, 1997 250 $ 3 4,613,662 $ 4,614 1,496,276 $ 1,496 $ 14,795,509
---------- ---------- ---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ---------- ---------- ------------
<CAPTION>
Total
Stockholders'
Accumulated Equity
Deficit (Deficit)
------------ ------------
<S> <C> <C>
Balance, December 31, 1996 $(13,878,779) $ (1,352,074)
Issuance of common stock,
previously subscribed - -
Issuance of common stock
for cash - 562,500
Issuance of common stock
upon conversion of debt - 803,908
Common stock subscribed
upon conversion of debt - 548,134
Common stock subscribed
upon exercise of stock options - 200,000
Issuance of stock options
and warrants - 160,375
Fractional share adjustment as
a result of reverse split - -
Net loss for the year ended
December 31, 1997 (1,845,131) (1,845,131)
------------ ------------
Balance, December 31, 1997 $(15,723,910) $ (922,288)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common Stock Subscribed
----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 250 $ 3 4,613,662 $ 4,614 1,496,276 $ 1,496
Issuance of subscribed stock - - 1,496,276 1,496 (1,496,276) (1,496)
Issuance of stock for cash - - 560,000 546 - -
Issuance of stock for assets - - 250,000 250 - -
Issuance of stock for services - - 278,215 292 - -
Issuance of stock upon
conversion of debt - - 300,000 300 - -
Net loss for the year ended
December 31, 1998 - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 250 $ 3 7,498,153 $ 7,498 - $ -
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
Total
Additional Stockholders'
Paid-In Accumulated Equity
Capital Deficit (Deficit)
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 14,795,509 $(15,723,910) $ (922,288)
Issuance of subscribed stock - - -
Issuance of stock for cash 1,682,787 - 1,683,333
Issuance of stock for assets 999,750 - 1,000,000
Issuance of stock for services 243,095 - 243,387
Issuance of stock upon
conversion of debt 149,700 - 150,000
Net loss for the year ended
December 31, 1998 - (5,167,607) (5,167,607)
------------ ------------ ------------
Balance, December 31, 1998 $ 17,870,841 $(20,891,517) $ (3,013,175)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ending
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,167,607) $ (1,845,131)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 100,162 28,081
Provision for doubtful accounts - 307,971
Provision for allowance for inventory obsolescence 75,000 177,000
Gain on forgiveness of debt - (318,228)
Expense recorded in connection with non-employee options - 23,375
Expense recorded in connection with discount amortized - 52,538
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 576,010 (1,152,753)
(Increase) decrease in inventories (1,590,644) (586,317)
(Increase) decrease in deposits on inventory 669,188 (1,167,026)
(Increase) decrease) in prepaid expenses
and other current assets 41,610 (47,195)
(Increase) decrease in other assets 34,199 (13,056)
Increase (decrease) in accounts payable
and accrued liabilities 890,402 (130,971)
Increase (decrease) in accrued royalties 125,000 (65,791)
------------------ ------------------
Net Cash Used in Operating Activities (4,246,680) (4,737,503)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (48,602) (32,460)
------------------ ------------------
Net Cash Used in Investing Activities (48,602) (32,460)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on lines of credit 1,299,279 3,763,949
Net payments on long-term debt (200,000) (44,144)
Proceeds from long-term debt 650,000 225,000
Proceeds from issuance of subordinated convertible debentures 1,668,000 562,500
Proceeds from issuance of common stock for cash 104,863 562,500
Proceeds from exercise of stock options 60,470 200,000
------------------ ------------------
Net Cash Provided by Financing Activities $3,582,612 $5,269,805
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
9
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Year Ending
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS $ (712,670) $ 499,842
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 775,854 276,012
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 63,184 $ 775,854
------------------ ------------------
------------------ ------------------
Cash Paid For:
Interest $ 404,369 $ 227,857
Income taxes $ 800 $ 800
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for debt conversion $ 150,000 $ 803,908
Common stock subscribed for debt conversion 548,134
Stock for assets $ 1,000,000
Stock for services $ 243,387
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
10
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Operations
Renaissance Golf Products, Inc. and Subsidiaries (the "Company")
assembles and distributes golf clubs and accessories. The Company's
products are sold domestically and internationally under a license
agreement with FILA Sport S.p.A. ("FILA").
b. Principles of Consolidation
The consolidated financial statements include those of World Golf
Corporation, Sports Marketing, Inc. and RGPI, Inc. All significant
intercompany accounts and transactions have been eliminated.
c. Basis of Presentation - Going Concern
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The
Company has suffered substantial recurring losses from operations and
has a stockholders' deficit at December 31, 1998. These matters,
among others, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do
not include any adjustments that might be necessary should the Company
be unable to continue as a going concern. The Company's continuation
as a going concern is dependent on its ability to generate sufficient
cash flow to meet its obligations on a timely basis, to obtain
additional debt and/or equity financing as may be required, to satisfy
its debt and license covenants (see Notes 4 and 8) and ultimately to
attain profitable operations. Management's plans to address these
matters are as follows:
- Obtain additional financing through third party investors;
- Focus current marketing strategy on strength of bag and accessory
product lines;
- Increase the marketing efforts regarding its products;
- Refocus product lines; and
- Continue restructuring the operations of the Company.
Management of the Company believes that the proceeds from the
additional financing, plus increased marketing efforts, will enable
the Company to fund operations through the end of fiscal 1999,
although there can be no assurance that it will. The Company will
likely require additional capital for future development and the
marketing of existing and future product lines. In the event the
Company cannot fund operations through sales after the initial
infusion of capital from the aforementioned sources, resolve its
current debt and any license covenant violation, and if the Company is
unable to secure additional financing in the future, its ability to
pursue its business strategy, its consolidated financial position, and
its results of operations for future periods may be adversely
impacted.
11
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Concentrations of Credit Risk
CASH
On occasion, the Company maintains cash balances at certain financial
institutions in excess of amounts insured by Federal agencies.
ACCOUNTS RECEIVABLE
The accounts receivable are from a diverse customer base. The Company
provides credit in the normal course of business to customers
throughout the United States and foreign markets. Accounts deemed
uncollectible have been charged against the allowance. The Company
does not obtain collateral with which to secure its accounts
receivable. As of December 31, 1998, the Company had accounts
receivable from one customer which represented 64% of net accounts
receivable.
SALES
One customer accounted for 27% and 14% of net sales for the years
ended December 31, 1998 and 1997, respectively.
ACCOUNTS PAYABLE
One vendor accounted for 11% of inventory purchases for the year ended
December 31, 1998, and four vendors accounted for 19%, 17%, 15% and
14% of inventory purchases for the year ended December 31, 1997,
respectively. No other vendor accounted for 10% or more of inventory
purchases for these periods. As of December 31, 1998, the Company had
accounts payable to one vendor which represented 25% of accounts
payable. The Company believes that it could purchase such inventory
from other vendors without a materially adverse effect to the Company.
FOREIGN SALES
The Company had sales to foreign markets of approximately $239,351
(3%) and $103,000 (2%) for the years ended December 31, 1998 and 1997,
respectively.
e. Use of Estimates in the Preparation of Consolidated Financial
Statements
The preparation of consolidated 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 consolidated financial statements, and
the reported amounts of revenues and expenses during the reported
periods. Significant estimates made by the Company's management
include, but are not limited to, allowances for trade receivables and
the net realizable value of inventories. Actual results could
materially differ from those estimates.
12
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
f. Fair Value of Financial Instruments
The Company has financial instruments whereby the fair market value of
the financial instruments could be different than that recorded on a
historical basis. The Company's financial instruments consist of its
cash and cash equivalents, accounts receivable, revolving line of
credit, notes payable and accounts payable. The carrying amounts of
the Company's financial instruments generally approximate their fair
values at December 31, 1998.
g. Cash Equivalents
For the purpose of the statements of cash flows, the Company considers
cash equivalents to be highly liquid investments with remaining
maturities when purchased of three months or less.
h. Inventories
Inventories are stated at the lower of cost or market, and consist
primarily of golf clubs, golf bags, golf accessories and related
components. Cost is determined on the first-in, first-out method.
Cost includes materials, direct labor and an allocable portion of
direct and indirect manufacturing overhead based on estimates derived
from historical trends and experience factors. Market is determined
by comparison with recent purchases or net realizable value. The
Company did write-down inventory in 1998.
i. Property and Equipment
Property and equipment are recorded at cost and are depreciated using
the straight-line method over the estimated useful lives of the
related assets, ranging from five to seven years. Leasehold
improvements are amortized over the lesser of the estimated useful
lives of the improvements or the related lease term. Depreciation
expense relating to property and equipment for the years ended
December 31, 1998 and 1997 amounted to $80,163 and $28,081,
respectively, of which $13,613 and $6,549, respectively, is included
in cost of sales in the accompanying consolidated statements of
operations.
Maintenance and repairs are charged to expense as incurred. Renewals
and improvements of a major nature are capitalized. Gains or losses
are recognized upon sale or disposal of assets.
j. Revenue Recognition
Revenues on product sales are recognized upon shipment of the
merchandise.
13
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
k. Stock-Based Compensation
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which defines a fair value based method
of accounting for stock-based compensation. However, SFAS 123 allows
an entity to continue to measure compensation cost related to stock
and stock options issued to employees using the intrinsic method of
accounting prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting method of APB 25 must make pro
forma disclosures of net income and earnings per share, as if the fair
value method of accounting defined in SFAS 123 had been applied. The
Company has elected to account for its stock-based compensation to
employees under APB 25.
l. Advertising
The Company expenses advertising costs as incurred. Advertising
expense for the years ended December 31, 1998 and 1997 was $589,318
and $224,282, respectively.
m. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, the asset and liability method is used
in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between the
financial reporting and the tax basis of assets and liabilities and
are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
n. Limitations on Dividends
Pursuant to state laws, the Company is currently restricted, and may
be restricted for the foreseeable future, from making dividends to its
stockholders as a result of its accumulated deficit as of December 31,
1998.
14
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
o. Basic Loss Per Common Share
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of all income
statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income
divided by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options,
warrants and other convertible securities. There was no effect on EPS
upon the adoption of the provisions of SFAS No. 128 for all years
presented. Loss per common share has been computed on the weighted
average number of common and equivalent shares outstanding. Basic and
diluted net loss per share are approximately the same.
q. Reverse Stock Split and Change in Authorized Shares
During November 1997, the Company effected a 4:1 reverse stock split.
All share information has been adjusted to reflect the reverse stock
split for both periods presented. The Company, during 1997, also
amended its articles of incorporation to change its total authorized
shares for common stock to 40,150,000 from 20,150,000
r. Change in Accounting Principle
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general
purpose consolidated financial statements. This statement requires
that an enterprise (a) classify items of other comprehensive income by
their nature in a consolidated financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company has
retroactively applied the provisions of this new standard by showing
the other comprehensive income for all years presented.
s. Goodwill
In April 1998, the Company recognized goodwill of $800,000 from the
purchase the assets of World Golf Federation, Inc. and Ball Marketing
Co. LLC. The Company recognizes goodwill from the excess of the
purchase price of its acquisitions over the fair value of the net
assets acquired.
The Company evaluates the recoverability of goodwill and long lived
assets and reviews the amortization period on an annual basis.
Several factors are used to evaluate goodwill, including but not
limited to: management's plans for future operations, recent operating
results and projected, undiscounted cash flows. The primary method is
projected, undiscounted cash flows.
15
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
t. Reclassification
Certain December 31, 1997 balances have been reclassified to
conform with the December 31, 1998 financial statement presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following at December 31, 1998
<TABLE>
<S> <C>
Component parts $ 844,335
Finished goods - golf clubs 431,678
Finished goods - golf bags and accessories 1,072,588
-----------------
2,348,601
Less inventory reserve 75,000
-----------------
Net Inventory $ 2,273,601
-----------------
-----------------
</TABLE>
As of December 31, 1998, the Company has made cash deposits on
inventory to be received during 1999 totaling $497,838.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Manufacturing and tooling equipment $ 89,252
Office furniture and equipment 68,408
Computer equipment and software 496,843
Automotive equipment 6,942
Leasehold improvements 120,588
-----------------
782,033
Less accumulated depreciation (316,620)
-----------------
Net Property and Equipment $ 465,413
-----------------
-----------------
</TABLE>
NOTE 4 - LINES OF CREDIT
In January 1997, the Company entered into a line of credit (line)
agreement with a bank in which the Company could borrow up to $400,000
in connection with a letter of credit established in accordance with
the FILA license agreement (see below). The line bore interest at the
bank's prime rate plus 1.5% and was collateralized by essentially all
of the Company's assets and was guaranteed by the Chairman of the
Board of Directors. The line expired January 31, 1998.
In connection with the FILA license, the Company established a letter
of credit with an accredited bank in the amount of $400,000. The
letter of credit was secured by the line of credit discussed above.
The letter of credit expired January 31, 1998.
16
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 4 - LINES OF CREDIT (Continued)
The Company and the Company's Chairman of the Board of Directors
jointly entered into a loan and security agreement with a lender on
October 29, 1997 to provide the Company the maximum aggregate
principal amount of the lesser of $5,000,000, or 80% of the company's
current assets. The amount outstanding on the loan and revolving
promissory note is adjusted upward or downward on a monthly basis,
throughout the term of the note, based on total current assets, which
for purposes of the agreement mean cash, accounts receivable aged less
than 90 days, and inventory. The revolving promissory note executed
pursuant to this agreement bears an interest rate of 12% and expires
December 31, 1999. As further consideration for this loan and
security agreement, warrants to purchase 400,000 shares of the
Company's common stock were issued to the lender (see Note 9).
Amounts outstanding under the agreement are collateralized by the
Company's inventory, open orders, accounts receivable, and other
assets of the Company. As of December 31, 1998, the Company had
borrowed $5,000,000 on this revolving promissory note. The revolving
credit line is shown net of the discount of $63,234 as discussed in
Note 9. The line provides for various warranties, covenants and
restrictions and other financial and non-financial matters requiring
compliance on a continuing basis. Default on any warranty, covenant
or restriction could effect the lender's commitment to lend, and if
not waived or corrected, could accelerate the maturity of any
borrowings outstanding under the line. As of December 31, 1998, the
Company was in default of certain warranties, covenants and
restrictions, including the borrowing of funds substantially in excess
of qualifying collateral.
NOTE 5 - SUBSEQUENT EVENTS
In January 1999, the Company approved a plan to grant warrants in lieu
of cash to meet its interest payments on the Company's line-of-credit.
The exercise price at the date of grant would be $0.345 per share,
which represents the average closing price of the Company's common
stock. The number of shares offered total 1,637,669, In addition, the
Company issued 600,000 warrants to the same entity for waiving any
potential defaults under the terms of the line-of-credit.
In March 1999, the Company sold 50,000 shares of its newly authorized
Series "A" Preferred Stock for $1,000,000. The above shares have a
warrant attached to purchase 1,000,000 shares of common stock at $1.00
per share.
17
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 6 - LONG-TERM DEBT
<TABLE>
<S> <C>
Notes payable at December 31, 1998 consist of the following:
Unsecured note payable to a shareholder bearing interest at
10% per annum, all unpaid interest and principle due
June 30, 1999. $ 50,000
Unsecured note payable to a shareholder bearing interest at
10% per annum, all unpaid interest and principle due
June 30, 2000. 20,000
Unsecured note payable to a shareholder bearing interest at
12% per annum, all unpaid interest and principle due
January 7, 1999. 450,000
Unsecured note payable to an officer of the Company bearing
interest at 12% per annum, all unpaid interest and principle due
June 30, 1999. 225,000
Unsecured note payable to an officer of the Company bearing
interest at 12% per annum, all unpaid interest and principle
due September 13, 1999. 125,000
Unsecured note payable to a shareholder bearing interest at
10% per annum, all unpaid interest and principle due
June 30, 1999. 5,000
-----------------
875,000
Less: current maturities (855,000)
-----------------
$ 20,000
-----------------
-----------------
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1999 $ 855,000
2000 20,000
2001 -
2002 -
2003 -
-----------------
$ 875,000
-----------------
-----------------
</TABLE>
Total interest expense incurred in connection with the related party
debt was $119,292 and $35,750 for the years ended December 31, 1998
and 1997, respectively.
18
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 7 - EXTRAORDINARY GAINS ON FORGIVENESS OF DEBT
In prior years, the Company entered into a royalty agreement with a
Japanese distributor who designs clubs for Asian markets and
distributes using the FILA name and trademark. Royalties due to the
Company related to such agreement are 9% on sales of bags, head covers
and gloves designed and distributed by the Japanese distributor. In
fiscal 1997, the distributor released the Company from any obligation
to repay the prepaid royalties and required no additional services
from the Company. The Company recorded extraordinary gain on
forgiveness of debt in the amount of $267,723 in the 1997 statement of
operations related thereto.
In addition, during 1998 and 1997, certain other vendors forgave
certain payables. The Company recorded $-0- and $50,505 as
extraordinary gains on forgiveness of debt for the years ended
December 31, 1998 and 1997, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office and certain equipment under several
non-cancelable lease agreements accounted for as operating leases
expiring through June 30, 2003. Real estate taxes, insurance and
maintenance expenses are obligations of the Company.
Minimum rental payments under non-cancelable operating leases on
certain equipment are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1999 $ 77,300
2000 69,850
2001 41,356
2002 16,767
All other years 5,097
-----------------
$ 210,365
-----------------
-----------------
</TABLE>
Rent expense were approximately $74,000 and $98,000 for the years
ended December 31, 1998 and 1997, respectively. It is expected that
expiring leases will be renewed in the ordinary course of business.
19
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES, (Continued)
Royalty and Licensing Agreements
FILA License
In October 1996, the Company entered into an exclusive licensing
agreement which granted the Company the right to use the FILA name and
trademark on defined hard products for sale in the United States and
foreign countries, excluding Asia and a non-exclusive license to use
the FILA name and trademark on defined soft products for sale in the
United States and foreign countries, excluding Asia. The new license
agreement expires December 31, 2000 and can be renewed for an
additional five-year period provided that the Company is not in
default of any obligation under the agreement. The Company was in
default with the FILA license agreement at December 31, 1998 (see Note
4). The FILA licensing agreement was not impacted by the change of
control as a result of the equity transactions discussed in Notes 8
through 10. Royalty expense under this agreement was $500,000 and
$400,000 for the years ended December 31, 1998 and 1997, respectively.
There were no royalties due to FILA at December 31, 1998.
The terms of the revised licensing agreement include the following
minimum payments:
<TABLE>
<S> <C>
1999 $ 600,000
2000 700,000
-----------------
$ 1,300,000
-----------------
-----------------
</TABLE>
Percentage royalty payments are due if such amounts exceed the
minimum royalty payments and are based on annual sales as follows:
<TABLE>
<S> <C>
Sales up to $7,500,000 6.0%
Sales from $7,500,001 to $15,000,000 5.5%
Sales over $15,000,000 5.0%
</TABLE>
FILA can terminate the license if the Company does not have annual
sales of licensed product equal to or exceeding the following
amounts of the respective years:
<TABLE>
<S> <C>
1998 $ 6,250,000
1999 7,500,000
2000 8,333,333
</TABLE>
The Company must expend annually not less than five percent (5%) of
net sales for advertising and not less than three percent (3%) of net
sales for promotions.
20
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty and Licensing Agreements (Continued)
FILA License (Continued)
The Company shall not offer discounts on current products greater than
twenty-five percent (25%) without first obtaining approval from FILA.
The Company shall not sell discontinued product lines at a discount
exceeding fifty percent (50%).
The Company must establish an irrevocable letter of credit for the
minimum annual royalty for each contract year which shall be renewed
annually for the minimum annual royalty for each subsequent contract
year. The Company has not renewed its letter of credit that expired
January 31, 1998 and, therefore, is not in compliance with this
covenant as of the issuance of these consolidated financial
statements. The Company shall pay one fourth (1/4) of the minimum
annual royalty to FILA fifteen (15) days prior to the end of each
quarter. If the Company fails to make the required payment, FILA may
draw the required payment amount from the letter of credit on the last
day of the quarter.
The Company must submit a prototype of each product, as defined, for
FILA's approval prior to the manufacture, distribution or sale of such
product. The Company must submit to FILA for approval the Company's
price lists and a description of any plans to offer discounted prices
(to eliminate overstock or otherwise).
FILA may terminate the agreement in whole, or in part, upon the
occurrence of certain events, including the following:
- Failure to perform or otherwise materially breach any of the
obligations under the agreement and there is not remedy within 30
days of the receipt of written notice of intent to terminate the
agreement from FILA.
- Failure to make timely royalty payments, use best efforts to meet
established product introduction dates, maintain required levels
of product liability insurance or meet established guidelines for
quality control.
- Failure to meet advertising, promotional and/or sales targets
within a country included in the territory, as defined.
- Sale or disposal of substantially all of the Company's business
or assets to a third party or transfer of control of the Company
to a third party or the cessation of an employment relationship
with Miles Doody.
Further, FILA may terminate the license agreement if the Company's
financial condition becomes unstable, as evidenced by, among other
matters, insolvency or the Company's inability to pay its debts as
they become due.
21
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty and Licensing Agreements (Continued)
Japanese Sublicense
FILA granted an exclusive licensing agreement to Kanebo, Ltd.
("Kanebo") covering Japan, prior to granting the Company its licensing
agreement. This licensing agreement gave Kanebo an exclusive right
and license to use FILA trademarks in connection with the manufacture
and sale of certain items including golf bags, head covers and gloves
sold in Japan, but not including golf clubs or balls. Accordingly,
the Company entered into a sublicensing agreement with Kanebo giving
the Company a non-exclusive right to sell golf bags, head covers and
gloves in Japan. The sublicensing agreement was terminated as of June
30, 1996 upon the termination of the Company's license agreement with
FILA. Royalty expense in connection with this sublicense was $-0- and
$-0- for the years ended December 31, 1998 and 1997, respectively.
Past due royalties related to the sublicense agreement totaled $-0- at
December 31, 1998.
Letters of Credit
In connection with the FILA license discussed above, the Company is
required to establish a letter of credit with an accredited Italian
bank in the amount of $500,000, the minimum royalty for fiscal 1998.
As of the date of this report, the Company has not established the
required letter of credit.
The FILA license agreement requires that a letter of credit is
maintained annually in the amount of the minimum royalty payments
outlined therein. Subsequent to year end, the Company had not
received the letter of credit for the 1999 minimum royalty payments as
required by the FILA Agreement. Subsequent to year end, the Company
has met its minimum royalty payments without the established letter of
credit.
As discussed above, the Company is currently not in compliance with
one of the covenants pursuant to the FILA license. Non-compliance may
cause the agreement to be terminated. The loss of the license would
have a material adverse effect on the Company's operations. These
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 9 - STOCK OPTIONS
In July 1993, the Board of Directors adopted, and the stockholders
approved, the 1993 Omnibus Stock Option Plan ("1993 Plan") which is
intended to provide incentives to key employees, directors,
consultants and others. Pursuant to the 1993 Plan, up to 150,000
shares may be granted on a discretionary basis by the Board of
Directors in the form of incentive stock options for full-time
employees and directors and non-statutory stock options for
non-employees.
In July 1993, incentive stock options were granted to certain officers
and directors for the purchase of 100,000 shares of the Company's
common stock at $16.00 per share. Of these options, 40,000 were
canceled in October 1996. The remaining 60,000 options expired on
July 12, 1998.
22
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK OPTIONS (Continued)
In January 1994, non-statutory stock options were granted outside of
the 1993 Plan to professional golfers for the purchase of 6,375 shares
of the Company's common stock at $13.00 per share. Of these options,
3,875 vested on issuance and 2,500 were to vest based on the golfers
achieving certain performance goals (the 2,500 were canceled). The
remaining 3,875 options expired during the year ended December 31,
1998.
In June 1994, incentive stock options were granted outside of the 1993
Plan to certain employees for the purchase of 9,625 shares of the
Company's common stock at $10.00 per share. Of these options, 2,500
were canceled during fiscal 1995 and 6,250 expired during 1997.
In October 1996, non-statutory stock options were granted outside of
the 1993 Plan to non-employee members of the Company's Board of
Directors and various consultants for services provided to the Company
for the purchase of 1,700,000 shares of the Company's common stock at
$0.50 per share. These options expire on December 31, 2006. These
options were assumed to be vested as of December 31, 1996 as a result
of the successful completion of the private placement memorandum as
discussed in Note 10. These options were not subject to adjustment as
a result of the split of the Company's stock. Because the company
anticipated the 4:1 reverse stock split, the fair market value of the
Company's common stock was assumed to be $0.50 per share, the trading
price of the Company's common stock ($0.125) prior to the private
placement discussions, times four. The Company expensed $14,000
during the year ended December 31, 1998 in connection with the
issuance of these options. During 1998, 500,000 of such options were
exchanged for debt and services. An additional 1,050,000 options were
granted to non-employees in connection with the 1996 private
placement. Because the private placement consisted of 50% debt and
50% equity, one-half of the 1,050,000 options were attached to the
debt piece and an original issue discount was recorded. Accordingly,
the Company recorded of debt issuance costs, which was amortized in
its entirety to interest expense during 1998.
In October 1996, incentive stock options were granted outside of the
1993 Plan to certain officers and key employees for the purchase of
1,377,000 shares of the Company's common stock at $0.50 per share. Of
these options, 717,000 vest upon the earlier of achieving certain
performance goals or ratably over ten years and 660,000 were assumed
to be vested as of December 31, 1996 as a result of the successful
completion of the private placement memorandum as discussed in Note
10. These options were not subject to adjustment as a result of the
split of the Company's stock. Because the company anticipated the 4:1
reverse stock split, the fair market value of the Company's common
stock was assumed to be $0.50 per share, the trading price of the
Company's common stock ($0.125) prior to the private placement
discussions, times four. These options expire on December 31, 2006.
During 1998 and 1997, 643,000 and 6,000 of such options were canceled,
respectively.
23
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK OPTIONS (Continued)
In October 1996, the Company granted to a director an option to
acquire 200,000 shares of common stock at an exercise price of $0.50
per share and an option to acquire 150,000 shares of common stock at
an exercise price of $1.00 per share in connection with the director's
services performed in 1996. The Company also granted to another
director an option to acquire 1,000,000 shares of common stock at an
exercise price of $1.00 per share in connection with the director's
services performed in 1996. The options vested immediately and expire
December 31, 2006. These options were not subject to adjustment as a
result of the split of the Company's stock. Because the Company
anticipated the 4:1 reverse stock split, the fair market value of the
Company's common stock was assumed to be $0.50 per share, the trading
price of the Company's common stock ($0.125) prior to the private
placement discussions, times four.
In September 1997, the Company granted non-qualified options outside
of the 1993 Plan to acquire 281,000 shares of common stock at $1.25
per share to employees of the company and 18,750 shares of common
stock at $1.25 per share to non-employees of the Company. Of the
employee options, 195,000 vest upon the earlier of achieving certain
performance goals or ratably over ten years, 56,000 vested
immediately, and 30,000 vest ratably over a three-year period. The
non-employee options vested immediately. None of these options were
subject to adjustment as a result of the split of the Company's stock.
Because the Company anticipated the 4:1 reverse stock split, the fair
market value of the Company's common stock was assumed to be $1.25 per
share, the trading price of the Company's common stock ($0.3125) at
the date of grant, times four. The aforementioned options expire
September 15, 2007. The Company recorded $9,375 in consulting
expense during 1997 as a result of the issuance of non-employee
options.
In October 1997, the Company granted non-qualified options outside of
the 1993 Plan to acquire 500,000 shares of common stock at $3.00 per
share to employees of the company. None of these options were subject
to adjustment as a result of the split of the Company's stock.
Because the Company anticipated the 4:1 reverse stock split, the fair
market value of the Company's common stock was assumed to be $2.63 per
share, the trading price of the Company's common stock ($0.65625) at
the date of grant, times four. The aforementioned options all vested
immediately and expire October 27, 2007. During 1998, 15,000 shares
were exercised.
In March 1998, the Company granted to a director non-qualified options
to acquire 500,000 shares of common stock at $4.00 per share. These
option shares shall not be subject to adjustment upon a change in
capitalization. In October 1998, the Company also granted options to
four officers the right for each party to acquire 25,000 shares at the
current trading price of the stock as of October 1, 1998.
In September 1998, the Company granted options to an individual to
acquire 150,000 shares of common stock at $5.00 per share. The
options carried a vesting requirement that certain sales volume must
be obtained by the individual during each of the next three years.
24
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCK OPTIONS (Continued)
A summary of stock option activity for 1998 and 1997 follows:
<TABLE>
<CAPTION>
1993 Plan Outside Plan Price
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1, 1997 60,000 5,670,749 $ .50-16.0
Granted -- 799,750 1.25-3.00
Expired/canceled -- (12,250) .50-10.00
Exercised -- (400,000) .50
------------ ------------ ------------
Balance at December 31, 1997 60,000 6,058,249 .50-16.00
Granted -- 1,331,000 1.50-5.00
Expired/canceled 60,000 (427,500) .50-16.00
Exercised -- (777,000) .50-3.00
------------ ------------ ------------
Balance at December 31, 1998 -- 6,184,749 $ .50-16.00
------------ ------------ ------------
------------ ------------ ------------
Exercisable at December 31, 1998 -- 5,987,249 $ .50-16.00
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Pro Forma Stock Option Information
Pro forma information regarding net income (loss) is required by SFAS
123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method pursuant to SFAS
123, rather than the method pursuant to APB 25 as discussed herein.
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
assumptions: stock price, as determined by the Board of Directors, of
between $.50 and $2.63 per share; a risk-free interest rate of 6.5%;
dividend yields of 0.0%; volatility factors of the expected market
price of the Company's common stock of between 40.0% and 72.0%; and
expected term of two and one-half years.
The Black-Scholes valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosure, the estimated fair value of the
options are amortized to expense over the options' vesting period.
The Company's pro forma information follows.
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Net loss:
As reported $ (5,167,607) $ (1,845,131)
Pro forma $ (5,167,607) $ (2,459,507)
Net loss per share:
As reported $ (1.95) $ (0.65)
Pro forma $ (1.95) $ (0.86)
</TABLE>
25
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK WARRANTS
The Company is authorized to issue Class A warrants. In connection
with the offering of convertible debentures, bridge financing
arrangements and the initial public offering completed prior to 1995,
the Company issued warrants which expired between November 15, 1996
and November 15, 1998. The terms of the warrants outstanding are
summarized as follows:
- Class A warrants entitle the holder to purchase one share of
common stock at a price of $5.50 (as adjusted) per share. The
warrants are exercisable for five years from the date of issuance
and may be redeemed by the Company at $.01 per warrant if the
closing bid price of the common stock exceeds $7.00 for 10
consecutive trading days. As of December 31, 1997, 852,060 (as
adjusted) Class A warrants are outstanding which expired November
15, 1998. No warrants were exercised in 1998.
During 1997, the Company granted 400,000 warrants to acquire shares of
the Company's common stock at exercise prices ranging from $1.50 to
$3.00 to a lender (see Note 4). The warrants are not subject to
adjustment as a result of the split of the Company's stock. Because
the Company anticipated the 4:1 reverse stock split, the fair market
value of the Company's common stock was assumed to be $2.63 per share,
the trading price of the Company's common stock ($0.65625) at the date
of grant, times four. The warrants expire December 31, 2002, are
immediately exercisable and carry piggy-back registration rights. The
Company recorded an original issue discount of $137,000 as a result of
the issuance of these warrants which will be amortized over the
twenty-six month life of the debt. During 1998 and 1997,
approximately $63,000 and $11,000, respectively, of the discount was
amortized to interest expense.
NOTE 11 - STOCKHOLDERS' DEFICIT
In March 1998, the Company approved a private placement memorandum to
sell 800,000 units. Each unit consists of one share of common stock
at $3.00 per share and one warrant for one additional share of common
stock at $5.00 per share. The offering expired on June 30, 1998. The
Company sold 556,000 units during the offering.
26
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1998
and 1997 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
-------------- -------------- --------------
<S> <C> <C> <C>
Year ended December 31, 1998
U.S. Federal $ - $ - $ -
State and local 900 - 900
-------------- -------------- --------------
$ 900 $ - $ 900
-------------- -------------- --------------
-------------- -------------- --------------
Year ended December 31, 1997
U.S. Federal $ - $ - $ -
State and local 800 - 800
-------------- -------------- --------------
$ 800 $ - $ 800
-------------- -------------- --------------
-------------- -------------- --------------
Income tax expense was $900 and $800 for each of the years ended December 31,
1998 and 1997, respectively, and differed from the amounts computed by applying
U.S. Federal income tax rate of 34 percent to loss from operations before
provision for income taxes and extraordinary item as a result of the following:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Computed "expected" benefit $ (1,756,333) $ (735,270)
Increase (reduction) in income taxes resulting from:
Change in valuation allowance for deferred
tax assets 1,752,113 728,559
Non-deductible expenses 3,320 2,590
Change in deferred tax assets -- 4,393
State taxes, net of benefit -- 528
-------------- --------------
$ 900 $ 800
-------------- --------------
-------------- --------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1998 are presented
below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards
Total gross deferred tax assets 6,797,036
Less valuation allowance (6,797,036)
--------------
Net deferred tax assets $ -
--------------
--------------
</TABLE>
27
<PAGE>
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - PROVISION FOR INCOME TAXES (Continued)
The valuation allowance for deferred tax assets as of January 1, 1998
was $5,044,923. The net change in the total valuation allowance for
the year ended December 31, 1998 was an increase of $1,752,113.
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $17,043,974 available to offset future taxable
Federal and state income. The Company's utilization of California
state operating loss carryforwards is unlikely due to the Company's
move to Utah in early 1998. The carryforward amounts expire in
varying amounts between 1998 and 2012.
Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax
reporting purposes are subject to annual limitations. Should a change
in ownership occur, net operating loss carryforwards maybe limited as
to use in future years.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Draper, State of Utah, on the 15th day
of April 1999.
By:/s/Steven L. Flint
------------------------
Steven L. Flint, Chief Executive Officer, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/Steven L. Flint Chief Executive Officer, President April 15, 1999
- ------------------------------------ Director (Principal Accounting Officer)
Steven L. Flint
/s/John B. Hewlett Chairman of the Board, Director April 15, 1999
- ------------------------------------
John B. Hewlett
/s/Ralph W. Rasmussen Director April 15, 1999
- ------------------------------------
Ralph W. Rasmussen
/s/Dennis L. Crockett Director April 15, 1999
- ------------------------------------
Dennis L. Crockett
/s/Bruce H. Haglund Secretary, Director April 15, 1999
- ------------------------------------
Bruce H. Haglund
</TABLE>
<PAGE>
CERTIFICATE OF DETERMINATION,
RIGHTS AND PREFERENCES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
RENAISSANCE GOLF PRODUCTS, INC.
-------------------------------
PURSUANT THE GENERAL CORPORATIONS
CODE OF THE STATE OF DELAWARE
Steven L. Flint and Bruce H. Haglund hereby certify that they are the
President and Secretary, respectively, of Renaissance Golf Products, Inc., a
Delaware corporation (the "Corporation"), and further certify as follows:
FIRST: The Certificate of Incorporation of the Corporation (as
amended or restated) authorizes the Corporation,
to issue two classes of shares, to be designated common and
preferred, respectively. The number of Common shares authorized to be
issued is forty million (40,000,000) and the number of Preferred
shares authorized to be issued is one hundred fifty thousand
(150,000).
The Preferred shares may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number
of shares of any series of Preferred shares and to determine the
designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series
of Preferred shares and, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.
SECOND: By resolution of the Board of Directors dated the 10th day of
March 1999, the Board of Directors did duly adopt resolutions authorizing the
creation and issuance of a series of Preferred Stock to be known as "Series A
Convertible Preferred Stock."
Page 1 of Thirteen
<PAGE>
THIRD: The number of shares of Series A Convertible Preferred Stock is
150,000, par value $.01, none of which have been issued.
FOURTH: That the Board of Directors, pursuant to authority vested in it by
the provisions of the Certificate of Incorporation of the Corporation,
authorized the issuance of Series A of the Corporation's Convertible Preferred
Stock to AKA Charitable Remainder Unitrust #1, John B. Hewlett and Steven L.
Flint, $.01 par value, and fixed the number, designation, preferences, rights
and limitations and restrictions thereof in addition to those set forth in the
Certificate of Incorporation as follows:
1. Designation; Rank.
The Corporation's Preferred Stock is designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock") and the maximum
number of shares of Series A Preferred Stock shall be 150,000 and no more. The
Series A Preferred Stock has a liquidation preference of $20.00 per whole share
(the "Liquidation Preference").
The Series A Preferred Stock, with respect to rights to receive
dividends and distributions upon liquidation, winding up or dissolution of the
Corporation, ranks senior to the Corporation's Common Stock, $.001 par value
(the "Common Stock"), and any series of Preferred Stock issued by the
Corporation whose terms provide specifically that such class or series will rank
junior to the Series A Preferred Stock with respect to rights to receive payment
of dividends and distributions upon liquidation or fail to specify the ranking
of such class or series relative to the Series A Preferred Stock with respect to
rights to receive payment of dividends and distributions upon liquidation
(together with the Common Stock, the "Junior Securities"), on a parity with any
class or series of preferred stock issued by the Corporation whose terms provide
specifically that such series shall rank on a parity with the Series A Preferred
Stock with respect to rights to receive payment of dividends and distributions
upon liquidation (the "Parity Securities"), and junior to any class or series of
stock whose terms provide specifically that such class or series will rank
senior to the Series A Preferred Stock with respect to rights to receive payment
of dividends and distributions upon liquidation (the "Senior Securities").
2. Dividends.
A. Dividends will be paid within 20 days of the end of each calendar
year at the rate of 5% for 1999 and 6% each year thereafter, and if and when
declared by the Board of Directors in its sole discretion at other times.
Dividends for 1999 shall be payable in the Corporation's common stock at a value
based upon the average closing price of the stock as reported by the OTC:BB, or
equivalent stock service, and dividends for 2000 and thereafter shall be payable
in common stock or cash at the holders option. The holders of outstanding
shares of Series A Preferred Stock shall be entitled to receive on a per share
basis according to their holdings of
Page 2 of Thirteen
<PAGE>
shares of Series A Preferred Stock, when and if declared by the Board of
Directors out of any assets of the Corporation at the time legally available
therefor, dividends prior and in preference to any declaration or payment of
any Distribution (as defined below) on the Common Stock of the corporation.
Distributions (as defined below) may be declared and paid upon shares of
Common Stock in any fiscal year of the Corporation only if dividends shall
have been first paid to, or declared and set apart for, all outstanding
shares of Series A Preferred Stock in a per share amount equal to the per
share amount of the dividend to be paid upon the shares of Common Stock. The
right to such dividends on the Series A Preferred Stock shares shall be
cumulative.
B. For purposes of this subsection 2, unless the context otherwise
requires, "Distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
stock, or the purchase or redemption of shares of capital stock of the
Corporation (other than redemptions set forth in subsection 2 or, subject any
repurchases of Common Stock held by employees of the Corporation upon
termination of their employment pursuant to agreements providing for such
repurchases) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of the Corporation, if any.
3. Redemption.
A. Upon the written request of holders of at least a majority of the
then outstanding shares of Series A Preferred Stock received by the Company at
any time after December 31, 2000 (the "Holder Redemption Request"), the
Corporation shall redeem all shares of Series A Preferred Stock outstanding on
the date which is 30 days after the date of the Holder Redemption Request (the
"Holder Redemption Date"). Payment for any Redemption shall be made in two equal
installment 60 and 120 days after the Holder Redemption Request is received by
the Corporation. If there are insufficient funds to redeem the number of shares
of Series A Preferred Stock required to be redeemed by this subsection 3(A), the
Corporation shall redeem the maximum number of shares of Series A Preferred
Stock for which funds are available, and shall redeem the shares not timely
redeemed as soon as sufficient funds exist, and the Holder Redemption Date shall
be appropriately adjusted with respect to such shares.
B. Each outstanding share of Series A Preferred Stock shall be
redeemed at a cash price equal to $20.00 per share (adjusted for stock
dividends, stock splits, stock combinations and the like) to be redeemed (the
"Original Purchase Price"), plus all accrued but unpaid dividends on each such
share (the "Redemption Price"); provided, however, that payment of any
Redemption Price shall only be made from funds of the Corporation legally
available therefor.
C. Upon written request of the Corporation at any time after
December 31, 2002, (the "Company Redemption Request"), while any shares of
Page 3 of Thirteen
<PAGE>
Series A Preferred Stock are outstanding, the holders of Series A Preferred
Stock shall surrender for redemption and the Corporation shall redeem all shares
of Series A Preferred Stock outstanding on the date which is 30 days after the
date of the Company Redemption Request (the "Company Redemption Date"). If
there are insufficient funds to redeem the number of shares of Series A
Preferred Stock required to be redeemed by this subsection 3(C), the Corporation
shall redeem the maximum number of shares of Series A Preferred Stock for which
funds are available, and shall redeem the shares not timely redeemed as soon as
sufficient funds exist, and the Company Redemption Date shall be appropriately
adjusted with respect to such shares.
D. Each outstanding share of Series A Preferred Stock shall be
redeemed at a cash price equal to the Redemption Price; provided, however, that
payment of any Redemption Price shall only be made from funds of the Corporation
legally available therefore.
E. At least 15 days prior to the Holder Redemption Date or the
Company Redemption Date, as the case may be, the Corporation shall mail to each
holder of shares proposed to be redeemed, a notice (the "Redemption Notice")
specifying the Holder Redemption Date or the Company Redemption Date, as
applicable, the number of such holder's shares to be redeemed and the procedures
that such holder must follow to redeem its shares. On or prior to each Holder
Redemption Date or Company Redemption Date, as applicable, each holder of shares
to be redeemed shall surrender such holder's certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the aggregate Redemption
Price (the Redemption Price per share to be redeemed multiplied by the number of
shares to be redeemed) for the shares to be redeemed shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares. From and
after the Redemption Date, unless there shall have been a default in payment of
the aggregate Redemption Price for shares to be redeemed (whether because there
is no source of funds legally available for such redemption or because such
funds shall not be paid or made available for payment), all rights of the
holders of the shares designated for redemption in the Redemption Notice as
holders of the Series A Preferred Stock of the Corporation (except the right to
receive the aggregate Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.
F. On or prior to each Holder Redemption Date or Company Redemption
Date, as applicable, the Corporation shall deposit the aggregate Redemption
Price of all shares designated for redemption in the Redemption Notice and not
yet redeemed with a bank or trust company having aggregate capital and
Page 4 of Thirteen
<PAGE>
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
company to pay the Redemption Price for such shares to their respective
holders on or after the Holder Redemption Date or Company Redemption Dates,
as applicable, upon receipt of notification from the Corporation that such
holder has surrendered its share certificate to the Corporation pursuant to
subsection 3(E) above. Such instructions shall also provide that any moneys
deposited by the Corporation pursuant to this subsection 3(F) for the
redemption of shares thereafter converted into shares of the Corporation's
Common Stock pursuant to subsection 6(A) hereof prior to the fifth day
preceding the Holder Redemption Date or Company Redemption Date, as
applicable, shall be returned to the Corporation forthwith upon such
conversion. The balance of any moneys deposited by the Corporation pursuant
to this subsection 3(F) remaining unclaimed at the expiration of two years
following the Redemption Date shall thereafter be returned to the Corporation
upon its request.
G. There shall be no redemption of any shares where such redemption
would be in violation of applicable law.
4. Preference on Liquidation.
A. In the event of a Liquidation Event (as defined below) the
holders of shares of the Series A Preferred Stock then outstanding shall be
entitled to be paid, out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or earnings
("Available Assets"), before any payment shall be made in respect of the Common
Stock, an amount equal to $20.00 per share of Series A Preferred Stock, or
$200.00 per share in the event the Corporation or its co-borrower has failed to
make full payment of the Promissory Note due AKA Charitable Remainder Unitrust
#1 in the maximum amount of $5,000,000.00 by the Note's maturity date, the
principal and interest due under a Promissory Notes by the adjusted for stock
dividends, stock splits, stock combinations and the like), plus all accrued and
unpaid dividends thereon to the date fixed for distribution of assets (the
"Liquidation Preference Amount"). If upon a Liquidation Event, the Available
Assets shall be insufficient to pay the holders of the Series A Preferred Stock
the full amount to which they shall be entitled, then the entire assets of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock. A liquidation, winding up,
merger or consolidation of the Corporation into or with another corporation in
which the shareholders of the Corporation shall own less than 50% of the voting
securities of the surviving corporation, or the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona fide lender) of
all or substantially all of the assets of the Corporation, shall be deemed to be
a Liquidation Event.
B. In the event of a Liquidation Event, after the distribution to
holders of Series A Preferred Stock in an amount equal to the Liquidation
Preference
Page 5 of Thirteen
<PAGE>
Amount in accordance with subsection 4(A) above, the remaining assets of the
Corporation legally available for distribution, if any, to shareholders shall
be distributed ratably to the holders of the Common Stock and the Series A
Preferred Stock then outstanding, with each share of Series A Preferred Stock
being treated for such purposes as if it had been converted into Common Stock
at the then effective Conversion Rate.
5. Voting.
A. Except as otherwise required under applicable law or as set forth
herein, the shares of Series A Preferred Stock shall be entitled to vote at any
annual or special meeting of shareholders of the Corporation as though a holder
of common stock in an amount equivalent to the current conversion rate of 20 to
1, or in the event the Corporation or its co-borrower has failed to make full
payment of the Promissory Note due AKA Charitable Remainder Unitrust #1 in the
maximum amount of $5,000,000.00 by the Note's maturity date in an amount
equivalent to the conversion rate of 20 to 1.
B. Notwithstanding the foregoing subsection 5(A), the holders of the
Series A Preferred Stock voting separately as a single class (with each share
being entitled to one vote) and to the exclusion of all other classes of the
capital stock of the Corporation, shall be entitled, at any election of
directors to the Corporation's Board, to elect one director so long as at least
10,000 Preferred Shares remain outstanding, and the holders of the Common Stock,
voting separately as a single class and to the exclusion of all other classes of
the capital stock of the Corporation, shall be entitled, at any election of
directors to the Corporation's Board, to elect the remaining directors.
6. Conversion Right.
A. Each share of Series A Preferred Stock shall be convertible,
at the option of the holder thereof, at any time after issuance of such
share, into 20 fully paid and non-assessable shares of Common Stock. The
number of shares of Common Stock into which each share of the Series A
Preferred Stock may be converted shall be increased to 200 to 1 in the event
the Corporation or its co-borrower has failed to make full payment of the
Promissory Note due AKA Charitable Remainder Unitrust #1 in the maximum
amount of $5,000,000.00 by the Note's maturity date.
B. Each share of Series A Preferred Stock shall automatically be
converted into fully paid and non-assessable shares of Common Stock either (a)
immediately prior to the closing of a Qualified Public Offering or (b) prior to
such time if at least a majority of the then outstanding shares of Series A
Preferred Stock voting together as a single class, shall have affirmatively
approved, by vote or written consent, such automatic conversion.
Page 6 of Thirteen
<PAGE>
C. The holder of any shares of the Series A Preferred Stock may
exercise its conversion rights as to such shares or any part thereof by
delivering during regular business hours to the Corporation, at the office of
any transfer agent of the Corporation for such shares, the principal office of
the Corporation or such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed for
transfer to the Corporation (if required by it), accompanied by written notice
stating that the holder elects to convert such shares. Conversion shall be
deemed to have occurred on the date when such delivery is made, and such date is
referred to herein as the "Conversion Date." As promptly as practicable
thereafter, the Corporation shall issue and deliver to or upon the written order
of such holder, at such office or other place designated by the Corporation. a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled. The holder shall be deemed to have become a
shareholder of record of the Common Stock on the applicable Conversion Date
unless the transfer books of the Corporation are closed on such date in which
event such holder shall be deemed to have become a shareholder of record of the
Common Stock on the next succeeding date on which the transfer books are open,
but the Conversion Price shall nevertheless be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares represented by a
certificate surrendered for conversion, the Corporation shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares representing the unconverted portion of the certificate so
surrendered.
D. No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares. If more than one certificate shall be surrendered
for conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of any shares,
the Corporation shall pay a cash adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest as
determined (in good faith) by the Board.
E. The Corporation shall pay any and all expenses of any issuance or
delivery of shares of Common Stock upon conversion of shares pursuant hereto.
The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery, of
shares of Common Stock in a name other than that in which the shares so
converted were registered, and no such issuance or delivery, shall be made
UNLESS and until the person requesting such issuance has paid to the Corporation
the amount of any such tax, or has established to the satisfaction of the
Corporation that such tax either has been paid or is not payable.
F. The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose of
effecting
Page 7 of Thirteen
<PAGE>
the conversion of the Series A Preferred Stock the full number of shares of
Common Stock deliverable upon the conversion of all of the shares of Series A
Preferred Stock from time to time outstanding. The Corporation shall from
time to time (subject to obtaining necessary director and shareholder
action), in accordance with the laws of the State of Delaware, increase the
authorized amount of its Common Stock if at any time the authorized number of
shares of its Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the shares of Series A Preferred Stock at the
time outstanding.
G. If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series A Preferred Stock require registration or listing
with, or approval of, any governmental authority, stock exchange or other
regulatory, body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Corporation shall, in good faith and as expeditiously as possible, endeavor to
secure such registration, listing or approval, as the case may be.
H. All shares of Common Stock which may be issued upon conversion of
the shares of Series A Preferred Stock shall, upon issuance by the Corporation,
be validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
7. Adjustment of Conversion Price.
The Conversion Price of the Series A Preferred Stock in effect shall
be subject to adjustment from time to time as follows:
A. If the Corporation shall at any time subdivide the outstanding
shares of Common Stock or make a distribution of stock on its outstanding Common
Stock, the Conversion Price in effect immediately prior to such subdivision or
such distribution shall be proportionately decreased and, in case the
Corporation shall at any time combine the outstanding shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the date of
such subdivision, dividend or combination, as the case may be.
B. If the Common Stock issuable upon conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in subsection 7(A) above or a merger or other reorganization
referred to in subsection 4(A) above), then concurrently with the effectiveness
of such reorganization or reclassification, the Series A Preferred Stock shall
be convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject
Page 8 of Thirteen
<PAGE>
to receipt by the holders upon conversion of the Series A Preferred Stock, as
the case may be, immediately before that change.
C. This subsection 7(C) shall not apply to (1) an issuance of stock
or securities pursuant to subsection 7(A), (2) the issuance of shares of Common
Stock upon conversion of any Series A Preferred Stock, (3) the issuance, sale,
or grant of any right to purchase (including any option or warrant) shares of up
to 50,000 shares of Common Stock to any employee, officer or director of, or
consultant to, the Corporation pursuant to any employee, officer, director or
consultant plan or agreement adopted or approved by the Board of Directors of
the Corporation, and any exercise of any such right and (4) the issuance of
options pursuant to any existing Stock Option Plan of the Corporation. The
exempted issuances described in the preceding sentence shall be referred to
herein as the "Exempted Issuances." Upon issuance by the Corporation of Common
Stock, or any right or option to purchase Common Stock or stock convertible into
Common Stock, or any obligation or any share of stock convertible into or
exchangeable for Common Stock for a price per share that is less than the
Conversion Price of the Series A Preferred Stock in effect immediately prior to
the time of such issuance or sale, other than Exempted Issuances, then forthwith
upon such issuance or sale the Conversion Price of the Series A Preferred Stock
in effect immediately prior to such issuance shall be reduced, as of the closing
or consummation of such issuance, to a price (calculated to the nearest cent)
determined by multiplying the then existing Conversion Price (the "Pre-Issue
Conversion Price") by a fraction, the numerator of which shall be:
(i) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale, (y) the
number of shares of Common Stock issuable upon conversion or exchange of any
obligations or of any shares of stock of the Corporation outstanding immediately
prior to such issuance or sale and (z) the number of shares of Common Stock that
the "consideration actually received" (as defined in subsection 7(D) below) by
the Corporation upon such issuance or sale would purchase at the Pre-Issue
Conversion Price; and the denominator of which shall be;
(ii) the sum of (x) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale, (y) the number of shares
of Common Stock issuable upon conversion or exchange of any obligations or of
any shares of stock of the Corporation outstanding immediately prior to such
issuance or sale and (z) the number of shares of Common Stock or stock
convertible into or exchangeable for Common Stock issued in such issuance or
sale.
D. The following shall apply for purposes of this subsection 7:
(i) In the event of an issuance or sale for cash of shares of
the Common Stock, the "consideration actually received" by the Corporation shall
mean the amount of cash received, before deducting therefrom any commissions or
expenses paid by the Corporation.
Page 9 of Thirteen
<PAGE>
(ii) In the event of an issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the Corporation) of
additional shares of Common Stock for a consideration other than cash (either in
whole or in part), the amount of the consideration other than cash received by
the Corporation for such shares shall be deemed to be the value of such
consideration as determined (in good faith) by the Board.
(iii) In the event of an issuance in any manner by the
Corporation of any rights to subscribe for or to purchase shares of Common
Stock, or any options for the purchase of shares of Common Stock or stock
convertible into Common Stock, all shares of Common Stock or stock convertible
into Common Stock to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights or options shall
be deemed "outstanding" as of the date of the offering of such rights or the
granting of such options, as the case may be, and the minimum aggregate
consideration named in such rights or options for the shares of Common Stock or
stock convertible into Common Stock covered thereby, plus the consideration, if
any, received by the Corporation for such rights or options, shall be deemed to
be the "consideration actually received" by the Corporation (as of the date of
the offering of such rights or the granting of such options, as the case may be)
for the issuance of such shares.
(iv) In the event of an issuance in any manner by the
Corporation of any obligations or of any shares of stock of the Corporation that
shall be convertible into or exchangeable for Common Stock, all shares of Common
Stock issuable upon the conversion or exchange of such obligations or shares
shall be deemed issued and outstanding as of the date such obligations or shares
are issued, and the amount of the "consideration actually received" by the
Corporation for such additional shares of Common Stock shall be deemed to be the
sum of (x) the amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, and (y) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment for distributions.
(v) The amount of the "consideration actually received" by the
Corporation upon the issuance of any rights or options referred to in subsection
7(D)(iii) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection 7(D)(iv) above, and the
amount of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, which is receivable by the Corporation upon the
exercise, conversion or exchange thereof shall be determined in the same manner
provided in subsections 7(D)(i) and 7(D)(ii) above with respect to the
consideration received by the Corporation in case of the issuance of additional
shares of Common Stock; provided, however, that for purposes of subsection
7(D)(ii), if such obligations or shares of stock so convertible or exchangeable
are issued in payment or
Page 10 of Thirteen
<PAGE>
satisfaction of any distribution upon any stock of the Corporation other than
Common Stock, the amount of the "consideration actually received" by the
Corporation upon the original issuance of such obligations or shares of stock
so convertible or exchangeable shall be deemed to be the value of such
obligations or shares of stock as of the date of the adoption of the
resolution declaring such distribution, as determined (in good faith) by the
Board at or as of that date. Upon the expiration of any rights or options
referred to in subsection 7(D)(iii), or the termination of any right of
conversion or exchange referred to in subsection 7(D)(iv), or any change in
the number of shares of Common Stock deliverable upon exercise of such
options or rights or upon conversion or exchange of such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred Stock
then in effect shall forthwith be readjusted to such Conversion Price as
would have been in effect had the adjustments made upon the issuance of such
options, rights or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actully
delivered or to be delivered upon the exercise of such rights or options or
upon the conversion or exchange of such securities.
(vi) In the event the Corporation shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons or options or rights not referred to in subsection
7(D)(iii), then, in each such case, the holders of the Series A Preferred Stock
shall be entitled to the distributions at the rate provided for in subsection
(2) above before any distribution shall be made to the holders of the
Corporation's Common Stock, and no adjustment to the Conversion Price provided
for in this subsection 7 shall be applicable.
(vii) In the event the Corporation shall issue another series of
Preferred Stock on more than one date, the Conversion Price of the Series A
Preferred Stock shall be adjusted only once for the issuance of such other
series of Preferred Stock, such adjustment to occur upon the final closing of
the issuance thereof, provided that all such issuances occur during a period of
not more than 120 days.
(viii) The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but shall at
all times in good faith assist in the carrying out of all the provisions of this
subsection 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment of any kind.
(ix) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Series A Preferred Stock pursuant to this
subsection 7,
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<PAGE>
the Corporation shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of each Series
so affected a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall furnish or cause to be furnished to each such
holder a like certificate setting forth (x) such adjustment or readjustment,
(y) the Conversion Price in effect, and (z) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such holder's shares.
8. Status of Converted or Redeemed Stock.
In case any shares shall be converted pursuant to subsection 6 or
redeemed pursuant to subsection 3 hereof or are otherwise acquired by the
Corporation, the shares so converted or redeemed shall resume the status of
authorized but unissued shares of Preferred Stock.
9. Protective Provisions.
So long as at least 1,000 shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided under applicable law, of the
holders of a majority, of the total number of shares of Series A Preferred Stock
outstanding, voting as one class, (i) amend, repeal, alter or change any of the
rights, preferences or privileges of the Series A Preferred Stock; (ii) amend,
repeal, alter or change the Amended and Restated Articles of Incorporation or
Amended and Restated Bylaws of the Corporation; (iii) create (by
reclassification of an existing class or series, or otherwise) any new class or
series of shares of Preferred Stock senior to or on a parity with the Series A
Preferred Stock as to voting rights, dividends, redemption or a distribution of
assets of the Corporation in liquidation; (iv) increase or decrease the number
of authorized shares of Series A Preferred Stock; (v) declare or pay any
dividend on any other class or series of stock of the Corporation; (vi)
purchase, redeem, or otherwise acquire (or pay into or set aside for a sinking
fund for such purpose), or direct or permit any subsidiary of the Corporation to
purchase or otherwise acquire, any of the Common Stock; provided, however, that
this restriction shall not apply to the repurchase of shares of Common Stock
from employees, directors or consultants pursuant to agreements under which the
Corporation has the option to repurchase such shares upon the occurrence of
certain events, such as the termination of employment; (vii) incur any debt;
(viii) sell, lease, convey, exchange, transfer or otherwise dispose of all or
substantially all of its assets; (ix) agree to the sale of the Company to
another person or entity, or enter into any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is transferred; (x) merge or consolidate with or into any other entity;
(xi) except as provided in Section 5(B) ncrease or decrease the number of
authorized directors of the Corporation which are permitted or which are fixed
(through board resolution or otherwise); or (xii) issue any equity securities,
or options or warrants to purchase any equity securities of the Corporation
where the
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<PAGE>
Company contractually covenants to provide the investors with rights that are
in addition to those shared by all holders of Common Stock
We declare under penalty of perjury under the laws of the State of Delaware
that the matters set forth in the foregoing certificate are true and correct of
our own knowledge. Executed at Draper, Utah, effective on March 10, 1999.
_____________________________________________
STEVEN L. FLINT, President
_____________________________________________
BRUCE H. HAGLUND, Secretary
Page 13 of Thirteen
<PAGE>
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Amendment dated January 11, 1999, amends the Loan and Security
Agreement ("Agreement"), dated as of October 15, 1997, by and between
Renaissance Golf Products, Inc., a Delaware corporation ("RGPI"), and John B.
Hewlett, an individual, jointly and severally (collectively referred to as the
"Borrower"), and AKA Charitable Remainder Unit Trust No. 1 ("Lender").
Borrower and Lender hereby agree to the addition of the following terms to
the Agreement:
6. NEGATIVE COVENANTS.
6.9 ADDITIONAL RGPI ACTIONS REQUIRING LENDER'S APPROVAL. RGPI shall
obtain the prior written approval of Lender, which approval can be granted or
refused in the sole discretion of Lender, before acting to:
-issue any securities other than as provided herein and in Lender's
Subscription Agreement for shares of Class A preferred stock;
-amend its Certificate of Organization or Bylaws;
-merge, consolidate, or sell its business assets other than in the
ordinary course of business;
-liquidate, dissolve, re-capitalize, or reorganize;
-pay any dividends other than those specified in Lender's Subscription
Agreement for shares of Class A preferred stock;
-acquire any business;
-redeem any securities;
-enter into any new loan agreement for more than $250,000;
-enter into any transactions with insiders other than in the ordinary
course of business;
-grant any compensation to officers other than in the ordinary course
of business; or
-make any fundamental changes to current business policies.
Borrower's violation of this provision shall constitute a material breach
of the Agreement and Lender shall have the right to terminate the Agreement upon
30 days notice to Borrowers. Borrowers shall have the right to cure the breach
during the notice period. In the event Borrowers fail to cure the default
within the notice period, the current loan principal and accumulated interest
shall become immediately due and payable.
7. SECURITY AGREEMENT.
7.1.3 Further grant of the Security Interest to include all shares
of common stock and options to acquire common stock held by John Hewlett,
Granite Hollow Insurance Agency, and Pine Valley Ltd.
9. EVENTS OF DEFAULT.
9.5 ADDITIONAL PAYMENTS UPON DEFAULT. Notwithstanding any other
provision of this Agreement, upon the occurrence of any event, action or
inaction by Borrower, or in the event any action or inaction is threatened which
Lender reasonably believes will materially affect the value of the Collateral,
Lender may take such legal actions as it deems reasonably necessary under the
circumstances to protect the Collateral, including but not limited to, seeking
injunctive relief and the appointment of a receiver, irrespective of whether an
Event of Default or Potential Event of Default has occurred
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<PAGE>
under this Agreement. In the event Lender determines to take action under
this Section 9.5, Lender shall provide Borrower with advance notice of any
such action.
9.6 WAIVER OF DEFAULT. Lender agrees to waive any Borrower default under
the Agreement which has occurred up to the date of this Amendment provided
Borrower comes into complete compliance with the terms and conditions of the
Agreement on or before April 1, 1999. The date within which Borrower must come
into complete compliance may be extended from April 1, 1999 for up to three
additional months to June 30, 1999 provided for each additional month, or any
part thereof, of continued non-compliance after April 1, 1999, Borrower grants
to Lender stock options to purchase 100,000 shares of Borrower's common stock at
the closing price on the first day of the month of such non-compliance as
reported on the OTC:BB.
In addition to the specific amendments to the Agreement set forth above,
Borrower and Lender further agree as follows:
A1. INTEREST PAYMENTS AND OPTION GRANTS
A1.1 PAYMENT OF INTEREST. Lender hereby agrees to accept stock in lieu of
cash for interest payments due as follows:
A1.1.1 For the time period of August 1998 through December 31,
1998; and
A1.1.2 For the time period of January 1999 through June 30, 1999,
to be granted in advance based upon the parties' best estimates of the total
interest payments which will become due and payable through the time period
indicated.
A1.1.3 For the time period after June 30, 1999, Borrower shall make
cash payments for interest due.
A1.2 CALCULATION OF SHARES. The number of shares granted to pay the
interest due shall be calculated by dividing the total interest due by the
average daily closing price as reported on the OTC:BB for the 10 trading days
immediately preceding the date of this Amendment.
A1.3 ADDITIONAL GRANT OF OPTIONS. As further consideration of Lender
accepting shares of common stock in lieu of interest payments, Borrower shall
grant to Lender an option to purchase an additional share of common stock for
every share received as payment for interest ("Interest Option").
A1.3.1 The grant of Interest Options shall be made at the such time
as this Amendment is executed by all parties.
A1.3.2 The Interest Options shall have an expiration date 10 years
from the date of grant and shall be exercisable at the average daily closing
price as reported on the OTC:BB for the 10 trading days immediately preceding
the date of this Amendment.
A1.3.3 At the end of the period for which Lender agrees to accept
shares of common stock in lieu of interest, the number of estimated shares
granted and accompanying Interest Options shall be adjusted to reflect the
actual amount of accumulated interest; i.e., if Borrower over estimated the
interest, Lender agrees to forfeit the excess shares and Interest Options
granted, if Borrower under estimated, Borrower agrees to grant additional shares
and Interest Options to Lender.
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<PAGE>
A2. WARRANTS AND STOCK REGISTRATION
In consideration of Lender agreeing to provide Borrower with additional
time to come into complete compliance under the Agreement, Borrower agrees to
the following:
A2.1 EXTENSION OF WARRANT EXERCISE PERIOD. Borrower agrees to extend the
time within which Lender has to exercise 600,000 warrants previously granted to
Lender in conjunction with the Agreement for five additional years.
A2.2 ADDITIONAL WARRANT GRANT. Borrower agrees to grant Lender a warrant
to purchase an additional 600,000 shares of common stock at any time within 10
years of the date of grant at a price equal to the average daily closing price
as reported on the OTC:BB for the 10 trading days immediately preceding the date
of this Amendment.
A2.3 STOCK REGISTRATION. Borrower further agrees to file initial
registration documents with the Securities and Exchange Commission or before May
31, 1999 to register all of Lender's; (1) shares issued to date, (2) shares
granted in lieu of interest, (3) shares into which any Preferred Shares may be
converted which Lender will be purchasing in conjunction with this Amendment,
(4) shares to be issued upon Lender's exercise of any or all of the 1,000,000
options referenced in this Section A2, and (5) shares to be issued upon Lender's
exercise of any warrants to be granted in conjunction with this Amendment or
Lenders purchase of Preferred Shares.
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
executed aas of the day and year first written at the head of this Agreement.
"Borrower" RENAISSANCE GOLF PRODUCTS, INC.
a Delaware Corporation
By:
------------------------------
Steven L. Flint,
Chief Executive Officer
ATTEST:
- --------------------------------------
Edward B. Paulsen, Assistant Secretary
"Borrower"
-----------------------------------
JOHN B. HEWLETT
"Lender" AKA CHARITABLE REMAINDER TRUST
No. 1
By:
------------------------------
Ralph Rasmussen
Trustee
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<PAGE>
THE SHARES OF PREFERRED STOCK BEING PURCHASED BY YOU FROM RENAISSANCE GOLF
PRODUCTS, INC. THROUGH THIS SUBSCRIPTION AGREEMENT, AND THE WARRANTS AND SHARES
OF COMMON STOCK INTO WHICH THE PREFERRED STOCK MAY BE CONVERTED AND WHICH MAY BE
GRANTED UPON EXERCISE OF THE WARRANTS, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN
RELIANCE UPON CERTAIN FEDERAL AND STATE LAW EXEMPTIONS FROM REGISTRATION. YOU
MAY ACQUIRE THE SHARES FOR INVESTMENT PURPOSES ONLY AND NOT FOR REDISTRIBUTION
OR RESALE, AND YOU MAY NOT SELL, MORTGAGE, PLEDGE, HYPOTHECATE OR OTHERWISE
TRANSFER OR OFFER TO TRANSFER THE SHARES UNLESS AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES HAS BEEN FILED UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO OUR BOARD OF DIRECTORS HAS BEEN OBTAINED THAT
ANY SUCH TRANSACTION SHALL NOT VIOLATE ANY FEDERAL OR STATE SECURITIES LAWS.
SUBSCRIPTION AGREEMENT TO PURCHASE SHARES OF
RENAISSANCE GOLF PRODUCTS, INC.
SERIES A PREFERRED STOCK
1. PURCHASE. AKA Charitable Remainder Unitrust No. 1, through its
Trustee, Ralph W. Rasmussen, (collectively "You"), is hereby irrevocably
agreeing to buy a total of 50,000 shares of Series A Convertible Preferred Stock
(referred to as the "Shares") of RENAISSANCE GOLF PRODUCTS, INC., a Delaware
corporation ("Us" or "We"), from Us. The Shares also have a warrant attached to
purchase 1,000,000 shares of common stock at $1.00 per share.
2. PURCHASE PRICE. The purchase price for the Shares you are buying
totals $1,000,000.00 or $20.00 per Share, which is payable directly to Us.
3. REPRESENTATIONS MADE BY US. We represent and warrant that We have
legal and valid title to the Shares, that the Shares are being transferred to
you free and clear of any liens and encumbrances, and that the transfer to you
will not violate the terms of any agreement, pledge, or mortgage.
4. REPRESENTATIONS MADE BY YOU. By signing this Agreement, You
represent and warrant all of the following items:
a. You are an "accredited investor" as defined by federal
securities laws.
b. You have a pre-existing personal or business relationship
with an officer or director of Company or You have sufficient business or
financial experience to protect Your own interests in connection with the
purchase of the Shares;
c. You are acquiring the Shares for long term investment only
and for Your own account and not with any present intent to sell or distribute
the Shares to others;
d. You are capable of bearing the economic risk of this
investment, including the possible total loss of the purchase price of the
Shares;
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<PAGE>
e. You understand that the Shares and common stock into which
the Shares may be converted and which may be issued upon exercise of the warrant
HAVE NOT been qualified under Delaware securities laws or any other applicable
state securities laws and that the Shares HAVE NOT been registered under the
Securities Act of 1933 and are offered and sold to You without being qualified
or registered based upon federal and state exemptions to registration;
f. You understand that We are relying upon Your representations
made in this Agreement to sell You the Shares;
g. You understand You must hold the Shares indefinitely, and
You may not transfer the Shares unless You obtain an opinion of counsel
satisfactory to Our Board of Directors stating that such offer or transfer will
not violate any federal or state securities laws, or the Shares are registered;
h. The information You are providing herein is true and correct
as of the date of this Agreement;
i. You have been furnished with all securities filings, pro
forma projections summarizing potential operating results, or any other
documents that You deem material in making Your investment decision, and You
have been afforded the opportunity to make inquiries of and have received
answers from Our management, or any person acting on Our behalf concerning Our
business;
j. You have substantial means of providing for Your current
needs and personal contingencies and have no need for liquidity in this
investment;
k . You have determined that the Shares are a suitable
investment for You and that You can bear a complete loss of Your purchase price
paid for the Shares;
l. You have not been furnished any offering literature and have
not learned of this opportunity to purchase the Shares through any general
advertising or other literature;
m. You are not relying on us, Our Board of Directors, or Our
counsel with respect to the suitability of this investment for You;
n. You represent, warrant, and agree that You will not sell or
otherwise transfer the Shares without registration under the Act or an exemption
therefrom;
o. If You represent a corporation, partnership, trust or other
entity, You represent it is authorized and qualified to purchase the Shares and
that You are duly authorized to sign this Agreement on behalf of such entity;
p. The foregoing representations, warranties and agreements
made by You shall survive the sale and issuance of the Shares to You;
q. You acknowledge that the Shares You are purchasing are
"restricted shares" as defined by Federal securities laws and that the
certificate evidencing the Shares shall bear a restrictive legend reading
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
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<PAGE>
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION
FORM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO OUR SATISFACTION; and
r. YOU ACKNOWLEDGE THAT YOU (i) HAVE BEEN ADVISED BY US THAT AN
INVESTMENT IN THE SHARES IS HIGHLY SPECULATIVE; (ii) MAY LOSE YOUR ENTIRE
INVESTMENT; (iii) HAVE THE FINANCIAL ABILITY TO LOSE YOUR ENTIRE INVESTMENT;
(iv) HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT; AND (v) HAVE READ AND
CONSIDERED THE RISKS SET FORTH IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION BEFORE DETERMINING THAT AN INVESTMENT IN THE SHARES IS AN APPROPRIATE
INVESTMENT FOR YOU.
5. SHARE CHARACTERISTICS AND RIGHTS. The Shares have the following
characteristics and rights as determined by Our Board of Directors:
a. We will pay You a dividend of 5% to accrue and be paid
annually on the Shares during 1999, which will be paid in Our Common Stock
valued at the lesser of $1.00 and the average daily closing price as reported on
the OTC:BB for the first 20 trading days after the end of the 1999 calendar
year. We will pay the 5% dividend on or before January 31, 2000.
b. We will pay You a dividend of 6% on the Shares during 2000
and beyond, which will be paid in Our Common Stock valued at the lesser of $1.00
and the average daily closing price as reported on the OTC:BB for the first 20
trading days after the end of the calendar year for which interest has accrued
or in cash as determined in Your sole discretion. We will pay the 6% dividend
on or before January 31, for the prior year.
c. Our payment of dividends on the Shares does not require the
payment of dividends on Our common stock, and no dividends on Our common stock
will be paid without a vote of approval from Class A preferred stockholders
holding a majority of the Class A preferred stock issued.
d. All or any portion of the Shares are convertible by You into
shares of Our common stock at any time on a one-to-twenty basis upon 30 days
written notice to us.
e. All of the Shares have voting rights equal to 20 votes per
Share to be voted with the common shares as a single class. In the event of Our
default under the terms of this Subscription Agreement or the Amended Loan and
Security Agreement, the voting rights of the Shares shall be amended to change
such rights from a one-to-twenty basis to a one-to-two hundred basis to be
effective at the date of Our default.
f. The Shares have liquidation rights senior to the rights of
all other classes of Our stock. If at any time We liquidate, merge,
consolidate, sell 50% or more of Our assets, or transfer 50% or more of the
voting power held by all stockholders, You shall be entitled to receive the
price paid per Share plus any accrued and unpaid dividends before any
distribution to other stockholders. Further, the Shares are participating
securities such that, following the payment in full of the liquidation
preference, all of Our remaining assets shall be distributed on a prorata basis
to You, as if You had converted all of the Shares into common stock on a
one-to-twenty basis, along with all other stockholders; or in the event of
default resulting in Your ownership on a one-to-two hundred basis, on a
one-to-two hundred basis.
g. The Shares are antidilutive in the event of any stock split,
stock dividend, dividend of other securities or assets, reclassification,
reorganization, exchange, substitution, merger, consolidation, sale of assets,
re-capitalization, or similar events. Upon the occurrence of any of the events
listed, Your Share holdings will be adjusted accordingly. The Shares shall be
subject to dilution for the first $5,000,000.00 raised by Us after Your
investment in the Shares; however, for any capital raised beyond $5,000,000.00,
Your Shares' conversion ratio
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<PAGE>
will be adjusted if We issue such capital stock below the equivalent of $1.00
per share of common stock to the price at which such capital is issued.
h. Only You, John B. Hewlett, and Steven L Flint shall have the
right to buy Class A preferred shares. All outstanding balances due John B.
Hewlett from Us for promissory notes outstanding, including interest, and any
and all reimbursements for expenses or costs incurred by Mr. Hewlett on Our
behalf, shall be converted by Mr. Hewlett as of the date of this Agreement into
Shares within 15 days of the execution of this Agreement. Mr. Flint shall have
until March 31, 1999 to purchase Shares at $1.00 per share if so desired.
6. YOUR RIGHTS. As a holder of Our Shares, You have the following
rights:
a. At any time after January 31, 2001, You may redeem all or
any portion of Your Shares at the purchase price, plus accrued and unpaid
dividends, by providing Us with 60 days written notice of Your desire to redeem
the Shares. Upon such redemption, one half of the redemption price shall be
paid 60 days after receipt of notice to redeem, and the balance 60 days
thereafter.
b. In the event We do not or are not able to timely redeem the
Shares upon Your written request, the conversion right shall be changed from a
one-to-twenty basis to a one-to-two hundred basis to be effective at the date We
fail to timely redeem Your Shares.
c. So long as You hold at least 10,000 Shares, You, along with
any other Series A preferred stockholders, have the right to select one
representative, by a majority vote of the outstanding shares of Series A
preferred stock, to be presented to the Stockholders for election to Our Board
of Directors.
d. So long as You hold at least 10,000 Shares, You, along with
any other Series A preferred stockholders, have the right to approve or
disapprove, by a majority vote of the outstanding shares of Series A preferred
stock, the issuance of securities with rights equal or senior to the Series A
stock.
7. WARRANTS. In addition to the Shares, You will also receive a
warrant to purchase 1,000,000 shares of Our common stock at the purchase price
of $1.00 per share. You can exercise all or any portion of the warrant any time
after issuance for up to 10 years. The Warrant Agreement attached as Exhibit
"A" sets for the full terms and conditions of the warrant granted to you.
8. ACCEPTANCE. Upon Our acceptance of this Agreement, We will issue
Renaissance Shares in Your name.
9. COUNTERPARTS. Both of us may sign separate signature pages of this
Agreement which pages shall be viewed as a part of the Agreement and be binding
upon each party.
10. ASSIGNABILITY. This Agreement is not transferable or assignable by
You to anyone else except as provided within the Agreement.
11. CHOICE OF LAW AND FORUM. This Agreement shall be governed by the
laws of the State of Utah and any claims, litigation, or arbitration asserted or
commenced between us regarding any aspect of this Agreement or related in any
way to the transfer of the Shares shall be brought within the State of Utah in
Salt Lake County which shall have the exclusive jurisdiction of such matters.
The prevailing party in any dispute shall be entitled to recover costs and
reasonable attorneys fees as determined by the trier of fact.
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<PAGE>
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between us with respect to the purchase of the
Shares and no other agreements, understandings, restrictions, representations,
or warranties between us other than those stated in this Agreement shall govern
Your purchase of the Shares.
13. AGREEMENT. PLEASE NOTE: BY SIGNING THIS DOCUMENT YOU ARE ENTERING
INTO A SUBSCRIPTION AGREEMENT, AGREEING TO INVEST MONEY IN RENAISSANCE GOLF
PRODUCTS, INC., AND EXPLICITLY AUTHORIZE US TO DEPOSIT THE SUBSCRIPTION CHECK
INTO OUR BANK ACCOUNT FOR OUR IMMEDIATE USE AS WE DETERMINE APPROPRIATE.
14. PURCHASER INFORMATION.
Name (for Stock Certificate):_________________________________________________
Street Address:_______________________________________________________________
City and State:_______________________________________________________________
Telephone #:__________________________________________________________________
Social Security # or Tax ID #:________________________________________________
NOW THEREFORE, I (we) agree to all of the foregoing and agree to purchase
the Shares and contribute money as stated in this Subscription Agreement. (Each
party whose name will appear on the Stockholder Register must sign here.)
SIGNATURES
Dated:____________________________ Dated:_________________________________
RENAISSANCE GOLF PRODUCTS, INC. AKA CHARITABLE REMAINDER UNITRUST NO. 1
__________________________________ _______________________________________
Steven L. Flint, Ralph W. Rasmussen,
Chief Executive Officer Trustee
Page 5 of Five
<PAGE>
THE WARRANTS AND THE SHARES OF COMMON STOCK REFERRED TO HEREIN HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE WARRANTS MAY BE
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH WARRANTS UNDER THE SECURITIES ACT OF 1933 AND THE REGULATIONS
PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM), AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT ANY SUCH TRANSACTION SHALL NOT VIOLATE ANY
FEDERAL OR STATE SECURITIES LAWS, OR THE WRITTEN CONSENT OF THE COMPANY.
WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
1,637,669 WARRANTS @ $0.345 PER SHARE
RENAISSANCE GOLF PRODUCTS, INC.
A DELAWARE CORPORATION
Initial Issuance on January 11, 1999
Void after 5:00 p.m. Utah Time, January 11, 2009
This certifies that for value received AKA Charitable Remainder Unitrust
#1, or registered assigns (the "Registered Holder"), is the owner of 1,637,669
Common Stock Purchase Warrants (the "Warrants") specified above issued in
accordance with that certain Amendment to Loan and Security Agreement dated
March 9, 1999 by and between RENAISSANCE GOLF PRODUCTS, INC., a Delaware
corporation (the "Company") and AKA Charitable Remainder Unitrust #1 (the
"Warrant Agreement"). Each Warrant entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in the Warrant Agreement, one
fully paid and nonassessable share of Common Stock, no par value, of the
Company, at any time prior to 5:00 P.M., Utah time, on January 11, 2009 (the
"Expiration Date"), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the Company's office, or its successor or agent (the "Warrant Agent")
accompanied by payment of $0.345 per share (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or certified
check made payable to the Company at 12187 South Business Park Drive, Suite 100,
Draper, Utah, or its current principal business address, or otherwise in
accordance with the payment provisions of the Warrant Agreement. At the option
of the Registered Holder, the Warrants may be exercised by surrender of this
Warrant Certificate for the Warrant Value (as defined in the Warrant Agreement).
The Company will act as Warrant Agent until further notice to the Registered
Holder.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
If the Expiration Date shall in the State of Utah be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M., Utah time, the next following day which in the State of Utah is not a
holiday or a day on which banks are authorized to close.
RENAISSANCE GOLF PRODUCTS, INC.
12187 South Business Park Drive, Suite 10
Draper, Utah 84020
1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel the Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
This Warrant shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Warrant Agreement.
The Company has agreed to register the shares issuable upon exercise of the
Warrants under certain conditions as set forth in the Warrant Agreement.
The Company agrees at all times to reserve or hold available a sufficient
number of Common Shares to cover the number of shares issuable upon the exercise
of this and all other Warrants or like tenor then outstanding.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive any notice of any
proceedings of the Company. No dividends shall be payable or accrue in respect
of this Warrant or the interest represented hereby or the shares purchasable
hereunder until or unless, and except to the extent that, this Warrant shall be
exercised.
Except as otherwise above provided, this Warrant and all rights hereunder
are transferable by the Registered Holder hereof in person or by duly authorized
attorney on the books of the Company upon surrender of this Warrant, properly
endorsed to the Company, only after approval by the Board of Directors of the
Company.
The Company may deem and treat the registered owner of this Warrant at any
time as the absolute owner hereof for all purposes and shall not be affected by
any notice to the contrary.
If at any time or from time to time the Company shall declare a stock
dividend or, by subdivision, consolidation, or reclassification of shares,
change as a whole the outstanding Common Shares into a different number of a
class of shares, the number and class of shares so changed shall, for the
purposes of this Warrant and the terms and conditions hereof, replace the shares
outstanding immediately prior to such change, and the Warrant purchase price in
effect, and the number of shares purchasable under this Warrant, immediately
prior to the date upon which such change shall become effective, shall be
proportionately adjusted. Irrespective of any adjustment or change in the
Warrant purchase price or the number of Common Shares actually purchasable under
this or any other Warrant of like tenor, the Warrants theretofore and thereafter
issued may continue to express the Warrant purchase price per share and the
number of shares purchasable thereunder as the Warrant purchase price per share
and the number of shares purchasable were expressed upon the Warrants when
initially issued.
Upon the happening of any event requiring an adjustment of the Warrant
purchase price hereunder, the Company shall forthwith give written notice
thereof to the Registered Holder stating the adjusted Warrant purchase price and
the adjusted number of Common Shares purchasable upon the exercise
2
<PAGE>
hereof resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based,
the Board of Directors of the Company shall determine the computation made
hereunder. In case any voluntary or involuntary dissolution, liquidation, or
winding up of the Company shall at any time be proposed, the Company shall
give at least 20 days' prior written notice thereof to the Registered Holder
stating the date on which such event is to take place and the date (which
shall be at least 20 days after the giving of such notice) as of which the
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such dissolution,
liquidation, or winding up (on which date, in the event such dissolution,
liquidation, or winding up shall actually take place, this Warrant and all
rights with respect hereto shall terminate). Notices pursuant to this
paragraph shall be given by first class mail, postage prepaid, addressed to
the registered holder of this Warrant at the address of such holder appearing
in the records of the Company.
For the purposes of the foregoing paragraphs, the term "Common Shares"
shall include the aggregate number of shares that the Company, by its Articles
of Incorporation, as from time to time amended, is authorized to issue, which
are not limited to a fixed sum or percentage of the par value in respect of the
rights of the holders thereof to participate in dividends or in distribution of
assets upon the voluntary or involuntary liquidation, dissolution, or winding up
of the Company.
Any conflict in the terms of this Warrant Certificate and the terms of the
Warrant Agreement shall be resolved with reference to the terms of the Warrant
Agreement. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its duly authorized officer and its corporate seal to be
imprinted hereon on January 11, 1999.
RENAISSANCE GOLF PRODUCTS, INC.
By: /s/ Steven L. Flint
-------------------------------------
Steven L. Flint,
President and Chief Executive Officer
By: /s/ Edward B. Paulsen
-------------------------------------
Edward B. Paulsen,
Assistant Secretary
CORPORATE SEAL
3
<PAGE>
ASSIGNMENT
RENAISSANCE GOLF PRODUCTS, INC.
(To be executed by the Registered Holder to effect a transfer of the
Warrant. No transfer or assignment shall be valid unless countersigned by the
Secretary of RENAISSANCE GOLF PRODUCTS, INC., which signature shall evidence
approval by the Board of Directors.)
For value received ______________________________________ hereby sells,
assigns, and transfers unto _______________________________________________
this Warrant and the rights represented thereby to purchase Common Shares in
accordance with the terms and conditions thereof, and does hereby irrevocably
constitute and appoint the duly elected and acting Secretary of RENAISSANCE GOLF
PRODUCTS, INC. as attorney-in-fact to transfer this Warrant on the books of
RENAISSANCE GOLF PRODUCTS, INC., with full power of substitution.
Dated: ______________________ Signed: ____________________________
, Registered Holder
Countersigned:
RENAISSANCE GOLF PRODUCTS, INC.
By: ___________________________
Its Secretary
4
<PAGE>
SUBSCRIPTION FORM
RENAISSANCE GOLF PRODUCTS, INC.
(To be Executed by the Registered Holder in Order to Exercise Warrants)
The undersigned Registered Holder hereby irrevocably elects to exercise
_____________________ Warrants represented by the attached Warrant
Certificate, and to purchase the securities issuable upon the exercise of
such Warrants, tenders $ ___________ as payment therefor and requests that
certificates for such securities shall be issued in the name of
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER]
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[Please print or type name and address]
and be delivered to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ________________ ____________________________________
Signature of Registered Holder
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
ACCEPTED:
RENAISSANCE GOLF PRODUCTS, INC.
By: _______________________________
, Authorized Officer
5
<PAGE>
THE WARRANTS AND THE SHARES OF COMMON STOCK REFERRED TO HEREIN HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE WARRANTS MAY BE
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH WARRANTS UNDER THE SECURITIES ACT OF 1933 AND THE REGULATIONS
PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM), AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT ANY SUCH TRANSACTION SHALL NOT VIOLATE ANY
FEDERAL OR STATE SECURITIES LAWS, OR THE WRITTEN CONSENT OF THE COMPANY.
WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
600,000 WARRANTS @ $0.345 PER SHARE
RENAISSANCE GOLF PRODUCTS, INC.
A DELAWARE CORPORATION
Initial Issuance on January 11, 1999
Void after 5:00 p.m. Utah Time, January 11, 2009
This certifies that for value received AKA Charitable Remainder Unitrust
#1, or registered assigns (the "Registered Holder"), is the owner of 600,000
Common Stock Purchase Warrants (the "Warrants") specified above issued in
accordance with that certain Amendment to Loan and Security Agreement dated
March 9, 1999 by and between RENAISSANCE GOLF PRODUCTS, INC., a Delaware
corporation (the "Company") and AKA Charitable Remainder Unitrust #1 (the
"Warrant Agreement"). Each Warrant entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in the Warrant Agreement, one
fully paid and nonassessable share of Common Stock, no par value, of the
Company, at any time prior to 5:00 P.M., Utah time, on January 11, 2009 (the
"Expiration Date"), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the Company's office, or its successor or agent (the "Warrant Agent")
accompanied by payment of $0.345 per share (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or certified
check made payable to the Company at 12187 South Business Park Drive, Suite 100,
Draper, Utah, or its current principal business address, or otherwise in
accordance with the payment provisions of the Warrant Agreement. At the option
of the Registered Holder, the Warrants may be exercised by surrender of this
Warrant Certificate for the Warrant Value (as defined in the Warrant Agreement).
The Company will act as Warrant Agent until further notice to the Registered
Holder.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
If the Expiration Date shall in the State of Utah be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M., Utah time, the next following day which in the State of Utah is not a
holiday or a day on which banks are authorized to close.
RENAISSANCE GOLF PRODUCTS, INC.
12187 South Business Park Drive, Suite 10
Draper, Utah 84020
1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel the Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
This Warrant shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Warrant Agreement.
The Company has agreed to register the shares issuable upon exercise of the
Warrants under certain conditions as set forth in the Warrant Agreement.
The Company agrees at all times to reserve or hold available a sufficient
number of Common Shares to cover the number of shares issuable upon the exercise
of this and all other Warrants or like tenor then outstanding.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive any notice of any
proceedings of the Company. No dividends shall be payable or accrue in respect
of this Warrant or the interest represented hereby or the shares purchasable
hereunder until or unless, and except to the extent that, this Warrant shall be
exercised.
Except as otherwise above provided, this Warrant and all rights hereunder
are transferable by the Registered Holder hereof in person or by duly authorized
attorney on the books of the Company upon surrender of this Warrant, properly
endorsed to the Company, only after approval by the Board of Directors of the
Company.
The Company may deem and treat the registered owner of this Warrant at any
time as the absolute owner hereof for all purposes and shall not be affected by
any notice to the contrary.
If at any time or from time to time the Company shall declare a stock
dividend or, by subdivision, consolidation, or reclassification of shares,
change as a whole the outstanding Common Shares into a different number of a
class of shares, the number and class of shares so changed shall, for the
purposes of this Warrant and the terms and conditions hereof, replace the shares
outstanding immediately prior to such change, and the Warrant purchase price in
effect, and the number of shares purchasable under this Warrant, immediately
prior to the date upon which such change shall become effective, shall be
proportionately adjusted. Irrespective of any adjustment or change in the
Warrant purchase price or the number of Common Shares actually purchasable under
this or any other Warrant of like tenor, the Warrants theretofore and thereafter
issued may continue to express the Warrant purchase price per share and the
number of shares purchasable thereunder as the Warrant purchase price per share
and the number of shares purchasable were expressed upon the Warrants when
initially issued.
Upon the happening of any event requiring an adjustment of the Warrant
purchase price hereunder, the Company shall forthwith give written notice
thereof to the Registered Holder stating the adjusted Warrant purchase price and
the adjusted number of Common Shares purchasable upon the exercise
2
<PAGE>
hereof resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based,
the Board of Directors of the Company shall determine the computation made
hereunder. In case any voluntary or involuntary dissolution, liquidation, or
winding up of the Company shall at any time be proposed, the Company shall
give at least 20 days' prior written notice thereof to the Registered Holder
stating the date on which such event is to take place and the date (which
shall be at least 20 days after the giving of such notice) as of which the
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such dissolution,
liquidation, or winding up (on which date, in the event such dissolution,
liquidation, or winding up shall actually take place, this Warrant and all
rights with respect hereto shall terminate). Notices pursuant to this
paragraph shall be given by first class mail, postage prepaid, addressed to
the registered holder of this Warrant at the address of such holder appearing
in the records of the Company.
For the purposes of the foregoing paragraphs, the term "Common Shares"
shall include the aggregate number of shares that the Company, by its Articles
of Incorporation, as from time to time amended, is authorized to issue, which
are not limited to a fixed sum or percentage of the par value in respect of the
rights of the holders thereof to participate in dividends or in distribution of
assets upon the voluntary or involuntary liquidation, dissolution, or winding up
of the Company.
Any conflict in the terms of this Warrant Certificate and the terms of the
Warrant Agreement shall be resolved with reference to the terms of the Warrant
Agreement. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its duly authorized officer and its corporate seal to be
imprinted hereon on January 11, 1999.
RENAISSANCE GOLF PRODUCTS, INC.
By:
---------------------------------------------
Steven L. Flint,
President and Chief Executive Officer
By:
---------------------------------------------
Edward B. Paulsen,
Assistant Secretary
CORPORATE SEAL
3
<PAGE>
ASSIGNMENT
RENAISSANCE GOLF PRODUCTS, INC.
(To be executed by the Registered Holder to effect a transfer of the
Warrant. No transfer or assignment shall be valid unless countersigned by the
Secretary of RENAISSANCE GOLF PRODUCTS, INC., which signature shall evidence
approval by the Board of Directors.)
For value received hereby sells,
assigns, and transfers unto
this Warrant and the rights represented thereby to purchase Common Shares in
accordance with the terms and conditions thereof, and does hereby irrevocably
constitute and appoint the duly elected and acting Secretary of RENAISSANCE GOLF
PRODUCTS, INC. as attorney-in-fact to transfer this Warrant on the books of
RENAISSANCE GOLF PRODUCTS, INC., with full power of substitution.
Dated: Signed:
---------------------- ------------------------------------
, Registered Holder
Countersigned:
RENAISSANCE GOLF PRODUCTS, INC.
By:
------------------------------
Its Secretary
4
<PAGE>
SUBSCRIPTION FORM
RENAISSANCE GOLF PRODUCTS, INC.
(To be Executed by the Registered Holder in Order to Exercise Warrants)
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by the attached Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Warrants,
tenders $ as payment therefor and requests that certificates for
such securities shall be issued in the name of
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER]
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[Please print or type name and address]
and be delivered to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:_______________ _________________________________________
Signature of Registered Holder
_________________________________________
_________________________________________
Address
_________________________________________
Taxpayer Identification Number
_________________________________________
Signature Guaranteed
ACCEPTED:
RENAISSANCE GOLF PRODUCTS, INC.
By:_________________________________
, Authorized Officer
5
<PAGE>
THE WARRANTS AND THE SHARES OF COMMON STOCK REFERRED TO HEREIN HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE WARRANTS MAY BE
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH WARRANTS UNDER THE SECURITIES ACT OF 1933 AND THE REGULATIONS
PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM), AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT ANY SUCH TRANSACTION SHALL NOT VIOLATE ANY
FEDERAL OR STATE SECURITIES LAWS, OR THE WRITTEN CONSENT OF THE COMPANY.
WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
1,000,000 WARRANTS @ $1.00 PER SHARE
RENAISSANCE GOLF PRODUCTS, INC.
A DELAWARE CORPORATION
Initial Issuance on March 10, 1999
Void after 5:00 p.m. Utah Time, March 10, 2009
This certifies that for value received AKA Charitable Remainder Unitrust
#1, or registered assigns (the "Registered Holder"), is the owner of 1,000,000
Common Stock Purchase Warrants (the "Warrants") specified above issued in
accordance with that certain Subscription Agreement to Purchase Series A
Convertible Preferred Stock dated March 9, 1999 by and between RENAISSANCE GOLF
PRODUCTS, INC., a Delaware corporation (the "Company") and AKA Charitable
Remainder Unitrust #1 (the "Warrant Agreement"). Each Warrant entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
the Warrant Agreement, one fully paid and nonassessable share of Common Stock,
no par value, of the Company, at any time prior to 5:00 P.M., Utah time, on
March 10, 2009 (the "Expiration Date"), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the Company's office, or its successor or agent (the "Warrant
Agent") accompanied by payment of $1.00 per share (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Company at 12187 South Business Park Drive,
Suite 100, Draper, Utah, or its current principal business address, or otherwise
in accordance with the payment provisions of the Warrant Agreement. At the
option of the Registered Holder, the Warrants may be exercised by surrender of
this Warrant Certificate for the Warrant Value (as defined in the Warrant
Agreement). The Company will act as Warrant Agent until further notice to the
Registered Holder.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
If the Expiration Date shall in the State of Utah be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M., Utah time, the next following day which in the State of Utah is not a
holiday or a day on which banks are authorized to close.
RENAISSANCE GOLF PRODUCTS, INC.
12187 South Business Park Drive, Suite 10
Draper, Utah 84020
1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel the Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
This Warrant shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Warrant Agreement.
The Company has agreed to register the shares issuable upon exercise of the
Warrants under certain conditions as set forth in the Warrant Agreement.
The Company agrees at all times to reserve or hold available a sufficient
number of Common Shares to cover the number of shares issuable upon the exercise
of this and all other Warrants or like tenor then outstanding.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive any notice of any
proceedings of the Company. No dividends shall be payable or accrue in respect
of this Warrant or the interest represented hereby or the shares purchasable
hereunder until or unless, and except to the extent that, this Warrant shall be
exercised.
Except as otherwise above provided, this Warrant and all rights hereunder
are transferable by the Registered Holder hereof in person or by duly authorized
attorney on the books of the Company upon surrender of this Warrant, properly
endorsed to the Company, only after approval by the Board of Directors of the
Company.
The Company may deem and treat the registered owner of this Warrant at any
time as the absolute owner hereof for all purposes and shall not be affected by
any notice to the contrary.
If at any time or from time to time the Company shall declare a stock
dividend or, by subdivision, consolidation, or reclassification of shares,
change as a whole the outstanding Common Shares into a different number of a
class of shares, the number and class of shares so changed shall, for the
purposes of this Warrant and the terms and conditions hereof, replace the shares
outstanding immediately prior to such change, and the Warrant purchase price in
effect, and the number of shares purchasable under this Warrant, immediately
prior to the date upon which such change shall become effective, shall be
proportionately adjusted. Irrespective of any adjustment or change in the
Warrant purchase price or the number of Common Shares actually purchasable under
this or any other Warrant of like tenor, the Warrants theretofore and thereafter
issued may continue to express the Warrant purchase price per share and the
number of shares purchasable thereunder as the Warrant purchase price per share
and the number of shares purchasable were expressed upon the Warrants when
initially issued.
Upon the happening of any event requiring an adjustment of the Warrant
purchase price hereunder, the Company shall forthwith give written notice
thereof to the Registered Holder stating the adjusted Warrant purchase price and
the adjusted number of Common Shares purchasable upon the exercise
2
<PAGE>
hereof resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based,
the Board of Directors of the Company shall determine the computation made
hereunder. In case any voluntary or involuntary dissolution, liquidation, or
winding up of the Company shall at any time be proposed, the Company shall
give at least 20 days' prior written notice thereof to the Registered Holder
stating the date on which such event is to take place and the date (which
shall be at least 20 days after the giving of such notice) as of which the
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such dissolution,
liquidation, or winding up (on which date, in the event such dissolution,
liquidation, or winding up shall actually take place, this Warrant and all
rights with respect hereto shall terminate). Notices pursuant to this
paragraph shall be given by first class mail, postage prepaid, addressed to
the registered holder of this Warrant at the address of such holder appearing
in the records of the Company.
For the purposes of the foregoing paragraphs, the term "Common Shares"
shall include the aggregate number of shares that the Company, by its Articles
of Incorporation, as from time to time amended, is authorized to issue, which
are not limited to a fixed sum or percentage of the par value in respect of the
rights of the holders thereof to participate in dividends or in distribution of
assets upon the voluntary or involuntary liquidation, dissolution, or winding up
of the Company.
Any conflict in the terms of this Warrant Certificate and the terms of the
Warrant Agreement shall be resolved with reference to the terms of the Warrant
Agreement. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its duly authorized officer and its corporate seal to be
imprinted hereon on March 10, 1999.
RENAISSANCE GOLF PRODUCTS, INC.
By: /s/ Steven L. Flint
----------------------------
Steven L. Flint,
Chief Executive Officer
By: /s/ Edward B. Paulsen
----------------------------
Edward B. Paulsen,
Assistant Secretary
CORPORATE SEAL
3
<PAGE>
ASSIGNMENT
RENAISSANCE GOLF PRODUCTS, INC.
(To be executed by the Registered Holder to effect a transfer of the
Warrant. No transfer or assignment shall be valid unless countersigned by the
Secretary of RENAISSANCE GOLF PRODUCTS, INC., which signature shall evidence
approval by the Board of Directors.)
For value received ______________________________________ hereby sells,
assigns, and transfers unto _______________________________________________
this Warrant and the rights represented thereby to purchase Common Shares in
accordance with the terms and conditions thereof, and does hereby irrevocably
constitute and appoint the duly elected and acting Secretary of RENAISSANCE GOLF
PRODUCTS, INC. as attorney-in-fact to transfer this Warrant on the books of
RENAISSANCE GOLF PRODUCTS, INC., with full power of substitution.
Dated: ______________________ Signed: ____________________________
, Registered Holder
Countersigned:
RENAISSANCE GOLF PRODUCTS, INC.
By: ___________________________
Its Secretary
4
<PAGE>
SUBSCRIPTION FORM
RENAISSANCE GOLF PRODUCTS, INC.
(To be Executed by the Registered Holder in Order to Exercise Warrants)
The undersigned Registered Holder hereby irrevocably elects to exercise
_____________________ Warrants represented by the attached Warrant
Certificate, and to purchase the securities issuable upon the exercise of
such Warrants, tenders $ ___________ as payment therefor and requests that
certificates for such securities shall be issued in the name of
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER]
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[Please print or type name and address]
and be delivered to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ________________ ____________________________________
Signature of Registered Holder
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
ACCEPTED:
RENAISSANCE GOLF PRODUCTS, INC.
By: _______________________________
, Authorized Officer
5
<PAGE>
AMENDMENT TO
WARRANT CERTIFICATES
FOR PURCHASE OF COMMON STOCK
200,000 WARRANTS @ $1.50 PER SHARE
100,000 WARRANTS @ $2.00 PER SHARE
100,000 WARRANTS @ $3.00 PER SHARE
100,000 WARRANTS @ $5.00 PER SHARE
RENAISSANCE GOLF PRODUCTS, INC.
A DELAWARE CORPORATION
Initial Issuance on October 29, 1997, and June 1, 1998
This certifies that for value received AKA Charitable Remainder Unitrust
#1, or registered assigns (the "Registered Holder"), which holds three separate
warrants to purchase an aggregate of 400,000 Common Stock Purchase Warrants;
200,000 Warrants exercisable at $1.50 per share, 100,000 Warrants exercisable at
$2.00 per share, 100,000 Warrants exercisable at $3.00 per share, and 100,000
Warrants exercisable at $5.00 per share (collectively the "Warrants"), shall
have five additional years, until December 31, 2007, within which to exercise
the Warrants. All remaining terms and conditions shall remain as set forth in
the three Warrant Agreements amended hereby.
IN WITNESS WHEREOF, the Company has caused this Amendment to Warrant
Certificates to be duly executed by its duly authorized officer and its
corporate seal to be imprinted hereon this 11th day of January 1999.
RENAISSANCE GOLF PRODUCTS, INC.
By: /s/ Steven L. Flint
---------------------------------------------
Steven L. Flint,
President and Chief Executive Officer
By: /s/ Edward B. Paulsen
---------------------------------------------
Edward B. Paulsen,
Assistant Secretary
CORPORATE SEAL
<PAGE>
ASSIGNMENT OF PROMISSORY NOTE
I, Tracy Jones as Trustee of the TRACY AND GLENDA JONES CHARITABLE
SUPPORT FOUNDATION, hereby assign all of my rights, title and interest in and to
that certain Promissory Notes dated May 7, 1997 for $225,000, which note is
attached hereto, to John B. Hewlett in exchange for the receipt of 227,325
representing the balance due on the Promissory Note plus accrued and unpaid
interest to date. I further waive any rights or claims under the note or rights
or claims related thereto, including but not limited to repayment rights, which
I have or may have against Renaissance Golf Products, Inc.
TRACY AND GLENDA JONES CHARITABLE SUPPORT
FOUNDATION
/s/ Tracy Jones
------------------------------------------------
Tracy Jones, Trustee
I, John B. Hewlett, as the assignee of the Promissory Note referenced
above, hereby agree to the extension of the due date on the Promissory Note from
June 30, 1998 to on or before June 30, 1999. All other terms and conditions
shall remain as stated in the Promissory Note.
/s/ John B. Hewlett
------------------------------------------------
John B. Hewlett
I, John B. Hewlett, on behalf of Renaissance Golf Products, Inc.,
hereby consent to the assignment of the Promissory Note and the extension of the
due date as set forth herein.
RENAISSANCE GOLF PRODUCTS, INC.
/s/ John B. Hewlett
------------------------------------------------
John B. Hewlett, Chairman of the Board
<PAGE>
PROMISSORY NOTE
$225,000 May 7, 1997
Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned, Renaissance Golf Products, Inc., a
Delaware corporation ("Payor"), promises to pay to TRACY AND GLENDA JONES
CHARITABLE SUPPORT FOUNDATION, or holder ("Payee"), the principal sum of Two
Hundred Twenty Five Thousand Dollars and No Cents ($225,000), together with
interest at an annual rate of twelve percent (12%). Interest shall be
payable monthly in arrears by the fifteenth of each month. The entire
principal balance and any unpaid, accrued interest shall be due and payable,
in full, on or before June 30, 1998.
This Promissory Note may be prepaid, in full or in part, at any time
without penalty. All sums payable to Payee hereunder shall be paid to Payee
in immediately available funds.
At the option of Payee, the indebtedness evidenced by this Promissory
Note shall immediately become due and payable, without notice or demand, upon
the occurrence of any of the following events of default:
(a) a failure to pay in accordance with the terms of this note,
strictly and literally, time being of the essence;
(b) dissolution, termination of existence, insolvency, business
failure, garnishment, or levy against property or rights of, or the
appointment of a receiver of or for any part of the property of, or an
assignment for the benefit of creditors by, or the initiation of any
proceedings under any bankruptcy or insolvency laws by or against, Payor.
Unless prohibited by law, Payor agrees to pay all costs of collection,
including reasonable attorneys' fees and legal expenses, incurred by Payee in
the event this Promissory Note is not paid in accordance with its terms.
Payor agrees that the holder hereof may change any terms of payment of this
Promissory Note, including extensions of time and renewals, and release any
security for, or any party to, this Promissory Note without notifying or
releasing any accommodation maker, endorser or guarantor from liability on
this Promissory Note. Presentment or other demand for payment, notice of
dishonor and protest are hereby waived by Payor and any endorser or guarantor.
Payor agrees that this Promissory Note may not be changed orally, but only by
an agreement in writing and signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought. No delay or omission
on the part of Payee in exercising any right hereunder shall operate as waiver
or relinquishment of such right or any other right hereunder. A waiver on one
occasion shall not be construed as a bar to the exercise of such right or
remedy on any future occasion, this Promissory Note shall be governed by the
substantive laws of the State of California.
IN WITNESS WHEREOF, Payor has executed this Promissory Note as of the
day first hereinabove written at Salt Lake City, Utah.
"Payor"
Renaissance Golf Products, Inc.
By: /s/ Kenneth W. Craig
-----------------------------------
Kenneth W. Craig, President
<PAGE>
PROMISSORY NOTE
$500,000.00 October 9, 1998
Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned, RENAISSANCE GOLF PRODUCTS,
INC., a Delaware corporation and JOHN B. HEWLETT ("Payor") promised to pay to
ALVIN W. EMERY, or holder ("Payee"), the principal sum of Five Hundred
Thousand Dollars and No Cents ($500,000.00), together with simple interest at
the rate of twelve percent (12%) per annum on the aggregate principal balance
outstanding until paid in full. This note shall be due on or before January
7, 1999. The Note shall be repaid from sale proceeds received from Target,
Oshman's, and Garts during the fourth quarter of 1998.
In the event of default under this Note, Payee shall be entitled to
collect a reasonable attorneys' fee from the Payor, as well as other costs,
charges, and expenses reasonably incurred, in curing any default or
attempting collection of the payment due on this Note, whether or not
litigation or any proceeding to enforce this Note is commenced.
This Note together with the loan fee and accumulated interest may
be prepaid in whole or in part at any time without penalty.
If any term or provision of this Note, or any portion of any such
term or provision, shall be held invalid or against public policy, or if the
application of the same to any person or circumstance is held invalid or
against public policy, then, the remainder of this Note (or the remainder of
such term or provision) and the application thereof to other persons or
circumstances shall not be affected thereby and shall remain valid and in
full force and effect to the fullest extent permitted by law.
This Note shall be governed by and construed solely in accordance
with the laws of the State of Utah.
IN WITNESS WHEREOF, Payor has executed this Promissory Note as of
the day first hereinabove written at Salt Lake City, Utah.
"PAYOR"
RENAISSANCE GOLF PRODUCTS, INC.
BY:
----------------------------------------
JOHN B. HEWLETT, CHAIRMAN OF THE BOARD
-------------------------------------------
JOHN B. HEWLETT
<PAGE>
<TABLE>
<CAPTION>
LIST OF SUBSIDIARIES
NAME STATE OF INCORP NAMES FOR BUSINESS
<S> <C> <C>
World Golf Corporation Utah World Golf Tour
RGPI, Inc. Utah N/A
Sports Marketing Group, Inc. Utah N/A
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Renaissance Golf Products, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (33-92586, 333-46047, 333-58791 and 333-67119) of our
report dated February 20, 1998, appearing in the Annual Report on Form 10-KSB of
Renaissance Golf Products, Inc. for the year ended December 31, 1998.
/s/ Corbin & Wertz
CORBIN & WERTZ
Irvine, California
April 14, 1999
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Renaissance Golf Products, Inc.
Draper, Utah
We hereby consent to the use of our audit report dated April 14, 1999 in this
Form 10KSB of Renaissance Golf Products, Inc. for the year ended December 31,
1998, which is part of this Form 10KSB and all references to our firm included
in this Form 10KSB.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET OF RENAISSANCE GOLF PRODUCTS INC. AND SUBSIDIARIES AS OF DECEMBER
31 1998 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 63,184
<SECURITIES> 0
<RECEIVABLES> 411,311<F1>
<ALLOWANCES> 0
<INVENTORY> 2,771,439<F2>
<CURRENT-ASSETS> 3,261,834
<PP&E> 465,413<F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,507,247
<CURRENT-LIABILITIES> 7,500,422
<BONDS> 0
0
3
<COMMON> 7,498
<OTHER-SE> (3,020,676)
<TOTAL-LIABILITY-AND-EQUITY> 4,507,247
<SALES> 6,987,509
<TOTAL-REVENUES> 6,987,509
<CGS> 6,194,129
<TOTAL-COSTS> 5,258,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 701,425
<INCOME-PRETAX> (5,166,707)
<INCOME-TAX> 900
<INCOME-CONTINUING> (5,167,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,167,607)
<EPS-PRIMARY> (1.95)
<EPS-DILUTED> (0.64)
<FN>
<F1>NET OF ALLOWANCES
<F2>INCLUDES $497,838 DEPOSITS MADE ON INVENTORY.
<F3>NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
