-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HAO7z0MOe3r77D+majd33Mw6tyrpnNQ2ROkC2fT/B8A3ms3b5sbZceKMXR6WKxjZ 0ewtBqiYkd9eSLx+wKD5wQ== 0000950152-00-002344.txt : 20000411 0000950152-00-002344.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950152-00-002344 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: S2 GOLF INC CENTRAL INDEX KEY: 0000782126 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 222388568 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14146 FILM NUMBER: 582523 BUSINESS ADDRESS: STREET 1: 18 GLORIA LN CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2012277783 MAIL ADDRESS: STREET 1: 18 GLORIA LANE STREET 2: 18 GLORIA LANE CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: GOLF TECHNOLOGY INC DATE OF NAME CHANGE: 19880804 10-K405 1 S2 GOLF INC. 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File December 31, 1999 Number O-14146 S2 GOLF INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) NEW JERSEY 22-2388568 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 18 GLORIA LANE FAIRFIELD, N.J. 07004 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (973) 227-7783 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [X] As of March 13, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $ 1,635,930. This calculation is based upon the closing price of the registrant's common stock on March 13, 2000. The number of shares of the registrant's Common Stock outstanding as of March 13, 2000 was 2,220,113. 1 2 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS S2 Golf, Inc. (the "Company" or "Square Two") was incorporated under the laws of the state of New Jersey in February 1982. The Company manufactures and markets a proprietary line of golf equipment, including golf clubs, golf bags, golf balls and accessories, throughout the United States. The Company markets these products under the tradename and trademark SQUARE TWO(R) and uses several additional trademarks including S2(R) and Posiflow(R), among others. The common stock of the Company (the "Common Stock") trades on the National Association of Securities Dealers Automated Quotation System (Nasdaq) under the trading symbol "GOLF." During 1999, the Company introduced two new lines of putters (Power Circle(TM) XL and Light and Easy(TM) XL), added steel shafted clubs to its Agree women's value line, added irons and drivers to the men's Relief line, added drivers to the women's Lady Rave line, and redesigned its Light and Easy(TM) and Power Circle(TM) lines. In 1999, the Company maintained and strengthened its position as manufacturer and seller of premium quality, high performance clubs for women golfers, which comprise between 58% and 62% of the Company's business, renewing its 19-year partnership with the Ladies Professional Golf Association ("LPGA"), entering into an endorsement agreement with Kathy Whitworth that took effect on January 1, 2000, and launching its first television advertisement, which is aimed exclusively at women. The Company's sponsorship of the Square Two/LPGA Custom Club Fitting Program provided a forum for design input from professional women golfers. Cosmetic changes to the Company's lines of women's clubs continued to include greater prominence for the distinctive LPGA logo, which all of Square Two's women's clubs carry. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS For financial information about business segments in which the Company operates, see Item 8, Financial Statements and Supplementary Data. (c) NARRATIVE DESCRIPTION OF BUSINESS Club Design The Company designs products for men and women of all ages and has two broad design approaches. One targets the steel shaft market, and the other targets the graphite shaft market. In recent years, the graphite shaft market has experienced tremendous growth, particularly among women. Graphite shafts are lighter than steel shafts and have greater design flexibility. The Company, recognizing that graphite has become the shaft of choice for the majority of women, has developed an extensive array of graphite shaft models. Products The Company currently markets the following full line of golf equipment for both men and women: The PCX II line features cavity back, oversize elliptical head design for irons with oversized metal woods. The woods feature Synchro Speed System 1 graphite shafts. The irons feature lightweight steel shafts and the Company's Totally Matched proprietary weighting and balancing system. PCX II clubs are available for men only. The Light and Easy(TM) line was redesigned in 1999 and is now called Light and Easy(TM) XL. It features the LPGA logo on both the irons and woods and is available in either lightweight steel or graphite shafts. The mid-profile, stainless steel, cavity-back 2 3 irons have dual copper inserts in the sole, which lower the center of gravity as well as expand the sweet spot. The perimeter weighted stainless steel woods are oversize and offset. The Power Circle(TM) line was redesigned in 1999 and is now called Power Circle(TM) XL. It is available in either lightweight steel or graphite shafts. The mid-profile, stainless steel, cavity-back irons have dual copper inserts in the sole, which lower the center of gravity as well as expand the sweet spot. The perimeter weighted stainless steel woods are oversize and offset. The RAVE graphite line features the Company's patented Posiflow weighting system in its irons. The oversize stainless steel metal woods have expanded sweet spots. Irons and woods feature ultra-light high modulus graphite shafts, which are matched to the player's swing speed. The RAVE graphite clubs are available in right and left-handed men's, ladies' and Lady Petite(R) models. In 1999, the Company also marketed the Power Circle(TM) and Light and Easy(TM) Titanium driver series, featuring heads made of 100% 6/4 Titanium. In 1999, the Company expanded its value line of women's clubs with the introduction of the Agree in steel shafts. Previously, the Agree was available only in graphite shafts. In 1999, the Company continued to market the ZCX-Ti line of Titanium-faced irons available in right hand only. These irons feature 100% Titanium inserts for enhanced feel and Posiflow weighting for fewer long iron fades and short iron pulls. In 1999, the Company marketed its Lady Ti line of Titanium-faced irons. Available in women's only, these irons feature 100% 6/4 Titanium inserts for maximum energy transfer and high modulus lightweight shafts for improved distance. In 1999, the Company continued to sell its Eight-Is-Enough line of clubs for junior golfers. These sets, which now feature the same XL heads as the Light and Easy(TM) XL and Power Circle(TM) XL lines, are available for both young men and young women, come in three different lengths and feature four irons, three woods and a putter. In 1999, the Company continued to sell its Relief iron as a complement to its popular Relief wood series. The driver, long, middle and short Relief clubs offer V-soles designed to be user-friendly in all playing conditions. In 1999, the Company continued to distribute its WTD or Women's Tour Design wedge system. Designed for women, these wedges feature polymer inserts for better bite on the green. In 1999, the Company continued to sell its TMPII line of clubs with offset oversized stainless steel heads. Available in both steel and graphite, the TMPII offers superior playability at affordable prices. In 1999, the Company continued to market its Rough Relief line of men's low profile woods. Available with both steel and graphite shafts, the Rough Relief line features dual brass inserts on the sole for increased playability. In 1999, the Company continued to market its Lady Rave low profile line of graphite-shafted woods. These easy to hit woods feature copper inserts in the sole for added playability. In 1999, the Company continued to market styles in its line of women's bags featuring matching head covers. In 1999, the Company continued to sell putters under the Power Circle(TM), Light and Easy(TM) and Rave lines. Additionally, the Company introduced the Power Circle(TM) XL and Light and Easy(TM) XL lines of putters in 1999. These tri-metal putters are heel toe weighted to reduce torque on off center hits. 3 4 In 1999, the Company introduced its Relief line of men's irons. Designed to complement the Rough Relief men's woods, the bi-metal Relief irons feature the Company's patented Posiflow weighted system, which reduces long iron slices and short iron pulls. In 1999, the Company introduced its men's Relief and women's Lady Rave lines of mid-profile, bi-metal drivers. These drivers feature brass inserts, which lower the center of gravity and expand the sweet spot. Manufacturing The Company's clubs are assembled at its facility located in Fairfield, New Jersey. Finished heads are purchased from several sources in Taiwan, Thailand and The People's Republic of China, which manufacture them to Square Two's appearance and weight specifications. Various domestic and foreign shaft manufacturers supply steel shafts, grips, and accessories. The Company obtains its graphite shafts from several foreign shaft suppliers, which manufacture them to the Company's design specifications. In the course of assembling its PCXII line of steel shafted clubs, the Company applies its Totally Matched proprietary weighting and balancing techniques to achieve the clubs' unique design and construction. Seasonality The golf industry is seasonal. While manufacturing occurs throughout the year, demand for the Company's clubs is greatest from March through July. Inventory Supply The Company tries to maintain at least two sources of supply for irons and metal wood heads from foreign suppliers. These suppliers generally require 90 to 120 day lead times to deliver heads to the Company. Domestic suppliers of shafts and grips are more plentiful and, under normal circumstances, can provide components to the Company on relatively short notice. While the Company does not anticipate long-term shortages of either components or sources of supply from its domestic or foreign suppliers, no assurance can be given that the Company will not experience shortages in the future. Delays are not anticipated to be longer than 2 weeks and are not anticipated to affect materially the Company's ability to deliver product. The Company continues to evaluate other alternatives in sourcing suppliers. The Company has a line of credit in the amount of $5,000,000 with PNC Bank pursuant to which PNC Bank may make available an additional credit facility of up to $1,750,000 in the form of standby or documentary letters of credit and demand loans. The amount and number of letters of credit outstanding at any given time will vary on a daily basis depending on the dollar volume of material being ordered and supplies received. Industry Background The National Golf Foundation estimates that in 1998 there were 26.4 million golfers in the United States. (The figure for 1999 is not yet available.) The rate of growth remained relatively flat from 1997 to 1998. The popularity of the sport has created a significant market for golf clubs. In competition for a share of the market, various manufacturers have developed golf clubs using various materials, differing types of construction and the latest engineering technology. Marketing & Distribution Until approximately 15 years ago, top of the line golf equipment was sold almost exclusively by golf professionals at private clubs. Currently, off course specialty golf shops, sporting goods retailers, discounters, mail order houses, internet and infomercials account for a substantial share of sales to the golf club market. 4 5 As of March 1, 2000, the Company had established a network of approximately 2,100 retailers with approximately 2,800 retail outlets. The Company has prepared a comprehensive catalog for its dealers. The golf equipment industry is one in which advertising and promotion is required to create market awareness of a company's products. Management anticipates that manufacturers will increase their research and development efforts as well as their advertising expenditures. In 1999, no customer accounted for more than 5% of the Company's total sales. The Company does not believe that the loss of any single customer would materially affect its business. The Ladies Professional Golf Association Agreement The Company has entered into an agreement with the Ladies Professional Golf Association (LPGA), an Ohio nonprofit corporation, which grants the Company the exclusive right to use the LPGA name and logo on its women's golf clubs and the non-exclusive right to use the LPGA name and logo on certain of its other products, including golf bags. The Company has renewed and restated this licensing agreement effective January 1, 1999 through December 31, 2003, at which time the Company has the option to renew the agreement for two consecutive years under the same terms and conditions. The agreement entitles the Company to use the license granted on a worldwide basis. The Company is obligated to pay to the LPGA a license fee and a royalty fee based on sales volume. The annual license fee for the term of the agreement is $200,000 each consecutive year through 2003. In the event that the sum of (A) 5% of the net sales of the licensed products (other than golf shoes) up to $1,000,000 in any calendar year, (B) 2.5% of the net sales of the licensed products (other than golf shoes) in excess of $1,000,000 and less than $5,000,000 in any calendar year, and (C) 1% of the net sales of the licensed products (other than golf shoes) in excess of $5,000,000 in any calendar year exceeds the annual license fee, the Company also shall pay to the LPGA a royalty fee equal to the amount of such excess plus 1% of the net sales of golf shoes in that calendar year. Under the agreement, the Company is obligated to be a "Title Sponsor" of the LPGA Teaching and Club Professionals ("T&CP") Division Team Classic at an annual cost of $35,000 beginning in 1999 and increasing by $2,500 per year through 2003. In addition, the Company is obligated to spend a minimum of $100,000 per year on various advertising programs. Competition In general, the Company competes with manufacturers of sporting goods equipment for all phases of the recreation industry, and its business is subject to factors generally affecting the recreation and leisure market, such as economic conditions, changes in discretionary spending patterns and weather conditions. The golf club industry is highly competitive and is dominated principally by approximately 15 nationally known manufacturers of sporting goods equipment. Such manufacturers, including Callaway, Ping, Spalding, Taylor Made, and Cobra/Titleist, possess financial and other resources greater than those of the Company. The Company competes with these entities primarily on the basis of the quality and value of Square Two's products and service, along with the Company's position as the official sponsor of the LPGA. Golf clubs are also manufactured by lesser known, lower volume companies who assemble clubs from components manufactured by others. While these manufacturers of clubs are generally smaller than the Company, their products also compete with those manufactured by the Company. 5 6 Patents and Trademarks The Company holds two United States patents. One protects the concept of Posiflow weighting in iron heads, and the second protects an internal triangular reinforcement cell for metal woods. The Company has registered the following trademarks with the United States Patent and Trademark Office: TOTALLY MATCHED(R) TEE DEVIL(R) ONYX(R) TRI-BAR(R) PCX(R) SQUARE TWO(R) S2(R)(Stylized) AGREE(R) POSIFLOW(R) DYNA-BALANCE(R) LADY PETITE(R) MELODY(R) SAND DEVIL(R) ALLEGRA(R) DISTANCE DEVIL(R) TURF DEVIL(R) ZCX(R) RUFF DEVIL(R) LADIES LONG DRIVE(R)
Given the competitive climate within the golf industry worldwide and the recent counterfeiting of clubhead designs, the Company believes that it is imperative to protect the Company's tradenames, trademarks and patentable inventions and designs. The Company has registered "Square Two" in 25 countries. Employees As of December 31, 1999, the Company employed 53 persons, including 51 full-time employees, of which two were executive officers. Forty-three of these were hourly employees and ten were management, administrative and marketing personnel. Additional hourly employees are hired during peak production periods and management anticipates no problems in finding adequate employees. The employees of the Company are not represented by any labor organization. The Company believes that its present staff is adequate. However, if sales of the Company's clubs should increase, it is anticipated that additional production, clerical and management personnel may be necessary to meet product demand. Special Note on Forward-Looking Statements The business, financial condition and results of operations of the Company may be adversely affected by a number of factors. Certain statements and information contained herein constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other risks and uncertainties: the risks inherent in the development and introduction of new products; the Company's dependence on consumer tastes, which fluctuate from time to time; seasonality and prevailing weather conditions, as protracted periods of inclement weather could disrupt consumer demand for golf-related products; unanticipated shortages of components or delays in component delivery; and the significant competition in the Company's line of business. (d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS It is impracticable for the Company to provide financial information about geographic areas. Historically, the Company's sales to foreign customers have not been material. For the fiscal year ended December 31, 1999, the Company's sales to foreign customers comprised less than 1.4% of net sales. ITEM 2. PROPERTIES The Company currently leases its manufacturing, sales and executive offices located at 18 Gloria Lane, Fairfield, New Jersey 07004. The Company exercised its option to renew its lease at such facility through December 31, 2001. The lease covers 20,612 square feet. This facility serves the needs of the one segment in which the Company 6 7 operates -- the manufacture and marketing of golf equipment -- and the Company believes that this space is adequate for its current production levels. ITEM 3. LEGAL PROCEEDINGS On July 21, 1999, a former Vice President of the Company filed a complaint against the Company in the Essex County Superior Court of New Jersey in connection with the termination of his employment. He claims damages of approximately $50,000. The Company intends to defend this lawsuit vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to shareholders for vote during the quarter ended December 31, 1999. EXECUTIVE OFFICERS OF THE COMPANY See Part III, Item 10 of this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company is traded on Nasdaq under the trading symbol "GOLF." The following table sets forth the high and low bid prices for the Common Stock as provided by Nasdaq for the periods indicated. These prices represent quotations between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were effected.
PERIODS: COMMON STOCK BID PRICES: -------- ------------------------ HIGH LOW ---- --- 1998 1st Quarter $11.31 $4.38 1998 2nd Quarter $8.81 $4.31 1998 3rd Quarter $6.00 $2.50 1998 4th Quarter $5.25 $2.00 1999 1st Quarter $4.00 $2.50 1999 2nd Quarter $3.50 $2.18 1999 3rd Quarter $2.71 $2.00 1999 4th Quarter $2.12 $1.62
On March 13, 2000, the number of holders of record of the Company's Common Stock was approximately 196. No cash dividends have been paid to date and it is not anticipated that cash dividends will be paid in the near future. In 1999, the Company issued 400 shares of Common Stock to Frederick B. Ziesenheim and 400 shares of common stock to Mary Ann Jorgenson as compensation for their service as directors of the Company and participation in board meetings. As no public offering was involved, the issuance of such shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. See Item 11. ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- OPERATING RESULTS: Net Sales $11,003,556 $11,505,000 $12,073,843 $8,563,588 $7,243,307 Net Income (Loss) 306,126 440,848 855,565 118,884 (80,468) Net Income (Loss)
7 8
per Share-Basic 0.14 0.20 0.39 (0.04) per Share-Diluted 0.14 0.19 0.37 0.05 (0.04) Weighted Average Number of Shares Outstanding-Basic 2,219,700 2,219,078 2,214,448 2,208,311 2,205,647 Outstanding- Diluted 2,263,876 2,315,149 2,290,505 2,208,311 2,205,647 Cash Dividend 0 0 0 0 At Year End: Working Capital 4,020,772 3,766,986 3,435,345 2,401,904 2,320,912 Total Assets 5,752,079 7,534,080 7,630,176 5,153,651 4,726,353 Total Liabilities 1,492,011 3,582,138 4,123,082 2,513,551 2,205,137 Long Term Obligations: 84,822 146,157 202,231 253,498 315,206 Shareholders' Equity 4,260,068 3,951,942 3,507,094 2,640,100 2,521,216 Market Price of Common Stock High-Low 4.00/1.62 11.3125/2.00 5.00/.81 1.75/.81 2.50/.81
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information in the following Management's Discussion and Analysis of Financial Condition and Results of Operations constitutes forward-looking information that involves certain risks and uncertainties. See Item 1, Business, under caption "Special Note on Forward Looking Statements." Results of Operations Sales 1999 Compared to 1998 For the year ended December 31, 1999, net sales were $11,003,556, versus $11,505,000 for the year ended December 31, 1998, a decrease of $501,444 or 4.3%. The decrease in volume was primarily due to two customers experiencing financial difficulty, tighter credit controls and continued sluggishness in the industry, particularly in the first half of 1999. 1998 Compared to 1997 For the year ended December 31, 1998, net sales were $11,505,000 versus $12,073,843 for the year ended December 31, 1997, a decrease of $568,843. The decrease in sales volume was primarily the result of the Company's decision to halt shipments to retailers with credit problems and the general softness in the golf equipment industry in 1998. Gross Profit 1999 Compared to 1998 Gross profit on sales for the year ended December 31, 1999 was $3,575,426 (32.4%) versus $3,837,700 (33.4%) for the year ended December 31, 1998. The decrease was due to mix of products sold. 1998 Compared to 1997 Gross profit on sales for the year ended December 31, 1998 was $3,837,700 (33.4%) versus $3,958,530 (32.8%) for the year ended December 31, 1997. The increase was due to lower material costs and mix of products sold. Selling Expenses 1999 Compared to 1998 Selling expenses for the year ended December 31, 1999 were $1,641,744 versus $1,540,048 for the year ended December 31, 1998. This increase was the result of increased product advertising expense arising from the production and airing of the Company's first national television advertisement. 8 9 1998 Compared to 1997 Selling expenses for the year ended December 31, 1998 were $1,540,048 versus $1,551,552 for the year ended December 31, 1997. This decrease was the result of lower sales commission expense due to reduced volume and lower advertising costs, offset by an increase in the royalty payment to the LPGA. General Administrative 1999 Compared to 1998 General and Administrative expenses were $1,302,325 for the year ended December 31, 1999 versus $1,228,559 for the year ended December 31, 1998. This increase was the result of increased salaries and wages as well as increased legal costs associated with the preparation of player endorsement and licensing contracts. 1998 Compared to 1997 General and Administrative expenses were $1,228,559 for the year ended December 31, 1998 versus $1,187,444 for the year ended December 31, 1997. This was the result of an increase in the Company's bad debt expense offset by lower executive bonus expense and a decrease in amortization relating to the non-compete agreement with a former officer, which was fully amortized in 1997. Interest 1999 Compared to 1998 Interest expense for the year ended December 31, 1999 was $158,892 a decrease of $209,393, or 56.8%, compared to the year ended December 31, 1998, which was $368,285. The average outstanding balance of the credit facility was $1,622,654 in 1999 compared to an average balance of $3,910,051 in 1998. This decrease was attributed to a 33.1% decrease in the average inventory balance of $2,977,544 in 1999 compared to an average balance of $4,452,970 in 1998. Average balances for accounts receivable in 1999 of $3,421,439 were also 14.4% lower than the 1998 balance of $3,997,686. 1998 Compared to 1997 Interest expense for the year ended December 31, 1998 was $368,285, an increase of $90,431, or 32.5%, compared to the year ended December 31, 1997, which was $277,854. The average outstanding balance of the credit facility was $3,910,051 in 1998 compared to an average balance of $2,454,918 in 1997. This increase was attributed to a 65.6% increase in the average inventory balance of $4,452,970 in 1998 compared to an average balance of $2,689,140 in 1997. Average balances for accounts receivable in 1998 of $3,997,686 were also 11.9% higher than the 1997 balance of $3,572,253. Income Taxes 1999 Compared to 1998 In 1999 the Company had an income tax provision of $166,901, compared to $254,282 in 1998. 1998 Compared to 1997 In 1998 the Company had an income tax provision of $254,282, compared to $89,230 in 1997. The tax benefit from the net operating loss carryforward ("NOL") was approximately $20,734 in 1998, which was 92% less than the tax benefit in 1997. In 1998 the Company utilized the balance of the net operating loss carryforward. Liquidity and Capital Resources The Company's working capital increased $253,786 for the year ended December 31, 1999 to $4,020,772, compared to $3,766,986 for the year ended December 31, 1998. This 9 10 change was the result of a decrease in current assets of $1,775,006 offset by a decrease in current liabilities of $ 2,028,792. The decrease in current assets was due to a decrease of $1,426 in cash, a decrease in accounts receivable of $662,681, which was a result of decreased sales, a decrease in inventories of $1,085,387, and a decrease of $52,372 in current deferred income taxes. The decrease in current liabilities was attributed to a 72.0% decrease, or $1,992,411, in short-term borrowings as of December 31, 1999. Cash provided by operating activities in 1999 amounted to $2,082,656 as compared to cash provided by operations of $57,395 in 1998 and cash used in operation of $1,177,537 in 1997. The cash provided from operations in 1999 was primarily due to a decrease in inventory and accounts receivable. Credit Facility The Company has a secured revolving line of credit with PNC Bank, which was amended and restated as of December 1, 1997, allowing a maximum credit limit of $5,000,000, less 50% of the aggregate face amount of all outstanding letters of credit, and subject to various borrowing bases. The availability of funds under this line of credit varies as it is based, in part, on a borrowing base of 80% of eligible accounts receivable and 50% of qualified inventory. Substantially all of the Company's assets are used as collateral for the credit line. Interest rates are at prime plus one-quarter percent, paid monthly; the interest rate as of December 31, 1999 was 8.75%. At December 31, 1999, credit available to the Company under the line of credit was approximately $1,259,000. The Company had no outstanding letters of credit as of December 31, 1999. The credit facility contains certain covenants, which among other items, require the maintenance of certain financial ratios including tangible net worth and working capital. Any event of default under the credit facility permits the lender to cease making additional loans thereunder. The Company was in compliance with all covenants and conditions of the facility as of December 31, 1999. Year 2000 Prior to January 1, 2000 the Company completed a review of its information systems and applications in preparation for the Year 2000. The Company incurred internal staff costs as well as outside consulting and other capital expenditures related to this initiative. Total incremental expenses to bring current systems into compliance did not exceed $75,000. None of the Company's products or manufacturing systems were affected on January 1, 2000. System upgrades were done on a timely basis and did not impact operations or financial reporting. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to the Index to Financial Statements and Financial Statement Schedule on page F-1 for the required information. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 10 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's current directors and executive officers are:
NAME AGE POSITION WITH THE COMPANY - ------- ----- -------------------------- Robert L. Ross 55 Chairman of Board and Chief Executive Officer Douglas A. Buffington 44 Director, President, Chief Financial Officer, Chief Operating Officer and Treasurer Randy A. Hamill 44 Senior Vice President of Manufacturing and Resources and Assistant Secretary Richard M. Maurer 51 Director and Secretary Mary Ann Jorgenson 59 Director Frederick B. Ziesenheim 73 Director
ROBERT L. ROSS has been a director of the Company since 1988 and Chairman of the Board since October 1995. Effective in January 1996, Mr. Ross became Chief Executive Officer of the Company. He has been Co-Managing Partner of Wesmar Partners Limited Partnership ("Wesmar Partners"), the majority shareholder of the Company, since 1985. Prior to the formation of Wesmar Partners, Mr. Ross was associated with The Hillman Company, a private investment firm, from 1978 to 1985. Mr. Ross is a Certified Public Accountant and was associated with Haskins & Sells and with Westinghouse Electric Corporation prior to joining The Hillman Company. DOUGLAS A. BUFFINGTON joined the Company in January 1994 as Vice President of Sales and Marketing, and became Chief Financial Officer and Chief Operating Officer in June 1994, President in December 1994, a director in February 1995 and Treasurer in January 1996. From 1992 until joining the Company, Mr. Buffington served as General Manager of Simon-Duplex, a $25 million capital goods division of Simon Engineering, a company based in the United Kingdom. From 1990 to 1992, he served as Vice President of Finance of Simon-Ltd., a $35 million division of Simon Engineering. RANDY A. HAMILL has been Senior Vice President of the Company since July 1991 and is in charge of all manufacturing and purchasing. Effective in January 1996, Mr. Hamill became Assistant Secretary of the Company. He was formerly Vice President of Manufacturing of the Company from 1981 to July 1991. RICHARD M. MAURER has been a director of the Company since 1988. Effective in January 1996, Mr. Maurer became Secretary of the Company. He has been Co-Managing Partner of Wesmar Partners, the majority shareholder of the Company, since 1985. Prior to the formation of Wesmar Partners, Mr. Maurer was associated with The Hillman Company, a private investment firm, from 1978 to 1985. Mr. Maurer is a Certified Public Accountant and was associated with Price Waterhouse prior to joining The Hillman Company. MARY ANN JORGENSON has been a director of the Company since 1992. She has been a partner with the law firm of Squire, Sanders & Dempsey L.L.P. since 1984 and has been associated since 1975 with that firm. She also serves as a director of Cedar Fair Management Company, the general partner of Cedar Fair, L.P., an owner and operator of amusement parks, and is a director of Anthony & Sylvan Pools Corporation, an installer of concrete inground swimming pools. FREDERICK B. ZIESENHEIM has been a director of the Company since 1992. He has been with the law firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C. since 1988 and is currently Vice Chairman of that firm. Prior to combining his practice with 11 12 that firm, he was President of the law firm of Buell, Ziesenheim, Beck and Alstadt, P.C., with whom he had been associated since 1958. All directors hold office until the next annual meeting of the Company's shareholders and until their successors have been elected and qualified. Officers serve at the discretion of the Board of Directors. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's directors, executive officers and any person holding ten percent or more of the Company's Common Stock are required to report their initial ownership of the Company's Common Stock and any changes in that ownership to the Securities and Exchange Commission. Based solely on a review of copies of the forms furnished to the Company in 1999 and written representations from the Company's directors and executive officers, the Company believes that all Section 16(a) filing requirements applicable to its directors, executive officers and ten percent shareholders in 1999 were complied with. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information with respect to annual and long-term compensation for services in all capacities paid by the Company for the years ended December 31, 1999, 1998 and 1997 to or on behalf of Robert L. Ross, Douglas A. Buffington and Randy A. Hamill (collectively, the "Named Executives"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------- OTHER SECURITIES NAME AND ANNUAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION - ------------------ ---- ------ ----- ------------ ------- ------------ Robert L. Ross, 1999 $ 0 $ 0 $ 0 $ 7,500 $ 0 Chief Executive Officer 1998 $ 0 $ 0 $ 0 $ 0 $ 0 1997 $ 0 $ 0 $ 0 $ 50,000(5) $ 0 Douglas A. Buffington, 1999 $149,808 $24,375(1) $19,389(4) $ 14,375(6) $975(8) President 1998 $137,362 $ 7,500(2) $19,992(4) $ 7,500(7) $975(8) 1997 $126,942 $31,250(3) $19,387(4) $ 0 $975(8) Randy A. Hamill, 1999 $100,000 $ 6,250(1) $ 0 $ 6,250(6) $ 0 Vice President 1998 $ 99,337 $ 4,375(2) $ 0 $ 4,375(7) $ 0 1997 $ 96,688 $20,000(3) $ 0 $ 44,267 $ 0
(1) Bonus earned in 1999, paid in 2000. (2) Bonus earned in 1998, paid in 1999. (3) Bonus earned in 1997, paid in 1998. (4) Represents an approximation of travel/commuting expenses reimbursed by the Company. (5) In October 1997, an option to purchase 100,000 shares of Common Stock was erroneously granted to MR & Associates. Such option was subsequently amended to be, as was intended, a grant of an option to purchase 50,000 shares of Common Stock to each of Mr. Ross and Mr. Maurer. (6) Awarded for 1999 services, granted in 2000. (7) Awarded for 1998 services, granted in 1999. 12 13 (8) The Company paid $975 annual premium on a $750,000 insurance policy on the life of Mr. Buffington, which names Mr. Buffington's wife as the sole beneficiary. The following table sets forth information pertaining to stock options granted to the Named Executives in 1999. 1999 OPTION GRANTS
NUMBER OF % OF TOTAL SECURITIES OPTIONS GRANTED EXERCISE OR UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION NAME OPTIONS GRANTED IN 1999 $/SH DATE - ---- --------------- ------- ---- ---- Robert L. Ross 7,500 (1) 38.7% market none Douglas A. Buffington 7,500 (1) 38.7% $ 3.00 (2) 1/3/09 (3) Randy A. Hamill 4,375 (1) 22.6% $ 3.00 (2) 1/3/09 (3)
(1) Immediately exercisable. (2) Upon certain changes in control, exercise price becomes $0.01. (3) If employment terminates before 1/3/09, option expires 3 months after such termination. The following table sets forth certain information pertaining to stock options held by the Named Executives as of December 31, 1999. No options were exercised by the Named Executives in 1999. 1999 FISCAL YEAR END OPTION HOLDINGS
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING OPTIONS IN-THE-MONEY OPTIONS -AT FISCAL YEAR END AT FISCAL YEAR END(1) ------------------ ---------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ------------ -------------- Robert L. Ross 57,500 0 $ 0 0 Douglas A. Buffington 51,000 0 $17,719 0 Randy A. Hamill 48,642 0 $44,267 0
(1) Calculated on the basis of the fair market value of the Common Stock of $1.9375 per share on December 31, 1999 less exercise price. Compensation of Directors The Company compensates its non-employee directors (Mary Ann Jorgenson and Frederick B. Ziesenheim) by granting such persons shares of the Company's Common Stock having a fair market value of $1,000 for every meeting of the Board of Directors or committee thereof attended by such person, and shares of Common Stock having a fair market value of $500 if such person participated in a meeting by telephone. The number of shares issued is based on the closing price of the stock on the exchange where traded on the meeting date or the preceding date on which such shares were traded. Certain Agreements The Company entered into a new employment agreement with Douglas A. Buffington effective January 1, 1998 and terminating on December 31, 2002 unless terminated sooner as provided in the agreement. Mr. Buffington's base annual salary under the agreement was $137,500 for 1998 and is $150,000 for each year thereafter. An incentive cash bonus and stock option program are incorporated into the agreement. Additional stock options, other than those provided in the incentive program, may be granted at 13 14 the discretion of the Company. The agreement also provides for certain benefits, in addition to the standard Company employee fringe benefits, including but not limited to reimbursement of certain expenses and payment of premiums on a $750,000 life insurance policy with Mr. Buffington's spouse named as beneficiary. The agreement also contains a "non-compete" clause and an "invention and secrecy" clause. In January 1997, the Company entered into an agreement with Randy A. Hamill pursuant to which Mr. Hamill was granted an immediately exercisable option to purchase 40,000 shares of Common Stock at an exercise price of $0.9375 per share. Upon the occurrence of a change in control of the Company (as defined in the agreement) the exercise price per share for any unexercised portion of the option would be the lower of (a) (i) one cent or (ii) the lowest price greater than one cent per share that would not cause the value to Mr. Hamill of shares acquired upon exercise to be considered an "excess parachute payment" under section 280G of the Internal Revenue Code of 1986 as amended or (b) $0.9375. In the event that Mr. Hamill should die while employed by the Company and the Company has received $500,000 as beneficiary of a life insurance policy it maintains on Mr. Hamill's life, Mr. Hamill's estate will have the right to require the Company to purchase the option, if unexercised, for $500,000 or, subject to certain limitations, to purchase up to 39,999 shares received on exercise of the option for their fair market value at that time. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 13, 2000 by (i) each person who beneficially owned 5% or more of the outstanding Common Stock, (ii) each director, (iii) each Named Executive and (iv) all directors and executive officers as a group calculated in accordance with Rule 13d-3 under the Exchange Act. Except as otherwise noted, the persons named in the table below have sole voting and investment power with respect to the shares shown as beneficially owned by them.
AMOUNT BENEFICIALLY PERCENT NAME AND ADDRESS OWNED(1) OF CLASS(1) - ------------------- -------- ----------- L. R. Jeffrey (2) 250,000 10.1% 50 Gloucester Road Summit, NJ 07901 Richard M. Maurer (3) 1,491,896 65.2% Three Gateway Center Pittsburgh, PA 15222 Robert L. Ross (4) 1,473,596 64.4% Three Gateway Center Pittsburgh, PA 15222 Mary Ann Jorgenson 10,465 * 4900 Key Tower 127 Public Square Cleveland, OH 44114-1304 Frederick B. Ziesenheim 10,948 * 700 Koppers Building 436 7th Avenue Pittsburgh, PA 15219-1818 Douglas A. Buffington 67,375 3.0% 18 Gloria Lane Fairfield, NJ 07004 Randy A. Hamill (5) 69,142 3.0% 18 Gloria Lane Fairfield, NJ 07004
14 15
Wesmar Partners (6) 1,399,096 63.0% MR & Associates Maurer, Ross & Co., Incorporated Three Gateway Center Pittsburgh, PA 15222 All directors and executive officers as a group (6 persons)(7) 1,724,326 69.7%
*Less than 1% (1) The numbers shown include shares covered by options that are currently exercisable as of March 13, 2000. The numbers and percentages of shares owned assume that such outstanding options had been exercised as follows: L. R. Jeffrey, Jr. - 250,000, Richard M. Maurer - 67,500, Robert L. Ross - 67,500, Douglas A. Buffington - 63,017, Randy A. Hamill - 54,892 and all directors and executive officers as a group - 240,267. (2) Does not include 730 shares owned by various members of Mr. Jeffrey's family with respect to which shares he disclaims any beneficial ownership. (3) Includes 25,300 shares which are held directly by three trusts of which Mr. Maurer is co-trustee and with respect to which he shares voting and investment power and 1,399,096 shares owned directly by Wesmar Partners with respect to which he shares voting and investment power and 67,500 shares underlying the options held directly by Mr. Maurer. Mr. Maurer is an officer, director and principal shareholder of Maurer Ross & Co., Incorporated, the general partner of MR & Associates, and the managing general partner of Wesmar Partners. (4) Includes 1,399,096 shares owned directly by Wesmar Partners and 67,500 options underlying the options held by Mr. Ross. Mr. Ross is an officer, director and principal shareholder of Maurer Ross & Co., Incorporated, the general partner of MR & Associates, the managing general partner of Wesmar Partners. (5) Does not include shares owned by various members of Mr. Hamill's family with respect to which shares Mr. Hamill disclaims any beneficial ownership. (6) Wesmar Partners is a Delaware limited partnership whose partners are Landmark Equity Partners III, L. P., a Delaware limited partnership, and MR & Associates, a Pennsylvania limited partnership. MR & Associates is the managing partner of Wesmar Partners. Messrs. Maurer and Ross are officers, directors and principal shareholders of Maurer Ross & Co., Incorporated, a Pennsylvania corporation and the general partner of MR & Associates. (7) Does not include shares owned by various members of a certain officer's family with respect to which shares such officer disclaims any beneficial ownership. Includes 1,399,096 shares owned directly by Wesmar Partners (See Notes 3, 4 and 6 above). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions With Management and Others During the fiscal year ended December 31, 1999, Richard M. Maurer and Robert L. Ross provided the Company with employee services on a non-compensated basis. Mr. Maurer is Secretary and a director of the Company. Mr. Ross is Chief Executive Officer, Chairman and a director of the Company. During the fiscal year ended December 31, 1999, the Company retained the law firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C., of which Frederick B. Ziesenheim, a director of the Company, is a Vice President and member of the Management Committee, to represent the Company on various intellectual property matters. 15 16 During the fiscal year ended December 31, 1999, the Company retained the law firm of Squire, Sanders & Dempsey L.L.P., of which Mary Ann Jorgenson, a director of the Company, is a partner, to represent the Company in various matters. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedule on Page F-1 are filed as part of this report. (2) The financial statement schedule listed in the accompanying Index to Financial Statements and Financial Statement Schedule on Page F-1 is filed as part of this report. (3) The Exhibits listed in the accompanying Exhibit Index are filed as part of this report. (b) No reports on Form 8-K were filed for the fourth quarter ended December 31, 1999. 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
S2 GOLF INC. Dated: March 27, 2000 By: /s/ Douglas A. Buffington -------------------------- Douglas A. Buffington President, Chief Financial Officer, Chief Operating Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE ----------- ----- ------- /s/ Douglas A. Buffington Director, President, Chief March 27, 2000 - ------------------------ Financial Officer, Chief Douglas A. Buffington Operating Officer and Treasurer /s/ Robert L. Ross Chairman of the Board March 27, 2000 - ----------------------- and Chief Executive Officer Robert L. Ross /s/ Richard M. Maurer Director and Secretary March 24, 2000 - --------------------- Richard M. Maurer /s/ Mary Ann Jorgenson Director March 27, 2000 - ---------------------- Mary Ann Jorgenson /s/ Frederick B. Ziesenheim Director March 28, 2000 - --------------------------- Frederick B. Ziesenheim
17 18 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS PAGE - -------------------- ------ Independent Auditors' Report F-2 F-3 Balance Sheets - December 31, 1999 and 1998 F-4 Statements of Operations - For the Years Ended December 31, 1999, 1998 and 1997 F-5 Statements of Cash Flows - For the Years Ended December 31, 1999, 1998 and 1997 F-6 Statements of Changes in Shareholders' Equity - For the Years Ended December 31, 1999, 1998 and 1997 F-7 Notes to Financial Statements F-8 Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts and Reserves F-15
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. F-1 19 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of S2 Golf, Inc. We have audited the accompanying balance sheet of S2 Golf, Inc. as of December 31, 1999, and the related statements of operations, changes in shareholders' equity, and cash flows and financial statement schedule for the year ended December 31, 1999. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of S2 Golf, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the year ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the financial statement schedule referred to above, when considered in relation to the basis financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/Rothstein, Kass & Company,P.C. Roseland, New Jersey February 18, 2000 F-2 20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of S2 Golf Inc. We have audited the accompanying balance sheet of S2 Golf, Inc. as of December 31, 1998 and the related statements of operations, changes in shareholders' equity, and cash flows for each of the two years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of S2 Golf, Inc. as of December 31, 1998 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/Deloitte & Touche LLP Parsippany, New Jersey March 22, 1999 F-3 21 S2 GOLF INC. BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ---- ---- ASSETS Current Assets Cash $ 150 $ 1,576 Accounts Receivable (net) 2,650,197 3,312,878 Inventories 2,554,736 3,640,123 Prepaid Expenses 59,278 32,418 Deferred Income Taxes 163,600 215,972 ---------- ---------- Total Current Assets 5,427,961 7,202,967 Plant and Equipment - Net 104,476 59,442 Non-Current Deferred Income Taxes 82,000 118,056 Other Assets - Net 137,642 153,615 ---------- ---------- Total Assets 5,752,079 7,534,080 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term Borrowings $774,468 $2,766,879 Accounts Payable 399,864 324,849 Accrued Expenses 171,522 288,178 Other Current Liabilities 61,335 56,075 ---------- ---------- Total Current Liabilities 1,407,189 3,435,981 Non-Current Liabilities 84,822 146,157 --------- ---------- Total Liabilities 1,492,011 3,582,138 --------- --------- Commitments and Contingency Shareholders' Equity Common Stock, $.01 Par; 12,000,000 Authorized Shares: 2,220,113 and 2,219,313 Issued and Outstanding at December 31, 1999 and 1998, respectively 22,201 22,193 Additional Paid-in Capital 4,042,787 4,040,795 Accumulated Profit(Deficit) 195,080 (111,046) --------- ---------- Total Shareholders' Equity 4,260,068 3,951,942 ---------- ---------- Total Liabilities and Shareholders' Equity $5,752,079 $7,534,080 ========== ==========
The accompanying notes to financial statements are an integral part of these statements F-4 22 S2 GOLF INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ---- ---- ---- Net Sales $ 11,003,556 $ 11,505,000 $ 12,073,843 Cost of Goods Sold 7,428,130 7,667,300 8,115,313 ------------ ------------ ------------ Gross Profit 3,575,426 3,837,700 3,958,530 ------------ ------------ ------------ Operating Expenses: Selling 1,641,744 1,540,048 1,551,552 General & Administrative 1,302,325 1,228,559 1,187,444 ------------ ------------ ------------ Total Operating Expenses 2,944,069 2,768,607 2,738,996 ------------ ------------ ------------ Operating Income 631,357 1,069,093 1,219,534 ------------ ------------ ------------ Other Income (Expense) Interest Expense (158,892) (368,285) (277,854) Other Income (Expense) 562 (5,678) 3,115 ------------ ------------ ------------ Other - Net (158,330) (373,963) (274,739) ------------ ------------ ------------ Income Before Income Taxes 473,027 695,130 944,795 Provision for Income Taxes 166,901 254,282 89,230 ------------ ------------ ------------ Net Income $ 306,126 $ 440,848 $ 855,565 ============ ============ ============ Earnings per Common Share - Basic $ 0.14 $ 0.20 $ 0.39 ============ ============ ============ Diluted $ 0.14 $ 0.19 $ 0.37 ============ ============ ============ Weighted Average Number of Shares Outstanding - Basic 2,219,700 2,219,078 2,214,448 Diluted 2,263,876 2,315,149 2,290,505
The accompanying notes to financial statements are an integral part of these statements F-5 23 S2 GOLF INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ---- ---- ---- OPERATING ACTIVITIES Net Income $ 306,126 $ 440,848 $ 855,565 Adjustments to Reconcile Net Income to Net Cash Provided By (Used in) Operating Activities: Depreciation and Amortization 63,499 57,092 108,488 Deferred Income Taxes 88,428 68,885 (65,024) Issuance of Stock for Compensation 2,000 4,000 11,430 Allowance for Doubtful Accounts 272,919 (108,368) 70,799 Allowance for Returns 190,586 (10,000) (40,877) Inventory Obsolescence Reserve 75,000 (60,621) 22,702 Changes in Assets and Liabilities: Accounts Receivable 199,176 528,414 (1,323,166) Inventories 1,010,387 (485,200) (1,243,803) Prepaid Expenses (26,860) 12,242 (2,307) Other Assets (889) (3,906) (31,289) Accounts Payable 75,015 (283,875) 378,634 Accrued Expenses (116,656) (48,731) 141,608 Other Current and Non-Current Liabilities (56,075) (53,385) (60,297) ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATIONS 2,082,656 57,395 (1,177,537) ----------- ----------- ----------- INVESTING ACTIVITIES Purchase of Equipment (91,671) (22,297) (17,209) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (91,671) (22,297) (17,209) ----------- ----------- ----------- FINANCING ACTIVITIES Proceeds from (payments of) revolving line of credit, net (1,992,411) (154,953) 1,149,586 ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,992,411) (154,953) 1,149,586 ----------- ----------- ----------- DECREASE IN CASH (1,426) (119,855) (45,160) CASH - BEGINNING OF PERIOD 1,576 121,431 166,591 ----------- ----------- ----------- CASH - END OF PERIOD $ 150 $ 1,576 $ 121,431 =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES Cash Paid During the Year For: Interest $ 158,892 $ 361,644 $ 261,411 Income Taxes (Net of Refund) 179,500 254,282 (9,295) =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements F-6 24 S2 GOLF INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
TOTAL COMMON STOCK ADDITIONAL ACCUMULATED SHARE- ------------ PAID IN PROFIT HOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) EQUITY ------ ------ ------- --------- ------ Balance - December 31, 1996 2,208,311 $ 22,083 $ 4,025,475 $(1,407,459) 2,640,099 Issuance of Common Stock 10,294 103 11,327 - 11,430 Net Income 1997 855,565 855,565 --------- --------- ------------ ----------- ----------- Balance - December 31, 1997 2,218,605 $ 22,186 4,036,802 (551,894) $ 3,507,094 Issuance of Common Stock 708 7 3,993 - 4,000 Net Income 1998 440,848 440,848 --------- --------- ------------ ----------- ----------- Balance - December 31, 1998 2,219,313 $ 22,193 $ 4,040,795 $ (111,046) $ 3,951,942 Issuance of Stock 800 8 1,992 - 2,000 Net Income 1999 306,126 306,126 --------- --------- ------------ ----------- ----------- Balance December 31, 1999 2,220,113 $ 22,201 $ 4,042,787 $ 195,080 $ 4,260,068 ========= ========= ============ =========== ===========
The accompanying notes to financial statements are an integral part of these statements F-7 25 S2 GOLF INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS S2 Golf Inc. (the "Company") was incorporated under the laws of the state of New Jersey on February 2, 1982. The Company manufactures and markets a proprietary line of golf equipment including golf clubs, golf bags, golf balls and accessories. These operations comprise one business segment. The Company markets these products under various tradenames and uses several additional trademarks. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The Company sells to customers primarily throughout the United States, with a small amount sold to customers overseas. The Company does not require collateral on its trade receivables and while it believes its trade receivables, net of allowances, will be collected, the Company anticipates that in the event of default it would follow normal collection procedures. Overall, management believes the Company's credit risk related to its trade receivables is limited due to the broad range of products and the large number of customers in differing geographic areas. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of cash, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of the instruments. The fair value of short-term borrowings approximates their carrying value due to their variable interest rate features, which reprice quarterly. The fair value of long-term borrowings approximate their carrying value due to the interest rate which approximates the prime rate. INVENTORIES Inventories are valued at the lower of cost, determined on the basis of the first-in, first-out method, or market. Inventories consists of materials, labor and manufacturing overhead. PLANT & EQUIPMENT Equipment is stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful service life. The estimated lives used in determining depreciation are: Machinery and Equipment 5 Years Furniture and Fixtures 7 Years Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements whichever is shorter. Maintenance and repairs are charged to operations as incurred. REVENUE RECOGNITION F-8 26 The Company recognizes revenue upon the shipment of merchandise in fulfillment of orders. As of December 31, 1999 and 1998, the Company had an allowance for doubtful accounts of $215,000 and $212,562, respectively, allowance for discounts of $40,000 in each year, and an allowance for returns of $88,000 and $83,000 respectively. ADVERTISING COSTS The Company expenses costs of advertising as incurred. Advertising expenses included in selling expenses for the years ended December 31, 1999, 1998 and 1997 were approximately $511,000, $321,000 and $394,000 respectively. INCOME TAXES The Company complies with Statement of Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes", which requires an asset and liability approach to financial recording for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred tax assets to the amount expected to be realized. OTHER ASSETS Other assets principally include patents, trademarks and a covenant not to compete with a former officer of the Company. The patents and trademarks are amortized on the straight-line method over 15 years. The covenant not to compete was amortized over a five-year period on a straight-line method, which began on July 1, 1992 and ended in June 1997. Management periodically evaluates the recoverability of intangible assets based upon current and anticipated net income and undiscounted future cash flows. EARNINGS PER SHARE The Company complies with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 revises certain methodologies for computing earnings per share ("EPS") and requires the dual presentation of basic and diluted earnings per share. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised and resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is computed using the treasury stock method when the effect of common stock equivalents would be dilutive. The only reconciling item between the denominator used to calculate basic EPS and the denominator used to calculate diluted EPS is the dilutive effect of stock options issued to employees of the Company and other parties. The Company has issued no other potentially dilutive common stock equivalents. RECLASSIFICATIONS Certain reclassifications to prior years financial statements were made in order to conform to the 1999 presentation. 2. INVENTORIES Inventories consists of the following components at December 31:
1999 1998 ---- ---- Finished Goods $ 638,684 $ 695,825
F-9 27 Work-in-process 25,000 Raw Materials 1,916,052 2,919,298 ---------- ---------- $2,554,736 $3,640,123 ========== ==========
3. PLANT AND EQUIPMENT Plant and equipment at December 31, 1999 and 1998 were as follows:
1999 1998 ---- ---- Machinery and Equipment $759,763 $668,092 Furniture and Fixtures 54,485 54,485 Leasehold Improvements 43,554 43,554 -------- -------- Total 857,802 766,131 Less: Accumulated Depreciation and Amortization 753,326 706,689 -------- -------- $104,476 $ 59,442 ======== ========
Depreciation and amortization for the years ended 1999, 1998 and 1997 was $46,637, $42,329,and $50,395, respectively. 4. OTHER ASSETS Other assets consist of the following at December 31, 1999, and 1998:
1999 1998 ---- ---- Covenant Not to Compete $436,277 $436,277 Patents and Trademarks 223,809 222,920 Security Deposits 49,500 49,500 -------- -------- Total $708,586 $708,697 Less: Accumulated Amortization 571,944 555,082 -------- -------- $137,641 $153,615 ======== ========
Amortization expense for the years ended 1999, 1998 and 1997 was $16,862, $14,763, and $58,093, respectively. 5. SHORT TERM BORROWINGS The Company has a revolving line of credit with PNC Bank, allowing a maximum credit limit of $5,000,000, less 50% of the aggregate face amount of all outstanding letters of credit, and subject to various borrowing bases through September 1, 2000. The availability of funds under this line of credit varies as it is based, in part, on a borrowing base of 80% of eligible accounts receivable and 50% of qualified inventory. Substantially all of the Company's assets are used as collateral for the credit line. Interest rates are at prime plus one-quarter percent, paid monthly; the interest rate as of December 31, 1999 was 8.75% compared to 8% as of December 31, 1998. At December 31, 1999 and 1998, funds available to the Company under the line of credit was approximately $1,259,000 and $758,000 respectively. Outstanding letters of credit as of December 31, 1999 and 1998 were $0 and $13,276 respectively. The credit facility contains certain covenants which, among other items, require the maintenance of certain financial ratios including tangible net worth and working capital. Any event of default under the credit facility permits the lender to cease making additional loans thereunder. The Company was in compliance with all covenants and conditions of the facility as of December 31, 1999. 6. INCOME TAXES The provision for income taxes for the years ended December 31, 1999, 1998 and 1997 consists of the following: F-10 28
1999 1998 1997 ---- ---- ---- Current Federal $ 62,173 $ 137,704 $ 61,912 State 16,300 47,693 92,342 -------- -------- -------- 78,473 185,397 154,254 ------ -------- --------- Deferred Federal 62,784 53,363 (48,127) State 25,644 15,522 (16,897) -------- ------- --------- 88,428 68,885 (65,024) -------- ------- -------- Total Provision for Income Taxes $ 166,901 $ 254,282 $ 89,230 ========= ========= ========
A summary of the differences between the actual income tax provision (benefit) and the amounts computed by applying the statutory federal income tax rate to income is as follows:
1999 1998 1997 ---- ---- ---- Federal Tax at Statutory Rate $ 160,829 $ 236,365 $ 321,230 Increase (Decrease) in Taxes Resulting From: Utilization of NOL (20,734) (259,148) Meals and Entertainment 2,081 1,353 7,600 State Tax, Net of Federal Tax Benefit 28,382 41,722 45,809 Reversal of reserves no longer considered necessary (8,000) Other (16,391) (4,424) (26,261) ---------- -------- ----------- Total Income Tax Provision $166,901 $ 254,282 $ 89,230 ======== ========== ========
The tax effects of temporary differences that give rise to significant portions of the current and noncurrent deferred tax assets at December 31, 1999 and December 31, 1998 are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ---- ---- Accounts Receivable Allowances $135,200 $136,021 Accrued Expenses 4,000 79,951 Non-Compete Agreement 24,400 0 ------ - Current Deferred Income Tax Assets $163,600 $215,972 ======== ======== Non-Compete Agreement $ 34,000 $ 80,771 Other 48,000 37,285 -------- -------- Non Current Deferred Income Tax Assets $ 82,000 $ 118,056 ======== =========
7. LEASED PROPERTIES OPERATING LEASE The Company leases factory and office space at 18 Gloria Lane, Fairfield, New Jersey. The Company has exercised its option to renew this lease through December 31, 2001. The annual base rent for 2000 and 2001 will be $131,917. In addition to the base rent, the Company is obligated to pay its pro rata share of real estate taxes, assessments and water and sewer charges. Total rent expense for the years ended December 31, 1999, 1998 and 1997 was $152,339, $119,269, and $118,519 respectively. The Company currently leases one automobile. The term of the lease is 24 months, ending May 12, 2001. The total expense for 1999 was $7,162. Expense to be incurred in years ending December 31, 2000 and 2001 are $ 9,549 and $ 2,388, respectively F-11 29 8. COMMITMENTS AND CONTINGENCY ROYALTIES PAYABLE Under the terms of an agreement with the Ladies Professional Golf Association (LPGA), the Company is obligated to pay a license and royalty fee based upon sales volume. Beginning in 1998, the minimum annual license and royalty fee is $200,000 through December 31, 2003 payable in equal quarterly installments. In the event that the sum of (A) 5% of the net sales of the licensed products (other than golf shoes) up to $1,000,000 in any calendar year, (B) 2.5% of the net sales of the licensed products (other than golf shoes) in excess of $1,000,000 and less than $5,000,000 in any calendar year and (C) 1% of the net sales of the licensed products (other than golf shoes) in excess of $5,000,000 exceeds the annual license fee, the excess plus 1% of the net sales of golf shoes in that calendar year shall be paid as a royalty fee. As of December 31, 1999 and 1998, the accrued royalty was $0 and $7,630 respectively. Royalty expense for years ended December 31, 1999, 1998, and 1997 was $200,000, $244,829, and $175,000 respectively. In addition, the Company is obligated to spend a minimum of $100,000 per year on various advertising programs and to be a "Title Sponsor" of the LPGA Teaching and Club Professionals ("T&CP") Division Team Classic at an annual cost of $35,000 beginning in 1999 and increasing by $2,500 per year through the term of the agreement. EMPLOYMENT AGREEMENT The Company entered into a new employment agreement with Douglas A. Buffington effective January 1,1998 and terminating on December 31, 2002 unless terminated sooner as provided in the agreement. Mr. Buffington's base annual salary under the agreement was $137,500 for 1998 and $150,000 for each year thereafter. An incentive cash bonus and stock option program are incorporated into the agreement. Additional stock options, other than those provided in the incentive program, may be granted at the discretion of the Company. The agreement also contains a "non-compete" clause and an "invention and secrecy" clause. ENDORSEMENT AGREEMENT In October 1999, the Company entered into an agreement with former LPGA Golf Professional Kathy Whitworth, effective January 1, 2000 through December 31, 2005. Under the terms of the agreement, Ms. Whitworth grants the company an exclusive license to use her name, likeness, image and personal identification, singly or in any combination, in connection with the production, marketing and sale of a "Kathy Whitworth" signature line of women's golf clubs. In addition, the Company has the right to include Ms. Whitworth in two print and one-television advertisement per year. The Company will pay Ms. Whitworth a base fee of $36,000 per year in equal quarterly payments. In addition, Ms. Whitworth will receive a royalty fee of 2% of net sales of "Kathy Whitworth" line of clubs. Ms. Whitworth agrees to use only the golf clubs and golf bags of the Company in any golf event, either professional or social, during the term of the agreement. Ms. Whitworth will serve as a golf instructor at up to 10 golf clinics per calendar year. In addition, Ms. Whitworth will represent the Company at 2 Professional Golf Association merchandise shows as their spokesperson each calendar year. The Company will reimburse Ms. Whitworth for all reasonable and necessary travel expenses in connection with her performance of the services. LEGAL The Company, in the ordinary course of business, is party to a legal action, the outcome of which, in the opinion of management, will not have a material adverse effect on the result of operations, cash flows or financial position of the Company. F-12 30 OTHER LIABILITIES Under the terms of a Separation Agreement, the Company is obligated to pay its former President $6,000 per month for a period of ten years that began on April 1, 1992 as consideration for his covenant not to compete with the Company. The obligation is recorded at its present value in other current and non-current liabilities, and accrues interest at 9% per annum. In connection with the Separation Agreement, the Company granted its former President stock options for 250,000 shares of the Company's common stock ("Common Stock") at an exercise price of $4.48 per share, which was the average of the closing bid and asked prices of the Company's Common Stock on the last trading date immediately preceding the effective date of the grant. Subject to certain limitations, the options were exercisable immediately and will remain exercisable until April 16, 2006. If, and to the extent that, any amount is realized in excess of the exercise price upon the sale of any Common Stock obtained upon exercise of all or any part of the options, then 65 percent of such excess amount, subject to certain limitations, is to be paid to the Company in immediately available funds concurrent with the realization event. 9. STOCK OPTIONS AND GRANTS OF STOCK Options have been granted to current and former officers, employees and directors of the Company at the discretion of the Company's Board of Directors. The table below summarizes all outstanding stock options.
WEIGHTED NUMBER AVERAGE OF SHARES EXERCISE PRICE ---------- --------------- Outstanding at January 1, 1997 491,670 $4.006 Granted 164,000 2.232 Canceled or expired 90,000 5.000 ------ ----- Outstanding at December 31, 1997 565,670 $3.333 Granted 2,000 4.250 ----- ----- Outstanding at December 31, 1998 567,670 $3.336 Granted 28,875 2.608 ------ ----- Outstanding at December 31, 1999 596,545 $3.295 ======= ======
The Company applies the intrinsic value method in accounting for its stock plans. Accordingly, no compensation cost has been recognized for stock option grants issued to employees under any of the Company's stock option plans. If compensation cost for stock option grants issued during 1999, 1998 and 1997 had been determined under the provisions of SFAS No. 123, the Company's net income would have been $276,504 $436,331, and $661,172, respectively. The Company's net income per share for basic and diluted in 1999, 1998 and 1997 would have been $.12 and $.12, $.20 and $.19, $.29 and $.28, respectively. The fair value of each stock option granted under the Company's plans was estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to value grants issued under the plans in 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Annualized Volatility 46% 70% 66-83% Risk-free interest rate 5% 5% 5% Expected term of option (in years) 3.5 3.5 3.5 Dividend Yield N/A N/A N/A
The weighted average fair values per share of stock options granted during 1999, 1998 and 1997 were $3.00, $4.25 and $2.23, respectively. The exercise price ranges for options outstanding and exercisable at December 31, 1999 were: F-13 31
NUMBER OF SHARES WEIGHTED OUTSTANDING AND AVERAGE EXERCISABLE AT EXERCISE EXERCISE PRICE RANGE DECEMBER 31, 1999 PRICE - -------------------- ----------------- ----- $0.50 to $2.00 174,000 $1.46 $2.01 to $5.00 422,545 $4.05 ------- ----- Total 596,545 $3.30
The Company has generally granted options that do not expire. GRANTS OF STOCK TO DIRECTORS The Company compensates its non-employee directors by granting such persons shares of the Company's Common Stock having a value of $1,000 for every meeting of the Board of Directors or committee thereof attended by such person, and shares of common stock having a value of $500 if such person participated in a meeting by telephone. The number of shares issued is based on the closing price of the stock on the exchange where traded on the meeting date or the preceding date on which such shares were traded. 10. RELATED PARTY TRANSACTIONS During the fiscal years ended December 31, 1999 and 1998, Richard M. Maurer and Robert L. Ross provided the Company with an insignificant amount of employee services on a non-compensated basis. Mr. Maurer is Secretary and a director of the Company and Mr. Ross is Chief Executive Officer, Chairman and a director of the Company. During the fiscal years ended December 31, 1999, 1998 and 1997, the Company retained the law firm of Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C., of which Frederick B. Ziesenheim, a director of the Company, is a Vice Chairman, to represent the Company on various intellectual property matters. The Company had paid Webb Ziesenheim Bruening Logsdon Orkin & Hanson, P.C. $22,807, $28,122, and $17,524 in 1999, 1998 and 1997, respectively, and was indebted in the amount of $2,673, $877, and $627 at December 31, 1999, 1998 and 1997, respectively. During the fiscal years ended December 31, 1999 and 1998, the Company retained the law firm of Squire, Sanders & Dempsey L.L.P., of which Mary Ann Jorgenson, a director of the Company, is a partner, to represent the Company on various matters. The Company had paid Squire, Sanders & Dempsey L.L.P. $ 22,494 in 1999 and was indebted in the amount of $ 3,162 and $ 1,173 at December 31, 1999 and 1998 respectively. 11. SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS During 1999, 1998 and 1997, the Company recorded certain non-cash charges of $15,925, $20,734, and $25,130, respectively, representing accrued interest for a liability to its former President in connection with his Separation Agreement. F-14 32 S2 GOLF, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD --------- -------- -------- ---------- --------- YEAR ENDED: ALLOWANCE FOR DOUBTFUL ACCOUNTS December 31, 1997 250,131 159,000 --- 88,194(1) 320,937 December 31, 1998 320,930 268,450 --- 376,818(1) 212,562 December 31, 1999 212,562 272,919 --- 270,481(1) 215,000 ALLOWANCE FOR RETURNS December 31, 1997 62,000 184,289 --- 157,657 88,632 December 31, 1998 88,632 135,930 --- 136,562 88,000 December 31, 1999 88,000 190,586 --- 195,586 83,000 ALLOWANCE FOR DISCOUNTS December 31, 1997 90,877 128,977 --- 169,854 50,000 December 31, 1998 50,000 225,427 --- 235,427 40,000 December 31, 1999 40,000 236,974 --- 236,974 40,000 INVENTORY OBSOLESCENCE RESERVE December 31, 1997 200,374 72,000 --- 49,298 223,076 December 31, 1998 223,076 --- --- 60,621 162,455 December 31, 1999 162,455 75,000 --- 87,049 150,406
(1) Uncollectible Accounts Written Off, Net of Recoveries F-15 33 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT* 3.1 Amended and Restated Certificate of Incorporation of the Company dated June 28, 1991 (incorporated by reference to Exhibit 3.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991). 3.2 Amended and Restated By-laws of the registrant dated December 6, 1991 (incorporated by reference to Exhibit 3.2 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 4.1 Common Stock Purchase Warrant in favor of Wesmar Partners dated February 28, 1988 (incorporated by reference to Exhibit 4.4 of the registrant's Registration Statement No. 33-37371 on Form S-3). 4.2 Common Stock Purchase Warrant in favor of Wesmar Partners dated February 28, 1988 (incorporated by reference to Exhibit 4.5 of the registrant's Registration Statement No. 33-37371 on Form S-3). 4.3 Stock Option Agreement between the registrant and Wesmar Partners dated February 29, 1988 (incorporated by reference to Exhibit 4.6 of the registrant's Registration Statement No. 33-37371 on Form S-3). 10.0 Credit Agreement and Security Agreement between the registrant and Midlantic Bank, National Association dated December 29, 1994 (incorporated by reference to Exhibit 99 of the registrant's Current Report on Form 8-K dated December 26, 1994). 10.1 United States Patent No. 4,203,598 issued to the registrant (incorporated by reference to Exhibit 10.3 of the registrant's Registration Statement No. 33-16931 on Form S-1). 10.2 Amended and Restated Licensing Agreement between Ladies Professional Golf Association and the registrant dated January 1, 1999. 10.3 Lease Agreement between the registrant and 12 Gloria Lane Limited Partnership dated June 22, 1989 (incorporated by reference to exhibit 10.6 of the registrant's Registration Statement No. 33-37371 on Form S-3). 10.4 Modification of Lease Agreement between the registrant and 12 Gloria Lane Industrial Partnership dated October 3, 1995 (incorporated by reference to Exhibit 10.2 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1995). 10.5 1984 Incentive Stock Option Plan of the registrant dated February 10, 1984 (incorporated by reference to Exhibit 10.7 to the registrant's Registration Statement No. 33-16931 on Form S-1). 10.6 Consulting Agreement between the registrant and MR & Associates dated January 1992 (incorporated by reference to exhibit 10.10 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1992). F-16 34 10.7 Amendment of Consulting Services Agreement between the registrant and MR and Associates effective as of February 1, 1996 (incorporated by reference to Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.8** 1992 Stock Plan for Independent Directors of S2 Golf, Inc. dated December 28, 1992 (incorporated by reference to Exhibit 10.11 of the registrant's Annual Report on form 10-K for the year ended December 31, 1992). 10.9** Employment Agreement between the registrant and Douglas A. Buffington dated January 1, 1995 (incorporated by reference to Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 10.10** Agreement between the registrant and Randy A. Hamill dated January 2, 1997 (incorporated by reference to Exhibit 10.10 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.11 Second amendment to loan and security agreement between registrant and PNC Bank dated December 1, 1997 (incorporated by reference to Exhibit 10.12 of the registrant's Annual Report on Form 10-K for the year ended December 31, 1997). 10.12 License Agreement between the registrant and Raymond Lanctot Ltee/Ltd. dated June 28, 1999. 10.13 Endorsement Agreement between the registrant and Kathy Whitworth dated October 13, 1999. 27 Financial Data Schedule. * In the case of incorporation by reference to documents filed by the registrant under the Exchange Act, the registrant's file number under the Act is 0-14146. ** Management contract or management compensatory plan or arrangement. F-17 EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT 10.2 AMENDED AND RESTATED LICENSING AGREEMENT This Agreement is made this 1ST day of JANUARY 1999 by and between the LADIES PROFESSIONAL GOLF ASSOCIATION, an Ohio nonprofit corporation with offices at 100 International Golf Drive, Daytona Beach, Florida 32124-1092 ("LPGA"), and S2 GOLF INC., a New Jersey corporation having its principal place of business at 18 Gloria Lane, Fairfield, New Jersey 07004 (hereinafter, "Licensee"). WHEREAS, the LPGA owns all right, title and interest in, and has the exclusive right to license the use of, its name and marks and the logo as described and depicted in Exhibit A attached hereto (collectively, the "Logos"); WHEREAS, Licensee desires to obtain from the LPGA, and the LPGA desires to grant to Licensee, a license to use the Logos in connection with the manufacture, distribution and sale of the articles specified in Exhibit B attached hereto in accordance with the terms and conditions of this Agreement; WHEREAS, the LPGA and Licensee have previously entered into that certain Amended and Restated Licensing Agreement dated July 1, 1996 (the "Former Licensing Agreement"); and WHEREAS, the LPGA and Licensee desire hereby to amend and restate the Former Licensing Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: 1. DEFINITIONS. (a) "Premium" shall mean any articles used or to be used for the purpose of increasing the sale of or publicizing any other product or service. (b) "Net Sales" shall mean the dollar amount of gross sales of the Licensed Products by Licensee or by any entity affiliated with Licensee, less (i) quantity and cash discounts, (ii) returns actually made or allowed, and (iii) a deduction for uncollectible accounts but without deduction for commissions, taxes, manufacturing, marketing and distribution costs or any other amount. For purposes of calculating Net Sales, Licensed Products distributed by Licensee or by any entity affiliated with Licensee at less than the usual net sales price for such Licensed Products shall be deemed to have been distributed at the usual net sales price for such Licensed Product. 2. GRANT OF LICENSE. 2 (a) The LPGA grants to Licensee during the entire Term of this Agreement (i) the non-exclusive, worldwide license to use the Logos solely in connection with the manufacture, distribution and sale of the Non-Exclusive Articles described in Exhibit B attached hereto and made a part hereof and (ii) the exclusive worldwide license to use the Logos solely in connection with the manufacture, distribution and sale of the Exclusive Articles described in Exhibit B attached hereto and made a part hereof (the Non-Exclusive Articles and Exclusive Articles set forth in Exhibit B attached hereto are collectively referred to as the "Licensed Products"). (b) No license is granted hereunder for the use of the Logos for any purpose other than upon or in connection with the Licensed Products. Except as permitted under paragraph 2(b) above, no license is granted hereunder for the manufacture, sale or distribution of the Licensed Products for publicity purposes, in combination sales, as Premiums or giveaways, or in connection with any similar method of merchandising. If the Exclusive Articles of the Licensed Products are required by the LPGA for Premium purposes, the LPGA shall, by separate agreement, grant Licensee the right to manufacture and sell such merchandise for such purposes, provided that such additional grant does not conflict with other commitments of the LPGA and that Licensee is able to produce the same in the quantities required at competitive prices. If Licensee is unable to meet such conditions, the LPGA shall have the right to obtain such merchandise from other manufacturers. 3. SCOPE. Licensee shall be entitled to use the license granted hereunder on a worldwide basis. Notwithstanding the preceding sentence, Licensee acknowledges that the LPGA has made no representations or warranties of any nature pertaining to the use of the Logos outside the United States. Without limiting the generality of the foregoing, the LPGA disclaims any representation or warranty, express or implied, concerning the ownership, exclusivity, or the right to the use of the Logos outside of the United States. Licensee hereby acknowledges that the license granted to Licensee hereunder grants to Licensee only such rights, if any, that Licensor has in and to the Logos outside of the United States. If requested by Licensee, the LPGA agrees to cooperate with Licensee to permit Licensee to procure and obtain, in the name and on behalf of the LPGA, trademark, copyright, design patent or other property right protection of the Logos, at Licensee's expense, in Jurisdictions outside the United States; provided, however, that the LPGA agrees promptly to reimburse Licensee for its expenses incurred in connection with obtaining such protection in an aggregate amount not to exceed $2,000 for each calendar year during the Term of this Agreement. 4. TERM. The Initial Term of this Agreement shall commence as of January 1, 1999, and shall continue through December 31, 2003. Licensee shall have the option (the "Option"), upon one hundred twenty (120) days prior written notice received by the LPGA before the expiration hereof, to renew this Agreement for a second Subsequent Term of two (2) years, the approval of which renewal the LPGA shall withhold only if Licensee has substantially failed to perform its material obligations hereunder to the reasonable satisfaction of the LPGA. The Initial Term plus any and all Subsequent Terms shall equal the entire Term of this Agreement. The Term of the Former Licensing Agreement shall expire on December 31, 1998. 2 3 5. ANNUAL LICENSE FEE AND ROYALTY PAYMENTS. (a) In consideration of the license granted herein to Licensee by the LPGA, Licensee shall pay to the LPGA an annual license fee (the "Annual License Fee"), payable as follows: Calendar Year Annual License Fee ------------- ------------------ 1999, 2000, 2001, 2002 & 2003 $200,000 If Option is exercised: 2004 & 2005 $225,000 (b) In addition to the Annual License Fee payable by Licensee to the LPGA pursuant to paragraph 5(a) above, Licensee hereby agrees to pay to the LPGA an annual royalty payment (the "Annual Royalty Payment") calculated in the following manner: (i) During the Term of this Agreement, in the event that the sum of (A) five percent (5%) of the Net Sales of the Licensed Products (other than golf shoes) up to $1,000,000 in any calendar year, (B) two and one-half percent (2.5%) of the Net Sales of the Licensed Products (other than golf shoes) in excess of $1,000,000 and less than $5,000,001 in any calendar year and (C) one percent (1%) of the Net Sales of the Licensed Products (other than golf shoes) in excess of $5,000,000 in any calendar year exceeds the Annual Licensee Fee paid by Licensee in such year pursuant to paragraph 5(a) above, the Annual Royalty Payment payable by Licensee with respect to such year shall be the sum of (a) the amount equal to such excess plus (b) one percent (1%) of the Net Sales of golf shoes in any calendar year. (c) Licensee agrees to spend a minimum of $100,000 per year during the entire Term of this Agreement advertising the Licensed Products in the United States. (d) Licensee shall make the Annual License Fee payments in equal quarterly installments on January 1, April 1, July 1 and October 1 of each subsequent year during the entire Term of this Agreement. (e) On or before April 30 of each year during the Term of this Agreement, Licensee shall furnish the LPGA full and accurate statements, certified by the chief financial officer of Licensee, showing the number, description and Net Sales of the Licensed Products distributed and/or sold by Licensee during the previous year, and simultaneously therewith Licensee shall make all Annual Royalty Payments, if any, to the LPGA which are due to the LPGA as a result of the sales made during the period covered by such statements. Receipt or acceptance by the LPGA of any of the statements furnished pursuant to this paragraph 5(e) shall not preclude the LPGA from questioning the correctness thereof at any time within two (2) years of the date of the respective statement and, in the event any inconsistencies or mistakes are discovered in such statement in any such two (2) year period, they shall be immediately rectified and appropriate adjustments made by the parties. All information so furnished by Licensee shall be treated as confidential by the LPGA. 3 4 (f) Simultaneously with the April 30 statements specified in paragraph 5(e) above, Licensee shall furnish the LPGA an accounting of the dollar amount and manner of advertising of the Licensed Products during the preceding calendar year. (g) Licensee's obligations under paragraphs 5(e) and 5(f) above shall continue during the calendar year following the expiration of this Agreement and shall not terminate because of Licensee's failure to exercise the Option. (h) If the LPGA fails to perform or is in breach of any material term of this Agreement, Licensee shall be relieved of paying to the LPGA any installment of the applicable Annual License Fee and Annual Royalty Payment until such time as such failure to perform or material breach is corrected by the LPGA, at which time any unpaid Annual License Fee or Annual Royalty Payment shall become immediately due and payable. 6. TERMS. (a) LPGA hereby agrees to provide the following promotional support to Licensee in consideration of the payment of the royalties hereunder: (i) From January 1, 1999 through the expiration of this Agreement, provision of the non-exclusive designation, "Official Sponsor of the LPGA"; (ii) Eight (8) pro-am playing spots in the aggregate at tournaments sponsored or co-sponsored by the LPGA for each calendar year during the term of this Agreement, such tournaments to be mutually agreed upon by Licensee and LPGA; provided, however, that one (1) position shall be guaranteed for the LPGA Championship; (iii) Ten (10) "Season Badges" at each LPGA sponsored or co-sponsored event when requested by Licensee; and (iv) Designation as an "Official Sponsor of the LPGA Teaching and Club Professional Division". (b) LPGA hereby further agrees that during the Initial Term of this Agreement Licensee shall annually be the "Title Sponsor" of the LPGA Teaching and Club Professionals ("T&CP") Division Team Classic, with promotional benefits as detailed in Exhibit C. In consideration of such title sponsorship, the Licensee shall pay the following amounts to the T&CP Division: 4 5 Year Annual Amount ---- ------------- 1999 $35,000 2000 $37,500 2001 $40,000 2002 $42,500 2003 $45,000 2004 $47,500 2005 $50,000 (c) Licensee hereby agrees to extend through December 31, 2003 the T&CP Division rebate programs that have been in effect since July 31, 1991, as amended and restated in Exhibit D hereto. (d) Subject to the conditions described in subparagraphs 6(d)(i) and (ii), Licensee hereby further agrees to transfer to the LPGA any and all intellectual property rights that Licensee may have to, and materials comprising, the existing so-called "Square Two/LPGA Club Fitting Workshop Program". Licensee's agreement to so transfer its rights is conditioned upon (i) the LPGA's continued exclusive use of Licensee's products for this club fitting workshop program held during the Term of this Agreement and (ii) Licensee's prior approval of the LPGA's choice of instructor(s) for each such club fitting workshop program. Licensee shall not unreasonably withhold such approval. (e) The LPGA hereby further agrees that during the Term of this Agreement the LPGA will not (i) provide an exclusive license, with respect to any of the types of products included on Exhibit B, to any person or entity other than Licensee and (ii) provide a non-exclusive license, with respect to the type of products included in Exclusive Articles on Exhibit B, to any person or entity. 7. COPYRIGHT AND TRADEMARK PROTECTION. (a) The LPGA hereby represents and warrants to Licensee that it owns all right, title and interest in and to the Logos in the United States, and to the knowledge of the LPGA, the grant of the license hereunder will not violate any agreement or license to which the LPGA may be subject. (b) Except as otherwise set forth in Section 3 above, the LPGA shall be solely responsible for taking such action as it deems appropriate to obtain copyright, trademark or service mark registrations for the Logos. Licensee shall perform all acts necessary and execute all necessary documents to effect such registrations, and to register as a user of the Logos where such registration is needed, and to otherwise assist the LPGA to the extent necessary to protect the LPGA's rights to the Logos. (c) Licensee acknowledges and agrees that the LPGA owns the exclusive right, title and interest in and to the Logos and any copyright, trademark or service mark registrations that have issued or may issue thereon and that use of the Logos shall inure to the benefit of the LPGA. Licensee shall not at any time acquire or claim any right, title or interest of 5 6 any nature whatsoever in or to the Logos by virtue of this Agreement or Licensee's use of the Logos, and any right, title or interest in or relating to the Logos which comes into existence as a result of, or during the exercise by Licensee of, any right granted to it hereunder shall immediately vest in the LPGA. (d) All uses of the Logos by Licensee shall include any designations legally required or useful for enforcement of copyright, trademark or service mark rights, such as "(C)", "(R)", "(TM)" or ("SM"). The LPGA shall have the right to revise the above designation requirements and to require such other notices as shall be reasonably necessary to protect the rights and interests of the LPGA in the Logos. (e) Licensee shall notify the LPGA in writing of any infringements or imitations of the Logos by others, and the LPGA, in its sole discretion and expense, may commence or prosecute any claims or suits resulting from such infringements or imitations in its name or in the name of Licensee or join Licensee as a party thereto. Licensee shall not institute any suit or take any action on account of any infringements or imitations of the Logos without the prior written consent of the LPGA. (f) In the event Licensee employs the services of photographers in connection with the production, promotion, marketing or distribution of the Licensed Products, Licensee shall require each such photographer to agree that the photographic works produced for Licensee will be "works made for hire" for the purposes of the copyright laws, and, to the extent such photographic works may not qualify as "works made for hire", Licensee shall cause the copyright in each such work to be assigned to the LPGA. 8. INDEMNIFICATION. (a) Licensee shall indemnify and hold the LPGA harmless from and against any and all claims, actions, damages, liability, cost and expense, including reasonable attorneys' fees and costs of suit or arbitration, arising out of or in connection with (i) the design, manufacturing, promotion, sale, distribution or use of the Licensed Products; or (ii) the unauthorized use of the Logos. (b) The LPGA shall indemnify and hold harmless Licensee from and against any and all claims, actions, damages, liability, cost and expense, including reasonable attorneys' fees and costs of suit or arbitration, arising out of (i) Licensee's use of the Logos in accordance with this Agreement, (ii) Licensee's title sponsorship of the T&CP Division Team Classic, and (iii) the LPGA's post transfer use of the intellectual property rights and materials transferred to the LPGA pursuant to subparagraph 6(d) hereof, provided that the LPGA is given prompt written notification of, and shall have the option to undertake and conduct the defense of, any such claim or action. (c) Each party agrees to indemnify and hold harmless the other party, its directors, officers, employees, members and representatives, from and against any and all claims, actions, damages, liability, cost and expense, including reasonable attorneys' fees, 6 7 arising out of or in connection with any act or omission on the part of the indemnifying party in the performance or non-performance of its duties under this Agreement. (d) Licensee shall obtain, at its own expense, comprehensive general liability insurance, including product liability insurance, providing adequate protection for the LPGA and Licensee against any claims or suits, with coverage on the basis of occurrences rather than claims made and in an amount no less than $1,000,000 per incident or occurrence, or Licensee's standard insurance policy limits, whichever is greater. Such insurance shall remain in force at all times during the term of this Agreement and for a period of five (5) years thereafter. Within thirty (30) days from the date hereof, Licensee shall submit to the LPGA a certificate of insurance evidencing such coverage and naming the LPGA as an additional insured party thereon. Licensee shall require the insurer to provide the LPGA with at least thirty (30) days written notice prior to the cancellation or material modification of such coverage. 9. QUALITY OF LICENSED PRODUCTS. Licensee agrees that the Licensed Products shall be of high standards of style, quality and appearance. Licensee shall, at the LPGA's written request, periodically send samples of Licensed Products to the LPGA to confirm Licensee's compliance with the requirements of this Section 9. All samples of the Licensed Products and materials sent to the Commissioner of the LPGA pursuant to this Section 9 shall be accompanied by a cover letter (a copy of which shall also be forwarded to the Deputy Commissioner of the LPGA) which states that such samples and materials are being furnished pursuant to Section 9 of this Agreement for the purpose of inspection and approval by the LPGA. Any sample furnished to the LPGA for its approval or consent pursuant to this Section 9 shall be deemed approved and consented to by the LPGA unless Licensee is notified otherwise within thirty (30) days after the LPGA's receipt of such sample. Licensee shall not sell or distribute irregulars or seconds of, any Licensed Product approved by the LPGA pursuant to this Section 9, without the prior written consent of the LPGA. 10. PROMOTIONAL MATERIAL. All promotional displays and advertising materials for the Licensed Products shall (i) contain and prominently display the Logos, (ii) use and conform to presentation suggested by the LPGA and (iii) be gender specific with respect to the use by women of the Exclusive Articles of the Licensed Products. Under no circumstances will Licensee use the Logos in connection with "lotteries" or "games of chance" sponsored by Licensee. 11. DISTRIBUTION. Licensee shall use its best efforts to manufacture, distribute and sell the Licensed Products in all price and quality brackets that may be required to meet competition by reputable manufacturers of similar articles. Licensee shall make and maintain adequate arrangements for the distribution of the Licensed Products throughout the world. 12. GOODWILL. Licensee recognizes the great value of the publicity and goodwill associated with the Logos and, in that connection, acknowledges that (i) such goodwill belongs exclusively to the LPGA, (ii) no such property or other right will vest in Licensee as a result of this Agreement or of Licensee's use of the Logos permitted hereunder, and (iii) the Logos have acquired a secondary meaning in the mind of the public. 7 8 13. SPECIFIC UNDERTAKINGS OF LICENSEE. During the term of this Agreement and thereafter, Licensee agrees that: (a) It will not do or cause to be done any act or thing contesting or in any way impairing or tending to impair the right, title and interest of the LPGA in and to the Logos, or any copyright, trademark or service mark pertaining thereto, nor will it attack the validity of the license granted hereunder; (b) It will not use the Logos in any manner other than as licensed hereunder, nor will it at any time, without the prior written consent of the LPGA, adopt or use any word or mark which is likely to be similar to or confusing with the Logos; (c) It will not harm, misuse or bring into disrepute the Logos; (d) It will not create any expenses chargeable to the LPGA without the prior written approval of the LPGA; (e) It will not enter into any sublicense or agency agreement for the manufacture, sale or distribution of the Licensed Products without the prior written consent of the LPGA; (f) Except as otherwise provided in paragraph 2(b) above, it will not use, or knowingly permit the use of, the Licensed Products as a giveaway or as a Premium without the prior written consent of the LPGA; (g) It will comply in all material respects with all applicable laws, regulations and requirements relating or pertaining to the manufacture, sale, advertising or use of the Licensed Products, including, without limitation, the requirements of the United States Consumer Product Safety Commission; (h) Except as otherwise provided in that certain letter agreement between the parties hereto dated July 31, 1991 as amended and restated in Exhibit D hereto, Licensee will offer the Licensed Products for sale to the LPGA at prices not to exceed the lowest wholesale prices for such Licensed Products, and shall promptly ship or deliver to the LPGA all Licensed Products purchased by the LPGA; (i) In calendar year 1999, it will agree to air one (1) :30 advertising unit per each day of the following telecasts at a cost of $3,500 per :30 unit ($60,000 net), that would result in (8) :30 advertising units on ESPN and nine (9) :30 advertising units on ESPN2 (for clarification, Chick-fil-A, ShopRite and Giant Eagle are three-day telecats; Wegmans and Michelob Light are four-day events). 8 9 EVENT DATE NETWORK ----- ---- ------- Chick-fil-A Charity Championship April 23-25, 1999 ESPN2 Wegmans Rochester International June 10-13, 1999 ESPN ShopRite LPGA Classic June 18-20, 1999 ESPN2 Michelob Light Classic July 8-11, 1999 ESPN Giant Eagle LPGA Classic July 23-25, 1999 ESPN2 In addition to the seventeen (17) :30 advertising units provided above, Licensee will receive one (1) opening or closing billboard within each of the five (5) 1999 Mercury Series events listed above, event for a total of five (5) billboards. In 1999, Licensee agrees to commit an additional $15,000 net to advertising opportunities on non-Mercury Series LPGA television programming. The allocation of which shall be mutually agreed upon between Licensee and the LPGA no later than March 1, 1999. If the Licensee's advertising experience is satisfactory with the 1999 Mercury Series, Licensee will commit to expending a minimum of $75,000 of its annual television budget to future Mercury Series events. However, at its discretion, Licensee will have the right to terminate this Mercury Series commitment after 1999 if satisfactory advertising performance is not realized from the Mercury Series. 14. TERMINATION. (a) The occurrence of any one or more of the following events shall constitute a Default by Licensee under this Agreement: (i) If Licensee fails to deliver to the LPGA or to maintain in full force and effect the insurance referred to in paragraph 8(d) above; or (ii) If Licensee fails to make any payment due hereunder on the date due; or (iii) If Licensee fails to deliver any of the statements required pursuant to paragraph 5(e) above or to provide the LPGA or its authorized representatives with access to Licensee's premises and/or records and accounts pursuant to Section 17 below; or (iv) If any governmental agency or court of competent jurisdiction finds that a Licensed Product is defective in any way, manner or form that, in the reasonable opinion of the LPGA, brings into disrepute the Logos; or (v) If Licensee is unable to pay its debts when due, or makes any assignment for the benefit of creditors or an arrangement pursuant to any bankruptcy law, or files or has filed against it any petition under the bankruptcy or insolvency laws of any jurisdiction, 9 10 county or place, or shall have or suffer a receiver or trustee to be appointed for its business or property, or be adjudicated a bankrupt or an insolvent; or (vi) If Licensee does not commence in good faith to manufacture, distribute and sell the Licensed Products in accordance with the terms of this Agreement within three (3) months from June 1, 1996; or (vii) If Licensee shall discontinue its business as it is now conducted: or (viii) If, in the periodic statements furnished pursuant to paragraph 5(e) above, the amounts owed to the LPGA are significantly or consistently understated; or (ix) If Licensee shall fail to perform or shall be in breach of any material term of this Agreement; or (b) In the event Licensee has failed to cure a Default within thirty (30) days of receipt of written notice from the LPGA specifying such Default, the LPGA shall have the right to terminate this Agreement. (c) In the event that the LPGA grants, during the Term of this Agreement, a Competing License, Licensee shall have the right to Terminate this Agreement. Upon Licensee's election to so terminate this Agreement Licensee (other than as described in Sections 14(d) and 15 below) shall have no further obligations to the LPGA. (d) Upon termination of this Agreement pursuant to this Section 14, Licensee shall pay the LPGA any and all payments then due from Licensee hereunder, and Licensee shall have no further right to use, manufacture, advertise, distribute, sell or otherwise deal in any products which use the Logos. The LPGA's exercise of its right to terminate this Agreement pursuant to this Section 14 shall be without prejudice to any other rights and remedies available to it at law or in equity. 15. DISPOSAL OF STOCK. Except as otherwise provided in this Section 15, after the termination or expiration of this Agreement, Licensee shall have no further right to manufacture, distribute, sell, exploit or otherwise deal in any articles which utilize the Logos. Within thirty (30) days after the expiration or termination of this Agreement, Licensee shall deliver to the LPGA a statement indicating the number and description of the Licensed Products on hand or in process as of the date of such statement. During the period of three hundred sixty (360) days immediately following the expiration or termination of this Agreement, Licensee may dispose of products or materials which are on hand or in process at the time of such expiration or termination, but only in the normal course of business and at regular or reasonably discounted selling prices. All such sales shall be subject to the terms and conditions of this Agreement. Licensee may remove the Logos from any such products or materials and shall be free to sell or dispose of such products or materials in any manner it sees fit as long as identification of the LPGA is not possible. 10 11 16. LPGA REPRESENTATIONS. The LPGA agrees, warrants and represents the following: (a) It has and will have throughout the term of this Agreement the exclusive right to license the Logos to Licensee in the United States. (b) The making of this Agreement by the LPGA and the fulfillment of its obligations hereunder does not violate the Constitution or By-Laws of the LPGA or, to the knowledge of the LPGA, any agreements, rights or obligations existing between the LPGA and others. (c) The LPGA will be throughout the term of this Agreement the sole owner of all right, title and interest in and to the Logos hereinabove described, for use in connection with the manufacture, development, promotion, sale or distribution of the Licensed Products in the United States. (d) The LPGA has the exclusive right to register in the United States the name "Ladies Professional Golf Association" and its present logo as trademarks on the public register of the United States Patent and Trademark Office, for use in connection with the Licensed Products herein. (e) The LPGA has the exclusive right to obtain appropriate United States copyright registration respecting all existing and any new art work in connection with the Logos licensed herein. 17. BOOKS AND RECORDS. (a) Licensee shall keep, maintain and preserve at Licensee's place of business, for at least two (2) years following termination or expiration of this Agreement, complete and accurate records and accounts including, but not limited to, invoices, correspondence, banking and financial and other records pertaining to the various items required to be shown on the statements to be submitted by Licensee pursuant to paragraph 5(e) above. Such records and accounts shall be available to the LPGA or its representatives for inspection and for purposes of making extracts therefrom and copies thereof and for audit at any time or times during reasonable business hours and upon reasonable notice by the LPGA. (b) Licensee further agrees, in order to facilitate inspection of its books and records by the LPGA, that it will designate a symbol or number which shall be used by Licensee on all books and records to denote activity relating to the Licensed Products. 18. RESERVATION OF RIGHTS. The LPGA retains all rights not expressly and exclusively conveyed herein, and the LPGA may grant to third parties the right to use the Logos in connection with other products, including products identical to the (i) Non-Exclusive Articles and (ii) during any Subsequent Term, Initially Exclusive Articles of Licensed Products set forth in Exhibit B attached hereto. 11 12 19. CONFIDENTIALITY. All records and accounts, and statements thereof, and other information furnished or made available by one party to the other hereunder shall be kept confidential by the other party and shall not be disclosed to any third party, or to any person without need to know, without the prior written consent of the party furnishing such information. 20. NOTICES. All notices, requests, consents and other communications required or permitted hereunder, if any, shall be in writing and hand-delivered, telecopied or mailed by first class mail, certified, return receipt requested and, if hand delivered, shall be deemed to be received when so delivered, if telecopied, shall be deemed to be received when transmission is confirmed or, if mailed, shall be deemed to be received two (2) days after the date of mailing and shall be addressed as follows: The LPGA: Ladies Professional Golf Association 100 International Golf Drive Daytona Beach, Florida 32124-1092 Fax: (904) 274-6200 Attention: Commissioner Copy to: Ty M. Votaw, Esq. Vice President of Business Affairs Ladies Professional Golf Association 100 International Golf Drive Daytona Beach, Florida 32114 Fax: (904) 274-1099 Licensee: S2 Golf Inc. 18 Gloria Lane Fairfield, New Jersey 07004 Attention: Douglas A. Buffington Fax: (201) 227-7018 Copy to: Mr. Robert L. Ross Suite 16 South Three Gateway Center Pittsburgh, Pennsylvania 15222 Fax: (412) 392-2361 or such other address or telephone numbers as either party hereto shall have designated to the other in writing. 21. ENTIRE AGREEMENT. This Agreement, together with the Exhibits attached hereto, constitutes the entire agreement of the parties hereto as to the matters stated herein, and no amendment or modification shall be binding unless reduced to writing and signed by the parties. 22. WAIVER. The failure of any party at any time to demand strict performance by another of any of the terms, covenants or conditions set forth herein shall not be construed as a 12 13 continuing waiver or relinquishment thereof, and any party may, at any time, demand strict and complete performance by another of the terms, covenants and conditions hereof. 23. RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be construed to place the LPGA and Licensee in an agency, partnership or joint venture relationship. Neither party shall have the right to obligate or bind the other in any manner whatsoever, and nothing herein contained shall give or is intended to give any rights of any kind to any third persons. 24. ASSIGNMENT. This Agreement and any rights granted herein are personal to Licensee and shall not be assigned, sub-licensed or encumbered by Licensee without the prior written consent of the LPGA. This Agreement shall be binding upon and shall inure to the benefit of the parties' permitted successors and assigns. 25. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio, and the applicable trademark and copyright laws of the United States, without regard to the conflicts of law principles thereof. 26. SEVERABILITY. In the event any one or more provisions of this Agreement shall be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 27. ACCEPTANCE BY LPGA. This instrument, when signed by Licensee, shall be deemed an application for a license and not a binding agreement unless and until signed by the LPGA. 28. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall together constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above: LADIES PROFESSIONAL GOLF ASSOCIATION /s/ JIM RITTS ----------------------------------- Name: Jim Ritts Title: Commissioner S2 GOLF INC. /s/ DOUGLAS A. BUFFINGTON ----------------------------------- Name: Douglas A. Buffington Title: President 13 14 EXHIBIT A --------- LOGOS ----- Registered in the United States Patent and Trademark Office, Registration Number _________________________ and Dated _____________________________. The term Logos also refers to any other marks or logos developed and utilized by the LPGA during the term of this Agreement, other than any marks and logos developed and utilized by the LPGA in conJunction with LPGA co-sponsored events and/or tournaments. 15 EXHIBIT B --------- LICENSED PRODUCTS ----------------- Exclusive Articles: - ------------------ Women's golf clubs (woods, irons, putters and utility clubs). Non-exclusive Articles: - ---------------------- Golf bags, golf balls, golf gloves, golf shoes, carryalls, visors, caps, hats and umbrellas. 16 EXHIBIT C --------- SQUARE TWO LPGA Teaching and Club Professional Team Classic - -------------------------------------------------------------------------------- SQUARE TWO GOLF TITLE SPONSORSHIP BENEFITS 1999-2005 - -------------------------------------------------------------------------------- 17 SQUARE TWO LPGA TEACHING AND CLUB PROFESSIONAL TEAM CLASSIC TITLE SPONSORSHIP - - Exclusive designation of Square Two Golf as the title sponsor of the Square Two LPGA Teaching and Club Professional Team Classic from January 1, 1999 to December 31, 2005. HOST SITE - - To be determined by the LPGA T&CP Division and approved by Square Two. MEDIA BENEFITS - - Production and distribution of a national and international LPGA press release announcing the title sponsorship relationship sent to 2,400 media points as well as LPGA sponsors, members and other LPGA affiliated organizations. - - Listing in the annual Rolex LPGA Schedule (300,000 - 350,000 printed and distributed to LPGA members, sponsors, licensees, tournaments and fans). - - Listing in the annual Kodak Calendar (15,000 - 20,000 printed and distributed to LPGA members, sponsors, licensees, tournaments and fans). - - Feature article in an upcoming LPGA T&CP Division national newsletter announcing the title sponsorship relationship (2,000 printed quarterly and distributed to LPGA T&CP and Tour members, sponsors, licensees and tournaments). - - Pre-tournament and post-tournament articles annually in the LPGA T&CP Division national newsletter. - - Title sponsorship credit, tournament history and one full page, black and white advertisement in the annual LPGA Teaching and Club Professional Membership Guide and Directory (1,200 printed and distributed to LPGA members, sponsors and other LPGA affiliated organizations). TOURNAMENT LOGO - - Development of a tournament logo which communicates the Square Two Golf - LPGA partnership. Inclusion of the logo on all tournament print promotion pieces, press releases, registration materials, on-course-signage. 18 - - Square Two Golf granted the use of the tournament logo and title in all promotional materials. ENTERTAINMENT BENEFITS - - Two pro-am spots including gift packs for the Members Pro-Am. Square Two Golf has first choice of professionals. Four pro-am luncheon invitations. - - Nine pro-am spots including gift packs for the Team Classic Pro-Am. Square Two Golf has first choice of professionals. Eighteen pro-am reception invitations. - - Six Team Classic Banquet invitations. DISPLAY AND PROMOTION - - Prominent Square Two Golf signage at the Team Classic scoreboard, clubhouse, driving range, first and tenth tees and all food and beverage events. - - Square Two Golf title sponsorship recognition on the official scorecard of the event. - - Square Two Golf demo area set on the driving range throughout tournament week. - - Square Two Golf demo day or promotional activity on days prior to the tournament for facility members and general public. LPGA Teaching and Club Professional Division members chosen by Square Two Golf will participate. - - Square Two Golf promotional materials distributed to all pro-am participants and Team Classic participants. - - Opportunity to have Square Two Golf promotional activity during Team Classic Pro-Am (i.e. closest-to-the-pin contest). - - Promotional involvement in Team Classic Shoot-Out to be jointly developed by Square Two Golf and the LPGA. - - One time annual usage of the LPGA Teaching and Club Professional Division membership mailing list. (All materials must be pre-approved by the LPGA). 19 SPONSORSHIP FEE --------------- 1999 35,000 2000 37,500 2001 40,000 2002 42,500 2003 45,000 2004 47,500 2005 50,000 Nine pro-am prizes (three teams) donated by Square Two Golf. Other Square Two Golf product for pro-am participants and players to be decided upon by Square Two Golf. 20 EXHIBIT D --------- LPGA TEACHING DIVISION SALES PROGRAM Any member of the Teaching Division whose principal place of employment is at a recognized golf club, course or range as such terms are defined in the LPGA Teaching Division Constitution (a "Teaching Member") will have the opportunity through the LPGA Teaching Division Sales program to sell any Square Two product to the public. Square Two shall pay a fee of 3% on net sales to the LPGA Teaching Division for any Square Two product sold provided the product is ordered directly from Square Two Golf. EX-10.12 3 EXHIBIT 10.12 1 EXHIBIT 10.12 LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement") is made and entered into this 28th day of June, 1999 by and between S2 GOLF INC., a corporation duly constituted under the laws of New Jersey, United States of America, having its principal place of business at 18 Gloria Lane, Fairfield, New Jersey 07006, U.S.A. ("Licensor"), and RAYMOND LANCToT LTeE/LTD., a corporation duly constituted under the laws of Canada, having its principal place of business at 5790 Pare Street, Montreal, Quebec, Canada, H4P 2M2 ("Licensee"). PREAMBLE -------- WHEREAS the Licensor is the owner of the trademarks SQUARE TWO in the United States and Canada and S2(logo) in the United States for use with various products; WHEREAS the Licensee desires to use the trademarks SQUARE TWO and S2(logo) for the marketing, sale and distribution of clothing articles as further described in this Agreement; and WHEREAS the parties hereto wish to enter into the present Agreement for their mutual advantage. NOW, THEREFORE, in consideration of the above premises and the covenants and agreements herein contained, the parties hereto agree as follows: 1. INTERPRETATION. 1.1 DEFINITIONS. As used herein, the following terms have the meanings set forth below: 1.1.1 "Articles" means the following goods: golf clothes for men, women and children, ski clothes for men, women and children, and sports clothes for men, women and children, except for clothing produced by the Licensor for promotional purposes in quantities of fewer than one hundred (100) pieces. The parties agree that headwear, belts and shoes are not included in the Articles. 1.1.2 "Principal Term" means the three (3) year period commencing on August 1, 1999 and ending on July 31, 2002, subject to the terms of the following Section 3. 1.1.3 "Trademark" means either the SQUARE TWO trademark or the S2(logo) and "Trademarks" means the SQUARE TWO trademark and the S2(logo), 2 the particulars of which are set forth in Schedule A hereto, and any confusingly similar term or designation. 1.2 SCHEDULES. The following schedule is attached hereto and incorporated by reference and deemed to be part hereof: Schedule Description -------- ----------- "A" Description of Trademarks 2. RIGHTS GRANTED. 2.1. LICENSE FOR USE. Subject to the terms and conditions contained in this Agreement, the Licensor grants to the Licensee an exclusive non-transferable license to manufacture Articles bearing the Trademarks for sale in the United States and Canada and to distribute, market, advertise, export and sell the Articles bearing the Trademarks in the United States and Canada. 2.2. LICENSE FOR ADVERTISING AND PROMOTION. The Licensor further grants to the Licensee (i) the right to reproduce and use the Trademarks on display materials, and in advertising and promotional materials related to the Articles, and (ii) the right to include the Trademarks in any description of the Licensee's business activities as related to the Articles, provided that, if used in any description of Licensee's business activities, attribution be given to Licensor as the owner of the marks, said attribution being in the form of a footnote appearing on the same page as the first appearance of the Trademarks and including the following text: "`SQUARE TWO' and `S2(logo)' are trademarks of S2 Golf Inc., used in this report under license to Raymond Lanctot Ltee/Ltd. with the permission of S2 Golf Inc." 2.3 COVENANTS OF THE LICENSEE. 2.3.1 Licensee agrees to use the Trademarks only in a manner approved by Licensor and Licensor shall provide guidelines on their use, including their presentation, size and style, in another document. Unless Licensor otherwise agrees in writing, each use of either of the Trademarks shall be immediately followed by (i) the symbol "(TM)" or, (ii) if the Trademark is registered in the country in which the Articles are to be sold, the symbol (R) or equivalent. 2 3 2.3.2 Licensee agrees that it will use the Trademarks only in connection with the Articles and will not use the Trademarks, including use in countries outside of the United States and Canada, in any manner except as permitted by this Agreement. Licensee expressly recognizes that the use of the Trademarks confers no rights to the Trademarks to Licensee and that all use by Licensee shall inure to the benefit of Licensor. Licensee shall not take any action that would be inconsistent with, or tend to impair, Licensor's rights in the Trademarks. 2.3.3 Licensee agrees not to contest, question or challenge the ownership of the Trademarks by Licensor anywhere in the world, except the right to use same pursuant to the terms of this Agreement. 3. DURATION. The present Agreement will remain in full force during the Principal Term and the Renewal Terms, as defined herein, unless earlier terminated for any reason provided in this Agreement. At the end of the Principal Term, this Agreement shall be renewed for an additional three (3) year term (the "First Renewal Term") (i) automatically if wholesale sales of the Articles by the Licensee in the period beginning on July 1, 2001 and ending on June 30, 2002 are at least Five Hundred Thousand United States Dollars ($500,000), or (ii) at the sole discretion of the Licensor if wholesale sales of the Articles by the Licensee in the period beginning on July 1, 2001 and ending on June 30, 2002 are less than Five Hundred Thousand United States Dollars ($500,000). At the end of the First Renewal Term, if any, this Agreement shall be renewed for an additional three (3) year term (the "Second Renewal Term") (i) automatically if wholesale sales of the Articles by the Licensee in the period beginning on July 1, 2004 and ending on June 30, 2005 are at least One Million United States Dollars ($1,000,000), or (ii) at the sole discretion of the Licensor if wholesale sales of the Articles by the Licensee in the period beginning on July 1, 2004 and ending on June 30, 2005 are less than One Million United States Dollars ($1,000,000). (The First Renewal Term and the Second Renewal Term, together, the "Renewal Terms," and either, alone, a "Renewal Term.") 4. ROYALTIES. 4.1 ROYALTY RATE. During the Principal Term and the Renewal Terms, if any, the Licensee shall pay to the Licensor a royalty of nine percent (9%) of the Licensee's FOB shipping point cost, as defined herein, of each Article manufactured by or for the Licensee pursuant to this Agreement. The Licensee's FOB shipping point cost shall mean the per-Article cost to the Licensee to manufacture the Articles and to take delivery of them at the shipping point. The parties agree that Licensee shall not pay such royalty to Licensor on Articles (i) supplied free of charge by Licensee or Licensor to Ladies Professional Golf Association golfers for promotional purposes or (ii) manufactured as sample pieces. 3 4 4.2 PAYMENTS OF ROYALTIES; STATEMENTS. Royalties will be payable in United States currency, within thirty (30) days of the arrival of the Articles at their first port of entry into the United States and Canada. The Licensee agrees to provide to the Licensor, with the said payments, a statement showing the quantities of Articles manufactured, the manufacturing, shipping and handling costs, and the royalties applicable thereto. The Licensee also agrees to give the Licensor such reasonable access to the Licensee's financial books and records related to the Articles, for the purpose of conducting an audit thereof, as the Licensor shall request from time to time. 5. FIRST REFUSALS. 5.1 DURING THE TERM OF THE AGREEMENT. The Licensor hereby grants to the Licensee a right of first refusal with respect to use of the Trademarks during the Principal Term and any Renewal Term (i) on Articles to be distributed or sold in Europe, and (ii) on any categories of clothing not already included in the Articles, except for headwear, belts and shoes. The Licensor agrees to notify the Licensee promptly of any decision (i) to market in Europe Articles bearing the Trademarks or (ii) to expand the list of products that may be associated with the Trademarks. The Licensee may then exercise its right of first refusal by providing to the Licensor, within thirty (30) days, a written notice of its intent to exercise. Any license with respect to such expanded geographic region or new products will be the subject matter of a separate agreement between the parties. The parties agree to use reasonable efforts to agree upon the royalty, payment, Trademark usage and other terms of such separate agreement. If the parties fail to agree upon the terms of such separate agreement within sixty (60) days after the notification by the Licensor of its decision to market in Europe or to expand the list of Products that may be associated with the Trademarks, as explained above, neither party shall be obligated to enter into said separate agreement and the Licensor shall be free to enter into an agreement with a third party. 5.2 AFTER THE TERM OF THE AGREEMENT. If at any time within the first six (6) months after the end of the Second Renewal Term, if there is any such Second Renewal Term, any third party offers to enter into a licensing agreement with the Licensor for the use of the Trademarks on sports clothes for men, women or children, including golf and ski clothes but excluding headwear, belts and shoes, on terms that are more favorable to the Licensor than the terms of the present Agreement (a "Third Party Offer"), the Licensor agrees (i) to notify the Licensee of such offer, and (ii) to enter into a subsequent licensing agreement with the Licensee on the same terms as those of the Third Party Offer if (a) within thirty (30) days the Licensee provides to the 4 5 Licensor a written notice of the Licensee's intent to enter into such subsequent licensing agreement and (b) the terms of such subsequent licensing agreement are acceptable to both parties. 6. QUALITY OF ARTICLES. 6.1 QUALITY STANDARDS. The Licensee agrees that Articles bearing the Trademarks will be manufactured in accordance with high standards of quality, style, appearance and durability, and in no event less than (i) the quality standards of similarly priced clothing articles produced by others, and (ii) the quality standards of the clothing articles manufactured and sold by the Licensor itself that do not include the Trademarks. Licensee further agrees that all Articles bearing the Trademarks will be manufactured, sold, distributed and exported in accordance with all applicable laws and regulations. 6.2 DESIGN APPROVAL. The Licensee agrees to submit the design for each Article to bear the Trademarks, in artist's rendering or in written form as appropriate, plus any information relevant to the quality of the finished Article, such as fabric type and weight, to the Licensor for approval, and agrees further that it will not commence the manufacture of any Article bearing the Trademarks prior to the Licensor's approval of the design therefor. The Licensor agrees that it will timely provide such approvals, and that it will not withhold unreasonably its approval of any design. 6.3 QUALITY INSPECTION. The Licensee agrees that prior to any sale or other distribution of any Article bearing the Trademarks it will provide the Licensor with one piece from each manufacturing lot of each Article for the purpose of the Licensor's quality inspection. Licensor shall also have the right to inspect, from time to time, and at least once annually, Licensee's manufacturing facilities to determine the quality of Articles bearing the Trademarks. Licensee shall permit such inspection. Licensee shall recall (if substandard quality articles have been shipped) and destroy any and all Articles bearing the Trademarks that the Licensor reasonably finds to be of substandard quality. 6.4 TIME TO REMEDY. If Licensor determines that Licensee has failed to maintain the quality of Articles as defined herein, it shall notify Licensee in writing. Licensee shall have sixty (60) days from the date of such notice in which to remedy the failure to Licensor's satisfaction. 5 6 7. TERMINATION. 7.1. FAILURE TO CONFORM. Should a party to the present Agreement fail to respect any of the terms of the present Agreement, the other party shall provide to the defaulting party a written notice (the "Notice") informing it of said failure. Should the defaulting party fail to correct the said failure within ten (10) days of having received the Notice (or, in the case of a notice pursuant to Section 6.4, sixty (60) days), the other party, without prejudice to any other right or remedy available to it, shall have the right at any time thereafter to terminate this Agreement by providing a thirty (30) day prior written notice to that effect. 7.2 INSOLVENCY. The parties, without prejudice to any other right or remedy available to them, shall also have the right at any time to terminate this Agreement by giving to the other party a written notice thereof, if the latter makes any assignment for the benefit of creditors, files a petition in bankruptcy, is adjudged bankrupt, becomes insolvent, is placed in receivership, or if the equivalent of any such proceedings or acts occurs. 7.3 CHANGE OF CONTROL. Unless the parties agree otherwise in writing, this Agreement shall terminate immediately (i) upon the transfer of the beneficial ownership of more than sixty five percent (65%) of the issued and outstanding shares in the capital of Licensor or Licensee; (ii) upon the dissolution or winding up of Licensor or Licensee; (iii) upon the transfer of the assets of Licensor or Licensee other than in the ordinary course of business; or (iv) upon the merger of Licensor or Licensee with any other person or entity. 8. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION. 8.1 UNSOLD INVENTORY. If the Licensee has any manufactured but unsold Articles bearing the Trademarks in inventory on the date of termination, it shall provide a statement in writing of the kinds and quantities of such unsold Articles to the Licensor within five (5) days from the date of termination. Within fifteen (15) days from the date of receipt of the said statement, the Licensor shall have the exclusive option to acquire from the Licensee the inventory of said unsold Articles, in part or in whole, at the Licensee's manufacturing cost. If the Licensor chooses not to exercise this option, the Licensee shall have the right to sell and deliver such Articles. 6 7 8.2 CEASE USE OF TRADEMARKS. Upon the expiration or termination of this Agreement for any reason, Licensee shall immediately cease all use of the Trademarks and shall not use the Trademarks thereafter, provided that Licensee shall have the right to complete any work-in-process inventory in accordance with the provisions of this Agreement. 8.3 SURVIVAL OF COVENANTS. Sections 2.3.2 and 2.3.3 shall survive the termination or expiration of this Agreement for any reason whatsoever. 9. WAREHOUSE AND SHIPPING SERVICES. The Licensor agrees to provide warehouse and shipping services to the Licensee on the terms provided in this paragraph. The Licensor agrees to provide to the Licensee the use of not less than One Thousand Five Hundred (1,500) square feet of warehouse space in the Licensor's existing buildings at 18 Gloria Lane, Fairfield, New Jersey, U.S.A., for the purposes of the storage and distribution of the Articles, provided that if the Licensee uses such warehouse space, the Licensor also shall provide to the Licensee Handling Services, as defined herein, for the Articles at the rate of Seventy Five U.S. Cents ($0.75) per Article (the "Handling Fee"). As used herein, "Handling Services" means sorting the Articles, packing them in boxes or other appropriate containers, addressing such containers for shipment, and arranging for their shipment to destinations in the United States and Canada. The Handling Fee does not include the cost of packaging materials or freight. 10. TRADEMARK INFRINGEMENT. If a charge or notice of infringement of a trademark or other proprietary right of a third party is directed to Licensee, or if a suit for infringement of a trademark or other proprietary right of a third party is instituted against Licensee which charge, notice or suit is based upon Licensee's use of the Trademarks, Licensee agrees to notify Licensor in writing ("Notice by Licensee") within five (5) days from Licensee's receipt of the first notice of such charge, notice or suit. Licensor may, at its option, within thirty (30) days of receiving Notice by Licensee, initiate action to dispose of the charge, notice or suit. To dispose of any such charge, notice or suit, Licensor shall have the option to require that Licensee immediately discontinue its use of the Trademarks, in which case (i) Licensor and Licensee can agree to use other Trademarks and continue under the terms of this Agreement, or (ii) terminate this Agreement. Licensee shall notify Licensor promptly upon obtaining knowledge of any unauthorized use of the Trademarks. 11. INDEMNIFICATION. 7 8 The Licensee shall indemnify the Licensor and hold it harmless from and against any and all claims, expenses, losses or damages arising out of or in connection with the Licensee's use of the Trademarks and manufacture and sale of the Articles pursuant hereto, including any charge or notice of trademark infringement. 12. MISCELLANEOUS. 12.1 WAIVERS. A waiver by either of the parties at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement or imply that a breach of the same provision at any other time has been or will be waived. 12.2 RELATIONSHIP. This Agreement shall not be construed to create a partnership, joint venture, employment or agency relationship between the parties hereto. Neither party hereto shall be liable for any of the debts or obligations of the other party hereto, and neither party shall have the right to bind, make any representations or warranties, accept service of process or perform any act for or on behalf of the other party hereto, except as otherwise expressly provided herein. Each party hereto acknowledges that it is an independent entity and not subject to the control of the other party except as otherwise expressly provided herein. 12.3 MODIFICATION OR EXTENSIONS OF THIS AGREEMENT. Except as otherwise provided herein, this Agreement can only be extended or modified by a written document to that effect executed by both parties. 12.4. APPLICABLE LAW AND JURISDICTION. This Agreement shall be construed and interpreted according to the laws of the State of New Jersey, in the United States of America. The parties hereby irrevocably submit to the personal jurisdiction of the United States District Court for the District of New Jersey, Northern Division or the Courts of the State of New Jersey, County of Essex in any action or proceeding arising out of or relating to this Agreement, and the parties irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in either such court. 12.5 NOTICES. Any communication (including any notice, consent, approval or instructions) provided for under this Agreement may be given to the person to whom it is addressed by delivering the same to or for such person at the address or facsimile number of such person as set out hereinafter or at such other address or number as 8 9 such person shall have notified to the other party hereto, provided that a copy of any communication sent by fax shall be immediately deposited in the mail. Any communication so addressed and delivered as aforesaid shall be deemed to have been sufficiently given or made on the date on which it was delivered. If to Licensor: S2 GOLF INC. 18 Gloria Lane Fairfield, New Jersey 07004 U.S.A. Attention: Mr. Douglas A. Buffington Facsimile number: (973) 227-7018 With a copy to: Mary Ann Jorgenson, Esq. Squire, Sanders & Dempsey L.L.P. 4900 Key Tower 127 Public Square Cleveland, Ohio 44114 U.S.A. Facsimile number: (216) 479-8776 If to Licensee: Raymond Lanctot Ltee/Ltd. 5790 Pare Street Montreal, Quebec Canada, H4P 2M2 Attention of: Mrs. Diane Lanctot Facsimile number: (514) 342-4059 With a copy to: Mr. Georges T. Robic Leger Robic Richard 55 St. Jacques Montreal, Quebec Canada, H2Y 3X2 Facsimile number: (514) 845-7874 12.6 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement between the parties and fully supersedes any and all prior agreements or understandings between the parties pertaining to the subject matter hereof. 12.7 NO ASSIGNMENT; BINDING ON SUCCESSORS. No party shall assign this Agreement or any right accruing to it hereunder without the prior written consent of the other party, which shall not be withheld unreasonably. This Agreement shall inure to the benefit of and be binding upon 9 10 the respective heirs, executors, administrators, successors and assigns of the parties hereto. 12.8 LANGUAGE. The present Agreement has been drafted in the English language at the request of the parties. Le present contrat a ete regide en langue anglaise a la demande des parties. All contracts, correspondence and information relating to or required by this Agreement shall be in the English language. 12.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have signed this Agreement on the date and year first above written. LICENSOR: S2 GOLF INC. Per: /s/ DOUGLAS A. BUFFINGTON ---------------------------------- Name: Douglas A. Buffington Title: President RAYMOND LANCTOT LTEE/LTD. Per: /s/ DIANE LANCTOT ---------------------------------- Name: Diane Lanctot Title: President 10 EX-10.13 4 EXHIBIT 10.13 1 EXHIBIT 10.13 EXECUTION COPY ENDORSEMENT AGREEMENT --------------------- This Endorsement Agreement ("Agreement") is made this 13th day of October, 1999 by and between SQUARE TWO GOLF INC., a New Jersey corporation (the "Company"), and KATHY WHITWORTH, an individual, with an address at 302 La Mancha Court, Santa Fe, New Mexico, 87501 (the "Professional"). RECITALS -------- WHEREAS, the Company manufactures and sells women's golf clubs and other golf equipment; WHEREAS, the Professional is a retired Ladies Professional Golf Association ("LPGA") Tour Professional; WHEREAS, the Company desires to utilize the services of the Professional in connection with the promotion, marketing, and sale of a signature line of women's golf clubs and the Company's other products and services; and WHEREAS, the Company and the Professional desire to enter into an agreement pursuant to which the Professional will serve the Company as an independent contractor, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Company and the Professional hereby agree as follows: 1. TERM. 1.1 The term of this Agreement shall begin on January 1, 2000 and continue for an initial period of five (5) years unless earlier terminated in accordance with Section 7 hereof, and may be renewed under Section 8 hereof (the initial period plus any renewal period, the "Term"). 2. ENDORSEMENT SERVICES. During the Term, the Professional will provide the services described in this Section 2 (the "Services"): 2.1 The Professional hereby grants to the Company an exclusive license to use her name, likeness, image and personal identification, singly or in any combination, in connection with the production, use, marketing and sale of a "Kathy Whitworth" signature line of women's golf clubs (the "Products"), as described more fully in Section 3 below. 2 EXECUTION COPY 2.2 The Professional agrees to serve as a professional golf instructor during up to ten (10) golf clinics hosted by the Company per calendar year at locations within the United States to be determined by the Company. The golf clinics shall be one or two day events. 2.3 The Professional agrees to serve as a spokesperson for the Company at up to two (2) Professional Golf Association merchandise shows, including but not limited to the PGA Merchandise Shows. 2.4 The Professional hereby grants to the Company the exclusive and worldwide right to use her name, likeness, image and personal identification, singly or in any combination, during the Term and for a period of six (6) months after the Term as provided in Section 2.8, in the creation of two (2) print advertisements per year and one (1) television advertisement per year (together, the "Advertisements") for any golf equipment, along with all rights in any images, videos, advertisement copy or other materials created by the Professional or others. The Professional agrees that the Company shall own all such materials and all intellectual property rights therein for use in perpetuity in any media now known or hereafter devised or developed, including but not limited to the internet. The Professional hereby grants to the Company the worldwide right during the Term and for a period of six (6) months after the Term as provided in Section 2.8 to use, reproduce, print, publish, distribute, broadcast, modify, edit, condense, or expand any materials containing her name, image, likeness or personal identification that are created hereunder. 2.5 The Professional hereby grants to the Company an exclusive license to use her name, likeness, image and personal identification in the Company's catalog of products. 2.6 The Professional agrees to participate in a minimum of five (5) other events per calendar year to market and promote the Company's products, including but not limited to market consultations, each of which shall include meeting with the Company executives to assist in the design, development, marketing and promotion of the Company's products. 2.7 The Professional agrees to use only the golf clubs and golf bags of the Company in any golf event, whether professional or social, during the Term. The Professional agrees (i) to use no golf bag bearing any identification of a competitor of the Company and (ii) to wear no apparel bearing any identification of a competitor of the Company, and will prohibit any caddy of hers from bearing any such identification. 2.8 The Company shall cease use of the name, likeness, image or personal identification of the Professional upon expiration or termination of this Agreement. However, the Company will have the right to dispose of its inventory of Products existing at the time of termination or expiration of this Agreement and the right to use the name, likeness, image and personal identification of the Professional in connection with the disposition of such inventory. The right granted in this section shall expire six (6) months after the termination or expiration of this Agreement. The Professional understands and agrees that the Company shall have no obligation to take action against or attempt to stop distributors, retailers and other third parties to this Agreement who have purchased Products bearing the name, likeness, image or personal -2- 3 EXECUTION COPY identification of the Professional from any marketing, advertising, sale or other disposition of such Products, regardless of any use they make of the name, likeness, image or personal identification of the Professional. 3. LICENSE AND ENDORSEMENT FOR PRODUCTS. 3.1 The Professional hereby grants an exclusive, worldwide license to the Company to use the name, likeness, image and personal identification of the Professional, during the Term and for a period of six (6) months after the Term as provided in Section 2.8, in connection with the creation, manufacture, marketing, sale and promotion of the Products. As a condition precedent to, and a continuing precedent of, any obligations of the Company hereunder, the Professional hereby agrees to use the Products upon their creation and to provide an unqualified and unequivocal endorsement thereof during the Term at the request of the Company at any time or times during the Term in verbal, written or recorded forms. If the Professional is unable at any time during the Term to provide such endorsement of the Products, the Company shall be released from any of its obligations under Sections 4.1, 4.2, and 4.3 hereof to pay any fees or royalties or to provide any stock options to the Professional and may elect to terminate this Agreement without any further obligation to the Professional. 4. COMPENSATION FOR ENDORSEMENT SERVICES. 4.1 The Company will pay the Professional a base fee of thirty-six thousand dollars ($36,000) per year (the "Base Fee") for Services performed during the Term. The Company shall pay the Base Fee in four (4) equal installments of nine thousand dollars ($9,000) each on March 15, June 15, September 15 and December 15 of each year during the Term commencing on January 15, 2000. The Professional acknowledges that the Company is under no obligation to create or maintain the Products. The Professional agrees that payment of the Base Fee shall satisfy all obligations of the Company hereunder if it elects not to create or market and sell the Products. 4.2 If the Company elects to create and market the Products, the Company will pay to the Professional a "Royalty Fee" on the sales of Products during the Term, except as provided in the following sentence, of two percent (2%) of the "Royalty Base," which Royalty Base shall be calculated as the wholesale selling price of all Products for which the Company actually receives the proceeds of such net of returns, allowances, discounts, shipping, taxes, insurance and credits. During the Term, the Company shall pay the Royalty Fee, earned for the preceding quarter, to the Professional quarterly, within thirty (30) days of the end of the succeeding calendar year quarter. If the Company decides not to renew this Agreement in accordance with the provisions of Section 8 below, the Company shall pay the Professional an amount equal to two percent (2%) of the net book value of its unsold inventory of Products on December 31, 2004. 4.3 If the Company elects to create and market the Products, the Company will grant to the Professional options to purchase shares of the Company's capital stock ("Options"), as provided in this paragraph. On each March 31, June 30, September 30, and December 31 during the Term that the Company elects to continue the marketing and sale of the Products, the Company will grant to the Professional a number of Options (the "Quarterly Grant Number"). -3- 4 EXECUTION COPY The Quarterly Grant Number shall be the nearest whole number that results from the division of the number of dollars represented by one half of one percent (0.5%) of the Royalty Base by the closing price of the Company's stock on the grant date. The exercise price of the Options shall be the closing price of the Company stock on the grant date. The sum of the Quarterly Grant Numbers in each calendar year of the Term shall not exceed fifteen thousand (15,000). The options will expire five (5) years after each grant date. The Options shall not be assigned, transferred or alienated by the Professional. Any attempt to assign, transfer or alienate the Options without the prior written consent of the Company shall be void. 4.4 The Company will reimburse the Professional for her reasonable and necessary travel expenses in connection with her performance of the Services. 4.5 The Company shall be under no obligation to create, market, promote or sell the Products. There shall be no minimum amounts due from the Company hereunder except as specified in Section 4.1 above. The failure of the Company to create, market, promote or sell the Products or to reach any specific sales volume shall not result in any liability of the Company or create any right for the Professional to make a claim against the Company. The Company may elect to dispose of the Products at any price or for no consideration in its sole discretion and shall not be obligated to the Professional for any sale or transfer of the Products which does not produce compensation for the Professional. 5. PROFESSIONAL'S CONDUCT. 5.1 The Professional shall at all times during the Term refrain from: 5.1.1 dishonest, fraudulent, illegal or unethical acts or omissions; 5.1.2 excessive use or abuse of alcohol; 5.1.3 use of controlled substances, except as prescribed by a licensed medical professional in the treatment of illness or disease; 5.1.4 acts or omissions reasonably determined by the Company to be prejudicial or injurious to the business or goodwill of the Company, its officers, employees, shareholders or products, the golf industry or professional golf; and 5.1.5 conduct which could reasonably be expected to degrade the Professional, devalue the services of the Professional or to bring the Professional into public hatred, contempt, scorn or ridicule, or that could reasonably be expected to shock, insult or offend the community or to offend public morals or decency. 6. INDEPENDENT CONTRACTOR. 6.1 With respect to all Services described in this Agreement, the Professional's status will be that of an independent contractor and not a partner, employee or agent of the Company. The Professional has no power or authority whatsoever to make binding commitments or -4- 5 EXECUTION COPY contracts on behalf of the Company. The Professional agrees that she will pay and hold the Company harmless from any and all costs, expenses, fees, dues, pension contributions, benefit contributions and fines associated with her present or future required membership in any trade association, union or professional organization, including but not limited to LPGA, PGA, USGA, SAG or AFTRA, that may be associated with her performance of this Agreement. The Professional represents that no agent or representative fees, charges, rights or claims exist in connection with her execution or performance of this Agreement, and the Professional shall hold harmless the Company from any such liability. Any costs incurred by the Company to comply with any rule, contract, order or other requirement of SAG, AFTRA or other union or professional organization having control or jurisdiction over the Professional or her performance of the services required by this Agreement shall be deducted from the sums due from the Company to the Professional. The Professional agrees that the compensation provided to her under Section 4 of this Agreement shall be deemed compensation for purposes of meeting any minimum pay requirements of any SAG or AFTRA agreement. If any of the above terms are deemed to violate any SAG or AFTRA agreement, the Company shall have the option to terminate this Agreement without liability. 6.2 The Professional shall have no authority to incur expenses on behalf of the Company without the Company's prior written approval. The Professional shall submit to the Company for written approval a description of anticipated expenses, other than those for reasonable and necessary travel, prior to incurring such expenses. All statements submitted by the Professional for expenses that were not pre-approved by the Company will be subject to review, approval or rejection by the Company in its sole discretion. 6.3 The Professional will be solely responsible for withholding and paying any and all federal, state and local taxes, including but not limited to payroll, unemployment, social security and income taxes, and any other payments which may be due as a result of or in connection with payments made by the Company for services rendered under this Agreement. The Professional acknowledges that she is not qualified for and will not receive any Company employee benefits or other incidents of employment. 6.4 The Professional agrees to maintain at all times during the Term such insurance, including without limitation, health insurance, workers' compensation, automobile and general comprehensive liability coverage, as will protect and hold harmless the Company from any claims, losses, damages, costs, expenses or liability arising out of the Services performed under this Agreement. The Company may require the Professional to provide insurance certificates evidencing the same. 6.5 The Professional represents and warrants that: 6.5.1 The Professional has the right to enter into this Agreement; 6.5.2 By agreeing to perform or performing this Agreement, the Professional will not breach any existing agreement; and -5- 6 EXECUTION COPY 6.5.3 Neither the Professional's grant of rights to the Company under this Agreement nor the Company's exercise of such rights will cause the infringement of any rights of third parties. 6.6 The Professional agrees not to enter into any other agreement the performance of which would or could cause an infringement of the rights that the Professional grants to the Company under this Agreement. 7. TERMINATION. 7.1 This Agreement shall terminate automatically if the Professional dies or becomes disabled, or suffers illness, mental or physical disability to the extent that she is unable to perform the obligations of the Professional under the terms of this Agreement. 7.2 Either the Company or the Professional may terminate this Agreement in the event of a non-curable breach of this Agreement by the other party. 7.3 In case of a breach of the Agreement that is capable of being cured, the non-breaching party shall, before terminating the Agreement, give the breaching party written notice of such breach, and a thirty (30) day period in which to cure such breach. 7.4 The Professional's obligations under (i) Section 9 hereof and (ii) Exhibit A shall survive a termination of this Agreement for the applicable periods set forth therein. The Company's obligation to compensate the Professional pursuant to Section 4 of this Agreement shall cease on the effective date of termination except as to amounts earned by the Professional and due from the Company accruing prior to such date. 7.5 The right to terminate outlined in this section shall be in addition to, and not in lieu of, all other remedies which may be available to the non-breaching party, whether at law or in equity, for a breach of this Agreement. 8. RENEWAL. 8.1 The Company may renew this Agreement on the same terms and conditions for one (1) additional five year period that shall begin on January 1, 2005 and end on December 31, 2009, by providing a written notice of its intent to effect such renewal to the Professional by November 30, 2004. 9. NON-COMPETITION. 9.1 The Professional acknowledges that any use of her name, likeness, image or personal identification by any third party in connection with the making, use, sale, marketing, promotion or advertising of golf equipment, including but not limited to golf clubs and golf bags, would cause a likelihood of confusion with the Products of the Company, during the Term and thereafter during the time the Company disposes of inventory on hand at the expiration of this Agreement. The Professional acknowledges that she will have a right, pursuant to and under the -6- 7 EXECUTION COPY conditions described in Section 4.2 above, to receive a specified royalty for inventory on hand at the expiration of the initial term, and accordingly hereby grants to the Company the right to fill any orders for, assemble components of, market, advertise, promote and sell any inventory of Products in its inventory existing at the expiration or termination of this Agreement, for a period not to exceed two (2) years after such expiration or termination of the original term. To avoid any possibility of confusion of the public, trademark infringement or interference with the rights of the Company, the Professional agrees not to endorse, license or otherwise authorize the use of her name, likeness or image in connection with another company's golf clubs or golf-related clothing or equipment during the Term and for a period of two (2) years thereafter. 9.2 The Professional agrees to divest herself of any management or control interest that she currently has in any entity that is a competitor of the Company, and not to acquire any such interest during the Term. 10. RIGHT OF INJUNCTIVE RELIEF. 10.1 The Professional acknowledges and agrees that a breach of the covenants contained in Section 9 of this Agreement would actually or potentially deprive the Company of a substantial amount of sales and business value and that the amount of injury would be impossible or difficult to ascertain fully. The Company shall, therefore, be entitled to obtain an injunction against the Professional restraining any violation, further violation, or threatened violation of Section 9 above, in addition to any other remedies to which the Company may be entitled by law. 11. MISCELLANEOUS. 11.1. ENFORCEABILITY. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of the balance of the Agreement. In the event that any such provision should be or becomes invalid for any reason, such provision shall remain effective to the maximum extent permissible, and the parties shall consult and agree on a legally acceptable modification giving effect to the commercial objectives of the unenforceable or invalid provision, and every other provision of this Agreement shall remain in full force and effect. 11.2. ASSIGNABILITY. This Agreement is not assignable by the Professional but is assignable by the Company to any affiliate or successor entity. Any attempted assignment by the Professional without the prior written consent of the Company shall be void. As used in this Agreement, the term "Company" shall include any entity to which this Agreement shall have been assigned by the Company, in accordance with the preceding. 11.3. AMENDMENT/WAIVER. 11.3.1 This Agreement supersedes all prior and contemporaneous agreements and understandings between the parties with respect to the subject matter hereof and may not be changed or amended orally. -7- 8 EXECUTION COPY 11.3.2 No change, termination or attempted waiver of any of the provisions of this Agreement shall be of any effect unless the same is set forth in writing and duly executed by the party against which it is sought to be enforced. 11.3.3 The failure of any party at any time or from time to time to require performance of the other party's obligations under this Agreement shall in no manner affect such party's right to enforce any provisions of this Agreement at a subsequent time. The waiver by any party of any right arising out of any breach by the other party shall not be construed as a waiver of any right arising out of a subsequent breach. 11.4. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed in accordance with the laws of the State of New Jersey without giving effect to the principles of conflicts of laws of such state. 11.5. NOTICES. Any communication (including any notice, consent, approval or instructions) provided for under this Agreement may be given to the person to whom it is addressed by delivering the same to or for such person at the address or facsimile number of such person as set out hereinafter or at such other address or number as such person shall have notified to the other party hereto, provided that a copy of any communication sent by fax shall be immediately deposited in the mail. Any communication so addressed and delivered as aforesaid shall be deemed to have been sufficiently given or made on the date on which it was delivered. If to the Company: S2 GOLF INC. 18 Gloria Lane Fairfield, New Jersey 07004 Attention: Mr. Douglas A. Buffington Facsimile number: (973) 227-7018 With a copy to: Mary Ann Jorgenson, Esq. Squire, Sanders & Dempsey L.L.P. 4900 Key Tower 127 Public Square Cleveland, Ohio 44114 Facsimile number: (216) 479-8776 If to the Professional: Kathy Whitworth 1735 Mistletoe Flower Mound, Texas 75022 Facsimile number: (792) 355-7021 With a copy to: Nick Lampros 16615 Lark Avenue Suite 101 Los Gatos, California 95032 Facsimile number: (408) 358-2486 -8- 9 EXECUTION COPY 11.6. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.7. INTELLECTUAL PROPERTY RIGHTS, CONFIDENTIALITY AND NON-USE. The Professional acknowledges her obligations under the provisions of the Intellectual Property Rights Confidentiality and Non-Use Obligations Agreement attached hereto as "Exhibit A" and made a part hereof by this reference. The rights and obligations of the parties set forth in Exhibit A shall survive the termination or expiration of this endorsement agreement, regardless of cause or circumstances of the termination or expiration. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SQUARE TWO GOLF, INC. By: /s/DOUGLAS A. BUFFINGTON --------------------------------- Douglas A. Buffington President PROFESSIONAL /s/ KATHY WHITWORTH ------------------------------ Kathy Whitworth -9- 10 EXECUTION COPY EXHIBIT A Intellectual Property Rights Confidentiality and Non-Use Obligations Agreement This Agreement by and between SQUARE TWO GOLF INC., a New Jersey corporation (the "Company") and KATHY WHITWORTH, an individual residing at 302 La Mancha Court, Santa Fe, New Mexico 87501 (the "Recipient"), is part of the Endorsement Agreement of the parties. In consideration of and as an inducement for the Company entering into said Endorsement Agreement with Recipient: (a) Recipient acknowledges and agrees that communications for the purpose of proposing to work for or working for the Company have in the past or will entail the disclosure, observation and display to Recipient of information and materials of the Company that are proprietary, confidential and trade secret, which include, but are not limited to, golf equipment marketing plans, research, development and designs, computer software, screens, user interfaces, systems designs and documentation, processes, methods, fees, charges, know-how and any result from the work performed by Recipient or the Company, new discoveries, Intellectual Property (as defined below) and improvements to the Company's products made for or on behalf of the Company (all of which, singly and collectively, "Information"). With regard to such Information, whether or not labeled or specified as confidential, proprietary or trade secret, Recipient agrees: (i) to use the Information solely for the purpose of making proposals to or working under contracts with the Company; and (ii) not to disclose or transfer the Information to others without the Company's written permission. (b) Recipient will not be prevented from using or disclosing Information: (i) which Recipient can demonstrate, by written records, was known to it before the disclosure or display of the Information by the Company to Recipient; or (ii) which is now, or becomes in the future, public knowledge other than by breach of this Agreement or the endorsement agreement by Recipient, its employees or agents; or (iii) that is lawfully obtained by Recipient from a source independent of the Company, which source was lawfully in possession of the Information and which source had the unrestricted right to disclose or display the Information to the Recipient; or (iv) that is required by legal process to be disclosed, provided that Recipient will timely inform the Company of the requirement for disclosure, will permit the Company to attempt, by appropriate legal means, to limit such disclosure and will itself A-1 11 EXECUTION COPY use appropriate efforts to limit the disclosure and maintain confidentiality to the extent possible. (c) The confidentiality and non-use obligations of Recipient will remain in effect after all work for the Company has been completed. (d) All Information, including any copies thereof, in any media, in the possession or control of Recipient and Information embodied or included in any software or data files loaded or stored on computers in the possession or control of Recipient, its agents or employees, shall be removed and returned to the Company upon demand, but no later than the completion of work for the Company. (e) Recipient agrees that she will not copy the Information in whole or in part or use all or any part of the Information to reverse engineer, duplicate the function, sequence or organization of the Information for any purpose without the prior written permission of the Company. (f) Recipient further acknowledges and agrees that all new discoveries, inventions, improvements, processes, formulae, designs, drawings, training materials, original works of authorship, photos, video tapes, electronic images, documentation, trademarks and copyrights (the "Intellectual Property"), that may be developed, conceived, or made by Recipient, alone or jointly with others during her work for the Company, shall be the exclusive property of the Company and shall be deemed a work for hire. Recipient hereby assigns and agrees to assign all Recipient's rights in any Intellectual Property to the Company. Recipient hereby grants to the Company power of attorney for the purpose of assigning all Recipient's rights in Intellectual Property to the Company for the purposes of filings, registrations and other formalities deemed necessary by the Company to prosecute, protect, perfect or exploit its ownership and interests in Intellectual Property. Recipient further agrees to execute, acknowledge and deliver any documentation, instruments, specifications or disclosures necessary to assign, prosecute, protect, perfect or exploit the Company ownership of Intellectual Property. (g) Recipient acknowledges and agrees that the Company possesses valuable know-how, proprietary, confidential and trade secret Information that has been procured or developed by the Company at great expense and that its unauthorized disclosure would result in substantial damages to the Company that may not be adequately compensated by monetary relief. Accordingly, Recipient hereby consents to the jurisdiction of the Federal and County Courts in Essex County, New Jersey and agrees that the Company may seek temporary restraining orders against it or other extraordinary relief necessary to protect the Information. A-2 EX-27 5 EXHIBIT 27
5 0000782126 S2 GOLF INC. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 150 0 2,993,197 343,000 2,554,736 5,427,961 857,802 753,326 5,752,079 1,407,189 0 0 0 22,201 4,237,867 5,752,079 11,003,556 11,003,556 7,428,130 2,944,069 (562) 0 158,892 473,027 166,901 306,126 0 0 0 306,126 .14 .14
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