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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 0-18204
AJAY SPORTS, INC.
----------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 39-1644025
- ------------------------ -----------------------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
32751 Middlebelt Road, Suite B
Farmington Hills, Michigan 48334 (248) 851-5651
- ----------------------------------- -------------------
(Address of Principal Executive Offices (Registrant's Telephone
including Zip Code) Number including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Units (each consisting of 5 shares of Common Stock and 2 Warrants)
Common Stock Purchase Warrants
Series C 10% Cumulative Convertible Preferred Stock
Indicate by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
past 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
The aggregate market value of the voting stock held by nonaffiliates as of
May 18, 2001 was $92,176. The number of shares outstanding of the
Registrant's $.01 par value common stock at May 18, 2001 was 4,120,017.
Documents Incorporated by Reference
None
Ajay Sports, Inc.
Index
May 30, 2001
PART I. Page
Item 1. Description of Business 4-9
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10-11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis 13-15
Item 8. Financial Statements F-1 - F-18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III.
Item 10 Directors and Executive Officers of the Registrant 16-17
Item 11. Executive Compensation 17-18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19-21
Item 13. Certain Relationships and Related Transactions 21-22
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 10-K 23-26
SIGNATURE PAGE 27
PART I
Cautionary Statement: This report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements include, without limitation, those statements relating to
development of new products, the financial condition of the Company, the
ability to increase distribution of the Company's products, integration of
businesses the Company has acquired, disposition or discontinuation of any
current business of the Company, and the Company's relationship with Williams
Controls, Inc., a related company. These forward-looking statements are
subject to the business and economic risks faced by the Company including
the ability of the Company to obtain sufficient working capital for its
operations. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described in this report.
Item 1. Description of Business
------------------------
General
- -------
Ajay Sports, Inc. (the "Company") owns Pro Golf of America, Inc., the world's
largest franchiser of "golf only" retail stores, with over 150 stores in the
United States, Canada, the Bahamas, and the Philippines. The Company also
marketed and distributed golf clubs, golf bags, golf gloves, golf
accessories, hand-pulled golf carts and casual living furniture, prior to
deciding to discontinue those business operations in June 2000.
The Company operates the franchise segment of its business through Pro Golf
International, Inc. ("PGI"), a majority-owned subsidiary, which was formed
during 1999 and owns 100% of the outstanding stock of Pro Golf of America,
Inc. ("PGOA" or "Pro Golf") and a majority of the stock of ProGolf.com, Inc.
("PG.com"). PGOA is the franchiser of Pro Golf Discount retail golf stores
("PGD stores"). ProGolf.com is a development stage company formed to help
drive traffic to its franchisee stores and to sell golf equipment and other
golf-related products and services over the Internet. The Company operated
the mass-market golf segment of its business through Ajay Leisure Products,
Inc. ("Ajay") a wholly owned subsidiary. Leisure Life, Inc. ("Leisure Life"),
another wholly owned operating subsidiary, manufactures and markets casual
living furniture and is still operating while a sale of Leisure Life is
being pursued or until it is liquidated or closed. Palm Springs Golf, Inc.
("Palm Springs"), another wholly owned operating subsidiary, marketed golf
clubs, golf bags, golf gloves, accessories and carts for distribution to the
off-course pro shop markets. Prestige Golf Corp. ("Prestige"), another
wholly owned subsidiary, purchased current in-line and closeout golf
equipment for distribution mainly through Pro Golf Discount stores and an
Internet site, ProGolf.com. In June 2000, the Company's management elected
to discontinue the businesses of Ajay, Leisure Life, Palm Springs, and
Prestige due to on going operating losses and negative cash flows at these
companies. All references to the Company include PGI, PGOA, and PG.com, Ajay,
Leisure Life, Palm Springs, and Prestige unless otherwise specified.
PGOA provides services to its franchisees in exchange for initial franchise
fees and ongoing royalties based on a percentage of retail sales. The
Company plans to enhance its traditional sales and distribution methods by
its recently introduced Internet site, ProGolf.com, and is also exploring new
franchise models, such as golf domes. Ajay's products primarily were sold
nationwide to large retailers such as discount stores, department stores,
catalog showrooms and other mass merchandise and sports specialty outlets.
The products manufactured by Ajay were primarily sold under the Spalding,
Palm Springs, Pro Classic, Leisure Life, Pro USA, and private label brand
names. Leisure Life's furniture products are sold through independent
retailers, hardware store cooperatives and larger chains of home and garden
stores. Palm Springs' products were sold through off-course golf specialty
shops.
The Company was organized under Delaware law on August 18, 1988. Its
administrative office is located at 32751 Middlebelt Road, Suite B,
Farmington Hills, MI 48334, where its telephone number is (248) 851-5651.
The Company also operates a manufacturing and distribution facility at
215 4th Avenue North, Baxter, TN 38544, headquarters for its Leisure Life
subsidiary.
Business Strategies
- --------------------
The Company's strategies are to improve its position as the global leader in
retail golf sales at its Pro Golf Discount franchised stores, and to develop a
golf category-killer website for internet sales of golf equipment and related
products and services. The Company is also exploring other golf related
activities, including golf domes. The Company believes that the following
competitive strengths contribute to its position as a market leader:
Strong Brand Recognition. Pro Golf Discount ("PGD") is a highly recognized
name in the golf industry with more than 150 franchised stores operating in
the United States, Canada, the Philippines, and the Bahamas. Pro Golf of
America, Inc. franchises the PGD stores and a significant portion of PGOA's
revenues result from franchise fees and royalties associated with these
stores.
From 1983 through 1998 a significant portion of the Company's revenues
resulted from the sale of golf products manufactured and sold pursuant to a
license agreement with Spalding Sports Worldwide ("Spalding"). In March 1999
the Company began an 18-month phase out of products bearing the Spalding name.
This phasing out process resulted in sharply decreased sales by the Company
during 1999 because Spalding had been the Company's primary brand sold to mass
merchants. In June 2000 the Company discontinued its golf products
manufacturing operations.
Reputation for Quality. The Company believes that the services it provides to
its franchisees equals or exceeds the performance of its competitors. Its Pro
Golf Discount franchised stores have an international reputation for quality
name brand and private label golf merchandise at the best prices.
Tradition of Innovation. Throughout PGOA's history it has tried to maintain
a tradition of new product development for its private label golf merchandise
lines sold in the Pro Golf Discount stores. The products are able to provide
the franchisees with quality golf products at competitive prices with higher
margins than name brand product lines and help fill out the product mix
carried in the stores.
Growth Opportunities
- --------------------
The Company believes that PGD's strong brand recognition, reputation for
quality, and tradition of innovation position it to take advantage of
opportunities for future growth including:
Adding Value for Franchisees. The main objective of PGOA is to increase
profitability of its PGD stores to ensure the long-term success of its
franchisees. We are intent on strengthening our private label and exclusive
products offering to the stores to create improved margins and also work to
continually improve the relationships with golf product vendors. Synergies
between the stores and the internet will be developed to strengthen the Pro
Golf brand and help our stores better service the Pro Golf customers.
Stores will be provided with more profit-making opportunities. Happy and
healthy franchisees will help fuel our expansion.
New Business Models. We are currently developing new products that will
broaden the PGOA offerings and create new profit opportunities. Business
models are being developed to: (a) franchise a bigger, more profitable model
which includes a golf dome and a retail store; (b) help our franchisees
broaden their golf services offered to local corporations, including golf
outing management and corporate premiums and ad specialty products;
(c) create overseas distribution for Excalibur and Unique, our proprietary
private label brands; and (d) open a "no frills" factory outlet store,
stressing closeouts and factory direct pricing, which would function as
a clearance center for our franchisees and for key vendor closeouts and
overstocks.
Increased Market Penetration. The Company, through its subsidiaries PGOA
and PG.com, has aggressive expansion plans for 2001 and beyond. The
expansion plans will require additional capital in order to be successfully
executed. The plans include: purchasing a competitor, adding 18-24 new
franchised stores per year by aggressively recruiting new franchisees,
acquiring other independent specialty store chains and converting strong
independent competitors into Pro Golf Discount stores, expanding in
additional major markets in the United States, and using the internet to
drive more traffic to the PGD stores, helping the PGD stores to better
manage and control their inventory, and as a distribution channel to
sell golf equipment and golf-related services.
Golf Business
- ----------------
Golf, which is the primary market for the Company's businesses other than
Leisure Life, continues to be a popular form of recreation. According to
the National Golf Foundation ("NGF"), a trade association, rounds of golf
played in 1999 reached the highest point ever, roughly 564 million, due to
an increase in average rounds played per golfer to 21.3. The pace of golf
course development also continues steadily. NGF reports that 1999
marked the fifth consecutive year where new golf course openings exceeded
400. According to NGF market research, the number of U. S. golfers
was approximately 26.4 million. The NGF statistics show that in 1999, more
golfers were playing more rounds than ever before. The population of
golfers in 1999 was 80.6% male and 19.4% female, with 78.1% between
the ages of 17 and 60. In addition, favorable demographic trends
offer encouraging growth prospects for the retail golf equipment and
accessories industry both in terms of participation rate and number of
rounds. The Company believes there is a great opportunity for increased
participation both by women and golfers under 18 and over 60, and that
there is a great opportunity for increased participation by minorities. These
beliefs are based on expected increased interest by younger players,
increased emphasis on women's golf, and improvements in health, leisure
time, increasing numbers of people moving into the over 60 age group, and
the success and increased visibility of minority golfers such as Tiger Woods
and Sergio Garcia. In addition, favorable demographic trends offer
encouraging growth prospects for the retail golf equipment and accessories
industry both in terms of participation rate and number of rounds.
Marketing and Distribution. PGOA services its franchisees through its
in-house support staff, and its staff routinely attends trade shows and
maintains close contact with outside vendors to keep PGD in the forefront of
golf and retail innovation and technology. PGOA's franchisees spend
approximately $10 million annually on local and national advertising, which
helps expand recognition of the Pro Golf brand name. PG.com intends to
supplement this advertising with substantial advertising of its own beginning
in the latter half of 2001. The Company believes that future success in golf
retailing will be dependent on being able to provide the customer with
information and product availability at any time and in any way that the
customer wants it. Technology is changing the retail landscape and Pro
Golf believes its success will be enhanced by becoming a multi-channel
company that is accessible to customers on their terms. This multi-channel
philosophy will enhance the way PGOA interacts with its franchisees and
also the way the PGD stores interact with customers.
Leisure Furniture Business
- --------------------------
Leisure furniture, used on porches, decks, patios, in sun rooms and yards has
traditionally consisted of aluminum, resin, wrought iron and low to medium
priced wood products. The designs of wood products have not been stylish
or particularly comfortable for seating. Leisure Life's "In Motion"
furniture products, which feature contoured slings, adjustability and
comfort, have been received favorably in the leisure furniture market.
Leisure Life's furniture is constructed of a high-grade pine, which is
pressure-treated and kiln-dried to prevent deterioration, warping, and
bending and to withstand varying climate conditions. The seating products
utilize a patented suspension seating system that permits simple adjustment
to accommodate users of different heights and weights. This system also
incorporates an ergonomically designed sling and deep cushion seating to
provide lower back support. A patented suspension system is used on swings,
rocking chairs, stationary chairs, love seats, and couches.
Manufacturing. The pressure treated pine purchased by Leisure Life is planed,
cut, drilled, and sanded in the Baxter, Tennessee facility to form product
components. Small portions of the wood pieces are purchased pre-
manufactured. Fabric for pillows, cushions, slings and canopies are cut
and sewn in-house and by third party subcontractors for final assembly in
the Baxter, Tennessee facility. Furniture items are packaged in kits
containing the wood frame pieces, slings, pillows, and necessary hardware,
requiring the customer to assemble the final product.
Marketing and Distribution. Currently, Leisure life supplies nearly 3,500
storefronts worldwide and supplies to 20 distributors in various countries
around the world. Large chains such as Lowes and Price Costco represent
much of Leisure Life's customer storefront base and sales. Independent
nurseries, hardware stores, pool and patio shops, home centers, department
stores, mail order catalogs and casual furniture stores, along with their
respective co-op's and specialty distributors carry Leisure Life swings,
swing sets, seating and rockers. Export distribution also continues to
grow.
Inventories and Backlog
- ------------------------
Due to the relatively short lapse of time between placement of orders for
products and shipments, the Company normally does not consider its backlog of
leisure furniture orders to be significant to its business. Because of rapid
delivery requirements of its customers, the Company maintains finished goods
inventories to provide acceptable service levels to its customers. Inventory
turnover in mass-market products is lower than for furniture and reflects
maintenance of high service standards for its mass-market customer base and
the shorter manufacturing time cycle for furniture products. To reflect the
seasonality of the business, inventories tend to be higher from November
to May.
Competition
- ------------
The market in which the Company does business, while very fragmented, is
highly competitive, and is served by a number of well-established companies.
New product introductions and/or price reductions by competitors continue
to generate increased market competition. While the Company believes its
franchised stores will continue to be competitive, there can be no assurance
that successful marketing efforts by competitors will not negatively impact
the Company's future revenues. Additionally, the Company faces much
competition from other internet companies which sell golf equipment and
services similar to those PG.com will be offering, and at the present
time the Company believes that online sales of golf equipment is not a
material percentage of total golf sales.
Raw Materials and Components
- -------------------------------
Leisure Life purchases pressure treated pine, fabric, cushion stuffing, and
miscellaneous hardware used in the manufacturing and assembly process from
domestic sources. Alternative sources for raw materials are available and
Leisure Life has not experienced difficulty in obtaining raw materials.
Patents and Trademarks
- ----------------------
The Company owns several patents and trademarks and has proprietary knowledge
relating to its product lines. The loss of any of the Company's patents or
trademarks may have a material adverse effect on its business.
Employees
- ----------
As of March 31, 2001, the Company had a total of 33 employees: 15 employees
at its Farmington Hills, Michigan office and 18 employees at the Baxter,
Tennessee facility. Leisure Life also was leasing 74 workers as of March 31,
2001. The Company considers its current relations with its employees to be
good.
Item 2. Description of Property
-----------------------
PGOA leases approximately 11,150 square feet of office space in Farmington
Hills, Michigan, under an operating lease with its former owners, of which
3,150 square feet is subleased to an affiliated company. The lease is a
36-month operating lease that expires on March 31, 2002, with one option to
renew for an additional five years. PGOA has an option, exercisable through
March 31, 2002, to purchase the building at fair market value.
Leisure Life owns its manufacturing, assembly, and warehouse facility in
Baxter, Tennessee, which consists of approximately 40,000 square feet of
manufacturing and warehousing space, located on 2.8 acres. The property
carries a mortgage in the amount of $162,400. Due to the planned sale or
discontinuance of operations, the building has been listed for sale with a
commercial real estate broker since June 2000.
These facilities adequately meet the Company's administrative and production
capacity requirements. The Company, on average, utilizes approximately 60%
of its facility square footage.
Item 3. Legal Proceedings
------------------
The Company is involved in various legal proceedings that are normal to its
businesses, including product liability and workers' compensation claims.
As a result of its tight cash flow, the Company is late on payments due to
several of its vendors and is involved in various collection actions against
it and may face additional actions of this type. The Company believes
that none of this litigation is likely to have a material adverse effect on
its financial condition or operations. The Company faces the risk of
exposure to product liability claims if consumers using the Company's
products are injured in connection with their use. While the Company will
continue to attempt to take appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure.
Based on historical experience, Ajay, Leisure Life, Palm Springs,
Prestige, PGI, PGOA and PG.com have product liability insurance coverage,
which the Company believes is adequate.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock is traded on the OTC Bulletin Board (the "OTCBB").
The Company's Series C 10% cumulative convertible preferred stock also trades
on the OTCBB. No trading information exists for the Company's warrants.
The following table sets forth the range of high and low, ask and bid prices
for the last two years. These over-the-counter quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
COMMON STOCK
- ------------ TRADE PRICES
1999 HIGH/ASK LOW/BID
- ----
First Quarter $ 1.06 $ .69
Second Quarter $ 2.63 $ .69
Third Quarter $ 2.06 $ .81
Fourth Quarter $ .94 $ .47
2000
- ----
First Quarter $ 1.75 $ .44
Second Quarter $ .81 $ .31
Third Quarter $ .50 $ .25
Fourth Quarter $ .31 $ .06
UNITS
- -----
1999
- ----
First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
2000
- ----
First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
SERIES C PREFERRED STOCK
- ------------------------
1999
- -----
First Quarter $ 3.00 $ 2.00
Second Quarter $ 5.88 $ 2.00
Third Quarter $ 5.00 $ 2.50
Fourth Quarter $ 3.13 $ 1.50
2000
- ----
First Quarter $ 4.00 $ 3.75
Second Quarter $ 2.62 $ .88
Third Quarter $ 1.25 $ .63
Fourth Quarter $ .63 $ .31
Holders
- -------
The number of record holders of the Company's common stock, units, warrants
and Series C preferred stock according to the Company's transfer agent, as
of December 31, 2000 are as follows:
Common Stock 337
Preferred C 10
Warrant A 66
Based on a street name shareholder listing, the Company believes that its
Round lot common shareholders total approximately 900.
Dividends
- ---------
Holders of shares of Common Stock are entitled to dividends when, and if,
declared by the Board of Directors out of funds legally available. The
Company has not paid any dividends on its Common Stock and intends to
retain future earnings to finance the development and expansion of its
business. The Company's future dividend policy is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, capital requirements, bank credit agreement restrictions
and the financial condition of the Company. Holders of the Company's Series B
Cumulative Convertible Preferred Stock are entitled to cumulative dividends
at an annual rate of 8% based on a stated value of $100 per Series B share,
or $8 per Series B share per year. Due to a shortage of operating funds
to run the business, dividends have not been paid since January 1997.
Until the Company has cash available for dividends, it does not anticipate
declaring or paying dividends on its Series B preferred stock.
Holders of the Company's Series C Cumulative Convertible Preferred Stock are
entitled to cumulative dividends at an annual rate of $1.00 per share.
Due to a shortage of operating funds to run the business, dividends have
not been paid since January 1997. Until the Company has cash available for
dividends, it does not anticipate declaring or paying dividends on its
Series C preferred stock.
Item 6. Selected Financial Data
------------------------
The following table presents summary historical consolidated financial data
derived from audited financial statements of the Company. Statement of
Operations Data for 1996 - 1999 has been revised to reflect the presentation
for discontinued operations; Balance Sheet Data for 1996 - 1999 has not been
revised to reflect the discontinued operations. All amounts in the table
below are stated in thousands, except per share amounts.
Year Ended December 31,
----------------------------------
Statement of Operations: 2000 1999 1998 1997 1996
---- ---- ---- ---- -----
Net sales $ 4,335 $ 1,587 $ 0 $ 0 $ 0
Cost of sales 23 0 0 0 0
------- ------ ------ ------- -------
Gross profit 4,312 1,587 0 0 0
Selling, general and
administrative expenses 3,299 1,141 0 0 0
------ ----- ------ ------ ------
Operating income (loss) 1,013 446 0 0 0
Nonoperating income (expense):
Interest expense - net (1,023) ( 522) 0 0 0
Other, net ( 896) ( 221) 0 0 0
Minority interest in (loss)
of subsidiary 22 6 0 0 0
------ ------ ------ ------ -------
(Loss) from operations
before income taxes ( 884) ( 291) 0 0 0
Income tax expense
(benefit) ( 459) ( 92) 0 0 0
------- ------- ----- ----- ------
Net (loss) from continuing
Operations ( 425) ( 199) 0 0 0
Net (loss) from
discontinued operations (2,309) (2,265) (1,475) (3,516) (1,733)
-------- ------- ------ ------ -------
Net (loss) $ (2,734) $ (2,464) $(1,475) $ (3,516) $(1,733)
======== ========= ======== ======= ========
Net (loss) per common
share $ (.75) $ (.70)$ (.47) $ (1.01) $ (.55)
========== ========= ======== ========= ========
Weighted average common
and common stock
equivalent shares
outstanding 4,108 4,013 3,909 3,879 3,874
========= ======= ====== ======= =======
Cash dividends per
common share $ 0 $ 0 $ 0 $ 0 $ 0
========= ======= ======= ======= =======
December 31,
Balance Sheet Data (1): 2000 1999 1998 1997 1996
------ ------ -------- -------- --------
Working capital $ 34 $ 1,707 $ 5,652 $ 8,200 $ 3,348
Total assets $30,758 $25,733 $13,083 $ 16,614 $ 18,495
Long term debt $21,813 $18,043 $ 7,538 $ 3,229 $ 5,196
Current and prior years restated to reflect result of reverse 1 for 6
common stock split effective August 14, 1998.
(1) December 31, 2000 summary Balance Sheet Data amounts relate to operating
companies only and do not include discontinued operations
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------------------------------------------------------------
Results of Continuing Operations
- --------------------------------
Net Sales
Net sales in 2000 were $4.3 million, compared to sales for the six months
ended December 31, 1999 of $1.7 million. Management believes annualized
sales were comparable in 2000 versus 1999, as historically the better months
of the year would occur during the first half, which are the prime months
for the golf retail industry. According to published reports, the golf
industry overall sales increased approximately 4% in 2000 over 1999,
so PGI's performance was in line with the industry.
Selling, General and Administrative Expenses
SG&A for the year ended December 31, 2000 was $3.3 million compared to $1.1
million for the six months ended December 31, 1999. The main cause for the
pro-rata increase were higher expenditures in 2000 for advertising,
commissions, and legal fees. During the second half of 2000, the Company
began a cost reduction program designed to bring costs in line with the
reduced sales levels.
Interest Expense
Interest expense (net) for 2000 was $1,023,000, compared to $522,000 for the
ix months ended December 31, 1999.
Income Taxes
PGI had no income tax liability during the years ended December 31, 2000
and 1999. The tax loss for these years is expected to offset future taxable
income and reduce future income taxes.
Financial Condition of Continuing Operations
- --------------------------------------------
At December 31, 2000, PGI had working capital of $34,000, compared with
$14,000 at December 31, 1999. This $20,000 increase resulted from increased
receivables due to slower payments on royalties from franchisees caused
primarily by a slowing economy and increased payables as a result of weaker
cash flows in the fourth quarter of 2000. The ratio of current assets to
current liabilities at December 31, 2000 and 1999 was 1.01.
Inventories at December 31, 2000 were $2,000 compared to $16,000 at
December 31, 1999. The decrease reflects a write-down in the value of
Cadillac golf equipment on hand. Receivables were $1.9 million at December
31, 2000 compared to $1.1 million at December 31, 1999. The increase is
due to an increase in royalties receivable from franchisees and an increase
in receivables from affiliated companies.
At December 31, 2000 and 1999, net fixed assets were $13.1 million and
$90,000, respectively. The increase reflects the acquisition of golf real
estate located in Birch Run, Michigan and vacant land in Vero Beach,
Florida. The land was listed for sale with commercial real estate brokers
during the fourth quarter of 2000.
Capital Resources
- -----------------
The Company replaces its office furniture and equipment as needed, and
expenditures during 2000 were $23,000 plus an additional $145,000 for
development of the website for PG.com.
Liquidity
- ----------
Cash flow from operations for 2000 was $1,661,000 for the Pro Golf operating
companies. The Company expects that cash flow from operations will continue
to be sufficient to cover the operating expenses and debt requirements
of the franchise operations during the first half of 2001. However, as
certain liabilities of affiliated companies are also being paid out of
the Pro Golf cash flow through intercompany loans, liquidity of the operating
companies is expected to be under severe stress until the Company is able to
refinance its debt and raise funds for expansion.
The Company's liquidity varies with the seasonality of its business, which,
in turn, influences its financing requirements. The seasonal nature of the
Company's royalty revenue creates fluctuating cash flow. The Company has
relied on internally generated cash from operating activities to fund its
operations and pay its debt. The Company is also relying on cash generated
from private placements of stock in PGI and PG.com to fund the further
development of the website and future expansion of Pro Golf.
During late 1999 and into 2000, the Company sold equity in PGI in a private
placement offering and entered into an agreement to acquire developed and
undeveloped real estate for existing and planned golf-related activities.
During 2000, the Company issued 129,084 shares of PGI stock, which represents
11.4% of the total shares of PGI stock outstanding at December 31, 2000.
Of the new shares issued, $318,000 cash had been received with signed
subscription documents, $927,000 was a conversion of subordinated debt and
related accrued interest into common stock, and the remaining $6,500,000
was for the acquisition of golf-related real property.
The Company also began an offering of PG.com common stock during November
2000 to raise up to $12,500,000 in gross offering proceeds. If the maximum
offering is sold, the shares sold in this offering will represent
approximately 33% of the total PG.com common shares outstanding after the
offering. Proceeds from these private placements will be used for working
capital, acquisitions, and growth. As of May 18, 2001, the Company had
received $2,042,000 from this offering.
The Company had anticipated significant additional cash flows resulting from
The rents and fees to be received from the golf properties during the initial
twelve-month period beginning July 1, 2000. Rental income totaling $333,000
was accrued for the period July 1, 2000 through October 31, 2000. At that
time, the real estate was listed for sale with a commercial real estate
broker. The rental income receivable is expected to be paid to the Company
at the time the real estate is sold.
The company is also negotiating master licensing agreements in foreign
countries, to permit others to use its name in various geographic locations,
for upfront licensing fees and/or ongoing licensing and royalty payments.
Additionally, the dome and retail store combination is planned as a new PGOA
franchise model and, if successful, could substantially increase revenues
and cash flow of the Company's franchise operations. The Company is also
planning to open at least one Company-owned golf dome and Company-owned
retail store as funds become available.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company holds only one market risk instrument. This is common stock
classified as marketable securities available-for-sale and included in the
"net liabilities of discontinued operations" amount as an asset of $147,000
as of December 31, 2000. This stock is subject to equity price risk. The
full carrying value represents the market value of 156,719 shares of Williams
Controls, Inc. common stock valued at $.9375 per share, which is the last
reported trade price for 2000. This stock is traded on the Nasdaq national
market. The shares were received as part of the restructuring agreement with
Williams dated June 30, 1998. These shares have been pledged to Wells Fargo as
collateral for the Company's loans. High and low closing prices per share
for the Williams common stock for 2000 were $2.44 and $0.44 respectively.
Between January 1, 2001 and March 31, 2001 the lowest closing price for
These shares was $0.94 per share.
Item 8. Financial Statements
--------------------
Financial statements are attached hereto following Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
----------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the registrant
--------------------------------------------------------------
The Registrant's directors and executive officers as of May 30, 2001 are as
follows:
Positions and
Name Age Offices with Company Date First Elected
- ------------------- --- ------------------------- ------------------
Thomas W. Itin 66 Chairman, CEO & President 1993
Ronald N. Silberstein 44 Chief Financial Officer, Chief 1999
Administrative Officer,
Treasurer and Secretary
Thomas W. Itin. Mr. Itin was elected Chairman of the Board and President of
the Company in June of 1993, and is the Company's largest single stockholder.
Mr. Itin has been a director of Williams Controls, Inc., a publicly held
company since its inception in November 1988. He also served as Chairman of
the Board and Chief Executive Officer of Williams from March 1989 until
January 2001 and also as President and Treasurer from June 1993 until
January 2001. He has served as Chairman of the Board, Chief Executive
Officer and Chief Operating Officer of LBO Capital Corp. since its inception.
Mr. Itin has been Chairman, President and Owner of TWI International, Inc.
since he founded the firm in 1967. TWI International acts as a consultant
for mergers, acquisitions, financial structuring, new ventures and asset
management. Mr. Itin also has been Owner and Principal Officer of Acrodyne
Corporation since 1962. In April 2001, Mr. Itin became Chairman of
CompuSonics Video Corp., a publicly held company. In April 2001 Mr. Itin
became Chief Executive Officer of Enercorp, Inc., a publicly held company.
He received a Bachelor of Science degree from Cornell University and an MBA
from New York University. Mr. Itin serves on the Cornell University Council
and is Chairman of the Technology Transfer Committee.
Ronald N. Silberstein has been Chief Financial Officer and Chief
Administrative Officer of the Company since August 1999. He was named
Treasurer and Secretary in March 2001. Mr. Silberstein is a Certified Public
Accountant and, prior to joining the Company, was a partner in the CPA firm
of Hirsch Silberstein & Subelsky, P.C., a firm that he co-founded in 1993,
where he consulted with public and private companies on accounting, tax, and
operational issues. Mr. Silberstein was the partner in charge of the audit
when Hirsch Silberstein & Subelsky, P.C. acted as the Company's independent
auditors. Prior to 1993, Mr. Silberstein was a partner in a local Michigan
CPA firm. From 1979 to 1988, he was a staff accountant with various CPA firms
in Southeast Michigan, including the Detroit office of Ernst & Young. He
received a Bachelor of Business Administration degree from the University of
Michigan in 1979.
There are no family relationships between any director and executive officer.
Item 11. Executive Compensation
----------------------
Summary of Cash and Certain Other Compensation
- -----------------------------------------------
The following table shows, for the years ending December 31, 2000, 1999 and
1998, the cash compensation paid by the Company and its subsidiaries, as well
as certain other compensation paid or accrued for those years, to each of
the executive officers of the Company who received compensation from all
capacities in which they serve:
Summary Compensation Table
- ---------------------------
Annual Long-Term Compensation
Compensation Securities Underlying
Name and Principal Position Year Salary Options (#Shares)
- --------------------------- ---- ----------------- -----------------------
Thomas W. Itin 2000 $ 1 (1) -
Chief Executive Officer of 1999 $ 1 (1) -
the Company 1998 $ 1 (1) -
Ronald N. Silberstein 2000 $126,000 -
Chief Financial Officer 1999 $ 50,884 (2) 50,000
and Chief Administrative 1998 N/A -
Officer of the Company
Thomas J. Leonard 2000 $150,000 (3) 100,000
President of Pro Golf of 1999 N/A -
America, Inc., ProGolf.com, 1998 N/A -
Inc. and Ajay Leisure
Products, Inc.
Charles P. "Chip" Doyle 2000 $153,000 -
Director of 1999 $ 82,384 (4) -
ProGolf.com, Inc. 1998 N/A -
Clarence H. Yahn 2000 N/A -
Director of the Company 1999 $ 76,154 (5) -
and President of Ajay 1998 $120,000 -
Leisure Products
(1) See "Employment contracts" below.
(2) Mr. Silberstein joined the Company on August 1, 1999. His annual base
salary is $126,000.
(3) Mr. Leonard joined the Company on January 3, 2000. His annual base salary
was $120,000. Mr. Leonard left employment with the Company effective
May 21, 2001.
(4) Compensation for the period after Pro Golf was acquired by the Company
(June 23, 1999 - December 31, 1999).
(5) Mr. Yahn left employment with the Company and his position on the Board of
Directors effective July 31, 1999.
The Company, in its subsidiary ProGolf.com, adopted an Incentive Stock Plan
in January, 2000. The plan is designed to retain directors, executives and
selected employees and consultants and reward them for making major
contributions to the success of the Company. These objectives are
accomplished by making incentive awards under the Plan thereby providing
Participants with a proprietary interest in the growth and performance of
ProGolf.com. During 2000, 604,600 common shares of ProGolf.com were granted
to directors, executives, selected employees, and consultants, and options
were granted on 144,600 shares. The options are subject to vesting
requirements as outlined in the plan.
Options/SAR Grants
- --------------------
The table below summarizes options granted during the fiscal year ended
December 31, 2000 to the executive officers in the Summary Compensation
Table. The Company has not granted any SARs.
#of % of Total Exercise Expiration Potential
Securities Options Price Date Realizable
Name Underlying Granted to ($/share) Value at
Options Employees Assumed Ann'l
Granted Rate of Stk.
Price
Appreciation
For Option Term
5% ($) 10% ($)
- ------------------------------------------------------------------------------
Thomas W. Itin 0 N/A N/A N/A N/A N/A
Thomas J.
Leonard 100,000 100 1.00 1/3/06 N/A N/A
Ronald N.
Silberstein 0 N/A N/A N/A N/A N/A
Aggregated Option Exercises and Fiscal Year End Option Value
- --------------------------------------------------------------
The table below summarizes options, the number of securities underlying
unexercised stock options at December 31, 2000 which are held by the
executive officers listed in the Summary Compensation Table. No options
were exercised during the year and at year-end none were in-the-money.
Aggregated Option Exercises in 2000 and December 31, 2000 Option Values
- ------------------------------------------------------------------------
#Shares $Value Securities Value of In-the
Acquired Realized Underlying Money Options at
Exercise Unexercised Year End ($)
Options At
Name Year End (#)
- ---------------------------------------------------------------------------
Thomas W. Itin 0 0 0 0 0 0
Thomas J. Leonard 0 0 0 100,000 0 0
Ronald N. Silberstein 0 0 0 0 0 0
Compensation of Directors
- ---------------------------
Directors are not paid any fees for serving on the Board of Directors or
attending Board of Directors meetings. However, they are reimbursed for
expenses incurred in attending such board meetings.
Under the 1994 Stock Option Plan, the non-employee directors who are members
of the Compensation Committee are to receive grants of 834 non-statutory stock
options under the plan at each Annual Meeting. There were no grants
during 2000 to members of the Compensation Committee because an Annual
Meeting was not held.
Employment Contracts
- --------------------
The Company has an employment arrangement with Mr. Itin under which he serves
as the President and Chief Executive Officer of the Company at a salary of $1
per year. Mr. Itin has no obligation to continue this arrangement
although he has not given the Company any notice of intent to change the
arrangement in the near term.
Item 12 Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The table below sets forth, as of May 9, 2001, the number of shares of Common
Stock beneficially owned by each director and executive officer (named in the
Summary Compensation Table) of the Company individually, all such executive
officers and directors as a group, and each beneficial owner of more than
five percent of the Common Stock. The following stockholders have sole
voting and investment power with respect to their holdings unless otherwise
footnoted.
Name and Address Number of Shares Percentage of
Beneficially Owned Class (1)
- -------------------- ---------------------- ---------------------
Thomas W. Itin 2,758,197 (2)(3)(5)(6)(8) 49.5%
32751 Middlebelt Road,
Suite B,Farmington
Hills, MI 48334
Williams Controls 4,019,607 (4) 53.9%
Industries, Inc.
14100 SW 72nd Avenue
Portland, OR 97224
TICO 1,990,747 (5) 37.7%
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
Acrodyne Profit Sharing 462,246 (6) 10.5%
Trust
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
Enercorp, Inc. 315,634 (7) 7.6%
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
LBO Capital Corp. 280,001 (8) 6.7%
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
Ronald N. Silberstein 74,850 (9) 1.8%
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
Thomas J. Leonard 100,000 (10) 2.4%
32751 Middlebelt Road,
Suite B Farmington Hills,
MI 48334
All executive officers 2,933,047 (2)(3)(5)(6)(8)(9)(10) 51.3%
and directors as a group
(3 persons)
1) Where persons listed on this table have the right to acquire additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from May 9, 2001, these additional shares are deemed to be outstanding
for the purpose of computing the percentage of Common Stock owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person. The actual number
of shares of common stock issued and outstanding as of May 9, 2001 was
4,120,017.
(2) Mr. Itin may be deemed to be a "control person" of the Company.
Includes Common Stock and shares of Common Stock issuable upon the
exercise of presently exercisable warrants and the conversion of
presently convertible Preferred Stock beneficially owned by Mr.
Itin's spouse and affiliates of Mr. Itin as follows:
Entity Shares Description
- ---------------------------- -------------- ----------------
TICO 833,340 Common Stock
First Equity Corporation 25,203 Common Stock
Acrodyne Profit Sharing Trust 462,246 Common Stock and warrants
LBO Capital Corp. 280,001 Common Stock and warrants
--------
1,600,790
TICO (12,500 shares of Series B
preferred stock convertible at one
share for 92.5926 shares of Series "B" Preferred Stock
Common Stock) 1,157,407 conversion
----------
2,758,197
=========
Mr. Itin disclaims beneficial ownership in the securities owned
by LBO Capital Corp. and First Equity Corporation in excess of his
pecuniary interest. Mr. Itin's spouse owns an 80% equity interest
in First Equity Corp., and Mr. Itin owns 57% of the outstanding common
stock of LBO Capital Corp., a company with its common stock registered
under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Mr. Itin is also Chairman of the Board and
President of LBO Capital.
(3) Does not include 686,274 Common Shares and 3,333,333 shares available
from series D preferred on conversion owned by Williams Controls,
Inc. Mr. Itin is Chairman of the Board and 30.5% beneficial owner
of Williams Controls, Inc. Even though Mr. Itin is a Director of
Williams Controls, he abstains from voting on matters pertaining to
the Company in meetings of the Directors of Williams Controls.
(4) Includes 3,333,333 shares available from Series D preferred on
conversion. See "Certain Relationships and Related Transactions."
(5) Includes 1,157,407 shares of Common Stock issuable upon conversion of
12,500 shares of presently convertible Series B Preferred Stock,
at a rate of 92.5926 shares of Common Stock for every one share of
preferred stock. TICO is a Michigan partnership of which Mr. Itin
is the Managing Partner.
(6) Includes 266,167 shares of Common Stock issuable upon exercise of
options. Mr. Itin is trustee and beneficiary of Acrodyne Profit
Sharing Trust.
(7) Includes the following Common Stock owned and shares of Common Stock
issuable upon the conversion of presently convertible Preferred Stock
owned by Enercorp, Inc., a Colorado corporation, with its Common
Stock registered under Section 12(g) of the Exchange Act:
Common Stock 310,785
2,000 shares of Series C preferred stock,
convertible at one preferred share for 2.4242
shares of Common Stock 4,849
-------
315,634
=======
(8) Includes 33,334 shares of Common Stock issuable upon exercise of
warrants. LBO Capital Corporation is a Colorado corporation of
which Mr. Itin is a 56% shareholder, Chairman of the Board of
Directors, and President.
(9) Includes 50,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(10) Includes 100,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers, directors, and persons who
beneficially own more than 10% of the Company's Common Stock to file, with
the SEC, initial reports of beneficial ownership on Form 3, reports of changes
in beneficial ownership on Form 4, and annual statements of changes in
beneficial ownership on Form 5. Persons filing such reports are required
under the regulations promulgated by the SEC pursuant to Section 16 to
furnish the Company with copies of such reports. Based solely upon a
review of the copies of the reports received by the Company during the fiscal
year ended December 31, 2000, the Company believes that all reports were
timely filed.
Item 13 Certain Relationships and Related Transactions
------------------------------------------------
Since 1994, Williams Controls, Inc. has made loans and provided capital to
the Company to assist the Company in meeting its financing requirements.
Williams owns 686,274 shares of the Company's common stock. Thomas W.
Itin, the Company's Chairman, President and Chief Executive Officer, and
beneficial owner of approximately 49.5% of the Company's common stock,
is also the Chairman and beneficial owner of approximately 29.4%of
the common stock of Williams. Mr. Itin was the President, Chief
Executive Officer, and Treasurer of Williams until January 4, 2001.
From July 1997 to July 1998, the Company and its subsidiaries (the "Company
parties") were parties with Williams and its subsidiaries (the "Williams
parties") to a joint credit facility from Wells Fargo Bank, National
Association (the "Joint Wells Loan"). The proceeds of this joint financing
were used to repay the loans of the Williams parties and partially repay
loans of the Company parties from a previous bank lender, United States
National Bank ("U. S. Bank"). In connection with the Joint Wells Loan,
Williams provided the Company a loan in the amount of $2,268,000 (the
"Williams Bridge Loan") and U. S. Bank provided the Company a bridge loan
in the amount of $2,340,000 (the "USB Bridge Loan"). The Company is the
primary obligor on the USB Bridge Loan promissory note and it is guaranteed
in full by the Williams parties, and by the Company's Chairman, personally,
up to $1,000,000.
As of June 30, 1998, the Joint Wells Loan was restructured to separate the
loans to the Company parties and the Williams parties. This restructuring
eliminated joint and several liability to Wells, as well as cross collateral
and guarantee agreements, between the Company parties and the Williams
parties as they related to the Joint Wells Loan. The Company's credit
facility with Wells allowed the Company parties to borrow up to the
lesser of $9,500,000 or the Borrowing Base (as defined in the credit
agreement).
In connection with the transaction with Wells to separate the loans of the
Company parties and the Williams parties effected June 30, 1998, Williams
(a)advanced an additional $2,000,000 in the form of cash and marketable
securities, (b) purchased notes payable of approximately $948,000 by the
Company to other affiliated parties, Enercorp, Inc. and First Equity
Corporation, which evidenced loans provided by those parties during 1997
when the Company required additional capital, (c) and converted $5,000,000 of
the amount owed by the Company to Williams into 6,000,000 shares of a newly
created class of preferred stock of the Company, its Series D cumulative
convertible preferred stock. In connection with these transactions with
Williams, the Company delivered a promissory note to Williams for the full
amount owed to Williams after conversion of $5,000,000 into the Series D
preferred stock (the "Williams Note"). The Williams Note is secured by
a lien on substantially all of the assets of the Company parties, which
lien is subordinate to the liens of U. S. Bank and Wells.
The Williams note accrues interest at the rate of 16% per annum. As
currently structured, the interest became payable on December 31, 2000,
and all remaining principal and interest will be due at maturity on August 1,
2001. The Company was not able to pay the loan interest that came due on
2002. December 31, 2000. At December 31, 2000, the Company owed $2,087,000
under the Williams Note. In addition, it owed $1,315,000 to U. S. Bank
under the USB Bridge Loan. The Company has been unable to meet its repayment
obligations under the USB Bridge Loan and if Williams agrees to and makes
payments on the USB Bridge Loan on the Company's behalf, either on its own
or as a guarantor, any payments made by Williams would result in an increase
in the amount the Company owes to Williams. The Company has been operating
under a forbearance agreement with U.S. Bank that expired on October 31,
2000. The Company was notified by U.S. Bank that it intended to foreclose
2000. on April 23, 2001 on its collateral and the loan guarantors.
2000. As of May 9, 2001 no action has been taken by U.S. Bank.
The Series D preferred stock is convertible at the option of Williams into
3,333,333 shares of the Company's common stock. No dividends accrue on the
Series D preferred stock until after July 31, 2001. The dividend rate on the
Series D preferred stock will be 17% per annum commencing August 1, 2001 and
will increase to 24% in 2002. The Series D preferred stock is redeemable by
the Company. It is not likely that the Company will be able to raise capital
from new sources in order to redeem the Series D preferred stock prior to
August 1, 2001.
The Company had also entered into agreements with Williams that required
annual payments of $90,000 for administrative fees and $80,000 for
management fees for sourcing products overseas on the Company's behalf.
These payments were accrued through September 30, 2000 by the Company and are
currently being negotiated due to the discontinuance of the businesses that
needed the sourcing during 2000.
During 1999, Williams reimbursed the Company approximately $114,000 for
management services provided to Williams by an officer of the Company
from 1997 through 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
-----------------------------------------------------------------
(a) 1. Financial Statements:
Ajay Sports, Inc. and Subsidiaries
Consolidated Financial Statements of Ajay
Sports, Inc. and Subsidiaries:
Reports of Independent Accountants
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Operations - Years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years
ended December 31, 2000, 1999 and 1998
Notes to Financial Statements
2. Financial Statement Schedules:
Ajay Sports, Inc. and Subsidiaries:
Schedule II - Valuation and Qualifying
Accounts - Years ended December 31, 2000,
1999 and 1998
3. Exhibits required by Item 601 of Regulation S-K
The following exhibits represent the Company's
Management Contracts or Compensatory Plans or arrangements
for executive officers:
Exhibit 3.1 (a) Articles of Incorporation and amendments
thereto. (1)
Exhibit 3.1 (b) Certificate of Designations of Rights
and Preferences of the Series B 8% Cumulative
Convertible Preferred Stock of Ajay Sports, Inc. (3)
Exhibit 3.1 (c) Certificate of Designations of Rights and
Preferences of the Series C 10% Cumulative Preferred
Stock of Ajay Sports, Inc. (4)
Exhibit 3.1 (d) Certificate of Designations of Rights and
Preferences of the Registrant's Series D Cumulative
Convertible Non-Voting Preferred Stock (8)
Exhibit 3.1 (e) Certificate of Amendment to Restated Certificate
of Incorporation Dated August 11, 1998 for common stock split
effective August 14, 1998. (9)
Exhibit 3.2 Bylaws (1)
Exhibit 10.1 Williams/Ajay Loan and Joint Venture
Implementation Agreement dated May 6, 1994 as
amended by Letter Agreement dated April 3, 1995 (3)
Exhibit 10.2 1994 Stock Option Plan (2)
Exhibit 10.3 1995 Stock Bonus Plan (2)
Exhibit 10.4 (a) Revolving Loan Agreement dated July 25, 1995
Between Ajay Sports, Inc. and United States National Bank of
Oregon, including Guaranties, Security Agreements, and Other
Loan Documents (4)
Exhibit 10.4 (b) First Amendment to the July 25, 1995
Revolving Loan Agreement dated October 2, 1995,
including amendment to Bulge Loan Note, Supplement to
Guaranty and Amendment to Revolving Loan Note (5)
Exhibit 10.5(a) Consent Reaffirmation and Release Agreement
with U. S. Bank and Promissory Note of the Registrant (6)
Exhibit 10.5(b) Extension Agreement and Amendment of Promissory
Note With U.S. Bank Filed Herewith
Exhibit 10.6 Security Agreement dated July 14, 1997,
among Registrant and its subsidiaries, as debtors, and Williams
Controls and its subsidiaries as secured parties (7)
Exhibit 10.7(a) Credit Agreement, dated June 30, 1998, by and
among the Registrant and its subsidiaries and Wells Fargo Bank,
NA including Promissory Notes, Security Agreements and other
Loan Documents (the "1998 Wells Fargo Credit Agreement") (8)
Exhibit 10.7(b) Amendment No. 1, dated February 2, 1999, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(c) Amendment No. 2, dated June 2, 1999 to the 1998
Wells Fargo Credit Agreement. (11)
Exhibit 10.7(d) Amendment No. 3, dated July 8, 1999, to the 1998
Wells Fargo Credit Agreement. (11)
Exhibit 10.7(e) Amendment No. 4, dated July 14, 1999 to the 1998
Wells Fargo Credit Agreement. (11)
Exhibit 10.7(f) Amendment No. 5, dated August 5, 1999, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(g) Amendment No. 6, dated August 16, 1999 to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(h) Amendment No. 7, dated December 1, 1999, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(i) Amendment No. 8, dated January 16, 2000, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(j) Amendment No. 9, dated February 1, 2000, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(k) Amendment No. 10, dated March 1, 2000 to the 1998
Wells Fargo Credit Agreement. (11)
Exhibit 10.7(l) Amendment No. 11, dated April 1, 2000, to the
1998 Wells Fargo Credit Agreement. (11)
Exhibit 10.7(m) Second Mortgage and $70M Promissory Note payable
To Wells Fargo related to the Baxter, Tennessee facility. Filed
Herewith
Exhibit 10.7(n) Forbearance Agreement with Wells Fargo, dated
June 12, 2000, As amended June 21, 2000 (12)
Exhibit 10.7(o) Agreement Regarding Discretionary Advances,
dated December 1, 2000, with Wells Fargo. Filed Herewith
Exhibit 10.8 Restructuring agreement, dated June 30, 1998, by
and among Registrant and its subsidiaries and Williams Controls,
Inc. including promissory note (8)
Exhibit 10.9(a) Master Revolving Note dated June 22, 1999, in
the principal amount of $8.5 million between Pro Golf
International, Inc. as borrower and Comerica Bank as lender
(the "Comerica Note") (11)
Exhibit 10.9(b) Amendment No. 1 to Comerica Note. (11)
Exhibit 10.9(c) Amendment No. 2 to Comerica Note. (11)
Exhibit 10.9(d) Amendment No. 3 to Comerica Note (11)
Exhibit 10.9(e) Form of Guaranty for the Comerica Note, as
signed by the Registrant (11)
Exhibit 10.9(f) Form of Guaranty for the Comerica Note, as
signed by each of Thomas W. and Shirley B. Itin, Colorado Ridge
Corporation, TICO, Acrodyne Corporation, SICO, Pro Golf of
America, Inc. and Woodward Partners (11)
Exhibit 10.9(g) Form of Security Agreement under the Comerica
Note as signed by Pro Golf of America, Inc. and Pro Golf
International, Inc. (11)
Exhibit 10.9(h) Forbearance Agreement with Comerica, dated
September 1, 2000. (13)
Exhibit 10.9(i) Forbearance Extension Agreement with Comerica,
dated May _10, 2001. Filed Herewih
Exhibit 10.10(a) Form of Subordinated Promissory Note
(Maker Pro Golf International, Inc.) (11)
Exhibit 10.10(b) Form of Comerica Subordination Agreement (11)
Exhibit 10.11 Warrants issued to former shareholders of Pro
Golf of America, Inc. (10)
Exhibit 10.12 Incentive Stock Plan of ProGolf.com, Inc. Filed
Herewith
Exhibit 21.0 List of Subsidiaries Filed Herewith
Exhibit 23.1 Consent of Hirsch Silberstein & Subelsky, PC
Filed Herewith
Exhibit 23.2 Consent of J L Stephan Co., PC Filed Herewith
Exhibit 27.0 Financial Data Schedule Filed Herewith
Notes Related to Exhibits Incorporated by Reference
----------------------------------------------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-18 No. 33-30760.
(1) Incorporated by reference from the Registrant's Registration Statement
on Form S-8, No. 33-89,650.
(1) Incorporated by reference from the Registrant's form 10-K filed for
December 31, 1994. (SEC File No. 0-18204)
(1) Incorporated by reference from the Registrant's Registration Statement
on Form S-2, File No. 33-58753.
(1) Incorporated by reference from the Registrant's Form 10-Q for the
Quarterly period ended September 30, 1995. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Form 10-Q for the
Quarterly period ended June 30, 1997. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's 10-K filed for
December 31, 1997. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Form 10-Q for the
Quarterly period ended June 30, 1998. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Current Report on
Form 8-K, Date of Report June 23, 1999 as filed with the SEC on
July 8, 1999 (SEC File No. 0-18204)
(1) Incorporated by reference from the Registrant's 10-K filed for
December 31, 1999. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Form 10-Q for
the Quarterly period ended June 30, 2000. (SEC file No. 0-18204)
(1) Incorporated by reference from the Registrant's Form 10-Q for
the Quarterly period ended September 30, 2000. (SEC file No. 0-18204)
SIGNATURES
Requirements of Section 13 or 15(d) of the Securities and Exchange Act
of 1934, Ajay Sports, Inc. has duly caused this Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in Farmington Hills, Michigan on the 30th day of May, 2001.
AJAY SPORTS, INC.
By: \s\Thomas W. Itin
----------------------
Thomas W. Itin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURES TITLE DATE
\s\Thomas W. Itin Director May 30, 2001
Thomas W. Itin and Principal
Executive Officer
\s\Ronald N. Silberstein Chief Financial May 30, 2001
Ronald N. Silberstein Officer and Principal
Accounting Officer
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Ajay Sports, Inc.
We have audited the accompanying consolidated balance sheets of Ajay Sports,
Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits. The consolidated financial statements of Ajay Sports,
Inc. and Subsidiaries as of December 31, 1998 were audited by other
auditors whose report dated March 12, 1999 expressed an unqualified opinion
on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ajay Sports, Inc. and
Subsidiaries as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information on Schedule II is
presented for purposes of complying with rules of the Securities and Exchange
Commission and is not a required part of the basic financial statements.
This information has been subjected to the auditing procedures applied in
our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the 2000 and 1999 financial data required
to be set forth therein in relation to the basic financial statements
taken as whole.
S/J L Stephan Co, PC
- ----------------------
J L Stephan Co, PC
Traverse City, Michigan
April 30, 2001
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Ajay Sports, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ajay Sports,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. We have
also audited the related consolidated financial statement schedules listed
in the index in Item 14 of this Form 10-K for each of the three
years in the period ended December 31, 1998. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial statement
schedules referred to above present fairly, in all material respects, the
financial position of Ajay Sports, Inc. and Subsidiaries as of December
31, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
\s\Hirsch Silberstein & Subelsky, P. C.
- ---------------------------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
March 12, 1999
F-1
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2000 and 1999
(in thousands, except share amounts)
December 31, December 31,
2000 1999
----------- -----------
ASSETS
Current Assets:
Cash $ 273 $ 101
Marketable securities-available for sale 0 348
Accounts receivable, net of allowance
Of $306 and $558 respectively 1,891 3,247
Inventories 2 3,969
Prepaid expenses and other 631 1,179
-------- --------
Total current assets $ 2,797 $ 8,844
Fixed assets, net 13,100 1,693
Other assets 6,841 7,037
Deferred tax benefit 8,020 6,582
Goodwill 0 1,577
-------- ---------
Total assets $ 30,758 $ 25,733
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt $ 1,200 $ 995
Accounts payable - 5,043
Accrued expenses 1,563 1,099
----------- ---------
Total current liabilities 2,763 7,137
Notes payable to affiliates - long term - 2,087
Notes payable to banks - long term 7,225 13,886
Notes Payable - long term 7,700 2,070
Commitments and contingencies - -
Net liabilities of discontinued operations 7,088 -
--------- ---------
Total liabilities 24,776 25,180
--------- ---------
Minority interest in subsidiary (45) 24
--------- ---------
Stockholders' equity:
Preferred stock - 10,000,000 shares
Authorized
Series B, $0.01 par value, 12,5000 shares
Outstanding, at stated value 1,250 1,250
Series C, $0.01 par value, 217,939 shares
Outstanding, at stated value 2,179 2,179
Series D, $0.01 pare value, 6,000,000
Shares outstanding, at stated value 60 60
Common stock, $0.01 par value, 100,000,000
Shares authorized, 4,120,017 and
4,091,091 shares outstanding, respectively 41 41
Additional paid-in capital 23,933 15,500
Accumulated deficit (21,204) (18,470)
Accumulated other comprehensive income (232) (31)
-------- ----------
Total stockholders' equity 6,027 529
------- ----------
Total liabilities and stock holders
Equity $30,758 $ 25,733
======== =========
The accompanying notes are an integral part of
the consolidated financial statements
F-2
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2000, 1999 and 1998
(in thousands, except per share amounts)
Year Ended
-----------------------------------------
December 31, December 31, December 31,
2000 1999 1998
------------ ----------- -----------
Operating data:
Net sales $ 4,335 $ 1,587 $ 0
Costs of sales 23 0 0
----------- --------- ---------
Gross Profit 4,312 1,587 0
Selling, general and administrative
Expense 3,299 1,141 0
--------- -------- --------
Operating income (loss) 1,013 446 0
--------- ------- --------
Nonoperating income (expense):
Interest expense (1,023) (5,22) 0
Depreciation and amortization (941) (229) 0
Other, net 45 8 0
-------- --------- --------
Total non operating expense (1,919) (734) 0
-------- --------- ---------
(Loss) before minority interest and
income taxes (906) (297) 0
Minority interest in (loss) of
Subsidiary 22 6 0
--------- -------- --------
(Loss) before income taxes (884) (291) 0
Income tax (benefit) (459) (92) 0
-------- ------- -------
Net (loss) from continuing operations (425) (199) 0
- ---------- ----------- ---------
Discontinued operations:
(Loss) from operations of golf
wholesale segment (net of
income tax benefit of $601,
$1,487, and $0 in 2000,1999,1998) (1,130) (1,793) (944)
(Loss) on disposal of golf wholesale
segment (net of income tax benefit
of $214 in 2000) ( 875) 0 0
(Loss) from operations of furniture
operations to be disposed of (net of
income tax benefit of $164, $254,
and $0 in 2000,1999 and 1998) ( 304) (472) (531)
--------- -------- -------
Total (loss) from discontinued
Operations (2,309) (2,265) (1,475)
-------- -------- -------
Net (loss) $ (2,734) $(2,464) $(1,475)
========= ========= ========
Basic and diluted earnings per
Share (a) $ (0.75) $ (0.70) $ (0.47)
========= ======== ========
Weighted average common shares
Outstanding (b) 4,108 4,013 3,909
========= ======== ========
Net loss as reported above (2,734) (2,464) (1,475)
Undeclared cumulative preferred
Dividends (341) (341) (380)
-------- --------- -------
Loss applicable to common stock $ (3,075) $(2,805) $(1,855)
========= ========= ========
(a) Computed by dividing net loss after deducting
Undeclared, cumulative preferred stock
Dividends, by the weighted average number
Of common shares outstanding.
(b) Current and prior years restated to reflect
Result of reverse 1:6 common stock split
Effective August 14, 1998
The accompanying notes are an integral part of
The consolidated financial statements
F-3
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2000, 1999 and 1998
(in thousands, except shares)
(S>
Preferred Stock Common Stock Add'l Other Total
--------------- ---------------- Paid-In Accum Comprehensive Stkhldrs'
Shares Amount Shares Amount Capital (Deficit)
Income(Loss) Equity
------ ------ ------ ------ --------- ------
- ----------- ----------
Balances at Jan. 1, 308,670 4,212 3,879,007 $233 $ 9,313 $( 14,531)
$ - $ (773)
1998
Common stock reverse
1:6 split - - 250 (194) 194 -
- -
Other adjustments - - - - (4) -
- (4)
Preferred stock
Converted into
Common stock (31,993) (320) 77,558 1 319 -
- -
Debt converted into
Preferred stock 6,000,000 60 - - 4,940 -
- 5,000
COMPREHENSIVE INCOME
Net Loss - - - - -
(1,475) - (2,475)
Other comprehensive
Income (loss - - - - - -
(7) (7)
-------- ------ ---------- ----- ------- ---------
- -------- ---------
Balances at Dec. 1,
1998 6,276,677 3,952 3,956,815 40 14,762
(16,006) (7) 2,741
Preferred stock
Converted into common
Stock (46,238) (463) 134,276 1 738 -
- 276
COMPREHENSIVE INCOME
Net Loss
(2,464) (2,464)
Other comprehensive
Income (Loss)
(24) (24)
---------- ------ -------- ------ ------- --------
- -- ------- --------
Balances at Dec. 31
1999 6,230,439 3,489 4,091,091 41 15,500
(18,470) (31) 529
Issuance of common stock
To pay debt 28,926
Exchange of common stock
Of subsidiary for land 6,500
6,500
Sales of common stock
Of subsidiaries 1,933
1,933
COMPREHENSIVE INCOME
Net loss
(2,734) (2,734)
Other comprehensive
Income (loss)
(201) (201)
---------- ------- ---------- ------- ------- ----
- ------ -------- --------
Balances at Dec. 31
2000 6,230,439 $ 3,489 $ 4,120,017 $ 41 $ 23,933 $ (21,204) $ (232) 6027
========== ======= =========== ======= ========
============ ===========
The accompanying notes are an integral part of
The consolidated financial statements
F-4
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2000, 1999, 1998
(in th0usands)
2000 1999 1998
------ ----- ------
Cash flows from operating activities:
Net (loss) $ (2,734) $(2,464)$(1,475)
Adjustments to reconcile to net cash flows
From operating activities:
(Gain) loss on sale of assets 50 (7) -
Depreciation and amortization 941 335 381
(Increase) in deferred income tax benefit (593) (2,833) -
(Increase) decrease in marketable securities - 48 (396)
(Increase) decrease in accounts receivable, net (803) (1,358) 3,171
Decrease in inventories 14 1,711 718
(Increase) decrease in prepaid expenses 162 (694) (181)
(Increase) decrease in other assets - - (75)
Increase (decrease) in accounts payable - 2,818 (979)
Increase (decrease) in accrued expenses 502 719 (303)
------- ------ -------
Net cash provided by (used in) operating
Activities (152) (725) 861
------- ------- -----
Cash flows from investing activities:
Increase in development costs (145) - -
Proceeds from sale of equipment 2 - -
Acquisitions of property, plant and
Equipment (net) (23) (262) (319)
------- ------- ------
Net cash (used in) investing activities (166) (262) (319)
------- ------- ------
Cash flows from financing activities:
Sales of common stock by subsidiaries 1,933 - -
Net increase in advances from affiliates - 500 2,215
Net increase (decrease) in bank notes payable - 306 2,978)
Minority interest in subsidiary 46 300 -
Unrealized losses from securities - (24) (7)
------ ------ -----
Net cash provided by (used in)
Financing activities of continuing operations 1,979 1,802 (770)
Cash flows from discontinued operations:
Net cash used in operations (1,489) - -
------- ------ ------
Net increase (decrease) in cash 172 (987) (228)
Cash at beginning period 101 6 234
------ ------ ------
Cash at end of period $273 $101 $ 6
====== ===== =====
The accompanying notes are an integral part of
the consolidated financial statements
F-5
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Ajay Sports, Inc. ("Sports") and its wholly-owned operating
company subsidiaries, Ajay Leisure Products, Inc. ("Ajay"), Leisure
Life, Inc. ("Leisure"), Palm Springs Golf, Inc. ("Palm Springs"),
Prestige Golf Corp. ("Prestige"), and majority-owned subsidiaries
Pro Golf International, Inc. ("PGI"), Pro Golf of America, Inc.
("PGOA"), and ProGolf.com, Inc. ("PG.com") collectively referred to
herein as the "Company". All significant intercompany balances and
transactions have been eliminated.
DISCONTINUED OPERATIONS - The operations of Ajay, Leisure, Palm Springs,
and Prestige were discontinued on June 2, 2000. From that date through
December 31, 2000 the companies in the golf wholesale segment (Ajay,
Palm Springs, and Prestige) liquidated their remaining assets. Leisure
scaled back its operations and was put up for sale. The Balance Sheet
for December 31, 2000 reflects the excess of the liabilities over the
assets of these subsidiaries. The Balance Sheet for December 31,
1999 has not been restated. The Statement of Operations has been
restated for prior years in accordance with APB 30. As of December 31,
2000 the remaining assets and liabilities of the golf wholesale
companies were written off. Leisure is still operating and purchase
offers are being reviewed.
REVENUE RECOGNITION - PGOA recognizes Initial Franchise Fee revenue
when all material services or conditions relating to the sale have been
substantially performed or satisfied by the franchiser. Royalty fees
in most cases are a percentage of franchisees monthly gross receipts,
as defined in the franchise agreement. Leisure and the golf wholesale
companies recognized revenue from sales of product when title to the
product had passed, which was generally the date the product was shipped.
NATURE OF SIGNIFICANT INITIAL SERVICES - When a franchise is purchased
from PGOA, the company agrees to perform certain services to the new
franchisee. Among the services provided by PGOA are assistance in
lease negotiation, store layout, retail sales training, custom club
fitting, implementation of an accounting system, purchasing and pricing
programs, and design of a customer service program.
CONCENTRATION OF CREDIT RISK - The Company maintains cash balances at
several banks. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Balances maintained
frequently exceed $100,000. Management feels that the risk of loss
due to excess balances is minimal.
INVENTORIES - Inventories are stated at the lower of cost or market
with cost determined using the first-in, first-out method.
FIXED ASSETS - Fixed assets are stated at cost, less accumulated
depreciation. Fixed assets of the Company consist primarily of land,
machinery and equipment, office equipment, and a building.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to
thirty-nine years. The land is not being depreciated.
GOODWILL - The Company had recorded goodwill as a result of the
1995 acquisitions of Palm Springs and Korex. The goodwill was being
amortized over forty years and due to the discontinuance of the
operations of Ajay in June 2000, was written off in full at that time.
Amortization expense related to the goodwill was $1,752,000 for the
year ended December 31, 2000.
OTHER ASSETS - Other assets at December 31, 2000 and 1999 consists
primarily of trademarks and brand names held by PGI. Amortization
expense is being deducted straight-line over the estimated useful
lives of these assets. Amortization expense related to the other
assets was $269,000 for the year ended December 31, 2000.
PRODUCT LIABILITY AND WARRANTY COSTS - Product liability exposure is
insured with insurance premiums provided during the year. Product
warranty costs are based on experience and the Company attempts to
match such costs with the related product sales.
INCOME TAXES - Effective January 1, 1992, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences of temporary differences between
the financial statement carrying amounts and the tax bases of
existing assets and liabilities, using enacted statutory rates
applicable to future years.
ADVERTISING - The Company's policy is to expense production costs for
advertising as of the date the commercials and marketing materials are
initially utilized or are provided to franchisees for their use.
Prepaid advertising represents expenditures that, under this policy,
are capitalized at period end and are expensed during a subsequent
period as utilized. Due to the seasonality of the Company's business,
advertising and marketing costs generally exceed revenue received
from vendors and franchisees on an annual basis. The Company incurred
$661,115 of costs for advertising and the production of marketing
materials during the year ended December 31, 2000.
EMPLOYEE BONUS PLAN - The Company has a non-qualified bonus plan for
certain employees. Due to the seasonal nature of the Company's
business and the timing of revenue and expenses, on an interim basis,
the Company expenses compensation related to the bonus as it is paid
during the year. The bonus is determined at the end of the fiscal year
based on annual financial results.
COMPENSATED ABSENCES - Employees of the Company are entitled to paid
vacation and paid sick days off depending on job classification,
length of service, and other factors. It is impracticable to
estimate the amount of compensation for future absences, and,
accordingly, no liability has been recorded in the accompanying
financial statements. The company's policy is to record the costs of
compensated absences when actually paid to employees.
STATEMENT OF CASH FLOWS - The Company considers all bank accounts to be
cash equivalents. The impact of changing foreign currencies on cash was
not material.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
COMMON STOCK - The Company reverse split its common stock in a 1-for-6
ratio effective with commencement of trading on August 14, 1998. As a
result of this transaction, all historic data in the financial
statements that reference common shares, options, earnings per share or
preferred conversion ratios have been restated to reflect this split
as if it preceded all prior reporting. Historic actual common shares
outstanding at December 31, 1997 were 23,274,039 and were restated to
3,879,007.
2. RELATED PARTY TRANSACTIONS
--------------------------
The Company's related parties include the following:
First Equity Corporation ("First Equity") - First Equity is owned by a
family member of the president, chief executive officer, and chairman of
the Company. First Equity held, at December 31, 1997, demand notes in
the amount of $748,000 as a result of loans made to the company in 1996
and 1997. Williams assumed these notes in the financial restructuring
in 1998. First Equity made short-term working capital loans to Ajay
during 1999, with interest at various market rates. The balance due on
these loans at December 31, 2000 was $569,745, including accrued
interest of $50,250. A total of $50,000 was repaid during
January 2001.
Enercorp, Inc. ("Enercorp") - is a business development company engaged
in the business of investing in and providing managerial assistance to
developing companies. The Company's president, chief executive officer,
chairman and principal shareholder is a significant shareholder in
Enercorp. Enercorp holds 310,787 common shares acquired in 1994 and
1995 and 2,000 shares of series C preferred stock. Enercorp held at
December 31, 1997, demand notes in the amount of $200,000 as a result of
loans made to the Company. Williams assumed these notes in the financial
restructuring in 1998. During 1999, Enercorp loaned PGI $420,000 under
a 13 month, 10% subordinated note. In February 2000, Enercorp converted
the note and accrued interest of $27,000 into 7,450 shares of PGI at $60
each.
Williams Controls, Inc. ("Williams") - Williams has the same chairman as
the Company, which individual is a major shareholder of each company.
Williams owns 686,274 shares of the Company's common stock, and
6,000,000 shares of Series D cumulative convertible preferred stock as
of December 31, 2000, convertible into 3,333,333 shares of the
Company's common stock. From July 11, 1997 through June 30, 1998 the
Company and Williams shared a joint and several loan obligation. On
June 30, 1998, the Company restructured its credit facility with Wells
Fargo Bank, N.A. ("Wells")to separate its credit facility from that of
Williams. As a result of this transaction, the Company no longer has
joint and several liability, cross collateral agreements or
guarantees with Williams. In connection with the restructuring of the
Wells credit facility, the Company was advanced $2,000,000 additional
funds by Williams in the form of a long-term note and marketable
securities and Williams converted $5,000,000 of Company debt into a
newly created series D cumulative convertible preferred stock.
The Company's interest expense accrued to Williams was $452,127 and
$251,545 for the years ended December 31, 2000 and 1999 respectively.
During 1999, $62,900 of the interest accrual was actually paid.
(See Note 4).
The Company received 166,719 shares of Williams as part of the
restructuring agreement with Williams dated June 30, 1998. The remaining
156,719 shares have been pledged to Wells Fargo as collateral for the
Company's loans. The common stock is classified as marketable
securities - available for sale and is valued at $.9375 per share,
which is the last trade for 2000.
Due to poor cash flow, the Company has been unable to make any principal
or interest payments to Williams on these loan since 1999 and is in
default on its obligations to Williams. As of May 18, 2001, Williams
has been forbearing upon the Company's default; however, there is no
assurance that this forbearance will continue. The Company's Chief
Executive Officer had guaranteed to Williams its investments in and
loans to the Company; however, there is uncertainty as to whether the
guarantee is still in place due to control changes at Williams during
2000 and 2001.
During 1999, the Company had borrowings from affiliated parties, in
addition to those mentioned above, to finance its acquisition of PGOA
and PG.com. These borrowings totaled $450,000, with interest at an
annual rate of 10%. In February 2000, these borrowings (and accrued
interest totaling $30,000) were converted into 8,000 shares of PGI
common stock at $60 per share.
3. INVENTORIES
------------
Inventories consist of the following (in thousands):
December 31
------------------
2000 1999
--------- ---------
Raw materials $ -0- $ 827
Work-in-progress -0- 903
Finished goods 3 2,239
--------- ----------
Total $ 3 $ 3,969
======== ========
Additionally, at December 31, 2000 the Company's furniture business had
inventory totaling $211,000, consisting of $55,000 in raw materials, $68,000
of work in process, and $88,000 of finished goods. The overall reduction in
inventory that occurred during the year ended December 31, 2000 was due to
the discontinuing of the wholesale golf segment.
4. DEBT
- ------
On December 31, 2000 the Company's debt for continuing operations was
$16,125,000 owed to banks, Williams, affiliates and others. This
compares to $19,038,000 for December 31, 1999. The decrease from 1999
is principally due to the discontinuance of the unprofitable wholesale
golf segment of the Company's business.
From July 11, 1997 until June 30, 1998 the Company shared in a combined credit
agreement with Williams (the "Joint Loan"). As of June 30, 1998 the Company
restructured its credit facility with Wells to separate from the joint and
several credit facility with Williams. This new credit facility eliminated
cross collateral and guarantee agreements involving the Company and Williams.
The revolving loan facility allowed the Company to borrow up to the lesser of
$9,500,000 or the Borrowing Base. The Borrowing Base consisted of a formula
including certain eligible receivables, inventories and letters of credit at
rates established by Wells.
The proceeds from the Joint Loan were used to repay the Company's and
Williamsthen outstanding loans from the previous lender, U. S. Bank, except
for a bridge loan in the total amount of $2,140,000 to the Company by U. S.
Bank. This bridge loan is to be repaid from the sale of assets and/or excess
cash flows of Williams and/or the Company, and is guaranteed up to $1,000,000
by the Company's president. The balance owed on this bridge loan at December
31, 2000 is $1,315,000. In connection with the 1998 credit facility
restructuring, the Company was advanced $2,000,000 of additional funds by
Williams and Williams converted $5,000,000 of company debt into preferred
stock.
At December 31, 2000 the Company was liable to Comerica Bank in the amount of
$8,425,000 on a master revolving note entered into to effect the acquisition
of Pro Golf of America, Inc. and ProGolf.com, Inc. The note has been
extended through June 30, 2001 under a forbearance agreement. The Company
anticipates refinancing this loan into an amortizing long-term loan during
the second half of 2001, and anticipates receiving additional short-term loan
extensions from Comerica, although there is not a commitment on the part of
Comerica to grant any further extensions after June 30 2001.
The Company's Bank borrowings for continuing operations consisted of the
following (dollars in thousands):
December 31,
---------------------------
Revolving credit facility: 2000 1999
----------- ----------
Master revolving note:
Balance $ 8,425 $ 8,425
Weighted average interest rate 10.4% 9.0%
Average amount outstanding
during the period $ 8,425 $ 8,479
Debt payments for continuing operations are estimated to be as
scheduled (dollars in thousands):
2001 $ 1,200
2002 1,200
2003 1,200
2004 1,200
2005 and thereafter 11,325
The seasonal nature of the Company's revenues creates fluctuating demands
on its cash flow. The Company has relied and continues to rely heavily on
the internal cash flow for its golf franchising business. New capital
will need to be raised for the planned expansion of Pro Golf (See
Note 14.)
5. INCOME TAXES
------------
As discussed in Note 2, the Company adopted SFAS No. 109 at the beginning
of 1992. There was no cumulative effect of this accounting change and
its adoption had no impact on 1992 net income.
The actual income tax expense (benefit) differs from the statutory income
tax expense (benefit) as follows (in thousands):
Year Ended December 31,
----------------------------------
2000 1999 1998
------- ------ -------
Statutory tax expense
(benefit) $(1,438) $(1,833) $( 502)
Utilization of net
operating loss
carry forward - - -
Loss producing no current
tax benefit - - 502
-------- -------- --------
$(1,438) $(1,833) $ -0-
========= ========== =========
The components of the net deferred tax asset/liability were as follows (in
thousands):
December 31,
2000 1999
------- ---------
Deferred tax assets:
Accrued expenses $ 0 $ 45
Reserves 48 78
Amortization 156 0
NOL carry forwards 7,910 6,472
------- -------
Sub total $8,114 $ 6,595
Deferred tax liability,
principally depreciation ( 94) ( 13)
--------- ----------
Net $ 8,020 $ 6,582
======== ==========
At December 31, 2000, the Company assessed its past earnings history
and trends, budgeted sales, and expiration dates of carry forwards
and has determined that it is more likely than not that 100% of
deferred tax assets will be realized. The change versus 1998 is
principally due to the profits to be realized from operations of PGOA
and PG.com and the discontinuance of the Company's unprofitable
operations in the golf wholesale segment and leisure furniture
segment. The valuation allowance of $502,000 at December 31, 1998
was maintained on deferred tax assets, which the Company had
determined to be more likely than not unrealizable at that time.
The Company had net operating loss carry forwards for Federal tax
purposes of approximately $20,077,000 at December 31, 2000, which
expire in varying amounts in the years 2006 through 2020. Substantial
operating loss carry forwards are available to offset future state
taxable income of the Company, which expire in varying amounts in the
years 2006 through 2020. Future changes in ownership, as defined by
section 382 of the Internal Revenue Code, could limit the amount of
net operating loss carry forwards used in any one year.
4. STOCKHOLDERS' EQUITY
--------------------
(a) Preferred Stock
The Company has 12,500 shares of Preferred Series B stock outstanding,
with a conversion rate as of December 31, 2000 of 92.5926 common shares
for each share of preferred stock.
In July 1995 the Company sold 325,000 shares of Series C 10% cumulative
convertible preferred stock and 325,000 warrants in a registered public
offering. The Series C preferred stock is convertible into shares of
the Company's common stock at a conversion rate of 2.42424 common shares
for each share of preferred stock. Cumulative dividends are payable on
the Series C preferred stock at an annual rate of $1.00 per share.
The warrants are redeemable by the Company at $0.05 per warrant under
certain conditions. The terms of these warrants are identical to the
Company's publicly held warrants to purchase common stock. In 1995
the Company used the $2.8 million of net proceeds for inventory and
accounts receivable financing and to acquire certain assets of Korex
and Palm Springs.
At December 31, 2000, 1999, and 1998, dividends in arrears on the 8%
cumulative convertible preferred Series B stock were $1,206,575,
$1,106,575 and $1,006,575 respectively. Dividends on the Series C
cumulative convertible preferred stock were declared and paid through
December 31, 1996. No dividends were declared or paid for 2000, 1999,
or 1998. At December 31, 2000, 1999 and 1998, dividends in arrears
on the 10% cumulative convertible preferred Series C stock were
$1,058,292, $817,232 and $576,174. The Company has dedicated all
available funds to support continuing operations of the Company until
sufficient cash availability allows declaration and payment of
dividends.
(b) Stock issued to officers
The Company has a stock incentive plan for officers of the Company,
under which up to 150,000 shares of the Company's stock may be
granted annually. As of May 18, 2001, no stock has been issued to
officers under this plan in 2000, 1999, or 1998.
(c) Warrants and Options
A summary of activity related to warrants and options to purchase
Company common stock is as follows:
Warrants and Price
Options (i) Per Share (i)
------------ -----------------
Balance, January 1, 1998 2,748,769 $1.08 - 6.00
Expired (122,287) 2.40 -4.125
Issued to Directors 1,668 1.50 (ii)
--------- --------------
Balance, December 31, 1998 2,628,150 1.08 - 6.00
Issued to Employees 50,000 1.00
Expired (83,334) 2.40 - 4.125
---------- ----------------
Balance, December 31, 1999 2,594,816 1.00 - 6.00
Issued to Employees 100,000 1.00
Expired (1,864,313) 1.08 - 2.40
---------- ----------------
Balance, December 31, 2000 830,503 $1.00 - 6.00
========= ===============
(i) All options were adjusted for the effect of a 1:6 reverse common
stock split effective August 14, 1998.
(ii) Director options - 100% vested.
4. LEASES
- -------
Future aggregate minimum lease payments under noncancelable operating
leases with initial or remaining terms in excess of one year are as
follows:
2001 $ 122,116
2002 32,116
2003 1,057
2004 and thereafter 0
---------
$ 155,289
=========
Total rental expense of the Pro Golf operating companies under operating
leases was $122,216 and $61,058 for the year ended December 31, 2000
and the six months ended December 31, 1999, respectively.
4. NET (LOSS) PER COMMON SHARE
- ----------------------------
Earnings or loss per share has been computed by dividing net income or
loss, after reduction for preferred stock dividends in 2000 ($341,000),
1999 ($341,000), and 1998 ($380,000), by the weighted average number
of common shares outstanding. No exercise of outstanding warrants was
assumed in 2000, 1999, or 1998, since any exercise of warrants would be
antidilutive.
SFAS No. 128, "Earnings Per Share", became effective for fiscal years
ending after December 15, 1997. This statement replaces the presentation
of primary earnings per share ("EPS") with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital
structures and requires reconciliation of the numerator and denominator
of the basic EPS computations to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared the
earnings of the entity.
4. SUPPLEMENTAL CASH FLOW INFORMATION
- ----------------------------------
Cash paid by the Pro Golf operating companies for interest was $964,242
during 2000 and $522,194 for the six months ended December 31, 1999.
Non cash financing and investing transactions were as follows:
During 1998 preferred stock in the quantity of 31,993 shares were
converted into 77,558 shares of common stock.
During 1998 long-term debt of $5,000,000 was converted into 6,000,000
shares of Series D preferred stock.
The Company added new leases during 1998 that represented asset values,
if purchased, of approximately $103,000 and result in annual lease
payments of $27,000 and with terms expiring up to the year 2003.
These leases were terminated during 2000.
During 1999 Series C preferred stock in the quantity of 46,238 shares
were converted into 112,085 shares of common stock.
The Company borrowed $10,750,000 from a bank and others to acquire
PGOA and acquired PGD Online, LLC during 1999.
During 2000 the Company issued 29,276 shares of its common stock to a
vendor in payment of a debt.
During 2000 the Company transferred 250 shares of stock that it owned
in a subsidiary company to a vendor in payment of a debt.
In July 2000, the Company acquired golf real estate in Birch Run,
Michigan and vacant land in Vero Beach, Florida in exchange for
108,334 shares of common stock of its Pro Golf International, Inc.
subsidiary. If purchased the land would have been valued at. The
estimated fair market value of the property acquired was $13,000,000
less related debt of $6,500,000.
4. COMMITMENTS AND CONTINGENCIES
- -----------------------------
The Company is subject to certain claims in the normal course of
business which management intends to vigorously contest. The
outcomes of these claims are not expected to have a material
adverse affect on the Company's consolidated financial position
or results of operations. (See Notes 4 and 9).
4. ACQUISITIONS
- --------------
In June 1999, Ajay, through a newly formed majority owned subsidiary
(PGI) acquired 100% of the outstanding ownership interests of PGOA
and PG.com. This acquisition was accounted for using the purchase
method of accounting. The results of operations of the acquired
companies have been included in Ajay's consolidated financial
statements from the date of acquisition. Intercompany accounts and
transactions between the acquired companies and Ajay have been
eliminated.
The acquisition price of $10,500,000 was paid in cash and financed
through borrowings with a bank ($8,500,000) affiliated companies
($870,000) and private individuals ($1,200,000). The portion of the
purchase price in excess of net book value was allocated to
"Trademarks" and, net of the related income tax benefit and related
trademark amortization, is shown in the consolidated balance sheet with
"Other assets".
12. DISCONTINUED OPERATIONS
------------------------
In June 2000, the Company decided on a plan of liquidation for its Ajay,
Palm Springs, Prestige, and Leisure Life subsidiaries. The operations
of Ajay, Palm Springs, and Prestige (the "golf wholesale segment")
ceased on August 31, 2000, at which time substantially all of the
operating assets were liquidated. The Company is in the final stages
of collecting the receivables of those companies, and a reserve has been
set up to estimate uncollectible accounts. PGOA is loaning funds to
Prestige so that certain liabilities to golf vendors can be paid.
Leisure Life (the "furniture segment") reduced its operating expenses
and its assets were listed with a broker for sale. These companies
had been incurring substantial losses during recent years and
experiencing negative cash flows. The results of these segments have
been reported separately as discontinued operations in the Statements
of Operations. Prior year operating results for 1999 and 1998 have
been restated to present the operations of the golf wholesale segment
and the leisure furniture segment as discontinued operations. Prior
year balance sheet and cash flows statements have not been restated.
The net assets and liabilities of the discontinued operations have been
recorded at net realizable value under the caption "Net liabilities of
discontinued operations" in the accompanying Balance Sheet at December
31, 2000 and consist of the following (in thousands):
Accounts receivable $ 434
Inventories 211
Property and equipment, net 896
Other assets 3,663
--------
Total assets 5,204
Accounts payable 2,209
Accrued liabilities 1,260
Other liabilities 1,609
Loans payable 7,214
--------
Total liabilities 12,292
Net liabilities of discontinued
Operations $ 7,088
=========
Sales of the golf wholesale segment (Ajay, Palm Springs, and Prestige)
were $3.2 million, $6.8 million and $19.1 million for 2000, 1999 and
1998 respectively. Sales of Leisure Life were $4.3 million, $4.8
million and $3.8 million for 2000, 1999 and 1998, respectively.
13. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1998, the Accounting Standards Committee of the American
Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidance for an enterprise
on accounting for the costs of computer software developed or obtained
for internal use. The Company adopted this statement during the year
ended December 31, 1999 and has capitalized software costs according
to the provisions of the standard. These costs are amortized on a
straight-line basis over the useful life of the software once it is
placed into service.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments and
hedging activities. The statement was amended by SFAS No. 137 and
will be effective for financial statements for fiscal years beginning
after June 15, 2000. The Company believes SFAS No. 133 will not have a
material impact on its financial statements or accounting policies.
The Company will adopt the provisions of SFAS No. 133 in the first
quarter of 2001.
14. SUBSEQUENT EVENTS
------------------
During late 2000, the Company began selling equity in ProGolf.com in a
private placement offering. The private placement expires June 30, 2001
but may be extended by the Company at its discretion. As of May
17, 2001, the Company had committed to issue 791,272 shares of PG.com
stock sold in this offering, which represents 6.8% of the total shares
of PG.com stock outstanding at that date.
An endorsement agreement between Gary Player Group, Inc. and PGOA was
terminated as of January 12, 2001. Management maintains any amount due
above the contract is unlikely and feels no need to establish a
contingent liability.
Effective April 1, 2001 PGI obtained an extension through June 30, 2001
on its master revolving note with Comerica Bank. PGI anticipates
refinancing this loan into a long-term amortizing loan during the second
half of 2001.
During May 2001 the Company engaged a strategic banker in order to raise
new equity and debt capital so that the Company can refinance its
existing debt, have capital for expansion, and have sufficient working
capital. The agreement entered into requires monthly retainer payments
and for success fees to be paid when the capital is raised. The success
fees are a percentage of the equity and debt capital raised.
Schedule II
AJAY SPORTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999, and 1998
(Amounts in Thousands)
Balance
Beginning Charged to Deducted from at end
Balance expense Reserve of period
---------- ----------- -------------- --------
Reserve for Product Warranty:
Year ended:
December 31, 2000 (4) $ 79 $181 $260 $ 0
December 31, 1999 103 271 295 (1) 79
December 31, 1998 152 70 119 103
Reserve for Doubtful Receivables:
Year ended:
December 31, 2000 (4) $558 $ 19 $440 $137
December 31, 1999 318 (3) 263 23 (2) 558
December 31, 1998 243 50 198 95
Reserve for Inventory Obsolescence:
Year ended:
December 31, 2000 (4) $393 $ 0 $393 $ 0
December 31, 1999 300 350 257 393
December 31, 1998 425 292 417 300
Notes:
(1) Represents amounts paid for product warranty claims.
(2) Represents amounts charged off as uncollectible.
(3) Includes $223 balance on books of company that was acquired in June 1999.
(11) Ending balance for December 2000 does not include discontinued
operations. Prior years have not been adjusted to reflect
discontinued operations. Beginning balance on January 1, 2000
has not been restated to remove discontinued operations.
EXHIBIT 10.5(b)
EXTENSION AGREEMENT
This Extension Agreement (the "Agreement") is entered into on
September ___, 2000, between U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank")
And AJAY SPORTS, INC. ("Ajay").
RECITALS
A. On or about July 14, 1997, Ajay and U.S. Bank entered into
a Consent, Reaffirmation, and Release Agreement (the "Existing Loan
Agreement").
B. Pursuant to the terms of the Existing Loan Agreement,
U.S. Bank provided a term loan facility to Ajay. Capitalized terms used in
this Agreement that are not defined herein have the meanings assigned to
those terms in the Existing Loan Agreement.
C. Ajay's obligations to repay the term loan extended by
U.S. Bank are set forth in a promissory note dated July 14, 1997, in the
principal amount of $2,340,000 (the "Note"). As of September 26, 2000, Ajay
owes U.S. Bank the principal amount of $1,314,537.80 and accrued interest of
$49,550.78 pursuant to the Note.
D. Interest continues to accrue on Ajay's obligations to
U.S. Bank pursuant to the Note on and after September 27, 2000. In addition,
Ajay is obligated to reimburse U.S. Bank (or pay directly if requested to do
so by U.S. Bank) for fees and costs reasonably incurred by U.S. Bank in
connection with its banking relationship with Ajay, including reasonable
attorney fees.
E. The debts and obligations of Ajay to U.S. Bank pursuant to
the Existing Loan Agreement and the Note are referred to below as the
"Indebtedness."
F. The Indebtedness is secured by security interests and liens
in the Collateral described in the Collateral Documents and by a lien on the
Florida Property described in the Aptek Mortgage.
G. Williams, the Williams Guarantors, and the Ajay Guarantors
guaranteed payment of the Indebtedness pursuant to the terms of the
Guaranties. In addition, Thomas W. Itin guaranteed payment of $1,000,000 of
the principal amount owed pursuant to the Note, and certain other sums,
pursuant to a guaranty agreement dated July 14, 1997 (the "Itin Guaranty").
Williams, the Williams Guarantors, the Ajay Guarantors, and Mr. Itin are
referred to in this Agreement collectively as the "Guarantors."
H. The Existing Loan Agreement, the Note, the Collateral
Documents, the Aptek Mortgage, the Guaranties, the Itin Guaranty, and the
other documents executed by Ajay and the Guarantors in favor of U.S. Bank are
referred to herein as the "Loan Documents."
I. The loan evidenced by the Note matured on July 1, 2000.
Ajay has asked U.S. Bank to extend the maturity date of the Note. U.S. Bank
is willing to do so, subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties agree as follows
TERMS AND CONDITIONS
SECTION I
EXTENSION OF MATURITY DATE
1.1 Acknowledgment of Amounts Owed. Ajay hereby acknowledges
and agrees that the amounts of principal and interest specified in Recital C
above with respect to the Note are payable to U.S. Bank without offset,
defense, counterclaim, or claim of recoupment. In addition, Ajay
acknowledges its obligation to pay U.S. Bank the amounts referred to in
Recital D of this Agreement.
1.2 Amendment of the Note. Contemporaneously with the
execution of this Agreement, Ajay shall execute and deliver to U.S. Bank a
document in form and content reasonably satisfactory to U.S. Bank amending
the Note (the "Note Amendment Agreement") to reflect the revised maturity
date thereof. Following the execution of this Agreement and the Note
Amendment Agreement by Ajay, references in the Existing Loan Agreement to the
Note shall mean the Note, as amended by the Note Amendment Agreement.
1.3 Payment of Interest. Contemporaneously with the execution
of this Agreement, Ajay shall pay U.S. Bank $38,632.81, which is the amount
of interest accrued on the Note through August 31, 2000. On October 1, 2000,
Ajay shall pay U.S. Bank all interest accrued on the Note from September 1,
2000, through September 30, 2000.
1.4 New Maturity Date of the Note. The maturity date of the
Note hereby is extended to October 31, 2000. The entire balance of principal
outstanding under the Note, and all interest accrued thereon, shall be due
and payable in full by Ajay on October 31, 2000.
1.5 Withdrawal of Demand Upon Mr. Itin. If the conditions
precedent set forth in Section II of this Agreement are satisfied by Ajay in
a timely manner and this Agreement becomes effective, U.S. Bank's outstanding
demand upon Mr. Itin to pay the portion of the Indebtedness that Mr. Itin
guaranteed under the Itin Guaranty shall be withdrawn. If those conditions
precedent are not timely satisfied, U.S. Bank may proceed to exercise its
rights and remedies against Mr. Itin and any other person or entity with
respect to the Indebtedness. If U.S. Bank's demand upon Mr. Itin is
withdrawn in accordance with the first sentence of this paragraph, and Ajay
subsequently fails to make any payment owed pursuant to the Note (including
the payment of the remaining balance of principal and interest due on
October 31, 2000, if the extension contemplated in this Agreement is
granted), U.S. Bank may exercise any and all rights available to it against
Ajay and the Guarantors (or any of them), including, but not limited to, the
right to make demand again upon Mr. Itin and proceed against him under the
Itin Guaranty if that demand is not satisfied.
SECTION II
CONDITIONS PRECEDENT
2.1 Conditions Precedent. This Agreement, and U.S. Bank's
agreement to extend the maturity date of the Note on the basis set forth in
this Agreement, shall not be effective until all of the following events
occur:
(a) Execution of the Agreement. Ajay executes this Agreement
and delivers it to U.S. Bank;
(b) Execution of the Note Amendment Agreement. Ajay executes
the Note Amendment Agreement and delivers it to U.S. Bank
(c) Payment of Interest. Ajay pays U.S. Bank $38,632.81 for
interest accrued on the Note through August 31, 2000; and
(d) Execution of Consent Form by the Guarantors. The
Guarantors execute and deliver to U.S. Bank the form of Consent
And Reaffirmation of Guaranties and Security Agreements on
page 6 of this Agreement.
If all of the above-described conditions precedent are not satisfied by 2
p.m. (Pacific time) on September 29, 2000, this Agreement shall not be
effective and the parties' rights and obligations shall continue to be
governed by the Loan Documents.
SECTION III
COLLATERAL FOR THE INDEBTEDNESS
3.1 Continued Validity of the Collateral Documents. Ajay
hereby expressly reaffirms and acknowledges the validity of the Collateral
Documents, the accuracy of the information contained in those documents, and
the grant of security interests and liens in favor of U.S. Bank in the
Collateral. Ajay acknowledges and agrees that the Collateral Documents, and
the security interests and liens created by those agreements, secure payment
of the Indebtedness. Furthermore, Ajay acknowledges and agrees that the
Collateral Documents, and the security interests and liens created thereby,
shall continue in full force and effect after the execution of this
Agreement.
3.2 Additional Financing Statements; Other Documents. Ajay
hereby agrees that until the Indebtedness has been paid in full, Ajay
promptly shall execute and deliver to U.S. Bank (and shall cause the
Guarantors to execute and deliver to U.S. Bank) all documents reasonably
deemed necessary or desirable by U.S. Bank to evidence, perfect, or continue
U.S. Bank's security interests or liens in the Collateral. The failure of
Ajay or any Guarantor to sign and return any such document to U.S Bank within
ten days of the date U.S. Bank delivers the document to Ajay shall constitute
an Event of Default.
SECTION IV
GENERAL TERMS
4.1 Captions. Any captions for the sections of this Agreement
are for convenience only and do not control or affect the meaning or
construction of any of the provisions of this Agreement.
4.2 Severability. If any term, condition, or provision of this
Agreement, or any other document or instrument referred to in this Agreement,
is held invalid for any reason, such offending term, condition, or provision
shall be stricken therefrom, and the remainder of this Agreement shall not be
affected thereby.
4.3 Continued Effectiveness of the Loan Documents. The Loan
Documents remain in full force and effect and are binding and enforceable in
accordance with their terms (as modified hereby and by the Note Amendment
Agreement). Following the execution of this Agreement, references in this
Agreement to the Existing Loan Agreement, and references in the Existing Loan
Agreement to the "Agreement," shall mean the Existing Loan Agreement (or the
Agreement, as applicable), as amended hereby.
4.4 Negotiated Agreement. This Agreement is a negotiated
agreement. In the event of any ambiguity in this Agreement, such ambiguity
shall not be subject to a rule of contract interpretation that would cause
the ambiguity to be construed against either of the parties to this
Agreement.
4.5 Voluntary and Entire Agreement. The only consideration for
the execution
of this Agreement is the consideration expressly recited herein. This
Agreement and the other agreements and instruments referred to in this
Agreement set forth and constitute the entire agreement between the
parties hereto with respect to the subject matter of this Agreement. No oral
promise or agreement of any kind or nature, other than those that have been
reduced to writing and set forth herein, has been made between U.S. Bank and
Ajay. Ajay acknowledges that it has been, or has had the opportunity to be,
represented by legal counsel in connection with the negotiation and execution
of this Agreement and the other agreements and instruments referred to in
this Agreement. Ajay fully understands the meaning and intent of this
Agreement and voluntarily executed this Agreement and the other agreements
and instruments referred to in this Agreement.
4.6 Construction and Conflict with Other Agreements. In the
event of any conflict between the terms of this Agreement and the terms of
any other agreements or instruments referred to in this Agreement, the terms
of this Agreement shall control.
4.7 Statutory Notices. UNDER OREGON LAW, MOST AGREEMENTS,
PROMISES, AND COMMITMENTS MADE BY U.S. BANK CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS THAT ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE
SIGNED BY U.S. BANK TO BE ENFORCEABLE.
U.S. BANK NATIONAL ASSOCIATION AJAY SPORTS, INC.
By /s/ Betty J. Kinoshita By /s/ Thomas W. Itin
--------------------------- --------------------------------
Betty J. Kinoshita Thomas W. Itin
Vice President President and Chief
Executive Officer
CONSENT AND REAFFIRMATION OF GUARANTIES
AND SECURITY AGREEMENTS
Williams Controls, Inc., Agrotec Williams, Inc., Aptek Williams,
Inc., Hardee Williams, Inc., Kenco Williams, Inc., Nesc Williams, Inc.,
Premier Plastic Technologies, Inc., Techwood Williams, Inc., Waccamaw Wheel
Williams, Inc., Williams Automotive, Inc., Williams Controls Industries,
Inc., Williams Technologies, Inc., Williams World Trade, Inc., Ajay Leisure
Products, Inc., Ajay Leisure de Mexico C.V. de S.A., Leisure Life, Inc., Palm
Springs Golf, Inc., and Thomas W. Itin (the "Guarantors") hereby consent to
the terms of the foregoing Extension Agreement and acknowledge and reaffirm
their obligations under (a) the Guaranties and the Itin Guaranty, as
applicable, with respect to the Indebtedness, and (b) their obligations under
the Collateral Documents and the Aptek Mortgage. Capitalized terms used in
this consent and reaffirmation have the meanings assigned to those terms in
the Extension Agreement.
Dated this _____ day of September, 2000.
WILLIAMS CONTROLS, INC. AGROTEC WILLIAMS, INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
APTEK WILLIAMS, INC. HARDEE WILLIAMS, INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
KENCO WILLIAMS, INC. NESC WILLIAMS, INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
PREMIER PLASTIC TECHNOLOGIES, TECHWOOD WILLIAMS, INC.
INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
WACCAMAW WHEEL WILLIAMS WILLIAMS AUTOMOTIVE, INC.
INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
WILLIAMS CONTROL INDUSTRIES, WILLIAMS TECHNOLOGIES, INC.
INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and President and
Chief Executive Officer Chief Executive Officer
WILLIAMS WORLD TRADE, INC. AJAY LEISURE de MEXICO
C.V. de S.A.
By /s/ Thomas W. Itin By /s/ Clarence H. Yahn
--------------------- ---------------------------
Thomas W. Itin Clarence H. Yahn
President and Sole Administrator
Chief Executive Officer
AJAY LEISURE PRODUCTS, INC. PALM SPRINGS GOLF, INC.
By /s/ Thomas W. Itin By /s/ Thomas W. Itin
--------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
President and Chief Executive Officer
Chief Executive Officer
LEISURE LIFE, INC.
By /s/ Thomas W. Itin /s/ Thomas W. Itin
--------------------------- ---------------------------
Thomas W. Itin Thomas W. Itin
Chairman of the Board
- 7 -
AMENDMENT OF PROMISSORY NOTE
This Amendment of Promissory Note (the "Amendment") is entered
into on September ____, 2000, between U.S. BANK NATIONAL ASSOCIATION
("U.S. Bank") and AJAY SPORTS, INC. ("Ajay").
RECITALS
A. On or about July 14, 1997, Ajay executed a promissory note
in the amount of $2,340,000 in favor of U.S. Bank. That promissory note is
referred to in this Amendment as the "Note."
B. Ajay and U.S. Bank have agreed to extend the maturity date
of the term loan facility evidenced by the Note, as more particularly
described in the Extension Agreement between U.S. Bank and Ajay of even date
herewith (the "Extension Agreement").
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties to this Amendment
agree as follows:
1. Notwithstanding anything in the Note to the contrary, the
entire balance of principal and interest owed pursuant to the Note shall be
due and payable on or before October 31, 2000. In the meantime, Ajay shall
continue to make the monthly interest payments required by the Note.
2. Except as expressly modified or amended by this Amendment,
all of the terms and conditions of the Note remain in full force and effect.
3. In the event of a conflict between the provisions of this
Amendment or the Note and the provisions of the Extension Agreement, the
provisions of the Extension Agreement shall control.
4. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE
BY U.S. BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS THAT ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER' S RESIDENCE, MUST BE IN WRITING,
EXPRESS CONSIDERATION, AND BE SIGNED BY U.S. BANK TO BE ENFORCEABLE.
U.S. BANK NATIONAL ASSOCIATION AJAY SPORTS, INC.
By /s/Betty J. Kinoshita By /s/ Thomas W. Itin
------------------------------ ----------------------------
Betty J. Kinoshita Thomas W. Itin
Vice President President and Chief
Financial Officer
- 1 -
Exhibit 10.7 (m)
TRUST DEED
For the purpose of securing the payment of the following indebtedness
of AJAY SPORTS, INC., a Delaware corporation, LEISURE LIFE, INC., a
Tennessee corporation, PALM SPRINGS GOLF, INC., a Colorado corporation,
AJAY LEISURE PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF
CORP., a Delaware corporation (hereinafter collectively referred to as
"Borrowers") to Wells Fargo Credit, Inc., or the owner thereof, viz:
evidenced by that certain Demand Promissory Note executed simultaneously
herewith in the principal amount of $70,000, evidenced by the promissory
notes issued in connection with that certain Credit Agreement among
Borrowers and Wells Fargo dated as of June 30, 1998, (as amended, modified
or supplemented from time to time, the "Credit Agreement") and all of the
"Obligations" (as defined in the Credit Agreement), LEISURE LIFE, INC., a
Tennessee corporation ("Grantor"), hereby bargains, sells, conveys and
confirms unto _______________________________________________ as trustee
("Trustee"), said Trustee having a place of business in
_____________________________, Tennessee, its successors or assigns,
forever, the property described on Exhibit A attached hereto.
To have and to hold to said Trustee, its successors or assigns, the
aforesaid property with whom Grantor covenants that Grantor is lawfully
seized in fee of the same, that Grantor have good right to sell and convey
the same; that the same is free from all encumbrances except the first
trust deed of record as of the date hereof and that Grantor will forever
warrant and defend the title thereto against the lawful claims of all
persons whomsoever.
But this is a trust deed.
Now, should the indebtedness secured hereby be paid at maturity, then
this deed is satisfied, and the Trustee shall execute proper release deed
at the expense of the Grantor. Should the indebtedness secured hereby, or
any part thereof, not be paid when due, then the Trustee shall, after
advertising time, place and terms of sale for twenty-one days, by
publication once a week for three successive weeks in a daily newspaper
published in ______________________________________, Tennessee, sell the
property at public outcry, for cash, execute proper conveyances to the
purchasers, and apply the proceeds, first, to the payment of necessary
expenses of executing this trust, next, to the payment of the said
indebtedness and interest, and pay the balance, if any, to Grantor, it
successors or assigns. The Trustee may execute any powers conferred upon
it by this trust deed.
The oath and bond of the Trustee are expressly waived, and in case of
sale hereunder, the Grantor hereby expressly waives the equity of
redemption, statutory right of redemption, dower and homestead and all
other rights and exemptions of every kind in and to said property, and
agrees that the purchaser shall have an absolute title in fee simple.
Executed this ________ day of June, 2000.
LEISURE LIFE, INC.
By
----------------------------
Title:
STATE OF ________ )
) ss.
County of )
Before me, a Notary Public in and for said State and County, duly
commissioned and qualified, personally appeared ____________________,
with whom I am personally acquainted (or proved to me on the basis of
satisfactory evidence), and who, upon oath, acknowledged himself to be the
___________ of Leisure Life, Inc., the within named Grantor, a
corporation, and that he executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as
_____________.
Witness my hand and seal this___ day of June, 2000.
-------------------------------
Notary Public for _____________
My commission expires __________
PAGE 2
Exhibit 10.7(m)
$70,000 June 9, 2000
FOR VALUE RECEIVED, the undersigned, AJAY SPORTS, INC., a Delaware
corporation, LEISURE LIFE, INC., a Tennessee corporation, PALM SPRINGS
GOLF, INC., a Colorado corporation, AJAY LEISURE PRODUCTS, INC., a Delaware
corporation, and PRESTIGE GOLF CORP., a Delaware corporation (each
individually referred to as "Borrower" and all collectively referred to as
"Borrowers") hereby jointly and severally promise to pay to the order of Wells
Fargo Credit, Inc. ("Wells Fargo") ON DEMAND the principal sum of Seventy
Thousand Dollars ($70,000), together with at a fluctuating rate per annum
equal to the Base Rate in effect from time to time plus 300 basis points.
This promissory note and Borrowers' obligations hereunder shall constitute
part of the "Obligations" as defined in that certain Credit Agreement among
Borrowers and Wells Fargo dated as of June 30, 1998, (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Capitalized terms
used herein shall have the respective meanings assigned to them in the Credit
Agreement.
All payments of principal and interest hereunder shall be made to Wells
Fargo at Wells Fargo's office in lawful money of the United States and in
same day or immediately available funds.
Borrowers' obligations evidenced by this promissory note are secured by the
collateral described in the Loan Documents, including, without limitation,
that certain Deed of Trust executed and delivered simultaneously herewith
with respect to the real property located at 215 Fourth Avenue, Baxter,
Tennessee 38544. The Loan Documents describe the rights of Wells Fargo
and any other holder hereof with respect to the collateral.
Borrowers shall pay all costs of collection, including reasonable attorneys'
fees (whether incurred at the trial or appellate level, in an arbitration
proceeding, in bankruptcy (including, without limitation, any adversary
proceeding, contested matter or motion) or otherwise). No delay or failure
on the part of Wells Fargo to exercise any of its rights hereunder shall be
deemed a waiver of such rights or any other right of Wells Fargo nor shall
any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of such rights or any other right on any future occasion. Borrowers
and every surety, indorser and guarantor of this Note waive presentment,
demand, protest, notice of intention to accelerate, notice of acceleration,
notice of nonpayment and all other notices of every kind, and agree that
their liability under this Note shall not be affected by any renewal,
postponement or extension in the time of payment hereof, by any indulgence
granted by any holder hereof with respect hereto, or by any release or change
in any security for the payment of this Note, and they hereby consent to
any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases
or changes.
Time is of the essence in the performance of all obligations of Borrowers
under this Note.
This promissory note shall be governed by and construed in accordance with
the laws of the State of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE BY WELLS
FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY
BY THE BORROWER'S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY WELLS FARGO TO BE ENFORCEABLE.
AJAY SPORTS, INC. LEISURE LIFE, INC.
By: By:
------------------------------- -----------------------------
Title: Title:
------------------------------ --------------------------
Palm Springs Golf, Inc. Ajay Leisure Products, Inc.
By: By:
--------------------------------- --------------------------------
Title Title:
---------------------------- ---------------------------
Prestige Golf Corp.
By:
------------------------------------
Title:
---------------------------------
Exhibit 10.7(o)
AGREEMENT REGARDING DISCRETIONARY
ADVANCES OF CREDIT
THIS AGREEMENT dated as of December __, 2000 among AJAY SPORTS, INC., a
Delaware corporation, LEISURE LIFE, INC., a Tennessee corporation ("Leisure
Life"), PALM SPRINGS GOLF, INC., a Colorado corporation, AJAY LEISURE
PRODUCTS, INC., a Delaware corporation, and PRESTIGE GOLF CORP., a Delaware
corporation, (each of the foregoing individually referred to as "Borrower"
and all collectively referred to as "Borrowers"), THOMAS W. ITIN
("Guarantor"), ACRODYNE CORPORATION, a Michigan corporation ("Pledgor"),
and WELLS FARGO CREDIT, INC. ("Wells Fargo") is as follows:
1. Recitals.
- --------
1.1 Borrowers are in default of their obligations to Wells Fargo under that
certain Credit Agreement dated as of June 30, 1998, as amended ("Credit
Agreement"), and the Loans have been accelerated and are now due and payable.
Borrowers, other than Leisure Life, are liquidating their assets to repay the
Obligations. Notwithstanding such default, Borrowers, Guarantor and Pledgor
each desire that Wells Fargo continues to advance credit to Leisure Life
subject to the terms and conditions set forth herein in the belief that
doing so will enhance the realization of value from Leisure Life's business.
1.2 Wells Fargo is willing to consider making discretionary advances of
credit to Leisure Life and to forbear from exercising certain remedies
available to it, but only during the period set forth in a Budget and only on
the terms set forth herein.
2. Definitions. All terms defined above shall have the meanings set forth
above. All capitalized terms not defined herein shall have the meanings
attributed to them in the Credit Agreement. Whenever the following terms
are used herein, they shall be defined as follows:
"Budget" means a monthly budget for the operation of Leisure Life for such
period (but in no event beyond May 31, 2001), in such detail and containing
such information as Wells Fargo finds acceptable.
"Guaranty" means the Continuing Unconditional Guaranty of Thomas W. Itin
signed as of August 16, 1999.
"Pledge Agreement" means the Pledge Agreement between Pledgor and Wells
Fargo entered into as of February 3, 2000.
3. Borrowers', Guarantor's, and Pledgor's Acknowledgments.
3.1 Borrowers, Guarantor and Pledgor each hereby acknowledges and agrees as
follows:
(a) Borrowers are obligated to Wells Fargo pursuant to the Loan
Documents, and as of November 30, 2000 the outstanding principal
balance of the Obligations is $2,478,734.28.
(b) The Loan Documents are legal, valid and binding obligations of
each Borrower enforceable in accordance with their terms and there
are no defenses, offsets, claims or counterclaims in favor of any
Borrower or any affiliate of any Borrower with respect to any of the
Loan Documents;
(c) Borrowers are in default of their obligations to Wells Fargo under
the Loan Documents, and Wells Fargo has accelerated the Loans and the
Loans are now due and payable in full.
3.2 Guarantor hereby acknowledges that the Guaranty is a legal, valid and
binding obligation of Guarantor enforceable in accordance with its
terms and that Wells Fargo, in its sole and arbitrary discretion, has
the present right to require Guarantor, as a principal, to pay
immediately all of the Obligations (subject only to the limitation in
Section 9 of the Guaranty). Guarantor hereby reaffirms his obligations
under the Guaranty.
3.3 Pledgor hereby acknowledges that the Pledge Agreement is a legal, valid
and binding obligation of Pledgor enforceable in accordance with its
terms and that Wells Fargo, in its sole and arbitrary discretion, has
the present right to exercise any and all of the remedies available to
it in Section 9 of the Pledge Agreement and as otherwise provided in
the Pledge Agreement with respect to an Event of Default.
4. Forbearance.
4.1 So long as: (a) Borrowers, Guarantor and Pledgor each strictly and
punctually perform all of its/his obligations hereunder and under the
Loan Documents (subject only to the defaults listed on Exhibit A), the
Guaranty and the Pledge Agreement; (b) each representation or warranty
of Borrowers, Guarantor and Pledgor hereunder remains true and correct
in all respects; and (c) Leisure Life provides Wells Fargo with a
Budget, Wells Fargo, during the period covered by the Budget, will
forbear from exercising its remedies under the Loan Documents with
respect to Leisure Life and will, in its sole and absolute discretion,
advance credit to Leisure Life in the manner described in Section 5
below.
4.2 This Agreement is not a waiver by Wells Fargo of the existing defaults or
any future defaults and shall not prevent Wells Fargo from exercising
its right to pursue its remedies for default, except as provided in
Section 4.1. Wells Fargo's failure to exercise any right, privilege or
remedy as a result of a failure by Borrowers, Guarantor or Pledgor to
perform or comply with their respective obligations hereunder, the
incorrectness or the falsity of any representation or warranty of
Borrowers, Guarantor or Pledgor contained in this Agreement or the
occurrence after the date hereof of any further default under the Loan
Documents, the Guaranty or the Pledge Agreement, in each case as
modified hereby, shall not (i) prejudice or otherwise adversely
affect Wells Fargo's right at any time to exercise any right, privilege
or remedy available to Wells Fargo under the Loan Documents, the
Guaranty, the Pledge Agreement or otherwise, (ii) be deemed to amend or
alter any provision of this Agreement or any of the Loan Documents, the
Guaranty or the Pledge Agreement or (iii) constitute a course of dealing
or other basis for altering any of Borrowers', Guarantor's or Pledgor's
obligations or any of Wells Fargo's rights, privileges or remedies under
any of the Loan Documents, the Guaranty, the Pledge Agreement or
otherwise. Except as expressly set forth in this Agreement, all of the
provisions of the Loan Documents, the Guaranty and the Pledge Agreement
shall remain in full force and effect.
5. Discretionary Advances of Credit.
5.1 Except for such advances as Wells Fargo in its discretion makes to
Parent with respect to expenses related to cash management services,
no further credit will be advanced to any Borrower under the Loan
Documents, except advances, if any, to Leisure Life described herein.
Wells Fargo, in its sole and absolute discretion, may advance credit to
Leisure Life up to the amount of credit projected to be necessary at any
time pursuant to the Budget, and all such advances shall be included in
the Obligations. Borrowers, Guarantor and Pledgor each acknowledge that
any advance made by Wells Fargo shall be made by it in its sole
discretion and based on its sole judgment that Leisure Life is being
operated in conformity with the Budget and will continue to be operated
in accordance with the Budget.
5.2 On each Business Day until further notice from Wells Fargo, Leisure Life
shall provide Wells Fargo with a report of the goods shipped by it and
goods produced by it and not shipped during the immediately preceding
Business Day. With respect to goods shipped, such report shall include
a copy of each purchase order under which such goods were shipped.
Leisure Life shall provide a daily report of its outstanding accounts
receivables and collections and a semi-monthly report of its inventory,
each containing such detailed information as Wells Fargo may from time
to time request. Additionally, Borrowers shall promptly furnish to
Wells Fargo such other information respecting the condition operations,
financial or otherwise, of any Borrower, as Wells Fargo may from time
to time request.
5.3 At any time, Wells Fargo may pay interest, fees, expenses and all other
amounts owed to it by Borrower by adding such amounts to the principal
of the Revolving Loans.
6. Security. Borrowers hereby reaffirm their prior grants to Wells Fargo
of security interests in Borrowers' assets as security for the full and
prompt payment in cash and performance of the Obligations, and Pledgor
hereby reaffirms its prior grant to Wells Fargo of a pledge and
security interest in 150,000 shares of Williams Controls, Inc.'s
issued and outstanding common stock pursuant to the Pledge Agreement
as security for the full and prompt payment in cash and performance
of the Obligations.
7. Borrowers' Representations and Warranties. In addition to the
representations and warranties of Borrower contained in the Loan
Documents, each of which, except as disclosed on Exhibit A is hereby
reaffirmed by Borrower on and as of the date of this Agreement, Borrower
represents and warrants to Wells Fargo that:
7.1 Borrowers have all requisite corporate power and authority to execute,
deliver and carry out this Agreement. Borrowers have taken all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement and have duly executed and delivered this
Agreement. This Agreement constitutes the valid and legally binding
obligation of each Borrower enforceable against it in accordance with
its terms.
7.2 No Default is continuing under the Loan Documents except as described on
Exhibit A.
7.3 No oral or written statement by Wells Fargo, other than within this
Agreement, or of any of its officers or representatives shall constitute
a representation, covenant, warranty or agreement on the part of Wells
Fargo to extend any further credit to Borrowers, to extend the term of
financial accommodations to Borrowers or to restructure in any way any
of the Obligations or otherwise bind Wells Fargo with respect to its
future relationship with Borrowers under the Loan Documents. The
practices and methods of dealing between Wells Fargo and Borrowers in
connection with this Agreement shall not constitute, evidence or create
any expectation or reliance on the part of Borrowers applicable to any
future transaction between Wells Fargo and any Borrower.
8. Guarantor's Representations and Warranties. In addition to Guarantor's
representations and warranties contained in the Guaranty, each of
which is hereby reaffirmed by Guarantor on and as of the date hereof,
Guarantor represents and warrants to Wells Fargo that: (i) this
Agreement constitutes a valid and legal binding obligation of Guarantor
enforceable against him in accordance with its terms and (ii) the
practices and methods of dealing between Wells Fargo and Borrowers and
Wells Fargo and Guarantor in connection with this Agreement shall not
constitute, evidence or create any expectation or reliance on the part
of any Borrower or Guarantor applicable to any future transaction, if
any, between Wells Fargo and any Borrower or Wells Fargo and Guarantor.
9. Pledgor's Representations and Warranties. In addition to Pledgor's
representations and warranties contained in the Pledge Agreement, each
of which is hereby reaffirmed by Pledgor on and as of the date hereof,
Pledgor represents and warrants to Wells Fargo that: (i) it has all
requisite corporate power and authority to execute, deliver and
carry out this Agreement; has taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and
has duly executed and delivered this Agreement; (ii) this Agreement
constitutes a valid and legal binding obligation of Pledgor enforceable
against Pledgor in accordance with its terms; and (iii) the practices
and methods of dealing between Wells Fargo and Borrowers and Wells
Fargo and Pledgor in connection with this Agreement shall not
constitute, evidence or create any expectation or reliance on the
part of Pledgor applicable to any future transaction, if any, between
Wells Fargo and any Borrower or Wells Fargo and Pledgor.
10. Covenants of Borrowers. In addition to the covenants contained in the
Loan Documents, Borrowers each hereby covenants and agrees as follows:
10.1 Wells Fargo, through its agents, employees or consultants and at
Borrower's expense, shall be permitted to enter Borrowers' premises
at any time, without prior appointment or notice, and without hindrance
or delay, to inspect the Collateral and monitor its activities.
10.2 If Wells Fargo elects to exercise its remedies, Borrowers will
cooperate with and assist Wells Fargo in the liquidation of Borrowers'
assets, the proceeds of which will be applied in payment and
satisfaction of the Obligations, and will execute all documents
requested by Wells Fargo in connection with the liquidation.
10.3 Promptly upon receipt, Borrowers shall report to Wells Fargo each
offer from any Person to acquire or expression of interest from any
Person in acquiring any of Leisure Life's business or assets, whether
such offer or expression is written or oral, except with respect to
the purchase of inventory in the ordinary course of Leisure Life's
business.
10.4 On or before December 11, 2000, Borrowers will deliver to Wells
Fargo a good standing certificate for Leisure Life issued by the
Tennessee Secretary of State not earlier than November 27, 2000.
10.5 Not later than 20 days after and as of the end of each month Borrowers
will deliver to Wells Fargo financial statements of Leisure Life
prepared in accordance with GAAP, including a comparison of Leisure
Life's actual results for such month to the Budget for such month,
together with a certificate by a senior financial officer of Leisure
Life certifying that such financial statements fairly present in all
material respects Leisure Life's balance sheet as of the end of such
month and income and cash flow for such month.
11. Release. In consideration of the agreements and undertakings of Wells
Fargo in this Agreement, Borrowers, Guarantor and Pledgor each hereby
releases, acquits and forever discharges Wells Fargo, its affiliates,
participants, officers, employees, agents, successors and assigns, of
and from any and all claims, demands, damages, liabilities, obligations,
actions or causes of action in suits or causes of suit and
unconditionally waives any defense, either at law or in equity,
whether known or unknown, arising out of, connected with or in any way
related to the Obligations, the Loan Documents, the Guaranty, the
Pledge Agreement, the relationship between Wells Fargo and Guarantor,
the relationship between Wells Fargo and Pledgor or the relationship
between Wells Fargo and Borrowers to and including the date of this
Agreement.
12. Miscellaneous.
12.1 Borrowers and Guarantor, jointly and severally, promise to pay to Wells
Fargo immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including, without limitation, reasonable
attorneys' fees (whether incurred at the trial or appellate level, in
an arbitration proceeding, in Bankruptcy, including, without limitation,
any adversary proceeding, contested matter or motion, or otherwise)
incurred by Wells Fargo in connection with (a) the negotiation and
preparation of this Agreement and monitoring of Leisure Life and the
other Borrowers, (b) the enforcement, preservation or protection (or
attempt at enforcement, preservation or protection) of any rights or
remedies of Wells Fargo under this Agreement or under any Loan Document
or the Guaranty or the relationship between Wells Fargo and Borrowers
or between Wells Fargo and Guarantor, and (c) all costs, fees and
expenses incurred by Wells Fargo for appraisals, audits, monitoring or
Leisure Life or any other Borrower, environmental inspections and
reviews, searches and filings in connection with any of the foregoing.
12.2 This Agreement contains the entire understanding and agreement of the
parties with respect to the Wells Fargo's forbearance and willingness
to extend credit to Borrower and is intended fully to integrate all
prior negotiations, discussions, proposals or understandings, either
oral or written, with respect to the subject matter of this Agreement.
In the event of a conflict or inconsistency between the provisions of
this Agreement and the Loan Documents or Guaranty, this Agreement shall
control.
12.3 Time is of the essence of each and every provision of this Agreement
and each of the Loan Documents and the Guaranty.
12.4 BORROWERS, GUARANTOR, PLEDGOR AND WELLS FARGO, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM OR OTHER
LITIGATION IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY OF THE LOAN DOCUMENTS, THE GUARANTY, THE PLEDGE AGREEMENT OR ANY OF
THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENT,
RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT, THE LOAN
DOCUMENTS, THE GUARANTY AND/OR THE PLEDGE AGREEMENT. A COPY OF THIS
SECTION MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER
OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY COURT.
12.5 This Agreement shall be governed by and construed in accordance with
the laws of the State of Oregon.
12.6 This Agreement shall inure to the benefit and be binding upon the
parties hereto and their respective successors, assigns, heirs and
personal representatives. No Borrower nor the Guarantor or Pledgor
may assign any of their respective rights or delegate any of their
respective duties hereunder without the prior written consent of Wells
Fargo.
12.7 Any amendment, waiver or modification of this Agreement may be made only
with the written consent of the parties hereto. No failure by any
party to insist upon the strict performance of any provision of this
Agreement, or to exercise any right or remedy consequent upon a breach
thereof, shall constitute a waiver of any such breach or of any
subsequent breach of the same or any other provision. No waiver of any
provision of this Agreement shall be deemed a waiver of any other
provision of this Agreement or a waiver of such provision with respect
to any subsequent breach, unless expressly provided in writing.
12.8 UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
WELLS FARGO AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWERS' RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY WELLS FARGO TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
AJAY SPORTS, INC.
By:
-----------------------------
Title:
-----------------------------
LEISURE LIFE, INC.
By:
-----------------------------
Title:
--------------------------
PALM SPRINGS GOLF, INC.
By:
-----------------------------
Title:
--------------------------
AJAY LEISURE PRODUCTS, INC.
By:
------------------------------
Title:
---------------------------
PRESTIGE GOLF CORP.
By:
-----------------------------
Title:
--------------------------
ACRODYNE CORPORATION:
By:
-----------------------------
Title:
-------------------------
WELLS FARGO CREDIT, INC.
By:
------------------------------
Title:
---------------------------
GUARANTOR:
- ----------------------------------
THOMAS W. ITIN
EXHIBIT A TO AGREEMENT
1. Article III - failure to repay the Loans.
2. Section 8.18 - failure to meet required covenants.
3. Failure of Borrowers, other than Leisure Life, to meet covenants
as a result of cessation of business activity and liquidation of
assets (except that all proceeds from the liquidation of assets
have been delivered to Wells Fargo in the manner contemplated
by the Loan Documents.
EXHIBIT 10.9(i)
May 10, 2001
Pro Golf International, Inc.
Attn: Thomas W. Itin
32751 Middlebelt Road, Suite B
Farmington Hills, MI 48334
RE: FORBEARANCE AGREEMENT ("AGREEMENT") DATED SEPTEMBER 1, 2000, AMONG
COMERICA BANK ("BANK"), PRO GOLF INTERNATIONAL, INC. ("BORROWER"),
AJAY SPORTS, INC., WOODWARD PARTNERS, INC., PRO GOLF OF AMERICA,
INC., COLORADO RIDGE CORPORATION, ACRODYNE CORPORATION, TICO, SICO,
THOMAS W. ITIN AND SHIRLEY B. ITIN (INDIVIDUALLY AND TOGETHER
"GUARANTORS")
Dear Mr. Itin:
Borrower and Guarantors have requested that Bank agree to amend and extend the
Agreement to permit Borrower additional time to pursue alternative financing
to pay off the Liabilities. All capitalized terms not defined in this
amendment and extension agreement ("Amendment") shall have the meanings
described in the Loan Documents.
As of May 7, 2001, the Liabilities include:
Loans (note amount and date) PrincipaL Interest
-------------------------- ------------ ----------
Demand Installment Loan $8,098,000 14,051.36
The amounts referenced above are exclusive of interest accruing after May 7,
2001, unpaid fees of $300,000, other fees, costs and expenses (including, but
not limited to, inside and outside counsel fees).
Without limitation, Borrower in default under the Agreement and the Loan
Documents for, among other things, failure to pay principal payments and fees
when due, and failure to raise required additional equity.
Subject to Borrower's and Guarantors' timely, written acceptance of the
following conditions, Bank is willing to forbear until June 30, 2001,
subject to earlier termination as provided below, from further action
to collect the Liabilities:
1. Borrower and Guarantors acknowledge the Liabilities as set out in
the Agreement and the Loan Documents and the amount of the
Liabilities as stated above. Guarantors ratify and reaffirm their
guaranties.
2. Future administration of the Liabilities and the financing
arrangements among Bank, Borrower and Guarantors shall continue to
be governed by the covenants, terms and conditions of the Agreement
and the Loan Documents, which are ratified and confirmed and
incorporated by this reference, except to the extent that the
Agreement and the Loan Documents have been superseded, amended,
modified or supplemented by this Amendment or are inconsistent with
this Amendment, then this Amendment shall govern.
3. All of the Liabilities shall be paid in full on or before June 30,
2001.
4. Concurrently with execution and delivery of this Amendment by
Borrower and Guarantors to Bank, Borrower and Guarantors shall cause
The Links at Birch Run's Playpark LLC and The Learning Center at
Birch Run's Playpark LLC to execute and deliver to Bank mortgages on
all property owned by those entities located in Birch Run, Michigan
(the "Birch Run Mortgages") to secure all of the Liabilities. The
Birch Run Mortgages shall be in form and substance acceptable to
Bank.
5. Concurrently with execution and delivery of this Amendment,
Thomas W. Itin and Shirley B. Itin shall execute and deliver to Bank
an amendment to the mortgage by them to Bank pledging the real
property commonly known as 4831 Old Orchard Trail, Orchard Village,
Michigan, to confirm that the mortgage secures all of their
obligations to Bank including their guaranty of the Liabilities.
The amendment shall be in form and substance acceptable to Bank.
6. Borrower and Guarantors acknowledge Bank remains under no obligation
to advance funds or extend credit to Borrower pursuant to the Loan
Documents, or otherwise.
7. Effective as of March 1, 2001, interest on the Liabilities shall
accrue at Bank's "prime rate" (as defined in the Loan Documents)
plus five percentage points (5%) and shall be due and payable on the
first (1st) day of each and every month. Thereafter, upon the
occurrence of a default under the terms of this Amendment or any
further defaults under the Agreement or the Loan Documents, then the
Liabilities shall accrue interest at the rate otherwise provided in
this paragraph plus three percentage points (3%).
8. Notwithstanding Bank's demand of the Liabilities, Borrower shall
make the following principal payments to Bank: (a) $100,000 on or
before April 30, 2001, timely receipt of which is hereby
acknowledged by Bank; plus (b) an amount equal to 33% of the equity
raised for ProGolf.com for the period May 1, 2001 through May 31,
2001, to be paid as and when raised, provided, however, that Bank
must receive not less than $100,000 by May 31, 2001; plus (c) an
amount equal to 33% of the equity raised for ProGolf.com for the
period June 1, 2001 through June 29, 2001, to be paid as and when
raised, provided, however, that Bank must receive not less than
$100,000 by June 29, 2001.
9. Borrower and Guarantors acknowledge and agree the Agreement and the
Loan Documents presently provide for and they shall reimburse for
any and all costs and expenses of Bank, including, but not limited
to, all inside and outside counsel fees of Bank whether in relation
to drafting, negotiating or enforcement or defense of the Agreement
or the Loan Documents or this Amendment, including any preference or
disgorgement actions as defined in this Amendment and all of Bank's
audit fees, incurred by Bank in connection with the Liabilities,
Bank's administration of the Liabilities and/or any efforts of Bank
to collect or satisfy all or any part of the Liabilities. Borrower
and Guarantors shall immediately reimburse Bank for all of Bank's
costs and expenses upon Bank's incurrence thereof or upon demand.
10. Borrower is in default in payment of $300,000 of fees due Bank on
account of loan transactions between Borrower and Bank. Borrower
acknowledges and agrees that the fees were earned by Bank and are
due and owing without setoff or defense.
11. Borrower and Guarantors acknowledge that Signature Sports &
Entertainment, Inc. ("SSE") is a mortgagor under a mortgage to Bank
of Florida real property to secure the Liabilities, that SSE signed
the Agreement, that the signature of SSE to this Amendment is not a
requirement of any of them, and that this Amendment shall be binding
upon each of them in accordance with its terms notwithstanding that
SSE is not signing this Amendment.
12. This Amendment shall be governed and controlled in all respects by
the laws of the State of Michigan, without reference to its
conflict of law provisions, including interpretation,
enforceability, validity and construction.
13. Bank expressly reserves the right to exercise any or all rights and
remedies provided under the Agreement and the Loan Documents and
applicable law except as modified herein. Bank's failure to
immediately exercise such rights and remedies shall not be construed
as a waiver or modification of those rights or an offer of
forbearance.
14. This Amendment will inure to the benefit of Bank and all its past,
present and future parents, subsidiaries, affiliates, predecessors
and successor corporations and all of their subsidiaries and
affiliates.
15. Bank anticipates that discussions addressing the Liabilities may
take place in the future. During the course of such discussions,
Bank, Borrower and Guarantors, may touch upon and possibly reach a
preliminary understanding on one or more issues prior to concluding
negotiations. Notwithstanding this fact and absent an express
written waiver by Bank, Bank will not be bound by an agreement on
any individual issues unless and until an agreement is reached on
all issues and such agreement is reduced to writing and signed by
Borrower, Guarantors and Bank.
16. As of the date of this Amendment, there are no offers outstanding
from Bank to Borrower and Guarantors. Any prior offer by Bank,
whether oral or written is hereby rescinded in full. There are no
oral agreements between Bank and Borrower and Guarantor; any
agreements concerning the Liabilities are expressed only in the
existing Loan Documents. The duties and obligations of Borrower and
Guarantor and Bank shall be only as set forth in the Agreement, Loan
Documents and this Amendment when executed by all parties.
17. BORROWER, GUARANTORS AND BANK ACKNOWLEDGE AND AGREE THAT THE RIGHT
TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO
CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY,
AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN
THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF,
OR IN ANY WAY RELATED TO, THIS AMENDMENT, THE AGREEMENT, THE LOAN
DOCUMENTS OR THE LIABILITIES.
18. BORROWER AND GUARANTORS, IN EVERY CAPACITY, INCLUDING, BUT NOT
LIMITED TO, AS SHAREHOLDERS, PARTNERS, OFFICERS, MANAGERS,
DIRECTORS, INVESTORS, MEMBERS AND/OR CREDITORS OF BORROWER AND/OR
GUARANTORS, OR ANY ONE OR MORE OF THEM, HEREBY WAIVE, DISCHARGE AND
FOREVER RELEASE BANK, BANK'S EMPLOYEES, OFFICERS, DIRECTORS,
ATTORNEYS, STOCKHOLDERS AND SUCCESSORS AND ASSIGNS, FROM AND OF ANY
AND ALL CLAIMS, CAUSES OF ACTION, DEFENSES, COUNTERCLAIMS OR OFFSETS
AND/OR ALLEGATIONS BORROWER AND/OR GUARANTORS MAY HAVE OR MAY HAVE
MADE OR IS BASED ON FACTS OR CIRCUMSTANCES ARISING AT ANY TIME UP
THROUGH AND INCLUDING THE DATE OF THIS AMENDMENT, WHETHER KNOWN OR
UNKNOWN, AGAINST ANY OR ALL OF BANK, BANK'S EMPLOYEES, OFFICERS,
DIRECTORS, ATTORNEYS, STOCKHOLDERS AND SUCCESSORS AND ASSIGNS.
19. The parties submit to the jurisdiction and venue of the circuit
court for the County of Oakland, State of Michigan or, if original
jurisdiction can be established, the United District Court for the
Eastern District of Michigan with respect to any action arising,
directly or indirectly, out of this Amendment or the performance or
breach of this Amendment. The parties stipulate that the venues
referenced in this Amendment are convenient.
20. This Amendment may be executed in counterparts and facsimiles and
the counterpart, when properly executed and delivered by the signing
deadline, will constitute a fully executed complete agreement.
21. Borrower and Guarantors shall properly execute this Amendment and
deliver it to the undersigned by no later than 5:00 p.m. on May 10,
2001.
22. Borrower and Guarantors acknowledge that they have reviewed (or have
had the opportunity to review) this Amendment with counsel of their
choice and have executed this Amendment voluntarily and without
coercion or duress.
Bank reserves the right to terminate its forbearance prior to June 30, 2001,
in the event of any new defaults under the Agreement or the Loan Documents,
defaults under this Amendment, in the event of further deterioration in the
financial condition of Borrower or Guarantors, or any of them, or further
deterioration in Bank's collateral position, and/or in the event Bank, for
any reason, believes that the prospect of payment or performance is
impaired.
Very truly yours,
Susan A. Smith
Vice President, Special Assets Group
P.O. Box 75000
Detroit, Michigan 48275-3205
Telephone: (313) 222-3002
Facsimile: (313) 222-5706
ACKNOWLEDGED AND AGREED:
PRO GOLF INTERNATIONAL, INC.
By: Date: May , 2001
------------------------------ -------------
Its:
---------------------------------
AJAY SPORTS, INC.
WOODWARD PARTNERS, INC.
PRO GOLF OF AMERICA, INC.
COLORADO RIDGE CORPORATION
ACRODYNE CORPORATION
By: Date: May , 2001
----------------------------------- -----------
Thomas W. Itin, President of each of the
above entities
TICO
By: Date: May , 2001
----------------------------------- -----------
Thomas W. Itin, Managing Partner
SICO
By: Date: May , 2001
---------------------------------- -------------
Shirley B. Itin, Managing Partner
Date: May , 2001
- ------------------------------------------
Thomas W. Itin, Individually
Date: May , 2001
- ------------------------------------------
Shirley B. Itin, Individually
C:\TEMP\PROGOLFC-FORBEARANCE AGREEMENT51001.DOC
Pro Golf International, Inc.
Attn: Thomas W. Itin
May 10, 2001
Page 6
Exhibit 10.12
PROGOLF.COM, INC.
2000 INCENTIVE STOCK PLAN
1. Objectives. The 2000 Incentive Stock Plan (the "Plan") of ProGolf.com, Inc.
(the "Company") is designed to retain directors, executives and selected
employees and consultants and reward them for making major contributions
to the success of the Company. These objectives are accomplished by making
incentive awards under the Plan thereby providing Participants with a
proprietary interest in the growth and performance of the Company.
2. Definitions.
a. "Board" - The Board of Directors of the Company.
b. "Code" - The Internal Revenue Code of 1986, as amended from time to
time.
c. "Committee" - The Compensation Committee of the Company's Board, or
such other committee of the Board that is designated by the Board to
administer the Plan; or, if no Compensation or other committee of the
Board has been designated, "Committee" shall refer to the Board. If
the Company's common stock becomes registered under the Exchange Act
and the Plan is administered by a Committee, the Committee shall be
composed of not less than two members of the Board all of whom are
"Non-Employee Directors" as defined in Rule 16b-3(b)(3)(i) ("Rule
16b-3") promulgated under the Exchange Act (as defined below).
d. "Company" - ProGolf.com, Inc. and its subsidiaries including
subsidiaries of subsidiaries, and the following affiliate companies:
Ajay Sports, Inc., Ajay Leisure Products, Inc., Palm Springs Golf,
Inc., Prestige Golf Corp., Leisure Life, Inc., Pro Golf International,
Inc. and its subsidiaries, including Pro Golf of America, Inc.
e. "DGCL" - Delaware General Corporate Law, as amended from time to time.
f. "Exchange Act" - The Securities Exchange Act of 1934, as amended from
time to time.
g. "Fair Market Value" - The fair market value of the Company's issued and
outstanding Stock as determined in good faith by the Board or
Committee, which determination shall be conclusive and binding;
provided however, that if there is a public market for such Stock, the
fair market value per share shall be the average of the bid and asked
prices (or the closing price if such stock is listed on the Nasdaq
National Market System or SmallCap Issue Market) on the date of grant
of the Option, or if listed on a stock exchange, the closing price on
such exchange on such date of grant.
h. "Grant" - The grant of any form of stock option, stock award, or stock
purchase offer, whether granted singly, in combination or in tandem, to
a Participant pursuant to such terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.
i. "Grant Agreement" - An agreement between the Company and a Participant
that sets forth the terms, conditions and limitations applicable to a
Grant.
j. "Option" - Either an Incentive Stock Option, in accordance with Section
422 of Code, or a Nonstatutory Option, to purchase the Company's Stock
that may be awarded to a Participant under the Plan.
k. "Optionee" - A Participant who receives an award of an Option.
l. "Participant" - A director, officer, employee or consultant of the
Company to whom an Award has been made under the Plan.
m. "Restricted Stock Purchase Offer" - A grant of the right to purchase a
specified number of shares of Stock pursuant to a written agreement
issued under the Plan.
n. "Securities Act" - The Securities Act of 1933, as amended from time to
time.
o. "Stock" - Authorized and issued or unissued shares of common stock of
the Company.
p. "Stock Award" - A grant made under the Plan in stock or denominated in
units of stock for which the Participant is not obligated to pay
additional consideration.
q. "Ten Percent Holder" - A person who owns (or is deemed to own, pursuant
to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power or value of all classes of
stock of the Company.
3. Administration. The Plan shall be administered by the Board, provided
however, that the Board may delegate such administration to the Committee.
Subject to the provisions of the Plan, the Board and/or the Committee
shall have authority to (a) grant, in its discretion, Incentive Stock
Options in accordance with Section 422 of the Code, or Nonstatutory
Options, Stock Awards or Restricted Stock Purchase Offers; (b) determine
in good faith the Fair Market Value of the Stock covered by any Grant; (c)
determine which eligible persons shall receive Grants and the number of
shares, restrictions, terms and conditions to be included in such Grants;
(d) construe and interpret the Plan; (e) promulgate, amend and rescind
rules and regulations relating to its administration, and correct defects,
omissions and inconsistencies in the Plan or any Grant; (f) consistent
with the Plan and with the consent of the Participant, as appropriate,
amend any outstanding Grant or amend the exercise date or dates thereof;
(g) determine the duration and purpose of leaves of absence which may be
granted to Participants without constituting termination of their
employment for the purpose of the Plan or any Grant; and (h) make all
other determinations necessary or advisable for the Plan's administration.
The interpretation and construction by the Board of any provisions of the
Plan or selection of Participants shall be conclusive and final. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant
made thereunder.
4. Eligibility.
a. General: The persons who shall be eligible to receive Grants shall be
directors, officers, employees and consultants to the Company. The
term consultant shall mean any person, other than an employee, who is
engaged by the Company to render services and is compensated for such
services. An Optionee may hold more than one Option. Any issuance of a
Grant to an officer or director of the Company subsequent to the first
registration of any of the securities of the Company under the Exchange
Act shall comply with Rule 16b-3 and the Participant officer or
director shall comply with the beneficial ownership reporting
requirements of Section 16 of the Exchange Act.
b. Incentive Stock Options: Incentive Stock Options may only be issued to
employees of the Company. Incentive Stock Options may be granted to
officers or directors, provided they are also employees of the Company.
Payment of a director's fee shall not be sufficient to constitute
employment by the Company.
The Company shall not grant an Incentive Stock Option under the Plan to
any employee if such Grant would result in such employee holding the
right to exercise for the first time in any one calendar year, under
all Incentive Stock Options granted to such employee under the Plan or
any other plan maintained by the Company, options to purchase shares of
Stock having an aggregate fair market value in excess of $100,000,
determined as of the date of the Option is granted. Should it be
determined that an Incentive Stock Option granted under the Plan
exceeds this maximum for any reason other than a failure in good faith
to value the Stock subject to such Option, the excess portion of such
Option shall be considered a Nonstatutory Option. To the extent the
employee holds two (2) or more such Options that become exercisable for
the first time in the same calendar year, the foregoing limitation on
the exercisability of such Options as Incentive Stock Options under the
Federal tax laws shall be applied on the basis of the order in which
such Options are granted. If, for any reason, an entire Option does not
qualify as an Incentive Stock Option by reason of exceeding such
maximum, such Option shall be considered a Nonstatutory Option.
c. Nonstatutory Option: The provisions of the foregoing Section 4(b)
shall not apply to any Option designated as a "Nonstatutory Option" or
which sets forth the intention of the parties that the Option be a
Nonstatutory Option.
d. Stock Awards and Restricted Stock Purchase Offers: The provisions of
this Section 4 shall not apply to any Stock Award or Restricted Stock
Purchase Offer under the Plan.
5. Stock.
a. Authorized Stock. Stock subject to Grants may be either previously
unissued or reacquired Stock
b. Number of Shares. Subject to adjustment as provided in Section 6(i) of
the Plan, the total number of shares of Stock which may be purchased or
granted directly by Options, Stock Awards or Restricted Stock Purchase
Offers, or purchased indirectly through exercise of Options granted
under the Plan shall not exceed 3,750,000 shares of Stock (after giving
effect to the 2-for-1 stock split approved by the Company's Board on
August 10, 1999 and the Company's Stockholders on Janaury 21, 2000).If
any Grant shall for any reason terminate or expire, any shares
allocated thereto but remaining unpurchased upon such expiration or
termination shall again be available for Grants with respect thereto
under the Plan as though no Grant had previously occurred with respect
to such shares. Any shares of Stock issued pursuant to a Grant and
repurchased pursuant to the terms thereof shall be available for future
Grants as though not previously covered by a Grant.
c. Reservation of Shares. The Company shall reserve and keep available at
all times during the term of the Plan such number of shares as shall be
sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of
the Plan or Grants under the Securities Act, the Company is unable to
obtain authority from any applicable regulatory body, which
authorization is deemed necessary by legal counsel for the Company for
the lawful issuance of shares hereunder, the Company shall be relieved
of any liability with respect to its failure to issue and sell the
shares for which such requisite authority was so deemed necessary
unless and until such authority is obtained.
d. Application of Funds. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options or rights under Grant
agreements for Stock Awards or Restricted Stock Purchase Offers will be
used for general corporate purposes.
e. No Obligation to Exercise. The issuance of a Grant shall impose no
obligation upon the Participant to exercise any rights under such
Grant.
6. Terms and Conditions of Options. Options granted hereunder shall be
evidenced by agreements between the Company and the respective Optionees,
in such form and substance as the Board or Committee shall from time to
time approve. Option agreements need not be identical, and in each case
may include such provisions as the Board or Committee may determine, but
all such agreements shall be subject to and limited by the following terms
and conditions:
a. Number of Shares: Each Option shall state the number of shares to which
it pertains.
b. Exercise Price: Each Option shall state the exercise price, which shall
be determined as follows:
i. Any Incentive Stock Option granted to Ten Percent Holder shall have
an exercise price of no less than 110% of the Fair Market Value of
the Stock as of the date of grant; and
ii. Incentive Stock Options granted to a person who at the time the
Option is granted is not a Ten Percent Holder shall have an exercise
price of no less than 100% of the Fair Market Value of the Stock as
of the date of grant.
iii. Nonstatutory Stock Options granted under this Plan shall have an
exercise price not less than 85% of the Fair Market Value of the
Stock as of the date of grant.
c. Medium and Time of Payment: The exercise price shall become
immediately due upon exercise of the Option and shall be paid in cash
or check made payable to the Company. Should the Company's outstanding
Stock be registered under Section 12(g) of the Exchange Act at the time
the Option is exercised, then the exercise price may also be paid as
follows:
i. in shares of Stock held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the exercise
date, or
ii. through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written
instructions (x) to a Company designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Company,
out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for
the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Company
by reason of such purchase and (y) to the Company to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
iii. At the discretion of the Board, exercisable either at the time of
Option grant or of Option exercise, the exercise price may also be
paid (x) by Optionee's delivery of a promissory note in form and
substance satisfactory to the Company and permissible under
applicable securities laws and regulations and the DGCL, bearing
interest at a rate determined by the Board in its sole discretion,
but in no event less than the minimum rate of interest required to
avoid the imputation of compensation income to the Optionee under
the Code and any applicable regulations promulgated thereunder, or
(y) in such other form of consideration permitted by the DGCL as may
be acceptable to the Board.
d. Term and Exercise of Options: Any Option granted to an employee of the
Company shall become exercisable over a period of no longer than five
(5) years, and no less than twenty percent (20%) of the shares covered
thereby shall become exercisable annually. In no event shall any Option
be exercisable after the expiration of ten (10) years from the date it
is granted, and no Incentive Stock Option granted to a Ten Percent
Holder shall, by its terms, be exercisable after the expiration of five
(5) years from the date of the Option. Unless a later date of grant is
specified by the Board or the Committee in the resolution authorizing
such Option, the date of grant of an Option shall be deemed to be the
date upon which the Board or the Committee authorizes the granting of
such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective Option agreements may
provide. During the lifetime of an Optionee, the Option shall be
exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee, and no other person shall acquire any
rights therein. To the extent not exercised, installments (if more than
one) shall accumulate, but shall be exercisable, in whole or in part,
only during the period for exercise as stated in the Option agreement,
whether or not other installments are then exercisable.
e. Termination of Status as Employee, Consultant or Director: If
Optionee's status as an employee shall terminate for any reason other
than Optionee's disability or death, then Optionee (or if the Optionee
shall die after such termination, but prior to exercise, Optionee's
personal representative or the person entitled to succeed to the
Option) shall have the right to exercise the portions of any of
Optionee's Incentive Stock Options which were exercisable as of the
date of such termination, in whole or in part, not less than 30 days
nor more than three (3) months after such termination; provided, that
if termination was "for cause" as that term is defined in applicable
labor laws and case law related thereto, or by the terms of the Plan or
the Option Agreement or an employment agreement, the Option shall
automatically terminate as of the termination of employment as to all
shares covered by the Option.
With respect to Nonstatutory Options granted to employees, directors or
consultants, the Board may specify such period for exercise, not less
than 30 days (except that in the case of "termination for cause" or
removal of a director, the Option shall automatically terminate as of
the termination of employment or services) following termination of
employment or services as the Board deems reasonable and appropriate.
The Option may be exercised only with respect to installments that the
Optionee could have exercised at the date of termination of employment
or services. Nothing contained herein or in any Option granted pursuant
hereto shall be construed to affect or restrict in any way the right of
the Company to terminate the employment or services of an Optionee with
or without cause.
f. Disability of Optionee: If an Optionee is disabled (within the meaning
of Section 22(e)(3) of the Code) at the time of termination, the three
(3) month period set forth in Section 6(e) shall be a period, as
determined by the Board and set forth in the Option agreement, of not
less than six (6) months nor more than one (1) year after such
termination.
g. Death of Optionee: If an Optionee dies while employed by, engaged as a
consultant to, or serving as a director of the Company, the portion of
such Optionee's Option which was exercisable at the date of death may
be exercised, in whole or in part, by the estate of the deceased
Optionee or by a person succeeding to the right to exercise such Option
at any time within (i) a period, as determined by the Board and set
forth in the Option, of not less than six (6) months nor more than one
(1) year after Optionee's death, which period shall not be more, in the
case of a Nonstatutory Option, than the period for exercise following
termination of employment or services, or (ii) the remaining term of
the Option, whichever is the lesser. The Option may be so exercised
only with respect to installments exercisable at the time of Optionee's
death and not previously exercised by the Optionee.
h. Nontransferability of Option: No Option shall be transferable by the
Optionee, except by will or by the laws of descent and distribution
i. Recapitalization: Subject to any required action of shareholders, the
number of shares of Stock covered by each outstanding Option, and the
exercise price per share thereof set forth in each such Option, shall
be proportionately adjusted for any increase or decrease in the number
of issued shares of Stock of the Company resulting from a stock split,
stock dividend, combination, subdivision or reclassification of shares,
or the payment of a stock dividend, or any other increase or decrease
in the number of such shares affected without receipt of consideration
by the Company; provided, however, the conversion of any convertible
securities of the Company shall not be deemed to have been "effected
without receipt of consideration" by the Company.
In the event of a proposed dissolution or liquidation of the Company, a
merger or consolidation in which the Company is not the surviving
entity, or a sale of all or substantially all of the assets or capital
stock of the Company (collectively, a "Reorganization"), unless
otherwise provided by the Board (either by resolution or in the Option
agreement), outstanding Options shall terminate immediately prior to a
date set by the Board, which date shall be no later than the
consummation of such Reorganization. In such event, if the entity which
shall be the surviving entity does not tender to Optionee an offer, for
which it has no obligation to do so, to substitute for any unexercised
Option a stock option or capital stock of such surviving entity, as
applicable, which on an equitable basis shall provide the Optionee with
substantially the same economic benefit as such unexercised Option,
then the Board may grant to such Optionee, in its sole and absolute
discretion and without obligation, the right for a period commencing
thirty (30) days prior to and ending immediately prior to the date
determined by the Board pursuant hereto for termination of the Option
or during the remaining term of the Option, whichever is the lesser, to
exercise any unexpired Option or Options without regard to the
installment provisions of Paragraph 6(d) of the Plan; provided, that
any such right granted shall be granted to all Optionees not receiving
an offer to receive substitute options on a consistent basis, and
provided further, that any such exercise shall be subject to the
consummation of such Reorganization.
Subject to any required action of shareholders, if the Company shall be
the surviving entity in any merger or consolidation, each outstanding
Option thereafter shall pertain to and apply to the securities to which
a holder of shares of Stock equal to the shares subject to the Option
would have been entitled by reason of such merger or consolidation
In the event of a change in the Stock of the Company as presently
constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a par
value, the shares resulting from any such change shall be deemed to be
the Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided in this Section 6(i), the
Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment
shall be made by reason of, any dissolution, liquidation, merger,
consolidation or sale of assets or capital stock, or any issue by the
Company of shares of stock of any class or securities convertible into
shares of stock of any class.
The Grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make any adjustments,
reclassifications, reorganizations or changes in its capital or
business structure or to merge, consolidate, dissolve, or liquidate or
to sell or transfer all or any part of its business or assets
j. No Rights as a Shareholder: An Optionee shall have no rights as a
shareholder with respect to any shares covered by an Option until the
effective date of the issuance of the shares following exercise of such
Option by Optionee. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as expressly provided in
Section 6(i) hereof.
k. Modification, Acceleration, Extension, and Renewal of Options: Subject
to the terms and conditions and within the limitations of the Plan, the
Board may modify an Option, or, once an Option is exercisable,
accelerate the rate at which it may be exercised, and may extend or
renew outstanding Options granted under the Plan or accept the
surrender of outstanding Options (to the extent not theretofore
exercised) and authorize the granting of new Options in substitution
for such Options, provided such action is permissible under Section 422
of the Code and applicable federal and state securities laws and
regulations. Notwithstanding the provisions of this Section 6(k),
however, no modification of an Option shall, without the consent of the
Optionee, alter to the Optionee's detriment or impair any rights or
obligations under any Option theretofore granted under the Plan.
l. Exercise Before Exercise Date: At the discretion of the Board, the
Option may, but need not, include a provision whereby the Optionee may
elect to exercise all or any portion of the Option prior to the stated
exercise date of the Option or any installment thereof becomes vested.
Any shares so purchased prior to the stated exercise date shall be
subject to repurchase by the Company upon termination of Optionee's
employment as contemplated by Section 6(n) hereof prior to the exercise
date stated in the Option and such other restrictions and conditions as
the Board or Committee may deem advisable.
m. Other Provisions: The Option agreements evidencing Options granted
under the Plan shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Options, as the Board
or the Committee shall deem advisable. Shares shall not be issued
pursuant to the exercise of an Option, if the exercise of such Option
or the issuance of shares thereunder would violate, in the opinion of
legal counsel for the Company, the provisions of any applicable law or
the rules or regulations of any applicable governmental or
administrative agency or body, such as the Code, the Securities Act,
the Exchange Act, the DGCL, any applicable state securities rules, and
the rules promulgated under the foregoing or the rules and regulations
of any exchange upon which the shares of the Company are listed.
Without limiting the generality of the foregoing, the exercise of each
Option shall be subject to the condition that if at any time the
Company shall determine that (i) the satisfaction of withholding tax or
other similar liabilities, or (ii) the listing, registration, or
qualification of any shares covered by such exercise upon any
securities exchange or under any state or federal law, or (iii) the
consent or approval of any regulatory body, or (iv) the perfection of
any exemption from any such withholding, listing, registration,
qualification, consent or approval is necessary or desirable in
connection with such exercise or the issuance of shares thereunder,
then in any such event, such exercise shall not be effective unless
such withholding, listing registration, qualification, consent,
approval or exemption shall have been effected, obtained or perfected
free of any conditions not acceptable to the Company.
n. Repurchase Agreement: The Board may, in its discretion, require as a
condition to the Grant of an Option hereunder, that an Optionee execute
an agreement with the Company, in form and substance satisfactory to
the Board in its discretion ("Repurchase Agreement"), (i) restricting
the Optionee's right to transfer shares purchased under such Option
without first offering such shares to the Company or another
shareholder of the Company upon the same terms and conditions as
provided therein; and (ii) providing that upon termination of
Optionee's employment with the Company, for any reason, the Company (or
another shareholder of the Company, as provided in the Repurchase
Agreement) shall have the right at the Company's discretion (or the
discretion of such other shareholders) to purchase and/or redeem all
such shares owned by the Optionee on the date of termination of his or
her employment at a price equal to (A) the fair value of such shares as
of such date of termination, or (B) if such repurchase right lapses at
20% of the number of shares per year, the original purchase price of
such shares, and upon terms of payment permissible under applicable
federal and state securities rules; provided that in the case of
Options or Stock Awards granted to officers, directors, consultants or
affiliates of the Company, such repurchase provisions may be subject to
additional or greater restrictions as determined by the Board or
Committee.
7. Stock Awards and Restricted Stock Purchase Offers.
a. Types of Grants.
i. Stock Award. All or part of any Stock Award under the Plan may be
subject to conditions established by the Board or the Committee,
and set forth in the Stock Award Agreement, which may include,
but are not limited to, continuous service with the Company,
achievement of specific business objectives, increases in
specified indices, attaining growth rates and other comparable
measurements of Company performance. Stock Awards may be based
on Fair Market Value or other specified valuation. All Stock
Awards will be made pursuant to the execution of a Stock Award
Agreement containing terms and provisions consistent with this
Plan and in form and substance as approved by the Board from
time to time.
ii. Restricted Stock Purchase Offer. A Grant of a Restricted Stock
Purchase Offer under the Plan shall be subject to such (i) vesting
contingencies related to the Participant's continued association
with the Company for a specified time and (ii) other specified
conditions as the Board or Committee shall determine, in its sole
discretion, consistent with the provisions of the Plan. All
Restricted Stock Purchase Offers shall be made pursuant to a
Restricted Stock Purchase Offer containing terms and provisions
consistent with this Plan and in form and substance as approved by
the Board from time to time.
b. Conditions and Restrictions. Shares of Stock which Participants may
receive as a Stock Award under a Stock Award Agreement or Restricted
Stock Purchase Offer under a Restricted Stock Purchase Offer may
include such restrictions as the Board or Committee, as applicable,
shall determine, including restrictions on transfer, repurchase rights,
right of first refusal, and forfeiture provisions. When transfer of
Stock is so restricted or subject to forfeiture provisions it is
referred to as "Restricted Stock." Further, with Board or Committee
approval, Stock Awards or Restricted Stock Purchase Offers may be
deferred, either in the form of installments or a future lump sum
distribution. The Board or Committee may permit selected Participants
to elect to defer distributions of Stock Awards or Restricted Stock
Purchase Offers in accordance with procedures established by the Board
or Committee to assure that such deferrals comply with applicable
requirements of the Code including, at the choice of Participants, the
capability to make further deferrals for distribution after retirement.
Any deferred distribution, whether elected by the Participant or
specified by the Stock Award Agreement, Restricted Stock Purchase
Offers or by the Board or Committee, may require the payment to be
forfeited in accordance with the provisions of Section 7(c). Dividends
or dividend equivalent rights may be extended to and made part of any
Stock Award or Restricted Stock Purchase Offers denominated in Stock or
units of Stock, subject to such terms, conditions and restrictions as
the Board or Committee may establish.
c. Cancellation and Rescission of Grants. Unless the Stock Award
Agreement or Restricted Stock Purchase Offer specifies otherwise, the
Board or Committee, as applicable, may cancel any unexpired, unpaid, or
deferred Grants at any time if the Participant is not in compliance
with all other applicable provisions of the Stock Award Agreement or
Restricted Stock Purchase Offer, the Plan and with the following
conditions:
i. A Participant shall not render services for any organization or
engage directly or indirectly in any business which, in the judgment
of the chief executive officer of the Company or other senior
officer designated by the Board or Committee, is or becomes
competitive with the Company, or which organization or business, or
the rendering of services to such organization or business, is or
becomes otherwise prejudicial to or in conflict with the interests
of the Company. For Participants whose employment has terminated,
the judgment of the chief executive officer shall be based on the
Participant's position and responsibilities while employed by the
Company, the Participant's post-employment responsibilities and
position with the other organization or business, the extent of
past, current and potential competition or conflict between the
Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however,
to purchase as an investment or otherwise, stock or other securities
of such organization or business so long as they are listed upon a
recognized securities exchange or traded over-the-counter, and such
investment does not represent a substantial investment to the
Participant or a greater than a ten percent (10%) equity interest in
the organization or business.
ii. A Participant shall not, without prior written authorization from
the Company, disclose to anyone outside the Company, or use in other
than the Company's business, any confidential information or
material, as defined by the Company from time to time in its form of
confidentiality agreement or similar agreement regarding
confidential information and intellectual property, relating to the
business of the Company, acquired by the Participant either during
or after employment with the Company.
iii. A Participant, if so required under a written employment or other
agreement, shall disclose promptly and assign to the Company all
right, title and interest in any invention or idea, patentable or
not, made or conceived by the Participant during employment by the
Company, relating in any manner to the actual or anticipated
business, research or development work of the Company and shall do
anything reasonably necessary to enable the Company to secure a
patent where appropriate in the United States and in foreign
countries.
iv. Upon exercise, payment or delivery pursuant to a Grant, the
Participant shall certify on a form acceptable to the Committee that
he or she is in compliance with the terms and conditions of the
Plan. Failure to comply with all of the provisions of this Section
7(c) prior to, or during the six months after, any exercise, payment
or delivery pursuant to a Grant shall cause such exercise, payment
or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two years after
such exercise, payment or delivery. Within ten days after receiving
such a notice from the Company, the Participant shall pay to the
Company the amount of any gain realized or payment received as a
result of the rescinded exercise, payment or delivery pursuant to a
Grant. Such payment shall be made either in cash or by returning to
the Company the number of shares of Stock that the Participant
received in connection with the rescinded exercise, payment or
delivery.
d. Nonassignability.
i. Except pursuant to Section 7(e)(iii) and except as set forth in
Section 7(d)(ii), no Grant or any other benefit under the Plan shall
be assignable or transferable, or payable to or exercisable by,
anyone other than the Participant to whom it was granted.
ii. Where a Participant terminates employment and retains a Grant
pursuant to Section 7(e)(ii) in order to assume a position with a
governmental, charitable or educational institution, the Board or
Committee, in its discretion and to the extent permitted by law, may
authorize a third party (including but not limited to the trustee of
a "blind" trust), acceptable to the applicable governmental or
institutional authorities, the Participant and the Board or
Committee, to act on behalf of the Participant with regard to such
Awards.
e. Termination of Employment. If the employment or service to the Company
of a Participant terminates, other than pursuant to any of the
following provisions under this Section 7(e), all unexercised, deferred
and unpaid Stock Awards or Restricted Stock Purchase Offers shall be
cancelled immediately, unless the Stock Award Agreement or Restricted
Stock Purchase Offer provides otherwise:
i. Retirement Under a Company Retirement Plan. When a Participant's
employment terminates as a result of retirement in accordance with
the terms of a Company retirement plan, the Board or Committee may
permit Stock Awards or Restricted Stock Purchase Offers to continue
in effect beyond the date of retirement in accordance with the
applicable Grant Agreement and the exercisability and vesting of any
such Grants may be accelerated.
ii. Rights in the Best Interests of the Company. When a Participant
resigns from the Company and, in the judgment of the Board or
Committee, the acceleration and/or continuation of outstanding Stock
Awards or Restricted Stock Purchase Offers would be in the best
interests of the Company, the Board or Committee may (x) authorize,
where appropriate, the acceleration and/or continuation of all or
any part of Grants issued prior to such termination and (y) permit
the exercise, vesting and payment of such Grants for such period as
may be set forth in the applicable Grant agreement, subject to
earlier cancellation pursuant to Section 7(c) or at such time as the
Board or Committee shall deem the continuation of all or any part of
the Participant's Grants are not in the Company's best interest.
iii. Death or Disability of a Participant.
1) In the event of a Participant's death, the Participant's estate
or beneficiaries shall have a period up to the expiration date
specified in the Grant Agreement within which to receive or
exercise any outstanding Grant held by the Participant under such
terms as may be specified in the applicable Grant Agreement.
Rights to any such outstanding Grants shall pass by will or the
laws of descent and distribution in the following order: (a) to
beneficiaries so designated by the Participant; if none, then (b)
to a legal representative of the Participant; if none, then (c)
to the persons entitled thereto as determined by a court having
jurisdiction. Grants so passing shall be made at such times and
in such manner as if the Participant were living.
2) If a Participant is deemed by the Board or Committee to be unable
to perform his or her usual duties by reason of mental disorder
or medical condition which does not result from facts which would
be grounds for termination for cause, Grants and rights to any
such Grants may be paid to or exercised by the Participant, if
legally competent, or a legally designated guardian or
representative if the Participant is legally incompetent by
virtue of such disability.
3) After the death or disability of a Participant, the Board or
Committee may in its sole discretion at any time (a) terminate
restrictions in Grant Agreements; (b) accelerate any or all
installments and rights; and (c) instruct the Company to pay the
total of any accelerated payments in a lump sum to the
Participant, the Participant's estate, beneficiaries or
representative -- notwithstanding that, in the absence of such
termination of restrictions or acceleration of payments, any or
all of the payments due under the Grant might ultimately have
become payable to other beneficiaries.
4) In the event of uncertainty as to interpretation of or
controversies concerning this Section 7, the determinations of
the Board or Committee, as applicable, shall be binding and
conclusive.
8. Investment Intent. All Grants under the Plan are intended to be exempt
from registration under the Securities Act provided by Rule 701
thereunder. Unless and until the granting of Options or sale and issuance
of Stock subject to the Plan are registered under the Securities Act or
shall be exempt from the registration requirements contained therein and
the rules and regulations promulgated thereunder, each Grant under the
Plan shall provide that the purchases or other acquisitions of Stock
thereunder shall be for investment purposes and not with a view to, or for
resale in connection with, any distribution thereof. Further, unless the
issuance and sale of the Stock have been registered under the Securities
Act, each Grant shall provide that no shares shall be purchased upon the
exercise of the rights under such Grant unless and until (a) all then
applicable requirements of state and federal laws and regulatory agencies
shall have been fully complied with to the satisfaction of the Company and
its counsel, and (b) if requested to do so by the Company, the person
exercising the rights under the Grant shall (i) give written assurances as
to knowledge and experience of such person (or a representative employed
by such person) in financial and business matters and the ability of such
person (or representative) to evaluate the merits and risks of exercising
the Option, and (ii) execute and deliver to the Company a letter of
investment intent and/or such other form related to applicable exemptions
from registration, all in such form and substance as the Company may
require.
9. Amendment, Modification, Suspension or Discontinuance of the Plan. The
Board may, insofar as permitted by law, from time to time, with respect to
any shares at the time not subject to outstanding Grants, suspend or
terminate the Plan or revise or amend it in any respect whatsoever, except
that without the approval of the shareholders of the Company, no such
revision or amendment shall (i) increase the number of shares subject to
the Plan, (ii) decrease the price at which Grants may be granted, (iii)
materially increase the benefits to Participants, or (iv) change the class
of persons eligible to receive Grants under the Plan; provided, however,
no such action shall alter or impair the rights and obligations under any
Option, or Stock Award, or Restricted Stock Purchase Offer outstanding as
of the date thereof without the written consent of the affected
Participant(s). No Grant may be issued while the Plan is suspended or
after it is terminated, but the rights and obligations under any Grant
issued while the Plan is in effect shall not be impaired by suspension or
termination of the Plan.
In the event of any change in the outstanding Stock by reason of a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under
the Plan, (ii) available for Incentive Stock Options and Nonstatutory
Options and (iii) covered by outstanding Stock Awards or Restricted Stock
Purchase Offers; (b) the Stock prices related to outstanding Grants; and
(c) the appropriate Fair Market Value and other price determinations for
such Grants. In the event of any other change affecting the Stock or any
distribution (other than normal cash dividends) to holders of Stock, such
adjustments as may be deemed equitable by the Board or the Committee,
including adjustments to avoid fractional shares, shall be made to give
proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board or the Committee shall be
authorized to issue or assume stock options, whether or not in a
transaction to which Section 424(a) of the Code applies, and other Grants
by means of substitution of new Grant Agreements for previously issued
Grants or an assumption of previously issued Grants.
10. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Grant payment and withhold, at the time of delivery or
exercise of Options, Stock Awards or Restricted Stock Purchase Offers or
vesting of shares under such Grants, an appropriate number of shares for
payment of taxes required by law or to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. If Stock is used to satisfy tax withholding,
such stock shall be valued based on the Fair Market Value when the tax
withholding is required to be made.
11. Availability of Information. During the term of the Plan and any
additional period during which a Grant granted pursuant to the Plan shall
be exercisable, the Company shall make available, not later than one
hundred and twenty (120) days following the close of each of its fiscal
years, such financial and other information regarding the Company as is
required by the bylaws of the Company and applicable law to be furnished
in an annual report to the shareholders of the Company.
12. Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the chief financial officer
or to the chief executive officer of the Company, and shall become
effective when it is received by the office of the chief financial officer
or the chief executive officer.
13. Indemnification of Board. In addition to such other rights or
indemnifications as they may have as directors or otherwise, and to the
extent allowed by applicable law, the members of the Board and the
Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any claim, action, suit or proceeding, or
in connection with any appeal thereof, to which they or any of them may be
a party by reason of any action taken, or failure to act, under or in
connection with the Plan or any Grant granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such claim, action, suit or
proceeding, except in any case in relation to matters as to which it shall
be adjudged in such claim, action, suit or proceeding that such Board or
Committee member is liable for negligence or misconduct in the performance
of his or her duties; provided that within sixty (60) days after
institution of any such action, suit or Board proceeding the member
involved shall offer the Company, in writing, the opportunity, at its own
expense, to handle and defend the same.
14. Effective and Termination Dates. The Plan shall become effective on the
date it is approved by the holders of a majority of the shares of Stock
then outstanding. The Plan shall terminate ten years later, subject to
earlier termination by the Board pursuant to Section 9.
15. Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code, the
securities laws of the United States or the DGCL, shall be governed by the
law of the State of Michigan and construed in accordance therewith.
The foregoing 2000 Incentive Stock Plan was duly adopted and approved
by separate written consents of the Board of Directors and the stockholders
of the Company effective on January 28, 2000.
PROGOLF.COM, INC.
By_/s/ Thomas W. Itin_____
Thomas W. Itin, Chief Executive
Officer
15
EXHIBIT 21
LIST OF SUBSIDIARIES
SUBSIDIARIES STATE OF INCORPORATION
Pro Golf International, Inc. Delaware
Pro Golf of America, Inc. Michigan
ProGolf.com, Inc. Delaware
Pro Golf Worldwide, Inc. Delaware
Ajay Leisure Products, Inc. Delaware
Leisure Life, Inc. Tennessee
Palm Springs Golf, Inc. Colorado
Prestige Golf Corp. Delaware
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
We hereby consent to the incorporation by reference in the
Registration Statements of Ajay Sports, Inc. and Subsidiaries on Form
S-3 Registration Number 333-11365 and Form S-8 of our report dated
March 12, 1999, appearing in this annual report on Form 10-K of Ajay
Sports, Inc. and Subsidiaries for the year ended December 31, 2000.
/s/ HIRSCH SILBERSTEIN & SUBELSKY, P.C.
Farmington Hills, Michigan
May 24, 2001
EXHIBIT 23.2
J L Stephan Co PC
Certified Public Accountants
862 East Eighth Street
Traverse City, Michigan 49686
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
of Ajay Sports, Inc. and Subsidiaries on Form S-8 of our report dated
April 30, 2001, appearing in this Annual Report on Form 10-K of Ajay
Sports, Inc. and Subsidiaries for the years ended December 31, 2000
and 1999.
/s/ J L Stephan Co P.C.
- ----------------------
J L Stephan Co P.C.
Traverse City, Michigan
May 24, 2001
EXHIBIT 27
ARTICLE 5
CIK 0000854858
NAME Ajay Sports, Inc.
MULTIPLIER 1,000
CURRENCY US Dollar
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END DEC-31-2000
PERIOD-START JAN-01-2000
PERIOD-END DEC-31-2000
EXCHANGE-RATE 1
CASH 273
SECURITIES 0
RECEIVABLES 2,197
ALLOWANCES 306
INVENTORY 2
CURRENT-ASSETS 2,797
PP&E 13,319
DEPRECIATION 219
TOTAL-ASSETS 30,758
CURRENT-LIABILITIES 2,763
BONDS 0
PREFERRED-MANDATORY 2,179
PREFERRED 1,250
COMMON 41
OTHER-SE 2,557
TOTAL-LIABILITY-AND-EQUITY 30,758
SALES 4,335
TOTAL-REVENUES 4,335
CGS 23
TOTAL-COSTS 3,299
OTHER-EXPENSES 896
LOSS-PROVISION 0
INTEREST-EXPENSE (1,023)
INCOME-PRETAX ( 884)
INCOME-TAX 459
INCOME-CONTINUING ( 425)
DISCONTINUED (2,309)
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (2,734)
EPS-BASIC ( .75)
EPS-DILUTED ( .75)
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