EXHIBIT 10.23
OPERATING AGREEMENT FOR
CALLAWAY GOLF MEDIA VENTURES, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
This Operating Agreement (this "Agreement") governs the relationship among the
Members of Callaway Golf Media Ventures, LLC, a California limited liability
company ("Company") and between Company and the Members, subject to the Articles
and the Act, as either may be amended from time to time.
In consideration of their mutual promises, covenants, and agreements, the
Members hereby promise, covenant, and agree as follows:
ARTICLE 1
DEFINITIONS
The capitalized terms used in this Agreement shall be defined either: (a) as
set forth in Exhibit A, which is incorporated herein by reference; or, (b) if
not defined in Exhibit A, as such terms are defined elsewhere in this Agreement.
ARTICLE 2
FORMATION MATTERS
2.1 Formation. Callaway Golf Company, a California corporation ("Golf") and
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Callaway Editions, Inc., a Delaware corporation ("Editions"), as organizers,
have formed a limited liability company under the laws of the State of
California by the filing of the Articles pursuant to the Act. The business of
Company shall be conducted under such name until such time as the Managers shall
hereafter designate otherwise and the Managers file amendments to the Articles
in accordance with applicable law.
2.2 Matters Regulated by Operating Agreement. Subject to the Articles and the
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Act, as both may be amended from time to time, the internal affairs of Company
shall be regulated by this Agreement as it shall be amended from time to time
and by the Managers appointed and serving thereunder. If there is a direct
conflict between the provisions of this Agreement and the mandatory provisions
of the Act or the provisions of the Articles, such provisions of the Act or the
Articles, as the case may be, will control.
2.3 Term of the Operating Agreement. The term of this Agreement shall commence
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on the date of this Agreement and terminate the later of (i) December 31, 2072
and (ii) the date the copyright of Company in the last Guide expires under the
United States Copyright Act, unless Company is earlier terminated upon its
voluntary or involuntary dissolution or as otherwise provided in this Agreement.
Despite the foregoing, September 1, 1997 shall be utilized for purposes of
measuring the commencement of operations for purposes hereof, including Section
5.13.1.
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2.4 Office and Agent. The Company shall continuously maintain an office and
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registered agent in the State of California as required by the Act. The
principal office of the Company shall be at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, or such other location as may be determined by the Managers. The
registered agent shall be as stated in the Articles or as otherwise determined
by the Managers.
2.5 Other Formation Matters. Company will pay its expenses of organization and
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reimburse any person advancing funds for this purpose. The Managers may
identify other places of business for Company, appoint agents for service of
process and mailing filings as may be required or desirable under the laws of
such other places. Company shall pay all expenses incurred in organizing
Company other than attorneys fees; attorneys fees payable to the attorneys for
Golf and the attorneys for Editions in connection with the negotiation and
formation of Company shall be paid by the Member incurring such fees and not by
Company.
ARTICLE 3
BUSINESS PURPOSE; BUSINESS PLAN AND BUDGET
3.1 Purpose. Company's purpose shall be to publish the Callaway Golf Guides
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(the "Guides") in print form and such other media as the Members both agree to
and to conduct such other businesses as the Members both agree to. Company
shall conduct no other businesses.
3.2 Plans and Budgets. Editions, through the Editions Management Personnel,
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shall prepare a business plan and budget for Company as soon as practicable and
shall update such plan and budget as agreed to by the Members. The plan and
each update are subject to approval by Golf.
ARTICLE 4
MEMBERS, CAPITAL CONTRIBUTIONS AND WITHDRAWALS, MEMBERSHIP
INTERESTS, ADMISSIONS, CERTIFICATES AND LIMITATIONS ON LIABILITIES
AND RESPONSIBILITIES OF MEMBERS
4.1 Members; Initial Capital Contributions. Members, their respective
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addresses, their initial Capital Contributions to Company (the "Initial
Contributions"), and their respective initial Percentage Interests in Company
are set forth on Exhibit B. All initial Capital Contributions are hereby
assigned and contributed to Company.
4.2 No Other Required Capital Contributions; Additional Funding Requirements.
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No Member shall be required to make any Capital Contributions to Company other
than the Initial Capital Contribution set forth opposite the Member's name on
Exhibit B, except by mutual agreement of both Members. Despite the foregoing,
if funds beyond the Initial Contributions and the Loan are required to operate
Company, as determined by the Managers, additional funding may be sought from
any source, including Golf, Editions, or a third party investor in the form of
equity or debt at the prevailing rates and terms offered in the market at the
time of
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such funding. Both Golf and Editions will have a right of first refusal in
providing such funding on a pro rata basis based upon their then respective
Percentage Interests. Company will first seek such funds in the form of debt
from third party lenders, if such funds can be obtained at reasonable commercial
rates, without guaranties from Golf or Editions.
4.3 License of Callaway Name. Golf hereby agrees to license at no charge to
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Company the tradename and/or service name and ▇▇▇▇ "▇▇▇▇▇▇▇▇ Golf" to Company
solely for use in connection with the publishing of the Guides and other
activities to be undertaken by Company pursuant to Article 3. Such license is
non-exclusive and shall terminate upon dissolution of Company. All specific
uses by Company of the ▇▇▇▇ "Callaway Golf" shall be subject to the approval of
the Managers appointed by Golf (in their sole discretion) and such reasonable
controls as may be determined by Golf from time to time. Nothing in this
Agreement shall affect, limit, expand, modify or otherwise change any rights
that either Golf or Editions may have in or to the name or ▇▇▇▇ "Callaway",
including any right to challenge the use of the ▇▇▇▇ by the other Member. All
such rights are expressly reserved by each party.
4.4 Loan. Golf hereby agrees to loan Company up to $20,000,000 (including
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accrued interest) on a secured basis (the "Loan") on the terms and conditions of
the Loan Agreement attached hereto as Exhibit C.
4.5 Editions Option. Golf hereby grants Editions the option to acquire a
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portion of Golf's interest in Company, up to a ten percent (10%) Percentage
Interest (including the appropriate proportion of Golf's Capital Account) at an
aggregate price of One Hundred Thousand Dollars ($100,000). Such option may be
exercised in part on a pro rata basis. This option will expire August 31, 2000.
The option must be exercised by written notice to Golf along with payment in
cash or good funds of the exercise price.
4.6 Form of Capital Contributions. As provided in the Articles, the Initial
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Contributions shall be in the form of cash and property contributions. Any
subsequent Capital Contributions may be in any type of property or cash as may
be agreed upon by both Members. Loans or services by a Member to Company
(including the Loan) will not be considered contributions to the capital of
Company.
4.7 No Withdrawals of Capital Contributions. No Member shall have the right to
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withdraw its Capital Contributions or to demand and receive property of Company
or any distribution in return for its Capital Contributions, except as may be
specifically provided in this Agreement or required by law. No Member shall
receive out of Company property any part of its Capital Contribution until: (i)
all liabilities of Company, except liabilities to Members on account of their
Capital Contributions, have been paid or there remains property of Company
sufficient to pay them; (ii) the consent of all Members is had, unless the
return of the Capital Contributions to the Member may be rightfully demanded as
provided in the Act; or (iii) the Articles are canceled or so amended as to set
out the withdrawal or reduction.
4.8 Admission of Additional Members. The Members may admit to Company
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additional Members who will participate in the profits, losses, available cash
flow, and ownership of the assets of Company on such terms as are determined by
the Members.
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4.9 Limitation on Liability. No Member or Manager shall be liable under a
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judgment, or order of the court, or in any other manner, for a debt, obligation
or liability of Company, except as provided by law. Except for the Loan, no
Member shall be required to loan any funds to Company. No negative balance in a
Member's Capital Account will create any liability for Member to any third
party.
4.10 Liability of Members to Company. A Member is liable to Company for: (i)
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the difference between its contribution to capital as actually made and that
stated in the Articles as having been made; and (ii) any unpaid contribution to
capital which it agreed in the Articles to make in the future when, and on the
conditions, stated in the Articles. A Member holds as trustee for Company: (i)
specific property stated in the Articles as contributed by such Member, but
which was not contributed or which has been wrongfully or erroneously returned;
and (ii) money or other property wrongfully paid or conveyed to such Member on
account of its contribution. The liabilities of a Member as set out in this
Section can be waived or compromised only by agreement of both Members, but a
waiver or compromise shall not affect the right of a creditor of Company who
extended credit or whose claim arose after the filing and before a cancellation
or amendment of the Articles, to enforce the liabilities. When a Former Member
has rightfully received the return in whole or in part of its contribution, the
Former Member is nevertheless liable to Company for any sum, not in excess of
the return with interest, necessary to discharge liability to all creditors of
Company who extended credit or whose claims arose before the return and who have
a claim against Company based on such liability.
4.11 No Responsibility For Other Member's Commitments. If a Member or any
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Member's Affiliate has incurred any indebtedness or obligation prior to the date
hereof that relates to or otherwise affects Company, neither Company nor any
other Member shall have any liability or responsibility for or with respect to
such indebtedness or obligation unless such indebtedness or obligation is
assumed by Company pursuant to a written instrument approved by the Managers.
Furthermore, neither Company nor any Member shall be responsible or liable for
any indebtedness or obligation hereafter incurred by any other Member or such
Member's Affiliates. If a Member or such Member's Affiliates (collectively, the
"liable Member"), whether prior to or after the date hereof, incurs or has
incurred any debt or obligation that neither Company nor the other Members has
any responsibility or liability for, the liable Member shall indemnify, defend
and hold harmless Company and the other Members from any liability or obligation
they may incur in respect thereof.
ARTICLE 5
MANAGEMENT AND CONTROL OF BUSINESS
5.1 Management Of Company.
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5.1.1 Management by Managers. All powers of Company shall be exercised by
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or under the authority of, and the business and affairs of Company shall be
managed under the direction of, the Managers, unless otherwise provided in the
Act, the Articles, or this Agreement.
5.1.2 Appointment Of Managers By Members. Company shall have three (3)
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Managers. Golf shall be entitled to appoint two (2) Managers and Editions shall
be entitled to appoint one (1) Manager. Each Member may replace its elected
Managers at any time upon written notice and a Manager may delegate his or her
authority in writing to another person. No compensation shall be paid by, or
charged to, Company for the time spent by Managers in that capacity. Members
may change the number of Managers only by agreement of both Members.
5.2 Meetings. The Managers shall hold regular meetings at such time and place
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as shall be determined by the Managers. Special meetings of the Managers may be
called at any time by any one Manager. A quorum for any meeting shall be two
(2) Managers, one of which must be the Manager appointed by Editions. No action
may be taken by the Managers unless such quorum is present. The affirmative
vote of at least two (2) Managers shall be required for any act or decision of
the Managers. Despite the foregoing any merger, sale, consolidation or
reorganization of Company or any conversion, exchange, reclassification, or
other change of or to any interest in the capital or profits of Company will
require the affirmative vote of all three (3) Managers. Any or all Managers may
participate in any meeting by, or through the use of, any means of communication
by which all Managers participating may simultaneously hear each other during
the meeting. A Manager so participating is deemed to be present in person at
the meeting. At any meeting, the Managers shall appoint a person to preside at
the meeting and a person to act as secretary of the meeting. The secretary of
the meeting shall prepare minutes of the meeting that shall be placed in the
minute books of Company.
5.3 Committees. The Managers may establish one or more committees. Each
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committee shall exercise those powers of the Managers delegated to it by the
Managers. No action required or permitted to be taken by any such committee
shall be taken without the affirmative vote of the majority of the members of
such committee.
5.4 By-Laws. The Managers shall have the authority to adopt, implement and
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amend by-laws governing the management and operation of Company.
5.5 Officers. Company may have officers; however such officers shall only have
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such powers as are expressly authorized by the Managers and shall not have any
other powers whatsoever, including any power to bind Company. The officers
shall be appointed and may be removed by the Managers. Each officer shall hold
office for the term for which he or she is elected until his or her successor
has been elected.
5.6 Procedural Matters of the Managers. Each Manager shall have one vote in
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all matters presented to the Managers for decision or approval. Unless waived
in writing by all Managers (before or after a meeting) at least ten (10)
business days prior written notice of any special or regular meeting shall be
given to each Manager. Any action required or permitted to be taken
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by the Managers or any committee thereof may be taken without a meeting, if all
Managers consent in writing. Such consent shall have the same effect as a
unanimous vote of the Managers or committee, as the case may be. To the extent
not set forth in this Agreement, all procedures of the Managers shall be handled
as if the Managers were a Board of Directors of a California corporation.
5.7 Specific Duties. If required by law, the Managers will qualify Company to
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do business in New York and such states as are required to fulfill Company's
business purposes. Funds of Company may not be commingled with funds of any
other person and the Managers shall not employ, or permit any other person to
employ, such funds in any manner except for the benefit of Company. The bank
accounts of Company shall be maintained in such banking institutions as approved
by the Managers and withdrawals shall be made only in the regular course of
Company business and as otherwise authorized in this Agreement on such signature
or signatures as the Managers determine. The Managers shall be responsible for
authenticating the records of Company, including keeping correct and complete
books of account which show accurately at all times the financial condition of
Company, safeguarding all funds, notes, securities, and other valuables which
may from time to time come into possession of Company and depositing all funds
of Company with such depositories as the Managers shall designate.
5.8 Powers of Managers. The Managers, acting pursuant to this Section 5, shall
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have all necessary powers to carry out the purposes, business, and objectives of
Company, including, but not limited to, the right to enter into and carry out
contracts of all kinds; to employ employees, agents, consultants and advisors on
behalf of Company; to lend or borrow money and to issue evidences of
indebtedness; to bring and defend actions in law or at equity; and to buy, own,
manage, sell, lease, mortgage, pledge or otherwise acquire or dispose of Company
property. Managers may deal with any related person, firm or corporation on
terms and conditions available from an independent responsible third party that
is willing to perform. Managers may not change the character of Company
business or act in contradiction of the Articles or this Agreement. In dealing
with Golf or its affiliates, the Managers shall recognize that Golf is an
interested party and shall have the burden of showing that any relationship with
Golf is fair to Company; such requirement shall be deemed satisfied and Editions
shall be deemed to have determined the fairness of the transaction to the
Company and Editions if Editions or the Manager appointed by Editions approves
the transaction. The Loan is hereby approved by Editions as fair to Company.
It is expressly understood that, in exercising its rights under the Loan, Golf
is not acting as a fiduciary and may exercise its rights under such agreement in
the same manner as any unrelated third party.
5.9 Reimbursement of Expenses. Any Manager shall be entitled to reimbursement
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from Company of all reasonable business expenses of Company properly incurred
pursuant to procedures adopted by the Managers and paid by such Manager on
behalf of Company.
5.10 Conclusive Evidence Of Authority. Every contract, deed, mortgage, lease
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and other instrument executed pursuant to a resolution of the Managers shall be
conclusive evidence in favor of every person relying thereon or claiming
thereunder that at the time of the delivery thereof: (i) Company was in
existence, (ii) neither this Agreement nor the Articles had been
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amended in any manner so as to restrict the delegation of authority among
Members or the Managers; and (iii) the execution and delivery of such instrument
was duly authorized by the Members and Managers. Any person may always rely on a
certificate addressed to him and signed by at least two Managers: (i) as to who
are the Members or Managers hereunder; (ii) as to the existence or non-existence
of any facts which constitute a condition precedent to acts by the Members or
the Managers or in any other manner germane to the affairs of Company; (iii) as
to who is authorized to execute and deliver any instrument or document of
Company; (iv) as to the authenticity of any copy of the Articles, this
Agreement, amendments thereto and any other document relating to the conduct of
Company affairs; and (v) as to any act or failure to act by Company or as to any
other matter whatsoever involving Company, any Manager or any Member in the
capacity as a Member or Manager of Company.
5.11 No Individual Authority for a Member. No Member acting alone shall have
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any authority to act for, or to undertake or assume, any obligation, debt, duty
or responsibility on behalf of, any other Member or Company. All actions of
Company must be taken by the agreement of both Members, or by the Managers, as
authorized by this Agreement.
5.12 Day-To-Day Operations. Day-to-day operations of Company, including
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production, marketing and distribution of the products and the development of
new products (if any), will be the responsibility of persons selected by the
Managers. It is expected that some of such activities will be conducted by
persons employed by Editions and, in such circumstances, Editions will be
reimbursed at its direct cost for such services, if any, rendered to Company by
Editions' employees other than Editions Management Personnel. Golf will
designate a person to participate in the day-to-day management of Company and to
act as a liaison with Golf. Such person will be an employee of Golf, but
Company will reimburse Golf upon demand for the compensation and other expenses
paid to such person by Golf. Editions will have the right to approve such
person, which approval will not be unreasonably withheld or delayed.
5.13 Management Fee; Incentive Plan.
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5.13.1 Fee. Editions will receive management fees of an aggregate of
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$450,000 per annum (payable in quarterly installments) for the first five (5)
years of Company to cover the services of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President and
Editorial Director of Editions, and True ▇▇▇▇, Vice President and Director of
Production of Editions or her successors (the "Editions Management Personnel")
and their respective support staffs. If the publishing of the Guides requires
more than five (5) years, the Members will negotiate an appropriate management
fee for the Editions Management Personnel for the remaining period required to
complete publication. For the management fee, Company will be entitled, on a
cumulative basis, to 20% of the time and services of the Editions Management
Personnel (and the time of Editions' support staff required to support the
efforts of the Editions Management Personnel in providing their required
services). No additional management fees will be payable if any projects are
undertaken by Company beyond the Guides, unless expressly agreed to by Golf.
While it is understood that Editions will be responsible for generating new
products and concepts as well as analyzing third party concepts, Golf must
approve all new products at various stages of development.
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5.13.2 Incentive Plan. An incentive plan will be established providing
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Editions with the right to receive up to 10% of the profits from the Guides,
with such right to commence only as to profits accruing after the date that
Golf has received distributions from Company in an amount equal to the amount of
its investment (including the Loan) plus a cumulative 30% per annum, after tax,
internal rate of return on its investment (including the Loan). The foregoing
shall not affect Company's right to maintain at all times adequate reserves
before making distributions to Golf or Editions.
5.13.3 Golf Services. Golf has the right to be reimbursed at market
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rates for services provided to Company.
5.13.4 Treatment of Expenses. All amounts paid under this Section 5.13
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shall be for services and not for a Member's interest and shall be deemed
expenses of Company.
ARTICLE 6
MEETINGS AND VOTING OF MEMBERS
6.1 Time And Place Of Member Meetings. Annual meetings of the Members shall be
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held each year in such places as the Managers may determine. Special meetings
of the Members may be called by the Managers or by either Member.
6.2 Notice Of Meetings. The Person calling a meeting shall deliver or mail
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written notice stating the date, time, and place of any meeting of Members and,
in the case of a special Members' meeting or when otherwise required by law, a
description of the purposes for which the meeting is called, to each Member , at
such address as appears in the records of Company, such notice to be mailed at
least ten (10), but not more than sixty (60), days before the date and time of
the meeting. A Member may waive notice of any meeting, before or after the date
of the meeting, by delivering a signed waiver to Company for inclusion in the
minutes of Company. A Member's attendance at any meeting, in person or by proxy
(a) waives objection to lack of notice or defective notice of the meeting,
unless the Member at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting, and (b) waives objection to
consideration of a particular matter at the meeting that is not within the
purposes described in the meeting notice, unless the Member objects to
considering the matter when it is presented.
6.3 Record Date. The record date for the purpose of determining the Members
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entitled to notice of a Members' meeting, for demanding a special meeting, for
voting, or for taking any other action shall be the tenth (10th) day prior to
the date of the meeting or other action.
6.4 Voting. A Member may appoint a proxy to vote or otherwise act for the
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Member pursuant to a written appointment form executed by the Member or the
Member's duly authorized attorney-in-fact. An appointment of a proxy is
effective when received by the Managers of Company. The general proxy of a
fiduciary is given the same effect as the general proxy of any other Member. A
proxy appointment is valid for eleven months unless otherwise expressly stated
in the appointment form. At any meeting of Members, each
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Member entitled to vote shall have a number of votes equal to the product of (i)
its Percentage Interest (expressed as a whole number) as set forth on Exhibit B
hereto, as amended from time to time, times (ii) one hundred (100). At any
meeting of Members, presence of Members entitled to cast at least 51% of the
total votes of all Members entitled to vote at such meeting constitutes a
quorum. Unless otherwise expressly provided herein or by law, any action by
Members requires approval of a majority of the Percentage Interests of Members.
Upon the occurrence of a Dissolution Event, a Former Member shall not be
entitled to any vote in determining whether Company shall continue, as provided
in Section 12.1. No assignee of a Member's Interest in Company shall be entitled
to vote or participate on any matters at any meeting unless such assignee
becomes a substitute Member as contemplated in Section 13.3
6.5 Consent In Lieu of Meeting. Subject to the applicable laws of the State of
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California, any action required or permitted to be taken at a Members' meeting
may be taken without a meeting if the action is taken by all of the Members
entitled to vote on the action. The action must be evidenced by one or more
written consents describing the action to be taken, signed by all the Members
entitled to vote on the action, and delivered to Company for inclusion in the
minutes. The record date for determining Members entitled to take action
without a meeting is the first date a Member signs the consent to such action.
6.6 Telephonic Participation at Meeting. Any or all Members may participate in
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any annual or special Members' meeting by, or through the use of, any means of
communication by which all Members participating may simultaneously hear each
other during the meeting. A Member so participating is deemed to be present in
person at the meeting.
6.7 Appointment Of Secretary For Meeting. At any annual or special Members'
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meeting, the Managers shall appoint a person to preside at the meeting and a
person to act as secretary of the meeting. The secretary of the meeting shall
prepare minutes of the meeting which shall be placed in the minute books of
Company.
ARTICLE 7
OWNERSHIP OF PROPERTY; ASSIGNMENT OF RIGHTS
7.1 Title to Properties. Real and personal property owned or purchased by
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Company shall be held and owned, and conveyance made, in the name of Company.
Instruments and documents providing for the acquisition, mortgage or disposition
of property of Company shall be valid and binding upon Company if executed by
two or more Managers of Company, unless otherwise authorized by the Managers.
7.2 Confidentiality; Ownership. Each Member and each Manager agrees to hold in
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strictest confidence and not to use or disclose or make accessible to any person
or entity, without the prior written consent of the Members, any Company Right
or Company Information. Each Member and each Manager acknowledges that Company
Rights and Company Information are solely owned by Company and that Company
property may only be used for the benefit of Company.
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7.3 Ownership And Disclosure Of Rights. Each Member agrees that, subject to
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Section 7.4, any Rights which (a) are in whole or in part conceived or made by
an employee of Company during the term of Company, and which result from any
work performed by the employee for Company or (b) are made through the use of
any Company Rights or any Company equipment, facilities, supplies or time, shall
belong to and be owned exclusively by Company and be Company Rights, whether or
not fixed in a tangible medium or expression. Any original works of authorship
within the meaning of Company Rights will be "works made for hire" and Company
will be the author under the U.S. Copyright Act (17 USCA, Section 101). If
Company is not deemed to be the owner of any Company Rights upon creation, each
Member hereby irrevocably assigns and transfers to Company all right, title and
interest thereto, including copyrights. Each Member agrees from time to time to
execute written transfers to Company of specific Company Rights, including
original works of authorship and copyrights therein in a form acceptable to
Company. Each Member agrees to cause its employees to execute agreements
assigning Company Rights to Company. Each Member holds all Company Rights
solely in trust for Company's sole benefit. Despite the foregoing, Company
shall not acquire any rights in or to the Callaway name or ▇▇▇▇ except pursuant
to the license from Golf provided in Section 4.3.
7.4 Independent Rights of Members; No Transfer. Each Member owns and operates
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an independent business and owns its own Rights, including its own confidential
information. It is expected that the Members may, from time to time, disclose
certain of such Rights or other information to Company in connection with the
operation of Company, although neither Member shall be required to disclose any
of its Rights or other information to Company and any such disclosure will be in
the sole discretion of the Member. Despite the provisions of Section 7.3,
neither Company nor the other Member will acquire any right, title or interest
in or to any Rights of a Member, even if utilized in the Guides or elsewhere,
unless such Member executes a written agreement transferring such Rights (or an
interest in or license thereto) to Company (or the other Member). Each Member
agrees that Company Rights and Company Information shall in no event include any
Right owned by a Member except to the extent of an interest granted in writing
by a Member in its sole discretion in accordance with the preceding sentence.
Company shall not use any Right or other information of a Member without the
written consent of the Member (which may be withheld in its discretion) and any
Right or other information of a Member shall be kept confidential in the same
manner and to the same extent as required for Confidential Information and
Company Rights pursuant to Section 7.2.
7.5 Copyright Registrations. Each Member will assist Company to obtain U.S.
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and foreign copyright registrations (including transfers of ownership) covering
Company Rights. If Company cannot for any reason, including a Member's
disability, secure a Member's signature to apply for or pursue any application
for any U.S. or foreign copyright registrations (or on any document transferring
ownership) covering Company Rights, such Member hereby irrevocably designates
and appoints Company and its officers and agents as the Member's agent and
attorney-in-fact, to act for and in the Member's behalf and stead to execute and
file any such applications and documents and to do all other lawfully permitted
acts to further the prosecution and issuance of copyright registrations or
transfers thereof with the same legal force and effect as if executed by the
Member. This appointment is coupled with an interest in
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Company Rights and will survive a Member's disability. Each Member hereby
quitclaims to Company all claims of any nature whatsoever that such Member may
now or hereafter have for infringement of any copyright resulting from or
relating to any such application for copyright registrations. Each Member hereby
assigns all copyrights in the Guides as part of their respective Initial
Contributions.
7.6 Disclosure; Records; Return Of Documents. Each Member will fully, promptly
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and completely disclose to Company all Company Rights and agrees to maintain
adequate and current written records of all Rights developed or made by the
Member (solely or jointly with others) during the term of Company. The Managers
may specify any formats for these records. The records will be available to and
remain the sole property of Company.
7.7 Non-Competition. Editions covenants and agrees that, for a period from the
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date hereof until eight (8) years after the last Guide is published by Company,
Editions will not, without the prior written consent of Golf, publish in any
media (or be engaged in any activity relating to publication in any media)
anything that features golf-related content, including any content competitive
with the Guides. Golf shall have no limitations on its activities and may
engage in activities competitive with Company activities; however, during the
term of Company until dissolution, Golf shall use reasonable efforts to consult
with Editions with respect to any proposed venture in which Golf will be
involved in the publication, in any media, of golf-related content as to whether
Company may participate in such proposed venture on some terms and conditions;
provided that Golf may determine in its sole, complete and absolute discretion
whether Company will participate in such venture and will have no obligation to
allow Company to so participate. Golf will not violate any proprietary rights
that Company has in the name of the Guides.
ARTICLE 8
CAPITAL ACCOUNTS
8.1 Maintenance of Accounts. Company shall maintain a separate Capital Account
-----------------------
for each Member strictly in accordance with the provisions of this Agreement and
the requirements of Code Section 704(b) and applicable regulations thereunder.
8.2 Determination of Accounts. A Member's Capital Account as of any date will
-------------------------
be the amount of money contributed by such Member to the capital of Company, (i)
increased by the Book Value of all property contributed by such Member to the
capital of Company at the time of such contribution (net of liabilities
associated with such contributed property that Company is considered to assume
or take subject to under Section 752 of the Code), and the amount of any Net
Profits, gains and income allocated to such Member, and (ii) decreased by the
amount of money distributed to such Member by Company (exclusive of a guaranteed
payment within the meaning of Section 707(c) of the Code paid to such Member),
the adjusted Book Value of any property distributed to such Member by Company
(net of liabilities associated with such distributed property that such Member
is considered to assume or take subject to under Section 752 of the Code), and
the amount of any Net Losses, losses, deductions or expenses charged to such
Member.
11
ARTICLE 9
ALLOCATION OF PROFITS AND LOSSES
9.1 General Allocation Of Net Profits And Net Losses.
------------------------------------------------
9.1.1 Subject to Section 9.2, Net Losses for a fiscal year shall be
allocated to each Member: (i) first, in proportion to the Members' respective
Capital Account balances, until the Capital Accounts are reduced to zero (0);
(ii) second, in proportion to the respective Special Risk Accounts of each
Member, until the Special Risk Accounts are zero (0); and (iii) thereafter, in
accordance with Percentage Interests.
9.1.2 Subject to Section 9.2, Net Profits for any fiscal year shall be
allocated to each Member: (i) first to the Members until the aggregate amounts
of Net Profits allocated to each of them pursuant to this Section 9.1.2(i) for
the current and all prior fiscal years is sufficient to offset the aggregate
amount of Net Losses allocated to each such Member for all prior fiscal years
under first clause (iii), then clause (ii), and then clause (i) of Section
9.1.1, in proportion to and to the extent of the amounts of such Net Losses so
allocated; and (ii) thereafter in accordance with Percentage Interests.
9.2 Overriding Rules.
----------------
9.2.1 Contributed Property. In accordance with Code Section 704(c) and
--------------------
the Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of Company will, solely for tax purposes, be
allocated between the Members to take account of any variation between the
adjusted basis of the property to Company for federal income tax purposes and
its initial Book Value.
9.2.2 Adjustments and Subsequent Allocations. If the Book Value of any
--------------------------------------
Company property is adjusted in accordance with this Agreement, subsequent
allocations of income, gain, loss and deduction as to such property will take
account of any variation between the adjusted basis of such property for federal
income tax purposes and its Book Value in the manner provided by applicable
Regulations.
9.2.3 Capital Account Deficit. Despite any other provision of this
-----------------------
Article, no Member shall receive an allocation of Net Losses, or any other item
of loss or deduction that would create or increase an Adjusted Capital Account
Deficit of the Member (provided that solely for purposes of this Section, an
Adjusted Capital Account Deficit shall be determined by adding the Member's
Special Risk Account to the Capital Account). Any loss, or item thereof, that
cannot be allocated to a Member as a result of the foregoing limitation shall be
allocated to all other Members. Any loss, or item thereof, allocated to other
Members pursuant to the preceding sentence shall be taken into account in
computing subsequent allocations of Net Profits or Net Losses so that the net
amount of any items so allocated and the profits, losses and all other items
allocated to each Member shall, to the extent possible, be equal to the net
amount that would have been allocated to each Member if the allocations required
by the preceding sentence had not been made.
12
9.2.4 Qualified Income Offset. If any Member has an Adjusted Capital
-----------------------
Account Deficit at the end of any fiscal year, such Member shall be specially
allocated items of income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this subparagraph shall be
made only if and to the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article have
been made as if this Section were not in this Agreement.
9.2.5 Minimum Gain Charge-Back. Despite any other provision of this
------------------------
Agreement, if there is a net decrease in Company Minimum Gain during any Company
fiscal year, each Member who would otherwise have an Adjusted Capital Account
Deficit at the end of such year shall be specially allocated items of Company
income and gain for such year (and, if necessary in subsequent years) in an
amount and manner sufficient to eliminate such Adjusted Capital Account Deficit
as quickly as possible. The items to be so allocated shall be determined in
accordance with Regulations Section 1.704-2(f) and incorporating by reference
all exceptions and waivers contained therein. This Section is intended to
comply with the minimum gain charge-back requirements in the Regulations Section
1.704-2 and shall be interpreted consistently therewith.
9.2.6 Member Minimum Gain Chargeback. Despite any other provision in this
------------------------------
Agreement, if there is a net decrease in Member Minimum Gain during any fiscal
year, each Member who has a share of such Member Minimum Gain shall be specially
allocated items of income and gain for such year (and, if necessary, subsequent
years) in an amount equal to the portion of such Member's share of such net
decrease in Member Minimum Gain. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4). This Section
is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.
9.2.7 Allocation of Nonrecourse Deductions. Member Nonrecourse Deductions
------------------------------------
shall be allocated to the Member, if any, that bears the economic risk of loss
for the Member Nonrecourse Debt to which the Member Nonrecourse Deductions are
attributable. If more than one Member bears the economic risk of loss for a
Member Nonrecourse Debt, the Nonrecourse Deduction attributable to such Member
Nonrecourse Debt shall be allocated among such Members in accordance with the
ratios in which the Members share the economic risk of loss for such Nonrecourse
Debt. Otherwise, Nonrecourse Deductions shall be allocated in the same manner
as, and be subject to the same restrictions imposed upon Net Losses.
9.2.8 Depreciation Recapture. Despite any other provision of this
----------------------
Agreement, each Member's allocable share of gain, profit, income and Net Profits
characterized as ordinary income under Sections 1245 or 1250 of the Code as to
the disposition of an item of Company Property will bear the same ratio to the
total gain, profit, income and Net Profits so characterized of Company as such
Member's share of the past depreciation and/or cost recovery deductions taken
with respect to the item of property bears to all the Members' past
13
depreciation and/or cost recovery deductions with respect to that property. A
comparable adjustment will be made as required for state income tax purposes.
9.2.9 Credits. Subject to the applicable provisions of the Code and
-------
Treasury Regulations Section 1.704-1(b), all tax credits and tax credit
recapture will be allocated to the Members in accordance with their respective
Percentage Interests.
9.2.10 Adjustments for Compliance with Regulations. The allocations of
-------------------------------------------
income, loss, gain, and deduction set forth in this Agreement are intended to
comply strictly with Regulations Section 1.704-1(b), and Regulations Section
1.704-2, and are intended to have "substantial economic effect" within the
meaning of those Regulations. The allocations may not be consistent with the
manner in which the Members intend to divide Company distributions.
Accordingly, the Managers are hereby authorized to divide other allocations of
Net Profits, Net Losses, and other items among the Members so as to prevent the
allocations from distorting the manner in which Company distributions will be
divided among the Members pursuant to this Article. In general, the Members
anticipate that this will be accomplished by specially allocating other Net
Profits, Net Losses, and items of income, gain, loss, and deduction among the
Members so that the net amount of the allocations and such special allocations
to each such Member is zero. If, for whatever reason, the Managers determine
that the allocation provisions of this Agreement are unlikely to be respected
for federal income tax purposes, the Managers are granted the authority to amend
the allocation provisions of this Agreement, to the minimum extent necessary to
effect the plan of allocations and distributions provided in this Agreement.
The Managers shall have the discretion to adopt and revise rules, conventions
and procedures as they believe appropriate in any reasonable manner with respect
to the admission of Members to reflect the Member's Interests in Company at the
close of the year.
9.3 Transfer or Change Of Interests. If the respective Percentage Interests of
-------------------------------
the Members change or any interest is transferred to any other Person during the
term in accordance with the provisions of this Agreement, for the fiscal year of
transfer, cash distributions will be made and all income, gains, losses,
deductions, tax credits and other tax incidents resulting from operations of
Company will be allocated, as between the transferor and transferee, in
accordance with Code Section 706, using any convention then permitted by law and
selected by the Managers. Any transferee of an interest will succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest; provided, however, that if such transfer causes a termination of
Company pursuant to Section 708(b)(1)(B) of the Code, the Capital Accounts of
all Members, including the transferee, will be redetermined as of the date of
such termination in accordance with Regulations Section 1.704(b).
9.4 Elections, Scope of Section. Any elections or other decisions relating to
---------------------------
allocations will be made by the Managers.
ARTICLE 10
NON-LIQUIDATING DISTRIBUTIONS
14
10.1 Timing and Form of Distributions. Net Cash Flow will be distributed to
--------------------------------
the Members at such times as are determined by the Managers. Except pursuant to
Section 14.6, the Managers shall not distribute any Company property in kind.
10.2 Distributions. Except as otherwise provided in this Agreement, including
-------------
Article 14 hereof, distributions to Members will be made in accordance with
their respective Percentage Interests. Despite the foregoing, Company shall in
each calendar year: (a) distribute to Editions sufficient funds to pay taxes
due on cumulative profits of Company allocated to Editions after taking into
account prior losses (so, that, for example, if in one year Editions is
allocated $100,000 in losses and, in the next year, Editions is allocated
$200,000 in profits, the amount distributed in the second year would be only
such amount as will cover taxes payable by Editions on $100,000 (i.e., the
$200,000, less the prior year's $100,000 in losses); and (b) distribute to Golf
an amount proportionate to the amount distributed to Editions pursuant to
subpart (a), based on the respective Percentage Interests of Golf and Editions,
so that, if , for example, Editions is distributed $100,000 and Editions has a
twenty percent (20%) Percentage Interest and Golf has an eighty percent
Percentage Interest, then Golf will be distributed $400,000. The next
distributions shall be made so as to make cumulative distributions
proportionate. It is also understood that distributions will only be made after
all payments required to be made to Golf under the Loan are paid.
10.3 Limitation on Distributions. Despite the foregoing provisions of this
---------------------------
Article, Company will not make any distribution that would render Company
insolvent.
10.4 Allocations. The Managers shall make any distribution of Net Cash Flow to
-----------
those persons or entities recognized on the books of Company as Members or as
assignees of interests on the day of the distribution. If any Interest is
transferred, or is increased or decreased by reason of the admission of a new
Member or otherwise, during any fiscal year of Company, each item of income,
gain, loss, deduction, or credit of Company for such fiscal year shall be
assigned pro rata to each day in the particular period of such fiscal year to
which such item is attributable (i.e., the day on or during which it is accrued
or otherwise incurred) and the amount of each such item so assigned to any such
day shall be allocated to the Member based upon its respective Interest at the
close of such day. For the purpose of accounting convenience and simplicity,
Company shall treat a transfer of, or an increase or decrease in, an Interest in
Company which occurs at any time during a semi-monthly period (commencing with
the semi-monthly period including the date hereof) as having been consummated on
the first day of such semi-monthly period, regardless of when during such semi-
monthly period such transfer, increase, or decrease actually occurs (i.e., sales
and dispositions made during the first 15 days of any month will be deemed to
have been made on the 1st day of the month).
ARTICLE 11
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
11.1 Accounting Decisions by Managers. All management decisions as to
--------------------------------
accounting matters, except as otherwise specifically set forth herein, shall be
made by the Managers. Day to day accounting may be delegated to Editions or
others. The Managers may rely upon the
15
advice of their accountants as to whether such decisions are in accordance with
accounting methods followed for federal income tax purposes.
11.2 Records and Accounting Maintained. The books and records of Company shall
---------------------------------
be kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods determined by the Managers. The books
and records of Company shall reflect all Company transactions and shall be
appropriate and adequate for Company's business. The fiscal year of Company for
financial reporting and for federal income tax purposes shall be the calendar
year. Company shall maintain a Company Minute Book to include the Articles,
this Agreement and any amendments thereto and the minutes of meetings (or
consents in lieu of meetings) of Members and Managers and other important
documents of Company.
11.3 Access for Members to Accounting Records. All books and records of
----------------------------------------
Company shall be maintained at any office of Company or at Company's principal
place of business, and each Member, and its duly authorized representative,
shall have access to them at such office of the Company and the right to inspect
and copy them at reasonable times.
11.4 Annual Tax Information for Members. Company shall use its best efforts to
----------------------------------
deliver to each Member within 60 days after the end of each fiscal year all
information necessary for the preparation of such Member's federal income tax
return. Company shall also use its best efforts to prepare, within 60 days
after the end of each fiscal year, a financial report of the Company for such
fiscal year in accordance with generally accepted accounting principles,
containing a balance sheet as of the last day of the year then ended, an income
statement for the year then ended, a statement of cash flows, and a statement of
reconciliation of the Capital Accounts of Members.
11.5 Tax Matters Partner. Golf is designated as "Tax Matters Partner" (as
-------------------
defined in Code Section 6231), and is authorized and required to represent
Company (at Company's expense) in connection with all examinations of Company's
affairs by tax authorities, including resulting judicial and administrative
proceedings, and to expend Company funds for professional services and costs
associated therewith. In its capacity as "Tax Matters Partner", Golf shall
oversee Company tax affairs in the overall best interests of Company.
11.6 Federal Income Tax Elections. The Managers on behalf of Company may make
----------------------------
all elections for federal income tax purposes, including but not limited to, an
election, to the extent permitted by applicable law and regulations, to use an
accelerated depreciation method on any depreciable unit of the assets of the
Company. In case of a transfer of all or part of the Interest of any Member, at
the request of the transferee Member, the Company shall elect, pursuant to Code
Sections 734, 743, and 754 of the Code, as amended (or corresponding provisions
of future law) to adjust the basis of the assets of Company; provided that, upon
a request from a Member, Company shall make the election under 754 of the Code,
as amended (or corresponding provisions of future law).
11.7 Accounting Method. For financial reporting purposes, the books and
-----------------
records of Company shall be kept on the accrual method of accounting applied in
a consistent manner and
16
shall reflect all transactions of Company and be appropriate and adequate for
the purposes of Company.
ARTICLE 12
CONSEQUENCES OF DISSOLUTION EVENT
12.1 Consent to Continue. On the occurrence of any Dissolution Event, Company
-------------------
shall dissolve unless the remaining Member, if any, elects to continue the
business of Company. If the remaining Member elects to continue the business of
Company, the remaining Member, to avoid dissolution of Company, shall, within
six (6) months following the Dissolution Event, notify the Former Member of the
intent to purchase the Former Member's Interest.
12.2 Failure to Submit Notice of Purchase. If the remaining Member does not
------------------------------------
provide the Former Member or its successors with a notice of intent to purchase
the Interest of the Former Member, within the applicable six (6) month period,
then the election on the part of the remaining Member to continue Company shall
be void and Company shall be liquidated.
12.3 Purchaser. The remaining Member may purchase the Former Member's Interest
---------
or may assign such right to any other Person. If the remaining Member (or its
assignee) elects to purchase none or less than all of the Former Member's
Interest, then Company may at its election purchase the remaining portion of the
Former Member's interest. If the remaining Member and Company fail to purchase
the entire interest of the Former Member, the same shall pass by operation of
law to any assignee or shall remain in the hands of the Former Member, subject
to any right of the holder of such interest to demand payment therefor according
to California law.
12.4 Valuation of Interest of Member. The Former Member's Interest shall be
-------------------------------
valued for purchase purposes at fair market value ("Fair Market Value") as of
the date of the Dissolution Event. If the applicable parties are not able to
agree upon Fair Market Value within ninety (90) days after notice is provided to
the Former Member or its successors, Fair Market Value shall be determined by
three appraisers, one selected by the Former Member or such Former Member's
successors, one selected by the remaining Member, and one selected by the two
appraisers so named, provided that if a Member does not select its appraiser
within twenty (20) days after demand from the other Member, the appraiser
selected by the one Member shall conduct the appraisal itself. The Fair Market
Value of the Former Member's interest in Company shall be the average of the two
appraisals closest in amount to each other (unless there is only one appraiser,
in which case Fair Market Value shall be determined by the one appraiser).
Appraisers must have experience valuing publishing companies. Any appraisal
shall be completed with sixty (60) days after appointment of the third (or last)
appraiser. Appraisal shall take into account all relevant circumstances,
including the fact that the Guides are long term projects which will take a
significant period of time to complete and realize profit from. Costs of such
appraisal shall be borne one-half by the Former Member and one-half by the other
interested parties. The purchase price shall be paid by Company or such
remaining Member, as the case may be, either: (i) in ten (10) equal annual
installments of principal together with interest, commencing to accrue from the
date of closing, at the then
17
current Long-Term Applicable Federal Rate (the "AFR") under Section 1274(d) of
the Code for the month in which the first payment is made (or a rate per annum
equal to what the AFR would be for such month under Code Section 1274(d) if the
AFR is no longer published) to fully amortize such purchase price over such ten
(10) payments, with the first payment being due and payable 60 days after
closing; or (ii) in full, within 60 days after closing, as Company and/or the
remaining Member, as the case may be, may elect in their sole discretion.
12.5 Purchase Terms Varied by Agreement. Nothing contained herein is intended
----------------------------------
to prohibit Members from agreeing upon terms and conditions for the purchase by
Company or any Member(s) of the Interest of any Member in Company desiring to
withdraw or resign, in whole or in part, as a Member (on such terms and
conditions as may be agreed upon by the selling Member and Company or the
remaining Member(s) as the case may be), nor is anything herein intended to
limit or otherwise affect the ability of a Member to demand a return of its
contribution to Company as provided in the Act.
ARTICLE 13
TRANSFER AND ASSIGNMENT OF INTERESTS.
13.1 General. Each Member agrees for itself, its assigns and other successors
-------
in interest that none of such Member's Interest nor any interest therein, may be
voluntarily or involuntarily sold, transferred, assigned, donated, pledged,
hypothecated or otherwise disposed of, gratuitously or for consideration
(collectively "Transfer"), except as authorized hereunder or as agreed to in
writing by the other Member. Each Member can withhold its consent to any
Transfer in its sole and complete discretion. Nothing contained herein shall
prohibit Golf from transferring its interest to any Affiliate of Golf.
13.2 Dividends, Splits or Recapitalization. If Company makes any distribution
-------------------------------------
of Interests with respect to the Interests by way of an Interest dividend or
split, or pursuant to any recapitalization, reorganization, consolidation,
merger or otherwise, and a Member receives any additional Interest in Company as
a result thereof, such additional (or other) Interest shall be subject to the
same restrictions and obligations imposed by this Agreement to the same extent
and in the same manner as the Interest on which the distributions of such
additional (or other) Interests were made.
13.3 Unauthorized Transfers Void. Any disposition of an Interest other than in
---------------------------
accordance with the provisions of this Article 13 shall be void. If a Member
assigns any of its Interest in Company without the prior consent of the other
Member or otherwise in violation of this Section 13, the purported transferee
shall have no rights hereunder, including any right to participate in the
management of the business and affairs of Company or to become a Member, and the
non-transferring Member shall have the right to purchase the entire interest of
the transferring Member on the terms set forth in the Section 13.5.
13.4 Third Party Offers.
------------------
13.4.1 No Offers Until All Guides are Published. Neither Member shall
----------------------------------------
have the right to sell or in any way Transfer any part of its Interest prior to
the time the last Golf Guide is
18
published by Company. Accordingly, the provisions of this Section 13.4 shall
only apply to offers received after the time the last Golf Guide is published by
Company.
13.4.2 Receipt of Offer. In the event a Member (the "Selling Member")
----------------
receives a bona fide written offer (the "Third Party Offer") from a third party
(the "Third Party Offeror") desiring, to purchase all or any portion of the
Selling Member's Interest (the "Offered Interest") and the Selling Member
desires to sell such Offered Interest pursuant to such offer, the Selling Member
shall first offer in writing to sell all of its Interest (not just that subject
to the Third Party Offer) to the other Member (the "Non-selling Member"), on the
terms and conditions described in this Section 13.4.2. Such offer (the "Offer
to Sell") pertaining to all of the Selling Member's Interest shall be delivered
to the Non-selling Member and Company and shall be accompanied by a true and
correct copy of the Third Party Offer.
13.4.3 Non-selling Member First Purchase Right. For a period of thirty
---------------------------------------
(30) days from the date on which the Non-selling Member receives the Offer to
Sell, the Non-selling Member shall have the exclusive right, at its option, to
purchase any amount of the Interest of the Selling Member up to the amount of
the Offered Interest.
13.4.4 Company Purchase Right. If the Non-selling Member does not,
----------------------
exercise its right to purchase any of the Selling Member's Interest, or elects
to purchase less than all of the Selling Member's Interest which it has a right
to purchase within the thirty (30) day period specified in Section 13.4.3 or
delivers to the Company and the Selling Member a written waiver of its right to
purchase such Interest prior to the expiration of said thirty (30) day period,
then for a period of fifteen (15) days from the earlier of the expiration of
such thirty (30) day period or receipt of the Non-selling Member's written
waiver of its option to purchase such Interest, Company shall have the exclusive
right, at its option, to purchase up to that amount of the Selling Member's
Interest not being purchased by the Non-selling Member under the terms of this
Section 13.4.4.
13.4.5 Manner of Exercise of Option. Any option specified in this Section
----------------------------
may be exercised by the delivery of written notice to Company and the other
Member within the required period.
13.4.6 Purchase Price to Non-selling Member and Company. The purchase
------------------------------------------------
price of the Offered Interest under this Section 13.4 shall be the cash price
set forth in the Third Party Offer.
13.4.7 Third Party Offer. Any Third Party Offer pursuant to which a
-----------------
Selling Member desires to sell any Interest must (i) be an offer which
contemplates payment of only cash for such Interest, although some cash amount
may be paid in installments with interest payable from time to time on the
outstanding portion of the purchase price; and (ii) be from a third party who is
not related to the Selling Member by blood or marriage or is not a director,
officer or beneficial owner of the Selling Member or in any entity in which the
Selling Member is an officer, director or beneficial owner. The term "beneficial
owner" of any entity for purposes of this Section shall mean any person who is
directly or indirectly the owner of more than ten percent (10%) of any class of
any equity security of such entity.
19
13.4.8 Sale to Third Party Offeree. If the Non-selling Member and the
---------------------------
Company fail to exercise their rights under Sections 13.4.3 and 13.4.4, the
Selling Member shall be free, for a period of sixty (60) days from the
expiration of the fifteen (15) day period specified in Section 13.4.4, to
consummate a sale of the Offered Interest to the Third Party Offeror on the same
terms and conditions specified in the Third Party Offer. Any Interest so sold
to the Third Party Offeror and any Interest retained by the Member shall be held
by the Third Party Offeror and the Member pursuant and subject to the terms,
conditions and restrictions of this Agreement. Any transfer of the Offered
Interest after the expiration of the sixty (60) day period referred to in this
Section or the sale of any of the Offered Interest except pursuant to the Third
Party Offer for a price and on terms identical to those set forth in the Third
Party Offer shall be deemed a transfer pursuant to a new Third Party Offer
requiring compliance once again with the terms and conditions of this Section
13.4.
13.4.9 Payment of Purchase Price. Any Interest sold pursuant to this
--------------------------
Agreement shall be purchased at a closing to be held at the principal office of
Company. Such closing shall take place within ten (10) days of: (i) expiration
of the thirty (30) day period specified in Section 13.4.3 if the Non-selling
Member exercises its right to purchase all of the Selling Member's Interest; or
(ii) expiration of the fifteen (15) day period specified in Section 13.4.4. if
the Selling Member does not exercise its right to purchase all of the Selling
Member's Interest. The purchase price to be paid by the purchasing party(ies)
shall, at the option of the purchaser(s), be paid in cash or by certified or
cashier's check at the closing or in accordance with any other payment terms,
including installment payment terms specified in the Third Party Offer.
13.5 Change of Control of Editions; Termination of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
---------------------------------------------------------------
13.5.1 Option. If (i) a Change of Control occurs in the ownership of
------
Editions or (ii) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ materially breaches his obligation to provide
services to Company as part of the Editions Management Personnel or (iii)
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ services to Editions (and to Company) otherwise terminate
for any reason, including death or disability, other than termination of ▇▇.
▇▇▇▇▇▇▇▇ without "Reasonable Cause" (as defined below), or (iv) a party
Transfers an interest in violation of this Agreement, then Golf (in the
circumstances described in (i), (ii) or (iii) above) or the non-transferring
Member (in the circumstances described in (iv) above) has the right to purchase
all of the equity held by the other Member at Fair Market Value. Such right
must be exercised by notice to the other Member within six (6) months after the
Member with such right has actual notice of the event giving rise to the right
to purchase. For purposes of the foregoing, "Reasonable Cause" means the
failure of ▇▇. ▇▇▇▇▇▇▇▇ to perform his services in a manner commensurate with
the standards of similar positions within the publishing industry.
13.5.2 Fair Market Value. For purposes of this Section 13.5, Fair Market
-----------------
Value of an Interest shall be determined as set forth in Section 12.4, with the
valuation being made as of the date of the event which gives right to the option
under this Section 13.5; however the Member wishing to purchase shall have
twenty (20) days following determination of Fair Market Value to elect by
written notice to the other Member not to go forward with the purchase, provided
that if
20
such election is not timely made, the purchase shall go forward. Payment shall
be made as provided in Section 12.4, within twenty (20) days of the
determination of Fair Market Value.
13.5.3 Change of Control. For purposes hereof, a Change of Control of
-----------------
Editions shall be deemed to have occurred at any time that any of the following
have occurred: (i) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ does not own and control a majority of the
voting power and equity of Editions or (ii) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ cannot elect a
majority of the directors of Editions or (iii) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ is no longer
the CEO and Chairman of the Board of Editions. Despite the foregoing, if a
Change of Control has not occurred prior to the time that Editions is a public
company with shares required to be registered under the Exchange Act of 1934, a
Change of Control shall not be deemed to occur so long as, after a public
offering of Editions, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ remains the largest shareholder of
Editions and remains as the CEO and Chairman of the Board of Editions and
retains the ability to act on behalf of Editions in dealing with Company.
13.6 Further Restrictions on Transfer of Interests. In addition to other
---------------------------------------------
restrictions found in this Agreement, no Member shall assign, convey, sell,
encumber or in any way alienate all or any part of its Interest in Company: (i)
without registration under applicable federal and state securities laws, or
unless he delivers an opinion of counsel satisfactory to Company that
registration under such laws is not required; or (ii) if the Interest to be sold
or exchanged, when added to the total of all other Interests sold or exchanged
in the preceding twelve (12) consecutive months prior thereto, would result in
the termination of Company under Code Section 708.
13.7 Substitution of Members. A transferee of an Interest shall have the right
-----------------------
to become a substitute Member only if (i) the requirements of Section 13.1
relating to consent of the other Member and compliance with Sections 13.4 and
13.5 and securities and tax requirements hereof are met, (ii) such person
executes an instrument satisfactory to the remaining Members accepting and
adopting the terms and provisions of this Agreement, and (iii) such person pays
any reasonable expenses in connection with its admission as a new Member. Any
transferee of an Interest in Company shall take subject to the restrictions on
transfer imposed by this Agreement.
ARTICLE 14
DISSOLUTION AND WINDING UP
14.1 Conditions of Dissolution. Company shall be dissolved, its assets shall
-------------------------
be disposed of, and its affairs wound up on the first to occur of the following:
(i) a determination by the vote of all three (3) Managers that Company should be
dissolved; (ii) the occurrence of a Dissolution Event, unless the Remaining
Member continues Company and purchases the Interest of the Former Member, as
provided in Article 12; (iii) sale of all or substantially all of
21
the assets of Company; (iv) the expiration of the period for the duration of
Company term as stated in its Articles; or (v) at such earlier time as may be
provided by the Act.
14.2 Statement of Intent to Dissolve. As soon as possible following the
-------------------------------
occurrence of any of the events specified in this Article effecting the
dissolution of Company, the Managers shall execute a statement of intent to
dissolve in such form as shall be prescribed by the Secretary of State of
California and file the statement as required by the Act.
14.3 Winding Up. Upon the occurrence of a liquidating event for purposes of
----------
Regulations Section 1.704-l(b), Company shall continue solely for the purpose of
winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors. To the extent not inconsistent with the
foregoing, all covenants and obligations in this Agreement shall continue in
full force and effect until such time as the assets have been distributed and
Company has terminated.
14.4 Responsibilities of Managers for Winding Up. The Managers shall be
-------------------------------------------
responsible for overseeing the winding up and liquidation of Company, shall take
full account of the liabilities and assets of Company, shall cause its assets to
be liquidated as promptly as is consistent with obtaining the fair market value
thereof, and shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as next provided. During the winding-up
process, Net Profits and Net Losses will be allocated and distributions will
continue to be shared by the Members in accordance with the provisions of the
Articles and of this Agreement. Golf shall have a right of last refusal to
purchase any or all of such assets and rights.
14.5 Distributions. Upon any winding up and liquidation of Company, the
-------------
proceeds from liquidation, to the extent available, will be applied and
distributed by Company as soon as reasonably possible in the following order:
14.5.1 first, to pay the expenses of liquidation and the debts and
liabilities of Company (including loans or advances from Members, including the
Loan), except the claims of creditors or Members whose obligations will be
assumed or otherwise transferred upon liquidation of Company;
14.5.2 second, to establish any reserves which the Managers may deem
necessary, appropriate or desirable for any future, contingent or unforeseen
liabilities, obligations or debts of Company which are not then payable or have
not then been paid. Such reserves may be, but are not required to be, paid over
by Company to an independent escrow holder, designated by the Managers, to be
held by such escrow holder for the purpose of disbursing such reserves in
payment of any of such liabilities, obligations and debts and, at the expiration
of such period as the Managers deem necessary, advisable, or desirable, any
amount thereafter remaining will be distributed in the manner provided below;
14.5.3 third, to each Member in accordance with and to the extent of the
positive balance in its Capital Account after taking into account all Capital
Account items and adjustments for the taxable year of such distribution and all
allocations that affect the
22
Member's Capital Accounts, including all items and adjustments related to the
winding up and dissolution itself; and
14.5.4 fourth, to the Members in accordance with their respective
Percentage Interests.
14.6 Distribution in Kind. Upon any dissolution, the Members may elect by the
--------------------
mutual agreement of both Members to distribute any assets in kind. Upon any
such election, all rights to intangibles, Company Rights and royalties shall be
distributed to the Members ratably in proportion to the total distributions to
be made to each Member. Any Property distributed in kind will be valued at its
fair market value and distribution will then proceed as if the property were
sold for cash at such value with the resulting gain, income profits and/or loss,
expense and deduction allocated as provided in this Agreement.
14.7 Limits. Each Member will look solely to the assets of Company for the
------
payment of any income allocated to such Member and, if the assets of Company
remaining after payment or discharge of the debts and liabilities of Company are
insufficient to pay all or any part of such amounts, they will have no recourse
against another Member, any Manager, or any partner, director, officer, other
stockholder, employee or agent of another Member or any Manager.
14.8 Authority After Dissolution. After dissolution, if Company is to be
---------------------------
liquidated, the Managers can bind Company only: (i) by any act appropriate for
winding up Company affairs or completing transactions unfinished at dissolution;
and (ii) by any transaction which would bind Company if dissolution had not
taken place, if the other party to the transaction: (a) had extended credit to
Company prior to dissolution and had no actual knowledge or notice of the
dissolution; or (b) though not so extending credit, had nevertheless known of
Company prior to dissolution and had no actual knowledge or notice of
dissolution, and a certificate of dissolution had not been filed.
14.9 Accounting. Upon dissolution (if the business of Company is not
----------
continued), and again upon the completion of the winding up of the affairs of
Company, an accounting of Company will be made and furnished to all Members.
ARTICLE 15
INDEMNIFICATION
15.1 Indemnification of Members and Managers. To the greatest extent not
---------------------------------------
inconsistent with the laws and public policies of California, Company shall
indemnify any Member or Manager made a party to any proceeding because such
individual is or was a Member or Manager, as a matter of right, against all
liability incurred by such individual in connection with any proceeding;
provided that it shall be determined in the specific case in accordance with
Section 15.7 that indemnification of such individual is permissible in the
circumstances
23
because the individual or entity has met the standard of conduct for
indemnification set forth in this Article 15.
15.2 Undertakings for Indemnification. Company shall pay for or reimburse the
--------------------------------
reasonable expenses incurred by a Member or Manager in connection with any such
proceeding in advance of final disposition thereof if (i) the individual or
entity furnishes Company a written affirmation of the good faith belief that he,
she or it has met the standard of conduct for indemnification described in
Section 15.6, (ii) the individual or entity furnishes Company a written
undertaking, executed personally or on such party's behalf, to repay the advance
if it is ultimately determined that such individual or entity did not meet such
standard of conduct, and (iii) a determination is made in accordance with
Section 15.7 that, based upon facts then known to those making the
determination, indemnification would not be precluded under this Article 15.
15.3 Required to be General Obligation. The undertaking described above must
---------------------------------
be a general obligation of the individual or entity, subject to such reasonable
limitations as Company may permit, but need not be secured and may be accepted
without reference to financial ability to make repayment. Company shall
indemnify a Member or Manager who is wholly successful, on the merits or
otherwise, in the defense of any such proceeding, as a matter of right, against
reasonable expenses incurred by the individual in connection with the proceeding
without the requirement of a determination as set forth in Section 15.7.
15.4 Advancement of Expenses. Upon demand by a Member or a Manager for
-----------------------
indemnification or advancement of expenses, as the case may be, the Managers
shall expeditiously determine whether the Member or Manager is entitled thereto
in accordance with this Article. The indemnification and advancement of
expenses provided for under this Article shall be applicable to any proceeding
arising from acts or omissions occurring before or after the adoption of this
Article 15.
15.5 Indemnification of Others. Company shall have the power, but not the
-------------------------
obligation, to indemnify any individual or entity who is or was an employee or
agent of Company to the same extent as if such individual or entity was a Member
or Manager.
15.6 Standards of Conduct for Indemnification. Indemnification of a Person is
----------------------------------------
permissible under this Article only if (i) he or she or it conducted his, her or
its activities in good faith; and (ii) he, she or it reasonably believed that
his, her or its conduct was in or at least not opposed to Company's best
interest; and (iii) in the case of any criminal proceeding, she, he or it had no
reasonable cause to believe the conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent is not, of itself, determinative that the Person
did not meet the standard of conduct described in this Section.
15.7 Procedures to Determine Indemnification. A determination as to whether
---------------------------------------
indemnification or advancement of expenses is permissible shall be made by the
Members by agreement of all Members (counting only Members not at the time
parties to the proceedings); provided that if a Member or Manager is determined
not to be entitled to such indemnification
24
or advance, a Member may require that such determination be reviewed de novo by
-- ----
special legal counsel selected by the Members by the mutual agreement of
Members.
15.8 Court Order of Indemnification. A Member or Manager of Company who is a
------------------------------
party to a proceeding may apply for indemnification from Company to the court,
if any, conducting the proceeding or to another court of competent jurisdiction.
On receipt of an application, the court, after giving notice the court considers
necessary, may order indemnification if it determines: (i) in a proceeding in
which the Member or Manager is wholly successful, on the merits or otherwise,
the Member or Manager is entitled to indemnification under this Section, in
which case the court shall order Company to pay the Member or Manager his, her
or its reasonable expenses incurred to obtain such court ordered
indemnification; or (ii) the Member or Manager is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances, whether or not the
Member or Manager met the standard of conduct set forth in Section 15.6.
15.9 Indemnification Rights Non-Exhaustive. Nothing contained in this Article
-------------------------------------
shall limit the exercise or be deemed exclusive of any right under law, by
contract or otherwise, relating to indemnification of or advancement of expenses
to any individual who is or was a Member or Manager of Company or is or was
serving at Company's request as a director, officer, partner, manager, trustee,
employee, or agent of another foreign or domestic Person or other enterprise,
whether for profit or not.
15.10 Construction of Indemnification Rights. Nothing contained in this
--------------------------------------
Article shall limit the ability of Company to otherwise indemnify or advance
expenses to any individual. It is the intent of this Article to provide
indemnification to Members and Managers to the fullest extent now or hereafter
permitted by the law consistent with the terms and conditions of this Article.
Indemnification shall be provided in accordance with this Article irrespective
of the nature of the legal or equitable theory upon which a claim is made
including without limitation negligence, breach of duty, mismanagement, waste,
breach of contract, breach of warranty, strict liability, violation of federal
or state securities law, violation of the Employee Retirement Income Security
Act of 1974, as amended, or violation of any other state or federal law.
15.11 Insurance for Indemnification. Company may purchase and maintain
-----------------------------
insurance for its benefit, the benefit of any individual who is entitled to
indemnification under this Article, or both, against any liability asserted
against or incurred by such individual in any capacity or arising out of such
individual's service with Company, whether or not Company would have the power
to indemnify such individual against such liability.
ARTICLE 16
MISCELLANEOUS
16.1 Complete Agreement. This Agreement and the Articles constitute the
------------------
complete and exclusive statement of agreement among the Members. This Agreement
and the Articles replace and supersede all prior agreements by and among the
Members or any of them. This Agreement and the Articles supersede all prior
written and oral statements and no
25
representation, statement, or condition or warranty not contained in this
Agreement or the Articles will be binding on the Members or have any force or
effect whatsoever.
16.2 Binding Effect. Subject to the provisions of this Agreement relating to
--------------
transferability, this Agreement will be binding upon and inure to the benefit of
the Members, and their respective distributees, successors and assigns, but only
to the extent the assignment is approved by all Members in accordance with the
Act, the Articles and this Agreement.
16.3 No Third Party Beneficiary. This Agreement is made solely and
--------------------------
specifically among and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions hereof
relating to successors and assigns, and no other person will have any rights,
interest, or claims hereunder or be entitled to any benefits under or on account
of this Agreement as a third party beneficiary or otherwise.
16.4 Injunctions. Each Member agrees that, in the event of a breach or
-----------
threatened breach by such Member of any provisions of Article 7 of this
Agreement, Company's (and the other Member's) remedies at law would be
inadequate, and Company and the other Member shall be entitled to an injunction
(without any bond or other security being required). This will not preclude
Company or the other Member from pursuing any action or further remedy, at law
or in equity, for any breach or threatened breach of that Article, including the
recovery of damages. Each Member acknowledges that Company Rights and Company
Information are unique and that it would harm Company and the non-breaching
Member irreparably if any such data or information should become known to its
competitors or be injected into the public domain, if any Rights should not be
disclosed and assigned to Company and its ownership thereof acknowledged or if a
Member should otherwise breach its obligations under Article 7.
16.5 Attorneys' Fees Awarded. If an action is brought in connection with this
-----------------------
Agreement, the prevailing party shall be entitled to recover from the losing
Members, all of the costs, attorneys' fees, and other expenses incurred by such
prevailing Members therein.
16.6 Not For Benefit Of Creditors. The provisions of this Agreement are
----------------------------
intended only for the regulation of relations among Members and Company. This
Agreement is not for the benefit of non-Member creditors and does not grant any
rights to or confer any benefits on non-Member creditors or any other person who
is not a Member, a Manager, or an officer.
16.7 Gender and Number. Common nouns and pronouns will be deemed to refer to
-----------------
the masculine, feminine, neuter, singular and plural, as the identity of the
person or persons, firm or corporation may in the context require. The singular
shall include the plural and the masculine gender shall include the feminine and
neuter, and vice versa, as the context requires. Any reference to the Code,
Regulations, the Act, or other statutes or laws will include all amendments,
modifications, or replacements of the specific sections and provisions
concerned.
16.8 Headings. All headings are inserted only for convenience and ease of
--------
reference and are not to be considered in the construction or interpretation of
any provision of this Agreement.
26
16.9 References to this Agreement. Numbered or lettered articles, paragraphs
----------------------------
and subparagraphs herein contained refer to articles, paragraphs and
subparagraphs of this Agreement unless otherwise expressly stated.
16.10 Exhibits. All Exhibits attached to this Agreement are incorporated and
--------
shall be treated as if set forth herein.
16.11 Severability. If any provision of this Agreement is held to be illegal,
------------
invalid, or unenforceable under the present or future laws effective during the
term of this Agreement, such provision will be fully severable; this Agreement
will be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of this Agreement; and the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. In lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
16.12 Additional Documents and Acts. Each Member agrees to execute and deliver
-----------------------------
such additional documents and instruments and to perform such additional acts as
may be necessary or appropriate to effectuate, carry out and perform all of the
terms, provisions, and conditions of this Agreement and the transactions
contemplated hereby.
16.13 Notices. Any notice to be given or to be served on Company or any party
-------
hereto in connection with this Agreement must be in writing and will be deemed
to have been given and received when delivered to the address specified by the
party to receive the notice. Such notices will be given to a Member at the
address specified in Exhibit B. A Member or Company may, at any time by giving
5 days' prior written notice to the other Members and Company, designate any
other address as the address to which such notice will be given.
16.14 Amendments. All amendments to this Agreement will be in writing and
----------
signed by all the Members.
16.15 Multiple Counterparts. This Agreement may be executed in several
---------------------
counterparts, each of which will be deemed an original but all of which will
constitute one and the same instrument. However, in making proof hereof it will
be necessary to produce only one copy hereof signed by the party to be charged.
IN WITNESS WHEREOF, the Members have executed this Agreement as of January 26,
1998.
MEMBERS:
"Golf":
27
CALLAWAY GOLF COMPANY, a
California corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇
President and Chief Executive Officer
"Editions":
CALLAWAY EDITIONS, INC., a
Delaware corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President
28
EXHIBIT A
DEFINED TERMS
"Act" means the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability Company Act of California, as
---
the same may be amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
--------------------------------
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments: (i)
Credit to such Capital Account any amounts which such Member is obligated to
restore or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) Debit
to such Capital Account the items described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account Deficit is intended to comply
with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Affiliate" means any individual, partnership, corporation, trust, or other
---------
entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with the
Member. The term "control," as used in the preceding sentence, means, with
respect to a corporation, the right to exercise, directly or indirectly, more
than 50 percent of the voting rights attributable to the controlled corporation,
and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"Agreement" means this Operating Agreement, as originally executed and as
---------
amended from time to time.
"Articles" means the Articles of Organization for Company originally filed with
--------
the California Secretary of State, as amended from time to time.
"Bankruptcy" means, and a Member shall be deemed a "Bankrupt Member" upon (i)
----------
the entry of a decree or order for relief against the Member by a court of
competent jurisdiction in any involuntary case brought against the Member under
any bankruptcy, insolvency or other similar law (collectively, "Debtor Relief
Laws") generally affecting the rights of creditors and relief of debtors now or
hereafter in effect; (ii) the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar agent under applicable Debtor
Relief Laws for the Member or for any substantial part of its assets or
property; (iii) the ordering of the winding up or liquidation of the Member's
affairs; (iv) the filing of a petition in any such involuntary bankruptcy case,
which petition remains undismissed for a period of 180 days or which is not
dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy law); (v)
the commencement by the Member of a voluntary case under any applicable Debtor
Relief Law now or hereafter in effect; (vi) the consent by the Member to the
entry of an order for relief in an involuntary case under any such law or to the
appointment of or the taking of possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar agent under
29
any applicable Debtor Relief Laws for the Member or for any substantial part of
its assets or property; or (vii) the making by a Member of any general
assignment for the benefit of its creditors.
"Book Value" means, with respect to any asset, the asset's adjusted basis for
----------
federal income tax purposes, except as follows: (i) the initial Book Value of
any asset contributed by a Member to Company shall be the gross fair market
value of such asset, as determined by the Members; (ii) the Book Values of all
Company assets shall be adjusted to equal their respective gross fair market
values, as determined by the Managers, as of the following times: (a) the
acquisition of an additional interest in Company by any new or existing Member
in exchange for more than a de minimis Capital Contribution; (b) the
distribution by Company to a Member of more than a de minimis amount of Company
property as consideration for an interest in the Company if the Managers
reasonably determine that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Members in Company; or (c) the
liquidation of Company within the meaning of Regulations Section 1.704-
l(b)(2)(ii)(g); (iii) the Book Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution; and (iv) the Book Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) and other provisions of this Agreement,
provided, however, that Book Values shall not be adjusted pursuant to this Item
(iv) to the extent the Managers determine that an adjustment pursuant to Item
(ii) above is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this Item (iv). If the Book
Value of an asset has been determined or adjusted pursuant to this definition,
such Book Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profits and Net
Losses.
"Capital Account" means an account maintained in accordance with the provisions
---------------
of Article 8.
"Capital Contributions" means the total value of cash and fair market value of
---------------------
property contributed and agreed to be contributed to Company by Members, as
shown in Exhibit B, as the same may be amended from time to time. Any reference
in this Agreement to the Capital Contributions of a Member shall include all
contribution of cash and property previously made by the Member and its
predecessor, if any, for the Interest of the Member, reduced by any
distributions to the Member (or its predecessor) as a return of "Capital
Contributions" as contemplated herein.
"Company" means Callaway Golf Media Ventures, LLC, A California Limited
-------
Liability Company.
"Company Rights; Rights" "Rights" means all: copyrights, ideas, original works
----------------------
of authorship, rights, discoveries, improvements, trade secrets, patents,
trademarks, service marks, concepts, computer programs and software, designs,
drawings, specifications,
30
techniques, models, data, source code, object code, firmware, diagrams, flow
charts, mask works, formulas, know-how, developmental or experimental work,
other intellectual property, derivatives of any of the foregoing, and all
copyright and patent applications and registrations. "Company Rights" means all
of the foregoing to the extent of Company's interest therein, including
Company's rights under Section 7.3, but subject to the limitations of Section
7.4. Company Rights will not include any Rights of a Member, even if utilized in
the Guides, except to the extent of the copyrights in the Guides themselves.
"Company Minimum Gain" has the meaning set forth in Regulations Section 1.704-
--------------------
2(f). "Company Minimum Gain" refers to the concept that disposition of an item
of Company property encumbered by a Nonrecourse Liability, the amount of which
exceeds the adjusted tax basis of the property (or Book Value of the property if
the property is properly reflected on the books of Company at a value differing
from its adjusted tax basis) will generate gain in an amount that is at least
equal to such excess. The amount of Company Minimum Gain is determined by
computing, with respect to each Nonrecourse Liability of Company, the amount of
gain (of whatever character) that would be realized by Company if it disposed of
(in a taxable transaction) Company property subject to such liability in full
satisfaction thereof (and for no other consideration), and by then aggregating
the amounts so computed. The determination of Company Minimum Gain shall be
made pursuant to Regulations Section 1.704-2(g). A Member's share of Company
Minimum Gain at the end of any Company taxable year shall be determined pursuant
to Regulations Section 1.704-2(g).
"Company Nonrecourse Deduction" means any item of loss, deduction or Code
------------------------------
Section 705(a)(2)(B) expenditure attributable to Nonrecourse Liabilities of
Company. The amount of Nonrecourse Deductions for a Company taxable year equals
the excess, if any, of the net increase in the amount of Company Minimum Gain
during such taxable year, over the aggregate amount of any distributions during
such year of proceeds of a Nonrecourse Liability that are allocable to an
increase in Company Minimum Gain, and shall be determined in accordance with
Regulations Section 1.704-2(g).
"Company Information" means, subject to Section 7.4, the following data and
-------------------
information, whether or not reduced to writing: (i) the names of Company
customers and the nature of Company's relationships with such customers; (ii)
Company's confidential research and development plans, techniques and materials,
price lists, pricing policies, employee files and other financial data; (iii)
all Company Rights, databases, documentation, manuals, hardware and software
support systems, and methods, techniques or algorithms of organizing or applying
the same, including all copyrights and other rights in and to the Guides; (iv)
all other trade secret information concerning Company or its operations,
products, personnel or business, including all know-how and other confidential
information contributed to Company; and (v) any information provided to Company
on a confidential basis from third parties.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
----
"Depreciation" means, for each fiscal year or other period, an amount equal to
------------
the depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset
31
for such year or other period, except that, if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year or other period, depreciation shall be an amount that bears the
same ratio to such beginning Book Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis.
"Dissolution Event" for Company means, with respect to any Member, one or more
-----------------
of the following: the bankruptcy, dissolution (as to a member that it is an
entity) or occurrence of any other event which terminates the continued
membership of any Member, unless all the other remaining members consent to
continue the business of Company. A Dissolution Event shall be deemed to occur
at the option of a non-breaching Member (the "Non-Breaching Member") if a Member
breaches a material obligation hereunder (including the contribution of any
required capital or providing any required services) and fails to cure such
breach within a reasonable period after written notice (which reasonable period
will be presumed to be sixty (60) days except for non-curable defaults or
unusual circumstance).
"Interest" in Company means the entire ownership interest of a Member in Company
--------
at any particular time, including the right of such Member to any and all
benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all terms and
provisions of this Agreement.
"Managers" shall be those persons designated in the Articles or their successors
--------
who are elected and qualify under this Agreement.
"Member" means each Person (other than any Person who has withdrawn, died,
------
retired or become bankrupt) who is an initial signatory to this Agreement and
each Person who subsequently is a signatory to this Agreement with the consent
of all then-current Members. In the case of an Interest held by a trustee, the
trust will be considered the Member.
"Member Minimum Gain" is determined by computing the amount of gain (of whatever
-------------------
character), if any, that would be realized by Company if it disposed of (in a
taxable transaction) Company property subject to the Member Nonrecourse Debt in
full satisfaction thereof (and for no other consideration). The determination
of the amount of Member's share of Member Minimum Gain shall be made pursuant to
the principles contained in Regulations Section 1.704-2(i). A Member's share of
Member Minimum Gain at the end of any Company taxable year shall be determined
pursuant to Regulations Section 1.704-2(i)(5).
"Member Nonrecourse Debt" means any Nonrecourse Debt of Company for which any
-----------------------
Member bears the economic risk of loss within the meaning of Regulations 1.704-
2(b)(4). "Nonrecourse Debt" means any Company liability that is considered
nonrecourse for purposes of Regulations Section 1.1001-2 without regard to
whether such liability is a recourse liability under Regulations Section 1.752-
l(a)(2) and any Company liability for which the creditor's right to repayment is
limited to one or more assets of Company.
"Member Nonrecourse Deduction" means any item of Company Nonrecourse Deduction
----------------------------
that is attributable to a Member Nonrecourse Debt. The amount of a Member
Nonrecourse
32
Deduction with respect to the Member Nonrecourse Debt for a Company taxable year
equals the excess, if any, of the amount of the net increase during such year in
the amount of Member Minimum Gain attributable to such Member Nonrecourse Debt,
over the aggregate amount of any distributions during such year to the Member
that bears the economic risk of loss for the Member Nonrecourse Debt of the
proceeds of the Member Nonrecourse Debt that are allocable to an increase in the
Member Minimum Gain attributable to such Member Nonrecourse Debt, and shall be
determined in accordance with Regulations Section 1.704-2(i)(2).
"Net Cash Flow" means, with respect to any fiscal period, all cash revenues of
--------------
Company during that period (including interest or other earnings on the funds of
Company), less the sum of reserves for the following: (i) all payments of
----
principal and interest on any indebtedness of Company; (ii) all payments for
carrying costs or operating costs incurred incident to the operation of
Company's business and in accordance with the terms of this Agreement; and
(iii) reasonable working capital funds for contingencies incident to the conduct
of the Company's business.
"Net Profits" and "Net Losses" means, for each fiscal year or other period, an
----------- ----------
amount equal to Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a), and all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1)) shall be included in taxable income or loss, with the
following adjustments: (i) Any income of Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profits or Net
Losses pursuant to this Section, shall be added to such taxable income or loss;
(ii) Any expenditures of Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Profits or Net Losses pursuant to this Section shall be subtracted from such
taxable income or loss; (iii) In the event the Book Value of any Company asset
is adjusted pursuant to clause (ii), (iii) or (iv) of the definition of Book
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profits or Net
Losses; (iv) Gain or loss resulting from any disposition of Company property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Book Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Book Value; (v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account depreciation for such fiscal year or other
period; and (vi) Despite any other provision of this definition, any items that
are specially allocated pursuant to this Agreement shall not be taken into
account in computing Net Profits or Net Losses.
"Nonrecourse Liabilities" means liabilities of Company (or portion thereof) for
-----------------------
which no Member bears the economic risk of loss.
"Percentage Interest" of a Member means the percentage of such Member set forth
-------------------
opposite the name of such Member under "Member's Percentage Interest" in Exhibit
B hereto, as such percentage may be adjusted from time to time pursuant to the
terms hereof.
33
"Person" includes individuals, general partnerships, limited partnerships,
------
limited liability companies, corporations, trusts, estates, real estate
investment trusts and other entities or associations.
"Regulations" means regulations currently in force as final or temporary that
-----------
have been issued by the U.S. Department of Treasury pursuant to its authority
under the Code.
"Special Risk Account" means an account of a Member that at all times will
--------------------
equal the amount then outstanding under any loan (including the Loan) from the
Member to Company (including principal and interest).
34
EXHIBIT B
CAPITAL CONTRIBUTIONS; PERCENTAGE INTERESTS
Member Contribution Percentage Interest
------ ------------ -------------------
-------------------------------------------------------------------------------
Callaway Golf Company $900,000 in cash 80%
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
-------------------------------------------------------------------------------
Callaway Editions, Inc. $100,000 in cash and 20%
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ intangible property rights
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ valued at $125,000
-------------------------------------------------------------------------------
35
EXHIBIT C
LOAN AGREEMENT
36
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan Agreement (this "Agreement") is entered into as of January 26, 1998,
by and between Callaway Golf Media Ventures, LLC, a California limited liability
company ("Borrower"), and Callaway Golf Company, a California corporation
("Lender"). Capitalized terms not otherwise defined will have the meanings
assigned to them in Paragraph 10.
1. General Terms of Loans.
----------------------
(a) The Loans. Lender agrees, subject to and upon the terms and conditions
---------
herein set forth, to make loans (collectively, the "Loans" and, individually, a
"Loan") to Borrower up to an aggregate amount of principal and accrued but
unpaid interest not to exceed at any one time outstanding Twenty Million Dollars
($20,000,000) (the "Commitment"). If at any time the aggregate principal amount
of all outstanding Loans plus any accrued but unpaid interest thereon exceeds
the Commitment, then, notwithstanding anything to the contrary contained herein,
Borrower will immediately repay to Lender the full amount of such excess.
(b) Funding.
-------
(1) Loan Schedule. Unless otherwise agreed to by Lender in its sole
-------------
and absolute discretion, Loans will be funded according to the schedule and the
standards set forth as Exhibit A.
(2) Budgets; Business Plan. At least once every six (6) months,
----------------------
Borrower shall submit to Lender a budget (each a "Budget") and a business plan
(each, a "Business Plan") for the next twelve (12) month period.
(3) Approvals; Conditions. Each Loan will be subject to Borrower
---------------------
being in compliance with all terms of this Agreement. Without limiting the
generality of the foregoing, unless permitted by Lender in its sole discretion,
the Loan must be (i) for a purpose permitted by this Agreement, and (ii) for an
amount not exceeding the amount specified in the then-current Budget consistent
with the then current budget of Borrower.
(c) Optional Prepayments. Borrower may prepay any Loan, in whole or in
--------------------
part, on three (3) business days' notice to Lender, specifying the date and
amount of prepayment. A notice will be irrevocable. Any prepayment will first be
applied to interest accrued but unpaid at the date of payment and then to reduce
the outstanding principal balance thereof, with any installments of principal
credited in reverse order of maturity.
(d) Interest Rates.
--------------
(1) Normal Interest Rate. Any Loan made hereunder will bear interest
--------------------
at a rate equal to ten percent (10%) per annum. Any amount not paid when due
shall be added to
principal as of the date due and shall thereafter bear like interest. The
outstanding principal balance of all Loans will bear interest from the date made
to and including the date of repayment. Interest on the Loans will be computed
on the basis of a year of 360 days and the actual number of days elapsed.
(2) Default Rate of Interest. Notwithstanding the provisions of
------------------------
Paragraph 1.(d)(1), upon the occurrence of an Event of Default hereunder and
thereafter, the outstanding principal amount of all Loans will bear interest at
a rate per annum of twelve percent (12%) per annum (compounded monthly) from the
date of such Event of Default until paid in full (after as well as before
judgment).
(3) No Usury. In no contingency or event whatsoever will the
--------
interest rate charged hereunder exceed the highest rate permissible under any
law which a court of competent jurisdiction will, in a final determination, deem
applicable hereto. If such a court determines that Lender has received interest
hereunder in excess of the highest rate applicable hereto, any such excess will
first be used to reduce principal outstanding on the Loans and, if no principal
is outstanding, Lender will promptly refund such excess interest to Borrower and
the provisions hereof will be deemed amended to provide for such permissible
rate.
(e) Loan Account. The Loans will be evidenced by an account maintained by
------------
Lender on its books and by one single promissory note (the "Note") dated the
date of this Agreement. The date and amount of each Loan made by Lender to
Borrower and the date and amount of each payment of principal and interest on
Loans will be recorded by Lender on its books and records and on the Note at the
time of each Loan or payment, as the case may be. From time to time, Lender will
provide Borrower with a statement of advances, charges and payments made
pursuant to this Agreement and any other instrument evidencing or describing any
Loans made pursuant to this Agreement.
(f) Payments.
--------
(1) Interest. Accrued but unpaid interest shall be payable monthly.
--------
If not otherwise paid by Borrower, such amount shall be deemed paid by having
such interest treated as having been advanced as principal upon the due date and
then repaid to Lender as a payment of interest.
(2) Principal. Principal shall be payable out of 100% of Net Cash
---------
Flow of Borrower (as defined in the Operating Agreement of Borrower), prior to
any distributions to any Member of Borrower other than to cover taxes due on
profit allocations of Borrower. In addition, (a) one half of the maximum amount
of principal and interest at any time outstanding under the Loans shall be due
and payable the earlier of (1) December 31, 2003 and (2) three years after the
last Loan is made (the "Interim Principal Payment"); and (b) all principal and
accrued but unpaid interest shall be due and payable the earlier of (1) December
31, 2004 and (2) four years after the last Loan is made (the "Final Principal
Payment").
2
(3) No Setoff; Place. Each payment (including each prepayment) to be
----------------
made by Borrower hereunder on account of principal, interest, fees and other
amounts due hereunder will be made without setoff or counter claim and will be
made to Lender at its location at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, in each case in lawful money of the United States and in immediately
available funds not later than 2:00 P.M. (Pacific Standard Time) on the date
such payment is due.
(g) Date of Payment. Whenever any date for the payment of principal of, or
---------------
interest on, a Loan or of the fees hereunder will fall on a day which is not a
business day for Lender, each such payment will be extended to the next
succeeding business day.
(h) Taxes.
-----
(1) All payments or reimbursements under this Agreement will be made
free and clear of and without deduction for any tax, levy, impost or any other
charge against Borrower or its assets of any nature whatsoever. If a tax, levy,
impost or other charge is deducted or withheld from any payment or reimbursement
under this Agreement, Borrower will pay to Lender, on the date of each such
payment, such additional amounts as may be necessary in order that the net
amount received by Lender after such deduction or withholding will equal the
amount which would have been received if such deduction or withholding were not
required.
(2) Borrower will pay directly to the appropriate governmental
authority or reimburse or compensate Lender, upon demand by Lender, for all
costs incurred, losses suffered or payments made (as determined by Lender in its
reasonable discretion) by reason of:
(A) any and all present or future taxes, levies, or imposts or
any other charge of any nature whatsoever imposed by any taxing authority on or
with regard to any aspect of the transactions contemplated by this Agreement,
except such taxes as may be imposed on or measured by Lender's net income in the
jurisdiction in which Lender's principal office is located.
(B) compliance by Lender with any law, rule, regulation,
direction, requirement or request from any regulatory authority, whether or not
having the force of law, in connection with this Agreement or the Commitment or
any part thereof.
(3) Borrower will furnish to Lender official receipts or other
documentation acceptable to Lender evidencing the payment of all such taxes,
fees or other charges which are or may hereafter be imposed on any aspect of
these transactions within thirty (30) days after payment of such taxes, fees or
other charges.
(i) Use of Funds. The Loans may only be used for publication of the Golf
------------
Guides, as defined in Borrower's Operating Agreement, and related expenditures,
and for no other purposes without the approval of Lender, which may be withheld
in its sole and absolute discretion.
3
2. Security Agreement.
------------------
(a) Grant. To secure payment and performance of the Obligations, Borrower
-----
hereby grants to Lender a security interest in all tangible and intangible
property of Borrower now existing or hereinafter arising or acquired, including
without limitation (i) all of Borrower's Inventory, Receivables, Equipment,
General Intangibles and other Tangible Personal Property (whether such
Inventory, Receivables, Equipment, General Intangibles, or Tangible Personal
Property are now owned or existing or hereafter acquired or arising or in which
Borrower now has or may hereafter acquire any rights) including all rights of
any nature in or to the Golf Guides (including copyrights therein and trade
secrets relating thereto), (ii) all property of Borrower now or at any time
hereafter in the possession of Lender (including deposit accounts and any credit
balances), (iii) all proceeds (including, without limitation, proceeds of any
insurance policies, proceeds of proceeds, and claims against third parties) and
products of all such Receivables, Inventory, Equipment, General Intangibles,
Tangible Personal Property and property of Borrower, (iv) all books and records
related to any of the foregoing, and (v) any and all other property of Borrower,
whether real or personal, tangible or intangible (all of the foregoing being
herein collectively referred to as the "Collateral"). Lender's security interest
in the Collateral, and all proceeds and products thereof, will continue in full
force and effect until all Obligations have been fully satisfied or the
financing arrangements between Lender and Borrower are terminated, whichever
will later occur.
(b) Perfection of Security Interest; Protection. Borrower will, at its
-------------------------------------------
expense, perform any and all steps requested by Lender at any time to perfect,
maintain, protect, and enforce Lender's security interest in the Collateral,
including, without limitation, executing and filing financing or continuation
statements and deeds of trust and mortgages, and amendments therein, in form and
substance satisfactory to Lender, maintaining complete and accurate stock
records and records relating to the Collateral, delivering to Lender warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, placing notations on Borrower's books of
account to disclose Lender's security interest therein, and taking such other
steps as are deemed necessary by Lender to maintain Lender's control of and
security interest in the Collateral, and delivering to Lender all letters of
credit on which Borrower is named as beneficiary. Lender may file one or more
financing statements disclosing Lender's security interest under this Agreement
without Borrower's signature appearing thereon. Borrower will pay the costs of,
or incidental to, any recording or filing of any financing statements, deeds of
trust or other documents, concerning the Collateral. Borrower agrees that a
carbon, photographic, photostatic, or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement.
(c) Collateral in Possession of Others. If any Collateral is at any time
----------------------------------
in the possession or control of any warehouseman, bailee or any of Borrower's
agents or processors, Borrower will notify such warehouseman, bailee, agents or
processors of Lender's security interest in such Collateral and, upon Lender's
request instruct them to hold all such Collateral for Lender's security interest
in such Collateral and, upon Lender's request, execute and deliver
4
confirmatory written instruments pledging to Lender the Collateral described in
any such listings or otherwise; but Borrower's failure to execute and deliver
such confirmatory instruments will not affect or limit Lender's security
interest or other rights in and to the Collateral.
(d) Charges and Insurance.
---------------------
(1) To protect or perfect any security interest which Lender is granted
hereunder, Lender may, in its sole discretion, discharge any lien or encumbrance
or bond the same, pay any insurance, maintain guards, pay any service bureau, or
obtain any record and charge the same to Borrower's loan account as a Loan and
as part of the Obligations, payable on demand and secured by the Collateral.
Lender will be the sole judge of the legality and validity of the foregoing and
the amount necessary to discharge the same where applicable.
(2) Borrower will insure in Lender's name all Collateral normally
insured against loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards as Lender will specify, in amounts, under
policies and by insurers acceptable to Lender. Each policy will include a
provision requiring thirty (30) days prior written notice to Lender of any
cancellation and will show Lender as mortgagee and loss payee in a manner
acceptable to Lender. All premiums will be paid by Borrower and the policies
will be delivered to Lender within five (5) business days after their issuance
to Borrower. If Borrower fails to do so, Lender may (but will not be required
to) procure such insurance and charge the cost thereof to Borrower's loan
account as a Loan and as part of the Obligations, payable on demand and secured
by the Collateral.
(e) Examination of Records; Reporting. Lender may at all times have access
---------------------------------
to, examine and inspect the Collateral and have access to inspect, audit and
make extracts from all of Borrower's records, files and books of account.
Borrower will deliver to Lender any instrument necessary for Lender to obtain
records from any service bureau maintaining records for Borrower. All
instruments and certificates prepared by Borrower showing the value of any of
the Collateral will be accompanied, upon Lender's request, by copies of related
purchase orders and invoices. Lender may, at any time, remove from Borrower's
premises Borrower's books and records or require Borrower to deliver to Lender
all such books and records and Lender may, without cost or expense to Lender,
use such personnel, supplies and premises of Borrower as may be reasonably
necessary for the handling of collections.
(f) Collateral Reporting; Maintenance of Collateral; Return of Inventory.
--------------------------------------------------------------------
(1) Upon request from Lender from time to time, promptly after the
creation of any Receivables, Borrower will deliver to Lender schedules of all
Receivables created or acquired by Borrower and will execute and deliver
confirmatory written assignments of such Receivables to Lender, but Borrower's
failure to execute and deliver such schedules and/or assignments describing all
Receivables to Lender will not affect or limit Lender's security interest or
other rights in and to the Receivables. During the term of this Agreement,
Borrower will not
5
permit any lien, claim or encumbrance (other than those in Lender's favor) to
remain against any of the Collateral.
(2) If requested by Lender from time to time, if any Receivable becomes
evidenced by a promissory note, trade acceptance or any other instrument for the
payment of money, Borrower will immediately deliver such instrument to Lender,
appropriately endorsed to Lender, and, regardless of the form of presentment,
demand, notice of dishonor, protest, and notice of protest with respect thereto,
Borrower will remain liable thereon until such instrument is paid in full.
(3) Borrower will keep and maintain the Equipment in good operating
condition and repair and will make all necessary replacements thereof so that
the value and operating efficiency thereof will at all times be maintained and
preserved; will promptly inform Lender of any additions to or deletions from the
Equipment; and will not permit any such items to become a fixture to real estate
or an accession to other personal property. Borrower will, immediately, on
demand therefor by Lender, deliver to Lender any and all evidences of ownership
of any of the Equipment (including, without limitation, certificates of title
and applications for title). Lender may at all times have access to, examine and
inspect the Equipment.
(g) Collection of Receivables; Proceeds of Payments.
-----------------------------------------------
(1) After the occurrence of an Event of Default, but only when permitted
by Section 8(b), all Receivables and other payments in respect of Collateral
collected by Borrower will be held by Borrower as Lender's trustee, and Borrower
will immediately deliver all such payments to Lender in their original form duly
endorsed in blank. After the occurrence of an Event of Default, but only when
permitted by Section 8(b), Lender or its designee may, at any time, notify
account debtors that the Receivables have been assigned to Lender and of
Lender's security interest therein, and may collect them directly and charge the
collection costs and expenses to Borrower's loan account.
(2) After the occurrence of an Event of Default, but only when permitted
by Section 8(b), if sales of Inventory are made for cash, Borrower will
immediately deliver to Lender the identical checks, cash or other forms of
payment which Borrower receives.
(3) All payments received by Lender on Receivables or as proceeds of
other Collateral will be the sole property of Lender and will be credited to
Borrower's loan account (conditional upon final collection) after allowing two
(2) business days for collection.
(4) If Borrower repays the Obligations in full at any time hereafter,
such payment will be credited (conditional upon final collection) to Borrower's
loan account with Lender five (5) business days after Lender's receipt thereof.
6
(h) Lender As Borrower's Attorney. Borrower appoints Lender, or any other
-----------------------------
person whom Lender may designate, as Borrower's attorney with power: to endorse
Borrower's name on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security that come into Lender's possession; to sign
Borrower's name on any invoice or ▇▇▇▇ of lading relating to any Receivable, on
drafts against customers, on schedules and assignments of Receivables, on
notices of assignment, financing statements and other public records (including
UCC filings), on verifications of accounts and on notices to customers or
account debtors; to notify the post office authorities, after the occurrence of
an Event of Default (but only when permitted under Section 8(b)), to change the
address for delivery of Borrower's mail to an address designated by Lender; to
receive, open and dispose of all mail addressed to Borrower; to send requests
for verification of Receivables to customers or account debtors; and to do all
things necessary to carry out this Agreement. Borrower ratifies and approves all
acts of such attorney. Neither Lender nor the attorney will be liable for any
acts or omissions nor for any error of judgment or mistake of fact or law.
Borrower agrees to reimburse Lender upon demand for any costs and expenses,
including, without limitation, reimbursable attorneys' fees, which Lender may
incur while acting as Borrower's attorney-in-fact hereunder, all of which cost
and expense are included in the Obligations secured hereby. This power, being
coupled with an interest, is irrevocable until the Obligations have been fully
satisfied or the financing arrangements between Lender and Borrower are
terminated, whichever will later occur.
(i) Receivables. Lender will retain its security interest in all
-----------
Receivables until all Obligations have been fully satisfied. Borrower will
notify Lender promptly of all returns and recoveries and, on request deliver the
merchandise returned or recovered to Lender. Borrower will also notify Lender
promptly of all disputes and claims and settle or adjust them at no expense to
Lender, but no discount, credit or allowance will be granted to any customer or
account debtor and no returns of merchandise will be accepted by Borrower
without Lender's consent, except for discounts, credits and allowances made or
given in the ordinary course of Borrower's business. Lender may, at all times
after the occurrence of an Event of Default (but only when permitted by Section
8(b)), settle or adjust disputes and claims directly with customers in amounts
and upon terms which Lender considers advisable and, in all cases, Lender will
credit Borrower's loan account with only the net amounts received by Lender in
payment of any Receivables.
(j) Inventory; Equipment and Other Collateral.
-----------------------------------------
(1) Borrower represents and covenants that all Inventory is and will
continue to be owned by Borrower free and clear of all liens, claims and
encumbrances (other than those in Lender's favor) and that Borrower will not,
without Lender's prior written approval, sell, encumber or dispose of or permit
the sale, encumbrance or disposal of any Inventory, except for the purposes of
sale of Inventory to buyers in the ordinary course of Borrower's business.
(2) Borrower represents and covenants that all Equipment and other
Collateral will continue to be owned by Borrower, free of all liens, claims and
encumbrances (other than
7
those in Lender's favor), that all Equipment and Tangible Personal Property will
be kept by Borrower at the premises located at the principal address of Borrower
in New York (except for motor vehicles operated off-premises in the ordinary
course of business) and that Borrower will not, without Lender's prior written
approval, remove the Equipment or Tangible Personal Property therefrom except
for purposes of sale, lease, transfer or other disposition in accordance with
the limitations of this Agreement.
3. Conditions Precedent.
--------------------
(a) Effectiveness of Agreement. This Agreement will not be effective or
--------------------------
binding upon Lender unless and until the following conditions are met:
(1) Borrower will have delivered or caused to be delivered to Lender:
(A) A duly executed copy of this Agreement;
(B) A duly executed copy of such UCC-1 financing statements as
Lender may request; and
(C) A duly executed copy of the Note.
(2) Lender will have received satisfactory evidence that all insurance
required hereunder, including all insurance required by this Agreement has been
obtained and is in full force and effect.
(3) Lender will have received satisfactory evidence that its security
interest in the Collateral is a first lien on all such Collateral.
(4) All acts, conditions and things (including, without limitation,
the obtaining of any necessary regulatory approvals and the making of any
required filings, recordings or registrations) required to be done and performed
and to have happened precedent to the execution, delivery and performance of
this Agreement and to constitute the same legal, valid and binding obligations
of Borrower, enforceable in accordance with their respective terms, will have
been done and performed and will have happened in compliance with all applicable
laws.
(5) All documentation, including, without limitation, documentation of
proceedings of Borrower's Members or Managers and all instruments in connection
with the transactions contemplated by this Agreement will be satisfactory in
form and substance to Lender and Lender will have received any and all further
information and documents, which Lender and such counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper authorities and the President of Borrower.
8
(b) All Loans. Prior to the extension of credit to Borrower by Lender
---------
under each Loan, the following further conditions precedent must be met, on and
as of the date of such Loan:
(1) All representations and warranties of Borrower to Lender set
forth herein will be accurate and complete in all respects as of such date as if
made on such date;
(2) There will not have occurred or be threatened (i) a material and
adverse change in Borrower's financial condition or (ii) any condition, event or
act which would materially and adversely affect Borrower's business or
Borrower's ability to repay any Loan;
(3) The aggregate principal amount of Loans to Borrower outstanding
(including the principal amount of the Loan to be made on such date) plus the
amount of any accrued but unpaid interest thereon will not exceed the
Commitment;
(4) There will not have occurred an Event of Default hereunder or an
event which with the giving of notice or passage of time, or both, would
constitute an Event of Default hereunder;
(5) The Loans (including the use of proceeds thereof) will not
violate any applicable law or governmental regulation (including without
limitation Regulations G, T and X of the Board of Governors of the Federal
Reserve System) and will not subject Lender to any tax, penalty, liability or
other onerous condition under or pursuant to any applicable law or governmental
regulation, and Lender will have received such certificates or other evidence as
it may request to establish compliance with this condition.
Each time a Loan is made, Borrower represents and warrants as to the accuracy of
the matters set forth above.
4. General Representations and Warranties of Borrower. As an inducement to
--------------------------------------------------
Lender to enter into this Agreement and to make the Loans provided for herein,
and in addition to all representations and warranties set forth elsewhere in
this Agreement, Borrower represents and warrants to Lender and agrees as
follows:
(a) Organization, Qualification, Etc. Borrower is a limited liability
---------------------------------
company duly organized, validly existing and in good standing under the laws of
the State of California and is authorized to do business in New York and in all
other jurisdictions in which its ownership of property or conduct of business
legally requires such authorization and has full power, authority and legal
right to own its properties and assets and to conduct its business as presently
conducted or proposed to be conducted. Borrower does not otherwise directly or
indirectly control any other entity.
9
(b) Capacity. Borrower has full power, authority and legal right to
--------
execute and deliver, and to perform and observe the provisions of this Agreement
and all other documents, instruments and agreements required hereunder and to
carry out the transactions contemplated hereby and thereby.
(c) Authority. The execution, delivery and performance by Borrower of this
---------
Agreement and all other documents, instruments and agreements to be executed in
connection herewith have been duly authorized by all necessary action, and when
duly executed and delivered, will be legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their terms. No
registration with, or consent or approval of, or notice to, or other action by,
any trustee or holder of any Indebtedness or obligation of Borrower or any other
Person to the execution, delivery and performance of this Agreement or the
borrowings hereunder is required or, if required, such registration has been
made, such consent or approval given, such notice given or such other
appropriate action taken and certified copies of such have been delivered to
Lender. The grant of a security interest, along with all action required to
fully perfect Lender's security interest in and to the Collateral, which action
has been taken and completed, creates and constitutes a valid and perfected
first priority security interest in the Collateral enforceable against all third
parties in all jurisdictions securing payment of all obligations purported to be
secured.
(d) Compliance. The execution and delivery of this Agreement and all other
----------
documents and instruments to be executed or delivered herewith and compliance
with their terms as contemplated herein will not under any indenture, agreement,
order, judgment or other instrument to which Borrower is a party or by which
Borrower or its property may be bound or affected, or under Borrower's Articles
of Organization or Operating Agreement, result in a breach of any of the terms
or conditions of such indenture agreement, order, judgment or instrument, or
result in the imposition of any lien, charge or encumbrance upon any properties
of Borrower pursuant to or constitute a default (with due notice or lapse of
time or both) or result in an occurrence of an event pursuant to which any
holder or holders of Indebtedness may declare the same due and payable, and will
not violate any provision of applicable law.
(e) Absence of Certain Changes or Events. Since its formation, Borrower
------------------------------------
has not: (i) suffered any material adverse change in its financial condition or
in the operations of its business; (ii) suffered any damage, destruction or
loss, whether covered by insurance or not, materially and adversely affecting
its properties or business; (iii) made any distribution on or in respect of its
membership interests or declared any direct or indirect redemption, retirement,
purchase or other acquisition by Borrower of such interests except for
distributions to Members to pay taxes of Members on income of Borrower; (iv)
made any change in the accounting methods or practices it follows, whether for
general financial or tax purposes, or any change in depreciation or amortization
policies or rates adopted therein; (v) sold, leased, abandoned or otherwise
disposed of any real property or any machinery, equipment or other operating
property other than in the ordinary course of business; (vi) sold, assigned,
transferred, licensed or otherwise disposed of any patent, trademark,
servicemark, tradename, brand name, copyright (or
10
pending application for any patent, trademark, servicemark or copyright),
invention, process, know-how, formulae or trade secret or interest thereunder or
other intangible asset other than in the ordinary course of business; (vii)
suffered any labor dispute, other than routine matters, none of which is
material; (viii) engaged in any activity or entered into any material commitment
or transaction (including without limitation any borrowing or capital
expenditure) other than in the ordinary course of business; (ix) incurred any
liabilities except in the ordinary course of business and consistent with past
practice; (x) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind; (xi) made any capital expenditure or commitment for
additions to property, plant or equipment except in the ordinary course of
business; (xii) except as authorized by Borrower's Operating Agreement, paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets to, or entered into any agreement or arrangement with any of its
officers, directors or stockholder or any affiliate or associate of any of the
foregoing; or (xiii) taken or agreed to take any action which would constitute a
breach of any of the representations contained in this Agreement.
(f) Litigation. There are no actions, suits or proceedings (whether or not
----------
purportedly on behalf of Borrower) pending, or to the knowledge of Borrower
threatened, against or affecting Borrower or any of its properties at law or in
equity or before or by any person, which, if adversely determined, would have a
material adverse effect on the business, properties or financial condition of
Borrower or which might materially affect the ability of Borrower to perform its
obligations hereunder or any other document, instrument or agreement issued in
connection herewith. Borrower is not in default with respect to any applicable
laws and/or regulations which affect the operations and/or financial condition
of Borrower nor is Borrower in default with respect to any order, writ,
injunction, demand or decree of any court or any Person or in default under any
indenture, agreement or other instrument to which Borrower is a party or by
which Borrower or any of its properties may be bound, default under which might
have consequences which might adversely affect the business, properties or
financial condition of Borrower or which might affect the ability of Borrower to
perform its obligations hereunder or any other document, instrument or agreement
issued in connection herewith.
(g) Title and Related Matters. Borrower has good and marketable title to
-------------------------
all its properties, interests in properties and assets, real and personal,
including without limitation the Collateral, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the
lien of current taxes not yet due and payable. The equipment of Borrower
necessary to the operations of its business is in good operating condition and
repair. All real or personal property leases to which Borrower is a party are
valid, binding, enforceable and effective in accordance with their respective
terms. There is not under any of such leases any existing material default or
event of default or event which, with notice or lapse of time or both, would
constitute a material default.
(h) Patents, Trademarks, Tradenames, Copyrights, Know-How and other
---------------------------------------------------------------
Proprietary Rights.
------------------
11
(1) Borrower owns all right, title and interest in and to all
patents, copyrights, technology, software, know-how, processes, trade secrets,
trademarks, servicemarks and tradenames used in or necessary for the conduct of
Borrower's business as presently conducted or contemplated (including all right,
title and interest in the Golf Guides), free and clear of all liens, mortgages,
charges, pledges, claims and encumbrances. All of Borrower's trademark or
tradename registrations related to any and all of Borrower's copyrights in any
of Borrower's Products are valid and in full force and effect, except that not
all such copyrights have been registered with the U.S. copyright office; and
consummation of the transactions contemplated hereby will not alter or impair
any such rights. No claims have been asserted against Borrower by any person
challenging Borrower's use or distribution of, any patents, trademarks,
tradenames, servicemarks, copyrights, trade secrets, software, technology, know-
how or processes utilized by Borrower or challenging or questioning the validity
or effectiveness of any license or agreement relating thereto. There is no valid
basis for any claim of the type specified in the immediately preceding sentence
which could in any material way relate to or interfere with the continued
enhancement and exploitation by Borrower of any of Borrower's Products. None of
Borrower's Products nor the use of any patents, trademarks, servicemarks,
tradenames, copyrights, software, technology, know-how or processes by Borrower
in its current business infringes on the rights of, constitutes misappropriation
of, or in any way involves unfair competition with respect to, any proprietary
information or intangible property right of any third person or entity,
including without limitation any patent, trade secret, copyright, trademark,
servicemark or tradename.
(2) Except as to rights which may arise after the date of this
Agreement and are disclosed to Lender prior to advances being made hereunder
after such rights arise, no third party has any right, title or interest in or
to Borrower's Products.
(3) Except as to rights which may arise after the date of this
Agreement and are disclosed to Lender prior to advances being made hereunder
after such rights arise, no third party has any right to manufacture, reproduce,
distribute, market or exploit any of Borrower's Products or any adaptations,
translations, or derivative works based on Borrower's Products or any portion
thereof. No third party has any right to manufacture, reproduce, distribute,
market or exploit any works or materials of which any of the Borrower's Products
are a "derivative work" as that term is defined in the United States Copyright
Act, Title 17, U.S.C. Section 101.
(4) For purposes of this Agreement, the term "Borrower's Products"
will mean the Golf Guides and any other books, multimedia products or other
materials marketed, published, distributed, packaged or otherwise exploited by
Borrower or under development, including all patents, trade secrets, copyrights,
trademarks, servicemarks, tradenames, trade dress, processes, inventions, know-
how and other proprietary rights related thereto.
(5) No employee of Borrower is in violation of any term of any
employment contract, nondisclosure agreement or any other contract or agreement
relating to the relationship
12
of any such employee with Borrower or any other party because of the nature of
the business conducted by Borrower or proposed to be conducted by Borrower.
(i) Employee Benefit Plans. There is no unfunded prior service cost with
----------------------
respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Borrower. Each bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option, and other employee benefit or fringe benefit plans, whether formal
or informal, maintained by Borrower conforms to all applicable requirements of
the Employees Retirement Income Security Act of 1974, as amended, to the extent
that failure to so conform would have a material adverse effect on Borrower.
(j) Insurance. Borrower has all insurance required by this Agreement and
---------
all insurance is in such amounts as are reasonable and adequate against all
risks usually insured against by persons operating similar properties in the
localities where such properties are located under valid and enforceable
policies issued by insurers of recognized responsibility and such policies will
not in any way be affected by, or terminate or lapse by reason of this Agreement
or the transactions contemplated herein.
(k) Governmental Authorizations and Regulations. All licenses, franchises,
-------------------------------------------
permits and other governmental authorizations held by Borrower are valid and
sufficient for the business presently carried on by Borrower. The business of
Borrower is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for violations which either singly or in the
aggregate do not and will not have a material adverse effect on such business.
(l) Taxes. Borrower has filed or caused to be filed all tax returns which
-----
are required to be filed by it, pursuant to the laws, regulations or orders of
each person with taxing power over Borrower or the assets of Borrower. Borrower
has paid, or made provision for the payment of, all taxes which have or may have
become due pursuant to said returns or otherwise or pursuant to any assessment
received by Borrower, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves (determined in accordance with generally
accepted accounting principles and practices) have been provided. The charges,
accruals and reserves in respect of income taxes on the books of Borrower are
adequate (determined in accordance with generally accepted accounting principles
and practices). Borrower knows of no proposed tax assessment against it and no
extension of time for the assessment of federal, state or local taxes of
Borrower is in effect or has been requested except as disclosed to Lender in
writing.
(m) Accurate Information. All information heretofore, herein or hereafter
--------------------
supplied to Lender by or on behalf of Borrower, including information with
respect to the Collateral, is and will be accurate and complete. No statements
by Borrower contained in this Agreement and the Exhibits attached hereto or any
written statement or certificate furnished or to be furnished pursuant hereto or
in connection with the transactions contemplated hereby and thereby contains
13
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
(n) Use of Proceeds. Borrower will use the proceeds of the Loans only for
---------------
the purposes permitted by this Agreement.
(o) Capital. Borrower now has capital sufficient to carry on its business
-------
and transactions and all business and transactions in which it is about to
engage and is now solvent and able to pay its debts as they mature.
(p) Title to Collateral. Borrower has good, indefeasible, and merchantable
-------------------
title to and ownership of the Collateral, free and clear of all liens, claims,
security interests, and encumbrances except those of Lender. With respect to
each item of the Collateral, Lender's security interest therein constitutes a
first lien, with priority over all other interests or liens upon such item of
Collateral;
(q) Compliance With Laws. Borrower is not in violation of any applicable
--------------------
statute, regulation or ordinance of any governmental entity, including, without
limitation, the United States of America, any state, city, town, municipality,
county or of any other jurisdiction, or of any agency thereof, in any respect
materially and adversely affecting the Collateral or Borrower's business,
property, assets, operations or condition, financial or otherwise.
(r) No Defaults. Borrower is not in default with respect to any note,
-----------
indenture, loan agreement, mortgage, lease, deed, agreement relating to the
borrowing of monies or other material agreement to which Borrower is a party or
by which Borrower is bound.
(s) ERISA Compliance. Borrower has received no notice that it is not in
----------------
full compliance with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended, ("ERISA") and the regulations promulgated
thereunder and, to the best of its knowledge, there exists no event described in
Section 4043 of ERISA, excluding subsections 4043(b)(2) and 4043(b)(3) thereof,
with respect to Borrower.
(t) Location of Offices. The offices and/or locations where Borrower
-------------------
keeps the Collateral (except for that Inventory which is in transit) and its
books and records concerning the Collateral are at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ and include and correctly designate Borrower's chief executive
offices and places of business and are Borrower's sole offices and places of
business.
(u) Principal Place of Business; Location of Collateral. Borrower's
---------------------------------------------------
principal place of business is located at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇. The locations of Borrower's Equipment and Inventory as well as the
locations of Borrower's books and records are at such location.
14
5. Affirmative Covenants of the Borrower. Until payment in full of the
-------------------------------------
Obligations or the financing arrangements between Lender and Borrower are
terminated, whichever will later occur, Borrower agrees that:
(a) Financial Statements and Reports. Borrower will furnish to Lender:
--------------------------------
(1) As soon as practicable after the end of each fiscal year of
Borrower, and in any event within sixty (60) days thereafter, a complete,
certified copy of its annual report which will include the balance sheet of
Borrower as of the close of the fiscal year, and the income statement for such
year, prepared in accordance with generally accepted accounting principles
consistently applied; if requested by Lender, such statements shall be audited
by certified public accountants selected by Borrower and satisfactory to Lender,
in its sole discretion, and contain the unqualified opinion of such accountants,
provided that Lender shall pay the cost of such audit;
(2) As soon as available but no later than thirty (30) days after the
close of each calendar month Borrower's unaudited balance sheet as of the close
of such month and its statements of income and changes in financial position for
that portion of the fiscal year ending with such month, certified by the
President of Borrower as being complete and correct, prepared in accordance with
generally accepted accounting principles (but without notes or normal year-end
adjustments), and fairly presenting Borrower's financial condition and results
of operations;
(3) Immediately upon its preparation, any application or claim for any
patent, trademark, servicemark, copyright or tradename which Borrower uses or
intends to make use of in its business;
(4) Immediately upon the opening or use of any new location for any
Collateral or upon the removal of any Collateral from its locations described
herein to any other location, a revised schedule showing the new location or
locations of such Collateral; and
(5) Promptly, such other financial information as Lender may reasonably
request.
(b) Maintain Accuracy of Representations and Warranties. Borrower will
---------------------------------------------------
maintain the accuracy of all representations and warranties as if such
representations were being made on a continuing basis.
(c) Other Information. Borrower will (1) maintain accurate books and
-----------------
records concerning its business; (2) furnish to Lender such information
statements, lists of property and accounts, schedules listing all patents,
trademarks, servicemarks, copyrights or tradenames which will be used in
Borrower's business to a substantial degree, whether or not any application or
claim therefor is prepared or filed with the proper authorities, budgets,
forecasts or reports as
15
Lender may reasonably request with respect to the business, affairs and
financial condition of Borrower; and (3) permit Lender or representatives
thereof at any reasonable time or times to inspect the properties of Borrower
and to inspect, audit and examine the books or accounts of Borrower and to make
copies thereof and to take extracts therefrom and to discuss Borrower's business
and financial condition with accountants, officers and directors of Borrower.
(d) Expenses. Immediately upon demand of Lender, Borrower will pay all
--------
out-of-pocket expenses of Lender (including, but not limited to, fees and
disbursements of Lender's counsel) incident to the performance of any services
or the provision of any product in connection with this Agreement or the
protection of the rights of Lender under this Agreement, and the enforcement of
payment of the Obligations, whether by judicial proceedings or otherwise. All
expenses incurred by Lender under this Paragraph will be deemed Loans hereunder,
secured by the Collateral and payable upon demand. The obligations of Borrower
under this Paragraph will survive payment of the Obligations and the termination
of this Agreement.
(e) Notification. Borrower will notify Lender promptly, by written notice,
------------
of any condition or event which has resulted or might result in (1) a material
adverse change in Borrower's financial condition or operations; (2) a breach of
or noncompliance with any term, condition or covenant contained herein or in any
document delivered pursuant hereto; (3) any representation or warranty becoming
inaccurate or incomplete if given as of such date; or (4) any Event of Default,
or any event which upon lapse of time or notice or both would become an Event of
Default. For purposes of item (1) of this notification provision, Borrower need
notify Lender only of conditions or events which alone or which taken together
with other conditions and events existing at the notification date would
materially adversely change Borrower's financial condition or operations in the
amount of $25,000 or more.
(f) ERISA Reports. If Borrower is or becomes at any time subject to ERISA
-------------
reporting requirements, Borrower will furnish to Lender: (1) as soon as possible
and in any event within thirty (30) days after Borrower knows or has reason to
know that any Reportable Event with respect to any Plan has occurred, a
statement of the chief financial officer of Borrower setting forth details as to
such Reportable Event and the action which Borrower proposes to take with
respect thereto, together with a copy of the notice of such Reportable Event
given to the Pension Benefit Guaranty Corporation, if a copy of such notice is
available to Borrower; (2) promptly after the filing thereof with the United
States Secretary of Labor or the Pension Benefit Guaranty Corporation copies of
each annual report with respect to each Plan; and (3) promptly after receipt
thereof a copy of any notice Borrower or any member of the Controlled Group may
receive from the Pension Benefit Guaranty Corporation or the Internal Revenue
Service with respect to any Plan; provided, however, that this Paragraph 5(f)
will not apply to notices of general application promulgated by the Pension
Benefit Guaranty Corporation or the Internal Revenue Service.
16
(g) Insurance. Without limiting Borrower's insurance obligations with
---------
respect to the Collateral as provided in Paragraph 2(d), Borrower will at all
times keep its insurable properties adequately insured and maintain insurance to
such extent and against such risks as is customary for companies of comparable
size in the same or a similar business and property in the same general areas.
(h) Litigation. Borrower will promptly give notice to Lender in writing of
----------
any proceedings (whether or not purportedly on behalf of Borrower) against
Borrower involving amounts in excess of $50,000, any substantial claim or
dispute which may exist between Borrower and any Person, any labor controversy
resulting in or threatening to result in a strike against Borrower, or any
proposal by any public authority to acquire a material portion of the assets or
business of Borrower. Borrower will further appear in and defend any action or
proceeding which may affect its title to or Lender's interest in the Collateral.
(i) Other Debt. Borrower will promptly pay and discharge any and all
----------
Indebtedness whether for borrowed money or otherwise, liens, charges, all taxes
and assessments or obligations when due, and before any penalties accrue
thereon, and lawful claims which, if unpaid, might become a lien or charge upon
the property of Borrower, except such as may in good faith be contested or
disputed or for which arrangements for deferred payment have been made, provided
appropriate reserves are maintained to the satisfaction of Lender in accordance
with generally accepted accounting principles and practices for the eventual
payment thereof. If it is found that such indebtedness, obligation or tax is an
Indebtedness, obligation or tax payable by Borrower, when such dispute or
contest is settled and determined, Borrower will promptly pay the full amount
then due.
(j) Maintenance of Existence. Borrower will preserve and maintain its
------------------------
legal existence and all rights, privileges and franchises necessary or desirable
in the normal conduct of its business, will conduct its business in an orderly,
efficient and regular manner, and will comply with all applicable laws and
regulations of any Person and the terms of any indenture, contract or other
instrument to which it may be a party or under which it or its properties may be
bound if failure to so comply would have a material adverse effect on the
business, properties or condition (financial or otherwise) of Borrower. Borrower
will take all action necessary to qualify and will be authorized by the proper
authorities to conduct its business in all jurisdictions in which its ownership
of property or conduct of business legally requires such authorization.
(k) Cooperation. From time to time Borrower will execute and deliver or
-----------
cause to be executed and delivered to Lender any and all instruments, documents
and agreements and do or cause to be done any and all other acts reasonably
deemed necessary by Lender to effect the provisions and purposes of this
Agreement and the documents, instruments and agreements referred to herein.
17
(l) Other Agreements. Borrower will observe and perform all covenants and
----------------
agreements of any document, instrument or agreement executed by Borrower in
connection with the transactions contemplated hereby.
(m) Additional Payments. If any applicable law, regulation or guideline
-------------------
or any interpretation thereof by any governmental authority charged with the
administration thereof, or any change therein, subjects Lender to any tax of any
kind whatsoever with respect to any Loan or other Obligation of Borrower to
Lender hereunder, or changes the basis of taxation of payments to Lender of
principal or interest payable on any such Loans or other Obligations (except for
changes in the rate of tax based solely on the overall net income of Lender) or
imposes, modifies or deems applicable any reserve requirement against assets
held by or deposits or other liabilities in or for the account of, or loans by,
Lender or imposes on Lender, directly or indirectly, any of the conditions
affecting such advance or the cost of U.S. dollar deposits obtained by Lender in
the interlender market, and the result of any of the foregoing is to increase
the cost to Lender of making or maintaining such Loans or other Obligations by
an amount which Lender deems to be material, then Borrower will pay to Lender
upon its demand the additional amount or amounts necessary to compensate Lender
for such additional cost. Absent manifest error, Lender's statement will be
conclusive as to any additional amount to be paid. Borrower will pay to Lender
all principal of and interest on any Loan or other Obligation free and clear of
any and all present and future taxes, levies, imposts, duties, deductions,
withholdings and fees. If Borrower is or may become required to pay any such
costs, Borrower may elect to prepay any outstanding Loans or other Obligations,
together with any such costs and any additional costs associated with such
prepayment, including without limitation any losses associated with redeployment
of prepaid amounts at rates different from that borne by such prepaid Loans or
other Obligations.
6. Negative Covenants of Borrower. Until all Obligations of Borrower to Lender
------------------------------
will have been paid in full, or the financing arrangements between Lender and
Borrower are terminated, whichever will later occur, without the prior written
consent of Lender, Borrower will not:
(a) Collateral. Waive, amend or vary the terms of any Collateral, or
----------
consent to the termination or rescission thereof, or waive or consent to a
postponement of strict compliance on the part of any obligor with any term,
provision or covenant of any Collateral, or forbear or grant, in any other
manner, indulgence to any obligor.
(b) Distributions. (i) Make any distributions whatsoever upon any of
-------------
Member's interests in Borrower, other than distributions to pay for taxes on
Borrower's income, (ii) make any other distributions of Borrower's property or
assets whatsoever or (iii) pay distributions upon any of Borrower's interests at
any time or in any manner which is contrary to or not in compliance with
applicable law.
(c) Material Claims. Institute any material litigation against any third
---------------
party or settle any material litigation or claim with any third party.
18
(d) Liens. Create, incur, assume or suffer to exist any lien (including
-----
any encumbrance or security interest) of any kind upon any of its assets,
whether now owned or hereafter acquired, except in favor of Lender and (i) Liens
for taxes, assessments or other governmental charges or levies not at the time
delinquent or thereafter payable without penalty or being contested in good
faith, provided provision is made to the satisfaction of Lender for the eventual
payment thereof; if it is found that such is payable by Borrower; (ii) Liens of
carriers, warehousemen, mechanics, materialmen and landlords incurred in the
ordinary course of business for sums not overdue; and (iii) Purchase money liens
(including vendor's rights under purchase contracts under an agreement whereby
title is retained for the purpose of securing the purchase price thereof) given
simultaneously with or within ninety (90) days after the acquisition of office
equipment used in Borrower's business on such equipment hereafter acquired by
Borrower for such use and not heretofore owned by Borrower; provided, however,
that the amount of each such lien will not exceed eighty percent (80%) of the
purchase price of the office equipment to which such lien applies).
(e) Sale of Assets. Sell the accounts, contract rights or other rights to
--------------
the payment of money pertaining to its business or sell, lease, license, abandon
or otherwise dispose of, directly or indirectly, any of its assets except in the
ordinary course of business.
(f) Consolidation, Merger, etc. Consolidate with or merge into, sell
--------------------------
(whether in one transaction or in a series of transactions) all or any
substantial part its assets to any Person, reorganize, restructure or dissolve.
(g) Guarantees and Acquisitions. Guaranty the obligations of any Person,
---------------------------
make any equity contribution to, or acquire by purchase of stock or by purchase
of assets, in exchange for cash or partnership interests or securities of any
other Person, all or any substantial division or portion of the assets and
business of any other Person.
(h) No Indebtedness. Create, incur, assume or suffer to exist, or
---------------
otherwise become or be liable in respect of any Indebtedness other than to
Lender, except trade debt incurred in the ordinary course of business.
(i) Loans and Advances. Make loans or otherwise extend credit (other than
------------------
on account of sales of inventory) to or make any investment in any Person,
including its officers and directors.
(j) Location of Books. Remove its books and records concerning the
-----------------
Collateral, or the Collateral (except for that Inventory which is in transit),
from the locations described herein or keep any of such books and records or the
Collateral at any other office or location, unless Borrower gives Lender written
notice thereof at least thirty (30) days prior thereto and the same is within
the continental United States of America.
19
(k) Fictitious Name. Use any other corporate or any fictitious name without
---------------
at least thirty (30) days' prior written notice to Lender.
(l) Capital Expenditure. Make capital expenditures (including capitalized
-------------------
lease obligations) not contained on a Budget approved by Lender.
7. Events of Default. The following events will constitute an "Event of
-----------------
Default" hereunder:
(a) Payment of Obligations. Borrower will default in the due and punctual
----------------------
payment of the Obligations;
(b) Performance of other Terms. Borrower will materially fail to perform or
--------------------------
observe any of the terms, provisions, covenants, conditions, agreements or
obligations contained in this Agreement;
(c) Inaccurate Representations. Any representation or warranty made in
--------------------------
writing by or on behalf of Borrower herein or otherwise in connection with the
transactions contemplated hereby or any report, certificate, financial or other
instrument furnished in connection with this Agreement will be inaccurate or
incomplete in any material respect whether due to inaccuracy on the date as of
which made or due to subsequent events or the passage of time;
(d) Default Under Other Agreements. A default will occur under any material
------------------------------
evidence of Indebtedness issued, assumed or guaranteed by Borrower or under any
material indenture, agreement or other instrument under which the same may be
issued or under any material contract, agreement or other obligation to which
Borrower is a party or its property is subject or there will occur any event
upon the occurrence of which any holder or holders of any material Indebtedness
outstanding thereunder may declare the same due and payable;
(e) Judgments. A judgment (whether or not final) for the payment of money,
---------
in excess of $50,000 will be rendered against Borrower, and Borrower will not
discharge the same or cause it to be discharged within thirty (30) calendar days
from the entry thereof, or will not appeal therefrom or from the order, decree
or process upon which or pursuant to which said judgment was granted, based or
entered, and secure a stay of execution pending such appeal; or
(f) Suspension of Business; Insolvency. Borrower will suspend or
----------------------------------
discontinue its business or be adjudicated a debtor or insolvent, or generally
not pay its debts as they become due (within the meaning of 11 U.S.C. (S) 303(h)
as at any time amended or any successor statute thereto), or make an assignment
for the benefit of creditors; or Borrower will apply for or consent to the
appointment of a custodian, receiver, trustee, or similar officer for it or for
all or any substantial part of its property; or such custodian, receiver,
trustee or similar officer will be appointed without the application or consent
of Borrower and such appointment will continue undischarged for a period of
sixty (60) days; or Borrower will institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization, moratorium,
20
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding will be instituted (by petition, application or otherwise) against
Borrower and will remain undismissed for a period of sixty (60) days; or any
judgment, writ, warrant of attachment or execution or similar process will be
issued or levied against a substantial part of the property of Borrower and such
judgment, writ, or similar process will not be released, vacated or fully bonded
within thirty (30) days after its issue or levy; or any order for relief will be
entered against Borrower under Title 11 of the United States Code; or Borrower
will take any action to effect or which indicates its acquiescence to any of the
foregoing.
8. Remedies Upon Event of Default. Upon the occurrence of an Event of Default
------------------------------
under Paragraph 7(f) above automatically, and, upon the occurrence of one or
more Events of Default under any of Paragraph 7(a) through 7(e) at the option
and upon the declaration of Lender, provided that Borrower has not cured any
curable Event of Default within ten (10) business days after notice from Lender:
(a) Lender's obligation to make any Loan hereunder will terminate and all
Obligations owed to Lender will, without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived, be forthwith due and
payable, whereupon the same will become immediately due and payable, and Lender
may immediately, and without expiration of any period of grace, enforce all
Obligations of Borrower to it under this Agreement and exercise any and all
other remedies granted to it at law, in equity or otherwise.
(b) Despite the provisions of Section 8(a), unless the Event of Default is
the failure of Borrower to make the Final Principal Payment when due or is
caused by a material breach by Callaway Editions of its obligations to Borrower,
Lender shall not have the right to foreclose upon the Collateral until the Final
Principal Payment is due.
(c) In addition to all other rights provided herein or otherwise, but
subject to Section 8(b), Lender will, when permitted to foreclose upon the
Collateral under the terms of Section 8(b), have all the rights and remedies of
a secured party under the UCC, and further, Lender may, without notice, demand
or legal process of any kind (except as may be required by law), all of which
Borrower waives, at any time or times, take physical possession of the
Collateral and maintain such possession on Borrower's premises, at no cost to
Lender, or remove the Collateral, or any part thereof, to such other place(s) as
Lender may desire or Borrower will, upon Lender's demand, at Borrower's own cost
and expense, assemble the Collateral and make it available to Lender at a place
reasonably convenient to Lender and Lender may sell and deliver any or all
Collateral and any or all other security and collateral held by or for Lender at
public or private sales, for cash, upon credit or otherwise, at such prices and
upon such terms as Lender deems advisable, at Lender's sole discretion, and may,
if Lender deems it reasonable, postpone or adjourn any sale of the Collateral
from time to time by an announcement at the time and place of sale or by
announcement at the time and place of such postponed or adjourned sale, without
being required to give a new notice of sale. In addition to any disposition of
the Collateral, Lender
21
may, at its option, store, process, repair or recondition the Collateral or
otherwise prepare it for disposition in any manner and to the extent Lender
deems appropriate. Borrower agrees that Lender has no obligation to preserve
rights to the Collateral against prior parties or to marshal any Collateral for
the benefit of any Person. Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements will inure to Lender's
benefit. Any requirement of reasonable notice will be met if such notice is
mailed postage prepaid to Borrower at its address set forth herein at least five
(5) days before the time of sale or other disposition. The proceeds of sale will
be applied first to all costs and expenses of sale, including attorneys' fees,
and second to the payment (in whatever order Lender elects) of all Obligations.
Lender will return any excess to Borrower and Borrower will remain liable to
Lender for any deficiency. BORROWER (PURSUANT TO AUTHORITY GRANTED BY ITS BOARD
OF DIRECTORS) HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR
TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT
JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING AND ALL RIGHTS OF SETOFF AND COUNTERCLAIM AGAINST
LENDER. BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE
WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.
9. Indemnification of Lender.
-------------------------
(a) Scope. Borrower will indemnify and hold harmless Lender and Lender's
-----
shareholders, officers, directors, employees and agents (each, an "Indemnitee"),
to the maximum extent permitted by law, from and against any and all losses,
claims, damages, liabilities, expenses (including legal fees and expenses),
judgments, fines, settlements, and other amounts ("Liabilities") arising from
any and all claims, costs, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative ("Claims"), (i) in which the
Indemnitee may be involved, or threatened to be involved, as a party or
otherwise by reason of its status as a creditor of Borrower, or (ii) which
relate to the property, business or affairs of Borrower whether or not the
liability or expense accrued or related to, in whole or in part any time on,
before or after the date of this Agreement, and whether or not Borrower acted
intentionally, negligently or in good faith with respect to such Liability;
provided, however, that in no event will the indemnity provided by this
Paragraph apply to any Liabilities or Claims to the extent they are attributable
to intentional or willful misconduct of the party seeking the benefit of such
indemnity. In such regard, Borrower acknowledges that Lender is acting under
this Agreement and with respect to the Loans as a third party creditor and not
as a Member of Borrower and that Lender shall have no fiduciary obligations
towards Borrower with respect to this Agreement or the Loans or any actions
taken by Lender with respect thereto. To the fullest extent permitted by law,
Borrower waives any claim which is contrary to the understandings in the prior
sentence.
22
(b) Expenses. An Indemnitee's reasonable expenses (including legal fees
--------
and costs) incurred in defending any proceeding will be paid by Borrower in
advance of the final disposition of the proceeding upon receipt of the
Indemnitee's agreement to repay such amount if it is ultimately determined by a
court of competent jurisdiction that the Indemnitee is not entitled to be
indemnified by Borrower as authorized hereunder.
(c) Remedies. The indemnification and advancement of expenses provided by
--------
this Paragraph is in addition to any other rights to which the Indemnitee may be
entitled under any agreement, as a matter of law or otherwise, whether as to
action in the Indemnitee's capacity as Lender or as the shareholder, director,
officer, employee or agent of Lender or in any other capacity, will continue as
to an Indemnitee who has ceased to serve in such capacity and will inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.
The parties intend this Paragraph to be liberally construed.
(d) Interested Transaction. No Indemnitee will be denied indemnification
----------------------
in whole or in part under this Paragraph because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was approved in accordance herewith or meets the standards provided
hereunder.
10. Defined Terms. The following terms as used in this Agreement will have the
-------------
following meanings:
(a) "Agreement" will mean this Agreement, as the same may be amended,
---------
extended, supplemented or superseded from time to time.
(b) "Borrower's Products" will have the meaning given in Paragraph 4(h)
-------------------
hereof.
(c) "Business Plan" will have the meaning given in Paragraph 1(b) hereof.
-------------
(d) "Code" will mean the Internal Revenue Code of 1986, as amended.
----
(e) "Collateral" will have the meaning given in Paragraph 2 hereof.
----------
(f) "Commitment" will have the meaning given in Paragraph 1(a) hereof.
----------
(g) "Controlled Group" will mean a "controlled group of corporations" as
----------------
defined in Section 1563(a) of the Code determined without regard to Section
1563(a)(4) and (e)(3)(c) of the Code, of which Borrower is a part.
(h) "Dollars" and "$" will mean United States dollars or such coin or
-------
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts in the United States of
America.
23
(i) "Equipment" will mean all of Borrower's now owned and hereafter
---------
acquired equipment and fixtures, including, without limitation, furniture,
machinery, vehicles and trade fixtures, together with any and all accessions,
parts and appurtenances thereto, substitutions therefor and replacements
thereof.
(j) "ERISA" will mean the Employee Retirement Income Security Act of 1974,
-----
as the same may from time to time be supplemented or amended, and any
regulations promulgated thereunder.
(k) "Event of Default" will mean any of the events specified in Paragraph
----------------
7 hereof.
(l) "GAAP" or "generally accepted accounting principles" will mean
----
generally accepted accounting principles in the United States of America
including, where appropriate, generally accepted auditing standards, the
pronouncements and interpretations of appropriate accountancy administrative
bodies (including, without limitation, the Financial Accounting Standards Board
and any predecessor and successor thereto), applied on a consistent basis, as
such principles are in effect on the date hereof.
(m) "General Intangibles" will mean all of Borrower's now owned and
-------------------
hereafter acquired chooses in action, causes of action and all other intangible
personal property of every kind and nature other than Receivables, including,
without limitation, corporate or other business records, inventions, designs,
patents, patent applications, trademarks, trademark applications, tradenames,
trade secrets, goodwill, registrations, copyrights, licenses, franchises,
customer lists, tax refunds, tax refund claims, rights and claims against
carriers and shippers, insurance proceeds, and rights to indemnification.
(n) "Indebtedness" of any Person will mean all items of indebtedness and
------------
liability, including, without limitation, capitalized lease obligations, which,
in accordance with generally accepted accounting principles and practices, would
be included in determining liabilities as shown on the liability side of a
balance sheet of such Person as of the date as of which indebtedness is to be
determined and will also include all indebtedness and liabilities of others
assumed or guaranteed by such Person or in respect of which such Person is
secondarily or contingently liable (other than by endorsement of instruments in
the course of collection) whether by reason of any agreement to acquire such
indebtedness or to supply or advance sums or otherwise.
(o) "Inventory" will mean all of Borrower's now owned and hereafter
---------
acquired goods, merchandise and other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in Borrower's
business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other personal
property, and all documents of title or other documents representing them.
24
(p) "Loans" will mean, collectively, the loans made pursuant to Paragraph
-----
1(a) hereof; severally, a "Loan".
(q) "Multi-employer Plan" will mean any multi-employer plan as defined in
-------------------
Section 3(37) of ERISA to which the Borrower is required to contribute.
(r) "Obligations" will mean and include all present and future loans,
-----------
advances, debts, covenants, duties, liabilities, obligations, letters of credit
or acceptance transactions, trust receipt transactions, or any other financial
accommodations, howsoever arising, owing by Borrower to Lender of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of this Agreement and all the other documents or instruments executed
and delivered in connection herewith and therewith, including, without
limitation, all principal of and interest on the Loans, all discounts and
commissions on acceptances, all fees, charges, expenses, attorneys' fees and
accountants' fees chargeable to Borrower or incurred by Lender in connection
with its dealings with Borrower.
(s) "Person" will mean any natural person, corporation, partnership, joint
------
venture, unincorporated organization, sole proprietorship, trust, business
trust, firm, association, government, governmental agency or any other entity
and whether acting in an individual, fiduciary or other capacity.
(t) "Plan" will mean any employee pension benefit plan maintained or
----
contributed to by Borrower or any subsidiary and subject to Title IV of ERISA.
(u) "Receivables" will mean all of Borrower's now owned and hereafter
-----------
acquired accounts; proceeds of any letters of credit naming Borrower as
beneficiary; contract rights; chattel paper; instruments; documents; insurance
proceeds; and all obligations whatsoever owing to Borrower, including, without
limitation, present and future rights to payment for goods, merchandise or
Inventory sold or leased or for services rendered, those which are not evidenced
by instruments or chattel paper, and whether or not they have been earned by
performance; all returned and repossessed goods now or hereafter in the
possession or under the control of Borrower or Lender; together with all
instruments and documents of title representing any of the foregoing, rights in
any goods, merchandise or Inventory which any of the same may represent, and all
right, title, remedies, security and guaranties (including contracts of
suretyship, and deposit, credit and other insurance) with respect to each of the
foregoing, including, without limitation, any right of stoppage in transit and
any other rights or remedies of an unpaid vendor, lienor, or secured party.
(v) "Reportable Event" will have the same meaning as that found in Section
----------------
4043 of ERISA.
25
(w) "Tangible Personal Property" will mean all assets or items now or
--------------------------
hereafter owned by Borrower or in which Borrower has or acquires any right of
any nature, which asset or item does not constitute real property, Receivables,
Inventory, Equipment or General Intangibles.
(x) "UCC" will mean the Uniform Commercial Code, as in effect from time to
---
time in the State of New York.
11. Other Definitional Provisions.
-----------------------------
(a) All financial terms, except as their meanings may be modified by this
Agreement, will have the meanings given them in accordance with GAAP.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement will refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Paragraph, subparagraph,
schedule and Exhibit references are to this Agreement unless otherwise
specified.
12. No Right Due To Lender's Status As Member. Borrower acknowledges that
-----------------------------------------
Lender shall have no obligations or limitations under this Agreement arising
from or relating to the fact that Lender is a Member of Borrower. Lender shall
have no obligations under this Agreement due to such status and shall not be
limited in any manner in enforcing its rights hereunder as a result of such
status. Lender may enforce its rights hereunder as if an independent third
party lender in all respects. To the fullest extent permitted by law, Borrower
waives any claim or right which is contrary to the understandings in this
Section.
13. Miscellaneous.
-------------
(a) Entire Agreement. When this Agreement becomes effective, it, including
----------------
all Exhibits, will embody the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings.
(b) Event of Default; Effect of Waiver. An Event of Default which has been
----------------------------------
waived in writing by Lender will not constitute an Event of Default for purposes
of this Agreement; provided, however, that no failure to exercise, and no delay
in exercising any right, power or remedy hereunder or under any document
delivered pursuant hereto will impair any right, power or remedy which Lender
may have, nor will any such delay be construed to be a waiver of any of such
rights, powers or remedies, or an acquiescence in any breach of default under
this Agreement or any document delivered pursuant hereto nor will any waiver of
any breach or default of Borrower hereunder be deemed a waiver of any default or
breach subsequently occurring. The rights and remedies herein specified are
cumulative and not exclusive of any rights or remedies which Lender would
otherwise have.
26
(c) Survival. All representations, warranties and agreements herein
--------
contained on the part of Borrower will survive the making of the Loans hereunder
and all such representations, warranties and agreements will be effective so
long as any Obligations arising pursuant to the terms of this Agreement remain
unpaid or for such longer period as may be expressly stated therein.
(d) Notices. All notices, requests, consents and demands hereunder will be
-------
effective on the third business day following deposit in the mails, certified
mail postage prepaid, or on the date personally delivered to an officer of the
party to which sent or on the date transmitted by telex, in all cases addressed
to the respective party at the address set forth below:
Borrower: Callaway Golf Media Ventures, LLC
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Lender: Callaway Golf Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇, President & CEO
With a copy to:
Callaway Golf Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Legal Department
Either party may change the address to which notices are to be sent by notice of
such change to the other party given as provided herein.
(e) Termination. This Agreement will terminate when all Obligations of
-----------
Borrower will have been discharged in full.
(f) Separability of Provisions. In any case any one or more of the
--------------------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein will not in any way be affected or
impaired there by.
(g) Successors and Assigns. This Agreement will be binding upon and inure
----------------------
to the benefit of Borrower, Lender and their respective successors and assigns;
provided, however, that Borrower may not transfer its rights to borrow under
this Agreement without the prior written consent of Lender.
27
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts all of which taken together will constitute one agreement and any
party hereto may execute this Agreement by signing any such counterpart.
(i) Choice of Law and Choice of Forum. This Agreement will be governed by
---------------------------------
and construed in accordance with the laws of the State of California as applied
to contracts entered into and to be performed in said state between residents
thereof. BORROWER HEREBY AGREES TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO BORROWER AT ITS ADDRESS SET FORTH HEREIN AND SERVICE
SO MADE WILL BE DEEMED TO BE COMPLETED FIVE (5) BUSINESS DAYS AFTER THE SAME
WILL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. BORROWER HEREBY
APPOINTS EACH OF LENDER'S VICE PRESIDENTS OR SUCH OTHER EMPLOYEES OF LENDER AS
LENDER MAY FROM TIME TO TIME HEREAFTER DESIGNATE, AS BORROWER'S AGENT FOR THE
PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN NEW YORK AND LENDER AGREES TO
PROMPTLY FORWARD, BY CERTIFIED MAIL, ANY PROCESS SO SERVED UPON SAID AGENT TO
BORROWER AT ITS ADDRESS SET FORTH HEREIN. BORROWER WAIVES TRIAL BY JURY, ANY
OBJECTION BASED ON FORUM NONCONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS PARAGRAPH WILL
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
(j) Amendment and Waiver. Neither this Agreement nor any provisions hereof
--------------------
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
(k) Effect of Termination. No termination or cancellation (regardless of
---------------------
cause or procedure) of this Agreement or of any guaranty of the Obligations will
in any way affect or impair the powers, obligations, duties, rights and
liabilities of the parties hereto in any way with respect to (i) any transaction
or event occurring prior to such termination or cancellation, (ii) the
Collateral (including Collateral obtained by Borrower after termination) and/or
(iii) any of Borrower's undertakings, agreements, covenants, warranties and
representations contained in this Agreement and all such undertakings,
agreements, covenants, warranties and representations will survive such
termination or cancellation.
28
(l) No Requirement of Note. If any Loan is not evidenced by a promissory
----------------------
note, such loans and advances will be evidenced solely by entries upon Lender's
books and records.
(m) One Loan. All of the Obligations will constitute one loan secured by
--------
Lender's security interest in the Collateral and by all other security
interests, liens, claims, and encumbrances now and from time to time hereafter
granted by Borrower to Lender. Lender may, in its sole discretion, (i) exchange,
enforce, waive or release any security or portion of the Collateral, and any
mortgages or trust deeds in favor of Lender relating to any real property owned
by Borrower, (ii) apply such security or Collateral and direct the order or
manner of sale thereof as Lender may, from time to time, determine, and (iii)
settle, compromise, collect or otherwise liquidate any such security or
Collateral for the Obligations in any manner following the occurrence of an
Event of Default without affecting or impairing Lender's right to take any other
further action with respect to any security or Collateral for the Obligations or
any part thereof.
(n) Reapplication. Lender will have the continuing and exclusive right to
-------------
apply or reverse and re-apply any and all payments to any portion of the
Obligations. To the extent that Borrower makes a payment or payments to Lender
or Lender receives any payment or proceeds of the Collateral for Borrower's
benefit, which payment(s) or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, debtor in possession, receiver or any other
party under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or proceeds received, the Obligations
or part thereof intended to be satisfied will be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
(o) Attorneys' Fees and Costs. Borrower will reimburse Lender for all
-------------------------
costs and expenses incurred by Lender or for which Lender becomes obligated,
including but not limited to, attorneys' and paralegals' fees, lien and title
search and insurance policy fees, costs and expenses and all taxes and filing or
recording fees payable in connection with (i) any inspection and/or verification
of the Collateral, (ii) any proceeding relating to this Agreement or the
Collateral (iii) actions taken with respect to the Collateral and Lender's
security interest therein, and (iv) enforcement of any rights and remedies of
Lender with respect to the Obligations or Collateral. All of the foregoing fees,
costs and expenses may be charged to Borrower's loan account and will be part of
the Obligations, payable upon demand, and secured by the Collateral.
(p) Injunctive Relief. Borrower recognizes that, if Borrower fails to
-----------------
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to Lender;
therefore, Borrower agrees that Lender, if Lender so requests, will be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
29
(q) Set-Off. Borrower agrees that Lender may exercise its rights of setoff
-------
upon the occurrence of an Event of Default with respect to the Obligations
in the same manner as if the Obligations were unsecured.
(r) Release of Financial or Other Information Provided by Borrower.
--------------------------------------------------------------
Borrower agrees that Lender may furnish any financial or other information
concerning Borrower heretofore or hereafter provided by Borrower to Lender,
pursuant to this Agreement or otherwise, to any prospective or actual purchaser
of any participation or other interest in any of the Loans made by Lender to
Borrower (whether under this Agreement or otherwise), or to any prospective
purchaser of any securities issued or to be issued by Lender.
(s) Exhibits. All Exhibits hereto are hereby incorporated herein by this
--------
reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
Borrower: Lender:
CALLAWAY GOLF MEDIA VENTURES, CALLAWAY GOLF COMPANY,
LLC, a California limited liability company a California corporation
By:___________________________ By:______________________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Manager ▇▇▇▇▇▇ ▇. ▇▇▇, President & CEO
30
Exhibit "A"
Loan Funding
The Loan will be funded as follows:
$1,500,000 upon formation of the Venture
$ 500,000 March 1, 1998
$1,000,000 June 1, 1998
$1,000,000 September 1, 1998
$1,500,000 December 1, 1998
$2,000,000 March 1, 1999
During this period and thereafter, Borrower and Lender will meet every six
months to determine cash flow needs. Funding after March 1, 1999 of amounts
beyond those stated above will be determined every six months based upon the
mutually determined cash flow needs of Borrower (subject to Lender's rights
hereunder); however, it is anticipated that additional amounts will be advanced
as follows:
$1,000,000 June 1, 1999
$ 500,000 September 1, 1999
$4,000,000 December 1, 1999
up to $7,000,000 March 1, 2000
It is the intent to provide Borrower with adequate cash flow, including
reserves. The foregoing schedule may be adjusted if the milestones described
below are not being met or are being exceeded. In addition, after the foregoing
period, schedules will be established so as to continue to provide adequate cash
flow and reserves to Borrower.
All funding assumes that progress is being made to meet the following milestones
by the following dates:
October 31, 1998 Review of Final Layouts of Guides 1, 2 & 3
April 30, 1999 Review of Final Layouts of Guides 4, 5 & 6
October 31, 1999 Review of Final Layouts of Guides 7, 8 & 9
April 30, 2000 Review of Final Layouts of Guides 10, 11 & 12
October 30, 2000 Review of Final Layouts of Guides 13, 14 & 15
April 30, 2001 Review of Final Layouts of Guides 16, 17 & 18
Approval of final layouts of the Guides is at the discretion of Lender. Funding
shall be adjusted if such milestones are not met.
In addition, it is understood that funding which is intended to fund the
publication of additional Guides shall be halted if Lender, in its capacity as a
Member of Borrower, determines not to
31
publish such Guides. To evaluate the success of the Guides, Borrower and Lender
shall review the publishing successes and failures of the Guides on the
following dates:
October 31, 1999 Review of Success of Guides 1, 2 & 3
April 30, 2000 Review of Success of Guides 4, 5 & 6
October 31, 2000 Review of Success of Guides 7, 8 & 9
April 30, 2001 Review of Success of Guides 10, 11 & 12
October 30, 2002 Review of Success of Guides 13, 14 & 15
April 30, 2002 Review of Success of Guides 16, 17 & 18
Evaluation of the success of the Guides is at the discretion of Lender as a
Member of Borrower and Borrower shall have no rights or remedies whatsoever if
Lender in its discretion determines not to publish any of the Guides.
CERTIFICATE OF MEMBERS
We hereby certify that the foregoing Operating Agreement, consisting of 28
pages, plus Exhibits A, B and C, constitutes the Operating Agreement of Callaway
Golf Media Ventures, LLC, a California limited liability company, adopted by the
Members of the Company as of January 26, 1998.
CALLAWAY GOLF COMPANY, a
California corporation
By: ____________________________ Date: __________________
▇▇▇▇▇▇ ▇. ▇▇▇
President and Chief Executive Officer
"Editions":
CALLAWAY EDITIONS, INC., a
Delaware corporation
By: ____________________________ Date: __________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President
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