EXHIBIT 99.3
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This Amendment No. 2 (the "Amendment"), dated as of September
4, 2003, has been entered into between the signatories hereto for the purpose of
amending the Asset Purchase Agreement, dated as of June 30, 2003, between The
Top-Flite Golf Company (f/k/a Spalding Sports Worldwide, Inc.) and Callaway Golf
Company, as amended (the "Asset Purchase Agreement"). Initially capitalized
terms used but not otherwise defined herein shall have the meanings ascribed to
them in the Asset Purchase Agreement.
1. Amendments.
1.1 Section 1.1(d) of the Asset Purchase Agreement ("Assets to be
Transferred") shall be amended by deleting the phrase "all Assigned Current
Receivables;" and replacing such phrase with "all Assigned Receivables".
1.2 Section 1.3 of the Asset Purchase Agreement ("Assumed
Liabilities") shall be amended as follows:
1.2.1 Deleting the word "and" at the end of Section 1.3(f).
1.2.2 Deleting the period at the end of Section 1.3(g) and
replacing it with a semicolon in its stead.
1.2.3 Adding the following as Section 1.3(h):
"(h) all severance costs payable by the Seller to the
Chief Executive Officer of the Seller pursuant to the employment contract
between the Seller and the Chief Executive Officer up to $1,400,000."
1.2.4 Adding the following as Section 1.3(i):
"(i) all amounts payable to Contract Employees pursuant to
the Seller's Key Employee Retention Plan filed with the Bankruptcy Court, which
amount shall not exceed $2,073,000, in the aggregate; and"
1.2.5 Adding the following as Section 1.3(j):
"(j) the principal outstanding and all liabilities and
obligations, including interest, payable on or after June 18, 2003 under the
Mass Development Loan."
1.3 Section 1.5 of the Asset Purchase Agreement ("Purchase Price;
Allocation of Purchase Price") shall be amended as follows:
1.3.1 Amending and restating Section 1.5(a) of the Asset
Purchase Agreement to read as follows:
"(a) Subject to the terms and conditions hereof, in
reliance upon the representations and warranties of the Seller and the covenants
of the Seller herein set forth, and as consideration for the sale and purchase
of the Assets, at the Closing, the Purchaser shall assume the Assumed
Liabilities and shall tender the Purchase Price. On the Closing Date, the
"Purchase Price" shall be the sum of: (i) the Closing Cash Payment (defined in
subparagraph (b) below); plus (ii) the Indemnity Deposit. The Purchase Price
shall be adjusted after the Closing Date if, and to the extent, that (x) the
Purchaser is required to remit to the Seller an amount in cash pursuant to
Section 1.6(d) or (y) the Purchaser is entitled to an amount in cash from the
Indemnity Deposit pursuant to Section 1.6(d)."
1.3.2 Amending and restating Section 1.5(b) of the Asset
Purchase Agreement to read as follows:
"(b) The Closing Cash Payment shall be paid by the
Purchaser to the Seller at the Closing as provided in Section 1.10(a). The
"Closing Cash Payment" shall initially be ONE HUNDRED SIXTY NINE MILLION TWO
HUNDRED NINETY FOUR THOUSAND ($169,294,000) minus the Indemnity Deposit. The
amount of the Closing Cash Payment required to be paid by the Purchaser to the
Seller at the Closing shall be reduced, if necessary, in accordance with
Sections 1.6(a), 1.7(a)(i) and 1.7(a)(iv)."
1.3.3 Deleting Section 1.5(d) in its entirety and replacing
it with "(d) [Intentionally omitted.]".
1.3.4 Deleting Section 1.5(e) in its entirety and replacing
it with "(e) [Intentionally Omitted.].
1.3.5 Amending and restating Section 1.5(f) of the Asset
Purchase Agreement to read as follows:
"(f) The Signing Bonuses shall be paid by the Purchaser
promptly after the Closing to all employees (including the Chief Executive
Officer of the Seller) entitled thereto."
1.4 Section 1.6(a) of the Asset Purchase Agreement ("Assigned
Inventory Adjustment") shall be amended as follows:
"(a) Not later than five (5) Business Days preceding the
Closing Date, the Seller shall in good faith prepare, or cause to be prepared,
and deliver to the Purchaser a certificate signed by the chief financial officer
(or such other Person serving in a similar capacity) of the Seller setting forth
its estimate of the Deemed Closing Date Inventory Value of the Assigned
Inventory (expressed in United States dollars) as of the close of business on
the Closing Date (the "Target Inventory") without giving effect to the
consummation of any of the transactions contemplated hereby (the "Target
Inventory Statement"). On the Closing Date, the Closing Cash Payment shall be
adjusted as follows: (i) if the amount of the Target Inventory set forth in the
Target Inventory
Statement plus the Deemed Closing Date A/R Value of the Accounts Receivable is
equal to $97,433,000, there shall be no adjustment to the Closing Cash Payment
based on the amount of the Target Inventory and the Accounts Receivable; (ii) if
the amount of the Target Inventory set forth in the Target Inventory Statement
plus the Deemed Closing Date A/R Value of the Accounts Receivable is less than
$97,433,000, the Purchaser shall reduce the Closing Cash Payment (and,
accordingly, the amount paid at Closing) by the amount of such deficiency; (iii)
if the amount of the Target Inventory set forth in the Target Inventory
Statement plus the Deemed Closing Date A/R Value of the Accounts Receivable is
greater than $97,433,000 but less than or equal to $101,592,000, the Purchaser
shall increase the Closing Cash Payment (and, accordingly, the amount paid at
Closing) by the amount of such excess up to an amount equal to $4,159,000; and
(iv) if the amount of the Target Inventory set forth in the Target Inventory
Statement plus the Deemed Closing Date A/R Value of the Accounts Receivable is
greater than $101,592,000, the Seller shall retain the Retained Receivables
pursuant to Section 1.7 below. If the Target Inventory exceeds $46,039,000, it
shall be deemed for purposes of this Section 1.6(a) to equal $46,039,000
notwithstanding such excess. The Seller shall cause there to be sufficient
Inventory as of the Closing Date so that the Deemed Closing Date Inventory Value
is at least $36,039,000."
1.5 Section 1.6(d) of the Asset Purchase Agreement shall be
amended by replacing all references to the number "$43,650,000" with the number
"$46,039,000".
1.6 Section 1.7 of the Asset Purchase Agreement ("Accounts
Receivable") shall be amended as follows:
1.6.1 Amending Section 1.7(a) of the Asset Purchase
Agreement ("Assigned Current Receivables") as follows:
1.6.1.1 Deleting the word "Current" from the heading so that
the heading shall read "(a) Assigned Receivables").
1.6.1.2 Replacing the reference to the number "$90,000,000"
in Section 1.7(a)(i) with the number "$101,592,000".
1.6.1.3 Replacing the first two references to the words
"Current Receivables" in Section 1.7(a)(i) with the words "Accounts Receivable".
1.6.1.4 Replacing the references to the phrase "Assigned
Current Receivables" with the words "Assigned Receivables".
1.6.1.5 Replacing the first reference to the words "Current
Receivables" in the second sentence of Section 1.7(a)(i) with the words
"Accounts Receivable".
1.6.2 Deleting Section 1.7(a)(ii) in its entirety and
replacing it with "[Intentionally omitted.]".
1.6.3 Deleting Section 1.7(a)(iii) in its entirety and
replacing it with "[Intentionally omitted.]".
1.6.4 Amending and restating Section 1.7(a)(iv) of the
Asset Purchase Agreement to read as follows:
"(iv) Not later than five (5) Business Days preceding the
Closing Date, the Seller shall in good faith prepare, or cause to be prepared,
and deliver to the Purchaser a certificate signed by the Chief Financial Officer
(or such other Person serving in a similar capacity) of the Seller setting forth
a reconciliation between the Deemed Closing Date A/R Value of the Assigned
Receivables and the Deemed Closing Date A/R Value of the Assigned Receivables
less the amount of "A&P" (which pertains solely to co-op advertising and other
similar promotional items that are generally dilutive to such Assigned
Receivables and which shall be determined on the same basis as "A&P" is
determined in the Financial Statements) as of the Closing Date that are
deductible from the Assigned Receivables (the "A/R Reconciliation"). If the A/R
Reconciliation, as determined by the Seller and the Purchaser, (A) is equal to
or greater than $3,540,000 and equal to or less than $3,740,000, there shall be
no adjustment to the Purchase Price; (B) is greater than $3,740,000, the
Purchaser shall reduce the Purchase Price (and accordingly the Closing Cash
Payment) by an amount equal to such excess; and (C) is less than $3,540,000, the
Purchaser shall increase the Purchase Price (and accordingly the Closing Cash
Payment) by the amount of such deficiency."
1.6.5 Adding a new Section 1.7(a)(v) to the Asset Purchase
Agreement which shall read as follows:
"(v) Subject to indemnification for breaches of
representations and warranties under Article VIII herein, the parties
acknowledge and agree that there shall be no adjustment to the Purchase Price
and the Closing Cash Payment with respect to the Accounts Receivable or A/R
Reconciliation other than as set forth in this Section 1.7."
1.7 Section 1.7(d) of the Asset Purchase Agreement
("Returns") shall be amended and restated as follows:
"(d) Returns. The Purchaser shall accept all goods sold by
each of the Seller and the Foreign Subsidiaries prior to the Closing and
returned to the Purchaser (the "Returned Goods"). For any Returned Goods
returned to the Purchaser after the Closing Date and for which a customer took
an allowance or credit on an Assigned Receivable, no adjustments shall be made.
For any Returned Goods returned to the Purchaser after the Closing Date and for
which a customer took an allowance or a credit on a Retained Receivable, upon
the Purchaser's receipt of such Returned Goods, the Purchaser shall pay the
Seller the value of such Returned Goods, which shall be determined in the same
manner as set forth in the definition of Deemed Closing Date Inventory Value."
1.8 Section 1.9 of the Asset Purchase Agreement ("Closing
Deliveries by the Seller") shall be amended as follows:
1.8.1 Deleting Section 1.9(d) in its entirety and replacing
it with "(d) [Intentionally omitted.].".
1.8.2 Deleting the word "and" at the end of Section 1.9(g).
1.8.3 Deleting Section 1.9(h) in its entirety and replacing
it with "(h) [Intentionally omitted]; and" in its stead.
1.8.4 Adding the following as Section 1.9(i):
"(i) executed counterparts of the Transition Services
Agreement."
1.9 Section 1.10 of the Asset Purchase Agreement ("Closing
Deliveries by the Purchaser") shall be amended as follows:
1.9.1 Deleting Section 1.10(e) in its entirety and
replacing it with "(e) [Intentionally omitted.]".
1.9.2 Deleting Section 1.10(c) in its entirety and
replacing it with "(c) [Intentionally omitted.]".
1.9.3 Deleting the word "and" at the end of Section
1.10(e).
1.9.4 Deleting the period at the end of Section 1.10(f) and
replacing it with "; and" in its stead.
1.9.5 Adding the following as Section 1.10(g):
"(g) executed counterparts of the Transition Services
Agreement."
1.10 Section 2.17(b) of the Asset Purchase Agreement ("Employee
Benefit Plans") shall be amended as follows:
1.10.1 Inserting the phrase "As of the date hereof," as the
first words of such Section.
1.10.2 Replacing the capital "T" in the first word of the
second sentence with a lower case "t", so that the word reads as "to".
1.10.3 Inserting the phrase "As of the date hereof," as the
first words of the second sentence of such Section.
1.11 Section 4.8 of the Asset Purchase Agreement ("Employee
Matters") shall be amended by amending and restating Section 4.8(a) as follows:
"(a) From and after the date of this Agreement, the
Purchaser, or any of its Affiliates, in their sole and
absolute discretion and after consulting the management of the
Seller, may: (i) communicate with any of the Seller's or the
Subsidiaries' current employees about possible employment with
the Purchaser after the Closing Date; and/or (ii) offer
employment to any of the Seller's or the Subsidiaries'
employees as of the Closing Date on terms and conditions which
are generally comparable to those applicable to similarly
situated employees of the Purchaser; provided, that each
employee of the Seller set forth on Schedule 4.8 (the
"Contract Employees") shall be offered employment on terms and
conditions so that the Seller shall not incur any severance or
other similar payment obligations to such Contract Employees.
The Purchaser shall make offers of employment to all of the
Seller's and the Subsidiaries' active employees on the Closing
Date, other than the Chief Executive Officer of the Seller.
Those employees that accept the Purchaser's offer of
employment and become employed by the Purchaser are referred
to in this Agreement as "Transferred Employees," as of the
Closing Date. Subject to the rights of the Contract Employees
after the Closing Date, nothing contained herein shall require
the Purchaser to provide any specific form of benefit or
inhibit the Purchaser's ability to establish, amend or
terminate any employee benefit plan of the Purchaser following
the Closing. All employment offers are subject to the
satisfactory completion by the Purchaser of its customary
employment interview, background checks and drug testing
procedures. Subject to the rights of the Contract Employees
after the Closing Date, nothing in this Agreement shall
prevent the Purchaser from terminating the employment of any
Transferred Employee at any time."
1.12 Section 4.14 of the Asset Purchase Agreement ("Cure Costs")
shall be amended and restated as follows:
"4.14 Cure Costs. The Seller shall be exclusively responsible
for payment of all Cure Costs, other than (i) the Straddle Period Accruals or
(ii) as otherwise specified in this Agreement."
1.13 The Asset Purchase Agreement shall be amended to add the
following Section 4.19 ("Transition Services Agreement"):
"4.19 Transition Services Agreement. The Seller and the
Purchaser shall negotiate in good faith and shall execute a transition services
agreement substantially in the form attached as Exhibit K hereto (the
"Transition Services Agreement")."
1.14 The Asset Purchase Agreement shall be amended to add the
following Section 4.20 ("Etonic Releases"):
"4.20 Etonic Releases. The Seller shall use commercially
reasonable efforts to obtain, from the distributors that are parties to Assumed
Contracts providing for the distribution of Etonic branded products by such
distributors, releases or other modifications with regard to such Assumed
Contracts to the effect that the Seller shall not incur any liability by reason
of failure to provide such distributors with Etonic branded products."
1.15 Section 8.1 of the Asset Purchase Agreement ("Indemnification
by the Seller") shall be amended as follows:
1.15.1 Deleting Section 8.1(d) of the Asset Purchase Agreement
in its entirety and replacing it with "(d) [Intentionally omitted];".
1.15.2 Deleting Section 8.1(e) of the Asset Purchase Agreement
in its entirety and replacing it with "(e) [Intentionally omitted];".
1.16 Section 8.2(b) of the Asset Purchase Agreement shall be
amended by deleting the references to Sections 8.1 "(d), (e),".
1.17 Section 8.3 of the Asset Purchase Agreement ("Indemnification
by the Purchaser") shall be amended as follows:
1.17.1 Deleting the word "and" at the end of Section 8.3(c).
1.17.2 Deleting the period at the end of Section 8.3(d) and
replacing it with "; and" in its stead.
1.17.3 Adding a new Section 8.3(e), which shall read as
follows:
"any severance or other similar payments required to
be paid by the Seller to any employee as a result of
the consummation of the transactions contemplated
hereby, including the Contract Employees and the
Transferred Employees."
1.18 Section 8.4 of the Asset Purchase Agreement ("Purchaser's
Limitations") shall be amended by adding the following after the words "Section
8.3(d)" in the fifth line of Section 8.4(b):
"and 8.3(e)"
1.19 Section 9.1(a) of the Asset Purchase Agreement ("Certain
Definitions") shall be amended as follows:
1.19.1 Deleting the definition of "Current Receivables
Deposit" in its entirety.
1.19.2 Deleting the definition of "Current Receivables Escrow
Account" in its entirety.
1.19.3 Amending and restating the definition of "Deemed
Closing Date A/R Value" as follows:
`"DEEMED CLOSING DATE A/R VALUE' means the gross asset value
of the Accounts Receivable, or any subset thereof (where applicable), as of the
Closing Date, excluding all reserves but otherwise determined in accordance with
the same method of
valuation as that used in the Financial Statements and the books and records of
the Seller consistent with past practices. For the avoidance of doubt, the
Deemed Closing Date A/R Value shall not include "A&P" (which pertains solely to
co-op advertising and other similar promotional items that are generally
dilutive to such Assigned Receivables and which shall be determined on the same
basis as "A&P" is determined in the Financial Statements)."
1.19.4 Amending and restating the definition of "Deemed
Closing Date Inventory Value" as follows:
`"DEEMED CLOSING DATE INVENTORY VALUE' means the consolidated
standard cost, including both the variable and fixed overhead, of the Inventory,
excluding all intercompany profit, all reserves and the excess, if any, of (x)
capitalized variances over (y) $1,139,000, but otherwise determined in
accordance with the same method of valuation as that used in the Financial
Statements and the books and records of Seller."
1.19.5 Amending the definition of "Indemnity Deposit" as
follows:
1.19.5.1 Deleting the number "$12,500,000" in the
first line of such definition and replacing it with "$8,000,000".
1.19.5.2 Deleting the number "$6,250,000" in the
sixth line of such definition and replacing it with "$4,000,000".
1.19.6 Deleting the definition of "Infiniti Settlement
Agreement" in its entirety.
1.19.7 Amending and restating the definition of "Retained
Receivables" to read as follows:
`"RETAINED RECEIVABLES' means all Retained Current Receivables
and all Accounts Receivable of the Seller that relate primarily to the Excluded
Operations."
1.19.8 Amending and restating the definition of "Signing
Bonuses" to read as follows:
"'SIGNING BONUSES' means payments due under the Seller's
Retention Bonus Program and which shall be made promptly following the Closing
pursuant to Section 1.5(f) herein to those employees set forth on Schedule
1.5(f) in the amount set forth on such Schedule opposite the name of each person
listed thereon.
1.19.9 Adding the following definition alphabetically:
`"MASS DEVELOPMENT LOAN' means the Loan Agreement, dated as of
February 18, 1998, by and between Spalding & Evenflo Companies, Inc. and
Government Land Bank, as amended."
1.19.10 Adding the following definition alphabetically:
"'STRADDLE PERIOD ACCRUALS' means all required payments earned
under the Tour Contracts prior to the Closing Date and not yet paid by the
Seller, including, without limitation, win bonuses and the pro rata portion of
any base compensation."
1.19.11 Adding the following definition alphabetically:
"'TOUR CONTRACT' means the Contracts listed on Schedule 1.5(e)
hereto
1.19.12 Deleting the reference to "Assigned Current
Receivables" in the chart of definitions and replacing such reference with
"Assigned Receivables".
1.19.13 Deleting the reference to "Current Receivables
Deficiency" in the chart of definitions.
1.20 Schedule 1.1(a) to the Asset Purchase Agreement ("Subsidiary
Assets") shall be amended by adding the Foreign Subsidiary employees set forth
on Exhibit A hereto.
1.21 Schedule 1.1(b) to the Asset Purchase Agreement ("Assumed
Contracts") shall be amended by deleting the Assumed Contracts set forth on
Exhibit B hereto.
1.22 Schedule 1.1(b) to the Asset Purchase Agreement ("Assumed
Contracts") shall be amended by adding the following Assumed Contracts to such
Schedule, for which the Purchaser shall pay any Cure Costs associated with the
assumption of such Contracts:
(a) Consulting agreement of Brent Everson;
(b) Bank of America/Colonial Tour Event Joint Promotion
Agreement dated October 16, 2002; and
(c) Authorized Manufacturers Agreement, dated July 25, 2003,
by and between the Seller and the Collegiate Licensing Company.
1.23 Schedule 1.5(f) to the Asset Purchase Agreement shall
be deleted in its entirety and replaced with Exhibit C attached hereto.
2. No Further Amendments. Except as amended herein, the Asset Purchase
Agreement will remain unchanged and in full force and effect.
3. Articles and Sections. The Article and Section headings in this
Amendment are for reference only and shall not affect the interpretation of this
Amendment.
4. Counterparts. This Amendment may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts together shall constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
CALLAWAY GOLF COMPANY
By: /s/ Ronald A. Drapeau
---------------------------------------------
Name: Ronald A. Drapeau
Title: Chairman of the Board,
President and Chief Executive Officer
THE TOP-FLITE GOLF COMPANY
(f/k/a SPALDING SPORTS WORLDWIDE, INC.)
By: /s/ James R. Craigie
----------------------------------------------
Name: James R. Craigie
Title: President & CEO
EXHIBIT A
SUBSIDIARY ASSETS
[TABLE]
EXHIBIT B
ASSUMED CONTRACTS
1. The rights of Seller under the proviso set forth in Section 4.7 of the
ETONIC APA.
2. Agreement, dated November 1, 1999, between Caraustar and Spalding
Sports Worldwide, Inc.
3. Letter, dated August 28, 2002, from KSL Media to Spalding Sports
Worldwide, Inc.
4. Service Agreement, dated as of December 30, 1998, between Distribution
Data Incorporated and Spalding Sports Worldwide, Inc.
5. Strategic Alliance Agreement, dated as of October 1, 2000, between
Spalding Sports Worldwide, Inc. and Endo Manufacturing Co., Ltd.
6. Carrier Agreement, dated November 18, 2002, between Spalding Sports
Worldwide, Inc. and United Parcel Service of America, Inc.
7. Agreement for continuing purchase of Petrac Zinc Stearate ZN-41 between
Spalding Sports Worldwide, Inc. and Ferro, dated as of March 23, 2001.
8. Agreement to Purchase dated as of January 1, 2002 between Spalding
Sports Worldwide, Inc. and Sport Glove International, Inc.
9. Strategic Alliance Agreement between Packaging Corp. of America and
Spalding Sports Worldwide, Inc. dated February 1, 2001.
10. Agreement for Services between Spalding Sports Worldwide, Inc. and
Ondeo Nalco Company dated September 1, 2002.
11. Strategic Alliance Agreement, dated as of March 1, 2000, by and
between Spalding Sports Worldwide, Inc. and E.I. du Pont de Nemours and
Company.
12. Strategic Alliance Agreement between Spalding Sports Worldwide, Inc.
and Star Container Corporation dated April 1, 2001.
EXHIBIT C
ASSUMED CONTRACTS
[TABLE]