Operating Agreement For Callaway Golf Media Ventures, Llc

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
--------- 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
---------------------------------------- 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
------------------------------- 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
---------------- registered agent in the State of California as required by the Act. The principal office of the Company shall be at 70 Bedford Street, New York, New York 10014, 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
----------------------- 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
------- (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,
----------------- 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
-------------------------------------- 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.
------------------------------------------------------------------------ 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
------------------------ Company the tradename and/or service name and mark "Callaway 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 mark "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 mark "Callaway", including any right to challenge the use of the mark 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
---- 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
--------------- 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
----------------------------- 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
--------------------------------------- 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
------------------------------- 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
----------------------- 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)
------------------------------- 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
------------------------------------------------ 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
---------------------- 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)
---------------------------------- 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
-------- 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
---------- 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
------- amend by-laws governing the management and operation of Company.


5.5 Officers. Company may have officers; however such officers shall only have
-------- 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
---------------------------------- 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
--------------- 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
------------------ 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
------------------------- 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
-------------------------------- 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
------------------------------------ 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
--------------------- 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.
------------------------------


5.13.1 Fee. Editions will receive management fees of an aggregate of
--- $450,000 per annum (payable in quarterly installments) for the first five (5) years of Company to cover the services of Nicholas Callaway, President and Editorial Director of Editions, and True Sims, 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
-------------- 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
------------- rates for services provided to Company.


5.13.4 Treatment of Expenses. All amounts paid under this Section 5.13
--------------------- 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
--------------------------------- 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
------------------ 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
----------- 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
------ 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 effec ...