Commission File Number 0-29014
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
TEARDROP GOLF COMPANY
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 51-105660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1080 Lousons Road 07083
Union, New Jersey (Zip Code)
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (908) 688-4445
Check whether issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Number of shares of Common Stock outstanding as of August 10, 1999:
5,181,990
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
<PAGE>
TEARDROP GOLF COMPANY
FORM 10-QSB INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 1999
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheet 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 10-17
Part II. Other Information 18
Signature Page 20
2
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TearDrop Golf Company
Consolidated Statements of Operations
For the Three Months Ended June 30, 1999 and 1998
(All dollar amounts, except share and per share amounts, in $000's)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 22,372 $ 19,574 $ 37,590 $ 44,574
Cost of sales 11,803 9,810 20,874 25,309
----------- ----------- ----------- -----------
Gross profit 10,569 9,764 16,716 19,265
Selling, general and
administrative expenses 9,545 7,928 18,164 15,997
----------- ----------- ----------- -----------
Income (loss) from operations 1,024 1,836 (1,448) 3,268
Interest (expense) income, net (468) (409) (887) (801)
----------- ----------- ----------- -----------
Income (loss) before income taxes 556 1,427 (2,335) 2,467
Income tax (expense) (161) (500) -- (863)
Utilization of net loss carryforward 161 500 -- 863
----------- ----------- ----------- -----------
Net income (loss) $ 556 $ 1,427 $ (2,335) $ 2,467
=========== =========== =========== ===========
Preferred dividends -- 102 -- 137
----------- ----------- ----------- -----------
Income (loss) attributable to common
shareholders $ 556 $ 1,325 $ (2,335) $ 2,330
=========== =========== =========== ===========
Net income (loss) per common share - basic $ 0.11 $ 0.43 $ (0.45) $ 0.82
=========== =========== =========== ===========
Net income (loss) per common share - diluted $ 0.11 $ 0.30 $ (0.45) $ 0.60
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - basic 5,181,674 3,059,012 5,180,787 2,858,051
=========== =========== =========== ===========
Weighted Average Number of
Common shares outstanding - diluted 5,181,674 4,474,257 5,180,787 3,865,511
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TearDrop Golf Company
Consolidated Balance Sheet
June 30, 1999
(All dollar amounts, except share and per share amounts, in $000's)
ASSETS
CURRENT ASSETS:
Cash $ 999
Accounts receivable less allowance for returns and
doubtful accounts of $1,451 20,656
Inventories 10,955
Other current assets 530
-------
Total current assets $ 33,140
PROPERTY AND EQUIPMENT, less accumulated
depreciation 4,559
GOODWILL AND INTANGIBLE ASSETS, less accumulated
amortization 6,881
--------
$ 44,580
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,302
Accrued liabilities 5,287
Note payable - shareholder 500
Bank Loan 24,408
-------
Total current liabilities $ 39,497
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value,
authorized 1,000,000 shares,
issued and outstanding none --
Common stock, $.01 par value, authorized
10,000,000 shares, issued and 5,181,990 outstanding
shares 52
Capital in excess of par value 25,196
Accumulated other comprehensive income (255)
Accumulated deficit (19,910)
-------
Total stockholders' equity 5,083
--------
$ 44,580
========
See accompanying notes to consolidated financial statements.
4
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TearDrop Golf Company
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(All dollar amounts, except share and per share amounts, in $000's)
Six Months
Ended June 30
--------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,335) $ 2,467
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 570 355
Provision for doubtful accounts 239 308
Changes in operating assets and liabilities:
(Increase) in accounts receivable (10,781) (11,733)
Decrease in inventories 8,071 4,578
(Increase) in other current assets (168) (115)
Increase (decrease) in accounts payable
and other current liabilities 1,185 (1,420)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (3,219) (5,560)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (138) (132)
Other -- (22)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (138) (154)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreements 3,499 533
Proceeds from shareholder note payable 500 --
Repayment of stockholders' notes (400)
Proceeds from exercise of common stock options 9 --
Proceeds from redemption of common stock warrants 1 8,562
Redemption of preferred stock -- (3,000)
Preferred dividends -- (137)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,009 5,558
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (26) 1
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 626 (155)
CASH AND CASH EQUIVALENTS:
Beginning of year 373 257
-------- --------
End of period $ 999 $ 102
======== ========
See accompanying notes to consolidated financial statements.
5
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts, except share and per share amounts, in $000
(Unaudited)
NOTE 1 - ACCOUNTING POLICIES
The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements in the Company's 1998 Annual Report
to Shareholders. In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been included.
The results for the quarter and six months ended June 30, 1999 do not
necessarily indicate the results that may be expected for the full year.
During the three and six month periods ended June 30, 1999 and 1998, total
comprehensive income (loss) amounted to $530, ($2,361), $1,427 and $2,468,
respectively.
NOTE 2 - INVENTORIES
Inventories at June 30, 1999 consist of the following:
Raw materials and work in process $ 6,726
Finished goods 4,229
-------
Total inventories $10,955
NOTE 3 - LONG TERM DEBT
During 1997, the Company obtained a line of credit with First Union National
Bank, successor by merger to CoreStates Bank, N.A. (the "Bank") in the original
principal amount of $18,000, which was subsequently increased to $25,000. In
March 1999, the line was increased to $30,000; it was reduced to $25,000 on June
30, 1999 and will be reduced further to $20,000 on October 10, 1999. The line of
credit is collateralized by a security interest in all the assets of the
Company. The loan agreement, as amended, provides, among other things, that the
Company satisfy certain financial covenants. At various times during the six
months ended June 30, 1999, the Company was in violation of various financial
covenants as well as certain reporting and repayment obligations.
6
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts, except share and per share amounts, in $000
(Unaudited)
As a result of the Company's defaults under the loan agreement, the Company and
the Bank entered into a Forbearance and Overadvance Agreement (the "Forbearance
Agreement") effective as of July 20, 1999. In connection with the Forbearance
Agreement and an amendment to the loan agreement of even date, the interest rate
under the line of credit was increased to prime rate plus 1% and the principal
amount available under the credit facility will be reduced to $20,000 on October
10, 1999. In addition, the Bank has agreed to forbear from exercising its rights
of enforcement under the loan agreement with respect to certain covenant
defaults until October 10, 1999 or until certain defined events occur. The line
of credit matures on November 10, 1999.
In March 1999, the Company's Chief Executive Officer loaned the Company $500
bearing interest at 8% due upon demand, once the Company has reached certain
reduced levels of indebtedness under the credit facility with the Bank.
NOTE 4 - SEASONALITY
The purchasing decisions of most customers are typically made in the autumn and
a vast majority of sales are expected to occur during the first six months of
the year. In addition, quarterly results may vary from year to year due to the
timing of new product introductions, orders and sales, advertising expenditures,
promotional periods and shipments. Accordingly, comparisons of quarterly
information of the Company's results of operations may not be indicative of the
Company's overall annual performance.
NOTE 5 - COMMITMENTS AND CONTIGENCIES
The Company has entered into endorsement agreements with touring professionals
for periods up to three years. The agreements typically provide for a base
compensation and bonuses based upon, among other things, tournament
performances, standings on the official money list and earning spots on the
Ryder or President Cup teams.
7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts, except share and per share amounts, in $000
(Unaudited)
Minimum compensation requirements for the years ending December 31, 1999, 2000
and 2001, are approximately $4,200, $3,100 and $1,900, respectively.
Additionally, the Company has agreed to issue options to purchase 55,000, 46,000
and 16,000 shares of common stock in connection with these agreements for the
years ending December 31, 1999, 2000 and 2001, respectively. Of the options to
be issued under these agreements, 14,000 to be granted during the year 1999 and
9,000 to be granted in the year 2000, could be exchanged for $100 and $75,
respectively.
The Company entered into an advertising agreement for the years 1999 and 2000
for which the Company has committed to spend approximately $1,500 in 1999 and
$1,551 in 2000.
The Company has obligations with respect to media placement, primarily for
television advertising which requires the Company to spend no less than $5,000,
which amounts could increase over the remainder of the year.
In November 1996, the Company entered into a three year employment agreement
with its President and Chief Executive Officer commencing December 19, 1996. The
agreement provides for annual compensation of $250 for the year ending December
31, 1999, and performance bonuses, as defined. The employment agreement
has been extended through 2002.
In 1998, the Company was named, among others, as a defendant in a lawsuit
seeking damages of $12,000. This claim was settled on June 2, 1999 with no
material cost to the Company.
8
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts, except share and per share amounts, in $000
(Unaudited)
NOTE 6 - SEGMENT INFORMATION
The Company operated as a single reportable segment with sales the first six
months of 1999 of $37,590, of which $32,548 were sales in the United States and
$5,042 were sales outside of the United States. The Company sells its products
in the United States through its own sales force to approximately 1,500 national
accounts (such as national cataloguers, sporting goods retail chain stores,
etc.) and to over 10,000 green grass accounts (golf course pro shops), which in
turn sell directly to the end user. The Company sells its products outside of
the United States through sales offices in Canada and the United Kingdom, and
through distributors in other countries.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
You should read this discussion together with our financial statements and
the related notes and other financial information included elsewhere herein.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed in
the forward-looking statements as a result of various factors.
Overview
We design, develop, manufacture and market throughout the world
high-quality, premium priced golf clubs based on our proprietary technologies,
including (a) our TearDrop line of putters; (b) our Armour line of irons and
woods; (c) our Ram line of irons, woods and wedges; and (d) our Zebra putters.
Our line of products are used by golfers throughout the world, including
professional golfers on the PGA Tour, the Senior PGA Tour, the Ladies PGA Tour
and the Nike Tour. In addition, we operate a professional developmental golf
tour for aspiring PGA Tour players and are the sole United States distributor
for Walter Genuin shoes.
We introduced our first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. We completed an
initial public offering of our common stock in December 1996. In January 1997,
we commenced a substantial television and print advertising campaign. The costs
to produce and air the infomercial and television commercials were substantial
and resulted in losses as we continued to roll out our advertising campaign in
the first three quarters of 1997.
In the fourth quarter of 1997, we completed the acquisition of the assets
of "The TearDrop Professional Golf Tour," the Tommy Armour Golf Company
("Armour") and the Ram Golf Corporation ("Ram").
Since the acquisitions were completed, we have devoted substantial efforts
to reduce costs, eliminate unprofitable product lines, and focus on marketing of
high quality products. However, we cannot assure you that we will be able to
operate the combined enterprises successfully or reverse the history of losses
that TearDrop, Ram and Armour, as stand-alone entities, incurred in the past.
We believe that an important element for increasing awareness and demand
for our golf clubs is the building of a corps of touring professional golfers
that will endorse, use and win with our clubs. Accordingly, as an integral part
of our marketing strategy, we continually seek to obtain professional
endorsements of our clubs. We have entered into endorsement agreements, of up to
three years, with professional players principally on the PGA Tour. These
endorsement agreements generally provide for base payments in consideration of
the use of the professionals' names in connection with the marketing of our
clubs and the use of the clubs by such professionals in tournament play.
10
<PAGE>
In addition, potentially substantial bonus payments may be made based upon
tournament performance, standings on the official money list, and being named to
the Ryder Cup or President Cup teams. We have granted stock options to certain
of our endorsing professionals and intend to continue to do so in the future.
During 1998, we recorded compensation expense of $200,000 in connection with the
grant of such options on the date of grant. The effect of a particular
professional's endorsement on the successful marketing of our clubs, and the
heightening of awareness of our name, may be directly related to the success of
such professional in tournament play. We, however, will be required to
compensate a professional whether or not he or she is successful. For 1999, we
have entered into endorsement agreements which will require the payment of a
minimum of approximately $4.2 million should each of the professionals use and
endorse our products as provided in the agreements. In addition, we anticipate
that we will devote substantial capital to advertising and marketing during the
next year.
We have also made substantial expenditures and commitments for advertising
and marketing and must continue to incur such costs in order to continue to
increase consumer awareness of our products. During 1999, we have incurred
substantial expenses for television, print advertising, our program with the
Golf Channel and in connection with our infomercial, among other things. We
cannot assure you that the expansive advertising and marketing will result in
increased sales for us.
We have incurred substantial indebtedness in financing the acquisition of
Armour and Ram and in financing our expansion and operations. At December 31,
1998, we had $34.3 million in liabilities, approximately $20.9 million of which
was payable to First Union National Bank, successor by merger to CoreStates
Bank, N.A. ("First Union" or the "Bank") pursuant to a certain Loan and Security
Agreement (as amended, the "Loan Agreement"). Under the Loan Agreement, the Bank
provided a $30.0 million revolving credit facility (the "Credit Facility"),
which was reduced to $25.0 million on June 30, 1999 and will be further reduced
to $20.0 million on October 10, 1999. The Credit Facility terminates on November
10, 1999. We will therefore be required to either refinance the amounts
outstanding under the Credit Facility or identify alternative financing. As of
December 31, 1998, we had a working capital deficiency of approximately $4.4
million, primarily as a result of the classification of our $20.9 million credit
facility as a current liability since it terminates and is repayable in November
1999. As a result, our independent auditor has noted in its report that these
conditions, among others, raise substantial doubt about the our ability to
continue as a going concern. We are currently seeking alternative sources of
financing. However, we cannot assure you that we will maintain compliance with
the covenants in the future, will reach terms for an extension of the credit
facility or will identify alternative sources of capital. See "Liquidity and
Capital Resources."
We maintain an in-house research and development and design department. In
addition, we work closely with component manufacturers, independent design
consultants and our endorsing golf professionals in the design and development
of new products and product improvements. Our ability to introduce new products
or product improvements is directly related to the efforts and success of this
research and development effort.
11
<PAGE>
We do not manufacture the components required to assemble our golf clubs.
We rely instead on a number of component suppliers, both domestic and foreign.
Our success in assembling our products will be dependent, in part, on
maintaining our relationships with our existing suppliers and developing
relationships with new suppliers.
We believe that there are readily available alternative sources for each
of the components comprising our clubs, although we cannot assure you of this.
Any significant delay or disruption in the supply of components from our
suppliers or any quality problems with the supplier's components would delay our
delivery of finished products and adversely affect current sales and could
adversely affect future sales potential if customers lose faith in our ability
to deliver a high-quality product on a timely basis. Further, given the highly
seasonal nature of the golf equipment industry, such adverse effect would be
exacerbated should any such supply delay or quality problem occur immediately
prior to or during the six-month period ending June 30 (the period during which
sales of golf equipment have historically been the highest).
Results of Operation
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30,
1998
We had net sales for the three months ended June 30, 1999 of $22,372,000
compared to net sales of $19,574,000 for the three months ended June 30, 1998.
Included in the 1998 sales were $1,854,000 of sales of one product line which
had been discontinued. Therefore, without giving effect to sales of such
product, sales of continuing products in the 1999 period increased by
approximately $4,652,000 or 26% over the similar period of 1998.
Our gross profit for the three months ended June 30, 1999 was $10,569,000,
or 47.2% of sales, compared to $9,764,000, or 49.9% of sales for the same period
of 1998. During the latter part of 1998, we began selling certain products to a
major customer at a gross profit margin that is lower than our normal levels. As
a result, overall gross profit percentage declined by 5.4% during the first
three months of 1999 as compared to the same period of 1998.
We incurred selling, general and administrative expenses of $9,545,000
(42.7% of sales) during the three months ended June 30, 1999 compared to
$7,928,000 (40.5% of sales) for the three months ended June 30, 1998. We
embarked on an extensive advertising campaign during the first quarter of 1999,
which carried over to the second quarter. This has a disproportionate impact on
our profit and loss statements in terms of percentage of sales, as advertising
expenses during the second half of the year will be substantially lower than
expenses incurred during the first half of the year.
As a result of the above, our income from operations for the three months
ended June 30, 1999 was $1,024,000 compared to $1,836,000 for the three months
ended June 30, 1998.
Interest expense for the three months ended June 30, 1999 was $468,000
compared to $409,000 for the same period of the previous year as we had a higher
debt level to support the increase in business.
12
<PAGE>
Our net income for the three months ended June 30, 1999 was $556,000 or
$0.11 per common share (5,181,674 average shares outstanding) compared to net
income after preferred dividends of $1,325,000, or $0.43 basic based on
3,059,012 weighted average number of shares outstanding ($0.30 diluted based on
4,474,257 weighted average number of shares outstanding).
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Our net sales for the six months ended June 30, 1999 were $37,590,000
compared to $44,574,000 for the six months ended June 30, 1998. Included in 1998
sales were $11,710,000 of sales of one product line to a single customer which
product line has been discontinued. Therefore, without giving effect to sales of
such product, sales of continuing products increased by approximately
$4,726,000, or 14.4% from 1998 to 1999. Furthermore, we believe that the market
generally for golf equipment was weaker on an industry wide basis in 1999 as
compared to 1998. We believe that we were able to achieve our levels of sales
during a decline in the market by introducing new products, undertaking a
substantial advertising and marketing campaign, and enlisting a team of highly
regarded touring golf professionals to promote our products.
Gross profit for the six months ended June 30, 1999 was $16,716,000, or
44.5% of sales, which compares to $19,265,000, or 43.2% of sales, for the six
months ended June 30, 1998. During the first six months of 1999, we disposed of
certain of our inventory at prices that were less than cost, which had the
effect of reducing our gross profit percentage by approximately 5.5%. The sales
of the discontinued product line in the first six months of 1998 had the effect
of reducing the gross profit percentage by approximately 7.6%.
Our selling, general and administrative expenses for the six months ended
June 30, 1999 were $18,164,000 (48.3% of sales) as compared to $15,997,000
(35.9% of sales) for the six months ended June 30, 1998. We embarked on an
extensive advertising campaign during the first quarter of 1999, which carried
over to the second quarter. This has a disproportionate impact on our profit and
loss statements in terms of percentage of sales, as advertising expenses during
the second half of the year will be substantially lower than expenses incurred
during the first half of the year.
As a result of the above, our loss from operations for the six months
ended June 30, 1999 was $1,448,000 compared to a profit of $3,268,000 for the
same period of 1998.
Interest expense on our debt amounted to $887,000 for the six months ended
June 30, 1999 compared to $801,000 for the six months ended June 30, 1998. The
amount has increased from the previous year as a higher investment in inventory
was required to support the level of business we are experiencing in 1999.
We incurred a net loss of $2,335,000 or $0.45 per common share (5,180,787
average number of shares outstanding) for the six months ended June 30, 1999
compared to a net income
13
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(after preferred dividends of $137,000) of $2,467,000 or $0.82 per share basic
($0.60 fully diluted) for the same period of 1998.
Liquidity and Capital Resources
At June 30, 1999, we had total current assets of approximately $33,140,000
and total current liabilities of approximately $39,497,000, of which $24,408,000
represents the amount due under our credit facility which terminates in November
1999. Therefore, we have a working capital deficiency of $6,357,000. As a
result, our independent auditor has noted in its report upon the financial
statements for the year ended December 31, 1998 that these conditions, among
others, raise doubt about our ability to continue as a going concern. Our
Stockholders' Equity is $5,083,000 at June 30, 1999. However, because of recent
losses, we have a net tangible deficiency of $1,798,000.
Pursuant to the Loan Agreement with the Bank, the Bank provided the Credit
Facility of $30.0 million to finance the acquisition of the assets of Armour and
Ram. The Credit Facility is currently being utilized by us to satisfy our
working capital and general corporate expenditures. The Credit Facility
terminates on November 10, 1999 and must be repaid by such date. We currently do
not have the resources to repay the entire Credit Facility and will be required
to identify an alternative source of financing prior to such date. We have had
substantial discussions with certain institutions but currently have no
agreements with any alternative source of financing and no assurance can be
given that any such arrangements can be achieved on terms that are acceptable to
us.
Pursuant to an amendment to the Loan Agreement effective as of July 20,
1999, funds extended pursuant to the Credit Facility accrue interest at the
prime rate plus 1% which reflects an increase from the prior interest rate of
either prime minus 1/2% or LIBOR plus 2% per annum. The Credit Facility was
reduced to $25.0 million on June 30, 1999, and will be reduced to $20.0 million
on October 10, 1999. The line matures on November 10, 1999. The Credit Facility
is secured by substantially all of our assets, including the assets acquired in
connection with the acquisitions. The Loan Agreement contains restrictions on
certain of our activities, including, but not limited to, the payment of
dividends, redemption of securities and the sale of assets outside our ordinary
course of business. The Loan Agreement also requires that we meet certain
financial covenants. At various times during the six months ended June 30, 1999,
we were in violation of various financial covenants as well as certain reporting
and repayment obligations.
Effective as of July 20, 1999, we amended the Loan Agreement and entered
into a Forbearance and Overadvance Agreement with the Bank (the "Forbearance
Agreement"), which resulted in the increase in the interest rate (described
above), a reduction in the Credit Facility as of October 10, 1999, and the
forbearance by the Bank from exercising its rights with respect to certain of
the covenant defaults until October 10, 1999 or until certain defined events
occur. Although we are currently in default under the Loan Agreement, the Bank
agreed to loan additional funds on a discretionary basis provided that such
advances will not exceed certain budgeted amounts set forth in the Forbearance
Agreement. However, there can be no assurance that the Bank will loan additional
funds and that any such amounts will be sufficient to fund our working capital
needs.
14
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In March 1999, our Chief Executive Officer loaned us $500,000, bearing
interest at 8% and repayable on demand, once we have reached certain reduced
levels of indebtedness under the Credit Facility with the Bank.
Our credit terms range from 30 days to 90 days, depending on the type of
account. Cash needs are highest in the first quarter of the year, as inventories
are being purchased. The majority of sales are typically shipped to customers in
the first six months of the year. Since the cash receipts from those sales may
not be received for up to 90 days, receivable balances should increase through
the first six months of the year and decrease in the second six months of the
year. In addition, in 1999, we made a significant financial commitment for
advertising during the first quarter of the year.
We currently have approximately $5.0 million of commitments for media
advertising primarily on television for 1999. This amount does not cover all of
our advertising commitments for 1999 and may increase during the remainder of
1999. We have also entered into a two year agreement with the Golf Channel,
providing for expenditures of approximately $1.5 million and $1.55 million
during 1999 and 2000, respectively. In addition, we have entered into
endorsement agreements with golf professionals which will require the payment of
a minimum of approximately $4.2 million in 1999. We have also devoted
substantial significant capital to the production and airing of a new
infomercial. We anticipate that we will continue to devote substantial capital
to advertising and marketing during the year.
We do not have any significant capital expansion plans at the present time
and any capital expenditures will be financed from internally generated funds.
Our statements of cash flows for the six months ended June, 1999 and 1998
is summarized below:
1999 1998
Net cash used in operating activities $3,219,000 $5,560,000
Net cash used in investing activities 138,000 154,000
Net cash provided by financing activities 4,009,000 5,558,000
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Year 2000 Modifications
We rely on both information technology ("IT") and non-IT computer systems
in our operations. The mission-critical IT systems include our operating and
accounting systems, such as IT software applications that allow us to maintain
inventory and customer information and to communicate with our suppliers and
customers. The non-IT systems are primarily telecommunications systems and other
building systems, such as security systems, lighting, fire and safety systems.
In 1997, we began to address the year 2000 problem. The issue is one in
which computer systems may recognize the designation "00" as 1900 when it means
2000, resulting in system failure or miscalculations. We have assigned our
Manager of Information Systems to coordinate and implement measures designed to
prevent disruption in its business operations related to the year 2000 problem.
We completed the remediation of our mission-critical IT applications software in
December 1998 and have completed an end-to-end test of our IT systems. We are
assessing the effect of the year 2000 problem on our non-IT systems and intend
to replace non-IT systems as necessary to become year 2000 ready by October
1999. Additionally, we are working with our customers and our suppliers to
determine whether the year 2000 problem will have an adverse effect on our
relationships with them.
During 1999 we have spent approximately $300,000 above normal operating
costs in order to comply with year 2000 issues funded through regular
operations. We do not anticipate any other expenditures in connection with year
2000 compliance.
We cannot assure you that our year 2000 remediation will be properly and
timely completed and a failure to do so could have a material adverse effect on
our financial condition. We cannot predict the actual effects to us of the year
2000 issue, which depends on numerous uncertainties such as: (1) whether major
third parties address this issue properly and timely, and (2) whether
broad-based or systemic economic failures may occur. We are currently unaware of
any events, trends, or conditions regarding this issue that may have a material
effect on our results of operations, liquidity, and financial condition. If the
year 2000 issue is not resolved by December 31, 1999, our results of operations
or financial condition could be materially adversely affected.
We are developing contingency plans to address the risks created by the
year 2000 problem. These plans include procuring alternative suppliers, when
available, when we are able to conclude that an existing supplier will not be
year 2000 ready. We are scheduled to complete these contingency plans by October
1999.
Seasonality
The purchasing decisions of most customers are typically made in the
autumn and a vast majority of sales are expected to occur during the first six
months of the year. In addition, quarterly results may vary from year to year
due to the timing of new product introductions,
16
<PAGE>
orders and sales, advertising expenditures, promotional periods and shipments.
Accordingly, comparisons of quarterly information of our results of operations
may not be indicative of our overall annual performance.
Forward Looking Statements
When used in this and in future filings by us with the Securities and
Exchange Commission ("the Commission"), in our press releases and in oral
statements made with the approval of one of our authorized executive officers,
the words or phrases "will likely result," "expects," "plans," "will continue,"
"is anticipated," "estimated", "project" or "outlook" or similar expressions
(including confirmations by one of our authorized executive officers of any such
expressions made by a third party with respect to us) are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. We wish to caution readers not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. Such risks and other aspects of
our business and operations are described in "Risk Factors" herein. We have no
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We were named, among others, as a defendant in a lawsuit entitled Izett
Manufacturing, Inc. v. RAM Golf Corporation, Laser Golf Corporation, TearDrop
Golf Company and TearDrop RAM Golf Company, case number 98 CV 858, in which the
plaintiff was initially seeking damages of $11.5 million. This claim was settled
on June 2, 1999 with no material cost to us.
In March 1999, we received a formal notice demanding arbitration from Pro
Golf Promotions, LLC, Cal Rogers and Dara O'Neill in connection with certain
disputes between such parties and us relating to the purchase by us from such
parties of the TearDrop Professional Golf Tour. Such parties are seeking certain
money damages and the issuance of up to 65,000 shares of our common stock
related to alleged incentive obligations for 1998 and up to 65,000 shares of our
common stock related to such obligations for 1999. We believe that such parties
are not entitled to the issuance of such shares or to money damages and intend
to vigorously defend such claim.
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were voted upon at the Annual Meeting of
Stockholders held on June 24, 1999, and received the votes set forth below:
1. All of the following persons nominated were elected to serve as directors and
received the number of votes set opposite their respective names:
For Withheld
--- --------
Rudy A. Slucker 3,962,728 19,355
Fred K. Hochman 3,966,228 15,855
Leslie E. Goodman 3,965,828 16,255
Bruce H. Nagel 3,466,228 15,855
Jeffrey Baker 3,966,328 15,755
2. A proposal to ratify the grant of options covering an aggregate of 1,250,000
shares of our common stock, 1,000,000 of which are exercisable only upon the
achievement of certain targets, to Rudy A. Slucker, our Chairman, President and
Chief Executive Officer, received 1,205,305 votes FOR and 850,161 votes AGAINST,
with 24,090 abstentions.
3. A proposal to approve an amendment to the 1996 Employee Stock Option Plan to
increase the number of shares reserved for issuance under the plan received
1,434,138 votes FOR and 623,293 votes AGAINST, with 22,125 abstentions.
18
<PAGE>
4. A proposal to ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 1999 received 3,360,959 votes
FOR and 575,544 votes AGAINST, with 45,380 abstentions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
10.35 Fourth Amendment to Loan and Security Agreement
10.36 Forbearance and Overadvance Agreement
10.37 Fifth Amendment to Loan and Security Agreement
(b) Reports on Form 8-K:
During the quarter ended June 30, 1999, we did not file any Current
Report on Form 8-K.
19
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TEARDROP GOLF COMPANY
Dated: August 23, 1999 /s/ Rudy A. Slucker
---------------------------------------
Rudy A. Slucker, President and Chief
Executive Officer (Principal Executive
Officer)
Dated: August 23, 1999 /s/ Joseph Cioni
---------------------------------------
Joseph Cioni, Vice President of Finance
and Chief Financial Officer (Principal
Financial and Accounting Officer)
20
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is made
as of this 15th day of April, 1999 among TEARDROP GOLF COMPANY ("TearDrop"),
TOMMY ARMOUR GOLF COMPANY ("Armour"), RAM GOLF CORPORATION (formerly known as
TearDrop Ram Golf Company) ("Ram"), TEARDROP ACQUISITION CORP. ("Acquisition";
TearDrop, Armour, Ram and Acquisition shall be referred to individually herein
as a "Borrower" and collectively as "Borrowers") and FIRST UNION NATIONAL BANK
(successor by merger to CORESTATES BANK, N.A.) ("Lender"). All terms capitalized
but not defined herein shall have the meanings given to such terms in the
Agreement (as such term is hereinafter defined).
BACKGROUND
A. The Borrowers (excluding Ram and Acquisition) and Lender entered into a
certain Loan and Security Agreement dated as of November 10, 1997 (as amended
from time to time, the "Agreement") pursuant to which Lender made available to
the Borrowers the revolving credit facility described therein. Ram was added as
a Borrower pursuant to a Consent and Joinder Agreement dated as of December 29,
1997. Acquisition was added as a Borrower pursuant to an Amendment and Joinder
Agreement dated as of November 5, 1998, but effective as of September 30, 1998.
The Agreement was further amended by an Amendment to Loan and Security Agreement
dated as of February 24, 1999 and a Third Amendment to Loan and Security
Agreement dated as of March 8, 1999.
B. Borrowers have asked that (1) Lender waive Borrowers' non-compliance
with Sections 6.5 and 6.6 of the Agreement as of December 31, 1998 and March 31,
1999, and (2) Lender otherwise amend the Agreement. Subject to the terms and
conditions contained herein, Lender has agreed to (a) waive Borrowers'
non-compliance with Sections 6.5 and 6.6 of the Agreement as of December 31,
1998 and March 31, 1999 and (b) amend the Agreement as set forth herein.
NOW, THEREFORE, the parties agree as follows, intending to be legally
bound.
1. Subject to the satisfaction of the conditions set forth in Section 4
hereof, the Agreement is hereby amended as follows:
(A) The following definition contained in Section 1.1 of the
Agreement is hereby amended to read as follows:
"Borrowing Base" at any time means the sum of (A) 70% of Borrowers'
Qualified Accounts at such time, plus (B) (1) prior to April 15, 1999, 70%
of Borrowers' Qualified Inventory at such time (excluding Borrowers'
Qualified Inventory at the location in Canada listed on Exhibit 3.5 to the
Agreement), (2) from April 15, 1999 through and including April 29, 1999,
65% of Borrowers'
<PAGE>
Qualified Inventory at such time (excluding Borrowers' Qualified Inventory
at the location in Canada listed on Exhibit 3.5 to the Agreement), or (3)
from and after April 30, 1999, 60% of Borrowers' Qualified Inventory at
such time (excluding Borrowers' Qualified Inventory at the location in
Canada listed on Exhibit 3.5 to the Agreement), plus (C) from November 5,
1998 through June 30, 1999, $2,175,000.00, plus (D) the lesser of (1)
$500,000.00 or (2) the sum of (a) 70% of Borrowers' Qualified Canadian
Accounts and (b) 60% of Borrowers' Qualified Inventory at the location in
Canada listed on Exhibit 3.5 to the Agreement.
(B) The Agreement is hereby amended from and after the date hereof
to replace Sections 6.5 and 6.6 with the following Sections which shall read as
follows:
SECTION 6.5 Minimum Net Income. Borrowers shall have net income of
at least: (1) $2,000,000.00 as of June 30, 1999, and (2) $2,500,000.00 as
of September 30, 1999, each as determined for Borrowers on a Consolidated
basis for the period from January 1, 1999 to the date of measurement. For
the purposes hereof the term "net income" shall mean the net income of
Borrowers for the relevant period as reported on Borrowers' periodic
filings with the Securities and Exchange Commission.
SECTION 6.6 [Intentionally Omitted.]
2. Borrowers were not in compliance with Sections 6.5 and 6.6 of the
Agreement as of December 31, 1998 and March 31, 1999. Such Defaults constitute
Events of Default under Section 7.1 (H) of the Agreement (the "Existing Events
of Default"). Borrowers have requested that Lender waive such Existing Events of
Default. Subject to satisfaction of the conditions contained in Section 4
hereof, Lender hereby waives the Existing Events of Default. Except as
specifically set forth herein, Lender does not hereby waive any other violation
of the Agreement by Borrowers existing as of the date hereof or occurring after
the date hereof.
3. The terms of this Amendment are hereby incorporated into the Agreement.
4. The effectiveness of this Amendment is subject to the satisfaction of
each of the following conditions precedent:
(A) Borrowers shall have delivered or caused to be delivered the
following documents:
(1) this Amendment duly executed by Borrowers; and
(2) Borrowers deliver such other documentation as the Lender
may reasonably request.
-2-
<PAGE>
(B) The representations and warranties set forth in Article V of the
Agreement are true and correct in all material respects as of the date hereof,
except as set forth on Schedule 1 attached hereto;
(C) No Default or Event of Default has occurred or is continuing
after giving effect to this Amendment; and
(D) Borrowers shall pay all costs and out-of-pocket expenses
(including, without limitation, reasonable attorneys' fees and costs) of Lender
in connection with the Agreement (including without limitation this Amendment),
and the transactions contemplated thereby, which includes, among other things,
the preparation, review and negotiation of this Amendment, and all costs and
expenses incurred in connection with the above.
5. Borrowers represent and warrant to Lender that:
(A) Except as set forth on Schedule 1 attached hereto, the
representations and warranties set forth in Article V of the Agreement are true
and correct in all material respects as of the date hereof; and
(B) No Default or Event of Default has occurred or is continuing,
excluding such Defaults or Events of Default waived in writing by Lender prior
to the date hereof and herein.
6. The indebtedness evidenced by the Agreement and the Note shall continue
to be secured as set forth in the Agreement.
7. This Amendment contains all of the modifications to the Agreement. No
further modifications shall be deemed effective, unless in writing executed by
the parties hereto.
8. The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of Lender under the Agreement,
nor constitute a waiver of any Default or Event of Default or any provision of
the Agreement, except as specifically set forth herein.
9. This Amendment shall be construed and enforced in accordance with the
laws of the State of New Jersey.
10. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Amendment by signing any such counterpart.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have caused this Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
TEARDROP GOLF COMPANY
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
TOMMY ARMOUR GOLF COMPANY
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
RAM GOLF CORPORATION (formerly
known as TearDrop Ram Golf Company)
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
TEARDROP ACQUISITION CORP.
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
FIRST UNION NATIONAL BANK
(successor by merger to CORESTATES
BANK, N.A.)
By: /s/ John D. Rooney
----------------------------------
Name: John D. Rooney
Title: Senior Vice President
-4-
FORBEARANCE AND OVERADVANCE AGREEMENT
This Forbearance and Overadvance Agreement (the "Agreement") is
entered into and is effective as of the 20th day of July, 1999, by and among
TEARDROP GOLF COMPANY ("TearDrop"), TOMMY ARMOUR GOLF COMPANY ("Armour"), RAM
GOLF CORPORATION (formerly known as TearDrop Ram Golf Company) ("Ram"), TEARDROP
ACQUISITION CORP. ("Acquisition"; TearDrop, Armour, Ram and Acquisition shall be
referred to individually herein as a "Borrower" and collectively as "Borrowers")
and FIRST UNION NATIONAL BANK (successor by merger to CORESTATES BANK, N.A.)
("Lender").
W I T N E S S E T H:
WHEREAS, Borrowers and the Lender are parties to that certain Loan
and Security Agreement dated as of November 10, 1997, (as the same has been or
may hereafter be amended, restated, supplemented, extended or otherwise
modified, the "Loan Agreement"), the terms and provisions of which are
incorporated by reference herein; and
WHEREAS, the Loan Agreement contemplates that Lender may from time
to time extend the Revolving Credit and other credit accommodations to the
Borrowers in an amount up to a limit provided in the Loan Agreement; and
WHEREAS, Lender recently became aware that the aggregate amount of
indebtedness that has been extended to the Borrowers and is currently
outstanding exceeds the Borrowing Base; and
WHEREAS, per the terms of the Loan Agreement, the entire amount of
this excess indebtedness is immediately due and payable and Lender has no
obligation to make any additional loans to Borrowers;
WHEREAS, Borrowers have asked Lender to forbear from taking
enforcement actions and to extend to Borrowers additional loans to Borrowers,
notwithstanding the Overadvance (defined below) and the Existing Defaults
(defined below), to afford the Borrowers an opportunity to repay the Overadvance
and cure the Existing Defaults; and
WHEREAS, pursuant to a fifth amendment to the Loan Agreement of even
date herewith, Lender has appointed Congress Financial Corporation (Central) as
Lender's servicing agent, and has authorized Congress to represent the interests
of Lender and to take such actions on behalf of Lender with respect to the Loan
Agreement as Lender and Congress may from time to time agree and Borrower has
agreed to such provisions and has agreed to a reduction in the maximum credit
under the Loan Agreement to $20,000,000 by October 10, 1999.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. Definitions.
1.1 Terms used but not defined herein shall have the meanings attributed thereto
in the Loan Agreement.
1.2 As used herein, the following terms shall have the meanings set forth below:
"Fifth Amendment" means that certain Fifth Amendment to Loan and
Security Agreement of even date herewith.
"Forbearance Default" means (a) the occurrence of any Default or
Event of Default other than the Existing Defaults, (b) failure of the Borrowers
to timely comply with any term, condition or covenant set forth in this
Agreement or the Loan Agreement, (c) a cessation or substantial reduction in the
operations of any Borrower inconsistent with the normal course of business (over
the last twelve months of business) that continues for more than one business
day, or (d) if any representation made by the Borrowers under or in connection
with this Agreement shall prove to be materially false as of the date when made.
"Forbearance Period" means the period of time from the effective
date of this Agreement until the occurrence of a Termination Event.
"Overadvance" means, at any given time, the amount by which the
aggregate Advances exceed the Borrowing Base.
1.3 The following terms shall have the meanings defined for such terms in the
Sections or documents set forth below:
Term Section
---- -------
Additional Overadvances 4.1
Agreement Preamble
Borrowers Preamble
Borrower/Lender Documents 10.2
Claims 7
Existing Overadvance 2.2
Forbearance Budget 4.2
Lender Preamble
Lender Releasees 7
Lissner 6.3
Loan Agreement Recitals
Termination Event 3
2. Confirmation by Borrowers of Liabilities, Existing Overadvance and Existing
Defaults.
2.1 Borrowers acknowledge and agree that as of July 8, 1999, the aggregate
amount of all of the outstanding Advances under the Loan Agreement included at
least the following amounts:
2
<PAGE>
Prime Rate Tranche $24,367,099.48
--------------
LIBOR Tranches $ -0-
--------------
Letter of Credit Liability $ 150,000.00
--------------
Total outstanding Liabilities $24,517,099.48
--------------
The foregoing amounts do not include all of the interest and fees to which
Lender is entitled. The Liabilities listed above are due and owing, and no
Borrower has any right of offset, defense, or counterclaim with respect to such
Liabilities.
2.2 Borrowers acknowledge and agree that the amount by which the aggregate
Advances as of July 8, 1999 exceed the Borrowing Base is at least $2,106,393.00
as of July 8, 1999 (the "Existing Overadvance").
2.3 Borrowers agree and acknowledge that certain material Events of Default have
occurred and are continuing because of (i) Borrowers' failure to timely deliver
the reports required to be delivered pursuant to Section 6.2(A)(3) of the Loan
Agreement for the months of March and April, 1999, and the expiration of the
cure period for such delivery that is provided under Section 7.1(I) of the Loan
Agreement, (ii) Borrowers' failure to repay the amount of the Existing
Overadvance as required by Section 2.1(A) of the Loan Agreement, and (iii)
Borrowers' failure to have net income of at least $2,000,000 for the six-month
period ending June 30, 1999, as required by Section 6.5 of the Loan Agreement.
The foregoing Events of Defaults are referred to herein as the "Existing
Defaults."
2.4 The Existing Overadvance and the Existing Defaults (i) relieve Lender from
any obligation to make Advances or other financial accommodations under the Loan
Agreement, and (ii) permit the Lender, in its sole discretion, to, among other
things, (A) terminate any commitment to make further loans or other financial
accommodations under the Loan Agreement, (B) declare all Liabilities to be
immediately due and payable without setoff, counterclaim or defenses and without
notice or demand, (C) commence legal action with respect to the Borrowers and/or
the Collateral, and/or (D) appropriate, setoff and apply to the payment of any
or all of the Liabilities, any or all of the Collateral.
3. Forbearance.
All rights and remedies of Lender in connection with the Existing
Overadvance and the Existing Defaults are reserved, but, except as otherwise
specifically provided herein, Lender agrees to forbear from exercising its
rights and remedies that arise solely as a result thereof until the earlier to
occur of (each of (i) and (ii) is referred to herein as a "Termination Event"):
(i) October 10, 1999 or any later date to which the Forbearance Period is
extended, or (ii) any Forbearance Default. Upon a Termination Event, Lender's
agreement hereunder to forbear from exercising its rights or remedies shall
immediately terminate, without the requirement of any demand, presentment,
protest or notice of any kind, all of which Borrowers waive, and Lender may at
any time thereafter proceed to exercise any and all of its rights and remedies,
including without limitation, its rights and remedies in connection with the
Existing
3
<PAGE>
Defaults, any Forbearance Default, and any Overadvance then outstanding, all of
which are reserved. Any agreement by Lender to extend the Forbearance Period
must be set forth in writing and signed by an officer of Lender or Congress.
Borrowers acknowledge that Lender has made no assurances to Borrowers concerning
the likelihood of an extension of the Forbearance Period.
4. Additional Overadvances.
4.1 Lender agrees that in reliance on and as consideration for the
representations, warranties, covenants and agreements of Borrowers hereunder,
including the release contained in Section 7 hereof, the Lender will, upon
satisfaction of the conditions precedent contained in Section 9, loan to
Borrowers on a discretionary basis additional Advances (the "Additional
Overadvances") on or after the date of this Agreement in accordance with Section
4.2, subject to the terms and conditions of this Agreement and the Loan
Agreement. The Additional Overadvances will be governed by the terms of the Loan
Agreement except as provided otherwise herein. All Liabilities, including the
Additional Overadvances, will be immediately due and payable, without notice or
demand, upon the occurrence of a Termination Event. Borrowers further agree and
acknowledge that neither the making of any Additional Overadvances, nor any
other action taken by the Lender herein or prior to the date hereof, shall: (x)
create any obligation to make any further Advances or to continue to defer
enforcement action other than as specified in this Agreement, (y) constitute a
waiver or modification of any term or condition of the Loan Documents, or (z)
constitute a waiver of any Event of Default, any Forbearance Default, any
unsatisfied condition precedent or otherwise prejudice any rights or remedies
which the Lender now has or may have in the future under any of the Loan
Documents, applicable law or otherwise, including, without limitation, all
rights and remedies in connection with the Existing Defaults. Nothing contained
herein shall in any way be deemed to limit or prevent the Lender from, upon the
occurrence of a Termination Event, accelerating the Liabilities, terminating the
commitments, commencing any action or actions to collect the Liabilities,
foreclosing or otherwise realizing on the Collateral, or taking any other
enforcement action against Borrowers. Without limiting the generality of the
foregoing, subject only to Lender's agreement to forbear during the Forbearance
Period, the Lender expressly reserves all rights and remedies which the Lender
now has or may have in the future under any of the Loan Documents, applicable
law or otherwise, including, without limitation, all rights and remedies in
connection with the Existing Defaults and the Existing Overadvance.
4.2 The Lender agrees to loan to the Borrowers Additional Overadvances during
the Forbearance Period on a discretionary basis, provided that such Additional
Overadvances shall not cause the aggregate amount of any Overadvance that would
exist upon the making of such Additional Overadvance to exceed the amounts shown
for each period in the last column (titled "BB excess of Loan") ("Budgeted
Overadvance") of the borrowing base analysis ("Forbearance Budget") attached as
Exhibit "A" hereto by (i) more than $360,000 through August 5, 1999, and (ii)
more than $300,000 from and after August 6, 1999. For purposes of this Section
4.2, the Budgeted Overadvance during any day of each calendar week shall be the
amount of the Budgeted Overadvance as of the immediately preceding Friday. The
Forbearance Budget is
4
<PAGE>
attached solely for purposes of this Section 4.2, and nothing therein
constitutes any commitment by Lender.
4.3 The Borrowers agree and acknowledge that the Additional Overadvances shall
be Revolving Credit and shall constitute Advances and Liabilities under the Loan
Agreement, shall be secured by the Collateral, and shall be subject to the terms
and conditions of the Loan Agreement, unless such terms and conditions conflict
with the terms and conditions of this Agreement, in which case this Agreement
shall control.
5. Conditional Waiver of Default Interest Rate; No Additional LIBOR Tranches.
5.1 The Borrowers agree and acknowledge that the Lender is entitled to collect
interest on the Revolving Credit at the Default Rate as specified in Section
2.5(B) of the Loan Agreement.
5.2 The Lender agrees that, provided that no Forbearance Default occurs, the
Lender waives its right to charge interest on the Liabilities at the Default
Rate during the Forbearance Period; after the end of the Forbearance Period, if
Borrower is then in default of the Loan Agreement, interest shall thereafter
accrue at the Default Rate without further notice and shall be due and payable
on demand.
5.3 From and after the date of this Agreement, unless Lender otherwise agrees,
Borrowers shall not request any Advances that would constitute LIBOR Tranches or
seek to convert Prime Rate Tranches into LIBOR Tranches, and Lender shall have
no obligation to provide any additional LIBOR Tranches.
5.4 Borrowers acknowledge that the non-default interest rate has been modified
pursuant to the Fifth Amendment.
6. Covenants
In consideration of the Additional Overadvances and Lender's
agreement to forbear herein contained, the Borrowers covenant and agree with
Lender as follows:
6.1 Borrowers have retained Ozer Group LLC ("Ozer") to provide a written
valuation, determined on an orderly liquidation basis, of all of Borrowers'
inventory (the "Ozer Appraisal"). Borrowers agree to cause Ozer to
simultaneously deliver a copy of the Ozer Appraisal (and any preliminary drafts
thereof) to Lender and Congress substantially contemporaneously with the
delivery thereof to Borrowers and in any event by July 26, 1999. Borrowers
hereby irrevocably authorize Lender, Congress, and Ozer to communicate freely
with one another, with the participation of any representative of any of
Borrowers, concerning the Ozer Appraisal.
6.2 Borrowers shall by July 26, 1999 retain an appraiser reasonably acceptable
to Lender and Congress ("Appraiser") to provide a written valuation of certain
of Borrowers' General Intangibles (the "Appraisal"). Borrowers agree to cause
the Appraiser to simultaneously deliver a copy of the Appraisal (and any
preliminary drafts thereof) to Lender and Congress substantially
contemporaneously with the delivery thereof to Borrowers and in any event by
August 26, 1999.
5
<PAGE>
Borrowers hereby irrevocably authorize Lender, Congress, and the Appraiser to
communicate freely with one another, with the participation of any
representative of any of Borrowers, concerning the Appraisal.
6.3 Borrowers acknowledge that Lender and Congress have retained Lissner
Associates, Ltd. ("Lissner") to assist Lender and Congress with their analysis
of Borrowers' operations and financial condition, as well as Borrowers'
compliance with this Agreement and the Loan Agreement. Borrowers agree to afford
representatives of Lissner with complete access to Borrowers' Books and Records
and facilities upon reasonable notice and during Borrowers' regular business
hours. Borrowers agree that in no event shall Lissner be called upon by
Borrowers to provide input on any operational decisions of any of Borrowers.
Borrowers agree to reimburse Lender for any reasonable fees and expenses
incurred by Lissner in connection with this engagement.
6.4 Borrower acknowledges and reaffirms its obligations under Sections 3.7 (The
Cash Collateral Account) and 6.27 (Primary Operating Accounts; Cash Management
Services) of the Loan Agreement. Borrowers acknowledge and agree that, as a
result of the Existing Defaults, Borrowers shall no longer have any right to
request Lender to withdraw funds from the Cash Collateral Account and to
transfer them to the Operating Account as provided in Section 3.7 of the Loan
Agreement. Borrowers covenant not to take any action to cause any customer of
Borrowers that presently makes payments to the Cash Collateral Account to make
or send payments elsewhere. Except as provided in the last sentence of this
Section, Borrowers shall deposit all payments received by Borrowers of any sort,
including Account payments, into the Cash Collateral Account within two Business
Days after receipt by Borrower. Borrower confirms that the Cash Collateral
Account is First Union account number 2014194565380, which account is under the
exclusive dominion and control of Lender and is subject to a security interest
and right of setoff in favor of Lender. Except for the existing accounts of
Borrower set forth on Exhibit B attached hereto, Borrower shall not maintain any
cash accounts at any institution other than Lender prior to repayment in full of
the Advances. Notwithstanding the foregoing, Borrowers may continue to maintain
the accounts listed on Exhibit "B" hereto, provided that Borrowers shall not
cause any funds to be deposited into such accounts other than in the ordinary
course of business consistent with Borrowers' past practices with respect to
such accounts.
6.5 Borrowers shall provide Congress and Lender with copies of any bank
statements received by Borrowers with respect to the accounts listed on Exhibit
"B" for all periods after May 31, 1999. Copies of such statements shall be sent
to Congress and Lender promptly upon their receipt by Borrowers.
7. Release of Lender
In consideration of, among other things, the forbearance provided
for herein and any other financial accommodations which Lender elects to extend
to Borrowers, Borrowers forever waive, release and discharge any and all claims
(including, without limitation, cross-claims, counterclaims, rights of setoff
and recoupment), causes of action, demands, suits, costs,
6
<PAGE>
expenses and damages that any of them now have or hereafter may have, of
whatsoever nature and kind, whether known or unknown, whether now existing,
whether arising at law or in equity that arise under or relate to any of the
Loan Documents or this Agreement or any Person's rights or obligations
thereunder or hereunder (collectively, "Claims"), against Lender, any of its
respective subsidiaries and affiliates, and its and their respective successors,
assigns, officers, directors, employees, agents, attorneys and other
representatives (collectively, the "Lender Releasees"), based in whole or in
part on facts, whether or not known, existing on or prior to the date of this
Agreement. The receipt by any Borrower of any Advances or other financial
accommodations made by Lender after the date hereof shall constitute a
ratification, adoption and confirmation by Borrowers of the foregoing general
release of all Claims against any Lender Releasee which are based in whole or in
part on facts, whether or not now known or unknown, existing on or prior to the
date of receipt on any such Advances or other financial accommodations. The
provisions of this Section shall survive the termination of this Agreement and
the Loan Agreement and payment in full of the Liabilities.
8. Representations and Warranties.
Borrowers represent and warrant to the Lender as of the date hereof
that:
8.1 there are no other Events of Default under the Loan Agreement except for the
Existing Events of Default; and
8.2 Borrowers have full power, authority and legal right to enter into this
Agreement, and this Agreement has been duly authorized by the Borrowers' Boards
of Directors; and
8.3 the Loan Documents constitute the legal, valid and binding obligations of
the Borrowers and are enforceable against the Borrowers in accordance with their
respective terms; and
8.4 to the best of Borrower's knowledge, (i) the Lender's security interests in
the Collateral continue to be valid, binding and enforceable first priority
liens which secure the Liabilities, and (ii) no tax or judgment liens are
currently of record against any Borrower; and
8.5 except for the Existing Defaults, each of the representations, warranties,
covenants and agreements of the Borrowers set forth in the Loan Agreement, as
same have been updated in prior amendments to the Loan Agreement and as further
updated on Schedule 1 hereto, is reaffirmed with the same force and effect as if
each were separately stated herein and made as of the date hereof; and
8.6 Borrowers do not maintain any cash accounts or cash deposits other than in
(i) accounts maintained at Lender and (ii) those accounts set forth on Exhibit B
attached hereto.
9. Conditions Precedent.
As conditions precedent to the effectiveness and validity of this
Agreement, Borrowers will:
7
<PAGE>
9.1 deliver to Lender a fully executed copy of this Agreement and the Fifth
Amendment;
9.2 deliver to Lender valid resolutions of the Boards of Directors of each
Borrower authorizing the execution and delivery of this Agreement and the Fifth
Amendment; and
10. General Provisions.
10.1 Accuracy of Recitals. The recitals to this Agreement are true and correct.
10.2 Integration; Amendment; Waivers. This Agreement, the Fifth Amendment, the
Loan Documents, and the other written agreements, instruments and documents
entered into in connection therewith (collectively, the "Borrower/Lender
Documents") set forth in full the terms of agreement among the parties and are
intended as the full, complete and exclusive contract governing the relationship
among the parties, superseding all other discussions, promises, representations,
warranties, agreements and understandings between the parties with respect
thereto. No term of the Borrower/Lender Documents may be modified or amended,
nor may any rights thereunder be waived, except in a writing signed by the party
against whom enforcement of the modification, amendment or waiver is sought. Any
waiver of any condition in, or breach of, any of the foregoing in a particular
instance shall not operate as a waiver of other or subsequent conditions or
breaches of the same or a different kind. Lender's exercise or failure to
exercise any rights under any of the foregoing in a particular instance shall
not operate as a waiver of its right to exercise the same or different rights in
instances. Except as expressly provided to the contrary in this Agreement, or in
another written agreement between the parties, all the terms, conditions and
provisions of the Borrower/Lender Documents shall continue in full force and
effect. With respect to any description herein of the rights and remedies of
Lender or Liabilities of the Borrowers which also exist under the terms of the
other Borrower/Lender Documents, the fact that this Agreement may omit or
contain a different description of any rights, remedies and Liabilities shall
not be deemed to limit any of such rights, remedies and Liabilities contained in
the other Borrower/Lender Documents.
10.3 Payment of Expenses. Borrowers acknowledge and reaffirm their obligation
under Section 8.4 of the Loan Agreement to, among other things, pay all costs
and expenses of Lender in connection with the administration of the Loan
Documents and the enforcement thereof, including all reasonable fees and
expenses incurred in conjunction with the preparation and enforcement of this
Agreement. Borrowers acknowledge that Lender has appointed Congress as Lender's
servicing agent, and agree that all costs and expenses (including reasonable
fees and out-of-pocket expenses of legal counsel and Lissner) incurred by
Congress in connection with this Agreement or with any Loan Document shall be
recoverable by Lender, and payable by Borrowers, as provided in Section 8.4 of
the Loan Agreement to the same extent as any expenses incurred directly by
Lender.
10.4 No Third Party Beneficiaries. This Agreement does not create, and shall not
be construed as creating, any rights enforceable by any person not a party to
this Agreement.
10.5 Counterparts. This Agreement may be executed in any number of counterparts,
which together shall constitute one and the same agreement.
8
<PAGE>
10.6 Time of Essence. Time is of the essence in the payment and performance of
each of the obligations of the Borrowers and with respect to all conditions to
be satisfied by the Borrowers.
10.7 Construction; Voluntary Agreement; Representation by Counsel. This
Agreement has been prepared through the joint efforts of both of the parties.
Neither its provisions nor any alleged ambiguity shall be interpreted or
resolved against any party on the ground that such party's counsel drafted this
Agreement. Each of the parties hereto represents and declares that such party
has carefully read this Agreement and that such party knows the contents thereof
and signs the same freely and voluntarily. The parties hereto acknowledge that
they have been represented in negotiations for and preparation of this Agreement
by legal counsel of their own choosing, and that each of them has read the same
and had its contents fully explained by such counsel and is fully aware of its
contents and legal effect.
10.8 Governing Law. This Agreement shall be governed by the laws of the State of
New Jersey.
10.9 Further Assurances. Borrowers agree to take all further actions and execute
all further documents as Lender may from time to time reasonably request to
carry out the transactions contemplated by this Agreement.
10.10 Notices. All notices, requests and demands to or upon the respective
parties hereto shall be given in accordance with Section 8.2 of the Loan
Agreement.
10.11 Acceptance of Facsimile Signatures. The parties agree that this Agreement
will be considered signed when the signature of a party is delivered by
facsimile transmission. Such facsimile signature shall be treated in all
respects as having the same effect as an original signature.
10.12 Mutual Waiver of Right to Jury Trial. LENDER AND BORROWERS WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO: (I) THIS AGREEMENT, OR ANY OF THE AGREEMENTS, INSTRUMENTS
OR DOCUMENTS REFERRED TO HEREIN; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN OR AMONG THEM; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF
CONGRESS OR BORROWERS OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THEM; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
9
<PAGE>
IN WITNESS WHEREOF, each of the parties have caused this Agreement
to be executed and delivered by its duly authorized officer or agent as of the
date first above written.
Borrowers:
TEARDROP GOLF COMPANY
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
TOMMY ARMOUR GOLF COMPANY
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
RAM GOLF CORPORATION (formerly
known as TearDrop Ram Golf Company)
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
TEARDROP ACQUISITION CORP.
By: /s/ Rudy Slucker
----------------------------------
Name: Rudy Slucker
Title: President
10
<PAGE>
Lender:
FIRST UNION NATIONAL BANK
(successor by merger to CORESTATES
BANK, N.A.)
By: CONGRESS FINANCIAL
CORPORATION (CENTRAL), as
Servicing Agent
By: /s/ William H. Bloom
-------------------------------
Name: William H. Bloom
Title: Exec. Vice President
EXHIBITS AND SCHEDULES
Exhibit A - Forbearance Budget
Exhibit B - Existing Accounts
Schedule 1 - Updated Representations and Warranties
11
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is
made effective as of this 20th day of July, 1999 among TEARDROP GOLF COMPANY
("TearDrop"), TOMMY ARMOUR GOLF COMPANY ("Armour"), RAM GOLF CORPORATION
(formerly known as TearDrop Ram Golf Company) ("Ram"), TEARDROP ACQUISITION
CORP. ("Acquisition"; TearDrop, Armour, Ram and Acquisition shall be referred to
individually herein as a "Borrower" and collectively as "Borrowers") and FIRST
UNION NATIONAL BANK (successor by merger to CORESTATES BANK, N.A.) ("Lender").
All terms capitalized but not defined herein shall have the meanings given to
such terms in the Agreement (as such term is hereinafter defined).
BACKGROUND
A. The Borrowers (excluding Ram and Acquisition) and Lender entered
into a certain Loan and Security Agreement dated as of November 10, 1997 (as
amended from time to time, the "Agreement") pursuant to which Lender made
available to the Borrowers the revolving credit facility described therein. Ram
was added as a Borrower pursuant to a Consent and Joinder Agreement dated as of
December 29, 1997. Acquisition was added as a Borrower pursuant to an Amendment
and Joinder Agreement dated as of November 5, 1998, but effective as of
September 30, 1998. The Agreement was further amended by an Amendment to Loan
and Security Agreement dated as of February 24, 1999, a Third Amendment to Loan
and Security Agreement dated as of March 8, 1999, and a Fourth Amendment to Loan
and Security Agreement dated as of April 15, 1999.
B. Borrowers have asked that Lender enter into a certain Forbearance
and Overadvance Agreement ("Forbearance Agreement") of even date herewith and,
in connection therewith, the parties have agreed to amend the Agreement as set
forth herein.
NOW, THEREFORE, the parties agree as follows, intending to be
legally bound.
1. Subject to the satisfaction of the conditions set forth in
Section 4 hereof, the Agreement is hereby amended as follows:
(A) Section 1.1 of the Agreement is hereby amended to add the
following defined terms in alphabetical order:
"Forbearance Agreement" shall mean that certain Forbearance
and Overadvance Agreement among the Borrowers and Lender dated as of
July 20, 1999.
"Termination Event" shall have the meaning set forth in the
Forbearance Agreement.
<PAGE>
(B) The following definitions contained in Section 1.1 of the
Agreement are hereby amended to read as follows:
"Adjusted Prime Rate" means the Prime Rate plus 1%. The
Adjusted Prime Rate shall change simultaneously with each change in
the Prime Rate.
"Borrowing Base" at any time means the sum of (A) 70% of
Borrowers' Qualified Accounts at such time, plus (B) 60% of
Borrowers' Qualified Inventory at such time (excluding Borrowers'
Qualified Inventory at the location in Canada listed on Exhibit 3.5
to the Agreement), plus (C) from November 5, 1998 through the date
of a Termination Event, $2,175,000.00, plus (D) the lesser of (1)
$500,000.00 or (2) the sum of (a) 70% of Borrowers' Qualified
Canadian Accounts and (b) 60% of Borrowers' Qualified Inventory at
the location in Canada listed on Exhibit 3.5 to the Agreement.
"Commitment" means, from July 1, 1999 through October 9, 1999,
$25,000,000, and, from and after October 10, 1999, $20,000,000.
(C) The Agreement is hereby amended from and after the date
hereof to replace Section 8.2 with the following Section which shall read as
follows:
SECTION 8.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given
to each party hereto by overnight delivery service at its address
specified below or at such other address as shall be designated by such
party in a notice to each other party complying with the terms of this
Section 8.2:
If to Borrowers:
[Name of Borrower]
1080 Lousons Road
Union, New Jersey 07083
Attention: Mr. Rudy Slucker
If to Lender:
First Union National Bank
1339 Chestnut Street
4th Floor PA 4812
Philadelphia, PA 19107
Attention: John Rooney
2
<PAGE>
with a copy to:
Congress Financial Corporation (Central)
150 South Wacker Drive, Suite 2200
Chicago, Illinois 60606-4401
Attention: William H. Bloom
All notices, requests, demands and other communications provided for
hereunder shall be effective when delivered or received at the aforesaid
addresses.
2. The Borrowers acknowledge that Lender has advised Borrowers that
Lender has appointed and designated Congress Financial Corporation (Central)
("Congress") to serve as Lender's servicing agent with respect to the Agreement
and to exercise such rights and remedies on behalf of Lender with respect to the
Loan Agreement as Lender and Congress may from time to time agree. Borrowers
hereby consent to such appointment and have agreed that, until receipt by
Borrowers of further written notice from Lender, Borrowers shall recognize
Congress as Lender's duly authorized agent with respect to any and all rights of
Lender under the Agreement. Borrowers agree that all costs and expenses
(including reasonable fees and out-of-pocket expenses of legal counsel) incurred
by Congress in connection with the Agreement or with any Loan Document shall be
recoverable by Lender, and payable by Borrowers, as provided in Section 8.4 of
the Agreement to the same extent as any expenses incurred directly by Lender.
Until further notice from Lender, Borrowers agree that any and all
communications of any nature by any of Borrowers to Lender, including without
limitation all financial information required to be provided to Lender by
Section 6.2 of the Agreement, shall be simultaneously delivered to both Lender
and Congress in accordance with Section 8.2 of the Agreement, as amended hereby.
All payments made by Borrowers on account of any of the Liabilities shall
continue to be made directly to Lender as provided in Section 2.2 of the
Agreement.
3. The terms of this Amendment are hereby incorporated into the
Agreement.
4. The effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
(A) Borrowers shall have delivered or caused to be delivered
the following documents, each duly executed by Borrowers:
(1) this Amendment and
(2) the Forbearance Agreement.
(B) Borrowers shall pay all costs and out-of-pocket expenses
(including, without limitation, reasonable attorneys' fees and costs) of Lender
and Congress in connection with the Agreement (including without limitation this
Amendment), and the transactions contemplated thereby, which includes, among
other things, the preparation, review and negotiation of this Amendment, and all
costs and expenses incurred in connection with the above.
3
<PAGE>
5. Borrowers represent and warrant to Lender that:
(A) The representations and warranties set forth in Article
V of the Agreement, as the same have been updated in
prior amendments to the Agreement and as further updated
on Schedule 1 hereto, are true and correct in all
material respects as of the date hereof;
(B) No Default or Event of Default has occurred or is
continuing, excluding the Existing Defaults (as defined
in the Forbearance Agreement); and
(C) The indebtedness evidenced by the Agreement and the Note
shall continue to be secured as set forth in the
Agreement.
6. This Amendment contains all of the modifications to the
Agreement. No further modifications shall be deemed effective, unless set forth
in writing and executed by the parties hereto.
7. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of Lender under the
Agreement, nor constitute a waiver of any Default or Event of Default or any
provision of the Agreement.
8. This Amendment shall be construed and enforced in accordance with
the laws of the State of New Jersey.
9. This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Amendment to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
TEARDROP GOLF COMPANY
By: /s/ Rudy Slucker
------------------------------------
Name: Rudy Slucker
Title: President
TOMMY ARMOUR GOLF COMPANY
By: /s/ Rudy Slucker
------------------------------------
Name: Rudy Slucker
4
<PAGE>
Title: President
RAM GOLF CORPORATION (formerly known
as TearDrop Ram Golf Company)
By: /s/ Rudy Slucker
------------------------------------
Name: Rudy Slucker
Title: President
TEARDROP ACQUISITION CORP.
By: /s/ Rudy Slucker
------------------------------------
Name: Rudy Slucker
Title: President
FIRST UNION NATIONAL BANK (successor
by merger to CORESTATES BANK, N.A.)
By: /s/ Ronald L. Bacon
------------------------------------
Name: Ronald L. Bacon
Title: Senior Vice President
SCHEDULES
Schedule 1 - Updates to Representations and Warranties
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tear Drop
Golf Company Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 999
<SECURITIES> 0
<RECEIVABLES> 22,097
<ALLOWANCES> 1,451
<INVENTORY> 10,955
<CURRENT-ASSETS> 33,140
<PP&E> 5,653
<DEPRECIATION> 1,094
<TOTAL-ASSETS> 44,500
<CURRENT-LIABILITIES> 39,497
<BONDS> 24,408
0
0
<COMMON> 52
<OTHER-SE> 5,031
<TOTAL-LIABILITY-AND-EQUITY> 44,580
<SALES> 37,590
<TOTAL-REVENUES> 37,590
<CGS> 20,874
<TOTAL-COSTS> 20,874
<OTHER-EXPENSES> 18,164
<LOSS-PROVISION> 239
<INTEREST-EXPENSE> 887
<INCOME-PRETAX> (2,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,335)
<EPS-BASIC> (.45)
<EPS-DILUTED> (.45)
</TABLE>
