<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934
Commission File Number: 0-24583
ADAMS GOLF, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2320087
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 Delaware Avenue, Suite 572, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
(302) 427-5892
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock $.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 15, 1999, the aggregate market value of the Registrant's Common Stock
held by nonaffiliates of the Registrant was $38,941,431 based on the closing
sales price of $3 11/16 per share of the Registrant's Common Stock on the Nasdaq
Stock Market's National Market.
The number of outstanding shares of the Registrant's Common Stock, par value
$.001 per share, was 22,479,282 on March 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement for the annual meeting of stockholders to be held on
May 5, 1999, which proxy statement was filed with the Securities and Exchange
Commission on April 7, 1999.
<PAGE>
ITEM 1. BUSINESS
GENERAL
Adams Golf, Inc. (the "Company" or "Adams Golf") designs, manufactures and
markets premium quality, technologically innovative golf clubs. Adams Golf's
primary products include the Tight Lies line of fairway woods, SC Series
Titanium drivers, Assault-VMI Irons, and the Faldo Series wedges. The Company
was incorporated in Texas in 1987 and reincorporated in Delaware in 1990. The
Company completed an internal reorganization in 1997 and now conducts its
operations through several direct and indirect wholly owned subsidiaries.
SEGMENTS AND PRODUCTS
The Company operates in a single segment (golf clubs) within the golf industry
and within that segment offers more than one class of product (fairway woods,
custom fitted clubs, drivers, wedges).
The Company currently offers the following products:
FAIRWAY WOODS - The Tight Lies line of fairway woods has an innovative upright
trapezoidal or "upside down" head shape that incorporates a distinctive shallow
face and a low center of gravity. The Company believes that this club is ideal
for getting the ball airborne quickly and efficiently with optimum spin to
maximize distance from virtually any lie on the course including the rough, hard
pan, fairway bunkers and divots.
CUSTOM FITTED CLUBS - The Company's custom fitted clubs consist primarily of the
Assault-VMI irons which are perimeter-weighted, cavity-backed, slightly offset
irons incorporating the Company's patented variable moment of inertia ("VMI")
design formula producing consistent swing feel across an entire set of clubs.
The Company markets the Assault-VMI irons to professional and avid golfers
exclusively through its network of over 100 certified custom fitting accounts.
The Company believes that its custom fitting activities provide an in-depth
understanding of golf club design and credibility in the golf industry.
DRIVERS - In January 1999, the Company introduced the SC Series Titanium drivers
which have been designed to achieve a specific ball flight objective: longer and
straighter tee shots resulting from reduced side spin and increased forward
momentum. These qualities are achieved through a complex patented asymmetrical
bulge design which incorporates precisely controlled relationships between the
curvature of the face and the center of gravity.
WEDGES - In January 1999, the Company also introduced the Faldo Series wedges
featuring a classic style with a unique asymmetric sole designed to deliver
three different wedge shots - pitch, sand, and open-face finesse from a single
club. Utilizing input from Nick Faldo, a professional golfer, regarding his own
wedge play, the sole of the Faldo Series wedges have been designed to provide
maximum playability from a variety of lies, giving golfers the confidence to
execute even the toughest wedge shots.
The following table sets forth the contribution to net sales attributable to the
product groups for the years indicated. Because the SC Series Titanium drivers
and the Faldo Series wedges were not introduced by the Company until fiscal
1999, these product groups are not referenced in the table. Historical
percentages may not be indicative of the Company's future product mix.
PERCENTAGE OF NET SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Fairway Woods 47.2% 94.3% 96.5%
Custom Fitted Clubs 52.8% 5.7% 3.5%
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The Company supports each of its products with a two year warranty. The warranty
provides for repair or replacement of the golf club, except in the case of
abuse. The Company has not experienced material amounts of warranty claims with
respect to its golf clubs.
1
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DESIGN AND DEVELOPMENT
The Company's design and development team is responsible for developing, testing
and introducing new technologies and product designs. This team is currently led
by Barney Adams, the founder of the Company and inventor of the Tight Lies
fairway wood; Richard H. Murtland, Vice President-Research and Development;
Adams Golf's in-house design development team, Nick Faldo and independent
consultants, Robert R. Bush and Dr. Michael M. Carroll. Mr. Bush has over 30
years of experience in golf club development, most notably as Director of
Technical Services for True Temper Sports, a leading shaft manufacturer, where
from 1966 to 1993, he was responsible for testing all golf club shafts. Mr. Bush
was instrumental in the development of "Iron Byron," the industry standard for
the mechanical testing of golf clubs and balls. Mr. Bush is currently a member
of the Technical Advisory Panel for GOLF DIGEST. Dr. Michael M. Carroll is Dean
of the George R. Brown School of Engineering at Rice University in Houston,
Texas. Dr. Carroll holds doctorate degrees in both physics and mathematics and
is an avid golfer. Dr. Carroll has worked with the Company's design and
development team since April 1, 1998 and is responsible for the scientific
analysis of each new product under development by the Company.
The design and development team engages in a five-step process to create new
products.
CONCEPT DEVELOPMENT - During concept development, Adams Golf's design and
development team identifies specific desirable ball flight objectives. In
addition, the Company considers new ideas from professional golfers, inventors,
distributors and others. The Company expects that Nick Faldo will continue to
play a significant role in future concept development.
DESIGN SPECIFICATIONS - The Company's product design and development team
determines design specifications for the club, including shaft length, flex and
weight, head design, loft and overall club weight. Throughout the design
specifications process, the Company refers to and incorporates the golf
equipment standards developed by the USGA. Although the standards set by the
USGA only apply to competitive events sanctioned by that organization, the
Company believes it is critical for new clubs to comply with these standards. At
this time, the product design and development team also determines the optimal
materials to use in the club. The Company will not use higher cost materials,
such as titanium or other alloys, unless such expensive materials provide
meaningful performance benefits. This stage of product development typically
takes 6 to 8 weeks after a concept has been clearly identified.
PATENT REVIEW - The Company considers patent protection for its technologies and
product designs to be an important part of its development strategy. The Company
and its patent attorneys conduct a search of prior art and existing products to
determine whether a new product idea may be covered by an existing patent.
Patent review, depending upon the complexity and novelty of the design involved,
generally requires between 3 to 18 months to complete, however, this stage of
product development typically occurs in conjunction with one or more of the
other steps.
PRODUCT DESIGN AND ENGINEERING REVIEW - If a product concept continues past the
patent review stage, the Company translates design parameters into working
designs. When appropriate, these designs are developed using computer aided
design software and modeled using in-house rapid prototyping systems. Once
modeled the prototype is subjected to rigorous engineering review to validate
the effectiveness of the technology or design. The Company estimates that it
takes between 4 to 6 months to successfully complete product design and
engineering review.
TESTING - Once a specific design has been decided upon, the Company creates and
tests one or more prototypes. The Company has a product testing facility at the
Hank Haney Golf Ranch in McKinney, Texas and utilizes an independent mechanical
test facility in Fort Worth, Texas for comparative performance testing. In
addition, prototypes are also tested for performance and player preferences by
Nick Faldo. As part of the testing process, the Company records, analyzes and
interprets data associated with each prototype including ball flight, distance,
spin and accuracy. Using feedback from these tests, the Company modifies its
designs to achieve its performance objective. Additionally, the Company applies
for official USGA approval of the resulting club at this time. Upon approval of
a new product from the USGA, it becomes considered for commercial release. The
Company believes that in order to properly field test a new product, it must
expect between 4 to 6 months of additional development time.
The Company's research and development expenses were approximately $51,000,
$557,000 and $1,532,000 during 1996, 1997 and 1998, respectively.
2
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MARKETS AND METHODS OF DISTRIBUTION
The Company sells its products through on- and off-course golf shops and
selected sporting goods retailers, direct sales to consumers, international
distributors and the Company's custom fitting accounts.
SALES TO RETAILERS - The Company sells a majority of its products to selected
retailers. To maintain its high quality reputation and generate retailer
loyalty, the Company currently does not sell its products through price
sensitive general discount warehouses, department stores or membership clubs.
The Company believes its selective retail distribution strategy helps its
retailers maintain profitable margins and maximize sales of the Company's
products. For the year ended December 31, 1998, sales to retailers accounted
for approximately 73% of the Company's total sales.
Despite the Company's efforts to limit its distribution to selected retailers,
Adams Golf products have been found in a certain membership warehouse club,
which the Company believes has obtained the products through the use of
unauthorized distribution channels. Adams Golf has taken steps to limit this
unauthorized distribution through the serialization of all Adams Golf club heads
but does not believe the gray marketing of its products can be totally
eliminated.
Adams Golf maintains an inside sales department that at March 15, 1999
consisted of 23 employees who are in regular contact with the Company's
retail accounts (over 7,000 retailers). These sales representatives are
supported by 18 field-based regional account coordinators who maintain
personal contact with the Company's retailers nationwide. The Company
generally has been successful in delivering product to its retailers within
one week of a placed order. The Company believes its prompt delivery of
products enables its retail accounts to maintain smaller quantities of
inventory than may be required with other golf equipment manufacturers.
CUSTOMER SUPPORT AND DIRECT SALES - Adams Golf believes that superior customer
service can significantly enhance its marketing efforts. Accordingly, the
Company maintains an in-house customer call center whose representatives provide
technical assistance to its customers and field calls resulting from the
Company's direct response advertising. The Company also outsources a portion of
its call center activities. The Company provides its staff with computerized
access to its retailer database enabling call center representatives to guide
consumers to their nearest Adams Golf retailer.
INTERNATIONAL SALES - International sales are made in 41 countries (primarily
Japan, Canada and the United Kingdom) through approximately 34 independent
distributors. The international distributors sell to retailers for end sale to
the consumer. International sales have increased from $0.6 million for 1996,
$0.9 million for 1997, to $11.0 million for 1998.
CUSTOM FITTING SALES - The Company employs six sales representatives who manage
the Company's custom fitting sales and support division and administer its
custom fitting training program for golf professionals. The Company's custom
fitting training program has received PGA certification and provides continuing
education credits for PGA Member Professionals. Since 1992, the Company has
certified in excess of 300 golf professionals to custom fit its Assault-VMI
irons, which are sold exclusively through its over 100 custom fitting accounts.
Custom fitters measure data relating to swing and ball flight characteristics.
Based on the interpretation of the data, a set of clubs is manufactured that is
specifically tailored to that golfer.
MARKETING
The goals of the Company's marketing efforts are to build its brand identity and
drive sales through its retail distribution channel. To accomplish these goals,
Adams Golf utilizes direct response and traditional image-based advertising,
engages in promotional activities and capitalizes on its relationship with Nick
Faldo and other well known golf personalities.
3
<PAGE>
ADVERTISING - The Company uses a combination of direct response and traditional
image-based advertising.
- DIRECT RESPONSE ADVERTISING - The Company intends to continue
to build brand awareness and stimulate product demand through
its direct response advertising, which includes a variety of
mediums including television, radio, print and direct mail.
Direct response advertising, in which consumers may order
products directly from the Company by calling a toll-free
telephone number, provides a cost-effective vehicle enabling
the Company to communicate a compelling product story and
build brand recognition. The Company's direct response
advertising serves to introduce the Company's products to
consumers, many of whom will subsequently purchase the
Company's clubs from retailers. During early 1998, the Company
continued to air the original Tight Lies 30-minute infomercial
that was introduced in early 1997. In October 1998, the
Company began to air a refreshed version of the original Tight
Lies infomercial routinely running it on The Golf Channel,
regional sports stations, national networks and local,
market-specific broadcast stations. In addition, the Company
continues to utilize 30- and 60-second direct response
television commercials as well as radio advertising. The
Company advertises regularly in major golf and industry
publications, general consumer magazines and local newspapers
nationwide. These include GOLF DIGEST, GOLF MAGAZINE, SPORTS
ILLUSTRATED, THE WALL STREET JOURNAL and USA TODAY. Finally,
the Company engages in regularly scheduled direct mail
advertising campaigns.
- TRADITIONAL IMAGE-BASED ADVERTISING - The Company's direct
response sales revenue has enabled Adams Golf to broaden its
advertising efforts to include traditional image-based
advertising. This advertising includes a series of 30-second
commercials which run during major golf tournaments and golf
related programs; newspaper, magazine and radio ad campaigns;
sponsorship of selected golf tournaments; exclusive
sponsorship of The Golf Channel's weekly instructional
program, "LIVING ROOM LESSONS", and a recently updated and
professionally redesigned web site located at
www.adamsgolf.com.
PROMOTIONAL ACTIVITIES - The Company engages in a variety of promotional
activities to sell and market its products. Such activities include (i) consumer
sweepstakes such as the Company's "Ramble in the Bramble," where the winner
received an all expense paid, luxury tour for two to Scotland's most legendary
golf courses; (ii) promotional giveaways with certain purchases, including items
such as instructional videos, audio tapes, and golf bags; and (iii) promotional
campaigns like the "90-Day Challenge," in which the Company advertises its
90-day return policy.
RELATIONSHIP WITH NICK FALDO AND OTHERS - In May 1998, the Company formed a
lifetime relationship with Nick Faldo, an internationally recognized
professional golfer and winner of numerous U.S. and international championships,
including three Masters (1989, 1990 and 1996) and three British Opens (1987,
1990 and 1992). Mr. Faldo led the Official World Golf Ranking for 81 weeks
during 1993 and 1994. Mr. Faldo also has made the most Ryder Cup appearances in
the history of golf. The Company expects Nick Faldo to continue to be actively
and directly involved in the design, testing and development of new technologies
and products. Mr. Faldo is noted for his precise play as a golfer and his
reputation as a perfectionist. The Company believes that by aligning itself with
Mr. Faldo, it can further promote the Adams Golf brand, while at the same time
demonstrating the Company's ability to deliver golf clubs that satisfy the
specific and demanding requirements of tour professionals.
In addition, the Company has also obtained endorsements from Hank Haney. Mr.
Haney was named the 1993 PGA Teacher of the Year and is a five-time recipient of
the Northern Texas Section PGA Teacher of the Year Award. Mr. Haney has
instructed over 100 touring professionals from the PGA, LPGA, European, Japanese
and Asian Tours along with several top rated junior golfers. Mr. Haney is a
member of the advisory staff for GOLF DIGEST.
4
<PAGE>
RAW MATERIALS, MANUFACTURING AND ASSEMBLY
The Company manages all stages of manufacturing, from sourcing to assembly, in
order to maintain a high level of product quality and consistency. The Company
establishes product specifications, selects the materials used to produce the
components and tests the specifications of all components received by the
Company. In addition, the Company has redundant sources of supply for each of
the component parts used in the manufacture of its fairway woods and irons and
has established a quality assurance program at those manufacturing facilities
located in Taiwan and China that are collectively responsible for producing
substantially all of the Company's performance fairway and iron club heads. With
regard to the Company's SC Series Titanium drivers, the Company utilizes one
source of supply in Australia for the club head and redundant sources of supply
for the remaining component parts. Upon arrival at the Company's manufacturing
facilities in Plano, Texas, each component used in the Company's clubs is again
checked to ensure consistency with strict design specifications. Components are
then sorted to identify variations in characteristics, such as head weight and
shaft flexibility, that, although within the specified range, may affect club
performance. Golf clubs are then built by the Company's manufacturing personnel
using the appropriate component parts and the Company's patented VMI technology.
The Company could in the future experience shortages of components or periods of
increased price pressures, which could have a material adverse effect on the
Company's business, operating results or financial condition. In addition,
failure to obtain adequate supplies or fulfill customer orders on a timely basis
could have a material adverse effect on the Company's business, results of
operations, financial position or liquidity.
PATENTS
The Company's ability to compete effectively in the golf club market will
depend, in large part, on the ability of the Company to maintain the proprietary
nature of its technologies and products. The Company currently holds seven U.S.
patents relating to certain of its products and proprietary technologies and has
three patent applications pending. Assuming timely payment of maintenance fees,
if any, the Company expects that the seven currently issued patents will expire
on various dates between 2009 and 2013. The Company has been awarded patents
with respect to the design of the Tight Lies fairway wood and the VMI design
formula. There can be no assurance, however, as to the degree of protection
afforded by these or any other patents held by the Company or as to the
likelihood that patents will be issued from the pending patent applications.
Moreover, these patents may have limited commercial value or may lack sufficient
breadth to adequately protect the aspects of the Company's products to which the
patents relate. The Company does not hold any foreign patents and no foreign
patent applications are pending. The U.S. patents held by the Company do not
preclude competitors from developing or marketing products similar to the
Company's products in international markets.
There can be no assurance that competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing products, will not apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make and sell its products. The
Company is aware of numerous patents held by third parties that relate to
products competitive to the Company's, including products competitive with the
Tight Lies fairway woods. There is no assurance that these patents would not be
used as a basis to challenge the validity of the Company's patent rights, to
limit the scope of the Company's patent rights or to limit the Company's ability
to obtain additional or broader patent rights. A successful challenge to the
validity of the Company's patents may adversely affect the Company's competitive
position. Moreover, there can be no assurance that such patent holders or other
third parties will not claim infringement by the Company with respect to current
and future products. Because U.S. patent applications are held and examined in
secrecy, it is also possible that presently pending U.S. applications will
eventually issue with claims that will be infringed by the Company's products or
technologies. The defense and prosecution of patent suits is costly and
time-consuming, even if the outcome is favorable. This is particularly true in
foreign countries where the expenses associated with such proceedings can be
prohibitive. An adverse outcome in the defense of a patent suit could subject
the Company to significant liabilities to third parties, require the Company and
others to cease selling products or require disputed rights to be licensed from
third parties. Such licenses may not be available on satisfactory terms, or at
all.
5
<PAGE>
Despite the Company's efforts to protect its patent and other intellectual
property rights, unauthorized parties have attempted and are expected to
continue to attempt to copy all, or certain aspects of, the Company's products.
Policing unauthorized use of the Company's intellectual property rights can be
difficult and expensive, and while the Company takes appropriate action whenever
it discovers any of its products or designs have been copied, knock-offs and
counterfeit products are a persistent problem in the performance-oriented golf
club industry. There can be no assurance that the Company's means of protecting
its patent and other intellectual property rights will be adequate.
INDUSTRY SPECIFIC REQUIREMENTS
Due to industry sensitivity to consumer buying trends and available disposable
income, the Company has in the past extended payment terms for specific retail
customers. Issuance of these terms (i.e. greater than 30 days) are dependent on
the Company's relationship with the customer and payment history. In addition to
extended payments terms, the nature of the industry also requires that the
Company carry a higher level of inventory due to the lead times associated with
purchasing components overseas coupled with the seasonality of customer demand.
MAJOR CUSTOMERS
Currently, the Company does not have dependence on a single or small number of
major customers for which the loss of one or all would have a material adverse
effect on consolidated revenues.
SEASONALITY
Golf generally is regarded as a warm weather sport and sales of golf equipment
historically have been strongest during the second and third quarters, with the
weakest sales occurring during the fourth quarter. In addition, sales of golf
clubs are dependent on discretionary consumer spending, which may be affected by
general economic conditions. A decrease in consumer spending generally could
result in decreased spending on golf equipment, which could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the Company's future results of operations could be
affected by a number of other factors, such as unseasonal weather patterns;
demand for and market acceptance of the Company's existing and future products;
new product introductions by the Company's competitors; competitive pressures
resulting in lower than expected average selling prices; and the volume of
orders that are received and that can be fulfilled in a quarter. Any one or more
of these factors could result in the Company failing to achieve its expectations
as to future sales or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially adversely
affect quarterly results of operations. If technological advances by competitors
or other competitive factors require the Company to invest significantly greater
resources than anticipated in research and development or sales and marketing
efforts, the Company's business, operating results or financial condition could
be materially adversely affected. Accordingly, the Company believes that period-
to-period comparisons of its results of operations should not be relied upon as
an indication of future performance. In addition, the results of any quarter are
not indicative of results to be expected for a full fiscal year. As a result of
fluctuating operating results or other factors discussed above and below, in
certain future quarters the Company's results of operations may be below the
expectations of public market analysts or investors. In such event, the market
price of the Company's Common Stock would be materially adversely affected.
BACKLOG
The amount of the Company's backlog orders at any particular time is affected by
a number of factors, including seasonality and scheduling of the manufacturing
and shipment of products. At March 15, 1999, the Company did not have a
significant level of orders on backlog and does not anticipate that a
significant level of orders will not be filled within the current fiscal year.
In addition, the Company believes that the amount of its backlog is not an
appropriate indicator of levels of future production.
6
<PAGE>
COMPETITION
The Company competes with a number of established golf club manufacturers,
some of which have greater financial and other resources. The Company's
competitors include Callaway Golf Company, Adidas-Salomon AG (Taylor Made),
Fortune Brands, Inc. (Titleist and Cobra) and Orlimar Golf Company, among
others. The Company competes primarily on the basis of performance, brand
name recognition, quality and price. The Company believes that its ability to
market its products through multiple distribution channels, including on- and
off-course golf shops, selected sporting goods retailers and through direct
response advertising, is important to its ability to compete.
The golf club industry is generally characterized by rapid and widespread
imitation of popular technologies, designs and product concepts. Due to the
success of the Tight Lies fairway woods, the Company has experienced several
competitors introducing similar products. The buying decisions of many
purchasers of golf clubs are often the result of highly subjective
preferences, which can be influenced by many factors, including, among
others, advertising media, promotions and product endorsements. The Company
may face competition from manufacturers introducing other new or innovative
products or successfully promoting golf clubs that achieve market acceptance.
The failure to compete successfully in the future could result in a material
deterioration of customer loyalty and the Company's image and could have a
material adverse effect on the Company's business, results of operations,
financial position or liquidity.
FOREIGN AND DOMESTIC OPERATIONS
For the years ended December 31, 1996, 1997 and 1998 approximately $2,900,000,
$35,808,000 and $73,580,000, respectively, of the Company's net sales were
derived from operations within the United States. In addition, no one customer
contributed greater than 10% of the Company's consolidated net revenues in any
one of the years identified.
For the years ended December 31, 1996, 1997 and 1998 approximately $600,000,
$882,000 and $11,031,000, respectively, of the Company's net sales were derived
from operations outside the United States. In addition, no one customer
contributed greater than 10% of the Company's consolidated net revenues in any
one of the years identified.
EMPLOYEES
At March 15, 1999, the Company had 248 full-time employees, including 86 engaged
in manufacturing and assembly, 14 in research and development and quality
control, 88 in sales support and 60 in management and administration. Adams
Golf' employees are not unionized. Management believes that its relations with
its employees are good.
ITEM 2. PROPERTIES
The Company's administrative offices and manufacturing facilities currently
occupy approximately 98,000 square feet of space in Plano, Texas. This facility
is leased by the Company pursuant to a lease agreement expiring in 2004 and may
be extended for an additional five years. The Company maintains the right to
terminate the lease if it moves to a larger facility owned by the current
lessor. The Company believes that these facilities will be sufficient through at
least the end of 1999.
ITEM 3. LEGAL PROCEEDINGS
Adams Golf is a party to certain lawsuits and administrative proceedings
arising in the ordinary course of its business. Adams Golf evaluates such
lawsuits and proceedings on a case-by-case basis, and its policy is to
vigorously contest any such claims which it believes are without merit. Based
upon information presently available to the Company, management believes that
the ultimate resolution of such pending matters will not materially adversely
affect the Company's business, financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the Nasdaq Stock Market's
National Market under the symbol "ADGO." The prices in the table below
represent, for the periods indicated, the quarterly high and low sales price for
Adams Golf, Inc. common stock as reported by The Nasdaq Stock Market. All price
quotations represent prices between dealers, without retail mark-ups, mark-downs
or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal year ended December 31, 1998 HIGH LOW
---- ---
<S> <C> <C>
Third Quarter (beginning July 10, 1998) $18 7/8 $3 7/8
Fourth Quarter 5 3/16 3
</TABLE>
On March 15, 1999, the last reported sale price of the common stock on The
Nasdaq Stock Market's National Market was $3 11/16 per share.
At March 15, 1999, Adams Golf, Inc. had approximately 7,000 stockholders
based on the number of holders of record and an estimate of the number of
individual participants represented by security position listings.
No dividends have been declared or paid relating to the Company's common
stock.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the Company's
consolidated financial statements for the years ended December 31, 1995, 1996,
1997 and 1998, respectively. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the consolidated financial statements and related notes and other
financial information included elsewhere in this document.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data(1):
Net sales.................................... $1,125 $ 3,522 $36,690 $84,611
Operating income (loss)...................... (244) 9 (3,969) 18,500
Net income (loss)............................ $ (243) $ 13 $(4,654) $12,510
====== ======= ======= =======
Income (loss) per common share(2):
Basic..................................... $(0.05) $ - $ (0.37) $ 0.61
====== ======= ======= =======
Diluted................................... $(0.05) $ - $ (0.37) $ 0.61
====== ======= ======= =======
Weighted average common shares(2):
Basic..................................... 4,423 11,238 12,519 20,435
====== ======= ======= =======
Diluted................................... 4,423 11,238 12,519 20,677
====== ======= ======= =======
DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
(IN THOUSANDS)
Consolidated Balance Sheet Data(1):
Total assets................................ $ 658 $2,559 $17,360 $96,906
Total debt (including current maturities)... - 230 - 175
Stockholders' equity........................ 615 1,978 8,325 88,190
</TABLE>
(1) This table excludes summary financial information for the fiscal year ended
December 31, 1994 because operations in that year were not comparable in
size or scope to current operations.
(2) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of income (loss) per common share and weighted
average common shares outstanding.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, which participates in the highly competitive golf industry,
designs, manufactures, markets and distributes premium quality, technologically
innovative golf clubs. Founded in 1987, the Company operated initially as a
components supplier and contract manufacturer. Thereafter, the Company
established its custom fitting operation, which currently services a network of
over 100 certified custom fitting accounts. In the fall of 1995, the Company
introduced the original Tight Lies fairway wood and, in December 1996, the
Company extended the Tight Lies line to include the Tight Lies Strong 3, Strong
5 and Strong 7, with the Tight Lies Strong 9 being introduced in January 1998.
Sales of the Tight Lies line of products increased significantly subsequent to
the second quarter of 1997 when the Company launched an infomercial relating to
the original Tight Lies fairway wood. To further enhance the Tight Lies line of
products, the Company introduced the Strong 2 Tour Brassie and the Strong 11 in
late August 1998. The Company's net sales are primarily derived from sales to
on-and off-course golf shops and selected sporting goods retailers and, to a
lesser extent, direct sales to consumers, international distributors and the
Company's custom fitting accounts.
The Company believes that during the second half of 1998, the golf industry
experienced declining sales. Despite the industry trend of declining sales, the
Company has experienced significant positive sales growth over prior years.
However, the Company's ability to continue to generate positive sales trends
into 1999 is dependent upon the successful introduction of new products and the
continued acceptance of its Tight Lies line of fairway woods. No assurances can
be given that demand for the Company's current products or the introduction of
new products will allow the Company to continue its trend of increasing sales,
or to maintain historical levels of sales in the future. The Company introduced
the SC Series Titanium drivers and the Faldo Series wedges in January 1999, and,
accordingly, no sales for these products were recorded in the years ended
December 31, 1996, 1997 and 1998.
The Company does not currently manufacture the components required to assemble
its golf clubs, relying instead on various component suppliers. Fairway wood
components are each available from multiple suppliers. Currently, certain
components for the new SC Series Titanium drivers and the Faldo Series wedges
are produced by a single supplier. Costs of the Company's current Tight Lies
line of fairway woods, new SC Series Titanium drivers and Faldo Series wedges
consist primarily of component parts, including the head, shaft and grip. To a
lesser extent, the Company's cost of goods sold includes labor and occupancy
costs in connection with the inspection, testing and assembly of component parts
at its facility in Plano, Texas.
RESULTS OF OPERATIONS
The following table sets forth operating results expressed as a percentage of
net sales for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 45.1 27.2 25.3
----- ----- -----
Gross profit 54.9 72.8 74.7
Operating expenses 54.6 83.6 52.8
----- ----- -----
Operating income (loss) 0.3 (10.8) 21.9
Interest income (expense), net - (0.2) 1.5
Other income (expense), net 0.1 (0.1) (0.1)
----- ----- -----
Income (loss) before income taxes 0.4 (11.1) 23.3
Income tax expense - 1.6 8.5
----- ----- -----
Net income (loss) 0.4% (12.7)% 14.8%
===== ===== =====
</TABLE>
10
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales increased to $36.7 million for 1997 from $3.5 million for 1996,
primarily due to increased market acceptance of the Company's Tight Lies fairway
woods. Net sales of the Tight Lies fairway woods increased to $34.6 million for
1997, from $1.7 million for 1996, and increased as a percentage of net sales to
94.3% from 47.2%, respectively. Net sales of other product lines increased to
$2.1 million for 1997 compared to $1.8 million for 1996, but decreased as a
percentage of net sales to 5.7% for 1997 from 52.8% for 1996.
Gross profit increased to $26.7 million for 1997 from $1.9 million for 1996, and
increased as a percentage of net sales to 72.8% from 54.9%, respectively. Gross
profit for 1997 was favorably affected by an increased percentage of sales
attributable to the higher margin Tight Lies fairway woods and the inherent cost
savings associated with buying components in large volumes and assembling them
on a substantially increased scale.
The Company experienced an operating loss of $4.0 million for 1997 as compared
to operating income of $9,000 for 1996. Total operating expenses increased to
$30.7 million for 1997 from $1.9 million for 1996. Of the $30.7 million of
operating expenses for 1997, $14.8 million, or 48.4% of expenses related to
stock compensation and bonus awards to the Company's Chairman, Chief Executive
Officer and President. See "Certain Transactions" and Note 13 of Notes to
Consolidated Financial Statements. The expense recognized in 1996 in conjunction
with these awards was $0.2 million, or 11.1% of operating expenses. In 1997, the
Company also incurred higher expenses for selling and royalties and provision
for bad debts, in each case due principally to increased sales of the Tight Lies
fairway woods. General and administrative expenses and research and development
expenses also increased in 1997 due to the hiring of additional employees.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales increased 131% to $84.6 million for the year ended December 31, 1998
from $36.7 million for 1997, primarily due to the continued market acceptance of
the Company's Tight Lies line of fairway woods, and, to a lesser extent, the
introduction of the Strong 2 Tour Brassie and the Strong 11 in late August 1998.
Net sales for 1998 have been reduced by a $4.3 million unconditional credit
given to retailers during the fourth quarter in connection with the Company's
new suggested retail pricing structure. The Company does not expect changes to
its suggested retail pricing structure during 1999. Net sales of the Tight Lies
line of fairway woods increased to $81.6 million for the year ended December 31,
1998 from $34.6 million for 1997, and increased as a percentage of net sales to
96.5% from 94.3%, respectively. Sales of the Tight Lies fairway woods increased
subsequent to the Company's introduction of an infomercial marketing its
original Tight Lies fairway wood in the second quarter of 1997. Net sales of
other product lines for the year ended December 31, 1998 increased to $3.0
million from $2.1 million for 1997, but decreased as a percentage of net sales
to 3.5% from 5.7%, respectively. Net sales of the Company's products outside the
U.S. increased to $11.0 million for the year ended December 31, 1998 from $0.9
million for the year ended December 31, 1997, and increased as a percentage of
net sales to 13.0% from 2.5%, respectively. The increase in international sales
was due to increased market acceptance of the Tight Lies fairway woods and
expanded international marketing efforts beginning in the last half of 1997.
Net sales for 1999 are expected to be positively impacted by the introductions
of the SC Series Titanium drivers and the Faldo Series wedges. However, the
Company believes that declining sales in the golf equipment industry and
increased competition in the fairway wood segment will diminish the growth trend
of sales experienced over the past two years.
Cost of goods sold increased to $21.4 million for the year ended December 31,
1998 from $10.0 million for 1997, and decreased as a percentage of net sales to
25.3% from 27.2%, respectively, primarily due to an increased percentage of net
sales attributable to the higher margin Tight Lies fairway woods and the
inherent cost savings associated with buying components in large volumes and
assembling them on a substantially increased scale. Offsetting the above factors
were lower average selling prices during the second half of 1998 resulting
primarily from the sale of the Company's inventory of "demo" clubs, an increase
of sales to retailers compared to sales to direct consumers and the $4.3 million
credit given to retailers. The introduction of the new product lines (i.e., SC
Series Titanium drivers and the Faldo Series wedges) combined with the new
suggested retail pricing structure for the Tight Lies fairway woods is expected
to increase cost of sales as a percentage of net sales in future periods.
11
<PAGE>
Operating expenses are composed primarily of selling and royalty expenses,
general and administrative expenses, and to a lesser extent, research and
development expenses. Selling and royalty expenses increased to $31.2 million
for the year ended December 31, 1998 from $13.1 million for 1997 as a result of
hiring additional employees, incurring increased levels of services provided by
independent contractors and increased marketing and advertising efforts. Selling
and royalty expenses increased as a percent of net sales for the year ended 1998
to 36.9% from 35.7%, respectively, primarily due to the increased advertising
initiatives which included a revised infomercial, television commercials and
print advertising. Selling and royalty expenses also include the costs
associated with a golf bag giveaway promotion conducted during the fourth
quarter of 1998. General and administrative expenses, including provisions for
bad debts, increased to $11.9 million, or 14.1% as a percent of sales, for the
year ended December 31, 1998 from $2.2 million, or 6.0% as a percent of net
sales, excluding stock compensation and bonus awards for the year ended December
31, 1997, primarily due to the hiring of additional employees, use of additional
outside services, higher occupancy costs and additional bad debt expense related
to increased revenues. For the year ended December 31, 1997, the Company
incurred $14.8 million, or 40.5% as a percent of net sales, relating to stock
compensation and bonus awards to the Company's Chairman and Chief Executive
Officer. Research and development expenses for the year ended December 31, 1998
increased to $1.5 million from $0.6 million for 1997, and increased as a percent
of net sales to 1.8% from 1.5%, primarily due to increased salaries, consulting,
and tooling expenses associated with the development of new products.
Operating income increased to $18.5 million for the year ended December 31, 1998
from a loss of $4.0 million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $23.7 million at December 31, 1998 from
$2.0 million at December 31, 1997, primarily as a result of $3.7 million
provided by cash flows from operations and $56.4 million provided from financing
activities, offset by $38.4 million used for investing activities. The increase
in cash flows provided by operations was primarily a result of increased net
income. Primary uses of operating cash flows were increases in inventory and
income taxes receivable of approximately $8.8 million and $2.1 million,
respectively, for the year ended December 31, 1998. The increase in inventory is
primarily the result of declining sales in the third and fourth quarter of 1998.
Cash used in investing activities of $38.4 million for the year ended December
31, 1998, is primarily related to purchases of marketable securities, computer
equipment and software, telephone systems, and furniture and fixtures. Capital
expenditures made in the ordinary course of business relating to the
implementation of a customer management information system and enterprise
resource planning system for the year ended December 31, 1998 approximated $4.3
million. Cash provided by financing activities of $56.4 million was primarily a
result of net proceeds of the initial public offering of $58.5 million.
Working capital totaled $53.0 million at December 31, 1998 compared to $6.9
million at December 31, 1997.
The Company has a $10.0 million revolving credit facility, which expires on May
31, 2000. At December 31, 1998, the Company had no outstanding borrowings under
its facility. Borrowings under the Company's revolving credit facility agreement
are at interest rates based on the lending bank's general refinance rate of
interest or certain LIBOR rates of interest. During the first quarter of 1998,
the Company borrowed approximately $1.1 million in the form of a note payable to
the Company's Chairman and Chief Executive Officer to be used for working
capital purposes. The remaining principal amount of the note (approximately
$175,000 at December 31, 1998) is payable on April 14, 1999 at an interest rate
of 5.39%.
12
<PAGE>
The Company expects to meet future liquidity requirements primarily through cash
flows generated from operations. In 1999, cash flows from operations will be
affected by the impact of the Company's net-down program implemented in the
fourth quarter of 1998, which reduced accounts receivable by approximately $4.3
million. It is anticipated that operating cash flows and current cash reserves
will adequately fund capital expenditure programs which will include continued
upgrade of the newly integrated information systems. These capital expenditure
programs can be suspended or delayed at any time with minimal disruption to the
Company's operations if cash is needed in other areas of the Company's
operations. In addition, cash flows from operations will be utilized to support
purchasing of more expensive components associated with the SC Series Titanium
drivers. The expected net positive cash flows, current cash reserves and
flexibility regarding the Company's revolving credit facility allow the Company
to meet working capital requirements during periods of low cash flows resulting
from the seasonality of the industry.
Capital expenditures for the three years ended December 31, 1996, 1997 and 1998
were approximately $0.1 million, $0.8 million and $4.3 million, respectively.
The expenditures made were primarily associated with development of information
systems and reporting technologies to adequately monitor business operations.
Capital expenditures in the future are not expected to include expenditures
outside the ordinary course of business.
The Company is not aware of any event or trend that would potentially affect
its liquidity. In the event such a trend should develop, the Company believes
that the cash flow from operations, current cash reserves and the revolving
credit facility would be sufficient to meet operating needs and capital
expenditures for at least the next 12 months.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Golf generally is regarded as a warm weather sport and sales of golf equipment
historically have been strongest during the second and third quarters, with the
weakest sales occurring during the fourth quarter. In addition, sales of golf
clubs are dependent on discretionary consumer spending, which may be affected by
general economic conditions. A decrease in consumer spending generally could
result in decreased spending on golf equipment, which could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the Company's future results of operations could be
affected by a number of other factors, such as unseasonal weather patterns;
demand for and market acceptance of the Company's existing and future products;
new product introductions by the Company's competitors; competitive pressures
resulting in lower than expected average selling prices; reliance on third
parties including suppliers; and the volume of orders that are received and that
can be fulfilled in a quarter. Any one or more of these factors could result in
the Company failing to achieve its expectations as to future sales or net
income.
YEAR 2000 READINESS DISCLOSURE
The year 2000 will have a broad impact on the business environment in which the
Company operates due to the possibility that many computerized systems across
all industries will be unable to process information containing the dates
beginning in the year 2000. The Company relies on its internal information
technology systems in operating and monitoring many significant aspects of its
business, including financial systems, customer services, infrastructure and
network and telecommunications equipment. The Company also relies directly and
indirectly on the systems of external business enterprises such as suppliers,
customers, creditors, financial organizations and domestic and international
governments. The Company has established an enterprise-wide program to prepare
its computer systems and applications for the year 2000 and is utilizing both
internal and external resources to identify, correct and test the systems for
Year 2000 compliance. The Company's legacy information system, as well as the
information system currently being implemented, are certified as Year 2000
compliant. The Company has substantially completed an inventory of all
information technology and non-information technology equipment as of December
31, 1998 and anticipates that the majority of its remediation plan will be
completed by April 30, 1999. The Company expects that all systems critical to
the conduct of the Company's operations will be Year 2000 compliant prior to the
end of the 1999 calendar year.
13
<PAGE>
The nature of the Company's business is such that the business risks associated
with the Year 2000 can be reduced by closely assessing the vendors supplying the
components used in assembling the Company's products. Because third party
failures could have a material impact on the Company's ability to conduct
business, questionnaires have been sent to the Company's significant vendors to
obtain reasonable assurance that plans are being developed to address the Year
2000 issue. The returned questionnaires are currently being assessed by the
Company, and are being categorized based upon readiness for the Year 2000 issues
and prioritized in order of significance to the business of the Company. To the
extent that vendors do not provide the Company with satisfactory evidence of
their readiness to handle Year 2000 issues, contingency plans will be developed
by July 31, 1999.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans, and
other factors. Unanticipated failures by critical vendors, as well as failure by
the Company to execute its own remediation efforts, could have a material
adverse effect on the cost of the project, its completion date, and the
Company's results of operations and financial position. As a result, there can
be no assurance that these forward-looking estimates will be achieved and the
actual cost and vendor compliance could differ materially from those plans,
resulting in material financial risk.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), REPORTING OF THE COSTS OF START-UP
ACTIVITIES, which is effective for financial statements issued for periods
beginning after December 15, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The Company
believes SOP 98-5 will not have a material impact on its financial statements or
accounting policies. The Company will adopt the provisions of SOP 98-5 in the
first quarter of 1999.
The Company is also assessing the reporting and disclosure requirements of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement is effective for financial
statements for fiscal years beginning after June 15, 1999. The Company believes
SFAS No. 133 will not have a material impact on its financial statements or
accounting policies. The Company will adopt the provisions of SFAS No. 133 in
the first quarter of 2000.
FORWARD-LOOKING STATEMENTS
This Annual Report contains "forward-looking statements" made under the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate,"
"believe," "expect" and words or phrases of similar import, as they relate to
the Company or Company management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events and are subject to certain risks, uncertainties and assumptions
related to certain factors including, without limitation, product development;
product introductions; market demand and acceptance of products; the impact of
changing economic conditions; business conditions in the golf industry; reliance
on third parties including suppliers; the impact of market peers and their
products; the actions of competitors, including pricing; risks concerning future
technology; and one-time events and other factors detailed in the Company's
prospectus and other Securities and Exchange Commission filings. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Based upon changing conditions, should any one or
more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein. The Company does not intend to update these forward-looking
statements. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the applicable cautionary statements.
14
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to market risk
through changes in interest rates with respect to its cash equivalents and
available-for-sale marketable securities. All of the Company's cash equivalents
and available-for-sale marketable securities are fixed rate state government,
municipal or corporate bonds. At December 31, 1998, the cost and market value of
such cash equivalents and marketable securities was approximately $58,629,000
and $58,862,000, respectively. A significant increase in interest rates would
result in a decrease in the bond prices. The Company's investment policy sets
minimum standards related to the quality, maturity and liquidity of such
investments.
The table below presents principal amounts and related weighted-average interest
rates by year of maturity for the Company's investment portfolio (in thousands,
except percentages).
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 TOTAL VALUE
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Cash equivalents:
Fixed rate $24,484 $ - $ - $24,484 $24,487
Average interest rate (1) 4.3% - - 4.3%
Marketable securities:
Fixed rate $13,019 $15,206 $5,920 $34,145 $34,375
Average interest rate (1) 3.5% 3.9% 3.8% 3.7%
</TABLE>
(1) The majority of cash equivalents and marketable securities are
tax-exempt, resulting in a lower average interest rate than taxable
investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are set forth herein under Item 14 commencing on page
F-1. Schedule II to the financial statement is set forth herein under Item 14 on
page S-1. In addition, quarterly financial data is not required as the Company
has not met the requirements of net income after taxes, but before extraordinary
items and cumulative effect of any change in accounting of $250,000, for each
year in the three year period ended December 31, 1998, or total assets at
December 31, 1998 of $200 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference from pages
3 through 7, inclusive, of the Company's Proxy Statement dated April 7, 1999
for the annual meeting of shareholders on May 5, 1999 (the "1999 Proxy
Statement") under the respective captions, "Election of Directors", "Section
16(a) Beneficial Ownership Reporting Compliance" and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from pages
8 through 10, inclusive, of the Company's 1999 Proxy Statement under the
caption "Compensation of Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from page
6 of the Company's 1999 Proxy Statement under the caption "Beneficial
Ownership of Certain Stockholders, Directors and Executive Officers".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from pages
10 through 12, inclusive, of the Company's 1999 Proxy Statement under the
captions "Employment Contracts and Change in Control Agreements" and
"Compensation Committee Interlocks and Insider Participation".
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Index to Consolidated Financial Statements and Related Financial Statement Schedule F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997, and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997, and 1998 F-5 - F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997, and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-20
(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of the Company for the years
ended December 31, 1996, 1997, and 1998 is filed as part of this Annual
Report and should be read in conjunction with the Consolidated Financial
Statements of the Company. All other schedules have been omitted because
said schedules are not required under the related instructions or are not
applicable or because the information required is included in the Company's
consolidated financial statements or the notes thereto.
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
17
<PAGE>
(3) EXHIBITS
The exhibits listed below are filed as a part of or incorporated by reference in
this Annual Report. Where such filing is made by incorporation by reference to a
previously filed document, such document is identified in parenthesis. See the
Index of Exhibits included with the exhibits filed as part of this Annual
Report.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
Exhibit 3.1 Amended and Restated Certificate of Incorporated by reference to Form S-1
Incorporation (Exhibit 3.1)
Exhibit 3.2 Amended and Restated By-laws Incorporated by reference to Form S-1
(Exhibit 3.2)
Exhibit 4.1 1998 Stock Incentive Plan of the Company Incorporated by reference to Form S-1
dated February 26, 1998 (Exhibit 4.1)
Exhibit 10.1 Agreement between the Registrant and Nick Incorporated by reference to Form S-1
Faldo, dated April 22, 1998 (Exhibit 10.1)
Exhibit 10.2 Amended and Restated Revolving credit dated Included in this filing
dated February 26, 1999, between Adams
Golf Direct Response, Ltd., Adams Golf,
Ltd. and NationsBank of Texas N.A. and
related promissory note and guaranty.
Exhibit 10.3 Commercial Lease Agreement dated Incorporated by reference to Form S-1
December 5, 1997, between Jackson-Shaw (Exhibit 10.3)
Technology Center II, Ltd. and the Company
Exhibit 10.4 Commercial Lease Agreement dated April 6, Incorporated by reference to Form S-1
1998, between Jackson-Shaw Technology (Exhibit 10.4)
Center II, Ltd. and the Company
Exhibit 10.5 Letter agreement dated April 13, 1998, Incorporated by reference to Form S-1
between the Company and Darl P. Hatfield (Exhibit 10.5)
Exhibit 21.1 Subsidiaries of the Registrant Included in this filing
Exhibit 23.1 Consent of KPMG LLP Included in this filing
Exhibit 27.1 Financial Data Schedule Included in this filing
Exhibit 99.1 Proxy Statement of Registrant dated April 7, Incorporated by reference to the
1999 1999 Proxy Statement
</TABLE>
(b) REPORTS ON FORM 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADAMS GOLF, INC, a Delaware corporation
Date: March 29, 1999 By: /s/ B. H. (Barney) Adams
---------------------------------------
B. H. (Barney) Adams,
Chairman of the Board, Chief Executive
Officer and President
Date: March 29, 1999 By: /s/ Darl P. Hatfield
---------------------------------------
Darl P. Hatfield,
Senior Vice President - Finance and
Administration and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicate.
Date: March 29, 1999 /s/ B. H. (Barney) Adams
---------------------------------------
B. H. (Barney) Adams, Chairman of the
Board, Chief Executive Officer and
President (Principal Executive Officer)
Date: March 29, 1999 /s/ Paul F. Brown, Jr.
---------------------------------------
Paul F. Brown, Jr.,
Director
Date: March 29, 1999 /s/ Roland E. Casati
---------------------------------------
Roland E. Casati,
Director
Date: March 29, 1999 /s/ Mark R. Mulvoy
---------------------------------------
Mark R. Mulvoy
Director
Date: March 29, 1999 /s/ Richard H. Murtland
---------------------------------------
Richard H. Murtland,
Vice President - Research and
Development Secretary, Treasurer and
Director
Date: March 29, 1999 /s/ Stephen R. Patchin
---------------------------------------
Stephen R. Patchin
Director
Date: March 29, 1999 /s/ John S. Simpson
---------------------------------------
John S. Simpson
Director
19
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
- --------------------------------- ----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 F-5 - F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F20
FINANCIAL STATEMENT SCHEDULE
- ----------------------------
The following financial statement schedule of the Company for the years
ended December 31, 1996, 1997, and 1998 is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of the Company.
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules are omitted since the required information is not
present, or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
consolidated financial statements and notes thereto.
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Adams Golf, Inc. and subsidiaries:
We have audited the consolidated financial statements of Adams Golf, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Adams Golf, Inc. and
its subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Dallas, Texas
January 25, 1999
F-2
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998
---------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $1,956 $23,688
Marketable securities (note 2)............................ - 13,084
Trade receivables, net (note 3)........................... 7,671 2,022
Inventories (note 4)...................................... 4,487 13,312
Prepaid expenses.......................................... 509 885
Income tax receivable..................................... - 2,088
Deferred income tax assets (note 12)...................... 390 2,386
Other current assets...................................... 937 1,287
------- -------
Total current assets................................... 15,950 58,752
Property and equipment, net (note 5)......................... 604 3,468
Marketable securities (note 2)............................... - 21,291
Deferred income tax assets (note 12)......................... 183 -
Professional services agreement (note 6) .................... - 9,450
Other assets, net (note 7)................................... 623 3,945
------- -------
$17,360 $96,906
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to shareholder (note 11)..................... $ - $ 175
Accounts payable.......................................... 378 1,152
Income taxes payable...................................... 1,021 -
Accrued expenses (note 8)................................. 7,636 4,418
------- -------
Total current liabilities.............................. 9,035 5,745
Deferred income tax liabilities (note 12).................... - 2,971
------- -------
Total liabilities...................................... 9,035 8,716
------- -------
Stockholders' equity (note 13):
Preferred stock, $0.01 par value; authorized 5,000,000
shares; none issued and outstanding.................... - -
Common stock, $.001 par value; authorized
50,000,000 shares; 15,719,338 shares issued and
outstanding at December 31, 1997 and 23,136,782 shares
issued and 22,479,282 shares outstanding at
December 31, 1998...................................... 16 23
Additional paid-in capital................................ 14,123 85,183
Common stock subscription................................. - (22)
Deferred compensation..................................... - (704)
Accumulated other comprehensive income.................... - 150
Retained earnings (accumulated deficit) .................. (5,814) 6,696
Treasury stock, 657,500 shares at cost.................... - (3,136)
------- -------
Total stockholders' equity............................. 8,325 88,190
Commitments and contingencies (notes 6 and 9)
------- -------
$17,360 $96,906
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales (note 3) ............... $3,522 $36,690 $84,611
Cost of goods sold................. 1,590 9,991 21,441
------ ------- -------
Gross profit............... 1,932 26,699 63,170
------ ------- -------
Operating expenses:
Research and development 51 557 1,532
expenses.....................
Selling and royalty expenses.... 626 13,093 31,239
General and administrative
expenses:
Stock compensation and bonus
award (note 13)............ 214 14,842 -
Provision for bad debts...... 51 739 1,464
Other........................ 981 1,437 10,435
------ ------- -------
Total operating expenses... 1,923 30,668 44,670
------ ------- -------
Operating income (loss).... 9 (3,969) 18,500
Other income (expense):
Interest income................. 4 15 1,367
Interest expense................ - (70) (71)
Other........................... - (48) (103)
------ ------- -------
Income (loss) before
income taxes............ 13 (4,072) 19,693
Income tax expense (note 12)....... - 582 7,183
------ ------- -------
Net income (loss).......... $ 13 $(4,654) $12,510
====== ======= =======
Income (loss) per common share:
Basic........................... $ - $ (0.37) $ 0.61
====== ======= =======
Diluted......................... $ - $ (0.37) $ 0.61
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF ADDITIONAL COMMON OTHER
COMMON COMMON PAID-IN STOCK DEFERRED COMPREHENSIVE
STOCK STOCK CAPITAL SUBSCRIPTION COMPENSATION INCOME
---------- ------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.............. 11,062,908 $ 11 $ 1,776 $ - $ - $ -
Net income............. - - - - - -
Sale of stock.......... 1,581,126 2 1,594 - - -
Common stock
repurchased
and retired
(note 13).......... (770,800) (1) (244) - - -
---------- --- ------- ---- ----- -----
Balance, December 31,
1996............... 11,873,234 12 3,126 - - -
Net loss................ - - - - - -
Stock compensation
award (note 13)..... 2,000,000 2 9,998 - - -
Exercise of stock
options............. 946,104 1 550 - - -
Exchange of debt for
common common stock
(note 13)........... 900,000 1 449 - - -
---------- --- ------- ---- ----- -----
Balance, December 31,
1997................ 15,719,338 $16 $14,123 $ - $ - $ -
---------- --- ------- ---- ----- -----
RETAINED
EARNINGS COST OF TOTAL
(ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS'
DEFICIT) INCOME STOCK EQUITY
-------- ------ ----- ------
<S> <C> <C> <C> <C>
Balance, December 31,
1995.............. $(1,173) $ - $ 614
Net income............. 13 $ 13 - 13
=======
Sale of stock.......... - - 1,596
Common stock
repurchased
and retired
(note 13).......... - - (245)
------- ----- -------
Balance, December 31,
1996............... (1,160) - 1,978
Net loss................ (4,654) $(4,654) - (4,654)
=======
Stock compensation
award (note 13)..... - - 10,000
Exercise of stock
options............. - - 551
Exchange of debt for
common common stock
(note 13)........... - - 450
------- ----- -------
Balance, December 31,
1997................ $(5,814) $ - $ 8,325
------- ----- -------
</TABLE>
F-5 (continued)
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF ADDITIONAL COMMON OTHER
COMMON COMMON PAID-IN STOCK DEFERRED COMPREHENSIVE
STOCK STOCK CAPITAL SUBSCRIPTION COMPENSATION INCOME
---------- ------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997.................. 15,719,338 $ 16 $14,123 $ - $ - $ -
Comprehensive income:
Net income............ - - - - - -
Other comprehensive
income, net of tax -
unrealized gains on
marketable securities. - - - - - 150
Comprehensive income.. - - - - - -
Issuance of common
stock................. 4,037,500 4 58,468 - - -
Issuance of stock
options............... - - 2,027 - (2,027) -
Stock option forfeiture.. - - (487) - 487 -
Exercise of stock
options............... 2,479,944 2 928 (230) - -
Payment of stock
subscription.......... - - - 208 - -
Grant of stock
(note 6).............. 900,000 1 10,124 - - -
Treasury stock
purchases
(657,500 shares)...... - - - - - -
Amortization of
deferred
compensation.......... - - - - 836 -
---------- --- ------- ----- ------- ----
Balance, December 31,
1998.................. 23,136,782 $23 $85,183 $ (22) $ (704) $150
========== === ======= ===== ======= ====
RETAINED
EARNINGS COST OF TOTAL
(ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS'
DEFICIT) INCOME STOCK EQUITY
-------- ------ ----- ------
<S> <C> <C> <C> <C>
Balance, December 31,
1997.................. $(5,814) $ - $ 8,325
Comprehensive income:
Net income............ 12,510 $12,510 - 12,510
Other comprehensive
income, net of tax -
unrealized gains on
income, net of tax -
unrealized gains on
marketable securities. 150 - 150
-------
Comprehensive income.. - $12,660 - -
=======
Issuance of common
stock................. - - 58,472
Issuance of stock
options............... - - -
Stock option forfeiture.. - - -
Exercise of stock
options............... - - 700
Payment of stock
subscription.......... - - 208
Grant of stock
(note 6).............. - - 10,125
Treasury stock
purchases
(657,500 shares)...... - (3,136) (3,136)
Amortization of
deferred
compensation.......... - - 836
------- ------- -------
Balance, December 31,
1998.................. $ 6,696 $(3,136) $88,190
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $13 $(4,654) $12,510
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and
equipment and intangible assets............... 19 302 2,204
Loss on retirement of fixed assets.............. - 134 111
Stock compensation and bonus award.............. - 10,000 -
Amortization of deferred compensation........... - - 836
Deferred income taxes........................... - (573) 1,077
Allowance for doubtful accounts................. 26 672 596
Changes in assets and liabilities:
Trade receivables............................. (374) (8,067) 5,053
Inventories................................... (476) (3,812) (8,825)
Prepaid expenses.............................. - (481) (376)
Income tax receivable......................... - - (2,088)
Other current assets.......................... - (716) (350)
Other assets.................................. (362) (390) (3,567)
Accounts payable.............................. (23) 360 774
Income taxes payable.......................... - 1,021 (1,021)
Accrued expenses.............................. 329 7,304 (3,218)
------ ------- --------
Net cash provided by (used in) operating
activities.............................. (848) 1,100 3,716
------ ------- --------
Cash flows from investing activities:
Purchases of marketable securities................. - - (34,145)
Purchase of equipment.............................. (121) (770) (4,258)
------ ------- --------
Net cash used in investing activities....... (121) (770) (38,403)
------ ------- --------
Cash flows from financing activities:
Proceeds from initial public offering.............. - - 60,078
Initial public offering costs...................... - - (1,606)
Purchase of treasury stock......................... - - (3,136)
Proceeds from notes payable and line of credit..... 230 1,050 7,135
Repayment of line of credit borrowings............. - (800) (6,000)
Repayment of notes payable......................... - (30) (960)
Issuance of common stock........................... 1,351 551 908
------ ------- --------
Net cash provided by financing activities.... 1,581 771 56,419
------ ------- --------
Net increase in cash and cash equivalents............. 612 1,101 21,732
Cash and cash equivalents at beginning of year........ 243 855 1,956
------ ------- --------
Cash and cash equivalents at end of year.............. $ 855 $ 1,956 $ 23,688
====== ======= ========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ - $ 70 $ 27
====== ======= ========
Income taxes paid.................................. $ - $ 356 $ 9,298
====== ======= ========
Supplemental disclosure of non-cash financing
activity-stock issued for professional services
agreement (note 6)................................. $ - $ - $ 10,125
====== ======= ========
Exchange of debt for common stock.................. $ - $ 450 $ -
====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
Adams Golf, Inc. (the "Company") was founded in 1987. The Company
designs, manufactures, markets and distributes premium quality,
technologically innovative golf clubs and provides custom golf
club fitting technology. The Company's primary products are
fairway woods and drivers that are marketed under the trademarks
"Tight Lies" and "SC Series," respectively. The SC Series was
introduced in January 1999 and, accordingly, had no sales for the
three-year period ended December 31, 1998.
The consolidated financial statements include the accounts of
Adams Golf, Inc. and its subsidiaries, all of which are wholly
owned. All significant intercompany accounts and transactions have
been eliminated in consolidation.
(B) MARKETABLE SECURITIES
Marketable securities, primarily consisting of governmental and
corporate bonds, are managed under agreements with investment
managers. The agreements provide terms related to the quality,
diversification and maturities of the investments in the managed
portfolios. The investments are classified as available-for-sale
and are carried at fair value, with unrealized gains and losses,
net of the related tax effect, reported as other comprehensive
income in the consolidated statement of stockholders' equity. The
balance sheet classification of the Company's marketable
securities is based upon the contractual maturity date of such
securities.
(C) INVENTORIES
Inventories are valued at the lower of cost or market and
primarily consist of completed golf clubs and component parts.
Cost is determined using the first-in, first-out method.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the respective assets, which range
from three to seven years.
(E) REVENUE RECOGNITION
The Company records revenue as earned, which generally occurs when
the product is shipped.
F-8
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(F) OTHER ASSETS AND RELATED AMORTIZATION EXPENSE
Other assets consist primarily of the cost of implementing an
enterprise resource planning (ERP) software system, obtaining
patents, development costs of an infomercial and various deposits.
The ERP software system costs have been capitalized in accordance
with AICPA Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, which
was adopted by the Company on January 1, 1998. These costs are
being amortized using the straight-line method over five years.
Patent amortization is computed using the straight-line method
over the estimated useful lives of the assets, which range from 5
to 15 years. Infomercial costs are amortized over a 6 to 24 month
period based on the estimated useful life and on revenues
generated compared to total estimated revenues resulting from the
airing of such infomercials.
(G) RESEARCH AND DEVELOPMENT
Research and development costs consist of all costs incurred in
planning, designing and testing of golf equipment, including
salary costs related to research and development, and are expensed
as incurred.
(H) ADVERTISING COSTS
Advertising costs, other than direct response (infomercial) costs,
are expensed as incurred and aggregated approximately $34,000,
$8,651,000 and $17,083,000 in 1996, 1997 and 1998, respectively.
(I) PRODUCT WARRANTY
The Company's golf equipment is sold under warranty against
defects in material and workmanship for a period of two years. In
addition, the Company has a 90 day "no questions asked" return
policy applicable to direct response sales. An allowance for
estimated future warranty and sales return costs is recorded in
the period products are sold.
(J) INCOME TAXES
The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-9
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(K) INCOME (LOSS) PER SHARE
The weighted average common shares used for basic net income
(loss) per common share were 11,237,794, 12,519,392, and
20,434,775 for 1996, 1997 and 1998, respectively. The effect of
dilutive stock options added 241,520 shares for 1998 for the
computation of diluted income per common share. Options to
purchase 100,000 shares of common stock which were outstanding
during 1998 were not included in the computation of diluted
earnings per share as their effect would have been antidilutive.
Stock options outstanding in 1996 and 1997 were not considered in
the computation of net income (loss) per common share since their
effect is either immaterial or antidilutive.
(L) FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and note payable to
shareholder approximate fair value, due to the short maturity of
these instruments. The carrying amount of marketable securities
is based upon quoted market prices.
(M) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(N) COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. This
statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net
income and unrealized gains and losses, net of related tax effect,
on marketable securities classified as available-for-sale and is
presented in the consolidated statement of shareholders' equity.
F-10
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(O) STATEMENTS OF CASH FLOWS
The Company considers all short-term highly liquid instruments,
with an original maturity of three months or less, to be cash
equivalents.
(P) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) MARKETABLE SECURITIES
Marketable securities consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST GAINS VALUE
-------- ----- -----
<S> <C> <C> <C>
Governmental bonds $ 32,342 $229 $ 32,571
Corporate bonds 1,803 1 1,804
-------- ---- --------
34,145 230 34,375
Less current amounts (13,019) (65) (13,084)
-------- ---- --------
Long-term marketable securities $ 21,126 $165 $ 21,291
======== ==== ========
</TABLE>
During the year ended December 31, 1998, there were no proceeds from the
sale of available-for-sale securities. All marketable securities mature
within three years.
F-11
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(3) TRADE RECEIVABLES
Trade receivables consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Trade receivables $8,369 $ 3,316
Allowance for doubtful accounts (698) (1,294)
------ -------
$7,671 $ 2,022
====== =======
</TABLE>
During the fourth quarter of 1998, the Company provided retailers an
unconditional credit ("Net-down Credit") in connection with the Company's
new suggested retail pricing structure. The Net-down Credit, which
aggregated approximately $4,300,000, has been reflected as a reduction in
net sales and accounts receivable in the Company's consolidated financial
statements as of and for the year ended December 31, 1998.
(4) INVENTORIES
Inventories consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Finished goods $2,064 $ 2,880
Component parts 2,423 10,432
------ -------
$4,487 $13,312
====== =======
</TABLE>
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Manufacturing equipment $ 142 $ 244
Office equipment 660 4,112
Accumulated depreciation and amortization (198) (888)
----- ------
$ 604 $3,468
===== ======
</TABLE>
F-12
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(6) PROFESSIONAL SERVICES AGREEMENT
The professional services agreement consists of a contract entered into
by the Company and Nicholas A. Faldo ("Faldo"), a professional golfer,
which provides, among other things, for Faldo's endorsement and use of
the Company's products, as well as the design, development and testing of
new technologies and products. As consideration for such services, Faldo
received 900,000 shares of the Company's common stock, which were valued
at the fair market value of the stock ($11.25 per share) as of May 1,
1998, the effective date of the agreement. The value of the stock is
being amortized over ten years, which represents the estimated period
during which the Company will realize benefits under the agreement.
In addition, Faldo will receive royalty payments representing 5% of net
sales outside the U.S., with a minimum annual amount of $1,500,000
beginning in 1999 and increasing ratably to $4,000,000 in 2004.
(7) OTHER ASSETS, NET
Other assets, net, consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
------- ------
<S> <C> <C>
Enterprise resource planning software $ - $3,618
Deposits, including amounts for fixed assets
purchased 381 274
Infomercial costs 233 -
Patents 9 7
Other - 46
------- ------
$ 623 $3,945
======= ======
</TABLE>
(8) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Payroll, bonuses and commissions (see note 13) $5,576 $ 476
Royalties 393 506
Advertising 471 1,661
Product warranty expense and sales return 449 736
Professional services 340 605
Other 407 434
------ ------
$7,636 $4,418
====== ======
</TABLE>
F-13
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(9) COMMITMENTS AND CONTINGENCIES
The Company is obligated under certain noncancelable operating leases for
manufacturing, warehouse and office space. A summary of the minimum
rental commitments under noncancellable leases is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-------------
<S> <C>
1999 $687
2000 717
2001 732
2002 767
2003 785
Thereafter 262
</TABLE>
Rent expense was approximately $46,000 $104,000 and $472,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The Company had outstanding commitments on letters of credit of
approximately $144,000 at December 31, 1998, for the purchase of
inventory from foreign vendors.
From time to time, the Company is a party to various legal proceedings
arising from the ordinary course of business. While any proceeding has an
element of uncertainty, management believes that the final outcome of all
matters currently pending will not have a materially adverse effect on
the Company's financial position, results of operations or liquidity.
(10) RETIREMENT PLAN
In February 1998, the Company adopted the Adams Golf, Ltd. 401(k)
Retirement Plan (the "Plan"), which covers substantially all employees.
The Company matches 50% of employee contributions up to a maximum of 6%
of the employee's compensation. For the year ended December 31, 1998, the
Company contributed approximately $74,000 to the Plan.
F-14
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(11) DEBT
On February 27, 1998, the Company entered into a $10,000,000 revolving
credit facility (the "Facility") bearing interest payable monthly at the
bank's prime rate minus 25 basis points (7.50% at December 31, 1998) or
LIBOR plus 1.75%, which expired December 31, 1998. Subsequent to December
31, 1998, the Company amended the Facility's maturity date to May 31,
2000 and the interest rate to the bank's prime rate of interest minus 50
basis points or LIBOR plus 1.00%. At December 31, 1998, there were no
amounts outstanding under the Facility. The Company pays a commitment fee
on the unused portion of the Facility of one-eighth of one percent per
annum.
During the first quarter of 1998, the Company borrowed $1,135,000 in the
form of an unsecured note payable to the Chief Executive Officer. The
remaining principal balance of the note of $175,000, which bears interest
at 5.39%, is due on April 14, 1999.
(12) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997 and
1998 consists of the following;
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Federal - current $1,021 $5,486
Federal - deferred (573) 1,077
State - current 134 620
------ ------
$ 582 $7,183
====== ======
</TABLE>
Actual income tax expense differs from the "expected" income tax expense
(benefit) (computed by applying the U.S. federal corporate tax rate of
34% for 1996 and 1997 and 35% for 1998 to income (loss) before income
taxes) for the years ended December 31, 1996, 1997 and 1998 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 4 $(1,384) $6,892
State income taxes, net of federal tax benefit - 89 403
Non-taxable interest income - - (286)
Stock compensation and bonus award - 2,159 -
Change in valuation allowance for deferred
tax assets (4) (338) (50)
Other - 56 (224)
---- ------- ------
$ - $ 582 $7,183
==== ======= ======
</TABLE>
F-15
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts $ 237 $ 453
Research and development costs 1 160
Net-down credit - 1,505
Product warranty and sales returns 153 258
Obsolete inventory reserve - 77
Other reserves - 93
Net operating loss carryforwards 311 275
----- ------
Total gross deferred tax assets 702 2,821
Less valuation allowance (50) -
----- ------
Net deferred tax assets 652 2,821
----- ------
Deferred tax liabilities:
Infomercial costs 79 -
Prepaid professional services - 3,308
Tax/book depreciation difference - 17
Unrealized gain on marketable securities - 81
----- ------
Total gross deferred tax liabilities 79 3,406
----- ------
Net deferred tax assets (liabilities) $ 573 $ (585)
===== ======
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible.
The valuation allowance for deferred tax assets at December 31, 1997 was
$50,000. The net change in the total valuation allowance for the years
ended December 31, 1997 and 1998 was a decrease of $338,000 and $50,000,
respectively.
At December 31, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $786,000 which are
available to offset future federal taxable income through 2010. The
availability of the net operating loss carryforwards to reduce future
taxable income is subject to certain limitations. As a result of a change
in ownership, utilization of its net operating loss carryforwards is
limited to approximately $71,000 per year for the remaining life of the
net operating losses.
F-16
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(13) STOCKHOLDERS' EQUITY
(A) INITIAL PUBLIC OFFERING
The Company completed the sale of 4,000,000 shares of common stock
through an initial public offering (the "Offering") on July 15,
1998. The Offering resulted in net proceeds to the Company of
approximately $58,000,000 after deducting offering expenses,
discounts and commissions. On July 20, 1998, the Company completed
the sale of an additional 37,500 shares of common stock in
connection with the underwriters' exercise of their option to
cover over-allotments, resulting in net proceeds of $500,000.
(B) STOCK OPTION PLANS
In April 1996, the Company adopted the 1996 Stock Option Incentive
Plan (the 1996 Stock Option Plan), pursuant to which stock options
covering an aggregate of 800,000 shares of the Company's common
stock may be granted. Options awarded under the 1996 Stock Option
Plan (i) are generally granted at prices that equate to or are
above fair market value on the date of the grant; (ii) generally
become exercisable over a period of one to four years; and (iii)
generally expire five years subsequent to award.
At December 31, 1998, there were 140,310 shares available for
grant under the 1996 Stock Option Plan. The per share
weighted-average fair value of stock options granted during 1996
was $0.06, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions: Risk-free interest rate, 6%; expected life, two -
five years and expected dividend yield, 0%. For the years ended
December 31, 1997 and 1998, there were no stock options granted,
nor does the Company intend to make future grants, under the 1996
Stock Option Plan.
In connection with an employment agreement entered into in
September 1995 with the Company's Chief Executive Officer, the
Company granted options to acquire 1,520,766 shares of common
stock at $0.375 per share. Vesting of the stock options was
conditioned upon meeting certain revenue and earnings
requirements, which were met during 1996 and 1997. Also, the
agreement provided for a bonus to be paid to the Chief Executive
Officer in an amount equal to the exercise price of the options
plus any related income tax due by the Chief Executive Officer
upon exercise of the options. The Chief Executive Officer notified
the Company of his intent to exercise the options in December 1997
with the shares issued in January 1998. Compensation expense of
approximately $214,000 and $2,300,000 was charged to operations in
1996 and 1997, respectively, to recognize the bonus due to the
Chief Executive Officer.
F-17
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
In conjunction with a 1996 stock purchase agreement, the Company
granted options to a shareholder to acquire an aggregate of
942,632 shares of common stock at option exercise prices ranging
from $0.375 to $0.625 per share. During 1997, the shareholder
exercised the options for an aggregate exercise price of
approximately $550,000.
In February 1998, the Company adopted the 1998 Stock Incentive
Plan ("the 1998 Stock Option Plan"), pursuant to which stock
options covering an aggregate of 1,800,000 shares (of which
900,000 were utilized as a direct stock grant to Faldo (see note
6)) of the Company's common stock may be granted. The Company
granted 467,700 options, which generally vest over four years, to
employees during 1998 at a weighted average price of $3.39 per
share. At December 31, 1998, 541,940 shares remain available for
grant, including forfeitures. For financial statement reporting
purposes, the 1998 grants were deemed to have fair market values
ranging from $3.75 to $11.25 per share at the date of grant.
Accordingly, the Company has recorded deferred compensation of
approximately $704,000, net of amounts amortized and forfeited, at
December 31, 1998. The deferred compensation is being amortized to
expense over the vesting period of the options.
The Company applies Accounting Principles Board Opinion 25 in
accounting for its stock plans, and no compensation cost is
recognized for its stock options in the consolidated financial
statements for those stock options granted at fair market value.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123,
the Company's net income (loss) would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net income (loss):
As reported $ 13 $(4,654) $12,510
Pro forma (13) (4,744) 12,445
Diluted income (loss) per common share:
As reported $ - $ (0.37) $ 0.61
Pro forma - (0.38) 0.60
</TABLE>
The per share weighted-averages fair value of stock options
granted during 1998 under the 1998 Stock Option Plan was $5.22 on
the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: Risk-free
interest rate, 6%; expected life, 5 years; and expected dividend
yield, 0%.
F-18
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
Pro forma net income (loss) reflects only options granted in 1996,
1997 and 1998. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income (loss) amounts presented
above because compensation cost is reflected over the respective
options vesting periods of up to four years.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at December 31, 1995 1,520,766 $0.375
Options granted 1,946,948 1.00
---------- ------
Options outstanding at December 31, 1996 3,467,714 0.44
Options exercised (946,104) 0.583
---------- ------
Options outstanding at December 31, 1997 2,521,610 0.375
Options granted 467,700 3.39
Options exercised (2,479,944) 0.375
Options forfeited (151,304) 1.91
---------- ------
Options outstanding at December 31, 1998 358,062 $3.67
========== ======
</TABLE>
At December 31, 1998, the exercise prices ranged from $2.50 to
$11.25 per share, and the weighted-average remaining contractual
life of outstanding options is approximately 4.37 years.
At December 31, 1997 and 1998, the number of options exercisable
was 2,114,492 and 45,000, respectively, and the per share
weighted-average exercise price of those options was $0.375 and
$2.50, respectively. At December 31, 1998, the remaining
contractual life of options exercisable was 4.5 years.
(C) STOCK COMPENSATION AWARD
In December 1997, the Board of Directors of the Company approved a
stock compensation award of 2,000,000 shares of common stock to
the Chief Executive Officer of the Company. In addition, the
Company agreed to pay all income taxes due by the Chief Executive
Officer relating to such stock award and related tax bonus.
Aggregate compensation of $12,542,000 (including $2,542,000 for
estimated taxes) was recorded by the Company during the year
ended December 31, 1997 based on the fair market value of the
stock.
F-19
<PAGE>
ADAMS GOLF, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tables in thousands, except share amounts)
December 31, 1997 and 1998
(D) NOTE WITH SHAREHOLDER CONVERTED TO STOCK
The Company borrowed $200,000 from a shareholder in October 1996
and an additional $250,000 from the same shareholder in 1997. The
aggregate notes payable balance of $450,000 was converted into
450,000 shares of the Company's stock in September 1997.
(E) STOCK SPLIT AND AUTHORIZED CLASSES OF STOCK
Effective April 29, 1998, the stockholders of the Company
authorized a two-for-one stock split for holders of record on May
1, 1998. The stock split has been reflected in the accompanying
consolidated financial statements and, accordingly, all applicable
dollar, share and per share amounts have been restated to reflect
the stock split. In addition, the stockholders of the Company also
approved an increase in the number of authorized shares of Common
Stock to 50,000,000 and established a class of preferred stock
with a par value of $.01 per share and authorized shares of
5,000,000.
(F) COMMON STOCK REPURCHASE PROGRAM
In October 1998, the Board of Directors approved a plan whereby
the Company is authorized to repurchase from time to time on the
open market up to 2,000,000 shares of its common stock. At
December 31, 1998, the Company had repurchased 657,500 shares of
common stock at an average price per share of $4.77 for a total
cost of approximately $3,136,000 and the repurchased shares are
held in treasury.
(14) GEOGRAPHIC SEGMENT AND DATA
In 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major
customers.
The Company generates substantially all revenues from the design,
manufacturing, marketing and distribution of premium quality,
technologically innovative golf clubs. The Company's products are
distributed in both domestic and international markets. Net sales for
these markets consisted of the following for the years ended December 31,
1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
United States $2,922 $35,808 $73,580
Rest of World 600 882 11,031
------ ------- -------
$3,522 $36,690 $84,611
====== ======= =======
</TABLE>
At December 31, 1998, the Company has no assets outside of the United
States.
(15) SUBSEQUENT EVENT
In February 1999, the Company signed a letter of intent to acquire
certain assets of its exclusive distributor for the United Kingdom, which
is majority owned by Faldo. Consideration will include approximately
$200,000 in cash and a contingent cash payment of $200,000 due at the end
of 1999 based upon the achievement of certain minimum levels of operating
results.
F-20
<PAGE>
SCHEDULE II
ADAMS GOLF, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- -------------------------------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $ - 51 - 25 $ 26
Year ended December 31, 1997 26 739 - 67 698
Year ended December 31, 1998 698 1,464 - 868 1,294
Product Warranty and Sales Returns:
Year ended December 31, 1996 - 2 - 2 -
Year ended December 31, 1997 - 1,808 - 1,359 449
Year ended December 31, 1998 $449 5,476 - 5,189 $ 736
</TABLE>
(1) Represents uncollectable accounts charged against the allowance for
doubtful accounts and actual costs incurred for warranty repairs and
sales returns.
S-1
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "AGREEMENT")
is entered into as of February 26, 1999 by and between ADAMS GOLF DIRECT
RESPONSE, LTD., a Texas limited partnership, and ADAMS GOLF, LTD., a Texas
limited partnership (each a "BORROWER" and collectively, "BORROWERS"), and
NATIONSBANK, N.A., a national banking association, successor in interest by
merger to NationsBank of Texas, N.A., a national banking association
("LENDER").
W I T N E S S E T H:
1. Borrowers and Lender entered into that certain Revolving Credit
Agreement dated as of February 27, 1998 (as modified, amended, renewed,
extended, and restated from time to time, the "ORIGINAL LOAN AGREEMENT"),
pursuant to which Lender provided to Borrowers a revolving credit facility
upon the terms and subject to the conditions set forth in the Original Loan
Agreement.
2. Borrowers and Lender desire and have agreed, subject to the terms
and conditions set forth herein, to amend and restate the Original Loan
Agreement in its entirety as and pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITION OF TERMS
1.1 DEFINITIONS. As used in this Agreement, all exhibits and schedules
hereto and in any note, certificate, report, or other Loan Documents made or
delivered pursuant to this Agreement, the following terms have the respective
meanings assigned to them in this SECTION 1 or in the SECTION or recital
referred to below:
"ADJUSTED EURODOLLAR RATE" means, with respect to any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16th
of 1%) equal to the quotient of (a) the Eurodollar Rate with respect to such
Interest Period, DIVIDED BY (b) the remainder of 1.00 MINUS the Eurodollar
Reserve Requirement in effect on such date.
"ADVANCE" means (a) the disbursement by Lender of a sum or sums lent to
any Borrower pursuant to this Agreement, (b) the conversion of a Borrowing
from one type of Borrowing to another type of Borrowing pursuant to SECTION
2.14, and (c) the continuation of a Eurodollar Borrowing to a new Interest
Period pursuant to SECTION 2.14.
"ADVANCE DATE" has the meaning set forth in SECTION 2.2(a).
"AFFILIATE" of any Person means any other Person directly or
indirectly, controlling, controlled by, or under common control with, such
Person.
"AFTER-ACQUIRED SUBSIDIARY" has the meaning set forth in SECTION 6.13.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
"AGI" means Adams Golf, Inc., a Delaware corporation.
"AGREEMENT" means this Revolving Credit Agreement, including the
SCHEDULES and EXHIBITS hereto, as the same may be renewed, extended, amended,
or modified from time-to-time.
"APPLICABLE MARGIN" means, at the time of determination thereof, the
interest margin over the Base Rate or the Adjusted Eurodollar Rate, as the
case may be, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C>
APPLICABLE MARGIN APPLICABLE MARGIN EURODOLLAR
BASE RATE BORROWINGS BORROWINGS
----------------------------------------------------------------------
- 0.50% 1.00%
----------------------------------------------------------------------
</TABLE>
"BASE RATE" means the variable rate of interest established from
time-to-time by Lender as its general reference rate of interest (which rate
of interest may not be the lowest rate charged by Lender on similar loans).
Each change in the Base Rate shall become effective without prior notice to
Borrowers automatically as of the opening of business on the date of such
change in the Base Rate.
"BASE RATE BORROWING" means any portion of the Principal Debt with
respect to which the interest rate is calculated by reference to the Base
Rate.
"BORROWING" means a Eurodollar Borrowing or a Base Rate Borrowing.
"BUSINESS DAY" means (a) for all purposes, any day OTHER THAN a
Saturday, Sunday, or day on which national banks are authorized to be closed
under the laws of the State of Texas, and (b) for purposes of any Eurodollar
Borrowing, a day that satisfies the requirements of CLAUSE (A) and is a day
when commercial banks are open for domestic or international business in
London.
"CAPITAL LEASE" means, for any Person, any capital lease or sublease
that has been (or under GAAP should be) capitalized on a balance sheet of
such Person.
"CASH INTEREST EXPENSE" means (without duplication), for the Companies
for any period, total interest expense in respect of Indebtedness actually
paid or that is payable during such period, including, without limitation,
all commissions, discounts, and other fees and charges with respect to
letters of credit, but excluding interest expense not payable in cash, all as
determined in accordance with GAAP.
"CHANGE IN CONTROL" means (a) AGI shall cease to own, directly or
indirectly, one hundred percent (100%) of all of the issued and outstanding
capital Stock of each other material Company, or (b) any Person or group of
related Persons (other than B. H. Adams or Royal Holding Company, Inc. or
their respective Affiliates) shall have acquired beneficial ownership of more
than thirty-five percent (35%) of the outstanding Stock of AGI, or (c) at any
time during any period of twelve (12) consecutive calendar months commencing
on or after the date of this Agreement, a majority of the Board of Directors
of AGI shall no longer be comprised of individuals (i) who were members of
such Board of Directors on the first (1st) day of such period, (ii) whose
election or nomination to such Board of Directors was approved by individuals
referred to in CLAUSE (I) above constituting at the time of such election or
nomination at least a majority of such Board of Directors, or (iii) whose
election or nomination to such
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
Board of Directors was approved by individuals referred to in CLAUSES (I) and
(II) above constituting at the time of such election or nomination at least a
majority of such Board of Directors.
"CODE" means the INTERNAL REVENUE CODE OF 1986, as amended, and all
regulations promulgated and rulings issued thereunder.
"COMMITMENT USAGE" means, as of any date, THE SUM OF (a) the Principal
Debt PLUS (b) the LC Exposure.
"COMPANIES" means Borrowers and Guarantors, and "COMPANY" means any one
of the Companies.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT A, executed by an authorized officer of each Borrower, stating
that a review of the activities of the Companies during the subject period
has been made under such Person's supervision and that the Companies have
performed each and every obligation and covenant contained herein and the
other Loan Documents and are not in default under any of the same or, if any
such default shall have occurred, then specifying the nature and status
thereof, and setting forth a computation in reasonable detail as of the end
of the period covered by such statements, of compliance with SECTIONS 7.14
and 7.15.
"CONSOLIDATED ADJUSTED NET INCOME" means, for the Companies for any
period, consolidated net earnings (after income taxes) determined in
accordance with GAAP, but excluding (a) extraordinary gains, (b) gains due to
sales or write-up of assets, (c) earnings of any Person newly acquired, if
earned prior to acquisition, or (d) gains due to acquisitions of any Stock of
any Company.
"CONSTITUENT DOCUMENTS" means, with respect to any Person, its articles
or certificate of incorporation, bylaws, partnership agreements,
organizational documents, limited liability company agreements, trust
agreement, or such other document as may govern such Person's formation,
organization, and management.
"CONTRACT RATE" means (a) with respect to a Base Rate Borrowing, the
Base Rate PLUS the Applicable Margin, and (b) with respect to a Eurodollar
Borrowing, the Adjusted Eurodollar Rate PLUS the Applicable Margin.
"DEBTOR LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, or similar laws from time-to-time in effect affecting the
rights of creditors generally.
"DIVIDENDS" means, with respect to any Stock issued by any Person, (a)
the retirement, redemption, purchase, or other acquisition for value of such
Stock by such Person, (b) the declaration or payment of any dividend or
distribution on or with respect to such Stock by such Person, and (c) any
other payment by such Person with respect to such Stock.
"EBITDA" means, for the Companies for any period, THE SUM OF (a)
Consolidated Adjusted Net Income, PLUS (b) depreciation and amortization
expense, PLUS (c) Cash Interest Expense, PLUS (d) federal,
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
state, local, and foreign income taxes deducted from Consolidated Adjusted
Net Income in accordance with GAAP.
"ENVIRONMENTAL LAWS" means any Legal Requirements pertaining to air,
emissions, water discharge, noise emissions, solid or liquid waste disposal,
hazardous waste or materials, industrial hygiene, or other environmental,
health, or safety matters or conditions on, under or about real property or
any portion thereof, and similar laws of any Governmental Authority having
jurisdiction over real property as such Legal Requirements may be amended or
supplemented from time-to-time, and regulations promulgated and rulings
issued pursuant to such laws.
"ERISA" means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended, and the regulations and published interpretations thereunder.
"ERISA AFFILIATE" means any Subsidiary or trade or business (whether or
not incorporated) which is a member of a group of which any Company is a
member and which is under common control with any Company within the meaning
of SECTION 414 of the Code.
"EURODOLLAR BORROWING" means any portion of the Principal Debt with
respect to which the interest rate is calculated by reference to the Adjusted
Eurodollar Rate for a particular Interest Period.
"EURODOLLAR RATE" means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of one percent) equal to the rate appearing on the Dow Jones
Markets Page 3750 (or any successor page) as the London interbank offered
rate for deposits in Dollars at approximately 11:00 a.m. (London time) two
(2) Business Days prior to the first (1st) day of such Interest Period for a
term comparable to such Interest Period. If for any reason such rate is not
available, then such rate shall be the rate appearing on the Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the
first (1st) day of the such Interest Period for a term comparable to such
Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on the
Reuters Screen LIBO Page, then the applicable rate shall be the arithmetic
mean of all such rates. If neither of such rates are available, then such
rate shall be determined on the basis of the rates at which deposits in
United States dollars are offered by Lender at approximately 11:00 a.m.
(London time) on the day that is two (2) Business Days preceding the first
(1st) day of the relevant Interest Period to prime banks in the London
interbank market and for a period equal to such Interest Period commencing on
the first (1st) day of such Interest Period.
"EURODOLLAR RESERVE REQUIREMENT" means, on any day, that percentage
(expressed as a decimal fraction) that is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the maximum reserve requirements
(including, without limitation, basic, supplemental, marginal and emergency
reserves) under REGULATION D with respect to "EUROCURRENCY LIABILITIES" as
currently defined in REGULATION D, or under any similar or successor
regulation with respect to Eurocurrency liabilities or Eurocurrency funding.
Each determination by Lender of the Eurodollar Reserve Requirement shall, in
the absence of manifest error, be conclusive and binding.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.1.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
"FIXED CHARGES" means, for the Companies, for any period, the sum of
(a) Cash Interest Expense, (b) operating lease expenses, and (c) rent
expenses.
"FUNDING LOSS" has the meaning set forth in SECTION 2.16(e).
"GAAP" means those generally accepted accounting principles and
practices, applied on a consistent basis, which are recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board and the Financial Accounting Standards Board
and/or their respective successors and which are applicable in the
circumstances as of the date in question.
"GOVERNMENTAL AUTHORITY" means, with respect to any Person, any
government (or any political subdivision or jurisdiction thereof), court,
bureau, agency, or other governmental authority having jurisdiction over such
Person or any of its business, operations, or properties.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Authority or
pursuant to any Legal Requirement.
"GUARANTORS" means AGI, Adams Golf Holding Corp., a Delaware
corporation, Adams Golf GP Corp., a Delaware corporation, Adams Golf
Management Corp., a Delaware corporation, Adams Golf IP, L.P., a Delaware
limited partnership, and each other After-Acquired Subsidiary of AGI.
"GUARANTY" of any Person means any contract or understanding of such
Person pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any manner,
whether directly or indirectly, including agreements to assure the holder of
the Indebtedness of the Primary Obligor against loss in respect thereof;
PROVIDED THAT "GUARANTY" shall not include endorsements, in the ordinary
course of business, of negotiable instruments or documents for deposit or
collection.
"HAZARDOUS MATERIAL" means any hazardous, toxic, or dangerous waste,
substance, or material defined as such in or for the purpose of any
Environmental Law.
"INDEBTEDNESS" means, for any Person, all Liabilities of such Person,
excluding accounts payable, deferred taxes, deferred liabilities, and accrued
expenses in each case incurred in the ordinary course of business and the
payment of which is not past-due (unless payment is being contested in good
faith by appropriate proceedings diligently conducted and for which adequate
reserves are maintained in accordance with GAAP).
"INTANGIBLE RIGHTS" means, for any Person, any permits, franchises,
licenses, patents, trademarks, trade names, intellectual property rights,
technology, know-how, and processes of such Person.
"INTEREST PERIOD" means, with respect to a Eurodollar Borrowing, a
period commencing:
(a) on the Advance Date thereof; or
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
(b) on the conversion date pertaining to such Eurodollar Borrowing, if
such Eurodollar Borrowing is made pursuant to a conversion as described in
SECTION 2.13; or
(c) on the last day of the preceding Interest Period in the case of a
rollover to a successive Interest Period;
and ending one (1) month or three (3) or six (6) months thereafter, as
Borrowers shall elect in accordance with SECTION 2.13 or SECTION 2.14,
PROVIDED THAT:
(i) any Interest Period that would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day, UNLESS
such Business Day falls in another calendar month in which case such Interest
Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month or at the end of such Interest Period) shall,
subject to CLAUSE (I) above, end on the last Business Day of a calendar
month; and
(iii) if the Interest Period for any Eurodollar Borrowing would
otherwise end after the final maturity date of the Note, then such Interest
Period shall end on the final maturity date of the Note.
"INVESTMENT" in any Person means any investment, whether by means of
Stock purchase, loan, advance, extension of credit, capital contribution, or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"LC" means a documentary or standby letter of credit issued for the
account of Borrowers by Lender under this Agreement and under an LC Agreement.
"LC AGREEMENT" means a letter of credit application and agreement (in
form and substance satisfactory to Lender) executed by Borrowers and
submitted to Lender for an LC for the account of Borrowers.
"LC EXPOSURE" means, without duplication, the SUM of (a) the total face
amount of all undrawn and uncancelled LCs PLUS (b) the total unpaid
reimbursement obligations of Borrowers under drawings under any LC.
"LC REQUEST" means a request substantially in the form of EXHIBIT B
executed by a responsible officer of each Borrower.
"LC SUB-FACILITY" means a sub-facility of the Revolving Credit
Commitment for the issuance of LCs, as described in SECTION 2.3, under which
the LC Exposure (a) may never collectively exceed $5,000,000, and (b)
TOGETHER WITH the Principal Debt may never exceed the Revolving Credit
Commitment.
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"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, multi-national, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute,
or treaty as in effect on the date in question.
"LIABILITIES" means (without duplication), with respect to any Person,
all indebtedness, obligations, and liabilities of such Person, including
without limitation (a) all "LIABILITIES" which would be reflected on a
balance sheet of such Person, (b) all obligations of such Person in respect
of any Guaranty, letter of credit, or bankers' acceptance, (c) all
obligations of such Person in respect of any Capital Lease, (d) all
obligations, indebtedness, and liabilities secured by any lien or any
security interest on any property or assets of such Person, and (e) any
obligation to redeem or repurchase any of such Person's Stock.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Note, and any agreements,
documents (and with respect to this Agreement, and such other agreements and
documents, any renewals, extensions, amendments, or supplements thereto), or
certificates at any time executed or delivered pursuant to the terms of this
Agreement.
"MATERIAL ADVERSE EFFECT" means any material adverse changes in, or
effect upon, (a) the validity, performance or enforceability of any Loan
Documents, (b) the financial condition or business operations of any Company,
or (c) the ability of any Company to fulfill its obligations under the Loan
Documents.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if any)
permitted from day to day by applicable law. Lender hereby notifies and
discloses to Borrowers that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1D.001 (codified in the TEXAS FINANCE CODE Section 303.001), as it may
from time to time be amended, the "APPLICABLE CEILING" shall be the "WEEKLY
CEILING" from time to time in effect as limited by article 5069-1D.009
(codified in the TEXAS FINANCE CODE Section 303.305); PROVIDED, HOWEVER, that
to the extent permitted by applicable law, Lender reserves the right to
change the "APPLICABLE CEILING" from time to time by further notice and
disclosure to Borrowers.
"MULTI-EMPLOYER PLAN" means a multi-employer plan as defined in
SECTIONS 3(37) or 4001(A)(3) of ERISA or SECTION 414 of the Code to which any
Company or any ERISA Affiliate is making, or has made, or is accruing, or has
accrued, an obligation to make contributions.
"NOTE" means the Amended and Restated Promissory Note executed by
Borrowers and delivered pursuant to the terms of this Agreement, together
with any renewals, extensions, modifications, or restatements thereof.
"NOTICE OF BORROWING" means a notice in the form of EXHIBIT C attached
hereto.
"OBLIGATION" means all present and future Indebtedness, obligations,
and Liabilities and all
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renewals and extensions thereof, or any part thereof, now or hereafter owed
to Lender by Borrowers, whether arising pursuant to any of the Loan
Documents, or otherwise, and all modifications, amendments, renewals,
extensions, and restatements thereof, together with all interest accruing
thereon and costs, expenses, and attorneys' fees incurred in the enforcement
or collection thereof.
"OTHER TAXES" has the meaning set forth in SECTION 2.17.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's
functions under ERISA.
"PERSON" shall include an individual, corporation, joint venture,
general or limited partnership, limited liability company, trust,
unincorporated organization, or government, or any agency or political
subdivision thereof.
"PERMITTED LIENS" means (a) Liens in favor of Lender to secure the
Obligation, (b) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation), unemployment insurance, pensions, or social security programs,
(c) Liens imposed by mandatory provisions of law such as for materialmen's,
mechanic's, warehousemen's, and other like Liens arising in the ordinary
course of a Company's business, securing Indebtedness whose payment is not
yet due, (d) Liens for taxes imposed upon a Person or upon such Person's
income, profits, or property, if the same are not yet due and payable or if
the same are being contested in good faith and for which adequate reserves
are maintained in accordance with GAAP, (e) good faith deposits in connection
with leases, real estate bids or contracts (OTHER THAN contracts involving
the borrowing of money), pledges or deposits to secure (or in lieu of)
surety, stay, appeal, or customs bonds and deposits to secure the payment of
taxes, assessments, customs, duties, or other similar charges, (f)
encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, PROVIDED THAT such encumbrances do
not impair the use of such property for the uses intended, and none of which
is violated by existing or proposed structures or land use, and (g) Liens
described on EXHIBIT F, and Liens resulting from the refinancing of the
related Indebtedness secured thereby, PROVIDED THAT the Indebtedness secured
thereby shall not be increased and the Liens shall not cover additional
assets of any Company.
"PLAN" means an employee benefit plan or other plan maintained by any
Company or any ERISA Affiliate and which is covered by TITLE IV of ERISA or
subject to the minimum funding standards under SECTION 412 of the Code, as
amended.
"PLANO FACILITY" means the Companies new facility located at 2801 East
Plano Parkway, Plano, Texas.
"POTENTIAL DEFAULT" means the occurrence of any event which with
passage of time or giving of notice or both would become an Event of Default.
"PRINCIPAL DEBT" means, as of any date, the sum of the outstanding
principal balance of all outstanding Borrowings hereunder as of such date.
"REPORTABLE EVENT" has the meaning assigned to that term in TITLE IV of
ERISA, but shall not
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include an event with respect to which the PBGC has waived the reporting
requirement by regulation.
"REPRESENTATIVES" means representatives, officers, directors,
employees, attorneys, and agents.
"REVOLVING CREDIT COMMITMENT" means $10,000,000.00, as the same may be
decreased by Borrowers pursuant to SECTION 2.1 or terminated by Lender
pursuant to SECTION 8.2.
"SOLVENT" means, as to a Person, that (a) the aggregate fair market
value of its assets exceeds its Liabilities, (b) such Person is able to pay
and is paying its Liabilities as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, or other ownership interests
(regardless of how designated) of or in a corporation, partnership, limited
liability company, trust, or other entity, whether voting or nonvoting,
including common stock, preferred stock, or any other "EQUITY SECURITY" (as
such term is defined in RULE 3A11-1 of the GENERAL RULES AND REGULATIONS
promulgated by the Securities and Exchange Commission under the SECURITIES
EXCHANGE ACT OF 1934, as amended).
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) (in number of votes) of the issued and outstanding Stock having
ordinary voting power for the election of at least a majority of the
directors is owned or controlled, directly or indirectly, by AGI, any
Subsidiary of AGI, or any combination thereof.
"TAXES" has the meaning set forth in SECTION 2.17.
"TEMPORARY CASH INVESTMENT" means any Investment (a) in direct
obligations of the United States of America or any agency thereof, or
obligations fully guaranteed by the United States of America or any agency
thereof, PROVIDED THAT such obligations mature within one (1) year of the
date of acquisition thereof, (b) commercial paper rated in the highest grade
by two (2) or more national credit rating agencies and maturing not more than
180 days from the date of creation thereof, and (c) time deposits with, and
certificates of deposit and bankers' acceptances issued by, Lender or any
United States bank having capital surplus and undivided profits aggregating
at least $1,000,000,000.00.
"TERMINATION DATE" means the earlier of (a) May 31, 2000, (b) the date
Lender's commitment to fund Advances hereunder is terminated pursuant to
SECTION 8.2, or (c) the date that Lender's commitment to fund Advances
hereunder is reduced to zero pursuant to SECTION 2.1.
"UNUSED COMMITMENT" means, as of any date, (a) the Revolving Credit
Commitment, MINUS (b) the Commitment Usage.
1.2 ACCOUNTING TERMS. As used in this Agreement, and in any
certificate, report, or other document made or delivered pursuant to this
Agreement, accounting terms not defined in SECTION 1.1, and accounting terms
partly defined in SECTION 1.1 to the extent not defined, have, as of any
date, the respective meanings given to them under GAAP and all references to
balance sheets or other financial statements means such statements, prepared
in accordance with GAAP as of such date.
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1.3 RULES OF CONSTRUCTION. When used in this Agreement: (a) "OR" is not
exclusive; (b) a reference to a law includes any amendment or modification to
such law; (c) a reference to a Person includes its permitted successors and
permitted assigns; (d) except as provided otherwise, all references to the
singular shall include the plural and VICE VERSA; (e) except as provided in
this Agreement, a reference to an agreement, instrument, or document shall
include such agreement, instrument, or document as the same may be amended,
modified, renewed, extended, restated, or supplemented from time to time in
accordance with its terms and as permitted by the Loan Documents; (f) all
references to SECTIONS, SCHEDULES, or EXHIBITS shall be to Sections,
Schedules, or Exhibits of this Agreement, unless otherwise indicated; (g) all
EXHIBITS to this Agreement shall be incorporated into this Agreement; (h) the
words "INCLUDE," "INCLUDES," and "INCLUDING" shall be deemed to be followed
by the phrase "WITHOUT LIMITATION;" and (i) except as otherwise provided
herein, in the computation of time from a specified date to a later specified
date, the word "FROM" means "FROM AND INCLUDING" and words "TO" and "UNTIL"
each mean "to but excluding."
1.4 JOINT AND SEVERAL.
(a) All representations contained herein shall be deemed individually
made by each Borrower, and each of the covenants, agreements, and obligations
set forth herein shall be deemed to be the joint and several covenants,
agreements, and obligations of each Borrower. Any notice, request, consent,
report, or other information or agreement delivered to Lender by any Borrower
shall be deemed to be ratified by, consented to, and also delivered by each
other Borrower. Each Borrower recognizes and agrees that each covenant and
agreement of a "BORROWER" and "BORROWERS" in this Agreement and in any other
Loan Document shall create a joint and several obligation of such entities,
which may be enforced against such entities jointly or against each entity
separately.
(b) Each Borrower hereby irrevocably and unconditionally agrees: (i)
that it is jointly and severally liable to Lender for the full and prompt
payment of the Obligation and the performance by each other Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) to fully and
promptly perform all of its obligations hereunder with respect to the
Obligation; and (iii) as a primary obligation to indemnify Lender on demand
for and against any loss incurred by Lender as a result of any of the
obligations of any one or more of Borrowers being or becoming void, voidable,
unenforceable, or ineffective for any reason whatsoever, whether or not known
to Lender or any Person, the amount of such loss being the amount which
Lender would otherwise have been entitled to recover from any one or more
Borrowers.
SECTION 2
THE REVOLVING CREDIT LOAN
2.1 THE REVOLVING CREDIT COMMITMENT. Subject to the terms and
conditions of this Agreement, Lender agrees to extend to Borrowers, from the
date hereof through the Termination Date, a revolving line of credit which
shall not exceed at any one time outstanding the then-current Revolving
Credit Commitment. Within the limits of this SECTION 2.1, during such period,
Borrowers may borrow, repay, and reborrow the Unused Commitment in accordance
with this Agreement. Borrowers shall have
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the right, upon three (3) Business Days' prior written notice to Lender, to
permanently reduce the unutilized portion of the Revolving Credit Commitment;
PROVIDED THAT if any such reduction does not reduce the Revolving Credit
Commitment to $0.00, then any partial reduction shall be in the minimum
amount of $1,000,000.00 or a greater integral multiple of $500,000.00.
2.2 MANNER OF BORROWING.
(a) NOTICE OF BORROWING. Borrowers may request an Advance by submitting
to Lender a Notice of Borrowing (in writing or by telephone followed by
written notice within one (1) Business Day), which is irrevocable and binding
on Borrowers. Each Notice of Borrowing must be received by Lender no later
than 10:00 a.m. (Dallas, Texas time) on the third (3rd) Business Day before
the date on which funds are requested (the "ADVANCE DATE") for any Advance
that will be a Eurodollar Borrowing or no later than 10:00 a.m. (Dallas,
Texas time) on the Advance Date for any Advance that will be a Base Rate
Borrowing.
(b) MINIMUM ADVANCES. Each Advance under the Revolving Credit
Commitment shall be in an amount of $100,000.00 or a greater integral
multiple of $50,000.00.
(c) FUNDING. Subject to the terms and conditions in this Agreement, by
not later than 2:00 p.m., Dallas, Texas time, on the date specified, Lender
shall make available to Borrowers, at Lender's offices in Dallas, Texas, the
amount of a requested Advance under the Revolving Credit Commitment in
immediately available funds.
2.3 LETTERS OF CREDIT.
(a) CONDITIONS. Subject to the terms and conditions of this Agreement,
Lender agrees, if requested by Borrowers, to issue LCs upon Borrowers' making
or delivering an LC Request and delivering an LC Agreement, both of which
must be received by Lender no later than the third (3rd) Business Day before
the Business Day on which the requested LC is to be issued, PROVIDED THAT (i)
no LC may expire after a date that is one (1) month before the Termination
Date, (ii) the LC Exposure may not exceed the limitations set forth in the
definition of LC Sub-facility, and (iii) each LC must expire no later than
one (1) year following the date of its issuance.
(b) REIMBURSEMENT OBLIGATION. To induce Lender to issue and maintain
LCs, Borrowers agree, jointly and severally, to pay or reimburse Lender (i)
on the first (1st) Business Day after Lender notifies Borrowers that Lender
has made payment under an LC, the amount paid by Lender, and (ii) within
three (3) Business Days after demand, the amount of any additional fees
Lender customarily charges for amending LCs Agreements, for honoring drafts
under LCs, and for taking similar action in connection with letters of
credit. If Borrowers have not reimbursed Lender for any drafts paid by the
date on which reimbursement is required under this SECTION, then Lender is
irrevocably authorized to fund Borrowers' reimbursement obligations as a Base
Rate Borrowing if the conditions in this Agreement for such a Borrowing
(OTHER THAN any notice requirements or minimum funding amounts) have been
satisfied. The proceeds of such Borrowing shall be advanced directly to
Lender to pay Borrowers' unpaid reimbursement obligations. If funds cannot be
advanced as a result of Borrowers' failure to satisfy any condition precedent
set forth in SECTION 4, then Borrowers' reimbursement obligation shall
constitute a
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demand obligation. Borrowers' obligations under this SECTION are absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment that any Borrower may have at any time
against Lender or any other Person. From the date that Lender pays a draft
under a LC until Borrowers either reimburse or are obligated to reimburse
Lender for such draft under this SECTION, the amount of such draft bears
interest payable to Lender at the rate then applicable to Base Rate
Borrowings. From the due date of the respective amounts due under this
SECTION, to the date paid (including any payment from proceeds of a Base Rate
Borrowing), unpaid reimbursement amounts accrue interest that is payable on
demand at the default rate set forth in SECTION 2.10.
(c) GENERAL. Lender shall promptly notify Borrowers of the date and
amount of any draft presented for honor under any LC (but failure to give
notice will not affect Borrowers' obligations under this Agreement). Lender
shall pay the requested amount upon presentment of a draft unless presentment
on its face does not comply with the terms of the applicable LC. When making
payment, Lender may disregard (i) any default or potential default that
exists under any other agreement, and (ii) obligations under any other
agreement that have or have not been performed by the beneficiary or any
other Person (and Lender is not liable for any of those obligations).
Borrowers' reimbursement obligations to Lender under this SECTION are
absolute and unconditional irrespective of, and Lender is not responsible
for, (i) the validity, enforceability, sufficiency, accuracy, or genuineness
of documents or endorsements (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii) any
dispute by any Company with or any Company's claims, setoffs, defenses,
counterclaims, or other rights against Lender or any other Person, or (iii)
the occurrence of any Potential Default or Event of Default. However, nothing
in this Agreement constitutes a waiver of Borrowers' rights to assert any
claim or defense based upon the gross negligence or willful misconduct of
Lender or its Representatives.
(d) DUTIES OF LENDER. Lender and each Borrower agree that, in paying
any draft under any LC, Lender has no responsibility to obtain any document
(OTHER THAN any documents expressly required by the respective LC) or to
ascertain or inquire as to any document's validity, enforceability,
sufficiency, accuracy, or genuineness or the authority of any Person
delivering it. Neither Lender nor its Representatives will be liable to any
Company for any LC's use or for any beneficiary's acts or omissions
(INCLUDING, WITHOUT LIMITATION, ANY ACTS OR OMISSIONS CONSTITUTING ORDINARY
NEGLIGENCE). Any action, inaction, error, delay, or omission taken or
suffered by Lender or any of its Representatives in connection with any LC,
applicable drafts or documents, or the transmission, dispatch, or delivery of
any related message or advice, if in good faith and in conformity with
applicable Legal Requirements and in accordance with the standards of care
specified in the UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500 (as amended
or modified), is binding upon the Companies and Lender and, except as
provided in SECTION 2.3(d), does not place Lender or any of its
Representatives under any resulting liability to any Company. Lender is not
liable to any Company for any action taken or omitted, in the absence of
gross negligence or willful misconduct, by Lender or its Representative in
connection with any LC.
(e) CASH COLLATERAL. On the Termination Date and if requested by Lender
while a Potential Default or Event of Default exists, then Borrowers shall
provide Lender cash collateral in an amount to equal the then-existing LC
Exposure.
(f) INDEMNIFICATION. EACH BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND SAVE
LENDER
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AND ITS REPRESENTATIVES, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A
CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE
OF LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR
OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE GOVERNMENTAL
AUTHORITY. ALTHOUGH LENDER AND ITS REPRESENTATIVES HAVE THE RIGHT TO BE
INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY NEGLIGENCE, NO
PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(g) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this Agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this Agreement, drafts
under each LC are part of the Obligation, only the events specified in this
Agreement as a Default shall constitute a default under any LC or LC
Agreement, and the terms of this Agreement control any conflict between the
terms of this Agreement and any LC Agreement.
2.4 COMMITMENT FEES.
(a) UNUSED FEE. Borrowers agree to pay to Lender a commitment fee equal
to one-eighth of one percent (0.125%) per annum on the daily Unused
Commitment. Such commitment fee shall be payable quarterly in arrears on the
last day of each March, June, September, and December during the term hereof,
commencing on March 31, 1999, and continuing regularly thereafter so long as
the Revolving Credit Commitment is in effect, and on the Termination Date.
(b) LC FEES. Borrowers agree to pay to Lender, as a condition precedent
to the issuance (including the extension) of each LC, an issuance fee payable
on the date of issuance equal to (i) two percent (2%) per annum of the face
amount of such LC on the date of issuance for a standby LC, and (ii) the
greater of (A) $125.00, and (B) one-quarter of one percent (0.25%) per annum
of the face amount of such LC on the date of issuance, for a documentary LC.
(c) GENERALLY. Borrowers acknowledge that the commitment fees payable
hereunder are bona fide commitment fees and are intended as reasonable
compensation to Lender for committing to make funds available to Borrowers as
described herein and for no other purposes.
2.5 NOTE. The Principal Debt shall be evidenced by the Note in form and
substance satisfactory to Lender executed by Borrowers, which Note shall be (a)
dated the date hereof, (b) in the amount of $10,000,000.00, and (c) payable to
the order of Lender.
2.6 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST PAYMENTS. Accrued interest on each Eurodollar Borrowing
shall be due and payable on the last day of its respective Interest Period.
If any Interest Period is a period greater than three (3) months, then
accrued interest shall also be due and payable on the date ending each three
(3) month period after the commencement of the Interest Period. Accrued
interest on each Base Rate Borrowing shall be due and payable on the last day
of each March, June, September, and December during the term hereof,
commencing on March 31, 1999, with a final scheduled interest payment on all
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<PAGE>
Borrowings on the Termination Date; PROVIDED, HOWEVER, that accrued interest
on each Base Rate Borrowing shall also be due and payable upon conversion of
such Base Rate Borrowing to a Eurodollar Borrowing pursuant to SECTION 2.14.
(b) PRINCIPAL PAYMENTS. The unpaid Principal Debt shall be due and
payable on the Termination Date.
(c) OPTIONAL PREPAYMENTS. Borrowers shall have the right, from
time-to-time, to prepay the unpaid Principal Debt, in whole or in part,
without premium or penalty (EXCEPT FOR any Funding Loss), upon the payment of
accrued interest on the amount prepaid to and including the date of payment;
PROVIDED, HOWEVER, that partial prepayments of principal shall be in an
amount equal to $100,000.00 or a greater integral multiple of $50,000.00 (or,
if less, the unpaid Principal Debt).
2.7 MANNER AND APPLICATION OF PAYMENTS. All payments and prepayments by
Borrowers on account of principal, interest, and fees hereunder shall be made
in immediately available funds. All such payments shall be made to Lender at
its principal office in Dallas, Texas, not later than 12:00 noon, Dallas,
Texas time, on the date due and funds received after that hour shall be
deemed to have been received by Lender on the next following Business Day. If
any payment is scheduled to become due and payable on a day which is not a
Business Day, then such payment shall instead become due and payable on the
immediately following Business Day and interest on the principal portion of
such payment shall be payable at the then applicable rate during such
extension. All payments made on the Note shall be applied first to accrued
interest and then to principal (in the inverse order of maturity in the case
of prepayments).
2.8 INTEREST OPTIONS. Except where specifically otherwise provided,
Borrowings bear interest at an annual rate equal to the lesser of EITHER (a)
THE SUM OF (i) the Base Rate or the Adjusted Eurodollar Rate (in each case as
designated or deemed designated by Borrowers), as the case may be, PLUS (ii)
the Applicable Margin, OR (b) the Maximum Rate. Each change in the Base Rate
and the Maximum Rate is effective, without notice to Borrowers or any other
Person, upon the effective date of change.
2.9 QUOTATION OF RATES. A responsible officer of Borrowers may call
Lender before delivering a Notice of Borrowing to receive an indication of
the interest rates then in effect, but the indicated rates do not bind Lender
or affect the interest rate that is actually in effect when Borrowers deliver
a Notice of Borrowing.
2.10 DEFAULT RATE. If permitted by law, all past-due principal of and
accrued interest on the Note bears interest from maturity (stated or by
acceleration) at the Maximum Rate, or if there is no Maximum Rate in effect,
then fourteen percent (14%) per annum, until paid, regardless whether payment
is made before or after entry of a judgment.
2.11 INTEREST RECAPTURE. If the Contract Rate applicable to any
Borrowing exceeds the Maximum Rate, then the interest rate on that Borrowing
is limited to the Maximum Rate, but any subsequent reductions in the Contract
Rate shall not reduce the interest rate thereon below the Maximum Rate until
the total amount of accrued interest equals the amount of interest that would
have accrued if Contract Rate had always been in effect. If at maturity
(stated or by acceleration) the total interest paid or
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accrued is less than the interest that would have accrued if the Contract
Rates had always been in effect, then, at that time and to the extent
permitted by law, Borrowers shall pay an amount equal to the difference
between (a) the lesser of the amount of interest that would have accrued if
the Contract Rates had always been in effect and the amount of interest that
would have accrued if the Maximum Rate had always been in effect, and (b) the
amount of interest actually paid or accrued on the Note.
2.12 INTEREST CALCULATIONS.
(a) Interest shall be calculated on the basis of actual number of days
(including the first day but excluding the last day) elapsed but computed as
if each calendar year consisted of 360 days (unless the calculation would
result in an interest rate greater than the Maximum Rate, in which event
interest will be calculated on the basis of a year of 365 or 366 days, as the
case may be). All interest rate determinations and calculations by Lender are
conclusive and binding absent manifest error.
(b) The provisions of this Agreement relating to calculation of the
Base Rate and the Eurodollar Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid under this
Agreement that are based upon those rates. Lender may fund and maintain its
funding of all or any part of each Borrowing as it selects.
2.13 SELECTION OF INTEREST OPTION. On making a Notice of Borrowing
under SECTION 2.2(a), Borrowers shall advise Lender as to whether the Advance
shall be (a) a Eurodollar Borrowing, in which case Borrowers shall specify
the applicable Interest Period therefor, or (b) a Base Rate Borrowing.
Notwithstanding anything to the contrary contained herein, (a) no more than
three (3) Interest Periods shall be in effect at any one time with respect to
Eurodollar Borrowings, (b) Borrowers shall have no right to request a
Eurodollar Borrowing if the interest rate applicable thereto would exceed the
Maximum Rate in effect on the first day of the Interest Period applicable to
such Borrowing, and (c) each Eurodollar Borrowing shall be in the amount of
$250,000.00 or a greater integral multiple of $50,000.00.
2.14 ROLLOVERS AND CONVERSIONS. Borrowers may (a) convert a Eurodollar
Borrowing on the last day of the applicable Interest Period to a Base Rate
Borrowing, (b) convert a Base Rate Borrowing at any time to a Eurodollar
Borrowing, and (c) elect a new Interest Period for a Eurodollar Borrowing, by
giving a Notice of Borrowing to Lender no later than 12:00 noon on the third
(3rd) Business Day before the conversion date or the last day of the Interest
Period, as the case may be (for conversion to a Eurodollar Borrowing or
election of a new Interest Period), and no later than 12:00 noon one (1)
Business Day before the last day of the Interest Period (for conversion to an
Base Rate Borrowing); PROVIDED THAT each Eurodollar Borrowing shall be in the
amount of $250,000.00 or a greater integral multiple of $50,000.00. Absent
Borrowers' Notice of Borrowing, a Eurodollar Borrowing shall be deemed
converted to a Base Rate Borrowing effective when the applicable Interest
Period expires.
2.15 BOOKING BORROWINGS. To the extent permitted by law, Lender may
make, carry, or transfer its Borrowings at, to, or for the account of any of
its branch offices or the office of any of its Affiliates. However, no
Affiliate is entitled to receive any greater payment under SECTION 2.16(b)
than Lender would have been entitled to receive with respect to those
Borrowings. Lender agrees that it will use its reasonable efforts (consistent
with its internal policies and applicable law) to make, carry, maintain, or
transfer its Borrowings with its Affiliates or branch offices in an effort to
eliminate or reduce to the extent possible the aggregate amounts due to it
under SECTIONS 2.16(b) and 2.16(c) if, in its
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reasonable judgment, such efforts will not be disadvantageous to it.
2.16 SPECIAL PROVISIONS FOR EURODOLLAR BORROWINGS.
(a) BASIS UNAVAILABLE OR INADEQUACY OF EURODOLLAR LOAN PRICING. If with
respect to an Interest Period for any Eurodollar Borrowing, (a) Lender
determines that, by reason of circumstances affecting the interbank
eurodollar market generally, deposits in Dollars (in the applicable amounts)
are not being offered to or by Lender in the interbank eurodollar market for
such Interest Period, or (b) Lender determines that the Eurodollar Rate as
determined by Lender will not adequately and fairly reflect the cost to
Lender of maintaining or funding the Eurodollar Borrowing for such Interest
Period, then Lender shall forthwith give notice thereof to Borrowers,
whereupon until Lender notifies Borrowers that the circumstances giving rise
to such suspension no longer exist, (i) the obligation of Lender to make
Eurodollar Borrowings shall be suspended, and (ii) Borrowers shall either (A)
repay in full the then-outstanding principal amount of the Eurodollar
Borrowings, together with accrued interest thereon on the last day of the
then current Interest Period applicable to such Eurodollar Borrowings, or (B)
convert such Eurodollar Borrowings to Base Rate Borrowings in accordance with
SECTION 2.14 on the last day of the then-current Interest Period applicable
to each such Eurodollar Borrowing.
(b) ILLEGALITY. If, after the date of this Agreement, the adoption of
any applicable law, rule, or regulation, or any change therein, or any change
in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation
or administration thereof, or compliance by Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank, or comparable agency shall make it unlawful or impossible for
Lender to make, maintain or fund Eurodollar Borrowings, then Lender shall so
notify Borrowers. Before giving any notice pursuant to this SECTION, Lender
shall designate a different Eurodollar lending office if such designation
will avoid the need for giving such notice and will not be otherwise
disadvantageous to any non-trivial extent to Lender (as determined in good
faith by Lender). Upon receipt of such notice, Borrowers shall either (i)
repay in full the then outstanding principal amount of all Eurodollar
Borrowings, together with accrued interest thereon, or (ii) convert each
Eurodollar Borrowing to a Base Rate Borrowing, on either (A) the last day of
the then-current Interest Period applicable to such Eurodollar Borrowing if
Lender may lawfully continue to maintain and fund such Eurodollar Borrowing
to such day or (B) immediately if Lender may not lawfully continue to fund
and maintain such Eurodollar Borrowing to such day, PROVIDED THAT Borrowers
shall be liable for any Funding Loss arising pursuant to such conversion.
(c) INCREASED COSTS FOR EURODOLLAR BORROWINGS. If any Governmental
Authority, central bank, or other comparable authority, shall at any time
impose, modify, or deem applicable any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve
System but excluding any reserve requirement included in the Eurodollar
Reserve Requirement), special deposit, or similar requirement against assets
of, deposits with, or for the account of, or credit extended by, Lender, or
shall impose on Lender (or its Eurodollar lending office) or the interbank
eurodollar market any other condition affecting its Eurodollar Borrowings,
the Note, or its obligation to make Eurodollar Borrowings; and the result of
any of the foregoing is to increase the cost to Lender of making or
maintaining Eurodollar Borrowings, or to reduce the amount of any sum
received or receivable by Lender under this Agreement, or under the Note, by
an amount deemed by Lender to be material, then, within five (5) days after
demand by Lender, Borrowers shall pay to Lender such additional amount or
amounts as will
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compensate Lender for such increased cost or reduction. Lender will promptly
notify Borrowers of any event of which it has knowledge, occurring after the
date hereof, which will entitle Lender to compensation pursuant to this
SECTION. No failure by Lender to immediately demand payment of any additional
amounts payable hereunder shall constitute a waiver of Lender's right to
demand payment of such amounts at any subsequent time. A certificate of
Lender claiming compensation under this SECTION and setting forth the
additional amount or amounts to be paid to it hereunder, together with a
description in reasonable detail of the manner in which such amounts have
been calculated, shall be delivered by Lender to Borrower within one hundred
eighty (180) days after the incurrence thereof and shall be conclusive in the
absence of manifest error. If Lender demands compensation under this SECTION,
then Borrowers may at any time, upon at least five (5) Business Days' prior
notice to such Lender, either convert such Eurodollar Borrowings to Base Rate
Borrowings in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that Borrowers shall be liable for any Funding Loss arising pursuant
to such actions.
(d) EFFECT ON BASE RATE BORROWINGS. If notice has been given pursuant
to SECTION 2.16(a) or SECTION 2.16(b) requiring that Eurodollar Borrowings to
be repaid or converted, then unless and until Lender notifies Borrowers that
the circumstances giving rise to such repayment no longer apply, all
Borrowings shall be Base Rate Borrowings. If Lender notifies Borrowers that
the circumstances giving rise to such repayment no longer apply, then
Borrowers may thereafter select Borrowings to be Eurodollar Borrowings in
accordance with SECTION 2.13 and SECTION 2.14.
(e) FUNDING LOSSES. Borrowers shall jointly and severally indemnify
Lender against any loss or reasonable expense (such loss or expense is
referred to herein as a "FUNDING LOSS," such term including, but not limited
to, any loss or reasonable expense sustained or incurred or to be sustained
or incurred in liquidating or reemploying deposits from third parties
acquired to effect or maintain such Borrowing or any part thereof as a
Eurodollar Borrowing) with respect to Eurodollar Borrowings which Lender may
sustain or incur as a consequence of (i) any failure by Borrowers to fulfill
on the date of any Borrowing hereunder the applicable conditions set forth in
SECTION 4, (ii) any failure by Borrowers to borrow hereunder or to convert
Borrowings hereunder after a Conversion Notice has been given, (iii) any
payment, prepayment, or conversion of a Eurodollar Borrowing required or
permitted by any other provisions of this Agreement, including, without
limitation, payments made due to the acceleration of the maturity of the
Borrowings pursuant to SECTION 8.2, or otherwise made on a date OTHER THAN
the last day of the applicable Interest Period, (iv) any default in the
payment or prepayment of the principal amount of any Eurodollar Borrowing or
any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, by notice of prepayment or otherwise), or (v) the
occurrence of a Potential Default or an Event of Default. The term "FUNDING
LOSS" includes, without limitation, an amount equal to the excess, if any, as
determined by Lender of (A) its cost of obtaining the funds for the Borrowing
being paid, prepaid, or converted or not borrowed or converted (based on the
Adjusted Eurodollar Rate applicable thereto) for the period from the date of
such payment, prepayment, or conversion or failure to borrow or convert to
the last day of the Interest Period for such Borrowing (or, in the case of a
failure to borrow or convert, the Interest Period for the Borrowing which
would have commenced on the date of such failure to borrow or convert) over
(B) the amount of interest (as estimated by Lender) that would be realized by
Lender in reemploying the funds so paid, prepaid or converted or not borrowed
or converted for such period or Interest Period, as the case may be. A
certificate of Lender setting forth any amount or amounts which Lender is
entitled to receive pursuant to this SECTION 2.16(e), together with a
description in reasonable detail of the manner in which such amounts have
been calculated, shall be delivered to
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Borrowers and shall be conclusive, absent manifest error. Borrowers shall pay
to Lender the amount shown as due on any certificate within five (5) days
after its receipt of the same. Notwithstanding the foregoing, in no event
shall Lender be permitted to receive any compensation hereunder constituting
interest in excess of the Maximum Rate. Without prejudice to the survival of
any other obligations of Borrowers hereunder, the obligations of Borrowers
under this SECTION 2.16(e) shall survive the termination of this Agreement
and/or the payment or assignment of the Note.
2.17 TAXES.
(a) Any and all payments by Borrowers hereunder or under the Note shall
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges, or withholdings, and all
liabilities with respect thereto (hereinafter referred to as "TAXES"),
excluding taxes imposed on Lender's income, and franchise taxes imposed on
Lender, by the jurisdiction under the laws of which Lender is organized or is
or should be qualified to do business or any political subdivision thereof
and, taxes imposed on Lender's income, and franchise taxes imposed on Lender
by the jurisdiction of Lender's lending office or any political subdivision
thereof. If Borrowers shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the Note to Lender, then (i)
the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this SECTION 2.17) Lender receives an amount equal to the sum
it would have received had no such deductions been made, (ii) Borrowers shall
make such deductions, and (iii) Borrowers shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, Borrowers agree to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or under the Loan
Documents or from the execution, delivery, or registration of, or otherwise
with respect to, this Agreement or the other Loan Documents (hereinafter
referred to as "OTHER TAXES").
(c) Borrowers shall indemnify Lender for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this SECTION 2.17) paid by
Lender or any liability (including penalties and interest) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within five
(5) days from the date Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes,
Borrowers shall furnish to Lender, at its address referred to in SECTION 9.4,
the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Borrowers hereunder, the agreements and obligations of Borrowers contained in
this SECTION 2.17 shall survive the payment in full of principal and interest
hereunder and under the other Loan Documents.
SECTION 3
GUARANTIES
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3.1 GUARANTIES. Payment of the Obligation shall be unconditionally
guaranteed by Guarantors.
SECTION 4
CONDITIONS PRECEDENT
4.1 INITIAL ADVANCE. The obligation of Lender to make the initial
Advance or issue the initial LC hereunder is subject to the conditions
precedent that, on or before the date of such Advance or issuance of such LC,
(a) Borrowers shall have paid to Lender all fees to be received by Lender
pursuant to this Agreement or any other Loan Document, and (b) Lender shall
have received duly executed copies of each of the documents listed on EXHIBIT
E, each dated as of the date of such Advance, and each in form and substance
satisfactory to Lender.
4.2 ALL ADVANCES. The obligation of Lender to make any Advance and
issue each LC under this Agreement (including the initial Advance or LC)
shall be subject to the conditions precedent that, as of the date of such
Advance or issuance of such LC and after giving effect thereto: (a) there
exists no Potential Default or Event of Default; (b) no change that would
cause a Material Adverse Effect has occurred since the date of the financial
statements referenced in SECTION 5.6; (c) Lender shall have received from
Borrowers a Notice of Borrowing or LC Request, as appropriate, dated as of
the date of such Advance or issuance of such LC, as appropriate, and all of
the statements contained in such Notice of Borrowing or LC Request, as the
case may be, shall be true and correct; (d) the representations and
warranties contained in each of the Loan Documents shall be true in all
respects as though made on the date of such Advance or issuance of such LC;
and (e) the Maximum Rate exceeds the Contract Rate.
SECTION 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make Advances and issue LCs hereunder, Borrowers
represent and warrant to Lender that:
5.1 ORGANIZATION AND GOOD STANDING. Each Company is duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation or formation, is duly qualified and is in good standing in all
states in which it is doing business (except where the failure to be so
qualified and maintain good standing could not have a Material Adverse
Effect), has the power and authority to own its properties and assets and to
transact the business in which it is engaged in each jurisdiction in which it
operates, and is or will be qualified in those states wherein it proposes to
transact business in the future (except where the failure to be so qualified
could not have a Material Adverse Effect).
5.2 AUTHORIZATION AND POWER. Each Company has full power and authority
to execute, deliver, and perform the Loan Documents to be executed by such
Person, all of which has been duly authorized by all proper and necessary
action.
5.3 NO CONFLICTS OR CONSENTS. Neither the execution and delivery of the
Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and
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provisions thereof, will contravene or materially conflict with any Legal
Requirement to which any Company is subject, any Governmental Authorization
applicable to any Company, any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument binding on any Company, or any
provision of the Constituent Documents of any Company. No consent, approval,
authorization, or order of any court, Governmental Authority, stockholder, or
third party is required in connection with the execution, delivery, or
performance by any Company of any of the Loan Documents.
5.4 ENFORCEABLE OBLIGATIONS. The Loan Documents have been duly executed
and delivered by each Company, as appropriate, and are the legal and binding
obligations of each Company, as appropriate, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.
5.5 NO LIENS. Except for the Permitted Liens, all of the properties and
assets of each Company are free and clear of all Liens and other adverse
claims of any nature, and each Company has good and marketable title to such
properties and assets.
5.6 FINANCIAL CONDITION. Borrowers have delivered to Lender copies of
the financial statements of the Companies, as of September 30, 1998; such
financial statements are true and correct, fairly represent the financial
condition of the Companies as of such date, and have been prepared in
accordance with GAAP; as of the date hereof, there are no obligations,
Liabilities, or Indebtedness (including contingent and indirect Liabilities)
of the Companies which are material and are not reflected in such financial
statements; no Material Adverse Effect has occurred since the date of such
financial statements.
5.7 FULL DISCLOSURE. There is no fact known to any Borrower that such
Borrower has not disclosed to Lender which could have a Material Adverse
Effect. No certificate or statement delivered by any Borrower to Lender in
connection with this Agreement contains any untrue statement of a material
fact or omits to state any material fact necessary to keep the statements
contained herein or therein from being misleading.
5.8 NO POTENTIAL DEFAULT. No event has occurred and is continuing which
constitutes a Potential Default or an Event of Default.
5.9 MATERIAL AGREEMENTS. No Company is in default in any material
respect under any contract or agreement to which it is a party or by which
any of its properties is bound, except where such default could not have a
Material Adverse Effect.
5.10 NO LITIGATION. Except as disclosed on SCHEDULE 5.10, there are no
actions, suits, or legal, equitable, arbitration, or administrative
proceedings pending, or to the knowledge of any Borrower threatened, against
any Company that could, if adversely determined, have a Material Adverse
Effect.
5.11 USE OF PROCEEDS; MARGIN STOCK. The proceeds of each Advance will
be used by each Borrower solely for the purposes specified in the preamble.
None of such proceeds will be used for the purpose of purchasing or carrying
any "MARGIN STOCK" as defined in REGULATIONS T, U, or X of the Board of
Governors of the Federal Reserve System or for any other purpose which might
constitute this transaction a "PURPOSE CREDIT" within the meaning of such
Regulations. If requested by Lender, then Borrowers shall furnish to Lender a
statement in conformity with the requirements of the Federal Reserve
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Form U-1 referred to in said REGULATION U to the foregoing effect. No part of
the proceeds of any Advance will be used for any purpose which violates, or
is inconsistent with, the provisions of REGULATION X.
5.12 TAXES. All tax returns required to be filed by each Company in any
jurisdiction have been filed and all taxes (including mortgage recording
taxes), assessments, fees, and other governmental charges upon each Company
or upon any of its properties, income, or franchises have been paid EXCEPT
FOR taxes being contested in good faith by appropriate proceedings diligently
projected and for which adequate reserves are maintained in accordance with
GAAP. To the best of each Borrower's knowledge, there is no proposed tax
assessment against any Company, and all tax Liabilities of each Company are
adequately provided for. No income tax liability of any Company has been
asserted by the Internal Revenue Service for taxes in excess of those already
paid.
5.13 PRINCIPAL OFFICE, ETC. The principal office, chief executive
office, and principal place of business of each Company are set forth on
EXHIBIT D. Each Company maintains its principal records and books at such
address.
5.14 COMPLIANCE WITH LAW.
(a) Except as disclosed on SCHEDULE 5.14-1: (i) each Company is in
compliance with its respective Constituent Documents and all Legal
Requirements which are applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets, except where such
non-compliance could not have a Material Adverse Effect; and (ii) no Company
has received any notice or other communication from any Governmental
Authority or other Person of any event or circumstance that could constitute
a violation of, or failure to comply with, any Legal Requirement.
(b) Except as disclosed on SCHEDULE 5.14-1: (i) each Company is in
compliance with all of the terms and requirements of each Governmental
Authorization held by such Person, except where such non-compliance could not
have a Material Adverse Effect; (ii) no Company has received any notice or
other communication from any Governmental Authority or other Person of any
event or circumstance which could constitute a violation of, or failure to
comply with, any term or requirement of any Governmental Authorization, or of
any actual or potential revocation, withdrawal, cancellation, or termination
of, or material modification to, any Governmental Authorization; (iii) all
applications required to have been filed for the renewal of any required
Governmental Authorizations have been duly filed on a timely basis with the
appropriate Governmental Authorities, and all other filings required to have
been made with respect to such Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental Authorities; (iv)
upon consummation of the transactions contemplated hereby, each Company will
lawfully hold all such Governmental Authorizations; and (v) none of the
Governmental Authorizations of any Company will terminate upon consummation
of the transactions contemplated hereby.
(c) Set forth on SCHEDULE 5.14-2 is a list of each of the Governmental
Authorizations of each Company: (i) necessary to permit each such Person to
lawfully conduct and operate its respective business in the manner it
currently conducts and operates such business and to permit such Person to
own and use its assets in the manner in which it currently owns and uses such
assets; and (ii) necessary to permit each such Person, upon a consummation of
the transactions contemplated hereby, to lawfully
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conduct and operate its business and to permit each such Person to own and
use its assets.
5.15 SUBSIDIARIES. Set forth on EXHIBIT D hereto is a complete and
accurate list of all Subsidiaries as of the date hereof, showing as of such
date (as to each such Subsidiary) the jurisdiction of its incorporation, the
owner of the outstanding Stock of such Subsidiary, and the jurisdictions in
which such Subsidiary is qualified to do business as a foreign corporation.
To the extent applicable, all of the outstanding Stock of all Subsidiaries
has been validly issued, is fully paid and nonassessable, and is owned by AGI
or a Subsidiary free and clear of all Liens.
5.16 CASUALTIES. Neither the business nor the properties of any Company
are affected by any environmental hazard, fire, explosion, accident, strike,
lockout, or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God, or other casualty (whether or not covered by insurance), which
could have a Material Adverse Effect.
5.17 SUFFICIENCY OF CAPITAL. Each Company is, and after consummation of
this Agreement and after giving effect to all Indebtedness incurred and Liens
created by the Companies in connection herewith will be, Solvent.
5.18 LOCATION OF ASSETS. All tangible assets of the Companies are
located at the addresses listed on EXHIBIT D hereto except for inventory that
is, in the ordinary course of the Companies' business, in transit. No asset
of any Company will be kept at any other address.
5.19 CORPORATE NAME. No Company has, during the preceding five (5)
years, (a) used any other corporate name or tradename, or (b) been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
5.20 LEASES. Except as set forth on SCHEDULE 5.20, no Company is the
lessee of any real or personal property.
5.21 ERISA. Each Company and each ERISA Affiliate has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not incurred
any liability to the PBGC or a Plan under TITLE IV of ERISA.
5.22 LABOR MATTERS. There are no controversies pending between any
Company and any of their employees which could have a Material Adverse Effect.
5.23 BURDENSOME CONTRACTS. No Company is a party to any contract, the
breach, violation, or termination of which could result in a Material Adverse
Effect.
5.24 PERMITS, FRANCHISES, INTELLECTUAL PROPERTY, AND OTHER INTANGIBLE
RIGHTS. Each Company owns, holds, and has the lawful right to use, all
material Intangible Rights used in or necessary for the conduct of its
business as currently conducted or proposed to be conducted.
5.25 FULL DISCLOSURE OF RIGHTS AND CLAIMS. Except as disclosed on
SCHEDULE 5.10, no claims are pending, or, to the best of any Borrower's
knowledge, threatened, that any Company is infringing or
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otherwise adversely affecting the Intangible Rights of any other Person. The
consummation of the transactions contemplated by the Loan Documents will not
impair the ownership of, or rights with respect to, any material Intangible
Rights of any Company.
5.26 YEAR 2000 COMPLIANCE. Each Company has (a) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers and vendors) that could be adversely affected by the
"YEAR 2000 PROBLEM" (that is, the risk that computer applications used by the
Companies (or its suppliers and vendors) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (b) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Borrowers reasonably
believe that all computer applications (including those of suppliers and
vendors) that are material to the Companies' respective business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "YEAR
2000 COMPLIANT"), except to the extent that a failure to do so could not
reasonably be expected to have Material Adverse Effect.
5.27 REPRESENTATIONS AND WARRANTIES. Each Notice of Borrowing shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrowers that no Potential
Default or Event of Default exists and that all representations and
warranties contained in this SECTION 5 or in any other Loan Document are true
and correct on and as of the date the requested Advance is to be made.
5.28 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties by Borrowers herein shall survive delivery of the Note and the
making of each Advance, and any investigation at any time made by or on
behalf of Lender shall not diminish Lender's right to rely thereon.
SECTION 6
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances or issue LCs
hereunder, and until payment in full of the Obligation and termination of all
LCs, Borrowers agree that (unless Lender shall otherwise consent in writing):
6.1 FINANCIAL STATEMENTS, REPORTS, AND DOCUMENTS. Borrowers shall
deliver to Lender each of the following:
(a) PERIODIC STATEMENTS. As soon as available, and in any event within
forty-five (45) days after the last day of each fiscal quarter of each fiscal
year of the Companies, copies of the consolidated balance sheet of the
Companies as of the end of such fiscal quarter, and statements of income,
retained earnings, and changes in cash flow of the Companies for that fiscal
period and for the portion of the fiscal year ending with such period, all in
reasonable detail, and certified by the chief financial officer of AGI as
being true and correct and as having been prepared in accordance with GAAP,
subject to year-end audit adjustments;
(b) ANNUAL STATEMENTS. As soon as available and in any event within one
hundred and
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twenty (120) days after the last day of each fiscal year of the Companies,
copies of the consolidated balance sheet of AGI as of the close of such
fiscal year and statements of income, retained earnings, and changes in cash
flow of AGI for such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion thereon (which shall not be qualified by reason of
any limitation imposed by any Company) of independent public accountants of
recognized national standing selected by AGI and satisfactory to Lender, to
the effect that (i) such consolidated financial statements have been prepared
in accordance with GAAP (EXCEPT FOR changes in which such accountants
concur), (ii) the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary under
the circumstances, and (iii) in making their audit, such accountants have not
become aware of any condition or event which would constitute a Potential
Default or an Event of Default under any of the terms or provisions of this
Agreement (insofar as any such terms or provisions pertain to accounting
matters) and, if any such condition or event then exists, specifying the
nature and period of existence thereof;
(c) COMPLIANCE CERTIFICATE. Contemporaneously with the delivery of the
financial statements required by SECTION 6.1(a), a compliance Certificate and
an accounts receivable aging report; and
(d) OTHER INFORMATION. Such other information concerning the business,
properties or financial condition of any Company as Lender shall reasonably
request including audit reports, registration statements, or other reports or
notices provided to shareholders of AGI and, if applicable, filed with the
Securities and Exchange Commission.
6.2 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Borrowers shall, and shall
cause each of the other Companies to, pay and discharge (a) all taxes,
assessments, and governmental charges or levies imposed upon it or upon its
income or profits, or upon any property belonging to it, before delinquent,
(b) all lawful claims (including claims for labor, materials, and supplies),
which, if unpaid, might give rise to a Lien upon any of its property, and (c)
all of its other Indebtedness, except as prohibited under the Loan Documents;
PROVIDED, HOWEVER, that the Companies shall not be required to pay any such
tax, assessment, charge, or levy if and so long as the amount, applicability,
or validity thereof shall currently be contested in good faith by appropriate
proceedings and appropriate accruals and appropriate reserves have been
established in accordance with GAAP.
6.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. Borrowers
shall, and shall cause each of the other Companies to, preserve and maintain
its existence and all of its rights, privileges, and franchises (including
Intangible Rights) necessary or desirable in the normal conduct of its
business, and conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all Legal
Requirements of any Governmental Authority, except where the failure to so
preserve or maintain could not have a Material Adverse Effect.
6.4 NOTICE OF DEFAULT. Borrowers shall furnish to Lender, immediately
upon becoming aware of the existence of any condition or event which
constitutes a Potential Default or an Event of Default, written notice
specifying the nature and period of existence thereof and the action which
Borrowers are taking or proposes to take with respect thereto.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
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6.5 OTHER NOTICES. Borrowers shall, and shall cause each of the other
Companies to, promptly notify Lender of (a) any material adverse change in
its financial condition or its business, (b) any default under any material
agreement, contract, or other instrument to which it is a party or by which
any of its properties are bound, or any acceleration of the maturity of any
Indebtedness owing by any Company, (c) any material adverse claim against or
affecting any Company or any of its properties, and (d) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any Governmental Authority affecting any Company.
6.6 OPERATIONS AND PROPERTIES. Borrowers shall, and shall cause each of
the other Companies to, (a) act prudently and in accordance with customary
industry standards in managing and operating its assets and properties, and
(b) keep in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct
of its business.
6.7 BOOKS AND RECORDS; ACCESS. Borrowers shall, and shall cause each of
the other Companies to, give any representative of Lender access upon
reasonable notice and during all business hours to, and permit such
representative to examine, copy, or make excerpts from, any and all books,
records, and documents in the possession of any Company and relating to its
affairs, and to inspect any of the properties of any Company. Borrowers
shall, and shall cause each of the other Companies to, maintain complete and
accurate books and records of its transactions in accordance with good
accounting practices.
6.8 COMPLIANCE WITH LAW. Borrowers shall, and shall cause each of the
other Companies to, comply with all applicable Legal Requirements of any
Governmental Authority, a breach of which could have a Material Adverse
Effect.
6.9 INSURANCE. Borrowers shall, and shall cause each of the other
Companies to, keep all insurable property, real and personal, adequately
insured at all times in such amounts and against such risks as are customary
for Persons in similar businesses operating in the same vicinity,
specifically to include a policy of hazard, casualty, fire, and extended
coverage insurance covering all assets, business interruption insurance
(where feasible), liability insurance, and worker's compensation insurance,
in every case under a policy with a financially sound and reputable insurance
company and with only such deductibles as are customary, and all to contain a
mortgagee or loss payee clause naming Lender as its interest may appear.
6.10 AUTHORIZATIONS AND APPROVALS. Borrowers shall, and shall cause
each of the other Companies to, promptly obtain, from time to time at its own
expense, all Governmental Authorizations as may be required to enable it to
comply with its obligations hereunder and under the other Loan Documents.
6.11 FURTHER ASSURANCES. Borrowers shall, and shall cause each of the
other Companies to, make, execute, and deliver or file or cause the same to
be done, all such notices, additional agreements, mortgages, assignments,
financing statements, or other assurances, and take any and all such other
action, as Lender may, from time to time, deem reasonably necessary or proper
in connection with any of the Loan Documents, the obligations of any Company
thereunder.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
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6.12 INDEMNITY BY BORROWERS. Borrowers shall indemnify, defend, and
hold harmless Lender and its Representatives (individually, an "INDEMNITEE"
and collectively, the "INDEMNITEES") from and against any and all loss,
liability, obligation, damage, penalty, judgment, claim, deficiency, and
expense (including interest, penalties, attorneys' fees, and amounts paid in
settlement) to which any Indemnitee may become subject arising out of this
Agreement and the other Loan Documents OTHER THAN those which arise by reason
of the gross negligence or willful misconduct of Lender, BUT SPECIFICALLY
INCLUDING ANY LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM,
DEFICIENCY, OR EXPENSE ARISING OUT OF THE SOLE OR CONCURRENT NEGLIGENCE OF
LENDER OR ANY OF ITS REPRESENTATIVES. Borrowers shall also indemnify,
protect, and hold each Indemnitee harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, proceedings, costs, expenses (including without limitation all
reasonable attorneys' fees and legal expenses whether or not suit is
brought), and disbursements of any kind or nature whatsoever which may at any
time be imposed on, incurred by, or asserted against such Indemnitee, with
respect to or as a direct or indirect result of the violation by any Company
of any Environmental Law; or with respect to or as a direct or indirect
result of any Company's use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal, or presence of a Hazardous
Material on, under, from, or about real property. The provisions of and
undertakings and indemnifications set forth in this SECTION 6.12 shall
survive (a) the satisfaction and payment of the Obligation and termination of
this Agreement, and (b) the release of any Liens held by Lender on real
property or the extinguishment of such Liens by foreclosure or action in lieu
thereof; PROVIDED, HOWEVER, that the indemnification set forth herein shall
not extend to any act or omission by Lender with respect to any property
subsequent to Lender becoming the owner of such property and with respect to
which property such claim, loss, damage, liability, fine, penalty, charge,
proceeding, order, judgment, action, or requirement arises subsequent to the
acquisition of title thereto by Lender.
6.13 AFTER-ACQUIRED SUBSIDIARIES. Concurrently upon the formation or
acquisition by any Company of any Subsidiary after the date hereof (an
"AFTER-ACQUIRED SUBSIDIARY"), Borrowers shall, and shall cause each of the
other Companies to, deliver Constituent Documents for such After-Acquired
Subsidiary and such opinions as Lender shall require and shall cause the
After-Acquired Subsidiary to execute a guaranty in favor of Lender.
6.14 ERISA COMPLIANCE. Borrowers shall, and shall cause each of the
other Companies and each ERISA Affiliate to: (a) at all times, make prompt
payment of all contributions required under all Plans and required to meet
the minimum funding standards set forth in ERISA with respect to its Plan;
(b) within thirty (30) days after the filing thereof, furnish to Lender
copies of each annual report/return (FORM 5500 series), as well as all
schedules and attachments required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of its Plans for each Plan
year; (c) notify Lender immediately of any fact including but not limited to,
any Reportable Event arising in connection with any of its Plans, which might
constitute grounds for termination thereof by the PBGC or for the appointment
by the appropriate United States District Court of a trustee to administer
such Plan, together with a statement, if requested by Lender, as to the
reason therefor and the action, if any, proposed to be taken with respect
thereto; and (d) furnish to Lender upon its request, such additional
information concerning any of its Plans as may be reasonably requested.
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6.15 INTANGIBLE RIGHTS LITIGATION. If any Person files an action, suit,
or legal, equitable, arbitration, or administrative proceeding against any
Company asserting that such Company is infringing or otherwise adversely
affecting the rights of such Person with respect to any Intangible Rights,
then Borrowers shall, within sixty (60) days after the filing of such action,
suit, or proceeding, provide to Lender evidence reasonably satisfactory to
Lender (including, without limitation, opinions of counsel) that such Company
is not infringing upon the Intangible Rights of any Person.
6.16 YEAR 2000 COMPLIANCE. Each Borrower shall promptly notify Lender
in the event such Borrower discovers or determines that any computer
application (including those of suppliers and vendors) that is material to
its or any Company's business and operations will not be Year 2000 Compliant
on a timely basis, except to the extent that such failure to be Year 2000
Compliant could not reasonably be expected to have a Material Adverse Effect.
SECTION 7
NEGATIVE COVENANTS
So long as Lender has any commitment to make Advances or issue LCs
hereunder, and until payment in full of the Obligation and termination of all
LCs, Borrowers agree that (unless Lender shall otherwise consent in writing):
7.1 LIMITATION ON INDEBTEDNESS. Borrowers shall not, and shall not
permit any of the other Companies to, incur, guarantee, or otherwise be or
become, directly or indirectly, liable in respect of any Indebtedness, except
(a) Indebtedness arising out of this Agreement, (b) Indebtedness secured by
the Permitted Liens (EXCEPT FOR Indebtedness incurred, borrowed, or
guaranteed after the date hereof), and any renewals and extensions (but not
increases) thereof, (c) Indebtedness not to exceed $750,000.00 in the
aggregate at any time outstanding to finance the purchase or lease of
telecommunications equipment and furnishings and fixtures to be used in the
Plano Facility, (d) Indebtedness payable by Adams Golf, Ltd. to Barney Adams
in the aggregate principal amount of approximately $1,100,000.00, (e)
Indebtedness of any Company owed to any other Company, and (f) other
Indebtedness not to exceed $1,000,000.00 in the aggregate at any time
outstanding; PROVIDED THAT the Indebtedness permitted under (C) and (F) shall
not exceed $1,500,000.00 in the aggregate at any time outstanding.
7.2 NEGATIVE PLEDGE. Borrowers shall not, and shall not permit any of
the other Companies to, create, incur, permit, or suffer to exist any Lien
upon any of its property or assets, now owned or hereafter acquired, EXCEPT
FOR (a) Permitted Liens and (b) Liens securing the Indebtedness described in
SECTION 7.1(c) and (f).
7.3 NEGATIVE PLEDGE AGREEMENTS. Borrowers shall not, and shall not
permit any of the other Companies to, enter into any agreement (excluding
this Agreement or any other Loan Documents) prohibiting the creation or
assumption of any Lien upon any of its property, revenues, or assets, whether
now owned or hereafter acquired, or the ability of any Subsidiary to make any
payments, directly or indirectly, to AGI by way of Dividends, advances,
repayments of loans, repayments of expenses, accruals, or otherwise.
7.4 RESTRICTIONS ON DIVIDENDS. AGI shall not, if an Event of Default
exists, declare or
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
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make, or incur any liability to make, any Dividend. Borrower shall not, and
shall permit any of the other Companies to, declare or make, or incur any
liability to make, any Dividend except to another Company.
7.5 LIMITATION ON INVESTMENTS. Borrowers shall not, and shall not
permit any of the other Companies to, make or have outstanding any
Investments in any Person, EXCEPT FOR (a) the Companies' ownership of Stock
of Subsidiaries, (b) Temporary Cash Investments and such other "CASH
EQUIVALENT" investments as Lender may from time to time approve in writing,
(c) advances to employees and third parties not to exceed $250,000.00 in the
aggregate at any time outstanding, (d) acquisitions of stock or other assets
in the sports equipment and accessories business from any Person PROVIDED
THAT the aggregate purchase price of such acquisitions do not exceed
$2,000,000.00 in any calendar year, and (e) advances by any Company to
another Company.
7.6 CERTAIN TRANSACTIONS. Borrowers shall not, and shall not permit any
of the other Companies to, enter into any transaction with, or pay any
management fees to, any Affiliate; PROVIDED, HOWEVER, that the Companies may
enter into transactions with (a) any other Company, and (b) with Affiliates
(other than the Companies) upon terms not less favorable to the Companies
than would be obtainable at the time in comparable, arms-length transactions
with Persons OTHER THAN Affiliates.
7.7 EXECUTIVE PERSONNEL. Borrowers shall not, and shall not permit any
of the other Companies (other than Adams Golf Holding Corp.) to, permit
Barney Adams to cease to be involved in its present executive management.
7.8 LIMITATION ON SALE OF PROPERTIES. Borrowers shall not, and shall
not permit any of the other Companies to (a) sell, assign, exchange, lease,
or otherwise dispose of any of its properties, rights, assets, or business,
whether now owned or hereafter acquired, except in the ordinary course of its
business and for a fair consideration, or (b) sell, assign, or discount any
accounts receivable.
7.9 ACQUISITIONS; SUBSIDIARIES. Borrowers shall not, and shall not
permit any of the other Companies to, (a) form, incorporate, acquire, or make
any Investment in any Subsidiary, except the Subsidiaries listed on EXHIBIT D
and wholly-owned After-Acquired Subsidiaries formed in accordance with
SECTION 6.13, or (b) acquire all or substantially all of the assets or Stock
of any class of any other Person, except for Investments permitted under
SECTION 7.5.
7.10 LIQUIDATION, MERGERS, CONSOLIDATIONS, AND DISPOSITIONS OF
SUBSTANTIAL ASSETS. Borrowers shall not, and shall not permit any of the
other Companies to, dissolve or liquidate, or become a party to any merger or
consolidation, or acquire by purchase, lease, or otherwise all or
substantially all of the assets or Stock of any Person, or sell, transfer,
lease, or otherwise dispose of all or any substantial part of its property or
assets or business; PROVIDED, HOWEVER, that any Company may merge with any
other Company.
7.11 LINES OF BUSINESS; RECEIVABLES POLICY. Borrowers shall not, and
shall not permit any of the other Companies to, directly or indirectly,
engage in any business OTHER THAN the sports equipment and accessories
business, or discontinue any of its material existing lines of business.
Borrowers shall not, and shall not permit any of the other Companies to, make
any material change in its credit and collection policy, which change would
materially impair the collectibility of its receivables, or rescind, cancel,
or modify any receivable, except in the ordinary course of business.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
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7.12 GUARANTIES. Borrowers shall not, and shall not permit any of the
other Companies to, become or be liable in respect of any Guaranty.
7.13 SALE AND LEASEBACK. Borrowers shall not, and shall not permit any
of the other Companies to, enter into any arrangement with any Person
pursuant to which any Company will lease, as lessee, any property which it
owned as of the date hereof and which it sold, transferred, or otherwise
disposed of to such other Person.
7.14 FIXED CHARGES COVERAGE. Borrowers shall not, as of the last day
of any fiscal quarter, permit the ratio of (a) the sum of Consolidated
Adjusted Net Income, PLUS federal, state, local, and foreign income taxes
deducted from Consolidated Adjusted Net Income in accordance with GAAP, PLUS
Fixed Charges, to (b) Fixed Charges, in each case for the four (4) fiscal
quarters ending on the date of determination, to be less than 3.0 to 1.0.
7.15 DEBT TO EBITDA. Borrowers shall not permit, as of the last day
of any fiscal quarter, the ratio of (a) all Indebtedness of the Companies as
of such date, to (b) EBITDA for the four (4) fiscal quarters ending on the
date of determination, to be greater than 2.0 to 1.0.
7.16 FISCAL YEAR. Borrowers shall not, and shall not permit any of the
other Companies to, change its fiscal year or method of accounting.
SECTION 8
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any one
or more of the following events (herein collectively called "EVENTS OF
DEFAULT") shall occur and be continuing:
(a) any Company shall fail to pay when due the Obligation or any
part thereof; or
(b) any representation or warranty made under this Agreement, or any
of the other Loan Documents, shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty is
made or deemed to have been made; or
(c) default shall occur in the performance of (i) any of the
covenants or agreements of any Company contained in SECTION 6.1 and SECTION
7, or (ii) any other covenants or agreements of any Company contained herein
or in any of the other Loan Documents and, in the case of (II), such failure
shall continue for thirty (30) days after written notice thereof from Lender
to Borrower; or
(d) default shall occur in the payment of any material Indebtedness
(OTHER THAN the Obligation) of any Company or default shall occur in respect
of any note or credit agreement relating to any such Indebtedness and such
default shall continue for more than the period of grace, if any, specified
therein; or
(e) any of the Loan Documents shall cease to be legal, valid, and
binding agreements enforceable against the Person executing the same in
accordance with its terms, shall be terminated,
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become or be declared ineffective or inoperative or cease to provide the
respective liens, security interests, rights, titles, interests, remedies,
powers, or privileges intended to be provided thereby; or any Company shall
deny that such Company has any further liability or obligation under any of
the Loan Documents; or
(f) any Company shall (i) apply for or consent to the appointment of
a receiver, trustee, custodian, intervenor, or liquidator of itself or of all
or a substantial part of such Person's assets, (ii) file a voluntary petition
in bankruptcy, admit in writing that such Person is unable to pay such
Person's debts as they become due, or generally not pay such Person's debts
as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against such Person in
any bankruptcy, reorganization, or insolvency proceeding, or (vi) take
corporate or partnership action for the purpose of effecting any of the
foregoing; or
(g) an involuntary proceeding shall be commenced against any Company
seeking bankruptcy or reorganization of such Person or the appointment of a
receiver, custodian, trustee, liquidator, or other similar official of such
Person, or all or substantially all of such Person's assets, and such
proceeding shall not have been dismissed within sixty (60) days of the filing
thereof; or an order, order for relief, judgment, or decree shall be entered
by any court of competent jurisdiction or other competent authority approving
a petition or complaint seeking reorganization of any Company or appointing a
receiver, custodian, trustee, liquidator, or other similar official of such
Person, or of all or substantially all of such Person's assets; or
(h) any final judgment(s) for the payment of money in excess of the
sum of $100,000.00 in the aggregate shall be rendered against any Company and
such judgment(s) shall not be satisfied or discharged at least ten (10) days
prior to the date on which any of such Person's assets could be lawfully sold
to satisfy such judgment; or
(i) a Change in Control shall occur.
8.2 REMEDIES UPON EVENT OF DEFAULT. If any Event of Default shall
occur and be continuing, then Lender may, without notice, exercise any one or
more of the following rights and remedies, and any other remedies provided in
any of the Loan Documents, as Lender in its sole discretion may deem
necessary or appropriate: (a) terminate Lender's commitment to lend
hereunder, (b) declare the Obligation or any part thereof to be forthwith due
and payable, whereupon the same shall forthwith become due and payable
without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate, or other notice of any kind, all
of which Borrowers hereby expressly waive, anything contained herein or in
the Note to the contrary notwithstanding, (c) reduce any claim to judgment,
or (d) without notice of default or demand, pursue and enforce any of
Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement; PROVIDED, HOWEVER, if
any Event of Default specified in SECTIONS 8.1(f) or (g) shall occur, then
the Obligation shall thereupon become due and payable concurrently therewith,
and Lender's obligation to lend shall immediately terminate hereunder,
without any further action by Lender and without presentment, demand,
protest, notice of default, notice of acceleration or of intention to
accelerate, or
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other notice of any kind, all of which Borrowers hereby expressly waive.
8.3 PERFORMANCE BY LENDER. If any Company fails to perform any
covenant, duty, or agreement contained in any of the Loan Documents, then
Lender may perform or attempt to perform such covenant, duty, or agreement on
behalf of such Company. In such event, Borrowers shall, at the request of
Lender, promptly pay any amount expended by Lender in such performance or
attempted performance to Lender at its principal office in Dallas, Texas
together with interest thereon at the Maximum Rate from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly
understood that Lender shall not assume any liability or responsibility for
the performance of any duties of any Company hereunder or under any of the
Loan Documents and none of the covenants or other provisions contained in
this Agreement shall, or shall be deemed to, give Lender the right or power
to exercise control over the management and affairs of any Company.
8.4 ORDER OF APPLICATION.
(a) NO DEFAULT. If no Event of Default exists, then except as
specifically provided in the Loan Documents, any payments shall be applied to
the Obligation in the order and manner as Borrowers direct.
(b) DEFAULT. If an Event of Default exists, then any payment
(including proceeds from the exercise of any rights and remedies in any
collateral, if any) shall be applied in the following order:
(i) to all fees and expenses which Lender has not been paid or
reimbursed in accordance with the Loan Documents;
(ii) to accrued interest on the Principal Debt;
(iii) to the remaining Obligation in the order and manner as
Lender deems appropriate; and
(iv) as a deposit with Lender as security for the payment of
any LC Exposure.
SECTION 9
MISCELLANEOUS
9.1 ACCOUNTING REPORTS. All financial reports or projections
furnished by any Person to Lender pursuant to this Agreement shall be
prepared in such form and such detail as shall be satisfactory to Lender,
shall be prepared on the same basis as those prepared by such Person in prior
years, and, where applicable, shall be the same financial reports and
projections as those furnished to such Person's officers and directors.
9.2 WAIVER. No failure to exercise, and no delay in exercising, on
the part of Lender, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of
Lender under the Loan Documents shall be in addition to all other rights
provided by law. No modification or waiver of
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any provision of any Loan Document, nor consent to departure therefrom, shall
be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar, or other instances without such notice or demand.
9.3 PAYMENT OF EXPENSES. Borrowers agree to pay Lender on demand all
out-of-pocket costs and expenses of Lender (including, without limitation,
the reasonable attorneys' fees of Lender's counsel) incurred in connection
with the preservation and enforcement of Lender's rights under the Loan
Documents, and all reasonable costs and expenses of Lender (including without
limitation the reasonable fees and expenses of Lender's counsel) in
connection with the negotiation, preparation, execution, delivery, and
administration of the Loan Documents (except for the costs and expenses
related to the negotiation, preparation, execution, and delivery of this
Agreement and the Loan Documents executed on or prior to the date hereof).
9.4 NOTICES. Any communications required or permitted to be given by
any of the Loan Documents must be (a) in writing and personally delivered or
mailed by prepaid certified or registered mail, or (b) made by facsimile
transmission delivered or transmitted, to the party to whom such notice of
communication is directed, to the address of such party shown opposite its
name on the signature pages hereof. Any such communication shall be deemed to
have been given (whether actually received or not) on the day it is
personally delivered or, if transmitted by facsimile transmission, on the day
that such communication is transmitted as aforesaid subject to telephone
confirmation of receipt; PROVIDED, HOWEVER, that any notice received by
Lender after 10:00 a.m. Dallas, Texas time on any day from Borrowers pursuant
to SECTION 2.2 (with respect to a Notice of Borrowing) or SECTION 2.3 (with
respect to an LC Request) shall be deemed for the purposes of such SECTION to
have been given by Borrowers on the next succeeding day, or if mailed, on the
third (3rd) day after it is marked as aforesaid. Any party may change its
address for purposes of this Agreement by giving notice of such change to the
other parties pursuant to this SECTION 9.4.
9.5 GOVERNING LAW. THIS AGREEMENT HAS BEEN PREPARED, IS BEING
EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS
AND THE SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE
UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT, AND INTERPRETATION OF THIS AGREEMENT AND ALL OF THE OTHER LOAN
DOCUMENTS.
9.6 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
Any suit, action, or proceeding against Borrowers with respect to this
Agreement, the Note, or other Loan Documents, or any judgment entered by any
court in respect thereof, may be brought in the courts of the State of Texas,
County of Dallas, or in the United States courts located in the State of
Texas as Lender in its sole discretion may elect and Borrowers hereby
irrevocably submit to the nonexclusive jurisdiction of such courts for the
purpose of any such suit, action, or proceeding. Borrowers hereby irrevocably
consent to the service of process in any suit, action, or proceeding in said
court by the mailing thereof by Lender by registered or certified mail,
postage prepaid, to each Borrower's address shown opposite its name on the
signature pages hereof. Nothing herein or in any of the other Loan Documents
shall affect the right of Lender to serve process in any other manner
permitted by law or shall limit the right of Lender to bring any action or
proceeding against Borrowers or with respect to any of its property in courts
in other jurisdiction. Borrowers hereby irrevocably waive any objections
which it may now or hereafter have to
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the laying of venue of any suit, action, or proceeding arising out of or
relating to this Agreement, the Note, or any other Loan Documents brought in
the courts located in the State of Texas, County of Dallas, and hereby
further irrevocably waive any claim that any such suit, action, or proceeding
brought in any such court has been brought in any inconvenient forum. Any
action or proceeding by any Borrower against Lender shall be brought only in
a court located in Dallas County, Texas.
9.7 INVALID PROVISIONS. Any provision of any Loan Document held by a
court of competent jurisdiction to be illegal, invalid or unenforceable and
shall not invalidate the remaining provisions of such Loan Document which
shall remain in full force and the effect thereof shall be confined to the
provision held invalid or illegal.
9.8 MAXIMUM INTEREST RATE. Regardless of any provision contained in
any of the Loan Documents, Lender shall never be entitled to receive,
collect, or apply as interest (whether termed interest herein or deemed to be
interest by operation of law or judicial determination) on the Note any
amount in excess of interest calculated at the Maximum Rate, and, in the
event that any Lender ever receives, collects, or applies as interest any
such excess, then the amount which would be excessive interest shall be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Obligation is paid in full, then any
remaining excess shall forthwith be paid to Borrowers. In determining whether
or not the interest paid or payable under any specific contingency exceeds
interest calculated at the Maximum Rate, Borrowers and Lender shall, to the
maximum extent permitted under applicable law: (a) characterize any
non-principal payment as an expense, fee, or premium rather than as interest;
(b) exclude voluntary prepayments and the effects thereof; and (c) amortize,
prorate, allocate, and spread, in equal parts, the total amount of interest
throughout the entire contemplated term of the Note; PROVIDED THAT, if the
Note is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received for the actual period of existence
thereof exceeds interest calculated at the Maximum Rate, then Lender shall
refund to Borrowers the amount of such excess or credit the amount of such
excess against the principal amount of the Note and, in such event, Lender
shall not be subject to any penalties provided by any laws for contracting
for, charging, taking, reserving, or receiving interest in excess of interest
calculated at the Maximum Rate.
9.9 NON-LIABILITY OF LENDER. The relationship between the Companies
and Lender is, and shall at all times remain, solely that of borrower and
lender and Lender has no fiduciary or other special relationship with any
Company.
9.10 OFFSET. Borrowers hereby grant to Lender the right of offset,
to secure repayment of the Obligation, upon any and all moneys, securities,
or other property of Borrowers and the proceeds therefrom, now or hereafter
held or received by or in transit to Lender or its agents, from or for the
account of Borrowers or any Guarantor, whether for safe keeping, custody,
pledge, transmission, collection, or otherwise, and also upon any and all
deposits (general or special) and credits of each Borrower, and any and all
claims of Borrowers against Lender at any time existing.
9.11 SUCCESSORS AND ASSIGNS. The Loan Documents shall be binding
upon and inure to the benefit of Borrowers and Lender and their respective
successors, assigns, and legal representatives; PROVIDED, HOWEVER, that
Borrowers may not, without the prior written consent of Lender, assign any
rights, powers, duties, or obligations thereunder. Lender reserves the right
to sell all or a portion of its interest in the Loan Documents, and Lender
shall have the right to disclose any information in its
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
possession regarding any Company, or any assets pledged to Lender in
connection herewith to any potential transferee of the Note or any part
thereof.
9.12 TEXAS FINANCE CODE. Borrowers and Lender hereby agree that the
provisions of CHAPTER 346 of the TEXAS FINANCE CODE, as amended (regulating
certain revolving credit loans and revolving tri-party accounts), shall not
apply to the Loan Documents.
9.13 HEADINGS. SECTION headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
9.14 SURVIVAL. All representations and warranties made by Borrowers
herein shall survive delivery of the Note and the making of the Loan.
9.15 PARTICIPATIONS. Lender shall have the right to enter into
participation agreements with other banks with respect to the Note, and grant
participations in the rate of other loan documents but such participation
shall not affect the rights and duties of such Lender hereunder vis-a-vis
Borrowers. Each actual or proposed participant shall be entitled to receive
all information received by Lender regarding the creditworthiness of
Borrowers, including, without limitation, information required to be
disclosed to a participant pursuant to BANKING CIRCULAR 181 (REV., AUGUST 2,
1984), issued by the Comptroller of the Currency (whether the actual or
proposed participant is subject to the circular or not).
9.16 NO THIRD PARTY BENEFICIARY. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall any Loan
Document or any course of conduct by any party hereto be construed to make or
render Lender or any of its officers, directors, agents, or employees liable
(a) to any materialman, supplier, contractor, subcontractor, purchaser, or
lessee of any property owned by any Borrower, or (b) for debts or claims
accruing to any such Persons against any Borrower.
9.17 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWERS HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF
LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
9.18 CAPITAL ADEQUACY. If, after the date hereof, Lender shall have
determined that either (a) the adoption of any applicable law, rule,
regulation, or guideline regarding capital adequacy, or any change therein,
or any change in the interpretation or administration thereof by any
Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or (b) compliance by Lender (or any
lending office of Lender) with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank, or comparable agency, has or would have the effect of reducing
the rate of return on Lender's capital as a consequence of its or Borrowers'
obligations hereunder to a level below that which Lender could have achieved
but for such adoption, change, or compliance (taking into consideration
Lender's policies with respect to capital adequacy) by an amount deemed by
Lender to be material, then from time-to-time, within ten (10) days after
demand by Lender, Borrowers shall pay to Lender such additional amount or
amounts as will adequately compensate Lender for such reduction. Lender will
promptly notify Borrowers of any event of which it has actual knowledge,
occurring after the date thereof, which will
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
entitle Lender to compensation pursuant to this SECTION 9.18. A certificate
of Lender claiming compensation under this SECTION 9.18 and setting forth the
additional amount or amounts to be paid to it hereunder, together with the
description of the manner in which such amounts have been calculated, shall
be conclusive in the absence of manifest error. In determining such amount,
Lender may use any reasonable averaging and attribution methods.
9.19 MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Agreement
by signing any such counterpart.
9.20 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE
FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY
SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
BORROWERS' DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. THE PARTIES
SHALL REQUEST THAT THE ARBITRATOR SHALL MAKE FINDINGS OF FACT AND CONCLUSIONS
OF LAW IN CONNECTION WITH SUCH ARBITRATION PROCEEDING, PROVIDED THAT SUCH
FINDINGS OF FACT AND CONCLUSIONS OF LAW SHALL NOT AFFECT THE FINALITY OF THE
ARBITRATOR'S DECISION.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE
A WAIVER BY LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SS. 91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF LENDER
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO)
SET-OFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF OR THE APPOINTMENT OF A
RECEIVER. LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
AGREEMENT. AT LENDER'S OPTION, FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE
MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A POWER OF SALE
UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL SALE UNDER THE DEED OF
TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE. NEITHER THIS EXERCISE OF SELF
HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE
OR PROVISIONAL OR ANCILLARY
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN ANY SUCH ACTION TO ARBITRATE THE MERITS OF THE CONTROVERSY OR
CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
(c) CONFIDENTIALITY. ANY ARBITRATION PROCEEDING, AWARD, FINDINGS OF
FACT, CONCLUSIONS OF LAW, OR OTHER INFORMATION CONCERNING SUCH ARBITRATION
MATTERS SHALL BE HELD IN CONFIDENCE BY THE PARTIES AND SHALL NOT BE DISCLOSED
EXCEPT TO EACH PARTIES EMPLOYEES OR AGENTS AS SHALL BE REASONABLY NECESSARY
FOR SUCH PARTY TO CONDUCT ITS BUSINESS; PROVIDED, HOWEVER, THAT EITHER PARTY
MAY DISCLOSE SUCH INFORMATION FOR AUDITING PURPOSES BY INDEPENDENT CERTIFIED
ACCOUNTANTS, FOR COMPLYING WITH APPLICABLE GOVERNMENTAL LAWS, REGULATIONS OR
COURT ORDERS, OR THAT IS OR BECOMES PART OF THE PUBLIC DOMAIN THROUGH NO
BREACH OF THIS AGREEMENT.
9.21 ENTIRETY. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN
DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE
PROVISIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY
BORROWER IS A PARTY MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING
SIGNED BY THE PARTIES HERETO.
9.22 CONFIDENTIALITY. Lender agrees to keep confidential any
information furnished or made available to it by any Company pursuant to this
Agreement that is marked confidential; PROVIDED THAT nothing herein shall
prevent Lender from disclosing such information (a) to any Affiliate of
Lender, or any officer, director, employee, agent, or advisor of Lender or
any Affiliate of Lender, (b) to any other Person if reasonably incidental to
the administration of the credit facility provided herein, (c) as required by
any Legal Requirement, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any Governmental Authority, (f)
that is or becomes available to the public or that otherwise becomes
available to Lender other than as a result of a disclosure by Lender
prohibited by this Agreement, (g) in connection with any litigation to which
Lender or any of its Affiliates may be a party, (h) to the extent necessary
in connection with the exercise of any remedy under this Agreement or any
other Loan Document, and (i) subject to provisions substantially similar to
those contained in this SECTION, to any actual or proposed participant or
assignee.
9.23 AMENDMENT AND RESTATEMENT. This Agreement is in renewal,
extension, modification, amendment, and restatement of the Original Loan
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES TO FOLLOW]
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the day and year first above written.
Address for Notice: BORROWERS:
c/o Adams Golf, Inc. ADAMS GOLF DIRECT RESPONSE, LTD.,
2801 East Plano Parkway
Plano, Texas 75074 By: ADAMS GOLF GP CORP., a Delaware
Attention: Darl P. Hatfield corporation, General Partner
Telecopy No: 972-424-0721
By:
Name:
Title:
Address for Notice: ADAMS GOLF, LTD., a Texas limited
partnership
c/o Adams Golf, Inc.
2801 East Plano Parkway By: ADAMS GOLF GP CORP., a Delaware
Plano, Texas 75074 corporation, General Partner
Attention: Darl P. Hatfield
Telecopy No: 972-424-0721 By:
Name:
Title:
Address for Notice: LENDER:
901 Main Street, 7th Floor NATIONSBANK, N.A., a national
P.O. Box 831000 banking association (successor in
Dallas, Texas 75202 interest by merger to NationsBank
Attention: Mr. Russell P. Hartsfield of Texas, N.A.)
Telecopy No.: (214) 508-3139
By:
Russell P. Hartsfield
Senior Vice President
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT D-0601350.3
<PAGE>
[logo]
NationsBank, N.A. AMENDED AND RESTATED PROMISSORY NOTE
- -------------------------------------------------------------------------------
Date February 26, 1999
Amount $ 10,000,000.00
FOR VALUE RECEIVED, the undersigned (jointly and severally, "Borrowers")
unconditionally promise to pay to the order of NationsBank, N.A., successor
in interest by merger to NationsBank of Texas, N.A. ("Bank"), Dallas (Banking
Center) without setoff, at its offices at 901 MAIN STREET, DALLAS, Texas, or
at such other place as may be designated by Bank, the principal amount of TEN
MILLION AND NO/100 Dollars ($10,000,000.00), or so much thereof as may be
advanced from time to time in immediately available funds, together with
interest computed daily on the outstanding principal balance hereunder, at an
annual interest rate, and in accordance with the payment schedule, indicated
below. [This Note contains some provisions preceded by boxes. Mark only those
boxes beside provisions which will be applicable to this transaction. A box
which is not marked means that the provision beside it is not applicable to
this transaction.]
RATE
/ / PRIME RATE. The rate shall be the Prime Rate, plus __________ percent, per
annum. The "Prime Rate" is the fluctuating rate of interest established
by Bank from time to time, at its discretion, whether or not such rate
shall be otherwise published. The Prime Rate is established by Bank as
an index or base rate and may or may not at any time be the best or
lowest rate charged by Bank on any loan.
/ / FIXED RATE. The Rate shall be fixed at __________ percent, per annum.
/ / TREASURY SECURITIES RATE. The Rate shall be the Treasury Securities Rate,
plus __________ percent, per annum. The "Treasury Securities Rate" is a
fluctuating rate of interest applied by Bank from time to time, based on
the most recent monthly average of daily yields on all outstanding United
States Treasury Securities adjusted to a constant maturity of ___________
years, as made available by the Federal Reserve Board, rounded upwards to
the nearest one-eighth of one percentage point (0.125%).
/X/ OTHER. THE RATE SHALL BE THE BASE RATE PLUS THE APPLICABLE MARGIN OR
THE ADJUSTED EURODOLLAR RATE PLUS THE APPLICABLE MARGIN (AS SUCH
TERMS ARE DEFINED BELOW), AS SELECTED BY BORROWERS PURSUANT TO THE
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT DATED OF EVEN DATE
HEREWITH, EXECUTED BY BORROWERS AND BANK (AS MODIFIED, AMENDED,
RENEWED, EXTENDED, AND RESTATED FROM TIME TO TIME, THE "CREDIT
AGREEMENT").
Notwithstanding any other provision contained in this Note, Bank does not
intend to charge and Borrowers shall not be required to pay any amount of
interest or other fees or charges that is in excess of the maximum permitted
by applicable law. Borrowers agree that during the full term hereof, the
maximum lawful interest rate for this Note as determined under Texas law
shall be the monthly ceiling as specified in Article 5069-1.D. of the
V.A.T.S. Further, to the extent that any other lawful rate ceiling exceeds
the rate ceiling so determined, then the higher rate ceiling shall apply. Any
payment in excess of such maximum shall be refunded to Borrowers or credited
against principal, at the option of Bank.
ACCRUAL METHOD
Interest at the Rate set forth above, unless otherwise indicated, will be
calculated on the basis of the 365/360 method, which computes a daily amount
of interest for a hypothetical year of 360 days, then multiplies such amount
by the actual number of days elapsed in an interest calculation period.
RATE CHANGE DATE
Any Rate based on a fluctuating index or base rate will change, unless
otherwise provided, each time and as of the date that the index or base rate
changes. In the event any index is discontinued, Bank shall substitute an
index determined by Bank to be comparable, in its sole discretion.
PAYMENT SCHEDULE
All payments received hereunder shall be applied first to the payment of any
expense or charges payable hereunder or under any other documents executed in
connection with this Note ("Loan Documents"), then to interest due and
payable, with the balance being applied to principal, or in such other order
as Bank shall determine at its option.
/ / PRINCIPAL Principal shall be paid in __________ (_____) equal: / / monthly,
/ / quarterly or / / PLUS installments of $__________ each, commencing on
__________, 19__,
INTEREST together with accrued interest thereon and continuing on the same
day of each successive month/quarter/or other period (as applicable)
thereafter, with a final payment of all unpaid principal and interest thereon
on __________, 19__.
/ / PRINCIPAL Principal and interest shall be paid in __________ (_____)
equal: / / monthly, (_____) equal: / / monthly, / / quarterly or / / AND
installments of $__________ each, commencing on ____, 19__,
INTEREST and continuing on the same day of each successive month/quarter/or
other period (as applicable) thereafter, with a final payment of all unpaid
principal and interest thereon on __________, 19__; provided that, if accrued
interest on any payment exceeds the installment amount set forth above,
Borrowers will pay an additional amount equal to such excess interest.
/X/ SINGLE Principal shall be paid in full in a single payment on May 31,
2000. Interest thereon shall be payable as provided in the Credit Agreement.
/ / DEMAND. NOTWITHSTANDING ANY PROVISIONS CONTAINED HEREIN WHICH MAY BE
INCONSISTENT WITH A DEMAND NOTE, INCLUDING BUT NOT LIMITED TO ANY REFERENCES
TO INSTALLMENTS, A MATURITY DATE, ACCELERATION OR EVENTS OF DEFAULT,
BORROWERS ACKNOWLEDGE THAT BANK MAY DEMAND PAYMENT AT ANY TIME, IN ITS SOLE
DISCRETION.
/ / OTHER
REVOLVING FEATURE
/X/ Borrowers may borrow, repay and reborrow hereunder at any time, up
to a maximum aggregate amount outstanding at any one time equal to
the principal amount of this Note; provided, however, that Borrowers
are not in default under any provision of the Credit Agreement, this
Note, any Loan Document, or any other obligation of Borrowers to
Bank, and provided that the borrowings hereunder do not exceed any
limitations on borrowings by Borrowers set forth in the Credit
Agreement. Bank shall have no liability for its
AMENDED AND RESTATED PROMISSORY
<PAGE>
refusal to advance funds based upon its determination that any
conditions of such further advances have not been met. Bank records
of the amounts borrowed from time to time shall be conclusive proof
thereof.
AUTOMATIC PAYMENT
/ / Borrowers have elected to authorize Bank to effect payment of sums due
under this Note by means of debiting Borrowers' account number
_____________. This authorization shall not affect the obligation of
Borrowers to pay such sums when due, without notice, if there are
insufficient funds in such account to make such payment in full on the
due date thereof, or if Bank fails to debit the account.
BORROWERS REPRESENT TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWERS
ACKNOWLEDGE HAVING READ AND UNDERSTOOD, AND AGREE TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
ADDITIONAL TERMS AND CONDITIONS
1. WAIVERS, CONSENTS AND COVENANTS. Borrowers, any indorser, or guarantor
hereof or any other party hereto (collectively "Obligors") and each of them
jointly and severally (a) waive presentment, demand, notice of demand, notice
of intent to accelerate, and notice of acceleration of maturity, protest,
notice of protest, notice of nonpayment, notice of dishonor, and any other
notice required to be given under the law to any of Obligors, in connection
with the delivery, acceptance, performance, default or enforcement of this
Note, of any indorsement or guaranty of this Note of any Loan Documents; (b)
consent to any and all delays, extensions, renewals or other modifications of
this Note or the Loan Documents, or waivers of any term hereof or of the Loan
Documents, or releases or discharge by Bank of any of Obligors or release,
substitution, or exchange of any security for the payment hereof, or the
failure to act on the part of Bank or any indulgence shown by Bank, from time
to time and in one or more instances (without notice to or further assent
from any Obligors) and agree that no such action, failure to act or failure
to exercise any right or remedy on the part of Bank shall in any way affect
or impair the obligations of any Obligors or be construed as a waiver by Bank
of, or otherwise affect, any of Bank's rights under this Note, under any
indorsement or guaranty of this Note or under any of the Loan Documents; and
(c) agree to pay, on demand, all out-of-pocket costs and expenses of
collection of this Note or of any indorsement or guaranty hereof and/or the
enforcement of Bank's rights with respect to, or the administration,
preservation, protection of, or realization upon, any property securing
payment hereof, including, without limitation, reasonable attorney's fees,
including fees related to any trial, arbitration, bankruptcy, appeal or other
proceeding.
2. INDEMNIFICATION. Obligors agree to promptly pay, indemnify and hold Bank
harmless from all state and federal taxes of any kind and other liabilities
with respect to or resulting from advances made pursuant to this Note. If
this Note has a revolving feature and is secured by a mortgage, Obligors
expressly consent to the deduction of any applicable taxes from each taxable
advance extended by Bank.
3. PREPAYMENTS. Subject to the terms and conditions set forth in the Credit
Agreement, prepayments may be made in whole or in part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. Except as set forth in
the Credit Agreement, no prepayment of any other loan shall be permitted
without the prior written consent of Bank.
4. EVENTS OF DEFAULT. A "default" or an "event of default" shall exist if an
Event of Default (as defined in the Credit Agreement) shall occur and be
continuing.
5. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding and all other obligations of Obligor to Bank
(however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable, and/or (b) to the extent permitted by law, the
Rate of interest on the unpaid principal shall, at the option of the Bank, be
increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 14% per annum, (the "Default Rate"). The provisions herein for a
Default Rate or a delinquency charge shall not be deemed to extend the time
for any payment hereunder or to constitute a "grace period" giving the
Obligors a right to cure any default. At Bank's option, any accrued and
unpaid interest, fees or charges may, for purposes of computing and accruing
interest on a daily basis after the due date of the Note or any installment
thereof, be deemed to be a part of the principal balance, and interest shall
accrue on a daily compounded basis after such date at the rate provided in
this Note until the entire outstanding balance of principal and interest is
paid in full. Bank is hereby authorized at any time to set off and charge
against any deposit accounts of any Obligor, as well as any other property of
such party at or under the control of Bank, without notice or demand, any and
all obligations due hereunder.
6. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Bank shall be cumulative and may be pursued
singly, successively or together, at the option of Bank. The acceptance by
Bank of any partial payment shall not constitute a waiver of any default or
of any Bank's rights under this Note. No waiver of nay of its rights
hereunder, and no modification or amendment of this Note, shall be deemed to
be made by Bank unless the same shall be in writing, duly signed on behalf of
Bank; and each such waiver, if any, shall apply only with respect to the
specific instance involved, and shall in no way impair the rights of Bank or
the obligations of Obligor to Bank in any other respect at any other time.
7. APPLICABLE LAW. This Note is delivered in and shall be construed under the
internal laws and judicial decisions of the State of Texas, and the laws of
the United States as the same may be applicable.
8. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or the validity of any other
provision herein and the invalidity or unenforceability of any provision of
this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
9. JURISDICTION AND VENUE. In any litigation in connection with or to
enforce this Note or any indorsement or guaranty of this Note or any Loan
Documents, Obligors, and each of them, irrevocably consent to and confer
personal jurisdiction on the courts of the State of Texas or the United
States courts located within the State of Texas, and expressly waive any
objections as to venue in any such courts, and agree that service of process
may be made on Obligors by mailing a copy of the summons and complaint by
registered or certified mail, return receipt requested, to their respective
addresses. Nothing contained herein shall, however, prevent Bank from
bringing any action or exercising any rights within any other state or
jurisdiction or from obtaining personal jurisdiction by any other means
available by applicable law.
10. INTEREST DEFINITIONS AND TERMS.
(a) DEFINITIONS.
"ADJUSTED EURODOLLAR RATE" means an interest rate per annum
(rounded upwards, if necessary, to the next 1/16th of 1%) equal to
the sum of the quotient of (a) the Eurodollar Rate with respect to
such Interest Period, divided by (b) the remainder of 1.00 MINUS the
Eurodollar Reserve Requirement in effect on such date.
AMENDED AND RESTATED PROMISSORY NOTE d-601455.1
<PAGE>
"APPLICABLE MARGIN" means, at the time of determination
thereof, the interest margin over the Base Rate or the Adjusted Eurodollar
Rate, as the case may be, as follows:
- -------------------------------------------------------------------------------
APPLICABLE MARGIN APPLICABLE MARGIN EURODOLLAR
BASE RATE BORROWINGS BORROWINGS
- -------------------------------------------------------------------------------
-0.50% 1.00%
- -------------------------------------------------------------------------------
"BASE RATE" means the sum of the variable rate of interest
established from time-to-time by Bank as its general reference rate
of interest (which rate of interest may not be the lowest rate
charged by Bank on similar loans). Each change in the Base Rate
shall become effective without prior notice to Borrowers
automatically as of the opening of business on the date of such
change in the Base Rate.
"EURODOLLAR RATE" means the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of one percent) equal to the
rate appearing on the Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior
to the first (1st) day of such Interest Period for a term comparable
to such Interest Period. If for any reason the Dow Jones Markets
Page 3750 rate is not available, then the "EURODOLLAR RATE" shall be
the rate appearing on the Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two (2) Business Days prior to the first
(1st) day of the such Interest Period for a term comparable to such
Interest Period; PROVIDED, HOWEVER, if more than one rate is
specified on the Reuters Screen LIBO Page, then the applicable rate
shall be the arithmetic mean of all such rates.
"EURODOLLAR RESERVE REQUIREMENT" means, on any day, that
percentage (expressed as a decimal fraction) that is in effect on
such day, as provided by the Board of Governors of the Federal
Reserve System (or any successor governmental body), applied for
determining the maximum reserve requirements (including, without
limitation, basic, supplemental, marginal, and emergency reserves)
under Regulation D, with respect to "EUROCURRENCY LIABILITIES" as
currently defined in Regulation D, or under any similar or successor
regulation with respect to Eurocurrency liabilities or Eurocurrency
funding. Each determination by Bank of the Eurodollar Reserve
Requirement shall, in the absence of manifest error, be conclusive
and binding.
(b) INTEREST PERIODS, TERMS, ETC. Reference is hereby made to the Credit
Agreement for certain provisions relating the determination of the
Base Rate and the Eurodollar Rate and Borrowers' rights,
limitations, and restrictions to select such rates.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR
ANY RELATED NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S. D/B/A ENDISPUTE, INC.
("J.A.M.S.") AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THE NOTE
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF BORROWERS' DOMICILE AT THE TIME OF THE NOTE'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR,; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON
A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING
FOR AN ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SS.91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO)
SETOFF, OR (B) TO FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS NOTE. NEITHER THE EXERCISE OR SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. BINDING EFFECT. This note shall be binding upon and inure to the benefit
of Borrowers, Obligors and Bank and their respective successor, assigns,
heirs and personal representatives, provided, however, that no obligations of
the Borrowers or the Obligors hereunder can be assigned without prior written
consent of Bank.
13. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
14. RENEWAL NOTE. This note is in modification, amendment, renewal,
extension, and restatement, but not extinguishment, of that certain
Promissory Note dated as of February 27, 1998, executed by Borrowers and
payable to the order of Bank in the original principal amount of
$10,000,000.00.
BORROWERS:
AMENDED AND RESTATED PROMISSORY NOTE d-601455.1
<PAGE>
ADAMS GOLF DIRECT RESPONSE, LTD., a Texas
limited partnership
By: ADAMS GOLF GP CORP., a Delaware corporation,
General Partner
By:
Name:
Title:
ADAMS GOLF, LTD., a Texas limited partnership
By: ADAMS GOLF GP CORP., a Delaware corporation,
General Partner
By:
Name:
Title:
AMENDED AND RESTATED PROMISSORY NOTE d-601455.1
<PAGE>
[Logo]
NationsBank, N.A. AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY
- -------------------------------------------------------------------------------
1. GUARANTY. FOR VALUE RECEIVED, and to induce NationsBank, N.A., DALLAS
COMMERCIAL BANKING
Banking Center
901 MAIN STREET, 7TH FLOOR, DALLAS, TEXAS, 75202
Bank Street Address City State Zip Code
(Attn: MR. RUSSELL P. HARTSFIELD) (herein called "Bank"), to make loans or
advances or to extend credit or other financial accommodations or benefits,
with or without security, to or for the account of
ADAMS GOLF DIRECT RESPONSE, LTD. AND/OR ADAMS GOLF, LTD.
Borrower's Name
2801 EAST PLANO PARKWAY, PLANO, TEXAS, 75074
Street Address City State Zip Code
(herein collectively called "Borrowers"), the undersigned (jointly and
severally called "Guarantors"), jointly and severally, hereby become surety
for and irrevocably and unconditionally guarantee to Bank the full and prompt
payment when due, whether by acceleration or otherwise, of any and all
Liabilities (as hereinafter defined) of Borrowers to Bank, together with
reasonable attorneys' fees, costs and expenses incurred by Bank in enforcing
any and all of such indebtedness. This Guaranty is continuing and unlimited
as to the amount.
Guarantors further unconditionally guarantee the faithful, prompt and
complete compliance by Borrowers with all terms, conditions, covenants,
agreements and undertakings of Borrowers (herein collectively referred to as
the "Obligations") under all notes and other documents evidencing the
Liabilities, as hereinafter defined, and under all deeds to secure debt,
deeds of trust, mortgages, security agreements and other agreements,
documents and instruments executed in connection with the Liabilities or
related thereto (all such deeds to secure debt, deeds of trust, mortgages,
security agreements and other documents securing payment of the Liabilities
and all notes and other agreements, documents, and instruments evidencing or
relating to the Liabilities and Obligations being herein collectively called
the "Loan Documents"). The undertakings of Guarantors hereunder are
independent of the Liabilities and Obligations of Borrowers and a separate
action or actions for payment, damages or performance may be brought or
prosecuted against Guarantors, whether or not an action is brought against
Borrowers or to realize upon the security for the Liabilities and/or
Obligations and whether or not Borrowers are joined in any such action or
actions, and whether or not notice is given or demand is made upon the
Borrowers.
Bank shall not be required to proceed first against any Borrower, or any
other person, firm or corporation, whether primarily or secondarily liable,
or against any Collateral held by it, before resorting to Guarantors for
payment, and Guarantors shall not be entitled to assert as a defense to the
enforceability of the Guaranty any defense of any Borrower with respect to
any Liabilities or Obligations.
2. PARAGRAPH HEADINGS AND GOVERNING LAW. Guarantors agree that the paragraph
headings in this Guaranty are for convenience only and that they will not
limit any of the provisions of this Guaranty. Guarantors further agree that
this Guaranty shall be governed by and construed in accordance with the laws
of the State of Texas and applicable United States federal law. Guarantors
further agree that this Guaranty shall be deemed to have been made in the
State of Texas at Bank's address indicated herein, and shall be governed by,
and construed in accordance with, the laws of the State of Texas, or the
United States courts located within the State of Texas, and is performable in
Dallas, Dallas County, Texas.
3. DEFINITIONS.
A. "Liability" or "Liabilities" as used herein shall include without
limitation, all liabilities, overdrafts, indebtedness, and obligations of
Borrowers to Bank, whether direct or indirect, absolute or contingent, joint
or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by the Bank for its own account or
as agent for another or others, whether created directly, indirectly, or
acquired by assignment or otherwise, including but not limited to all
extensions or renewals thereof, and all sums payable under or by virtue
thereof, including without limitation, all amounts of principal and interest,
all expenses (including attorney's fees and cost of collection as specified)
incurred in the collection thereof or the enforcement of rights thereunder or
in enforcing this Guaranty (including without limitation, any liability
arising from failure to comply with state or federal laws, rules and
regulations concerning the control of hazardous wastes or substances at or
with respect to any real estate securing any loan guaranteed hereby), whether
arising in the ordinary course of business or otherwise, and whether held or
to be held by Bank for its own account or as agent for another or others. If
Borrowers are a partnership, corporation or other entity the term "Liability"
or "Liabilities" as used herein shall include all Liabilities to Bank of any
successor entity or entities.
B. "Guarantor" as used herein shall mean Guarantors or any one or more
of them. Anyone executing this Guaranty shall be bound by the terms hereof
without regard to execution by anyone else. This Guaranty is binding upon
Guarantors, their executors, administrators, successors or assigns, and shall
inure to the benefit of Bank, its successors, endorsees or assigns.
"Guarantors" as used in this instrument shall be construed as singular or
plural to correspond with the number of persons executing this instrument as
a Guarantor. The pronouns used in this Agreement are in the masculine gender
but shall be construed as female or neuter as an occasion may require.
C. "Collateral" means the property subject to a security interest, and
includes accounts and chattel paper which have been sold, including but not
limited to all additions and accessions thereto, all replacements or
substitutes therefor, and all immediate and remote proceeds of the sale or
other disposition thereof.
AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY
<PAGE>
4. WAIVERS BY GUARANTORS. Each Guarantor waives notice of acceptance of this
Guaranty, notice of any Liability or Obligations to which it may apply, and
waives presentment, demand for payment, protest, notice of dishonor or
nonpayment of any Liabilities, waiver of notice of intent to accelerate,
waiver of notice of acceleration and notice of any suit or the taking of
other action by Bank against any Borrower, any Guarantor, or any other person
and any other notice to any party liable thereon (including such Guarantor)
and any applicable statute of limitations.
Until the indefeasible payment of all Liabilities and Obligations, each
Guarantor also hereby waives any claim, right or remedy which such Guarantor
may now have or hereafter acquire against each Borrower that arises hereunder
and/or from the performance by any Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim,
right or remedy of the Bank against any Borrower or any security which the
Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise.
Each Guarantor hereby agrees to waive the benefits of any provision of law
requiring that the Bank exhaust any right or remedy, or take any action,
against any Borrower, any Guarantor, any other person and/or property
including but not limited to the provisions of the Texas Civil Practice and
Remedies Code ss. 17.001, Texas Rules of Civil Procedure Rule 31 and the
Texas Business and Commerce Code ss. 34.03, as amended, or otherwise.
Bank may at any time and from time to time (whether before or after
revocation or termination of this Guaranty) without notice to any Guarantor
(except as required by law), without incurring responsibility to any
Guarantor, without impairing, releasing, or otherwise affecting the
obligations of any Guarantor, in whole or in part, and without the
endorsement or execution by any Guarantor of any additional consent, waiver
or guaranty: (a) change the manner, place or terms of payment; (b) change or
extend the time of or renew or alter, any Liability or Obligation or
installment thereof, or any security therefor; (c) loan additional monies or
extend additional credit to any Borrower, with or without security, thereby
creating new Liabilities or Obligations the payment or performance of which
shall be guaranteed hereunder, and the Guaranty herein made shall apply to
the Liabilities and Obligations as so changed, extended, surrendered,
realized upon or otherwise altered; (d) sell, exchange, release, surrender,
realize upon or otherwise deal with in any manner and in any order any
property at any time pledged or mortgaged to secure the Liabilities or
Obligations and any offset there against; (e) exercise or refrain from
exercising any rights against any Borrower or others (including any
Guarantor) or act or refrain from acting in any other manner; (f) settle or
compromise any Liability or Obligation or any security therefor and
subordinate the payment of all or any part thereof to the payment of any
Liability or Obligation of any other parties primarily or secondarily liable
on any of the Liabilities or Obligations; (g) release or compromise any
liability of any Guarantor hereunder or any Liability or Obligation of any
other parties primarily or secondarily liable on any of the Liabilities or
Obligations; or (h) apply any sums from any sources to any Liability without
regard to any Liabilities remaining unpaid.
5. CREDIT AGREEMENT. Each Guarantor agrees that certain representations set
forth in the Credit Agreement (defined below) are applicable to it and that
certain covenants set forth in the Credit Agreement are binding upon it.
6. WAIVERS BY BANK. No delay on the part of Bank in exercising any of its
options, powers or rights, or any partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by
Bank unless the same shall be in writing, duly signed on behalf of Bank; and
each such waiver, if any, shall apply only with respect to the specific
instance involved, and shall in no way impair the rights of Bank or the
obligations of Guarantors to Bank in any other respect at any other time.
7. TERMINATION. This Guaranty shall continue until written notice of
revocation signed by each respective Guarantor or until written notice of the
death of such Guarantor shall actually have been received by Bank,
notwithstanding change in name, location, composition or structure of, or the
dissolution, termination or increase, decrease or change in personnel, owners
or partners of any Borrower, or any one or more of Guarantors, provided,
however, that no notice of revocation or termination hereof shall affect in
any manner rights arising under this Guaranty with respect to Liabilities or
Obligations that shall have been created, contracted, assumed or incurred
prior to receipt of such written notice pursuant to any agreement entered
into by Bank prior to receipt of such notice, and the sole effect of such
notice of revocation or termination hereof shall be to exclude from this
Guaranty, Liabilities or Obligations thereafter arising that are unconnected
with Liabilities or Obligations theretofore arising or transactions entered
into theretofore.
8. PARTIAL INVALIDITY AND/OR ENFORCEABILITY OF GUARANTY. The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity
or unenforceability of any provision of any Loan Document as it may apply to
any person or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
Collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by the Bank.
9. OBLIGATIONS OF GUARANTORS. In the event that any Borrower fails to perform
any of the Obligations or pay any of the Liabilities, Guarantors shall upon
demand by Bank, promptly and with due diligence pay all Liabilities and
perform and satisfy for the benefit of Bank all Obligations.
10. FINANCIAL AND OTHER INFORMATION. Each Guarantor has made an independent
investigation of the financial condition and affairs of Borrowers prior to
entering into this Guaranty, and such Guarantor has made and will continue to
make an independent appraisal of the creditworthiness of Borrowers; and in
entering into this Guaranty such Guarantor has not relied upon any
representation of the Bank as to the financial condition, operation or
creditworthiness of Borrowers. Each Guarantor further agrees that the Bank
shall have no duty or responsibility now or hereafter to make any
investigation or appraisal of any Borrower on behalf of such Guarantor or to
provide such Guarantor with any credit or other information which may come to
its attention now or hereafter.
11. NOTICES. All notices required or permitted to be given to Bank herein
shall be sent by registered or certified mail, return receipt requested to
the Bank at the address shown in the preamble to this agreement. Each
Guarantor agrees that all notices required or permitted to be given to such
Guarantor shall be sent by first class mail, postage prepaid United States
mail. The parties agree that the notice shall be considered received by a
Guarantor five (5) days after being placed in the United States mail.
12. EVENTS OF DEFAULT. An "event of default" shall exist if an Event of
Default (as defined in the Amended and Restated Revolving Credit Agreement
(as modified, amended, renewed, extended, and restated from time to time, the
"CREDIT AGREEMENT") dated of even date herewith, executed by Borrowers and
AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY d-601468.2
<PAGE>
Bank, and all modifications, amendments, and restatements thereof) shall
occur and be continuing.
13. REMEDIES. Upon the occurrence of any event of default hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable,
of a secured party, under all applicable law, and without limiting the
generality of the foregoing, Bank may, at its option and without notice of
demand: (a) declare any Liability accelerated and due and payable at once;
and (b) take possession of any Collateral wherever located, and sell, resell,
assign, transfer and deliver all or any part of said Collateral of any
Borrower or any Guarantor at any public or private sale or otherwise dispose
of any or all of the Collateral in its then condition, for cash or on credit
or for future delivery, and in connection therewith Bank may impose
reasonable conditions upon any such sale. Bank, unless prohibited by law the
provisions of which cannot be waived, may purchase all or any part of said
Collateral to be sold, free from and discharged of all trusts, claims, rights
or redemption and equities of Borrowers or Guarantors whatsoever; each
Guarantor acknowledges and agrees that the sale of any Collateral through any
nationally recognized broker-dealer, investment banker or any other method
common in the securities industry shall be deemed a commercially reasonable
sale under the Uniform Commercial Code or any other equivalent statute or
federal law, and expressly waives notice thereof except as provided herein;
and (c) set-off against any or all liabilities of any Guarantor all money
owed by Bank in any capacity to such Guarantor whether or not due, and also
set-off against all other Liabilities of any Borrower or any Guarantor to
Bank all money owed by Bank in any capacity to any Borrower or any Guarantor,
and if exercised by Bank, Bank shall be deemed to have exercised such right
of set-off and to have made a charge against any such money immediately upon
the occurrence of such default although made or entered on the books
subsequent thereto.
14. ATTORNEY FEES, COST AND EXPENSES. Guarantors shall pay all costs of
collection and reasonable attorneys' fees, including reasonable attorney's
fees in connection with any suit, mediation or arbitration proceeding, out of
court payment agreement, trial, appeal, bankruptcy proceedings or otherwise,
incurred or paid by Bank in enforcing the payment of any Liability or
enforcing or preserving any right or interest of Bank hereunder, including
the collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses from
the proceeds of sale or collection, Bank may apply any residue to pay any of
the Liabilities and Guarantors shall continue to be liable for any deficiency
with interest at the rate specified in any instrument evidencing the
Liability or, at the Bank's option, equal to the highest lawful rate, which
shall remain a liability.
15. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of any Guarantor
pledged to Bank to secure any Guarantor's obligations against prior parties
who may be liable in connection therewith, and each Guarantor hereby agrees
to take any such steps. Bank, nevertheless, at any time, may (a) take any
action it deems appropriate for the care or preservation of such property or
of any rights of Guarantors or Bank therein, (b) demand, sue for, collect or
receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of any Guarantor, (c) compromise
and settle with any person liable on such property, or (d) extend the time of
payment or otherwise change the terms of the Loan Documents as to any party
liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of any Guarantor.
16. COLLATERAL. Bank shall have a properly perfected security interest in all
of Guarantor's funds on deposit with Bank to secure the balance of any
liabilities and/or obligations that Guarantors may now or in the future owe
the Bank. Bank is granted a contractual right of set-off and will not be
liable for dishonoring checks or withdrawals where the exercise of Bank's
contractual right of set-off or security interest results in insufficient
funds in Guarantors' accounts. As authorized by law, Guarantors grant to Bank
this contractual right of set-off and security interest in all property of
Guarantors now or at anytime hereafter in the possession of Bank, including
but not limited to any joint account, special account, account by the
entireties, tenancy in common, and all dividends and distributions now or
hereafter in the possession or control of Bank.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE
FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S. D/B/A ENDISPUTE, INC.
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWERS' DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE
A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO)
SET-OFF, OR (B) TO FORECLOSURE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION, FORECLOSURE UNDER A
DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING: THE
EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF
AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY d-601468.2
<PAGE>
TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE. NEITHER THIS EXERCISE OF SELF
HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE
OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT
OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE
MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
18. NOTICE OF FINAL AGREEMENT. THIS WRITTEN CONTINUING AND UNCONDITIONAL
GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
19. AMENDMENT AND RESTATEMENT. This Guaranty is in amendment and restatement
of that certain Continuing and Unconditional Guaranty dated February 27,
1998, executed by Guarantors in favor of Bank.
Dated: February ______, 1999
NATIONSBANK, N.A., a national banking association
By:
RUSSELL P. HARTSFIELD, SENIOR VICE PRESIDENT
Print Name and Title
GUARANTORS:
ADAMS GOLF, INC., a Delaware corporation
By:
Name:
Title:
ADAMS GOLF HOLDING CORP., a Delaware corporation
By:
Name:
Title:
ADAMS GOLF GP CORP., a Delaware corporation
By:
Name:
Title:
ADAMS GOLF MANAGEMENT CORP., a Delaware corporation
By:
Name:
Title:
ADAMS GOLF IP, L.P., a Delaware limited partnership
By: ADAMS GOLF GP CORP., a Delaware corporation,
General Partner
By:
Name:
Title:
AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY d-601468.2
<PAGE>
ADAMS GOLF FOREIGN SALES CORPORATION, a
Barbados corporation
By:
Name:
Title:
ADAMS GOLF RAC CORP.,a Delaware corporation
By:
Name:
Title:
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF, INC., a
Delaware corporation, on behalf of said corporation.
(Seal) Notary Public
in and for the State of Texas
My Commission Expires Print Name of Notary
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF HOLDING CORP.,
a Delaware corporation, on behalf of said corporation.
(Seal) Notary Public
in and for the State of Texas
My Commission Expires Print Name of Notary
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF MANAGEMENT
CORP., a Delaware corporation, on behalf of said corporation.
(Seal) Notary Public
in and for the State of Texas
AMENDED AND RESTATED CONTINUING AND UNCONDITIONAL GUARANTY d-601468.2
<PAGE>
My Commission Expires Print Name of Notary
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF GP CORP., a
Delaware corporation, General Partner of ADAMS GOLF IP, L.P., a Delaware
limited partnership, on behalf of said partnership.
(Seal) Notary Public
in and for the State of Texas
My Commission Expires Print Name of Notary
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF FOREIGN SALES
CORPORATION., a Barbados corporation, on behalf of said corporation.
(Seal) Notary Public
in and for the State of Texas
My Commission Expires Print Name of Notary
State of Texas )
)
County of Dallas )
This instrument was acknowledged before me on February ___, 1999 by
_____________________, ________________________ of ADAMS GOLF RAC CORP., a
Delaware corporation, on behalf of said corporation.
(Seal) Notary Public
in and for the State of Texas
My Commission Expires Print Name of Notary
<PAGE>
EXHIBIT 21.1
ADAMS GOLF, INC., A DELAWARE CORPORATION
SUBSIDIARIES
The Company conducts its operations through several direct and indirect
wholly-owned subsidiaries, including (i) Adams Golf Holding Corp., which
holds limited partnership interests of certain indirect subsidiaries of the
Company; (ii) Adams Golf GP Corp., which holds capital stock or general
partnership interests, as applicable, of certain indirect subsidiaries of the
Company; (iii) Adams Golf Direct Response, Ltd., which operates
direct-to-consumer sales and advertising activities; (iv) Adams Golf, Ltd.,
which operates the golf club design, assembly and retail sales business; (v)
Adams Golf IP, L.P., which holds the intellectual property rights of the
Company, and (vi) Adams Golf Management Corp., which provides management and
consulting services to certain of the Company's indirect subsidiaries. A
complete list of the Company's subsidiaries at March 15, 1999 is as follows:
Adams Golf, Ltd., a Texas limited partnership
Adams Golf Direct Response, Ltd., a Texas limited partnership
Adams Golf Holding Corp., a Delaware corporation
Adams Golf GP Corp., a Delaware corporation
Adams Golf Management Corp., a Delaware corporation
Adams Golf RAC Corp., a Delaware corporation
Adams Golf IP, L.P., a Delaware limited partnership
Adams Golf Foreign Sales Corporation, a Barbados, W.I. corporation
Adams Golf U.K., Ltd., a United Kingdom private limited company
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Adams Golf, Inc and Subsidiaries.:
We consent to incorporation by reference in Registration Statement 333-58917 on
Form S-8 of Adams Golf, Inc. of our report dated January 25, 1999 relating to
the consolidated balance sheets of Adams Golf, Inc. and subsidiaries as of
December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998, and the related financial statement
schedule, which report is included in the December 31, 1998 Annual Report on
Form 10-K of Adams Golf, Inc.
KPMG LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR ADAMS GOLF, INC. AND ITS SUBSIDIAIRIES FOR
THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,688
<SECURITIES> 13,084
<RECEIVABLES> 3,316
<ALLOWANCES> 1,294
<INVENTORY> 13,312
<CURRENT-ASSETS> 58,752
<PP&E> 4,356
<DEPRECIATION> 888
<TOTAL-ASSETS> 96,906
<CURRENT-LIABILITIES> 5,745
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 88,167
<TOTAL-LIABILITY-AND-EQUITY> 96,906
<SALES> 84,611
<TOTAL-REVENUES> 84,611
<CGS> 21,441
<TOTAL-COSTS> 31,239
<OTHER-EXPENSES> 11,967
<LOSS-PROVISION> 1,464
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 19,693
<INCOME-TAX> 7,183
<INCOME-CONTINUING> 12,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,510
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
