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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from March 3, 1996 to September 30, 1996
Commission File No. 0-921
THE ARNOLD PALMER GOLF COMPANY
(Exact name of registrant as specified in its charter)
Tennessee 062-0331019
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6201 Mountain View Road, Ooltewah, TN 37363
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Registrant's telephone number, (including area code) (423) 238-5890
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Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - par value
$.50 per share
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(Title of Class)
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
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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. [ ]
---
As of December 18, 1996, the aggregate market value of the voting stock
held by non-affiliates was approximately $9,921,000 (based on the Common Stock
closing price on that date of $4.875 per share).
As of December 18, 1996, 833,333 shares of Series NB Preferred Stock
and 2,926,805 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held February 20, 1997, are incorporated by
reference into Part III of this Form 10-K. Other documents incorporated by
reference in this report are listed in the Exhibit Index.
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PART I
Item 1. Business
General
The Arnold Palmer Golf Company ("APGC" or the "Company") was incorporated in
Tennessee in 1932 and began operations as the Professional Golf Co., Inc. In
1966 it merged with First Flight Co. and in 1975 changed its name to ProGroup,
Inc. In July 1996, the Company changed its name to The Arnold Palmer Golf
Company. APGC manufactures, markets and distributes a full line of golf
products, including Arnold Palmer and First Flight golf equipment, and Hot-Z
golf bags and luggage. APGC owns, subject to certain exceptions, the exclusive
worldwide right to the Arnold Palmer trade name in connection with the Company's
manufacture, sale and distribution of golf products. For purposes of this
report, "the 1996 transition period" and "fiscal 1996, 1995, and 1994" refer to
the seven-month period ended September 30, 1996 and the fiscal years ended March
2, 1996, February 25, 1995 and February 26, 1994, respectively.
Developments During the 1996 Transition Period
Effective March 3, 1996, the Company changed its fiscal year end to September 30
from the Saturday closest to the end of February. Accordingly, the September 30,
1996 operating results of the Company are for a seven-month period. At the July
15, 1996 shareholders meeting, the shareholders approved an amendment to the
Company's charter changing the name of the Company from ProGroup, Inc. to The
Arnold Palmer Golf Company. In August 1996, the Company purchased 625,000 shares
of Series D Preferred Stock of Nevada Bob's Holdings, Inc. for $5.0 million. To
fund this investment, the Company issued 833,333 shares of its Series NB
Preferred Stock to a substantial shareholder and director of the Company.
Principal Products
The Company manufactures and markets golf clubs, golf bags, golf accessories and
luggage.
Markets
The principal market for the products sold by the Company is the United States.
Foreign sales were negligible during the 1996 transition period. Certain golf
equipment is manufactured and distributed on a contract basis to other
wholesalers. Branded golf products are sold to pro shops and retailers.
Methods of Distribution
The Company's products are sold through separate and distinct trade channels:
golf courses and resorts; golf shops not affiliated with golf courses; major
retailers; and special markets. In connection with the sale of the Company's
apparel operations in May 1995, the buyer employed the sales representatives
and sales management personnel previously employed by the Company and the
Company entered into a three year agreement with the buyer to provide sales
representation services with regard to its Hot-Z and Palmer products.
Subsequent to the end of the 1996 transition period, the buyer defaulted on
payment of the final installment of the promissory note issued in conjunction
with the sale of the apparel operations. As a result, the Company was released
from the sales representation agreement, has hired additional sales management
personnel, and certain of its former sales representatives again became
employees of the Company. Accordingly, the Company has resumed the distribution
of its Hot-Z and Palmer products.
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Sources of Supplies or Raw Materials
The Company's major sources of supplies or raw materials are as follows:
Source Raw Material
Mortex International Limited Bag Material/Hardware
C-K Plastics Bag Molded Tops and Bottoms
Summit/Intro-Union Trading Limited Iron Heads, Metal Wood Heads
Exel Shafts
While the Company has not experienced significant delays in receiving supplies
or raw materials, it does recognize the fact that, in some cases, only a limited
number of suppliers are available.
Licenses, Patents, Etc.
As of March 1, 1992, the Company entered into an agreement (the "License
Agreement") with Arnold Palmer Enterprises, Inc. ("Enterprises"), pursuant to
which the Company obtained a license to use the name, likeness and endorsement
of Arnold Palmer ("Palmer"), a director of the Company, in connection with the
advertisement, promotion and sale of golf clubs, bags, balls, gloves and other
products.
The License Agreement grants to the Company an exclusive worldwide right,
subject to certain exceptions, to use words or symbols, photographic
representations, images, likenesses or endorsements of Palmer in connection
with the Company's manufacture, sale and distribution of golf products. The
Company also has the right under the License Agreement to sublicense to third
parties the right to use the licensed trademarks. The License Agreement also
gives the Company the right to acquire the use of the Palmer identification in
connection with the manufacture, sale and distribution of certain other
products upon the termination of certain licensing arrangements with third
party licensees. In exchange for the grant of such license, the Company pays
Enterprises as a royalty a specified percentage of net sales of each different
product category. The Company also pays a minimum annual royalty regardless of
the royalty amount determined as a percentage of product sales. The License
Agreement also sets forth the manner in which the Company and Enterprises
divide sublicensing royalties. In addition to the foregoing, the License
Agreement contains provisions relative to the appearances of Palmer to promote
the licensed products and product usage by Palmer.
During the 1996 transition period, the Company negotiated an extension of the
License Agreement through March 1, 2007.
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Seasonal Business
Golf equipment manufactured and marketed by the Company is largely for warm
weather recreation. The spring quarter of the Company's fiscal year is the
start of the golf season and typically the Company's sales are at their highest
level of the year. Sales for the summer quarter consist largely of reorders,
to fill in customer service levels. The fall and winter quarters generate a
lower level of sales.
Working Capital Practices
It is necessary for the Company and the industry to carry significant amounts of
finished goods inventory during the winter months to meet customer demands in
the spring and summer months.
The Company and the industry provide extended payment terms to customers due to
the seasonal nature of the business in an effort to generate higher sales. Also,
the Company and the industry provide rights to return merchandise in certain
circumstances.
Customers
The Company's three largest customers, Sears, Roebuck and Company, Kmart
Corporation, and Wal-Mart Stores, Inc., accounted for 10%, 9% and 7%,
respectively, of the Company's total sales during the 1996 transition period.
Backlogs
With regard to continuing operations, the Company's backlog of unshipped orders
was approximately $2,115,000 on September 30, 1996, and approximately $4,749,000
on March 2, 1996.
Government Contracts
No material portion of the Company's business is subject to renegotiation of
profits on termination of contracts or subcontracts at the election of the
Government.
Competitive Conditions
The Company principally competes through customer service, pricing and the
quality of the products sold. One negative factor pertaining to the competitive
position of the Company is that the number of suppliers for raw materials such
as shafts and club heads for making golf clubs is limited. Another negative
factor is the proliferation of competitive products available resulting in keen
price competition in the golf industry. Among the Company's competitors are
numerous companies that have substantially greater financial resources,
manufacturing capabilities, and larger design, sales and marketing staffs than
the Company.
Research
No material amount was spent by the Company during the 1996 transition period,
fiscal 1996, 1995, or 1994 on Company-sponsored research and development
activities. No material amount was spent in such years on customer-sponsored
research activities relating to the development of new products, services or
techniques or the improvement of existing products, services or techniques.
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Environmental Matters
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, and is not expected
to have any material adverse effect upon the capital expenditures, earnings or
competitive position of the Company.
Employees
The Company employed 245 people as of September 30, 1996.
Operations and Sales to Foreign Countries
The Company markets its products on a limited basis in foreign countries. The
revenue derived from such foreign sales was less than 1% of net sales for the
1996 transition period, fiscal 1996, 1995 and 1994. Foreign sales are not
expected to be material during the 1997 fiscal year ending September 30, 1997.
Item 2. Properties
The Company owns or leases materially important properties as follows:
(a) 6201 Mountain View Road, Ooltewah, Tennessee, is a leased
building of cinder block and wood construction containing
approximately 95,000 square feet. The Company leases
approximately 20,000 square feet of office space to house its
main administrative offices.
(b) Hotze Road, Pocahontas, Arkansas, is an owned facility consisting
of a building of metal structure containing 72,000 square feet.
This facility is used for manufacturing golf bags and warehousing
raw materials.
(c) 2100 West Fifth Street, Lumberton, North Carolina, is an owned
facility consisting of a building of brick and frame structure
containing 66,000 square feet. This facility is idle and
currently for sale.
(d) 1512 Sholar Avenue, Chattanooga, Tennessee, is a leased building
of cinder block and concrete construction containing 47,400
square feet. This building is used for manufacturing golf clubs,
warehousing and shipping.
(e) 195 Highway 62 West, Pocahontas, Arkansas, is a leased building
of cinder block and concrete construction containing 52,345
square feet. This building is used for warehousing and shipping.
(f) 300 Tanger Boulevard, Suite 405, Branson, Missouri, is a leased
unit in a building of cinder block and concrete construction,
said unit containing 2,900 square feet. This facility is used for
retail sales.
(g) 3300 Ruckriegel Parkway, Louisville, Kentucky, is a leased
building of cinder block and concrete construction containing
approximately 4,600 square feet. This building is used to house
the administrative offices of the Company's National Golf
Suppliers division.
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Item 3. Legal Proceedings
Except as set forth below, the Company is not a party to any material pending
legal proceedings, other than ordinary routine litigation incidental to the
business, nor is any of its property the subject of any such proceedings.
On March 25, 1996, Richard E. Wenz, the former CEO of the Company, filed a
lawsuit against Arthur P. Becker, formerly Chairman of the Board and currently a
Board member of the Company, in the United States District Court for the
Southern District of New York. The lawsuit arises out of the publication in the
June 12, 1995 edition of Fortune magazine of certain statements relating to Mr.
Wenz's relationship with the Company which were attributed to Mr. Becker.
The complaint alleges a cause of action against Mr. Becker for defamation per se
and seeks compensatory damages of at least $10 million, plus punitive damages in
an unspecified amount. Pursuant to the provisions of the Amended and Restated
By-Laws of the Company and the applicable provisions of the Tennessee Business
Corporation Act, the Company has agreed to indemnify Mr. Becker from liability
which he may incur as a result of the lawsuit. The Company has also agreed to
advance certain costs of defense of the lawsuit to Mr. Becker.
On May 21, 1996, Mr. Wenz amended his complaint by adding Time, Inc., the
publisher of Fortune magazine, as an additional defendant in the lawsuit. The
cause of action alleged against Time, Inc. is also for defamation per se, arises
out of the same June 12, 1995 article, and also seeks compensatory damages of at
least $10 million.
On April 15, 1996, Mr. Becker filed his answer to the original complaint. The
answer denied all allegations of wrongdoing and set forth 15 affirmative
defenses. On June 11, 1996, Mr. Becker filed his answer to the amended
complaint, repeating his denials of all wrongdoing and repeating the 15
affirmative defenses. On or about June 12, 1996, Time, Inc. filed its answer,
also denying all wrongdoing, and setting forth nine affirmative defenses.
As of this date, only limited discovery has taken place and no trial date has
been set. Accordingly, it is premature to speculate upon the ultimate resolution
or outcome of the lawsuit. Mr. Becker intends to defend the suit vigorously.
The Company is also involved in litigation with Richard E. Wenz, former
President and Chief Executive Officer of the Company, in which Mr. Wenz has
alleged the Company has breached the terms of Mr. Wenz's employment agreement
and separation agreement with the Company. The Company does not expect the
resolution of the suit to have a material adverse effect on the operating or
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the last quarter of the 1996 transition period
to a vote of security holders, through the solicitation of proxies or otherwise.
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PART II
Item 5. Market for the Company's Common Stock and Related Security Holder
Matters.
MARKET PRICES
The Company's common shares trade on The Nasdaq Stock Market under the symbol
"APGC." Based upon transfer agent records, the Company's common shares were held
by approximately 1,600 shareholders as of December 18, 1996.
A quarterly summary of the high and low market prices per common share for the
1996 transition period and fiscal 1996 and 1995 as reported by Nasdaq is shown
below:
<TABLE>
<CAPTION>
1996 Transition Period Fiscal 1996 Fiscal 1995
---------------------- -------------- --------------
Quarter Ended: High Low High Low High Low
------ ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
May $6.125 $4.250 $8.50 $5.00 $13.75 $9.50
August 7.500 4.625 5.75 3.75 10.25 5.75
November* 6.625 5.500 6.00 3.50 10.25 5.50
February n/a n/a 6.50 3.75 9.00 5.75
*Due to the change in year end to September 30, 1996, the quarter ended November
for the 1996 transition period includes only the month of September.
</TABLE>
DIVIDENDS
Payment of dividends is at the discretion of the Company's Board of Directors
and depends, among other factors, on earnings, capital requirements for planned
growth and the operating and fiscal condition of the Company. No dividends were
paid during the 1996 transition period, fiscal 1996 and fiscal 1995.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
1996 Fiscal Year Ended 1992
Transition ------------------------------------------------------- Transition
Period 1996 1995 1994 1993 1991 Period
------ ---- ---- ---- ---- ---- ------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Information:
Net sales $ 18,456 $ 21,185 $ 24,621 $ 24,726 $ 18,697 $ 18,623 $ 4,425
Net loss from continuing operations $ (2,294) $ (5,625) $ (9,460) $ (1,054) $ (1,016) $ (702) $ (2,617)
Balance Sheet Information:
Total assets $ 24,934 $ 18,560 $ 31,271 $ 40,258 $ 36,435 $ 27,275 $ 25,060
Long-term obligations and
redeemable preferred stock $ 20,996 $ 4,671 $ 7,473 $ 3,621 $ 572 $ 2,409 $ 651
Per Common Share Data:
Net loss per share from continuing
operations $ (.80) $ (2.15) $ (3.73) $ (.42) $ (.42) $ (.30) $ (1.11)
Dividends per share $ 0 $ 0 $ 0 $ 0 $ 0 $ .10 $ 0
Common shares outstanding at end of
period 2,927 2,635 2,539 2,537 2,517 2,353 2,353
</TABLE>
The Company changed its fiscal year end from one ending on the Saturday closest
to the end of February to one ending September 30, effective September 30, 1996.
Therefore, the 1996 transition period relates to the seven-month period ended
September 30, 1996. Selected financial data for fiscal 1996, 1995, 1994, and
1993 relates to the years ended March 2, 1996, February 25, 1995, February 26,
1994, and February 27, 1993, while fiscal 1991 relates to the year ended
September 28, 1991. The 1992 transition period relates to the five-month period
ended February 22, 1992 which occurred when the Company changed its fiscal year
end from one ending on the Saturday closest to the end of September to February
22.
In May 1995, the Company sold its Duckster apparel line of business. The
results of discontinued operations have been reported separately from the
results of continuing operations.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
Subsequent to September 30, 1996, the Company entered a new financing
arrangement which converted $12.0 million of the Company's borrowings on its
line of credit to a long term note. As a result, as of September 30, 1996 the
Company had working capital of $10.7 million and a current ratio of three to
one. This compares to working capital of $1.3 million as of fiscal year end
March 2, 1996.
Borrowings under the Company's $15 million line of credit increased $2.7
million during the 1996 transition period. The increase in borrowings was
necessary to fund the increase in accounts receivable of $1.8 million and the
Company's net loss of $2.3 million for the transition period. The Company
generally relies upon internally generated cash and short-term borrowings to
satisfy working capital and capital expenditure requirements. Borrowings under
the Company's line of credit as of September 30, 1996 were $12.8 million.
Generally, borrowings under the line increase from December to April because
the Company builds inventory through the winter to support its spring shipping
season, and certain fall and winter sales programs offer extended repayment
terms to May.
Subsequent to September 30, 1996 the Company agreed to terms with a bank
which, effective December 30, 1996, converted $12 million of the current
revolver debt to a three year unsecured term loan with a maturity date of
December 31, 1999. The unsecured term loan will bear interest at the fixed
rate of 8.25% with interest payable monthly in arrears.
In addition to converting $12 million of existing indebtedness to a three year
term loan, the bank will also provide an unsecured revolving credit facility of
$12 million, which will mature on December 29, 1997. At the option of the
borrower, this revolving credit facility will bear interest at prime minus 0.50%
or one, two or three month LIBOR plus 2.0%. Both the long term loan and
revolving credit facility require no financial covenants, and are
unconditionally guaranteed by a major shareholder and director (the
"Guarantor"). The Company anticipates that this new financing arrangement
totaling $24 million will satisfy working capital and capital expenditure
requirements through 1997. Prior to the effective date of this $24 million
financing arrangement, the Company entered into a $1.1 million promissory note
with the Guarantor to provide short-term funding until the effective date of the
new $24 million arrangement. The Company expects to repay the $1.1 million no
later than January 31, 1997, the maturity date of the promissory note. The
Company's Board of Directors is considering appropriate compensation to be paid
to the Guarantor in consideration of his guarantee of the new credit facility.
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Results of Operations
Comparison of the Seven-Month Periods Ended September 30, 1996 and September 30,
1995
For purposes of this Form 10-K, the 1996 transition period covers the seven
month period beginning March 3, 1996 and ending September 30, 1996. This
transition period resulted from the Company changing its fiscal year end from
the Saturday closest to the end of February, to September 30, as approved by a
vote of the Board of Directors on July 14, 1996.
Net sales from continuing operations for the seven month transition period
ending September 30, 1996, increased $3.7 million or 25.0% compared to the same
period in 1995. As shown in the table below, the Company's significant growth
was in golf club sales, which increased $3.9 million to $10.0 million, and
accounted for 54.0% of the Company's total net sales for the 1996 transition
period.
Sales By Product Line
---------------------
($'s in millions)
<TABLE>
<CAPTION>
Seven Months Ended September
----------------------------
1996 1995 % Change
---- ---- --------
<S> <C> <C> <C>
Clubs $ 10.0 $ 6.1 + 63.9%
Bags 7.3 8.1 - 9.9%
Outlet .6 .4 + 50.0%
Other .6 .2 + 200.0%
----- ----- --------
Total $ 18.5 $ 14.8 + 25.0%
----- ----- --------
</TABLE>
Sales By Market Segment
----------------------
($'s in millions)
<TABLE>
<CAPTION>
Seven Months Ended September
----------------------------
1996 1995 % Change
---- ---- --------
<S> <C> <C> <C>
Pro $ 9.6 $ 6.8 + 41.2%
Retail 7.7 7.4 + 4.1%
Outlet .6 .4 + 50.0%
Other .6 .2 + 200.0%
----- ----- --------
Total $ 18.5 $ 14.8 + 25.0%
----- ----- --------
</TABLE>
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The decrease in bag sales of $.8 million is attributable to a decline in retail
bag sales of 26.5% from 1995 sales of $3.4 million. Pro bag sales were $4.8
million compared to $4.7 million in 1995.
The most favorable sales increase for the Company was a $2.8 million increase
in its pro business segment, which increased to $9.6 million in the 1996
transition period from $6.8 million in 1995. Essentially all the increase in
the pro business segment was in golf club sales. The increase in club sales was
primarily in the off-course golf equipment stores. Pro sales accounted for
51.9% of the Company's total sales in the 1996 transition period compared to
45.9% in the comparable 1995 period. Net margins on total sales increased to
27.9% compared to 25.5% in 1995, which is attributable to the more favorable
product mix and higher margins in pro clubs. While total bag net margins
remained constant with prior year at 28.8%, total club margins increased to
32.3% compared to 29.7% in 1995. A decrease in retail club margins to 28.1% in
1996 from 32.2% in 1995, was offset by a significant increase in pro club
margins of 40.0% in 1996, compared to 29.4% in 1995.
Selling and marketing expenses increased $1.7 million for the 1996 transition
period. A substantial portion of the increase was in advertising and
promotion, as the Company was not investing significant resources in this area
in the prior year. Additionally, commission and royalty expenses were greater
than prior year due to sales growth. General and administrative expenses
increased $1.2 million over 1995. The increase was primarily due to
expenditures relative to the Company's ongoing training and implementation of
its new fully integrated management information system, public relations
expenses and an increase in legal expenses due to the acquisition of National
Golf Suppliers, the Company's investment in Nevada Bob's Holdings, Inc. and
continued legal expenses related to litigation between the Company and its
former President and Chief Executive Officer.
Interest expense decreased 38.8% to $1.1 million for the 1996 transition
period. This was due to a decrease in non-cash interest expense relating to
amortization of the Company's subordinated debt discount and subordinated
notes. Interest expense was also reduced due to the sale of certain properties
and the retirement of related debt.
Other income for the 1996 transition period increased approximately $0.8 million
over the same prior year period, most of which was royalty income from the
Company's licensing agreement for its patented hosel design (PHD) technology.
In the 1996 transition period, the Company also recognized $0.2 million in
other income related to the increase in the net pension asset recognized on the
balance sheet. None was recognized in the seven months ending September 30,
1995.
The Company recorded a $.9 million charge against other income for the 1996
transition period. The Company was due to receive $1.2 million on October 10,
1996, as final payment for the sale of its Duckster apparel division to DeLong
Sportswear. In September 1996, the Company became aware that DeLong Sportswear
would default on the $1.2 million payment, and in lieu of payment accepted
manufacturing equipment, certain apparel items and other consideration
beneficial for the Company with a fair market value of approximately $0.3
million. The charge against other income reflects the writedown of the note
plus accrued interest to $0.3 million.
Due to operating losses for the 1996 transition period, no tax provision was
necessary.
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Comparison of Years Ended March 2, 1996, and February 25, 1995
Net sales from continuing operations for fiscal year 1996 decreased by $3.4
million, to $21.2 million, compared with fiscal year 1995. Club sales decreased
$2.4 million or 19.6% for fiscal year 1996 compared to fiscal year 1995. The
decrease in club sales was attributable primarily to the retail line of golf
equipment, due to a decrease in demand for these products from mass
merchandisers during fiscal 1996. Pro club sales were relatively unchanged from
fiscal 1995. Sales of golf bags decreased approximately $1.0 million in fiscal
1996 compared to fiscal 1995. The decrease in bag sales was primarily in our pro
line, which is sold to on-course golf shops and off-course golf equipment
stores. In early fiscal 1996, the decision was made by former management to
import a greater portion of our pro bag line. The features and quality of the
imported bags were not consistent with the bags historically manufactured by the
Company. As a result, the bags were not well received in the market place, thus
the decline in the pro segment of our bag line. During the latter part of fiscal
1996, the Company returned to domestic production of its high end pro bags.
Gross profit as a percent of net sales increased to 15.1% from 13.1% in fiscal
1995. The increase resulted primarily from reductions in manufacturing
variances. Losses from continuing operations were $5.6 million on net sales of
$21.2 million in fiscal 1996, compared to losses from continuing operations of
$9.5 million on net sales of $24.6 million in fiscal 1995.
Selling expenses decreased by $1.8 million or 28.4% for fiscal year 1996
compared to the previous year. When the Company sold its Duckster apparel
division in May 1995, the sales force became employees of DeLong Sportswear.
However, through a sales representative agreement between DeLong Sportswear and
the Company, they continued to sell the Company's pro line of golf clubs and
bags with compensation being on a commission basis. The result for the Company
was substantially reduced expenses for salaries and fringe benefits. Other
selling expenses such as royalties, were less due to reduced sales volume in
fiscal 1996. Additionally, lower expenditures for advertising and promotions
were factors in the decrease in selling expenses.
General and administrative expenses decreased $1.9 million or 43.1% in fiscal
1996. Most of the decrease was related to lower salaries and fringe benefits due
to the disposal of Duckster, which necessitated a reduction in general and
administrative overhead. Other components of the decrease were reduced legal
fees and other professional services.
Interest expense increased 119%, or $1.6 million, in fiscal 1996 compared to
fiscal 1995. Substantially all the increase was non-cash interest related to
amortization of subordinated debt discounts, subordinated notes and accrued
interest thereon.
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Other income increased $1.1 million in fiscal year 1996 compared to fiscal year
1995. Royalty income increased by $0.4 million, gain on asset dispositions
increased $0.4 million, and the Company reported $0.1 million of rental income
during fiscal 1996.
Due to operating losses for fiscal 1996, no tax provision was necessary.
Comparison of Years Ended February 25, 1995, and February 26, 1994
Net sales from continuing operations for fiscal year 1995 decreased slightly by
$105,000, to $24.6 million, compared with fiscal year 1994. Retail sales
increased 38% resulting from a 48% increase in club sales and a 20% increase in
bag sales. Sales to golf courses and golf shops decreased 28% to $10.2 million
from $14.1 million in fiscal 1994. The decrease was primarily in club sales
while bag sales were relatively unchanged. Gross profit as a percent of net
sales decreased to 13.6% in fiscal 1995 from 29.5% in the prior year. Large
inventory write-downs and manufacturing inefficiencies, especially in the
Company's bag production facilities, were the primary reasons for the decrease.
The Company's new management took a more aggressive approach to selling prior
season inventories in order to turn them into cash more quickly than in prior
years. During fiscal 1995, the Company took steps to outsource a portion of its
bag production in order to decrease manufacturing variances.
Selling expenses increased by $1.4 million or 28.8% for fiscal year 1995
compared to the previous year. Advertising expenses for clubs comprised the
majority of the increase along with increases in expenditures for playing pro
contracts and salesmen's commissions on retail sales.
General and administrative expenses increased $.4 million or 9.8% in fiscal
1995. Increased legal and professional services, employee relocation costs and a
full year of funding the Company's 401(k) plan were the major factors in the
increase.
Interest expense increased 127%, or $.8 million, in fiscal 1995 compared to
fiscal 1994. Increased long-term borrowings from the issuance of $5.0 million of
subordinated debt and higher interest rates on the Company's short-term line of
credit and term loan caused the increase.
During fiscal year 1995, the Company recorded an income tax provision of
$735,000. The income tax provision was principally the result of recording a
valuation allowance against previously recognized deferred tax assets due to the
uncertainty of the realization of the related benefits.
Impact of Inflation and Changing Prices
Management believes that the impact of inflation and other changes in prices
during the 1996 transition period and fiscal 1996, 1995 and 1994 had no material
effect on the Company's financial condition or operating results.
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Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Schedules
Report of Independent Public Accountants
Balance Sheets as of September 30, 1996, March 2, 1996, and February
25, 1995
Statements of Operations for the Seven-Month Period Ended September 30,
1996 and the Years Ended March 2, 1996, February 25, 1995, and
February 26, 1994
Statements of Stockholders' Equity (Deficit) for the
Seven-Month Period Ended September 30, 1996 and the Years Ended March
2, 1996, February 25, 1995, and February 26, 1994.
Statements of Cash Flows for the Seven-Month Period Ended September 30,
1996 and the Years Ended March 2, 1996, February 25, 1995, and
February 26, 1994.
Notes to Financial Statements
Financial Statement Schedules
See Part IV, Item 14(a)2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of The Arnold Palmer Golf Company:
We have audited the accompanying balance sheets of THE ARNOLD PALMER GOLF
COMPANY (a Tennessee corporation) as of September 30, 1996, March 2, 1996, and
February 25, 1995, and the related statements of operations, stockholders'
equity (deficit) and cash flows for the seven-month period ended September 30,
1996, and the years ended March 2, 1996, February 25, 1995, and February 26,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Arnold Palmer Golf Company
as of September 30, 1996, March 2, 1996, and February 25, 1995, and the results
of its operations and its cash flows for the seven-month period ended September
30, 1996 and the years ended March 2, 1996, February 25, 1995, and February 26,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
January 3, 1997
13
<PAGE> 14
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996, MARCH 2, 1996, AND FEBRUARY 25, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 2, February 25,
ASSETS 1996 1996 1995
- ------------------------------------------------------ ------------ ------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 47 $ 10 $ 34
Accounts receivable, less allowance for doubtful
accounts of $720, $758, and $1,049 at
September 30, 1996, March 2, 1996, and
February 25, 1995, respectively 5,630 3,776 7,184
Note receivable from sale of Duckster 0 1,126 0
Inventories 9,491 9,896 15,101
Prepaid expenses and other 913 759 478
------- ------- -------
Total current assets 16,081 15,567 22,797
------- ------- -------
PROPERTY, PLANT, AND EQUIPMENT, NET 1,445 1,188 3,778
------- ------- -------
OTHER ASSETS:
Investment in Nevada Bob's Holdings, Inc. 5,000 0 0
Non-current assets of discontinued operations 271 265 2,423
Goodwill 532 85 85
Other 1,605 1,455 2,188
------- ------- -------
Total other assets 7,408 1,805 4,696
------- ------- -------
$24,934 $18,560 $31,271
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996, MARCH 2, 1996, AND FEBRUARY 25, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' September 30, March 2, February 25,
EQUITY (DEFICIT) 1996 1996 1995
- ------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 112 $ 71 $ 407
Short-term borrowings from bank 796 10,096 11,829
Accounts payable 2,139 1,718 4,120
Accrued liabilities 2,288 2,409 3,629
------- ------- -------
Total current liabilities 5,335 14,294 19,985
------- ------- -------
LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 15,884 4,600 7,066
------- ------- -------
COMMITMENTS AND CONTINGENCIES
(NOTE 11)
REDEEMABLE PREFERRED STOCK, $.50 par
value, 833,333 shares authorized, issued, and
outstanding (liquidation preference of $5,000 plus
accumulated dividends)
5,000 0 0
------- ------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.50 par value, 10,000,000 shares
authorized; 2,926,805, 2,634,991, and
2,539,366 shares issued and outstanding
September 30, 1996, March 2, 1996, and
February 25, 1995, respectively 1,463 1,317 1,270
Additional paid-in capital 5,991 4,794 4,118
Accumulated deficit (8,739) (6,445) (1,168)
------- ------- -------
Total stockholders' equity (deficit) (1,285) (334) 4,220
------- ------- -------
$24,934 $18,560 $31,271
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND THE
YEARS ENDED MARCH 2, 1996, FEBRUARY 25, 1995, AND FEBRUARY 26, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 Fiscal Years
Transition ----------------------------------
Period 1996 1995 1994
---------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 18,456 $ 21,185 $ 24,621 $ 24,726
COST OF SALES 13,301 17,983 21,280 17,427
-------- -------- -------- --------
Gross profit 5,155 3,202 3,341 7,299
SELLING EXPENSES 4,466 4,559 6,368 4,959
GENERAL AND ADMINISTRATIVE EXPENSES 2,405 2,573 4,520 4,105
-------- -------- -------- --------
(1,716) (3,930) (7,547) (1,765)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net (1,129) (2,965) (1,354) (596)
Writedown of note receivable (894) 0 0 0
Gain on pension curtailment 0 0 0 394
Royalty and sub-license income, net 937 974 569 280
Other, net 508 296 (393) 43
-------- -------- -------- --------
(578) (1,695) (1,178) 121
-------- -------- -------- --------
Loss from continuing operations before income taxes (2,294) (5,625) (8,725) (1,644)
BENEFIT (PROVISION) FOR INCOME TAXES 0 0 (735) 590
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (2,294) (5,625) (9,460) (1,054)
-------- -------- -------- --------
DISCONTINUED OPERATIONS (NOTE 12):
Income (loss) from discontinued operations, net of tax
benefit of $513 in 1994 0 348 (6,082) (920)
Loss on disposal of discontinued operations 0 0 (1,244) 0
-------- -------- -------- --------
0 348 (7,326) (920)
-------- -------- -------- --------
NET LOSS $ (2,294) $ (5,277) $(16,786) $ (1,974)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE FROM:
Continuing operations $ (.80) $ (2.15) $ (3.73) $ (.42)
Discontinued operations 0 0.13 (2.88) (.36)
-------- -------- -------- --------
$ (.80) $ (2.02) $ (6.61) $ (.78)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND THE
YEARS ENDED MARCH 2, 1996, FEBRUARY 25, 1995, AND FEBRUARY 26, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------ PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 27, 1993 2,517 $ 1,258 $ 2,125 $ 17,592 $ 20,975
Net loss 0 0 0 (1,974) (1,974)
Exercise of stock options 20 10 170 0 180
----- -------- -------- -------- --------
BALANCE AT FEBRUARY 26, 1994 2,537 1,268 2,295 15,618 19,181
Net loss 0 0 0 (16,786) (16,786)
Exercise of stock options 2 2 17 0 19
Issuance of warrants for 1,158
shares of common stock 0 0 1,806 0 1,806
----- -------- -------- -------- --------
BALANCE AT FEBRUARY 25, 1995 2,539 1,270 4,118 (1,168) 4,220
Net loss 0 0 0 (5,277) (5,277)
Issuance of warrants for 232 shares
of common stock 0 0 139 0 139
Issuance of common stock 96 47 537 0 584
----- -------- -------- -------- --------
BALANCE AT MARCH 2, 1996 2,635 1,317 4,794 (6,445) (334)
Net loss 0 0 0 (2,294) (2,294)
Conversion of subordinated convertible
note into 192 shares
of common stock 192 96 863 0 959
Issuance of common stock 100 50 334 0 384
----- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 2,927 $ 1,463 $ 5,991 $ (8,739) $ (1,285)
===== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND THE
YEARS ENDED MARCH 2, 1996, FEBRUARY 25, 1995, AND FEBRUARY 26, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Years
1996 Transition --------------------------
Period 1996 1995 1994
--------------- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,294) $ (5,277) $(16,786) $ (1,974)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 140 400 761 791
Amortization 433 1,674 71 0
Deferred income tax provision (benefit) 0 0 476 (1,103)
Gain on pension curtailment 0 0 0 (394)
(Gain) loss on disposal of property, plant, and equipment (98) (100) 114 5
Loss on disposal of discontinued operations 0 0 1,244 0
Writedown of note receivable 894 0 0 0
Other 0 0 348 0
Changes in assets and liabilities, net of effects from purchase of
National Golf Suppliers:
Accounts receivable (1,778) 3,409 4,909 (2,078)
Income taxes receivable 0 0 259 876
Inventories 489 2,479 605 (340)
Prepaid expenses and other (481) 452 1,117 (1,327)
Accounts payable 251 (2,400) (40) 308
Accrued liabilities (12) (1,577) 1,420 924
-------- -------- -------- --------
Net cash used in operating activities (2,456) (940) (5,502) (4,312)
-------- -------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (291) (150) (400) (905)
Proceeds from sale of property, plant, and equipment 125 3,855 117 0
Investment in Nevada Bob's Holdings, Inc. (5,000) 0 0 0
Payments received on note receivable 0 1,600 0 0
Other 0 0 0 (122)
-------- -------- -------- --------
Net cash provided by (used in) investing activities (5,166) 5,305 (283) (1,027)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings from bank 2,700 (1,733) 1,168 2,326
Proceeds from debt issuance and related warrants 0 0 5,000 0
Proceeds from term debt 0 0 0 3,000
Principal payments on long-term obligations (41) (2,656) (418) (167)
Issuance of common stock 0 0 19 180
Issuance of redeemable preferred stock 5,000 0 0 0
-------- -------- -------- --------
Net cash provided by (used in) financing activities 7,659 (4,389) 5,769 5,339
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH 37 (24) (16) 0
CASH, BEGINNING OF PERIOD 10 34 50 50
-------- -------- -------- --------
CASH, END OF PERIOD $ 47 $ 10 $ 34 $ 50
-------- -------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments (refunds) during the period for:
Interest $ 613 $ 1,085 $ 1,088 $ 544
-------- -------- -------- --------
Income taxes, net $ 0 $ (5) $ (534) $ (365)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(For purposes of these financial statements and notes to these financial
statements, the "1996 transition period" relates to the seven-month period
ended September 30, 1996 while "fiscal 1996, 1995, and 1994" pertains to the
years ended March 2, 1996, February 25, 1995, and February 26, 1994,
respectively. All monetary amounts are expressed in thousands of dollars
unless contrarily evident.)
1. NATURE OF OPERATIONS
The Arnold Palmer Golf Company (the "Company") manufactures, markets and
distributes golf products, including Arnold Palmer and First Flight golf
equipment and Hot-Z golf bags and luggage. The Company's principal market
is the United States. The Company owns, subject to certain exceptions, the
exclusive worldwide right to the Arnold Palmer trade name in connection
with the Company's manufacture, sale and distribution of golf products.
The Company sells primarily to retailers and golf specialty stores and
grants credit to customers based on defined payment terms. Three large
retail customers accounted for 25%, 32%, 36%, and 23% of net sales from
continuing operations for the 1996 transition period and fiscal 1996, 1995,
and 1994, respectively.
During the July 1996 shareholders' meeting, the Company changed its name to
The Arnold Palmer Golf Company from ProGroup, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DISCONTINUED OPERATIONS
As discussed in Note 12, on May 5, 1995, the Company sold its Duckster line
of headwear, outerwear, and shirts. Consistent with the provisions of
Accounting Principles Board Opinion No. 30, the results of
discontinued operations have been reported separately from the results of
continuing operations, and a provision was made in fiscal 1995 for the
estimated loss on the disposal of the Duckster line of business.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost includes
material, labor and factory overhead. Market is net realizable value for
finished goods. For raw materials and work-in-process, market is
replacement cost.
19
<PAGE> 20
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost, less accumulated
depreciation and amortization. Expenditures for maintenance and repairs
are charged to expense as incurred. The property, plant, and equipment
balances consisted of the following at September 30, 1996, March 2, 1996,
and February 25, 1995:
<TABLE>
<CAPTION>
September 30, March 2, February 25,
1996 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Land $ 70 $ 75 $ 479
Buildings and improvements 661 824 3,599
Machinery and equipment 2,764 2,727 2,611
Furniture and fixtures 425 263 829
Construction in progress 275 42 173
------------- ------------- ------------
4,195 3,931 7,691
Less accumulated depreciation and
amortization (2,750) (2,743) (3,913)
------------- ------------- ------------
$ 1,445 $ 1,188 $ 3,778
============= ============= ============
</TABLE>
Included in non-current assets of discontinued operations for the 1996
transition period and fiscal 1996 and 1995 are $271, $265 and $2,111 of
property, plant, and equipment stated at the lower of cost or estimated net
realizable value.
Depreciable assets are depreciated principally using the straight-line
method for financial reporting purposes and accelerated methods for income
tax purposes over the estimated useful lives of the related assets. The
estimated useful lives used in computing annual depreciation provisions are
as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings and improvements 5 to 31
Machinery and equipment 3 to 10
Furniture and fixtures 3 to 10
</TABLE>
GOODWILL
Goodwill of $85 relates to a business acquired before November 1, 1970,
and is not required to be amortized. The remaining goodwill is being
amortized on a straight-line basis over 15 years.
ADVERTISING EXPENSES
The Company expenses production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
20
<PAGE> 21
At September 30, 1996, March 2, 1996, and February 25, 1995, the Company
reported $61, $287 and $321, respectively, of advertising as other
non-current assets in the accompanying balance sheets. Advertising expense
for the 1996 transition period and for the years ended 1996, 1995, and 1994
was $883, $547, $1,988, and $1,465, respectively.
INCOME TAXES
The Company uses the asset and liability approach to accounting for
deferred income taxes based on currently enacted tax rates and differences
in financial reporting and income tax basis of assets and liabilities.
FISCAL YEAR
During the 1996 transition period, the Company's Board of Directors
elected to change the Company's year end to September 30, effective
September 30, 1996. The previous periods reported are based on a
52-53-week period ending on the Saturday closest to the end of February.
NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average
number of common shares outstanding during the period after adding common
stock equivalents having a dilutive effect. The weighted average number of
shares and equivalents outstanding for the 1996 transition period and for
fiscal 1996, 1995, and 1994 are 2,852,213, 2,615,619, 2,537,876, and
2,521,674, respectively.
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.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
1996 transition period financial statement presentation.
3. ACQUISITION OF NATIONAL GOLF SUPPLIERS, INC.
In June 1996, the Company issued 100,000 shares of its common stock in
exchange for certain assets and liabilities of National Golf Suppliers,
Inc. ("NGS"), a wholesaler of golf club component parts located in
Louisville, KY, at a purchase price of $384.
The acquisition of NGS has been accounted for under the purchase method of
accounting. Accordingly, the operating results of NGS have been included
in the Company's results of operations from the date of acquisition. The
excess of the aggregate purchase price over the fair value of net assets
acquired has been recorded as goodwill in the September 30, 1996 balance
sheet and is being amortized on a straight-line basis over a 15 year
period. The impact of the
21
<PAGE> 22
acquisition on pro forma net loss and loss per share, as if the
acquisition had taken place at the beginning of fiscal 1996, was not
significant for the 1996 transition period and fiscal 1996.
4. INVENTORIES
Inventories as of September 30, 1996, March 2, 1996, and February 25, 1995,
consisted of the following:
<TABLE>
<CAPTION>
September 30, March 2, February 25,
1996 1996 1995
------------- -------- ------------
<S> <C> <C> <C>
Raw materials $ 4,344 $ 4,270 $ 4,521
Work-in-process 221 372 1,474
Finished goods 4,926 5,254 9,106
------------- -------- ------------
$ 9,491 $ 9,896 $ 15,101
============= ======== ============
</TABLE>
5. INVESTMENT IN NEVADA BOB'S HOLDINGS, INC.
In August 1996, the Company purchased 625,000 mandatory redeemable,
convertible shares of Series D Preferred Stock ("Series D Shares") of
Nevada Bob's Holdings, Inc. ("NBHI") for $5,000. The shares are
convertible to common shares of NBHI at any time at the currently effective
conversion rate, as defined, and will automatically convert to common shares
if NBHI successfully completes an initial public offering of at least
$20,000. If the Series D Shares are not converted to common shares of NBHI
by August 21, 2000, NBHI shall redeem 33 1/3% of the shares annually over a
three year period at 150% of the original cost per share plus any declared
but unpaid dividends. This investment is classified as held-to-maturity
and is accounted for using the cost method of accounting. As this
transaction was entered into shortly before September 30, 1996, the Company
estimates that the carrying amount of the investment approximates fair
value at September 30, 1996.
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of advances under a $15,000 line of credit
agreement with a bank. The line of credit is guaranteed by a significant
shareholder and director (the "Guarantor").
There are no financial covenants under the line of credit. Advances under
the line of credit bear interest at LIBOR plus 2 points (7.562% at
September 30, 1996) on the first $6 million outstanding, 7.844% on the next
$3.7 million outstanding and 7.656% on the next $1 million outstanding.
Outstanding amounts in excess of $10.7 million bear interest at the prime
rate less .50% (7.75% at September 30, 1996). The weighted average
interest rate for advances under the line of credit as of September 30,
1996, March 2, 1996, and February 25, 1995 was approximately 7.7%, 7.6%,
and 8.5%, respectively. Interest is payable monthly. Total advances
outstanding under the line of credit were $12,796 at September 30, 1996.
The line of credit was scheduled to mature in July 1997. Subsequent to
September 30, 1996, the Company and the bank agreed to convert $12,000 of
the line of credit to term debt due December 1999 and enter a new line of
credit agreement for $12,000 due December 1997, providing a total of
$24,000 in financing, which will be guaranteed by the Guarantor. As a
result of these new agreements, $12,000 of the amount outstanding under the
line of credit at September 30, 1996 has been classified as long-term in the
accompanying balance sheet. Between September 30, 1996 and the effective
date of this new agreement, the Company borrowed $1,100 from the Guarantor,
which will be repaid no later than January 31, 1997.
22
<PAGE> 23
7. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following at September 30, 1996,
March 2, 1996, and February 25, 1995:
<TABLE>
<CAPTION>
September 30, March 2, February 25,
1996 1996 1995
------------- -------- ------------
<S> <C> <C> <C>
Term loan with bank, due in monthly installments
of $45 (including interest at 9.5%) through
November 2000; paid in fiscal 1996 from
proceeds on the sale of related property, plant,
and equipment $ 0 $ 0 $ 2,590
Capital lease obligation, due in monthly
installments of $9 (including interest at 10.0%)
through December 2000; assumed by purchaser
of related property, plant, and equipment in
fiscal 1996 0 0 456
Subordinated notes ($5,000 face amount) to related
parties, net of discount of $1,175
at September 30, 1996 and $1,340 and $1,589 in
1996 and 1995, interest payable monthly at
6.0% (effective interest rate of 15.9%), due
November 2, 1999 3,825 3,660 3,411
Subordinated convertible note to Guarantor,
interest payable quarterly at the prime rate plus
2%; converted to common stock in the 1996
transition period 0 850 850
Other obligations 171 161 166
------------- -------- ------------
3,996 4,671 7,473
Less: current maturities (112) (71) (407)
------------- -------- ------------
3,884 $ 4,600 $ 7,066
======== ============
Portion of line of credit classified
as long-term (Note 6) 12,000
-------------
$ 15,884
=============
</TABLE>
23
<PAGE> 24
In November 1994, the Company completed a private placement of $5,000 in
subordinated notes. The holders of the $5,000 subordinated notes (which
include an officer and certain directors of the Company) also received warrants
to purchase up to 1,000,000 shares of common stock of the Company at $5.50 per
share. The estimated fair value of the warrants was recorded as additional
paid-in capital. Due to the fact that no liquid market exists for the
subordinated notes, it is not practical to estimate their fair value.
Future scheduled maturities of long-term obligations as of September 30,
1996, were as follows:
<TABLE>
<S> <C>
1997 $ 112
1998 50
1999 9
2000 15,825
</TABLE>
8. INCOME TAXES
Income tax benefit (provision) from continuing operations consists of:
<TABLE>
<CAPTION>
1996 Fiscal Years
Transition -----------------------
Period 1996 1995 1994
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Current $ 0 $ 0 $ 0 $ 0
Deferred 0 0 (735) 590
---------- ---- ----- ----
$ 0 $ 0 $(735) $590
========== ==== ===== ====
</TABLE>
There was no current income tax provision or benefit recorded during the
1996 transition period and fiscal 1996, 1995, and 1994 due to the losses
sustained by the Company. The provision for income taxes in fiscal 1995
resulted principally from recording a valuation allowance against
previously recognized deferred tax assets due to the uncertainty of the
realization of the related benefits.
24
<PAGE> 25
Deferred income tax assets and liabilities reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting and income tax reporting purposes. Temporary differences and
carryforwards which give rise to deferred tax assets and liabilities at
September 30, 1996, March 2, 1996, and February 25, 1995, are as follows:
<TABLE>
<CAPTION>
September 30, March 2, February 25,
1996 1996 1995
------------- -------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 9,148 $ 8,127 $ 5,176
Inventory and receivables reserves 288 752 1,274
Other accruals and reserves 772 581 1,356
------------- -------- ------------
10,208 9,460 7,806
------------- -------- ------------
Deferred tax assets valuation allowance (9,296) (8,516) (6,603)
------------- -------- ------------
Deferred tax liabilities:
LIFO to FIFO change 379 470 627
Prepaid expenses 63 119 131
Excess tax depreciation 72 35 141
Other 398 320 304
------------- -------- ------------
912 944 1,203
------------- -------- ------------
Net deferred tax asset $ 0 $ 0 $ 0
============= ======== ============
</TABLE>
At September 30, 1996, the Company had federal tax loss carryforwards of
approximately $24,000 which expire in years 2009 through 2011 if not
utilized earlier.
The difference between the benefit (provision) for income taxes and the
amount computed by multiplying the loss from continuing operations before
income taxes by the statutory rate is summarized as follows:
<TABLE>
<CAPTION>
1996 Fiscal Years
Transition -----------------------
Period 1996 1995 1994
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Expected tax benefit $ 780 $ 1,913 $ 2,966 $ 559
Change in valuation allowance (780) (1,913) (3,791) 0
State income taxes, net of federal income tax
benefit 0 0 349 66
Other, net 0 0 (259) (35)
---------- ---- ---- ----
Benefit (provision) for income taxes
from continuing operations $ 0 $ 0 $ (735) $ 590
========== ======= ======= =====
</TABLE>
A valuation allowance was recorded related to the entire amount of losses
from discontinued operations in fiscal 1995; accordingly, no income tax
provision or benefit was recognized for discontinued operations in 1995.
25
<PAGE> 26
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has noncontributory defined benefit pension plans covering
substantially all salaried and hourly employees. The plans provide
benefits based on years of service and compensation levels. In the opinion
of management, the Company's funding policy is consistent with the
requirements of the Employee Retirement Income Security Act of 1974. Plan
assets are invested primarily in common stocks and corporate debt
securities.
Pension income for the 1996 transition period and for fiscal 1996, 1995,
and 1994 included the following components:
<TABLE>
<CAPTION>
1996 Fiscal Years
Transition -----------------------
Period 1996 1995 1994
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost $ 36 $ 86 $ 97 $ 199
Interest cost on projected benefit
obligation 199 365 376 371
Actual (return) loss on plan assets (342) (1,047) 177 (456)
Net amortization and deferral (35) 430 (932) (592)
---------- ------ ------ ------
Net pension income $ (142) $ (166) $ (282) $ (478)
========== ====== ====== ======
</TABLE>
The following table sets forth the funded status of the plans as of
September 30, 1996, March 2, 1996, and February 25, 1995:
<TABLE>
<CAPTION>
September 30, March 2, February 25,
1996 1996 1995
------------- -------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 4,347 $ 4,774 $ 4,104
Nonvested benefit obligation 0 0 0
------------- -------- ------------
Accumulated benefit obligation $ 4,347 $ 4,774 $ 4,104
============= ======== ============
Projected benefit obligation $ 4,429 $ 5,034 $ 4,338
Plan assets at fair value 5,972 6,011 5,634
------------- -------- ------------
Plan assets in excess of projected benefit
obligation 1,543 977 1,296
Unrecognized net (gain) loss (229) 242 (155)
Unrecognized prior service cost 171 180 196
Unrecognized initial net asset (378) (434) (538)
Additional liability (59) (123) 0
------------- -------- ------------
Net pension asset recognized on the balance
sheets $ 1,048 $ 842 $ 799
============= ======== ============
</TABLE>
26
<PAGE> 27
The following assumptions were used to measure the net periodic pension
income and the projected benefit obligation:
<TABLE>
<CAPTION>
1996 Fiscal Years
Transition -----------------------
Period 1996 1995 1994
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate used to determine the projected
benefit obligation 7.5% 7.25% 8.0% 7.0%
Rate of increase in future compensation levels
used to determine the projected benefit
obligation 5.0% 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets
used to determine net periodic pension
income 9.0% 9.0% 9.5% 9.5%
</TABLE>
During fiscal 1994, the Company curtailed the benefits under its defined
benefit plans. Under this curtailment, nonunion employees that are not at
least age 50 with at least five years of service will accrue no further
benefits under the plans. As a result of this partial curtailment, a gain
of $394 has been reflected in the net amortization and deferral component
of pension income for fiscal 1994. This gain is separately classified in
other income in the accompanying statement of operations.
401(K) PROFIT-SHARING PLAN
During fiscal 1994, the Company established a 401(k) profit-sharing plan
covering substantially all employees at least 21 years of age with six
months of service. The plan allows for employees to contribute a portion
of their compensation, subject to certain limitations. The Company may
make discretionary contributions to the plan. Total discretionary
contributions during the 1996 transition period and fiscal 1996, 1995, and
1994 were $20, $39, $91, and $7, respectively.
10. CAPITAL STOCK
STOCK ISSUANCES
As consideration to the Guarantor for his guarantee of the line of credit
in January 1995, the Company issued an $850 subordinated convertible note
and a warrant to purchase up to 390,000 common shares of the Company. The
cost of the guarantee was set up as a deferred asset and amortized to
interest expense over the life of the note. Additionally, the Guarantor
was given preemptive rights through January 27, 2000 with respect to future
issuances by the Company sufficient to enable the Guarantor to maintain his
fully diluted common stock ownership percentage. In March 1996, the $850
subordinated note plus accrued interest was converted to 191,814 shares of
common stock under the terms of the note.
In March 1995, the Company entered into a revolving credit facility with the
Guarantor (this line was subsequently replaced by the line of credit
discussed in Note 6). For each $100 drawn under this facility, the
Guarantor was issued 3,750 shares of the Company's common stock. Under
this facility, the Guarantor was issued 80,625 shares in fiscal 1996.
27
<PAGE> 28
STOCK OPTION PLANS
The Company has incentive stock option plans which were adopted under a
1981 plan and a 1992 plan for its officers and key employees which provide
for issuance of options to purchase up to 500,000 and 324,032 common
shares, respectively. The plans are administered by the Executive
Committee of the Board of Directors.
The Company accounts for the plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), the
Company's net loss and loss per share would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996
Transition Fiscal
Period 1996
---------- ------
<S> <C> <C> <C>
Net loss: As reported $ (2,294) $ (5,277)
Pro Forma (2,490) (5,364)
Loss per share: As reported $ (0.80) $ (2.02)
Pro Forma (0.87) (2.05)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to February 26, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
At September 30, 1996, the total number of shares available for options was
as follows:
<TABLE>
<S> <C>
Reserved for:
Outstanding stock options 656,532
Stock options authorized but not granted 7,400
-------
663,932
=======
</TABLE>
Stock options are exercisable at the market price on the date of grant and
expire on various dates through 2006. Stock options generally vest ratably
over a 3 year period from the date of grant or date of hire.
28
<PAGE> 29
Stock option activity during the 1996 transition period and years ended
March 2, 1996, February 25, 1995, and February 26, 1994, is as follows:
<TABLE>
<CAPTION>
1996
Transition Period Fiscal 1996
--------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 596,532 $ 6.53 425,732 $ 8.68
Granted 80,000 5.38 241,000 4.09
Exercised 0 0.00 0 0.00
Canceled or expired (20,000) 7.63 (70,200) 11.23
---------- ----------
Outstanding at end of period 656,532 6.36 596,532 6.53
========== ==========
Exercisable at end of period 362,199 $ 8.11 348,865 $ 8.19
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
--------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 533,232 $ 8.90 502,032 $ 8.50
Granted 40,000 10.19 56,200 12.46
Exercised (2,500) 7.12 (20,000) 9.03
Canceled or expired (145,000) 9.92 (5,000) 8.10
---------- ----------
Outstanding at end of period 425,732 8.68 533,232 8.90
========== ==========
Exercisable at end of period 385,732 $ 8.41 394,777 $ 8.56
========== ==========
</TABLE>
Of the options outstanding at September 30, 1996, 301,000 have exercise
prices between $3.75 and $5.38, with a weighted average exercise price of
$4.20 and a weighted average remaining contractual life of 9.4 years. Of
these options, 10,000 are exercisable at a weighted average exercise price
of $5.38. The remaining 355,532 options have exercise prices between $7.12
and $10.93, with a weighted average exercise price of $8.18 and a weighted
average remaining contractual life of 1.7 years. All of these options are
exercisable.
The fair value of option grants is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in the 1996 transition period and fiscal 1996,
respectively: risk-free interest rates of 6.30 and 5.40 percent; expected
dividend yields of 0 percent; expected lives of one year after vesting;
expected volatility of 73 percent. The weighted average fair value of
options granted during the 1996 transition period and fiscal 1996 is $2.13
and $2.09, respectively.
29
<PAGE> 30
STOCK PURCHASE WARRANTS
The Company, in conjunction with the November 1994 issuance of the $5,000
subordinated notes (Note 7), issued warrants to purchase 1,000,000 shares
of common stock at an exercise price of $5.50. Each warrant may be
exercised with $5.50 in cash or principal value of the notes at any time
during the life of the warrants, which expire on November 3, 1999.
In connection with the January 1995 guarantee of the Company's line of
credit (Note 6), the Guarantor was issued a warrant to purchase up to
390,000 common shares at $6.25 per share. These warrants expire January
27, 2000. In March 1995, all 390,000 warrants were immediately vested and
subject to a reset price of $5.00 per share.
PREFERRED STOCK
On July 18, 1995, the Company's shareholders approved an amendment to the
Restated Articles of Incorporation to create and authorize the issuance of
up to 1 million shares of preferred stock, having a par value of $.50 per
share. The designation, powers, preferences, and rights of the shares
shall be determined by the Company's Board of Directors prior to issuance.
No shares of this preferred stock have been issued.
REDEEMABLE PREFERRED STOCK
In August 1996, the Company issued 833,333 shares of its newly created
Series NB Preferred Stock ("NB Shares") for $5,000 to the Guarantor to fund
the Company's investment in NBHI (Note 5). The NB Shares have a stated
value of $6 per share and are convertible at any time to common stock on a
one to one ratio. The NB Shares are entitled to cumulative dividends equal
to 30% of the earnings realized by the Company from its investment in
NBHI's Series D Shares. The NB Shares shall have a preference in
liquidation of $5,000 plus accumulated dividends and are required to be
redeemed upon sale or redemption of the Series D Shares of NBHI. As this
transaction was entered into shortly before September 30, 1996, the Company
estimates that the carrying amount of redeemable preferred stock
approximates fair value at September 30, 1996.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into various operating leases for buildings and
office equipment. Rent expense was approximately $405, $433, $355, and
$301 for the 1996 transition period and fiscal years 1996, 1995 and 1994,
respectively. Approximate future minimum rental commitments for the next
five years for noncancelable operating leases as of September 30, 1996,
were as follows:
<TABLE>
<S> <C>
1997 $708
1998 652
1999 606
2000 332
2001 179
</TABLE>
LITIGATION
On March 25, 1996, Richard E. Wenz, the former CEO of the Company, filed a
lawsuit against Arthur P. Becker, formerly Chairman of the Board and
currently a Board member, in the United
30
<PAGE> 31
States District Court for the Southern District of New York. The lawsuit
arises out of the publication in the June 12, 1995 edition of Fortune
magazine of certain statements relating to Mr. Wenz's relationship with the
Company which were attributed to Mr. Becker.
The complaint alleges a cause of action against Mr. Becker for defamation
per se and seeks compensatory damages of at least $10 million, plus
punitive damages in an unspecified amount. Pursuant to the provisions of
the Amended and Restated By-Laws of the Company and the applicable
provisions of the Tennessee Business Corporation Act, the Company has
agreed to indemnify Mr. Becker from liability which he may incur as a
result of the lawsuit. The Company has also agreed to advance certain
costs of defense of the lawsuit to Mr. Becker.
On May 21, 1996, Mr. Wenz amended his complaint by adding Time, Inc., the
publisher of Fortune magazine, as an additional defendant in the lawsuit.
The cause of action alleged against Time, Inc. is also for defamation per
se, arises out of the same June 12, 1995, article, and also seeks
compensatory damages of at least $10 million.
On April 15, 1996, Mr. Becker filed his answer to the original complaint.
The answer denied all allegations of wrongdoing and set forth 15
affirmative defenses. On June 11, 1996, Mr. Becker filed his answer to the
amended complaint, repeating his denials of all wrongdoing and repeating
the 15 affirmative defenses. On or about June 12, 1996, Time, Inc. filed
its answer, also denying all wrongdoing, and setting forth nine affirmative
defenses.
As of this date, only limited discovery has taken place and no trial date
has been set. Accordingly, it is premature to speculate upon the ultimate
resolution or outcome of the lawsuit. Mr. Becker intends to defend the
suit vigorously.
The Company is party to certain other legal proceedings incidental to its
business. In the opinion of management, based in part on the advice of
legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
ROYALTY COMMITMENTS
The Company pays royalties under a license agreement with Arnold Palmer
Enterprises, Inc., a company controlled by a shareholder and a member of
the Company's Board of Directors. The Company has the right to sub-license
its rights under this agreement. The agreement expires March 1, 2007, but
may be extended for successive five-year periods. Under the terms of the
agreement, the Company will pay royalties of 1% to 5% of net sales of
specified products and a portion of sub-licensing royalties. The Company
has committed to pay minimum royalties ranging from $600 in 1997 to $750 in
2007. During the 1996 transition period and fiscal 1996, 1995 and 1994,
the Company incurred royalty expense under this agreement of approximately
$442, $500, $524, and $340, respectively.
12. DISCONTINUED OPERATIONS - SALE OF DUCKSTER
On May 5, 1995, the Company sold its Duckster line of headwear, outerwear,
and shirts for approximately $3,000 in cash and a $2,726 installment
promissory note, of which $1,126 remains outstanding at September 30, 1996.
The Company also retained approximately $4,200 in existing accounts
receivable.
31
<PAGE> 32
The sale resulted in an estimated loss on disposal of $1,244, which has
been included as a component of discontinued operations in 1995. Duckster
revenues for fiscal 1996, 1995, and 1994 were $4,649, $15,485, and
$20,170, respectively.
The $1,126 note receivable which was scheduled for repayment on October
10, 1996 has not been paid. In lieu of payment, the holder has agreed to
turn over certain manufacturing equipment and other consideration to the
Company, which the Company believes has a fair value of approximately $300.
As a result, the Company has written the note receivable and related
accrued interest receivable down $894, and has classified the remaining
balance in other non-current assets in the accompanying balance sheet.
13. CHANGE IN FISCAL YEAR
During the 1996 transition period, the Company changed its fiscal year end
to September 30 from the Saturday closest to the end of February.
Accordingly, the September 30, 1996 results of operations are for a
seven-month period.
Following are selected financial data for the seven-month periods ended
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -----------
(Unaudited)
<S> <C> <C>
Net sales $18,456 $ 14,777
Gross profit 5,155 3,765
Loss from continuing operations (2,294) (1,446)
Income from discontinued operations 0 348
Net loss (2,294) (1,098)
Loss per share from continuing
operations (0.80) (0.55)
Loss per share (0.80) (0.42)
</TABLE>
32
<PAGE> 33
Item 9. Disagreements on Accounting and Financial Disclosure. No event described
in Item 304 of Regulation S-K has occurred.
PART III
Item 10. Directors and Executive Officers of the Company.
(a) Directors
The information found in the section titled Election of Directors in
the Company's 1997 Proxy Statement is incorporated herein by reference.
(b) Executive Officers
The following lists the names of all executive officers of the Company,
their ages, their positions with the Company and the year in which they
were first elected to these positions:
John T. Lupton. Age 70. Mr. Lupton was named Chairman of the
Board of Directors and Chief Executive Officer of APGC in March, 1995.
Mr. Lupton is the former Chairman of JTL Corp., a bottler of Coca-Cola
and related products, and a private investor.
George H. Nichols. Age 57. Mr. Nichols has been President and
Chief Operating Officer of APGC since January, 1996. Prior to joining
the Company, Mr. Nichols was Chairman, President, and Chief Executive
Officer of Square Two Golf, Inc. from April, 1991 to October, 1995.
Robert R. Winskowicz. Age 36. Mr. Winskowicz has been Senior
Vice President - Sales and Marketing since January 1996. Prior to
joining the Company, Mr. Winskowicz was Regional Sales Manager of
MacGregor Golf from March 1994 until December 1995. Mr. Winskowicz
served as National Account Manager at Dep Corporation from August 1992
through March 1994, and was Regional Sales Manager of Alberto Culver
from December 1990 until August 1992.
Claire V. Bradford. Age 42. Ms. Bradford has been Vice
President - Sales and Staff Services since December, 1995. She joined
the Company as Director of Human Resources in December 1992. Prior to
joining the Company, Ms. Bradford was a consultant in human resources
management for Suter & Associates, a private consulting firm, and
Director of Human Resources for MEDCORP, a private medical management
company from 1991 to 1992.
Frederick J. Frazier, III. Age 32. Mr. Frazier has been Vice
President and General Manager - Golf Club Division since November 1993.
He joined the Company in July, 1993 as Director of Marketing - Golf
Clubs. Prior to joining the Company, Mr. Frazier was Business Manager
of Winchester Ammunition and Director of marketing at RAM Golf Corp.
Dexter Scudder Graybeal. Age 56. Mr. Graybeal has been Vice President
- Special Markets since April, 1994. He has been employed by
the Company since March of 1972 in various capacities including
Regional and National Sales Manager, Director of Sales, Vice President
- Sales and Vice President/General Manager - Arnold Palmer Golf Co.
33
<PAGE> 34
David J. Kirby. Age 47. Mr. Kirby has been Vice President -
Finance since February, 1996. He joined the Company as Cost Accountant
in January, 1993, and was named Controller in November 1994. Prior to
1993, Mr. Kirby served as Financial Analyst and Controller at Balsam
Corporation.
Item 11. Executive Compensation.
The information found in the section titled Executive Compensation and Other
Information in the Company's 1997 Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information found in the section titled Voting Securities and Principal
Holders Thereof in the Company's 1997 Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The information found in the sections titled Certain Transactions and Agreements
with Certain Executive Officers in the Company's 1997 Proxy Statement is
incorporated herein by reference.
34
<PAGE> 35
PART IV
Item 14. Exhibits. Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements are set forth in the Index to
Financial Statements and Schedules found in Part II, Item 8.
2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits:
See the Exhibit Index on page 40 of this Form 10-K.
(b) The Registrant did not file any reports on Form 8-K during the
last quarter of the 1996 transition period.
35
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of The Arnold Palmer Golf Company:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Part II, Item 8 of this Form 10-K and have
issued our report thereon dated January 3, 1997. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole.
Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
January 3, 1997
36
<PAGE> 37
SCHEDULE II
THE ARNOLD PALMER GOLF COMPANY
F/K/A
PROGROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND THE
YEARS ENDED MARCH 2, 1996, FEBRUARY 25, 1995, AND FEBRUARY 26, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
DESCRIPTION BEGINNING COST AND OTHER BALANCE AT END
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) OF PERIOD
- ----------------------------------------------------- ---------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
For the seven-month period ended September 30, 1996:
Allowance for doubtful accounts $ 758 $ 373 $ 35 $ (446) $ 720
======== ======== ======== ======== ========
For the year ended March 2, 1996:
Allowance for doubtful accounts $ 1,049 $ 0 $ 20 $ (311) $ 758
======== ======== ======== ======== ========
For the year ended February 25, 1995:
Allowance for doubtful accounts $ 478 $ 1,226 $ 112 $ (767) $ 1,049
======== ======== ======== ======== ========
For the year ended February 26, 1994:
Allowance for doubtful accounts $ 399 $ 250 $ 58 $ (229) $ 478
======== ======== ======== ======== ========
</TABLE>
(l) Recoveries on accounts written off.
(2) Accounts written off.
37
<PAGE> 38
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 who are duly authorized to do so.
THE ARNOLD PALMER GOLF COMPANY
Date: January 3, 1997 By /s/ John T. Lupton
---------------------------------
(John T. Lupton)
Chief Executive Officer
Date: January 3, 1997 By /s/ George H. Nichols
---------------------------------
(George H. Nichols)
President (Chief Operating Officer)
Date: January 3, 1997 By /s/ David J.Kirby
---------------------------------
(David J. Kirby)
Vice President Finance (Chief Financial
Officer)
38
<PAGE> 39
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 indicated.
Date:
----------------------------------------
(Arthur P. Becker) Director
Date:
----------------------------------------
(Robert H. Caldwell) Director
Date: January 3, 1997 /s/ David S. Gonzenbach
----------------------------------------
(David S. Gonzenbach) Director
Date: January 3, 1997 /s/ James L.E.Hill
----------------------------------------
(James L.E. Hill) Director
Date:
----------------------------------------
(Richard Horton) Director
Date: January 3, 1997 /s/ John T.Lupton
----------------------------------------
(John T. Lupton) Chairman of the Board
Date: January 3, 1997 /s/ George H. Nichols
----------------------------------------
(George H. Nichols) Director
Date:
----------------------------------------
(Arnold D. Palmer) Director
Date: January 3, 1997 /s/ Joel W. Richardson, Jr.
----------------------------------------
(Joel W. Richardson, Jr.) Director
39
<PAGE> 40
THE ARNOLD PALMER GOLF COMPANY
EXHIBIT INDEX
Exhibit
Number Description
3.1* Amended and Restated Charter of The Arnold Palmer Golf Company
3.2** Amended and Restated Bylaws of ProGroup, Inc.
10.1 $1,100,000 Promissory Note of the Company to John T. Lupton
dated December 6, 1996.
10.2 $12,000,000 Master Note of the Company to The Northern Trust
Company dated December 30, 1996.
10.3 $12,000,000 Term Note of the Company to The Northern Trust
Company dated December 30, 1996.
22*** Subsidiaries of the Company
24 Consent of Arthur Andersen LLP, independent accountants
27 Financial Data Schedule (for SEC use only)
* Incorporated by reference herein from the Company's Form
10-Q for the quarter ended August 31, 1996.
** Incorporated by reference herein from the Company's Form
10-K for the year ended February 25, 1995.
*** Incorporated by reference herein from the Company's Form
10-K for the transition period ended February 22, 1992.
40
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
---------------
(line of credit)
$1,100,000 December 6, 1996
FOR VALUE RECEIVED, the undersigned, ARNOLD PALMER GOLF COMPANY
(hereinafter referred to as "Borrower"), promises to pay to the order of JOHN
T. LUPTON (hereinafter referred to as "Lender") and any subsequent holder(s)
hereof (Lender and any subsequent holder being hereinafter referred to
collectively as "Holder"), at the office of Lender at 702 Tallan Building, Two
Union Square, Chattanooga, Tennessee 37402 or at such other place as Holder may
designate to Borrower in writing from time to time, the principal sum of One
Million One Hundred Thousand Dollars ($1,100,000), or the aggregate unpaid
principal amount of all advances made by Lender to the Borrower (which
aggregate unpaid principal amount shall be equal to the amount duly endorsed
and set forth opposite the date last appearing on the sheet attached to this
Note), whichever is less. Borrower may borrow, repay and reborrow up to One
Million One Hundred Thousand Dollars ($1,100,000) from time to time under this
Note provided Borrower is not in default in the payment of principal and
interest hereunder and no other event of default exists under this Note at the
time. The aggregate principal amount of each Borrowing under this Note shall
not be less than $1,000 and shall be in integral multiples of $1,000. The
proceeds of the borrowings under this Note will be used by the Borrower solely
to provide working capital. Interest shall be paid at maturity on the
outstanding balance of such principal sum at the Northern Trust Company prime
based rate less .25% as announced by Norther Trust Company from time to time.
The entire outstanding principal balance hereof together with accrued
interest, and all other sums owing hereunder, shall be due and payable in full
on January 31, 1997, if not sooner paid.
All payments hereon shall be credited first to interest due hereunder,
and thereafter to the reduction of the principal balance and other sums, if
any, due hereunder, until the full amount of the principal, interest and other
sums, if any, have been paid in full.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
The occurrence of any one or more of the following shall constitute a
default hereunder (herein a "Default" or an "Event of Default"): (1) The
Borrower shall fail to pay when due any interest or principal payable
hereunder; (2) The Borrower shall admit its
<PAGE> 2
inability to pay its debts as they mature or shall make an assignment for the
benefit of any of its creditors; (3) A voluntary or involuntary petition in
bankruptcy or receivership shall be filed by or against the Borrower; or (4)
The Borrower shall fail to pay any indebtedness for borrowed money due to any
third person and such failure shall continue beyond any applicable grace
period. Should any Event of Default occur, the unpaid principal balance and
all accrued interest owing under this Note shall, at the option of the Holder
of the Note, become immediately due and payable.
Such due principal and (to the extent legally enforceable) interest
hereof shall bear interest from the due date thereof until paid at the maximum
legal rate permitted under the laws of the State of Tennessee for obligations
of this type. Anything herein to the contrary notwithstanding, the obligations
of the Borrower under this Note shall be subject to the limitation that
payments of interest shall not be required to the extent that receipt of any
such payment by the Holder would be contrary to provisions of law applicable to
the Holder limiting the maximum rate of interest which may be charged or
collected by the Holder.
Time is of the essence of this Note.
In the event this Note or any part thereof is collected by or through
an attorney at law, Borrower agrees to pay all costs of collection, including
but not limited to, reasonable attorney's fees and court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment and all other notices are hereby waived by Borrower. No failure
to accelerate the debt evidenced hereby by reason of default hereunder,
acceptance of a past due installment, or indulgences granted from time to time
shall be construed (i) as a novation of this Note or as a reinstatement of the
indebtedness evidenced hereby or as a waiver of such right of acceleration or
of the right of Holder thereafter to insist upon strict compliance with the
terms of this Note, or (ii) to prevent the exercise of such right of
acceleration or any other right granted hereunder or by the laws of the State
of Tennessee; and Borrower hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided,
which would produce a result contrary to or in conflict with the foregoing. No
extension of time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note shall operate to release, discharge, modify, change or
affect the original liability of Borrower under this Note, either in whole or
in part unless Holder agrees otherwise in writing. This Note may not be
changed orally, but only in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
2
<PAGE> 3
This Note is intended as a contract under and shall be construed and
enforceable (both as to validity and performance) in accordance with the laws
of the State of Tennessee.
Whenever possible, each provision of this instrument shall be
interpreted in such manner as to be effective and valid under enforceable law,
but if any provision of this instrument shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this instrument.
As used herein the terms "Borrower" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law.
IN WITNESS WHEREOF, Borrower has executed this Note to be effective as
of the date first above written.
BORROWER:
ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
-------------------------------------
Title: President & C.O.O.
----------------------------------
3
<PAGE> 1
Exhibit 10.2
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Obligator File Name Obligor# Obligation Number Officer# Amount
<S> <C> <C> <C> <C>
$
- -----------------------------------------------------------------------------------------------------------------------------
Chicago, Illinois
Dated as of December 30, 1996
-----------
</TABLE>
MASTER NOTE
(CORPORATION, PARTNERSHIP, OR JOINT VENTURE)
This Note has been executed by THE ARNOLD PALMER GOLF COMPANY, a corporation
formed under the laws of the State of Tennessee ("Borrower"); if more than one
entity executes this Note, the term "Borrower" refers to each of them
individually and some or all of them collectively, and their obligations
hereunder shall be joint and several.* If a land trustee executes this Note,
"Borrower" as used in sections 6 and 7 below also includes any beneficiary(ies)
of the land trust.**
FOR VALUE RECEIVED, on or before December 29, 1997, the scheduled maturity
date hereof, Borrower promises to pay to the order of THE NORTHERN TRUST
COMPANY, an Illinois banking corporation (hereafter, together with any
subsequent holder hereof, called "Lender"), at its main banking office at 50
South LaSalle Street, Chicago, Illinois 60675, or at such other place as Lender
may direct, the aggregate unpaid principal balance of each advance (a "Loan"
and collectively the "Loans") made by Lender to Borrower hereunder. The total
principal amount of Loans outstanding at any one time hereunder shall not exceed
TWELVE MILLION AND NO/100 UNITED STATES DOLLARS ($12,000,000).
Lender is hereby authorized by Borrower at any time and from time to time
at Lender's sole option to attach a schedule (grid) to this Note and to endorse
thereon notations with respect to each Loan specifying the date and principal
amount thereof, the Interim Maturity Date (as defined below) (if applicable),
the applicable interest rate and rate option, and the date and amount of each
payment of principal and interest made by Borrower with respect to each such
Loan. Lender's endorsements as well as its records relating to Loans shall be
rebuttably presumptive evidence of the outstanding principal and interest on
the Loans, and, in the event of inconsistency, shall prevail over any records
of Borrower and any written confirmations of Loans given by Borrower.
If Borrower wishes to obtain a Loan under this Note, Borrower shall notify
Lender orally or in writing on a banking day. Any such notice shall be
irrevocable; if the notice is received after 10:00 AM Chicago time the Loan may
not be available until the next banking day. Additional procedures for "Bank
Offered Rate" Loans, if available, are set forth below.
Each request for a Loan shall be deemed to be a representation and
warranty by Borrower to Lender that: (i) no Event of Default or Unmatured Event
of Default (in each case as defined below) has occurred and is continuing as of
the date of such request or would result from the making of the Loan; and (ii)
Borrower's representations and warranties herein are true and correct as of
such date as though made on such date. Upon receipt of each Loan request
Lender in its sole discretion shall have the right to request that Borrower
provide to Lender, prior to Lender's funding of the Loan, a certificate
executed by Borrower's President, Treasurer, or Chief Financial Officer (if
Borrower is a corporation), to such effect.
1. INTEREST.*
* See Rider attached hereto and incorporated herein.
<PAGE> 2
2. PREPAYMENTS.**
3. REFERENCES TO PREVIOUS NOTES, FACILITY TYPE, COLLATERAL, GUARANTIES,
LOAN & OTHER AGREEMENTS. (CHECK AS APPLICABLE)
LINE OF CREDIT: This Note has been executed pursuant to a line of credit. At
the present time Lender intends to make available to Borrower credit as outlined
herein or in any related letter until the maturity day indicated above unless
in Lender's sole judgment there has occurred an adverse change in the assets,
condition or prospects of Borrower or any guarantor. THE LINE OF CREDIT MAY BE
CANCELLED OR REDUCED BY LENDER AT LENDER'S SOLE OPTION WITHOUT PRIOR NOTICE TO
BORROWER OR ANY OTHER PERSON OR ENTITY. THE LINE OF CREDIT IS REVOCABLE
NOTWITHSTANDING PAYMENT OF ANY FEES OR MAINTENANCE OF ANY ACCOUNT BALANCES. AS
AND IF PROVIDED IN ANY ACCOMPANYING LETTER OR OTHER DOCUMENT PERTAINING TO SUCH
FEES AND/OR BALANCES. Any such fees and/or balances shall be deemed
compensation to Lender for being prepared to respond to Borrower's requests for
credit under this Note.
/ / This Note amends, restates, renews and replaces in its entirety the
note dated ___________________________________ in the amount of $ ____________,
and any previously renewed note(s). Borrower hereby expressly confirms that all
collateral and guaranties given for such prior note(s) shall secure or
guarantee this Note. All amounts outstanding under such previous note(s) shall
be deemed automatically outstanding hereunder.
/ / This Note is secured without limitation as provided in the following
and all related documents, in each case as amended, modified, renewed, restated
or replaced from time to time:
/ / Security Agreement dated as of ________________________________.
/ / Mortgage dated as of __________________________________________
on property all or part of which is commonly know as___________
_______________________________________________________________
_______________________________________________________________.
/ / Pledge Agreement dated as of __________________________________.
/ / Other (describe) ______________________________________________
_______________________________________________________________.
/X/ Payment of this Note has been unconditionally guaranteed by See Rider
attached hereto and Incorporated herein. (each individually and all
collectively referred to as "guarantor") as provided in separately executed
guaranties.
/ / This Note has been executed pursuant to a __________________ Agreement,
dated as of the date hereof, as amended, modified, restated, renewed, or
replaced from time to time, containing covenants and other terms, to which
reference is hereby made.
4. USE OF PROCEEDS, CHECK ONE:
/X/ Borrower represents and warrants that the proceeds of this Note will be
used solely for business purposes, and not for personal, family or household
use, within the meaning of Federal Truth-in-Lending and similar state laws and
regulations.
/ / ****Borrower represents that the proceeds of this Note will be used for
personal, family or household use. IF THIS OPTION IS CHECKED, THE FIRST LOAN
MUST BE IN THE AMOUNT OF $25,001 OR MORE.
If Loan proceeds will be used to purchase or refinance the purchase of any
property describe: N/A _______________________________________________________
_______________________________________________________________________________.
Notwithstanding any other provision hereof, if this Note is covered by
Regulation Z of the Federal Reserve Board (Truth in Lending) or any like
disclosure requirement. this Note shall be secured by collateral referenced
herein or in any other document only if disclosed in a related disclosure
statement.
5. REPRESENTATIONS.
Borrower hereby represents and warrants to Lender that:
(a) Borrower and any "Subsidiary" (as defined below) are existing
and in good standing under the laws of their state of formation, are
duly qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so might have a material adverse
impact on the consolidated assets, condition or prospects of Borrower;
the execution, delivery and performance of this Note and all related
documents and instruments are within Borrower's powers and have been
authorized by all necessary corporate, action;
(b) the execution, delivery and performance of this Note and all
related documents and instruments have received any and all
necessary governmental approval, and do not and will not contravene or
conflict with any provision of law or of the charter or by-laws of
Borrower or any agreement affecting Borrower or its property; and
(c) there has been no material adverse change in the business,
condition, properties, assets, operations or prospects of Borrower or
any guarantor since the date of the latest financial statements
provided on behalf of Borrower or any guarantor to Lender prior to the
execution of this Note.
"Subsidiary" means any corporation, partnership, joint venture, trust, or other
legal entity of which Borrower owns directly or indirectly fifty percent (50%)
or more of the outstanding voting stock or interest, or of which Borrower has
effective control by contract or otherwise.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default";
(a) failure to pay, when and as due, any principal, interest or
other amounts payable hereunder; failure to comply with or perform any
agreement or covenant of Borrower contained herein; or failure to furnish (or
caused to be furnished to) Lender when and as requested by Lender (but not more
often than once every twelve months) fully completed financial statement(s) of
any guarantor on Lender's then-standard form together with such supporting
information as Lender may reasonably request; or
(b) any default, event of default or similar event shall occur or
continue under any other instrument, document, note, agreement, or guaranty
delivered to Lender in connection with this Note, or any such instrument,
document, note, agreement, or guaranty shall not be, or shall cease to be,
enforceable in accordance with its terms; or
(c) there shall occur any default or event of default, or any event
or condition that might become such with notice or the passage of time or both,
or any similar event, or any event that requires the prepayment of borrowed
money or the acceleration of the maturity thereof, under the terms of any
evidence of indebtedness or other agreement issued or assumed or entered into
by Borrower, any Subsidiary, or any guarantor, or under the terms of any
indenture, agreement, or instrument under which any such evidence of
indebtedness or other agreement is issued, assumed, secured, or guaranteed, and
such event shall continue beyond any applicable period of grace; or
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary, or any guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth are
stated or certified; or
(e) any guaranty of or pledge of collateral security for this Note
shall be repudiated or become unenforceable or incapable of performance; or
(f) Borrower or any Subsidiary shall fail to maintain their
existence in good standing in their state of formation or shall fail to be duly
qualified, in good standing and authorized to do business in each jurisdiction
where failure to do so might have a material adverse impact on the consolidated
assets, condition or prospects of Borrower; or
(g) Borrower, any Subsidiary, or any guarantor shall die, become
incompetent, dissolve, liquidate, merge, consolidate, or cease to be in
existence for any reason; or
(h) any person or entity presently not in control of Borrower, or
any guarantor, shall obtain control directly or indirectly of Borrower, or any
guarantor, whether by purchase or gift of stock or assets, by contract, or
otherwise; or
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary, or any guarantor, or with respect to any
assets of Borrower, any Subsidiary, or any guarantor which shall threaten to
have a material and adverse effect on the assets, condition or prospects of
Borrower, any Subsidiary, or any guarantor; or final judgment(s) and/or
settlement(s) in an aggregate amount in excess of One Hundred Thousand and
no/100 UNITED STATES DOLLARS ($100,000) in excess of insurance for which the
insurer has confirmed coverage in writing, a copy of which writing has been
furnished to Lender, shall be entered or agreed to in any suit or action
commenced against Borrower, any Subsidiary, or any guarantor; or
(j) Borrower shall grant or any person (other than Lender) shall
obtain a security interest in any collateral for this Note; Borrower or any
other person shall perfect (or attempt to perfect) such a security interest; a
court shall determine that Lender does not have a first-priority security
interest in any of the collateral for this Note enforceable in accordance with
the terms of the related documents; or any notice of a federal tax lien
against Borrower shall be filed with any public recorder; or
****If this box is checked and a land trustee is signing the Note,
do not take real estate as collateral.
** See Rider attached hereto and incorporated herein.
Page 2
<PAGE> 3
(k) there shall be any material loss or depreciation in the value of any
collateral for this Note for any reason, or Lender shall otherwise reasonably
deem itself insecure; or, unless expressly permitted by the related documents,
all or any part of any collateral for this Note or any direct, indirect, legal,
equitable or beneficial interest therein is assigned transferred or sold
without Lender's prior written consent; or
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary, or any
guarantor; or Borrower, any Subsidiary, or any guarantor shall take any steps
toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary, or any guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall admit
in writing its inability to pay its debts as they mature, shall make a general
assignment for the benefit of its creditors, shall enter into any composition
or similar agreement, or shall suspend the transaction of all or a substantial
portion of its usual business.
7. DEFAULT REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of
Default specified in Section 6(a)-(k), Lender at its option may declare this
Note (principal, interest and other amounts) be immediately due and payable
without notice or demand of any kind. Upon the occurrence of any Event of
Default specified in Section 6(l)-(m), this Note (principal, interest and other
amounts) shall be immediately and automatically due and payable without action
of any kind on the part of Lender. Upon the occurrence and during the
continuance of any Event of Default, Lender may exercise any rights and
remedies under this Note, any related document or instrument (including without
limitation any pertaining to collateral), and at law or in equity.
(b) Lender may, by written notice to Borrower, at any time and from
time to time, waive any Event of Default or "Unmatured Event of Default" (as
defined below), which shall be for such period and subject to such conditions
as shall be specified in any notice. In the case of any such waiver, Lender
and Borrower shall be restored to their former position and rights hereunder,
and any Event of Default or Unmatured Event of Default so waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to or
impair any subsequent or other Event of Default or Unmatured Event or Default.
No failure to exercise, and no delay in exercising, on the part of Lender of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of Lender herein provided are cumulative and not
exclusive of any rights or remedies provided by law. "Unmatured Event of
Default" means any event or condition which would become an Event of Default
with notice or the passage of time or both.
8. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or
expect to charge, accept or collect any interest which, when added to any fee
or other charge upon the principal which may legally be treated as interest,
shall be in excess of the highest lawful rate. If acceleration, prepayment or
any other charges upon the principal or any portion thereof, or any other
circumstance, result in the computation or earning of interest in excess of the
highest lawful rate, then any and all such excess is hereby waived and shall be
applied against the remaining principal balance. Without limiting the
generality of the foregoing, and notwithstanding anything to the contrary
contained herein or otherwise, no deposit of funds shall be required in
connection herewith which will, when deducted from the principal amount
outstanding hereunder, cause the rate of interest hereunder to exceed the
highest lawful rate.
9. PAYMENTS, ETC.
All payments hereunder shall be made in immediately available funds,
and shall be applied first to accrued interest and then to principal; however,
if an Event of Default occurs, Lender may, in its sole discretion, and in such
order as it may choose, apply any payment to interest, principal and/or lawful
charges and expenses then accrued. Borrower shall receive immediate credit on
payments received during Lender's normal banking hours if made in cash,
immediately available funds, or by debit to available balances in an account at
Lender; otherwise payments shall be credited after clearance through normal
banking channels. Borrower authorizes Lender to charge any account of Borrower
maintained with Lender for any amounts of principal, interest, taxes, duties,
or other charges or amounts due or payable hereunder, with the amount of such
payment subject to availability of collected balances in Lender's discretion;
unless Borrower instructs otherwise, all Loans shall be credited to an
account(s) of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE LOANS
HEREUNDER UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL BE FULLY ENTITLED
TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING WITHOUT LIMITATION INSTRUCTIONS TO
MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED BY LENDER TO HAVE BEEN
GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT INQUIRY OF ANY TYPE. All
payments shall be made without deduction for or on account of any present or
future taxes, duties or other charges levied or imposed on this Note or the
proceeds, Lender or Borrower by any government or political subdivision
thereof. Borrower shall upon request of Lender pay all such taxes, duties or
other charges in addition to principal and interest, including, without
limitation all documentary stamp and intangible taxes, but excluding income
taxes based solely on Lender's income.
10. SET OFF.
At any time and without notice of any kind, any account, deposit or
other indebtedness owing by Lender to Borrower, and any securities or other
property of Borrower delivered to or left in the possession of Lender or its
nominee or bailee, may be set off against and applied in payment of any
obligation hereunder, whether due or not.
11. NOTICES.
All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been given or made when deposited in the mail,
postage prepaid, addressed if to Lender to its main banking office indicated
above (Attention: Division Head, ***__________________ Division), and if to
Borrower to its address set forth below, or to such other address as may be
hereafter designated in writing by the respective parties hereto or, as to
Borrower, may appear in Lender's Records.
*** Wealth Management
12. MISCELLANEOUS
This Note and any document or instrument executed in connection
herewith shall be governed by and construed in accordance with the internal law
of the State of Illinois, and shall be deemed to have been executed in the
State of Illinois. Unless the context requires otherwise, wherever used herein
the singular shall include the plural and vice versa, and the use of one gender
shall also denote the other. Captions herein are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof;
references herein to Sections or provisions without reference to the document
in which they are contained are references to this Note. This Note shall bind
Borrower, its heirs, trustees (including without limitation successor and
replacement trustees), executors, personal representatives, successors and
assigns, and shall inure to the benefit of Lender, its successors and assigns,
except that Borrower may not transfer or assign any of its rights or interest
hereunder without the prior written consent of Lender. Borrower agrees to pay
upon demand all expenses (including without limitation attorneys' fees, legal
costs and expenses, and time charges of attorneys who may be employees of
Lender, in each case whether in or out of court, in original or appellate
proceedings or in bankruptcy) incurred or paid by Lender or any holder hereof
in connection with the enforcement or preservation of its rights hereunder or
under any document or instrument executed in connection herewith. Borrower
expressly and irrevocably waives notice of dishonor or default as well as
presentment, protest, demand and notice of any kind in connection herewith. If
there shall be more than one person or entity constituting Borrower, each of
them shall be primarily, jointly and severally liable for all obligations
hereunder.
13. WAIVER OF JURY TRIAL, ETC.
BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S SOLE AND
ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS WITH RESPECT TO,
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT OR INSTRUMENT
EXECUTED IN CONNECTION HEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER COOK COUNTY, ILLINOIS. BORROWER HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN OR HAVING JURISDICTION OVER SUCH COUNTY, AND HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR
CHANGE THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
/X/ See Rider attached hereto and incorporated herein by reference.
Lender is hereby authorized by Borrower without notice to Borrower to
fill in any blank spaces and dates and strike inapplicable terms herein or in
any related document to conform to the terms upon which the Loan(s) evidenced
hereby are or may be made, for which purpose Lender shall be deemed to have
been granted an irrevocable power of attorney coupled with an interest.
Address for Notice:
6201 Mountain View Road
---------------------------------
THE ARNOLD PALMER GOLF COMPANY Ooltewah, TN 37363
- -------------------------------- ---------------------------------
By: /s/ George H. Nichols Attention: David Kirby
----------------------------- ---------------------------------
Title: President Attention:
-------------------------- -----------------------
Page 3
<PAGE> 4
Rider to Master Note
DATED AS OF DECEMBER 30, 1996, EXECUTED BY THE ARNOLD PALMER GOLF COMPANY (the
"Borrower") IN FAVOR OF THE NORTHERN TRUST COMPANY (the "Lender").
1. This Rider is attached to and forms an integral part of the
above-referenced Master Note (as amended, the "Note"). Capitalized terms
defined in the Note and not otherwise defined in this Rider shall have the
same meaning in this Rider as in the Note. Wherever possible this Rider
and the Note shall be construed so as to be consistent with each other;
however, if and to the extent that the terms of the Rider conflict or are
inconsistent with the Note, the terms of the Rider shall prevail. Except
as modified by this Rider, the terms of the Note shall apply.
2. Section 3 of the printed form dealing with guarantees is deleted and
the following is substituted therefor:
"Payment of this Note has been unconditionally guaranteed by (i) John
T. Lupton pursuant to a Guaranty dated as of December 30, 1996 (as amended, the
"Guaranty") which Guaranty is secured by (a) that certain Security Agreement
dated as of August 22, 1995 (as amended) between John T. Lupton and Lender and
(ii) the John T. Lupton Trust pursuant to that certain Note Purchase Agreement
dated as of December 30, 1996 (as amended) between the Trust and the Lender
(each individually and collectively referred to as "guarantor") as provided in
separately executed documentation."
THE ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
------------------------------------------
Type Name:
--------------------------
Title: President
---------------------------------------
<PAGE> 5
RIDER TO
MASTER NOTE (FORM 9601)
(PRIME OR LIBOR)
(AT LENDER OPTION LIBOR PERIODS MAY EXTEND BEYOND NOTE MATURITY)
DATED AS OF DECEMBER 30, 1996, EXECUTED BY THE ARNOLD PALMER GOLF COMPANY (the
"Borrower") IN FAVOR OF THE NORTHERN TRUST COMPANY (the "Lender").
1. This Rider is attached to and forms an integral part of the
above-referenced Master Note (as amended, the "Note"). Capitalized terms
defined in the Note and not otherwise defined in this Rider shall have the same
meaning in this Rider as in the Note. Wherever possible this Rider and the
Note shall be construed so as to be consistent with each other; however, if and
to the extent that the terms of this Rider conflict or are inconsistent with
the Note, the terms of this Rider shall prevail. Except as modified by this
Rider, the terms of the Note shall apply.
2. Sections 1 ("INTEREST") and 2 ("PREPAYMENTS") of the printed
form are deleted and the following is substituted therefor.
SECTION 1. INTEREST.
1.1. INTEREST RATES. The unpaid principal amount from time to time
outstanding hereunder shall bear interest as the following rates per year:
(a) before maturity of any Loan, whether by acceleration or
otherwise, at the option of Borrower, subject to the terms hereof at a
rate equal to:
(i) the "Prime-Based Rate," which shall mean the Prime
Rate (as defined below), less 1/2 percent (.50%) per annum.
Changes in the rate of interest on the Loans resulting from a
change in the Prime Rate shall take effect on the date set
forth in each announcement for a change in the Prime Rate.
"Prime Rate" means the rate announced from time to time by the
Lender called its prime rate, which may not as any time be
the lowest rate charged by the Lender; or
(ii) "LIBOR," which shall mean that fixed rate of interest
per year for deposits with maturity periods of one, two or
three months (which maturity period Borrower shall select
subject to the terms stated herein) in United States dollars
offered to Lender in and through the London or another
offshore interbank market, as determined by the Lender in its
sole discretion for or as of the borrowing date requested by
the Borrower, divided by one minus any applicable reserve
requirement (expressed as a decimal) on Eurodollar deposits of
the same amount and maturity as determined by Lender in its
sole discretion, plus two percent (2%) per annum.
<PAGE> 6
(b) after the maturity of any Loan, until paid, at a rate equal to
2% per annum in addition to the Prime Rate (but not less than the Prime
Rate in effect at maturity).
1.2 RATE SELECTION. Borrower shall select and change its selection
of the interest rate as between the Prime-Based Rate and LIBOR to apply to at
least $100,000 and in integral multiples of $100,000 thereafter (or the
remaining amount available hereunder) of any advance (Loan), subject to the
requirements herein stated:
(a) At the time any advance is made;
(b) At the expiration of the particular LIBOR maturity period
selected for the outstanding principal balance of any advance currently
bearing interest at the LIBOR Rate; and
(c) At any time for the outstanding principal balance of any
advance currently bearing interest at the Prime-Based Rate.
1.3 RATE CHANGES AND NOTIFICATIONS.
(a) LIBOR. If the Borrower wishes to borrow funds at LIBOR or if
Borrower wishes to change the rate of interest on any advance, within
the limits described above, from the Prime-Based Rate to LIBOR, it
shall, not less than three banking days of the Lender prior to the
banking day of the Lender on which such rate is to take effect give
Lender written or telephonic notice thereof, which shall be
irrevocable. Such notice shall specify the advance to which LIBOR is
to apply, and, in addition, the desired LIBOR maturity period (but not
to exceed the maturity date of this Note unless the Lender consents
otherwise).
(b) Failure to Notify. If Borrower does not notify Lender at the
expiration of a selected maturity period with respect to any principal
outstanding at LIBOR, then in the absence of such notice Borrower
shall be deemed to have elected to have such principal accrue interest
after the respective LIBOR maturity period at the Prime-Based Rate. If
Borrower wishes to borrow money at the Prime-Based Rate, it shall
notify Lender on the date of borrowing or conversion; if any such
notification is not received before 10:00 AM Chicago time on a banking
day of the Lender, at Lender's option the borrowing or conversion may
not be effected until the next banking day. If Borrower does not
notify Lender as to its selection of the interest rate option with
respect to any new advance of principal, then in the absence of such
notice Borrower shall be deemed to have elected to have such advance
accrue interest at the Prime-Based Rate.
1.4 INTEREST PAYMENT DATES. Accrued interest shall be paid in
respect of: each portion of principal to which:
(a) the Prime-Based Rate applies, monthly on the last day of each
month of each year, beginning with the first of such dates to occur
after the date of the first advance, at maturity of this Note, and upon
payment in full, whichever is earlier or more frequent; and
2
<PAGE> 7
(b) LIBOR applies, monthly on the last day of each month, at
maturity of this Note, and upon payment in full, whichever is earlier
or more frequent.
After maturity, interest shall be payable upon demand.
1.5 ADDITIONAL PROVISIONS WITH RESPECT TO LIBOR LOANS.
The selection by Borrower of LIBOR, and the maintenance of advances at
such rate shall be subject to the following additional terms and conditions:
(a) Availability of Deposits at a Determinable Rate. If after
Borrower has elected to borrow or maintain any advance at LIBOR, Lender
notifies Borrower that:
(i) United States dollar deposits in the amount and for the
maturity requested are not available to Lender in the London
interbank market, or
(ii) Reasonable means do not exist for Lender to determine
LIBOR for the amount and maturity requested, all as determined
by the Lender in its sole discretion, then the principal
subject or to be subject to LIBOR shall accrue or shall
continue to accrue interest at the Prime-Based Rate.
(b) Prohibition of Making, Maintaining or Repayment or Principal at
LIBOR. If any treaty, statute, regulation, interpretation thereof, or
any directive, guideline, or otherwise by a central bank or fiscal
authority (whether or not having the force of law) shall either
prohibit or extend the time at which any principal subject to LIBOR may
be purchased, maintained, or repaid, then on and as of the date the
prohibition becomes effective, the principal subject to that
prohibition shall continue at the Prime-Based Rate.
(c) Payments of Principal and Interest to be Net of Any Taxes or
Costs. All payments of principal and interest shall be made net of any
taxes and costs incurred by Lender resulting from having principal
outstanding hereunder at LIBOR. Without limiting the generality of the
preceding obligation, illustrations of such taxes and costs are:
(i) Taxes (or the withholding of amounts for taxes) of any
nature whatsoever including income, excise, and interest
equalization taxes (other than income taxes imposed by the
United States or any state thereof on the income of Lender), as
well as all levies, imposts, duties, or fees whether now in
existence or resulting from a change in, or promulgation of, any
treaty, statute, regulation, interpretation thereof, or any
directive, guideline, or otherwise, by a central bank or fiscal
authority (whether or not having the force of law) or a change
in the basis of, or time of payment of, such taxes and other
amounts resulting therefrom;
(ii) Any reserve or special deposit requirements against
assets or liabilities of, or deposits with or for the account
of, Lender with respect to principal outstanding at LIBOR
(including those imposed under Regulation D of the Federal
Reserve Board) or resulting from a change in, or the
promulgation of, such requirements by
3
<PAGE> 8
treaty, statute, regulation, interpretation thereof, or any
directive, guideline, or otherwise by a central bank or fiscal
authority (whether or not having the force of law);
(iii) Any other costs resulting from compliance with treaties,
statutes, regulations, interpretations, or any directives or
guidelines, or otherwise by a central bank or fiscal authority (whether
or not having the force of law); or
(iv) Any loss (including loss of anticipated profits) or
expense incurred by reason of the liquidation of re-employment of
deposits acquired by Lender to make advances or maintain principal
outstanding at LIBOR:
(A) As a result of a voluntary prepayment at a date
other than the maturity date selected for principal
outstanding at LIBOR; or
(B) As the result of a mandatory repayment at a
date other than the maturity date selected for principal
outstanding at LIBOR as a result of (i) Borrower exceeding any
applicable borrowing base, (ii) the occurrence of an Event of
Default and the acceleration of any portion of the
indebtedness hereunder, or (iii) the scheduled maturity date
of this Note occurring prior to the LIBOR maturity date
due to Borrower's selection of a LIBOR maturity period which
extends beyond the scheduled maturity date of this Note; or
(C) As the result of a prohibition on making,
maintaining, or repaying principal outstanding at LIBOR.
If Lender incurs any such taxes or costs, Borrower, upon demand in writing
specifying such taxes and costs, shall promptly pay them; save for manifest
error Lender's specification shall be presumptively deemed correct. All
advances made at LIBOR shall be conclusively deemed to have been funded by or
on behalf of Lender in the London interbank market by the purchase of deposits
corresponding in amount and maturity to the amount and interest periods
selected (or deemed to have been selected) by Borrower under this Note.
SECTION 2. PAYMENT
2.1 PAYMENT AND PREPAYMENT. Borrower may from time to time, upon
at least three days' prior written notice to Lender, prepay any principal
bearing interest at the Prime-Based Rate in whole or in part at any time and
may prepay any principal bearing interest at LIBOR at the end of the maturity
period chosen or agreed to by Borrower applicable to the advance or portion of
the advance being prepaid, without premium or penalty, provided that any
partial prepayment shall be in an aggregate principal amount of at least
$10,000. Any prepayment of an amount bearing interest at LIBOR at a date
other than the maturity date applicable to the advance or the portion of the
advance being prepaid shall be subject to the provisions of Section 1.5. All
prepayments shall include interest accrued to the date of the prepayment on
the principal amount being prepaid.
4
<PAGE> 9
provisions of Section 1.5. All prepayments of principal shall include interest
accrued to the date of prepayment on the principal amount being prepaid.
2.2 BASIS OF COMPUTATION. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days, including
the date a Loan is made and excluding the date a Loan or any portion thereof is
paid or prepaid.
THE ARNOLD PALMER GOLF COMPANY
By /s/ George H. Nichols
----------------------------
Type Name:
--------------
Title President
-------------------------
5
<PAGE> 1
EXHIBIT 10.3
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligator File Name Options Obligation Number Officer # AutoLift
$ Amount
- -----------------------------------------------------------------------------------------------------------------------------
Chicago Illinois
Dated as of December 30, 1996
</TABLE>
Term Note
(Single Principal Payment)
(Corporation, Partnership, or Joint Venture)
This Note has been executed by THE ARNOLD PALMER GOLF COMPANY a corporation
formed under the laws of the State of Tennessee ("Borrower"); if more than one
entity executes this Note, the term "Borrower" refers to each of them
individually and some or all of them collectively, and their obligations
hereunder shall be joint and several.* If a land trustee executes this Note,
"Borrower" as used in sections 6 and 7 below also includes any beneficiary(ies)
of the land trust.
FOR VALUE RECEIVED, Borrower promises to pay to the order of THE NORTHERN TRUST
COMPANY, an Illinois banking corporation (hereafter, together with any
subsequent holder hereof, called "Lender"), at its main banking office at 50
South LaSalle Street, Chicago, Illinois 60675, or at such other place as Lender
may direct, the principal sum of Twelve Million and no/100 United States
Dollars ($12,000,000) (the "Loan"), payable in full on December 31, 1999, the
scheduled maturity date of this Note.
1. INTEREST
Borrower agrees to pay interest on the unpaid principal amount from time
to time outstanding hereunder at the indicated rate (rate basis) per year, which
shall remain the same for the life of the Loan:
[CHECK ONE ONLY]
/ / (i) The "Prime-Based Rate", which shall mean the Prime Rate (as defined
below) plus ______ percent (_____%).
/ / (ii) The "WSJ Prime Rate", meaning the Wall Street Journal Prime Rate
plus ________ percent (______%). "Wall Street Journal Prime Rate" means
the highest domestic Prime Rate as reported in the Money Rate Section of
The Wall Street Journal, in the edition covering the state where the
main banking office of Lender is located. If The Wall Street Journal
stops reporting the "Wall Street Journal Prime Rate", or if the "Wall
Street Journal Prime Rate" is not available on the relevant day, Lender
will select a comparable index as a substitute for the Wall Street
Journal Prime Rate and will notify Borrower. Changes in the interest
rate resulting from a change in the Wall Street Journal Prime Rate shall
take effect on the date announced in The Wall Street Journal.
/X/ (iii) The "Fixed Rate", meaning a rate of interest equal to * percent
(8 1/4%).
*eight and one-quarter.
"Prime Rate" means that rate of interest announced from time to time by Lender
called its prime rate, which rate may not at any time be the lowest rate charged
by Lender. Changes in the rate of interest on the Loan resulting from a change
in the Prime Rate shall take effect on the date set forth in each announcement
of a change in the Prime Rate.
After the maturity of the Loan, whether by acceleration or otherwise,
the Loan shall bear interest until paid, at a rate to two percent (2%) in
addition to the rate in effect immediately prior to maturity (but not less than
the Prime Rate in effect at maturity).
Notwithstanding the foregoing, the maximum interest rate hereunder will
not exceed N/A% per year.**
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days, including the date the Loan is made and
excluding the date the Loan, or any portion thereof is paid or prepaid.
Interest shall be due and payable as follows:
/X/ Monthly on the last day of each month, beginning January 31, 1997, with
all accrued but unpaid interest being due and payable in full with the
final principal payment due hereunder.
/ / Quarterly, on the ______ day of each _____________, ________________,
_____, and ________________________________ in each year, beginning
_____________________________________________, with all accrued but
unpaid interest being due and payable in full with the final principal
payment due hereunder.
/ / Other: ____________________________________________________________.
After maturity interest shall be payable on demand.
2. PREPAYMENTS.
If the Loan bears interest at the Prime-Based Rate or the WSJ Prime
Rate, Borrower may prepay the Loan without penalty or premium. If the Loan
bears interest at the Fixed Rate, and Borrower prepays the Loan in whole or in
part, or the maturity of the Loan is accelerated, then, to the fullest extent
permitted by law Borrower shall also pay Lender for all losses (including but
not limited to interest rate margin and any other losses of anticipated
profits) and expenses incurred by reason of the liquidation or re-employment of
deposits acquired by Lender to make the Loan or maintain principal outstanding
at the Fixed Rate. Upon Lender's demand in writing specifying such losses and
expenses, Borrower shall promptly pay them; Lender's specification shall be
deemed correct in the absence of manifest error. If bearing interest at the
Fixed Rate, the Loan shall be conclusively deemed to have been funded by or on
behalf of Lender by the purchase of a deposit corresponding in amount and in
maturity to the Loan. ***
3. REFERENCES TO PREVIOUS NOTES, FACILITY TYPE, COLLATERAL, GUARANTIES,
LOAN & OTHER AGREEMENTS. (CHECK AS APPLICABLE)
/ / This Note evidences a transaction or term loan in the amount of this
Note.
/X/ This Note amends, restates, renews and replaces in its entirety the
note(s) dated July 14, 1996 in the amount of $15,000,000, and any previously
renewed note(s). Borrower hereby expressly confirms that all collateral and
guaranties given for such prior note(s) shall secure or guarantee this Note.
All amounts outstanding under such previous note(s) shall be deemed
automatically outstanding hereunder.
/ / This Note is secured without limitation as provided in the following
and all related documents, in each case as amended, modified, renewed, restated
or replaced from time to time:
/ / Security Agreement dated as of ____________________________.
/ / Mortgage dated as of _______________________________________
on property all or part of which is commonly known as
____________________________________________________________
____________________________________________________________.
/ / Pledge Agreement dated as of _______________________________.
/ / Other (describe) ___________________________________________
____________________________________________________________.
/X/ Payment of this Note has been unconditionally guaranteed by See Rider A
attached hereto and incorporated herein.
(each individually and all collectively referred to as "guarantor") as provided
in separately executed guaranties.
/ / This Note has been executed pursuant to a _____________________________
________________________ Agreement, dated as of the date hereof, as amended,
modified, restated, renewed, or replaced from time to time, containing
covenants and other terms, to which reference is hereby made.
4. USE OF PROCEEDS, CHECK ONE:
/X/ Borrower represents and warrants that the proceeds of this Note will be
used solely for business purposes, and not for personal, family
*Insert "N/A" in any blank in this Note which is not applicable. This Note may
be used for single principal payment (bullet) term loans. **Fill in if Loan is
subject to Truth-in-Lending, secured by a dwelling and at the WSJ Prime Rate
(maturity limit is 359 days, and do not use Prime-Based Rate in this case).
***Notwithstanding the above, if this Note is executed by a land trustee upon
the direction of an individual beneficiary(ies), unless the Loan is for
business purposes the Borrower shall NOT be liable for any such losses or
expenses, or any other charges for prepayment, if this Note is secured by
residential real estate and the interest rate hereon does or could exceed
eight percent (8%) per annum on a calendar-year basis.
Page 1
FORM 9611 (N 11/91)
<PAGE> 2
or household use, within the meaning of Federal Truth-in-Lending and similar
state laws and regulations.**
/ / Borrower represents that the proceeds of this Note will be used for
personal, family or household use.
If Loan process will be used to purchase or refinance the purchase of any
property describe:
N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notwithstanding any other provisions hereof, if this Note is covered by
Regulation Z of the Federal Reserve Board (Truth in Lending) or any like
disclosure requirement, this Note shall be secured by collateral referenced
herein or in any other document only if disclosed in a related disclosure
statement.
5. REPRESENTATIONS
Borrower hereby represents and warrants to Lender that:
(i) Borrower and any "Subsidiary" (as defined below) are existing and
in good standing under the laws of their state of formation,
are duly qualified, in good standing and authorized to do business in
each jurisdiction where failure to do so might have a material adverse
impact on the consolidated assets, condition or prospects of Borrower;
the execution, delivery and performance of this Note and all related
documents and instruments are within Borrower's powers and have been
authorized by all necessary corporate action;
(ii) the execution, delivery and performance of this Note and all
related documents and instruments have received any and all
necessary governmental approval, and do not and will not contravene or
conflict with any provision of law or of the charter or by-laws of
Borrower or any agreement affecting Borrower or its property; and
(iii) there has been no material adverse change in the
business, condition, properties, assets, operations or prospects of
Borrower or any guarantor since the date of the latest financial
statements provided on behalf of Borrower or any guarantor to Lender.
"Subsidiary" means any corporation, partnership, joint venture, trust,
or other legal entity of which Borrower owns directly or indirectly fifty
percent (50%) or more of the outstanding voting stock or interest, or of which
Borrower has effective control, by contract or otherwise.
6. EVENTS OF DEFAULT: The occurrence of any of the following shall
constitute an "Event of Default":
(a) failure to pay, when and as due, any principal, interest or other
amounts payable hereunder; failure to comply with or perform any agreement or
covenant of Borrower contained herein; or failure to furnish (or caused to be
furnished to) Lender when and as requested by Lender (but not more often than
once every twelve months) fully completed financial statement(s) of any
guarantor on Lender's then-standard form together with such supporting
information as Lender may reasonably request; or
(b) any default, event of default, or similar event shall occur or
continue under any other instrument, document, note, agreement, or guaranty
delivered to Lender in connection with this Note, or any such instrument,
document, note, agreement, or guaranty shall not be, or shall cease to be,
enforceable in accordance with its terms; or
(c) there shall occur any default or event of default, or any event or
condition that might become such with notice or the passage of time or both, or
any similar event, or any event that requires the prepayment of borrowed money
or the acceleration of the maturity thereof, under the terms of any evidence of
indebtedness or other agreement issued or assumed or entered into by Borrower,
any Subsidiary, or any guarantor, or under the terms of any indenture,
agreement, or instrument under which any such evidence of indebtedness or other
agreement is issued, assumed, secured, or guaranteed, and such event shall
continue beyond any applicable period of grace; or
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary, or any guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth are
stated or certified; or
(e) any guaranty of or pledge of collateral security for this Note
shall be repudiated or become unenforceable or incapable of performance: or
(f) Borrower or any Subsidiary shall fail to maintain their existence
in good standing in their state of formation or shall fail to be duly
qualified, in good standing and authorized to do business in each jurisdiction
where failure to do so might have a material adverse impact on the consolidated
assets, condition or prospects of Borrower; or
(g) Borrower, any Subsidiary, or any guarantor shall die, become
incompetent, dissolve, liquidate, merge, consolidate, or cease to be in
existence for any reason; or
(h) any person or entity presently not in control of Borrower, or any
guarantor, shall obtain control directly or indirectly of Borrower, or any
guarantor, whether by purchase or gift of stock or assets, by contract, or
otherwise; or
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary, or any guarantor, or with respect to any
assets of Borrower, any Subsidiary, or any guarantor which shall threaten to
have a material and adverse effect on the assets, condition or prospects of
Borrower, any Subsidiary, or any guarantor; or final judgment(s) and/or
settlement(s) in an aggregate amount in excess of One Hundred Thousand and
no/100 UNITED STATES DOLLARS ($100,000) in excess of insurance for which the
insurer has confirmed coverage in writing, a copy of which writing has been
furnished to Lender, shall be entered in any suit or action commenced against
Borrower, any Subsidiary, or any guarantor; or
(j) Borrower shall grant or any person (other than Lender) shall obtain
a security interest in any collateral for this Note; Borrower or any other
person shall perfect (or attempt to perfect) such a security interest; a court
shall determine that Lender does not have a first priority security interest in
any of the collateral for this Note enforceable in accordance with the terms of
the related documents; or any notice of a federal tax lien against Borrower
shall be filed with any public recorder; or
(k) there shall be any material loss or depreciation in the value of
any collateral for this Note for any reason, or Lender shall otherwise
reasonably deem itself insecure; or, unless, expressly permitted by the related
documents, all or any part of any collateral for this Note or any direct,
indirect, legal, equitable or beneficial interest therein is assigned,
transferred or sold without Lender's prior written consent; or
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustments, liquidation, dissolution, or similar, proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary, or any
guarantor; or Borrower, any Subsidiary, or any guarantor shall take any steps
toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary, or any guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall admit
in writing its inability to pay its debts as they mature, shall make a general
assignment for the benefit of its creditors, shall enter into any composition
or similar agreement, or shall suspend the transaction of all or a substantial
portion of its usual business.
7. DEFAULT REMEDIES
(a) Upon the occurrence and during the continuance of any Event of
Default specified in Section 6(a)-(k), Lender at its option may declare this
Note (principal, interest and other amounts) immediately due and payable
without notice or demand of any kind. Upon the occurrence of any Event of
Default specified in Section 6(l)-(m), this Note (principal, interest and other
amounts) shall be immediately and automatically due and payable without action
of any kind on the part of Lender. Upon the occurrence and during the
continuance of any Event of Default, Lender may exercise any rights and
remedies under this Note, any related document or instrument (including without
limitation any pertaining to collateral), and at law or in equity.
(b) Lender may, by written notice to Borrower, at any time and from
time to time, waive any Event of Default or "Unmatured Event of Default" (as
defined below), which shall be for such period and subject is such conditions
as shall be specified in any such notice. In the case of any such waiver,
Lender and Borrower shall be restored to their former position and rights
hereunder, any Event of Default or Unmatured Event of Default so waived shall
be deemed to be cured and not continuing, but no such waiver shall extend to or
impair any subsequent or other Event of Default or Unmatured Event of Default.
No failure to exercise, and no delay in exercising, on the part of Lender of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies of Lender herein provided are cumulative and not exclusive
of any rights or remedies provided by law. "Unmatured Event of Default" means
any event or condition which would become an Event of Default with notice or
the passage of time or both.
8. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or
expect to charge, accept or collect any interest which, when added to any fee
or other charge upon the principal which may legally be treated as interest,
shall be in excess of the highest lawful rate. If acceleration, prepayment or
any other charges upon the principal or any portion thereof, or any other
circumstance, result in the computation or earning of interest in excess of
the highest lawful rate, then any and all such excess is hereby waived and
shall be applied against the remaining principal balance. Without limiting the
generality of the foregoing, and notwithstanding anything to the contrary
contained herein or otherwise, no deposit of funds shall be required in
connection herewith which will, when deducted from the principal amount
outstanding hereunder, cause the rate of interest hereunder to exceed the
highest lawful rate.
9. PAYMENTS, ETC.
All payments hereunder shall be made in immediately available funds and
shall be applied first to accrued interest and then to principal; however, if
an Event of Default occurs, Lender may, in its sole discretion, and in such
order as it may choose, apply any payment to interest, principal and/or lawful
charges and expenses then accrued. Borrower shall receive immediate credit on
payments received during Lender's normal banking hours if made in cash,
immediately available funds, or by debit to available balances in an account at
Lender; otherwise payments shall be credited after clearance through normal
banking channels. Borrower authorizes Lender to charge any account of Borrower
maintained with Lender for any amounts of principal, interest, taxes, duties,
or other charges or amounts due or payable hereunder, with the amount of such
payment subject to availability of collected balances in Lender's discretion;
unless Borrower instructs otherwise, the Loan shall be credited to an
account(s) of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE THE LOAN
HEREUNDER UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL BE FULLY ENTITLED
TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING WITHOUT
<PAGE> 3
LIMITATION INSTRUCTIONS TO MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED
BY LENDER TO HAVE BEEN GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT
INQUIRY OF ANY TYPE. All payments shall be made without deduction for or on
account of any present or future taxes, duties or other charges levied or
imposed on this Note or the proceeds, Lender or Borrower by any government or
political subdivision thereof. Borrower shall upon request of Lender pay all
such taxes, duties or other charges in addition to principal and interest,
including without limitation all documentary stamp and intangible taxes, but
excluding income taxes based solely on Lender's income.
10. SETOFF.
At any time and without notice of any kind, any account, deposit or
other indebtedness owing by Lender to Borrower, and any securities or other
property of Borrower delivered to or left in the possession of Lender or its
nominee or bailee, may be set off against and applied in payment of any
obligation hereunder, whether due or not.
11. NOTICES.
All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been given or made when deposited in the mail,
postage prepaid, addressed if to Lender to its main banking office indicated
above (Attention: Division Head ** _________________ Division), and if to
Borrower to its address set forth below, or to such other address as may be
hereafter designated in writing by the respective parties hereto or, as to
Borrower, may appear in Lender's records.
** Wealth Management
12. MISCELLANEOUS.
This Note and any document or instrument executed in connection
herewith shall be governed by and constructed in accordance with the internal
law of the State of Illinois, and shall be deemed to have been executed in the
State of Illinois. Unless the context requires otherwise, wherever used herein
the singular shall include the plural and vice versa, and the use of one gender
shall also denote the other. Captions herein are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof;
references herein to Sections or provisions without reference to the document
in which they are contained are references to this Note. This Note shall bind
Borrower, its heirs, trustees (including without limitation successor and
replacement trustees), executors, personal representatives, successors and
assigns, and shall inure to the benefit of Lender, its successors and assigns,
except that Borrower may not transfer or assign any of its rights or interest
hereunder without the prior written consent of Lender. Borrower agrees to pay
upon demand all expenses (including without limitation attorneys' fees, legal
costs and expenses, and time charges of attorneys who may be employees of
Lender, in each case whether in or out of court, in original or appellate
proceedings or in bankruptcy) incurred or paid by Lender or any holder hereof
in connection with the enforcement or preservation of its rights hereunder or
under any document or instrument executed in connection herewith. Borrower
expressly and irrevocably waives notice of dishonor or default as well as
presentment, protest, demand and notice of any kind in connection herewith. If
there shall be more than one person or entity constiting Borrower, each of them
shall be primarily, jointly and severally liable for all obligations hereunder.
13. WAIVER OF JURY TRIAL, ETC.
BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S SOLE AND
ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS WITH RESPECT TO,
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT OR INSTRUMENT
EXECUTED IN CONNECTION HEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER COOK COUNTY, ILLINOIS. BORROWER HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN OR HAVING JURISDICTION OVER SUCH COUNTY, AND HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR
CHANGE THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
/X/ See Rider attached hereto and incorporated herein by reference.
Lender is hereby authorized by Borrower without notice to Borrower to fill in
any blank spaces and dates and strike inapplicable terms herein or in any
related document to conform to the terms upon which the Loan evidenced hereby
is or may be made, for which purpose Lender shall be deemed to have been
granted an irrevocable power of attorney coupled with an interest.
Address for Notices:
THE ARNOLD PALMER GOLF COMPANY 6201 Mountain View
- ---------------------------------- ----------------------------------
By: /s/ George H. Nichols Ooltewah, TN 37363
------------------------------ ----------------------------------
Title: President Attention: David Kirby
---------------------------- ----------------------------------
Attention:
------------------------
<PAGE> 4
Rider to Term Note
DATED AS OF DECEMBER 30, 1996, EXECUTED BY THE ARNOLD PALMER GOLF COMPANY (the
"Borrower") IN FAVOR OF THE NORTHERN TRUST COMPANY (the "Lender").
1. This Rider is attached to and forms an integral part of the
above-referenced Term Note (as amended, the "Note"). Capitalized terms
defined in the Note and not otherwise defined in this Rider shall have
the same meaning in this Rider as in the Note. Wherever possible this
Rider and the Note shall be construed so as to be consistent with each
other; however, if and to the extent that the terms of the Rider
conflict or are inconsistent with the Note, the terms of the Rider
shall prevail. Except as modified by this Rider, the terms of the Note
shall apply.
2. Section 3 of the printed form dealing with guarantees is deleted and
the following is substituted therefor:
"Payment of this Note has been unconditionally guaranteed by (i) John T.
Lupton pursuant to a Guaranty dated as of December 30, 1996 (as amended, the
"Guaranty") which Guaranty is secured by (a) that certain Security Agreement
dated as of August 22, 1995 (as amended) between John T. Lupton and Lender and
(ii) the John T. Lupton Trust pursuant to that certain Note Purchase Agreement
dated as of December 30, 1996 (as amended) between the Trust and the Lender
(each individually and collectively selected to as "guarantor") as provided in
separately executed documentation."
THE ARNOLD PALMER GOLF COMPANY
By: /s/ George H. Nichols
---------------------------
Type Name:
------------
Title: President
------------------------
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed S-8
Registration Statements (File No. 33-72152 and File No. 33-72154).
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
January 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> MAR-03-1996
<PERIOD-END> SEP-30-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 6,350
<ALLOWANCES> 720
<INVENTORY> 9,491
<CURRENT-ASSETS> 16,081
<PP&E> 4,195
<DEPRECIATION> 2,750
<TOTAL-ASSETS> 24,934
<CURRENT-LIABILITIES> 5,335
<BONDS> 0
5,000
0
<COMMON> 1,463
<OTHER-SE> (2,748)
<TOTAL-LIABILITY-AND-EQUITY> 24,934
<SALES> 18,456
<TOTAL-REVENUES> 18,456
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<TOTAL-COSTS> 13,301
<OTHER-EXPENSES> 6,871
<LOSS-PROVISION> 315
<INTEREST-EXPENSE> 1,129
<INCOME-PRETAX> (2,294)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,294)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,294)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
