<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 26, 1998 Commission File Number 0-921
------------------------ --------
THE ARNOLD PALMER GOLF COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0331019
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6201 Mountain View Road, Ooltewah, Tennessee 37363
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 423-238-5890
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 twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x . No .
----- -----
As of August 7, 1998, 833,333 shares of Series NB Preferred Stock and 3,054,367
shares of Common Stock were outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I. Financial Information
Balance Sheets - June 26, 1998 and
September 30, 1997 1
Statements of Operations - Three and Nine Months
Ended June 26, 1998 and June 30, 1997 2
Statements of Cash Flows - Nine Months Ended
June 26, 1998 and June 30, 1997 3
Notes to Financial Statements 4-6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II. Other Information 10
Signature Page 11
</TABLE>
<PAGE> 3
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BALANCE SHEETS
JUNE 26, 1998 AND SEPTEMBER 30, 1997
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
June 26, 1998 Sept 30, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,038 $ 703
Trade receivables 7,722 6,154
less: allowance for doubtful accounts (679) (843)
-------- --------
Net receivables 7,043 5,311
Inventories, net 9,663 7,375
Prepaid expenses and other 1,038 847
-------- --------
Total current assets 18,782 14,236
Property, plant and equipment 5,518 4,465
less: accumulated depreciation (3,432) (2,972)
-------- --------
Net property, plant and equipment 2,086 1,493
Other assets:
Investment in NBHI 5,000 5,000
Property held for sale 170 170
Goodwill 480 502
Other 1,404 1,352
-------- --------
7,054 7,024
-------- --------
TOTAL ASSETS $ 27,922 $ 22,753
======== ========
June 26, 1998 Sept 30, 1997
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 29 $ 102
Short-term borrowings 11,450 150
Accounts payable 4,463 2,121
Accrued liabilities 1,956 1,370
-------- --------
Total current liabilities 17,898 3,743
Long-term obligations, net of
current maturities 26,423 26,162
Redeemable preferred stock 5,000 5,000
Stockholders' equity (deficit):
Common stock, $.50 par value,
10,000,000 shares authorized, 3,054,367 and 3,004,367
shares issued and outstanding at June 26, 1998
and September 30, 1997, respectively 1,527 1,502
Additional paid-in capital 6,401 6,313
Accumulated deficit (29,327) (19,967)
-------- --------
Total stockholders' equity (deficit) (21,399) (12,152)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 27,922 $ 22,753
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
Page 2 Form 10-Q
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 26, 1998 AND JUNE 30, 1997
(Unaudited)
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -------------------------------
June 26, 1998 June 30, 1997 June 26, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 8,306 $ 11,172 $ 17,881 $ 24,019
Cost of sales 8,075 8,413 16,039 18,063
------- -------- -------- --------
Gross profit 231 2,759 1,842 5,956
Selling and marketing expenses 2,188 2,054 5,922 5,378
General and administrative expenses 1,138 1,393 3,600 3,332
Severance and restructuring expenses -- -- 797
------- -------- -------- --------
Loss from operations (3,095) (688) (8,477) (2,754)
Other income (expense):
Royalty and sub-license income, net 423 426 1,127 1,310
Other, net 37 11 124 66
------- -------- -------- --------
460 437 1,251 1,376
Loss before interest and income taxes (2,635) (251) (7,226) (1,378)
Interest expense 798 614 2,134 1,588
------- -------- -------- --------
Loss before income taxes (3,433) (865) (9,360) (2,966)
Provision for income taxes -- -- -- --
------- -------- -------- --------
Net loss $(3,433) $ (865) $ (9,360) $ (2,966)
======= ======== ======== ========
Net loss per share - basic and diluted $ (1.12) $ (0.29) $ (3.08) $ (1.00)
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
Page 3 Form 10-Q
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 26, 1998 AND JUNE 30, 1997
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
June 26, 1998 June 30, 1997
------------- -------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (9,360) $(2,966)
Adjustments to reconcile net income to net cash
used for operating activities -
Depreciation 460 281
Amortization 309 267
Gain on sale of assets -- (1)
Changes in operating assets and liabilities -
Receivables (2,607) (5,043)
Inventories (2,288) (1,747)
Prepaid expenses and other 623 258
Accounts payable 2,342 1,142
Accrued liabilities 586 (575)
-------- -------
Net cash used for operating activities (9,935) (8,384)
-------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,053) (709)
Proceeds from sale of property, plant & equipment -- 3
-------- -------
Net cash used for
investing activities (1,053) (706)
-------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase in short-term borrowings
from bank 11,300 $ 9,354
Issuance of common stock 113 --
Principal payments on long-term obligations (90) (48)
-------- -------
Net cash provided by
financing activities 11,323 9,306
-------- -------
NET CHANGE IN CASH 335 216
CASH, beginning of period 703 47
-------- -------
CASH, end of period $ 1,038 $ 263
======== =======
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 1,715 $ 1,163
======== =======
Income taxes $ -- $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
Page 4 Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The quarterly financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission for interim financial information. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the Company's latest annual report on Form 10-K. In the opinion of
management of the Company, all adjustments necessary, consisting only of normal
recurring adjustments, to present fairly (1) the financial position of The
Arnold Palmer Golf Company as of June 26, 1998; (2) the results of its
operations and its cash flows for the nine months ended June 26, 1998 and June
30, 1997; and (3) the results of its operations for the three months ended June
26, 1998 and June 30, 1997, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the full
year.
Reference is also made to the Company's annual report on Form 10-K for the year
ended September 30, 1997, for a discussion of the Company's significant
accounting policies.
NOTE 2
INCOME TAXES:
The Company has federal tax loss carry forwards of approximately $32.3 million
at September 30, 1997. There was no current income tax provision or benefit
recorded during the nine months ending June 26, 1998 due to the losses sustained
by the Company.
<PAGE> 7
Page 5 Form 10-Q
NOTE 3
INDEBTEDNESS:
At June 26, 1998, total borrowings from the Company's bank totaled $33.5
million. The $22.0 million term portion is due December 31, 1999 and the $11.5
million outstanding under the existing $12.0 million line of credit is due
December 31, 1998, both of which are guaranteed by the Company's Chairman (the
"Guarantor").
In June 1998, the Company obtained an additional $2.0 million unsecured line of
credit, which is also guaranteed by the Guarantor, and expires September 30,
1998. At the option of the Company, advances under the new line of credit bear
interest at prime minus 0.50% or one, two or three month LIBOR plus 2.0% (8.0%
at June 26, 1998). There are no financial covenants under the lines of credit.
Under the two line of credit facilities, $2.5 million was available for
borrowing at June 26, 1998. The Company anticipates these financing agreements,
totaling $36.0 million, will satisfy working capital and capital expenditure
requirements through September 30, 1998.
The Company anticipates renewing its lines of credit through late 1999 or
pursuing other means of capitalization if necessary. Any new financing would be
dependent of the continuing guarantee of the Guarantor.
NOTE 4
NET LOSS PER COMMON SHARE:
The computation of basic net loss per share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share would also include common share equivalents outstanding. Due to the
Company's net loss for all periods presented, all common stock equivalents would
be anti-dilutive to basic earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
June 26, 1998 June 30, 1997 June 26, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss (in thousands) $ (3,433) $ (865) $ (9,360) $ (2,966)
Weighted average shares 3,054,367 3,004,367 3,036,895 2,969,247
Net loss per share - basic and diluted $ (1.12) $ (0.29) $ (3.08) $ (1.00)
</TABLE>
At June 26, 1998, there were options outstanding to purchase 629,395 shares of
stock, with per share prices ranging from $2.94 to $10.93. Additionally there
were warrants outstanding to purchase 1,390,000 shares of stock with per share
prices ranging from $5.00 to $5.50. Also, the Company has 833,333 shares of
redeemable preferred stock, which have a stated value of $6.00 per share and are
convertible to common on a one to one ratio.
<PAGE> 8
Page 6 Form 10-Q
NOTE 5
INVENTORIES:
Inventories as of June 26, 1998 and September 30, 1997, were as follows (in
thousands):
<TABLE>
<CAPTION>
June 26, 1998 Sept. 30, 1997
------------- --------------
<S> <C> <C>
Raw Materials $5,435 $3,602
Work-in-process 6 14
Finished Goods 4,222 3,759
------ ------
Total $9,663 $7,375
------ ------
</TABLE>
Inventories increased since September 30, 1997 due to requirements to support
the Company's new Nancy Lopez Golf line of equipment and due to lower than
expected year to date sales of Palmer and Hot-z products.
NOTE 6
SEVERANCE AND RESTRUCTURING EXPENSES:
During the nine month period ending June 26, 1998, in addition to other work
force reductions, certain executives left the Company under severance
agreements. As a result of these items, the Company recorded a charge of $0.8
million in the nine month period.
Additionally, due to the Company continuing to sustain significant losses during
fiscal 1998, subsequent to June 26, 1998 the company announced plans for further
workforce reductions and the consolidation of its club manufacturing operations
with its bag manufacturing facility in Pocahontas, Arkansas. The company expects
to record expenses related to the workforce reduction and plant consolidation of
approximately $0.6 million during the fourth quarter of fiscal 1998.
<PAGE> 9
Page 7 Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
As of June 26, 1998, the Company had working capital of $0.9 million and a
current ratio of 1.0 to one. This compares to working capital of $10.5 million
and a current ratio of 3.8 to one as of September 30, 1997. As of June 26, 1998,
current borrowings under the Company's line of credit had increased by $11.3
million from the period ending September 30, 1997. The increase in borrowings
were used primarily to fund the Company's nine month operations loss of $9.4
million and an increase in various working capital components of $1.7 million.
Capital expenditures for the nine month period ending June 26, 1998 were $1.1
million. Capital expenditures for the Company's fourth quarter of fiscal 1998
are expected to be minimal.
At June 26, 1998, total borrowings from the Company's bank totaled $33.5
million. The $22.0 million term portion is due December 31, 1999 and the $11.5
million outstanding under the existing $12.0 million line of credit is due
December 31, 1998, both of which are guaranteed by the Company's Chairman (the
"Guarantor").
In June 1998, the Company obtained an additional $2.0 million unsecured line of
credit, which is also guaranteed by the Guarantor, and expires September 30,
1998. At the option of the Company, advances under the new line of credit bear
interest at prime minus 0.50% or one, two or three month LIBOR plus 2.0% (8.0%
at June 26, 1998). There are no financial covenants under the lines of credit.
Under the two line of credit facilities, $2.5 million was available for
borrowing at June 26, 1998. The Company anticipates these financing agreements,
totaling $36.0 million, will satisfy working capital and capital expenditure
requirements through September 30, 1998.
The Company anticipates renewing its lines of credit through late 1999 or
pursuing other means of capitalization if necessary. Any new financing would be
dependent of the continuing guarantee of the Guarantor.
RESULTS OF OPERATIONS
The tables below compare net sales by product line and market segment for the
Company's third quarter and nine months ending June 26, 1998, to the comparable
prior year periods.
<PAGE> 10
Page 8 Form 10-Q
Sales By Product Line
($'s in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ -------------------------------------------
June 26, 1998 June 30, 1997 %Change June 26, 1998 June 30, 1997 %Change
------------- ------------- ------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Clubs $4,596 $ 5,883 (21.9) $ 8,816 $12,350 (28.6)
Bags 2,635 3,737 (29.5) 6,693 9,085 (26.3)
Outlet 307 361 (15.0) 679 673 0.9
Components 718 1,078 (33.4) 1,497 1,784 (16.1)
Apparel 50 113 (55.8) 196 127 54.3
------ ------- ------ ------- ------- ------
Total $8,306 $11,172 (25.7) $17,881 $24,019 (25.6)
------ ------- ------ ------- ------- ------
</TABLE>
Sales By Market Segment
($'s in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ -------------------------------------------
June 26, 1998 June 30, 1997 %Change June 26, 1998 June 30, 1997 %Change
------------- ------------- ------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Pro $4,685 $ 5,470 (14.4) $ 8,338 $12,028 (30.7)
Retail 1,997 3,225 (38.1) 4,339 7,136 (39.2)
Contract 53 244 (78.3) 328 716 (54.2)
Outlet 307 361 (15.0) 679 673 0.9
Components 718 1,078 (33.4) 1,497 1,784 (16.1)
Closeouts 492 691 (28.8) 2,537 1,375 84.5
Other 54 103 (47.6) 163 307 (46.9)
------ ------- ------ ------- ------- ------
Total $8,306 $11,172 (25.7) $17,881 $24,019 (25.6)
------ ------- ------ ------- ------- ------
</TABLE>
Net sales for the quarter ending June 26, 1998 were $8.3 million compared to
$11.2 million for the comparable prior year period, a decrease of 25.7%. Sales
for the nine month period decreased 25.6% to $17.9 million, from $24.0 million
in the prior year same nine month period. Substantially all the decline in
current year sales was in the Company's club and bag product lines. In addition
to a decline in sales early in the Company's fiscal year due to reorganization
of its sales force and late delivery of raw materials from overseas suppliers,
overall soft market conditions within the golf industry caused the continued
decline in sales during the Company's third quarter ending June 26, 1998.
The Company's gross profit as a percentage of net sales for the third quarter
and nine month period ending June 26, 1998, was 2.8% and 10.3% respectively.
Gross profit for the comparable prior year periods was 24.7% and 24.8%. The
decline in gross profit is attributable to significant closeout sales during the
Company's reporting period and manufacturing variances due to lower than planned
production volumes. The Company also recorded a charge for inventory reserves of
$1.6 million in its third quarter. The reserve was taken against discontinued
finished goods and raw materials remaining in inventory as of quarter ending
June 26, 1998. Excluding the third quarter charge for inventory reserves, gross
profit for the three months and nine months ending June 26, 1998 would have been
21.5% and 19.0%. Year to date closeout sales were $2.5 million
<PAGE> 11
Page 9 Form 10-Q
for the nine months ending June 26, 1998 compared to $1.4 million during the
same prior year period. Gross profit on current year closeout sales were
significantly less than in the prior year due to aggressive discount pricing on
noncurrent product and an oversupply of closeouts in the marketplace.
Selling and marketing expenses increased $0.1 million and $0.5 million for the
three months and nine months ending June 26, 1998. The increase was primarily in
marketing and development costs related to the Company's new Nancy Lopez Golf
division. Variable selling expenses, commissions and royalties, decreased $0.6
million during the nine months ending June 26, 1998. The decrease was offset by
an increase of $0.7 million in personnel related costs as the Company replaced
its sales force of independent representatives with employee representatives who
are compensated on a salary and commission pay structure.
General and administrative expenses decreased $0.3 million for the quarter
ending June 26, 1998 and increased $0.3 million for the nine month period ending
June 26, 1998 over the same prior year periods. General and administrative
expenses through June 26, 1998 relating to the Company's management change and
reorganization were approximately $1.0 million. Excluding these costs, general
and administrative expenses would have decreased $0.7 million from the prior
year nine month period. During the nine month period ending June 26, 1998, in
addition to other work force reductions, certain executives left the Company
under severance agreements. As a result of these items, the Company recorded
severance and restructuring expenses of $0.8 million.
Other income for the third quarter ending June 26, 1998 was essentially
unchanged from the same prior year period. For the nine month period ending June
26, 1998, other income was $1.3 million compared to $1.4 million for the same
nine month period in the prior year. Interest expense increased $0.2 million and
$0.5 million for the three month and nine month period ending June 26, 1998. The
increase was due to higher monthly average short term and long term debt during
the Company's current reporting period. Average total monthly debt was $8.5
million higher during the nine month period ending June 26, 1998 than in the
same prior year six month period ending June 30, 1997.
Due to the Company continuing to sustain significant losses during fiscal 1998,
subsequent to June 26, 1998 the company announced plans for further workforce
reductions and the consolidation of its club manufacturing operations with its
bag manufacturing facility in Pocahontas, Arkansas. The company expects to
record expenses related to the workforce reduction and plant consolidation of
approximately $0.6 million during the fourth quarter of fiscal 1998.
<PAGE> 12
Page 10 Form 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
See Exhibit Index on page 12 of this Form 10-Q.
(b) Reports on Form 8-K -
The Registrant did not file any reports on Form 8-K during the
quarter ending June 26, 1998.
<PAGE> 13
Page 11 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ARNOLD PALMER GOLF COMPANY
------------------------------
(Registrant)
/s/ Cindy L. Davis
-----------------------------------------
Cindy L. Davis
President and Chief Executive Officer
/s/ David J. Kirby
-----------------------------------------
David J. Kirby
Vice President Finance (Chief Accounting
Officer)
Date August 7, 1998
-----------------
<PAGE> 14
Page 12 Form 10-Q
Exhibit Index
Exhibit
Number Description
- ------ -----------
3.1* Amended and Restated Charter of The Arnold Palmer
Golf Company.
3.2** Amended and Restated Bylaws of The Arnold Palmer Golf
Company
10.1 Master Note of the Company in the amount of $2,000,000 dated
June 12, 1998
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.
<PAGE> 1
Exhibit 10.1
Dated as of June 12, 1998
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 September 30, 1998 ,
----------------------------------------
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
-------------------------------------------------------------------------
Two Million UNITED STATES DOLLARS ($2,000,000).
- ------------------------------ ----------
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), or a general partner or joint venturer of Borrower (if Borrower is
a partnership or joint venture) to such effect.
1. INTEREST. See rider attached hereto and incorporated herein by reference.
* Insert "N/A" in any blank in this Note which is not applicable. ** Land
trustee may not sign upon direction of individual beneficiary(ies) unless
Loans are for business purposes. ***Do not use if collateral includes real
estate.
Page 1
<PAGE> 2
2. PREPAYMENTS.
3. REFERENCES TO PREVIOUSLY 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.
[X] 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.
[X] Security Agreement dated as of May 15, 1997.
[ ] Mortgage dated as of _______________________ on property all or part of
which is commonly known as ___________________________________________
______________________________________________________________________.
[X] Pledge Agreement dated as of December 29, 1997.
[ ] Other (describe) _____________________________________________________.
[X] Payment of this Note has been unconditionally guaranteed by John T. Lupton
(each individually and all collectively referred to as "guarantor") as provided
in separately executed guaranties.
[X] This Note has been executed pursuant to a Note Purchase 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:
_______________________________________________________________________________
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 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, of Borrower, 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.
<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, 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 to 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, 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 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, 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. 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, Wealth Management 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.
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.
The Arnold Palmer Golf Company
/s/ John T. Lupton
------------------------------
By:
------------------------------
Title:
---------------------------
Address for Notices:
6201 Mountain View Road
- ---------------------------------
Ooltewah, TN 37363
- ---------------------------------
- ---------------------------------
Attention: David Kirby
----------------------
Page 3
<PAGE> 4
RIDER TO $2,000,000 MASTER NOTE
(At Lender Option LIBOR Periods May Extend Beyond Note Maturity)
DATED AS OF JUNE 12, 1998, 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 remainder of the Note and not otherwise defined in
this Rider shall have the same meaning in this Rider as in the
remainder of the Note. Wherever possible this Rider and the remainder
of 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 remainder of the Note, the terms of this
Rider shall prevail. Except as modified by this Rider, the terms of the
remainder of the Note shall apply.
2. Sections 1 ("INTEREST") and 2 ("PREPAYMENTS") of the Note are deleted
and the following is substituted in lieu thereof:
"SECTION 1. INTEREST.
1.1 INTEREST RATES. The unpaid principal amount from time to time outstanding
hereunder shall bear interest at the following rates per year:
(a) before maturity, 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), minus one-half percent (-1/2%). Changes in the
rate of interest 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 at any time be the lowest rate charged by the Lender; or
(ii) "LIBOR," which shall mean that fixed rate of interest for
deposits with maturity periods of up to and including twelve
months (which periods Borrower shall select subject to the terms
stated herein) in United States dollars offered to Lender in or
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
1 of 5
<PAGE> 5
deposits of the same amount and maturity as determined by Lender
in its sole discretion, plus two percent (2%).
For purposes hereof, the periods referred to in the definition of
LIBOR are referred to as "Interest Period(s)", and the last day
of any Interest Period is referred to as an "Interim Maturity
Date." "Banking Day" means a day on which the Lender is open for
banking business in Chicago, Illinois, and "LIBOR Banking Day"
means a Banking Day on which Lender is open for business in
London, England and United States dollar deposits are generally
traded by dealers in such deposits. If an Interest Period would
otherwise end on a day which is not a LIBOR Banking Day, it shall
automatically be extended to and shall end on the next LIBOR
Banking Day; however, if application of the foregoing part of
this sentence would cause an Interest Period to end in the
following month, such Interest Period shall end on the next
preceding LIBOR Banking Day.
(b) after maturity, until paid, at a rate equal to 2% 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 any
remaining amount available hereunder) of any Loan, subject to the
requirements herein stated:
(a) At the time any Loan is made;
(b) At the expiration of the particular Interest Period Selected for the
outstanding principal balance of any Loan currently bearing interest
at LIBOR; and
(c) At any time for the outstanding principal balance of any Loan
currently bearing interest at the Prime-Based Rate.
1.3 RATE CHANGES AND NOTIFICATIONS.
(a) Prime-Based Rate. If Borrower wishes to borrow funds at the
Prime-Based Rate or if Borrower wishes to change the rate of interest
on any Loan, within the limits described above, from LIBOR to the
Prime-Based Rate, it shall, at or before 10:00 AM Chicago time on '
the Banking Day such borrowing or change is to take effect, give
Lender written or telephonic notice thereof, which shall be
irrevocable. Borrowings requested after such time may not be available
until the next Banking Day.
(b) LIBOR. If Borrower wishes to borrow funds at LIBOR or if Borrower
wishes to change the rate of interest on any Loan, within the limits
described above, from the Prime-Based Rate to LIBOR, it shall, not
less than three LIBOR
2 of 5
<PAGE> 6
Banking Days prior to the LIBOR Banking Day on which such rate is to
take effect, give Lender written or telephonic notice thereof, which
shall be irrevocable. Such notice shall specify the Loan to which
LIBOR is to apply and, in addition, the desired Interest Period (but
not to exceed the maturity date of this Note unless the Lender
consents otherwise).
(c) Failure to Notify. If Borrower does not notify Lender at the
expiration of a selected Interest 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 Interest Period at the Prime-Based Rate. If Borrower does
not notify Lender as to its selection of the interest rate option with
respect to any new Loan, then in the absence of such notice Borrower
shall be deemed to have elected to have such Loan 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 30th day of each month
(last day in February) of each year, beginning with the first of such
dates to occur after the date of the first Loan, at maturity of this
Note, and upon payment in full, whichever is earlier or more frequent;
and
(b) LIBOR applies, monthly on the 30th day of each month (last day in
February) of each year, beginning with the first of such dates to
occur after the date of the first Loan, 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 Loans at such rate
shall be subject to the following additional terms and conditions:
(a) Availability of Deposits. If, after Borrower has elected to borrow or
maintain any Loan 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,
3 of 5
<PAGE> 7
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 of Principal. 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, or corresponding
deposits, 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 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);
(iv) Any loss (including loss of anticipated profits) or expense
incurred by reason cf the liquidation or re-employment of
deposits acquired by Lender to make Loans or maintain principal
outstanding at LIBOR:
4 of 5
<PAGE> 8
(A) As the result of a voluntary prepayment at a date other than the
applicable Interim Maturity Date; or
(B) As the result of a mandatory repayment at a date other than the
applicable Interim Maturity Date 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 Interim Maturity Date due to
Borrower's selection of an Interest 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 Loans
bearing interest 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 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 on
the applicable Interim Maturity Date, 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 applicable Interim Maturity Date shall be subject
to the provisions of Section 1.5.
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/ John T. Lupton
-----------------------------------
Type/Print Name
----------------------
Title
--------------------------------
5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> JUN-26-1998
<CASH> 1,038
<SECURITIES> 0
<RECEIVABLES> 7,722
<ALLOWANCES> 679
<INVENTORY> 9,663
<CURRENT-ASSETS> 18,782
<PP&E> 5,518
<DEPRECIATION> 3,432
<TOTAL-ASSETS> 27,922
<CURRENT-LIABILITIES> 17,898
<BONDS> 0
5,000
0
<COMMON> 1,527
<OTHER-SE> (29,327)
<TOTAL-LIABILITY-AND-EQUITY> 27,922
<SALES> 17,881
<TOTAL-REVENUES> 17,881
<CGS> 16,039
<TOTAL-COSTS> 16,039
<OTHER-EXPENSES> 10,319
<LOSS-PROVISION> 79
<INTEREST-EXPENSE> 2,134
<INCOME-PRETAX> (9,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,360)
<EPS-PRIMARY> (3.08)
<EPS-DILUTED> (3.08)
</TABLE>
