<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 January 2, 1999 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 February 8, 1999, 3,887,700 shares of Common Stock were outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I. Financial Information
Balance Sheets - January 2, 1999 and
September 30, 1998 1
Statements of Operations - Three Months Ended
January 2, 1999 and January 2, 1998 2
Statements of Cash Flows - Three Months Ended
January 2, 1999 and January 2, 1998 3
Notes to Financial Statements 4 - 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 10
Part II. Other Information 11
Signature Page 12
Exhibit Index 13
</TABLE>
<PAGE> 3
PAGE 1 FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BALANCE SHEETS
JANUARY 2, 1999 AND SEPTEMBER 30, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JAN 2, 1999 SEPT 30, 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $ 539 $ 371
TRADE RECEIVABLES 3,865 4,491
LESS: ALLOWANCE FOR DOUBTFUL ACCOUNTS (752) (977)
-------- --------
NET RECEIVABLES 3,113 3,514
INVENTORIES, NET 6,459 7,004
PREPAID EXPENSES AND OTHER 274 1,162
-------- --------
TOTAL CURRENT ASSETS 10,385 12,051
PROPERTY, PLANT AND EQUIPMENT 4,249 4,286
LESS: ACCUMULATED DEPRECIATION (2,659) (2,617)
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 1,590 1,669
OTHER ASSETS:
INVESTMENT IN NBHI -- 5,000
PROPERTY HELD FOR SALE -- 94
GOODWILL 85 85
OTHER 2,121 1,579
-------- --------
2,206 6,758
-------- --------
TOTAL ASSETS $ 14,181 $ 20,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM
OBLIGATIONS $ 33,878 $ 3
SHORT-TERM BORROWINGS 500 12,250
ACCOUNTS PAYABLE 1,148 1,573
ACCRUED LIABILITIES 2,349 2,389
-------- --------
TOTAL CURRENT LIABILITIES 37,875 16,215
LONG-TERM OBLIGATIONS, NET OF
CURRENT MATURITIES 3 26,525
REDEEMABLE PREFERRED STOCK -- 5,000
STOCKHOLDERS' EQUITY (DEFICIT):
COMMON STOCK, $.50 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
3,887,700 AND 3,054,367 SHARES ISSUED
AND OUTSTANDING AT JANUARY 2, 1999
AND SEPTEMBER 30, 1998 1,944 1,527
ADDITIONAL PAID-IN CAPITAL 10,984 6,401
ACCUMULATED DEFICIT (36,625) (35,190)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (23,697) (27,262)
-------- --------
TOTAL LIABILITIES & STOCK-
HOLDERS' EQUITY $ 14,181 $ 20,478
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 4
PAGE 2 FORM 10-Q
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 2, 1999 AND JANUARY 2, 1998
(UNAUDITED)
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JAN 2, 1999 JAN 2, 1998
----------- -----------
<S> <C> <C>
NET SALES $ 3,419 $ 3,987
COST OF SALES 2,788 3,471
-------- --------
GROSS PROFIT 631 516
SELLING AND MARKETING EXPENSES 867 1,654
GENERAL AND ADMINISTRATIVE EXPENSES 569 1,146
SEVERANCE AND RESTRUCTURING EXPENSES -- 670
-------- --------
LOSS FROM OPERATIONS (805) (2,954)
OTHER INCOME:
ROYALTY AND SUB-LICENSE INCOME, NET 183 361
OTHER, NET 8 4
-------- --------
191 365
LOSS BEFORE INTEREST AND INCOME TAXES (614) (2,589)
INTEREST EXPENSE 821 629
-------- --------
LOSS BEFORE INCOME TAXES (1,435) (3,218)
PROVISION FOR INCOME TAXES -- --
-------- --------
NET LOSS $ (1,435) $ (3,218)
======== ========
NET LOSS PER SHARE - BASIC $ (0.37) $ (1.07)
======== ========
NET LOSS PER SHARE - DILUTED $ (0.37) $ (1.07)
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 5
PAGE 3 FORM 10-Q
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 2, 1999 AND JANUARY 2, 1998
(UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JAN 2, 1999 JAN 2, 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,435) $(3,218)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED FOR OPERATING ACTIVITIES -
DEPRECIATION 93 148
AMORTIZATION 106 96
(GAIN) LOSS ON SALE OF ASSETS -- --
CHANGES IN OPERATING ASSETS AND LIABILITIES -
RECEIVABLES 401 1,550
INVENTORIES 545 (1,149)
PREPAID EXPENSES AND OTHER 437 (268)
ACCOUNTS PAYABLE (425) 924
ACCRUED LIABILITIES (40) 476
------- -------
NET CASH USED FOR OPERATING ACTIVITIES (318) (1,441)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (14) (33)
PROCEEDS FROM SALE OF INVESTMENTS 5,000
PROCEEDS FROM SALE OF PROPERTY, PLANT & EQUIPMENT -- --
------- -------
NET CASH USED FOR INVESTING ACTIVITIES 4,986 (33)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN SHORT-TERM
BORROWINGS FROM BANK (4,500) $ 900
ADVANCE FROM SHAREHOLDER -- --
PRINCIPAL PAYMENTS ON LONG-TERM OBLIGATIONS -- (8)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES (4,500) 892
------- -------
NET CHANGE IN CASH 168 (582)
CASH, BEGINNING OF PERIOD 371 703
------- -------
CASH, END OF PERIOD $ 539 $ 121
======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 266 $ 477
======= =======
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 January 2, 1999; and (2) the results of its
operations and its cash flows for the three months ended January 2, 1999 and
January 2, 1998, 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, 1998, for a discussion of the Company's significant
accounting policies.
NOTE 2
INCOME TAXES:
The Company had federal tax loss carry forwards of approximately $48.3 million
at September 30, 1998. There was no current income tax provision or benefit
recorded during the three months ending January 2, 1999 and January 2, 1998 due
to the losses sustained by the Company.
<PAGE> 7
PAGE 5 FORM 10-Q
NOTE 3
SHORT-TERM BORROWINGS:
Short-term borrowings consist of advances under a $5.0 million line of credit
agreement with a bank. There are no financial covenants under the line of
credit, which is unconditionally guaranteed by the Company's Chairman (the
"Guarantor").
At the option of the borrower, advances under the line of credit bear interest
at prime minus 0.50% or one, two or three month LIBOR plus 1.5% (7.75% at
January 2, 1999).
On October 20, 1998, an affiliate of the Guarantor, the Thomas C. Lupton Trust,
("Trust"), purchased the Company's $5.0 million investment in Nevada Bob's
Holdings, Inc. Series D Preferred Stock at cost. Proceeds from the sale of the
investment were used to pay $5.0 million on the Company's September 30, 1998
revolver balance of $12.3 million. On October 30, 1998, the Trust purchased the
remaining September 30, 1998 current revolver debt of $7.3 million and the
Company's long term debt of $22.0 million from the bank which held the notes.
NOTE 4
NET INCOME (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 EPS.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
Jan 2, 1999 Jan 2, 1998
------------ -----------
<S> <C> <C>
Net loss (in thousands) ($1,435) ($3,218)
Weighted average shares 3,887,700 3,004,367
Net loss per share - basic and diluted ($0.37) ($1.07)
</TABLE>
At January 2, 1999, there were options outstanding to purchase 631,127 shares of
stock, with per share prices ranging from $1.55 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.
<PAGE> 8
PAGE 6 FORM 10-Q
NOTE 5
INVENTORIES:
Inventories as of January 2, 1998 and September 30, 1998, were as follows (in
thousands):
<TABLE>
<CAPTION>
------------ --------------
Jan. 2, 1999 Sept. 30, 1998
------------ --------------
<S> <C> <C>
Inventories:
Raw Materials $3,390 $3,503
Work-in-process 9 9
Finished Goods 3,060 3,492
------ ------
Total $6,459 $7,004
------ ------
</TABLE>
<PAGE> 9
PAGE 7 FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company generally relies upon internally generated cash and short-term
borrowings to satisfy working capital and capital expenditure requirements.
Generally, short-term borrowings increase from December to April, because the
Company builds inventory through the winter to support its spring shipping
season. Capital expenditures for 1999 are expected to be minimal.
All of the Company's long-term debt and subordinated notes (as discussed below),
are due and payable on or before December 31, 1999, and are therefore classified
as current obligations on the Company's balance sheet. As of January 2, 1999,
the Company had negative working capital of $27.5 million and a current ratio of
.27 to one. This compares to negative working capital of $4.2 million and a
current ratio of 0.74 to one at September 30, 1998. As of January 2, 1999, the
Company's outstanding balance on its revolving credit facility was $0.5 million
compared to $12.3 million at September 30, 1998.
On October 20, 1998, an affiliate of the Guarantor, the Thomas C. Lupton Trust,
("Trust"), purchased the Company's $5.0 million investment in Nevada Bob's
Holdings, Inc. Series D Preferred Stock at cost. Proceeds from the sale of the
investment were used to pay $5.0 million on the Company's September 30, 1998
revolver balance of $12.3 million. On October 30, 1998, the Trust purchased the
remaining September 30, 1998 current revolver debt of $7.3 million and the
Company's long term debt of $22.0 million from the bank which held the notes.
The Trust agreed to suspend interest payments on the revolver debt and the term
debt, and to amend the due date on the revolver debt to December 31, 1999.
On December 1, 1998, a $5.0 million revolving credit facility was established
with a bank. This credit facility is an unsecured promissory note due on
December 30, 1999, and is guaranteed by the Guarantor. If the Company meets its
1999 sales forecast, this facility will satisfy working capital and capital
expenditure requirements through 1999.
In November 1994, the Company completed a private placement of $5.0 million in
subordinated notes to related parties. These notes, which bear interest payable
monthly at 6%, are due to mature on November 2, 1999. The Company's Chairman and
another director, who collectively hold $3.0 million of the notes, agreed to
forego interest payments and agreed that accrued interest would be added to the
principal balance due in November 1999. The note balance at January 2, 1999 was
$4.6 million (the face value of $5.0 million less the unamortized portion of the
original subordinated debt discount), and is carried on the Company's balance
sheet as current obligations.
Due to the continued losses of the Company, the Board of Directors have embarked
upon numerous strategic business initiatives including the effectuation of a
financial restructuring plan. Discussions are currently underway to determine
methods by which the Company's obligations
<PAGE> 10
PAGE 8 FORM 10-Q
for its long-term debt and subordinated notes can be met. It is unlikely that
the long-term debt and subordinated notes can be refinanced through third party
lenders. Accordingly, the liquidity of the Company is dependent upon the ability
of the Company to restructure the long-term debt and subordinated notes with the
current holders of the long-term debt and subordinated notes. Only with the
financial support of the Guarantor and of his affiliates, has the Company been
able to meet its outstanding financial commitments.
RESULTS OF OPERATIONS
The table below compares net sales by product line and market segment for the
quarters ending January 2, 1999 and January 2, 1998.
<TABLE>
<CAPTION>
Sales by Product Line
($'s in thousands)
-----------------------------------------------
Jan 2, 1999 Jan 2, 1998 % Change
----------- ----------- --------
<S> <C> <C> <C>
Clubs $1,276 $2,052 -37.8%
Bags 1,956 1,421 37.6%
Outlet Stores 164 189 -13.2%
Components -- 268 -100.0%
Apparel 23 57 -59.6%
------ ------ -------
Total $3,419 $3,987 -14.2%
------ ------ -------
</TABLE>
<TABLE>
<CAPTION>
Sales by Product Line
($'s in thousands)
-----------------------------------------------
Jan 2, 1999 Jan 2, 1998 % Change
----------- ----------- --------
<S> <C> <C> <C>
Pro $1,930 $2,390 -19.2%
Retail 1,325 973 36.2%
Outlet Stores 164 189 -13.2%
Components -- 268 -100.0%
Export -- 41 -100.0%
Contract -- 126 -100.0%
------ ------ -------
Total $3,419 $3,987 - 14.2%
------ ------ -------
</TABLE>
Total net sales for the quarter ending January 2, 1999 were $3.4 million
compared to $4.0 million for the same prior year period, a decrease of 14.2%.
The overall decline in first quarter sales resulted from the continued soft
market conditions within the golf industry and a weaker than anticipated
Christmas selling season. The Company's bag sales increased 37.6% during its
quarter ending January 2, 1999 over quarter ending January 2, 1998. This
increase was generated primarily from an increase in its retail sales (36.2%),
substantially all of which represented increased sales to one of the Company's
mass merchant accounts. Component sales for quarter ending January 2, 1998 were
generated by the Company's component division (National Golf Suppliers). The
Company sold its component division as of September 30, 1998.
Gross profit as a percentage of net sales for quarter ending January 2, 1999 was
18.5% compared to 12.9% for the quarter ending January 2, 1998. The improvement
in gross profit was primarily due to the benefits resulting from consolidation
of the Company's manufacturing facilities in its fiscal year ending September
30, 1998.
<PAGE> 11
PAGE 9 FORM 10-Q
Selling and marketing expenses decreased $0.8 million, or 47.9% for the quarter
ending January 2, 1999 from quarter ending January 2, 1998. The most significant
decreases were commissions & royalties - $0.1 million, salaries & benefits -
$0.3 million, travel - $0.1 million, professional services - $0.1 million and
advertising and promotional - $0.1 million.
General and administrative expenses for the Company's quarter ending January 2,
1999 were $0.6 million compared to $1.1 million for quarter ending January 2,
1998, a 50.3% decrease. Significant decreases were in salaries & benefits - $0.1
million and professional services - $0.3 million. The expense reductions
realized in selling, marketing and administrative expenses were the results of
the Company's reorganization and workforce reductions which occurred during its
fiscal year ending September 30, 1998.
The Company recorded severance and restructuring charges of approximately $0.7
million for its quarter ending January 2, 1998. There were no such charges for
the Company's current quarter ending January 2, 1999.
Royalty income for quarter ending January 2, 1999 decreased 49.3% from quarter
ending January 2, 1998. The decrease was primarily due to a licensing agreement
held by the Company which provided for annual royalty income of $1.0 million
through September 30, 1998. Beginning October 1, 1998, the maximum annual
royalty per the agreement is $50,000, a reduction of $237,500 per quarter.
Interest expense for quarter ending January 2, 1999 was $0.8 million compared to
$0.6 million for quarter ending January 2, 1998. The increase in interest
expense was due to higher debt balances during the Company's current quarter
compared to the same prior year period. Average short-term and long-term debt
for quarter ending January 2, 1999 was $31.3 million compared to an average debt
balance of $22.9 million for quarter ending January 2, 1998. Cash paid for
interest expense during the Company's quarter ending January 2, 1999 was
$266,000 compared to $477,000 during the same prior year period. The decrease in
cash interest payments was due to the suspensions of interest payments to the
"Trust" as described above.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in the contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
<PAGE> 12
PAGE 10 FORM 10-Q
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998).
SFAS No. 133 could increase the volatility in earnings and other comprehensive
income, however, based on the Company's current and anticipated level of
derivative instruments and hedging activities, the Company does not believe the
impact would be material.
YEAR 2000
The Company's information system and business processes applications operate on
an IBM AS/400 mid range computer. The hardware and its related License Internal
Code (LIC) has been upgraded to a Year 2000 Compliance level. The Company's
software applications operating on the AS/400, is a fully integrated management
information system developed by JBA International. The Company began the
conversion to the JBA software in mid calendar year 1996. The only remaining
JBA application to be implemented is Fixed Assets, which the Company
anticipates having implemented no later than July 1999. The Company's PC based
applications, which primarily involves Lotus Smart Suite and cc: Mail, have
been in the process of upgrading to a Year 2000 Compliant level with an
anticipated completion date no later than mid calendar year 1999. The cost of
completing the PC based applications upgrade is expected to be minimal.
The Company does not feel there are any significant risks to its continuing
operations related to Year 2000 issues. Certain customers in the mass
merchandise market, submit their orders via EDI processing to the Company.
These customers have notified the Company that their systems will be Year 2000
compliant within the required time frame to ensure uninterrupted data
interchange related to order fulfillment. The Company has also received
notification from certain raw material suppliers that their systems will be
Year 2000 compliant within the required time frame. Although the Company does
not anticipate any issues related to timely supply of raw materials, it is
seeking confirmation from its other major suppliers that their systems will
likewise be Year 2000 compliant.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, which are based on
management's beliefs and assumptions about expectations, estimates, strategies
and projections for the Company. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward looking statements. The Company
undertakes no obligation to update publicly any forward looking statements
whether as a result of new information, future events or otherwise.
The risks, uncertainties and assumptions regarding forward looking statements
include, but are not limited to, the Company's operations, performance,
financial condition and discussions with holders of the Company's long-term
debt and subordinated notes, product demand and market acceptance risks,
product development risks, such as delays or difficulties in developing,
producing and marketing new products, the impact of competitive products,
pricing and advertising, constraints resulting from the financial condition of
the Company, including the degree to which the Company is leveraged, debt
service requirements and the ability of the Company to meet its obligations and
other risks described in the Company's Securities and Exchange Commission
filings.
<PAGE> 13
PAGE 11 FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
See Exhibit Index on page 13 of this Form 10-Q.
(b) Reports on Form 8-K -
The Registrant filed a report on Form 8-K on November 6, 1998
regarding the announcement of its financial restructuring plan.
The Registrant did not file any other reports on Form 8-K during
the quarter ending January 2, 1999.
<PAGE> 14
PAGE 12 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/ Cynthia L. Davis
---------------------------------------------
Cynthia L. Davis
President and Chief Executive Officer
/s/ David J. Kirby
---------------------------------------------
David J. Kirby
Vice President Finance (Chief
Accounting Officer)
Date February 8, 1999
<PAGE> 15
PAGE 13 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 ProGroup, Inc.
10.1 Master Note of the Company in the amount of $5,000,000 Dated
December 1, 1998.
10.2 Note Extension Agreement between the Company and The John T.
Lupton Trust Dated December 30, 1998.
27 Financial Data Schedule.
* 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
- --------------------------------------------------------------------------------
Obligor File Name Obligor # Obligation Number Officer # Amount
$
- --------------------------------------------------------------------------------
Chicago, Illinois
Dated as of December 1, 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 ________________________________________,
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 FIVE MILLION AND NO/100 UNITED STATES DOLLARS ($ 5,000,000).
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.
*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> 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 prospect 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 known as
--------------------------------------------------------------------
--------------------------------------------------------------------.
[ ] Pledge Agreement dated as of _________________.
[ ] Other (describe) ___________________________________________________
--------------------------------------------------------------------.
[X] See Rider attached hereto and Incorporated herein.
[ ] 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> 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
deems 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) 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, *** 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 TRAIL, 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 TRAIL 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 Notices:
6201 Mountain View Road
------------------------------------
THE ARNOLD PALMER GOLF COMPANY Ooltewah, TN 37363
- --------------------------------- ------------------------------------
By: Cindy L Davis Attention: David Kirby
------------------------------ ------------------------------------
Title: President & CEO Attention:
--------------------------- --------------------------
<PAGE> 1
Exhibit 10.2
RIDER TO
MASTER NOTE
DATED AS OF December 1, 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), less 1/2 percent (.50%). 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 per year
for deposits with maturity periods of one, two or three
month(s) (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 deposits
of the same amount and maturity as determined by Lender in
its sole discretion, plus one and one-half percent (1 1/2%).
Page 1 of 5
<PAGE> 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 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
Page 2 of 5
<PAGE> 3
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 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 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
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,
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:
Page 3 of 5
<PAGE> 4
(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 of the liquidation or re-employment of deposits acquired by Lender
to make Loans or maintain principal outstanding at LIBOR:
(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.
Page 4 of 5
<PAGE> 5
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."
3. The following is hereby inserted at the end of Section 3 of the printed
form:
"Payment of this Note has been unconditionally guaranteed by John T. Lupton
pursuant to a Guaranty dated as of the date hereof (as amended, the "Guaranty")
which Guaranty is secured without limitation by that certain Pledge Agreement
dated as of December 30, 1996 (as amended) between John T. Lupton and Lender.
This Note has been executed pursuant to a Note Purchase Agreement dated as of
the date hereof, as amended, by the John T. Lupton Trust under Will of Thomas
Cartter Lupton (the "Trust"). The Trust and John T. Lupton are each individually
and collectively referred to as 'guarantor'."
THE ARNOLD PALMER GOLF COMPANY
By: /s/ Cindy L. Davis
--------------------------------
Type/Print Name Cindy L. Davis
------------------
Its: President & CEO
-------------------------------
Page 5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-1-1998
<PERIOD-END> JAN-2-1999
<CASH> 539
<SECURITIES> 0
<RECEIVABLES> 3,865
<ALLOWANCES> 752
<INVENTORY> 6,459
<CURRENT-ASSETS> 10,385
<PP&E> 4,249
<DEPRECIATION> 2,659
<TOTAL-ASSETS> 14,181
<CURRENT-LIABILITIES> 37,875
<BONDS> 0
0
0
<COMMON> 1,944
<OTHER-SE> (36,625)
<TOTAL-LIABILITY-AND-EQUITY> 14,181
<SALES> 3,419
<TOTAL-REVENUES> 3,419
<CGS> 2,788
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<EPS-PRIMARY> (0.37)
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</TABLE>
