ARNOLD PALMER GOLF CO, PREM14A, 1999-06-17

ARNOLD PALMER GOLF CO
PREM14A, 1999-06-17
SPORTING & ATHLETIC GOODS, NEC

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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
The Arnold Palmer Golf Company
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.50 per share

(2) Aggregate number of securities to which transaction applies:
2,329,983(1)

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$2,795,979.60

(4) Proposed maximum aggregate value of transaction: $2,795,979.60

(5) Total fee paid: $559.20

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

(1) Estimated solely for purposes of calculating the filing fee pursuant to
Rule 0-11 under the Securities Exchange Act of 1934, as amended (the
"Act"). The transaction applies to an aggregate of 2,329,983 shares of
common stock, $0.50 par value (the "Common Stock"), of The Arnold Palmer
Golf Company, calculated as follows: 3,927,700 shares of Common Stock
issued and outstanding less 1,597,717 shares of Common Stock then owned by
APGC Holdings Company, LLC ("Parent") or any affiliate of Parent. The
proposed maximum aggregate value of the transaction is $2,795,979.60
calculated as follows: the product of (a) 2,329,983 shares of Common Stock
and (b) $1.20. In accordance with Rule 0-11 under the Act, the filing fee
is determined by multiplying the transaction valuation by one-fiftieth of
one percent.

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THE ARNOLD PALMER GOLF COMPANY
6201 MOUNTAIN VIEW ROAD
OOLTEWAH, TENNESSEE 37363

July , 1999

Dear Shareholder:

You are invited to attend a Special Meeting of Shareholders (the "Special
Meeting") of The Arnold Palmer Golf Company (the "Company") to be held at 10:00
a.m., on Friday, August 13, 1999, at the offices of the Company, 6201 Mountain
View Road, Ooltewah, Tennessee. At the Special Meeting you will be asked to
approve and adopt an Agreement and Plan of Merger dated June 3, 1999, among the
Company, APGC Holdings Company, LLC ("Parent") and APGC Acquisition Corp.
("Merger Sub"), a wholly-owned subsidiary of Parent, providing for the merger of
Merger Sub into the Company (the "Merger"). If the Merger is consummated, the
Company will become a subsidiary of Parent, and each outstanding share of the
Company's common stock other than shares held by Parent or certain continuing
shareholders affiliated with Parent and shares held by shareholders perfecting
their dissenting rights under Tennessee law will be canceled and converted into
the right to receive cash in the amount of $1.20 per share (the "Merger
Consideration").

A special committee of the Board of Directors of the Company (the "Special
Committee") consisting of two independent directors (who are neither members of
management of the Company nor affiliated with Parent) has unanimously
recommended to the Company's Board of Directors that the Merger Consideration is
fair to the shareholders from a financial point of view and that the Merger be
approved. Consequently, based upon the report of the Special Committee, the
Board of Directors has determined that the terms of the Merger are fair to, and
in the best interests of, the Company's shareholders and recommends that the
shareholders approve the Merger.

Approval of the Merger at the Special Meeting will require the affirmative
vote of the holders of a majority of the outstanding shares of the Company's
common stock entitled to vote at the Special Meeting.

Enclosed with this letter is a Notice of Special Meeting, Proxy Statement,
proxy card and postage prepaid envelope. Please read the enclosed material
carefully.

To make certain your shares are represented at the Special Meeting, whether
or not you plan to attend in person, we urge you to sign, date and mail the
enclosed proxy card promptly in the accompanying postage prepaid envelope. If
you attend the Special Meeting, you may vote your shares in person, even though
you have previously signed and returned your proxy.

Sincerely,

Cindy L. Davis
President and Chief Executive Officer
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THE ARNOLD PALMER GOLF COMPANY
6201 MOUNTAIN VIEW ROAD
OOLTEWAH, TENNESSEE 37362

------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD AUGUST 13, 1999
------------------------

To the Shareholders of The Arnold Palmer Golf Company:

A Special Meeting of Shareholders (the "Special Meeting") of The Arnold
Palmer Golf Company (the "Company") will be held at 10:00 a.m., on Friday,
August 13, 1999, at the offices of the Company, 6201 Mountain View Road,
Ooltewah, Tennessee, for the following purposes:

1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated June 3, 1999 among the Company, APGC Holdings
Company, LLC ("Parent") and APGC Acquisition Corp. ("Merger Sub"), a
wholly-owned subsidiary of Parent, providing for the merger of Merger
Sub into the Company; and

2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.

The close of business on June 30, 1999, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Special Meeting and any adjournment thereof.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, DATE
AND SIGN THE ACCOMPANYING PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN
THOUGH YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.

By Order of the Board of Directors,

David J. Kirby
Vice President -- Finance

July , 1999
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THE ARNOLD PALMER GOLF COMPANY
6201 MOUNTAIN VIEW ROAD
OOLTEWAH, TENNESSEE 37363

------------------------

PROXY STATEMENT
------------------------

This proxy statement is being mailed to shareholders of The Arnold Palmer
Golf Company, a Tennessee corporation (the "Company"), on or about July , 1999
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Special Meeting of Shareholders (the "Special Meeting")
of the Company to be held at 10:00 a.m., on Friday, August 13, 1999, at the
offices of the Company, 6201 Mountain View Road, Ooltewah, Tennessee.

At the Special Meeting you will be asked to approve and adopt an Agreement
and Plan of Merger dated June 3, 1999 (the "Agreement") among the Company, APGC
Holdings Company, LLC ("Parent") and APGC Acquisition Corp. ("Merger Sub"), a
wholly-owned subsidiary of Parent, providing for the merger of Merger Sub into
the Company (the "Merger"). If the Merger is consummated, the Company will
become a subsidiary of Parent and each outstanding share of the Company's common
stock, $0.50 par value (the "Common Stock"), other than shares held by Parent or
certain continuing shareholders affiliated with Parent and shares held by
shareholders perfecting their dissenting rights under Tennessee law, will be
canceled and converted into the right to receive cash in the amount of $1.20 per
share. THE BOARD OF DIRECTORS, BASED UPON THE UNANIMOUS RECOMMENDATION OF A
SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, HAS APPROVED AND RECOMMENDED A VOTE
FOR APPROVAL OF THE AGREEMENT. A copy of the Agreement is attached to this Proxy
Statement as Attachment I.

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock which are entitled to vote is necessary to
constitute a quorum at the Special Meeting. If a quorum is not present or
represented at the Special Meeting, the shareholders entitled to vote, whether
present in person or represented by proxy, have the power to adjourn the Special
Meeting from time to time, without notice other than announcement at the Special
Meeting, until a quorum is present or represented. At any such adjourned Special
Meeting at which a quorum is present or represented, any business may be
transacted that might have been transacted at the Special Meeting as originally
noticed. On all matters submitted to a vote of the shareholders at the Special
Meeting or any adjournment(s) thereof, each holder of Common Stock is entitled
to one vote per share.

NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES THEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON.

THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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TABLE OF CONTENTS

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PAGE
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SUMMARY INFORMATION......................................... 1
The Merger................................................ 1
The Agreement............................................. 1
Shareholder Approval...................................... 1
Governmental and Regulatory Approvals..................... 1
Amendment and Termination................................. 2
Recommendation of the Board of Directors.................. 2
Opinion of Financial Advisor.............................. 2
Interests of Certain Shareholders and Directors in the
Merger................................................. 3
Source of Funds for the Merger............................ 3
Payment for the Common Stock after the Merger............. 3
Summary of Certain Federal Income Tax Consequences........ 3
Appraisal Rights of Dissenting Shareholders............... 3
Price Range of Common Stock............................... 3
APPROVAL OF THE AGREEMENT................................... 5
The Parties............................................... 5
The Company............................................ 5
Parent................................................. 5
Merger Sub............................................. 5
Background to the Merger.................................. 5
Historical Involvement................................. 5
Company Restructuring.................................. 6
Buy-Out Proposal....................................... 7
Negotiation of Agreement............................... 8
Special Factors -- Purpose and Structure of the Merger.... 8
Special Factors -- Plans for the Company After the
Merger................................................. 9
Special Factors -- Reasons for the Merger and
Recommendation of the Board of Directors............... 9
Special Factors -- Opinion of Financial Advisor........... 10
Comparable Public Company Analysis..................... 11
Comparable Transactions Analysis....................... 13
Premiums Paid Analysis................................. 14
Discounted Cash Flow Analysis.......................... 15
The Agreement............................................. 16
Effective Time......................................... 16
The Merger............................................. 16
Merger Consideration................................... 16
Conditions and Covenants............................... 16
Governmental and Regulatory Approvals.................. 17
Termination, Amendments and Expenses................... 17
Representations and Warranties of the Company.......... 18
Representations and Warranties of Parent and Merger
Sub................................................... 18
Conduct of Business Pending the Merger................. 18
Interests of Certain Shareholders and Directors in the
Merger................................................. 18
Source of Funds for the Merger............................ 19
Payment for the Shares of Common Stock after the Merger... 19
Certain Federal Income Tax Consequences................... 20
</TABLE>

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<TABLE>
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PAGE
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Accounting Treatment...................................... 20
Appraisal Rights of Dissenting Shareholders............... 20
BUSINESS OF THE COMPANY..................................... 22
General................................................... 22
Principal Products........................................ 22
Markets................................................... 22
Methods of Distribution................................... 22
Sources of Supplies or Raw Materials...................... 22
Licenses, Patents, Etc.................................... 22
Seasonal Business......................................... 23
Working Capital Practices................................. 23
Customers................................................. 23
Backlogs.................................................. 23
Government Contracts...................................... 23
Competitive Conditions.................................... 23
Research.................................................. 24
Environmental Matters..................................... 24
Employees................................................. 24
Operations and Sales to Foreign Countries................. 24
PROPERTIES.................................................. 24
LEGAL PROCEEDINGS........................................... 24
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 24
SELECTED FINANCIAL INFORMATION.............................. 26
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............. 27
CERTAIN INFORMATION REGARDING PARENT AND MERGER SUB......... 28
AUDITORS.................................................... 29
SOLICITATION OF PROXIES..................................... 29
INDEX TO FINANCIAL INFORMATION.............................. F-1
ATTACHMENTS
Attachment I: Agreement and Plan of Merger
Attachment II: Opinion of Financial Advisor
Attachment III: Tennessee Code Annotated Section
48-23-101 et seq., Dissenters' Rights
</TABLE>

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SUMMARY INFORMATION

The following paragraphs summarize the material terms and conditions of the
proposed Merger. This summary should be read in conjunction with the full text
of this Proxy Statement, the attachments hereto and the documents referred to
herein. EACH SHAREHOLDER IS URGED TO READ THE ENTIRE PROXY STATEMENT AND
ATTACHMENTS WITH CARE.

THE MERGER

If the Agreement is approved and all other conditions are satisfied in
accordance with the Agreement: (i) Merger Sub will be merged with and into the
Company; (ii) the Company will become a subsidiary of Parent; and (iii) each
outstanding share of the Company's Common Stock, other than shares held by
Parent, certain continuing shareholders affiliated with Parent and shares held
by shareholders perfecting their dissenting rights under Tennessee law, will be
converted into the right to receive $1.20 in cash (the "Merger Consideration"),
payable to the holder thereof, without interest, upon surrender of the
certificate representing such shares.

THE AGREEMENT

The parties to the Agreement are the Company, Parent and Merger Sub. A copy
of the Agreement is attached to this Proxy Statement as Attachment I.

The consummation of the Merger is conditioned upon the satisfaction of
certain conditions. These conditions include approval of the Agreement by the
Company's shareholders, the absence of any order of any court or administrative
agency prohibiting the Merger, and the reaffirmation as of the closing date of
the opinion received by the Board of Directors from its financial advisor that
the Merger Consideration to be received by the shareholders is fair from a
financial point of view.

The obligation of Parent and Merger Sub to consummate the Merger is subject
to the following additional conditions, any of which Parent and Merger Sub may
waive: the compliance by the Company with all of the covenants and agreements of
the Company under the terms of the Agreement; the accuracy of all of the
representations and warranties of the Company made in the Agreement; and the
receipt of all necessary third party consents or approvals for the Merger. The
obligation of the Company to consummate the Merger is subject to the following
similar conditions, any of which the Company may waive: the compliance by Parent
and Merger Sub with all of their covenants and agreements under the terms of the
Agreement; the accuracy of all of the representations and warranties of Parent
and Merger Sub made in the Agreement; and the receipt of all necessary third
party consents or approvals for the Merger. See "Approval of the
Agreement -- The Agreement -- Conditions and Covenants."

SHAREHOLDER APPROVAL

The affirmative vote of a majority of the issued and outstanding shares of
the Company's Common Stock entitled to vote, either present at the Special
Meeting or represented by proxy, is required to adopt the Agreement. Each holder
of Common Stock is entitled to one vote per share. John T. Lupton, the Thomas
Cartter Lupton Trust FBO John T. Lupton and Issue (the "Lupton Trust") and
Arnold D. Palmer (collectively, the "Continuing Shareholders"), who together
hold shares representing approximately 41 percent of the total outstanding
Common Stock of the Company, have agreed to contribute their shares to Parent at
the request of Parent in connection with the closing of the proposed Merger and
intend to vote their shares in favor of the consummation of the Merger. See
"Approval of the Agreement -- Interests of Certain Shareholders and Directors in
the Merger."

GOVERNMENTAL AND REGULATORY APPROVALS

The Company is aware of no governmental or regulatory approvals required
for closing the Merger other than in connection with filings with the Securities
and Exchange Commission and the filing of Articles of Merger with the Secretary
of State of Tennessee.
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AMENDMENT AND TERMINATION

The Agreement may be amended by the parties at any time if in writing and
duly executed by the parties thereto either before or after the approval of the
Merger by the Company's shareholders.

The Agreement may be terminated by: (i) the mutual written consent of the
Company and Parent and Merger Sub; (ii) either the Company or Parent and Merger
Sub if the other party has materially breached any of its representations,
warranties or covenants, which breach has not been cured within 10 days after
notice of such breach; (iii) either the Company or Parent and Merger Sub if any
governmental entity has issued an order, decree or ruling prohibiting the Merger
and such ruling has become final and non-appealable; (iv) Company or Parent and
Merger Sub in the event the Merger is not consummated by September 30, 1999,
without the fault of the terminating party; (v) Company or Parent and Merger Sub
in the event the Board of Directors withdraws its recommendation with respect to
the Merger or enters discussions with any third party regarding any competing
transaction; (vi) Parent and Merger Sub in the event that holders of more than
ten percent of the outstanding shares (excluding the shares held by Parent and
the Continuing Shareholders) have indicated their intention to exercise their
dissenters' rights under Tennessee law; (vii) either the Company or Parent and
Merger Sub if the Merger shall have been voted on by the shareholders of the
Company at the Special Meeting and the vote shall not have been sufficient to
approve the Merger; or (viii) Parent and Merger Sub if there shall have been any
material adverse effect on the Company's business, assets, prospects or
condition (other than the deaths of John T. Lupton, Arnold D. Palmer or Nancy
Lopez). If the Agreement is terminated, the parties will be obligated to pay
their own expenses incurred in connection with the Merger, provided that if the
Agreement is terminated due to the Company entering discussions with any third
party regarding a competing transaction, the Company shall reimburse Parent and
Merger Sub for their out-of-pocket fees and expenses incurred in connection with
the Merger. See "Approval of the Agreement -- The Agreement -- Termination,
Amendments and Expenses."

RECOMMENDATION OF THE BOARD OF DIRECTORS

Because of the involvement of the Continuing Shareholders in the Merger who
will have a continuing financial interest in the Company if the Merger is
consummated, the Board of Directors appointed a committee of disinterested
directors (the "Special Committee") to review and evaluate the terms of the
Merger on behalf of the shareholders of the Company. Based upon a review of,
among other things, the financial prospects of the Company and on the opinion of
its financial advisor that the Merger Consideration was fair to the shareholders
from a financial perspective, the Special Committee unanimously recommended to
the Board of Directors that the Merger be approved and that the Merger be
recommended for approval to the shareholders of the Company. See "Approval of
the Agreement -- Special Factors -- Reasons for the Merger and Recommendation of
the Board of Directors." Following the unanimous recommendation of the Special
Committee, the Board of Directors authorized the Company to enter the Agreement.

THE BOARD OF DIRECTORS OF THE COMPANY, BASED UPON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS APPROVED THE AGREEMENT AS BEING IN
THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY AND
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREIN. The Board of Directors has taken such action
and made such recommendation because it believes the Merger to be in the best
interest of the Company and its shareholders and because the Board believes, in
its business judgment, that the Merger Consideration is fair and reasonable to
the shareholders of the Company. See "Approval of the Agreement -- Special
Factors -- Reasons for the Merger and Recommendation of the Board of Directors."

OPINION OF FINANCIAL ADVISOR

The Special Committee of the Board of Directors of the Company has been
advised by Scott & Stringfellow, Inc., the Special Committee's financial advisor
(the "Advisor"), that, in its opinion, the Merger Consideration to be received
by the holders of the Company's Common Stock is fair from a financial point of
view. A copy of the Advisor's fairness opinion is attached to this Proxy
Statement as Attachment II. See "Approval of the Agreement -- Special
Factors -- Opinion of Financial Advisor."

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INTERESTS OF CERTAIN SHAREHOLDERS AND DIRECTORS IN THE MERGER

Parent has been formed by the Continuing Shareholders to effectuate the
acquisition of the Company, and, in conjunction therewith, the Continuing
Shareholders have agreed to contribute their shares of the Common Stock of the
Company to Parent at the request of Parent in connection with the closing of the
Merger and intend to vote their shares in favor of the Merger. See "Approval of
the Agreement -- Interests of Certain Shareholders and Directors in the Merger."

As of the record date, certain current and former directors and officers of
the Company hold unexercised options to acquire Common Stock and certain
investors, including certain of the Continuing Shareholders, hold unexercised
warrants to acquire Common Stock issued in connection with a prior debt
financing of the Company. The exercise price for each of the outstanding options
and warrants is in excess of the Merger Consideration. The holders of the
outstanding options and warrants will be permitted to exercise such options or
warrants in full in accordance with their respective terms (should they elect to
do so) in conjunction with the Merger, reflecting accelerated vesting of any
presently unvested installments of such options or warrants. Thereafter, such
options and warrants will no longer reflect any interest in the Company after
the Merger. See "Approval of the Agreement -- Interests of Certain Shareholders
and Directors in the Merger."

SOURCE OF FUNDS FOR THE MERGER

Parent intends that financing for the Merger will be provided from capital
contributions of approximately $3,000,000 from the members of Parent including
the Continuing Shareholders. Parent does not expect to be required to borrow
funds for purposes of financing the Merger. See "Approval of the
Agreement -- Source of Funds for the Merger."

PAYMENT FOR THE COMMON STOCK AFTER THE MERGER

If the Agreement is approved, it is expected that the Merger will be
consummated as soon as possible after the Special Meeting and after all
governmental and regulatory approvals required for the Merger, if any, are
received and all other conditions are satisfied. Notice of the consummation of
the Merger, together with instructions regarding payment procedures for the
Merger Consideration and a form letter of transmittal, will be mailed to
shareholders promptly following the filing of Articles of Merger with the
Secretary of State of Tennessee. See "Approval of the Agreement -- Payment for
the Shares of Common Stock after the Merger."

SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES

If the Merger is consummated, the exchange of the Common Stock for cash
pursuant to the Merger will result in the recognition of gain or loss to
shareholders of the Company for federal income tax purposes. The gain or loss
will be equal to the difference, if any, between the amount of such cash
received and the shareholder's tax basis in his or her Common Stock. Such gain
or loss will be capital gain or loss if the shares are held as capital assets by
the shareholder. Because tax consequences may vary depending on the particular
circumstances of a shareholder, the Company recommends that each shareholder
consult with his or her own tax advisor concerning federal, state, local and
foreign income tax results of the Merger. See "Approval of the
Agreement -- Certain Federal Income Tax Consequences."

APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS

Holders of the Company's Common Stock will have appraisal rights under
Tennessee law and will have the right to obtain a judicial appraisal of the fair
value of their shares. See "Approval of the Agreement -- Appraisal Rights of
Dissenting Shareholders." A copy of the relevant provisions of Tennessee law
regarding the right to dissent is attached as Attachment III.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded over-the-counter through the
OTC -- Bulletin Board under the symbol "APGC." On June 2, 1999, the day
preceding the public announcement of the execution of the

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Agreement, the high and low sale prices for the Company's Common Stock were
$0.9688 and $0.8125, respectively. For price ranges of the Company's Common
Stock, see "Price Range of Common Stock and Dividends."

THE ABOVE MATTERS AND OTHER MATTERS RELATING TO THE MERGER ARE DESCRIBED IN
MUCH GREATER DETAIL IN THE REMAINDER OF THIS PROXY STATEMENT. YOU ARE STRONGLY
URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT AND THE ATTACHMENTS
HERETO IN ITS ENTIRETY.

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APPROVAL OF THE AGREEMENT

The Agreement has been approved by the Board of Directors based upon the
report and recommendation of the Special Committee. A copy of the Agreement is
attached to this Proxy Statement as Attachment I. The information contained in
this Proxy Statement is qualified in its entirety by reference to the Agreement,
which shareholders are urged to read in its entirety. The Board of Directors,
based upon the report and recommendation of the Special Committee, believes that
the Merger is in the best interests of the shareholders, and the Board of
Directors recommends that the shareholders vote to approve the Agreement.

It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the Agreement, unless instructed to the
contrary. The affirmative vote of a majority of all issued and outstanding
shares of the Company's Common Stock entitled to vote at the Special Meeting is
required to approve the Agreement. It should be noted that the approval of a
majority of the noninterested shareholders is not required for the approval of
the Merger.

A vote by a shareholder of the Company in favor of the Agreement will
constitute a vote in favor of all transactions contemplated thereby.

THE PARTIES

THE COMPANY. The Company manufactures, markets and distributes golf
products, including PALMER and NancyLopezGolf equipment and HOTZ golf bags and
luggage. The Company's principal market is the United States. The Company owns,
subject to certain exceptions, the exclusive worldwide right to the Arnold
Palmer and Nancy Lopez trade names in connection with the Company's manufacture,
sale and distribution of golf products. The Company sells primarily to retailers
and golf specialty stores. The principal executive offices of the Company are
located at 6201 Mountain View Road, Ooltewah, Tennessee 37363 and its telephone
number is (423) 238-5890.

PARENT. Parent is a Delaware limited liability company which was formed by
Cindy L. Davis, President and Chief Executive Officer of the Company, and John
T. Lupton and Arnold D. Palmer, shareholders and directors of the Company, and
the Lupton Trust and Arnold Palmer Enterprises, Inc. ("Palmer Enterprises") for
the purpose of acquiring the Common Stock of the Company. The principal
executive offices of Parent are located at Suite 702, Tallan Building, Two Union
Square, Chattanooga, Tennessee 37402 and its telephone number is (423) 756-0611.
Pursuant to the formation of Parent, Messrs. Lupton and Palmer and the Lupton
Trust have agreed to contribute the shares of Common Stock of the Company held
by them to Parent at the request of Parent in conjunction with the closing of
the Merger.

MERGER SUB. Merger Sub is a Tennessee corporation and a wholly-owned
subsidiary of Parent, organized solely for the purpose of effecting the
transactions contemplated by the Agreement, including the Merger. The principal
executive offices of Merger Sub are located at Suite 702, Tallan Building, Two
Union Square, Chattanooga, Tennessee 37402 and its telephone number is (423)
756-0611. Merger Sub will not engage in any business activity prior to the
Merger, other than in connection therewith.

BACKGROUND TO THE MERGER

HISTORICAL INVOLVEMENT. Arnold D. Palmer has long been a shareholder in
the Company and has served as a director from 1972 to 1990 and again since 1992
to the present. Since 1992, the Company has licensed the rights to use the name,
likeness and endorsement of Mr. Palmer from Palmer Enterprises, a company
affiliated with Mr. Palmer. John T. Lupton first became a shareholder in the
Company in 1992 and has served as a director since 1995. Cindy L. Davis was
initially appointed Executive Vice President of the Company in June, 1997, and
was appointed President and Chief Executive Officer in March, 1998.

In November, 1994, the Company completed a private placement of $5,000,000
in subordinated notes and issued warrants to purchase up to 1,000,000 shares to
Mr. Lupton and Palmer Enterprises and certain other investors. Mr. Lupton was
issued $2,400,000 in subordinated notes and 480,000 warrants to purchase Common
Stock at a price of $5.50 per share. Mr. Lupton subsequently purchased an
additional $100,000 in subordinated notes and 20,000 warrants from another
investor. Palmer Enterprises was issued $500,000 in
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subordinated notes and 100,000 warrants to purchase Common Stock at a price of
$5.50 per share. As discussed more fully below, these subordinated notes and
warrants remain outstanding.

In January, 1995, the Company borrowed an additional $16,000,000 from a
bank which debt was guaranteed by Mr. Lupton. Mr. Lupton was issued a
convertible subordinated note in the amount of $850,000 with an additional
390,000 warrants to purchase Common Stocks at a price of $6.25 per share in
exchange for the guaranty. Since that time, Mr. Lupton has individually
guaranteed the term loans and revolving credit loans of the Company from third
party lenders.

In August, 1996, the Company sold 833,333 shares of its newly-created
Series NB Preferred Stock to the Lupton Trust in exchange for $5,000,000 in
cash. The proceeds from the sale were used by the Company to purchase 625,000
shares of Series D Preferred Stock of Nevada Bob's Holdings, Inc., the parent
company for a nationwide retailer of golf equipment and accessories ("Nevada
Bob's"). The Series NB Preferred Stock of the Company held by the Lupton Trust
was entitled to a cumulative dividend equal to 30 percent of the earnings
realized by the Company from its investment in Nevada Bob's and was convertible
at the election of the Lupton Trust into Common Stock of the Company.

In April, 1997, an affiliate of the Lupton Trust purchased the building
leased by the Company for its corporate offices and, pursuant to the purchase,
was assigned the existing lease with the Company. The lease was subsequently
amended effective October, 1997, to provide approximately 77,000 square feet of
additional space to the Company for manufacturing and warehousing operations and
the base rental payments were adjusted to approximately $378,000 per year.

COMPANY RESTRUCTURING. After incurring a net loss of approximately $11.2
million in the fiscal year ended September 30, 1997, the Company engaged a
consulting firm to review and study the operations of the Company and assist in
developing and implementing strategies to improve the operational and financial
performance of the Company. The key goal was to develop a business plan to
return the Company to profitability. Shortly after the receipt of this study, in
November of 1997, George H. Nichols, the Chairman of the Board and Chief
Executive Officer of the Company, and Roger M. Helms, the President and Chief
Operating Officer of the Company, resigned, and Drew Lieberman, a member of the
consulting firm engaged by the Company, was appointed as interim chief operating
officer. In March of 1998, Cindy L. Davis, formerly Executive Vice President of
the Company, was elected President and Chief Executive Officer of the Company.

Under Ms. Davis' direction, management developed a new business plan for
the remainder of 1998. The key objectives of this plan were to restore the
Company to a better financial situation, improve the Company's overall
operations and focus and integrate the Palmer, Hotz and NancyLopezGolf brands.
In order to accomplish these objectives, management developed and implemented an
organizational restructuring which consisted of consolidating the manufacturing,
assembly and shipping operations of its club and bag divisions by moving the
golf equipment operations to Pocahontas, Arkansas, reorganizing and downsizing
the management and administrative staff in Ooltewah, Tennessee by 25 persons,
and selling certain nonessential assets of the Company including the Company's
National Golf Suppliers golf components division. The Company also sold its
Lumberton, North Carolina, facility which had been on the market for more than
three years. This operational restructuring was essentially completed by the end
of October, 1998. Nevertheless, the Company incurred a net operating loss of
$15.2 million in the fiscal year ended September 30, 1998. At least $2.4 million
of this loss was attributable to the management changes and organizational
restructuring and $1.8 million was attributable to write down of inventory.

Management also developed a financial restructuring plan for the Company.
In October, 1998, the Company sold its investment in the Class D Preferred Stock
of Nevada Bob's to the Lupton Trust at its initial cost of $5,000,000. In
addition, the Lupton Trust agreed to pay as additional purchase price 70 percent
of any gains or earnings realized by the Lupton Trust from its investment in the
Class D Preferred Stock of Nevada Bob's. The proceeds from the sale of the Class
D Preferred Stock of Nevada Bob's were applied to reduce the outstanding bank
indebtedness of the Company to Northern Trust Company. In conjunction with this
transaction, the Lupton Trust converted the 833,333 shares of Series NB
Preferred Stock to Common Stock of the Company in accordance with the terms of
the Series NB Preferred Stock.
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<PAGE> 13

Also in October, 1998, the Lupton Trust, with the consent of the Company,
purchased the outstanding bank indebtedness of the Company held by Northern
Trust Company at its face value of $29,250,000. The Lupton Trust has waived the
payment of interest on the $29,250,000 senior debt for the first two quarters of
fiscal 1999. Additionally, Mr. Lupton and Palmer Enterprises have waived the
payment of interest on their subordinated notes for fiscal 1999. Palmer
Enterprises has also waived its minimum royalty fee of $750,000 for fiscal 1999
payable under the terms of the License Agreement between the Company and Palmer
Enterprises.

On September 28, 1998, the Company received a proposal from Teardrop Golf
Company ("Teardrop") to purchase all of the assets of the Company for $5.0
million in cash and $11.5 million in redeemable convertible preferred stock with
Teardrop assuming no existing liabilities of the Company. The proposal was
considered and rejected by the Board of Directors based upon the fact that the
proposed purchase price was inadequate relative to comparable acquisitions of
Teardrop reviewed by the Board of Directors and the fact that the offer was not
all cash in light of the existing financial condition of the Company. During
this period, the Company also received certain other limited expressions of
interest in the acquisition of its business or segments of its business or the
combination of its business with other businesses, but has not seriously
considered any such transaction because of its financial condition.

BUY-OUT PROPOSAL. In order to complete the financial restructuring of the
Company, the Company engaged a consulting firm in January, 1999 to complete a
study of the golf industry, and the Company's position in the golf industry, and
then to identify the long term strategic options available to the Company,
particularly in view of its reduced level of sales and large outstanding senior
and subordinated indebtedness. This consulting firm looked at a number of
options, including going private, an operation turnaround with new borrowings
and existing product lines, an operation turnaround with different product line
configurations, the sale of all or a part of the Company, and raising new
capital through the existing Company. It was determined that in order to become
profitable, the senior and subordinated indebtedness of the Company would need
to be restructured, sales would need to be increased, operating expenses would
need to be further reduced, and additional capital would need to be raised. In
view of the Company's significant operating losses for the past three years, and
the amount of outstanding senior and subordinated indebtedness, it was
determined that the possibility of raising additional capital in the public
markets was highly unlikely. Furthermore, John T. Lupton, the Lupton Trust and
Palmer Enterprises, the primary holders of the Company's senior and subordinated
debt, indicated that they would only be willing to consider a proposed financial
restructuring if the Company was privately-held. As a result of these
discussions, management determined that the only viable option was taking the
Company private and then, if possible, restructuring the senior and subordinated
debt.

Consequently, in late March, 1999, members of management and
representatives of Messrs. Lupton and Palmer and the Lupton Trust and Palmer
Enterprises met with representatives of SunTrust Equitable Securities Inc.
("Equitable") to discuss the possibility of forming a buy-out group led by Cindy
L. Davis, the chief executive officer of the Company, and John T. Lupton and
Arnold D. Palmer, the two largest single shareholders in the Company, for the
purpose of acquiring all of the shares of the Company held by persons other than
the Continuing Shareholders (such shares the "Public Shares" and such
shareholders the "Public Shareholders"). This transaction would allow the
Company to eliminate the costs of maintaining the Company's publicly-traded
status, and proceed with a possible restructuring of the senior and subordinated
debt of the Company, which will place the Company in a position to attempt to
obtain additional capital or sell a portion or all of its assets and return to
profitability. During the last week of March, 1999, and the first several weeks
in April, 1999, members of management and representatives of Messrs. Lupton and
Palmer and the Lupton Trust and Palmer Enterprises investigated the possible
terms, form, structure and timing of a possible transaction resulting in the
Company becoming privately-held.

On April 27, 1999, Parent was organized and Ms. Davis, Messrs. Lupton and
Palmer and the Lupton Trust and Palmer Enterprises agreed, pursuant to separate
contribution agreements, to contribute their shares of Common Stock and
additional cash to Parent at the call of the Board of Managers of Parent in
exchange for membership interests in Parent.

On April 29, 1999, at a specially-called meeting of the Board of Directors
of the Company, Parent presented a proposal for the acquisition of all of the
shares of Common Stock held by the Public Shareholders pursuant to a cash-out
merger in which Parent or a wholly-owned subsidiary of Parent would merge with
the

7
<PAGE> 14

Company with the Public Shareholders receiving a price of $1.20 per share in
cash. The Board of Directors appointed Board members A. Alexander Taylor II and
Richard J. Horton to the Special Committee charged with reviewing the proposal
on behalf of the Public Shareholders and making a report to the full Board of
Directors as to whether the proposal was in the best interests of the Company
and the Public Shareholders.

NEGOTIATION OF AGREEMENT. The Special Committee engaged the Advisor to
review the financial aspects of the proposal and engaged its own legal counsel
to advise it with respect to the legal issues involved in the proposal. Over the
course of the next several weeks, the Special Committee, its counsel and the
Advisor met with management of the Company, obtained comprehensive financial
information with respect to the Company, and conducted its own investigation of
the Company and its business prospects and financial condition. The Advisor also
conducted its own independent analysis of the Company, the golf product industry
and market conditions and data relevant to the proposal.

On May 27, 1999, the Advisor issued its opinion to the Special Committee
that, based upon its review and certain conditions and qualifications, the
consideration of $1.20 per share contained in the proposal by Parent was fair to
the Public Shareholders of the Company from a financial point of view. At a
special called meeting of the full Board of Directors on the same date, the
Special Committee reported the receipt of the fairness opinion of the Advisor
and the Special Committee's recommendation that the proposal be pursued on
behalf of the Company. The full Board of Directors approved the recommendation
of the Special Committee and authorized the Special Committee to negotiate the
final terms of a transaction with Parent based upon the proposal.

During the course of the next week, representatives of the Special
Committee and of Parent negotiated the terms of the Merger Agreement generally
incorporating the terms set forth in the proposal. The Special Committee
requested an increase in the Merger Consideration, but representatives of the
Parent were unwilling to increase the Merger Consideration from the $1.20 per
share initially contained in the proposal. On June 3, 1999, the Special
Committee met and approved the final terms of the Agreement including the Merger
Consideration and recommended the Merger Agreement to the full Board of
Directors. At a specially-called meeting of the full Board of Directors, the
Board of Directors approved the terms of the Agreement, authorized the
appropriate officers of the Company to enter the Agreement and issued its
recommendation to the shareholders of the Company that the Agreement be
approved.

SPECIAL FACTORS -- PURPOSE AND STRUCTURE OF THE MERGER

The purpose for the Merger is to enable the Parent acquire all of the
equity interests of the Company (except for 1,000 shares held by each of the
Continuing Shareholders) in order to allow for the possible restructuring of the
outstanding indebtedness of the Company and to position the Company for a return
to profitability. In the Merger, each Public Share will be converted into the
right to receive an amount of cash equal to the Merger Consideration, without
interest. The acquisition of the Public Shares has been structured as a cash
merger in order to provide a prompt and orderly transfer to Parent of ownership
of the equity interests represented by the Public Shares.

In determining to acquire the Public Shares at this time, Parent focused on
a number of factors, including the fact that the Merger would (i) satisfy the
objections of the Continuing Shareholders to negotiating a restructuring of the
senior and subordinated debt; (ii) provide a platform for the restructuring of
the senior and subordinated debt of the Company which is due and payable on or
before December 31, 1999, thereby creating a sound balance sheet for the Company
and a more efficient capital structure; (iii) provide a more flexible management
reporting process; (iv) eliminate operating expenses related to compliance with
the rules for publicly-traded companies; (v) facilitate the participation of
management in a meaningful equity interest in the Company; and (vi) allow Parent
to capture all of the Company's future earnings and cash-flow. The primary
benefits for the Company's Public Shareholders are (i) the opportunity to sell
all of their common stock at a price which represents a premium over trading
prices in effect immediately prior to the announcement of the Merger, (ii)
providing liquidity for their investment in the Common Stock of the Company
which has a very small float and limited trading activity, (iii) avoiding the
uncertainties and risks that are inherent in the efforts of the Company to
complete a financial restructuring of the Company, and (iv) avoiding the
uncertainties and risks that are inherent in a business of the size of the
Company competing in the golf equipment industry.

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<PAGE> 15

SPECIAL FACTORS -- PLANS FOR THE COMPANY AFTER THE MERGER

The business plan for fiscal 1999 was based on the Company achieving lower
net sales but realizing higher margins on sales, resulting in break even cash
flow from operations as a result of the restructuring of the Company discussed
above. This plan will be continued in fiscal 2000 and also includes a
realignment of the sales force to expand the Company's account base, a refreshed
brand positioning and long-term product development plan for HOTZ golf bags, a
new brand positioning, distribution strategy and long-term product development
plan for Arnold Palmer golf clubs, a continued product development plan for
NancyLopezGolf clubs and accessories, and a brand extension plan for new product
categories and the development of new products under new brands. While fiscal
1999 is expected to be a transitional product year for the Company with limited
new product introductions, fiscal 2000 will involve wholesale product changes
and numerous new product introductions in the HOTZ and Arnold Palmer lines and
improvements and new product introductions in the NancyLopezGolf line.
Furthermore, the Company in fiscal 2000 is embarking on a plan to develop new
channels of distribution to sell its products including: the corporate and
special event segment; the internet; additional national mass merchant stores;
and the international market.

Upon consummation of the Merger, Parent will begin negotiations with the
holders of the senior debt and subordinated debt to convert such debt to equity
or compromise its repayment terms. At the same time, the Company will begin
discussions with Palmer Enterprises, and Nancy Lopez Enterprises, Inc. ("Lopez
Enterprises"), to renegotiate the terms of their license agreements with the
Company in view of the financial condition of the Company and the level of sales
of products covered by such license agreements. Until such time as such action
has been accomplished, the Parent intends to retain the Company as a subsidiary
of Parent, and continue its operations in the ordinary course in accordance with
the business plan outlined above. However, management will continue to take such
action as may be required in view of the level of sales to enable the Company to
operate at a positive cash flow.

If the Company receives any expression of interest in the acquisition of
some or all of its business or assets after the consummation of the Merger, the
Company will consider any such proposal carefully. Since the net operating
losses of the Company will not be available to the Parent, the Parent may also
consider converting the Company to a flow-through entity for federal and state
tax purposes. At the same time, the Parent intends to continue to investigate
and if appropriate, consider the options identified by the consulting firm which
include, among others, an operation turnaround with new borrowings and existing
product lines, an operation turnaround with different product line
configurations, and the raising of new capital for the Company to expand its
operations. It is extremely difficult for a business with the level of sales of
the Company to compete in the golf equipment industry and management will
consider any strategy which may enable it to operate profitably.

Parent does not plan to make any changes in the management of the Company,
but the Board of Directors will be reduced to the five individuals who
constitute the Board of Managers of the Parent: John T. Lupton, Arnold D.
Palmer, Cindy L. Davis, Joel W. Richardson, Jr., and Charles S. Mechem, Jr.

SPECIAL FACTORS -- REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF
DIRECTORS

The terms of the Agreement, including the Merger Consideration, were
reached on the basis of arms-length negotiations between the Company through the
Special Committee and Parent. In reaching the conclusion that the terms of the
Agreement are fair to the Company's shareholders from a financial point of view,
the Special Committee considered, among other things, the written opinion of the
Advisor regarding the fairness of the Merger Consideration from a financial
point of view, recent market prices of the Company's Common Stock, the
historical and prospective business of the Company including competitive
conditions in the Company's industry, market prices and financial data of
companies engaged in the same or similar businesses, the benefits expected from
an acquisition by Parent, the risks of nonconsummation of the Merger given the
terms of the Agreement, and likelihood of alternatives that might be financially
more favorable to the Company's shareholders. The Special Committee believes
that the Merger provides an opportunity for the

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<PAGE> 16

Public Shareholders of the Company to receive an amount for their shares of the
Company at a premium over the prices at which the Common Stock has traded in the
recent past. On June 2, 1999, the day preceding the public announcement of the
execution of the Agreement, the high and low per share sales prices for the
Company's Common Stock were $0.9688 and $0.8125, respectively. Prior to June 2,
1999, the Company's Common Stock had traded at even lower values. See "Price
Range of Common Stock."

In approving the Merger, the Special Committee relied on the opinion of the
Advisor that the Merger Consideration is fair to the shareholders of the Company
from a financial point of view. The Special Committee considered the analyses
presented to it by the Advisor which are described below under "Opinion of
Financial Advisor."

The Special Committee considered the opportunities available to the
Company, including the possibility of: (i) maintaining the status quo, (ii)
attempting to solicit competing proposals, (iii) considering a sale at a future
date, (iv) pursuing other restructuring alternatives, and (v) accepting Parent's
proposal, before concluding for all of the reasons discussed in this Section
that the Merger represented the best available alternative for the shareholders
and that the Merger Consideration is favorable to the Company's shareholders.

In assessing the alternative of the status quo, the Special Committee
considered the long-range prospects and risks of the Company's business and its
financial condition, results of operations and capital requirements. In
assessing the long-range prospects and risks of the Company's business, the
Special Committee considered the risks posed by the existence of large
competitors to the Company. The Special Committee also considered the risk that
the market for golf clubs and accessories has been and is expected to remain
highly competitive.

In addition, the Special Committee considered the fact that all of the
Company's long-term debt and subordinated notes in the approximate amount of
$34.0 million are due and payable on or before December 31, 1999. The Special
Committee considered the fact that it is unlikely that the long-term debt or
subordinated notes could be refinanced through third-party lenders or that the
holders thereof, including the Continuing Shareholders, would grant further
extensions with respect to the long-term debt and subordinated notes of the
Company.

The Advisor presented the Special Committee with several valuation analyses
which estimated the present value of the Company's Common Stock. These separate
analyses demonstrated the attractiveness of the Merger Consideration relevant to
traditional valuation measures. Given the risks associated with the status quo,
the Special Committee concluded that Parent's proposal represented the best
available alternative for the shareholders. The relevant analyses, including the
related assumptions, considered by the Board are described below in "Special
Factors -- Opinion of Financial Advisor."

THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF
THE MERGER ARE FAIR TO THE SHAREHOLDERS AND RECOMMEND THAT THE SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AGREEMENT.

SPECIAL FACTORS -- OPINION OF FINANCIAL ADVISOR

The Special Committee of the Board of Directors of the Company retained the
Advisor to render a fairness opinion in connection with the Merger. On May 27,
1999, the Advisor delivered its written opinion to the Special Committee. On
June 3, 1999, the Advisor orally updated its opinion. As of such date and based
upon the procedures and subject to the assumptions and qualifications described
to the Special Committee and in the written opinion of the Advisor given May 27,
1999 and orally updated June 3, 1999, the Advisor concluded that the Merger
Consideration was fair from a financial point of view to the holders of Common
Stock.

The full text of the Advisor's written opinion dated as of May 27, 1999,
which sets forth, among other things, the assumptions made, matters considered,
and scope and limitations on the review undertaken, is attached as Attachment II
hereto and is incorporated herein by reference. Holders of Common Stock are
urged to, and should, read the Advisor's opinion carefully and in its entirety.
The Advisor's opinion was prepared for the use of the Special Committee of the
Board of Directors in connection with its consideration of the Merger and does
not constitute a recommendation to the holders of Common Stock as to how they
should vote at the Special Meeting in connection with the Merger. In addition,
the opinion addresses only the
10
<PAGE> 17

financial fairness of the consideration to be received by the shareholders in
the Merger and does not address the relative merits of the Merger or any
alternatives, the underlying decision of the Special Committee and the full
Board of Directors to engage in the Merger or any other aspect of the Merger.
The summary of the Advisor's opinion set forth below should be read together
with the full text of the opinion.

In arriving at its opinion, the Advisor:

- reviewed publicly available financial statements and other information of
the Company;

- reviewed historical internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;

- analyzed financial projections prepared by the management of the Company;

- discussed the past and current operations and financial condition and the
prospects of the Company with management of the Company;

- reviewed the historical prices and trading activity for the Common Stock
of the Company;

- compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of other comparable
publicly-traded companies and their securities;

- reviewed the financial terms, to the extent publicly available, of
comparable acquisitions;

- reviewed the premiums paid in this transaction to the premiums paid in
similarly-sized transactions, as well as comparable sporting and athletic
goods transactions, and similar minority purchase transactions one day,
one week and four weeks prior to announcement;

- considered the capitalization, liquidity and financial condition of the
Company;

- reviewed the Agreement and related documents; and

- performed such other analyses and considered such other factors as the
Advisor deemed appropriate.

In rendering its opinion, the Advisor assumed and relied upon, without
independent verification, the accuracy and completeness of all information
reviewed by it for the purposes of its opinion. With respect to the financial
projections, the Advisor assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company and that such forecasts would be realized
in the amounts and at the times contemplated. In addition, the Advisor assumed
that the Merger would be consummated on the terms set forth in the Agreement and
that, in the course of obtaining regulatory and third party consents for the
Merger, no restriction would be imposed that would have a material adverse
effect on the future results of operations or financial condition of the
Company. The Advisor did not make any independent valuation or appraisal of the
assets or liabilities of the Company, nor was the Advisor furnished with any
such appraisals. The Advisor's opinion was necessarily based on economic, market
and other conditions as in effect on, and the information made available to the
Advisor as of, the date of the the Advisor's opinion.

In arriving at its opinion, the Advisor was not authorized to solicit, and
did not solicit, indications of interest from any party, nor did it have
discussions with any party other than Parent with respect to the acquisition of
the Company or any of its assets. Furthermore, the Advisor was not authorized to
negotiate the terms of the transaction and has based its opinion solely on the
terms of the Agreement as negotiated by others.

Below is a summary of the material analyses performed by the Advisor and
reviewed with the Special Committee on May 27, 1999, and orally updated on June
3, 1999, in connection with the preparation of the Advisor's opinion and with
its presentation to the Special Committee on those dates.

COMPARABLE PUBLIC COMPANY ANALYSIS. As part of its analysis, the Advisor
compared financial information of the Company with corresponding publicly
available information of a group of seven publicly-traded golf equipment
manufacturers that the Advisor considered comparable in several respects with
the

11
<PAGE> 18

Company, which included: Adams Golf, Inc.; Aldila, Inc.; Callaway Golf Company;
Coastcast Corp.; Coyote Sports, Inc.; S2 Golf, Inc.; and Teardrop Golf Company
(the "Comparable Companies").

The Advisor analyzed the relative performance of the Company by comparing
market trading statistics for the Company with those of the Comparable
Companies. The market trading information used in ratios provided below is as of
June 1, 1999. The market trading information used in the valuation analysis was:

- market price to trailing twelve months earnings per share ("P/E") ratios.
The P/E ratio reflects the price investors are willing to pay for each
dollar of earnings. The magnitude of the ratio reflects a variety of
company-specific factors, including historical and projected growth
rates, predictability of earnings, size, trading liquidity and research
sponsorship;

- market price to calendar 1999 and 2000 estimated earnings per share, or
P/E ratios for calendar 1999 and 2000, based on estimates of future
earnings as of June 1, 1999;

- enterprise value to trailing twelve months total revenue, or the ratio of
enterprise value, which is stock market equity value plus debt and
preferred stock minus cash and marketable securities, to revenues for the
latest twelve months. Equity based ratios such as the P/E ratio can be
affected by the amount of a company's leverage or borrowings. This
enterprise value to revenue ratio is a measurement of the firm
performance before the effects of leverage and shows the enterprise value
of the firm for each dollar generated in revenues;

- enterprise value to trailing twelve months EBITDA, which is a ratio that
represents a multiple of the cash flow generated by a company. EBITDA
means earnings before interest, taxes, depreciation and amortization. The
magnitude of this ratio reflects a variety of company-specific factors,
including historical and projected growth rates, predictability of
earnings, size, trading liquidity and research sponsorship; and

- enterprise value to trailing twelve months EBIT, which is a ratio that
represents a multiple of the operating income generated by a company. The
difference between EBITDA and EBIT is that EBIT does not reflect an
add-back for depreciation and amortization.

Earnings estimates for fiscal 1999 and 2000 for the Company were based on
projections provided by Company management. Earnings per share estimates for the
Comparable Companies were based on First Call estimates as of June 1, 1999, and
reflect the calendar year ending December 31, 1999 and December 31, 2000. An
analysis of the multiples for the Comparable Companies yielded:

- multiples of the current market price per Common Share to trailing twelve
months earnings per share of 9.4x to 40.2x with a median of 15.8x. As a
result of the Company's net loss for the trailing twelve month period,
applying these multiples to the Company results did not produce a
positive implied equity share value range;

- multiples of the current market price per Common Share to estimated
calendar 1999 estimated earnings per share of 9.2x to 20.4x with a median
of 14.3x. As a result of the Company's net loss projected for calendar
1999, applying these multiples to the Company results did not produce a
positive implied equity share value range;

- multiples of the current market price per Common Share to estimated
calendar 2000 estimated earnings per share of 3.9x to 14.7x with a median
of 12.5x. Applying these multiples to the Company results in an implied
equity share value range of $0.61 to $2.30 with a median of $1.95;

- multiples of the current enterprise value to trailing twelve months total
revenue of 0.5x to 1.8x with a median of 0.8x. As a result of the
Company's large amount of net debt, applying these multiples to the
Company results did not produce a positive implied equity share value
range;

- multiples of the current enterprise value to trailing twelve months
EBITDA of 3.7x to 25.6x with a median of 9.1x. As a result of the
Company's negative EBITDA for the most recent trailing twelve months,
applying these multiples to the Company results did not produce a
positive implied equity share value range; and

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<PAGE> 19

- multiples of the current enterprise value to trailing twelve months EBIT
of 7.2x to 71.8x with a median of 9.1x. As a result of the Company's
negative EBIT for the most recent trailing twelve months, applying these
multiples to the Company results did not produce a positive implied
equity share value range.

COMPARABLE TRANSACTIONS ANALYSIS. Using publicly available information,
the Advisor analyzed three different groups of companies involved in completed
or pending transactions categorized as "Small Transactions," "Minority Purchase
Transactions," and "Sporting and Athletic Goods Transactions."

The Small Transactions included transactions with equity values ranging
from $2.0 to $10.0 million. The selected transactions used in the analysis were
(acquiror/acquiree): Foilmark, Inc./HoloPak Technologies, Inc.; Ziegler Co.,
Inc./PMC International, Inc.; Sterling Software, Inc./Cayenne Software, Inc.;
Derma Sciences, Inc./Genetic Laboratories Wound; RCN Corp./Lancit Media
Entertainment Ltd.; Mediware Information Systems/Informedics, Inc.; JW Childs
Equity Partners LP/Jilians Entertainment Corp; Nicolet Biomedical, Inc./Imex
Medical Systems, Inc.; and Ultimate Electronics, Inc./Audio King Corp.

The Minority Purchase Transactions involved acquirors who owned at least
25% of the target before the transaction and purchased the remainder of the
target. The selected transactions used in the analysis were (acquiror/acquiree):
Nationwide Mutual Insurance Co./Allied Life Financial Corp.; World Access, Inc./
NACT Telecommunications (GST); Marriott International, Inc./ExecuStay Corp.;
Forum Group (Crestline Capital)/Forum Retirement Partners LP; Lohrho PLC/Hondo
Oil & Gas Co.; COMNET Corp./Group 1 Software, Inc.; Investor Group/COHR, Inc.;
99 Cents Only Stores/Universal International; Investor Group/ International
Franchise Systems; and PH II, Inc./THT, Inc.

The Sporting and Athletic Goods Transactions involved companies in the
sporting and athletic goods industry. The selected transactions used in this
analysis were (acquiror/acquiree): GolfSmith/Lynx Golf; GolfSmith/Snake Eyes;
School Specialty, Inc./Sportime LLC(Genesis Direct); Coyote Sports, Inc./Royal
Precision; FPK, LLC/Norwood Promotional Products; Coyote Sports, Inc./West Coast
Companies; US Industries, Inc./Unifiber Corp.; Teardrop Golf/RAM Golf; Teardrop
Golf/Tommy Armour Golf; Royal Precision/Royal Grip; Callaway Golf Co./Odyssey
Sports, Inc.(US Industries); Brunswick Corp./TCR Corp; Hedstrom Corp (Hedstrom
Holdings)/ERO, Inc.; American Materials & Techs/Grafloy; Coyote Sports,
Inc./Apollo Companies; American Brands, Inc./Cobra Golf, Inc.; Ajay Sports/Palm
Springs.

The Advisor compared the relative performance of the Company to certain
transaction multiples implied in the comparable transactions. In each comparable
transaction, the Advisor calculated for the target company:

- enterprise value as a multiple of trailing twelve months revenues;

- enterprise value as a multiple of trailing twelve months EBITDA;

- enterprise value as a multiple of trailing twelve months EBIT;

- equity value as a multiple of trailing twelve months net income; and

- equity value as a multiple of current book value.

This analysis yielded:

- multiples of enterprise value to total revenue of 0.1x to 1.8x with a
median of 0.5x for the Small Transactions, 0.3x to 7.0x with a median of
1.1x for the Minority Purchase Transactions, and 0.2x to 3.5x with a
median of 0.9x for the Sporting and Athletic Goods Transactions;

- multiples of enterprise value to EBITDA of 4.3x to 74.7x with a median of
5.7x for the Small Transactions, 4.0x to 18.1x with a median of 11.7x for
the Minority Purchase Transactions, and 6.1x to 19.6x with a median of
7.6x for the Sporting and Athletic Goods Transactions;

- multiples of enterprise value to EBIT of 34.7x to 70.1x with a median of
52.4x for the Small Transactions, 4.9x to 29.9x with a median of 20.3x
for the Minority Purchase Transactions, and 7.8x to 36.8x with a median
of 11.0x for the Sporting and Athletic Goods Transactions;
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<PAGE> 20

- multiples of equity value to net income of 7.7x to 87.9x with a median of
22.1x for the Minority Purchase transactions, and 7.9x to 93.4x with a
median of 17.5x for the Sporting and Athletic Goods Transactions. There
were no meaningful multiples of equity value to net income for the Small
Transactions; and

- multiples of equity value to current book value of 0.5x to 15.5x with a
median of 2.3x for the Small Transactions, 1.5x to 11.3x with a median of
2.4x for the Minority Purchase Transactions, and 0.9x to 9.0x with a
median of 4.0x for the Sporting and Athletic Goods Transactions.

As it pertains to both the Comparable Companies analysis and comparable
transactions analysis, the Advisor determined that the implied equity per share
values, with the exception of the implied equity per share value based on the
2000 P/E multiple derived from the comparable company analysis, were all of
negative value based on the Company's negative EBITDA, EBIT, and Net Income for
the most recent trailing twelve month period, its negative book value and large
amount of net debt.

PREMIUMS PAID ANALYSIS. The Advisor reviewed purchase price premiums paid
for the stock of the Small Transactions, the Minority Purchase Transactions, and
the Sporting and Athletic Goods Transactions. In all three analyses, the Advisor
measured the average purchase price premiums paid by acquirors over the
prevailing stock market prices of acquirees one day, one week, and four weeks
prior to the announcement of the transactions. These premiums were applied to
the prices of Common Stock for the same periods, resulting in mathematical
ranges of implied values for the Company's shares.

The Small Transactions premiums analysis resulted in:

- One day prior to the announcement of an offer, of premium ranges from
-23.2% to 60.0% with a median of 4.0%; applying these multiples to the
Company resulted in an implied equity share value range of $0.89 to $1.85
with a median of $1.20;

- One week prior to the announcement of an offer, of premium ranges from
-14.3% to 77.8% with a median of 1.4%; applying these multiples to the
Company resulted in an implied equity share value range of $0.86 to $1.78
with a median of $1.01; and

- Four weeks prior to the announcement of an offer, of premium ranges from
-53.8% to 104.4% with a median of 1.4%; applying these multiples to the
Company resulted in an implied equity share value range of $0.46 to $2.04
with a median of $1.01.

The Minority Purchase Premiums analysis resulted in:

- One day prior to the announcement of an offer, of premium ranges from
3.2% to 71.6% with a median of 32.1%; applying these multiples to the
Company resulted in an implied equity share value range of $1.19 to $1.98
with a median of $1.53;

- One week prior to the announcement of an offer, of premium ranges from
7.2% to 89.1% with a median of 32.2%; applying these multiples to the
Company resulted in an implied equity share value range of $1.07 to $1.89
with a median of $1.32; and

- Four weeks prior to the announcement of an offer, of premium ranges from
6.7% to 116.7% with a median of 25.3%; applying these multiples to the
Company resulted in an implied equity share value range of $1.07 to $2.17
with a median of $1.25.

The Sporting and Athletic Goods premiums analysis resulted in:

- One day prior to the announcement of an offer, premium ranges from 12.5%
to 30.3% with a median of 19.3%; applying these multiples to the Company
resulted in an implied equity share value range of $1.30 to $1.51 with a
median of $1.38;

- One week prior to the announcement of an offer, of premium ranges from
16.9% to 32.1% with a median of 20.6%; applying these multiples to the
Company resulted in an implied equity share value range of $1.17 to $1.32
with a median of $1.21; and

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<PAGE> 21

- Four weeks prior to the announcement of an offer, of premium ranges from
23.6% to 36.0% with a median of 31.6%; applying these multiples to the
Company resulted in an implied equity share value range of $1.24 to $1.36
with a median of $1.32.

No company or transaction used in the comparable company analysis, the
comparable transactions analysis or the premiums paid analysis as a comparison
is identical to the Company or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies considered and other factors that could affect
the public trading value of the companies to which the Company and the Merger
are being compared.

DISCOUNTED CASH FLOW ANALYSIS. The Advisor determined that a discounted
cash flow analysis was not relevant due to the short-term nature (through
December 31, 2000) of the projections provided by Company management.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, the Advisor considered the results of all its analyses
as a whole and did not attribute any particular weight to any analysis or factor
considered by it. The Advisor believes that selecting any portion of the
Advisor's analyses, without considering all analyses, would create an incomplete
view of the process underlying its opinion. In addition, the Advisor may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting for any particular analysis described above
should not be taken to be the Advisor's view of the actual value of the Company.

In performing its analyses, the Advisor made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company. The analyses
performed by the Advisor are not necessarily indicative of actual value, which
may be significantly more or less favorable than suggested by such analyses.
Such analyses were performed solely as part of the Advisor's analysis of whether
the consideration to be received by the holders of Common Stock of the Company
pursuant to the Agreement was fair from a financial point of view to such
holders, and were conducted in connection with the delivery of the Advisor's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which the Company or its assets might actually be sold.

As described above, the Advisor's opinion provided to the Special Committee
was one of a number of factors taken into consideration by the Special Committee
in making its determination to recommend adoption of the Agreement and the
transactions resulting from it. Consequently, the Advisor's analyses described
above should not be viewed as determinative of the opinion of the Special
Committee or the view of the management with respect to the value of the
Company. The consideration to be received by the holders of Common Stock of the
Company pursuant to the Agreement was determined through negotiations between
the Special Committee on behalf of the Company and Parent and was approved by
the Special Committee as well as the entire Board of Directors.

The Advisor was selected by the Company to render a fairness opinion in
connection with the Merger because of the Advisor's reputation and expertise as
an investment banking firm. The Advisor, as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings of
equities, private placements and valuations for estate, corporate and other
purposes. In the ordinary course of its business, the Advisor may actively trade
the equity securities of the Company for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short term position
in such securities.

In accordance with its engagement letter, the opinion of the Advisor is
addressed solely to the Special Committee for its use in connection with their
review and evaluation of the Merger. Neither the opinion nor the underlying
financial analysis may be relied upon by any person other than the members of
the Special Committee without the prior written consent of the Advisor.
Accordingly, under the terms of the engagement letter and the opinion letter
prepared pursuant to the engagement letter, no Company shareholder may rely or

15
<PAGE> 22

allege any reliance on the Advisor's opinion or analysis in connection with the
shareholder's consideration of the merits of the Merger or otherwise.

Pursuant to a letter agreement between the Company and the Advisor, dated
May 5, 1999, the Company agreed to pay the Advisor (i) a non-refundable retainer
of $25,000; (ii) an additional $75,000 payable upon initial delivery of its
preliminary analysis to the Special Committee; and (iii) an additional $50,000
payable upon closing of the transaction. In addition to any fees for
professional services, the Advisor will also be reimbursed for expenses incurred
in connection with the Advisor's representation of the Company. The Company has
also agreed to indemnify the Advisor against specified liabilities, including
liabilities under the federal securities laws, related to, arising out of or in
connection with the engagement of the Advisor by the Company.

The foregoing summary does not purport to be a complete description of the
analyses performed by the Advisor and is qualified in its entirety by reference
to the Advisor's opinion attached as Attachment II to this Proxy Statement. A
complete copy of the Advisor's report is available for inspection and copying at
the principal executive offices of the Company during its regular business hours
by any interested shareholder or a shareholder's representative designated in
writing.

THE AGREEMENT

A copy of the Agreement among the Company, the Parent and Merger Sub is
attached to this Proxy Statement as Attachment I. While the Company believes the
information contained in this Proxy Statement provides an accurate summary of
the Agreement, shareholders are urged to read the Agreement in its entirety.

EFFECTIVE TIME. If the Agreement is approved, it is expected that the
Merger will be consummated as soon as possible after the Special Meeting and
after all governmental and regulatory approvals required for the Merger, if any,
are received and all other conditions are satisfied. The Merger will become
effective upon the filing of Articles of Merger with the Tennessee Secretary of
State or at such later time and date as may be set forth in such Articles of
Merger (the "Effective Time").

THE MERGER. Pursuant to the terms of the Agreement at the Effective Time:
(i) Merger Sub shall be merged with and into the Company and the separate
corporate existence of Merger Sub shall thereupon cease; (ii) the Company shall
be the surviving corporation in the Merger and a majority-owned subsidiary of
Parent; (iii) each outstanding share of the Company's Common Stock, other than
shares held by Parent and 1,000 shares held by each of the Continuing
Shareholders and shares held by shareholders who have perfected their right to
dissent under Tennessee law, will be converted into the right to receive the
Merger Consideration. After the Merger, existing shareholders of the Company
other than Parent and the Continuing Shareholders will have no further interest
in the Company except to receive the Merger Consideration for their stock.

MERGER CONSIDERATION. In accordance with the terms of the Agreement, each
share of the Company's Common Stock issued and outstanding immediately prior to
the Effective Time other than shares held by Parent or the 1,000 shares held by
each of the Continuing Shareholders will, by virtue of the Merger and without
any action on the part of the holder thereof, at the Effective Time be converted
into the right to receive cash in the amount of $1.20 per share, without
interest.

After the consummation of the Merger, holders of certificates that prior to
the Merger represented issued and outstanding shares of the Company's Common
Stock will have no rights with respect to such shares except the right to
exchange the certificates for the Merger Consideration. As a result of the
Merger, Parent will become the owner of all of the issued and outstanding shares
of capital stock of the Company other than the 1,000 shares held by each of the
Continuing Shareholders and the former shareholders of the Company other than
the Continuing Shareholders will no longer have any ownership interest in the
Company.

CONDITIONS AND COVENANTS. The respective obligations of Parent, Merger Sub
and the Company under the Agreement to consummate the Merger are conditioned
upon the satisfaction of certain conditions. These conditions include: (i) the
shareholders of the Company and Parent and Merger Sub shall have approved the
Agreement; (ii) neither Parent, Merger Sub nor the Company shall be subject to
any order, decree or injunction of any court or administrative agency which
enjoins or prohibits the consummation of the Merger;
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<PAGE> 23

and (iii) the Advisor shall have reaffirmed its opinion to the Board of
Directors of the Company that the Merger Consideration is fair to the
shareholders of the Company from a financial point of view.

The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction of the following additional conditions: (i) the Company
shall have performed all material covenants and agreements required to be
performed by it under the Agreement; (ii) the representations and warranties of
the Company set forth in the Agreement shall be true and correct in all material
respects as of the date of the Agreement and as of the Effective Time as though
made on and as of the Effective Time; and (iii) all necessary third party
consents or approvals for the Merger shall have been obtained.

The obligations of the Company to effect the Merger are subject to the
satisfaction of the following similar conditions: (i) Parent and Merger Sub
shall have performed all covenants and agreements required to be performed by
them under the Agreement; (ii) the representations and warranties of Parent and
Merger Sub set forth in the Agreement shall be true and correct in all material
respects as of the date of the Agreement and shall be true and correct for
Parent and Merger Sub as of the Effective Time as though made on and as of the
Effective Time; and (iii) all necessary third party consents or approvals for
the Merger shall have been obtained.

GOVERNMENTAL AND REGULATORY APPROVALS. Transactions such as the Merger are
often required to be reviewed prior to closing by the Antitrust Division of the
Department of Justice and the Federal Trade Commission pursuant to the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). Under the HSR Act due to the size of the Merger, the
Company and Parent and Merger Sub are not required to file notification and
report forms with the Department of Justice and the FTC and no approval is
necessary from the Department of Justice or the FTC.

The Company is aware of no other governmental or regulatory approvals
required for the closing of the Merger other than necessary filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, and the filing of Articles of Merger with the Secretary of State of
Tennessee.

TERMINATION, AMENDMENTS AND EXPENSES. The Agreement may be terminated and
the Merger contemplated thereby abandoned at any time prior to the consummation
of the Merger, whether before or after approval by the shareholders of the
Company, by mutual consent of the Company and Parent and Merger Sub, by either
party if the other party has materially breached any of its representations,
warranties or covenants, which breach has not been cured within ten days after
the non-breaching party has notified the other party of its intent to terminate
the Agreement, or if there should be any order, writ, injunction or decree
prohibiting or restricting either party from consummating the transactions
contemplated thereby. In addition, any party may terminate the Agreement if the
Effective Time has not occurred on or before September 30, 1999, or if, the
approval of the Shareholders of the Company of the Merger is not obtained at the
Special Meeting or if, prior to the Effective Time, the Special Committee of the
Board of Directors of the Company, in its good faith judgment and in the
exercise of its fiduciary duties, enters discussions or negotiations regarding a
competing transaction to the Merger. In addition, Parent and Merger Sub may
terminate the Agreement if persons holding more than ten percent of the
outstanding shares of the Company (excluding shares held by Parent or the
Continuing Shareholders) have indicated their intention to exercise their right
to dissent from the transaction under applicable Tennessee law or if any
litigation or other proceeding has been commenced or threatened challenging the
Merger, or if the Company suffers a material adverse effect in its business or
condition (other than as a result of the death of John T. Lupton, Arnold D.
Palmer or Nancy Lopez).

The Agreement may be amended at any time prior to the Effective Time by
mutual agreement of the Company and Parent and Merger Sub through a written
amendment duly executed by the parties thereto.

Each party has agreed to pay its own expenses incurred in connection with
the Agreement, including fees and expenses of its own financial consultants,
accountants and counsel. If the Agreement is terminated by Parent and Merger Sub
due to the Company entering discussions or negotiations regarding a competing
offer,

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<PAGE> 24

the Company will reimburse Parent and Merger Sub for their out-of-pocket fees
and expenses incurred in connection with the Merger and the transactions
contemplated pursuant to the Merger.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company has made
certain representations and warranties in connection with the Agreement,
including representations and warranties relating to such matters as: (i) the
organization and authority of the Company to enter into the Agreement; (ii) the
capitalization of the Company; (iii) non-contravention of the proposed Merger
with existing law or agreements of the Company; (iv) the absence of required
filings, consents or approvals in connection with the Merger; (v) the absence of
misstatements in this proxy statement; (vi) the absence of brokers or finders in
connection with the Merger (other than the Advisor); and (vii) the delivery and
continuing efficacy of the opinion of the Advisor.

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Parent and Merger
Sub have made certain representations and warranties in connection with the
Agreement, including representations and warranties relating to such matters as:
(i) the organization of Parent and Merger Sub; (ii) the authority of Parent and
Merger Sub to enter into the Agreement; (iii) non-contravention of the proposed
Merger with existing law or agreements of Parent or Merger Sub; (iv) the absence
of material misstatements by Parent or Merger Sub in the Agreement or in other
information provided to the Company; (v) the absence of brokers or finders in
connection with the Merger other than Parent's financial advisor; (vi) the
absence of required filings, consents or approvals in connection with the
Merger; (vii) the absence of material misstatements by Parent or Merger Sub in
information submitted to the Company in connection with filings made to the
Commission in connection with the Merger; and (viii) the availability of
adequate financing for the payment of the Merger Consideration.

CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Agreement, the
Company has agreed to operate and conduct its business only in the ordinary
course in accordance with prior practices, and furthermore, the Company has
specifically agreed to: (i) refrain from issuing, selling or repurchasing any of
its capital stock or making any distributions or payments in respect of its
capital stock; (ii) provide Parent and Merger Sub with access and assistance in
reviewing the Company and its operations; (iii) take such further action and
render reasonable efforts to cause the consummation of the Merger; (iv) take the
procedural steps necessary to convene a special meeting of shareholders to
consider the Merger; and (v) provide prompt notice to Parent and Merger Sub of
certain matters, including the receipt of demands for appraisal of shares from
shareholders dissenting from the Merger.

In addition, the Company has agreed not to solicit, encourage or authorize
any person or to solicit from any third party any inquiries or proposals
relating to the disposition of a significant portion of its business or assets
other than in the ordinary course of business, or the acquisition of a
significant portion of its voting securities, or the merger of the Company or
any of its subsidiaries with any person other than Parent or Merger Sub, or
assist, or negotiate with any person in furtherance of such inquiries or to
obtain a proposal, or provide any such person with information; provided,
however, that a proposal may be considered if the Special Committee has
determined in the exercise of its fiduciary obligations that entering such
discussion or negotiations is in the best interests of the shareholders. If the
Company determines that it must consider an alternative proposal and the
Agreement is thereafter terminated by Parent and Merger Sub in accordance with
its terms, Parent and Merger Sub will be entitled to reimbursement of their
out-of-pocket fees and expense incurred in connection with the Merger.

INTERESTS OF CERTAIN SHAREHOLDERS AND DIRECTORS IN THE MERGER

In considering the recommendations of the Board with respect to the Merger,
shareholders should be aware that John T. Lupton and Arnold D. Palmer are
members of Parent and interested in entering into this transaction with the
Company through Parent and Merger Sub. These shareholders or their affiliates
collectively hold an aggregate of 1,597,717 shares of the Company's outstanding
common stock which comprises approximately 41 percent of all outstanding shares
and intend to vote their shares in favor of the Merger. In addition, David S.
Gonzenbach, Nancy Lopez, Charles S. Mechem, Jr. and Joel W. Richard-

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<PAGE> 25

son, Jr., directors of the Company, otherwise have interests in connection with
the Merger which may present them with actual or potential conflicts of
interest.

As of the Effective Time, all options to purchase Common Stock outstanding
under any employee benefit plan of the Company and all warrants to purchase
Common Stock previously issued in connection with the debt financings of the
Company, whether vested or unvested, shall be deemed immediately vested and
exercisable in full. The letter of transmittal for use by the Public
Shareholders shall be distributed to all option and warrant holders and shall
provide a mechanism for allowing holders of such options or warrants to exercise
their options or warrants in accordance with all of the other terms thereof and
thereby obtain the Merger Consideration issuable with respect to the number of
shares of Common Stock for which the options or warrants are exercised. Any such
options or warrants to purchase shares of Common Stock which are not so
exercised by the holders thereof in accordance with the procedures set forth in
the letter of transmittal within six months of the Effective Time shall
thereafter be deemed null and void.

SOURCE OF FUNDS FOR THE MERGER

Parent intends that financing for the Merger will be provided from capital
contributions of approximately $3,000,000 from the members of Parent. These
capital contributions, which are in addition to the members' commitment to
contribute the outstanding shares of Common Stock held by the members to Parent
at the request of Parent, will be furnished to Parent at the time of the closing
of the Merger. The Parent does not expect to be required to borrow funds for
purposes of financing the Merger.

The Agreement provides that all costs and expenses incurred in connection
with the Merger will be paid by the party incurring the expense; provided,
however, that if the Agreement is terminated by Parent or Merger Sub due to the
Company entering discussions or negotiations regarding a competing transaction,
the Company will reimburse Parent and Merger Sub for their out-of-pocket fees
and expenses incurred in connection with the Merger. Estimated fees and expenses
incurred or to be incurred by the Company in connection with the Merger are
investment banking fees and expenses of $ , legal fees and expenses of
$ , filing fees of $ , and miscellaneous fees and expenses of
$ . Estimated fees and expenses incurred or to be incurred by Parent
and Merger Sub in connection with the Merger are investment banking fees and
expenses of $ , legal fees and expenses of $ , and
miscellaneous fees and expenses of $ .

PAYMENT FOR THE SHARES OF COMMON STOCK AFTER THE MERGER

If the Agreement is approved by the shareholders of the Company and the
Merger is effected, each outstanding share of Common Stock other than shares
held by Parent, the Continuing Shareholders or shareholders perfecting their
dissenters rights under Tennessee law will, upon consummation of the Merger, be
converted into the right to receive $1.20 in cash, subject to any required
withholding.

Promptly after the Effective Time, each shareholder of record of the Common
Stock at the Effective Time will be sent instructions describing the procedure
for surrendering stock certificates in exchange for the cash to which such
shareholder is entitled and a form letter of transmittal. Payment for shares
will be made as soon as practicable after the stock certificates and letters of
transmittal have been duly delivered to the Company in accordance with such
written instructions. All holders of stock certificates will be required to
surrender their certificates to receive the cash to which they are entitled. Any
shareholder who has lost his or her stock certificates should promptly make
arrangements (which may include the posting of a bond or other satisfactory
indemnification) with the Company's transfer agent for replacement.

After the Effective Time and until stock certificates are surrendered, each
outstanding certificate will be deemed for all purposes to represent only the
right to receive the Merger Consideration. No transfer of shares of the Common
Stock will be made on the stock transfer books of the Company after the
Effective Time.

If payment is to be made to a person other than the one in whose name the
stock certificate is issued, it will be a condition to such payment that the (i)
certificate surrendered be properly endorsed (with such signature guarantees as
may be required) and be otherwise in proper form for transfer, and (ii) person

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<PAGE> 26

requesting such payment (a) pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder or (b) establish to
the satisfaction of the Company that such tax has been paid or is not
applicable.

Payment will be made through an exchange agent selected by Parent (the
"Exchange Agent"). Parent will be required to deliver sufficient funds to the
Exchange Agent prior to the Effective Time to pay the aggregate Merger
Consideration. Any portion of the funds made available by Parent to the Exchange
Agent that remains unclaimed by the shareholders six months after the Effective
Time will be returned to Parent. Any shareholder who has not exchanged his or
her shares at the time the funds are returned to Parent must look to Parent for
payment thereafter.

SHAREHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES TO THE COMPANY OR
TO PARENT UNTIL AFTER THEY HAVE RECEIVED INSTRUCTIONS FROM THE COMPANY, WHICH
WILL INCLUDE A FORM LETTER OF TRANSMITTAL.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

A shareholder who exchanges his or her shares of the Common Stock for cash
in the Merger will generally recognize gain or loss for federal income tax
purposes. The gain or loss will be equal to the difference between the cash
received and the shareholder's adjusted tax basis in the Common Stock. Gain or
loss will be treated as capital gain or loss if the shares of the Common Stock
are held as a capital asset by the shareholder. The capital gain or loss will be
long-term if the Common Stock has a holding period of more than one year in the
hands of the shareholder at the time of exchange.

The above summary discusses the federal income tax consequences of the
Merger but does not discuss all of the tax consequences that may be relevant to
a particular shareholder or to certain types of investors subject to special
treatment under the federal income tax laws (such as life insurance companies,
tax-exempt organizations and foreign taxpayers). There may be other federal,
state, local or foreign tax considerations applicable to the circumstances of a
particular shareholder. Each shareholder of the Company is urged to consult his
or her own tax advisor to determine the particular tax consequences of the
Merger to him or her (including the applicability and effect of state, local and
other tax laws).

ACCOUNTING TREATMENT

The Merger will be accounted for as a purchase. Each asset acquired and
liability assumed shall remain at its historical basis in proportion to the
Continuing Shareholders ownership in the Company prior to the Merger. The
remaining portion of each asset acquired and liability assumed shall be recorded
to reflect its respective fair value as of the date of the Merger.

APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS

Pursuant to Section 48-23-101 et seq. of the Tennessee Business Corporation
Act (the "Act"), shareholders will have the right to dissent from the Merger and
elect to have the fair value of their shares judicially determined. A copy of
the relevant provisions of the Act is attached as Attachment III.

In order to be eligible to exercise the right to dissent, a Company
shareholder must file with the Company a written objection to the Merger stating
that the shareholder intends to dissent if the Merger is effected. Such
statement must be filed before the vote is taken at the Special Meeting. It is
not necessary for a dissenting shareholder to vote against the Merger to
preserve dissenters' rights; however, such rights will be lost if the
shareholder votes in favor of the Merger.

If the Merger is approved, the Company will deliver a written notice to
dissenting shareholders no later than ten days after adoption of the Merger. The
written notice will set forth where the dissenting shareholders' payment demands
must be sent and where and when certificates must be deposited and will supply a
form for dissenting shareholders demanding payment. A dissenting shareholder
must deliver his payment demand to the Company no later than the date set forth
in the written notice to dissenting shareholders, which may not be fewer than
one nor more than two months after the written notice is delivered (the "Demand
Period"). Merely abstaining from or voting against the Merger will not satisfy
the two requirements that the shareholder (a) object in writing to the Merger
and (b) file a written demand for payment within the Demand Period.

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<PAGE> 27

Failure of a shareholder to file a written demand for payment during the Demand
Period binds such shareholder to the terms of the Merger and precludes exercise
of dissenters' rights.

Within the Demand Period, a dissenting shareholder must submit the
certificates representing his shares to the Company in accordance with the terms
of the notice to dissenting shareholders. As soon as practicable after the
Merger is effected, or upon receipt of a dissenting shareholder's payment
demand, whichever is later, the Company shall pay each dissenting shareholder
the fair value of his or her shares, plus accrued interest.

If a dissenting shareholder believes that the amount paid by the Company is
less than the fair value of his shares or that interest due was incorrectly
calculated, the dissenting shareholder must, within one month after the Company
has made payment to the dissenting shareholder, demand payment of his estimate
of the fair value. If a demand for payment remains unsettled, the Company must
commence a suit in a court having equity jurisdiction located in Hamilton
County, Tennessee, within two months after receiving the dissenting
shareholder's payment demand. If the Company fails to bring such a suit within
such time, it shall pay each dissenting shareholder whose demand remains
unsettled the amount demanded. The court shall determine the dissenting
shareholder's right to receive payment or the fair value of his or her shares
plus accrued interest or both. The costs and expenses of such proceedings shall
be assessed against the Company unless the court shall find the actions of a
dissenting shareholder who is a party to the suit to be arbitrary, vexatious or
not in good faith.

Section 48-23-101 of the Act provides that "fair value" shall be determined
immediately prior to the Merger, "excluding any appreciation or depreciation of
shares in anticipation of such corporate action." The value so determined could
be more or less than the value of the Merger Consideration into which shares are
to be converted pursuant to the Merger.

IN VIEW OF THE COMPLEXITIES OF THE FOREGOING PROVISIONS OF THE ACT, COMPANY
SHAREHOLDERS WHO ARE CONSIDERING PURSUING THEIR DISSENTERS' RIGHTS MAY WISH TO
CONSULT WITH LEGAL COUNSEL.

21
<PAGE> 28

BUSINESS OF THE COMPANY

GENERAL

The Company was incorporated in Tennessee in 1932 and began operations as
the Professional Golf Co., Inc. In 1966 it merged with First Flight Co. and in
1975 changed its name to ProGroup, Inc. In July 1996, the Company changed its
name to "The Arnold Palmer Golf Company." The Company manufactures, markets and
distributes a full line of golf products, including PALMER, NancyLopezGolf and
First Flight golf equipment, and HOTZ golf bags and luggage. The Company owns,
subject to certain exceptions, the exclusive worldwide right to the Arnold
Palmer and Nancy Lopez trade names in connection with the Company's manufacture,
sale and distribution of golf products.

PRINCIPAL PRODUCTS

The Company manufactures and markets golf clubs, golf bags, golf
accessories and luggage.

MARKETS

The principal market for the products sold by the Company is the United
States. Certain golf equipment is manufactured and distributed on a contract
basis to other wholesalers. Branded golf products are sold to pro shops and
retailers.

METHODS OF DISTRIBUTION

The principal method of distribution of the Company's products is through
employee sales representatives and independent sales representatives. The
Company's products are sold through separate and distinct trade channels, golf
courses and resorts; golf shops not affiliated with golf courses; and major
retailers.

SOURCES OF SUPPLIES OR RAW MATERIALS

The Company's major sources of supplies or raw materials are as follows:

<TABLE>
<CAPTION>
SOURCE RAW MATERIAL
------ ------------
<S> <C>
Mortex International Ltd. .................................. Bag material/hardware
SungLing Golf & Casting Co., LTD. .......................... Iron club heads,
metal
Dynamic Precision Casting Co., LTD. ........................ wood club heads
Aldila, Inc., True Temper Sports, Inc....................... Shafts
</TABLE>

While the Company has not experienced significant delays in receiving
supplies or raw materials, it does recognize the fact that, in some cases, only
a limited number of suppliers are available.

LICENSES, PATENTS, ETC.

As of March 1, 1992, the Company entered into an agreement (the "Palmer
Agreement") with Palmer Enterprises, pursuant to which the Company obtained a
license to use the name, likeness and endorsement of Arnold D. Palmer, a
director of the Company, in connection with the advertisement, promotion and
sale of golf clubs, bags, balls, gloves and other products.

The Palmer Agreement grants to the Company an exclusive worldwide right,
subject to certain exceptions, to use words or symbols, photographic
representations, images, likenesses or endorsements of Palmer in connection with
the Company's manufacture, sale and distribution of golf products. The Company
also has the right under the Palmer Agreement to sublicense to third parties the
right to use the licensed trademarks. The Palmer Agreement also gives the
Company the right to acquire the use of the Palmer identification in connection
with the manufacture, sale and distribution of certain other products upon the
termination of certain licensing arrangements with third party licensees. In
exchange for the grant of such license, the Company pays Palmer Enterprises as a
royalty a specified percentage of net sales ranging from 1%

22
<PAGE> 29

to 5% of each different product category. The Company also pays a minimum annual
royalty regardless of the royalty amount determined as a percentage of product
sales. The Palmer Agreement also sets forth the manner in which the Company and
Palmer Enterprises divide sublicensing royalties. In addition to the foregoing,
the Palmer Agreement contains provisions relative to the appearances of Palmer
to promote the licensed products and product usage by Palmer. The term of the
Palmer Agreement extends through March 1, 2007.

Effective January 1, 1998, the Company entered into a licensing agreement
(the "Lopez Agreement") with Lopez Enterprises, whereby the Company was granted
the exclusive world wide rights to use of the name, likeness, endorsement and
trademarks of Nancy Lopez, a director of the Company, in connection with the
advertisement, promotion, and sale of licensed products. Licensed products
include golf clubs, bags, gloves, shoes, balls, apparel and other related golf
products. The Company was also granted the right to sublicense to third parties
the right to use the licensed trademarks. In exchange for the rights granted to
the Company in the agreement, the Company will pay to Lopez Enterprises,
royalties equal to 3.25% of its net sales of licensed products in addition to
fixed royalties regardless of the amount of royalties payable as a percentage of
product sales. In addition to the foregoing, Lopez agrees to provide ancillary
marketing services to the Company at times and locations mutually convenient for
Lopez and the Company. Such ancillary services provided by Lopez will relate to
development and review of licensed products and production of print and
television advertising. The term of the Lopez Agreement extends through December
31, 2007.

SEASONAL BUSINESS

Golf equipment manufactured and marketed by the Company is largely for warm
weather recreation. The spring quarter of the Company's fiscal year is the start
of the golf season and typically the Company's sales are at their highest level
of the year. Sales for the summer quarter consist largely of reorders to fill in
customer service levels. The fall and winter quarters generate a lower level of
sales.

WORKING CAPITAL PRACTICES

It is necessary for the Company and the industry to begin purchasing raw
material inventory during the winter months to meet customer demands in the
spring and summer months.

The Company and the industry provide extended payment terms to customers
due to the seasonal nature of the business in an effort to generate higher
sales. Also, the Company and the industry provide rights to return merchandise
in certain circumstances.

CUSTOMERS

The Company's three largest customers, KMart Corporation, Wal-Mart Stores
Inc., and Nevada Bob's Pro Shop, Inc., have accounted for up to approximately
20.0% of the Company's total sales in recent periods.

BACKLOGS

With regard to continuing operations, the Company's backlog of unshipped
orders is not expected to be material.

GOVERNMENT CONTRACTS

No material portion of the Company's business is subject to renegotiation
of profits on termination of contracts or subcontracts at the election of any
governmental agency.

COMPETITIVE CONDITIONS

The Company's principal methods of competition are through customer
service, pricing and the quality of the products sold. One negative factor
pertaining to the competitive position of the Company is that the number of
suppliers for raw materials such as shafts and club heads for making golf clubs
is limited. Another negative factor is the proliferation of competitive products
available resulting in keen price competition in the
23
<PAGE> 30

golf industry. Among the Company's competitors are numerous companies that have
substantially greater financial resources, manufacturing capabilities, and
larger design, sales and marketing staffs than the Company.

RESEARCH

The Company's expenditures on product research and development have not
been material during recent periods. Similarly, the Company has not spent a
material amount during such periods on customer-sponsored research activities
relating to the development of new products, services or techniques or the
improvement of existing products, services or techniques.

ENVIRONMENTAL MATTERS

Compliance with federal, state and local provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is not
expected to have any material adverse effect upon the capital expenditures,
earnings or competitive position of the Company.

EMPLOYEES

The Company currently employs approximately 120 people.

OPERATIONS AND SALES TO FOREIGN COUNTRIES

The Company markets its products on a limited basis in foreign countries.
The revenue derived from such foreign sales was less than 2.0% of net sales for
recent fiscal years.

PROPERTIES

The Company owns or leases the following material properties:

(a) 6201 Mountain View Road, Ooltewah, Tennessee, is a leased building of
cinder block and wood construction containing approximately 95,000 square feet
and is used for the corporate offices of the Company.

(b) Hotze Road, Pocahontas, Arkansas, is an owned facility consisting of a
building of metal structure containing 72,000 square feet. This facility is used
for manufacturing golf clubs and golf bags and warehousing raw materials.

(c) 300 Tanger Boulevard, Suite 405, Branson, Missouri is a leased unit in
a building of cinder block and concrete construction, said unit containing 2,900
square feet. This facility is used for retail sales.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to the business, nor is any of its
property the subject of any such proceedings.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Company's Common Stock is quoted is traded over-the-counter through the
OTC -- Bulletin Board under the symbol "APGC." The following table sets forth
the high and low sales prices for the Company's

24
<PAGE> 31

Common Stock for the periods indicated, as reported through the OTC -- Bulletin
Board. References to quarters mean fiscal quarters of the Company.

<TABLE>
<CAPTION>
1997 HIGH LOW
---- ------- -------
<S> <C> <C>
First quarter............................................ $4.2500 $3.8750
Second quarter........................................... $4.5000 $4.2500
Third quarter............................................ $3.7500 $3.3750
Fourth quarter........................................... $3.2500 $2.9375
1998 HIGH LOW
- - --------------------------------------------------------- ------- -------
First quarter............................................ $2.9375 $1.7500
Second quarter........................................... $2.8750 $1.5000
Third quarter............................................ $3.0625 $1.5000
Fourth quarter........................................... $3.0000 $0.5625
1999 HIGH LOW
- - --------------------------------------------------------- ------- -------
First quarter............................................ $0.9687 $0.2500
Second quarter........................................... $1.5000 $0.2812
Third quarter through June 30, 1999...................... $ $
</TABLE>

On June 2, 1999, the day preceding the public announcement of the execution
of the Merger Agreement, the high and low per share sales prices for the
Company's Common Stock were $0.9688 and $0.8125, respectively.

As of June 30, 1999, the Company's Common Stock was held by approximately
1,600 holders of record.

Payment of dividends is subject to certain conditions contained in the
Company's loan agreements and is at the discretion of the Company's Board of
Directors and depends, among other factors, on earnings, capital requirements
for planned growth and the operating and fiscal condition of the Company. No
dividends have been paid during recent fiscal periods.

25
<PAGE> 32

SELECTED FINANCIAL INFORMATION

FOR FISCAL 1998, 1997, 1996, 1995, AND 1994, AND THE 1996 TRANSITION PERIOD
AND FOR THE SIX MONTHS ENDED APRIL 2, 1999 AND MARCH 27, 1998

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
FISCAL YEAR ENDED 1996 --------------------
------------------------------------------------- TRANSITION APRIL 2, MARCH 27,
1998 1997 1996 1995 1994 PERIOD 1999 1998
-------- -------- ------- ------- ------- ---------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net sales............................. $ 21,893 $ 28,454 $21,185 $24,621 $24,726 $18,456 $ 8,148 $ 9,575
Net loss from continuing operations... $(15,223) $(11,228) $(5,625) $(9,460) $(1,054) $(2,294) $(2,938) $(5,927)
BALANCE SHEET INFORMATION:
Total assets.......................... $ 20,478 $ 22,753 $18,560 $31,271 $40,258 $24,934 $15,739 $26,387
Long-term obligations and redeemable
preferred stock..................... $ 31,528 $ 31,264 $ 4,671 $ 7,473 $ 3,621 $20,996 0 $31,327
PER COMMON SHARE DATA:
Net loss per share from continuing
operations -- basic and dilutive.... $ (5.01) $ (3.77) $ (2.15) $ (3.73) $ (.42) $ (.80) $ (.75) $ (1.96)
Common shares outstanding at end of
period.............................. 3,054 3,004 2,635 2,539 2,537 2,927 3,927 3,054
</TABLE>

The Company changed its fiscal year end from one ending on the Saturday
closest to the end of February to one ending September 30, effective September
30, 1996. Therefore, the 1996 transition period relates to the seven-month
period ended September 30, 1996. Selected financial data for fiscal 1998, 1997,
1996, 1995, and 1994 relates to the years ended September 30, 1998 and 1997,
March 2, 1996, February 25, 1995 and February 26, 1994.

In May 1995, the Company sold its Duckster apparel line of business. The
results of discontinued operations have been reported separately from the
results of continuing operations.

26
<PAGE> 33

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

On June 30, 1999, the record date for determining shareholders entitled to
notice of, and to vote at, the Special Meeting, the Company had issued and
outstanding and entitled to vote 3,927,700 shares of Common Stock. The following
table sets forth information regarding beneficial ownership of the Company's
Common Stock as of June 30, 1999, except as otherwise noted, with respect to (i)
each person known by the Company to own beneficially more than five percent of
the outstanding Common Stock, (ii) each director, (iii) the Chief Executive
Officers of the Company and the other most highly compensated executive officer
during the fiscal year ended September 30, 1998, and (iv) all directors and
executive officers as a group:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- - ------------------------ ----------------------- ----------
<S> <C> <C>
DIRECTORS

David S. Gonzenbach......................................... 1,000 *
Richard J. Horton........................................... 500(3) *
Nancy Lopez................................................. 80,000 *
John T. Lupton(4)........................................... 2,233,272(5) 46.7
Charles S. Mechem, Jr....................................... 20,000(6) *
Arnold D. Palmer(7)......................................... 354,445(8) 8.9
Joel W. Richardson, Jr. .................................... 0 *
A. Alexander Taylor II...................................... 0 *

EXECUTIVE OFFICERS

Cindy L. Davis.............................................. 20,000 *
George H. Nichols(9)........................................ 200,200 4.9
D. Scudder Graybeal......................................... 29,862 *

5% OR MORE SHAREHOLDERS

C.C. Wang(10)............................................... 538,500(11) 12.6
APGC Holdings Company, LLC(12).............................. 1,597,717(13) 40.7
All Executive Officers and Directors as a group (11
persons).................................................. 2,729,079 52.4
</TABLE>

- - ---------------
* Less than 1.0% of the Common Stock.

(1) Includes the following number of shares subject to purchase pursuant to
options that are exercisable within 60 days of June 30, 1999 under the
Company's Amended and Restated Employee Incentive Stock Option Plan or the
1992 Stock Option Plan: Ms. Lopez -- 80,000 shares; Mr. Nichols -- 200,000
shares; Ms. Davis -- 20,000 shares; Mr. Graybeal -- 10,000 shares; and all
executive officers and directors as a group -- 310,000 shares. Also
includes the following numbers of shares subject to purchase pursuant to
the exercise of warrants that are exercisable within 60 days of June 30,
1999: Mr. Lupton -- 890,000 shares; Mr. Palmer -- 100,000 shares; and all
executive officers and directors as a group -- 990,000 shares.

(2) For the purpose of computing the percentage of outstanding shares owned by
each beneficial owner, the shares issuable pursuant to presently
exercisable stock options or warrants held by such beneficial owner are
deemed to be outstanding. Such options or warrants are not deemed to be
outstanding for the purpose of computing the percentage owned by any other
person.

(3) Includes 500 shares held in a trust for the benefit of Mr. Horton's child,
as to which shares Mr. Horton disclaims beneficial ownership.

(4) The address for this beneficial owner is 702 Tallan Building, Two Union
Square, Chattanooga, Tennessee 37402.

(5) Includes 833,333 shares of Common Stock held by the Thomas Cartter Lupton
Trust f/b/o John T. Lupton and issue.

(6) Includes 20,000 shares held in trust for the benefit of Mr. Mechem.

27
<PAGE> 34

(7) The address of this beneficial owner is P.O. Box 52, Youngstown,
Pennsylvania 15696.

(8) Includes 100,000 warrants exercisable within 60 days of June 30, 1999 held
by Arnold Palmer Enterprises, Inc., a company in which Mr. Palmer is the
majority shareholder.

(9) Mr. Nichols resigned as Chairman and Chief Executive Officer on November
21, 1997.

(10) The address for this beneficial owner is 600 Third Avenue, New York, New
York 10016.

(11) Includes 118,500 shares and 400,000 warrants exercisable within 60 days of
June 30, 1999, held by the Wang Group, Inc., an investment company
wholly-owned by Mr. Wang, and 20,000 shares held by U.S. Summit
Corporation, an investment company controlled by Mr. Wang. This information
is based solely upon a Schedule 13D filed by Mr. Wang on July 29, 1994, an
Amendment No. 1 to Schedule 13D filed on November 14, 1994 and an Amendment
No. 2 to Schedule 13D on December 29, 1994.

(12) The address for this beneficial owner is 702 Tallan Building, Two Union
Square, Chattanooga, Tennessee 37402.

(13) Represents the total number of shares which are committed to be contributed
to this beneficial owner pursuant to contribution agreements with members
of the entity. This amount includes 1,343,242 shares and 254,445 shares
reported above for Messrs. John T. Lupton and Arnold D. Palmer,
respectively.

CERTAIN INFORMATION REGARDING PARENT AND MERGER SUB

Parent has been formed by Cindy L. Davis, President and Chief Executive
Officer of the Company, and John T. Lupton and Arnold D. Palmer, shareholders
and directors of the Company, and the Lupton Trust and Palmer Enterprises. The
Board of Managers for Parent and the Board of Directors of Merger Sub are
composed of Ms. Davis, Messrs. Lupton, Palmer, Joel W. Richardson, Jr. and
Charles S. Mechem, Jr.

Cindy L. Davis has been President and Chief Executive Officer of the
Company since March 1998. She joined the Company in June 1997 as Executive Vice
President. Prior to joining the Company, she served as Vice President of the
Ladies Professional Golf Association (LPGA) from 1994 to 1997, and as Executive
Director, Teaching & Club Pro Division of the LPGA from 1992 to 1993. Ms. Davis
is a citizen of the United States and her business address is 6201 Mountain View
Road, Ooltewah, Tennessee 37363.

John T. Lupton is a private investor. From 1977 to 1986, he was Chairman of
JTL Corp., a soft-drink bottling company. He has been a Director of the Company
since January, 1995, and Chairman and Chief Executive Officer from March, 1995
through February, 1997, and from November, 1997 through March, 1998. Mr. Lupton
is a citizen of the United States and his business address is 702 Tallan
Building, Two Union Square, Chattanooga, Tennessee 37402.

Arnold D. Palmer is a professional golfer and President of Arnold Palmer
Enterprises, Inc. He is also the President and Director of TBHC, Inc. dba The
Bay Hill Club and Lodge and a Director of TCG, Inc. dba The Golf Channel. He has
been a Director of the Company from 1972 to 1990 and since February, 1992. Mr.
Palmer is a citizen of the United States and his business address is P.O. Box
52, Youngstown, Pennsylvania 15696.

Joel W. Richardson, Jr. is an officer of the Lupton Company, LLC, a private
investment firm. From 1977 to 1997, he was a partner and since 1997, of counsel,
with the law firm of Miller & Martin LLP, general counsel to the Company. He has
been a Director of the Company since July, 1996. Mr. Richardson is a citizen of
the United States and his business address is 702 Tallan Building, Two Union
Square, Chattanooga, Tennessee 37402.

Charles S. Mechem, Jr. is Chairman of the Board of Cincinnati Bell Inc.
From 1991 to 1995, he was Commissioner of the Ladies Professional Golf
Association. He is also a Director of Mead Corporation, Ohio National Life
Insurance Company, The S.M. Smucker Company and Star Banc Corporation. He has
been a Director of the Company since November, 1997. Mr. Mechem is a citizen of
the United States and his business address is 201 East 4th Street, 20th Floor,
Cincinnati, Ohio 45202.

28
<PAGE> 35

AUDITORS

The Board of Directors appointed Arthur Andersen LLP, independent public
accountants, to serve as auditors for the fiscal year ending September 30, 1999.
Representatives of Arthur Andersen LLP will be present at the Special Meeting
and will be given an opportunity to make a statement, if they desire, and to
respond to questions.

SOLICITATION OF PROXIES

The Company will bear the cost of solicitation of proxies and will
reimburse brokers, custodians, nominees and fiduciaries for their reasonable
expenses in sending solicitation material to the beneficial owners of the
Company's shares. In addition to soliciting proxies through the mail, proxies
may also be solicited by officers and employees of the Company by telephone or
otherwise.

Granting a proxy does not preclude the right of the person giving the proxy
to vote in person, and a person may revoke his or her proxy at any time before
it has been exercised by giving written notice to the Secretary of the Company,
by delivering a later dated proxy or by voting in person at the Special Meeting.

Proxies in the accompanying form that are properly executed and returned
will be voted at the Special Meeting and any adjournment(s) thereof in
accordance with the directions on such proxies. If no directions are specified,
such proxies will be voted according to the recommendations of the Board of
Directors as stated on the proxy.

Management knows of no other matters or business to be presented for
consideration at the Special Meeting other than the consideration of the
Agreement and Merger. If, however, any other matters properly come before the
Special Meeting or any adjournment(s) thereof, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
best judgment on any such matters. The persons named in the enclosed proxy may
also, if they deem it advisable, vote such proxy to adjourn the Special Meeting
from time to time.

July , 1999

29
<PAGE> 36

THE ARNOLD PALMER GOLF COMPANY

INDEX TO FINANCIAL INFORMATION

From the Company's Form 10-K for the Year Ended September 30, 1998:

<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operation................ F-2
Report of Independent Public Accountants
Balance Sheets as of September 30, 1998 and
September 30, 1997
Statements of Operations for the Years Ended
September 30, 1998, September 30, 1997, March 2,
1996 and the Seven-Month Period Ended September
30, 1996
Statements of Stockholders' Equity (Deficit) for
the Years Ended September 30, 1998, September 30,
1997, March 2, 1996 and the Seven-Month Period
Ended September 30, 1996.
Statements of Cash Flows for the Years Ended
September 30, 1998, September 30, 1997, March 2,
1996 and the Seven-Month Period Ended September
30, 1996.
Notes to Financial Statements
</TABLE>

From the Company's Form 10-Q for the Quarter Ended April 2, 1999:

<TABLE>
<S> <C>
Balance Sheets as of April 2, 1999 (Unaudited) and
September 30, 1998 (Audited)......................
Statements of Operations for the Three and Six
Months Ended April 2, 1999 and March 27, 1998
(Unaudited).......................................
Statements of Cash Flows for the Six Months Ended
April 2, 1999 and March 27, 1998 (Unaudited)......
Notes to Financial Statements (Unaudited).........
Management's Discussion and Analysis of Financial
Condition and Results of Operation................
</TABLE>

F-1
<PAGE> 37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

Results of Operations

The Company's revenues for the fiscal year ending September 30, 1998 were
approximately $21.9 million compared to $28.5 million for the fiscal year ended
September 30, 1997. The net loss for the fiscal year 1998 was approximately
$15.2 million, or $5.01 per share, compared to a net loss for fiscal 1997 of
approximately $11.2 million, or $3.77 per share.

In 1998, the Company, like other golf manufacturing companies, endured
extremely difficult market conditions that resulted in industry-wide declines in
sales and excessive manufacturing and retail inventories. These conditions,
combined with financial challenges in the Asian markets, largely reduced
manufacturing and retail margins industry-wide. In fiscal 1998 the Company
continued to experience difficulty in selling premium and higher retail priced
men's golf products, causing inventory buildup and a longer-term evaluation of
the product lines' proper marketplace positioning. At the same time, a similar
excessive inventory situation, a manufacturing price-cutting environment, and
out-dated product designs affected the Company's market for golf bags. The
challenging market conditions in fiscal 1998 coupled with the unplanned
reduction in Company sales arising from the difficulty experienced by the
premium and higher retail priced men's golf products and bag lines resulted in
large inventory write-downs and a higher frequency of low margin close-out
sales. Also in fiscal 1998, the Company invested substantially in the
development and introduction of NancyLopezGolf, a new brand offering of golf
equipment, bags, gloves and accessories for women golfers. With the shipment of
this product occurring essentially after the peak retail selling months, and
facing the same challenging market conditions, the brand achieved strong initial
product placement and assisted the Company in creating new distribution
ventures, largely with off-course stores.

Recognizing these marketplace and individual brand challenges as well as
the additional ongoing operational and financial difficulties of the Company,
the Company's Board of Directors embarked upon numerous strategic business
initiatives in an effort to positively restructure the Company for the future.
These actions, largely implemented in the last six months of fiscal year 1998,
included: a complete management restructuring; the consolidation of the
Company's Tennessee-based manufacturing facility to its Arkansas-based
manufacturing facility; a downsizing of corporate personnel; a thorough analysis
and establishment of a long term plan for each brand's marketing, sales and
distribution strategy; and the effectuation of a financial restructuring
including the sale of National Golf Suppliers, an asset unrelated to the
Company's core business, and the sale of Company's investment in Nevada Bob's
Series D preferred stock. The Company also undertook to restructure the
Company's existing debt obligations with its third party lender. The Company's
restructuring plan is expected to be completed early in calendar 1999.

Comparison of the Years Ended September 30, 1998 and September 30, 1997

Net sales for fiscal year 1998 decreased $6.6 million to $21.9 million, a
22.9% decrease from fiscal year 1997 net sales of $28.5 million. The tables
below compare the Company's net sales by product line and market segment for the
year ending September 30, 1998 to the year ending September 30, 1997.

SALES BY PRODUCT LINE

<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Club........................................................ 11.0 14.1 -22.0%
Bags........................................................ 7.8 11.0 -29.0%
Apparel..................................................... 0.2 0.2 -0.9%
Outlet...................................................... 0.8 0.7 21.4%
Components.................................................. 2.1 2.5 -15.3%
---- ---- -----
Total....................................................... 21.9 28.5 -22.9%
---- ---- -----
</TABLE>

F-2
<PAGE> 38

SALES BY MARKET SEGMENT

<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Pro......................................................... 12.0 14.0 -14.1%
Retail...................................................... 6.6 10.1 -33.9%
Outlet...................................................... 0.8 0.7 21.4%
Contract.................................................... 0.2 0.8 -78.7%
Components.................................................. 2.1 2.5 -15.3%
Export...................................................... 0.2 0.4 -56.9%
---- ---- -----
Total....................................................... 21.9 28.5 -22.9%
---- ---- -----
</TABLE>

A $3.1 million decrease in club sales and a $3.2 million decrease in bag
sales accounted for essentially all the decrease in the Company's sales for year
ending September 30, 1998. Sales to pro accounts (on-course golf shops and
off-course golf equipment stores), decreased 14.1% for the year ending September
30, 1998 while retail sales (mass merchants), decreased 33.9%. The sales
decrease was mostly attributable to soft market conditions during the year
resulting in overstocked inventories in the retail market. Additionally, one of
the Company's major mass merchant accounts which accounted for approximately
$1.6 million of sales during fiscal year ending September 30, 1997, did not
purchase significant amounts of product from the Company during fiscal year
1998.

Gross profit for the fiscal year ending September 30, 1998 was 5.3%
compared to 7.1% for the fiscal year ending September 30, 1997. Inventory write
downs and adjustments of approximately $1.8 million accounted for 8.2% margin
loss, while approximately 15.1% of the Company's fiscal 1998 sales were closeout
sales generating only 4.1% gross profit.

Total selling and marketing expenses remained essentially unchanged for the
fiscal year ending September 30, 1998 compared to the fiscal year ending
September 30, 1997. As a percent of net sales, selling and marketing expenses
were 34.1% and 26.3% for years ending September 30, 1998 and September 30, 1997.
Selling expenses were less variable in fiscal 1998 as the Company replaced its
sales force of independent representatives with employee representatives who are
compensated on a salary and commission pay structure. The employee
representatives are also reimbursed for travel and certain other expenses
incurred by the employees.

General and administrative expenses were $6.8 million for the fiscal year
ending September 30, 1998 and included $2.4 million related to the Company's
management changes and reorganization. Costs in this category included severance
for terminated executives, severance related to the closed Ooltewah, Tennessee
club plant (which was consolidated into the Pocahontas, Arkansas plant) and
outside consulting services. Excluding these non-recurring items, general and
administrative expenses were $4.4 million compared to $5.0 million for the
fiscal year ending September 30, 1997. Expense reductions were primarily in
salaries and benefits and legal expenses.

Interest expense for the year ending September 30, 1998 increased 37.3% to
$3.0 million from $2.2 million for year ending September 30, 1997. The increase
was due to an increase in long term debt of $10.0 million on which the per annum
interest expense was 7.97%. Royalty and other income decreased $0.5 million for
the year ending September 30, 1998 compared to the same prior year period. The
decrease was due to the losses related to the sale of the Company's component
division (National Golf Suppliers) and it's idle plant facility in Lumberton,
North Carolina. The loss on the sale of the component division was $0.4 million
and the loss on the idle plant facility was $0.1 million. A royalty agreement
held by the Company provided $1.0 million of royalty income in 1998. Beginning
October 1, 1998, the maximum royalty per the agreement will be $50,000 annually
and as a result, the Company expects a decrease in royalty income for fiscal
1999.

F-3
<PAGE> 39

Comparison of the Years Ended September 30, 1997 and September 30, 1996

Net sales for fiscal year 1997 increased $3.6 million to $28.5 million,
compared to sales of $24.9 million for the twelve month period ending September
30, 1996. The tables below compare the Company's net sales by product line and
market segment for year ending September 30, 1997 to the comparable period
ending September 30, 1996.

SALES BY PRODUCT LINE

<TABLE>
<CAPTION>
1997 1996 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Club........................................................ 14.1 13.5 4.8%
Bags........................................................ 11.0 10.6 3.4%
Apparel..................................................... 0.2 0.0 0.0%
Outlet...................................................... 0.6 0.5 26.5%
Components.................................................. 2.5 0.3 *
---- ---- ----
Total....................................................... 28.5 24.9 14.4%
---- ---- ----
</TABLE>

SALES BY MARKET SEGMENT

<TABLE>
<CAPTION>
1997 1996 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Pro......................................................... 14.0 12.3 13.4%
Retail...................................................... 10.1 11.7 -13.7%
Outlet...................................................... 0.6 0.5 26.5%
Contract.................................................... 0.8 0.0 0.0%
Components.................................................. 2.5 0.3 *
Export...................................................... 0.4 0.1 *
---- ---- -----
Total....................................................... 28.5 24.9 14.4%
---- ---- -----
</TABLE>

- - ---------------
* Due to insignificance of 1996 sales, percent change is not meaningful.

Although combined sales for clubs and bags increased 4.2% to $24.1 million,
the most significant increase in sales was in the Company's component division.
The Company acquired its component division, National Golf Suppliers, in June
1996, therefore 1996 component sales are fiscal fourth quarter sales only. Pro
sales (primarily to off-course golf equipment stores), increased $1.7 million in
fiscal 1997 to $14.0 million. Pro club sales were adversely affected by returns
of approximately $370,000 in fiscal 1997 resulting from a license claim by COBRA
Golf in which the Company voluntarily pulled its Standard Plus II product from
customers and ceased selling the product. Retail sales decreased 13.7% in fiscal
1997 to $10.1 million. The decrease was primarily attributable to overstocked
inventories in the retail market as merchants entered their Fall 1996 and Spring
1997 buying season.

Gross profit for fiscal 1997 was 7.1% compared to 19.4% for the twelve
months ending September 30, 1996. Excess inventory write-downs to lower of cost
or market of $2.4 million ($1.4 million in clubs and club raw material and $1.0
million in bags and bag raw materials), accounted for 8.3% of the decrease in
gross profit contribution. The write-downs were taken due to an approximate 50%
reduction in club and bag stock keeping units, in order to better manage
inventory levels and to improve manufacturing and customer service operations.
The Company believes the write downs were necessary to market the discontinued
products in alternate trade channels to protect its current product line. In
addition to the above, write downs on the Company's Standard Plus II product
were $618,000 for fiscal 1997 and accounted for 2.2% of the gross profit
decrease. Write downs on plant assets and other costs associated with plant
restructuring totaled $471,000, or

F-4
<PAGE> 40

1.7% of net sales. Fiscal 1997 gross profits were also lower due to closeout
pricing on approximately $4.2 million of discontinued merchandise.

Selling and marketing expenses increased $1.2 million in fiscal 1997. The
increase was primarily due to costs associated with replacing the Company's
sales force consisting of non-employee sales agents with employee-sales
representatives and regional sales management personnel. Fiscal 1997 selling
expense also includes a $335,000 write off of point-of-purchase display units
not currently being used. General and administrative expenses increased $1.1
million in fiscal 1997, of which approximately $0.5 million were in increased
legal fees. The increase in legal expenses related primarily to litigation
between the Company and its former CEO, and the dispute between the Company and
COBRA Golf, regarding the Standard Plus II product. Other increases in general
and administrative expenses reflect a full year of expenses from the Company's
component division (National Golf Suppliers) and additional senior management
personnel.

Other income increased $0.2 million in fiscal 1997, due to increased
royalty payments from the Company's sub-licensees. Interest expense decreased
8.3% from $2.4 million to $2.2 million for fiscal 1997. Cash interest expense
increased $0.6 million due to interest expense on higher average revolving
credit facility balances during fiscal 1997 and interest on the Company's $12
million long term note. The increase in cash interest expense was offset by a
$0.8 million decrease in non-cash interest expense relating to amortization of
the Company's subordinated debt discount and subordinated notes in 1996, which
was not as significant in 1997.

Comparison of the Seven-Month Periods Ended September 30, 1996 and September
30, 1995

Net sales from continuing operations for the seven month transition period
ending September 30, 1996, increased $3.7 million or 25.0% compared to the same
period in 1995. As shown in the table below, the Company's significant growth
was in golf club sales, which increased 63.9% to $10.0 million, and accounted
for 54.0% of the Company's total net sales for the 1996 transition period.

SALES BY PRODUCT LINE

<TABLE>
<CAPTION>
1996 1995 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Clubs....................................................... 10.0 6.1 63.9%
Bags........................................................ 7.3 8.1 -9.9%
Outlet...................................................... 0.6 0.4 50.0%
Other....................................................... 0.6 0.2 200.0%
---- ---- -----
Total....................................................... 18.5 14.8 25.0%
---- ---- -----
</TABLE>

SALES BY MARKET SEGMENT

<TABLE>
<CAPTION>
1996 1995 % CHANGE
---- ---- --------
($'S IN MILLIONS)
<S> <C> <C> <C>
Pro......................................................... 9.6 6.8 41.2%
Retail...................................................... 7.7 7.4 4.1%
Outlet...................................................... 0.6 0.4 50.0%
Other....................................................... 0.6 0.2 200.0%
---- ---- -----
Total....................................................... 18.5 14.8 25.0%
---- ---- -----
</TABLE>

The decrease in bag sales of $0.8 million was attributable to a decline in
retail bag sales, which declined 26.5% from 1995 sales of $3.4 million. Pro bag
sales were $4.8 million compared to $4.7 million in 1995.

The most favorable sales increase for the Company was a 41.2% increase in
its pro business segment, which increased to $9.6 million in 1996 from $6.8
million in 1995. Essentially all the increase in the pro

F-5
<PAGE> 41

business was in golf club sales. The increase in club sales was primarily in the
off-course golf equipment stores. Pro sales accounted for 51.9% of the Company's
total sales in the 1996 transition period compared to 45.9% in the comparable
1995 period. Net margins on total sales increased to 27.9% compared to 25.5% in
1995, and was attributable to the more favorable product mix and higher margins
in pro clubs. While total bag net margins remained constant with prior year at
28.8%, total club margins increased to 32.3% compared to 29.7% in 1995. A
decrease in retail club margins to 28.1% in 1996 from 32.2% in 1995, was offset
by a significant increase in pro club margins of 40.0% in 1996, compared to
29.4% in 1995.

Selling and marketing expenses increased $1.7 million for the seven months
ending September 30, 1996. A substantial portion of the increase was in
advertising and promotion as the Company was not investing significant resources
in this area in the prior year. Additionally, commission and royalty expenses
were greater than prior year due to sales growth. General and administrative
expenses increased $1.2 million over 1995 primarily resulting from expenditures
relative to the Company's ongoing training and implementation of its new fully
integrated management information systems.

Interest expense decreased 38.8% to $1.1 million for the seven months
ending September 30, 1996. This was due to a decrease in non-cash interest
expense relating to amortization of the Company's subordinated debt discounts
and subordinated notes. Interest expense was also reduced due to the sale of
certain properties and the retirement of related debt.

Other income for the 1996 transition period increased approximately $0.8
million over the same prior year period, most of which was royalty income from
the Company's licensing agreement for its patented hosel design (PHD)
technology. In the 1996 transition period, the Company also recognized $0.2
million in other income related to the increase in the net pension asset
recognized on the balance sheet. None was recognized in the seven months ending
September 30, 1995.

The Company recorded a $0.9 million charge against other income for the
period ending September 30, 1996. The Company was due to receive $1.2 million on
October 10, 1996, as final payment for the sale of its Duckster apparel division
to DeLong Sportswear. In September 1996, the Company became aware that DeLong
Sportswear would default on the final payment, and in lieu of payment accepted
manufacturing equipment and certain apparel items with a fair market value of
approximately $0.3 million in addition to other considerations beneficial for
the Company. The charge against other income reflects the writedown of the note
plus accrued interest, to $0.3 million.

Liquidity and Capital Resources

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.

The Company had negative working capital of $4.2 million as of September
30, 1998 and a current ratio of 0.74 to one. This compares to working capital of
$10.5 million and a current ratio of 3.8 to one at September 30, 1997. As of
September 30, 1998, the Company's outstanding balance on its revolving credit
facility was $12.3 million compared to $0.2 million at September 30, 1997. The
outstanding balance at September 30, 1998 was due to mature on December 31,
1998. In addition, the Company had long term debt of $22.0 million as of
September 30, 1998 which was due to mature December 31, 1999.

Due to the continued losses of the Company, the board of Directors embarked
upon numerous strategic business initiatives including the effectuation of a
financial restructuring plan as more fully discussed above. With the consent of
the Company's Chairman, the guarantor of the Company's existing indebtedness
(the "Guarantor"), the Company sold National Golf Suppliers, an asset unrelated
to the Company's core business, and the Company's investment in Nevada Bob's
Series D preferred stock. The Company also entered into negotiations to replace
the existing third-party lender of the Company with an affiliate of the
Guarantor. With the financial support of the Guarantor and of his affiliates,
the Company has been able to meet its outstanding financial commitments.

F-6
<PAGE> 42

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 Series D Shares 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 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 has 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.

Also subsequent to September 30, 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.
The Company believes this facility will satisfy working capital and capital
expenditure requirements through fiscal 1999.

Impact of Inflation and Changing Prices

Management believes that the impact of inflation and other changes in
prices during fiscal 1998, 1997 and 1996 and the 1996 transition period, had no
material effect on the Company's financial condition or operating results.

Recent Accounting Pronouncements

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) have been upgraded to a Year 2000 compliant level.
The Company's software applications operating on the AS/400 are 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 consist primarily of Lotus Smart Suite and cc: Mail, have been in the
process of upgrading to a Year 2000 compliance level with an anticipated
completion date no later than mid calendar year 1999. The cost for completing
the PC based applications upgrade is not expected to be material.

F-7
<PAGE> 43

The Company does not believe 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.

F-8
<PAGE> 44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Arnold Palmer Golf Company:

We have audited the accompanying balance sheets of THE ARNOLD PALMER GOLF
COMPANY (a Tennessee corporation) as of September 30, 1998 and 1997 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years ended September 30, 1998 and 1997, the seven-month period ended
September 30, 1996, and the year ended March 2, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Arnold Palmer Golf
Company as of September 30, 1998 and 1997, and the results of its operations and
its cash flows for the years ended September 30, 1998 and 1997, the seven-month
period ended September 30, 1996, and the year ended March 2, 1996, in conformity
with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Chattanooga, Tennessee
December 4, 1998

F-9
<PAGE> 45

THE ARNOLD PALMER GOLF COMPANY

BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 371 $ 703
Accounts receivable, less allowance for doubtful accounts
of $977 and $843 at September 30, 1998 and 1997........ 3,514 5,311
Inventories............................................... 7,004 7,375
Prepaid expenses and other................................ 1,162 847
------- -------
Total current assets.............................. 12,051 14,236
------- -------
PROPERTY, PLANT, AND EQUIPMENT, NET......................... 1,669 1,493
------- -------
OTHER ASSETS:
Investment in Nevada Bob's Holdings, Inc.................. 5,000 5,000
Property held for sale.................................... 94 170
Goodwill.................................................. 85 502
Other..................................................... 1,579 1,352
------- -------
Total other assets................................ 6,758 7,024
------- -------
$20,478 $22,753
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 46

THE ARNOLD PALMER GOLF COMPANY

BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term obligations............... $ 3 $ 102
Short-term borrowings from bank........................... 12,250 150
Accounts payable.......................................... 1,573 2,121
Accrued liabilities....................................... 2,389 1,370
-------- --------
Total current liabilities......................... 16,215 3,743
-------- --------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES............ 26,525 26,162
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
REDEEMABLE PREFERRED STOCK, $.50 par value, 833,333 shares
authorized, issued, and outstanding (liquidation
preference of $5,000 plus accumulated dividends).......... 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 September 30, 1998 and 1997............. 1,527 1,502
Additional paid-in capital................................ 6,401 6,313
Accumulated deficit....................................... (35,190) (19,967)
-------- --------
Total stockholders' equity (deficit).............. (27,262) (12,152)
-------- --------
$ 20,478 $ 22,753
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 47

THE ARNOLD PALMER GOLF COMPANY

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
SEPTEMBER 30, 1998 AND 1997, MARCH 2, 1996, AND
THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEARS 1996
------------------------------- TRANSITION
1998 1997 1996 PERIOD
-------- -------- ------- ----------
<S> <C> <C> <C> <C>
NET SALES........................................ $ 21,893 $ 28,454 $21,185 $18,456
COST OF SALES.................................... 20,730 26,447 17,983 13,301
-------- -------- ------- -------
Gross profit................................ 1,163 2,007 3,202 5,155
SELLING EXPENSES................................. 7,469 7,479 4,559 4,466
GENERAL AND ADMINISTRATIVE
EXPENSES....................................... 6,775 4,955 2,573 2,405
-------- -------- ------- -------
(13,081) (10,427) (3,930) (1,716)
-------- -------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net.......................... (3,038) (2,212) (2,965) (1,129)
Royalty and sub-license income, net............ 1,459 1,402 974 937
Writedown of note receivable................... 0 0 0 (894)
Other, net..................................... (563) 9 296 508
-------- -------- ------- -------
(2,142) (801) (1,695) (578)
-------- -------- ------- -------
Loss from continuing operations before
income taxes.............................. (15,223) (11,228) (5,625) (2,294)
-------
PROVISION FOR INCOME TAXES....................... 0 0 0 0
-------- -------- ------- -------
LOSS FROM CONTINUING OPERATIONS.................. (15,223) (11,228) (5,625) (2,294)
-------- -------- ------- -------
DISCONTINUED OPERATIONS (Note 13):
Income from discontinued operations............ 0 0 348 0
-------- -------- ------- -------
0 0 348 0
-------- -------- ------- -------
NET LOSS......................................... $(15,223) $(11,228) $(5,277) $(2,294)
======== ======== ======= =======
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE
FROM:
Continuing operations.......................... $ (5.01) $ (3.77) $ (2.15) $ (.80)
Discontinued operations........................ .00 .00 .13 .00
-------- -------- ------- -------
$ (5.01) $ (3.77) $ (2.02) $ (.80)
======== ======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 48

THE ARNOLD PALMER GOLF COMPANY

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED
SEPTEMBER 30, 1998 AND 1997, MARCH 2, 1996,
AND THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 25, 1995............ 2,539 $1,270 $4,118 $ (1,168) $ 4,220
Net loss.............................. 0 0 0 (5,277) (5,277)
Issuance of warrants for 232 shares of
common stock....................... 0 0 139 0 139
Issuance of common stock.............. 96 47 537 0 584
----- ------ ------ -------- --------
BALANCE AT MARCH 2, 1996................ 2,635 1,317 4,794 (6,445) (334)
Net loss.............................. 0 0 0 (2,294) (2,294)
Conversion of subordinated convertible
note into 192 shares of common
stock.............................. 192 96 863 0 959
Issuance of common stock.............. 100 50 334 0 384
----- ------ ------ -------- --------
BALANCE AT SEPTEMBER 30, 1996........... 2,927 1,463 5,991 (8,739) (1,285)
Net loss.............................. 0 0 0 (11,228) (11,228)
Issuance of common stock.............. 77 39 322 0 361
----- ------ ------ -------- --------
BALANCE AT SEPTEMBER 30, 1997........... 3,004 1,502 6,313 (19,967) (12,152)
Net loss.............................. 0 0 0 (15,223) (15,223)
Issuance of common stock.............. 50 25 88 0 113
----- ------ ------ -------- --------
BALANCE AT SEPTEMBER 30, 1998........... 3,054 $1,527 $6,401 $(35,190) $(27,262)
===== ====== ====== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 49

THE ARNOLD PALMER GOLF COMPANY

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
SEPTEMBER 30, 1998 AND 1997, MARCH 2, 1996,
AND THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEARS 1996
------------------------------- TRANSITION
1998 1997 1996 PERIOD
-------- -------- ------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss....................................... $(15,223) $(11,228) $(5,277) $(2,294)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ 457 407 400 140
Amortization................................ 454 364 1,674 433
(Gain) loss on disposal of property,
plant, and equipment................... 269 (11) (100) (98)
Loss on disposal of National Golf
Suppliers................................. 476 0 0 0
Writedown of note receivable................ 0 0 0 894
Writedown of property, plant and
equipment................................. 76 727 0 0
Changes in operating assets and
liabilities, net of effects from the
purchase and sale of National Golf
Suppliers:
Accounts receivable....................... 1,599 319 3,409 (1,778)
Inventories............................... (327) 2,116 2,479 489
Prepaid expenses and other................ 233 254 452 (481)
Accounts payable.......................... (533) (18) (2,400) 251
Accrued liabilities....................... 1,157 (557) (1,577) (12)
-------- -------- ------- -------
Net cash used in operating
activities........................... (11,362) (7,627) (940) (2,456)
-------- -------- ------- -------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment.... (1,137) (1,041) (150) (291)
Proceeds from sale of property, plant, and
equipment................................... 214 23 3,855 125
Investment in Nevada Bob's Holdings, Inc....... 0 0 0 (5,000)
Payments received on note receivable........... 0 0 1,600 0
-------- -------- ------- -------
Net cash provided by (used in)
investing activities................. (923) (1,018) 5,305 (5,166)
-------- -------- ------- -------
FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings from bank........................ 12,100 9,354 (1,733) 2,700
Proceeds from debt obligations................. 0 1,109 0 0
Principal payments on debt obligations......... (147) (1,162) (2,656) (41)
Issuance of redeemable preferred stock......... 0 0 0 5,000
-------- -------- ------- -------
Net cash provided by (used in)
financing activities................. 11,953 9,301 (4,389) 7,659
-------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH.................. (332) 656 (24) 37
CASH, BEGINNING OF PERIOD........................ 703 47 34 10
-------- -------- ------- -------
CASH, END OF PERIOD.............................. $ 371 $ 703 $ 10 $ 47
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments (refunds) during the period for:
Interest.................................... $ 2,390 $ 1,810 $ 1,085 $ 613
======== ======== ======= =======
Income taxes, net........................... $ 0 $ 0 $ (5) $ 0
======== ======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 50

THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS

For purposes of these financial statements and notes to these financial
statements, "fiscal 1998 and 1997" relates to the years ended September 30, 1998
and 1997, while "fiscal 1996" pertains to the year ended March 2, 1996. The
"1996 transition period" relates to the seven-month period ended September 30,
1996. All monetary amounts are expressed in thousands of dollars unless
otherwise indicated.

1. NATURE OF OPERATIONS

The Arnold Palmer Golf Company (the "Company") manufactures, markets and
distributes golf products, including PALMER and NancyLopezGolf equipment and
HOTZ golf bags and luggage. The Company's principal market is the United States.
The Company owns, subject to certain exceptions, the exclusive worldwide right
to the Arnold Palmer and Nancy Lopez trade names in connection with the
Company's manufacture, sale and distribution of golf products. The Company sells
primarily to retailers and golf specialty stores and grants credit to customers
based on defined payment terms. The Company performs ongoing credit evaluations
and generally does not require collateral. Three large customers accounted for
21%, 17%, 25%, and 32%, of net sales from continuing operations for fiscal 1998
and 1997, the 1996 transition period, and fiscal 1996, respectively.

In July 1996, the Company changed its name to The Arnold Palmer Golf
Company from ProGroup, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Discontinued Operations

As discussed in Note 13, on May 5, 1995, the Company sold its Duckster line
of headwear, outerwear, and shirts. Consistent with the provisions of Accounting
Principles Board Opinion No. 30, the results of discontinued operations have
been reported separately from the results of continuing operations, and a
provision was made in fiscal 1995 for the loss on the disposal of the Duckster
line of business.

Revenue Recognition

Revenue is recognized when the Company's products are shipped to its
customers.

Inventories

Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. Cost includes material, labor and factory overhead.
Market is net realizable value for finished goods. For raw materials and
work-in-process, market is replacement cost.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost, less accumulated
depreciation and amortization. Expenditures for maintenance and repairs are
charged to expense as incurred. The property, plant, and equipment balances
consisted of the following at September 30, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land..................................................... $ 70 $ 70
Buildings and improvements............................... 735 595
Machinery and equipment.................................. 2,209 2,936
Furniture and fixtures................................... 805 630
Construction in progress................................. 467 234
------- -------
4,286 4,465
Less accumulated depreciation and amortization........... (2,617) (2,972)
------- -------
$ 1,669 $ 1,493
======= =======
</TABLE>

F-15
<PAGE> 51
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Included in property held for sale at September 30, 1998 and 1997 is the
Company's idle Lumberton, North Carolina plant, which was sold October 5, 1998.

Depreciable assets are depreciated principally using the straight-line
method for financial reporting purposes and accelerated methods for income tax
purposes over the estimated useful lives of the related assets. The estimated
useful lives used in computing annual depreciation provisions are as follows:

<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements.................................. 5 to 31
Machinery and equipment..................................... 3 to 10
Furniture and fixtures...................................... 3 to 10
</TABLE>

During fiscal 1998 and 1997, the Company recorded impairment losses of
approximately $76 and $727. The write-down related to a $76 and $101 write-down
of its idle Lumberton, North Carolina facility in fiscal 1998 and 1997,
respectively, as well as certain construction in progress and tooling costs in
1997, which the Company will not utilize in the future.

Goodwill

Goodwill of $85 relates to a business acquired before November 1, 1970, and
is not required to be amortized. The Company continually evaluates whether
subsequent events and circumstances have occurred that indicate that the
remaining balance may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
future undiscounted net cash flows of the related businesses over the remaining
life of the goodwill in measuring whether goodwill is recoverable. The Company
recognized $30 of goodwill amortization expense in fiscal 1998 and 1997 related
to a business line that was sold September 30, 1998 (Note 3).

Advertising Expenses

The Company expenses advertising costs as incurred. Advertising expense for
fiscal 1998, 1997, the 1996 transition period, and fiscal 1996 was $869, $1,133,
$883, and $547, respectively.

Fiscal Year

During the 1996 transition period, the Company's Board of Directors elected
to change the Company's year end to September 30, effective September 30, 1996.
Fiscal 1996 was based on a 52-53-week period ending on the Saturday closest to
the end of February.

Net Loss Per Share

Effective for the year ended September 30, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128"), which changes the criteria for reporting earnings per share ("EPS")
by replacing primary EPS with basic EPS and fully diluted EPS with diluted EPS.
Due to losses in each period presented, the diluted EPS calculation includes no
common share equivalents due to their anti-dilutive effect. The weighted average
number of shares outstanding for fiscal 1998, 1997, the 1996 transition period,
and for fiscal 1996 are 3,041,490, 2,978,099, 2,852,213, and 2,615,619,
respectively.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the

F-16
<PAGE> 52
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Stock-Based Compensation

The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Effective in the 1996 transition period, the Company
adopted the disclosure option of Statement of Financial Accounting Standards
("SFAS No. 123") "Accounting for Stock-Based Compensation".

Recent Accounting Pronouncement

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.

3. ACQUISITION AND DISPOSAL OF NATIONAL GOLF SUPPLIERS, INC.

In June 1996, the Company issued 100,000 shares of its common stock in
exchange for certain assets and liabilities of National Golf Suppliers, Inc.
("NGS"), a wholesaler of golf club component parts located in Louisville, KY.

The acquisition of NGS was accounted for under the purchase method of
accounting. Accordingly, the operating results of NGS have been included in the
Company's results of operations from the date of acquisition. The excess of the
aggregate purchase price over the fair value of net assets acquired was recorded
as goodwill and was being amortized on a straight-line basis over a 15 year
period. The impact of the acquisition on pro forma net loss and loss per share,
as if the acquisition had taken place at the beginning of fiscal 1996, was not
significant for the 1996 transition period and fiscal 1996.

On September 30, 1998, the Company sold NGS for a $538 short-term
receivable which was paid in full in October 1998, a $230 installment promissory
note, and a minority ownership interest in the successor entity. The Company
does not exercise significant influence over the successor entity and the
investment is accounted for under the cost method of accounting. The sale
resulted in a loss of approximately $476. The promissory note is due to be
repaid through September 2001, and bears interest at the rate of 9.5%

F-17
<PAGE> 53
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. INVENTORIES

Inventories as of September 30, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials.............................................. $3,503 $3,602
Work-in-process............................................ 9 14
Finished goods............................................. 3,492 3,759
------ ------
$7,004 $7,375
====== ======
</TABLE>

5. INVESTMENT IN NEVADA BOB'S HOLDINGS, INC.

In August 1996, the Company purchased 625,000 mandatorily redeemable,
convertible shares of Series D Preferred Stock ("Series D Shares") of Nevada
Bob's Holdings, Inc. ("NBHI") for $5,000. The shares are convertible to common
shares of NBHI at any time at the currently effective conversion rate, as
defined, and will automatically convert to common shares if NBHI successfully
completes an initial public offering of at least $20,000. If the Series D Shares
are not converted to common shares of NBHI by August 21, 2000, NBHI shall redeem
33 1/3% of the shares annually over a three year period at 150% of the original
cost per share plus any declared but unpaid dividends. This investment is
classified as held-to-maturity and is accounted for using the cost method of
accounting.

In October 1998, the Series D Shares were sold for $5,000 to a trust (the
"Trust") affiliated with the Company's Chairman (the "Guarantor"). The Trust has
agreed to maintain the sharing agreement with the Company on any investment
gains the Series D Shares yield (Note 11).

6. SHORT-TERM BORROWINGS

Short-term borrowings consist of advances under a $12,000 line of credit
agreement and a separate $2,000 line of credit agreement with a bank . The lines
of credit and long-term obligations are collaterized by accounts receivable,
inventory, and other business assets and are guaranteed by the Guarantor.

There are no financial covenants under the lines of credit. Advances under
the lines of credit bear interest at the bank's prime rate less .5% (7.75% at
September 30, 1998). Interest is payable monthly. At September 30, 1998,
advances outstanding under the lines of credit were $12,250, letters of credit
outstanding were $520, and $1,230 was unused.

The line of credit was scheduled to mature December 31, 1998. However,
subsequent to September 30, 1998, the Company reduced outstanding borrowings on
the line of credit $5,000 from the sale of its investment in NBHI, and the Trust
purchased the remaining $7,250 from the bank. The Trust has agreed to extend the
due date and suspend interest payments on the $7,250 until December 31, 1999.

In fiscal 1997, the Company borrowed and repaid $1,100 from the Guarantor.

F-18
<PAGE> 54
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following at September 30, 1998 and
1997:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Term loan with bank, interest payable monthly at 8.25%, due
December 31, 1999......................................... $12,000 $12,000
Term loan with bank, interest payable monthly at LIBOR plus
2% (7.97% at September 30, 1998), due December 31, 1999... 10,000 10,000
Subordinated notes ($5,000 face amount) to related parties,
net of discount of $478 and $853 at September 30, 1998 and
1997, interest payable monthly at 6.0% (effective interest
rate of 15.9%), due November 2, 1999...................... 4,522 4,147
Other obligations........................................... 6 117
------- -------
26,528 26,264
Less: current maturities.................................... (3) (102)
------- -------
$26,525 $26,162
======= =======
</TABLE>

In November 1994, the Company completed a private placement of $5,000 in
subordinated notes. The holders of the $5,000 subordinated notes (which include
the Guarantor and another director of the Company) also received warrants to
purchase up to 1,000,000 shares of common stock of the Company at $5.50 per
share. The estimated fair value of the warrants was recorded as additional
paid-in capital.

Future scheduled maturities of long-term obligations as of September 30,
1998, were as follows:

Subsequent to September 30, 1998, the Trust purchased the outstanding
$22,000 of term loans from the bank. The Trust has agreed to suspend any
interest or principal payments until the maturity date of December 31, 1999.

8. INCOME TAXES

There was no current income tax provision or benefit recorded during fiscal
1998, 1997, the 1996 transition period, and fiscal 1996 due to the losses
sustained by the Company.

Deferred income tax assets and liabilities reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting and income tax reporting purposes. Temporary

F-19
<PAGE> 55
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

differences and carryforwards which give rise to deferred tax assets and
liabilities at September 30, 1998 and 1997, are as follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards................................. $18,004 $12,086
Inventory and receivables reserves..................... 943 1,221
Other accruals and reserves............................ 591 550
------- -------
19,538 13,857
------- -------
Deferred tax assets valuation allowance.................. (18,860) (13,114)
------- -------
Deferred tax liabilities:
Pension asset.......................................... 457 417
LIFO to FIFO change.................................... 65 222
Prepaid expenses....................................... 0 32
Excess tax depreciation................................ 156 72
------- -------
678 743
------- -------
Net deferred tax asset................................... $ 0 $ 0
======= =======
</TABLE>

At September 30, 1998 and 1997, the Company had federal tax loss
carryforwards of approximately $48,300 and $32,300 which expire in years 2009
through 2013 if not utilized earlier.

The difference between the provision for income taxes and the amount
computed by multiplying the loss from continuing operations before income taxes
by the statutory rate is summarized as follows:

<TABLE>
<CAPTION>
FISCAL YEARS 1996
-------------------------- TRANSITION
1998 1997 1996 PERIOD
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Expected tax benefit.......................... $5,746 $3,818 $1,913 $ 780
Change in valuation allowance................. (5,746) (3,818) (1,913) (780)
------ ------ ------ -----
Provision for income taxes from continuing
operations............................... $ 0 $ 0 $ 0 $ 0
====== ====== ====== =====
</TABLE>

9. EMPLOYEE BENEFIT PLANS

Pension Plans

The Company has a noncontributory defined benefit pension plan covering
substantially all salaried and hourly employees. The plan provides benefits
based on years of service and compensation levels. In the opinion of management,
the Company's funding policy is consistent with the requirements of the Employee
Retirement Income Security Act of 1974. Plan assets are invested primarily in
common stocks and corporate debt securities.

F-20
<PAGE> 56
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pension income for fiscal 1998, 1997, the 1996 transition period, and
fiscal 1996 included the following components:

<TABLE>
<CAPTION>
FISCAL YEARS 1996
------------------------- TRANSITION
1998 1997 1996 PERIOD
----- ----- ------- ----------
<S> <C> <C> <C> <C>
Service cost.................................. $ 38 $ 56 $ 86 $ 36
Interest cost on projected benefit
obligation.................................. 337 346 365 199
Actual return on plan assets.................. (1) (864) (1,047) (342)
Net amortization and deferral................. (478) 161 430 (35)
Net loss due to special early retirement
benefits.................................... 0 251 0 0
----- ----- ------- -----
Net pension income............................ $(104) $ (50) $ (166) $(142)
===== ===== ======= =====
</TABLE>

The following table sets forth the funded status of the plan as of
September 30, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................ $5,260 $4,223
Nonvested benefit obligation............................. 112 110
------ ------
Accumulated benefit obligation............................. $5,372 $4,333
====== ======
Projected benefit obligation............................... $5,484 $4,433
Plan assets at fair value.................................. 5,612 6,103
------ ------
Plan assets in excess of projected benefit obligation...... 128 1,670
Unrecognized net (gain) loss............................... 1,165 (451)
Unrecognized prior service cost............................ 140 156
Unrecognized initial net asset............................. (231) (277)
------ ------
Net pension asset recognized on the balance sheet.......... $1,202 $1,098
====== ======
</TABLE>

The following assumptions were used to measure the net periodic pension
income and the projected benefit obligation:

<TABLE>
<CAPTION>
FISCAL YEARS 1996
-------------------- TRANSITION
1998 1997 1996 PERIOD
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Discount rate used to determine the projected benefit
obligation......................................... 6.0% 7.5% 7.25% 7.5%
Rate of increase in future compensation levels used
to determine the projected benefit obligation...... 5.0% 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets used
to determine net periodic pension income........... 8.0% 9.0% 9.0% 9.0%
</TABLE>

The Company curtailed the benefits under its defined benefit plan in 1994.
Under this curtailment, nonunion employees that were not at least age 50 with at
least five years of service accrue no further benefits under the plan.

401(k) Profit-sharing Plan

The Company has a 401(k) profit-sharing plan covering substantially all
employees at least 21 years of age with six months of service. The plan allows
for employees to contribute a portion of their compensation, subject to certain
limitations. The Company may make discretionary contributions to the plan. Total

F-21
<PAGE> 57
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

discretionary contributions during fiscal 1998, 1997, the 1996 transition
period, and fiscal 1996 were $32, $38, $20, and $39, respectively.

10. CAPITAL STOCK

Stock Issuances

In fiscal 1998 and 1997, the Company issued 50,000 and 77,562 common
shares, respectively, to certain professional golfers as compensation under
endorsement agreements.

As consideration to the Guarantor for his guarantee of a line of credit in
January 1995, the Company issued an $850 subordinated convertible note and a
warrant to purchase up to 390,000 common shares of the Company. The cost of the
guarantee was set up as a deferred asset and amortized to interest expense over
the life of the note. Additionally, the Guarantor was given preemptive rights
through January 27, 2000 with respect to future issuances by the Company
sufficient to enable the Guarantor to maintain his fully diluted common stock
ownership percentage. In March 1996, the $850 subordinated note plus accrued
interest was converted to 191,814 shares of common stock under the terms of the
note.

In March 1995, the Company entered into a revolving credit facility with
the Guarantor. For each $100 drawn under this facility, the Guarantor was issued
3,750 shares of the Company's common stock. Under this facility, the Guarantor
was issued 80,625 shares in fiscal 1996.

Stock Option Plans

The Company has incentive stock option plans which were adopted under a
1981 plan and a 1992 plan for its officers and key employees which provide for
issuance of options to purchase up to 950,000 and 324,032 common shares,
respectively. The plans are administered by the Executive Committee of the Board
of Directors.

At September 30, 1998, the total number of shares available for options was
as follows:

<S> <C>
Reserved for:
Outstanding stock options............................... 631,127
Stock options authorized but not granted................ 482,805
---------
1,113,932
=========
</TABLE>

Stock options are exercisable at the market price on the date of grant and
expire on various dates through 2007. Stock options generally vest ratably over
a 3 year period from the date of grant or date of hire.

F-22
<PAGE> 58
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock option activity for fiscal 1998, 1997, the 1996 transition period,
and fiscal 1996, was as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Outstanding at February 25, 1995.................... 425,732 $ 8.68
Granted at market price........................... 241,000 4.09
Canceled or expired............................... (70,200) 11.23
--------
Outstanding at March 2, 1996........................ 596,532 6.53
Granted at market price........................... 80,000 5.38
Canceled or expired............................... (20,000) 7.63
--------
Outstanding at September 30, 1996................... 656,532 6.36
Granted at market price........................... 152,000 3.89
Canceled or expired............................... (179,137) 7.14
--------
Outstanding at September 30, 1997................... 629,395 5.54
Granted at market price........................... 320,000 3.39
Canceled or expired............................... (318,268) 6.56
--------
Outstanding at September 30, 1998................... 631,127 3.93
========
</TABLE>

Of the options outstanding at September 30, 1998, 120,000 have an exercise
price of $1.55 and a remaining contractual life of 8.9 years. Options to
exercise an additional 466,000 shares have exercise prices between $3.0 and
$5.38, with a weighted average exercise price of $4.07 and a weighted average
remaining contractual life of 10 years. Of these options, 200,334 are
exercisable at a weighted average exercise price of $3.94. The remaining 45,127
options have exercise prices between $7.12 and $10.93, with a weighted average
exercise price of $8.82, and a weighted average contractual life of 1.2 years.
All of these options are exercisable at a weighted average price of $8.82.

Of the options outstanding at September 30, 1998, 1997, and 1996, and March
2, 1996, total shares exercisable were 245,461, 315,729, 362,199, and 348,865,
respectively, with weighted average price of $4.84, $7.10, $8.11, and $8.19,
respectively.

The Company accounts for the plans under APB No. 25, under which no
compensation cost has been recognized for stock options granted with exercise
prices equal to the fair value of the Company's common shares on the date of
grant. The Company adopted SFAS No. 123 for disclosure purposes only in the 1996
transaction period. Had compensation cost for these plans been determined
consistent with SFAS No. 123, the Company's net loss and loss per share would
have been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
FISCAL YEARS 1996
---------------------------------- TRANSITION
1998 1997 1996 PERIOD
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss:
As reported.......................... $(15,223) $(11,228) $(5,277) $(2,294)
Pro Forma............................ (15,478) (11,335) (5,364) (2,490)
Loss per share:
As reported.......................... $ (5.01) $ (3.77) $ (2.02) $ (0.80)
Pro Forma............................ (5.09) (3.81) (.05) (0.87)
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to February 26, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

F-23
<PAGE> 59
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of option grants is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1998 and 1997, the 1996 transition period,
and fiscal 1996, respectively: risk-free interest rates of 5.49, 6.05, 6.30, and
5.40 percent; expected dividend yields of 0 percent; expected lives of one year
after vesting; expected volatility of 72%, 60%, 73%, and 73%. Using these
assumptions, the fair value of the stock options granted in fiscal 1998 and
1997, the 1996 transition period and fiscal 1996 is $253, $264, $165, and $503,
respectively, which would be amortized as compensation over the vesting period
of the options. The weighted average fair value of options granted during fiscal
1998 and 1997, the 1996 transition period, and fiscal 1996 is $0.79, $1.74,
$2.13, and $2.09, respectively.

Stock Purchase Warrants

The Company, in conjunction with the November 1994 issuance of its $5,000
subordinated notes, issued warrants to purchase 1,000,000 shares of common stock
at an exercise price of $5.50. Each warrant may be exercised with $5.50 in cash
or principal value of the notes at any time during the life of the warrants,
which expire on November 3, 1999.

In connection with the January 1995 guarantee of the Company's line of
credit, the Guarantor was issued a warrant to purchase up to 390,000 common
shares at $6.25 per share. These warrants expire January 27, 2000. In March
1995, all 390,000 warrants were immediately vested and subject to a reset price
of $5.00 per share.

Preferred Stock

The Company's shareholders have authorized the issuance of up to 1 million
shares of preferred stock, having a par value of $.50 per share. The
designation, powers, preferences, and rights of the shares shall be determined
by the Company's Board of Directors prior to issuance. As discussed in Note 11,
833,333 shares of preferred stock have been issued.

11. REDEEMABLE PREFERRED STOCK

In August 1996, the Company issued 833,333 shares of Series NB Preferred
Stock ("NB Shares") for $5,000 to the Guarantor to fund the Company's investment
in NBHI. The NB Shares, which were subsequently transferred to the Trust, have a
stated value of $6 per share and are convertible at any time to common stock on
a one to one ratio. The NB Shares are entitled to cumulative dividends equal to
30% of the earnings realized by the Company from its investment in NBHI's Series
D Shares. The NB Shares shall have a preference in liquidation of $5,000 plus
accumulated dividends and are required to be redeemed upon sale or redemption of
the Series D Shares of NBHI.

In October 1998, the Trust converted all the NB Shares to 833,333 shares of
common stock.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has entered into various operating leases for buildings and
office equipment. Rent expense was approximately $821, $768, $405, and $433, for
fiscal 1998, 1997, the 1996 transition period, and fiscal 1996, respectively.
Approximate future minimum rental commitments for the next five years for
noncancelable operating leases as of September 30, 1998, were as follows:

F-24
<PAGE> 60
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Included in fiscal 1998 and 1997 rent expense is $166 and $82,
respectively, of lease payments to an entity controlled by the Guarantor, the
owner of the Company's Ooltewah, Tennessee headquarters since April 1997.

Litigation

The Company is party to certain legal proceedings incidental to its
business. In the opinion of management, based in part on the advice of legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position or results of operations.

Royalty Commitments

The Company pays royalties under a license agreement with Arnold Palmer
Enterprises, Inc., a company controlled by a shareholder and a member of the
Company's Board of Directors. The Company has the right to sub-license its
rights under this agreement. The agreement expires March 1, 2007, but may be
extended for successive five-year periods. Under the terms of the agreement, the
Company will pay royalties of 1% to 5% of net sales of specified products and a
portion of sub-licensing royalties. The Company has committed to pay minimum
royalties of $750 through 2007. During fiscal 1998, 1997, the 1996 transition
period, and fiscal 1996, the Company incurred royalty expense under this
agreement of approximately $750, $700, $442, and $500, respectively.

Effective January 1, 1998, the Company entered into a license agreement
with Nancy Lopez Enterprises, Inc., a company controlled by a member of the
Company's Board of Directors. The Company has the right to sub-license its
rights under this agreement. The agreement expires December 31, 2007 and
provides that the Company will pay royalties of 3.25% of net sales of licensed
products, as defined. The Company has committed to pay minimum royalties ranging
from $207 in calendar year 1998 to $426 in calendar year 2007 and make minimum
advertising expenditures for promotion of specified products ranging from $1,000
in calendar year 1998 to $2,700 in calendar year 2007. During fiscal 1998 the
Company incurred royalty expense under this agreement of approximately $174.

13. DISCONTINUED OPERATIONS -- SALE OF DUCKSTER

On May 5, 1995, the Company sold its Duckster line of headwear, outerwear,
and shirts for approximately $3,000 in cash and a $2,726 installment promissory
note. The Company also retained approximately $4,200 in existing accounts
receivable. The sale resulted in an estimated loss on disposal of $1,244, which
was included as a component of discontinued operations in fiscal 1995.

Approximately $1,126 of the promissory note receivable was not repaid by
the buyer. In lieu of payment, the buyer turned over certain manufacturing
equipment and other consideration to the Company. As a result, in the 1996
transition period the Company wrote the note receivable and related accrued
interest receivable down $894 to $300, the estimated fair value of the
consideration received.

14. CHANGE IN FISCAL YEAR

During the 1996 transition period, the Company changed its fiscal year end
to September 30 from the Saturday closest to the end of February. Accordingly,
the September 30, 1996 results of operations are for a seven-month period.

F-25
<PAGE> 61
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Following are selected financial data for the seven-month periods ended
September 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................. $18,456 $14,777
Gross profit.......................................... 5,155 3,765
Loss from continuing operations....................... (2,294) (1,446)
Income from discontinued operations................... 0 348
Net loss.............................................. (2,294) (1,098)
Loss per share from continuing operations -- basic and
diluted............................................. (0.80) (0.55)
Loss per share -- basic and diluted................... (0.80) (0.42)
</TABLE>

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash, accounts receivable, accounts payable and
accrued liabilities are reasonable estimates of their fair values because of the
short maturity of these financial instruments. Due to the fact that no liquid
market exists for: a) the Company's investment in the NBHI Series D Shares, b)
the subordinated notes payable, and c) the Company's Series NB Preferred Stock,
it is not practicable to estimate the fair value of these financial instruments.
Due to the guarantee of the lines of credit and term loans by the Guarantor, it
is not practicable to estimate the fair value of these financial instruments.

16. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company currently outsources a significant portion of its bag
manufacturing from one supplier in the Far East. Transactions with this entity
are subject to government regulations. Although there are a limited number of
manufacturers of golf bags, management believes that other suppliers could
provide a similar product on reasonably comparable terms. Also, the Company
could manufacture bags at its Pocahontas, Arkansas plant. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales,
which would affect operating results adversely.

17. SUBSEQUENT EVENT

Subsequent to year-end, the Company and a bank entered into a $5,000
unsecured loan commitment due December 30, 1999, which is guaranteed by the
Guarantor. The proceeds are to be used to meet working capital requirements.

F-26
<PAGE> 62

THE ARNOLD PALMER GOLF COMPANY

BALANCE SHEETS
APRIL 2, 1999 AND SEPTEMBER 30, 1998
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
APRIL 2, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 469 $ 371
Trade receivables......................................... 5,902 4,491
less: allowance for doubtful accounts.................. (689) (977)
-------- --------
Net receivables...................................... 5,213 3,514
Inventories, net.......................................... 6,248 7,004
Prepaid expenses and other................................ 542 1,162
-------- --------
Total current assets.............................. 12,472 12,051
Property, plant and equipment............................... 4,251 4,286
less: accumulated depreciation............................ (2,748) (2,617)
-------- --------
Net property, plant and equipment.................... 1,503 1,669
Other assets:
Investment in NBHI........................................ -- 5,000
Property held for sale.................................... -- 94
Goodwill.................................................. 85 85
Other..................................................... 1,679 1,579
-------- --------
1,764 6,758
-------- --------
TOTAL ASSETS...................................... $ 15,739 $ 20,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 33,988 $ 3
Short-term borrowings..................................... 3,000 12,250
Accounts payable.......................................... 996 1,573
Accrued liabilities....................................... 1,889 2,389
-------- --------
Total current liabilities......................... 39,873 16,215
Long-term obligations, net of current maturities............ -- 26,525
Redeemable preferred stock.................................. -- 5,000
Stockholders' equity (deficit):
Common stock, $.50 par value, 10,000,000 shares
authorized, 3,927,700 and 3,054,367 shares issued and
outstanding at April 2, 1999 and September 30, 1998,
respectively........................................... 1,964 1,527
Additional paid-in capital................................ 12,029 6,401
Accumulated deficit....................................... (38,127) (35,190)
-------- --------
Total stockholders' equity (deficit).............. (24,134) (27,262)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $ 15,739 $ 20,478
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 63

THE ARNOLD PALMER GOLF COMPANY

STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED APRIL 2, 1999 AND MARCH 27, 1998
(UNAUDITED)
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $ 4,729 $ 5,588 $ 8,148 $ 9,575
Cost of sales..................................... 3,574 4,493 6,362 7,964
------- ------- ------- -------
Gross profit.................................... 1,155 1,095 1,786 1,611
Selling and marketing expenses.................... 1,358 2,080 2,225 3,734
General and administrative expenses............... 631 1,316 1,200 2,462
Severance and restructuring expenses.............. -- 127 -- 797
------- ------- ------- -------
Loss from operations............................ (834) (2,428) (1,639) (5,382)
Other income:
Royalty and sub-license income, net............. 171 343 355 704
Other, net...................................... 10 83 17 87
------- ------- ------- -------
181 426 372 791
Loss before interest and income taxes............. (653) (2,002) (1,267) (4,591)
Interest expense.................................. 850 707 1,671 1,336
------- ------- ------- -------
Loss before income taxes.......................... (1,503) (2,709) (2,938) (5,927)
Provision for income taxes........................ -- -- -- --
------- ------- ------- -------
Net loss.......................................... $(1,503) $(2,709) $(2,938) $(5,927)
======= ======= ======= =======
Net loss per share -- basic and diluted........... $ (0.38) $ (0.89) $ (0.75) $ (1.96)
======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 64

THE ARNOLD PALMER GOLF COMPANY

STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 2, 1999 AND MARCH 27, 1998
(UNAUDITED)
($ IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 2, MARCH 27,
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(2,938) $(5,927)
Adjustments to reconcile net income to net cash used for
operating activities --
Depreciation.............................................. 182 311
Amortization.............................................. 230 201
Changes in operating assets and liabilities --
Receivables............................................ (1,699) (554)
Inventories............................................ 756 (2,520)
Prepaid expenses and other............................. 620 (281)
Accounts payable....................................... (577) 1,342
Accrued liabilities.................................... 526 551
------- -------
Net cash used for operating activities...................... (2,900) (6,877)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (16) (697)
Proceeds from sale of investments........................... 5,000 (62)
------- -------
Net cash provided by (used for) investing activities...... 4,984 (759)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings............ $(9,250) $ 7,400
Issuance of common stock.................................... 14 113
Net increase (decrease) in long-term obligations............ 7,250 (25)
------- -------
Net cash provided by (used for) financing activities...... (1,986) 7,488
------- -------
NET CHANGE IN CASH.......................................... 98 (148)
CASH, beginning of period................................... 371 703
------- -------
CASH, end of period......................................... $ 469 $ 555
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 327 $ 1,059
======= =======
Income taxes........................................... $ -- $ --
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 65

THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED APRIL 2, 1999
(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 April 2, 1999; (2) the results of its
operations and its cash flows for the six months ended April 2, 1999 and March
27, 1998; and (3) the results of its operations for the three months ended April
2, 1999 and March 27, 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 has 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 six months ending April 2, 1999 due to the losses
sustained by the Company.

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 April 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.

All the Company's long-term debt and subordinated notes as discussed below
in Item 2, are due and payable on or before December 31, 1999, and are therefore
classified as current obligations on the Company's balance sheet.

F-30
<PAGE> 66
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 dilutive 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 SIX MONTHS ENDED
----------------------- -----------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss (in thousands)......................... $ (1,503) $ (2,709) $ (2,938) $ (5,927)
Weighted average shares......................... 3,927,700 3,054,367 3,907,376 3,027,963
Net loss per share -- basic and diluted......... $ (0.38) $ (0.89) $ (0.75) $ (1.96)
</TABLE>

At April 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.

NOTE 5

INVENTORIES:

Inventories as of April 2, 1999 and September 30, 1998, were as follows (in
thousands):

<TABLE>
<CAPTION>
APRIL 2, SEPTEMBER 30,
1999 1998
-------- -------------
<S> <C> <C>
Raw Materials............................................... $3,453 $3,503
Work-in-process............................................. 9 9
Finished Goods.............................................. 2,786 3,492
------ ------
Total....................................................... $6,248 $7,004
------ ------
</TABLE>

NOTE 6

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. 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).
F-31
<PAGE> 67
THE ARNOLD PALMER GOLF COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7

PROPOSAL FOR BUY-OUT

On April 29, 1999, the Company received a proposal from APGC Holdings
Company, LLC, ("Holdings") for the acquisition of the Company pursuant to which
the Company would be merged with Holdings or its subsidiary in a cash-out merger
with public shareholders of the Company receiving $1.20 per share in cash. If
the acquisition set forth in the proposal is consummated, the Company would no
longer be publicly traded.

Holdings is a closely held company formed by Cindy L. Davis, President and
Chief Executive Officer of the Company, and certain directors and shareholders
of the Company including John T. Lupton and Arnold D. Palmer. If the proposal is
accepted, these individuals have agreed to contribute approximately 41 percent
of the outstanding common stock of the Company to Holdings pursuant to separate
agreements. The proposal is subject to certain conditions imposed by Holdings
and Holdings has reserved the right to withdraw the proposal at any time.

The board of directors of the Company unanimously approved the appointment
of a special committee to review the proposal and to determine whether the
proposal is in the best interests of the Company and its shareholders. The
special committee is considering the proposal and it is currently unclear
whether the proposal will be accepted.

Consummation of the acquisition would be subject to the negotiation and
execution of a definitive merger agreement and the approval of the board of
directors and the shareholders of the Company, as well as other customary
conditions of a transaction of this nature, including receipt of all necessary
regulatory approvals.

F-32
<PAGE> 68

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Proposal for Buy-out

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 these months to support its spring shipping
season. Capital expenditures for 1999 are expected to be minimal.

All 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 April 2,
1999, the Company had negative working capital of $27.8 million and a current
ratio of .30 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 April 2, 1999,
the Company's outstanding balance on its revolving credit facility was $3.0
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.
Also on March 31, 1999, the Trust agreed to contribute to paid in capital of the
Company, all accrued interest on the debt owed the Trust for the period October
1998 through March 1999. Therefore, $1,051,000 of accrued interest was
reclassified to additional paid-in capital from accrued liabilities on the April
2, 1999 balance sheet.

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. The Company
believes this facility will satisfy working capital and capital expenditure
requirements through fiscal 1999.

F-33
<PAGE> 69

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 April
2, 1999 was $4.7 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 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.

The proposal for the acquisition of the Company by Holdings noted above is
conditioned upon, among other things, the satisfactory restructuring of the
Company's indebtedness including the Company's outstanding indebtedness to the
holders of the long-term debt and subordinated notes of the Company. It is
currently unclear whether this condition to the proposal can be satisfied.

Results of Operations

The tables below compare net sales by product line and market segment for
the Company's second quarter and six months ending April 2, 1999, to the
comparable prior year periods.

SALES BY PRODUCT LINE
($'S IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1999 1998 %CHANGE 1999 1998 %CHANGE
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Clubs..................................... $2,254 $2,169 3.9 $3,530 $4,220 (16.4)
Bags...................................... 2,368 2,636 (10.2) 4,324 4,058 6.6
Outlet.................................... 87 111 (21.6) 251 300 (16.3)
Components................................ -- 583 (100.0) -- 851 (100.0)
Apparel................................... 20 89 (77.5) 43 146 (70.5)
------ ------ ------ ------ ------ ------
Total................................ $4,729 $5,588 (15.4) $8,148 $9,575 (14.9)
------ ------ ------ ------ ------ ------
</TABLE>

SALES BY MARKET SEGMENT
($'S IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
APRIL 2, MARCH 27, APRIL 2, MARCH 27,
1999 1998 %CHANGE 1999 1998 %CHANGE
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Pro....................................... $2,518 $2,319 8.6 $4,448 $4,750 (6.4)
Retail.................................... 2,126 2,397 (11.3) 3,451 3,370 2.4
Contract.................................. -- 178 (100.0) -- 304 (100.0)
Outlet.................................... 85 111 (23.4) 249 300 (17.0)
Components................................ -- 583 (100.0) -- 851 (100.0)
------ ------ ------ ------ ------ ------
Total................................ $4,729 $5,588 (15.4) $8,148 $9,575 (14.9)
------ ------ ------ ------ ------ ------
</TABLE>

F-34
<PAGE> 70

Net sales for the quarter ending April 2, 1999 were $4.7 million compared
to $5.6 million for the comparable prior year period, a decrease of 15.4%. Sales
for the six month period decreased 14.9% to $8.1 million, from $9.6 million in
the prior year same six month period. The Company's prior year sales include
component sales generated by its component division (National Golf Suppliers),
which the Company sold in September 1998. Excluding these sales from prior year,
the Company's decrease in sales were 5.5% and 6.6% for its second quarter and
six months ending April 2, 1999. The decrease in sales is due to the continued
softness in the market place.

The Company's gross profit as a percentage of net sales for the second
quarter and six month period ending April 2, 1999, was 24.4% and 21.9%
respectively. Gross profit for the comparable prior year periods was 19.6% and
16.8%. The increase in gross profit was partially attributable to a better
product mix in the current year. Pro line product sales, which yields the
highest margin contribution, was 54.5% of total sales for the six months ending
April 2, 1999 compared to 49.6% for the same prior year period. Gross profit
also improved due to benefits resulting from consolidation of the Company's
manufacturing facilities in its fiscal year ending September 30, 1998.

Selling and marketing expenses decreased $0.7 million and $1.5 million for
the three months and six months ending April 2, 1999. During the six month
period ending April 2, 1999, the most significant decreases were in
salaries -- $0.5 million, travel and living -- $0.3 million, advertising and
promotion -- $0.2 million, royalties -- $0.3 million and research and
development -- $0.2 million. Royalty expenses decreased due to the waiver of
royalty payments required under a licensing agreement with a licensor. Marketing
expenses related to the Company's component division (National Golf Suppliers)
accounted for $0.1 million of the decrease as the Company sold its component
division in September 1998.

General and administrative expenses decreased $0.7 million and $1.3 million
for the quarter and year to date periods ending April 2, 1999 over the same
prior year periods. For the six months ending April 2, 1999, salaries and
related payroll costs decreased $0.1 million, legal and other professional
services $0.1 million and occupancy costs, including rent and lease payments
decreased $0.1 million. General and administrative expenses related to the
Company's component division were $0.2 million for the prior year six month
period ending March 27, 1998, and expenses related to the Company's management
change and reorganization during the prior year six month period were $0.7
million for which there were no recurring expenses during the Company's current
year six month period ending April 2, 1999.

Other income for the six months ending April 2, 1999 decreased $0.4 million
from the prior year six month period. 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.

Interest expense for the six months ending April 2, 1999 was $1.7 million
compared to $1.3 million for six month period ending March 27, 1998. The
increase was due to higher debt balances during the Company's current six month
period compared to the same prior year period. Average short-term and long-term
debt for the six months ending April 2, 1999 was $31.4 million compared to an
average debt balance of $25.2 million for the same prior year period. Cash paid
for interest expense during the six months ending April 2, 1999 was $327,000
compared to $1.1 million during the same prior year period. The decrease in cash
interest payments was due to the suspension of interest payments to the Trust as
described above.

Recent Accounting Pronouncements

effectiveness of transactions that receive hedge accounting. 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).

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 for
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.

F-36
<PAGE> 72

ATTACHMENT I

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

APGC HOLDINGS COMPANY, LLC,

APGC ACQUISITION CORP.

AND

THE ARNOLD PALMER GOLF COMPANY

JUNE 3, 1999
<PAGE> 73

TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I.
THE MERGER..................................................
1.01 The Merger..........................................
1.02 Effective Time......................................
1.03 Conversion of Shares................................
1.04 Exchange of Certificates............................
1.05 Stock Options.......................................
1.06 Effect of the Merger................................
ARTICLE II.
CHARTER AND BYLAWS AND OFFICERS AND DIRECTORS OF THE
SURVIVING CORPORATION.....................................
2.01 Charter.............................................
2.02 Bylaws..............................................
2.03 Directors...........................................
2.04 Officers............................................
ARTICLE III.
REPRESENTATIONS OF THE COMPANY..............................
3.01 Organization and Authorization......................
3.02 Authorized and Outstanding Stock....................
3.03 No Conflict.........................................
3.04 Required Filings, Consents and Approvals............
3.05 Disclosure Documents................................
3.06 Brokerage...........................................
3.07 Opinion of Financial Advisor........................
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....
4.01 Organization........................................
4.02 Authorization.......................................
4.03 No Conflict.........................................
4.04 Disclosure..........................................
4.05 Brokerage...........................................
4.06 Required Filings and Consents.......................
4.07 Information for Company Disclosure Documents........
4.08 Financing...........................................
ARTICLE V.
COVENANTS...................................................
5.01 Conduct of the Business Pending the Merger..........
5.02 Access..............................................
5.03 Further Action; Reasonable Efforts..................
5.04 Competing Transaction...............................
5.05 Proxy Statement.....................................
5.06 Indemnification.....................................
5.07 Public Announcements................................
5.08 Notice of Certain Matters...........................
5.09 Dissenting Shareholders.............................
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
ARTICLE VI.
CONDITIONS..................................................
6.01 Conditions to the Obligation of Each Party..........
6.02 Additional Conditions to the Obligations of Parent
and Merger Sub.........................................
6.03 Additional Conditions to the Obligations of the
Company................................................
ARTICLE VII.
CLOSING.....................................................
7.01 Closing Date........................................
ARTICLE VIII.
TERMINATION PRIOR TO CLOSING................................
8.01 Termination of Agreement............................
8.02 Termination of Obligations..........................
ARTICLE IX.
MISCELLANEOUS...............................................
9.01 Entire Agreement....................................
9.02 Amendment...........................................
9.03 Parties Bound by Agreement; Successors and
Assigns................................................
9.04 Counterparts........................................
9.05 Headings............................................
9.06 Modification and Waiver.............................
9.07 Expenses............................................
9.08 Notices.............................................
9.09 Governing Law.......................................
9.10 No Third-Party Beneficiaries........................
9.11 Gender and Number...................................
9.12 Nonsurvival of Representations and Warranties.......
9.13 References..........................................
</TABLE>
<PAGE> 75

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of June 3, 1999, by and among APGC HOLDINGS COMPANY, LLC, a Delaware
limited liability company ("Parent"), APGC ACQUISITION CORP., a Tennessee
corporation and wholly owned subsidiary of Parent ("Merger Sub") (Parent and
Merger Sub are sometimes collectively referred to herein as "Buyer"), and THE
ARNOLD PALMER GOLF COMPANY, a Tennessee corporation (the "Company").

W I T N E S S E T H:

WHEREAS, the Company has 3,927,700 shares of issued and outstanding common
stock, par value $.50 per share (individually, a "Company Share," collectively,
the "Company Shares"); and

WHEREAS, as of the date hereof, the members of Parent have committed to
contribute to Parent an aggregate of 1,594,717 shares (the "Parent Shares") of
the Company Shares, representing approximately 40.6% of the total number of
Company Shares issued and outstanding as of the date hereof; and

WHEREAS, Parent has proposed to the Board of Directors of the Company that
Parent acquire each of the issued and outstanding Company Shares not owned by
Parent other than 1,000 Company Shares held by each of Arnold D. Palmer, John T.
Lupton and the Thomas Cartter Lupton Trust f/b/o John T. Lupton (the "Continuing
Shareholders") (the shares to be acquired, the "Public Shares") through a merger
(the "Merger") of Merger Sub with and into the Company pursuant to the terms of
this Agreement; and

WHEREAS, the Board of Managers and the Board of Directors respectively of
each of Parent and Merger Sub believe that it is in the best interests of each
of Parent and Merger Sub and their respective members and shareholders, and the
Board of Directors of the Company believes that it is in the best interests of
the Company and its shareholders, to enter into this Agreement and to consummate
the merger of Merger Sub with and into the Company in accordance with the terms
of this Agreement; and

WHEREAS, a committee (the "Special Committee") consisting of disinterested
and independent members of the Board of Directors of the Company has unanimously
recommended that the entire Board of Directors of the Company approve and
authorize this Agreement and the Merger, which recommendation was based in part
on the opinion of independent financial advisors to the Special Committee, that
the consideration to be received by the holders of Public Shares in the Merger
is fair to such holders from a financial point of view; and

WHEREAS, the Boards of Directors of the Company and Merger Sub and the
Board of Managers of Parent have approved this Agreement and the Merger upon the
terms set forth in this Agreement; and

NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements, and upon and subject to the terms and the conditions
hereinafter set forth, the parties do hereby agree as follows:

ARTICLE I.

THE MERGER

1.01 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.02), Merger Sub shall be merged
with and into the Company in accordance with this Agreement and the separate
corporate existence of Merger Sub shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and except for the 1,000 Company Shares held by
each of the Continuing Shareholders shall be a wholly-owned subsidiary of
Parent.

1.02 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article VI shall have been fulfilled or waived in accordance herewith on the
Closing Date and this Agreement shall not have been terminated as provided in
Article VIII, the parties hereto shall cause Articles of Merger in the form of
Exhibit 1.02 hereto
<PAGE> 76

(the "Articles of Merger") to be properly executed and filed with the Secretary
of the State of Tennessee on the Closing Date and the Merger Sub shall be merged
with and into the Company in accordance with this Agreement. The Merger shall
become effective at the time of filing of the Articles of Merger or at such
later time which the parties hereto shall have agreed upon and designated in
such filing as the effective time of the Merger (the "Effective Time").

1.03 CONVERSION OF SHARES.

(a) At the Effective Time, each Public Share outstanding immediately prior
to the Effective Time other than Dissenting Shares (as defined in Section
1.03(b)), automatically and without any action on the part of the respective
holders thereof (collectively, the "Selling Shareholders"), shall be converted
into the right to receive cash in an amount per share equal to One and 20/100
Dollars ($1.20), without interest (the "Merger Consideration"), payable to the
holder thereof upon the surrender of the certificate formerly representing such
outstanding Public Shares.

(b) Notwithstanding any provision to the contrary in this Agreement, Public
Shares held by a shareholder who has not approved the Merger and who has
demanded, and is entitled by law to exercise, appraisal rights for such Public
Shares in accordance with the Tennessee Business Corporation Act (the "Act")
(such shares, the "Dissenting Shares") shall not be converted into the right to
receive any portion of the Merger Consideration, unless such shareholder fails
to perfect or withdraws or otherwise loses his or her right to an appraisal in
accordance with the Act. If, after the Effective Time, such shareholder fails to
perfect or withdraws or loses his or her right to an appraisal, such Dissenting
Shares shall be treated as if they had been converted as of the Effective Time
into a right to receive the Merger Consideration, as provided herein, without
interest thereon.

(c) Each Parent Share outstanding immediately prior to the Effective Time
and the 1,000 Company Shares held by each of the Continuing Shareholders shall
be converted into and become one share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares of capital stock of
the Surviving Corporation.

(d) Each share of common stock of Merger Sub outstanding immediately prior
to the Effective Time shall be canceled and retired and cease to exist and no
consideration shall be delivered in exchange therefor.

1.04 EXCHANGE OF CERTIFICATES.

(a) From and after the Effective Time, a bank or trust company to be
designated by the Parent and reasonably acceptable to the Company (the "Paying
Agent") shall act as paying agent in effecting the exchange for the Merger
Consideration of certificates that, prior to the Effective Time, represented
Public Shares entitled to payment pursuant to Section 1.03. Upon the surrender
of each such certificate and the delivery by the Paying Agent of the Merger
Consideration in exchange therefor, the certificates that, prior to the
Effective Time, represented outstanding Public Shares shall forthwith be
canceled. Until so surrendered and exchanged, each such certificate shall
represent solely the right to receive the Merger Consideration multiplied by the
number of Public Shares represented by such certificate. Upon the surrender and
exchange of such outstanding certificate, the holder shall receive the Merger
Consideration, without any interest thereon. If any cash is to be paid to a
person other than a person in whose name such surrendered certificate is
registered, it shall be a condition to such payment or exchange that the person
requesting such payment or exchange shall pay to the Paying Agent any transfer
or other taxes required by reason of the payment of such cash to a name other
than that of the registered holder of such surrendered certificate, or such
person shall establish to the satisfaction of the Paying Agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Paying Agent nor any party to any such exchange shall be liable to a holder of
Public Shares for any Merger Consideration delivered to a public official
pursuant to applicable abandoned property laws.

(b) At or prior to the Effective Time, Parent shall provide the Paying
Agent with sufficient cash to pay the Merger Consideration to each holder of
Public Shares entitled thereto.

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<PAGE> 77

(c) Promptly following the date which is six months after the Effective
Time, the Paying Agent shall return to the Surviving Corporation all cash
(together with all interest earned thereon) and other instruments in its
possession relating to the transactions described in this Agreement, and the
Paying Agent's duties shall terminate. Thereafter, each holder of a certificate
that immediately prior to the Effective Time represented Public Shares may
surrender such certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration, without interest, but shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under Tennessee law.

(d) Promptly after the Effective Time, the Paying Agent shall mail to each
record holder of certificates that immediately prior to the Effective Time
represented Public Shares a form of letter of transmittal and instructions for
use in surrendering such certificates and receiving the Merger Consideration
therefor.

(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company or the Surviving Corporation of any Public Shares.
If, after the Effective Time, certificates that immediately prior to the
Effective Time represented Public Shares are presented to the Surviving
Corporation or the Paying Agent, they shall be canceled and exchanged for the
Merger Consideration, as provided in Section 1.03 hereof, subject to applicable
law in the case of Dissenting Shares.

1.05 STOCK OPTIONS.

(a) As of the Effective Time, each option to purchase Company Shares (an
"Option") issued pursuant to grants under the Employee Incentive Stock Option
Plan, the Amended and Restated Employee Incentive Stock Option Plan, and the
1992 Stock Option Plan (together, the "Stock Option Plans"), and each warrant
issued to purchase Company Shares issued in November, 1994 and January, 1995 in
connection with debt financings of the Company (the "Warrants") (whether vested
or unvested prior to the Merger) shall become immediately vested and exercisable
in full. The transmittal materials described in Section 1.04(a) above shall
include a means for allowing the holders of the Options and Warrants to exercise
such Option and Warrants in accordance with their original terms (including, to
the extent applicable, payment of the exercise price either in cash or through
the surrender (or deemed surrender, as applicable) of Company Shares already
owned by the holder of the Options or Warrants, or any combination of the
foregoing). To the extent that holders of the Options or Warrants elect to
exercise such Options or Warrants pursuant to the mechanism provided in the
letter of transmittal, they thereby shall become entitled to receive the Merger
Consideration in lieu of Company Shares which would have been issuable upon
exercise of the Options and Warrants prior to the Merger, with the same effect
as if such Options or Warrants had been exercised immediately prior to the
Effective Time and such Public Shares tendered in accordance with Section
1.04(a) hereof. Any Options or Warrants not exercised in accordance with this
Section 1.05 within six (6) months of the Effective Time, as well as any
outstanding options or warrants to acquire Company Shares other than the Options
or Warrants, shall be deemed null and void and shall not be exercisable or
exchangeable in any manner for the Merger Consideration and, except as otherwise
expressly provided in this Section 1.05, from and after the Effective Time,
neither the Buyer nor the Surviving Corporation shall have any obligation or
liability of any kind with respect to any such securities.

(b) No further options shall be granted pursuant to the Stock Option Plans
and no additional warrants of the Company shall be issued prior to the Effective
Time.

1.06 EFFECT OF THE MERGER. From and after the Effective Time, the Merger
shall have the effect set forth in the Act. Without limiting the generality of
the foregoing, upon the Effective Time of the Merger, the Surviving Corporation
shall possess all assets, rights, privileges, immunities, powers and purposes of
each of Merger Sub and the Company and all the debts, liabilities, obligations
and commitments of Merger Sub and the Company shall become the debts,
liabilities, obligations and commitments of the Surviving Corporation.

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<PAGE> 78

ARTICLE II.

CHARTER AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION

2.01 CHARTER. The charter of the Company as in effect immediately prior
to the Effective Time shall be the charter of the Surviving Corporation until
duly amended in accordance with applicable law.

2.02 BYLAWS. The bylaws of the Company in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.

2.03 DIRECTORS. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time.

2.04 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.

ARTICLE III.

REPRESENTATIONS OF THE COMPANY

The Company hereby represents and warrants to Parent and Merger Sub as of
the date hereof and as of the Effective Time as follows:

3.01 ORGANIZATION AND AUTHORIZATION.

(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee and has all requisite
power and authority, corporate or otherwise, to carry on and conduct its
business as it is now being conducted and to own or lease its properties and
assets, and is duly qualified and in good standing in the states in which
failure to do so would have a "Material Adverse Effect" (as defined below) on
the Company. "Material Adverse Effect" shall mean, with respect to any party
hereto, any change, event or effect that, when taken together with all other
adverse changes, events or effects, is or is reasonably likely to be materially
adverse to the business, operations, properties or financial condition of such
party and its subsidiaries and affiliates, taken as a whole.

(b) The Company has the right, power and capacity to execute, deliver and,
subject to approval of this Agreement and the Merger by the holders of the
Company Shares in accordance with the Act (the "Company Shareholder Approval"),
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly and validly authorized
by all necessary corporate action on the part of the Board of Directors of the
Company (including, without limitation, the unanimous recommendation of the
Special Committee). Upon the Company Shareholder Approval, the execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby will have been duly authorized by the
holders of the Company Shares. This Agreement has been duly and validly executed
and delivered by the Company and, subject to the Company Shareholder Approval,
constitutes the Company's legal, valid and binding obligation, enforceable in
accordance with its terms.

3.02 AUTHORIZED AND OUTSTANDING STOCK. The authorized capital stock of
the Company consists of 1,000,000 shares of preferred stock, par value $.50 per
share, and 10,000,000 shares of common stock, par value $.50 per share. There
are no other shares of capital stock authorized or issued. As of the date
hereof, (i) no shares of preferred stock of the Company are issued and
outstanding, (ii) 3,927,700 shares of common stock of the Company are issued and
outstanding, (iii) 631,127 shares of common stock of the Company are issuable
upon exercise of outstanding stock options under the Stock Option Plans, and
(iv) 1,390,000 shares of common stock of the Company are issuable pursuant to
the outstanding Warrants. All of the issued and outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable. There are
no shares of capital stock of any other company held by the Company.

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<PAGE> 79

3.03 NO CONFLICT. The execution and delivery of this Agreement by the
Company, the consummation of the transactions contemplated herein by the
Company, and the performance of the covenants and agreements of the Company
herein will not, with or without the giving of notice or the lapse of time, or
both, (i) violate or conflict with any of the provisions of the charter or
bylaws of the Company; or (ii) violate, conflict with or result in a breach or
default under or cause termination of any term or condition of any mortgage,
indenture, contract, license, permit, instrument, trust document, will, or other
agreement, document or instrument to which the Company is a party or by which
the Company or any of its properties may be bound, which individually or in the
aggregate, would have a Material Adverse Effect on the Company; or (iii) violate
any provision of law, statute, rule, regulation, court order, judgment or
decree, or ruling of any governmental authority, to which the Company or any of
its properties may be subject, which individually or in the aggregate, would
have a Material Adverse Effect on the Company; or (iv) result in the creation or
imposition of any lien, claim, charge, restriction, security interest or
encumbrance of any kind whatsoever upon any asset of the Company, which,
individually or in the aggregate, would have a Material Adverse Effect on the
Company.

3.04 REQUIRED FILINGS, CONSENTS AND APPROVALS. The execution and delivery
of this Agreement by the Company does not, and the performance of this Agreement
by the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities laws ("Blue Sky Laws") and filing and recordation of appropriate
merger documents as required by the Act and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, have a Material
Adverse Effect on the Company and its affiliates taken as a whole, or prevent or
materially delay the performance by the Company of any of its obligations under
this Agreement or the consummation of the Merger.

3.05 DISCLOSURE DOCUMENTS.

(a) Each document required to be filed by the Company with the Securities
and Exchange Commission (the "Commission") in connection with the transactions
contemplated by this Agreement (the "Company Disclosure Documents"), including,
without limitation, the Proxy Statement to be filed with the Commission in
connection with the Merger, and any amendments or supplements thereto will, when
filed, comply as to form in all material respects with the applicable
requirements of the Exchange Act.

(b) At the time the Proxy Statement or any amendment or supplement thereto
is first mailed to shareholders of the Company and at the time of the meeting of
the Company's shareholders for the purpose of considering and taking action on
this Agreement and the Merger (the "Shareholder Meeting"), the Proxy Statement,
as supplemented or amended, if applicable, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. At the time of the filing of any Company Disclosure
Document, if any, other than the Proxy Statement and at the time of any
distribution thereof, such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The foregoing notwithstanding, the
Company makes no representation or warranty with respect to any information
supplied by Parent, Merger Sub or any of their representatives which is
contained in any of the Company Disclosure Documents.

3.06 BROKERAGE. Except for Scott & Stringfellow, Inc. ("Adviser"), no
broker, agent, or finder has rendered services to the Company in connection with
the transaction contemplated under this Agreement. The Company has heretofore
furnished to Parent and Merger Sub a complete and correct copy of all agreements
between the Company and Adviser pursuant to which such firm would be entitled to
any payment relating to this Agreement or the Merger.

3.07 OPINION OF FINANCIAL ADVISOR. Adviser has rendered to the Special
Committee a written opinion dated as of May 27, 1999, a copy of which has been
provided to Parent, to the effect that the Merger Consideration is fair to such
shareholders from a financial point of view. Such opinion was delivered orally
to

5
<PAGE> 80

the Special Committee not later than the time that consummation of the
transactions contemplated hereby was approved by the Company's Board of
Directors, and was delivered in writing to the Special Committee prior to the
execution of this Agreement. Such opinion has not been withdrawn or modified in
any manner adverse to Parent.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB

Parent and Merger Sub hereby represent and warrant, jointly and severally,
to the Company as of the date hereof and as of the Effective Time as follows:

4.01 ORGANIZATION. Parent is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to carry on and conduct its business
as it is now being conducted and to own or lease its properties and assets.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee and has all requisite power
and authority, corporate or otherwise, to carry on and conduct its business as
it is now being conducted and to own or lease its properties and assets.

4.02 AUTHORIZATION. Each of Parent and Merger Sub has the right, power
and capacity to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Merger Sub. This Agreement has been duly and validly executed
and delivered by Parent and Merger Sub and constitutes each of Parent's and
Merger Sub's legal, valid and binding obligation, enforceable in accordance with
its terms.

4.03 NO CONFLICT. The execution and delivery of this Agreement by Parent
and Merger Sub, the consummation of the transactions contemplated herein by
Parent and Merger Sub, and the performance of the covenants and agreements of
Parent and Merger Sub herein will not, with or without the giving of notice or
the lapse of time, or both, (i) violate or conflict with any of the provisions
of any formation or governing document, bylaw or operating agreement of Parent
or Merger Sub; or (ii) violate, conflict with or result in breach or default
under or cause termination of any term or condition of any mortgage, indenture,
contract, license, permit, instrument, trust document, will, or other agreement,
document or instrument to which Parent or Merger Sub is a party or by which
Parent or Merger Sub or any of their respective properties may be bound; or
(iii) violate any provision of law, statute, rule, regulation, court order,
judgment or decree, or ruling of any governmental authority, to which Parent or
Merger Sub is a party or by which Parent or Merger Sub or their respective
properties may be bound; or (iv) result in the creation or imposition of any
lien, claim, charge, restriction, security interest or encumbrance of any kind
whatsoever upon any asset of Parent or Merger Sub.

4.04 DISCLOSURE. No representations, warranties, assurances or statements
by Parent or Merger Sub in this Agreement and no statement contained in any
document, certificates or other writings furnished or to be furnished by Parent
or Merger Sub (or caused to be furnished by Parent or Merger Sub) to the Company
or any of its representatives pursuant to the provisions hereof contains or will
contain any untrue statement of material fact, or omits or will omit to state
any fact necessary, in light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.

4.05 BROKERAGE. Except for SunTrust Equitable Securities, Inc., no
broker, agent, or finder has rendered services to Parent or Merger Sub in
connection with the transaction contemplated under this Agreement.

4.06 REQUIRED FILINGS AND CONSENTS. The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) for applicable requirements, if any,
of the Exchange Act, Blue Sky

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<PAGE> 81

Laws and filing and recordation of appropriate merger documents as required by
the Act and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, have a Material Adverse Effect on Parent or
Merger Sub or prevent or delay the performance by Parent and Merger Sub of any
of their respective obligations under this Agreement or the consummation of the
Merger.

4.07 INFORMATION FOR COMPANY DISCLOSURE DOCUMENTS. The information
supplied by Parent or Merger Sub for inclusion in the Company Disclosure
Documents shall not contain any untrue statement of material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they are made, not misleading (i) in the case of the Proxy Statement at the time
the Proxy Statement or any amendment or supplement thereto is first mailed to
shareholders of the Company and at the time of the Shareholder Meeting and (ii)
in the case of any Company Disclosure Document other than the Proxy Statement,
at the time of the filing thereof and at the time of any distribution thereof
and the Shareholders Meeting. The foregoing notwithstanding, neither Parent nor
Merger Sub makes any representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents.

4.08 FINANCING. Parent has obtained written commitments for sufficient
funds to enable it to make timely payment of the Merger Consideration in
accordance with the terms hereof, and has heretofore provided a copy of such
commitments and subscription agreements for interests in Parent to the Special
Committee.

ARTICLE V.

COVENANTS

5.01 CONDUCT OF THE BUSINESS PENDING THE MERGER.

(a) The Company covenants and agrees that between the date of this
Agreement and the Effective Time, unless Parent and Merger Sub shall otherwise
agree in writing, the business of the Company shall be conducted only in, and
the Company shall not take any action except in the ordinary course of business
and in a manner consistent with prior business practices.

(b) The Company agrees and covenants that between the date of this
Agreement and the Effective Time, the Company shall not:

(i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock;

(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock;

(iii) purchase or otherwise acquire, any shares of its capital stock;
or

(iv) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into any such shares of its capital stock, or any rights,
warrants or options to acquire any such shares or convertible securities,
other than issuance of shares of Common Stock of the Company upon the
exercise of Warrants or of Options outstanding as of the date of this
Agreement.

5.02 ACCESS. From the date of this Agreement through the Closing Date,
the Company shall (i) provide Parent or Merger Sub and its designees (including
officers, counsel, accountants, actuaries, and other authorized representatives)
with such information as Parent or Merger Sub may from time to time reasonably
request with respect to the Company, including assistance to Parent or Merger
Sub in connection with the transactions contemplated by this Agreement; (ii)
provide Parent or Merger Sub and its designees, access during regular business
hours to the books, records, offices, personnel, counsel, accountants and
actuaries of the Company, as Parent or Merger Sub or its designees may from time
to time reasonably request; and (iii) permit Parent or Merger Sub and its
designees to make such inspections thereof, including conducting customary
environmental tests (with Company having prior notice and the right to be
present), assessments and audits, as Parent or Merger Sub may reasonably
request. Any investigation shall be

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<PAGE> 82

conducted in such a manner so as not to interfere unreasonably with the
operation of the business of the Company. No such investigation shall limit or
modify in any way the Company's obligations with respect to any breach of its
representations, warranties, covenants or agreements contained herein.
Information afforded or furnished to Parent or Merger Sub by the Company
pursuant to this Section 5.02 shall be kept confidential by Parent and Merger
Sub and shall not be disclosed to third parties by them except: (i) with the
prior written consent of the Company; (ii) as may be required by law, regulation
or by legal process (including by deposition, interrogatory, request for
documents, subpoena, civil investigative demand or similar process); or (iii) as
may be necessary in connection with the consummation of the Merger.

5.03 FURTHER ACTION; REASONABLE EFFORTS. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use its reasonable
efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Merger, including,
without limitation, using its reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company as are
necessary for the consummation of the Merger and to fulfill the conditions to
the Merger. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Merger Sub, any other actions and things they may
reasonably deem desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.

5.04 COMPETING TRANSACTION. The Company shall not, and shall not permit
its officers, directors, employees, and other representatives and agents to, (i)
solicit, initiate or encourage any inquiries or the making of any proposal
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or division of the Company (any such
transaction being referred to herein as a "Competing Transaction"), (ii)
participate in any discussions or negotiations regarding any Competing
Transactions, or (iii) enter into any agreement with respect to any Competing
Transaction; provided, however, that the Company may review such proposals and
participate in such discussions and negotiate with any person, if the Special
Committee, after consultation with counsel, determines that such action is
necessary in light of the fiduciary obligations of the members of the Special
Committee to the Company or the shareholders of the Company.

5.05 PROXY STATEMENT. As soon as practicable, the Company shall file with
the Commission under the Exchange Act, and shall use its best efforts to have
cleared by the Commission, a proxy statement with respect to the Shareholder
Meeting referred to herein (the "Proxy Statement") and a Schedule 13e-3 as
required by the rules and regulations of the Commission. Parent, Merger Sub and
the Company shall also take any action required to be taken under Blue Sky Laws
in connection with the Merger. Parent, Merger Sub and the Company shall
cooperate with each other in taking such action and in the preparation of the
Proxy Statement and Schedule 13e-3. Each of the Company, Parent and Merger Sub
agrees to use its reasonable efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of or requests by the
Commission and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Company Shares entitled to
vote at the Shareholder Meeting at the earliest practicable time. The Proxy
Statement shall include (A) the recommendation of the Board of Directors of the
Company that the shareholders of the Company approve and adopt this Agreement,
unless the Board of Directors or the Special Committee, after consultation with
counsel, determines to withdraw such recommendation in light of their respective
applicable fiduciary duties, and (B) the opinion of Adviser that the Merger
Consideration to be received by the holders of Public Shares in the Merger is
fair to such holders from a financial point of view. The Company shall use its
reasonable efforts to solicit from holders of Public Shares entitled to vote at
the Shareholders Meeting proxies in favor of such approval. At the Shareholder
Meeting, Parent shall cause the shares of Common Stock of the Company owned by
Parent to be voted in favor of the approval and adoption of this Agreement and
the Merger.

8
<PAGE> 83

5.06 INDEMNIFICATION.

(a) Parent will cause the charter and bylaws of the Surviving Corporation
as in effect at the Effective Time to contain the indemnification provisions
that the Company's charter and bylaws contain on the date hereof and will not
permit those provisions to be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at or prior to the Effective
Time were directors, officers, employees or agents of the Company.

(b) After the Effective Time, each of Parent and the Surviving Corporation
will, to the fullest extent permitted under applicable law, indemnify and hold
harmless each director, officer, employee and agent of the Company on the date
hereof (each, together with such person's heirs, executors or administrators, an
"Indemnified Person" and collectively, the "Indemnified Persons") against any
costs or expenses (including attorneys fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
actual or threatened claim, action, suit, proceeding or investigation (each,
whether civil, criminal, administrative or investigative, a "Claim"), arising
out of, relating to or in connection with any action or omission occurring prior
to the Effective Time (including, without limitation, acts or omissions, in
connection with such persons serving as an officer, director or fiduciary of any
entity if such service was at the request or for the benefit of the Company) or
arising out of or pertaining to the transactions contemplated by this Agreement.
In the event of any such actual or threatened Claim (whether arising before or
after the Effective Time), (i) the Company or Parent and the Surviving
Corporation, as the case may be, will pay the reasonable fees and expenses of
counsel selected by the Indemnified Persons, promptly after statements therefor
are received and will pay all other reasonable expenses in advance of the final
disposition of that Claim, and (ii) Parent and the Surviving Corporation will
cooperate and use all reasonable efforts to assist in the vigorous defense of
any such Claim.

(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person and
is not the continuing or surviving corporation or entity of that consolidation
or merger or (ii) transfers all or substantially all its properties and assets
to any person, then and in each such case Parent and the Surviving Corporation
will cause proper provisions to be made so that the successors and assigns of
the Surviving Corporation or Parent assumes the obligations set forth in this
Section.

(d) For a period of six years after the Effective Time, Parent will cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company and its subsidiaries (provided
that Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to the Indemnified Persons and which coverages and amounts must
be no less than the coverages and amounts provided at that time for Parent's
directors and officers) with respect to matters arising at or before the
Effective Time; provided, however, that Parent will not be required to pay an
annual premium for such insurance coverage in excess of two times the annual
premium amount paid by the Company for such coverage as of the date hereof.

(e) The rights of each Indemnified Person hereunder will be in addition to
any other rights such Indemnified Person may have under employment or
indemnification agreements with the Company, the charter or bylaws of the
Company, under the Act or otherwise. The provisions of this Section will survive
the consummation of the Merger and expressly are intended to benefit each of the
Indemnified Persons. Parent will pay all reasonable expenses, including
reasonably attorneys' fees, that may be incurred by any Indemnified Person in
enforcing the indemnity and other obligations provided in this Section.

5.07 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or the Merger and shall not issue any such press
release or make any such public statement without the other party's prior
consent, except as may be required by law, in which case Parent or the Company,
as applicable, shall use its reasonable efforts to consult with the other party
before issuing such release or making any such public statement.

9
<PAGE> 84

5.08 NOTICE OF CERTAIN MATTERS. The Company shall give prompt written
notice to Parent and Merger Sub specifying in reasonable detail:

(a) Any notice of, or other communication relating to, a default or
event which, with notice or lapse of time or both, would become a material
default under any agreement, indenture or instrument material to the
business, assets, property, condition (financial or otherwise) or the
results of operations of the Company, taken as a whole, to which the
Company is a party or is subject;

(b) Any material notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement;

(c) Any material notice or other communication from any regulatory
authority (including the Commission) in connection with the transactions
contemplated by this Agreement;

(d) Any event which has or would result in a Material Adverse Effect
on the Company;

(e) Any claims, actions, proceedings or investigations commenced or,
to the Company's knowledge, threatened, involving or materially affecting
the Company or any of its properties or assets or, to the Company's
knowledge, any employee, consultant, director or officer, in his or her
capacity as such which, if pending on the date hereof, would have been
required to have been disclosed pursuant to this Agreement or which relates
to the consummation of the Merger; and

(f) Any event or action which, if known on the date hereof, would have
caused a representation or warranty set forth in Article III hereof to be
untrue or incomplete or incorrect in any material respect or would have
required it to have been disclosed pursuant to this Agreement.

5.09 DISSENTING SHAREHOLDERS. The Company shall give Parent prompt notice
of any demands received by the Company for appraisal of shares pursuant to the
Act, and Parent shall have the right to direct all negotiations and proceedings
with respect to such demands.

ARTICLE VI.

CONDITIONS

6.01 CONDITIONS TO THE OBLIGATION OF EACH PARTY. The respective
obligations of Parent, Merger Sub and the Company to effect the Merger are
subject to the satisfaction of the following conditions, unless waived in
writing by all parties:

(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite affirmative vote of the
shareholders of the Company to the extent required by the Act and the
Company charter and bylaws.

(b) No Order. No United States or state governmental authority or
other agency or commission or United States or state court of competent law
shall have issued any rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is then
in effect and has the effect of: (i) making the acquisition of Shares by
Parent or Merger Sub illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger; (ii) seeking to prohibit or limit
materially the ownership or operation by the Company, Parent or Merger Sub
of all or any material portion of the business or assets of the Company,
Parent or Merger Sub as a result of the Merger; or (iii) compelling the
Company, Parent or Merger Sub or any of their respective subsidiaries or
affiliates to dispose of or hold separate all or any material portion of
the business or assets of the Company, Parent or Merger Sub as a result of
the Merger; provided, however, that each of the parties shall have used its
reasonable efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as practicable any injunction or other
order that may be entered.

10
<PAGE> 85

(c) Update of Fairness Opinion. At the Effective Time, the Adviser
shall have reaffirmed orally and update subsequently in writing the
fairness opinion previously prepared and delivered by it to the Special
Committee and the Adviser shall not have withdrawn such opinion.

6.02 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction of the following further conditions, any or all of which may
be waived by Parent and Merger Sub.

(a) Performance of Covenants, etc. The Company shall have performed
in all material respects all of its obligations hereunder required to be
performed by it at or prior to the Effective Time, and the representations
and warranties of the Company contained in this Agreement shall be true and
correct in all respects at and as of the Effective Time (as if made at and
as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date) except where the breach or inaccuracy thereof would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.

(b) Consents and Approvals. Parent and Merger Sub shall have received
or be satisfied that they will receive all consents and approvals
contemplated by this Agreement and any other consents of third parties
necessary in connection with the consummation of the Merger if the failure
to obtain any such consent would have a Material Adverse Effect on the
Company.

6.03 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger are subject to the satisfaction
of the following further conditions, any or all of which may be waived by the
Company through the Special Committee or its Board of Directors:

(a) Performance of Covenants, etc. Parent and Merger Sub shall have
performed in all material respects all of their obligations hereunder
required to be performed by them at or prior to the Effective Time, and the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all respects, at and as of the
Effective Time as if made at and as of such time (except that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date), except
where the breach or inaccuracy thereof would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, Merger Sub or the
Company.

(b) Consents and Approvals. The Company shall have received or be
satisfied that they will receive all consents and approvals contemplated by
this Agreement and any other consents of third parties necessary in
connection with the consummation of the Merger if the failure to obtain any
such consent would have a Material Adverse Effect on Parent, Merger Sub or
the Company.

ARTICLE VII.

CLOSING

7.01 CLOSING DATE. Subject to the satisfaction or waiver of the
conditions set forth herein, the consummation of the Merger (the "Closing")
shall take place at 11:00 a.m. Eastern Time on the date of approval of the
Merger by the Company's Shareholders in the offices of Miller & Martin LLP, or
on such other date at such other time and place as the parties shall agree (the
"Closing Date").

ARTICLE VIII.

TERMINATION PRIOR TO CLOSING

8.01 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:

(a) By the mutual written consent of the Company and Parent and Merger
Sub;

(b) By the Company in writing, without liability to the Company, if
Parent and Merger Sub shall materially breach any of their representations,
warranties or covenants contained herein, which failure or

11
<PAGE> 86

breach is not cured within ten (10) days after the Company has notified
Parent and Merger Sub of its intent to terminate this Agreement pursuant to
this subparagraph (b);

(c) By Parent and Merger Sub in writing, without liability to Parent
and Merger Sub, if the Company shall materially breach any of its
representations, warranties or covenants contained herein, which failure or
breach is not cured within ten (10) days after Parent and Merger Sub have
notified the Company of their intent to terminate this Agreement pursuant
to this subparagraph (c);

(d) By either of the Company or Parent and Merger Sub in writing,
without liability, if there shall be any order, writ, injunction or decree
of any court or governmental or regulatory agency binding on the Company or
Parent and Merger Sub, which prohibits or restrains the Company or Parent
and Merger Sub from consummating the Merger, provided that the Company or
Parent or Merger Sub shall have used their reasonable, good faith efforts
to have any such order, writ, injunction or decree lifted and the same
shall not have been lifted within 30 days after entry, by any such court or
governmental or regulatory agency;

(e) By either the Company or Parent and Merger Sub in writing, without
liability, if for any reason the Closing has not occurred by September 30,
1999, other than as a result of the breach of this Agreement by the party
seeking to so terminate;

(f) By Parent and Merger Sub in writing, without liability to Parent
and Merger Sub, or by the Company if the Company shall have acted in
compliance with Section 5.04 hereof, if the Company's Board of Directors or
the Special Committee (i) shall have withdrawn or modified or amended in
any respect its recommendation of the Merger, or (ii) the Board of
Directors or the Special Committee have entered any discussions or
negotiations regarding any Competing Transaction;

(g) By Parent and Merger Sub in writing, without liability to Parent
and Merger Sub, if persons holding more than ten percent (10%) of
outstanding Public Shares have indicated their intention to demand payment
for their Public Shares pursuant to their right to dissent under the Act
prior to the Effective Time, or, if any litigation or other proceeding has
been commenced or threatened challenging the Merger or any of the
transactions contemplated hereby;

(h) By the Company or Parent and Merger Sub, without liability, if
upon a vote at the Shareholder Meeting, the approval of the shareholders of
the Company necessary to consummate the Merger shall not have been
obtained; or

(i) By Parent and Merger Sub in writing, without liability to Parent
and Merger Sub, if there shall have been any Material Adverse Effect on the
Company's business, assets, properties, prospects or condition (financial
or otherwise)(which, for purposes of this Section 8.01(i), shall not
include the death of John T. Lupton, Arnold D. Palmer or Nancy Lopez).

8.02 TERMINATION OF OBLIGATIONS. Termination of this Agreement pursuant
to this Article VIII shall terminate all obligations of the parties hereunder,
except for the confidentiality obligations under Sections 5.02 and the payment
obligations under Section 9.07 hereof; provided, however, that termination
pursuant to subparagraphs (b), (c) or (e) of Section 8.01 hereof shall not
relieve a defaulting or breaching party from any liability to the other party
hereto.

ARTICLE IX.

MISCELLANEOUS

9.01 ENTIRE AGREEMENT. This Agreement constitutes the sole understanding
of the parties with respect to the subject matter hereof; provided, however,
that this provision is not intended to abrogate any other written agreement
between the parties executed with or after this Agreement.

9.02 AMENDMENT. No amendment, modification or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.

12
<PAGE> 87

9.03 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of Parent and Merger Sub, the Company
may not assign its rights, duties or obligations hereunder or any part thereof
to any other person or entity. Parent and Merger Sub may, upon written notice to
the Company and without relieving itself of any liability hereunder, assign its
rights and duties hereunder in whole or in part (before or after the Closing) to
one or more entities controlling, controlled by or under common control with
Parent and Merger Sub.

9.04 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.

9.05 HEADINGS. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.

9.06 MODIFICATION AND WAIVER. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).

9.07 EXPENSES. If the Merger is not consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, subject to
the rights of such party with respect to a willful breach, violation of default
by another party hereto; provided, however, that if the Merger is not
consummated due to the termination of this Agreement pursuant to Section 8.01(f)
hereof, the Company shall pay Parent and Merger Sub an amount equal to Parent
and Merger Sub's actual and reasonably documented out-of-pocket fees and
expenses incurred by Parent and Merger Sub in connection with this Agreement and
the proposed consummation of the transactions contemplated hereby.

9.08 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid, or sent by facsimile with original sent by overnight courier,

if to the Company to:

The Arnold Palmer Golf Company
6201 Mountain View Road
Ooltewah, Tennessee 37363
Facsimile No. (423) 238-8350
Attention: Cindy L. Davis
President and Chief Executive Officer

with a copy to:

Special Committee of Board of Directors
of The Arnold Palmer Golf Company
c/o Chattem, Inc.
1715 West 38th Street
Chattanooga, Tennessee 37409
Facsimile No. (423) 821-6423
Attention: A. Alexander Taylor, II

13
<PAGE> 88

and to:

Waller Lansden Dortch & Davis, PLLC
Nashville City Center
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Facsimile No. (615) 244-6804
Attention: Alexander B. Buchanan, Esq.

if to Parent and Merger Sub:

APGC Holdings Company, LLC
c/o The Lupton Company
702 Tallan Building
Chattanooga, Tennessee 37402
Facsimile No. (423) 757-0504
Attention: Joel W. Richardson, Jr., Secretary

with a copy to:

Miller & Martin LLP
Suite 1000, Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402
Facsimile No. (423) 785-8480
Attention: Hugh F. Sharber, Esq.

or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the third business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.

9.09 GOVERNING LAW. This Agreement is executed by the parties hereto in
and shall be construed in accordance with and governed by the laws of the State
of Tennessee without giving effect to the principles of conflicts of law
thereof.

9.10 NO THIRD-PARTY BENEFICIARIES. With the exception of the parties to
this Agreement, there shall exist no right of any person to claim a beneficial
interest in this Agreement or any rights occurring by virtue of this Agreement.

9.11 GENDER AND NUMBER. Where the context requires, the use of a pronoun
of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural, and
vice versa.

9.12 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or any instrument delivered
pursuant to this Agreement shall survive the Merger.

9.13 REFERENCES. Whenever reference is made in this Agreement to any
Article Section, such reference shall be deemed to apply to the specified
Article or Section of this Agreement to this Agreement.

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<PAGE> 89

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
and Plan of Merger to be duly executed on its behalf as of the date indicated on
the first page hereof.

THE COMPANY:

THE ARNOLD PALMER GOLF COMPANY

By: /s/ CINDY L. DAVIS

------------------------------------
Cindy L. Davis, President

PARENT:

APGC HOLDINGS COMPANY, LLC

By: /s/ JOEL W. RICHARDSON, JR.

------------------------------------
Joel W. Richardson, Jr.,
Vice President and Secretary

MERGER SUB:

APGC ACQUISITION CORP.

By: /s/ JOEL W. RICHARDSON, JR.

------------------------------------
Joel W. Richardson, Jr.,
Vice President and Secretary

15
<PAGE> 90

ATTACHMENT II

SCOTT & STRINGFELLOW, INC.
ESTABLISHED 1893
INVESTMENT BANKERS AND BROKERS
P.O. BOX 1575, RICHMOND, VA 23218-1575

May 27, 1999

Special Committee of the Board of Directors
The Arnold Palmer Golf Company
6201 Mountain View Road
Ooltewah, Tennessee 37363

Gentlemen:

The Arnold Palmer Golf Company (the "Company"), APGC Holdings Company, LLC
("Holdings"), and APGC Acquisition Corp., a wholly-owned subsidiary of Holdings
(the "Merger Sub"), plan to enter into a Merger Agreement (the "Agreement")
pursuant to which the Merger Sub will be merged with and into the Company (the
"Merger") and the Company will survive as a wholly-owned subsidiary of Holdings.

As proposed in the Agreement, the members of Holdings have committed to
contribute to Holdings an aggregate of 1,597,717 shares of the Company,
representing approximately 40.7% of the total number of Company shares issued
and outstanding as of the date of the Agreement. In addition, Holdings has
proposed to the Board of Directors of the Company that Holdings acquire the
2,329,983 shares (the "Public Shares") not owned by Holdings for cash
consideration of $1.20 per share. You have requested our opinion with respect to
the fairness from a financial point of view to the holders of Public Shares in
the Merger, as of the date of this letter, of the consideration to be received
by them in the Merger.

Scott & Stringfellow, Inc., as a customary part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We will receive a fee upon the delivery of this opinion and the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of the Company for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities.

In developing our opinion, we have, among other things: (1) reviewed the
draft Agreement and discussed with management and representatives of the Company
and Holdings the proposed material terms of the Merger; (2) reviewed, among
other public information, the Company's Annual Reports, Forms 10-K and related
financial information for the fiscal year ended March 2, 1996 and the fiscal
years ended September 30, 1997 and 1998; (3) the Company's quarterly report on
Form 10-Q and related financial information for the quarter dated January 2,
1999, and the Company's draft quarterly report for the quarter ended April 2,
1999; (4) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company
furnished to us by the Company; (5) conducted discussions with members of senior
management of the Company concerning the Company's businesses and prospects; (6)
reviewed the historical market prices and trading activity for the Company's
common stock and compared such prices and trading activity with those of certain
publicly traded companies which we deemed to be relevant; (7) compared the
financial position and results of operation of the Company with those of certain
publicly traded companies which we deemed to be relevant; (8) compared the
proposed financial terms of the
<PAGE> 91
Special Committee of the Board of Directors
The Arnold Palmer Golf Company
May 27, 1999
Page 2

Merger with the financial terms of certain other business combinations which we
deemed to be relevant; (9) reviewed the premiums paid by the purchaser in other
business combinations relative to the closing price one day prior to the
announcement, one week prior to the announcement and four weeks prior to the
announcement; and (10) reviewed other such financial studies and analyses and
performed such other investigations and took into account all other matters as
we deemed to be material or otherwise necessary to render our Opinion, including
our assessment of regulatory, economic, market, and monetary conditions.

In conducting our review and arriving at our opinion, we discussed with
members of management and representatives of the Company and Holdings the
background of the Merger, the reasons and basis for the Merger and the business
and future prospects of the Company. We have relied upon and assumed the
accuracy and completeness of the information furnished to us by or on behalf of
the Company and Holdings. We have not attempted independently to verify such
information, nor have we made any independent appraisal of the assets of the
Company. We have further assumed that the financial forecasts provided to us by
the Company have been reasonably prepared on a basis reflecting the best
judgment and estimate of management and that such forecasts will be realized in
the amounts and at the times contemplated. We have taken into account our
assessment of general economic, financial, market and industry conditions as
they exist and can be evaluated as of the date hereof, as well as our experience
in business valuations in general. We have also assumed that, in the course of
obtaining regulatory and third party consents for the Merger, no restriction
will be imposed that will have a material adverse effect on the future results
of operations or financial condition of the Company.

Our opinion expressed herein was prepared for the use of the Special
Committee of the Board of Directors of the Company in connection with its
consideration of the Merger and does not constitute a recommendation to the
holders of Public Shares as to how they should vote at the stockholders' meeting
in connection with the Merger. Our opinion may not be used for any other purpose
without our prior written consent. We hereby consent, however, to the inclusion
of this opinion as an exhibit to any proxy statement or registration statement
distributed in connection with the Merger.

On the basis of our analyses and review and in reliance on the accuracy and
completeness of the information furnished to us and subject to the conditions
and assumptions noted above, it is our opinion that, as of the date hereof, the
consideration to be received by the holders of Public Shares in the Merger is
fair from a financial point of view to the holders of Public Shares of the
Company.

Very truly yours,

SCOTT & STRINGFELLOW, INC.

By: /s/ MATTHEW G. THOMPSON, JR.

------------------------------------
Matthew G. Thompson, Jr.
Managing Director
<PAGE> 92

ATTACHMENT III

CHAPTER 23
BUSINESS CORPORATIONS-DISSENTERS' RIGHTS

PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

48-23-101 DEFINITIONS. --

(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder;

(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;

(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under sec. 48-23-102 and who exercises that right when and in
the manner required by sec. 48-23201 -- 48-23-209;

(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;

(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;

(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

48-23-102 RIGHT TO DISSENT. --

(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:

(1) Consummation of a plan of merger to which the corporation is a
party:

(A) If shareholder approval is required or the merger by
sec. 48-21-103 or the charter and the shareholder is entitled to vote on
the merger-, or

(B) If the corporation is a subsidiary that is merged with its
parent under sec. 48-21-104;

(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;

(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:

(A) Alters or abolishes a preferential right of the shares;

(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
<PAGE> 93

(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or

(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash
under sec. 48-16-104; or

(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.

(b) A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.

(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under sec. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.

48-23-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. --

(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.

(b) A beneficial shareholder may assert dissenters' rights as to shares of
anyone (1) or more classes held on his behalf only if:

(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and

(2) He does so with respect to all shares of the same class of which
he is the beneficial shareholder or over which he has power to direct the
vote.

PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS

48-23-201 NOTICE OF DISSENTERS' RIGHTS. --

(a) If proposed corporate action creating dissenters' rights under
sec. 48-23-102 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this chapter.

(b) If corporate action creating dissenters' rights under sec. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in sec. 48-23-203.

48-23-202 NOTICE OF INTENT TO DEMAND PAYMENT. --

(a) If proposed corporate action creating dissenters' rights under
sec. 48-23-102 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:

(1) Must deliver to the corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
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<PAGE> 94

(2) Must not vote his shares in favor of the proposed action. No such
written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by
sec. 48-23-201.

(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.

48-23-203 DISSENTERS' NOTICE. --

(a) If proposed corporate action creating dissenters' rights under
sec. 48-23-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of sec. 48-23-202.

(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:

(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;

(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than one (1) nor more than two (2)
months after the date the subsection (a) notice is delivered; and

(5) Be accompanied by a copy of this chapter if the corporation has
not previously sent a copy of this chapter to the shareholder pursuant to
sec. 48-23-201.

48-23-204 DUTY TO DEMAND PAYMENT. --

(a) A shareholder sent a dissenters' notice described in sec. 48-23-203
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to sec. 48-23-203(b)(3), and deposit his certificates in accordance
with the terms of the notice.

(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.

(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this chapter.

(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.

48-23-205 SHARE RESTRICTIONS.--

(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effectuated or the restrictions released under sec. 48-23-207.

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.

3
<PAGE> 95

48-23-206 PAYMENT.--

(a) Except as provided in sec. 48-23-208, as soon as the proposed corporate
action is effectuated, or upon receipt of a payment demand, whichever is later,
the corporation shall pay each dissenter who complied with sec. 48-23-204 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.

(b) The payment must be accompanied by:

(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;

(2) A statement of the corporation's estimate of the fair value of the
shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenter's right to demand payment under
sec. 48-23-209; and

(5) A copy of this chapter if the corporation has not previously sent
a copy of this chapter to the shareholder pursuant to sec. 48-23-201 or
sec. 48-23-203.

48-23-207 FAILURE TO TAKE ACTION.--

(a) If the corporation does not effectuate the proposed action that gave
rise to the dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.

(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under sec. 48-23203 and repeat the payment demand
procedure.

48-23-208 AFTER-ACQUIRED SHARES.--

(a) A corporation may elect to withhold payment required by sec. 48-23-206
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the principal terms of the proposed
corporate action.

(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under sec. 48-23-209.

48-23-209 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--

(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate (less any payment under sec. 48-23-206), or reject the
corporation's offer under sec. 48-23-208 and demand payment of the fair value of
his shares and interest due, if:

(1) The dissenter believes that the amount paid under sec. 48-23-206
or offered under sec. 48-23-208 is less than the fair value of his shares
or that the interest due is incorrectly calculated;

(2) The corporation fails to make payment under sec. 48-23-206 within
two (2) months after the date set for demanding payment; or

(3) The corporation, having failed to effectuate the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after
the date set for demanding payment.

4
<PAGE> 96

(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
within one (1) month after the corporation made or offered payment for his
shares.

PART 3. JUDICIAL APPRAISAL OF SHARES

48-23-301 COURT ACTION.--

(a) If a demand for payment under sec. 48-23-209 remains unsettled, the
corporation shall commence a proceeding within two (2) months after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter. whose demand remains
unsettled the amount demanded.

(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.

(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it, The dissenters are entitled to the
same discovery tights as parties in other civil proceedings.

(e) Each dissenter made a party to the proceeding is entitled to judgment:

(1) For the amount, if any, by which the court finds the fair value of
his shares, plus accrued interest, exceeds the amount paid by the
corporation; or

(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under
sec. 48-23-208.

48-23-302 COURT COSTS AND COUNSEL FEES.--

(a) The court in an appraisal proceeding commenced under sec. 48-23-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under sec. 48-23-209.

(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sec.sec. 48-23-201 -- 48-23-209; or

(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.

(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.

5
<PAGE> 97

THE ARNOLD PALMER GOLF COMPANY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned shareholder of THE ARNOLD PALMER GOLF COMPANY appoints John
T. Lupton and Joel W. Richardson, Jr., or either of them, proxies, with full
power of substitution, to vote at the Special Meeting of Shareholders to be held
at the offices of the Company, 6201 Mountain View Road, Ooltewah, Tennessee, at
10:00 a.m. on Friday, August 13, 1999, and any adjournment or adjournments
thereof, the shares of Common Stock of THE ARNOLD PALMER GOLF COMPANY which the
undersigned is entitled to vote, on all matters that may properly come before
the Special Meeting.

1. To approve and adopt the Agreement and Plan of Merger by and among the
Company, APGC Holdings Company, LLC and APGC Acquisition Corp. dated June 3,
1999.

<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>

2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

(continued on other side)
<PAGE> 98

(continued from other side)

YOU ARE URGED TO CAST YOUR VOTE BY MARKING THE APPROPRIATE BOXES. PLEASE
NOTE THAT UNLESS A CONTRARY INTENTION IS INDICATED, THIS PROXY WILL BE VOTED IN
FAVOR OF PROPOSAL 1.

-----------------------------------
(SIGNATURE)

Dated: 1999
--------------------------,

IMPORTANT: Please sign your name or names exactly as shown hereon and date
your proxy in the blank space provided above. For joint accounts, each joint
owner must sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give your full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer.