THE HUNTINGTON NATIONAL BANK
PO BOX 1558 [ LOGO-HUNTINGTON
BANKS]
Columbus, Ohio 43216
Direct Telephone Number
614-480-4893
May 15, 1997
Mr. Duane Egeland, CFO
Dynacraft Golf Products, Inc.
98 James Street
Newark, OH 43055
Re: Loan Agreement dated June 20, 1996
Dear Duane:
You have informed the Bank that Dynacraft Golf Products, Inc. (the "Company")
was in default of two of its financial covenants as of the fiscal year ended
December 31, 1996. The specific violations are detailed below:
SECTION 9.13 - TANGIBLE NET WORTH
This covenant states in part that the Company is to maintain a sum of
consolidated tangible net worth plus subordinated debt of not less than
$2,200M as of 12/31/96. However; the actual result totaled $ 1 ,975M.
SECTION 9.16 - CASH FLOW COVERAGE RATIO
This covenant requires that the Company achieve a ratio of its "Adjusted
Cash Flow" to "Debt Service Expense" of not less than 1.20 to 1 as of each
fiscal year end. However; the actual result as of 12/31/96 was 0.18 to 1.
The above violations were a direct result of the $482M net loss reported by the
Company for the 1996 fiscal year. The effect of the net loss was partially
offset by capital contributions in the form of additional subordinated
shareholder debt. A contribution in the amount of $322M occurred in November
1996 and an additional contribution in the amount of $39M occurred in January
1997.
Please accept this letter as your notification of Huntington National Bank's
decision to waive the above-referenced covenant violations PROVIDED THAT THE
MODIFICATIONS TO THE LOAN AGREEMENT DETAILED IN THE REMAINDER OF THIS LETTER ARE
AGREED TO. The implementation of these modifications will be subject to the
execution of documentation acceptable to the Bank and its attorneys.
1
Dynacraft Golf Products, Inc.
May 15, 1997
The modified covenants are detailed below:
SECTION 9.13 - TANGIBLE NET WORTH
The definition of this covenant is to be unchanged, but the target levels
are to be amended as follows:
Tangible
Date Net Worth
---- ---------
3/31/97 $2,050M
6/30/97 $2,075M
9/30/97 $2,100M
12/31/97 $2,200M
3/31/98 $2,100M
6/30/98 $2,275M
9/30/98 $2,300M
12/31/98 and after $2,400M
SECTION 9.16 - CASH FLOW COVERAGE RATIO
The definition of this ratio is to be unchanged; however; the target ratio
is to be reduced from 1.20 to 1 to 1.10 to 1. In addition, the performance
is to be tested each year on a cumulative annual basis as of the end of the
respective quarters ending 6/30, 9/30 and 12/31.
SECTION 9.15 - RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH
Although this ratio is currently not in default, it appears likely that the
current target level of 3.0 to 1 required as of 6/30/97 will not be
achieved. Therefore, this covenant is to also be amended to include the
following required levels. For clarification purposes, the ratio is to be
defined as Total Liabilities less Subordinated Debt divided by Tangible Net
Worth.
Required
Date Ratio
---- ---------
6/30/97 3.75 to 1
9/30/97 3.75 to 1
12/31/97 3.50 to 1
3/31/98 3.50 to 1
6/30/98 3.25 to 1
9/30/98 3.25 to 1
12/31/98 and after 3.00 to 1
2
Dynacraft Golf Products, Inc.
May 15, 1997
As indicated previously, this waiver is subject to the acceptance and
satisfactory documentation of the modifications detailed herein. This waiver
is intended to be specific only to Sections 9.13 and 9.16, and is not to be
construed as a permanent waiver, relinquishment or other modification of any
of the rights and remedies of the Bank contained in the above referenced
Agreement. Without limiting the generality of the foregoing, the Bank hereby
expressly reserves the right to immediately exercise any and all remedies
available under the above referenced Agreement, and any related documents or
agreements, as a result of the occurrence of an event of default.
Please note that the commitment to waive the subject covenant violations and
modify the Agreement will expire and become null and void unless acknowledged
and accepted prior to June 15, 1997. Please indicate your acceptance by
signing at the spaces indicated below and returning this letter to my
attention.
Please contact me at 614-480-4893 with any questions or comments.
Sincerely,
/s/ Thomas Myers
- ----------------
Thomas Myers
Vice President
ACCEPTANCE
CO-BORROWER
- -----------
Dynacraft Golf Products, Inc. Pal Joey Custom Golf, Inc.
By: /s/ Joseph Altomonte, Jr. By: /s/ Joseph Altomonte, Jr.
------------------------- -------------------------
Joseph Altomonte, Jr., CEO Joseph Altomonte, Jr., CEO
GUARANTORS
- ----------
/s/ Joseph Altomonte, Sr. /s/ Joseph Altomonte, Jr.
- ------------------------- -------------------------
Joseph Altomonte, Sr. Joseph Altomonte, Jr.
3