<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-4
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FM PRECISION GOLF CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3949 06-1453896
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>
3490 CLUBHOUSE DRIVE, SUITE 102, JACKSON HOLE, WYOMING 83001; (307) 739-2299
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
<TABLE>
<S> <C>
KENNETH J. WARREN, ESQ. Copy to:
2109 WEST FIFTH AVENUE, SUITE C STEVEN D. PIDGEON, ESQ.
COLUMBUS, OHIO 43212 SAMUEL C. COWLEY, ESQ.
(614)487-1966 SNELL & WILMER L.L.P.
(Name, Address, Including Zip Code and ONE ARIZONA CENTER
Telephone Number, Including Area Code of 400 EAST VAN BUREN
Agent For Service) PHOENIX, ARIZONA 85004-0001 (602) 382-6000
</TABLE>
Approximate date of commencement of proposed sale to the public: as soon as
possible after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================
TITLE OF PROPOSED PROPOSED
EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (A) PRICE FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share...... 1,862,839 $7.00 $13,039,873 $3,952
================================================================================================
</TABLE>
(a) Pursuant to Rule 457(c) and (f)(1), this amount is the average of the high
and low prices of Royal Grip, Inc. Common Stock, par value $.001, on the
Nasdaq National Market on June 5, 1997 ($3.50) multiplied by the rate of
exchange between Royal Grip Common Stock and the Registrant's Common Stock
(2:1).
================================================================================
<PAGE> 2
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
444 WEST GENEVA DRIVE
TEMPE, ARIZONA 85282
, 1997
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Royal Grip, Inc. ("RG") to be held on , 1997 at .m. (local
time) at 444 West Geneva Drive, Tempe, Arizona.
At this Special Meeting, you will be asked to consider and vote upon: (i) a
proposal (the "Merger Proposal") to approve and adopt the Agreement and Plan of
Merger dated as of May 14, 1997 (the "Merger Agreement"), entered into among RG,
FM PRECISION GOLF CORP., a Delaware corporation ("FMP"), and FMPSUB, INC., a
Nevada corporation and wholly-owned subsidiary of FMP ("Merger Sub"); and (ii) a
proposal to approve and adopt an amendment (the "Amendment") to the Royal Grip
1993 Stock Option Plan (the "Plan").
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
RG (the "Merger"), and RG will become a wholly-owned subsidiary of FMP, which
will amend and restate its Certificate of Incorporation and change its name to
Royal Precision, Inc. In the Merger, each outstanding share of common stock of
RG, par value $0.001 per share, will be converted into the right to receive
one-half share of common stock of FMP, par value $0.001 per share, less
fractional shares which will be paid in cash, on the terms and subject to the
conditions set forth in the Merger Agreement. Details of the proposed Merger and
Merger Agreement and the other matters to be voted upon by shareholders are set
forth in the accompanying Proxy Statement/Prospectus, which you are urged to
review carefully in its entirety. A copy of the Merger Agreement is attached as
Annex I to the Proxy Statement/Prospectus.
Pursuant to the Amendment, the number of shares authorized for issuance
under the Plan would be increased from 400,000 to 550,000.
We urge you to complete, sign, date and return the enclosed proxy card as
soon as possible, whether or not you plan to attend the Special Meeting in
person and regardless of the number of shares which you own. You may, of course,
attend the Special Meeting and vote in person even if you have previously
returned your proxy card.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH THE PROXY CARD.
Sincerely,
Danny Edwards
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE> 3
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
444 WEST GENEVA DRIVE
TEMPE, ARIZONA 85282
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1997
To the Shareholders of
ROYAL GRIP, INC.
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of ROYAL GRIP, INC., a Nevada corporation ("RG"), will be held on
, , 1997, at .m. (local time) at 444 West Geneva
Drive, Tempe, Arizona, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to approve
and adopt the Agreement and Plan of Merger dated as of May 14, 1997 (the "Merger
Agreement") entered into among RG, FM Precision Golf Corp., a Delaware
corporation ("FMP"), and FMPSUB, Inc., a Nevada corporation and a wholly-owned
subsidiary of FMP ("Merger Sub"). Pursuant to the Merger Agreement, (i) Merger
Sub will be merged with and into RG (the "Merger") and RG will be the surviving
corporation in the Merger and will become a wholly-owned subsidiary of FMP and
(ii) each outstanding share of common stock, par value $.001 per share, of RG
("RG Common Stock") and each right to acquire RG Common Stock will be converted
into the right to receive one-half share of common stock, par value $.001 per
share, of FMP ("FMP Common Stock"), less the amount of any fractional share
which will be paid in cash, on the terms and subject to the conditions set forth
in the Merger Agreement;
2. To consider and vote upon a proposal to approve and adopt an Amendment
(the "Amendment") to the Royal Grip 1993 Stock Option Plan (the "Plan").
Pursuant to the Amendment, the number of shares authorized for issuance under
the Plan would be increased from 400,000 to 550,000; and
3. To transact such other business as may properly come before the Special
Meeting or any adjournments thereof.
Pursuant to a Voting Agreement dated May 14, 1997 among Danny Edwards, Drew
M. Brown, Mark N. Sklar, Bennett Dorrance, Trustee, DMB Property Ventures
Limited Partnership and FMP (the "Voting Agreement"), the parties have agreed to
vote their shares of RG (approximately 54% of the outstanding shares) in favor
of the Merger Proposal, and such vote will be sufficient to approve and adopt
the Merger Proposal.
The Board of Directors has fixed the close of business on , 1997
as the record date ("Record Date") for the determination of shareholders
entitled to receive notice of and to vote at, the Special Meeting. Accordingly,
only shareholders of record of RG at the close of business on , 1997
are entitled to notice of, and to vote at, the Special Meeting and any
adjournment or postponement thereof.
The Board of Directors of RG has determined that the Merger is advisable
and fair and in the best interests of RG and its shareholders. The Board of
Directors has been advised by EVEREN Securities, Inc. that, in its opinion, the
consideration paid by FMP in the Merger is fair from a financial point of view
to RG shareholders as of the date of such opinion. Accordingly, the RG Board of
Directors recommends that you vote FOR the Merger.
Details of the Merger and other important information concerning RG and FMP
are more fully described in the accompanying Proxy Statement/Prospectus. Please
give this information your careful consideration.
<PAGE> 4
All shareholders are invited to attend the Special Meeting in person.
Whether or not you plan to attend the Special Meeting, please promptly date,
sign and return the enclosed proxy. A postage prepaid envelope is provided for
mailing. A person giving a proxy has the power to revoke it in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the Special Meeting. If you attend the Special Meeting, your
proxy will not be counted with respect to any matter upon which you vote in
person.
By Order of the Board of Directors
[ ]
Secretary
Tempe, Arizona
, 1997
------------------------
DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR STOCK CERTIFICATES.
<PAGE> 5
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
PROXY STATEMENT
------------------------
FM PRECISION GOLF CORP.
PROSPECTUS
1,862,839 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $.001 per share ("RG Common Stock"), of Royal Grip, Inc., a
Nevada corporation ("RG"), as a proxy statement in connection with the
solicitation of proxies by the Board of Directors of RG (the "RG Board") to be
used at a Special Meeting of RG shareholders ("Shareholders"), to be held on
, , 1997 at .m. (local time) at 444 West Geneva Drive,
Tempe, Arizona, and at any adjournment or postponement thereof (the "Special
Meeting").
At the Special Meeting, Shareholders will be asked to consider and vote
upon: (i) a proposal (the "Merger Proposal") to approve and adopt the Agreement
and Plan of Merger dated as of May 14, 1997 (the "Merger Agreement"), entered
into among RG, FM Precision Golf Corp., a Delaware corporation ("FMP"), and
FMPSUB, Inc., a Nevada corporation and a wholly-owned subsidiary of FMP ("Merger
Sub"); and (ii) a proposal to approve and adopt an amendment (the "Amendment")
to the Royal Grip 1993 Stock Option Plan (the "Plan"), and the transactions
contemplated thereby.
Pursuant to the Merger Agreement (a copy of which is attached hereto as
Annex I), Merger Sub will be merged with and into RG (the "Merger"), RG, as the
surviving corporation in the Merger will become a wholly-owned subsidiary of FMP
and FMP will amend and restate its Certificate of Incorporation and change its
name to Royal Precision, Inc. In the Merger, each outstanding share of RG Common
Stock, will be converted into the right to receive one-half share of common
stock, par value $.001 per share, of FMP ("FMP Common Stock").
No fractional shares of FMP Common Stock will be issued in the Merger. In
lieu of any such fractional shares, each holder of RG Common Stock who otherwise
would be entitled to receive a fractional share of FMP Common Stock pursuant to
the Merger will be paid an amount in cash equal to such fractional interest
multiplied by the average of the high and low trading prices per share of RG
Common Stock for the five trading days ended immediately prior to the Effective
Date (defined below).
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROXY STATEMENT/PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RG SHAREHOLDERS
IN DETERMINING HOW TO VOTE ON THE MERGER AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pursuant to the Amendment, the number of shares authorized for issuance
under the Plan would be increased from 400,000 to 550,000.
This Proxy Statement/Prospectus also constitutes the prospectus of FMP with
respect to up to 1,862,839 shares of FMP Common Stock to be issued in connection
with the Merger. See "THE MERGER AGREEMENT -- Terms of the Merger" and
"DESCRIPTION OF FMP CAPITAL STOCK -- Common Stock."
<PAGE> 6
This Proxy Statement/Prospectus does not contain all the information set
forth in the registration statement, together with any amendments thereto (the
"Registration Statement"), on Form S-4 filed by FMP with the Securities and
Exchange Commission (the "SEC") in connection with the issuance of the FMP
Common Stock to be exchanged for the RG Common Stock. See "AVAILABLE
INFORMATION."
On May 14, 1997, the last full trading day prior to the public announcement
of the Merger Agreement, the last reported sale price of RG Common Stock on the
Nasdaq National Market was $3.75 per share. On , 1997, the last
reported sale price of RG Common Stock on the Nasdaq National Market was
$[ ] per share.
This Proxy Statement/Prospectus and related Notice of Special Meeting and
form of proxy are first being mailed on or about , 1997 to
Shareholders of record at the close of business on , 1997. There were
shares of RG Common Stock outstanding at the close of business on the
Record Date. Only Shareholders of record of RG on the Record Date will be
entitled to notice of and to vote at the Special Meeting. Consummation of the
Merger is subject to various conditions, including the inclusion of the FMP
Common Stock on the Nasdaq National Market or the listing of FMP Common Stock on
the American Stock Exchange.
THE ABOVE AND OTHER MATTERS ARE DISCUSSED IN DETAIL ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER THIS PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY.
All information contained in this Proxy Statement/Prospectus relating
specifically to RG has been provided by RG. All information contained in this
Proxy Statement/Prospectus relating specifically to FMP or Merger Sub has been
provided by FMP. All information regarding the Merger Proposal has been provided
by FMP and RG.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT/PROSPECTUS CONTAINS ESTIMATES, PROJECTIONS AND OTHER
FORWARD-LOOKING STATEMENTS. ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS MAY BE MADE FROM TIME TO TIME IN FILINGS WITH THE SEC OR OTHERWISE.
THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "PROJECT" AND SIMILAR EXPRESSIONS
IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE
STATEMENT WAS MADE. SUCH FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF
THAT TERM IN SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT").
SUCH STATEMENTS MAY INCLUDE, BUT NOT BE LIMITED TO, PROJECTIONS OF REVENUES,
INCOME OR LOSS, CAPITAL EXPENDITURES, PLANS FOR FUTURE OPERATIONS, FINANCING
NEEDS OR PLANS, THE IMPACT OF INFLATION AND PLANS RELATING TO PRODUCTS OR
SERVICES, STATEMENTS RELATING TO ADVANTAGES THAT ARE EXPECTED TO BE REALIZED
FROM THE PROPOSED MERGER, AS WELL AS ASSUMPTIONS RELATING TO THE FOREGOING.
THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS, TRENDS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED IN THIS PROXY STATEMENT/PROSPECTUS UNDER "RISK
FACTORS," "INFORMATION CONCERNING FMP -- MANAGEMENT'S DISCUSSION AND ANALYSIS"
AND "INFORMATION CONCERNING RG -- MANAGEMENT'S DISCUSSION AND ANALYSIS" AND
THOSE CONTAINED IN OTHER FILINGS OF RG, SOME OF WHICH CANNOT BE PREDICTED OR
QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
SET FORTH IN, CONTEMPLATED BY, OR UNDERLYING THE FORWARD-LOOKING STATEMENTS.
WITH RESPECT TO THE PROPOSED MERGER, SUCH RISKS AND UNCERTAINTIES INCLUDE,
WITHOUT LIMITATION, EXPECTED COST SAVINGS FROM THE MERGER WHICH MAY NOT BE FULLY
REALIZED, COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF
FMP AND RG BEING GREATER THAN EXPECTED, THE EXPECTED SYNERGIES FROM THE
COMBINATION OF THE FMP AND RG BUSINESSES NOT BEING REALIZED, AND OTHER RISKS AND
UNCERTAINTIES, INCLUDING THOSE THAT MAY BE DETAILED FROM TIME TO TIME IN FMP'S
FUTURE PUBLIC ANNOUNCEMENTS AND SEC FILINGS. SHAREHOLDERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH ARE BASED ONLY ON
CURRENT JUDGMENTS AND CURRENT KNOWLEDGE. NEITHER RG NOR FMP UNDERTAKES ANY
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1997
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY
The Companies....................................................................... 1
The Special Meeting................................................................. 1
The Merger and the Merger Agreement................................................. 2
Amendment to Plan................................................................... 4
Interests of Certain Persons in the Merger.......................................... 4
Risk Factors........................................................................ 5
Surrender of Certificates........................................................... 5
Shareholder Rights.................................................................. 5
RISK FACTORS.......................................................................... 6
Sporting Goods Industry............................................................. 6
Risks Related to RG................................................................. 7
Risks Related to FMP................................................................ 8
FMP Corporate Risks................................................................. 8
Risks Related to the Merger......................................................... 10
MARKET PRICE OF RG COMMON STOCK....................................................... 10
THE SPECIAL MEETING................................................................... 11
General; Date, Time and Place of the Special Meeting................................ 11
Purposes of the Special Meeting..................................................... 11
Shareholders Entitled to Vote; Requisite Approval................................... 11
Proxies............................................................................. 12
Tabulation.......................................................................... 12
BACKGROUND OF THE MERGER.............................................................. 13
THE MERGER............................................................................ 16
RG's Reasons for the Merger; Recommendation of the RG Board......................... 16
Opinion of Financial Adviser to the RG Board........................................ 17
Interests of Certain Persons in the Merger.......................................... 21
Management and Operations of FMP after the Merger................................... 23
Management and Operations of RG after the Merger.................................... 23
Anticipated Accounting Treatment.................................................... 23
Regulatory Approvals; Registration of FMP Common Stock.............................. 23
Resale of FMP Stock; Affiliates..................................................... 24
Nasdaq National Market Inclusion.................................................... 24
No Dissenters' Rights of Appraisal.................................................. 24
THE MERGER AGREEMENT.................................................................. 24
The Merger.......................................................................... 25
Effective Date...................................................................... 25
Terms of the Merger................................................................. 25
Surrender and Payment............................................................... 26
Representations and Warranties...................................................... 27
Conduct of Business Pending the Merger.............................................. 27
Certain Covenants................................................................... 28
Exclusivity......................................................................... 28
Indemnification..................................................................... 29
Conditions.......................................................................... 29
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Termination; Effect of Termination.................................................. 31
Fees and Expenses................................................................... 32
Amendment........................................................................... 33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................... 33
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.............. 37
INFORMATION CONCERNING FMP............................................................ 39
History............................................................................. 39
Market.............................................................................. 39
Products............................................................................ 40
Proprietary Property................................................................ 40
Competition......................................................................... 41
Sales and Marketing................................................................. 41
Customers........................................................................... 42
Suppliers........................................................................... 42
Project Development................................................................. 42
Employees........................................................................... 42
Properties.......................................................................... 42
Management.......................................................................... 43
Management's Discussion and Analysis................................................ 44
Liquidity and Capital Resources..................................................... 45
Seasonality......................................................................... 46
Effect of Recent Accounting Pronouncements.......................................... 46
Merger Sub.......................................................................... 46
CERTAIN FMP TRANSACTIONS.............................................................. 47
FMP EXECUTIVE COMPENSATION............................................................ 47
Summary Compensation Table.......................................................... 47
Option Grants in Last Fiscal Year................................................... 48
Fiscal Year End Option Values....................................................... 48
FMP Option Plan..................................................................... 48
Compensation of FMP Directors....................................................... 51
INFORMATION CONCERNING RG............................................................. 51
Business............................................................................ 51
Industry and Market Background...................................................... 52
Products and Product Features....................................................... 53
Customers........................................................................... 53
Sales and Marketing................................................................. 54
Manufacturing....................................................................... 55
Product Development................................................................. 56
Competition......................................................................... 56
Proprietary Rights.................................................................. 57
Properties.......................................................................... 57
Employees........................................................................... 57
Management.......................................................................... 57
Management's Discussion and Analysis................................................ 59
Impact of Recently Issued Accounting Standards...................................... 64
Backlog............................................................................. 64
</TABLE>
ii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHANGE IN ACCOUNTANT.................................................................. 65
CERTAIN RG TRANSACTIONS............................................................... 65
RG EXECUTIVE COMPENSATION............................................................. 65
Summary Compensation Table.......................................................... 65
Option Grants in Last Fiscal Year................................................... 66
Fiscal Year End Option Values....................................................... 66
Amendment........................................................................... 66
Compensation of Directors........................................................... 67
Employment Contracts and Termination of Employment Arrangements..................... 67
DESCRIPTION OF FMP CAPITAL STOCK...................................................... 67
Common Stock........................................................................ 67
Preferred Stock..................................................................... 68
Certain Charter Provisions and Laws................................................. 68
Transfer Agent...................................................................... 70
Options............................................................................. 70
Shares Eligible for Future Sale..................................................... 70
OWNERSHIP OF FMP COMMON STOCK......................................................... 71
DESCRIPTION OF RG CAPITAL STOCK....................................................... 72
OWNERSHIP OF RG COMMON STOCK.......................................................... 72
COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND RG CAPITAL STOCK............. 73
Size and Classification of the Board of Directors................................... 73
Duties of Directors................................................................. 74
Removal of Directors................................................................ 74
Newly Created Directorships and Vacancies........................................... 74
Limitation on Directors' Liability.................................................. 75
Indemnification of Directors and Officers........................................... 76
Loans to Directors.................................................................. 77
Dividends........................................................................... 77
Action by Shareholders through Written Consent...................................... 77
Special Meetings of Shareholders.................................................... 78
Cumulative Voting................................................................... 78
Necessary Vote to Effect Merger (Not Involving Interested Stockholder).............. 78
Business Combinations Involving Interested Stockholders............................. 79
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 81
General............................................................................. 81
Consequences of the Merger.......................................................... 81
LIMITATIONS AND QUALIFICATIONS........................................................ 82
AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN........................................ 82
General............................................................................. 82
AMENDED PLAN GRANTS................................................................... 84
Reasons for Approval................................................................ 84
Plan Provisions..................................................................... 84
Federal Income Tax Consequences for Nonstatutory Stock Options...................... 85
Federal Income Tax Consequences for Incentive Stock Options......................... 85
Other Tax Consequences.............................................................. 86
Required Vote....................................................................... 86
</TABLE>
iii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPERTS............................................................................... 86
RG SHAREHOLDER PROPOSALS.............................................................. 86
LEGAL MATTERS......................................................................... 87
AVAILABLE INFORMATION................................................................. 87
REPORTS TO STOCKHOLDERS............................................................... 87
INDEMNIFICATION....................................................................... 87
FINANCIAL STATEMENTS..................................................................F-1(RG)
ANNEX I -- Agreement and Plan of Merger
ANNEX II -- Opinion of EVEREN Securities, Inc.
ANNEX III -- Royal Grip 1993 Stock Option Plan, as amended
ANNEX IV -- Amended and Restated Certificate of Incorporation of FMP
</TABLE>
"ROYAL GRIP, INC. AND DESIGN," "SCOTTIE GRIP," "ARTHRI GRIP," "ROYAL GRIP,"
"RG," "ROXXI," "ROYAL GRIP DEVICE," "SAND WRAP," "DANNY EDWARDS" and "SAND
MAXIMUM" are registered trademarks and servicemarks owned by RG. "CHAMPION,"
"FCM," "FIBRE SELECT," "FIBREMATCH," "FREQUENCY CALCULATOR," "FREQUENCY
COEFFICIENT MATCHING ANALYZER," "FM," "FM AND DESIGN," "FM RIFLE," "FT AND
DESIGN," "FW AND DESIGN," "GOLD RIFLE," "GOLF (STYLIZED)," "GOLFER MATCH," "MARK
II," "MICROTAPER," "MW (STYLIZED)," "PERFORMANCE PLUS," "PHOENIX," "PRECISION
FM," "PRECISION SELECT SERIES," "PROPEL," "PROPEL II," "PROPEL MICROTAPER,"
"PROTAPER," "RIFLE," "SUPER CHAMPION," "THE SHAFT COMPANY," "UCV," "UCV 304,"
"UCV 304R," "UNION," "UNION HARDWARE COMPANY," "UNION TUBULAR PRODUCTS" and
"VANADIUM SONIC" are registered trademarks and servicemarks owned by FMP. This
Proxy Statement/Prospectus may also include other trademarks and trade names
which are the property of their respective owners.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY RG, FMP OR ANY OTHER PERSON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF RG OR FMP SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iv
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto. This summary does not
contain a complete description of all material information relating to the
Merger Proposal, the Amendment and the transactions related thereto. Reference
is made to, and this summary is qualified in its entirety by, the more detailed
information and financial statements and notes thereto contained, or
incorporated by reference, in this Proxy Statement/Prospectus and the Annexes
hereto. Unless otherwise defined herein, capitalized terms used in this summary
have the respective meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. Shareholders are urged to read this Proxy
Statement/Prospectus and the Annexes hereto in their entirety. Unless the
context otherwise requires, the references to FMP and RG include their
respective subsidiaries. Unless otherwise specified, all information in this
Proxy Statement/Prospectus has been adjusted to give effect to a 4,176.8 for one
split/dividend of the FMP Common Stock prior to the Merger.
THE COMPANIES
RG. RG designs and distributes golf club grips and designs and
manufactures athletic headwear. In 1989, RG introduced a rubber wrap golf grip
that gained widespread acceptance in the golf industry and enabled RG to achieve
brand name recognition. RG currently offers a wide variety of standard and
custom grip models, all of which feature a distinctive feel and appearance and
lasting durability.
RG believes it has established a reputation within the golf industry for
innovation in the design and creation of golf grips. It continually seeks to
improve these products with design and raw material innovations. RG has
developed distribution channels to several thousand club professionals, club
repair shops, and retail golf outlets, and has established relationships with
several original equipment manufacturers. RG believes that it is a leader in the
Japanese market.
RG is a Nevada corporation incorporated on July 16, 1993. RG's principal
executive offices are located at 444 West Geneva Drive, Tempe, Arizona 85282,
and its telephone number is (602) 829-9000. See "INFORMATION CONCERNING RG."
FMP. FMP is a leading designer and manufacturer of high-quality innovative
golf shafts. FMP offers a complete line of golf shafts at a wide range of price
points and performance specifications. FMP's products are designed to improve
the performance of any golfer, from novice to professional.
FMP is currently a supplier of shafts to many of the top domestic golf club
companies, including Taylor Made, Wilson Sporting Goods, Slazenger, Ben Hogan,
and Karsten Manufacturing (Ping). FMP seeks to develop strong manufacturing and
marketing relationships with its customers by providing high quality engineering
and manufacturing test experience, and quick response for golf shafts.
FMP is a Delaware corporation incorporated on May 3, 1996. FMP's principal
executive offices are located at 3490 Clubhouse Drive, Suite 102, Jackson Hole,
Wyoming 83001, and its telephone number is (307) 739-1188. See "INFORMATION
CONCERNING FMP."
THE SPECIAL MEETING
Date, Time and Place of the Special Meeting. The Special Meeting will be
held on , , 1997 commencing at .m. (local time),
at 444 West Geneva Drive, Tempe, Arizona. See "THE SPECIAL MEETING -- General;
Date, Time and Place of the Special Meeting."
Purposes of the Special Meeting. The purposes of the Special Meeting are
to consider and vote upon the Merger Proposal and the Amendment. See "THE
SPECIAL MEETING -- Purposes of the Special Meeting."
Shareholders Entitled to Vote; Requisite Approval. Shareholders of record
on the Record Date are entitled to notice of and to vote at the Special Meeting.
At such date, there were shares of RG Common Stock outstanding, each
of which will be entitled to one vote on each matter to be acted upon at the
Special Meeting. Pursuant to the Voting Agreement, all shares subject thereto
(approximately 54% of the
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outstanding shares of RG Common Stock) will be voted in favor of the Merger
Proposal and such vote will be sufficient to approve and adopt the Merger
Proposal. See "THE SPECIAL MEETING -- Shareholders Entitled to Vote; Requisite
Approval." As of the Record Date, RG directors, executive officers and their
affiliates beneficially owned approximately 38% of the shares of RG Common Stock
entitled to vote at the Special Meeting.
Recommendation of the RG Board. The RG Board has unanimously approved the
Merger Proposal and the Amendment and believes that they are in the best
interests of RG and its Shareholders. The RG Board recommends that Shareholders
vote FOR the Merger Proposal and the Amendment. For a detailed description of
the factors considered by the RG Board and the reasons for its recommendation
and approval, see "THE MERGER -- RG Reasons for the Merger; Recommendation of
the RG Board."
THE MERGER AND THE MERGER AGREEMENT
Terms of the Merger. Pursuant to the Merger Agreement, Merger Sub will be
merged with and into RG and RG will survive the Merger and become a wholly-owned
subsidiary of FMP, which will amend and restate its Certificate of Incorporation
and change its name to Royal Precision, Inc. A copy of the Merger Agreement is
attached hereto as Annex I. A copy of FMP's Amended and Restated Certificate of
Incorporation is attached hereto as Annex IV.
In the Merger, each outstanding share of RG Common Stock will be converted
into the right to receive one-half share of FMP Common Stock. Each RG Option (as
defined below) outstanding immediately prior to the Effective Date will be
assumed by FMP and will become an option to acquire, as of the Effective Date,
FMP Common Stock.
No fractional shares of FMP Common Stock will be issued in the Merger. In
lieu of any such fractional shares, each Shareholder who otherwise would be
entitled to receive a fractional share of FMP Common Stock pursuant to the
Merger will be paid an amount in cash equal to such fractional interest
multiplied by the average of the high and low trading prices per share of RG
Common Stock for the five trading days ended immediately prior to the Effective
Date. See "THE MERGER AGREEMENT -- Terms of the Merger."
Upon completion of the Merger, the Shareholders and holders of RG Options
will own or have the right to acquire 30% of the outstanding shares of FMP
Common Stock on a fully diluted basis.
RG's Reasons for the Merger; Recommendation of the RG Board. The RG Board
has unanimously approved the Merger and believes the Merger is in the best
interest of RG and its shareholders. In reaching their decision, the directors
considered, with the assistance of management and its legal and financial
advisers, several factors, including: (a) the Merger offers Shareholders an
opportunity to acquire shares in a larger company with improved financial
strength and flexibility and to participate in the long-term growth and
appreciation that may result from FMP's future participation in the
consolidation of the sporting goods industry and from the combined company's
more diversified product offerings; (b) the strategic fit between RG and FMP and
the complementary nature of their respective businesses and similar customer
base; (c) anticipated operating synergies and cost savings; and (d) the opinion
of EVEREN that the transaction is fair, from a financial point of view, to the
Shareholders. See "THE MERGER -- Opinion of Financial Adviser to the RG Board"
and "-- Recommendation of the RG Board."
Opinion of Financial Adviser to the RG Board. EVEREN, which was engaged by
RG to serve as its financial adviser, delivered a report and its opinion to the
RG Board opining that the consideration to be received by the Shareholders in
the Merger is fair to the Shareholders from a financial point of view. The full
text of the written opinion of EVEREN, which sets forth the assumptions made,
procedures followed, matters considered and limits of the review, is attached
hereto as Annex II. Holders of RG Common Stock are urged to, and should, read
the opinion in its entirety. See "THE MERGER -- Opinion of Financial Adviser to
the RG Board."
FMP's Reasons for the Merger. The FMP Board of Directors (the "FMP Board")
believes that the Merger is in the best interests of FMP and its stockholders.
The FMP Board believes that the sporting goods industry in which both FMP and RG
participate is entering into a phase of consolidation driven by the need to
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expand marketing through high cost media channels and expensive sports star
endorsements, and the globalization of the sporting goods industry which will
demand even more resources for effective participation in the industry. FMP
currently manufactures shafts for golf clubs used by original equipment
manufacturers and distributed directly to consumers under various trade names.
FMP believes that there is a natural fit between its golf club shaft business
and the golf club grip business of RG and that the similar customer base of the
combined companies may provide enhanced operating efficiencies and marketing
opportunities in the sporting goods industry. See "BACKGROUND OF THE
MERGER. -- FMP's Reasons for the Merger."
Conditions to the Merger. The respective obligations of RG and FMP to
consummate the Merger are subject to the satisfaction or waiver where
permissible of certain conditions, including the absence of any preliminary or
permanent injunction which prevents the consummation of the Merger and the
inclusion of FMP Common Stock as a Nasdaq National Market security or the
listing of FMP Common Stock on the American Stock Exchange. See "THE MERGER
AGREEMENT -- Conditions."
Amendment of Merger Agreement. The Merger Agreement may be amended by the
parties thereto, by action taken by their respective Boards of Directors, at any
time before or after approval of the Merger Proposal by the Shareholders, but
after any such Shareholder approval, no amendment shall be made which by law
requires the further approval of Shareholders without obtaining such further
approval. The Merger Agreement may not be amended except by an instrument in
writing signed by or on behalf of each of the parties thereto. See "THE MERGER
AGREEMENT -- Amendment."
Exclusivity. The Merger Agreement provides that RG shall not, directly or
indirectly, take (nor shall RG authorize or permit its subsidiaries, officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or affiliates to take) any action, except as
otherwise required in the exercise of its fiduciary duties, to (a) encourage,
solicit or initiate the submission of any Acquisition Proposal (defined below,
see "THE MERGER AGREEMENT -- Exclusivity"), (b) enter into any agreement with
respect to any Acquisition Proposal, or (c) participate in any way in
discussions or negotiations with, or furnish any information to, any person in
connection with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal. If the Merger Agreement is terminated in
connection with the acceptance of an alternative acquisition proposal, as
required by the exercise of its fiduciary duties by RG's Board, RG shall be
obligated to pay FMP a termination fee of $400,000. See "THE MERGER
AGREEMENT -- Exclusivity; Fees and Expenses."
Termination; Results of Termination. The Merger Agreement may be
terminated, and the Merger abandoned at any time prior to the Effective Date,
either before or, if applicable, after its approval by Shareholders as follows:
(a) by mutual written consent of RG and FMP; (b) by either RG or FMP upon notice
to the other party if such other party is in breach of any material
representation, warranty or covenant contained in the Merger Agreement; (c) by
either RG or FMP if the Merger fails to receive the requisite approval by the
Shareholders; (d) by either RG or FMP if the Merger shall not have been
consummated on or before September 30, 1997; provided that the party seeking to
terminate the Merger Agreement shall have used all reasonable efforts in good
faith to consummate the Merger in a timely manner; or (e) under certain other
circumstances. See "THE MERGER AGREEMENT -- Termination; Effect of Termination."
Anticipated Accounting Treatment. The Merger is intended to be a purchase
for accounting and financial reporting purposes. The qualification of the Merger
as a purchase is not a condition to the Merger. See "THE MERGER -- Anticipated
Accounting Treatment."
Regulatory Approvals. In connection with the Merger, FMP has filed with the
SEC, and the SEC has declared effective under the Securities Act, the
Registration Statement to register with the SEC the issuance of the FMP Common
Stock to be issued to holders of RG Common Stock upon consummation of the
Merger. This Proxy Statement/Prospectus contains some, but not all, of the
information set forth in the Registration Statement. See "AVAILABLE
INFORMATION." Under the Securities Act and pursuant to the terms of the Merger
Agreement, for the Merger to be consummated, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and remain in effect. There are no other federal or state regulatory
requirements which must be complied with or obtained in connection with the
Merger.
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Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(A) and
Section 368 (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"). RG will receive an opinion of counsel to that effect, subject to the
qualifications and assumptions contained therein. Accordingly, if the Merger
qualifies as a tax-free reorganization, Shareholders will not recognize gain or
loss for federal income tax purposes by reason of their exchange of shares of RG
Common Stock for FMP Common Stock. All Shareholders should carefully read the
section of this Proxy Statement/Prospectus entitled "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" for a discussion of the anticipated tax consequences of the
Merger.
FMP Approval. The Merger has been approved by the holders of a majority of
the FMP Common Stock. FMP directors, executive officers and their affiliates
beneficially owned approximately 90% of the shares of FMP Common Stock as of May
31, 1997.
Effective Date of the Merger. The Merger will be consummated and become
effective after the requisite approval of Shareholders has been obtained and all
other conditions to the Merger have been satisfied or waived and upon the filing
by Merger Sub and RG of properly executed Articles of Merger with the Secretary
of State of the State of Nevada or at such time thereafter as is provided in the
Articles of Merger (the "Effective Date"). It is anticipated that, assuming all
conditions are met, the Merger will occur on or about [ ], 1997. See
"THE MERGER AGREEMENT -- Effective Date."
No Dissenters' Rights of Appraisal. Shareholders are not entitled to
dissenters' rights of appraisal in connection with the Merger. Under Chapter 92A
of the Nevada Revised Statutes, dissenters' rights of appraisal are not
available to Shareholders because: (a) RG Common Stock was designated as a
Nasdaq National Market security on the Record Date; and (b) the FMP Common Stock
to be issued pursuant to the Merger will be designated as a Nasdaq National
Market security as of the Effective Date or listed for trading on the American
Stock Exchange, upon official notice of issuance. See "THE MERGER -- No
Dissenters' Rights of Appraisal."
AMENDMENT TO PLAN
The Shareholders will vote upon the approval of the Amendment to increase
the number of shares authorized for issuance under the Plan from 400,000 to
550,000. Options for the additional 150,000 shares of RG Common Stock have,
subject to Shareholder approval of the Amendment, already been granted to Danny
Edwards (40,000 shares) and Robert G. J. Burg, II (110,000 shares). See
"AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the RG Board with respect to
the Merger Proposal, Shareholders should be aware that certain members of the RG
Board and management have interests in the Merger that are in addition to or
different from the interests of Shareholders generally. In connection with the
Merger, Danny Edwards, Chairman and Chief Executive Officer of RG, has entered
into a Consulting Agreement dated May 14, 1997 with FMP (the "Consulting
Agreement") for a period of two years (commencing on the Effective Date)
pursuant to which Mr. Edwards will be compensated at an annual rate of $180,000.
Under the Consulting Agreement, Mr. Edwards will endorse and promote FMP
products. Certain officers of RG are entitled to severance payments from RG if
their employment is terminated. Certain shareholders of FMP and RG will have
certain registration rights with regard to their shares and have entered into an
agreement concerning the election of FMP's directors. See "THE
MERGER -- Interests of Certain Persons in the Merger."
Beneficial Ownership of RG Common Stock by Directors and Officers of RG;
Voting Agreement. As of May 31, 1997, directors and executive officers of RG
and their affiliates may be deemed to be beneficial owners of an aggregate of
approximately 38% of the outstanding RG Common Stock. Pursuant to the Voting
Agreement, Danny Edwards, Drew M. Brown, Mark N. Sklar, Bennett Dorrance,
Trustee, and DMB Property Ventures Limited Partnership, a Delaware limited
partnership ("DMB"), who collectively own 54% of the outstanding RG Common Stock
(the "Edwards Group"), have agreed to vote in favor of the Merger Proposal,
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which vote will be sufficient to approve the Merger Proposal, and have granted
FMP an irrevocable proxy to vote their shares of RG Common Stock in favor of the
Merger Proposal. See "OWNERSHIP OF RG COMMON STOCK."
Treatment of RG Options. Each of the RG Options outstanding at the
Effective Date, will be assumed by FMP and, immediately after the Effective
Date, will be an option to acquire FMP Common Stock on the same terms and
conditions as were applicable under such RG Option at the Effective Date. The
number of shares of FMP Common Stock subject to each RG Option will be one-half
the number of shares of RG Common Stock subject to the RG Option and the per
share exercise price of the option to purchase FMP Common Stock will be twice
the exercise price of the RG Option. RG Options held by non-employee directors
of RG will become exercisable immediately on the Effective Date. As of May 31,
1997, RG's directors and executive officers held RG Options to purchase 290,077
shares of RG Common Stock in the aggregate (not including options granted
subject to approval of the Amendment). See "THE MERGER AGREEMENT -- Terms of the
Merger," "OWNERSHIP OF RG COMMON STOCK," and "RG EXECUTIVE COMPENSATION" and
"AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN."
Interests of EVEREN. For the issuance of the fairness opinion, RG paid
EVEREN an aggregate cash fee of $170,000 plus reimbursement for out-of-pocket
expenses. Upon completion of the Merger, EVEREN will be compensated with a cash
advisory fee of $430,000, payable in three installments, and will be granted
warrants to purchase 100,000 shares of RG Common Stock at a price of $0.01 per
share (prior to the effects of the exchange rate). In connection with past
advisory services, RG granted EVEREN RG Options to purchase 30,000 shares of RG
Common Stock.
Indemnification. Pursuant to the terms of the Merger Agreement, at all
times after the Effective Date, FMP will, and will cause RG to, indemnify each
person who was a director or officer of RG on May 14, 1997 with respect to any
claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel, to the extent such party would have been indemnified
pursuant to RG's Articles of Incorporation or By-laws as then in effect, based
in whole or in part on, or arising in whole or in part out of, any matter
existing or occurring at or prior to the Effective Date whether commenced,
asserted or claimed before or after the Effective Date. See "THE MERGER
AGREEMENT -- Indemnification."
RISK FACTORS
For a discussion of certain risk factors that should be considered
carefully by Shareholders in considering whether to vote in favor of the Merger
Proposal and the Amendment, see "RISK FACTORS."
SURRENDER OF CERTIFICATES
Promptly after the Effective Date, FMP shall cause American Securities
Transfer & Trust, Inc., as its exchange agent, to mail a notice and transmittal
form and exchange instructions to each Shareholder of record. CERTIFICATES FOR
SHARES OF RG COMMON STOCK SHOULD NOT BE SURRENDERED UNTIL SUCH NOTICE,
TRANSMITTAL FORM AND EXCHANGE INSTRUCTIONS ARE RECEIVED. See "THE MERGER
AGREEMENT -- Surrender and Payment."
SHAREHOLDER RIGHTS
As a result of the Merger, Shareholders will be entitled to receive shares
of FMP Common Stock. The rights of Shareholders are presently governed by the
laws of Nevada and RG's Articles of Incorporation and By-laws. After the
Effective Date, the rights of holders of FMP Common Stock (including the former
holders of RG Common Stock) will be governed by the laws of Delaware and FMP's
Certificate of Incorporation and By-laws. There are certain differences between
Nevada law and RG's Articles of Incorporation and By-laws, on one hand, and
Delaware law and FMP's Certificate of Incorporation and By-laws on the other
hand. See "COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND RG CAPITAL
STOCK."
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RISK FACTORS
The following risk factors should be considered carefully by Shareholders
in evaluating how to vote on the Merger Proposal. These factors should be
considered in conjunction with the other information included in this Proxy
Statement/Prospectus.
SPORTING GOODS INDUSTRY
Dependence on Discretionary Consumer Spending. Sales of golf equipment
historically have been dependent on discretionary spending by consumers, which
may be adversely affected by general economic conditions and the popularity of
golf in general. A decrease in consumer spending on golf equipment could have an
adverse effect on RG's and FMP's business and operating results. Future revenue
may be affected in part by factors which influence the business of FMP's and
RG's direct and indirect customers who are original equipment manufacturers
("OEMs"), such as the OEMs' product development, advertising and marketing,
purchasing patterns and inventory levels.
New Product Introduction. RG and FMP believe that the introduction of new,
innovative golf shafts and grips will be crucial to their future success. New
models and basic design changes are frequently introduced into the golf club
market but are often met with consumer rejection. Although RG and FMP have
achieved certain successes in the introduction of products, no assurances can be
given that either will be able to continue to design and manufacture products
that meet with market acceptance. RG will be reliant to a large extent on
Acushnet Rubber Company, Inc. ("Acushnet") with respect to new compounds and
product innovations. There can be no assurance that RG will be able to increase
its market share with its existing product line or that RG's alliance with
Acushnet will result in new product offerings that will be successful. In
addition, prior successful designs may be rendered obsolete within a relatively
short period of time as new products are introduced into the market. The design
of new golf clubs is also greatly influenced by rules and interpretations of the
United States Golf Association (the "USGA"). Although the golf equipment
standards established by the USGA generally apply only to competitive events
sanctioned by that organization, it has become critical for designers of new
products to assure compliance with USGA standards. Although RG and FMP believe
that all their grips and shafts comply with current USGA standards, no assurance
can be given that any new products will receive USGA approval or that existing
USGA standards will not be altered in ways that adversely affect the sales of
products. See "INFORMATION CONCERNING FMP -- Product Development" and
"INFORMATION CONCERNING RG -- Product Development."
Competition. The golf equipment industry is highly competitive and is
characterized by numerous companies competing in various segments of the market.
Many of RG's and FMP's competitors have greater name recognition, more extensive
engineering, manufacturing and marketing capabilities, and greater financial,
technological and personnel resources than RG and FMP. In addition, certain
companies in the golf equipment industry have expanded their product lines in
recent years as a result of acquisitions. There can be no assurance that RG and
FMP will be able to compete successfully in the future with existing or new
competitors. See "INFORMATION CONCERNING FMP -- Competition" and "INFORMATION
CONCERNING RG -- Competition."
Seasonality; Fluctuations in Operating Results. Golf is generally
considered a warm weather sport. Accordingly, RG and FMP have historically
enjoyed strongest sales in the first and second calendar quarters in
anticipation of consumer purchases of golf products during the second and third
calendar quarters, the principal selling season for golf equipment. The
increased sales during this period result in a corresponding build up of
receivables. Income from operations is typically lower in the third and fourth
calendar quarters as fixed operating costs are spread over a generally lower
sales volume. In order to minimize the effect of seasonality, RG and FMP may
build product inventories during the third and fourth calendar quarters to allow
use of production resources more effectively. The timing of orders from OEMs and
fluctuations in demand due to the sudden popularity or decline in popularity of
specific golf clubs assembled by customers also may contribute to quarterly or
other periodic fluctuations.
Product Protection and Intellectual Property. RG and FMP currently rely
upon a combination of patents, copyrights, trademarks and trade secret laws to
establish and protect certain of their proprietary rights
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in their products. There can be no assurance that the steps taken by RG or FMP
in this regard will be adequate to prevent misappropriation of proprietary
property rights or that competitors will not independently develop proprietary
property that is substantially equivalent or superior. See "INFORMATION
CONCERNING FMP -- Proprietary Property" and "INFORMATION CONCERNING RG --
Proprietary Rights."
RISKS RELATED TO RG
Losses from Operations and Decline in Working Capital. RG's losses from
operations have increased significantly in recent years. RG attributes this to a
variety of factors, including a decline in overall grip sales and an increase in
lower margin OEM sales as a percentage of total grip sales, delays in the
introduction of certain new grips, expenses incurred in connection with headwear
production, a one-time charge to earnings related to a barter transaction,
expenses incurred resulting from fixed asset, inventory and accounts receivable
write-offs, the write-off of intangible assets of Roxxi, Inc. ("Roxxi"), an RG
subsidiary, and expenses incurred in connection with the transition of grip
manufacturing to Acushnet. There can be no assurance that RG will not sustain
losses in the future. In addition, RG's cash and cash equivalents and working
capital have decreased significantly in recent years. RG finances its
expenditures, in part, through a $1.75 million revolving line of credit and a
$700,000 term loan. RG's access to this line of credit and term loan may be
restricted in the event RG fails to satisfy certain loan covenants, which could
result in the acceleration of RG's indebtedness and would impair its ability to
fund its operations. RG recently was in default of certain loan covenants and
obtained waivers and modifications of such covenants to better enable RG to
satisfy such covenants in the future. In the event RG fails to achieve budgeted
levels of sales, gross margins, and expenses, it may require additional funds to
finance its operations. There can be no assurance that RG will be able to
satisfy current loan covenants or obtain additional funds on terms and
conditions acceptable to RG, if at all. See "INFORMATION CONCERNING
RG -- Management's Discussion and Analysis."
Acushnet Delays and Use of Third Party Suppliers. RG currently purchases
and for an indefinite period of time intends to purchase its entire supply of
grips from two third party suppliers, including Acushnet, and anticipates that
all of its grips may eventually be supplied by Acushnet. Acushnet has
experienced start-up delays in the production of grips which has adversely
affected RG's customer relationships and results of operation, impaired RG's
ability to satisfy loan covenants, and may make it more difficult for RG to
satisfy lending covenants in the future. In addition, Acushnet's start-up delays
and the limited availability of grips have caused RG to alter its total sales
mix in 1997, which may have an adverse impact on future customer retention and
gross margins from grip sales. Although RG has modified its agreement with
Acushnet and has obtained modifications and waivers of certain of its loan
covenants resulting from Acushnet's production difficulties, any further delay
or disruption in the supply of grips to RG would have a material adverse impact
on RG's business and may cause RG to be in violation of its loan covenants. RG
currently has no immediately available back-up source of supply in the event RG
encounters further disruption in or termination of the supply of its grips, and
any transition to alternative suppliers or the resumption of in-house
manufacturing operations by RG would result in production delays, the loss of
sales and key customers, and would materially and adversely affect RG's
financial condition and results of operation. Although RG believes that it has
certain remedies available to it under its agreement with Acushnet arising out
of Acushnet's production delays, there can be no assurance that RG would be able
to successfully pursue such remedies or that such remedies would adequately
compensate RG for any losses incurred by it as a result of Acushnet's delays.
Golf Grip Customer Concentration. RG's sales of golf grips to OEMs account
for a significant percentage of RG's total net sales. RG currently provides golf
club grips used on many of Cobra's premium golf club lines, which accounted for
11.7% of RG's total net sales in 1996, and is the primary vendor for Odyssey and
Tommy Armour Golf. RG also supplies grips to other OEMs such as Titleist,
Bridgestone, Mizuno, and Tad Moore Golf. A substantial decrease in sales to any
of RG's major OEM customers would have a material adverse impact upon RG's
business. Further, there can be no assurance that sales to OEMs will continue to
increase. See "INFORMATION CONCERNING RG -- Customers."
International Sales. A large percentage of RG's total net sales during
1995 and 1996 was derived from international sales, which primarily consisted of
sales of golf club grips. RG uses distributors to sell its products in foreign
markets, including the United Kingdom, Japan, Sweden and Canada. Sales to
Precision
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Japan, RG's exclusive distributor for Japan, accounts for a substantial
percentage of RG's international sales. Precision Japan has begun to market RG's
athletic headwear products as well, primarily targeting the golf market.
However, the Japanese economy has been relatively stagnant and RG's Japanese
sales have decreased in recent years. RG anticipates that international sales
will continue to decrease. In addition, RG's international business may be
affected by changes in demand resulting from fluctuations in currency exchange
rates, trade restrictions, duties, general economic conditions and other
factors. RG seeks to mitigate its direct exposure to exchange rate fluctuations
by transacting most international business in United States dollars. See
"INFORMATION CONCERNING RG -- Sales and Marketing."
RISKS RELATED TO FMP
Limited History. FMP's manufacturing facility in Torrington, Connecticut
dates back over a century and the facility's manufacture of golf club shafts
dates back to the 1920s. However, the facility has been operated by three
different owners. Most recently, in 1996 a group of investors joined the current
management in acquiring substantially all of the assets and certain liabilities
of the golf shaft manufacturing business from Brunswick Corporation, resulting
in the current structure and ownership of FMP. Consequently, FMP has a limited
operating history. There can be no assurance that the results of such limited
history or of the predecessor operations will be indicative of future
performance. Also, while FMP's management has extensive experience in the
sporting goods and golf shaft industry, there can be no assurance that their
experience will be sufficiently applicable for the successful management of FMP
in its current structure or the combined operations of FMP and RG resulting from
the Merger. See "INFORMATION CONCERNING FMP -- History."
Effect of RG Losses. RG, in the last two years, has experienced
substantial losses. There can be no assurance that losses will not continue in
the future when RG is a wholly-owned subsidiary of FMP. If losses continue for
RG, they will materially and adversely affect the operating results of FMP. See
"INFORMATION CONCERNING FMP -- Management's Discussion and Analysis" and
"INFORMATION CONCERNING RG -- Management's Discussion and Analysis."
Dependence on Certain Customers. FMP is substantially dependent on sales
to Taylor Made. Taylor Made represented approximately 14% of FMP's sales for the
nine months ended February 28, 1997. FMP does not have a supply agreement with
Taylor Made and the loss of sales to Taylor Made could have a material adverse
effect on FMP's business.
FMP CORPORATE RISKS
Absence of Trading Market for FMP Common Stock. Prior to the consummation
of the Merger, there will not have been any trading market for the FMP Common
Stock, and there can be no assurance as to the prices at which trading in the
FMP Common Stock will occur after completion of the Merger. Until FMP Common
Stock is distributed in the Merger and an orderly market develops (if one does),
trading prices may be volatile. Prices for FMP Common Stock will be determined
in the marketplace and may be influenced by many factors, including the
operating performance of FMP, the depth and liquidity of the market for FMP
Common Stock, and general economic and market conditions.
Market Listing. It is a condition to the Merger that at the Effective
Date, the FMP Common Stock will be included on the Nasdaq National Market, or
listed on the American Stock Exchange. To be, or continue to be, included on the
Nasdaq National Market or the American Stock Exchange, FMP must comply with all
requirements for original inclusion or listing at the Effective Date. These
requirements include a per share price of $5 or more and a market value of the
publicly held shares of at least $3 million. FMP and RG believe that these
requirements will be met if the five-day average market price of RG Common Stock
is $2.50 or higher at the Effective Date. However, there can be no assurance
that the FMP Common Stock will not be removed from the Nasdaq National Market or
the American Stock Exchange. If the FMP Common Stock were to be removed from the
Nasdaq National Market or the American Stock Exchange, the value of FMP Common
Stock could be adversely affected.
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Shares Eligible for Future Sale. Immediately after the Effective Date, the
number of outstanding shares of FMP Common Stock will be approximately
5,547,000. Of this number, approximately 4,177,000 shares will be "restricted
securities" under SEC Rule 144. Under that Rule, restricted securities that have
been held for more than one year and less than two years, and any other shares
held by affiliates of FMP (generally, its officers, directors and principal
stockholders), may only be sold without registration under the Securities Act,
in limited quantities, through ordinary brokerage transactions. After May 31,
1998, Rule 144 restrictions on restricted shares of FMP Common Stock held by
non-affiliates of FMP (approximately 376,000 shares out of the 4,177,000 at the
Effective Date) will lapse. These 376,000 shares could be sold without
restriction except that they are subject to shareholders' agreements which
restrict their transfer. However, the shareholders' agreements are not "lock-up"
agreements intended to restrict the flow of shares into the market and the
parties thereto may allow any of the subject shares to be sold in compliance
with the securities laws at any time. In addition to the 4,177,000 shares of FMP
Common Stock which will be restricted securities, approximately 778,000 shares
of FMP Common Stock issuable in the Merger will be issuable to persons who have
been identified as affiliates of RG. These shares are subject to the
restrictions imposed by SEC Rule 145, under which shares of FMP Common Stock
issued in the Merger to persons who were affiliates of RG and will not be
affiliates of FMP may be resold without registration during one year after the
Effective Date in limited quantities, through ordinary brokerage transactions.
Shares issued in the Merger to persons who will be affiliates of FMP will be
subject to the Rule 144 restrictions described above. See "THE MERGER -- Resale
of FMP Stock; Affiliates." Regardless of Rule 144 and Rule 145, any shareholder
may sell securities in transactions that have been registered under the
Securities Act if he complies with its prospectus delivery requirements. FMP
stockholders who will own approximately 3,740,000 shares of FMP Common Stock and
affiliates of RG who will receive approximately 777,000 shares of FMP Common
Stock in the Merger have entered into a registration rights agreement under
which they will have the right to demand or participate in future registrations
of FMP Common Stock under the Securities Act. Sales of substantial amounts of
FMP Common Stock or the perception that such sales may occur, could have a
material adverse effect on the market price of the FMP Common Stock. See "THE
MERGER -- Interests of Certain Persons in the Merger: Registration Rights
Agreement."
Absence of Dividends. Neither RG nor FMP has ever paid any cash dividends
on its capital stock and FMP does not anticipate paying any cash dividends on
its capital stock in the foreseeable future. FMP's subsidiaries and RG are
prohibited by their agreements with their respective lending institutions from
declaring or paying cash dividends without the prior consent of their respective
lenders. Unless FMP derives sources of cash other than the operations of its
subsidiaries, these restrictions will limit FMP's ability to pay cash dividends.
See "MARKET PRICE OF RG COMMON STOCK."
Control by Principal Stockholders. Following the completion of the Merger,
Christopher A. Johnston, RPJ/JAJ Partners Ltd., David E. Johnston, Berenson
Minella & Company and certain of its affiliates ("Berenson Minella") and Kenneth
J. Warren (collectively, the "Johnston Group") and the Edwards Group will own
approximately 68% and 14%, respectively, of the outstanding FMP Common Stock and
will, therefore, control the election of directors and the affairs of FMP. The
Johnston Group and the Edwards Group have entered into a stockholder agreement
("Stockholder Agreement") whereby both groups have agreed to vote their shares
cooperatively such that the Johnston Group elects six of FMP's nine directors
and the Edwards Group will elect the remaining three. See "THE
MERGER -- Interests of Certain Persons in the Merger: Stockholder Agreement,"
and "THE MERGER -- Management and Operations of FMP after the Merger."
Anti-Takeover Provisions; Blank Check Preferred Stock. Certain provisions
of FMP's charter and applicable corporate laws could be used to hinder or delay
a takeover bid for FMP. Such provisions may inhibit takeover bids and decrease
the chance of stockholders realizing a premium over market price for their FMP
Common Stock as a result of a takeover. Specifically, the Certificate of
Incorporation provides for a classified Board of Directors, divided into three
classes with terms of three years each. In addition, FMP's Certificate of
Incorporation authorizes the Board of Directors, without stockholder approval,
to issue "blank check" preferred stock with such designations, rights,
preferences and restrictions as may be determined from time to time by the Board
of Directors. If FMP issues preferred stock, the issuance could be used to
thwart a
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takeover bid and may have a dilutive effect upon FMP's common stockholders. See
"DESCRIPTION OF FMP CAPITAL STOCK."
RISKS RELATED TO THE MERGER
Potential Effect of Merger on Business. RG and FMP anticipate that they
may experience changes in their businesses due to the Merger. Such changes may
include, among other things, a potential change in the current buying patterns
of resellers and potential customers as a result of the announced Merger, and
the decision on the part of certain customers to defer purchasing decisions as
they evaluate the future product strategy and competitive positioning of RG and
FMP after the Merger. Any such changes could have a material adverse effect upon
the results of operations of RG and FMP both in the short term and the long
term.
No Dissenters' Rights of Appraisal. Under the Nevada Revised Statutes,
dissenters' rights of appraisal are not available for shares of any class of
stock which, on the applicable record date for the shareholder vote on a merger,
are included as Nasdaq National Market securities and which are to be converted
into shares of stock of any other corporation which are so designated or which
are listed on the effective date of the merger on a national securities
exchange. On the Record Date, RG Common Stock was included as a Nasdaq National
Market security and it is a condition to consummation of the Merger that the FMP
Common Stock to be issued to Shareholders in the Merger be included as a Nasdaq
National Market security or listed on the American Stock Exchange, upon official
notice of issuance. Accordingly, Shareholders will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
Tax Treatment. As described below, RG will receive an opinion from FMP's
tax counsel based upon certain representations and assumptions that the Merger
will be tax-free for federal income tax purposes, but no ruling from the
Internal Revenue Service ("IRS") to that effect has been or will be sought. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES." If the Merger does not qualify for
tax-free treatment as a reorganization described in Section 368(a)(1)(A) and
Section 368(a)(2)(E) of the Code, then, in general, although the matter is not
entirely free from doubt, for federal income tax purposes it is likely that each
Shareholder would recognize gain measured by the excess, if any, of the fair
market value of the FMP Common Stock received in the Merger plus the amount of
cash received in lieu of a fractional share over the Shareholders' tax basis in
the RG Common Stock.
MARKET PRICE OF RG COMMON STOCK
RG's Common Stock is traded on the Nasdaq National Market under the symbol
"GRIP." The following table sets forth the high and low per share sale prices of
the Common Stock reported on the Nasdaq National Market for the two most recent
fiscal years.
<TABLE>
<CAPTION>
RANGE OF SALE
PRICES
-------------
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1997
First Quarter.............................................................. $6 $2 7/8
Fiscal 1996
First Quarter.............................................................. $8 1/2 $5 1/4
Second Quarter............................................................. $8 $4
Third Quarter.............................................................. $5 5/8 $3 1/4
Fourth Quarter............................................................. $4 5/8 $1 3/4
Fiscal 1995
First Quarter.............................................................. $6 3/4 $4
Second Quarter............................................................. $5 1/2 $3 1/2
Third Quarter.............................................................. $6 1/2 $3 1/4
Fourth Quarter............................................................. $6 3/8 $3 3/4
</TABLE>
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<PAGE> 21
As of May 23, 1997, there were approximately 122 Shareholder accounts of
record. This figure does not reflect beneficial ownership of shares held in
nominee names.
On May 14, 1997, the last full trading day prior to the public announcement
of the Merger Agreement, the last reported sale price of RG Common Stock on the
Nasdaq National Market was $3.75 per share. On , 1997, the last
reported sale price of RG Common Stock on the Nasdaq National Market was
$[ ] per share.
Neither RG nor FMP has ever paid any cash dividends on its capital stock
and FMP does not anticipate paying any cash dividends on its capital stock in
the foreseeable future. Pursuant to the Revolving and Term Note, issued by RG
and Roxxi and the corresponding Credit and Security Agreement entered into by
RG, Roxxi and Norwest Business Credit, Inc., RG and Roxxi have agreed not to
declare or pay any dividends (other than dividends payable solely in their
respective stock) on any class of their respective stock or make any payment on
account of the purchase, redemption or other retirement of any shares of such
stock or make any distribution in respect thereof, either directly or
indirectly. Pursuant to the Financing Agreement dated May 31, 1996, among Star
Bank, National Association, and FMP's subsidiaries, FMP's subsidiaries have
agreed that they will not declare or pay cash dividends upon any of their
respective stock. Unless FMP derives sources of cash other than the operations
of its subsidiaries, these restrictions will limit FMP's ability to pay cash
dividends. See "RISK FACTORS -- FMP Corporate Risks: Absence of Dividends."
Prior to consummation of the Merger, there has been no public trading
market for the FMP Common Stock. See "RISK FACTORS -- FMP Corporate Risks:
Absence of Trading Market for FMP Common Stock." However, the inclusion of FMP
Common Stock on the Nasdaq National Market or listing of the FMP Common Stock on
the American Stock Exchange is a condition to the Merger. See "RISK FACTORS --
FMP Corporate Risks: Market Listing."
THE SPECIAL MEETING
GENERAL; DATE, TIME AND PLACE OF THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to Shareholders in
connection with the solicitation of proxies by the RG Board for use at the
Special Meeting to be held on , 1997 at .m. (local time) at
444 West Geneva Drive, Tempe, Arizona, and at any adjournment or postponement
thereof for the purposes set forth herein and in the accompanying Notice of
Special Meeting.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to Shareholders on or about , 1997.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, Shareholders will consider and vote upon proposals
to approve and adopt the Merger Proposal and the Amendment.
SHAREHOLDERS ENTITLED TO VOTE; REQUISITE APPROVAL
The RG Board has fixed , 1997 as the record date for the
determination of Shareholders entitled to notice of, and to vote at, the Special
Meeting. Accordingly, only holders of record of RG Common Stock on the Record
Date will be entitled to notice of, and to vote at, the Special Meeting. As of
, 1997, there were shares of RG Common Stock outstanding and
entitled to vote. Each Shareholder of record on the Record Date is entitled to
cast one vote per share on each proposal in person or by proxy, at the Special
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of RG Common Stock entitled to vote at the Special
Meeting, is necessary to constitute a quorum at the Special Meeting.
Pursuant to the Voting Agreement, the Edwards Group, which holds
approximately 54% of the outstanding RG Common Stock, has agreed to vote in
favor of the Merger Proposal and has granted FMP an
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<PAGE> 22
irrevocable proxy to vote its shares of RG Common Stock at the Special Meeting
in favor of the Merger Proposal. Such vote will be sufficient to approve and
adopt the Merger Proposal. RG directors, executive officers and their affiliates
collectively hold approximately 38% of the outstanding RG Common Stock.
At the Special Meeting, although abstentions will be counted and broker
non-votes will not be counted for purposes of determining the presence of a
quorum, abstentions and broker non-votes will have the same effect as a vote
against the Merger Proposal with respect to determining whether the Merger
Proposal has received the requisite number of affirmative votes. For purposes of
the Amendment, abstentions will have the same effect as a vote against approval
of the Amendment, whereas broker non-votes will not be counted as a vote for or
against the approval of the Amendment.
PROXIES
This Proxy Statement/Prospectus is being furnished to Shareholders in
connection with the solicitation of proxies by and on behalf of the RG Board for
use at the Special Meeting.
All shares of RG Common Stock which are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on such proxies. IF NO
INSTRUCTIONS ARE INDICATED (OTHER THAN IN THE CASE OF BROKER NON-VOTES), SUCH
PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL AND THE
AMENDMENT.
As of the date of this Proxy Statement/Prospectus, the RG Board does not
know of any other matters which are to come before the Special Meeting. If any
other matters are properly presented at the Special Meeting for consideration,
including, among other things, consideration of a motion to adjourn the Special
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such matter
in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (a) filing
with the Secretary of RG at or before the taking of the vote at the Special
Meeting a written notice of revocation bearing a later date than the proxy, or
(b) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to Royal Grip, Inc., 444 West Geneva Drive, Tempe, Arizona
85282, Attention: Secretary, or hand delivered to the Secretary of RG, at or
before the taking of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/Prospectus, will be borne by RG. FMP has paid
$85,000 to RG as reimbursement of general expenses related to the Merger
incurred or to be incurred by RG. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers and employees of RG in
person or by telephone, telegram, facsimile or other means of communication.
Such directors, officers and employees will not be additionally compensated for,
but may be reimbursed for reasonable out-of-pocket expenses in connection with,
such solicitation. Arrangements will be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and RG will reimburse such custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
The procedure for the exchange of shares after the Merger is consummated is set
forth below in this Proxy Statement/Prospectus.
TABULATION
Under Section 78.320 of the General Corporation Law of the State of Nevada
("NGCL") and the By-laws of RG, a quorum must be present at a special meeting of
shareholders in order for any valid action, including the election of directors
and voting on other matters presented to the meeting, other than adjournment, to
be taken thereat. Section 78.320 of NGCL and the By-laws of RG provide that a
quorum
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<PAGE> 23
consists of a majority of the shares entitled to vote at the Special Meeting
present in person or represented by proxy. Shares represented by signed proxies
that are returned to RG will be counted toward the quorum in all matters even
though they are marked as "Abstain," "Against" or "Withhold Authority" on one or
more or all matters or they are not marked at all. Broker/dealers, who hold
their customers' shares in street name, may, under the applicable rules of the
exchanges and other self-regulatory organizations of which such broker/dealers
are members, sign and submit proxies for such shares and may vote such shares on
routine matters which, under such rules, typically include the election of
directors, but broker/dealers may not vote such shares on other matters, which
typically include mergers and the approval of stock compensation plans without
specific instructions from the customer who owns such shares. Proxies signed and
submitted by broker/dealers which have not been voted on certain matters as
described in the previous sentence are referred to as broker non-votes.
Under Section 92A.120 of the NGCL, the Merger Proposal must be approved by
the affirmative vote of the holders of a majority of the shares of RG Common
Stock entitled to vote at the Special Meeting. Proxies marked "Abstain" and
broker non-votes have the same effect as votes against approval.
Under Nasdaq National Market rules and Section 13 of the Plan, an amendment
to the Plan must be approved by the affirmative vote of the holders of a
majority of the shares of RG Common Stock present in person, or represented by
proxy, and entitled to vote at the meeting at which a quorum is present. A proxy
marked "Abstain" has the same effect as a vote against approval, but a broker
non-vote is disregarded in determining the number of shares voted for approval
and in determining the total number of shares that constitute a majority in that
matter.
BACKGROUND OF THE MERGER
As part of its efforts to maximize shareholder value, the RG Board has from
to time to time over the past several years discussed the advisability of RG
engaging in a strategic combination with another company involved in the golf
industry. In September 1995 RG engaged EVEREN, an investment banking firm, and
began locating companies that could potentially enter into a strategic business
relationship with RG. As part of this process, EVEREN developed a list of
potential candidates. Over several months, Messrs. Danny Edwards, Chairman of
the Board, and Robert G. J. Burg, II, President, with the assistance of EVEREN,
conducted exploratory talks regarding a possible business combination with
several public and private golf companies.
On June 19, 1996, Mr. Christopher A. Johnston, President of FMP, contacted
Mr. Edwards to explore generally the possibility of FMP entering into a business
combination with RG. Following their conversation, Mr. Edwards provided Mr.
Johnston with publicly available information related to RG, and Mr. Johnston
provided information on FMP's business to Mr. Edwards. Following review of the
FMP information, Mr. Edwards decided to obtain additional information regarding
FMP in preparation for consulting the entire RG Board regarding a potential
business combination.
On July 30, 1996, Messrs. Johnston, Richard P. Johnston, Chairman of FMP,
Ronald Chalmers, President of FMP's operating subsidiary, and David Johnston,
Executive Vice-President of FMP, met in Phoenix, Arizona with Messrs. Edwards,
Burg, and Lawrence Bain of EVEREN. The purpose of the meeting was to obtain
additional background information, for presentation to the RG Board, regarding
FMP's business, product lines, markets, profitability and management and to
discuss the operating philosophies of the two companies. RG also provided
additional general information regarding RG. At the meeting, the participants
toured the RG manufacturing facility.
On August 14, 1996, a regular meeting of the RG Board was held at which all
of the RG Board members were present. During that meeting, Mr. Burg apprised the
RG Board of the discussions between RG and FMP. Mr. Burg provided the RG Board
with background information regarding FMP's business, products, markets,
financial situation, and management. The RG Board also reviewed the results of
the discussions that Messrs. Edwards, Burg and Bain had engaged in with other
companies regarding a possible business combination with RG. Following these
discussions, the RG Board concluded that it would be in the best
13
<PAGE> 24
interest of RG to explore further the possibility of a strategic business
relationship with FMP, and it directed Messrs. Edwards and Burg to continue
discussions with FMP representatives.
In early August 1996, Messrs. Edwards and Burg met with Mr. Christopher
Johnston at which time the parties began to develop the potential synergies that
could result from a combination of the companies. They discussed the relative
strengths and the complementary nature of the customer base and respective
products of each company, including RG's strength in sales and marketing and
FMP's management resources and financial condition.
In early September 1996, officers of each company entered into a
confidentiality agreement. The agreement generally provided that each party
would maintain in confidence any non-public information provided to the other
and that such information would not be used for any purpose other than
evaluating a business relationship between the companies.
On September 4, 1996, Messrs. Edwards, Burg and Bain met with Messrs.
Christopher Johnston and Chalmers. During the meeting, Mr. Edwards made a
comprehensive presentation of RG's business, products and management personnel.
On September 9, 1996, Mr. Christopher Johnston met with Mr. Bain to discuss
generally the potential business combination and specifically the background and
experience of FMP's management, FMP's products and markets, and its financial
condition. Numerous telephone calls between Messrs. Edwards, Burg, Bain and
Johnston occurred during the ensuing several weeks. These discussions focused
generally on possible business synergies that the two companies might pursue on
a post-merger basis and to discuss generally the future of the golf industry.
The parties also exchanged significant amounts of due diligence information.
On September 10, 1996, Messr. Edwards and Burg met with Messrs. Christopher
and Richard Johnston. At this meeting, Mr. Burg presented an overview of RG's
products and markets. The parties also discussed how a combination of the two
companies could provide enhanced operating efficiencies and marketing potential.
Over the next several weeks the parties reviewed the due diligence materials
that were provided to each.
On December 3, 1996, Messrs. Edwards, Burg, Bain and Tom Schneider, Vice
President of Finance of RG, met with Messrs. Christopher and Richard Johnston.
The parties discussed potential synergies of a potential combination as well as
financial information and proposed marketing plans.
On December 11, 1996, the RG Board met at a regular meeting at which all of
the members were present. During that meeting Messrs. Edwards and Burg apprised
the RG Board of the ongoing discussions between RG and FMP. These discussions
focused on the potential benefits of a business combination to RG and the
possible alternatives to a business combination with FMP. The Board directed
Messrs. Edwards and Burg to continue discussions with FMP.
On January 8, 1997, Messrs. Edwards, Burg and Bain met with Messrs.
Christopher and Richard Johnston to establish pro forma operating budgets and
estimate cost savings and synergies which would result from a combination of the
two companies. During these discussions Mr. Christopher Johnston proposed a
business combination that would result in FMP security holders owning 65% and
RG's securityholders owning 35%, on a fully diluted basis, of the combined
company. For the next several days the parties continued their discussions
regarding the proposed transaction.
In mid-January 1997, FMP's Board met to discuss the proposed transaction.
Mr. Christopher Johnston gave the FMP Board an overview of the proposed
transaction and led the Board in a discussion of the material provisions of a
proposed letter of intent. The FMP Board approved the proposed letter of intent
and on January 21, 1997 delivered it to RG.
On January 21, 1997, the RG Board met in a special meeting to discuss the
letter of intent. All of the RG Board members were in attendance. Mr. Burg
provided the Board with an overview of (a) FMP's business and the results of
RG's due diligence review and (b) the proposed combination with FMP. Mr. Edwards
led the Board in a discussion of the merits and risks of the proposed
transaction and the material provisions of the proposed letter of intent. RG's
legal counsel also advised the Board regarding its fiduciary duties and the
terms
14
<PAGE> 25
of the proposed letter of intent. After discussion, the RG Board determined that
the transaction would be strategically in RG's best interest, approved the
letter of intent by unanimous vote and instructed management and legal counsel
to begin the work required to finalize a Merger Agreement.
On January 21, 1997, RG and FMP executed the letter of intent. The parties
issued a press release announcing the transaction at the PGA Show in Orlando on
January 24.
On February 12, 1997, Messrs. Edwards and Burg attended a meeting of the
Board of FMP in Tucson, Arizona. The focus of the meeting was the business and
operations of FMP.
On February 13, 1997, Messrs. Schneider, Bain, and additional
representatives from EVEREN, met with Messrs. Christopher Johnston, Chalmers and
FMP management in Torrington, Connecticut to discuss results of the diligence
investigations and to hear presentations of FMP's operations, product and market
information. After the presentation, Mr. Johnston conducted a tour of FMP's
manufacturing facility.
In late February 1997, representatives of Arthur Andersen, FMP's
independent auditors, met with representatives of Ernst & Young LLP, RG's
independent auditors, and Mr. Schneider. The meeting focused on financial issues
related to RG and included a review of RG accounting papers. Also, Messrs.
Christopher and Richard Johnston met with Messrs. Burg and Bain regarding
financial issues.
Also in late February 1997, FMP distributed drafts of a Merger Agreement to
the various parties and their representatives. During the ensuing weeks, the
parties negotiated the terms of the definitive Merger Agreement and related
documents and the content of the disclosure schedules to be delivered in
connection with execution of the Merger Agreement.
On March 10 and 11, 1997, Messrs. Schneider, Gordon Johnson, Director of
Management Information Systems of RG, and a representative of Ernst & Young met
with Messrs. Christopher Johnston, Chalmers and other FMP management regarding
financial information and other business operations issues.
On March 28, 1997, the RG Board met to discuss the status of the proposed
Merger. The Board reviewed drafts of the Merger Agreement and related documents
and memoranda prepared by (a) legal counsel regarding the Board's fiduciary
obligations and (b) Messrs. Burg and Schneider regarding the due diligence
review of FMP. Mr. Burg presented an overview of RG and FMP's existing product
lines and development activities and how the respective products could enhance
their existing markets and discussed preliminary short and long term objectives
to be considered with respect to the post merger operations of FMP and RG. Mr.
Burg also summarized the status of the negotiations with FMP and the discussions
with EVEREN regarding the fairness of the transaction. The Board directed
Messrs. Edwards and Burg to continue with negotiations with FMP.
On April 2 and 3, 1997, Ms. Horton of FMP and a representative of Arthur
Andersen met with Mr. Schneider and Management Information Systems personnel of
RG to determine the compatibility of the companies' systems and potential
synergies between the systems and communication needs.
On April 9, 1997, Messrs. Edwards and Burg met in Tempe, Arizona with
Messrs. Richard and Christopher Johnston regarding the companies businesses
including the poor financial performance of RG during the first quarter of 1997.
In light of the discussions, the parties agreed to revise the terms of the
transaction so that FMP securityholders would receive 70% and the RG
securityholders would receive 30%, on a fully diluted basis, of the shares of
the combined company.
On April 17, 1997, the Board and stockholders of FMP met to discuss the
Merger. The Board and stockholders of FMP determined that the Merger was in the
best interest of FMP and its stockholders and approved the Merger and Merger
Agreement.
On April 22, 1997, RG held a meeting of the Board at which all directors
were present. At the meeting, Mr. Burg gave the Board an overview of the
proposed Merger. Mr. Edwards led the Board in a discussion of the merits and
risks of the transaction. As part of this discussion, representatives of EVEREN
provided detailed analyses regarding the various methods they had been using to
evaluate the fairness of the transaction to the Shareholders of RG. EVEREN
indicated, subject to final internal review, they were prepared to deliver
15
<PAGE> 26
an opinion to the effect that the proposed Merger was fair from a financial
point of view to the Shareholders of RG. EVEREN and management also discussed
RG's strategic alternatives, the future prospects for RG, and the potential
benefits of the business combination with FMP. RG's legal counsel presented a
summary of the Merger Agreement and related documents and discussed generally
the RG Board's fiduciary duties in regard to the transaction. The Board
determined to continue with the negotiations of the Merger Agreement.
On May 12, 1997, RG held a special meeting of the Board at which all
directors were present. The Board reviewed final versions of the Merger
Agreement and related documents and a summary of the material provisions of the
documents. EVEREN presented a draft of its fairness opinion and reviewed and
confirmed its analysis regarding the fairness of the Merger, from a financial
point of view to the Shareholders of RG. After careful deliberation, the RG
Board unanimously approved the Merger Agreement and recommended that the
Shareholders of RG also approve the Merger Agreement, subject to the condition
that the RG Board receive a signed fairness opinion from EVEREN, which EVEREN
delivered to the Board on May 14, 1997.
On May 14, 1997, each company executed and delivered the Merger Agreement
and related documents. Execution of the Merger Agreement was announced on May
15, 1997 by issuance of a joint press release.
THE MERGER
RG'S REASONS FOR THE MERGER; RECOMMENDATION OF THE RG BOARD
The RG Board has unanimously approved the Merger and believes the Merger is
in the best interest of RG and its shareholders. In reaching their decision, the
directors considered, with the assistance of management and its legal and
financial advisers, the following factors:
(a) The Merger offers the Shareholders an opportunity to acquire shares in a
larger company with improved financial strength and flexibility. Ownership in
FMP will allow the Shareholders to participate in the long-term growth and
appreciation that may result from FMP's future participation in the
consolidation of the sporting goods industry and from the combined companies'
more diversified product offerings.
(b) The strategic fit between RG and FMP and the complementary nature of
their respective businesses and similar customer base. These factors could
strengthen existing, and develop new, customer relationships through the
combined design and marketing capabilities of the combined companies.
(c) Anticipated operating synergies and cost savings, including possible
synergies and cost savings with respect to (i) more effective expenditures for
sales and marketing and (ii) reduced administrative expenses resulting from
the consolidation of sales, corporate, administrative and support functions.
The RG Board did not consider any quantified amount of such cost savings in
reaching its decision to approve the Merger.
(d) The opinion of EVEREN that the transaction is fair, from a financial
point of view, to the Shareholders. See "Opinion of Financial Adviser to RG
Board."
(e) The RG Board considered the financial and other terms of the Merger,
and, while the Merger Agreement contains an "exclusivity" clause and a
termination fee provision (see "THE MERGER AGREEMENT -- Exclusivity"), the
Merger Agreement permits RG to provide information to or enter into
discussions or negotiations with other persons if the RG Board determines that
it is appropriate in the exercise of the directors' fiduciary duties.
(f) Information with respect to the financial condition and business of FMP,
including, among other things, FMP's recent profitability and management
resources.
In the course of its deliberations, the RG Board reviewed the following
additional factors relevant to the Merger: (a) the financial presentations and
analysis of EVEREN prepared in connection with its fairness opinion; (b) reports
from management and legal advisers on specific terms of the Merger Agreement;
(c) reports from management regarding the financial performance, conditions,
business operations and prospects of FMP; and (d) the proposed terms, timing and
structure of the Merger.
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The RG Board also considered the following potentially negative factors in
its deliberations concerning the Merger: (a) the possibility of management
disruption associated with the Merger and the risk that, despite the efforts of
the combined companies, key management personnel of RG might not continue their
employment with the combined companies; (b) the possibility that certain of the
operating economies of scale such as more effective expenditures for sales and
marketing and the reduction of administrative costs sought to be achieved as a
result of the Merger might not be obtained; and (c) the possibility that the
Merger may not be consummated and the potential adverse effect of announcement
of the Merger, or its failure to be consummated, on RG's customers and
employees.
The foregoing discussion of information and factors considered by the RG
Board is not intended to be exhaustive but is intended to include the material
factors considered. In view of the wide variety of factors considered, the RG
directors did not find it practical to, and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors may
have given differing weights to different factors.
After taking into consideration all of the factors set forth above,
together with an analysis of the presentations of management, EVEREN, and legal
counsel, the RG Board unanimously approved the Merger and determined that the
Merger is fair to and in the best interests of RG and its Shareholders and that
RG should proceed with the Merger. Accordingly, the RG Board unanimously
recommends that the Shareholders vote FOR approval of the Merger Agreement.
OPINION OF FINANCIAL ADVISER TO THE RG BOARD
RG has retained EVEREN as its financial adviser to render its opinion with
respect to the fairness, from a financial point of view, to the holders of RG
Common Stock, of the consideration to be received by the holders of RG Common
Stock in the Merger per the Merger Agreement. EVEREN was selected as an adviser
of RG because of its reputation and expertise as a nationally recognized
investment banking firm. EVEREN, as part of its investment banking business, is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwriting, competitive bidding,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
EVEREN rendered its opinion to the RG Board on May 14, 1997, that, as of
the date of such opinion, and as of the date of this Proxy Statement/Prospectus,
the consideration to be received by the holders of RG Common Stock is fair, from
a financial point of view, to the holders of RG Common Stock in the Merger.
THE FULL TEXT OF THE OPINION OF EVEREN, UPDATED AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN QUALIFICATIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS
ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS, AND SHOULD BE READ IN ITS ENTIRETY.
THE SUMMARY OF THE OPINION OF EVEREN SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION.
EVEREN'S OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF RG COMMON STOCK AS A
RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE SPECIAL MEETING. THE
INFORMATION SET FORTH BELOW WAS PROVIDED TO THE RG BOARD BY EVEREN AND
DESCRIBES, AMONG OTHER THINGS, FACTORS WHICH WERE CONSIDERED BY EVEREN IN
ARRIVING AT ITS OPINION.
In arriving at its opinion, EVEREN reviewed, among other things, the Merger
Agreement, together with exhibits and schedules thereto, certain publicly
available information relating to the business, financial condition and
operations of RG and FMP as well as certain other non-public information,
primarily financial in nature, furnished to it by RG and FMP relating to the
respective businesses, earnings, assets and prospects of RG and FMP. EVEREN also
held discussions with members of senior management of RG and FMP concerning its
operations, business strategy, financial performance, and prospects. With
respect to financial forecasts used in its analysis, EVEREN assumed that such
forecasts were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of RG and FMP as to the
future performance of RG and FMP. EVEREN also reviewed certain publicly
available information concerning the trading of, and the trading market for, RG
Common Stock and certain publicly available
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information concerning comparable companies and transactions, all as more fully
set forth in EVEREN's opinion.
EVEREN was not engaged to and did not conduct a physical inspection of any
of the assets, properties or facilities of either RG or FMP, and was not engaged
to and did not make or obtain, and was not furnished with any independent
evaluation or appraisal of any of such assets, properties or facilities or any
of the liabilities of RG or FMP. EVEREN assumed and relied upon, without
independent investigation, the accuracy and completeness of the financial and
other information provided to it or publicly available, relied upon the
representations and warranties of RG and FMP contained in the Merger Agreement,
and was not engaged to and did not independently attempt to verify any of such
information. EVEREN also assumed that all of the conditions to the Merger as set
forth in the Merger Agreement, including the tax free treatment of the Merger to
the Shareholders, would be satisfied and that the Merger would be consummated on
a timely basis in the manner contemplated by the Merger Agreement. No
limitations were imposed by RG upon EVEREN with respect to the scope of its
investigation nor were any specific instructions given to EVEREN in connection
with its fairness opinion.
The following is a summary discussion of selected valuation methodologies
considered and prepared by EVEREN and discussed with the RG Board in connection
with EVEREN's written opinion dated May 14, 1997.
Relative Contribution Analysis. Immediately following the Merger, current
FMP stockholders and option and warrant holders will collectively own or have
the right to acquire 70% of the combined entity assuming the exercise of all
options and warrants granted by both companies. EVEREN compared this ownership
position relative to the contribution which FMP would have to the combined
entity during the latest nine and twelve months for both companies on a pro
forma basis (excluding the effects of goodwill and transaction costs generated
through the Merger). Given the substantial contribution of FMP to the
profitability of the combined entity, EVEREN believes that the lower percentage
contributions in sales and assets when compared to post-closing ownership is
justified by the economic benefit derived by RG Shareholders through the Merger.
Comparable Company Analysis. Utilizing an average share price of $3.08
(closing bid), the implied value of FMP's shares is: 1.4 times latest twelve
months ("LTM") net sales and 12.7 times LTM earnings before interest and taxes
("EBIT") on an aggregate value basis, and 3.4 times book value adjusted to
reflect a pro forma write up of FMP assets to recently appraised values and 23.2
times LTM net income on an equity basis of implied value through the Merger.
The range of aggregate valuation multiples which capture the low and the
high of industry peers includes 0.6 times to 6.6 times of LTM net sales and 5.0
times to 12.7 times LTM EBIT. On an equity value basis, the range of trading
multiples is 1.6 times to 6.8 times book value and 8.8 times to 19.8 times LTM
net income. Notwithstanding the fact that the implied net income multiple of the
consideration is outside of the range of industry peers, EVEREN believes it is
justified given the strong revenue growth performance over the last three years
of FMP's business, its strong profit performance since its acquisition from
Brunswick Corporation, and the fact that FMP is the only smaller industry
competitor with both strong growth potential and significant positive net
earnings.
Comparable Transaction Analysis. Since 1994, there has been only one
comparable transaction in the golf industry where terms have been released. This
transaction involves the purchase of Cobra Golf, Inc. by American Brands, Inc.
in December 1995. The aggregate valuation of $718.8 million represented a
purchase price multiple of 4.0 times LTM net sales, 13.1 times LTM EBIT, and
20.8 times LTM net income. With the exception of net income, all multiples are
comparable, or exceed, the valuation multiples of the consideration received by
FMP stockholders.
RG's Recent Financial Performance. Since fiscal 1995, a series of
non-recurring charges and ongoing operational problems has led to a significant
decline in shareholder value. At the end of fiscal 1996, RG was in technical
default on certain covenants related to its credit facility with Norwest
Business Credit Inc.
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("Norwest") and was forced to re-negotiate those covenants. Notwithstanding its
success in re-negotiating its credit agreement, RG's financial flexibility has
been impaired.
Pro Forma Earnings Analysis. Despite the significant dilution in ownership
which will occur to Shareholders through the Merger, RG's historical net losses
would have been significantly reduced as a result of the Merger on a pro forma
basis. Assuming the Merger had impacted financial results for the nine months
ended December 31, 1996 for RG and February 28, 1997 for FMP, the combined
entity's earnings per share would have been a net loss of $0.25 per share (prior
to the effects of the one for one-half exchange rate) versus a net loss for RG
on a stand-alone basis of $1.42 per share and a net loss of $0.62 per share
(exclusive of non-recurring charges for RG) on a stand-alone basis. Similarly,
for the twelve months ended December 31, 1996 for RG and February 28, 1997 for
FMP, it is estimated that the inclusion of FMP's earnings would have
significantly reduced RG's net losses. Including the effects of the one for
one-half exchange ratio, the net losses on a combined basis would have been
reduced to $0.51 per share.
Other Relevant Issues. In addition to the analytical work performed,
EVEREN believes that the absence of other bidders for RG provides a strong
indication of the fairness of the Merger to RG Shareholders. The lack of
additional bidders is significant given (i) the fact that a proposed
post-closing ownership split was disclosed as well as summary financial
information on FMP for the six months ended December 31, 1996 in a press release
issued on January 24, 1997, and (ii) that no bidders emerged following the
release of revised terms following the execution of the Merger Agreement on May
15, 1997.
Stock Market Reaction. On January 24, 1997, RG announced its intention to
merge with FMP in a preliminary press release. That first press release was
followed by a second press release which included more information as to the
post-Merger ownership position of the two companies' shareholders and certain
financial data on FMP. On the date of the announcement, RG's share price closed
at $4.75, an 11.8% premium over the prior day and 46.2% premium over the day two
weeks before the announcement.
In the period following the announcement, RG's stock price performance has
compared favorably to an index made up of its industry peers in the time period
between the announcement and the close of trading on May 14, 1997. Since the
initial announcement of the Merger, its structure has changed in response to
poor operating results for RG during the first quarter of 1997. EVEREN believes
that the increase in FMP's ownership of the combined entity is significant, but
not unreasonable. Following RG's announcement of its execution of the Merger
Agreement and its terms, RG's shares closed at $4.00 on Thursday, May 15, 1997
versus a $2.88 closing price on April 30, 1997.
Stock Performance Analyses. The analyses performed by EVEREN are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of EVEREN's opinion. The term "fair from a financial
point of view" is a standard phrase contained in investment banker fairness
opinions and refers to the fact that EVEREN's opinion as to the fairness of the
consideration to be received by Shareholders is addressed solely to the
financial attributes of such considerations. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold.
Finally, as described above, EVEREN's opinion was one of many factors taken into
consideration by the RG Board in making its determination to approve the Merger
Agreement. Consequently, EVEREN's analyses described above should not be viewed
as determinative of the RG Board's decision to agree to the consideration to be
received by holders of RG Common Stock.
In connection with its opinion based as of the date of this Proxy
Statement/Prospectus, EVEREN performed procedures to update certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith. EVEREN's opinion is based on
economic and market conditions and other circumstances existing on, and
information made available as of, the date of the opinion.
EVEREN's opinion does not address RG's underlying business decision to
effect the Merger or any other terms of the Merger. EVEREN was not asked to
consider and its opinion does not address the relative merits of the Merger
compared to any alternative business strategies that might exist for RG or the
effect of any other
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transaction in which RG might engage. EVEREN's opinion does not represent its
opinion as to what the value of RG Common Stock or FMP Common Stock may be at
the Effective Date.
Fees Paid to EVEREN and Relationship with RG. Pursuant to the terms of an
engagement letter dated April 29, 1997, RG agreed to pay EVEREN an aggregate
cash fee of $170,000 plus reimbursement for out-of-pocket expenses for
preparation of the fairness opinion. Of such fee, $85,000 was paid to EVEREN
upon execution of the engagement letter. The remaining $85,000 of such fee was
paid to EVEREN when it delivered the EVEREN Opinion to the RG Board on May 14,
1997. Upon completion of the Merger, EVEREN will also be compensated with a cash
advisory fee in the amount of $430,000 payable in three installments and will be
granted warrants to purchase 100,000 shares of RG Common Stock at a price of
$0.01 per share (prior to the effects of the exchange rate). The warrants will
be included as part of RG's Common Stock equivalents for purposes of calculating
the number of shares and options to be received by FMP stockholders and option
holders.
In connection with the past financial advisory services, RG granted to
EVEREN, options to purchase 30,000 shares of RG's Common Stock at an exercise
price of $6.50 per share. Such options were granted in connection with an
engagement agreement between RG and EVEREN, pursuant to which EVEREN agreed to
provide certain financial advisory and consulting services to RG. Of the options
granted to EVEREN, options to purchase 3,750 shares were vested and exercisable
on the date of grant, and additional options to purchase 3,750 shares were
vested (and will vest) on the first day of each three month period commencing
July 1, 1996. All options will vest immediately upon a change in control of RG
(such as the Merger). All unexercised options will expire two years after
vesting. Exemption from registration for this transaction was claimed pursuant
to Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering. In addition, Mr. Edwards maintains a retail
brokerage account with EVEREN and may from time to time borrow against the
account by pledging securities of RG.
FMP'S REASONS FOR THE MERGER
The FMP Board has unanimously approved the Merger and believes the Merger
is in the best interest of FMP and its stockholders. In reaching their decision,
the directors considered, with the assistance of management and its legal and
financial advisers, the following factors:
(a) The Merger offers FMP and its stockholders an opportunity to own shares
in a publicly-held company with the enhanced credibility and financial
flexibility that being publicly held entails and gives FMP stockholders the
opportunity to participate in the long-term growth and appreciation that may
result from FMP's future participation in the consolidation of the sporting
goods industry and from the combined companies' more diversified product
offerings.
(b) The strategic fit between FMP and RG and the complementary nature of
their respective businesses and similar customer base. These factors could
strengthen existing, and develop new customer relationships through the
combined design and marketing capabilities of the combined companies.
(c) Anticipated operating synergies and cost savings, including possible
synergies and cost savings with respect to (i) more effective expenditures for
sales, marketing and distribution and (ii) reduced administrative expenses
resulting from the consolidation of sales, corporate, administrative and
support functions. The FMP Board did not consider any quantified amount of
such cost savings in reaching its decision to approve the Merger.
(d) The FMP Board believes that the sporting goods industry in which both
FMP and RG participate is entering into a phase of consolidation driven by the
need to expand marketing through high cost media channels and expensive sports
star endorsements as well as the globalization of the sporting goods industry
which will demand even more resources in order to be an effective participant
in the industry.
(e) FMP currently manufactures shafts for golf clubs used by OEMs and
distributed directly to consumers under various trade names. FMP believes that
there is a natural fit between its golf club shaft business and the golf club
grip business of RG and that the similar customer base of the combined
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companies may provide enhanced operating efficiencies and marketing
opportunities in the sporting goods industry.
(f) Information with respect to the financial condition and business of RG
including, among other things, steps taken to eliminate RG's operating loss.
In the course of its deliberations, the FMP Board reviewed the following
additional factors relevant to the Merger: (a) reports from management and legal
advisers on specific terms of the Merger Agreement; (b) reports from management
and accounting advisers regarding the financial performance, conditions,
business operations and prospects of RG; and (c) the proposed terms, timing and
structure of the Merger.
The FMP Board also considered the following potentially negative factors in
its deliberations concerning the Merger: (a) the possibility that FMP may not be
able to reverse RG's operating losses; (b) the possibility that certain of the
operating economies of scale such as more effective expenditures for sales,
marketing and distribution and the reduction of administrative costs sought to
be achieved as a result of the Merger might not be obtained; and (c) the
possibility that the Merger may not be consummated and the potential adverse
effect of announcement of the Merger, or its failure to be consummated, on FMP's
customers and employees.
The foregoing discussion of information and factors considered by the FMP
Board is not intended to be exhaustive but is intended to include material
factors considered. In view of the wide variety of factors considered, the FMP
directors did not find it practical to, and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors may
have given differing weights to different factors.
After taking into consideration all of the factors set forth above, the FMP
Board and stockholders unanimously approved the Merger and determined that the
Merger is fair to and in the best interests of FMP and its stockholders and that
FMP should proceed with the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the RG Board with respect to
the Merger Agreement, Shareholders should be aware that certain members of the
RG Board and management have interests in the Merger that are in addition to or
different from the interests of Shareholders generally. As described in the
following paragraphs: (a) Danny Edwards has entered into a Consulting Agreement
with FMP; (b) FMP has agreed to treat RG Options in the manner described below;
(c) certain officers of RG, if their employment is terminated, are entitled to
severance payments; and (d) the Edwards Group and the Johnston Group have
certain registration rights and have agreed as to the future composition of the
FMP Board of Directors.
Consulting Agreement. FMP has entered into a Consulting Agreement with
Danny Edwards under which Mr. Edwards will make himself available to consult
with FMP on matters relating to its business and Mr. Edwards has agreed to
endorse the products of FMP and promote FMP and its products by actively
appearing on the "Nike" tour and in golf tournaments sponsored by the PGA. Mr.
Edwards's consulting obligations are limited to 25 hours during a calendar
quarter. The term of the agreement commences with the Effective Date and expires
on its second anniversary. FMP has agreed to pay Mr. Edwards $180,000 per year
for his services as a consultant. If Mr. Edwards does not complete the first two
days of at least ten tournaments on the Nike tour in any year, FMP may reduce
the payment to him by $15,000 for each tournament not completed, unless the
non-completion is due to injury and Mr. Edwards appears and promotes FMP
products at such tournament. FMP may terminate the agreement if Mr. Edwards
engages in gross and wilful misconduct injurious to FMP or if Mr. Edwards fails
to complete the first two days of at least five tournaments during any year
unless non-completion is due to injury and Mr. Edwards appears at the tournament
and promotes FMP products. Mr. Edwards has agreed not to compete with FMP during
the term of the agreement and to hold confidential information in confidence
during the term of the agreement and for one year thereafter.
RG Options. Each option or warrant to purchase RG Common Stock issued
pursuant to the Non-Employee Director Stock Plan, the Non-Employee Directors
Stock Option Plan, and the 1993 Stock Option Plan of RG, or otherwise which is
outstanding as of the Effective Date (the "RG Options") shall be assumed
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by FMP and converted into an option or warrant (or a substitute option shall be
granted) to purchase the number of shares of FMP Common Stock (rounded to the
nearest whole share) equal to the number of shares of RG Common Stock subject to
such RG Option divided by two, at an exercise price per share of FMP Common
Stock (rounded to the nearest penny) equal to the former exercise price per
share of RG Common Stock under the RG Option immediately prior to the Effective
Date multiplied by two; provided, however, that in the case of any RG Option
which is an incentive stock option under the Code, the conversion formula shall
be adjusted, if necessary, to comply with the Code. Except as otherwise provided
in the applicable plan or agreement granting the RG Options, the duration,
vesting and other terms of each new option to purchase shares of FMP Common
Stock shall be the same as the original RG Option except that all references in
the option agreement to RG shall be deemed to be references to FMP. As soon as
practicable after the Effective Date, FMP shall deliver to each holder of an RG
Option a notice that accurately reflects the changes to such option under the
Merger Agreement. FMP agreed to file a registration statement with respect to
any FMP stock option plan, to the extent that such filings are required to
enable holders of options granted under the Merger Agreement to freely exercise
such options and (except for holders who may be deemed to be affiliates of FMP)
to freely sell shares acquired by the exercise of such options (assuming such
shares would be freely saleable pursuant to an effective registration statement
covering such plans).
Severance Agreements. If the employment of Robert G.J. Burg, II (President
of RG) with RG, FMP or any other successor is terminated by his employer for any
reason other than for gross and wilful misconduct or if Mr. Burg terminates his
employment because of certain changes to the conditions of his employment, Mr.
Burg will be entitled to twelve months of severance pay to be paid upon
termination along with existing health benefits for a like period, and all
options held by Mr. Burg will immediately vest and the exercise period will be
extended to one year from the date of termination. Thomas A. Schneider (Vice
President of RG) has a substantially similar severance agreement, except that
the period for severance pay and benefits is nine months rather than twelve.
Registration Rights Agreement. The Edwards Group and the Johnston Group
have entered into a Registration Rights Agreement with FMP. Under the
Registration Rights Agreement, a group (for this purpose Berenson Minella is
treated as a separate group) may demand registration of FMP Common Stock having
a value of not less than $5 million under the Securities Act. FMP will not be
obligated to effect more than one demand registration for the Edwards Group,
more than two demand registrations for the Johnston Group or more than one
demand registration for the Berenson Minella Group. The parties to the
Registration Rights Agreement also have the right to have their shares of FMP
Common Stock included in certain other registration statements filed by FMP from
time to time. Registration rights are subject to reduction at the request of an
underwriter. Under the Registration Rights Agreement, FMP will indemnify selling
stockholders against liabilities created by untrue statements of material fact
or omissions of material facts from a registration statement and each of the
security holders agrees to indemnify FMP for a liability created by untrue
statements of material fact or omissions of material fact in information
supplied by the stockholder to FMP which is included in a registration
statement. A stockholder will cease to have registration rights when the
applicable group or its transferees hold FMP Common Stock existing at the
Effective Date of the Merger or received upon the exercise of an option held by
a party to the Registration Rights Agreement on the Effective Date which is less
than five percent of the then outstanding shares. For this purpose, shares of
FMP Common Stock that have been registered for sale under the Securities Act or
that may be sold without restriction under SEC Rule 144(k) are not counted.
Stockholder Agreement. The Edwards Group and the Johnston Group have
entered into a Stockholder Agreement, which will take effect at the Effective
Date of the Merger and will terminate three years after the Effective Date.
Under the Stockholder Agreement, the Johnston Group will be entitled to
designate six members of the FMP Board and the Edwards Group shall be entitled
to designate three members of the FMP Board. The FMP Board of Directors will
consist of at least nine members serving for staggered three year terms. If the
FMP Board is expanded, the groups will designate directors in a ratio of two to
one unless the Edwards Group no longer owns 10% of FMP's voting securities or
the vacancy is filled by an independent director. Members of each group shall
serve in each class of directors. Danny Edwards and Robert G.J. Burg, II will
serve on the Executive Committee and the Edwards Group will be entitled to
designate a member of
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the Compensation Committee. Each of the parties to the Stockholder Agreement has
agreed to vote his shares of FMP Common Stock in favor of designees of the
Johnston Group and the Edwards Group and to not vote for the removal of a
director designated under the Stockholder Agreement unless for cause, which is
limited to wilful and continued failure to substantially perform his duties,
wilful conduct which is significantly injurious to FMP or conviction for a
felony, or with the written consent of the group that designated the director.
See "RISK FACTORS -- FMP Corporate Risks: Control by Principal Stockholders."
Beneficial Ownership of RG Common Stock by Directors and Officers of
RG. As of May 15, 1997, directors and executive officers of RG and their
affiliates may be deemed to be beneficial owners of approximately 38% of the RG
Common Stock. Pursuant to the Voting Agreement, the Edwards Group, which holds
54% of the outstanding RG Common Stock, has agreed to vote in favor of the
Merger Proposal. Their vote is sufficient to approve and adopt the Merger
Proposal. See "OWNERSHIP OF RG COMMON STOCK."
MANAGEMENT AND OPERATIONS OF FMP AFTER THE MERGER
FMP will be the parent company of RG after the Effective Date. From and
after the Effective Date, until their respective successors are duly elected or
appointed, the officers of FMP will be Richard P. Johnston, Chairman of the
Board; Danny Edwards, Vice Chairman of the Board; Christopher A. Johnston,
President, Chief Executive Officer and Treasurer; Ronald L. Chalmers, Executive
Vice President; Robert G.J. Burg, II, Executive Vice President; David E.
Johnston, Executive Vice President; and Kenneth J. Warren, Secretary. The
Directors of FMP will be Messrs. Burg, Edwards, Richard Johnston, Christopher
Johnston, David Johnston, Chalmers and Warren, Raymond J. Minella and James G.
DeMello. See "INFORMATION CONCERNING FMP -- Management" and "THE
MERGER -- Interests of Certain Persons in the Merger: Stockholder Agreement."
MANAGEMENT AND OPERATIONS OF RG AFTER THE MERGER
RG will be the surviving corporation in the Merger and, following the
Merger, will be operated as a wholly-owned subsidiary of FMP. One of the
directors of the surviving corporation shall be Robert G.J. Burg, II, and the
officers of RG immediately prior to the Effective Date shall be the officers of
the surviving corporation, in each case until their respective successors are
duly elected or appointed. See "INFORMATION CONCERNING RG -- Management."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase of RG by FMP for accounting and
financial reporting purposes. The accounting treatment of the Merger is not a
condition to the consummation of the Merger.
REGULATORY APPROVALS; REGISTRATION OF FMP COMMON STOCK
In connection with the Merger, FMP has filed with the SEC, and the SEC has
declared effective under the Securities Act, the Registration Statement to
register with the SEC the issuance of the FMP Common Stock to be issued to
Shareholders upon consummation of the Merger. This Proxy Statement/Prospectus
contains some, but not all, of the information set forth in the Registration
Statement. See "AVAILABLE INFORMATION."
Under the Securities Act and pursuant to the terms of the Merger Agreement,
for the Merger to be consummated, no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and remain in
effect.
There are no other federal or state regulatory requirements which must be
complied with or obtained in connection with the Merger.
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RESALE OF FMP STOCK; AFFILIATES
All shares of FMP Common Stock received by Shareholders in the Merger will
be freely transferable, except that FMP Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
FMP or RG prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of RG, or Rule 144 under the Securities Act with respect
to persons who are or become affiliates of FMP or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of FMP or RG
generally include individuals or entities that control, are controlled by, or
are under common control with RG or FMP, as the case may be, and may include
certain officers and directors of such party as well as principal shareholders
of such party. See "RISK FACTORS -- FMP Corporate Risks: Shares Eligible for
Future Sale."
Prior to the execution of the Merger Agreement, RG delivered to FMP a
letter identifying the members of the Edwards Group and Robert G.J. Burg, II and
Thomas A. Schneider as the only persons who RG believed to be "affiliates" of RG
as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act (the "RG Affiliates"). Prior to distribution of this Prospectus/Proxy
Statement, RG has delivered to FMP agreements from each of the RG Affiliates
representing that he will not offer, sell, pledge, transfer or otherwise dispose
of any of the FMP Common Stock issued to him pursuant to the Merger, except in
compliance with Rule 145 or another exemption from the registration requirements
of the Securities Act. FMP may print an appropriate legend on any certificate
representing FMP Common Stock issued to an RG Affiliate in the Merger and impose
transfer restrictions on those shares. The Edwards Group has entered into a
Registration Rights Agreement with FMP and the Johnston Group pursuant to which
they will be allowed to demand registration of their shares of FMP Common Stock
under certain conditions. See " -- Interests of Certain Persons in the Merger:
Registration Rights Agreement."
NASDAQ NATIONAL MARKET INCLUSION
The inclusion of the FMP Common Stock to be issued in the Merger on the
Nasdaq National Market or listing of such stock on the American Stock Exchange
is a condition to the Merger. See "RISK FACTORS -- FMP Corporate Risks: Market
Listing."
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Nevada Revised Statutes Chapter 92A, the holders of RG Common
Stock are not entitled to any dissenters' rights of appraisal with respect to
the Merger. Under the Nevada Revised Statutes, dissenters' rights of appraisal
are not available for shares of any class of stock which, on the applicable
Record Date for the shareholder vote on a merger, are included as a Nasdaq
National Market securities and which are to be converted into shares of stock of
any other corporation which are so designated or which are listed on the
effective date of the merger on a national securities exchange. On the Record
Date, RG Common Stock was included on the Nasdaq National Market and it is a
condition to consummation of the Merger that the FMP Common Stock to be issued
to Shareholders in the Merger be included on the Nasdaq National Market or
listed on, or eligible for listing, the American Stock Exchange, upon official
notice of issuance. Accordingly, holders of RG Common Stock will not be entitled
to dissenters' rights of appraisal in connection with the Merger. See "RISK
FACTORS -- FMP Corporate Risks: Market Listing; -- Risks Related to the Merger:
No Dissenters' Rights of Appraisal."
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy
Statement/Prospectus and incorporated herein by reference. The summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders are
urged to read the Merger Agreement in its entirety for a more complete
description of the Merger.
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THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
by Shareholders and the satisfaction of the other conditions to the Merger,
Merger Sub will be merged with and into RG, the separate existence of Merger Sub
will cease and RG will be the surviving corporation of the Merger and a
wholly-owned subsidiary of FMP.
At the Effective Date, by virtue of the Merger and without any action on
the part of RG, FMP, the Merger Sub or Shareholders, each share of RG Common
Stock, each RG Option then outstanding and each share of common stock of Merger
Sub shall be converted pursuant to the terms of the Merger Agreement, as
described below.
The Articles of Incorporation of RG as in effect immediately prior to the
Effective Date and as amended in accordance with the provisions of the Merger
Agreement, will be the Articles of Incorporation of RG following the Merger. The
By-laws of RG as in effect immediately prior to the Effective Date and as
amended in accordance with the provisions of the Merger Agreement will be the
By-laws of RG following the Merger, and thereafter both the Articles of
Incorporation and the By-laws may be amended in accordance with their terms and
as provided by law. The name of the surviving corporation of the Merger will, by
virtue of the Merger, remain "Royal Grip, Inc.," until changed.
EFFECTIVE DATE
The Merger will be consummated and become effective after the requisite
approval of Shareholders has been obtained and all other conditions to the
Merger have been satisfied and upon the filing by Merger Sub and RG of properly
executed Articles of Merger with the Secretary of State of the State of Nevada
or at such time thereafter as is provided in the Articles of Merger.
TERMS OF THE MERGER
General. Upon consummation of the Merger, each issued and outstanding
share of RG Common Stock (other than shares of RG Common Stock held by RG as
treasury shares, all of which will be automatically canceled and retired without
consideration therefor) will be converted into the right to receive one-half
share of FMP Common Stock. Each share of the common stock, $.001 par value, of
Merger Sub issued and outstanding immediately prior to the Effective Date shall
be converted into one fully paid and nonassessable share of RG Common Stock.
Immediately before the Effective Date, FMP will amend and restate its
Certificate of Incorporation in the form of Annex IV which will change its name
to Royal Precision, Inc. FMP will split the shares of FMP Common Stock which
were outstanding immediately before the Effective Date, and/or issue stock
dividends to FMP stockholders of record who were stockholders of record
immediately before the Effective Date, and/or adjust the terms of options or
warrants to acquire FMP Common Stock which were outstanding immediately before
the Effective Date so that, immediately after the Effective Date, the holders of
shares of FMP Common Stock which were outstanding immediately before the
Effective Date and the holders of options and warrants to acquire shares of FMP
Common Stock that were outstanding immediately before the Effective Date, taken
as a group, will own or have the right to acquire the aggregate number of shares
of FMP Common Stock determined by multiplying seven-thirds (7/3) times the sum
of (a) the number of shares of FMP Common Stock which is required to be issued
to the Shareholders under the Merger Agreement, and (b) the number of shares of
FMP Common Stock which is issuable under options and warrants issued by RG and
assumed by FMP under the Merger Agreement. Any stock split or dividend shall be
made pro rata among the stockholders entitled to participate therein as required
by the General Corporation Law of the State of Delaware and any adjustment of
the terms of any option or warrant shall be made in accordance with the terms of
the applicable anti-dilution provisions thereof.
Upon completion of the Merger, the Shareholders and holders of RG Options
will own or have the right to acquire 30% of the outstanding shares of FMP
Common Stock on a fully diluted basis.
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Treatment of RG Options. Each RG Option shall be assumed by FMP and
converted into an option or warrant (or a substitute option shall be granted) to
purchase the number of shares of FMP Common Stock (rounded to the nearest whole
share) equal to the number of shares of RG Common Stock subject to such RG
Option divided by two, at an exercise price per share of FMP Common Stock
(rounded to the nearest penny) equal to the former exercise price per share of
RG Common Stock under the RG Option immediately prior to the Effective Date
multiplied by two; provided, however, that in the case of any RG Option which is
an incentive stock option under the Code, the conversion formula shall be
adjusted, if necessary, to comply with the Code. Except as otherwise provided in
the applicable plan or agreement granting the RG Options, the duration, vesting
and other terms of each new option to purchase shares of FMP Common Stock shall
be the same as the original RG Option except that all references in the option
agreement to RG shall be deemed to be references to FMP. As soon as practicable
after the Effective Date, FMP shall deliver to each holder of an RG Option a
notice that accurately reflects the changes to such option under the Merger
Agreement. FMP has agreed to file a registration statement with respect to any
FMP stock option plan, to the extent that such filings are required to enable
holders of options granted under the Merger Agreement to freely exercise such
options and (except for holders who may be deemed to be affiliates of FMP) to
freely sell shares acquired by the exercise of such options (assuming such
shares would be freely saleable pursuant to an effective registration statement
covering such plans).
Fractional Shares. No fractional shares of FMP Common Stock will be issued
in the Merger. In lieu of any such fractional shares, each Shareholder who
otherwise would be entitled to receive a fractional share of FMP Common Stock
pursuant to the Merger will be paid an amount in cash equal to such fractional
interest multiplied by the average of the high and low trading prices of RG
Common Stock for the five trading days prior to the Effective Date.
SURRENDER AND PAYMENT
Promptly after the Effective Date, American Securities Transfer & Trust,
Inc., the Exchange Agent, shall mail to each holder of record (as shown on the
books of RG's transfer agent as of the Effective Date) of any certificates which
immediately prior to the Effective Date represented outstanding shares of RG
Common Stock (the "Certificates") a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for exchange. Upon surrender of Certificates for cancellation to
the Exchange Agent, together with such letter of transmittal duly executed and
any other required documents, the holder of such Certificates shall be entitled
to receive for each of the shares of RG Common Stock represented by such
Certificates the number of shares of FMP Common Stock into which such shares of
RG Common Stock are converted in the Merger and the Certificates so surrendered
shall forthwith be canceled. SHAREHOLDERS ARE REQUESTED NOT TO AND SHOULD NOT
SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH TRANSMITTAL FORM AND
INSTRUCTIONS ARE RECEIVED.
Until so surrendered, Certificates shall represent solely the right to
receive the number of shares of FMP Common Stock into which such shares of RG
Common Stock are converted in the Merger and any cash in lieu of fractional
shares of FMP Common Stock with respect to each of the shares of RG Common Stock
represented thereby. The holders of Certificates will not be entitled to
exercise any rights of holders of FMP Common Stock until such Certificates are
so surrendered. No dividends or other distributions that are declared or made on
FMP Common Stock will be paid to persons entitled to receive certificates
representing FMP Common Stock pursuant to the Merger Agreement until they
surrender their Certificates representing RG Common Stock. Upon such surrender,
there shall be paid to the person in whose name the certificates representing
such FMP Common Stock shall be issued any dividends or other distributions which
shall have become payable with respect to such FMP Common Stock, if any, in
respect of a record date after the Effective Date. In no event shall the person
entitled to receive such dividends be entitled to receive interest on such
dividends. If any cash in lieu of fractional shares or any certificate
representing FMP Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall pay to
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the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such FMP Common Stock in a name other than that of
the registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties, respectively, relating to, among other things: (a) ownership of shares;
(b) existence and good standing; (c) authorization, validity and effect of the
Merger Agreement; (d) capital stock; (e) subsidiaries; (f) the execution and
delivery of the Merger Agreement not being in violation of RG's and FMP's
respective corporate governance documents, agreements or other instruments; (g)
financial statements of FMP; (h) filings with the SEC by RG; (i) litigation; (j)
absence of changes in financial condition; (k) tax matters and filings; (l)
employee benefit plans and compliance with the Employee Retirement Income
Security Act of 1974, as amended, (m) labor matters; (n) environmental matters;
(o) real property leases, subleases, licenses, deeds and other agreements; (p)
insurance; (q) intellectual property; (r) certain contracts; (s) the absence of
any agreement to pay a brokerage commission in connection with the Merger; (t)
conflicts of interest; (u) ownership of personal property; (v) disclosure of all
material facts; and (w) the absence of any reorganization plans by FMP other
than the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, RG and FMP have agreed that, during the
period from the date of the Merger Agreement to the Effective Date, except as
contemplated by the Merger Agreement, RG and FMP will and will cause each of
their respective subsidiaries to conduct its operations in the ordinary course
of business, and, to the extent consistent therewith, use all reasonable efforts
to: (a) preserve intact its current business organization and good will; (b)
keep available the services of its current employees; (c) preserve its
relationship with those persons having business dealings with it; (d) confer on
a regular basis with one or more representatives of the other party to report
operational matters of materiality and any proposals to engage in material
transactions; (e) promptly notify the other party of (i) any material emergency
or other material change in the condition (financial or otherwise), of such
party's or any subsidiary's business, properties, assets, liabilities, prospects
or the normal course of its businesses or in the operation of its properties,
(ii) any material litigation or material governmental complaints, investigations
or hearings (or communications indicating that the same may be contemplated), or
(iii) the breach in any material respect of any representation or warranty or
covenant contained herein; and (f) promptly deliver to the other party true and
correct copies of any report, statement or schedule filed by such party with the
SEC subsequent to the date of the Merger Agreement.
Pursuant to the Merger Agreement, RG and FMP have agreed that, prior to the
Effective Date, except as otherwise consented to in writing by the other party
or as contemplated by the Merger Agreement, as specifically set forth in the
schedules to the Merger Agreement, each shall not: (a) except pursuant to the
exercise of options, warrants, conversion rights and other contractual rights
disclosed, issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it exists on the date of the Merger
Agreement; (b) grant, confer or award any option, warrant, conversion right or
other right not existing on the date hereof to acquire any shares of its capital
stock; (c) increase any compensation or enter into or amend any employment,
severance, termination or similar agreement with any of its present or future
officers or directors, except for normal increases in compensation to employees
not earning more than $75,000 in annual base compensation, consistent with past
practice, and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs; (d) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or amend
any existing employee benefit plan in any material respect, except for changes
which are less favorable to participants in such plans or as may be required by
applicable law; (e) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock; (f)
except in connection with the use of shares of capital stock to pay the exercise
price or tax withholding in connection with stock-based RG benefit plans,
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any subsidiaries, or make any commitment for
any such action; (g) split, combine or reclassify any of its capital stock; (h)
sell,
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lease or otherwise dispose of any of its assets (including capital stock of
subsidiaries) which are material, individually or in the aggregate, except in
the ordinary course of business; (i) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business; (j) except for obligations of
wholly-owned subsidiaries; assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practices in an amount not material to such party, taken as
a whole; (k) other than wholly-owned subsidiaries, make any loans, advances or
capital contributions to or investments in, any other person; (l) pledge or
otherwise encumber shares of capital stock of such party or its subsidiaries;
(m) mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to create any material mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect to such asset; (n) sell, lease or
dispose of any assets outside the ordinary course of business or any assets
which in the aggregate are material to such party taken as a whole, or enter
into any commitment or transaction outside the ordinary course of business
consistent with past practice which would be material to such party taken as a
whole; (o) except as may be required as a result of a change in law or in
generally accepted accounting principles, shall not change any of the accounting
principles or practices used by such party, except that both parties shall use
their best efforts to make all filings under Regulation S-B promulgated by the
SEC for all periods ending after December 31, 1996; (p) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership,
limited liability company or other business organization or division thereof or
any equity interest therein; (q) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice which would be
material to such party taken as a whole; (r) authorize any new capital
expenditure or expenditures which, individually, is in excess of $25,000 or, in
the aggregate, is in excess of $1,500,000; provided, that none of the foregoing
shall limit any capital expenditure within the aggregate amount previously
authorized by such party's Board of Directors for capital expenditures and
written evidence thereof has been previously provided to the other party; (s)
enter into or amend any contract, agreement, commitment or arrangement providing
for the taking of any action which would be prohibited hereunder; (t) make any
tax election or settle or compromise any income tax liability material to such
party taken as a whole; (u) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
liabilities reflected or reserved against in, and contemplated by, the financial
statements (or the notes thereto) of such party or incurred in the ordinary
course of business consistent with past practice; (v) settle or compromise any
pending or threatened suit, action or claim relating to the transaction
contemplated hereby; (w) take, or agree in writing or otherwise to take any
action that would make any of the representations and warranties of a party
hereto contained in the Merger Agreement untrue or incorrect as of the date when
made; or (x) amend its certificate or articles of incorporation or by-laws.
CERTAIN COVENANTS
Under the Merger Agreement, FMP, Merger Sub and RG have each agreed to (a)
promptly give written notice to the others upon becoming aware of the occurrence
or, to their knowledge, impending or threatened occurrence, of any event which
could cause or constitute a breach of any of its representations, warranties or
covenants contained or referenced in the Merger Agreement, and (b) use its best
efforts to obtain all such waivers, permits, approvals and authorizations and to
effect all such registrations and filings as may be required to consummate the
transactions contemplated by the Merger Agreement.
FMP has agreed that between the date of execution of the Merger Agreement
and the closing date with respect to RG, FMP will not and will cause its
affiliates not to induce any person who is an employee, officer or agent of RG
and its affiliates to terminate such relationship or to employ or assist in
employing any such person.
EXCLUSIVITY
The Merger Agreement provides that RG shall not, directly or indirectly,
take (nor shall RG authorize or permit its subsidiaries, officers, directors,
employees, representatives, investment bankers, attorneys, account-
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ants or other agents or affiliates to take) any action to: (a) encourage,
solicit or initiate the submission of any Acquisition Proposal (as defined
below); (b) enter into any agreement with respect to any Acquisition Proposal;
or (c) participate in any way in discussions or negotiations with, or furnish
any information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. RG will promptly
communicate to FMP in writing the terms of any proposal or inquiry, including
the identity of the person and its affiliates making the same, that it may
receive in respect of any such transaction, or of any such information requested
from it or of any such negotiations or discussions being sought to be initiated
with it. Notwithstanding the foregoing, the provisions contained in the Merger
Agreement shall not prohibit the RG Board or RG from: (i) furnishing information
to or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide written proposal to acquire RG pursuant to a
merger, consolidation, share exchange, purchase of a substantial portion of the
assets, business combination or other similar transaction, if the RG Board
determines in good faith, based as to legal matters on the written advice of
outside legal counsel, that such action is required for the Board of Directors
to comply with its fiduciary duties to stockholders imposed by law; and (ii)
complying with Rule 14d-2 of the Exchange Act, with regard to any Acquisition
Proposal, if applicable. "Acquisition Proposal" shall mean any proposed: (A)
merger, consolidation or similar transaction involving RG; (B) sale, lease or
other disposition directly or indirectly by merger, consolidation, share
exchange or otherwise of assets of RG representing 10% or more of the
consolidated assets of RG; (C) issue, sale, or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 10% or more of the voting power
of RG; or (D) transaction in which any person shall acquire beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership, of 10% or more of the outstanding RG Common Stock.
See "THE MERGER AGREEMENT -- Fees and Expenses."
INDEMNIFICATION
The Merger Agreement provides that FMP shall, at all times after the
Effective Date, and shall cause RG to, indemnify each person who is a director
or officer of RG on the date of the Merger Agreement (individually an
"Indemnified Party" and collectively the "Indemnified Parties"), with respect to
any claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel ("Indemnified Liability"), to the extent such
Indemnified Party would have been indemnified pursuant to RG's Articles of
Incorporation or By-laws as then in effect as of the date of the Merger
Agreement, based in whole or in part on, or arising in whole or in part out of,
any matter existing or occurring at or prior to the Effective Date whether
commenced, asserted or claimed before or after the Effective Date, and shall
advance expenses to such Indemnified Party to the extent such Indemnified Party
would have been advanced expenses pursuant to RG's Articles of Incorporation or
By-laws as in effect as of the date of the Merger Agreement. FMP shall, and
shall cause RG to, maintain in effect for not less than four years after the
Effective Date, the current policies of directors' and officers' liability
insurance maintained by RG on the date hereof (provided that FMP may substitute
therefor policies having at least the same coverage and containing terms and
conditions which are no less advantageous to the persons currently covered by
such policies as insureds) with respect to matters existing or occurring on or
prior to the Effective Date.
CONDITIONS
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of RG and FMP to effect the Merger are subject to certain
conditions, including:
(a) the Merger Agreement and the transaction contemplated thereby shall have
been approved in the manner required by applicable law or by applicable
regulations of any stock exchange or other regulatory
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body and by the holders of the issued and outstanding shares of capital stock
of each of RG and FMP entitled to vote thereon;
(b) none of the parties to the Merger Agreement shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the transaction contemplated by the Merger Agreement or has a
material adverse effect on a party thereto. In the event any such order or
injunction shall have been issued, each party will use its reasonable efforts
to have any such injunction lifted;
(c) all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
the Merger Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Date and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a material adverse effect following the Effective Date;
(d) the FMP Common Stock issuable in the Merger shall have been approved for
inclusion on the Nasdaq National Market or listing on the American Stock
Exchange;
(e) the Registration Statement shall have been declared effective; and
(f) all applicable Blue Sky laws shall have been complied with.
Conditions to Obligation of RG to Effect the Merger. The obligation of RG
to effect the Merger is subject to the following additional conditions:
(a) FMP shall have performed its agreements contained in the Merger
Agreement required to be performed on or prior to the closing and the
representations and warranties of FMP contained in the Merger Agreement and in
any document delivered in connection therewith shall be true and correct as of
the closing date, and RG shall have received a certificate of the President or
a Vice President of FMP, dated the closing date, certifying to such effect;
(b) through the Effective Date, there shall not have occurred any change in
the financial condition, business, operations or prospects of FMP and its
subsidiaries, taken as a whole, that would reasonably be expected to have a
material adverse effect;
(c) RG shall have received a favorable opinion from counsel to FMP, in the
form attached to the Merger Agreement;
(d) RG shall have received a certificate from the Secretary of FMP and
Merger Sub, in form and substance reasonably satisfactory to RG certifying the
adoption of resolutions by the Board of Directors and stockholders of FMP and
Merger Sub in favor of the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement; and
(e) RG shall have received an opinion from EVEREN, in form and substance
reasonably satisfactory to the Board of Directors of RG, to the effect that
the terms of the Merger are fair to the Shareholders from a financial point of
view.
Conditions to Obligations of FMP and Merger Sub to Effect the Merger. The
obligations of FMP and Merger Sub to effect the Merger are subject to the
following additional conditions, including:
(a) RG shall have performed its agreements contained in the Merger Agreement
required to be performed on or prior to the closing and the representations
and warranties of RG contained in the Merger Agreement and in any document
delivered in connection therewith shall be true and correct as of the
Effective Date, and FMP shall have received a certificate of the President or
a Vice President of RG, dated the Effective Date, certifying to such effect;
(b) through the Effective Date, there shall not have occurred any change in
the financial condition, business, operations or prospects of RG and its
subsidiaries taken as a whole, that would reasonably be likely to have a
material adverse effect;
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(c) FMP shall have received a favorable opinion of counsel to RG, in the
form attached to the Merger Agreement;
(d) FMP shall have received a certificate from the Secretary of RG, in form
and substance reasonably satisfactory to FMP certifying the adoption of
resolutions by the RG Board and Shareholders in favor of the Merger Agreement,
the Merger and the transactions contemplated by the Merger Agreement; and
(e) FMP shall have received an opinion from EVEREN, in form and substance
reasonably satisfactory to the FMP Board, to the effect that the terms of the
Merger are fair to the Shareholders from a financial point of view.
TERMINATION; EFFECT OF TERMINATION
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Date, before or after the approval
of the Merger Agreement by the Shareholders, by the mutual consent of the
parties hereto.
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either RG or FMP if the Merger shall not
have been consummated on or before September 30, 1997; provided that the party
seeking to terminate the Merger Agreement pursuant to this clause shall have
used all reasonable efforts in good faith to consummate the Merger in a timely
manner; the terminating party shall not have breached in any material respect
its obligations under the Merger Agreement in any manner that shall have
proximately contributed to the occurrence of the failure referred to in said
clause; or the approval of the Shareholders required by the Merger Agreement has
not been obtained at a meeting duly convened therefor or at an adjournment
thereof; or a United States federal or state court of competent jurisdiction or
United States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transaction contemplated by the Merger Agreement and such order, decree, ruling
or other action shall have become final and non-appealable provided that the
party seeking to terminate the Merger Agreement pursuant to this clause shall
have used all reasonable efforts to remove such injunction, order or decree.
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either RG or FMP if the RG Board shall have
withdrawn or modified in a manner adverse to FMP its approval or recommendation
to the Shareholders of the Merger Agreement or the Merger or shall have approved
or recommended to Shareholders that they accept the terms of any Acquisition
Proposal, or shall have resolved to take any of the foregoing actions; a Third
Party Acquisition shall have occurred; provided, however, that such termination
shall not relieve RG of its fee obligations under the Merger Agreement. "Third
Party Acquisition" means the acquisition of RG by merger, tender offer or
otherwise by any person other than FMP, Merger Sub or any affiliate thereof (a
"Third Party"); provided, however, that in the event FMP terminates the Merger
Agreement pursuant to the foregoing provision, a fee shall be payable under the
Merger Agreement only so long as, and on or after the date when, RG: (i) is
acquired (or enters into an agreement to be acquired) by merger, tender offer or
otherwise by such Third Party; or (ii) enters into an agreement with a Third
Party providing for the acquisition by said Third Party of substantially all of
the assets of RG in each case, prior to the end of the twelfth month after the
termination of the Merger Agreement.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, before or after the adoption and approval
by the Shareholders, by action of the RG Board if: (a) in the exercise of its
good faith judgment as to its fiduciary duties to the Shareholders imposed by
law, the RG Board determines that such termination is required by reason of an
Acquisition Proposal being made; (b) there has been a breach by FMP of any
representation or warranty contained in the Merger Agreement which would
reasonably be expected to have a material adverse effect; or (c) there has been
a material breach of any of the covenants or agreements set forth in the Merger
Agreement on the part of FMP, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by RG to FMP.
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The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date by action of the FMP Board, if (a) there
has been a breach by RG of any representation or warranty contained in the
Merger Agreement which would have or would be reasonably likely to have a
material adverse effect, or (b) there has been a material breach of any of the
covenants or agreements set forth in the Merger Agreement on the part of RG,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by FMP to RG.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement and the abandonment of the Merger, all obligations of the
parties thereto shall terminate, except the obligations of the parties relating
to the information supplied for inclusion in documents required to be filed with
the SEC, fees and expenses, the representations and warranties of the parties,
the conditions to the Merger, the termination and miscellaneous provisions and
the confidentiality agreement signed by the parties at the beginning of
negotiations. A termination for cause does not prejudice the ability of the
non-breaching party to seek damages from the other party for any breach of the
Merger Agreement, including without limitation, attorneys' fees and the right to
pursue any remedy; although if RG terminates the Merger Agreement because the RG
Board has determined that such termination is required by reason of an
Acquisition Proposal being made in the exercise of its good faith judgment as to
its fiduciary duties to its stockholders, FMP's exclusive remedy will be the
payment of fees.
FEES AND EXPENSES
If the Merger is not effected, all costs and expenses incurred in
connection with the Merger Agreement and in the transaction contemplated thereby
shall be paid by the party incurring such expense except that RG and FMP each
agreed to pay 50% of all printing expenses incurred in connection with the
Registration Statement and the Proxy Statement and FMP shall pay any legal and
accounting fees incurred by RG in connection with the Merger on and after the
date of the Merger Agreement to the extent that such fees and expenses exceed
$100,000 up to $300,000, and FMP paid additional transaction costs equal to
$85,000 upon execution of the Merger Agreement. RG shall be obligated to repay
the $85,000 of additional transaction costs if the Merger does not occur due to
no fault of FMP. In any suit to enforce any provision of the Merger Agreement,
the prevailing party will be entitled to recover its reasonable attorneys' fees
and other out-of-pocket expenses from the losing party.
If the Merger Agreement is terminated by FMP for cause, FMP will not be
obligated to make any further payments described above, and RG will pay to FMP
all actual out-of-pocket costs, expenses and fees (including without limitation,
attorneys and accountants fees and expenses and other professional or service
fees and expenses) incurred or to be incurred by FMP in connection with the
Merger Agreement and the transaction contemplated thereby up to $500,000. If the
Merger Agreement is terminated by RG for cause, FMP will pay to RG all actual
out-of-pocket costs, expenses and fees (including, without limitation, fees
payable to all investment banking firms and other institutions, and their
respective agents, and including attorneys and accountants fees and expenses and
other professional or service fees and expenses) incurred or to be incurred by
RG in connection with the Merger Agreement and the transaction contemplated
thereby up to $500,000.
In addition to the foregoing, RG will pay to FMP a fee of $400,000 if the
Merger Agreement is terminated by FMP because the Board of Directors of RG has
withdrawn or modified in a manner adverse to FMP its approval or recommendation
to Shareholders of the Merger Agreement or the Merger or has approved or
recommended to Shareholders that they accept the terms of any Acquisition
Proposal or has resolved to take any of the foregoing actions; or a Third Party
Acquisition has occurred; or the Merger Agreement is terminated by RG under its
fiduciary duty and within 12 months thereafter, RG enters into an agreement with
respect to a Third Party Acquisition, or a Third Party Acquisition occurs,
involving a Third Party with whom RG (or its agents) had any discussions with
respect to a Third Party Acquisition, to whom RG (or its agents) furnished
information with respect to or with a view to a Third Party Acquisition or who
expressed any interest publicly or to RG in a Third Party Acquisition, at any
time from and after the date of the Merger Agreement to the date of such
termination.
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<PAGE> 43
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by action taken
by their respective Boards of Directors, at any time before or after approval of
matters presented in connection with the Merger by the Shareholders, but after
any such Shareholder approval, no amendment shall be made which by law requires
the further approval of Shareholders without obtaining such further approval.
The Merger Agreement may not be amended except by an instrument in writing
signed by or on behalf of each of the parties thereto.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated statements of
operations give effect to the Merger, which will be accounted for as a purchase,
as if the Merger had occurred as of June 1, 1995. The accompanying unaudited
condensed consolidated balance sheet gives effect to the Merger as if it had
occurred on February 28, 1997. These pro forma condensed consolidated financial
statements have been prepared based upon the audited financial statements of FMP
as of February 28, 1997, for the nine months ended February 28, 1997 and for the
year ended May 31, 1996 and the audited consolidated financial statements of RG
as of December 31, 1996 and the unaudited consolidated financial statements of
RG for the nine months ended December 31, 1996 and the twelve months ended March
31, 1996. Pro forma adjustments have been applied to FMP's and RG's historical
financial statements to account for the Merger as a purchase; accordingly,
assets acquired and liabilities assumed are reflected at their estimated fair
values, which values are subject to further refinement after the closing of the
Merger. FMP and RG do not expect that the final allocation of the aggregate
purchase price for the Merger will differ materially from the preliminary
allocation reflected in the accompanying pro forma condensed consolidated
financial statements.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
of FMP as of February 28, 1997 and FMP's Predecessor Business as of May 30, 1996
and for the nine months and year then ended, respectively, the audited
consolidated financial statements of RG as of December 31, 1996 and 1995 and for
the years then ended and the unaudited condensed consolidated financial
statements of RG as of March 31, 1997 and for the three months ended March 31,
1997 and 1996 included elsewhere in this Proxy Statement/Prospectus.
The accompanying pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the consolidated operating
results or financial position that would have occurred if the Merger had been
consummated as of June 1, 1995, nor is it necessarily indicative of future
consolidated operating results or financial position.
Refer to the accompanying notes to unaudited pro forma condensed
consolidated financial statements for an explanation of each pro forma
adjustment.
33
<PAGE> 44
FM PRECISION GOLF CORP. AND ROYAL GRIP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
FM PRECISION
GOLF CORP.
AS OF ROYAL GRIP, INC.
FEBRUARY 28, AS OF DECEMBER PRO FORMA PRO FORMA
1997 31, 1996 ADJUSTMENTS NOTE 2 CONSOLIDATED
------------- ---------------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 67,061 $ 38,099 $ -- $ 105,160
Accounts receivable, net.......... 3,000,690 1,593,554 -- 4,594,244
Inventories, net.................. 3,370,189 1,381,215 -- 4,751,404
Other current assets.............. 373,312 347,063 -- 720,375
---------- ---------- ---------- -----------
Total current assets...... 6,811,252 3,359,931 -- 10,171,183
Property and equipment, net....... 2,814,698 1,925,056 -- 4,739,754
Intangibles, net.................. -- 251,554 932,500 (a, b) 8,566,852
7,382,798 (b)
Net investment in lease........... -- 2,907,494 -- 2,907,494
Other assets...................... -- 51,250 -- 51,250
---------- ---------- ---------- -----------
$ 9,625,950 $8,495,285 $8,315,298 $26,436,533
========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt,
and line-of-credit............. $ 2,594,073 $ 267,230 $ -- $ 2,861,303
Accounts payable.................. 1,323,404 829,211 1,440,000 (a) 3,592,615
Accrued expenses.................. 1,338,981 1,098,826 -- 2,437,807
---------- ---------- ---------- -----------
Total current
liabilities............. 5,256,458 2,195,267 1,440,000 8,891,725
---------- ---------- ---------- -----------
Long-term debt and capital leases,
net of current portion............ 2,533,227 671,054 -- 3,204,281
---------- ---------- ---------- -----------
Other liabilities................... 93,683 8,147 -- 101,830
---------- ---------- ---------- -----------
Stockholders' equity:
Preferred stock................... -- -- -- --
Common stock...................... 4,177 2,735 (1,365) (b) 5,547
Paid-in capital................... 995,823 12,592,906 409,339 (b) 13,490,568
(507,500) (a)
Retained earnings (deficit)....... 742,582 (6,974,824) 6,974,824 (b) 742,582
---------- ---------- ---------- -----------
Total stockholders'
equity.................. 1,742,582 5,620,817 6,875,298 14,238,697
---------- ---------- ---------- -----------
$ 9,625,950 $8,495,285 $8,315,298 $26,436,533
========== ========== ========== ===========
</TABLE>
34
<PAGE> 45
FM PRECISION GOLF CORP. AND ROYAL GRIP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FM PRECISION
GOLF CORP. ROYAL GRIP, INC.
(SUCCESSOR COMPANY) FOR THE NINE
FOR THE NINE MONTHS MONTHS ENDED
ENDED FEBRUARY 28, DECEMBER 31, PRO FORMA PRO FORMA
1997 1996 ADJUSTMENTS NOTE 2 CONSOLIDATED
------------------- ---------------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................... $15,690,215 $ 11,762,996 $ -- $27,453,211
Cost of sales................. 11,151,442 9,085,199 -- 20,236,641
----------- ----------- --------- -----------
Gross margin............. 4,538,773 2,677,797 -- 7,216,570
Selling, general and
administrative expenses..... 2,897,895 4,345,458 311,824 (c) 7,555,177
Loss on write-down and
disposition of property and
equipment................... -- 446,166 -- 446,166
Write-off of intangible
assets...................... -- 684,329 -- 684,329
Manufacturing and outsourcing
costs....................... -- 1,052,900 -- 1,052,900
----------- ----------- --------- -----------
Operating income
(loss)................. 1,640,878 (3,851,056) (311,824) (2,522,002)
Interest expense.............. 345,320 52,348 -- 397,668
Other income, net............. -- 25,714 -- 25,714
----------- ----------- --------- -----------
Income (loss) before
income taxes........... 1,295,558 (3,877,690) (311,824) (2,893,956)
Provision for income taxes.... 552,976 -- (552,976) (d) --
----------- ----------- --------- -----------
Net income (loss)............. $ 742,582 $ (3,877,690) $ 241,152 $(2,893,956)
=========== =========== ========= ===========
Net income (loss) per share... $ 0.17 $ (1.42) $ (0.51)
=========== =========== ===========
Shares used in computing net
income (loss) per share..... 4,336,199 2,734,678 5,706,663(Note 3)
=========== =========== ===========
</TABLE>
35
<PAGE> 46
FM PRECISION GOLF CORP. AND ROYAL GRIP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FM PRECISION
GOLF CORP. ROYAL GRIP, INC.
(PREDECESSOR BUSINESS) FOR THE YEAR
FOR THE YEAR ENDED MARCH 31, PRO FORMA PRO FORMA
ENDED MAY 30, 1996 1996 ADJUSTMENTS NOTE 2 CONSOLIDATED
---------------------- ---------------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................. $19,002,271 $ 17,246,995 $ -- $36,249,266
Cost of sales............. 17,052,952 12,494,923 (1,050,000) (e) 28,497,875
----------- ----------- ----------- -----------
Gross margin......... 1,949,319 4,752,072 (1,050,000) 7,751,391
Selling, general and
administrative
expenses................ 3,526,610 7,151,375 415,765 (c) 11,093,750
Loss on write-down and
disposition of property
and equipment........... -- 530,788 -- 530,788
Business acquisition
costs................... -- 110,754 -- 110,754
----------- ----------- ----------- -----------
Operating income
(loss)............. (1,577,291) (3,040,845) 634,235 (3,983,901)
Interest expense.......... -- 62,904 530,000 (f) 592,904
Other income, net......... -- 16,583 -- 16,583
----------- ----------- ----------- -----------
Income (loss) before
income taxes....... (1,577,291) (3,087,166) 104,235 (4,560,222)
Income tax benefit........ -- 113,600 -- 113,600
----------- ----------- ----------- -----------
Net income (loss)......... $(1,577,291) $ (2,973,566) $ 104,235 $(4,446,622)
=========== =========== =========== ===========
Net income (loss) per
share................... $ (1.09) $ (0.78)
=========== ===========
Shares used in computing
net income (loss) per
share................... 2,734,678 5,706,663(Note 3)
=========== ===========
</TABLE>
36
<PAGE> 47
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
The pro forma condensed consolidated financial statements reflect the
conversion of the 2,740,928 shares of RG's common stock outstanding as of May
31, 1997 into 1,370,464 shares of FMP's common stock pursuant to the Merger,
which amount will represent approximately 25% of the outstanding shares of FMP
common stock (30% assuming the exercise of all outstanding RG warrants and
options). In connection with the Merger, options and warrants to purchase
984,750 shares of RG common stock will be converted into options and warrants to
purchase approximately 492,375 shares of FMP common stock. The Merger will be
accounted for as a purchase.
NOTE 2.
The accompanying unaudited condensed consolidated balance sheet gives
effect to the Merger as if it had occurred on February 28, 1997 and reflects the
allocation of the purchase price based on the fair value of the net assets
acquired. The pro forma condensed consolidated statements of operations include
the adjustments necessary to give effect to the Merger as if it had occurred on
June 1, 1995. Also reflected in the pro forma condensed consolidated balance
sheet are the estimated Merger and registration statement costs, including
payments to financial advisors, independent accountants, attorneys and others.
Additionally, the pro forma condensed consolidated financial statements also
give effect to the May 1996 acquisition of the golf assets and golf liabilities,
as defined, of the golf shaft division (the "Predecessor Business") of Brunswick
Corporation by FMP (the "Successor Company") as if such acquisition (the
"Brunswick Acquisition") had occurred as of June 1, 1995 (see Note 1 to FMP's
February 28, 1997 audited financial statements included elsewhere in this Proxy
Statement/Prospectus for further information on the Brunswick Acquisition).
Adjustments included in the pro forma condensed consolidated balance sheet are
as follows:
(a) To accrue transaction costs of approximately $1,440,000,
consisting of $932,500 of costs related to the Merger and $507,500 of costs
related to the registration statement.
(b) To reflect the purchase price which represents the sum of (i) the
estimated fair value of the 1,370,464 shares of FMP common stock, $.001 par
value, to be issued in exchange for the 2,740,928 shares of RG common stock
outstanding as of May 31, 1997 (the estimated fair value of the shares of
FMP common stock issued represents the average closing bid price of RG
common stock for the five-day period from May 12, 1997 to May 16, 1997,
which includes 2 days before and after the announcement of the revised
Merger exchange ratio and the signing of the definitive Merger agreement,
of $3.925 times the 2,740,928 shares of RG stock to be exchanged for the
shares of FMP common stock), (ii) the estimated fair value of the 984,750
options and warrants to purchase RG common stock outstanding (which will be
converted into options and warrants to purchase approximately 492,375
shares of FMP common stock) of $2,245,473 which amount was determined using
the Black Scholes valuation model and (iii) estimated Merger costs of
$932,500 discussed in (a) above. The estimated fair value of the RG options
and warrants includes warrants to purchase 100,000 shares of RG common
stock at $.01 per share valued at approximately $400,000 which were issued
to an investment banker in connection with the Merger. The excess of
purchase price over the fair value of net assets acquired of $8,315,298
represents the difference between the aggregate purchase price of
$13,936,115 described above, less RG's equity as of December 31, 1996 of
$5,620,817.
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<PAGE> 48
(c) To reflect amortization of the $8,315,298 of goodwill resulting
from the Merger over an estimated life of 20 years.
(d) To eliminate the income tax provision due to a consolidated net
loss.
(e) To reflect lower depreciation expense as a result of new basis of
property and equipment as a result of the Brunswick Acquisition.
(f) To reflect interest expense on borrowings outstanding as a result
of the Brunswick Acquisition.
NOTE 3.
The pro forma consolidated shares used in computing the pro forma
consolidated net loss per share for the periods presented represents the
weighted average common and common equivalent shares outstanding for FMP,
adjusted to reflect the issuance of 1,370,464 shares of the FMP common stock as
described in Note 1.
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<PAGE> 49
INFORMATION CONCERNING FMP
HISTORY
In 1854, the Torrington, Connecticut facility was established to form
various products utilizing metal. Some of its early products included the metal
roller skate and key, hammers, and other metal tubular products. This expertise
in bending and shaping metal led to early success in the manufacturing of golf
shafts. In 1924, the facility was the first to manufacture and market high
alloy, seamless steel golf shafts. The facility continued to operate under
private ownership for the next 37 years.
In 1961, the Brunswick Corporation acquired MacGregor Sporting Goods
Company. In that year, Brunswick also acquired the Torrington operations to
provide golf shafts to MacGregor's golf club assembly operations. Brunswick sold
MacGregor in 1979, but kept the Torrington operation as a supplier of golf
shafts primarily to golf club head OEMs. At this point, management of Brunswick
began aggressively marketing steel golf shafts both domestically and
internationally.
In order to enhance its technology base, Brunswick purchased the assets of
Precision Shaft in 1986. Precision Shaft had been a customer since 1983 and had
developed Frequency Coefficient Matching technology for matching the flexibility
of a set of golf shafts. In 1996, a group of investors joined management to
acquire substantially all of the assets of the golf shaft manufacturing business
of Brunswick, resulting in the current structure and ownership of FMP. FMP now
offers a wide selection of steel and graphite golf shafts. See "RISK
FACTORS -- Risks Related to FMP: Limited History."
MARKET
The following statistics were obtained from the National Golf Foundation.
Golf is currently the largest sports equipment market in the U.S. An
estimated 11.5% of Americans play golf. In 1996, approximately 25 million people
played an estimated 477 million rounds of golf in the U.S., including two
million beginning golfers. Of the total U.S. golfer population, 21% are avid
golfers, 46% are core golfers, 8% are occasional golfers and 25% are moderate
golfers. From 1994 to 1995, the number of golf courses increased from 15,435 to
15,703, and 286 courses opened in 1996. Consumer spending on golf equipment and
related merchandise in the U.S. totaled $15.1 billion in 1996, of which $5.1
billion was spent on golf equipment. Golfers spent another $10.1 billion on
playing fees, membership fees, and other related golf fees. FMP believes that
the following industry trends will favorably impact the number of golfers, the
number of rounds played, and the number of golf facilities in future years:
- An aging U.S. population with more leisure time, more disposable income,
and a greater propensity to play golf is expected to provide an
increasing demand for golf.
- Demand for golf exceeds supply of available course time. Although an
estimated 850 new golf courses are under construction, the overall demand
for golf is expected to continue to exceed the supply of course time even
after such construction.
- The popularity of golf as a national spectator sport is increasing. There
were 171 PGA Tour co-sponsored professional tournaments in 1996 compared
to 81 in 1987. Correspondingly, there were over 3,222 televised hours of
golf in 1996 compared to approximately 300 hours in 1987.
- Beginning golfers tend to be young and relatively affluent. In 1995 it
was estimated that almost 60% of beginning golfers are under age 30, 68%
are from households where income is more than $40,000 per year, and of
the latter group, 25% are from households where income is $75,000 or
higher.
- The popularity of golf overseas, particularly in Asia and Europe,
continues to increase significantly.
Most golf club OEMs do not manufacture the three principal parts of the
golf club (the grip, the shaft, and the club head). Rather, these companies
purchase source components from independent suppliers such as FMP.
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<PAGE> 50
The market for steel golf shafts is highly fragmented and is price driven
on the low-end, high volume segment. As mentioned earlier, two million beginning
golfers entered the market last year, and steel was their club shaft of choice.
The number of steel shafts sold in 1997 is estimated to grow by one-half million
units to 31.7 million.
PRODUCTS
Golf club shafts are made primarily from steel or graphite fibers
reinforced with epoxy resin. FMP offers to both amateurs and professionals a
full line of steel and graphite shafts. FMP management believes that the
manufacture of steel shafts will continue to be the main focus of FMP's
business. FMP manufactures both customized and standard golf shafts featuring
different combinations of various performance characteristics such as weight,
flex, flex point, and torque. The prices for FMP steel shafts range from $1.40
to $13.00. The prices for FMP graphite shafts range from $11.50 to $39.00.
FMP produces steel shafts for men, women, juniors, and seniors of all
ability levels. FMP seeks to provide all golfers the opportunity to improve
performance by building confidence. FMP shafts are played by approximately 175
touring golf professionals and many PGA club professionals. FMP developed the
first modern stepless steel golf shaft in the industry, the Rifle. FMP
management believes that this shaft combines the accuracy of steel with the feel
and vibration-damping effect of graphite.
FMP also manufactures graphite (also referred to as composite) shafts which
incorporate a patented braided resin transfer molding process. However,
approximately 85% of graphite shafts sold by FMP are produced by other
manufacturers in accordance with FMP's specifications.
The value of certain lines of FMP's golf club shafts is enchanced by a
process known as Frequency Coefficient Matching ("FCM"). FCM measures the
flexibility of a set of golf clubs and assures a golfer that the flex from one
club to the next throughout a set is exactly the same. FCM was first introduced
on the PGA Tour in 1981. In less than a decade, FMP's Precision FCM shaft had
been used to win every major championship in the U.S. at least once and numerous
regular tour events. FMP believes that real game improvements mostly come from
having a set of clubs that is matched to a player's build and swing.
The shaft business has historically been driven by new club sales. FMP
Management believes that golf club manufacturers are seeking to reduce the
number of suppliers of golf shafts. FMP management believes that technology will
play a key role in the future growth of the industry and that successful growth
will depend upon a cost-effective and quick-response manufacturing, a
well-conceived marketing strategy, and an ability to offer OEMs
"one-stop-shopping" for golf shafts. See "RISK FACTORS -- Sporting Goods
Industry: New Product Introduction."
FMP also sells the Frequency Coefficient Matching Analyzer and Frequency
Calculator. The Frequency Coefficient Matching Analyzer is an electronic
instrument manufactured for FMP by Micron Machine Tools, Inc. The Frequency
Calculator is a printed product utilizing FMP numerical information. These
additional products are used in many pro shops and tour vans across the U.S. to
measure golf shaft flexibility. See "RISK FACTORS -- Sporting Goods Industry:
Product Protection and Intellectual Property."
PROPRIETARY PROPERTY
In 1995 and in May 1997, patents FMP held on frequency matching and the
manufacture of shafts and clubs expired. However, FMP's management believes that
the expiration of the patents will have no material effect on FMP's business.
While there can be no assurance that competitors will not use the technology of
the expired patents in the future, FMP's competitors, True Temper and Apollo,
have not adopted, nor does FMP management believe that they have plans to copy,
FMP's expired patents. FMP has obtained a trademark on its Rifle product and has
filed for a utility patent. FMP management believes that its only patents
material to its future success are its patent #4,736,093, which enables a club
maker to take frequency sorted steel shafts and calculate what new frequency
shafts are needed to produce a Frequency Matched product, and patent #5,040,270
which relates to the same frequency sorting, but for graphite shafts. Those
patents expire on May 9, 2006 and October 19, 2008, respectively.
40
<PAGE> 51
COMPETITION
The sporting goods industry is highly competitive. FMP competes primarily
on the basis of quality, product specifications and design, quick response,
price and customer relationships. FMP competes with numerous national and
international companies which manufacture and distribute golf shafts to end
users. The golf equipment industry is highly competitive and competition is
expected to intensify. There are numerous companies competing in various
segments of the golf equipment markets. Many of FMP's competitors have greater
name recognition, more extensive engineering, manufacturing and marketing
capabilities, and greater financial, technological and personnel resources than
those available to FMP. In addition, certain companies in the golf equipment
industry have expanded their product lines in recent years as a result of
acquisitions. There can be no assurance that FMP will be able to compete
successfully in the future with existing or new competitors.
FMP management estimates the total shaft market to be approximately 52
million units, of which steel represents 60% and graphite 40%. Management
believes graphite will grow to approximately 50% by the turn of the century.
However, management believes that at that time, the total shaft market will be
in excess of 60 million units. Graphite sales generally have no effect on the
low-end steel shaft business and little or no effect on high-end steel shaft
products such as the Rifle-type products. Increases in graphite shaft sales do
have an adverse effect on traditional pro-grade steel shaft products.
FMP is the second largest producer of steel golf shafts, outsized only by
True Temper Sports. FMP management believes that its market share in steel golf
shafts is approximately 26% while True Temper Sports' market share in steel golf
shafts is believed to be 48%. Other competitors in steel golf shafts include
Apollo Golf and Nippon Shaft Co., Ltd. FMP management believes that their market
share is approximately 22% and 4%, respectively.
FMP also faces potential competition from golf club manufacturers that
currently purchase graphite golf shaft components from outside suppliers but
that may have or acquire the ability to manufacture graphite shafts internally.
However, FMP believes that the ability of FMP to offer graphite shafts that
exceed the quality offered by its competitors will allow FMP continued growth
over individual component and internal manufacturers. See "RISK
FACTORS -- Sporting Goods Industry: Competition."
SALES AND MARKETING
FMP's shafts are sold worldwide to manufacturers of golf clubs and
component retailers through its direct sales staff and a network of independent
distributors located in Canada, Japan, Europe, Australia, New Zealand, and Asia.
In addition, FMP's team of engineers provides field support to FMP's sales
representatives. Each of FMP's products are sold by the OEM of the complete golf
club through a variety of channels including sporting goods stores, discount
stores, mail order catalogs, pro shops, and mass merchandisers. Sales to golf
club OEMs accounted for the vast majority of sales in 1996, with the remainder
to distributors, custom club assemblers, pro shops, and repair shops.
FMP has gained a position with its customers through an organized sales
process that offers assistance on golf club technology and customer service. The
sales and marketing staff work closely with customers to maintain a strong
vendor and marketing partner relationship.
Of FMP's top 25 accounts, three are international. Precision Japan, who has
been a distributor for over 15 years, is FMP's third largest account. Lamkin
International, from the U.K., is the ninth largest account. Lamkin has been
associated with FMP for over 15 years and represents all of FMP's European
sales. Infinity of Canada has been FMP's distributor for ten years. Infinity is
the twentieth largest account. Foreign sales were approximately 10% and 12% of
FMP's sales for the year ended May 30, 1996 and nine months ended February 28,
1997, respectively.
FMP focuses its advertising efforts on a combination of printed
advertisements and a variety of promotional techniques to build brand and
quality awareness. FMP utilizes popular publications including Golf Digest, Golf
Illustrated, Golf World, Golf Week, and Golf and trade association publications
for its advertising. FMP estimates that it will spend $1.0 million on
advertising in 1997.
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<PAGE> 52
Other forms of advertisement FMP utilizes include attending PGA Shows,
producing product brochures, and developing co-operative advertisement
campaigns.
In addition to a direct sales force and advertisement initiatives, FMP
operates an FMP Tour Van in the United States. The Tour Van is operated by a Pro
Tour Manager. The Pro Tour Manager not only explains the benefits of FMP's
products, but also serves as additional advertising at tournament sites. The FMP
Tour Van travels to at least 40 PGA, Senior, Nike, and LPGA Tour events each
year. The Pro Tour Manager is teamed with a Pro Tour Club Technician, who offers
technical service to professionals on such tours.
CUSTOMERS
FMP's customers include golf club manufacturers, distributors, custom club
assemblers, pro shops, and repair shops. For the nine months ended February 28,
1997, FMP's top ten customers accounted for 61.3% of sales. Taylor Made is FMP's
largest customer, accounting for 14% of sales for the nine months ended February
28, 1997. Taylor Made is an OEM that markets to pro shops and off-course shops.
See "RISK FACTORS -- Risks Related to FMP: Dependence on Certain Customers."
SUPPLIERS
FMP uses Worthington Industries as its sole supplier for strip steel.
Should Worthington Industries fail to deliver steel, there may be a disruption
of operations at FMP until an alternate supplier is procured. FMP management
believes that there are a sufficient number of other steel suppliers to prevent
a long-term adverse effect on FMP's operations. Worthington Industries provides
steel from two separate plant locations. If one Worthington Industries plant
becomes unable to fill the necessary requirements, orders will be filled from
the alternate location.
PRODUCT DEVELOPMENT
FMP has two full time employees and utilizes one consultant in research and
development. During the year ended May 30, 1997, FMP spent approximately
$150,000 on research and development and plans to expend $300,000 in research
and development during the year ending May 31, 1998. Research and development
studies call for a project to determine the factors that affect the stability
and dynamic characteristics of the shaft at impact with a golf ball. FMP
anticipates that the consultant will be able to develop new products from these
characteristics using the natural frequencies, slope and damping loss factors.
See"RISK FACTORS -- Sporting Goods Industry: New Product Introduction."
EMPLOYEES
As of April 30, 1997, FMP employed 277 persons, 214 of whom were primarily
engaged in manufacturing, 12 in sales, marketing, customer support and related
activities, 42 in engineering, manufacturing salaried staff and research and
development and 9 in management and finance. In November of 1996, FMP's hourly
employees went on strike for two days. The strike ended by the adoption of the
current collective bargaining agreement with FMP's 214 hourly employees, which
expires on November 14, 1999. FMP believes its relationship with its employees
is satisfactory.
PROPERTIES
FMP's executive offices are located in leased space at 3490 Clubhouse
Drive, Suite 102, Jackson Hole, Wyoming 83001. FMP's manufacturing facility is
located at 535 Migeon Avenue, Torrington, Connecticut 06790 and comprises
approximately 229,400 square feet. The manufacturing facility is owned subject
to an open-end mortgage granted to Star Bank, National Association, on May 31,
1996 under the Credit Facility. See Note 4 to the Consolidated Financial
Statements of FMP as of February 28, 1997 for specific information concerning
the amount outstanding under the Credit Facility. In the opinion of the
management of FMP, these facilities are suitable and adequate for FMP's intended
use and are adequately covered by insurance.
42
<PAGE> 53
MANAGEMENT
The directors and executive officers of FMP are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------
<S> <C> <C>
Christopher A. Johnston...... 36 President, Chief Executive Officer, Treasurer and
Director
Richard P. Johnston.......... 66 Chairman of the Board and Director
David E. Johnston............ 41 Executive Vice President and Director
Raymond J. Minella........... 47 Director
Kenneth J. Warren............ 53 Secretary and Director
Ronald L. Chalmers........... 51 Director
</TABLE>
Christopher A. Johnston has been President and Chief Executive Officer of
Merbanco, Inc. ("Merbanco"), a merchant banking company, since 1991 (see
"CERTAIN FMP TRANSACTIONS"), and President and Chief Executive Officer and
director of FMP since its organization in 1996. Christopher A. Johnston is the
son of Richard P. Johnston and brother of David E. Johnston.
Richard P. Johnston has been Chairman of the Board of Merbanco since 1991
(see "CERTAIN FMP TRANSACTIONS"), served as Chairman of the Board of Republic
Realty Mortgage Co., a commercial mortgage company, from 1992 to 1995, was
Managing Director of Hamilton Robinson & Co., an investment advisory company,
from 1991 to 1994, and has been Chairman of the Board and director of FMP since
its organization in 1996. Mr. Johnston is a founder and a director of AGCO
Corporation (AG: NYSE), a farm implement manufacturer and distributor, and a
director of Myers Industries, Inc. (MYE: AMEX) a plastic and rubber products
manufacturer. Richard P. Johnston is the father of Christopher A. Johnston and
David E. Johnston.
David E. Johnston served as Vice President and director of FMP since its
organization in 1996 and its Executive Vice President since April 1997. Prior
thereto, Mr. Johnston was associated with Buckhorn Rubber Products, Inc., a
molded rubber products manufacturer, and served as Sales Manager from 1989 to
1996. Mr. Johnston is the son of Richard P. Johnston and the brother of
Christopher A. Johnston.
Raymond J. Minella has been a director of FMP since its organization in
1996. Since 1990, Mr. Minella has been an indirect managing general partner of
Berenson Minella, an investment and merchant banking firm. Mr. Minella has been
a director of Zorro Hollup, Inc., a Canadian retailer and manufacturer. Mr.
Minella is also a director of Champion Health Care, Inc., a Florida health
management organization, and a director of NRXClaim, Inc., an insurance recovery
business. See "CERTAIN FMP TRANSACTIONS." Mr. Minella also is a member of the
board of National Network of Estate Planning Attorneys, located in Denver,
Colorado.
Kenneth J. Warren has been Secretary and a director of FMP since its
organization in 1996. Mr. Warren has been a practicing attorney in Columbus,
Ohio for over 20 years. Before 1996 he was a partner in Schwartz, Kelm, Warren &
Ramirez. During 1996, he was of counsel to its successor, Schwartz, Warren &
Ramirez L.L.C. In January 1997, he opened his own office for the practice of
law. Mr. Warren is also Secretary of PH Group Inc., a manufacturer of presses.
Ronald L. Chalmers joined Brunswick in 1992 and served as its Director of
Sales/Marketing to May 1996. Since the organization of FMP in May 1996, he has
served as a director of FMP and President and Treasurer of FMP's subsidiaries.
Prior to joining Brunswick, Mr. Chalmers was the founder, consultant, President
and Chief Executive Officer of the Merit Golf Company and the International
Sales Director of Sounder Sports.
Pursuant to the Merger Agreement, FMP has agreed that, from and after the
Effective Date, and until their respective successors are duly elected or
appointed, the officers of FMP shall be, in addition to the foregoing persons,
Danny Edwards, Vice Chairman of the Board, and Robert G.J. Burg, II, Executive
Vice President, and that Mr. Edwards, Mr. Burg, and James G. DeMello will be
directors of FMP. See "THE
43
<PAGE> 54
MERGER -- Interests of Certain Persons in the Merger: Stockholder Agreement" and
"THE MERGER -- Management and Operations of FMP after the Merger." See
"INFORMATION CONCERNING RG -- Management" for biographical information
concerning Mr. Edwards and Mr. Burg.
James G. DeMello, age 56, has been President and Chief Executive Officer of
Acushnet Rubber Co., Inc., a manufacturing company, since December 1994. Prior
thereto, he served as Executive Vice President and General Manager from January
1992 to January 1994 and President, Chief Operating Officer, from January 1994
to December 1994 of Acushnet Company, a manufacturing company. See "INFORMATION
CONCERNING RG -- Manufacturing; -- Management's Discussion and Analysis."
The officers of FMP serve for indefinite terms at the pleasure of the Board
of Directors. Pursuant to the Consulting Agreement, during the two years after
the Effective Date, Mr. Edwards will be Vice Chairman of the Board. After the
Effective Date, the FMP Board will be classified and the terms of the members
will be staggered. See "DESCRIPTION OF FMP COMMON STOCK -- Certain Charter
Provisions and By-Laws: Classified Board." Immediately before the Effective
Date, the FMP Board will be classified and the FMP Directors will be elected to
the following terms: Robert G. J. Burg, II, Ronald L. Chalmers and Christopher
A. Johnston will serve for a term of one year; James G. DeMello, Kenneth J.
Warren and David E. Johnston will serve for a term of two years; and Danny
Edwards, Richard P. Johnston and Raymond J. Minella will serve for a term of
three years.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements of FMP and the Notes thereto included elsewhere in this
Proxy Statement/Prospectus. The following discussion contains forward-looking
statements and FMP's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors," "Information Concerning FMP" and
elsewhere in this Proxy Statement/Prospectus.
On May 31, 1996, FMP, which was formed in 1996 for such purpose, acquired
the golf related assets and certain golf liabilities of the golf shaft division
(the Predecessor Business, an unrelated business) of Brunswick Corporation
("Brunswick"), in a transaction referred to as the "Brunswick Acquisition." The
Brunswick Acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of the Brunswick Acquisition as
follows:
<TABLE>
<S> <C>
Accounts receivable................................... $3,047,440
Inventories........................................... 3,173,181
Property, plant and equipment......................... 1,939,923
Accounts payable and accrued expenses................. (1,336,338)
----------
$6,824,206
==========
</TABLE>
The Brunswick Acquisition was financed by proceeds from FMP's credit
facility and proceeds from the sale of FMP's common stock. The cost of the
Brunswick Acquisition was for an amount less than the net book value of the
Predecessor Business. Accordingly, the carrying value of property, plant and
equipment of the Predecessor Business was $10.5 million compared to an acquired
cost of $1.9 million for FMP. The results for the year ended May 30, 1996 (the
"Predecessor Period") do not reflect the purchase accounting adjustments made or
the financing obtained as a result of the Brunswick Acquisition which are
reflected in the results for the nine months ended February 28, 1997 (the
"Successor Period").
FMP is a manufacturer and distributor of golf shafts which are sold to
original equipment manufacturers and to distributors and retailers for use in
the replacement market. FMP sells primarily steel golf shafts to customers in
the United States and foreign markets. Approximately 10% and 12% of FMP's sales
for the year ended May 30, 1996 and the nine months ended February 28, 1997,
respectively, were exported to foreign
44
<PAGE> 55
markets in Japan, Canada and the United Kingdom. FMP maintains its sole
operating facility in Torrington, Connecticut.
NINE MONTHS ENDED FEBRUARY 28, 1997 (SUCCESSOR PERIOD) COMPARED TO THE YEAR
ENDED MAY 30, 1996 (PREDECESSOR PERIOD).
Due to the difference in the number of months within the periods being
compared, direct dollar comparisons are not meaningful. The following discussion
primarily concentrates on the rate of growth (decline) in net sales for
comparable periods and an analysis of the relationships that certain expenses
have to net sales.
Net Sales. Net sales for the nine months ended February 28, 1997 were
$15.7 million as compared to $12.7 million for the nine months ended February
28, 1996 and $19 million for the year ended May 30, 1996. FMP introduced the
Rifle, a new steel shaft, in January 1995. Rifle sales increased by $5 million
for the nine months ended February 28, 1997 compared to the nine months ended
February 28, 1996. This increase was partially offset by decreases in sales of
$1.2 million in other steel shafts and $0.8 million in shafts manufactured using
graphite for the nine months ended February 28, 1997 compared to the nine months
ended February 28, 1996. Sales of composite shafts for the nine months ended
February 28, 1997 represented approximately 3% of FMP's total net sales.
Cost of Goods Sold. Cost of goods sold was $11.1 million, or 71.1% of
sales for the nine months ended February 28, 1997 as compared to $17 million, or
89.8% of sales for the year ended May 30, 1996. The decrease is due to lower
depreciation expense of approximately 5% of sales for the nine months ended
February 28, 1997, due to the reduction in the carrying value of property, plant
and equipment as of May 30, 1996 as a result of the Brunswick Acquisition.
Additionally, FMP accounts for inventory using the last-in, first-out ("LIFO")
method compared to the first-in, first-out (FIFO) method used by the Predecessor
Business. The effect of using LIFO by FMP reduced cost of goods sold by 2.4% of
sales for the nine months ended February 28, 1997. Furthermore, after the
Brunswick Acquisition, FMP discontinued manufacturing certain lower margin
composite products which resulted in the termination of approximately 40
employees and significantly reduced the percentage of cost of sales to sales for
the Successor Period compared to the Predecessor Period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.9 million, or 18.5% of sales, for the nine
months ended February 28, 1997 as compared to $3.5 million, or 18.6% of sales,
for the year ended May 30, 1996.
Interest Expense. Interest expense was $345,000 for the nine months ended
February 28, 1997 and there was no interest expense for the year ended May 30,
1996. In connection with the Brunswick Acquisition, FMP entered into a Credit
Facility for revolving credit and term financing. Prior to the Brunswick
Acquisition, FMP had no debt outstanding.
Income Taxes. The provision for income taxes for the nine months ended
February 28, 1997 was $553,000 compared to none for the year ended May 30, 1996.
A tax benefit was not recorded by the Predecessor Business due to uncertainty of
realization of the related deferred tax asset. FMP's effective tax rate is
approximately 43% (see Note 7 to FMP's Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, FMP had working capital of $1.5 million and a current
ratio of 1.3 to 1 as compared to working capital of $5.1 million and a current
ratio of 3.9 to 1 at May 30, 1996. As of February 28, 1997, FMP had $4.9 million
outstanding on its Credit Facility of which $2.6 million was classified as a
current liability which reduced FMP's working capital compared to the year ended
May 30, 1996. Additionally, accounts payable increased by $0.6 million from May
30, 1996 to February 28, 1997. The February 28, 1997 balance is more
representative of the accounts payable balance that FMP expects to maintain.
The amount available for borrowings under the revolving credit portion of
FMP's Credit Facility is determined pursuant to a formula which is based upon
the levels of eligible accounts receivable and inventory
45
<PAGE> 56
subject to a maximum amount of $7.5 million, less the amount outstanding on the
term portion of the Credit Facility. Based on eligible receivables and inventory
at February 28, 1997, FMP had $2 million available for additional borrowings at
such date. FMP believes that the funds anticipated to be generated from
operations and the availability under the Credit Facility will be sufficient to
satisfy FMP's working capital and capital expenditure requirements for at least
the next year.
During the nine months ended February 28, 1997, net cash provided by
operating activities was $1.8 million which primarily resulted from $0.7 million
of net income generated for the period and an increase of $1.3 million in
accounts payable and accrued expenses, partially offset by increases in
inventories and other current assets of $0.4 million.
FMP used $7.7 million in investing activities during the nine months ended
February 28, 1997, primarily due to the $6.8 million purchase of the net assets
of the Predecessor Business with $1 million of proceeds from the sale of common
stock, borrowings on FMP's credit facility of $5.4 million and closing costs of
$0.4 million related to the Brunswick Acquisition. FMP used $0.8 million for
purchases of property, plant and equipment in the nine months ended February 28,
1997.
SEASONALITY
FMP experiences a seasonal decline in shipments during the summer months
when retailers are selling merchandise previously purchased (see "RISK
FACTORS -- Seasonality: Fluctuations in Operating Results").
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which established financial accounting and reporting
standards for stock-based employee compensation plans. Companies are encouraged,
rather than required, to adopt a new method that accounts for stock compensation
awards based on their fair value using an option pricing model. Companies that
do not adopt this method will be required to make pro forma disclosures of net
income as if the fair value-based method of accounting required by SFAS No. 123
has been applied. FMP adopted the new standards effective May 31, 1996 and
elected the disclosure only alternative. The pro forma disclosures required by
SFAS No. 123 for the April 1997 options granted will be included in FMP's May
31, 1997 audited consolidated financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
is effective for transactions occurring after December 31, 1996. FMP does not
expect the statement to have a material impact on FMP's consolidated financial
position or results of operations upon adoption.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997 and earlier application is not permitted. Upon adoption, all
prior period earnings per share data presented will be restated. Basic earnings
per share and diluted earnings per share for the nine months ended February 28,
1997, calculated in accordance with SFAS No. 128, are the same as net income per
common share computed using the existing rules.
MERGER SUB
Merger Sub is a Nevada corporation recently formed by FMP for the sole
purpose of facilitating the Merger. Merger Sub is a wholly-owned subsidiary of
FMP with no assets (other than those received in connection with its initial
capitalization) or liabilities (other than those incurred in connection with its
incorporation). The principal executive offices of Merger Sub are located at
3490 Clubhouse Drive, Suite 102, Jackson Hole, Wyoming 83001 and its telephone
number is (307) 739-1188.
46
<PAGE> 57
CERTAIN FMP TRANSACTIONS
In May 1996, the current stockholders of FMP (see "OWNERSHIP OF FMP COMMON
STOCK") organized FMP as a Delaware corporation and capitalized it by purchasing
all of its capital stock for $1,000,000. FMP purchased the golf shaft
manufacturing, marketing and distribution business of Brunswick Corporation,
including the operating facility in Torrington, Connecticut for a purchase price
of approximately $6,800,000, including transaction costs, and the assumption of
certain liabilities related to the acquired business (approximately $1,300,000).
The amount of the purchase price above the initial capital contribution was
provided by proceeds from FMP's Credit Facility. The Credit Facility is secured
by liens on substantially all of FMP's assets and by limited guaranties from
Richard P. Johnston, Christopher A. Johnston and Berenson Minella. Prior to the
Brunswick Acquisition, FMP entered into an agreement with Merbanco, an
investment banking firm owned by Christopher A. Johnston and by Richard P.
Johnston and his spouse, and Berenson Minella, an investment banking firm in
which Raymond Minella is an indirect general partner, pursuant to which FMP paid
a $250,000 fee to each of Merbanco and Berenson Minella. Additionally, FMP
entered into agreements with Merbanco and Berenson Minella under which Merbanco
and Berenson Minella would provide further financial advisory services to FMP.
Under these agreements, Merbanco is to be paid $150,000 annually and Berenson
Minella is to be paid $50,000 annually. These agreements had terms of seven
years. The parties intend to terminate these agreements at the Effective Date.
Christopher A. Johnston and David E. Johnston will become salaried employees of
FMP with annual salaries of $150,000 and $100,000, respectively. During the
fiscal year ended May 31, 1997, FMP paid legal fees of $90,312 to Mr. Warrren.
FMP EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to FMP during the fiscal
year ended May 31, 1997, of those persons who were, at May 31, 1997: (a) the
chief executive officer of FMP; and (b) the other executive officers of FMP
whose annual salary and bonus exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
------------------------------- SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR $ $ OPTIONS (D)
- -------------------------------------------- ---- ------- ------ ---------------
<S> <C> <C> <C> <C>
Christopher A. Johnston..................... 1997 150,500(a) -- 54,590
President,
Chief Executive Officer, Treasurer
Ronald L. Chalmers.......................... 1997 90,000 28,800(b) 5,555
President of operating subsidiaries
</TABLE>
- ---------------
(a) This amount was paid by Merbanco. See "CERTAIN FMP TRANSACTIONS."
(b) The amount shown in this column represents an annual bonus granted pursuant
to FMP's bonus program for salaried employees.
(c) The amounts in this column represent outstanding stock options granted in
March 1997. See "-- Option Grants in Last Fiscal Year."
47
<PAGE> 58
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers of FMP in 1997:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN FISCAL YEAR PRICE PER SHARE DATE
- -------------------------------------- ---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Christopher A. Johnston............... 54,590(a) 32% $ 0.24 3/12/07
Ronald L. Chalmers.................... 5,555(a) 3% $ 0.24 3/12/07
</TABLE>
- ---------------
The FMP Options were fully vested upon grant and terminate on the earlier of the
expiration date given above, nine months after the grantee ceases to be an
employee because of death or disability, 90 days after termination of employment
without cause or immediately upon termination of employment for cause or by
resignation. See "-- FMP Stock Option Plans."
FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the fiscal year end
value of unexercised options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END: AT FISCAL YEAR-END (1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Christopher A. Johnston............................ 54,590 -- $136,612 --
Ronald L. Chalmers................................. 5,555 -- 13,889 --
</TABLE>
- ---------------
(1) Calculated on the basis of the difference between the fair market value of
the underlying securities at fiscal year end, as determined by management of
FMP and the exercise price of the option.
FMP OPTION PLAN
Purpose, Duration, Amendment and Termination. FMP's 1997 Stock Option
Plan (the "FMP Plan") was adopted by FMP's Board of Directors on March 13, 1997.
The FMP Plan is designed to attract and retain capable employees, officers,
directors and consultants and to provide them with the opportunity to acquire a
continuing ownership interest in FMP and long term incentives to continue their
services to FMP, and also to maximize the value of FMP to its stockholders. The
Board of Directors may at any time terminate the FMP Plan or make such
amendments to the FMP Plan as it may deem advisable. The FMP Plan was designed
for a privately held company. After the Effective Date, FMP may adopt a new
stock option plan in a format appropriate for a public company. No amendment or
termination of the FMP Plan will alter or impair the rights of a person to whom
a stock option ("FMP Option") was granted (a "Grantee"), or any Grantee's heir
or legal representative to whom such Grantee's FMP Option has been transferred
by will or the laws of descent and distribution (collectively with the Grantee,
a "Holder"), under any FMP Option issued before the adoption of such amendment
or termination by the Board of Directors, without the written consent of such
Holder.
Administration. The FMP Plan is administered by the compensation
committee of the Board of Directors (the "Committee"). The FMP Plan does not
require that the Committee be composed of directors who are "Non-Employee
Directors" as described in paragraph (b)(3) of SEC Rule 16b-3 or "outside
directors" as described in Section 162(m) of the Code. Subject to the express
provisions of the FMP Plan, and in addition to the other powers granted by the
FMP Plan, the Committee has the authority, in its discretion, to determine the
Grantees; grant Options and determine their timing, pricing and amount; define,
prescribe, amend and rescind rules, regulations, procedures, terms and
conditions relating to the FMP Plan; make all other determinations necessary or
advisable for administering the FMP Plan including, but not
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<PAGE> 59
limited to, interpreting the FMP Plan, correcting defects, reconciling
inconsistencies and resolving ambiguities; and review and resolve all claims.
FMP Shares. The aggregate number of shares of FMP Common Stock ("FMP
Shares") in respect of which Options may be granted under the FMP Plan may not
exceed approximately 169,830. All of these FMP Shares have been granted and FMP
does not intend to grant any more FMP Options under the FMP Plan. The number of
FMP Shares as to which FMP Options may be granted under the FMP Plan and the
terms of any FMP Option will be adjusted proportionately if FMP Shares are
split, combined or altered by a share dividend or a merger, recapitalization or
other corporate event. If any FMP Option is canceled, terminates or expires for
any reason without having been exercised in full, the FMP Shares related to the
unexercised portion of the FMP Option may be used again. Except as otherwise
determined by the Board of Directors, the FMP Shares issued under the FMP Plan
will be drawn from FMP's authorized but unissued shares. However, FMP Shares
which are to be delivered under the FMP Plan may be obtained by FMP from its
treasury, by purchases on the open market or from private sources. The proceeds
of the exercise of any FMP Option will be general corporate funds of FMP.
Stock Options. An FMP Option gives the Holder the right to purchase a
given number of FMP Shares from FMP at a fixed price from the time the FMP
Option vests and becomes exercisable until it lapses and ceases to be
exercisable. Employees of FMP, including directors and officers and consultants
and advisers who render bona fide services to FMP or any Affiliate, are eligible
to receive Options under the FMP Plan. The Committee will determine which
eligible employees will be granted FMP Options, the number of FMP Shares for
which each FMP Option may be exercised, the times when they will receive them
and the terms and conditions of individual FMP Option grants (which need not be
identical). The Committee will determine the exercise price of each FMP Option
at the time that it is granted. All of the 169,829 FMP Options granted in 1997
had an exercise price of $0.24 per FMP Share.
The Committee will determine the term during which an FMP Option is
exercisable at the time that it is granted, but no FMP Option will be
exercisable after ten years from the date of grant. Unless the Committee
determines otherwise at the time an FMP Option is granted, each FMP Option will
vest and first become exercisable as to 25% of the FMP Plan Shares originally
subject to the FMP Option on each of the first four anniversaries of the date of
grant provided the Grantee has been an employee continuously during the time
beginning on the date of grant and ending on the date when such portion of the
FMP Option first becomes exercisable. Unless the Committee determines otherwise
at the time an FMP Option is granted, each FMP Option will lapse and cease to be
exercisable upon the earliest of ten years after the date of grant, nine months
after the Grantee ceases to be an officer or director-employee because of death
or disability, three months after the Grantee's employment with FMP is
terminated without cause, or immediately upon termination of the Grantee's
employment with FMP for cause or by the Grantee's resignation. All of the FMP
Options granted in 1997 have terms of ten years, vested immediately and lapse on
the conditions described above.
The Committee may, in its sole discretion and upon such terms and
conditions as it shall determine at or after the date of grant, permit the
exercise price of an FMP Option to be paid in cash, by the tender to FMP of FMP
Shares owned by the Grantee or by a combination thereof. If the Committee does
not make such determination, the exercise price must be paid in cash, by
certified or cashier's check, wire transfer or the reduction of a debt owed by
FMP to the Holder. FMP Shares may not be delivered to FMP as payment for the
exercise of an FMP Option if such shares have been owned by the Holder (together
with his or her decedent or testator) for less than six months or if such shares
were acquired upon the exercise of an incentive stock option and their
disposition would be taxable.
Provisions Applicable to all Options. The Committee may permit the
voluntary surrender of all or a portion of any FMP Option to be conditioned upon
the granting to the Holder of a new FMP Option for the same or a different
number of shares as the FMP Option surrendered, or may require such voluntary
surrender as a condition precedent to a grant of a new FMP Option to such
Holder. Subject to the other provisions of the FMP Plan, such new FMP Option
shall be exercisable at the price, during the period and on such other terms and
conditions as are specified by the Committee at the time of the grant of the new
FMP Option. The
49
<PAGE> 60
Committee, subject to the written consent of the Holder where the action impairs
or adversely alters the rights of the Holder, has the right at any time after
the date of grant of any FMP Option to modify its terms.
If FMP merges or consolidates with or sells substantially all of its assets
to a person that was not one of its affiliates before such transaction, or any
such unaffiliated person or corporation has publicly announced a tender offer to
purchase more than 20% of the outstanding voting securities of FMP, the
Committee, in its discretion, may provide that, for a period of 30 days not
extending beyond the ten year period referred to in the description of Options
above from the date of execution of the acquisition agreement in final
definitive form or the announcement of such offer, notwithstanding the
provisions of any FMP Option, any FMP Option may be exercised in whole or in
part during such 30-day period or that upon the termination of such 30-day
period any such FMP Option shall expire and be null and void.
Disability. If a Grantee who is an employee with FMP is absent from work
because of a physical or mental disability, such Grantee will not be considered
to have ended his or her employment relationship with FMP for purposes of the
FMP Plan while the Grantee has that disability, unless the Grantee resigns or
the Committee decides otherwise.
Transfer Restrictions. No FMP Option may be sold, pledged or otherwise
transferred other than by will or the laws of descent and distribution; and no
FMP Option may be exercised during the life of the Grantee to whom it was
granted except by such Grantee.
Section 16 of the Exchange Act and Rule 144 of the Securities Act impose
restrictions on the ability of certain insiders to resell FMP Shares acquired
upon the exercise of an FMP Option.
Taxation.
HOLDERS SHOULD CONSULT THEIR INDIVIDUAL TAX ADVISERS BEFORE EXERCISING ANY FMP
OPTION OR DISPOSING OF ANY SHARES ACQUIRED ON THE EXERCISE OF AN FMP OPTION.
FMP Options will not be incentive stock options under the Code. Holders
will not recognize taxable income upon the grant of an FMP Option. Upon exercise
of an FMP Option, the Holder will realize ordinary income to the extent that the
fair market value of the FMP Shares purchased on the date of exercise exceeds
the exercise price. The Holder's basis for determining capital gain or capital
loss upon sale of the shares will be the higher of their fair market value on
the date of exercise and the exercise price. FMP will be entitled to a deduction
equal to the ordinary compensation income realized by the Holder upon the
exercise of the Options.
FMP believes that the FMP Options will be exempt from the requirements of
Code Section 162(m) and the regulations thereunder because they were issued
while FMP was a privately held company. Amounts deductible by FMP upon the
exercise of FMP Options will not be limited by the cap on the deductibility of
compensation paid to certain executive officers of public corporations which
exceeds $1,000,000. Because Section 162(m) is a new provision of the Code,
compliance may depend upon factors, such as relationships between FMP and the
members of the Compensation Committee, which are presently unforeseeable. No
assurance can be given that FMP will remain in compliance with these rules or
that non-compliance will not cause amounts payable under the FMP Plan to become
non-deductible.
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<PAGE> 61
FMP Plan Benefits. The following table sets forth the number of shares of
FMP Common Stock subject to each FMP Option, its per share exercise price and
granted under the FMP Plan to (a) each of FMP's executive officers named in the
Summary Compensation Table above and each of its directors, (b) the current
executive officers of FMP as a group, (c) the current directors of FMP who are
not executive officers, as a group, and (d) all employees of FMP, including all
current officers of the Company who are not executive officers of FMP, as a
group.
1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
PER SHARE EXPIRATION DATE
NAME AND POSITION NUMBER OF SHARES EXERCISE PRICE (a)
- ---------------------------------------- ---------------- -------------- ------------------
<S> <C> <C> <C>
Christopher A. Johnston 54,590 $ 0.24 3/12/07
President, Chief Executive Officer,
Treasurer and Director
Richard P. Johnston 25,060 $ 0.24 3/12/07
Chairman of the Board and Director
David E. Johnston 11,110 $ 0.24 3/12/07
Executive Vice President and Director
Raymond J. Minella 8,353 $ 0.24 3/12/07
Director
Kenneth J. Warren 15,328 $ 0.24 3/12/07
Secretary and Director
Ronald L. Chalmers 5,555 $ 0.24 3/12/07
Director
Executive Group 71,255 $ 0.24 3/12/07
Non-Executive Director Group 48,741 $ 0.24 3/12/07
Non-Executive Officer Employee Group 49,829 $ 0.24 3/12/07
</TABLE>
- ---------------
(a) The FMP Options were fully vested and exercisable on their grant date of
March 13, 1997 and terminate on the earlier of the expiration date given
above, nine months after the grantee ceases to be an employee because of
death or disability, 90 days after termination of employment without cause
or immediately upon termination of the employment for cause or by
resignation.
COMPENSATION OF FMP DIRECTORS
Members of the FMP Board are paid $10,000 per year payable in quarterly
installments at the time of each quarterly Board meeting for attendance at
regular or special Board meetings or meetings of committees of which they are
members. FMP's directors are also reimbursed for travel expenses incurred in
connection with attendance at each Board and committee meeting.
INFORMATION CONCERNING RG
BUSINESS
RG designs and distributes golf club grips and designs and manufactures
athletic headwear. In 1989, RG introduced a rubber wrap golf grip that gained
widespread acceptance in the golf industry and enabled RG to achieve brand name
recognition. RG currently offers a wide variety of standard and custom models,
all of which feature a distinctive feel and appearance and lasting durability.
RG believes it has established a reputation within the golf industry for
innovation in the design and creation of golf grips. It continually seeks to
improve these products with design and raw material innovations. RG has
developed distribution channels to several thousand club professionals, club
repair shops, and retail
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golf outlets, and has established relationships with several original equipment
manufacturers. RG believes that it is a leader in the Japanese market.
In April 1994, RG acquired Roxxi, an Oklahoma-based manufacturer and
distributor of high-quality athletic headwear, which now operates as a
wholly-owned subsidiary of RG. Roxxi's products are sold through RG's
golf-related sales force as well as Roxxi's own distribution channels, and
enables RG to offer a wider array of products.
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet. Although this arrangement is expected to have positive long-term
implications to RG's cost structure and to its research and development efforts,
RG incurred transaction and related costs of approximately $1.4 million in the
fourth quarter of 1996 in connection with the transition of its manufacturing
operations. Further, Acushnet has experienced start-up delays in the production
of grips, which has adversely affected RG's customer relationships and results
of operations, has impaired RG's ability to meet its loan covenants and may make
it more difficult for RG to satisfy lending covenants in the future. Acushnet's
production delays may also cause RG to significantly alter its total sales mix
in 1997, which may have an adverse impact on future customer retention and gross
margins from grip sales.
RG and Acushnet have recently renegotiated their agreement in light of
Acushnet's production difficulties. In connection with this renegotiation
Acushnet has agreed to provide RG with a credit of $400,000 against future
purchases of grips, and additional credits in the event Acushnet fails to meet
future production requirements. These credits may be reduced depending upon
Acushnet's production beyond specified levels or as a result of the cancellation
of stock options granted to Acushnet. The renegotiated agreement also provides,
among other things, for modified future production and purchase requirements and
for termination rights exercisable by Acushnet. RG has also recently obtained
certain modifications of its loan covenants that waive past covenant defaults
and are intended to better enable RG to satisfy such covenants in the future.
RG was founded by PGA member and PGA Tour professional, Danny Edwards. Mr.
Edwards is a five-time PGA Tour winner, three-time Collegiate All-American,
member of the 1973 United States Walker Cup Team, and winner of the Japanese
Masters.
INDUSTRY AND MARKET BACKGROUND
Golf Grip Market. RG's principal business is the sale of golf club grips.
These grips are sold into the replacement market, which serves those golfers
seeking to replace grips that have become worn and slick due to prolonged use,
as well as to OEMs, who incorporate RG's grips on their newly manufactured golf
clubs.
In recent years, RG and other grip manufacturers have begun to educate
golfers and grip suppliers about the performance benefits associated with
periodic grip replacement. In addition, the availability of
performance-enhancing grip products such as those offered by RG has contributed
to the growth of the replacement market. RG believes its golf grips provide
golfers with a supple, "tacky" surface that provides enhanced feel and control
over the golf club. The cost of regripping a standard set of golf clubs is
approximately $70 and is relatively modest compared to the initial purchase
price of a set of clubs.
Acceptance of RG's products by the replacement market has facilitated its
efforts to market golf grips to OEMs. Most golf club manufacturers obtain some
or all of the major components of their golf clubs, including grips, from
independent suppliers that design and manufacture components to the OEMs'
specifications. RG targets sales of its grips to manufacturers of premium brand
golf clubs who seek to improve the performance characteristics and the
marketability of their clubs. RG works with these OEMs to create customized golf
grips bearing the manufacturer's distinctive logo.
Athletic Headwear Market. The market for athletic headwear is
characterized by a broad range of customers, a variety of market niches, and
intense competition. Companies that offer athletic headwear generally compete in
one of two principal markets. Some produce headwear designed for mass sales
through low-priced outlets, such as supermarkets and retail superstores, and
compete almost exclusively on the basis of price, while others offer
high-quality products and compete on the basis of quality, delivery time, and
customer service. Within this latter market segment, in which RG competes, there
are a variety of marketing niches,
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including retail sporting goods stores, which typically consist of regional
stores that carry athletic headwear bearing local team logos; large chain
sporting goods stores, which generally carry a full line of professional and
collegiate athletic team caps as well as caps bearing the logos of various
corporations involved in the sports industry; college bookstores and team sales,
in which athletic headwear manufacturers contract with colleges and their
coaches to produce caps bearing the school logo, which can then be used on the
field and sold in the school's bookstore; team outfitters, which supply local
teams, such as high schools or little league teams, with uniforms and related
sports equipment; resorts and country clubs, which often stock caps bearing
their special logos or insignias; and businesses, which provide custom-designed
caps to employees or customers to promote the organization.
RG directs its headwear sales efforts primarily to the retail sporting
goods stores, college bookstores and team sales, team outfitters, and resorts
and country clubs segments, although it also addresses the business and chain
store markets.
PRODUCTS AND PRODUCT FEATURES
Golf Grips. Many manufacturers produce grips through a compression molding
process in which two grip halves are molded together. Compression molding leaves
a noticeable seam in the grip, which must be removed through a buffing or
grinding process that alters the grip surface and causes it to become slick over
time. By contrast, with the exception of its cord grip models, RG's grips are
manufactured through an injection molding process using RG's proprietary rubber
compound. This proprietary compound, when used in conjunction with injection
molding, produces, in RG's view, a more durable grip. RG believes that the raw
materials and the production techniques used in the manufacture of its grips, as
well as the innovative designs of its grips, have made it a leader in the golf
grip market.
RG currently offers a wide variety of standard and customized grips,
including its new Slot Wrap, Royal Wrap and Slot Wrap Cord line of grips, which
feature a new rubber compound, the Sandwrap and Sand Maximum line of grips,
which are designed to provide enhanced adhesion, and its cord line of grips,
which provide greater adhesion, particularly in very wet or humid playing
conditions, through the addition of a cotton material embedded in the surface of
the grip. RG also offers men's and ladies' perforated wrap, men's oversize
perforated wrap, men's and junior's smooth wrap, perforated wrap pistol putter,
fine texture putter, fine texture oversize putter, and Sandmax putter grips. RG
also manufactures and sells certain specialty grips, including the Arthrigrip,
which is designed for golfers suffering from arthritis. RG designs and produces
its customized grips primarily for OEMs, incorporating into each one the
particular manufacturer's distinctive logo, color scheme, and pattern. The
majority of RG's grips bear the Royal Grip name as part of its program to build
brand awareness and customer loyalty.
Athletic Headwear. RG produces four different styles of athletic headwear:
authentic and casual baseball caps, golf caps and visors. The caps and visors
are typically made of high quality wool serge or cotton twill, although RG does
offer fabrics such as brushed giant twill, distressed cotton, wool plaid, washed
denim, sanded cotton, wool flannel and leather suede. RG utilizes fine quality
materials for other structural components of the headwear, including sweatbands,
visor boards, and covered buttons. RG's baseball caps include the authentic
model, which features a six-panel, high crown design, as well as casual models
and officials' caps. The golf caps feature a five-panel design. All of RG's caps
feature a comfortable fit and durable finish, and are offered in both fitted and
adjustable styles and in a variety of colors and logos.
RG utilizes computerized embroidering machines to design and create logos
or insignias for its headwear. This technology enables RG to meet the needs and
product specifications of all types of customers, from small clubs or teams to
major national colleges. RG sews, embroiders and assembles its caps and visors
at its Oklahoma City facility using raw materials from outside vendors.
CUSTOMERS
RG directed its initial sales efforts on behalf of its golf grips to the
golf pro shops, golf club repair shops, and retail golf equipment stores that
service the replacement grip market. In recent years, however, RG has increased
its sales to OEMs. RG provides golf club grips used on many of Cobra's premium
golf club lines,
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which accounted for 11.7% of RG's total net sales in 1996. RG is the primary
vendor for Tommy Armour Golf and Odyssey. RG also supplies grips to other OEMs
such as Titleist, Bridgestone, Slazenger, Mizuno and Tad Moore Golf.
While RG utilizes its grip sales representatives to market its golf-related
headwear, a separate sales force markets its other headwear products to schools,
sporting goods stores, college bookstores and team outfitters. RG currently has
agreements to produce baseball caps for several leading college baseball teams,
including Arizona State University, the University of Oklahoma, and the
University of Notre Dame.
SALES AND MARKETING
Domestic Grip Sales. Sales of golf grips to the domestic replacement
market represented 34.8% and 42.9% of RG's total net sales of grips in 1996 and
1995, respectively, and 43.3% of total net sales of grips in the quarter ended
March 31, 1997. While many golf grip manufacturers sell their products to
wholesale distributors, who in turn sell to dealers and other representatives,
RG uses a single-tier distribution strategy in which its sales representatives
sell grips directly to thousands of golf club professionals and off-course
specialty store operators. RG's sales force, which includes 17 independent sales
representatives and 6 company sales representatives, target those domestic
replacement market retailers most likely to promote RG's grips. They introduce
RG's products, explain their characteristics and performance advantages, and
obtain feedback regarding the market's acceptance of RG's and its competitors'
products.
RG's independent sales representatives, who receive training from RG's
internal sales and marketing staff, cover particular geographical regions. These
representatives are permitted to sell other golf products, but may not sell
competing golf grips or caps.
Grip sales to OEMs accounted for 39.5% and 29.5% of RG's total net sales of
grips in 1996 and 1995, respectively, reflecting RG's successful efforts to
develop customer relationships with several major club manufacturers. Grip sales
to OEMs accounted for 25.8% of RG's total net sales of grips in the quarter
ended March 31, 1997. Typically, RG commences a relationship with a club
manufacturer by supplying grips for one or a few of its product lines. Once RG
has established an ongoing relationship with the OEM, it seeks to expand the
relationship to supply grips for additional product lines.
Domestic Headwear Sales. Sales of headwear accounted for 31.8% and 27.2%
of total sales in 1996 and 1995, respectively, and 47.8% of total sales in the
quarter ended March 31, 1997. RG utilizes its grip sales force to market its
baseball-style caps to college bookstores, corporate accounts and golf resorts
and country clubs. RG targets customers with national reputations and high name
recognition in order to increase market awareness of its products.
International Sales. RG's international sales, which consist primarily of
sales of grips, accounted for 20.8% and 22.2% of RG's total net sales during
1996 and 1995, respectively, and 30.9% of total net sales in the quarter ended
March 31, 1997. RG utilizes distributors to sell its products in foreign
markets, including the United Kingdom, Japan, Sweden and Canada. In May 1996, RG
closed its office in England, which supplied the United Kingdom and Western
Europe markets, and converted its operations in those markets to a
distributorship relationship.
Precision Japan, the exclusive distributor of RG's golf club grips and
athletic headwear in Japan, accounted for 18.9% and 21.4% of RG's total net
sales during 1996 and 1995, respectively, and 28.9% of total net sales in the
quarter ended March 31, 1997. Through Precision Japan, RG has established
relationships with leading Japanese OEMs, including Bridgestone, Mizuno, and
Daiwa. Precision Japan also markets RG's golf-related headwear.
RG and Precision Japan have entered into a ten-year agreement expiring in
2001 pursuant to which RG granted Precision Japan exclusive distribution rights
with respect to RG's products for Japan and certain other Far Eastern countries.
Precision Japan has the option to renew this agreement for successive five-year
terms. The agreement is terminable by either party for cause or if they fail to
agree upon pricing terms, or by Precision Japan at any time upon six months'
notice to RG. While RG currently enjoys a strong relationship
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with Precision Japan, the loss of Precision Japan as a distributor of RG's
products would have a significant adverse effect on RG's business.
Advertising and Promotion. RG advertises its grips in trade publications
and national golf magazines, such as Golf World, Golf Week and Golf Product
News. In addition, as point-of-purchase selling aids, RG distributes to its
customers various promotional items, such as caps, visors, grip displays, window
stickers, and brochures. At the grass-roots level, RG's sales representatives
promote its products through a nationwide series of consumer "Demo Days" at
local golf facilities. To further increase sales, RG grants promotional
incentives to qualified golf professionals to encourage them to introduce and
recommend RG's grip products to their customers. RG also provides its products
to PGA Tour professionals at no charge by supplying the various repair vans that
service the professional tours from week to week.
RG promotes its headwear products through its various sales forces and by
participating in industry trade shows. RG believes that its best promotional
opportunities in this area come through supplying caps to successful college
teams, whose use of RG's headwear influences the choice of headwear of other
potential customers, such as team outfitters and sporting goods stores.
MANUFACTURING
Golf Grips. On December 21, 1996, RG entered into a Manufacturing and
Supply Agreement with Acushnet (the "Acushnet Supply Agreement"). On April 4,
1997, RG and Acushnet renegotiated certain aspects of their agreement. This
agreement, as amended, makes Acushnet the exclusive supplier of non-cord grips
to RG, subject to RG's ability to use other suppliers in the event Acushnet
fails to meet production requirements, and requires that RG purchase minimum
annual volumes (commencing after January 1, 1999) at fixed prices specified in
the contract. Acushnet is obligated to provide ongoing research and development
with respect to grip compounds, manufacturing processes, and engineering and
quality control support.
The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject to RG's right to extend the agreement for up to three additional periods
of five years each. The Acushnet Supply Agreement is subject to termination by
either party upon certain material breaches thereof or of the Equipment Lease
described below. Upon termination of the Acushnet Supply Agreement by RG arising
out of a material breach by Acushnet, RG may at its option repurchase any grip
manufacturing equipment owned by Acushnet at fair market value. In addition, RG
may terminate the Acushnet Supply Agreement at any time upon written notice, and
Acushnet may terminate the agreement upon ten months' prior written notice given
on and after June 30, 1998, and payment by the terminating party to the other
party of a termination fee, which includes the repurchase at prescribed values
of the manufacturing equipment owned by Acushnet, an additional fee of
$2,500,000 and other fees and commitments relating, among other things, to the
transition of production operations.
In connection with the Acushnet Supply Agreement, RG leased to Acushnet
RG's specialized manufacturing equipment used in the production of its non-cord
grips, pursuant to a Capital Lease Agreement dated as of December 21, 1996 (the
"Equipment Lease"). Under the Equipment Lease, RG granted to Acushnet an option
to purchase RG's manufacturing equipment. Further, the Equipment Lease
terminates on December 31, 2006, at which time the equipment will be transferred
to Acushnet at no further cost.
RG believes that Acushnet is a leading manufacturer of quality precision
molded rubber components and that the manufacturing alliance with Acushnet will
better enable RG to focus on the development of its product innovation,
marketing, and customer service and support capabilities. However, Acushnet has
experienced start-up delays in the production of grips which has adversely
affected RG's customer relationships and results of operations, has impaired
RG's ability to satisfy its loan covenants and may make it more difficult for RG
to satisfy lending covenants in the future. Acushnet's production delays may
also result in a significant change in RG's total sales mix in 1997, which may
have an adverse impact on future customer retention and gross margins from grip
sales.
The recent amendments to the Acushnet Supply Agreement provide RG with a
credit of $400,000 against future grip purchases, and additional purchase
credits in the event Acushnet fails to meet production requirements. These
credits may be reduced depending upon Acushnet's production beyond specified
levels or
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as a result of its cancellation of stock options granted to it by RG. The
modified agreement also alters the future production and purchase requirements
of the parties. RG has also recently obtained certain modifications of its loan
covenants that waive past covenant defaults and are intended to better enable RG
to satisfy such covenants in the future. RG currently uses another third party
manufacturer to produce its cord grips.
All of RG's grips are designed to Company specifications and are made of
its proprietary rubber compound. Other than RG's cord grips, which are
compression molded, RG's golf grips are produced through an injection
manufacturing process in which a viscous compound is vertically injected into a
seamless cavity, producing a finished grip that does not require buffing or
grinding.
In the ordinary course of its manufacturing process, RG used various
citrus-based, biodegradable solvents and paints. To date, RG has not experienced
any material environmental compliance problems.
Athletic Headwear. RG produces headwear primarily at its Oklahoma City
facility. In 1995, RG decided to consolidate the majority of its Tempe and
Oklahoma City facilities capacities in a newly-leased 30,000 square foot
facility in Oklahoma City. The resulting move was targeted at reducing overhead
and improving productivity. In July 1996, RG subleased approximately 11,000
square feet of space at its Tempe facility after the consolidation of headwear
production.
Upon receiving a headwear order, RG works with the customer to design an
appropriate logo or insignia, establish a color scheme, and choose the
appropriate fabrics. RG's art department creates a hand-drawn version of the
logo that is computerized through the use of a digital scanning device.
Computerized embroidering machines utilize this computer image to stitch the
logo into the appropriate panels of the cap. RG employees then hand sew the
remaining portions of the cap, including the bill and the sweatband. With each
embroidering machine capable of stitching logos on several caps at once,
production time for a "run" of caps averages about 30 minutes.
PRODUCT DEVELOPMENT
RG believes that its future growth and success will depend significantly on
its ability to increase market share with its present product lines while
concurrently developing new products and product categories. In this regard,
RG's sales and other personnel work to conceive new product opportunities by
creating prototypes and masters and by working with RG's suppliers and customers
to design and produce finished products. New grip products are tested through
RG's PGA Tour representatives and sales force.
The development of new golf club grips is influenced by the standards and
interpretations promulgated by the USGA. RG believes that it must develop
products that comply with those standards even though they apply only to
USGA-sanctioned competitive events.
RG tests its headwear products to ensure that they conform with Company and
customer specifications relating to size and fit. In addition, RG utilizes a
variety of materials, including sanded cotton, washed denim, and leather suede,
in an attempt to give each hat a distinctive look and feel, and continues to
experiment with new materials.
COMPETITION
RG's principal competitors in the golf grip market include Eaton/Golf Pride
and Lamkin Corp., with Eaton's Golf Pride division currently maintaining a
majority of the total golf grip market. These companies, as well as several
other grip manufacturers with which RG competes, have greater financial,
marketing, and other resources than RG. In addition, several OEMs that do not
currently manufacture premium quality grips could, in light of their substantial
resources, enter into this market segment. Competition in the grip market is
intense.
The golf industry is characterized by widespread imitation of successful
product offerings and, consequently, the commercial success of RG's grips has
spawned several imitation grip products. These imitation grips appear
cosmetically similar to RG's grips and are typically priced lower, which has
attracted and may
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continue to attract consumers and club manufacturers. RG, however, believes that
such imitation grips do not deliver the performance and durability of RG's
grips.
The headwear market is large and also extremely competitive. RG's principal
competitors in the athletic headwear market include Texace and Imperial in the
golf cap segment and Pro-Line, New Era, and DeLong in the team sports and
college bookstore markets. Each of these companies may possess greater
financial, marketing and other resources than RG. See "RISK FACTORS -- Sporting
Goods Industry: Competition."
PROPRIETARY RIGHTS
RG relies upon trademarks to establish and protect RG's proprietary rights
in its products and technologies. RG's logo and the name "Royal Grip" have been
registered as trademarks in the United States, Japan, and in other foreign
countries. In addition, RG has filed trademark applications relating to the
names and configurations of several of RG's products in the United States and in
foreign countries, including Japan. RG has also obtained design patents on some
of its grips and applied for others that are pending. RG protects its
proprietary rubber compound and related technologies as trade secrets. Despite
the safeguards undertaken by RG, there can be no assurance that its proprietary
rights are adequately protected or that competitors will not be able to produce
golf club grips that successfully imitate RG's designs and materials without
infringing RG's proprietary rights.
In its headwear business, RG licenses the trademarks of several
organizations. It also from time to time seeks to trademark various
"catch-phrases" that can be included on or used in connection with its sports
apparel. See "RISK FACTORS -- Sporting Goods Industry: Product Protection and
Intellectual Property."
PROPERTIES
RG's principal executive offices and customer service operations are
located in a 51,000 square foot leased facility in Tempe, Arizona. RG's lease
runs through November 1998. RG currently subleases approximately 11,000 square
feet of this facility. RG recently signed a lease for a 30,000 square foot
production facility in Oklahoma City which runs through March 2001. RG believes
that its facilities are in good condition and adequate and suitable for RG's
intended uses. In the opinion of the management of RG, the facilities are
adequately covered by insurance. Aggregate monthly rental payments for RG's
office and production facilities are approximately $26,000. Following the
outsourcing of its grip manufacturing operations to Acushnet, RG intends to
either sublease or negotiate a termination of the lease for the remaining space
at its Tempe, Arizona facility and relocate to a smaller, lower cost facility.
EMPLOYEES
As of April 30, 1997, RG employed 151 persons on a full-time basis and two
persons on a part time basis. In addition, RG hires independent consultants and
temporary help from time to time. RG has never had a work stoppage, no employees
are represented by a labor organization, and RG considers its employee relations
to be good.
MANAGEMENT
The names, ages, positions with RG, and the business experience of RG's
current directors and officers is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES
---------------------------------------- --- ------------------------------- ------------
<S> <C> <C> <C>
Danny Edwards........................... 45 Chairman of the Board, Chief 1997
Executive Officer and Director
Gardiner Dutton......................... 66 Director 1997
Barry Entous............................ 52 Director 1998
James W. Myers.......................... 62 Director 1999
Robert G. J. Burg, II................... 40 President
Thomas A. Schneider..................... 37 Vice President -- Finance
</TABLE>
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Danny Edwards has been Chairman of the Board and Chief Executive Officer
since founding RG in 1988, and served as President from 1988 to 1994. Mr.
Edwards has played on the Professional Golf Association Tour since 1975 and has
won five tournaments. Mr. Edwards was a three-time Collegiate All-American at
Oklahoma State University and a member of the 1973 United States Walker Cup
Team. Currently, Mr. Edwards competes annually in three to five PGA Tour events
as well as selected regional tournaments and charity events in order to maintain
his high profile in the golf industry. Mr. Edwards is also a principal of Danny
Edwards Profile Sports ("Profile Sports"), which conducts corporate golf schools
for executives throughout the country. Mr. Edwards' activities on behalf of
Profile Sports occupy approximately 12 days of his professional time annually
and afford him an opportunity to further promote RG's products.
Gardiner Dutton has served as a director of RG since August 1995. From 1990
to 1995, Mr. Dutton served as President and Chief Executive Officer of Bowmar
Instruments Corp., an electronics manufacturer. From 1980 to 1990, Mr. Dutton
served as Chairman and Chief Executive Officer of Inertia Dynamics, Inc., a
manufacturer of lawn and garden equipment. Mr. Dutton currently serves on the
board of directors of National Health Enhancement Systems, Inc., a developer of
medical management software and call centers for the health care industry.
Barry Entous has served as a director of RG since June 1989. Mr. Entous is
a certified public accountant and, since 1977, has been a principal with Entous
& Entous, Inc., an independent accounting firm that provides personal accounting
services to Mr. Edwards. Mr. Entous serves on the Audit Committee of the Board
of Directors.
James W. Myers, has served as a director of RG since April 1990. Since
January 1996, Mr. Myers has served as President of Myers Management and Capital
Group, Inc., a management consulting firm. From 1986 to 1995, Mr. Myers was a
principal of Myers Craig Vallone Francois, Inc., an investment banking and
management advisory firm he founded in May 1986. Mr. Myers currently serves on
the boards of directors of National Health Enhancement Systems, Inc. and ILX,
Inc.
Robert G.J. Burg, II has been the Company's President since February 1995.
Mr. Burg joined RG in January 1992 as the Regional Sales Manager for the Western
Sales Region and became RG's Senior Vice President, Marketing, Sales, and Tour
Relations in January 1992, serving in that capacity until February 1995. For the
five years prior to joining RG, Mr. Burg was self-employed in the sporting goods
industry as a distributor of sporting goods products, including ski and golf
equipment.
Thomas A. Schneider is a certified public accountant and has been RG's Vice
President-Finance, since January 1996. Prior to joining RG, Mr. Schneider served
for five years as the Controller of Karsten Manufacturing Corp., the maker of
Ping golf equipment. He has also served as Controller of various companies in
the real estate and financial services industries.
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<PAGE> 69
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet. Although this arrangement is expected to have positive long-term
implications to RG's cost structure and to its research and development efforts,
RG incurred transaction and related costs of approximately $1.4 million in the
fourth quarter of 1996 in connection with the transition of its manufacturing
operations. Further, Acushnet has experienced start-up delays in the production
of grips which has adversely affected RG's customer relationships and results of
operations, has impaired RG's ability to meet its loan covenants and may make it
more difficult for RG to satisfy lending covenants in the future. Acushnet's
production delays may result in a significant change in total sales mix in 1997
among the grip replacement, OEM and Japanese markets, which may have an adverse
impact on gross margins from grip sales.
RG and Acushnet have renegotiated their agreement in light of Acushnet's
production difficulties. In connection with this renegotiation Acushnet has
agreed to provide RG with a credit of $400,000 against future purchases of grips
with possible additional credits in the event Acushnet does not meet certain
production requirements. The credit may be reduced if Acushnet exceeds
production requirements during the balance of 1997 or as a result of the
cancellation of certain stock options granted to Acushnet. The supply agreement
has also been amended to, among other things, alter future production and
purchase requirements and provide for voluntary termination rights on the part
of Acushnet. RG has also recently obtained certain modifications of its loan
covenants that waive past covenant defaults and are intended to better enable RG
to satisfy such covenants in the future.
In addition to entering into the Acushnet agreement, which establishes
fixed pricing for its grips, RG implemented a significant cost cutting program
in 1996 which included closing its headwear production facility in Tempe,
subletting approximately 11,000 square feet at its Tempe facility, converting
its United Kingdom operations to a distributorship relationship, and reducing
its management staffing and compensation as well as other general and
administrative costs.
RG's ability to return to profitability is dependent upon a number of
factors, including the ability of Acushnet to reach appropriate levels of
production, effective cost management, particularly with respect to its headwear
operations, growth in sales, and competitive factors.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by each line item in RG's statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
--------------- ---------------
1997 1996 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ 83.9 74.3 76.5 70.8
----- ----- ----- -----
Gross profits........................................... 16.1 25.7 23.5 29.2
Selling, general, and administrative expenses............. 49.2 38.4 37.3 43.2
Other operating expenses.................................. -- -- 13.5 3.8
----- ----- ----- -----
Loss from operations.................................... (33.1) (12.7) (27.3) (17.8)
Interest expense.......................................... 1.2 0.2 0.3 0.4
Other income (expense) net................................ 1.8 (0.2) 0.1 0.1
----- ----- ----- -----
Loss before income taxes................................ (32.5) (13.1) (27.5) (18.1)
Income tax benefit........................................ -- -- -- (2.1)
----- ----- ----- -----
Net Loss................................................ (32.5)% (13.1)% (27.5)% (16.0)%
===== ===== ===== =====
</TABLE>
59
<PAGE> 70
THREE MONTHS ENDED MARCH 31, 1997 VERSUS THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales for the three months ended March 31, 1997 (first
quarter) were $2.5 million, a decrease of 43.2% over net sales of $4.4 million
for the corresponding period in the prior year. The decrease in net sales of
$1.9 million for the first quarter of 1997 from the same period of the prior
year is primarily attributable to a decrease in grip sales of $1,733,000. This
decrease in grip sales is due to a lack of grip production resulting from the
transition of RG's entire grip manufacturing operation to Acushnet.
Sales of golf grips in the domestic replacement and Japanese markets decreased
by 46.9% and 47.1% compared to the corresponding period in 1996. OEM sales
decreased by 67.2% for the three months ended March 31, 1997 compared to the
corresponding period in 1996. For the quarter ended March 31, 1997, the
percentage of sales of golf grips to the domestic replacement market increased
to 43.3% of total net sales of grips as compared to 35.9% for the corresponding
period of the prior year and grip sales to OEMs decreased to 25.8 % of total net
sales of grips from 34.6% for the corresponding period in 1996.
RG's headwear subsidiary, Roxxi Inc., reported a decrease in sales of
$152,000, or 11.4%, for the quarter ended March 31, 1997, as compared to the
same period of the prior year. This decrease in net sales is due primarily to
reduced production staffing in 1997 as compared to 1996. In the first quarter of
1996, RG still had two headwear production facilities, the existing Oklahoma
City facility and the Tempe plant that was closed in June 1996.
Gross Profit. Gross profit decreased to $399,000 in the first quarter of
1997 from $1.1 million in the first quarter of 1996. As a percentage of net
sales, gross profit decreased to 16.1% from 25.7%. The decline in gross profit
and the gross profit percentage primarily was attributable to Acushnet's
production delays resulting in significantly lower grip sales than the same
quarter last year. The decrease in grip sales caused a major shift in the sales
mix that affected the gross profit percentage by decreasing higher margin grip
sales as a percentage of the total sales mix. During the first quarter, the
margin on headwear sales increased by 6.4 percentage points compared to the same
quarter last year due to manufacturing cost reductions and efficiencies. The
gross profit on grip sales decreased by 14.3 percentage points compared to the
same quarter last year primarily due to a reduction in sales as a result of the
transition to Acushnet. Also, RG incurred significant expenses associated with
facilitating the transition such as travel costs for its employees and overnight
shipping costs in order to satisfy customer needs.
During the quarter ended March 31, 1997, RG and Acushnet renegotiated their
agreement in light of Acushnet's production difficulties. In connection with
this renegotiation Acushnet has agreed to provide RG with a credit of $400,000
against future purchases of grips, and additional credits in the event Acushnet
fails to meet future production requirements. These credits may be reduced
depending upon Acushnet's production beyond specified levels or as a result of
the cancellation of stock options granted to Acushnet. Because of the contingent
nature of this credit, RG recorded the credit as deferred revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $1.2 million in the first quarter of 1997
from $1.7 million in the comparable period of 1996. Selling, general and
administrative expenses decreased due to several factors. During 1996, RG
eliminated many administrative and selling employees resulting in a reduction in
salaries of $98,000 in the first quarter of 1997 as compared to the same quarter
last year. Also, RG eliminated many of its promotional product giveaways
resulting in savings of $144,000. As a result of lower sales caused by the
production difficulties, RG paid $76,000 less in commission in the first quarter
of 1997 as compared to the same quarter last year.
Other Income (Expense). Other income was $16,000 in the first quarter of
1997 compared to other expense of $16,000 in the same period of 1996. RG
recorded $62,430 in interest income primarily related to the capital lease
receivable from Acushnet. This interest income has been netted against interest
expense of $28,486 on RG's line of credit and term loan and a $20,000 fee
charged in connection with RG's modified loan covenants. The expense in 1996
resulted primarily from interest expense incurred on a revolving line of credit
and a loss on fixed asset dispositions.
Income Taxes. RG did not record a tax benefit for the loss generated in
the first quarter of 1997 as utilization of such loss in future periods is
uncertain.
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<PAGE> 71
FISCAL YEAR ENDED DECEMBER 31, 1996 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 decreased $1.25
million, or 7.5%, to $16.1 million from $17.4 million in 1995.
Sales of golf grips in the domestic replacement and Japanese markets
decreased by 22.7% and 28.2%, respectively, compared to 1995. OEM sales
increased by 15.9% compared to 1995. This increase in OEM sales is reflective of
new customer relationships with Odyssey Golf and Tommy Armour Golf. RG
attributes the decrease in Japanese and domestic replacement market sales to
continued price pressure in both markets and a delay in the introduction of a
new line of grips featuring new designs and a new compound. As a result of these
factors, the precentage of sales of golf grips to the domestic replacement
market decreased to 34.8% of total net sales of grips in 1996 from 42.9% in
1995, and grip sales to OEMs increased to 39.5% of total net sales of grips in
1996 from 29.5% in 1995.
Sales of headwear accounted for 31.8% of total net sales in 1996 compared
to 27.2% in 1995. This increase on a percentage basis is primarily the result of
decreased grip sales and partially the result of an increase in headwear sales
in 1996 of 8.1% as compared to 1995.
International sales accounted for 20.8% of total net sales of RG in 1996,
compared to 22.2% in 1995.
Gross Profit. Gross profit decreased $1.3 million, or 25.5%, to $3.8
million in 1996 from $5.1 million in 1995. As a precentage of net sales, gross
margin decreased to 23.5% in 1996 from 29.2% in the previous year. The major
factors contributing to the decrease in gross profit were the increased
precentage of headwear sales (which has lower gross margins) to total sales, the
overall decrease in grip sales which resulted in fixed expenses being spread
over fewer units sold and the significant change in the grip sales mix as
discussed above. Gross profit also was affected by modifications to its pricing
policies directed at maintaining OEM market share and remaining price
competitive in other golf grip markets. For the first two quarters of 1996, RG
experienced certain quality problems and delivery delays in the manufacturing of
headwear, which contributed to the decrease in gross profit. RG believes it has
resolved such problems with the consolidation of headwear manufacturing
locations and changes in headwear management. The 1995 gross profit was
negatively impacted as a result of the start-up costs of the headwear production
facility in Tempe, changes in sales mix to lower margin grips, and inventory
write-offs and reserves of approximately $588,000.
RG expects that gross margins will improve in 1997 as a result of improved
efficiencies in the manufacturing process related to the headwear business and
the manufacturing and supply agreement (as amended) between RG and Acushnet
Rubber Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $6.0 million in 1996, or 20.0%, from $7.5
million in 1995. This change was primarily attributable to decreases in
advertising and promotion of $825,000, commissions of $122,000, travel and
entertainment of $62,000 and a reduction of approximately 12 selling and
administrative positions.
Other Operating Expenses. In connection with the Acushnet Supply
Agreement, RG recorded significant transaction related expenses. RG incurred
severance expenses of $304,000 and professional and consulting fees of $246,000.
In addition, RG expended $359,000 related to options granted to Acushnet with
vesting upon date of grant and expended $376,000 of capitalized leasehold
improvements related to its corporate facilities which it plans to vacate in the
near term. RG also accrued $102,000 in rent expense related to the termination
of its lease. In early 1996, RG wrote off approximately $100,000 of leasehold
improvements upon the move of the headwear manufacturing facilities in Oklahoma
City. In the fourth quarter of 1996, RG wrote off $684,000 of goodwill and
covenants not to compete related to the Roxxi operations as RG determined that
these intangibles were not recoverable. In 1995, RG incurred a loss on the
write-down of property and equipment of $531,000 previously used in connection
with various discontinued grip models and other equipment not used in
operations.
Loss From Operations. RG reported a loss from operations of $4.4 million
in 1996 compared to a loss of $3.1 million in 1995. This decrease in operating
income is primarily attributable to the $1.4 million in expenses associated with
the Acushnet transaction, the $684,000 loss on the write-off of Roxxi
intangibles, and reduced
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<PAGE> 72
sales of $1.3 million. During 1995, RG incurred $1.5 million of charges related
to the write-down of fixed assets, inventory and accounts receivable.
Income Taxes. RG did not record a tax benefit for the loss generated in
1996 as utilization of such loss in future periods is uncertain. RG has a net
operating loss carry-forward of approximately $4.3 million which will expire for
federal tax purposes in 2014 and for state tax purposes generally in 2000. The
difference between the actual income tax benefit and the reported benefit by
applying the statutory income tax rate consists primarily of a valuation
allowance provided for the deferred tax assets related to the net operating loss
carry-forward and other deferred tax assets of $1.3 million at December 31,
1996. RG recorded an income tax benefit of $359,000 in 1995 resulting from the
carry-back of the loss generated in 1995 to prior tax years.
FISCAL YEAR ENDED DECEMBER 31, 1995 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales for the year ended December 31, 1995 increased $3.7
million, or 27.3%, to $17.4 million from $13.6 million in 1994.
Sales of golf grips in the domestic replacement and Japanese markets
increased by 13.6% and 13.8%, respectively, compared to 1994. Sales of grips in
the OEM market increased by .6% compared to 1994. OEM sales dollars grew at a
significantly lower rate in 1995 despite the 28.7% increase in OEM unit sales.
This decrease in unit sales prices to OEMs reflects the implementation of volume
pricing policies in 1995. RG attributes the increase in the domestic replacement
market largely to the introduction in 1995 of RG's new sand wrap line of grips.
As a result of these factors, the percentage of sales of golf grips to the
domestic replacement market increased to 42.9% of total net sales of grips in
1995 from 39.6% in 1994, and grip sales to domestic OEMs decreased to 29.5% of
total net sales of grips in 1995 from 30.8% in 1994.
International sales accounted for 22.2% of total net sales of RG in 1995,
compared to 26.0% in 1994. This decrease is partly attributable to the increased
percentage of headwear sales to total sales, as RG's international sales consist
largely of sales of grips. Sales of headwear accounted for 27.2% of total net
sales in 1995 compared to 12.2% in 1994. This significant increase on a
percentage basis is partially the result of including RG's headwear operations
in its results for a full year. RG acquired its headwear subsidiary, Roxxi,
Inc., on April 8, 1994. Sales of headwear increased $3.1 million in 1995
reflecting this first full year of operations, as well as the integration of the
headwear sales into the grip sales force.
Gross Profit. Gross profit decreased $326,000, or 6.0%, to $5.1 million in
1995 from $5.4 million in 1994. As a percentage of net sales, gross margin
decreased to 29.2% in 1995 from 39.5% in the previous year. The major factors
contributing to the decrease in gross profit were the start-up costs of the
headwear production facility in Tempe, which resulted in inefficiencies related
to the development and training of the labor force, the increased percentage of
headwear sales (which has lower gross margins) to total sales, the effect of
sales of economy grips, which also have lower margins, and the significant
inventory write-offs and reserves referenced above. Gross profit also was
affected by the new pricing policy established for OEM golf grip customers, as
well as other modifications to its pricing policies directed at maintaining OEM
market share and improving sales in other golf grip markets.
RG determined to eliminate its economy-priced grips from its product line
in the fourth quarter of 1995 and concentrate on its higher performance grips.
As a result, RG recorded reserves as of December 31, 1995 of $188,000 related to
its inventory of economy and other grips.
RG also recorded a $331,000 inventory write-down in 1995. During the first
quarter of 1995, RG sold certain selected inventory items in a bartering
transaction to distribute its product internationally in areas where it did not
have a current distribution system. In exchange, RG received trade credit rights
to be used in the purchase of goods and services over a three year period. No
profit was recorded on the initial transaction and the rights were to be
amortized as they were utilized. Although a plan of utilization is being pursued
by RG, no trade credit rights had been used as of December 31, 1995. Due to the
uncertainty as to the timing and extent of the utilization of the trade credit
rights, it was determined that such trade credits should be fully reserved. Any
future use of the trade credit rights within the three year period will be
recorded as cost
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<PAGE> 73
reductions. The effect of these and other inventory charges, which aggregated
$588,000, was a decrease in gross margins in 1995 of 3.4%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $7.5 million in 1995, or 41.7%, from $5.3
million in 1994. This change was attributable to increases in advertising and
promotion of $658,000, commissions of $243,000 and salaries of $949,000, of
which approximately $210,000 was severance pay relating in part to a realignment
of management.
Other Operating Expenses. In 1995, RG incurred a loss on the write-down of
property and equipment which had been used in connection with various types of
grips which have been discontinued by RG.
Loss From Operations. RG had a loss from operations of $3.1 million in
1995 compared to operating income of $62,000 in 1994. This substantial decrease
in operating income is primarily attributable to the $1.9 million operating loss
at the Roxxi headwear operation, reflecting the costs associated with the
start-up of the Tempe operations, and the $1.5 million of one-time charges
discussed above. Of these one-time charges, $1.1 million had no cash impact in
1995 and will have no future impact.
Income Taxes. RG recorded an income tax benefit of $359,000 in 1995, due
to the loss incurred in 1995, compared to a provision of $44,000 in 1994 and
$315,000 in 1993. RG carried the net operating loss back to September 23, 1993.
Prior to this date, RG had elected to be taxed as an S Corporation and,
therefore, was not subject to federal (and some state) income taxes. RG recorded
deferred income taxes of $195,000 at this date for the cumulative temporary
differences. After the effect of the carry-back, RG has a net operating loss
carry-forward of approximately $2,991,000 which will expire for federal purposes
in 2010 and for state purposes generally in 2000. The difference between the
actual income tax benefit and the reported benefit by applying the statutory
income tax rate consists of a valuation allowance provided for the deferred tax
asset related to the net operating loss carry-forward and other deferred tax
assets of $776,000 at December 31, 1995. RG has an income tax refund receivable
related to the carry-back of $101,000 at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, RG used $389,297 to fund
operating activities reflecting a loss and a reduction in trade accounts payable
and other accrued expenses. These factors were partially offset by a significant
reduction in inventory. RG attributes the reduction in trade accounts payable to
the application of the Acushnet credit to payments due Acushnet at March 31,
1997 and the elimination of its grip manufacturing operation thus eliminating
purchases of raw material. The inventory levels decreased substantially due to
RG ceasing its grip manufacturing operation in December of 1996. Many of the
shipments occurring in the first quarter of 1997 were from inventory produced
prior to the transition of manufacturing. As a result of the Acushnet
transaction, RG intends to maintain substantially lower grip inventory levels in
future periods as compared to 1996.
RG funded its shortfall in cash from borrowings under its line of credit.
Borrowings on RG's line of credit totaled $496,000 at March 31, 1997 as compared
to $60,000 at December 31, 1996. On April 30, 1996, RG had $816,000 drawn on its
line of credit of $1.75 million. (See Note (4) to the Condensed Consolidated
Financial Statements.) Available borrowings on the line at March 31, 1997 were
$394,000.
In recent periods RG has financed its operations through internally
generated funds and borrowings. RG used $314,000 in cash to fund operating
activities during 1996. Although RG experienced a net loss of $4.4 million in
1996, the cash used from operations was only $314,000 primarily due to the
non-cash effect from the write-off of property and equipment, the increase of
allowance for doubtful accounts and inventory reserves, the expending of certain
stock options granted, and depreciation and amortization. In 1996, RG received
cash proceeds of $740,000 from the sale of certain fixed assets. In 1995,
operating activities produced $566,000 in cash. RG generated cash flow from
operating activities although it experienced a net loss for 1995 primarily due
to the effect of the property and equipment and inventory write-offs, which were
primarily non-cash, and depreciation and amortization.
RG's Equipment Lease with Acushnet will provide approximately $450,000 in
annual payments to RG.
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<PAGE> 74
At December 31, 1996, RG had positive working capital of $1.2 million, down
from $2.4 million at December 31, 1995. The decrease in working capital is
primarily the result of expenses incurred related to the Acushnet transaction
and a decrease in inventory of $339,000.
In February 1997, RG entered into a new line of credit facility and term
loan with a commercial bank. These credit arrangements mature on February 10,
2000 and contain net worth, debt service coverage and minimum income
requirements and prohibit dividend payments and limit capital expenditures. At
December 31, 1996 and March 31, 1997, RG was not in compliance with its
quarterly net income (loss), debt service, and net worth debt covenants and
anticipated not meeting many of its quarterly and monthly covenants during 1997.
In April 1997, RG obtained an amended bank agreement which waived the net income
(loss), debt service, and net worth covenant defaults at December 31, 1996 and
March 31, 1997 and amended the debt agreement whereby the net income (loss)
limits have been modified to a loss of no more than $1,000,000 for the quarter
ended March 31, 1997 and a cumulative loss of no more than $1,600,000 for the
quarter ending June 30, 1997, and for each month thereafter in 1997. The
agreement amended the net worth covenants to correlate with the net loss
covenants above. The quarterly debt service and monthly loss limit covenants
were waived by the bank for 1997. In addition, the interest rate was amended to
the prime rate plus 3.0 percent effective April 1, 1997, subject to change based
on the operating results of RG. If RG's operations were to deteriorate or RG was
unable to meet its current or future loan covenants which could result in an
acceleration of its indebtedness or restrict RG's access to such loans, RG's
ability to fund its operations would be impaired unless or until RG secures an
alternative source of funding. There can be no assurance that RG would be able
to secure an alternative source of funding. RG believes its available borrowings
and expected cash flows from operations will satisfy its working capital and
capital requirements for the foreseeable future. See Notes 6 and 15 to Notes to
Consolidated Financial Statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1996, RG adopted Financial Accounting Standards
Board Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets' carry
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. Due to the historical losses at Roxxi, RG
determined that the intangibles acquired as part of the Roxxi acquisition were
not recoverable and consequently wrote-off $684,000 during 1996.
In 1996, RG adopted SFAS No. 123, Accounting for Stock Based Compensation,
which establishes a fair value method of accounting for stock-based compensation
plans and for transactions in which an entity acquires goods or services from
non-employees in exchange for equity instruments. SFAS No. 123 encourages, but
does not require, companies to record compensation costs for stock-based
employee compensation. RG has recorded expense equal to the fair value of
certain stock options granted to non-employees over the vesting period of the
related options. In 1996, RG recorded expenses of $394,000 pursuant to SFAS No.
123.
In February 1997, Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share" which is required to be adopted on December 31, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of SFAS No. 128 on the calculation of
primary and fully diluted earnings per share is not expected to be material for
the first quarters ended March 31, 1996 and 1997.
BACKLOG
Ordinarily, because the Company fills many of its orders within 48 hours
after receipt of a purchase order, backlog is insignificant. Although many of
RG's OEM customers provide RG with purchase orders weeks or months prior to the
requested date, these orders are generally cancelable without penalty, as is
customary in the industry.
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<PAGE> 75
CHANGE IN ACCOUNTANT
On October 18, 1995, RG dismissed its independent auditors, KPMG Peat
Marwick LLP ("KPMG"). The decision to dismiss KPMG was approved by the RG Board.
There were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
KPMG to make reference to the subject matter of the disagreement in connection
with its report on RG's financial statements. KPMG's reports on the financial
statements of RG for the fiscal years ended December 31, 1994 and 1993 contained
no adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope, or accounting principles. On October 18, 1995,
RG engaged Ernst & Young LLP to be RG's independent auditors.
CERTAIN RG TRANSACTIONS
Under an agreement between RG, DMB and Danny Edwards, DMB has been granted
the right to sell its shares of RG Common Stock in conjunction with any sale of
shares of RG Common Stock held by Mr. Edwards (other than into the public
market). In addition, pursuant to the agreement, RG agreed to use its best
efforts, so long as DMB beneficially owns at least 10% of RG's Common Stock, to
have the Board of Directors nominate a designee of DMB satisfactory to the
Board, for election to the Board of Directors. Mr. Drew M. Brown, a principal of
DMB, served as a director of RG until November 1996. DMB currently has no
representatives serving on the RG Board.
RG EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to RG during the fiscal
years ended December 31, 1996, 1995, and 1994, of those persons who were, at
December 31, 1996: (a) the chief executive officer of RG; and (b) the other
executive officers of RG whose annual salary and bonus exceeded $100,000 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------------------
ANNUAL COMPENSATION
----------------------------------
SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#)(A)
- ------------------------------------------------------ ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Danny Edwards......................................... 1996 139,108(b) -- 85,100
Chairman of the Board 1995 250,000 -- --
of Directors and Chief 1994 250,000 -- --
Executive Officer
Robert G. J. Burg, II................................. 1996 154,663 -- 106,066
President 1995 150,000 -- --
1994 120,000 -- --
</TABLE>
- ---------------
(a) The amounts shown in this column represent outstanding stock options
originally granted to Messrs. Edwards and Burg pursuant to RG's Stock
Option Plan that were repriced on November 15, 1996.
(b) During a portion of 1996, Mr. Edwards voluntarily reduced his salary.
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<PAGE> 76
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers by RG in 1996:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#) (%) ($/SH) DATE
- --------------------------------------- ---------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Danny Edwards (a)...................... 4,714 1.4% 2.75 11/15/2001
80,386 23.9% 3.03 11/15/2001
------- -----
85,100 25.3%
======= =====
Robert G. J. Burg, II (b).............. 106,066 31.5% 2.75 11/15/2004
</TABLE>
- ---------------
(a) Prior to November 15, 1996, Mr. Edwards was the holder of vested stock
options to purchase 21,000 shares of RG's Common Stock at an exercise price
of $12.25 per share, and an additional 24,000 shares at an exercise price
of $13.48 per share. On November 15, 1996, all of Mr. Edwards' outstanding
stock options were canceled and RG reissued to Mr. Edwards new stock
options to purchase 4,714 shares of RG's Common Stock at an exercise price
of $2.75 per share (the market price of RG's Common Stock on the date of
grant), and an additional 80,386 shares at an exercise price of $3.03 per
share. All of the new stock options were fully vested and exercisable on
the date of grant. All unexercised options expire on November 15, 2001.
(b) Prior to November 15, 1996, Mr. Burg was the holder of vested stock options
to purchase 37,500 shares of RG's Common Stock at an exercise price of
$8.50 per share. On November 15, 1996, Mr. Burg's outstanding options were
canceled and RG reissued to Mr. Burg new options to purchase 106,066 shares
of RG's Common Stock at an exercise price of $2.75 per share. All of Mr.
Burg's new stock options were fully vested and exercisable on the date of
grant. All unexercised new stock options will expire on November 15, 2004.
FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the fiscal year end
value of unexercised options held by the Named Executive Officers. The Named
Executive Officers did not exercise any options in 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Danny Edwards............................ 85,100 -- -- --
Robert G. J. Burg, II.................... 106,066 -- -- --
</TABLE>
- ---------------
(1) Options are considered to be "in-the-money" if the fair market value of the
underlying securities exceeds the exercise price of the options on a
specified date. No values have been reported in these columns insofar as the
exercise price of all options held by the Named Executive Officers was equal
to or greater than the closing price of the Common Stock at December 31,
1996.
AMENDMENT
The Shareholders will vote upon the approval of the Amendment to increase
the number of shares authorized for issuance under the Plan from 400,000 to
550,000. Options for the additional 150,000 shares of RG Common Stock have,
subject to Shareholder approval of the Amendment, already been granted to Danny
Edwards (40,000 shares) and Robert G. J. Burg, II (110,000 shares). See
"AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN."
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<PAGE> 77
COMPENSATION OF DIRECTORS
Beginning April 1, 1996, non-employee members of the RG Board were paid
$750 for attendance at, or participation by telephone in, regular or special
Board meetings or meetings of committees of which they are members. Such
directors are also reimbursed for reasonable travel expenses incurred in
connection with attendance at each Board and committee meeting. In addition,
non-employee directors are eligible to receive annual stock option grants under
RG's 1996 Non-Employee Director Stock Plan (the "Director Plan").
James W. Myers, an independent director of RG, was paid $1,500 in
directors' fees in 1996 for his attendance at meetings of the RG Board and
committees thereof. In addition, Myers Management and Capital Group, Inc., a
management consulting firm of which Mr. Myers is a principal, was paid $24,500
in consulting fees by RG during 1996. RG granted to Mr. Myers stock options to
purchase 1,500 shares of RG's Common Stock in 1996 pursuant to the Director
Plan. Such options have an exercise price of $6.375 per share.
Gardiner S. Dutton, an independent director of RG was paid $1,500 in
director's fees in 1996 for his attendance at meetings of the RG Board and
committees thereof. RG granted to Mr. Dutton stock options to purchase 1,500
shares of RG's Common Stock in 1996 pursuant to the Director Plan. Such options
have an exercise price of $6.375 per share.
Barry Entous, an independent director of RG was paid $1,500 in directors'
fees in 1996 for his attendance at meetings of the RG Board and committees
thereof. RG granted to Mr. Entous stock options to purchase 1,500 shares of RG's
Common Stock in 1996 pursuant to the Director Plan. Such options have an
exercise price of $6.375 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
RG was a party to an employment agreement with Danny Edwards that expired
in August 1996. Mr. Edwards has entered into a Consulting Agreement dated May
14, 1997 with FMP effective on the Effective Date. See "THE MERGER -- Interests
of Certain Persons in the Merger: Consulting Agreement." Robert G. J. Burg, II
and Thomas A. Schneider are entitled to certain severance payments and benefits
if their employment is terminated. See "THE MERGER -- Interests of Certain
Persons in the Merger: Severance Agreements."
DESCRIPTION OF FMP CAPITAL STOCK
The following brief description of FMP's capital stock is qualified in its
entirety by reference to the applicable provisions of Delaware law, FMP's
Amended and Restated Certificate of Incorporation which will become effective
immediately before the Effective Date (the "FMP Certificate of Incorporation"),
a copy of which is attached as Annex IV, and FMP's By-laws, a copy of which has
been filed with the SEC ("see AVAILABLE INFORMATION").
FMP is authorized to issue 50,000,000 shares of Common Stock, par value
$.001 per share, approximately 5,547,000 shares of which will be outstanding
immediately after the Effective Date, and 5,000,000 shares of Preferred Stock,
par value $.001 per share, none of which will be outstanding as of the Effective
Date.
COMMON STOCK
All outstanding shares of FMP Common Stock are, and the shares of FMP
Common Stock issuable upon the consummation of the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. Each share of FMP
Common Stock entitles the holder thereof to one vote on all matters submitted to
a vote of the stockholders including the election of directors. Since the
holders of FMP Common Stock do not have cumulative voting rights, the holders of
a simple majority of the outstanding shares have the power to elect all of the
directors to be elected at a given meeting and the holders of the remaining
shares by themselves would not be able to elect any directors at that meeting.
See "RISK FACTORS -- FMP Corporate Risks: Control
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<PAGE> 78
by Principal Stockholders." The holders of FMP Common Stock do not have
preemptive, redemption or conversion rights. Holders of FMP Common Stock are
entitled to receive ratably such dividends as may be declared by the FMP Board,
from time to time, out of funds legally available therefor. See "RISK
FACTORS -- FMP Corporate Risks: Absence of Dividends." If FMP is liquidated,
dissolved, or wound up, holders of the FMP Common Stock have the right to
receive a ratable portion of the assets remaining after the payment of creditors
and the holders of the shares of any class or series of preferred stock to the
extent that the then existing terms of the preferred stock grant them priority
over the holders of shares of FMP Common Stock.
PREFERRED STOCK
The FMP Certificate of Incorporation authorizes the issuance of "blank
check" preferred stock in one or more classes or series with such designations,
rights, preferences and restrictions as may be determined from time to time by
the FMP Board. As of the date hereof, there are no shares of preferred stock
outstanding. The FMP Board may, without prior stockholder approval, issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
holders of FMP Common Stock. Preferred stock could be used, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of FMP. Although FMP has no present intention of issuing any shares of
preferred stock, there can be no assurance that it will not do so in the future.
If FMP issues preferred stock, such issuance may have a dilutive effect upon the
common stockholders. See "RISK FACTORS -- FMP Corporate Risks: Anti-Takeover
Provisions; Blank Check Preferred Stock."
CERTAIN CHARTER PROVISIONS AND LAWS
In addition to the preferred stock provisions described above, certain
features of the FMP Certificate of Incorporation and By-laws and the Delaware
General Corporation Law ("DGCL") which are further described below, may have the
effect of deterring third parties from making takeover bids for control of FMP
or may be used to hinder or delay a takeover bid thereby decreasing the chance
of the stockholders of FMP realizing a premium over market price for their
shares of FMP Common Stock as a result of such bids.
Limitations on Stockholder Actions. The Certificate of Incorporation
provides that stockholder action may only be taken at a meeting of the
stockholders. Thus a holder of a majority of the voting power could not take
action to replace the FMP Board, or any class thereof, without a meeting of the
stockholders nor could such a holder amend the By-laws without presenting the
amendment to a meeting of the stockholders. Furthermore, under the provisions of
the FMP Certificate of Incorporation and By-laws of FMP, special meetings of the
stockholders may only be called by the Board. Therefore, a stockholder, even one
who holds a majority of the voting power, may neither replace sitting Board
members nor amend the By-laws before the next annual meeting of stockholders.
Advance Notice Provisions. FMP's By-laws provide for an advance notice
procedure for the nomination, other than by the Board, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at meetings must be received by FMP not
less than 120 days before the first anniversary of the mailing of FMP's proxy
statement for the previous year's annual meeting, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
Delaware Law. FMP is subject to Section 203 of the DGCL, which provides
that a corporation may not engage in any business combination with an
"interested stockholder" during the three years after he becomes an interested
stockholder unless the corporation's board of directors approved in advance
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced; or the business combination is approved by the
corporation's board of directors and the affirmative vote of at least two-thirds
of the outstanding voting stock which is not owned by the interested
stockholder. An interested stockholder is anyone who owns 15% or more of the
outstanding voting stock of the
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<PAGE> 79
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the previous three years; and the affiliates and associates of any
such person. Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders of a corporation may elect to exclude a corporation from the
section's restrictions.
Classified Board. The FMP Certificate of Incorporation and By-laws of FMP
divide the board into three classes with staggered three year terms. There are
currently nine directors, three in each class. At each annual meeting of
stockholders, the terms of one class of directors will expire and the newly
nominated directors of that class will be elected for a term of three years. The
board will be able to determine the total number of directors constituting the
full board and the number of directors in each class, but the total number of
directors may not exceed 17 nor may the number of directors in any class exceed
six. Subject to these rules, the classes of directors need not have equal
numbers of members. No reduction in the total number of directors or in the
number of directors in a given class will have the effect of removing a director
from office or reducing the term of any then sitting director. Stockholders may
only remove directors for cause. If the board increases the number of directors
in a class, it will be able to fill the vacancies created for the full remaining
term of a director in that class even though the term may extend beyond the next
annual meeting. The directors will also be able to fill any other vacancies for
the full remaining term of the director whose death, resignation or removal
caused the vacancy.
A person who has a majority of the voting power at a given meeting will not
in any one year be able to replace a majority of the directors since only one
class of the directors will stand for election in any one year. As a result, at
least two annual meeting elections will be required to change the majority of
the directors by the requisite vote of stockholders. The purpose of classifying
the board is to provide for a continuing body, even in the face of a person who
accumulates a sufficient amount of voting power, whether by ownership or proxy
or a combination, to have a majority of the voting power at a given meeting and
who may seek to take control of FMP without paying a fair premium for control to
all the holders of Common Stock. This will allow the board time to negotiate
with such a person and to protect the interests of the other stockholders who
may constitute a majority of the shares not actually owned by such person.
However, it may also have the effect of deterring third parties from making
takeover bids for control of FMP or may be used to hinder or delay a takeover
bid thereby decreasing the chance of the stockholders of FMP realizing a premium
over market price for their shares of FMP Common Stock as a result of such bids.
See "RISK FACTORS -- FMP Corporate Risks: Anti-Takeover Provisions; Blank Check
Preferred Stock."
Stockholder Agreement. The Edwards Group and the Johnston Group have
entered into a Stockholder Agreement. The Stockholder Agreement will take effect
at the Effective Date of the Merger and will terminate three years after the
Effective Date. Under the Stockholder Agreement, the Johnston Group will be
entitled to designate six members of the FMP Board and the Edwards Group shall
be entitled to designate three members of the FMP Board. The FMP Board will
consist of at least nine members serving for staggered three year terms. If the
FMP Board is expanded, the groups will designate directors in a ratio of two to
one unless the Edwards Group no longer owns 10% of FMP's voting securities or
the vacancy is filled by an independent director not affiliated with the
Johnston Group. Members of each group shall serve in each class of directors.
Danny Edwards and Robert G. J. Burg, II will serve on the Executive Committee
and the Edwards Group will be entitled to designate a member of the Compensation
Committee. Each of the parties to the Stockholder Agreement has agreed to vote
his shares of FMP Common Stock in favor of designees of the Johnston Group and
the Edwards Group and to not vote for the removal of a director designated under
the Stockholder Agreement unless for cause, which is limited to wilful and
continued failure to substantially perform his duties, wilful conduct which is
significantly injurious to FMP or conviction for a felony, or with the written
consent of the group that designated the director. See "RISK FACTORS -- FMP
Corporate Risks: Control by Principal Stockholders."
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<PAGE> 80
TRANSFER AGENT
The transfer agent for the FMP Common Stock is American Securities Transfer
& Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, CO 80202-1817; (303)
298-5370.
OPTIONS
FMP has granted options to purchase approximately 170,000 shares of FMP
Common Stock under its 1997 Stock Option Plan. See "FMP EXECUTIVE COMPENSATION."
On the Effective Date, FMP will assume options and warrants, issued by RG, to
purchase an additional approximately 492,000 shares of FMP Common Stock. See
"THE MERGER -- Interests of Certain Persons in the Merger: RG Options."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of FMP Common Stock by FMP and its stockholders
could adversely affect the prevailing market price of the FMP Common Stock.
Immediately after the Effective Date, the number of outstanding shares of FMP
Common Stock will be approximately 5,547,000. Of this number, approximately
4,177,000 shares will be "restricted securities" under SEC Rule 144. Under that
Rule, restricted securities that have been held for more than one year and less
than two years and any shares held by affiliates of FMP (generally, officers,
directors and principal stockholders), may only be sold without registration
under the Securities Act, in limited quantities, through ordinary brokerage
transactions. After May 31, 1998, Rule 144 restrictions on FMP Common Stock held
by non-affiliates of FMP (approximately 376,000 shares out of the 4,177,000 at
the Effective Date) will lapse. These 376,000 shares could be sold without
restriction except that they are subject to shareholders' agreements which
restrict their transfer. However, the shareholders' agreements are not "lock-up"
agreements intended to restrict the flow of shares into the market and the
parties thereto may allow any of the subject shares to be sold in compliance
with the securities laws at any time. In addition to the 4,177,000 shares of FMP
Common Stock which will be restricted securities, approximately 778,000 shares
of FMP Common Stock issuable in the Merger will be issuable to persons who have
been identified as affiliates of RG. These shares are subject to the
restrictions imposed by SEC Rule 145, under which shares of FMP Common Stock
issued in the Merger to persons who were affiliates of RG and will not be
affiliates of FMP may be resold without registration during one year after the
Effective Date, in limited quantities, through ordinary brokerage transactions.
Shares issued in the Merger to persons who will be affiliates of FMP will be
subject to the Rule 144 restrictions described above. See "THE MERGER -- Resale
of FMP Stock; Affiliates." Regardless of Rule 144 and Rule 145, any stockholder
may sell securities in transactions that have been registered under the
Securities Act if he complies with its prospectus delivery requirements. FMP
stockholders who will own approximately 3,740,000 shares of FMP Common Stock and
affiliates of RG who will receive approximately 777,000 shares of FMP Common
Stock in the Merger have entered into a registration rights agreement under
which they will have the right to demand or participate in future registration
of FMP Common Stock under the Securities Act. Sales of substantial amounts of
FMP Common Stock or the perception that such sales may occur, could have a
material adverse effect on the market price of the FMP Common Stock. See "THE
MERGER -- Interests of Certain Persons in the Merger: Registration Rights
Agreement."
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<PAGE> 81
OWNERSHIP OF FMP COMMON STOCK
The following table sets forth, as of May 31, 1997, certain information
with respect to the beneficial ownership of shares of FMP Common Stock by (a)
each person known to FMP to be the beneficial owner of more than 5% of the
outstanding shares of FMP Common Stock, (b) each director of FMP, (c) each of
the Named Executives (see "FMP Executive Compensation, Summary of
Compensation"), and (d) FMP's directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PRE-MERGER
SHARES PERCENT POST-MERGER
BENEFICIALLY OF CLASS PERCENT
BENEFICIAL OWNER OWNED (A) (B) OF CLASS(C)
- --------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Ronald L. Chalmers (d)................................... 130,859 3.13% 2.36%
Berenson Minella (e)(f).................................. 1,232,154 29.50% 22.21%
Christopher A. Johnston (e)(g)........................... 1,286,745 30.41% 22.97%
David E. Johnston (e)(h)................................. 219,950 5.25% 3.96%
Richard P. Johnston (i).................................. 651,580 15.51% 11.69%
Raymond J. Minella (j)................................... 1,240,508 29.64% 23.33%
RPJ/JAJ Partners (e)(k).................................. 626,519 15.00% 11.29%
Kenneth J. Warren (e)(l)................................. 349,472 8.34% 6.28%
All directors and officers as a group (6 persons) (m).... 3,879,115 90.28% 68.45%
</TABLE>
- ---------------
(a) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power over these shares subject to the spousal rights, if any,
of the spouses of those beneficial owners who have spouses.
(b) Percentage of the outstanding FMP Common Stock as of May 31, 1997
(c) Percentage of the FMP Common Stock that would have been outstanding if May
31, 1997 had been the Effective Date and no RG Options had been exercised on
or before that date.
(d) Mr. Chalmers' address is c/o FMP, P.O. Box 298, Torrington, CT 06790. This
amount includes 5,555 shares issuable upon the exercise of options which are
exercisable within 60 days. Mr. Chalmers' shares are subject to an agreement
with FMP which grants FMP a right of first refusal and a call right upon
termination of his employment with FMP. These rights are not currently
exercisable within 60 days.
(e) The members of the Johnston Group are parties to the Stockholder Agreement
pursuant to which they have agreed to vote their shares of FMP Common Stock
for the election of certain persons as directors of FMP. See "THE MERGER --
Interests of Certain Persons in the Merger: Stockholder Agreement."
(f) The address of Berenson Minella is 667 Madison Avenue, New York, NY 10021.
(g) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 54,590 shares issuable upon the
exercise of options which are exercisable within 60 days, but it does not
include 433,008 shares owned by Mr. Warren and others subject to a
stockholders agreement which grants Mr. Johnston a right of first refusal
and a call right which are not currently exercisable. Mr. Warren is a party
to this stockholders agreement.
(h) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 11,110 shares issuable on the exercise
of options which are exercisable within 60 days and 208,839 shares which
have been pledged to RPJ/JAJ Partners, Ltd. under a pledge agreement
pursuant to which the pledgee will only acquire voting power or dispositive
power over the shares upon the occurrence of certain contingencies which
have not yet occurred.
(i) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 626,519 shares owned by RPJ/JAJ
Partners, Ltd. Mr. Johnston is a general partner in RPJ/JAJ Partners
together with his wife and shares voting and dispositive power over the
shares owned by the partnership. This amount also includes 25,060 shares
issuable upon the exercise of options which are exercisable within 60 days.
This amount does not 584,751 shares which have been pledged to
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<PAGE> 82
RPJ/JAJ Partners under pledge agreements which grant voting and dispositive
power over such shares upon the occurrence of certain contingencies which
have not yet occurred.
(j) Mr. Minella's address is c/o Berenson Minella, 667 Madison Avenue, New York,
New York 10021. This amount includes 1,232,154 shares owned by Berenson
Minella of which Mr. Minella is an indirect general partner. As such, Mr.
Minella shares voting and dispositive powers over these shares. This amount
also includes 8,353 shares issuable upon the exercise of options which are
exercisable within 60 days.
(k) The address of RPJ/JAJ Partners is c/o FMP, 3490 Clubhouse Drive, Suite 102,
Jackson Hole, WY 83001. This amount does not include 584,751 shares pledged
to RPJ/JAJ Partners pursuant to pledge agreements which only grant voting
and dispositive power over such shares to RPJ/JAJ Partners upon the
occurrence of certain contingencies which have not yet occurred.
(l) Mr. Warren's address is 2109 West Fifth Avenue, Suite C, Columbus, Ohio
43212. This amount includes 15,328 shares issuable upon the exercise of
options which are exercisable within 60 days. Mr. Warren is a party to a
stockholders agreement under which the holders of 83,536 shares have granted
him rights of first refusal which are not currently exercisable and Mr.
Warren has granted a right of first refusal and a call right to Christopher
A. Johnston which are not currently exercisable.
(m) This amount includes 119,999 shares issuable upon the exercise of options
which are exercisable within 60 days. This amount does not include any
shares excluded by notes (b) through (i) above.
Before the Effective Date, FMP had 12 stockholders.
DESCRIPTION OF RG CAPITAL STOCK
The authorized capital stock of RG consists of 15,000,000 shares of Common
Stock, $.001 par value per share and 5,000,000 shares of preferred stock, par
value $.001 per share. As of May 31, 1997, there were 2,740,928 shares of RG
Common Stock issued and outstanding and no shares of preferred stock issued and
outstanding. All such issued and outstanding RG Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. As of May 31, 1997, 984,750 shares of RG Common Stock were reserved for
issuance and are issuable upon or otherwise deliverable in connection with the
exercise of outstanding options. Pursuant to a revolving and term note, RG has
agreed that it will not declare or pay cash dividends upon any of RG's stock
without prior lender consent.
OWNERSHIP OF RG COMMON STOCK
The following table sets forth, as of May 31, 1997, based in part on
information provided to RG by the persons named in the table, the number of
shares of RG Common Stock owned by the members of the RG Board, RG's Chief
Executive Officer and the other executive officers of RG, all directors and
executive officers as a group, and beneficial owners of more than 5% of the
shares of RG Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF BENEFICIAL OWNER(A) BENEFICIAL OWNERSHIP(A) OWNERSHIP(A)
- --------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
Danny Edwards(b)(i)...................................... 1,133,605 33.4%
Barry Entous(c).......................................... 6,000 *
James W. Myers(c)........................................ 6,000 *
Gardiner Dutton(d)....................................... 5,000 *
Robert G. J. Burg, II(e)................................. 107,066 3.2%
DMB(f)(i)................................................ 414,771 12.4%
Acushnet(g).............................................. 250,000 7.4%
FMP(i)................................................... 1,554,448 55.0%
All directors and executive officers as a group(h)(i).... 1,298,641 38.3%
</TABLE>
- ---------------
* Less than 1%
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<PAGE> 83
(a) This information regarding beneficial ownership of RG Common Stock by
certain beneficial owners and management of RG is as of May 15, 1997. The%
owned calculations are based on the number of shares of RG Common Stock
outstanding on May 15, 1997, plus, where appropriate, those shares subject
to unexercised options which are exercisable on May 15, 1997, or within 60
days thereafter. The persons named in the table, to the Company's knowledge,
have sole voting and sole investment power with respect to all shares of RG
Common Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes hereunder. Unless otherwise indicated, the address for each person
named in this table is c/o Royal Grip, Inc. 444 West Geneva, Tempe, Arizona
85282.
(b) The total for Mr. Edwards includes 85,100 shares subject to unexercised
options that are exercisable within 60 days.
(c) The totals for Messrs. Entous and Myers include 12,000 shares subject to
unexercised options that are exercisable within 60 days.
(d) The total for Mr. Dutton includes 4,000 shares subject to unexercised
options that are exercisable within 60 days.
(e) The total for Mr. Burg includes 106,066 shares subject to unexercised
options that are exercisable within 60 days.
(f) DMB is an investment management firm. The address of DMB is 4201 North 24th
Street, Suite 120, Phoenix, Arizona 85016. Mr. Drew M. Brown, a principal of
DMB Property Ventures, was a member of the Board of Directors of the Company
from April 1990 until November 1996.
(g) The total for Acushnet consists of 250,000 shares of Common Stock subject to
unexercised options that are exercisable within 60 days. Such options were
issued to Acushnet pursuant to the Acushnet Supply Agreement. The address of
Acushnet is 744 Belleville Avenue, New Bedford, Massachusetts, 02742-6916.
(h) The total for all directors and executive officers as a group includes an
aggregate of 244,136 shares subject to unexercised options that are
exercisable within 60 days.
(i) Under the Voting Agreement, the Edwards Group, which collectively owns
approximately 54% of the outstanding RG Common Stock, has agreed to vote all
shares of RG Common Stock held by them in favor of the Merger Proposal and
has granted FMP an irrevocable proxy to vote their shares of RG Common Stock
at the Special Meeting in favor of the Merger Proposal. FMP may be deemed to
be the beneficial owner of these shares.
COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND
RG CAPITAL STOCK
All descriptions in the following and in other portions of this Proxy
Statement/Prospectus that describe provisions of the Certificate of
Incorporation and By-laws of FMP refer to such provisions as they will exist as
of the Effective Date pursuant to amendments made thereto immediately preceding
the Effective Date.
If the Merger is consummated, Shareholders will become holders of FMP
Common Stock and the rights of Shareholders will be governed by FMP's Amended
and Restated Certificate of Incorporation ("FMP Certificate") and FMP's By-laws
("FMP Bylaws"). The rights of FMP stockholders differ in certain respects from
the rights of Shareholders. Certain of the differences are summarized below.
This summary is qualified in its entirety by reference to the full text of such
documents. The FMP Certificate is Annex IV hereto. For information as to how
such documents may be obtained, see "AVAILABLE INFORMATION."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Section 141(b) of the DGCL provides that the board of directors shall
consist of one or more members. The number of directors shall be fixed by, or in
the manner provided in, the by-laws, unless the certificate of incorporation
fixes the number of directors, in which case a change in the number of directors
shall be made
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<PAGE> 84
only by amendment of the certificate. Pursuant to Section 141(d) of the DGCL,
the directors of any Delaware corporation may, by the certificate of
incorporation, by an initial by-law or by a by-law adopted by a vote of the
shareholders, be divided into one, two or three classes.
Section 78.115 of the NGCL provides that a corporation must have at least
one director and may provide in its articles of incorporation or its by-laws for
a fixed number of directors or a variable number of directors within a fixed
maximum and minimum and for the manner in which the number of directors may be
increased or decreased. Section 78.330 of the NGCL provides that the articles of
incorporation or the by-laws may provide for a classified board of directors,
but at least one-fourth of the directors must be elected annually.
Article VI Section 1 of the Articles of Incorporation of RG ("RG Articles")
provides that the board of directors shall be divided into three classes, as
nearly equal in number as may be. Article III Section 2 of RG's By-laws ("RG
Bylaws") provides that the board of directors shall consist of five members
until the board of directors shall otherwise determine and that each director
shall hold office until his successor is duly elected or until his earlier
death, resignation or removal.
Article FIFTH Section 1 of the FMP Certificate and Article II Sections
2.1.A and 2.1.B of the FMP Bylaws provide that: (a) the total number of
directors on the board of directors shall be fixed by the board of directors but
the total number of directors may not exceed seventeen; (b) the board of
directors shall be divided into three classes; (c) the number of directors in
any class may not exceed six; and (d) one class of directors shall be chosen for
a term of three years at each annual meeting of stockholders.
DUTIES OF DIRECTORS
Section 78.138 of the NGCL allows directors and officers of a corporation
to consider a variety of non-shareholder interests in discharging their duties
to the corporation. There are no corresponding provisions in the DGCL, the RG
Articles, the RG Bylaws, the FMP Certificate or the FMP Bylaws.
REMOVAL OF DIRECTORS
Section 141(k) of the DGCL provides that any director or the entire board
of directors may generally be removed with or without cause by a majority
shareholder vote. However, a director of a corporation with a classified board
of directors may be removed only for cause unless the certificate of
incorporation otherwise provides.
Under Section 78.335 of the NGCL, directors may be removed from office by a
two-thirds shareholder vote, or by the vote of such larger percentage of shares
as may be provided in the articles of incorporation. A director elected by a
voting group, unless otherwise provided in the articles of incorporation, may
only be removed by a vote of two-thirds of the members of the group or by the
vote of such larger percentage of the group as may be provided in the articles
of incorporation for the removal of directors.
Article VII Section 3 of the RG Articles and Article III Section 11 of the
RG Bylaws provide that a director may be removed from office by the shareholders
only for cause at a special meeting of the shareholders, called for the purpose
of removing the director, with the affirmative vote of the holders of two-thirds
of the voting power of all shares entitled to vote at such meeting.
Article FIFTH Section 1(c) of the FMP Certificate and Article II Section
2.1.C of the FMP Bylaws provide that any director or the entire board of
directors may be removed by the holders of a majority of shares then entitled to
vote at an election of directors and only for cause.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under Section 223 of the DGCL, unless the certificate of incorporation or
the by-laws of a corporation provide otherwise, a majority vote of the directors
then in office may fill vacancies and newly created directorships, even if the
number of current directors is less than a quorum or only one director remains.
If the directors filling an open slot on the board constitute less than a
majority of the whole board (as measured before an increase in the size of the
board), the Delaware Court of Chancery may, upon application of
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shareholders holding at least 10% of the outstanding voting shares, summarily
order an election to fill the open slots or replace directors chosen by the
directors then in office. Unless otherwise provided in the certificate of
incorporation or by-laws, when one or more directors resign effective at a
future date, a majority of directors then in office, including those who have so
resigned, may vote to fill the vacancy.
Similarly, under Section 78.335 of the NCGL, all vacancies, including those
caused by an increase in the number of directors may be filled by a majority of
the remaining directors, though less than a quorum, unless the articles of
incorporation provide otherwise. If a director gives notice of his or her
resignation to the board of directors, to become effective at a future date, the
board may fill the vacancy to take effect when the resignation becomes
effective, with the director so appointed to hold office during the remainder of
the term of office of the resigning director.
Article VII Section 2 of the RG Articles provides that vacancies on the
board of directors, including those caused by an increase in the number of
directors, shall be filled by a vote of a majority of the directors then
remaining in office. Article III Section 12 of the RG Bylaws provides that: (a)
vacancies and newly created directorships resulting from an increase in the
authorized number of directors may be filled by a majority of directors then in
office, although less than a quorum, or by a sole remaining director; (b) if the
corporation has no directors in office, then any officer or any shareholder or
an executor, administrator, trustee or guardian of a shareholder, may call a
special meeting of shareholders to fill the vacancies on the board of directors;
and (c) if one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided elsewhere in the RG Bylaws.
Article FIFTH Section 1 of the FMP Certificate and Article II Section 2.1.D
of the FMP Bylaws provide that: (a) if the board of directors increases the
number of directors in any class, the board may fill the vacancy created thereby
for the full remaining term of a director in that class even though such term
may extend beyond the next annual meeting; and (b) the board of directors may
fill any vacancy occurring for any other reason for the full remaining term of
the director whose death, resignation or removal caused the vacancy, even though
such term may extend beyond the next annual election.
LIMITATION ON DIRECTORS' LIABILITY
Section 102(b)(7) of the DGCL allows a corporation, through its certificate
of incorporation, to limit or eliminate the personal liability of directors to
the corporation and its shareholders for monetary damages for breach of
fiduciary duty. However, this provision excludes any limitation on liability for
(a) any breach of the director's duty of loyalty to the corporation or its
shareholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) wilful or negligent
violation of the laws governing the payment of dividends or the purchase or
redemption of stock or (d) any transaction from which the director derives an
improper personal benefit.
Section 78.037 of the NGCL allows a corporation, through its articles of
incorporation, to limit or eliminate the personal liability of directors to the
corporation and its shareholders for damages for breach of fiduciary duty.
However, this provision excludes any limitation on liability for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (b) the payment of distributions in violation of Section 78.300 of the
NGCL.
Article XIV of the RG Articles provides that, to the fullest extent
permitted by the NGCL, a director of the corporation shall not be liable to the
corporation or its shareholders for monetary or other damages for breach of
fiduciary duties as a director.
Article EIGHTH of the FMP Certificate provides that a director shall not be
personally liable to the corporation or its shareholders for monetary damages
for breach of any fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the corporation or its shareholders,
(b) for acts not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL which imposes
liability for the payment of unlawful dividends and unlawful stock purchases or
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redemptions, or (d) for any transaction from which the director derives an
improper personal benefit. This Article also provides that if the DGCL is ever
amended to authorize further limits of director liability, then the liability of
a director of the corporation shall be limited to the fullest extent permitted
by the DGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL and Section 78.751 of the NGCL both provide that a
corporation may indemnify any person made a party or threatened to be made a
party to any type of proceeding (other than certain actions by or in right of
the corporation) because he or she is or was a director, officer, employee or
agent of the corporation or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such proceeding if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation; or in a criminal proceeding, if he or she had no
reasonable cause to believe his or her conduct was unlawful. Expenses incurred
by an officer or director (or other employees or agents as deemed appropriate by
the board of directors) in defending civil or criminal proceedings may be paid
by the corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it is ultimately determined that such person is not entitled to be indemnified
by the corporation. To indemnify a party, the corporation must determine that
the party met the applicable standards of conduct.
Article XI of the RG Articles provides that the corporation shall
indemnify, defend and hold harmless any person who incurs expenses, claims,
damages or liability by reason of the fact that he is, or was, an officer,
director, employee or agent of the corporation, to the fullest extent allowed
under the NGCL. The indemnification called for under the RG Articles is
mandatory in all circumstances where indemnification is permitted under the
NGCL.
Article X Section 1 of the RG Bylaws provides terms for the indemnification
of directors, officers, employees and agents of the corporation in
non-derivative actions. This Section provides that the corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Article X Section 2 of the RG Bylaws provides terms of indemnification in
derivative actions. This Section provides that the corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including amounts paid in settlement and
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged by a
court of competent jurisdiction after exhaustion of all appeals therefrom to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which such action or suit was
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brought or other court of competent jurisdiction shall determine upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Article X Section 3 of the RG Bylaws provides that to the extent a
director, officer, employee or agent of the corporation has been successful on
the merits or otherwise in defense of any direct or derivative action, suit or
proceeding resulting from his relationship with the corporation or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Article NINE of FMP's Certificate of Incorporation and Article VI Sections
6.1 and 6.2 of the FMP Bylaws provide terms of indemnification of directors,
officers, employees and agents of the corporation. FMP's indemnification
provisions are essentially identical to RG's indemnification provisions except
that only indemnification of directors and officers is mandatory under FMP's
indemnification provisions. Under FMP's Certificate of Incorporation and Bylaws,
indemnification of other employees and agents of the corporation is permissive.
LOANS TO DIRECTORS
Section 143 of the DGCL allows a corporation to lend money to or guarantee
an obligation of an officer or employee, including one who acts as a director,
if the assistance is reasonably expected to benefit the corporation. Such
assistance may be provided without shareholder approval. The NGCL contains no
corresponding provision.
The RG Articles, the RG Bylaws, the FMP Certificate and the FMP Bylaws
contain no provisions directly concerning loans to directors, officers or other
employees of the corporation.
DIVIDENDS
Subject to additional restrictions in a corporation's certificate of
incorporation, Section 170 of the DGCL allows the board of directors of a
Delaware corporation to pay dividends out of surplus or, if there is no surplus,
out of its net profits for the fiscal year in which the dividend is declared or
the preceding fiscal year.
Section 78.288 of the NGCL allows a board of directors to make
distributions to shareholders, unless otherwise provided in the articles of
incorporation. However, no distribution may be made if it would cause (a) the
corporation to be unable to pay its debts as they become due or (b) except as
otherwise specifically allowed by the articles of incorporation, the
corporation's assets to be less than the sum of its liabilities plus the amount
that would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential shareholders whose rights are superior
to those receiving the distribution.
Article VIII of the RG Bylaws provides that the board of directors may from
time to time declare, and the corporation may pay, dividends on its outstanding
shares of stock in the manner and upon the terms and conditions provided in the
NGCL.
Article FIFTH of the FMP Certificate provides that the holders of issued
and outstanding shares of common stock of the corporation shall be entitled to
receive ratably, in proportion to the number of shares held by them, such
dividends as may be declared by the board of directors, from time to time, out
of the assets or funds of the corporation legally available for the payment of
dividends.
ACTION BY SHAREHOLDERS THROUGH WRITTEN CONSENT
Under Section 228(a) of the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
an annual or special meeting of the shareholders may be taken in the absence of
a meeting, without prior notice and without a vote. Such action may be taken by
the written consent of shareholders in lieu of a meeting setting forth the
action so taken and signed by the holders of outstanding stock representing the
number of shares necessary to take such action at a meeting at which all shares
entitled to vote were present and voted.
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Under Section 78.320 of the NGCL, unless otherwise provided in a
corporation's articles of incorporation or by-laws, any action required or to be
taken at an annual or special meeting of the shareholders may be taken in the
absence of a meeting, without prior notice and without a vote. Such action may
be taken by the written consent of shareholders in lieu of a meeting setting
forth the action so taken and signed by the holders of outstanding stock
representing the number of shares necessary to take such action at a meeting at
which all shares entitled to vote were present and voted.
Under Section 78.320 of the NGCL, unless otherwise provided in a
corporation's articles of incorporation or by-laws, any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a written consent thereto is signed by shareholders holding at least
a majority of the voting power, except that if a different proportion of voting
power is required for such an action at a meeting, then that proportion of
written consents is required.
Article IX of the RG Articles and Article II Section 14 of the RG Bylaws
provide that and so long as the corporation shall be registered as a public
company pursuant to the Exchange Act and subject to the reporting requirements
of Section 13 of said Act, all action by holders of the corporation's
outstanding voting securities shall be taken at an annual or special meeting of
the shareholders following notice as provided by law or in the RG Bylaws and
shareholders of the corporation shall not have the power to act by means of
written consent.
Article SEVENTH of the FMP Certificate provides that shareholders may not
act by written consent and that action shall be taken by the shareholders of the
corporation only at annual and special meetings of shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Section 211(d) of the DGCL, special meetings of shareholders may be
called by the board of directors and by such other person or persons as may be
authorized to do so by the corporation's certificate of incorporation or
by-laws. Under Section 78.310 of the NGCL, meetings may be held in the manner
provided by the by-laws of the corporation.
Article II Section 2 of the RG Bylaws provides that special meetings of the
shareholders may be called for any purpose or purposes at any time by a majority
of the board of directors or by the chairman of the board or the president.
Article 1 Section 1.2 of the FMP Bylaws provides that special meetings of
shareholders may be called by the board of directors. Special meetings of
shareholders shall be held for such purpose or purposes and at such date, time
and place, either within or without the State of Delaware, as may be designated
by the board of directors. Business transacted at any special meeting of
shareholders shall be limited to the purpose or purposes stated in the notice of
meeting. No officer, director nor shareholder shall have the authority to call a
meeting of shareholders without the express authorization of the board of
directors.
CUMULATIVE VOTING
Both Section 214 of the DGCL and Section 78.360 of the NGCL allow a
corporation to provide for cumulative voting in the certificate of incorporation
or the articles of incorporation.
Article IV of the RG Articles and Article II Section 12 of the RG Bylaws
provide that shareholders shall not have cumulative voting rights with respect
to the election of directors or for any other purpose.
The FMP Certificate does not provide for cumulative voting.
NECESSARY VOTE TO EFFECT MERGER (NOT INVOLVING INTERESTED STOCKHOLDER)
The DGCL requires a majority vote of the shares entitled to vote in order
to effectuate a merger between two Delaware corporations (Section 251(c)) or
between a Delaware corporation and a corporation organized under the laws of
another state (a "foreign corporation") (Section 252(c)). However, unless
required by the certificate of incorporation, Sections 251(f) and 252(e) do not
require a vote of the shareholders of a constituent corporation surviving the
merger if (a) the merger agreement does not amend that corporation's
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certificate of incorporation, (b) each share of that corporation's stock
outstanding before the effective date of the merger is identical to an
outstanding or treasury share of the surviving corporation after the merger and
(c) in the event the merger plan provides for the issuance of common stock or
securities convertible into common stock by the surviving corporation, the
common stock issued and the common stock issuable upon conversion of the issued
securities do not exceed 20% of the shares outstanding immediately before the
effective date of the merger.
Section 92A.120 of the NGCL requires a majority vote of the shares entitled
to vote in order to effect any merger. However, the articles of incorporation or
the board of directors may provide for a greater vote under some circumstances.
In addition, Section 92A.130 of the NGCL provides that the vote of the
stockholders of the surviving corporation on a plan of merger is not required
under substantially the same conditions as are specified in Sections 251(f) and
252(e) of the DGCL.
The RG Articles, the RG Bylaws, the FMP Certificate and the FMP Bylaws
contain no provisions directly addressing the vote required to effect a merger
not involving an interested shareholder.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
Pursuant to Section 203 of the DGCL, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations and sales of assets, with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless (a) the transaction that results in the
person's becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the shareholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans or
(c) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
shareholders. Under Section 203 of the DGCL, an "interested stockholder" is
defined as any person, other than the corporation and any direct or indirect
majority-owned subsidiary, that is (a) the owner of 15% or more of the
outstanding voting stock of the corporation or (b) an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it sought to be determined whether such person is an
interested stockholder. Section 203 of the DGCL does not apply to a corporation
that so provides in an amendment to its certificate of incorporation or by-laws
passed by a majority of its outstanding shares at any time. Such stockholder
action does not become effective for 12 months following its adoption and would
not apply to persons who were already interested stockholders at the time of the
amendment.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period
although the shareholders may elect to exclude a corporation from the
restrictions imposed thereunder. The provisions of Section 203 of the DGCL may
encourage companies interested in an acquisition to negotiate in advance with
the target company's Board of Directors, because the shareholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction which results in the
shareholder becoming an interested shareholder. Such provisions also may have
the effect of preventing changes in the management. It is further possible that
such provisions could make it more difficult to accomplish transactions which
shareholders may otherwise deem to be in their best interests.
Under certain circumstances, the following selected provisions of the NGCL
may delay or make difficult acquisitions or changes of control. It is possible
that such provisions could make it more difficult to accomplish transactions
which shareholders may otherwise deem to be in their best interests.
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Pursuant to Sections 78.378 to 78.3793 of the NGCL, an "acquiring person"
who acquires a "controlling interest" in an "issuing corporation" may not
exercise voting rights on any "control shares" unless such voting rights are
conferred by a majority vote of the disinterested shareholders of the issuing
corporation at a special meeting of such shareholders held upon the request and
at the expense of the acquiring person. In the event that the control shares are
accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all the voting power, any shareholder, other than the
acquiring person, who does not vote in favor of authorizing voting rights for
the control shares is entitled to demand payment for the fair value of his or
her shares, and the corporation must comply with the demand. For purposes of the
above provisions, "acquiring person" means (subject to certain exceptions) any
person who, individually or in association with others, acquires or offers to
acquire, directly or indirectly, a controlling interest in an issuing
corporation. "Controlling interest" means the ownership of outstanding voting
shares of an issuing corporation sufficient to enable the acquiring person,
individually or in association with others, directly or indirectly, to exercise
(a) one-fifth or more but less than one-third, (b) one-third or more but less
than a majority, (c) a majority or more of the voting power of the issuing
corporation in the election of directors, and voting rights must be conferred by
a majority of the disinterested shareholders as each threshold is reached and/or
exceeded. "Control Shares" means those outstanding voting shares of an issuing
corporation which an acquiring person acquires or offers to acquire in an
acquisition or within 90 days immediately preceding the date when the acquiring
person became an acquiring person. "Issuing corporation" means a corporation
which is organized in Nevada, has 200 or more shareholders, at least 100 of whom
are shareholders of record and residents of Nevada, and does business in Nevada
directly or through an affiliated corporation. The above provisions do not apply
if the articles of incorporation or by-laws of the corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person provide that said provisions do not apply.
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years after the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For purposes of the above provisions, "resident domestic
corporation" means a Nevada public corporation that has 200 or more
shareholders. "Interested stockholder" means any person, other than the resident
domestic corporation or its subsidiaries, who is (a) the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the outstanding
voting shares of the resident domestic corporation or (b) an affiliate or
associate of the resident domestic corporation and at any time within three
years immediately before the date in question was the beneficial owner, directly
or indirectly, of 10% or more of the voting power of the then outstanding shares
of the resident domestic corporation. The above provisions do not apply to
corporations that so elect in a charter amendment approved by a majority of the
disinterested shares. Such a charter amendment, however, would not become
effective for 18 months after its passage and would apply only to stock
acquisitions occurring after its effective date.
Article VIII of the RG Articles provides that a business combination
involving the corporation and an interested shareholder of the corporation shall
not be consummated without the affirmative vote of the holders of at least
two-thirds ( 2/3) of the combined voting power of the then outstanding shares of
stock of all classes and series of the corporation entitled to vote generally in
the election of directors ("Voting Stock"), voting together as a single class,
unless (i) the Fair Market Value (as defined in Article VIII) of the
consideration to be received per share by holders of Voting Stock in the
business combination is at least equal to the Highest Per Share Price (as
defined in Article VIII), and (ii) the form of consideration to be received per
share by holders of Voting Stock in the business combination shall be United
States currency or the form of consideration used by the interested shareholder,
to acquire the largest aggregate Fair Market Value Voting Stock which such
interested shareholder has previously acquired. The aforesaid affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law or by the RG Articles or in any
agreement with any national securities exchange or otherwise.
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Notwithstanding the foregoing, the provisions of this Article shall not apply to
any business combination involving the corporation and an interested shareholder
if the board of directors of the corporation shall by resolution have approved,
prior to the time that such interested shareholder shall have become an
interested shareholder, a memorandum of understanding or an agreement with such
interested shareholder setting forth, at least generally, the substance of the
terms upon which such transaction shall thereafter be consummated or if a
majority of the disinterested directors shall by resolution have approved such
transaction.
The FMP Certificate and the FMP Bylaws do not specifically address business
combinations involving interested shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material federal income tax consequences
of the Merger to the Shareholders. The federal income tax discussion set forth
below is for general information only and may not apply to particular categories
of Shareholders subject to special treatment under the Code, including without
limitation, foreign holders and holders whose RG Common Stock was acquired
pursuant to the exercise of any employee stock option or otherwise as
compensation. EACH SHAREHOLDER AND HOLDER OF AN RG OPTION IS URGED TO CONSULT
HIS TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE MERGER AND THE
OTHER TRANSACTIONS DISCUSSED HEREIN, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
CONSEQUENCES OF THE MERGER
RG will receive an opinion from FMP's tax counsel, Fabian & Clendenin
("Counsel"), prior to the Effective Date, to the effect that, on the basis of
the facts, representations and assumption set forth in the opinion, for federal
income tax purposes, the Merger will qualify as a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
The representations (among others) relied upon by Counsel in giving its
opinion contain statements or agreements to the effect that: certain
transactions between RG and FMP in effect prior to the Merger are fair market
value transactions entered into for valid business reasons independent of the
Merger; RG will be maintained as a separate corporation by FMP; FMP assets will
not be used to pay any Shareholders dissenting to the Merger; and FMP owns no RG
Common Stock and has no intention to reacquire any stock issued in the Merger.
The favorable tax treatment of the Merger also depends upon the historic
shareholders of RG maintaining a so-called "continuity of interest" in the FMP
Common Stock received in the Merger. Under Revenue Procedures issued by the
Internal Revenue Service (the "Service"), continuity of interest is maintained
in the transaction if the historic shareholders of RG continue to maintain at
least one-half their stock investment in RG in the modified form of FMP Common
Stock received by them in the proposed transactions. RG has represented that it
knows of no plan or intent by any Shareholder to sell more than one-half of
their FMP Common Stock received in the proposed transactions. However, Counsel
is of the opinion, based upon RG's representations regarding the plans and
intentions of its Shareholders, that the Merger meets the continuity of interest
requirement. It should be noted that RG has not sought representations (as
required by the Service from taxpayers seeking private letter rulings in
reorganizations) from each of its 5% shareholders as to their plans and
intentions with respect to their RG Common Stock or the FMP Common Stock to be
received in the proposed transactions.
As described above under the heading "The Merger Agreement," immediately
after the Transfer and the Distribution, pursuant to the Merger Agreement,
Merger Sub will merge with and into RG. Assuming that the Merger will be treated
as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
81
<PAGE> 92
of the Code for federal income tax purposes, as counsel will opine, the specific
consequence of this treatment will be that:
1. No gain or loss will be recognized by RG or FMP as a result of the
Merger.
2. No gain or loss will be recognized by Shareholders whose shares of RG
Common Stock are exchanged solely for FMP Common Stock pursuant to the Merger,
except with respect to the cash received by such Shareholders in lieu of a
fractional share interest in FMP Common Stock.
3. A Shareholder who receives cash in lieu of a fractional share interest of
FMP Common Stock will be treated as if such cash had been received in
redemption of the fractional share interest. The receipt of such cash
generally should result in gain or loss in an amount equal to the difference
between the amount of the cash received and the portion of the Shareholder's
tax basis in the RG Common Stock. Such gain or loss generally will be treated
as capital gain or loss, provided that such fractional share is held by such
Shareholder as a capital asset at the Effective Date.
4. The aggregate tax basis of the FMP Common Stock received or, in the case
of fractional shares, deemed received by Shareholders who exchange their RG
Common Stock for FMP Common Stock in the Merger will be the same as the tax
basis of the RG Common Stock surrendered in exchange therefor.
5. The holding period for the shares of FMP Common Stock received in the
Merger will include the period during which the shares of RG Common Stock
surrendered in exchange therefor were held, provided that such shares of RG
Common Stock were held as capital assets at the Effective Date.
Counsel's opinion with respect to the Merger is based upon certain
representations and assumptions and represents Counsel's best legal judgment,
and is not binding upon the Service or the courts. If any representation or
assumption relied upon in rendering Counsel's opinion with respect to the Merger
is inaccurate, or if the Service were to challenge successfully the federal
income tax treatment of the Merger set forth in Counsel's opinion, then, in
general, although not entirely free from doubt, for federal income tax purposes
it is likely that each Shareholder would recognize gain measured by the excess
of the fair market value of the FMP Common Stock received in the Merger plus the
amount of cash in lieu of a fractional share over the tax basis in his RG Common
Stock.
LIMITATIONS AND QUALIFICATIONS
THE FOREGOING DISCUSSION OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS BASED ON THE LAW IN EFFECT AS OF THE DATE HEREOF,
INCLUDING THE CODE, THE TREASURY REGULATIONS PROMULGATED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF, ALL OF WHICH ARE SUBJECT TO
CHANGE (POSSIBLY ON A RETROACTIVE BASIS). THIS DISCUSSION DOES NOT ADDRESS ANY
ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. IN ADDITION, THIS DISCUSSION DOES
NOT ATTEMPT TO ADDRESS ALL ISSUES THAT MAY BE RELEVANT TO A PARTICULAR
SHAREHOLDER IN LIGHT OF SUCH HOLDER'S PERSONAL CIRCUMSTANCES, AND DOES NOT APPLY
TO HOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS.
FURTHER, THIS DISCUSSION MAY NOT APPLY TO A SHAREHOLDER WHO ACQUIRED HIS STOCK
PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION, AND DOES NOT APPLY TO A HOLDER OF RG OPTIONS WHO RECEIVES SHARES
OF FMP COMMON STOCK UPON THE EXERCISE THEREOF. ACCORDINGLY, EACH SHAREHOLDER
SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES
TO SUCH HOLDER OF THE MERGER, INCLUDING THE EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN
GENERAL
At the Special Meeting, Shareholders will vote upon whether to approve the
Amendment to increase the number of shares of RG Common Stock authorized for
issuance under the Plan from 400,000 to 550,000. The Amendment has been
unanimously approved by the RG Board. The following discussion is qualified in
its entirety by reference to the text of the Plan, as amended, set forth in
Annex III.
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<PAGE> 93
The Plan was originally adopted by the RG Board and approved by the
Shareholders on August 9, 1993. Initially, a total of 250,000 shares of RG
Common Stock were reserved for issuance upon exercise of options granted
thereunder. On June 3, 1994, RG amended the Plan to increase the number of
shares of RG Common Stock authorized for issuance thereunder from 250,000 to
400,000. In September 1994, RG amended the Plan to permit RG to grant
nonstatutory stock options to consultants and advisers of RG.
The Plan authorizes grants of "incentive stock options" ("ISO") as defined
in Section 422 of the Code, to all eligible RG employees and nonstatutory stock
options ("NSO"), which do not qualify as incentive stock options, to consultants
and advisers. There are approximately 150 eligible employees of RG, as well as
several advisers and consultants. Any RG employee, consultant and adviser to RG
that is selected to participate in the Plan is hereinafter referred to as a
"Participant." Options to purchase all 550,000 shares of RG Common Stock under
the Plan have been granted, although options for 2,500 shares were subsequently
canceled due to employee terminations. The closing price for the RG Common Stock
on June , 1997, as reported on the Nasdaq National Market, was $[ ]per share.
As set forth below, the RG Board has granted options to acquire 40,000
shares of RG Common Stock to Danny Edwards at an exercise price of $3.30 per
share and options to acquire 110,000 shares to Robert G. J. Burg, II at an
exercise price of $3.00 per share, subject to approval of the Amendment by the
Shareholders. The options granted to Mr. Edwards shall vest one-third upon grant
and one-third on each of the two successive anniversaries of the grant. The
expiration date for options granted to Mr. Edwards is five years from the date
of grant. The options granted to Mr. Burg shall vest immediately. The expiration
date for options granted to Mr. Burg is eight years from the date of grant.
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<PAGE> 94
AMENDED PLAN GRANTS
1993 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF SHARES EXERCISE PRICE
----------------------------------------------------- ---------------- --------------
<S> <C> <C>
Danny Edwards, CEO................................... 40,000 $ 3.30
Robert G.J. Burg II, President....................... 110,000 $ 3.00
Executive Group...................................... 150,000 $ 3.00-$3.30
Non-Executive Director Group......................... -- --
Non-Executive Officer Employee Group................. -- --
</TABLE>
REASONS FOR APPROVAL
The RG Board believes that the Plan promotes the success and enhances the
value of RG by (a) linking the personal interests of Participants to those of
the Shareholders, and (b) providing Participants with an incentive for
outstanding performance. The RG Board believes that increasing the number of
options available under the Plan and granting them as provided above is
consistent with the purpose of the Plan and appropriate to provide an additional
incentive to the recipients to continue to contribute to RG until and after
completion of the Merger.
PLAN PROVISIONS
The Plan is administered by the Compensation Committee of the RG Board,
none of the members of which is eligible to participate in the Plan. The
Compensation Committee has the exclusive authority to administer the Plan,
including the power to determine eligibility, the type of options to be granted,
the number of awards to be granted, and the terms and conditions of any award
granted, including, but not limited to, the price and timing of awards. The
exercise price of an ISO must be equal to the fair market value per share of the
RG Common Stock on the date of grant, or 110% of fair market value if the
grantee beneficially owns 10% or more of the outstanding RG Common Stock. The
exercise price of an NSO may not be less than 75% of the fair market value per
share of the RG Common Stock on the date of grant.
In general, a Participant may be granted any number of options and each
option may be for any number of shares. The aggregate market value of RG Common
Stock with respect to which incentive stock options are exercisable for the
first time by a Participant during any calendar year may not exceed $100,000.
Upon exercise of an option, the exercise price may be paid in cash, shares
of RG Common Stock with an aggregate fair market value equal to the option price
plus applicable taxes, or a combination of the foregoing. Except as otherwise
provided in a Participant's option agreement, options generally expire six years
from the date of grant and generally vest over a three year period. In no event
may the term of an option exceed ten years. If a Participant's status as an
employee, consultant, or adviser is terminated by RG, except if such termination
is due to death or disability, then the Participant may, but only within 30 days
after the date of termination, exercise his or her option to the extent that it
was exercisable at the date of termination. If a Participant ceases to be an
employee of RG due to death or disability, the Participant (or the Participant's
legal representative) may, for a period of 12 months, exercise the option to the
extent it was exercisable at the date of termination. However, no option may be
exercised after its expiration date.
Subject to the approval of the RG Board, the Participant may make an
irrevocable election to have RG withhold from those shares that would otherwise
be received upon the exercise of the option a number of shares having a fair
market value equal to the minimum amount necessary to satisfy RG's federal,
state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such option by the Participant. RG
shall be entitled if necessary or desirable to pay or withhold the amount of any
tax attributable to the delivery of RG Common Stock under the Plan from other
amounts payable to the Participant after giving the person entitled to receive
such RG Common Stock notice as far in advance as
84
<PAGE> 95
practical, and RG may defer making delivery of such RG Common Stock if any such
tax may be pending unless and until indemnified to its satisfaction.
Generally, an option may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner except in the following limited
circumstances: (i) by will, (ii) by the laws of descent or distribution, (iii)
pursuant to a "qualified domestic relations order" under the Code and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or (iv)
if the Participant's status as an employee, consultant or adviser is terminated
due to death or disability, the Participant (or the Participant's legal
representative) may exercise his or her vested, unexpired options within twelve
months from the date of termination.
Upon the merger of RG with or into another corporation all options granted
under the Plan must be assumed or an equivalent option must be substituted by
the successor corporation. The RG Board has the authority to determine, in its
sole discretion and instead of such assumption or substitution, that the holders
of any options granted under the Plan have the right to exercise such options.
The RG Board may amend or terminate the Plan. However, the RG Board may not
amend the Plan without prior approval of the Shareholders if such amendment
would materially increase the benefits accruing to Participants under the Plan,
materially increase the number of shares of RG Common Stock which may be issued
under the Plan or materially modify the requirements as to eligibility for
participation in the Plan. The Plan terminates on December 31, 2003, unless
terminated earlier by the RG Board. Amendment or termination of the Plan will
not affect outstanding stock options without the consent of the Participant.
FEDERAL INCOME TAX CONSEQUENCES FOR NONSTATUTORY STOCK OPTIONS
A nonstatutory stock option, or NSO, does not qualify as "incentive stock
option" under Section 422 of the Code.
A Participant does not realize any compensation income upon the grant of an
NSO. Additionally, RG may not take a tax deduction at the time of the grant.
Upon exercise of an NSO, a Participant realizes and must report as compensation
income an amount equal to the difference between the fair market value of the RG
Common Stock on the date of exercise and the exercise price. RG is entitled to
take a deduction at the same time and in the same amount as the Participant
reports compensation income, provided that RG meets all withholding requirements
with respect to the taxable income realized by the Participant.
When a Participant disposes of the shares of RG Common Stock received upon
exercise of an NSO, he or she will realize capital gain income if the amount
realized on the sale exceeds the Participant's basis in the shares. If the
Participant's basis in the shares exceeds the amount realized on the sale, the
Participant will realize a capital loss. A Participant's basis in the optioned
shares is equal to the exercise price plus any additional compensation income
realized by the Participant upon exercise of the option. There is no tax impact
to RG upon the subsequent disposition of shares by a Participant.
FEDERAL INCOME TAX CONSEQUENCES FOR INCENTIVE STOCK OPTIONS
Options granted under the Plan may be "incentive stock options" qualifying
under Section 422 of the Code for special tax treatment. Neither the grant of
the ISO nor the exercise of the ISO by a Participant will result in the
recognition of taxable income to the Participant. However, the exercise of an
ISO will result in an item of tax preference to a Participant potentially
subject to the alternative minimum tax. The ultimate sale or other disposition
by the Participant of the shares obtained upon exercise of the ISO will result
in capital gain or loss equal to the difference between the fair market value on
the date of sale and the exercise price. RG will not be entitled to a deduction
with regard to the ISO at the time of the grant, the exercise or the ultimate
sale of the shares.
Notwithstanding the foregoing, if a Participant sells or disposes of the
shares prior to two years after the date of the grant of the ISO or one year
after the date of the exercise, the Participant will recognize compensation
income equal to the lesser of the fair market value of the stock on the date of
exercise over the exercise price or the amount realized on the disposition over
the exercise price. The excess of the amount
85
<PAGE> 96
received on the sale over the value on the date of exercise will be capital
gain. In the case of such a disqualifying disposition of shares, RG may deduct
the amount recognized as compensation income.
The foregoing is intended to serve only as a general discussion of certain
federal income tax consequences. In addition to the foregoing federal tax
considerations, the exercise of an ISO or NSO and the ultimate sale or other
disposition of the shares acquired thereby will in most cases be subject to
state income taxation.
OTHER TAX CONSEQUENCES
Section 162(m) of the Code, adopted as part of the Revenue Reconciliation
Act of 1993, generally limits to $1 million the deduction that can be claimed by
any publicly-held corporation for compensation paid to any "covered employee" in
any taxable year beginning after December 31, 1993. The term "covered employee"
for this purpose is defined generally as the chief executive officer and the
four other highest paid employees of the corporation.
Performance-based compensation is outside the scope of the $1 million
limitation, and, hence, generally can be deducted by a publicly-held corporation
without regard to amount; provided that, among other requirements, such
compensation is approved by stockholders. Among the items of performance-based
compensation that can be deducted without regard to amount (assuming stockholder
approval and other applicable requirements are satisfied) is compensation
associated with the exercise of a stock option provided that the option has an
exercise price equal to or greater than the fair market value of the underlying
stock at the time of the option grant and the plan under which such stock
options were granted sets forth a limit on the maximum number of shares that can
be acquired pursuant to options awarded to plan participants. The Plan does not
provide for such limitation; therefore, any compensation in excess of $1 million
associated with the exercise of stock options granted under the Plan cannot be
deducted pursuant to Section 162(m) of the Code.
REQUIRED VOTE
Approval of the Amendment to increase the number of shares authorized under
the Plan requires the affirmative vote of the holders of a majority of the
shares of RG Common Stock present at the Special Meeting in person or by proxy.
The RG Board has unanimously approved the Amendment and unanimously
recommends that Shareholders vote for approval of the Amendment.
EXPERTS
The consolidated financial statements of RG as of December 31, 1995 and
1996, and for the years then ended appearing in this Proxy Statement/Prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of FMP and subsidiaries as of May 30,
1996 (the "Predecessor Business") and February 28, 1997 (the "Successor
Company") and for the year and nine months then ended, respectively, included in
this Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
RG SHAREHOLDER PROPOSALS
Any proposals of Shareholders intended to be presented at RG's 1997 Annual
Meeting of Shareholders (if such meeting is required), must have been received
by RG for inclusion in RG's proxy statement no later than , 1997.
86
<PAGE> 97
LEGAL MATTERS
The validity of the shares of FMP Common Stock to be issued in connection
with the Merger will be passed upon for FMP by Kenneth J. Warren,
Attorney-at-Law, Columbus, Ohio. Mr. Warren is the beneficial owner of 349,472
shares of FMP Common Stock, and is a director of FMP. See "OWNERSHIP OF FMP
COMMON STOCK." Mr. Warren participated in the organization of FMP and has
received legal fees from FMP. See "CERTAIN FMP TRANSACTIONS" and "FMP EXECUTIVE
COMPENSATION."
Certain of the tax consequences of the Merger will be passed upon by the
law firm of Fabian & Clendenin, Salt Lake City, Utah, on behalf of FMP. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES." David J. Lyon, Counsel to Fabian &
Clendenin owns 41,767 shares of FMP Common Stock and participated in the
organization of FMP. See "CERTAIN FMP TRANSACTIONS."
AVAILABLE INFORMATION
RG is (and, following the Merger, FMP will be) subject to the informational
requirements of the Exchange Act, and in accordance therewith files (and, in the
case of FMP, following the Merger it will file) reports, proxy statements and
other information with the SEC. The reports, proxy statements and other
information filed by RG (and, following the Merger, to be filed by FMP) with the
SEC can be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC located at 7 World Trade Center,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such information also can be obtained by mail from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The SEC's web site can be accessed at
http://www.sec.gov. RG Common Stock is quoted on The Nasdaq National Market.
Such reports, proxy statements and other information filed by RG can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 1735 K Street, N.W., Washington, DC 20006. It is
anticipated that FMP Common Stock will also be quoted on The Nasdaq National
Market. Following the Merger, such reports, proxy statements and other
information to be filed by FMP can also be inspected at the offices of the
National Association of Securities Dealers, Inc., Market Listing Section, 1735 K
Street, N.W., Washington, DC 20006.
FMP has filed with the SEC the Registration Statement under the Securities
Act, of which this Proxy Statement/Prospectus is a part, with respect to the
shares of FMP Common Stock to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the
SEC's principal office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or attached as an annex hereto or such
other document, each such statement being qualified in all respects by such
reference.
REPORTS TO STOCKHOLDERS
FMP intends to furnish its stockholders with annual reports containing
financial statements audited and reported upon by its independent accounting
firm and such other periodic reports as the Company may determine to be
appropriate or as may be required by law or the rules of any exchange on which
its securities may be listed.
INDEMNIFICATION
FMP is a Delaware corporation. Section 145 of the DGCL provides that
directors and officers of Delaware corporations may, under certain
circumstances, be indemnified against expenses (including
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<PAGE> 98
attorneys' fees) and other liabilities actually and reasonably incurred by them
as a result of any suit brought against them in their capacity as a director or
officer, if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. Section 145 also provides that directors and
officers may also be indemnified against expenses (including attorneys' fees)
incurred by them in connection with a derivative suit, if they acted in good
faith and in the manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made
without court approval if such person was adjudged liable to the corporation.
Article NINTH of the FMP Certificate and Article VI of the FMP By-laws have
provisions requiring FMP to indemnify its directors and officers which are in
substantially the same wording as Section 145.
Article EIGHTH of the FMP Certificate further provides that no director
will be personally liable to FMP or its stockholders for monetary damages or for
any breach of fiduciary duty except for breach of the director's duty of loyalty
to FMP or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, pursuant to Section 174 of
the DGCL (which imposes liability in connection with the payment of certain
unlawful dividends, stock purchases or redemptions), or any amendment or
successor provision thereto, or for any transaction from which the director
derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the FMP
pursuant to the foregoing provisions, or otherwise, FMP has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 99
FINANCIAL STATEMENTS
ROYAL GRIP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995........................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996 and
1995............................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996 and 1995.................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1997........................... F-19
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1997 and 1996.................................................................... F-20
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996.................................................................... F-21
Notes to Condensed Consolidated Financial Statements................................ F-22
</TABLE>
F-1(RG)
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ROYAL GRIP, INC.
We have audited the accompanying consolidated balance sheets of Royal Grip,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Royal Grip, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, on January
1, 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
/s/ Ernst & Young LLP
Phoenix, Arizona
February 14, 1997,
except as to Notes 10 and 15,
as to which the date is April 11, 1997.
F-2(RG)
<PAGE> 101
ROYAL GRIP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 38,099 $ 413,345
Trade accounts receivable (net of allowance for doubtful
accounts of $549,455 in 1996 and $227,070 in 1995)......... 1,593,554 1,864,012
Income tax refund receivable.................................. -- 101,139
Inventories, net.............................................. 1,381,215 1,720,296
Prepaid expenses.............................................. 39,628 54,252
Current portion of net investment in lease.................... 214,506 --
Other current assets.......................................... 92,929 90,576
---------- ----------
Total current assets.................................. 3,359,931 4,243,620
Property and equipment, net................................... 1,925,056 6,258,292
Net investment in lease, less current portion................. 2,907,494 --
Intangibles, net.............................................. 251,554 1,083,240
Other assets.................................................. 51,250 58,675
---------- ----------
$8,495,285 $11,643,827
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................ $ 60,000 $ --
Trade accounts payable........................................ 829,211 900,501
Accrued payroll and commissions............................... 220,390 236,943
Accrued expenses.............................................. 878,436 534,182
Current portion of long-term debt and capital leases.......... 207,230 136,643
---------- ----------
Total current liabilities............................. 2,195,267 1,808,269
Long-term debt and capital leases, less current portion......... 671,054 161,422
Other liabilities............................................... 8,147 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized
5,000,000 shares; none issued.............................. -- --
Common stock, par value $.001 per share. Authorized 15,000,000
shares; 2,734,678 shares issued and outstanding in 1996 and
1995....................................................... 2,735 2,735
Additional paid-in capital.................................... 12,592,906 12,199,288
Accumulated deficit........................................... (6,974,824) (2,527,887)
---------- ----------
Total stockholders' equity............................ 5,620,817 9,674,136
---------- ----------
$8,495,285 $11,643,827
========== ==========
</TABLE>
See accompanying notes.
F-3(RG)
<PAGE> 102
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales....................................................... $16,120,617 $17,373,451
Cost of goods sold.............................................. 12,324,745 12,307,334
----------- -----------
Gross profit.................................................... 3,795,872 5,066,117
Selling, general and administrative expenses.................... 6,016,913 7,512,092
Loss on write-down and disposition of property and equipment.... 446,166 530,788
Manufacturing outsourcing and acquisition costs................. 1,052,900 110,754
Loss on write-off of intangibles................................ 684,329 --
----------- -----------
Loss from operations............................................ (4,404,436) (3,087,517)
Other income (expense):
Interest income................................................. 11,123 25,524
Interest expense................................................ (52,348) (62,904)
Other expense, net.............................................. (1,276) (7,424)
----------- -----------
Loss before income tax benefit.................................. (4,446,937) (3,132,321)
Income tax benefit.............................................. -- 359,000
----------- -----------
Net loss........................................................ $(4,446,937) $(2,773,321)
=========== ===========
Net loss per share.............................................. $ (1.63) $ (1.01)
=========== ===========
Weighted average shares used in computation..................... 2,734,678 2,734,678
=========== ===========
</TABLE>
See accompanying notes.
F-4(RG)
<PAGE> 103
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1995............. $2,735 $12,199,288 $ 245,434 $ 12,447,457
Net loss................................ -- -- (2,773,321) (2,773,321)
------ ----------- ----------- -----------
Balances at December 31, 1995........... 2,735 12,199,288 (2,527,887) 9,674,136
Issuance of stock options to
non-employees......................... -- 393,618 -- 393,618
Net loss................................ -- -- (4,446,937) (4,446,937)
------ ----------- ----------- -----------
Balances at December 31, 1996........... $2,735 $12,592,906 $(6,974,824) $ 5,620,817
====== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5(RG)
<PAGE> 104
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................ $(4,446,937) $(2,773,321)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 1,652,981 1,948,196
Allowance for doubtful accounts............................... 322,385 83,010
Loss on write-down and disposition of property and
equipment.................................................. 446,166 530,788
Loss on write-off of intangibles.............................. 684,329 --
Inventory write-down and reserves............................. 117,827 588,203
Issuance of stock options to non-employees.................... 393,618 --
Deferred income taxes......................................... -- (272,000)
Changes in operating assets and liabilities:
Trade accounts receivable.................................. (51,927) (572,502)
Income tax refund receivable............................... 101,139 349,800
Inventories................................................ 221,254 (191,713)
Prepaids and other current assets.......................... 12,271 121,126
Other assets and intangibles............................... (23,561) 37,514
Trade accounts payable and accrued expenses................ 256,411 716,762
----------- -----------
Net cash provided by (used in) operating activities... (314,044) 565,863
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................... (1,449,593) (830,842)
Proceeds from sale of property and equipment.................. 740,025 34,229
----------- -----------
Net cash used in investing activities................. (709,568) (796,613)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt...................... 726,309 36,155
Repayments on long-term debt and capital leases............... (146,090) (105,969)
Increase (decrease) in revolving line of credit............... 60,000 (480,000)
Increase in other liabilities................................. 8,147 --
----------- -----------
Net cash provided by (used in) financing activities... 648,366 (549,814)
----------- -----------
Net decrease in cash and cash equivalents............. (375,246) (780,564)
Cash and cash equivalents at beginning of year........ 413,345 1,193,909
----------- -----------
Cash and cash equivalents at end of year.............. $ 38,099 $ 413,345
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................................ $ 52,348 $ 62,062
</TABLE>
See accompanying notes.
F-6(RG)
<PAGE> 105
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Royal Grip, Inc. ("RG") designs and manufactures golf club grips and
athletic headwear. RG's products are sold throughout the United States as well
as internationally, largely Japan and the United Kingdom. During December 1996,
RG outsourced the manufacturing of their golf club grips (see Note 10).
Principles of Consolidation
The consolidated financial statements include the financial statements of
RG and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. All of the companies operate
within the sports industry; therefore, no segment information is provided.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
RG considers all highly liquid investments with maturities at the date of
purchase of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of weighted average cost or market.
Intangible Assets
Intangible assets consist of trademarks, covenants not to compete and
goodwill primarily arising from the acquisition of Roxxi, Inc. (Roxxi). Costs
incurred in securing trademark rights are amortized over a 20-year period.
Covenants not to compete are amortized on a straight-line basis over the
contractual lives which range from two to five years. Goodwill, representing the
excess of the purchase price over the estimated fair value of the net assets of
Roxxi, is amortized on a straight-line basis over the period of expected benefit
of 15 years. Due to the historical losses of Roxxi, during the fourth quarter of
1996, RG assessed the recoverability of Roxxi intangibles based upon expected
future undiscounted cash flows of Roxxi and other relevant information. Based on
this evaluation, RG determined that the recoverability of goodwill and covenants
not to compete were impaired, and consequently, recorded a loss of $684,329 to
write-off the related assets.
Property and Equipment
Property and equipment is stated at cost or, if acquired under capital
lease, at the lower of the present value of minimum lease payments or fair value
at the inception of the lease.
Depreciation of property and equipment is provided over estimated useful
lives of three to twelve years on the straight-line method. Equipment under
capital leases and leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Amortization of capitalized leases is included in depreciation and
amortization expense.
F-7(RG)
<PAGE> 106
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
RG recognizes revenues as of the date merchandise is shipped to its
customers.
Income Taxes
RG accounts for income taxes under the asset and liability method of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
Advertising
RG expenses advertising as incurred. Advertising expense for the years
ended December 31, 1996 and 1995 approximated $621,000 and $1,446,000,
respectively.
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding. Stock options were not included in 1996 and
1995 since they were antidilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share" which is required to be adopted on December 31, 1997.
At that time, RG will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of SFAS No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
Stock Based Compensation
RG grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. RG
accounts for stock option grants to employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25).
RG adopted SFAS No. 123 "Accounting for Stock Based Compensation" in 1996
related to stock options granted to non-employees. Expense equal to the fair
value of the options granted to non-employees is recorded over the vesting
period of the related options. The adoption of SFAS No. 123 did not have a
material impact on the consolidated operations of RG.
Long-Lived Assets
RG adopted in 1996, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flow estimated to
be generated by these assets are less than the assets' carrying amounts. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. Due to the historical losses at Roxxi, RG determined that the
property and equipment and goodwill acquired as part of the Roxxi acquisition
may not be recoverable through the undiscounted cash flow of the Roxxi
operation. RG's estimate of the fair value, less selling costs, of the property
and equipment exceeded its net carrying value, and accordingly, no loss was
recorded related to the property and equipment. However, RG wrote off the
goodwill and covenants not to compete related to Roxxi.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on
the basis that RG will continue as a going concern. RG has incurred successive
losses and, in order for RG to continue as a going
F-8(RG)
<PAGE> 107
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
concern, RG must achieve profitable operations in the near term. If not
successful in achieving profitable operations, RG could be placed in default of
certain debt covenants which could accelerate the maturity of outstanding debt
balances or restrict RG's access to the loans. In the event RG fails to achieve
budgeted levels of sales and expenses, it may be required to obtain additional
funds to finance its operations. There can be no assurance that RG will be able
to obtain these funds on terms and conditions acceptable to RG, if at all.
Management's plans with respect to achieving profitable operations include
outsourcing its golf club grip manufacturing during 1997 (see Note 10) to
Acushnet Rubber Company, Inc. (Acushnet) in order to decrease and fix its grip
manufacturing costs. Acushnet has experienced start-up delays in the production
of grips, which has adversely affected RG's customer relationships. Accordingly,
RG is experiencing losses in early 1997 greater than anticipated. RG has entered
into an agreement with Acushnet whereby Acushnet will reimburse RG for amounts
which approximate the gross margin on sales lost as a result of failure to
produce sufficient quantities.
RG's plans also include cost reductions, improving purchasing arrangements,
new product introductions, and changes to the headwear manufacturing process.
Management has also developed production, sales and financing plans that call
for significant improvements in 1997, including a significant improvement in net
income (loss). Management believes that these plans, when coupled with available
credit facilities, and the improved operations subsequent to year-end will
enable RG to continue as a going concern at least through December 31, 1997.
2. INTANGIBLE ASSETS
Intangible assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Goodwill................................................... $ -- $ 641,311
Covenants not to compete................................... -- 543,250
Trademarks and patents..................................... 317,958 298,522
-------- ----------
317,958 1,483,083
Less accumulated amortization.............................. (66,404) (399,843)
-------- ----------
$251,554 $1,083,240
======== ==========
</TABLE>
Amortization of intangibles expense of $178,343 and $220,574 was recorded
in 1996 and 1995, respectively. During the fourth quarter of 1996, RG wrote off
the goodwill and covenants not to compete related to Roxxi aggregating $684,329.
3. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods............................................ $ 849,769 $1,144,516
Work in process........................................... 100,092 188,677
Raw materials............................................. 476,354 575,306
---------- ----------
1,426,215 1,908,499
Less reserves............................................. (45,000) (188,203)
---------- ----------
$1,381,215 $1,720,296
========== ==========
</TABLE>
F-9(RG)
<PAGE> 108
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the first quarter of 1995, RG sold certain inventory in a bartering
transaction in exchange for trade credit rights to be used in the purchase of
goods and services over a three year period. No profit was recognized on the
initial transaction and the rights were to be amortized as they were utilized.
Due to the uncertainty as to the timing and extent of utilization of the trade
credit rights, management recorded a write-down in expense to cost of goods sold
of the trade credit rights of approximately $331,000 in 1995. No trade credit
rights had been used as of December 31, 1996.
During the fourth quarter of 1995, RG recorded approximately $188,000 in
expense to cost of goods sold to reserve for certain excess and obsolete
inventory.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment................................. $1,406,160 $7,894,240
Furniture and fixtures and office equipment............. 1,391,698 1,023,241
Transportation.......................................... 73,702 906,833
Leasehold improvements.................................. 229,891 863,498
Embroidery tapes........................................ 93,518 93,177
---------- ----------
3,194,969 10,780,989
Less accumulated depreciation and amortization.......... (1,269,913) (4,522,697)
---------- ----------
Property and equipment, net............................. $1,925,056 $6,258,292
========== ==========
</TABLE>
Depreciation expense of $1,474,638 and $1,727,622 was recorded in 1996 and
1995, respectively.
5. INVESTMENT IN LEASE
RG is the lessor of certain manufacturing equipment under a capital lease
agreement expiring in December 2006, which transfers ownership of the equipment
to the lessee at the end of the lease term (see Note 10). RG's net investment in
the direct financing lease at December 31, 1996 consists of:
<TABLE>
<S> <C>
Minimum lease payments receivable..................... $4,508,385
Unearned income....................................... (1,386,385)
----------
3,122,000
Less current portion.................................. (214,506)
----------
$2,907,494
==========
</TABLE>
F-10(RG)
<PAGE> 109
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, future minimum lease payments receivable under the
direct financing lease are as follows:
<TABLE>
<S> <C>
1997................................................... $ 450,838
1998................................................... 450,838
1999................................................... 450,838
2000................................................... 450,838
2001................................................... 450,838
Thereafter............................................. 2,254,195
----------
$4,508,385
==========
</TABLE>
6. LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASES
At December 31, 1996, RG was in default of certain covenants on its
existing $1,200,000 line of credit which were waived by the bank. In February
1997, RG refinanced the outstanding balance of $760,000 through $60,000 in
advances under a new $1,750,000 revolving line of credit and $700,000 of
advances under a new $700,000 term note agreement with a bank. The new line of
credit and term loan require payment of monthly interest at the bank's interest
rate (prime) plus 1.75 percent. Should RG attain certain stipulated net income
levels as defined in the agreement, the interest rate shall be payable monthly
at prime plus 1.00%. The term loan requires monthly principal payments of
$12,000 beginning March 1997. The line of credit and term loan mature in
February 2000. The $700,000 outstanding at December 31, 1996 under the prior
line of credit, which was due to mature in 1997, and refinanced with the new
term loan, has been classified as long-term debt in RG's consolidated balance
sheet.
The new line of credit allows RG to borrow an amount up to $1,750,000, but
restricts the borrowings based on certain receivable and inventory levels. As of
the date of the refinancing, approximately $950,000 was available for borrowings
under the terms of its new line of credit based upon available collateral. The
line of credit and term loan are collateralized by substantially all of RG's
assets and contain certain covenants, the more restrictive of which prohibit the
payment of dividends, limit capital expenditures, and require RG to comply with
certain financial ratios. RG must maintain a debt service coverage ratio of 1.0
to 1.0 for each quarter commencing June 30, 1997 and 1.25 to 1.00 for each
quarter commencing December 31, 1997, and thereafter. RG has a covenant to
maintain a minimum net worth of $6,300,000 at December 31, 1996, and net worth
can not decrease by more than $300,000 for the quarter ending March 31, 1997;
increase less than $400,000 for the quarter ending June 30, 1997; increase less
than $150,000 for the quarter ending September 30, 1996; decrease more than
$250,000 for the quarter ending December 31, 1997; and increase less than
$300,000 for each fiscal year thereafter. RG also has net income covenants which
correlate to the net worth covenants described above, and beginning in April
1997, RG cannot have a loss in excess of $100,000 in any one month. RG was in
default of its net worth covenant at December 31, 1996 and received a waiver
from the bank. See Note 15 regarding the modification to this covenant. The
weighted average interest rates on short-term borrowings as of December 31, 1996
and 1995 were approximately 8.75 percent and 8.50 percent, respectively.
F-11(RG)
<PAGE> 110
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt and capital leases consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Amounts payable under line of credit with a commercial
bank, refinanced subsequent to December 31, 1996 through
a term loan (see above).................................. $ 700,000 $ --
Note payable to a former employee of RG, $330,000 face
value, discounted at a rate of 8% interest, payable in
four annual principal and interest installments of
$82,500, maturing April 1998............................. 155,947 225,367
Capital lease obligations, paid in full in 1996............ -- 50,011
Other...................................................... 22,337 22,687
--------- ---------
878,284 298,065
Less current portion....................................... (207,230) (136,643)
--------- ---------
$ 671,054 $ 161,422
========= =========
</TABLE>
At December 31, 1996, the maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997.................................................... $207,230
1998.................................................... 222,626
1999.................................................... 149,673
2000.................................................... 298,211
2001.................................................... 544
--------
$878,284
========
</TABLE>
7. INCOME TAXES
Income tax benefit consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal.................................................. $ -- $ (87,000)
State.................................................... -- --
---------- ----------
(87,000)
Deferred:
Federal.................................................. -- (186,000)
State.................................................... -- (86,000)
---------- ----------
-- (272,000)
---------- ----------
$ -- $(359,000)
========== ==========
</TABLE>
F-12(RG)
<PAGE> 111
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax benefit differs from amounts computed by applying the U.S.
federal income tax rate of 35% to loss before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Computed "expected" tax benefit......................... $(1,556,000) $(1,096,000)
Graduated surtax exemptions............................. 44,000 31,000
State income tax benefit, net of federal benefit........ -- (57,000)
Increase in valuation allowance......................... 1,270,000 776,000
Non-deductible goodwill amortization.................... 226,000 17,000
Other, net.............................................. 16,000 (30,000)
----------- -----------
$ -- $ (359,000)
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31
are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 220,000 $ 91,000
Inventory obsolescence reserves......................... 18,000 75,000
Amortization of covenants not to compete................ 184,000 99,000
Inventory cost capitalization........................... 14,000 20,000
Financial advisor fee................................... 47,000 55,000
Non-employee stock options.............................. 172,000 --
Alternative minimum tax credit.......................... -- 6,000
Other, net.............................................. 47,000 8,000
Net operating loss carry-forwards....................... 1,716,000 1,196,000
---------- ----------
Gross deferred tax assets............................... 2,418,000 1,550,000
Valuation allowance..................................... (2,273,000) (776,000)
---------- ----------
Net deferred tax assets................................. 145,000 774,000
Deferred tax liabilities:............................... -- --
Depreciation............................................ (145,000) (774,000)
---------- ----------
Total gross deferred tax liabilities.................... (145,000) (774,000)
---------- ----------
Net deferred tax assets................................. $ -- $ --
========== ==========
</TABLE>
The valuation allowance increased $1,497,000 and $776,000 during the years
ended December 31, 1996 and 1995, respectively.
At December 31, 1996, RG had federal and state net operating loss
carry-forwards of approximately $4,290,000. The federal and state net operating
loss carry-forwards will begin to expire in 2010 and 2000, respectively, if not
utilized.
F-13(RG)
<PAGE> 112
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
RG leases corporate offices, manufacturing facilities and office equipment
under operating lease agreements expiring through March 2001. RG is negotiating
to move its corporate facilities in 1997. Minimum annual rental commitments
under noncancelable leases are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997.................................................... $261,558
1998.................................................... 245,731
1999.................................................... 65,472
2000.................................................... 65,472
2001.................................................... 15,000
--------
$653,233
========
</TABLE>
Rental expense under operating leases totaled approximately $312,000 and
$295,000 for the years ended December 31, 1996 and 1995, respectively.
9. SIGNIFICANT CUSTOMERS
Sales to RG's exclusive Japanese distributor represented 19 percent and 21
percent of net sales for the years ended December 31, 1996 and 1995,
respectively. Additionally, during 1996 and 1995, sales to one original
equipment manufacturer accounted for 12 percent and 9 percent of net sales,
respectively.
International sales represented 21 percent and 22 percent of net sales for
the years ended December 31, 1996 and 1995, respectively.
10. MANUFACTURING AND SUPPLY AGREEMENT
On December 21, 1996, RG entered into a Manufacturing and Supply Agreement
(Acushnet Supply Agreement) with Acushnet. On April 4, 1997, RG and Acushnet
renegotiated certain aspects of their agreement. This agreement, as amended,
makes Acushnet the exclusive supplier of non-cord grips to RG, subject to RG's
ability to use other suppliers in the event Acushnet fails to meet production
requirements, and requires that RG purchase minimum annual volumes (commencing
after January 1, 1999) at fixed prices specified in the contract. Acushnet is
obligated to provide ongoing research and development with respect to grip
compounds, manufacturing processes, and engineering and quality control support.
The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject to RG's right to extend the agreement for up to three additional periods
of five years each. The Acushnet Supply Agreement is subject to termination by
either party upon certain material breaches thereof or of the equipment lease
described below. Upon termination of the Acushnet Supply Agreement by RG's
arising out of a material breach by Acushnet, RG may at its option repurchase
any grip manufacturing equipment owned by Acushnet at fair market value. In
addition, RG may terminate the Acushnet Supply Agreement at any time upon
written notice, and Acushnet may terminate the agreement by providing ten
months' prior written notice on and after June 30, 1998, and payment by the
terminating party to the other party of a termination fee, which includes the
repurchase at prescribed values of the manufacturing equipment owned by
Acushnet, an additional fee of $2,500,000 and other fees and commitments
relating, among other things, to the transition of production operations.
In connection with the Acushnet Supply Agreement, RG leased to Acushnet
RG's specialized manufacturing equipment used in the production of its non-cord
grips, pursuant to a capital lease agreement dated as of December 21, 1996
(Equipment Lease). Under the Equipment Lease, RG granted to Acushnet an
F-14(RG)
<PAGE> 113
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option to purchase RG's manufacturing equipment. Further, the Equipment Lease
terminates on December 31, 2006, at which time the equipment will be transferred
to Acushnet at no further cost. As a result, RG has recorded a $3,122,000 direct
finance lease receivable for the lease of such equipment receivable in monthly
installments of $37,570 including interest at 7.8 percent and maturing in
December 2006 (see Note 5). No gain or loss was recorded on the transaction.
Acushnet has experienced start-up delays in the production of grips which
has adversely affected RG's customer relationships and results of operations,
has impaired RG's ability to satisfy its loan covenants and may make it more
difficult for RG to satisfy lending covenants in the future. The recent
amendments to the Acushnet Supply Agreement provide RG with a credit of $400,000
against future grip purchases and additional purchase credits in the event
Acushnet fails to meet production requirements. These credits may be reduced
depending upon Acushnet's production beyond specified levels or as a result of
its cancellation of stock options granted to it by RG. The modified agreement
also alters the future production and purchase requirements of the parties.
As a result of the Acushnet Supply Agreement, RG incurred certain
additional expenses during the fourth quarter of 1996 including approximately
$304,000 in employee termination benefits, largely paid prior to December 31,
1996, $246,000 of professional and consulting fees, $478,000 in projected lease
termination and related leasehold improvement costs and $359,000 in stock option
costs (see Note 11). Such costs are included in the manufacturing outsourcing
costs and loss on write-down and disposition of property and equipment line
items in the consolidated statements of operations. Approximately $440,000 of
these related costs are unpaid at December 31, 1996.
11. STOCK OPTIONS
RG has elected to follow APB 25 and related Interpretations in accounting
for its employee stock options because, as discussed below, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of RG's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Employee Stock Options
RG has a Stock Option Plan (Plan), which provided for options on up to
400,000 shares of RG's common stock. These options are available for grant under
the Plan to employees and certain consultants of RG. Under the terms of the
Plan, the exercise price of the incentive stock options must equal the fair
market value per share of the common stock on the grant date or 110 percent of
the fair market value if the grantee beneficially owns 10 percent or more of the
outstanding stock of RG. The options vest over varying periods up to three years
and expire in five to eight years.
RG has a Non-Employee Director Stock Option Plan (Director Option Plan)
with 24,000 shares of common stock reserved for issuance thereunder. Pursuant to
the terms of the Director Option Plan, each non-employee director of RG receives
a one-time option grant of 3,000 shares. The exercise price is equal to the fair
market value on the date of grant. The options vest over a 3-year term and
expire in five years.
In 1996, the Board of Directors approved an additional Non-Employee
Director Stock Plan (Director Stock Plan) with 30,000 shares of common stock
reserved for issuance thereunder. Pursuant to the terms of the Director Stock
Plan, each non-employee director of RG receives options to purchase 1,500 shares
of RG's common stock on the third day following the day upon which RG releases
its earning report for the previous fiscal year. The exercise price granted
under the Director Stock Plan will be the fair market value of the common stock
on the grant date. The options vest upon the grant date and expire in six years.
F-15(RG)
<PAGE> 114
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma information regarding net loss and loss per share is required by
SFAS 123 which also requires that the information be determined as if RG has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1996: risk-free interest rate of
5.17 percent, dividend yield of 0.00 percent, volatility factor of the expected
market price of RG's common stock of .552 and a weighted-average expected life
of the options of four years. During 1995, no significant employee options were
granted.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because RG's stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. RG's pro forma
information for the year ended December 31, 1996, follows:
<TABLE>
<S> <C>
Net loss, as reported.................................. $4,446,937
Pro forma compensation expense for stock options:
1996 grants.......................................... 294,000
----------
Pro forma net loss..................................... $4,740,937
==========
Pro forma loss per share............................... $ 1.73
==========
</TABLE>
Employee stock options granted in 1995 were not material to the operations
of RG. Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 1999.
A summary of stock option activity granted within the plans and related
information for the years ended December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------
OPTIONS WEIGHTED
AVAILABLE EXERCISE AVERAGE
FOR GRANT SHARES PRICE RANGE EXERCISE PRICE
--------- -------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.............. 158,774 265,226 $8.50-$13.48
Shares reserved....................... -- -- --
Options granted....................... (18,250) 18,250 $4.00-$12.25
Options exercised..................... -- -- --
Options canceled...................... 103,476 (103,476) $7.31-$12.25
-------- --------
Balance at December 31, 1995............ 244,000 180,000 $4.00-$13.48 $10.13
Shares reserved....................... 30,000 -- --
Options granted....................... (405,839) 405,839 $ 2.75-$6.50 $ 3.24
Options exercised..................... -- -- --
Options canceled...................... 219,000 (219,000) $5.38-$13.48 $ 9.11
-------- --------
Balance at December 31, 1996............ 87,161 366,839 $2.75-$12.00 $ 3.65
======== ========
</TABLE>
At December 31, 1996 and 1995, options granted within the plans for 298,006
and 145,050 shares were exercisable, respectively, with exercise prices ranging
from $2.75 to $12.00 and $5.25 to $13.48, respectively.
F-16(RG)
<PAGE> 115
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average exercise price of exercisable options was approximately
$3.64 at December 31, 1996. The weighted-average fair value of options granted
during the year ended December 31, 1996 was approximately $1.18. The weighted
average remaining contractual life of options outstanding at December 31, 1996
was approximately 7 years. RG recorded in selling, general and administrative
expenses approximately $35,000 in expense for options granted within these plans
and vested during the year ended December 31, 1996.
Other Stock Options
At December 31, 1996 and 1995, RG has 58,000 and 33,000, respectively,
outstanding options granted to certain former employees in connection with their
severance packages at exercise prices ranging from $8.50 to $12.25 and expiring
between 2001 and 2004. These options replaced options held by the former
employees at their dates of termination. The original options were added back to
the reserved shares available for grant under RG's stock option plans. The
exercise price granted was equal to the exercise price of the original option
grant and was above the fair value of RG's stock at the date of grant of the
replacement options, therefore, no compensation expense was recorded by RG.
Options of 25,000 and 33,000 were granted during the years ended December 31,
1996 and 1995, respectively. The weighted average exercise price and fair value
of those options granted in 1996 were $12.25 and $1.40, respectively, at the
date of grant. The weighted average exercise price and remaining contractual
life of these outstanding options (100% vested) at December 31, 1996 were $10.63
and 5 years, respectively.
During 1996, RG granted to Acushnet 50,000 options at $4.00 and 200,000
options at $5.00 to purchase common shares of RG. The options vested immediately
and expire in 1999. Approximately $359,000 in expense was recorded as
manufacturing outsourcing costs in the consolidated statement of operations for
the year ended December 31, 1996 to reflect the immediate vesting of the granted
options. The fair value for these options was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: risk free
interest rate 5.17 percent, dividend yield of -0- percent, volatility factor of
the expected market price of RG's common stock of .552 and a weighted average
expected life of three years. The weighted average exercise price and fair value
of these options at the date of grant were $4.80 and $1.44, respectively. The
weighted average exercise price and remaining contractual life of these options
outstanding at December 31, 1996 were $4.80 and 3 years, respectively.
12. RELATED PARTY TRANSACTIONS
During 1996 and 1995, RG paid approximately $24,000 and $53,000,
respectively, in management consulting and other fees to a firm and its
affiliate, having a member who is also a director of RG.
13. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
RG is subject to a concentration of credit risk as a result of sales to its
significant customers including its exclusive Japanese distributor and an
original equipment manufacturer. To reduce its credit risk, RG requires letter
of credit agreements from its Japanese distributor. The original equipment
manufacturer purchased finished goods throughout the year under normal terms.
Bad debt losses have been considered in establishing allowances for doubtful
accounts.
Fair Values
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, net investment in lease, accounts payable and
long-term debt approximates their fair value at December 31,
F-17(RG)
<PAGE> 116
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996. The fair values of long-term debt are estimated using discounted cash flow
analyses, based on RG's current incremental borrowing rates for similar types of
borrowing arrangements.
14. BENEFIT PLAN
During 1995, RG adopted a 401(k) Savings Plan (401(k) Plan) covering
substantially all employees who have completed one year of service during which
an employee must work at least 1,000 hours. Under the terms of the 401(k) Plan,
employees may make voluntary contributions up to 15 percent of their
compensation, subject to Internal Revenue Service limitations. RG does not make
contributions to the Plan. RG offers, as one of the investment mediums to the
participants, common stock of RG and has reserved 50,000 shares for issuance
under the 401(k) Plan.
15. SUBSEQUENT EVENTS
During January 1997, RG entered into a letter of intent to merge with an
unrelated golf club shaft manufacturing company, FM Precision Golf Corporation
(FMP). The preliminary terms contemplate that the shareholders of FMP will
receive 65 percent of the resulting company, on a fully diluted basis, and will
control the board of directors. The transaction is subject to a number of
conditions, including the completion of due diligence by both parties, execution
of a definitive agreement, and approval by the board of directors and
stockholders of each company.
Should the merger occur, the use of certain tax net operating loss
carry-forwards available to RG may be limited. There can be no assurances as to
whether the merger will occur or if it occurs, the ultimate terms of the merger.
At December 31, 1996 and March 31, 1997, RG was not in compliance with its
quarterly net income (loss), debt service, and net worth debt covenants and
anticipated not meeting many of its quarterly and monthly covenants during 1997.
RG obtained an amended bank agreement which waived the net income (loss), debt
service, and net worth covenant defaults and amended the debt agreement whereby
the net income (loss) limits have been modified to a loss of no more than
$1,000,000 for the quarter ending March 31, 1997 and a cumulative loss of no
more than $1,600,000 for the quarter ending June 30, 1997, and for each month
thereafter in 1997. The agreement amended the net worth covenants to correlate
with the net loss covenants above. The quarterly debt service and monthly loss
limit covenants were waived by the bank for 1997. In addition, the interest rate
was amended to the prime rate plus 3.0 percent effective April 1, 1997, subject
to change based on the operating results of RG.
F-18(RG)
<PAGE> 117
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ --
Trade accounts receivable (net of allowance for doubtful accounts of
$464,511).................................................................... 1,350,149
Inventories, net............................................................... 867,608
Current portion of net investment in lease..................................... 218,722
Prepaid expenses and other current assets...................................... 109,996
----------
Total current assets........................................................... 2,546,475
Property and equipment, net.................................................... 1,920,455
Net investment in capital lease, less current portion.......................... 2,868,677
Intangible assets, net......................................................... 247,831
Other assets................................................................... 36,250
----------
$7,619,688
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................................... $ 496,133
Accounts payable and accrued expenses........................................ 1,013,523
Deferred revenue............................................................. 400,000
Current portion of long-term debt and capital leases......................... 226,500
----------
Total current liabilities.................................................... 2,136,156
Long-term debt and capital leases, less current portion........................ 632,389
Other liabilities.............................................................. 8,147
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000 shares; none
issued.................................................................... --
Common stock, par value $.001 per share. Authorized 15,000,000 shares; issued
and outstanding 2,740,928 shares at March 31, 1997........................ 2,741
Additional paid-in capital................................................... 12,618,494
Accumulated deficit.......................................................... (7,778,239)
----------
Total stockholders' equity................................................... 4,842,996
----------
$7,619,688
==========
</TABLE>
See accompanying notes.
F-19(RG)
<PAGE> 118
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales......................................................... $2,471,683 $4,357,621
Cost of goods sold................................................ 2,072,820 3,239,546
---------- ----------
Gross profit...................................................... 398,863 1,118,075
Selling, general and administrative expenses...................... 1,217,949 1,671,455
---------- ----------
Loss from operations.............................................. (819,086) (553,380)
Other income (expense):
Interest income................................................... 62,436 2,703
Interest expense.................................................. (28,486) (9,899)
Other expense, net................................................ (18,279) (8,671)
---------- ----------
Loss before income tax benefit.................................... (803,415) (569,247)
Income tax benefit................................................ -- --
---------- ----------
Net loss.......................................................... $ (803,415) $ (569,247)
========== ==========
Net loss per share................................................ $ (0.29) $ (0.21)
========== ==========
Weighted average shares used in net loss per share................ 2,739,275 2,734,678
========== ==========
</TABLE>
See accompanying notes.
F-20(RG)
<PAGE> 119
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $(803,415) $ (569,247)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 125,653 435,371
Compensatory stock option grants............................... 8,406 --
Loss on disposition of property and equipment.................. -- 7,387
Changes in operating assets:
Trade accounts receivable................................. 243,405 (968,779)
Inventories............................................... 513,607 16,021
Prepaid expenses and other current assets................. 22,561 (7,183)
Other assets and intangibles.............................. 15,000 (16,025)
Deferred revenue.......................................... 400,000 --
Trade accounts payable and accrued expenses............... (914,514) (74,144)
--------- -----------
Net cash used by operating activities.................. (389,297) (1,176,599)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (117,329) (352,337)
Principal payments received on capital lease receivable........ 34,601 --
Proceeds from sale of property and equipment................... -- 766,025
--------- -----------
Net cash provided by (used in) investing activities............ (82,728) 413,688
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations............. -- (7,606)
Advances on notes payable...................................... -- 7,172
Payments on notes payable...................................... (19,395) --
Increase in line of credit..................................... 436,133 350,000
Exercise of employee options................................... 17,188 --
--------- -----------
Net cash provided by financing activities...................... 433,926 349,566
--------- -----------
Net decrease in cash and cash equivalents...................... (38,099) (413,345)
Cash and cash equivalents at beginning of period............... 38,099 413,345
--------- -----------
Cash and cash equivalents at end of period..................... $ -- $ --
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest......................................... $ 28,486 $ 9,899
</TABLE>
See accompanying notes.
F-21(RG)
<PAGE> 120
ROYAL GRIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed financial statements include
all adjustments (of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures have been condensed or omitted pursuant to
such rules and regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements for the year ended December 31, 1996, included elsewhere herein.
Results of operations in interim periods are not necessarily indicative of
results to be expected for a full year.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share" which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share is not expected to
be material for the quarters ended March 31, 1997 and March 31, 1996.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH
31,
1997
--------
<S> <C>
Finished goods.......................................................... $329,706
Work in process......................................................... 56,224
Raw materials........................................................... 481,678
--------
$867,608
========
</TABLE>
(3) MANUFACTURING AND SUPPLY AGREEMENT
In December 1996, the Company outsourced all of its production of non-cord
grips to Acushnet Rubber Company. During the first quarter of 1997, Acushnet
experienced startup delays in the production of grips. In light of these
difficulties, the Company and Acushnet have renegotiated their agreement. In
connection with this renegotiation, Acushnet has agreed to provide the Company
with a credit of $400,000 against future purchases of grips, and additional
credits in the event Acushnet fails to meet future production requirements.
These credits may be reduced depending upon Acushnet's production beyond
specified levels or as a result of the cancellation of stock options granted to
Acushnet. Because of the contingent nature of this credit, the Company recorded
the credit as deferred revenue.
(4) REVOLVING LINE OF CREDIT AND TERM DEBT
In February 1997, the Company entered into a new line of credit facility of
$1.75 million and term loan of $700,000 with a commercial bank. These credit
arrangements mature on February 10, 2000 and contain net worth requirements,
prohibit dividend payments and limit capital expenditures. At March 31, 1997,
the Company was not in compliance with its quarterly net income (loss), debt
service, and net worth debt covenants and anticipated not meeting many of its
quarterly and monthly covenants during 1997. The Company obtained an amended
bank agreement which waived the existing net income (loss), debt service, and
net worth covenant defaults and amended the debt agreement whereby the net
income (loss) limits have
F-22(RG)
<PAGE> 121
been modified to a loss of no more than $1 million for the quarter ended March
31, 1997 and a cumulative loss of no more than $1.6 million for the quarter
ending June 30, 1997, and for each month thereafter in 1997. The agreement
amended the net worth covenants to correlate with the net loss covenants above.
The quarterly debt service and monthly loss limit covenants were waived by the
bank for 1997. In addition, the interest rate was amended to the bank's prime
rate plus 3.0% effective April 1, 1997, subject to change based on the operating
results of the Company.
(5) DEFERRED INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
No tax benefit is available in the first quarter of 1997 due to a 100%
valuation allowance on a deferred tax asset. This will have the effect of
reducing income tax expense in future periods in which the net operating loss
carry forwards are realized.
F-23(RG)
<PAGE> 122
FM PRECISION GOLF CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................... F-2
Consolidated Balance Sheets as of May 30, 1996
(Predecessor Business) and February 28, 1997......................................... F-3
Consolidated Statements of Operations for the Year Ended May 30, 1996
(Predecessor Business) and for the Nine Months Ended February 28, 1997............... F-4
Consolidated Statements of Net Assets and Stockholders' Equity for the Year Ended May
30, 1996
(Predecessor Business) and for the Nine Months Ended February 28, 1997............... F-5
Consolidated Statements of Cash Flows for the Year Ended May 30, 1996
(Predecessor Business) and for the Nine Months Ended February 28, 1997............... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1(FMP)
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
FM Precision Golf Corp.:
We have audited the accompanying consolidated balance sheets of FM
Precision Golf Corp. (a Delaware corporation) and subsidiaries as of May 30,
1996 and February 28, 1997 and the related consolidated statements of
operations, net assets and stockholders' equity and cash flows for the year
ended May 30, 1996 (the Predecessor Period) and for the nine months ended
February 28, 1997 (the Successor Period). 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 consolidated financial position of FM Precision
Golf Corp. and subsidiaries as of May 30, 1996 and February 28, 1997, and the
consolidated results of their operations and their cash flows for the
Predecessor Period and Successor Period, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
April 8, 1997 (except for the matters discussed in the second and third
paragraphs of Note 12, as to which the date is May 15, 1997)
F-2(FMP)
<PAGE> 124
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
BUSINESS COMPANY
MAY 30, 1996 FEBRUARY 28, 1997
------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 341,160 $ 67,061
Accounts receivable, net of allowance for doubtful
accounts of $86,000 at May 30, 1996 and $81,000 at
February 28, 1997...................................... 3,047,440 3,000,690
Inventories, net.......................................... 3,173,181 3,370,189
Other current assets...................................... 272,540 188,634
Deferred income taxes..................................... -- 184,678
------------ ----------
Total current assets.............................. 6,834,321 6,811,252
------------ ----------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 154,368 37,500
Buildings and improvements................................ 5,349,934 363,491
Machinery and equipment................................... 18,122,990 2,576,707
------------ ----------
23,627,292 2,977,698
Less -- Accumulated depreciation.......................... (13,164,038) (163,000)
------------ ----------
10,463,254 2,814,698
------------ ----------
$ 17,297,575 $ 9,625,950
============ ==========
LIABILITIES AND NET ASSETS AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations............................................ $ -- $ 2,594,073
Accounts payable.......................................... 664,304 1,323,404
Accrued salaries and benefits............................. 798,694 803,741
Other accrued expenses.................................... 286,263 535,240
------------ ----------
Total current liabilities......................... 1,749,261 5,256,458
------------ ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion included above.................................... -- 2,533,227
------------ ----------
DEFERRED INCOME TAXES....................................... -- 93,683
------------ ----------
COMMITMENTS AND CONTINGENCIES (Notes 9, 10, 11 and 12)
NET ASSETS (division equity)................................ 15,548,314 --
------------ ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares
authorized; 4,176,796 shares issued and outstanding.... -- 4,177
Additional paid-in capital................................ -- 995,823
Retained earnings......................................... -- 742,582
------------ ----------
Total stockholders' equity........................ -- 1,742,582
------------ ----------
$ 17,297,575 $ 9,625,950
============ ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-3(FMP)
<PAGE> 125
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
PREDECESSOR SUCCESSOR COMPANY
BUSINESS FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED
MAY 30, 1996 FEBRUARY 28, 1997
------------ -----------------
NET SALES................................................... $19,002,271 $15,690,215
COST OF SALES............................................... 17,052,952 11,151,442
----------- ------------
Gross profit...................................... 1,949,319 4,538,773
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 3,526,610 2,897,895
----------- ------------
Operating income (loss)........................... (1,577,291) 1,640,878
INTEREST EXPENSE............................................ -- 345,320
----------- ------------
Income (loss) before provision for income taxes... (1,577,291) 1,295,558
PROVISION FOR INCOME TAXES.................................. -- 552,976
----------- ------------
Net income (loss)................................. $(1,577,291) $ 742,582
=========== ============
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE........... $ .17
============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING........................................ 4,336,199
============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4(FMP)
<PAGE> 126
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF NET ASSETS
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKERHOLDERS' EQUITY
-----------------------------------------------------------
COMMON STOCK ADDITIONAL
NET ASSETS ------------------- PAID-IN RETAINED
(DIVISION EQUITY) SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------------- --------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR BUSINESS:
Balance, June 1,
1995............... $14,455,591 -- $ -- $ -- $ -- $ --
Net contributions from
Parent Company..... 2,670,014 -- -- -- -- --
Net loss.............. (1,577,291) -- -- -- -- --
----------------- --------- ------ ---------- -------- ----------
Balance, May 30,
1996............... $15,548,314 -- $ -- $ -- $ -- $ --
============= ======== ====== ======== ======== =========
SUCCESSOR COMPANY:
Issuance of common
stock.............. $ -- 4,176,796 $4,177 $ 995,823 $ -- $1,000,000
Net income............ -- -- -- -- 742,582 742,582
----------------- --------- ------ ---------- -------- ----------
Balance, February 28,
1997............... $ -- 4,176,796 $4,177 $ 995,823 $742,582 $1,742,582
============= ======== ====== ======== ======== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5(FMP)
<PAGE> 127
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS SUCCESSOR COMPANY
FOR YEAR ENDED FOR NINE MONTHS ENDED
MAY 30, 1996 FEBRUARY 28, 1997
--------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $(1,577,291) $ 742,582
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities -- Depreciation...................... 1,259,204 163,000
Deferred income taxes........................... -- (90,995)
Changes in operating assets and liabilities --
Accounts receivable........................... (723,586) 46,750
Inventories................................... 136,712 (197,008)
Other current assets.......................... 12,377 (188,634)
Accounts payable and accrued expenses......... (219,343) 1,326,047
----------- -----------
Net cash provided by (used in) operating
activities............................... (1,111,927) 1,801,742
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of net assets of Predecessor
Business........................................ -- (6,824,206)
Purchases of equipment, net........................ (1,373,475) (842,493)
----------- -----------
Net cash used in investing activities...... (1,373,475) (7,666,699)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock................. -- 1,000,000
Proceeds from long-term debt....................... -- 3,750,000
Borrowings under line-of-credit, net............... -- 1,692,830
Repayments of long-term debt and capital lease
obligations..................................... -- (510,812)
Net contributions from Parent Company.............. 2,670,014 --
----------- -----------
Net cash provided by financing
activities............................... 2,670,014 5,932,018
----------- -----------
INCREASE IN CASH..................................... 184,612 67,061
CASH, beginning of period............................ 156,548 --
----------- -----------
CASH, end of period.................................. $ 341,160 $ 67,061
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................ $ -- $ 306,138
=========== ===========
Income taxes.................................... $ -- $ 741,650
=========== ===========
Non-cash transactions:
Capital lease obligations....................... $ -- $ 195,282
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6(FMP)
<PAGE> 128
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 30, 1996 AND FEBRUARY 28, 1997
1. BUSINESS AND ORGANIZATION:
Business --
FM Precision Golf Corp. (FMP or the Successor Company) is a manufacturer
and distributor of golf shafts which are sold to original equipment
manufacturers and to distributors and retailers for use in the replacement
market. FMP sells its products both in the United States and foreign markets
(see Note 10).
Organization --
On May 31, 1996, FMP, which was formed in 1996 for such purpose, acquired
the golf assets and golf liabilities, as defined, of the golf shaft division
(the Predecessor Business, an unrelated business) of Brunswick Corporation (the
Parent Company), in a transaction referred to as the "Brunswick Acquisition".
The Brunswick Acquisition has been accounted for as a purchase and, accordingly,
the purchase price has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of the Brunswick
Acquisition. The following table summarizes the allocation of the cost of the
Brunswick Acquisition to the net assets acquired:
<TABLE>
<S> <C>
Accounts receivable................................................... $3,047,440
Inventories........................................................... 3,173,181
Property, plant and equipment......................................... 1,939,923
Accounts payable and accrued expenses................................. (1,336,338)
----------
$6,824,206
==========
</TABLE>
The Brunswick Acquisition was financed by proceeds from FMP's credit
facility and proceeds from the sale of FMP common stock (see Notes 4 and 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation --
The accompanying consolidated financial statements as of and for the nine
months ended February 28, 1997 include FMP and its two wholly-owned subsidiaries
FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Year-end --
FMP's fiscal year-end is May 31. The results of operations for the
Predecessor Business for the year ended May 30, 1996 include the period from
June 1, 1995 to May 30, 1996. The results of operations for the Successor
Company include the nine-month period from May 31, 1996 to February 28, 1997.
Use of estimates in the preparation of financial statements --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7(FMP)
<PAGE> 129
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories --
Inventories for the Predecessor Business are valued using the first-in,
first-out (FIFO) method of accounting. Inventories for the Successor Company are
valued using the last-in, first-out (LIFO) method of accounting. Inventories for
the Successor Company would have been approximately $382,000 lower at February
28, 1997 if the FIFO method of accounting had been used. FMP periodically
evaluates the realizability of its inventories and establishes a reserve for
excess or obsolete inventories, as necessary.
Property, plant and equipment --
Property, plant and equipment are carried at acquired cost. Major additions
and betterments are capitalized, while replacements, maintenance and repairs
which do not extend the useful lives of the assets are charged to operations as
incurred. Upon the disposition of property, plant and equipment, any resulting
gain or loss is recognized in income.
Depreciation and amortization of plant and equipment are provided for,
commencing when such assets become operational, using the straight-line basis
over the following estimated useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C>
Buildings and improvements........................ 27.5 years
Machinery and equipment........................... 3-12 years
Furniture and fixtures............................ 10 years
</TABLE>
Long-lived assets --
Effective May 31, 1996, FMP adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", which had no impact upon adoption.
In accordance with this statement, FMP reviews long-lived assets and certain
identifiable intangible assets to be held and used by an entity for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Impairment losses are recognized when the
estimated future cash flows, excluding interest costs, exceed the carrying value
of the related assets.
Income taxes --
FMP accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." This statement requires FMP to recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in FMP's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities and tax net operating loss carry-forwards available for tax
reporting purposes, using applicable tax rates for the years in which the
differences are expected to reverse. A valuation allowance is recorded on
deferred tax assets unless realization is more likely than not.
Prior to the Brunswick Acquisition, FMP was included in the income tax
returns of the Parent Company. The provision for income taxes for the year ended
May 30, 1996, is computed as if FMP filed separate tax returns. Accordingly, no
tax benefit is recorded for the year ended May 30, 1996 since the resulting
deferred tax asset would be fully offset by a valuation allowance. All changes
in current and deferred taxes for the Predecessor Business are reflected as
increases or decreases in the division equity (see Note 5).
F-8(FMP)
<PAGE> 130
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options --
FMP accounts for stock options in accordance with the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25.
Revenue recognition --
Revenue is recorded upon the passage of title to the customers which
generally occurs upon shipment.
Advertising --
FMP expenses advertising costs as incurred.
Net income per share --
Net income per common and common equivalent share for the nine months ended
February 28, 1997 is computed by dividing net income by the weighted average
number of common and common stock equivalents during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock equivalents
resulting from the 169,829 options granted in March 1997 have been included in
the calculation of the weighted average number of common and common equivalent
shares for the nine months ended February 28, 1997 using the treasury stock
method (see Note 12).
In February 1997, the Financial Accounting Standards Board Issued SFAS No.
128, "Earnings Per Share", which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and earlier
application is not permitted. Upon adoption, all prior period earnings per share
data presented will be restated.
New accounting pronouncement --
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." FMP does not expect the
statement to have a material impact on FMP's consolidated financial position or
results of operations upon adoption.
3. INVENTORIES:
Inventories as of May 30, 1996 and February 28, 1997 consisted of the
following:
<TABLE>
<CAPTION>
MAY 30, FEBRUARY 28,
1996 1997
---------- ------------
<S> <C> <C>
Raw materials............................................. $1,207,447 $ 1,050,629
Work-in-process........................................... 818,587 721,215
Finished goods............................................ 1,147,147 1,216,345
LIFO reserve.............................................. -- 382,000
---------- ----------
$3,173,181 $ 3,370,189
========== ==========
</TABLE>
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
In connection with the Brunswick Acquisition (see Note 1), FMP entered into
a credit facility (the Credit Facility) with a bank for revolving credit and
term financing. In January 1997, the Credit Facility was amended to increase the
term financing by $375,000 for the purchase of a machine. As of February 28,
1997, FMP had purchased the machine with borrowings on the line-of-credit. In
March 1997, the additional term
F-9(FMP)
<PAGE> 131
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loan proceeds of $375,000 were received and used to reduce the amount of the
then outstanding balance on the line-of-credit.
The amount available for borrowings under the term loan, as amended (the
Term Loan) is subject to a maximum of the lesser of $3,625,000 or a percentage
of the value of eligible plant and equipment, as defined. The amount available
for borrowings under the revolving credit loan (the Revolver) is based upon the
levels of eligible accounts receivable and inventories, as defined, subject to
maximum borrowings of $7,500,000, less the amount outstanding on the Term Loan.
As of February 28, 1997, FMP had approximately $2,036,000 available for
additional borrowings under the Credit Facility.
The Term Loan is due in monthly principal installments of $69,712
commencing March 1997 ($62,500 per month prior to the amendment) through May 31,
1999 plus an additional annual principal payment each August in an amount equal
to 30% of excess cash flow, as defined, for FMP's preceding fiscal year. FMP
does not expect a material additional payment to be due as of August 31, 1997.
The Revolver and Term Loan mature on May 31, 1999; however, the lender may
extend the maturity to June 31, 2001. If the lender does not extend the maturity
of the Credit Facility, the remaining principal outstanding under the Term Loan
is due and payable June 31, 1999. Certain terms of the Revolver require that the
obligation be classified as a current liability in the accompanying consolidated
balance sheet.
Borrowings under the Term Loan and Revolver bear interest at a rate per
annum equal to the prime rate (8.25% at February 28, 1997) plus 1.5% and 1.25%,
respectively, are secured by substantially all of FMP's assets and the stock of
FMP's subsidiaries and are partially guaranteed by certain shareholders.. The
Credit Facility provides for an early termination fee of $187,500 if the
agreement is terminated prior to May 31, 1997. The early termination fee is
reduced to $150,000 on May 31, 1997 and $75,000 on May 31, 1998. The early
termination fee is eliminated in March 1999.
The Credit Facility contains financial and other covenants which, among
other things, limit annual capital expenditures and require FMP to maintain
minimum quarterly earnings before interest, taxes, depreciation and
amortization, as defined, fixed charge coverage ratios, as defined, and accounts
receivable and inventory turnover ratios, as defined, and is guaranteed by
certain of FMP's shareholders. FMP was in compliance with these financial
covenants at February 28, 1997.
Long-term debt and capital lease obligations as of February 28, 1997
consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
1997
------------
<S> <C>
Line-of-credit......................................................... $ 1,692,830
Term loan.............................................................. 3,250,000
Capital lease obligations.............................................. 184,470
----------
5,127,300
Less -- Current portion, including line-of-credit...................... 2,594,073
----------
$ 2,533,227
==========
</TABLE>
F-10(FMP)
<PAGE> 132
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under capital leases at February 28, 1997 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
-----------------------------------------------------------------------
<S> <C>
1998................................................................... $ 69,696
1999................................................................... 69,696
2000................................................................... 62,601
--------
201,993
Less -- Amounts representing interest.................................. 17,523
--------
Present value of minimum lease payments................................ $184,470
========
</TABLE>
Scheduled maturities of long-term debt at February 28, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
-----------------------------------------------------------------------
<S> <C>
1998................................................................... $ 2,594,073
1999................................................................... 900,732
2000................................................................... 1,632,495
----------
$ 5,127,300
==========
</TABLE>
As of February 28, 1997, the carrying value of the Revolver and Term Loan
approximated their fair market value since the obligations bear interest at a
variable rate of interest.
5. NET ASSETS (DIVISION EQUITY):
Certain treasury management expenses incurred by the Parent Company were
not charged to the Predecessor Business. Accordingly, estimated expenses of
$50,000 have been imputed as general and administrative expenses in the
accompanying statement of operations for the year ended May 30, 1996.
The Parent Company provided a centralized cash management system which the
Predecessor Business participated in. The amounts expended by the Parent
Business exceeded the cash receipts generated by the Predecessor Company by
approximately $2,670,014 for the year ended May 30, 1996. Such amount has been
reflected as a contribution and is included in net assets (division equity) in
the accompanying balance sheet. Interest was not charged on these amounts.
6. STOCKHOLDERS' EQUITY:
In May 1996, FMP sold 4,176,796 shares of common stock, $.001 par value,
for aggregate proceeds of $1,000,000 (see Note 12).
7. INCOME TAXES:
The components of the provision for (benefit from) income taxes are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FEBRUARY 28, 1997
-----------------
<S> <C>
Current............................................................ $ 643,971
Deferred........................................................... (90,995)
--------
$ 552,976
========
</TABLE>
F-11(FMP)
<PAGE> 133
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FMP's effective tax rate, as a percent of pretax income, differs from the
statutory federal rate as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
MAY 30, 1996 FEBRUARY 28, 1997
------------ -----------------
<S> <C> <C>
Statutory Federal tax rate............................ (34)% 34%
State taxes, net of Federal benefit................... (6) 6
Other................................................. -- 3
Change in valuation allowance......................... 40 --
--
----
Effective tax rate.................................... --% 43%
==== ==
</TABLE>
Deferred income taxes as of May 30, 1996 are included in net assets
(division equity) (see Note 1). The components of deferred income tax assets
(liabilities) as of February 28, 1997 are as follows:
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, 1997
-----------------
<S> <C>
Current asset --
Financial reserves not currently deductible...................... $ 184,678
Long-term asset (liability) --
Book basis in excess of tax for property, plant and equipment.... (135,483)
Other............................................................ 41,800
-------
$ 90,995
=======
</TABLE>
8. RELATED PARTY TRANSACTIONS:
In connection with the Brunswick Acquisition, companies controlled by the
shareholders of FMP received aggregate fees of approximately $500,000 and
certain of these companies are receiving aggregate annual advisory fees of
$200,000 per annum. FMP expensed $150,000 related to these annual advisory
agreements in the nine months ended February 28, 1997. Additionally,
professional fees of approximately $120,000 were paid to certain shareholders
during the nine months ended February 28, 1997.
9. SIGNIFICANT CUSTOMER:
During the nine months ended February 28, 1997, one customer represented
approximately 14% of FMP's sales for such period. As of February 28, 1997, such
customer represented approximately 12% of FMP's accounts receivable balance.
10. FOREIGN SALES:
FMP has export sales to customers located primarily throughout the United
States, Japan, Canada and the United Kingdom. Foreign sales were approximately
10% and 12% of FMP's sales for the year ended May 30, 1996 and nine months ended
February 28, 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES:
FMP is a party to various legal proceedings arising in the ordinary course
of business which management believes, after consultation with legal counsel,
will not have a material adverse effect on FMP's financial condition or future
operating results.
The Brunswick Acquisition agreement requires FMP to establish a pension
plan for union employees which provides benefits similar to those provided to
FMP's union employees prior to the Brunswick
F-12(FMP)
<PAGE> 134
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition. Accordingly, as of April 8, 1997, FMP is in the process of
finalizing the FM Precision Golf Corp. Pension Plan for Represented Hourly Wage
Employees. As of February 28, 1997, FMP has accrued approximately $90,000, which
amount represents the estimated obligation as of such date for services for the
period from the Brunswick Acquisition date to February 28, 1997.
12. SUBSEQUENT EVENTS:
Stock options --
In March 1997, FMP adopted the FM Precision Golf Corp. 1997 Stock Option
Plan (the Plan), which is subject to adoption by FMP's stockholders. As of March
17, 1997, 169,829 shares of common stock were reserved for issuance under the
Plan. In March 1997, FMP granted options to purchase 169,829 shares of FMP's
common stock to certain members of management and a consultant. The options are
exercisable at a price of $.24 per share and vested immediately. The estimated
fair market value of the options granted, exceeded the exercise price by
approximately $425,000. Accordingly, $425,000 will be recorded as compensation
expense by FMP in March 1997. The after tax effect of the charge is
approximately $255,000.
Business combination --
On May 14, 1997, FMP entered into an Agreement and Plan of Merger with
Royal Grip, Inc. (the Merger Agreement). Under the terms of the Merger
Agreement, on the effective date, FMPSUB, Inc. (a wholly owned subsidiary of FMP
created for such purpose) will be merged with and into Royal Grip, Inc. (RG)
which will be the surviving corporation in the merger (the Merger). The separate
existence of FMPSUB, Inc. will cease and the name of the surviving corporation
will be RG. In connection with the Merger, RG shareholders will receive shares
representing approximately 25% of FMP common stock (30% assuming the exercise of
all outstanding RG warrants and options.) The proposed transaction is subject to
approval by RG's shareholders. The Merger is expected to be treated as a
purchase for accounting purposes. FMP and RG transaction costs are expected to
be approximately $1.4 million. In addition, warrants to purchase 100,000 shares
of RG common stock at $.01 per share were issued to an investment banker. The
estimated value of the warrants is approximately $400,000.
FMP anticipates amending its Certificate of Incorporation in connection
with the Merger to increase the number of authorized shares of common stock from
3,000 to 50,000,000, reducing the par value of the common stock from $.01 to
$.001 per share, splitting each issued and outstanding share of common stock
into 4,176,796 shares of common stock, authorizing 5,000,000 shares of $.001 par
value preferred stock and changing the name of FMP to Royal Precision, Inc. The
accompanying consolidated financial statements have been restated to reflect
this anticipated share split and change in par value and authorized shares.
F-13(FMP)
<PAGE> 135
ANNEX I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of May 14,
1997 among ROYAL GRIP, INC., a Nevada corporation having a business address of
444 West Geneva Drive, Tempe, Arizona 85282 ("RG"), FM PRECISION GOLF CORP., a
Delaware corporation having a business address of 3490 Clubhouse Drive, Suite
102, Jackson, Wyoming 83001 ("FMP"), and FMPSUB, INC., a Nevada corporation
having a business address of 3490 Clubhouse Drive, Suite 102, Jackson, Wyoming
83001, and a wholly owned subsidiary of FMP ("Merger Sub"), evidences that, for
and in consideration of the mutual covenants set forth herein, the parties
hereto, intending to be legally bound, hereby agree as follows:
RECITALS
A. The Board of Directors and stockholders of FMP, and the Boards of
Directors of Merger Sub and RG have approved the merger of Merger Sub into RG
upon the terms and subject to the conditions set forth herein (the "Merger").
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE 1. THE TRANSACTION.
1.1. THE MERGER. Upon the terms and subject to the conditions hereof, on
the Effective Date (as defined in Section 1.2), Merger Sub shall be merged with
and into RG which shall be the surviving corporation in the Merger (the
"Surviving Corporation"), the separate existence of Merger Sub shall thereupon
cease, and the name of the Surviving Corporation shall by virtue of the Merger
remain "Royal Grip, Inc."
1.2. EFFECTIVE DATE OF THE MERGER. The Merger shall become effective when
properly executed Articles of Merger are duly filed with the Secretary of State
of the State of Nevada, which filing shall be made concurrently with the closing
of the transaction contemplated by this Agreement in accordance with Section
1.13. When used in this Agreement, the term "Effective Date" shall mean the date
and time at which such Articles of Merger are so filed or at such time
thereafter as is provided in such Articles of Merger.
1.3. CERTIFICATE OF INCORPORATION; STOCK SPLIT. FMP agrees that, on or
prior to the Effective Date, it will effect the following transactions:
1.3.1. Amend and restate its Certificate of Incorporation
substantially in the form of Exhibit 1.3.1 to this Agreement; and
1.3.2. Split the shares of FMP Common Stock (as hereinafter defined)
which were outstanding immediately before the Effective Date, and/or issue
stock dividends to FMP stockholders of record who were stockholders of
record immediately before the Effective Date, and/or adjust the terms of
options or warrants to acquire FMP Common Stock which were outstanding
immediately before the Effective Date so that, immediately after the
Effective Date, the holders of shares of FMP Common Stock which were
outstanding immediately before the Effective Date and the holders of
options and warrants to acquire shares of FMP Common Stock which were
outstanding immediately before the Effective Date, taken as a group, will
own or have the right to acquire the aggregate number of shares of FMP
Common Stock determined by multiplying seven-thirds ( 7/3) times the sum of
(i) the number of shares of FMP Common Stock which are required to be
issued under clause (b) of Section 1.5.1 below, and (ii) the number of
shares of FMP Common Stock which are issuable under options and warrants
assumed by FMP under Section 1.9.1 below. Any stock split or dividend shall
be made pro-rata among the stockholders entitled to participate therein as
required by the General Corporation Law of the State of Delaware and any
adjustment of the terms of any option or warrant shall be made in
accordance with the terms of the applicable anti-dilution provisions
thereof.
<PAGE> 136
1.4. TAX-FREE REORGANIZATION. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. In
this regard, FMP represents that it presently intends, and that at the Effective
Date it will intend, to continue RG's historic business or use a significant
portion of RG's business assets in a business.
1.5. EXCHANGE RATE.
1.5.1. As of the Effective Date, by virtue of the Merger and without
any action on the part of any holder of any shares of RG's Common Stock,
$.001 par value ("RG Shares" or "RG Common Stock"):
(a) All shares of RG Common Stock which are held by RG or any
Subsidiary (as defined in Section 8.13) of RG shall be canceled.
(b) Subject to Section 1.8, each remaining outstanding share of RG
Common Stock shall be converted into the number of fully paid and
nonassessable shares of the Common Stock, $.001 par value, of FMP ("FMP
Shares" or "FMP Common Stock") equal to the Exchange Rate (as defined
below).
(c) In the event of any stock dividend, stock split,
reclassification, recapitalization, combination or exchange of shares
with respect to, or rights issued in respect of, FMP Common Stock, other
than as described in Section 1.3.2 of this Agreement, after the date
hereof and prior to or as of the Effective Date, the Exchange Rate shall
be adjusted accordingly.
(d) Each issued and outstanding share of Common Stock, without par
value, of Merger Sub ("Merger Sub Common Stock") shall be converted into
and become one fully paid and nonassessable share of Common Stock, $.001
par value, of the Surviving Corporation.
1.5.2. The "Exchange Rate" shall mean: 50%.
1.6. TERMS OF EXCHANGE. The manner of exchanging RG Common Stock for FMP
Common Stock in the Merger shall be as follows:
1.6.1. On the Effective Date, FMP shall make available to Star Bank
or such other exchange agent as selected by FMP and reasonably acceptable
to RG (the "Exchange Agent"), for the benefit of each holder of RG Common
Stock, a sufficient number of certificates representing FMP Common Stock to
effect the delivery of FMP Common Stock required to be issued pursuant to
Section 1.5. FMP shall enter into an agreement (the "Exchange Agent
Agreement") with the Exchange Agent pursuant to which the Exchange Agent
shall be obligated to provide the services set forth in Section 1.6.2.
1.6.2. The Exchange Agent Agreement shall provide that promptly after
the Effective Date, the Exchange Agent shall mail to each holder of record
(as shown on the books of RG's transfer agent as of the Effective Date) of
a certificate or certificates which immediately prior to the Effective Date
represented outstanding shares of RG Common Stock (individually, a
"Certificate" and collectively, the "Certificates") (a) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (b) instructions for use in
effecting the surrender of the Certificates for exchange. Upon surrender of
Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents, the
holder of such Certificates shall be entitled to receive for each of the
shares of RG Common Stock represented by such Certificates the number of
shares of FMP Common Stock into which such shares of RG Common Stock are
converted in the Merger and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, Certificates shall represent solely the
right to receive the number of shares of FMP Common Stock into which such
shares of RG Common Stock are converted in the Merger and any cash in lieu
of fractional shares of FMP Common Stock as contemplated by Section 1.8
with respect to each of the shares of RG Common Stock represented thereby.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the FMP Common Stock held by it from time to time
hereunder,
2
<PAGE> 137
except that it shall receive and hold all dividends or other distributions
paid or distributed with respect to such FMP Common Stock for the account
of the persons entitled thereto.
1.6.3. Certificates surrendered for exchange by any Affiliate (as
defined in Section 5.8.1) shall not be exchanged for certificates
representing shares of FMP Common Stock until FMP has received the written
agreements from such Affiliate as provided in Section 5.8.2.
1.7. DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that
are declared or made on FMP Common Stock will be paid to persons entitled to
receive certificates representing FMP Common Stock pursuant to this Agreement
until such persons surrender their Certificates representing RG Common Stock.
Upon such surrender, there shall be paid to the person in whose name the
certificates representing such FMP Common Stock shall be issued any dividends or
other distributions which shall have become payable with respect to such FMP
Common Stock in respect of a record date after the Effective Date. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any cash in lieu of fractional shares or any
certificate representing FMP Common Stock is to be paid to or issued in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such FMP Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of RG Common Stock for any shares of FMP Common Stock or
dividends thereon properly delivered to a public official pursuant to any
applicable escheat laws.
1.8. NO FRACTIONAL SHARES. No certificates or scrip representing less
than one share of FMP Common Stock shall be issued upon the surrender for
exchange of Certificates representing RG Common Stock pursuant to Section 1.5.2.
In lieu of any such fractional share, each holder of RG Common Stock who would
otherwise have been entitled to a fraction of a share of FMP Common Stock upon
surrender of Certificates for exchange pursuant to Section 1.5.2 shall be paid
upon such surrender cash (without interest) in an amount equal to such
fractional interest multiplied by the product of the Exchange Rate and the
average of the high and low trading prices of RG Common Stock for the five
trading days prior to the Effective Date. As soon as practicable after the
determination of the amount of cash to be paid to former stockholders of RG in
lieu of any fractional interests, FMP shall make available to the Exchange
Agent, which shall in turn make available in accordance with this Agreement,
such amounts to such former stockholders.
1.9. STOCK OPTIONS.
1.9.1. Each option or warrant to purchase RG Common Stock issued
pursuant to the Nonemployee Director Stock Plan, the Non-Employee Directors
Stock Option Plan, and the 1993 Stock Option Plan of RG, or otherwise which
is (a) set forth in the RG Disclosure Schedule (as hereinafter defined),
and (b) outstanding as of the Effective Date (individually, an "RG Option"
and, collectively, the "RG Options") shall be assumed by FMP and converted
into an option or warrant (or a substitute option shall be granted) to
purchase the number of shares of FMP Common Stock (rounded to the nearest
whole share) equal to the number of shares of RG Common Stock subject to
such RG Option multiplied by the Exchange Rate, at an exercise price per
share of FMP Common Stock (rounded to the nearest penny) equal to the
former exercise price per share of RG Common Stock under the RG Option
immediately prior to the Effective Date divided by the Exchange Rate;
provided, however, that in the case of any RG Option to which Section 421
of the Code applies by reason of its qualification under Section 422 of the
Code, the conversion formula shall be adjusted, if necessary, to comply
with Section 424(a) of the Code and the regulations issued thereunder.
Except as otherwise provided in the applicable plan or agreement granting
the RG Options, the duration, vesting and other terms of each new option to
purchase shares of FMP Common Stock shall be the same as the original RG
Option except that all references in the option agreement to RG shall be
deemed to be references to FMP; and further provided, that those RG Options
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listed on Exhibit 1.9.1 shall be deemed amended so that such exercise price
per share is $4.00. FMP and RG agree to take such action as may be
necessary to effectuate the foregoing provisions.
1.9.2. As soon as practicable after the Effective Date, FMP shall
deliver to each holder of an option to purchase FMP Common Stock a notice
that accurately reflects the changes to such option contemplated by this
Section 1.9.
1.10. STOCKHOLDER APPROVAL. RG shall take all action reasonably
necessary, in accordance with applicable law and its Articles of Incorporation
and By-laws, to convene a special meeting of the holders of RG Common Stock (the
"RG Meeting") as promptly as practicable for the purpose of considering and
taking action upon this Agreement. Subject to Section 5.1, the Board of
Directors of RG will recommend that holders of RG Common Stock vote to approve
the Merger and to adopt this Agreement at the RG Meeting.
1.11. CLOSING OF RG'S TRANSFER BOOKS. At the Effective Date, the stock
transfer books of RG shall be closed and no transfer of shares of RG Common
Stock shall be made thereafter. In the event that, after the Effective Date,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for FMP Common Stock and/or cash as provided in Sections 1.5, 1.6,
1.7 and 1.8.
1.12. ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of FMP, Merger Sub
and RG shall provide all reasonable assistance to, and shall cooperate with,
each other to bring about the consummation of the Merger as soon as practicable
in accordance with the terms and conditions of this Agreement. FMP shall cause
Merger Sub to perform all of its obligations in connection with this Agreement.
1.13. CLOSING. The closing of the transaction contemplated by this
Agreement shall take place (a) at the offices of Snell & Wilmer, L.L.P., One
Arizona Center, Phoenix, Arizona at 10:00 A.M. local time on the day which is
not more than one business day after the day on which the last of the conditions
set forth in Article 6 (other than those requiring an exchange of a certificate,
opinion or other document, or the taking of other action, at the closing) is
fulfilled or waived or (b) at such other time and place as FMP and RG shall
agree in writing.
ARTICLE 2. SURVIVING CORPORATION.
2.1. ARTICLES OF INCORPORATION. The Amended and Restated Articles of
Incorporation of RG attached hereto as Exhibit 2.1 shall be the Articles of
Incorporation of the Surviving Corporation until duly amended by the
stockholders of the Surviving Corporation subsequent to the Effective Date.
2.2. BY-LAWS. The By-laws of RG as in effect immediately prior to the
Effective Date shall be the By-laws of the Surviving Corporation, and thereafter
may be amended in accordance with their terms and as provided by law.
2.3. OFFICERS; BOARDS OF DIRECTORS.
2.3.1. One of the directors of the Surviving Corporation shall be
Robert Burg II, and the officers of RG immediately prior to the Effective
Date shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed.
2.3.2. FMP covenants and agrees that, from and after the Effective
Date, until their respective successors are duly elected or appointed, the
officers of FMP shall be Richard P. Johnston ("RPJ"), Chairman of the
Board, Danny Edwards ("DE"), Vice Chairman of the Board, Christopher A.
Johnston ("CAJ"), President, chief executive officer, Ronald L. Chalmers
("RC"), Executive Vice President, Robert Burg, II ("RB"), Executive Vice
President, David E. Johnston ("DEJ"), Executive Vice President, and Kenneth
J. Warren ("KJW"), Secretary, and the directors of FMP shall be DE, RB,
RPJ, CAJ, RC, DEJ, RJM, KJW, Raymond J. Minella and James G. DeMello.
2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 92A.250 of the NGCL.
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ARTICLE 3. REPRESENTATIONS OF FMP. FMP hereby represents and warrants to RG
that:
3.1. FMP DISCLOSURE SCHEDULE
3.1.1. The FMP Disclosure Schedule sets forth all of the information
concerning FMP, its Subsidiaries and the FMP Shares required in this
Article 3. To the extent any statement in this Article 3 is untrue or omits
to state a material fact necessary to make such statement not misleading,
the FMP Disclosure Schedule sets forth the statements necessary to make the
statements in this Article 3 true and not misleading. All information and
statements set forth in the FMP Disclosure Schedule shall be deemed to
supersede and correct the statements made in this Article 3 and to be
additional representations and warranties of FMP. The FMP Disclosure
Schedule sets forth all of the information and statements required in
numbered sections bearing the number of the Section of this Agreement
calling for such information and in the order of such numbers in this
Agreement.
3.1.2. FMP has delivered to RG complete and accurate copies of (a)
any written contract or other document referred to in the FMP Disclosure
Schedule or herein and (b) the financial statements referred to in Section
3.8 of this Agreement.
3.1.3. To the knowledge of FMP, neither the FMP Disclosure Schedule
nor any financial statement, exhibit, certificate or other instrument or
document concerning the FMP Shares or FMP delivered by or on behalf of FMP
in connection with the transaction contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact required to
be stated or necessary to make the statements herein or therein not
misleading.
3.2. OWNERSHIP OF SHARES. Each holder of FMP Shares and, to the knowledge
of FMP, each holder of any right, option, warrant, security or agreement
providing for the purchase, issuance or sale of any shares of capital stock of
FMP is listed on the FMP Disclosure Schedule and is the lawful owner of the
number of FMP Shares and other rights listed opposite the name of such holder on
the FMP Disclosure Schedule.
3.3. EXISTENCE AND GOOD STANDING OF FMP. FMP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. FMP is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of FMP and its Subsidiaries (an "FMP Material Adverse
Effect"). Each of FMP's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and corporate authority to own its
properties and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so licensed or qualified or to be in good standing would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect. Neither FMP nor any of its Subsidiaries is in violation
of any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which FMP or
any FMP Subsidiary or any of their respective properties or assets is subject,
except where such violation would not have, individually or in the aggregate, an
FMP Material Adverse Effect. FMP and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted, where the failure to obtain any such items or to take any such
action would reasonably be expected to have an FMP Material Adverse Effect. The
copies of FMP's and Merger Sub's certificate or articles of incorporation and
bylaws previously delivered to RG are true and correct.
3.4. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. Each of FMP and
Merger Sub has the requisite corporate power and corporate authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transaction
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contemplated hereby by the holders of a majority of the outstanding FMP Shares,
the consummation by FMP of the transaction contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of FMP, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
3.5. CAPITAL STOCK. FMP has an authorized capitalization consisting of
3,000 shares of Common Stock, par value $.01 per share, of which 1,000 shares
are issued and outstanding. On or immediately prior to the Effective Date, FMP
will have authorized capitalization as set forth in Exhibit 1.3.1 of which no
shares of FMP Common Stock or shares of Preferred Stock will be issued and
outstanding, except pursuant to the provisions of Sections 1.3.1 and 1.5.1(b).
FMP has no outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the stockholders of FMP on any
matter. All such outstanding shares have been and will be duly authorized and
validly issued and are and will be fully paid and non-assessable. There are, and
at the Effective Date, there will be no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, convertible securities,
rights of exchange, plans or other agreements providing for the purchase,
issuance or sale of any shares of the capital stock of FMP by or to FMP, other
than as contemplated by this Agreement.
3.6. SUBSIDIARIES. FMP owns each of the outstanding shares of capital
stock of each of FMP's Subsidiaries. Each of the outstanding shares of capital
stock of each of FMP's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned by FMP free and clear of all liens,
pledges, security interests, claims or other encumbrances. The FMP Disclosure
Schedule sets forth with respect to each FMP Subsidiary (a) its name and
jurisdiction of incorporation, (b) its authorized capital stock, and (c) the
number of issued and outstanding shares of capital stock. Except for interests
in the FMP Subsidiaries, neither FMP nor any FMP Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, limited liability company, business,
trust or entity.
3.7. NO VIOLATIONS. The execution and delivery of this Agreement by FMP
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the certificate of incorporation or by-laws of FMP or its
Subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of FMP or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which FMP or any of its
Subsidiaries is a party, or by which FMP or any of its Subsidiaries or any of
their properties is bound or affected, except for any of the foregoing matters
which would not reasonably be expected to have, individually or in the
aggregate, an FMP Material Adverse Effect; (c) will not violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to FMP or any of
its Subsidiaries or any of their respective properties or assets, except for
violations which would not reasonably be expected to have, individually or in
the aggregate, an FMP Material Adverse Effect, or (d) other than the filings
provided for in Section 1, filings under the Securities Exchange Act of 1934
(the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities
Act") or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), will not require any
material consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority, the
failure to obtain or make which would reasonably be expected to have,
individually or in the aggregate, an FMP Material Adverse Effect.
3.8. FINANCIAL STATEMENTS.
3.8.1. FMP has furnished RG with (a) consolidated balance sheets of
FMP and its Subsidiaries (the "FMP Balance Sheet") as of May 30, 1996 and
February 28, 1997 (the February 28, 1997 date
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hereinafter referred to as the "FMP Balance Sheet Date"), and (b) FMP's
related consolidated statements of operations, net assets and,
stockholders' equity and cash flows for year ended May 30, 1996 and for the
nine months ended February 28, 1997. Such consolidated financial statements
(the "FMP Financial Statements"), present fairly, in all material respects
the consolidated financial position of FMP and its Subsidiaries as of May
30, 1996 and February 28, 1997, and the consolidated results of their
operations and their cash flows for such fiscal periods, in conformity with
generally accepted accounting principles ("GAAP"). Except as and to the
extent set forth on the FMP Balance Sheet, neither FMP nor any of its
Subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required
to be reflected on, or reserved against in, a consolidated balance sheet of
FMP, prepared in accordance with GAAP, except liabilities arising in the
ordinary course of business since such date.
3.8.2. The accounts and notes receivable reflected on the FMP
Financial Statements as of the FMP Balance Sheet Date or acquired
thereafter by FMP or its Subsidiaries arose in the ordinary course of
business from bona fide transactions. None of such accounts or notes
receivable reflects work-in-progress or goods not yet delivered. Such
accounts and notes receivable are the enforceable obligations of the
obligors thereof and are neither subject to any offset or counter-claim by
such obligors nor any encumbrance other than immaterial encumbrances.
3.8.3. The inventory reflected on the FMP Financial Statements as of
the FMP Balance Sheet Date or acquired or manufactured since the FMP
Balance Sheet Date consists entirely of items saleable at regular prices or
usable in the ordinary course of business of FMP and its Subsidiaries,
except for an immaterial quantity of defective or obsolete items that have
been written off in the ordinary course of business since the FMP Balance
Sheet Date in a manner consistent with GAAP applied on a consistent basis.
There are no encumbrances on such inventory other than immaterial
encumbrances.
3.9. LITIGATION. There is no action, suit or proceeding pending against
FMP or the FMP Subsidiaries, or, to the knowledge of FMP, overtly threatened
against FMP or its Subsidiaries or any of their respective properties or assets,
at law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, an FMP Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither FMP nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, in the future would have an FMP Material
Adverse Effect or would prevent or delay the consummation of the transaction
contemplated hereby.
3.10. ABSENCE OF CERTAIN CHANGES. Since the FMP Balance Sheet Date, each
of FMP and its Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to FMP and its Subsidiaries having, individually or in the aggregate, an
FMP Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock, or (c) any
material change in its accounting principles, practices or methods.
3.11. TAX MATTERS.
3.11.1. For all periods ended prior to the date of this Agreement,
each of FMP and its Subsidiaries (a) has timely filed or caused to be filed
all federal, state, local and foreign tax returns, declarations and reports
which are required to be filed by, or with respect to, any of them (taking
into account all applicable extensions), (b) has paid or accrued all taxes,
including interest, penalties and additions to tax, if any, shown to be due
and payable on all such returns, and (c) has, for purposes of preparing and
issuing all annual and quarterly income statements and balance sheets,
adequately accrued or otherwise provided for the payment of additional
federal, state or local taxes which were not reported on the applicable
returns or reports as required under GAAP.
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3.11.2. Each of FMP and its Subsidiaries has timely and properly
accrued or paid in all material respects all taxes for all periods
subsequent to the periods covered by returns filed for periods ended prior
to the date of this Agreement.
3.11.3. Complete and accurate copies of all FMP federal, state and
local income tax returns have been made available to RG.
3.11.4. With respect to federal income taxes, the statute of
limitations has not expired for FMP for any year. There are no federal,
state or local audits of FMP currently ongoing and there are no current
cases filed relating to the determination of the amount of taxes due from
FMP and/or its Subsidiaries. To the extent FMP has notified RG of any such
audits or cases, complete and accurate copies of all relevant
communications and filings have been made available to RG (including, but
not limited to, Forms 5701, Revenue Agent's Reports, 30-Day-Letters,
90-Day-Letters and any petition, complaint or claim made in any court
having jurisdiction and all documents relating to any case currently before
any such court). Neither FMP nor any of its Subsidiaries has granted a
power-of-attorney relating to tax matters to any person. All final
adjustments made by the Internal Revenue Service ("IRS") with respect to
any federal tax return of FMP or its Subsidiaries have been reported for
state and local income tax purposes to the relevant state or local taxing
authorities.
3.11.5. No requests for ruling or determination letters relating to
federal, state or local income taxes paid or payable by FMP or any of its
Subsidiaries are pending with any taxing authority.
3.11.6. (a) Neither FMP nor any FMP Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method initiated by FMP or its
Subsidiaries or required by law, (b) FMP has no knowledge that the IRS has
proposed or purported to require any such adjustment or change in
accounting method and (c) FMP has no knowledge or belief that any such
adjustment under Section 481(a) of the Code will be required of FMP or its
Subsidiaries upon the completion of, or by reason of, the transaction
contemplated by this Agreement.
3.11.7. (a) There are no deferred intercompany transactions between
FMP and/or any of its Subsidiaries which will or may result in the
recognition of income upon the consummation of the transaction contemplated
by this Agreement, and (b) there are no other transactions or facts
existing with respect to FMP and/or its Subsidiaries which by reason of the
consummation of the transaction contemplated by this Agreement will result
in FMP and/or its Subsidiaries recognizing income.
3.11.8. FMP is not a foreign person within the meaning of Section
1445 of the Code and FMP does not conduct operations which would require it
to report or pay income tax to any foreign taxing authority.
3.11.9. There are no tax liens on any of the assets or property of
FMP or its Subsidiaries.
3.11.10. There are no contracts, agreements or plans entered into by
FMP or its Subsidiaries covering any person that individually or
collectively would require FMP or any of its Subsidiaries to make any
payments of any amount which would not be deductible by reason of the
provisions of Section 162(m) or Section 280G of the Code.
3.11.11. Neither FMP nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f) of the Code) owned by it.
3.12. CERTAIN EMPLOYEE PLANS.
3.12.1. (a) "Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), any fringe benefit plan, any equity
compensation plan or arrangement (including without limitation, stock
option, restricted stock and stock purchase plans), any plan, policy or
arrangement for the provision of executive compensation, incentive
benefits, bonuses or severance benefits, any employment contract,
collective bargaining agreement, deferred compensation agreement, Code
section 125 cafeteria plan or split dollar arrange-
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ment, any participation or similar agreement with a multi-employer pension
fund, or any other plan, policy, arrangement or scheme for the provision or
funding of employee benefits with respect to which an FMP or RG Controlled
Group Member in the past or present, directly or indirectly maintained or
maintains, sponsored or sponsors, or had or has any liability or
obligation.
(b) "FMP Controlled Group Member" means FMP and each other person
or entity required to be aggregated with FMP under Code section 414(b),
(c), (m) or (o).
(c) "RG Controlled Group Member" means RG and each other person or
entity required to be aggregated with RG under Code section 414(b), (c),
(m) or (o).
3.12.2. Each Benefit Plan maintained by any FMP Controlled Group
Member (the "FMP Benefit Plans") complies with, and has been administered
in accordance with, in all material respects, all applicable requirements
of law, except for instances of non-compliance that would not reasonably be
expected to have caused, individually or in the aggregate, an FMP Material
Adverse Effect. The FMP Benefit Plans are listed in the FMP Disclosure
Schedule and copies or descriptions of all material Plans have previously
been provided to RG.
3.12.3. With respect to each FMP Benefit Plan intended to qualify
under Section 401(a) of the Code, (a) a favorable determination letter has
been issued by the IRS with respect to the qualification of each FMP
Benefit Plan, and (b) no "reportable event" or "prohibited transaction" (as
such terms are defined in ERISA) or termination has occurred under
circumstances which present a risk of material liability by any FMP
Controlled Group Member to any governmental entity or other person,
including an FMP Benefit Plan. Each FMP Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has
been maintained in compliance with the minimum funding standards of ERISA
and the Code and no such FMP Benefit Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code and Section 302
of ERISA), whether or not waived. No FMP Controlled Group Member directly
or indirectly contributes to, has an obligation to contribute to or has
liability with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any time
within the 10 year period ending on the date of the Closing, any employee
benefit plan which is a multi-employer plan subject to the requirements of
Subtitle E of Title IV of ERISA.
3.12.4. Except as required by Code Section 4980(b) or 162 or Part 6
of Title I of ERISA, no FMP Controlled Group Member provides any health,
welfare or life insurance benefits to any of their former or retired
employees, which benefits would be material either individually or in the
aggregate to FMP.
3.13. LABOR MATTERS.
3.13.1. Neither FMP nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of FMP, overtly threatened against FMP or its Subsidiaries
relating to their business, except for any such proceeding which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect. To the knowledge of FMP, there are no
organizational efforts with respect to the formation of a collective
bargaining unit presently being made or overtly threatened involving
employees of FMP or any of its Subsidiaries.
3.13.2. FMP has delivered to RG copies of all material employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other agreements, plans or
arrangements with respect to compensation of the employees of FMP and its
Subsidiaries (the "FMP Compensation Arrangements"). The Merger will not
accelerate or otherwise give rise to payments pursuant to the FMP
Compensation Arrangements.
3.14. ENVIRONMENTAL LAWS AND REGULATIONS.
3.14.1. FMP and each of its Subsidiaries is in compliance in all
material respects with all applicable federal, state and local laws and
regulations relating to pollution or protection of human health
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or the environment (collectively, "Environmental Laws") which compliance
includes, but is not limited to, the possession by FMP and its Subsidiaries
of all material permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof, except for non-compliance that would not reasonably be
expected to have, individually or in the aggregate, an FMP Material Adverse
Effect. Neither FMP nor any of its Subsidiaries has received written notice
of, or, to the knowledge of FMP, is the subject of, or to the knowledge of
FMP is there any basis for, any action, cause of action, claim,
investigation, demand or notice, including without limitation,
non-compliance orders, warning letters, notices of violation, by any person
or entity alleging liability under or non-compliance with any Environmental
Law (an "FMP Environmental Claim") that would reasonably be expected to
have, individually or in the aggregate, an FMP Material Adverse Effect. To
the knowledge of FMP there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance in the future.
3.14.2. There are no FMP Environmental Claims, which would reasonably
be expected to have, individually or in the aggregate, an FMP Material
Adverse Effect, that are pending or, to the knowledge of FMP, overtly
threatened against FMP or any of its Subsidiaries or, to the knowledge of
FMP, against any person or entity whose liability for any FMP Environmental
Claim FMP or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
3.14.3. Neither FMP nor any FMP Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle or
discharge, any hazardous substances to, at or upon: (i) any location other
than a site lawfully permitted to receive such hazardous substances, (ii)
any parcel of real property owned or leased by FMP or any FMP Subsidiary,
except in compliance with applicable Environmental Laws; (iii) any site
which, pursuant to CERCLA or any similar state law (x) has been placed on
the National Priorities List or its state equivalent, or (y) the
Environmental Protection Agency or the relevant state agency has notified
FMP that it has proposed or is proposing to place on the National
Priorities List or its state equivalent; or (b) has any knowledge that
there has occurred or is presently occurring a discharge, or threatened
discharge, of any hazardous substance on, into or beneath the surface of,
or adjacent to, any real property owned or leased by FMP or any FMP
Subsidiary.
3.14.4. The FMP Disclosure Schedule identifies (a) all environmental
audits, assessments, or occupational health studies undertaken by FMP or
its agents on its behalf, or, to the knowledge of FMP, undertaken by any
governmental authority, or any third party, relating to or affecting any
real property owned or leased by FMP or any FMP Subsidiary; (b) the results
of any ground, water, soil, air or asbestos monitoring undertaken by FMP or
its agents on its behalf, or, to the knowledge of FMP, undertaken by any
governmental authority or any third party, relating to or affecting any
real property owned or leased by FMP or any FMP Subsidiary; (c) all
material written communications between FMP and any governmental authority
arising under or related to Environmental Laws; and (d) all outstanding
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings or decrees relating
to or affecting any real property owned or leased by FMP or any FMP
Subsidiary.
3.15. REAL PROPERTY.
3.15.1. FMP has delivered to RG either copies or fair and accurate
summaries (the "FMP Property Documents") of each of its leases, subleases,
licenses, deeds or other agreements or instruments (and any amendments
thereto) under which FMP or any of its Subsidiaries owns, uses or occupies
or has the right to use or occupy, now or in the future, any real property
(the "FMP Real Estate Agreements"). Each FMP Real Estate Agreement is
valid, binding and in full force and effect, all rent and other sums and
charges payable by FMP and its Subsidiaries as tenants thereunder are
current, no termination event or condition or uncured default of a material
nature on the part of FMP or any such Subsidiary or, to the knowledge of
FMP, as to a landlord, exists under any FMP Real Estate Agreement, except
for any of the foregoing matters which would not reasonably be expected to
have, individually or in the aggregate, an FMP Material Adverse Effect. The
information contained in the FMP Property Documents is true and correct in
all material respects.
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3.15.2. Since the FMP Balance Sheet Date, no portion of the real
property subject to the FMP Real Estate Agreements has suffered any
material damage by fire or other casualty which has not heretofore been
substantially repaired or restored.
3.15.3. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect:
(a) FMP has not granted, and to the best of FMP's knowledge, no
other person has granted, any leases, subleases, licenses or other
agreements granting to any person other than FMP any right to
possession, use, occupancy or enjoyment of the property covered by the
FMP Real Estate Agreements, or any portion thereof, and
(b) FMP is not obligated under any option, right of first refusal
or any contractual right to purchase, acquire, sell or dispose of any
real property covered by the FMP Real Estate Agreements.
3.15.4. None of the FMP Real Estate Agreements contains continuous
operating covenants, radius restrictions or provisions requiring the
consent of the landlord to the Merger or the assumption of FMP's
obligations under the FMP Real Estate Agreements in the manner contemplated
by this Agreement, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect.
3.16. INSURANCE. FMP and its Subsidiaries maintain with respect to their
operations and their assets, in full force and effect, policies of insurance in
the ordinary course of business as is usual and customary for businesses
similarly situated to FMP. FMP has provided RG copies of claims associated with
its operations and the operations of its Subsidiaries since their incorporation.
3.17. INTELLECTUAL PROPERTY. Every material trade secret, including
know-how, inventions, designs and processes, patent, patent right, trademark,
trademark right, service mark, trade name or copyright, or application thereof,
and licenses and rights with respect to the foregoing, used in connection with
the business of FMP and its Subsidiaries, including the "frequency matched"
technology (the "FMP Intellectual Property"), is protected by FMP in a manner
which, under the circumstances, is prudent and commercially reasonable, and
owned by FMP or its Subsidiaries free and clear of any liens, encumbrances,
claims or restrictions whatsoever which would have an FMP Material Adverse
Effect, direct or indirect, and, to the knowledge of FMP, the FMP Intellectual
Property does not infringe upon the rights of any person. Neither FMP nor any of
its Subsidiaries has granted to any other person the right to use the FMP
Intellectual Property, or any part thereof. FMP is not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner of, licensor of, or other claimant to, any patent, patent rights,
trademark, trademark rights, trade name, trade name rights, copyright or other
intangible assets, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
3.18. CERTAIN CONTRACTS. FMP has delivered copies of each material
contract to which FMP or any of its Subsidiaries is a party, or by which any of
their respective properties or assets is bound. FMP and its Subsidiaries are in
compliance in all material respects with all material terms of such contracts.
3.19. NO BROKERS. Neither FMP nor any FMP Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of FMP or RG or Merger Sub to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby.
3.20. CONFLICTS OF INTEREST. No shareholder, officer, or director, or, to
the knowledge of FMP, no employee or consultant of FMP or any FMP Subsidiary, or
any affiliate of such person has any direct or indirect interest (a) in any
corporation, partnership, proprietorship, association, or other person or entity
which does business with FMP or any FMP Subsidiary, (b) in any property, asset
or right which is used by FMP or any FMP Subsidiary in the conduct of its
business, or (c) in any contract to which FMP is a party or by which FMP or any
FMP Subsidiary may be bound.
3.21. PERSONAL PROPERTY. FMP owns all of its material personal property,
including, without limitation, the material personal property reflected in the
FMP Balance Sheet, except for personal property disposed of in
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the ordinary course of business since the FMP Balance Sheet Date, subject to no
mortgage, pledge, lien, charge, security interest, encumbrance or restriction,
except those which are shown and described in the FMP Balance Sheet or the notes
thereto. All personal properties purported to be leased by FMP are subject to
valid and effective leases.
3.22. DISCLOSURE. Neither FMP nor any FMP Subsidiary has knowingly
withheld from RG any material facts relating to FMP's and any FMP Subsidiary's
assets, business, operations, financial conditions, or prospects. No
representation or warranty in this Agreement contains any untrue statement of a
material fact required to make the statements herein contained not misleading or
omits to state any material fact required to be stated herein or necessary to
make the statements herein not misleading.
3.23. STATUS AS REORGANIZATION.
3.23.1. FMP has no plan or intent to:
(a) Liquidate RG;
(b) Merge RG with or into another corporation;
(c) Sell or otherwise dispose of the stock of RG except for
transfers of stock to corporations "controlled" (within the meaning of
Section 368(c) of the Code) by FMP;
(d) Reacquire any of its stock issued in connection with the
Merger;
(e) Cause RG to issue additional shares of stock of RG that would
result in FMP losing "control" (within the meaning of Section 368(c) of
the Code) of RG;
(f) Cause RG to sell or otherwise dispose of any of its assets or
any assets of Merger Sub acquired in the Merger except for dispositions
made in the ordinary course of business or transfers described in
Section 368 (a)(2)(C) of the Code; or
(g) Take any other action that might otherwise cause the Merger
not to be treated as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
3.23.2. FMP and any of the major stockholders of FMP do not own, nor
have they owned during the past five years, any shares of stock of RG.
3.23.3. Neither FMP nor Merger Sub is an "investment company" (within
the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code);
3.23.4. Merger Sub is being formed solely for the purpose of merging
with and into RG and, as of the Effective Date, will not have had any
existing operation, assets or liabilities (other than liabilities for
franchise taxes, if applicable, and liabilities under this Agreement); and
3.23.5. FMP will, as of the Effective Date, own all of the stock of
Merger Sub.
ARTICLE 4. REPRESENTATIONS OF RG. RG hereby represents and warrants to FMP
that:
4.1. RG DISCLOSURE SCHEDULE.
4.1.1. The RG Disclosure Schedule sets forth all of the information
concerning RG and its Subsidiaries and the RG Shares required in this
Article 4. To the extent any statement in this Article 4 is untrue or omits
to state a material fact necessary to make such statement not misleading,
the RG Disclosure Schedule sets forth the statements necessary to make the
statements in this Article 4 true and not misleading. All information and
statements set forth in the RG Disclosure Schedule shall be deemed to
supersede and correct the statements made in this Article 4 and to be
additional representations and warranties of RG. The RG Disclosure Schedule
sets forth all of the information and statements required in numbered
sections bearing the number of the Section of this Agreement calling for
such information and in the order of such numbers in this Agreement.
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4.1.2. RG has delivered to FMP complete and accurate copies of (a)
any written contract or other document referred to in the RG Disclosure
Schedule or herein and (b) the RG Reports referred to in Section 4.7 of
this Agreement.
4.1.3. To the knowledge of RG, neither the RG Disclosure Schedule nor
any financial statement, exhibit, certificate or other instrument or
document concerning the RG Shares or RG delivered by or on behalf of RG in
connection with the transaction contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact required to
be stated or necessary to make the statements herein or therein not
misleading.
4.2. EXISTENCE AND GOOD STANDING OF RG. RG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. RG is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of RG and its Subsidiaries (an "RG Material Adverse
Effect"). Each RG Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, has the
corporate power and corporate authority to own its properties and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the ownership
of its property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so licensed or qualified or
to be in good standing would not reasonably be expected to have, individually or
in the aggregate, an RG Material Adverse Effect. Neither RG nor any of its
Subsidiaries is in violation of any order of any court, governmental authority
or arbitration board or tribunal, or any law, ordinance, governmental rule or
regulation to which RG or any of its Subsidiaries or any of their respective
properties or assets is subject, except where such violation would not have,
individually or in the aggregate, an RG Material Adverse Effect. RG and its
Subsidiaries have obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or governmental regulations in
connection with their business as now conducted, where the failure to obtain any
such items or to take any such action would reasonably be expected to have an RG
Material Adverse Effect. The copies of RG's articles of incorporation and
by-laws previously delivered to FMP are true and correct.
4.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. RG has the
requisite corporate power and corporate authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. Subject only to
the approval of this Agreement and the transaction contemplated hereby by the
holders of a majority of the outstanding RG Shares, the consummation by RG of
the transaction contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of RG,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
4.4. CAPITAL STOCK. The authorized capital stock of RG consists of
15,000,000 shares of common stock and 5,000,000 shares of preferred stock, par
value $.001 per share. As of March 14, 1997, there were 2,740,928 shares of
common stock issued and outstanding and no shares of preferred stock issued and
outstanding. Since such date, no additional shares of capital stock of RG have
been issued. RG has no outstanding bonds, debentures, notes or other obligations
the holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of RG
on any matter. All such issued and outstanding RG Shares are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Other
than as contemplated by this Agreement or the RG Option Plans, there are not at
the date of this Agreement any outstanding subscriptions, options, warrants,
rights, calls, commitments, conversion rights, convertible securities, rights of
exchange, plans or other agreements providing for the purchase, issuance or sale
of any of the shares of the capital stock of RG by or to RG. As of December 31,
1996, 674,839 RG Shares were reserved for issuance and are issuable upon or
otherwise
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deliverable in connection with the exercise of outstanding options; since that
date, no options have been granted under the RG Option Plans or otherwise and no
new option plans have been authorized or adopted.
4.5. SUBSIDIARIES. RG owns all of the outstanding shares of capital stock
of each of the RG Subsidiaries. All of the outstanding shares of capital stock
of the RG Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and are owned by RG free and clear of all liens, pledges,
security interests, claims or other encumbrances. The RG Disclosure Schedule
sets forth with respect to each RG Subsidiary (a) its name and jurisdiction of
incorporation, (b) its authorized capital stock, and (c) the number of issued
and outstanding shares of capital stock. Except for interests in the RG
Subsidiaries, neither RG nor any RG Subsidiary owns directly or indirectly any
interest or investment (whether equity or debt) in any corporation, partnership,
joint venture, limited liability company, business, trust or entity.
4.6. NO VIOLATIONS. The execution and delivery of this Agreement by RG
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the articles of incorporation or by-laws of RG or the RG
Subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of RG or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which RG or the RG Subsidiaries is
a party, or by which RG or the RG Subsidiaries or any of their properties is
bound or affected, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an RG Material
Adverse Effect; (c) will not violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to RG or the RG Subsidiaries or any of
their properties or assets, except for violations which would not reasonably be
expected to have, individually or in the aggregate, an RG Material Adverse
Effect, or (d) other than the Regulatory Filings, will not require any material
consent, approval or authorization of, or declaration, filing or registration
with, any domestic governmental or regulatory authority, the failure to obtain
or make which would reasonably be expected to have, individually or in the
aggregate, an RG Material Adverse Effect.
4.7. SEC DOCUMENTS.
4.7.1. RG has furnished FMP each registration statement, report, proxy
statement or information statement, including all exhibits thereto, prepared by
it since September 23, 1993, including, without limitation, (a) its Annual
Report on Form 10-K for its fiscal year ended December 31, 1996 (the "RG Balance
Sheet Date"), which includes the consolidated balance sheet for RG as of such
date (the "RG Balance Sheet") and (b) its proxy statement for its annual meeting
of stockholders held on May 7, 1996, each of (a) and (b) in the form (including
exhibits and any amendments thereto) filed with the Securities and Exchange
Commission (the "SEC") and the items in (a) and (b), the "RG Reports". As of
their respective dates, the RG Reports (including, without limitation, any
financial statements or schedules included or incorporated by reference therein)
(i) were prepared in all material respects in accordance with the applicable
requirements of the Exchange Act, and the respective rules and regulations
thereunder, and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The 1996 and 1995 consolidated financial statements
of RG included in or incorporated by reference into the RG Reports (including
the related notes and schedules) present fairly, in all material respects, the
consolidated financial position of RG at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended of RG in conformity with GAAP consistently applied during the periods
involved. Except as and to the extent set forth on the RG Balance Sheet,
including all notes thereto, or as set forth in the RG Reports, RG has no
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of RG or in the notes thereto, prepared in
accordance with GAAP consistently applied, except liabilities arising in the
ordinary course of business since such date.
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4.7.2. The accounts and notes receivable reflected on the RG Balance
Sheet as of the RG Balance Sheet Date or acquired thereafter by RG or its
Subsidiaries arose in the ordinary course of business from bona fide
transactions. None of such accounts or notes receivable reflects
work-in-progress or goods not yet delivered. Such accounts and notes
receivable are the enforceable obligations of the obligors thereof and are
neither subject to any offset nor counter-claim by such obligors nor any
encumbrance other than immaterial encumbrances.
4.7.3. The inventory reflected on the RG Balance Sheet as of the RG
Balance Sheet Date or acquired or manufactured since the RG Balance Sheet
Date consists entirely of items saleable at regular prices or usable in the
ordinary course of business of RG and its Subsidiaries, except for an
immaterial quantity of defective or obsolete items that have been written
off in the ordinary course of business since the RG Balance Sheet Date in a
manner consistent with GAAP applied on a consistent basis. There are no
encumbrances on such inventory other than immaterial encumbrances.
4.8. LITIGATION. There is no action, suit or proceeding pending against
RG or the RG Subsidiaries, or, to the knowledge of RG, overtly threatened
against RG or the RG Subsidiaries or any of their properties or assets, at law
or in equity, or before or by any federal or state commission, board, bureau,
agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, an RG Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither RG nor any of the RG Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future would have
an RG Material Adverse Effect or would prevent or delay the consummation of the
transaction contemplated hereby.
4.9. ABSENCE OF CERTAIN CHANGES. Since the RG Balance Sheet Date, each of
RG and the RG Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to RG and the RG Subsidiaries having, individually or in the aggregate,
an RG Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock, or (c) any
material change in its accounting principles, practices or methods.
4.10. TAX MATTERS.
4.10.1. For all periods ended prior to the date of this Agreement,
each of RG and the RG Subsidiaries (a) has timely filed or caused to be
filed all federal, state, local and foreign tax returns, declarations and
reports which are required to be filed by, or with respect to, any of them
(taking into account all applicable extensions), (b) has paid or accrued
all taxes, including interest, penalties and additions to tax, if any,
shown to be due and payable on all such returns, and (c) has, for purposes
of preparing and issuing all annual and quarterly income statements and
balance sheets, adequately accrued or otherwise provided for the payment of
additional federal, state or local taxes which were not reported on the
applicable returns or reports as required under GAAP.
4.10.2. Each of RG and its Subsidiaries has timely and properly
accrued or paid in all material respects all taxes for all periods
subsequent to the periods covered by returns filed for periods ended prior
to the date of this Agreement.
4.10.3. Complete and accurate copies of all RG federal, state and
local income tax returns have been made available to FMP.
4.10.4. With respect to federal income taxes, the statute of
limitations has expired for RG for all years ended on or prior to September
21, 1993. There are no federal, state or local audits of RG currently
ongoing and there are no current cases filed relating to the determination
of the amount of taxes due from RG and/or its Subsidiaries. To the extent
RG has notified FMG of any such audits or cases, complete and accurate
copies of all relevant communications and filings have been made available
to FMP (including, but not limited to, Forms 5701, Revenue Agent's Reports,
30-Day-Letters, 90-Day-Letters and any petition, complaint or claim made in
any court having jurisdiction and all documents relating to any case
currently before any such court). Neither RG nor any of its Subsidiaries
has granted a power-of-
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attorney relating to tax matters to any person. All final adjustments made
by the IRS with respect to any federal tax return of RG or its Subsidiaries
have been reported for state and local income tax purposes to the relevant
state or local taxing authorities.
4.10.5. No requests for ruling or determination letters relating to
federal, state or local income taxes paid or payable by RG or its
Subsidiaries are pending with any taxing authority.
4.10.6. (a) Neither RG nor any RG Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method initiated by RG or its Subsidiaries
or required by law, (b) RG has no knowledge that the IRS has proposed or
purported to require any such adjustment or change in accounting method and
(c) RG has no knowledge or belief that any such adjustment under Section
481(a) of the Code will be required of RG or its Subsidiaries upon the
completion of, or by reason of, the transaction contemplated by this
Agreement.
4.10.7. (a) There are no deferred intercompany transactions between
RG and its Subsidiaries or between its Subsidiaries which will or may
result in the recognition of income upon the consummation of the
transaction contemplated by this Agreement, and (b) there are no other
transactions or facts existing with respect to RG and/or its Subsidiaries
which by reason of the consummation of the transaction contemplated by this
Agreement will result in RG and/or its Subsidiaries recognizing income.
4.10.8. RG is not a foreign person within the meaning of Section 1445
of the Code and RG does not conduct operations which would require it to
report or pay income tax to any foreign taxing authority.
4.10.9. There are no tax liens on any of the assets or property of RG
or its Subsidiaries.
4.10.10. There are no contracts, agreements or plans entered into by
RG or its Subsidiaries covering any person that individually or
collectively would require RG or its Subsidiaries to make any payments of
any amount which would not be deductible by reason of the provisions of
Section 162(m) or Section 280G of the Code.
4.10.11. Neither RG nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f) of the Code) owned by it.
4.11. CERTAIN EMPLOYEE PLANS.
4.11.1. Each Benefit Plan maintained by any RG Controlled Group
Member (the "RG Benefit Plans") complies with, and has been administered in
accordance with, in all material respects, all applicable requirements of
law, except for instances of non-compliance that would not reasonably be
expected to have caused, individually or in the aggregate, an RG Material
Adverse Effect. The RG Benefit Plans are listed in the RG Disclosure
Schedule and copies or descriptions of all material Plans have previously
been provided to FMP.
4.11.2. With respect to each RG Benefit Plan intended to qualify
under Section 401(a) of the Code, (a) a favorable determination letter has
been issued by the IRS with respect to the qualification of each RG Benefit
Plan and (b) no "reportable event" or "prohibited transaction" (as such
terms are defined in ERISA) or termination has occurred under circumstances
which present a risk of material liability by any RG Controlled Group
Member to any governmental entity or other person, including an RG Benefit
Plan. Each RG Benefit Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA or Section 412 of the Code has been maintained in
compliance with the minimum funding standards of ERISA and the Code and no
such RG Benefit Plan has incurred any "accumulated funding deficiency" (as
defined in Section 412 of the Code and Section 302 of ERISA), whether or
not waived. No RG Controlled Group Member directly or indirectly
contributes to, has an obligation to contribute to or has liability with
respect to, and has not directly or indirectly maintained, sponsored,
contributed to or had an obligation to contribute to at any time within the
10 year period ending on the date of the Closing, any employee benefit plan
which is a multi-employer plan subject to the requirements of Subtitle E of
Title IV of ERISA.
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4.11.3. Except as required by Code section 4980(b) or 162 or Part 6
of Title I of ERISA, no RG Controlled Group Member provides any health,
welfare or life insurance benefits to any of its former or retired
employees, which benefits would be material either individually or in the
aggregate to RG.
4.12. LABOR MATTERS.
4.12.1. Neither RG nor any RG Subsidiary is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge
of RG, overtly threatened against RG or the RG Subsidiaries relating to
their business, except for any such proceeding which would not reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect. To the knowledge of RG, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently
being made or overtly threatened involving employees of RG or the RG
Subsidiaries.
4.12.2. RG has delivered to FMP copies of all material employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other agreements, plans or
arrangements with respect to compensation of the employees of RG and the RG
Subsidiaries (the "RG Compensation Arrangements"). The Merger will not
accelerate or otherwise give rise to payments pursuant to the RG
Compensation Arrangements.
4.13. ENVIRONMENTAL LAWS AND REGULATIONS.
4.13.1. Each of RG and the RG Subsidiaries is in compliance in all
material respects with all applicable Environmental Laws which compliance
includes, but is not limited to, the possession by RG and the RG
Subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms
and conditions thereof, except for non-compliance that would not reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect. Neither RG nor any RG Subsidiary has received written
notice of, or, to the knowledge of RG, is the subject of, or to the
knowledge of RG is there any basis for, any action, cause of action, claim,
investigation, demand or notice, including without limitation,
non-compliance orders, warning letters or notices of violation, by any
person or entity alleging liability under or non-compliance with any
Environmental Law (an "RG Environmental Claim") that would reasonably be
expected to have, individually or in the aggregate, an RG Material Adverse
Effect. To the knowledge of RG there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in
the future.
4.13.2. There are no RG Environmental Claims which would reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect that are pending or, to the knowledge of RG, overtly
threatened against RG or the RG Subsidiaries or, to the knowledge of RG,
against any person or entity whose liability for any RG Environmental Claim
RG or any RG Subsidiary has or may have retained or assumed either
contractually or by operation of law.
4.13.3. Neither RG nor any RG Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle or
discharge, any hazardous substances to, at or upon: (i) any location other
than a site lawfully permitted to receive such hazardous substances, (ii)
any parcel of real property owned or leased by RG or the RG Subsidiaries,
except in compliance with applicable Environmental Laws; (iii) any site
which, pursuant to CERCLA or any similar state law (x) has been placed on
the National Priorities List or its state equivalent, or (y) the
Environmental Protection Agency or the relevant state agency has notified
RG that it has proposed or is proposing to place on the National Priorities
List or its state equivalent; or (b) has any knowledge that there has
occurred or is presently occurring a discharge, or threatened discharge, of
any hazardous substance on, into or beneath the surface of, or adjacent to,
any real property owned or leased by RG or the RG Subsidiaries.
4.13.4. The RG Disclosure Schedule identifies (a) all environmental
audits, assessments, or occupational health studies undertaken by RG or its
agents on its behalf, or, to the knowledge of RG, undertaken by any
governmental authority, or any third party, relating to or affecting any
real property
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owned or leased by RG or the RG Subsidiaries; (b) the results of any
ground, water, soil, air or asbestos monitoring undertaken by RG or its
agents on its behalf, or, to the knowledge of RG, undertaken by any
governmental authority or any third party, relating to or affecting any
real property owned or leased by RG or the RG Subsidiaries; (c) all
material written communications between RG and any governmental authority
arising under or related to Environmental Laws; and (d) all outstanding
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings or decrees relating
to or affecting any real property owned or leased by RG or the RG
Subsidiaries.
4.14. REAL PROPERTY.
4.14.1. RG has delivered to FMP either copies or fair and accurate
summaries (the "RG Property Documents") of each of its leases, subleases,
licenses, deeds or other agreements or instruments (and any amendments
thereto) under which RG or any RG Subsidiary owns, uses or occupies or has
the right to use or occupy, now or in the future, any real property (the
"RG Real Estate Agreements"). Each RG Real Estate Agreement is valid,
binding and in full force and effect, all rent and other sums and charges
payable by RG and any RG Subsidiary as tenants thereunder are current, no
termination event or condition or uncured default of a material nature on
the part of RG or any RG Subsidiary or, to the knowledge of RG, as to a
landlord, exists under any RG Real Estate Agreement, except for any of the
foregoing matters which would not reasonably be expected to have,
individually or in the aggregate, an RG Material Adverse Effect. The
information contained in the RG Property Documents is true and correct in
all material respects.
4.14.2. Since the RG Balance Sheet Date, no portion of the real
property subject to the RG Real Estate Agreements has suffered any material
damage by fire or other casualty which has not heretofore been
substantially repaired or restored.
4.14.3. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, an RG
Material Adverse Effect:
(a) RG has not granted, and to the best of RG's knowledge, no
other person has granted, any leases, subleases, licenses or other
agreements granting to any person other than RG any right to possession,
use, occupancy or enjoyment of the property covered by the RG Real
Estate Agreements, or any portion thereof, and
(b) RG is not obligated under any option, right of first refusal
or any contractual right to purchase, acquire, sell or dispose of any
real property covered by the RG Real Estate Agreements.
4.14.4. None of the RG Real Estate Agreements contains continuous
operating covenants, radius restrictions or provisions requiring the
consent of the landlord to the Merger or the assumption of RG's obligations
under the RG Real Estate Agreements in the manner contemplated by this
Agreement, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an RG
Material Adverse Effect.
4.15. INSURANCE. RG and the RG Subsidiaries maintain with respect to
their operations and their assets, in full force and effect, policies of
insurance in the ordinary course of business as is usual and customary for
businesses similarly situated to RG. RG has provided FMP copies of claims
associated with its operations for the past 18 months.
4.16. INTELLECTUAL PROPERTY. Every material trade secret, including
know-how, inventions, designs and processes, patent, patent right, trademark,
trademark right, service mark, trade name or copyright, or application thereof,
and licenses and rights with respect to the foregoing, used in connection with
the business of RG and the RG Subsidiaries, including the "grip manufacturing"
technology (the "RG Intellectual Property"), is protected by RG in a manner
which, under the circumstances, is prudent and commercially reasonable and owned
by RG or its Subsidiaries free and clear of any liens, encumbrances, claims or
restrictions whatsoever which would have an RG Material Adverse Effect, direct
or indirect, and, to the knowledge of RG, the RG Intellectual Property does not
infringe upon the rights of any person. Neither RG nor any RG Subsidiary has
granted to any other person the right to use the RG Intellectual Property, or
any
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part thereof. RG is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any patent, patent rights, trademark, trademark rights, trade
name, trade name rights, copyright or other intangible assets, with respect to
the use thereof or in connection with the conduct of its business or otherwise.
4.17. CERTAIN CONTRACTS. RG has delivered copies of each material contract
to which RG or any RG Subsidiary is a party, or by which any of their properties
or assets are bound. RG and the RG Subsidiaries are in compliance in all
material respects with all material terms of such contracts.
4.18. NO BROKERS. Neither RG nor any RG Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of RG or FMP or Merger Sub to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby, except that RG has retained Everen Securities, Inc. as its
financial advisor and to render a fairness opinion as set forth below. The
arrangements with Everen Securities, Inc. have been disclosed in writing to FMP
prior to the date hereof.
4.19. CONFLICTS OF INTEREST. No shareholder, officer, or director, or, to
the knowledge of RG, no employee or consultant of RG or any RG Subsidiary, or
any affiliate of such person has any direct or indirect interest (a) in any
corporation, partnership, proprietorship, association, or other person or entity
which does business with RG or any RG Subsidiary, (b) in any property, asset or
right which is used by RG or any RG Subsidiary in the conduct of its business,
or (c) in any contract to which RG is a party or by which RG may be bound.
4.20. PERSONAL PROPERTY. RG owns all of its material personal property,
including, without limitation, the material personal property reflected in the
RG Balance Sheet, except for personal property disposed of in the ordinary
course of business since the RG Balance Sheet Date, subject to no mortgage,
pledge, lien, charge, security interest, encumbrance or restriction, except
those which are shown and described in the RG Balance Sheet or the notes
thereto. All personal properties purported to be leased by RG are subject to
valid and effective leases.
4.21. DISCLOSURE. Neither RG nor any RG Subsidiary has knowingly withheld
from FMP any material facts relating to RG's and the RG Subsidiary's assets,
business, operations, financial conditions, or prospects. No representation or
warranty in this Agreement contains any untrue statement of a material fact
required to make the statements herein contained not misleading or omits to
state any material fact required to be stated herein or necessary to make the
statements herein not misleading.
ARTICLE 5. COVENANTS.
5.1. NO SOLICITATION. RG shall not, directly or indirectly, take (nor
shall RG authorize or permit any RG Subsidiary, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates to take) any action to (a) encourage, solicit or initiate the
submission of any Acquisition Proposal (as defined in this Section 5.1), (b)
enter into any agreement with respect to any Acquisition Proposal, or (c)
participate in any way in discussions or negotiations with, or furnish any
information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. RG will promptly
communicate to FMP in writing the terms of any proposal or inquiry, including
the identity of the person and its affiliates making the same, that it may
receive in respect of any such transaction, or of any such information requested
from it or of any such negotiations or discussions being sought to be initiated
with it. Notwithstanding the foregoing, neither the provisions contained in this
Section 5.1 or elsewhere in this Agreement shall prohibit the Board of Directors
of RG from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
written proposal to acquire RG pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or other similar transaction, if the Board of Directors of RG determines in good
faith, based as to legal matters on the written advice of outside legal counsel,
that such action is required for the Board of Directors to comply with its
fiduciary duties to stockholders imposed by law (the "RG Board Fiduciary
Duties") and (ii) complying with Rule 14e-2 of the Exchange Act with regard to
any Acquisition Proposal, if applicable. "Acquisition Proposal" shall mean any
proposed (A) merger, consolidation or similar
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transaction involving RG, (B) sale, lease or other disposition directly or
indirectly by merger, consolidation share exchange or otherwise of assets of RG
representing 10% or more of the consolidated assets of RG, (C) issue, sale, or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 10% or
more of the voting power of RG or (D) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, or any "group" (as
such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership, of 10% or
more of the outstanding RG Common Stock. The exercise of the RG Board Fiduciary
Duties, notwithstanding any other provision of this Agreement, shall not
constitute a breach or violation of any provision of this Agreement; provided,
that the parties acknowledge that nothing contained in this Section 5.1 shall
either expand or narrow the obligations of RG under Section 5.12.
5.2. CONDUCT OF BUSINESSES. Prior to the Effective Date, except as set
forth in the FMP Disclosure Schedule, the RG Disclosure Schedule or as
contemplated by any other portion of this Agreement, unless both parties have
consented in writing thereto, which consent will not be unreasonably withheld,
each party:
5.2.1. Shall, and shall cause each of its Subsidiaries to, conduct
its operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
5.2.2. Shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those persons having
business relationships with it;
5.2.3. Shall confer on a regular basis with one or more
representatives of the other party to report operational matters of
materiality and any proposals to engage in material transactions;
5.2.4. Shall not amend its articles or certificate of incorporation
or by-laws;
5.2.5. Shall promptly notify the other party of (a) any material
emergency or other material change in the condition (financial or
otherwise), of such party's or any Subsidiary's business, properties,
assets, liabilities, prospects or the normal course of its businesses or in
the operation of its properties, (b) any material litigation or material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or (c) the breach in any
material respect of any representation or warranty or covenant contained
herein;
5.2.6. Shall promptly deliver to the other party true and correct
copies of any report, statement or schedule filed by such party with the
SEC subsequent to the date of this Agreement;
5.2.7. Shall not (a) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it exists on the date hereof, (b) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock, (c) increase any
compensation or enter into or amend any employment severance, termination
or similar agreement with any of its present or future officers or
directors, except for normal increases in compensation to employees not
earning more than $75,000 in annual base compensation, consistent with past
practice, and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs, nor (d) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any material respect,
except for changes which are less favorable to participants in such plans
or as may be required by applicable law;
5.2.8. Shall not (a) declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its capital
stock, (b) except in connection with the use of shares of capital stock to
pay the exercise price or tax withholding in connection with stock-based RG
Benefit Plans, directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital
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stock of any of its Subsidiaries, or make any commitment for any such
action, nor (c) split, combine or reclassify any of its capital stock;
5.2.9. Shall not, and shall not permit any of its Subsidiaries to
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) which are material, individually or in the
aggregate, except in the ordinary course of business;
5.2.10. Shall not (a) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing
lines of credit in the ordinary course of business, (b) except for
obligations of wholly-owned Subsidiaries; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practices in an
amount not material to such party, taken as a whole, (c) other than to
wholly-owned Subsidiaries, make any loans, advances or capital
contributions to or investments in, any other person, (d) pledge or
otherwise encumber shares of capital stock of such party or its
Subsidiaries, nor (e) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to create any material
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect to such asset;
5.2.11. Shall not acquire, sell, lease or dispose of any assets
outside the ordinary course of business or any assets which in the
aggregate are material to such party taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business
consistent with past practice which would be material to such party taken
as a whole;
5.2.12. Except as may be required as a result of a change in law or
in GAAP, shall not change any of the accounting principles or practices
used by such party, except that both parties shall use their best efforts
to make all filings under Regulation S-B promulgated by the SEC for all
periods ending after December 31, 1996;
5.2.13. Shall not (a) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division thereof or any
equity interest therein, (b) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice which
would be material to such party taken as a whole, (c) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$25,000 or, in the aggregate, is in excess of $1,500,000; provided, that
none of the foregoing shall limit any capital expenditure within the
aggregate amount previously authorized by such party's Board of Directors
for capital expenditures and written evidence thereof has been previously
provided to the other party, nor (d) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
which would be prohibited hereunder;
5.2.14. Shall not make any tax election or settle or compromise any
income tax liability material to such party taken as a whole;
5.2.15. Shall not pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
liabilities reflected or reserved against in, and contemplated by, the
financial statements (or the notes thereto) of such party or incurred in
the ordinary course of business consistent with past practice;
5.2.16. Shall not settle or compromise any pending or threatened
suit, action or claim relating to the transaction contemplated hereby; or
5.2.17. Shall not take, or agree in writing or otherwise to take, any
of the actions described in Section 5.2.1 through 5.2.16 or any action that
would make any of the representations and warranties of a party hereto
contained in this Agreement untrue or incorrect as of the date when made.
5.3. MEETINGS OF STOCKHOLDERS.
5.3.1. RG has, retained Everen Securities, Inc. to issue its opinion
on the fairness to the holders of RG Shares, from a financial point of
view, of the terms of the Merger, pursuant to the terms of an
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engagement letter presented to FMP. After receipt of such opinion, RG will
take all action reasonably necessary in accordance with applicable law and
its Articles of Incorporation and By-laws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the
approval of this Agreement and the transaction contemplated hereby. The
Board of Directors of RG shall recommend such approval and RG shall take
all reasonable lawful action to solicit such approval, including, without
limitation, timely mailing the Proxy Statement (as defined in Section
5.10); provided, however, that the Board of Directors of RG shall not be
required to make such recommendation or solicitation if the Board of
Directors determines in good faith, based as to legal matters on the
written advice of outside legal counsel, that such action would violate the
RG Board Fiduciary Duties. FMP shall coordinate and cooperate with RG with
respect to the timing of such meeting and RG shall use its best efforts to
hold such meeting as soon as is practicable. It shall be a condition to the
mailing of the Proxy Statement that RG shall have received the opinion of
Everen Securities, Inc., dated the date of the Proxy Statement, to the
effect that, as of the date thereof, the terms of the Merger are fair to
the holders of RG Shares from a financial point of view.
5.3.2. FMP duly called and held a meeting of the FMP stockholders on
April 17, 1997, at which meeting the FMP stockholders unanimously approved
this Agreement and the transaction contemplated hereby. FMP, as the sole
stockholder of Merger Sub, and Merger Sub will take all action necessary in
accordance with applicable law and the Articles of Incorporation and
By-laws of Merger Sub to promptly approve this Agreement and the
transaction contemplated hereby
5.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, each party shall: (a) use all reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Date with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Date from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transaction contemplated hereby, and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transaction
contemplated by this Agreement. If, at any time after the Effective Date, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of each party shall take all such
necessary action.
5.5. INSPECTION OF RECORDS; ACCESS. From the date hereof to the Effective
Date, each party shall allow all designated officers, attorneys, accountants and
other representatives of the other party (the "Other Party's Representatives")
access at all reasonable times to all employees, stores, offices, warehouses,
and other facilities and to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of such party and its Subsidiaries; provided, however, the Other
Party's Representatives shall use their reasonable best efforts to avoid
interfering with, hindering or otherwise disrupting the employees of such party
in the execution of their employment duties during any visit to, or inspection
of, such party's facilities.
5.6. PUBLICITY. The initial press release relating to this Agreement
shall be a joint press release and thereafter each party shall, subject to its
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), consult with each other, and use reasonable
efforts to agree upon the text of any press release, before issuing any such
press release or otherwise making public statements with respect to the
transaction contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect thereto.
5.7. REGISTRATION STATEMENT/PROXY STATEMENT.
5.7.1. As promptly as practicable after the execution of this
Agreement and receipt of the fairness opinion referred to in Section
5.3.1(a), FMP and RG shall prepare and file with the SEC preliminary proxy
materials which shall constitute the preliminary Proxy Statement (as
defined in Section 5.10) and a preliminary prospectus with respect to the
FMP Common Stock to be issued in connection with the Merger. As promptly as
practicable after comments are received from the SEC with respect to the
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preliminary proxy materials and after the furnishing by RG and FMP of all
information required to be contained therein, RG shall file with the
Commission the definitive Proxy Statement and FMP shall file with the
Commission the Registration Statement (as defined in Section 5.10) and FMP
and RG shall use all reasonable efforts to cause the Registration Statement
to become effective as soon thereafter as practicable.
5.7.2. FMP and RG shall make all necessary filings with respect to
the Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable Blue Sky or similar securities
laws, and shall use all reasonable efforts to obtain required approvals and
clearances with respect thereto.
5.8. COMPLIANCE WITH THE SECURITIES ACT.
5.8.1. Prior to the Effective Date, RG shall deliver to FMP a letter
setting forth a true and complete list of persons whom the Company believes
may be deemed to be "affiliates" of RG as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act (the "Affiliates").
5.8.2. RG shall use its reasonable best efforts to obtain as promptly
as practicable a written agreement from each person who is identified as an
Affiliate in the letter referred to in Section 5.8.1 above, in the form
previously approved by the parties, that he or she will not offer to sell,
sell or otherwise dispose of any of the FMP Common Stock issued to him or
her pursuant to the Merger, except in compliance with Rule 145 under the
Securities Act or another exemption from the registration requirements of
the Securities Act. RG shall deliver all such written agreements obtained
by it to FMP on or prior to the Effective Date.
5.9. TAKEOVER PROVISIONS INAPPLICABLE. RG agrees that it will not take
any action to render Sections 78.378 through 78.3793 and Sections 78.411 through
78.444 of the NGCL applicable to the Merger and the other transaction
contemplated hereby.
5.10. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENTS,
ETC. Each of FMP, Merger Sub and RG agree that none of the information supplied
by it for inclusion in (a) the Registration Statement to be filed with the SEC
by FMP on Form S-4 under the Securities Act for the purpose of registering
shares of FMP Common Stock to be issued in the Merger (the "Registration
Statement") and all other documents required to be filed by FMP with the SEC and
(b) the prospectus/proxy statement of RG and FMP (the "Proxy Statement")
required to be mailed to the stockholders of RG in connection with the Merger
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of mailing of the Proxy Statement or any amendments or
supplements thereto, and at the time of the RG Meeting to be held in connection
with the Merger, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. FMP and Merger Sub
agree that the Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. RG agrees that the Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
5.11. FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Date of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
5.12. FEES AND EXPENSES.
5.12.1. Except as provided below in this Section 5.12, if the Merger
is not effected, all costs and expenses incurred in connection with this
Agreement and in the transaction contemplated hereby shall be paid by the
party incurring such expense except that (a) RG and FMP each agree to pay
50% of all printing expenses incurred by either party in connection with
the Registration Statement and the Proxy Statement and (b) FMP agrees to
pay any legal and accounting fees incurred by RG in connection with this
transaction on and after the date hereof to the extent that such fees and
expenses exceed $100,000 up
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to $300,000, and (c) FMP agrees to pay additional transaction costs equal
to $85,000 upon execution of this Agreement. Notwithstanding the provisions
of the preceding sentence, (i) in any action, suit or other proceeding
under or to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and other
out-of-pocket expenses from the losing party, and (ii) RG shall be
obligated to repay the $85,000 of additional transaction costs where the
Merger does not occur due to no fault of FMP.
5.12.2. If this Agreement is terminated by FMP pursuant to Section
7.4 hereof or because of the nonfulfillment of any condition set forth in
Section 6.3, (a) FMP shall not be obligated to make any further payments
required to be made under Section 5.12.1, and (b) RG shall pay, or cause to
be paid, in same day funds to FMP upon demand (i) all actual out-of-pocket
costs, expenses and fees (including without limitation, attorneys and
accountants fees and expenses and other professional or service fees and
expenses) incurred or to be incurred by FMP or Merger Sub in connection
with this Agreement and the transaction contemplated hereby up to $500,000,
and (ii) any amounts due under Section 5.12.4.
5.12.3. If this Agreement is terminated by RG pursuant to Section
7.3(b) or (c) hereof or because of the nonfulfillment of any condition set
forth in Section 6.2, FMP shall pay, or cause to be paid, in same day funds
to RG upon demand, all actual out-of-pocket costs, expenses and fees
(including, without limitation, fees payable to all investment banking
firms and other institutions, and their respective agents, and including
attorneys and accountants fees and expenses and other professional or
service fees and expenses) incurred or to be incurred by RG in connection
with this Agreement and the transaction contemplated hereby up to $500,000.
5.12.4. In addition to any amounts payable under Section 5.12.2, RG
shall pay, or cause to be paid, in same day funds to FMP upon demand a fee
of $400,000 if:
(a) this Agreement is terminated by FMP pursuant to Section 7.2.2,
giving effect to the proviso contained in the definition of Third Party
Acquisition; or
(b) this Agreement is terminated by RG pursuant to clause (a) of
Section 7.3 and within 12 months thereafter, RG enters into an agreement
with respect to a Third Party Acquisition, or a Third Party Acquisition
occurs, involving a Third Party (i) with whom RG (or its agents) had any
discussions with respect to a Third Party Acquisition, (ii) to whom RG
(or its agents) furnished information with respect to or with a view to
a Third Party Acquisition or (iii) who expressed any interest publicly
or to RG in a Third Party Acquisition, in the case of each of clauses
(i), (ii) and (iii), at any time from and after the date hereof to the
date of such termination.
5.13. EMPLOYMENT AGREEMENTS; STOCKHOLDERS' AGREEMENT; LOCK-UP AGREEMENT;
AND REGISTRATION RIGHTS AGREEMENT. Simultaneously with the execution of this
Agreement FMP is entering into, (a) a consulting agreement with Danny Edwards,
(b) a Stockholder Agreement with DE,, Drew M. Brown, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust dated April 21, 1989, as
amended, DMB Property Venture Limited Partnership, RPJ/JAJ Partners, Ltd., CAJ,
DEJ, KJW and Berenson Minella & Company, L.P. providing for the election of
directors, (c) a Voting Agreement pursuant to which DE, Drew M. Brown, Mark N.
Sklar, Bennett Dorrance, as Trustee, and DMB Property Venture Limited
Partnership agree to vote all shares of RG Common Stock over which they have
voting power in favor of the Merger, and (d) a Registration Rights Agreement
with certain individuals to provide certain registration rights.
5.14. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. FMP agrees
that at all times after the Effective Date, it will and shall cause the
Surviving Corporation to indemnify each person who is a director or officer of
RG on the date hereof (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense, including reasonable fees and expenses of legal counsel ("Indemnified
Liability"), to the extent such Indemnified Party would have been indemnified
pursuant to RG's articles of incorporation or by-laws as in effect as of the
date hereof, based in whole or in part on, or arising in whole or in part out
of, any matter existing or occurring at or prior to the Effective Date whether
commenced, asserted or claimed before or after the Effective Date, and shall
advance expenses to such Indemnified Party to the extent
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such Indemnified Party would have been advanced expenses pursuant to RG's
articles of incorporation or by-laws as in effect as of the date hereof. FMP
shall, and shall cause the Surviving Corporation to, maintain in effect for not
less than four years after the Effective Date, the current policies of
directors' and officers' liability insurance maintained by RG on the date hereof
(provided that FMP may substitute therefor policies having at least the same
coverage and containing terms and conditions which are no less advantageous to
the persons currently covered by such policies as insured) with respect to
matters existing or occurring on or prior to the Effective Date,.
5.15. CONTINUATION OF RG OPERATIONS. FMP shall cause RG to continue its
historic business or use a significant portion of its historic business assets
in a business for at least (a) the two year period commencing on the Effective
Date or (b) such shorter period following the Effective Date as shall not cause
the Merger not to be treated as a reorganization within the meaning of Section
368 of the Code.
5.16. RG EMPLOYEES. All employees who were RG employees prior to the
Effective Date shall continue to be RG employees on and after the Effective Date
under the terms and conditions of such employment, including the right to change
such terms and conditions, as were in existence prior to the Effective Date.
5.17. RG STOCK PLANS. FMP agrees to file a registration statement with
respect to any FMP stock option plan, to the extent that such filings are
required to enable holders of options granted under Section 1.9.1 to freely
exercise such options and (except for holders who may be deemed to be affiliates
of FMP) to freely sell shares acquired by the exercise of such options (assuming
such shares would be freely salable pursuant to an effective registration
statement covering such plans). Nothing set forth herein shall require FMP to
register such exercises on any form other than Form S-8. On and after the
Effective Date, FMP will assume and discharge all obligations of RG with respect
to registration rights agreements disclosed on the RG Disclosure Schedule.
ARTICLE 6. CONDITIONS.
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of the following conditions:
6.1.1. This Agreement and the transaction contemplated hereby shall
have been approved in the manner required by applicable law or by
applicable regulations of any stock exchange or other regulatory body and
by the holders of the issued and outstanding shares of capital stock of
each of RG and FMP entitled to vote thereon.
6.1.2. None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transaction contemplated by this Agreement or has a
material adverse effect on a party hereto. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
6.1.3. All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to
be filed after the Effective Date and except where the failure to have
obtained or made any such consent authorization, order, approval, filing or
registration would not have an FMP Material Adverse Effect or an RG
Material Adverse Effect following the Effective Date.
6.1.4. The FMP Common Stock issuable in the Merger shall have been
listed or approved for listing upon notice of issuance on the NASDAQ
National Market System or on the American Stock Exchange.
6.1.5. The Registration Statement shall have been declared effective.
6.1.6. All applicable Blue Sky laws have been complied with.
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6.2. CONDITIONS TO OBLIGATION OF RG TO EFFECT THE MERGER. The obligation
of RG to effect the Merger shall be subject to the fulfillment at or prior to
the Closing of the following conditions:
6.2.1. FMP shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing and the
representations and warranties of FMP contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as
of the Closing Date, and RG shall have received a certificate of the
President or a Vice President of FMP, dated the Closing Date, certifying to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 6.2.1 shall be deemed to have been satisfied even if
such representations or warranties are not true and correct, unless the
failure of any of the representations or warranties to be so true and
correct would reasonably be expected to have an FMP Material Adverse
Effect.
6.2.2. From the date of this Agreement through the Effective Date,
there shall not have occurred any change in the financial condition,
business, operations or prospects of FMP and its Subsidiaries, taken as a
whole, that would reasonably be expected to have an FMP Material Adverse
Effect.
6.2.3. RG shall have received a favorable opinion from counsel to
FMP, in the form of Exhibit 6.2.3.
6.2.4. RG shall have received a certificate from the Secretary of FMP
and Merger Sub, in form and substance reasonably satisfactory to RG
certifying the adoption of resolutions by the Board of Directors and
stockholders of FMP and Merger Sub in favor of this Agreement, the Merger
and the transactions contemplated by this Agreement.
6.2.5. RG shall have received an opinion from Everen Securities,
Inc., in form and substance reasonably satisfactory to the Board of
Directors of RG, to the effect that the terms of the Merger are fair to the
holders of RG Shares from a financial point of view.
6.3. CONDITIONS TO OBLIGATION OF FMP TO EFFECT THE MERGER. The
obligations of FMP to effect the Merger shall be subject to the fulfillment at
or prior to the Closing of the following conditions:
6.3.1. RG shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing and the
representations and warranties of RG contained in this Agreement and in any
document delivered in connection herewith shall be true and correct as of
the Closing Date, and FMP shall have received a certificate of the
President or a Vice President of RG, dated the Closing Date, certifying to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 6.3.1 shall be deemed to have been satisfied even if
such representations or warranties are not true and correct, unless the
failure of any of the representations or warranties to be so true and
correct would reasonably be likely to have an RG Material Adverse Effect.
6.3.2. From the date of this Agreement through the Effective Date,
there shall not have occurred any change in the financial condition,
business, operations or prospects of RG and the RG Subsidiaries, taken as a
whole, that would reasonably be likely to have an RG Material Adverse
Effect.
6.3.3. FMP shall have received a favorable opinion of counsel to RG,
in the form of Exhibit 6.3.3.
6.3.4. FMP shall have received a certificate from the Secretary of
RG, in form and substance reasonably satisfactory to FMP certifying the
adoption of resolutions by the RG Board of Directors and stockholders in
favor of this Agreement, the Merger and the transactions contemplated by
this Agreement.
6.3.5. FMP shall have received an opinion from Everen Securities,
Inc., in form and substance reasonably satisfactory to the Board of
Directors of FMP, to the effect that the terms of the Merger are fair to
the holders of RG Shares from a financial point of view.
26
<PAGE> 161
ARTICLE 7. TERMINATION.
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Date, before or
after the approval of this Agreement by the stockholders of RG, by the mutual
consent of the parties hereto.
7.2. TERMINATION BY EITHER RG OR FMP. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either RG
or FMP if:
7.2.1. (a) the Merger shall not have been consummated on or before
September 30, 1997; provided that the party seeking to terminate the
Agreement pursuant to clause (a) shall have used all reasonable efforts in
good faith to consummate the Merger in a timely manner; (b) the approval of
RG's stockholders required by Section 6.1.1 has not been obtained at a
meeting duly convened therefor or at an adjournment thereof; or (c) a
United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the transaction contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable provided,
that the party seeking to terminate this Agreement pursuant to this clause
(c) shall have used all reasonable efforts to remove such injunction, order
or decree; and provided, in the case of a termination pursuant to clause
(a) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure
referred to in said clause; or
7.2.2. (a) if the Board of Directors of RG shall have withdrawn or
modified in a manner adverse to FMP its approval or recommendation to RG's
stockholders of this Agreement or the Merger or shall have approved or
recommended to RG's stockholders that they accept the terms of any Acquisition
Proposal or shall have resolved to take any of the foregoing actions; or (b) a
Third Party Acquisition (as hereinafter defined) shall have occurred; provided,
however, that such termination under this Section 7.2.2 shall not relieve RG of
its fee obligations under Section 5.12 hereof. "Third Party Acquisition" means
the acquisition of RG by merger, tender offer or otherwise by any person other
than FMP, Merger Sub or any affiliate thereof (a "Third Party")provided,
however, that in the event FMP terminates the Agreement pursuant to this clause
(b), a fee shall be payable under Section 5.12.4 only so long as, and on or
after the date when, RG (y) is acquired (or enters into an agreement to be
acquired) by merger, tender offer or otherwise by such Third Party or (z) enters
into an agreement with a Third Party providing for the acquisition by said Third
Party of substantially all of the assets of RG in each case, prior to the end of
the twelfth month following the termination of this Agreement.
7.3. TERMINATION BY RG. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date, before or after the
adoption and approval by the stockholders of RG referred to in Section 6.1.1, by
action of the Board of Directors of RG, if (a) in the exercise of its good faith
judgment as to its fiduciary duties to its stockholders imposed by law the Board
of Directors of RG determines that such termination is required by reason of an
Acquisition Proposal being made, or (b) there has been a breach by FMP of any
representation or warranty contained in this Agreement which would reasonably be
expected to have an FMP Material Adverse Effect, or (c) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of FMP, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by RG to FMP.
7.4. TERMINATION BY FMP. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date by action of the Board
of Directors of FMP, if (a) there has been a breach by RG of any representation
or warranty contained in this Agreement which would have or would be reasonably
likely to have an RG Material Adverse Effect, or (b) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of RG, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by FMP to RG.
7.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article 7,
all obligations of the parties hereto shall terminate,
27
<PAGE> 162
except the obligations of the parties pursuant to Sections 5.10, 5.12, and this
7.5 and Articles 3, 4, 6, 7 and 8 and the Confidentiality Agreement referred to
in Section 8.4. Moreover, in the event of termination of this Agreement pursuant
to Section 7.3 or 7.4 (except for Section 7.3(a) for which the exclusive remedy
is provided in Section 5.12.4), nothing herein shall prejudice the ability of
the non-breaching party from seeking damages from the other party for any breach
of this Agreement, including without limitation, attorneys' fees and the right
to pursue any remedy at law or in equity.
7.6. EXTENSION; WAIVER. At any time prior to the Effective Date, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties made to such party contained herein or in
any document to be delivered pursuant hereto, and (c) waive compliance with any
of the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by or on
behalf of the party granting such extension or waiver.
ARTICLE 8. GENERAL PROVISIONS.
8.1. NONSURVIVAL, REPRESENTATIONS AND WARRANTIES. All representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall be deemed to the extent expressly provided herein to be
conditions to the Merger and shall not survive the Merger.
8.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
<TABLE>
<S> <C>
If to RG: If to FMP:
Danny Edwards Christopher A. Johnston
Chairman of the Board, President President and Chief Executive Officer
and Chief Executive Officer FM Precision Golf Corp.
Royal Grip, Inc. P.O. Box 25182
444 West Geneva Drive 3490 Clubhouse Drive, Suite 102
Tempe, Arizona 85282 Jackson, Wyoming 83001
Facsimile: (602) 829-9100 Facsimile: (307) 739-2288
With copies to: With copies to:
Steve Pidgeon, Esq. Kenneth J. Warren, Esq.
Snell & Wilmer 2109 West Fifth Avenue, Suite C
One Arizona Center Columbus, Ohio 43212
Phoenix, Arizona 85004 Facsimile: (614) 487-1945
Facsimile: (602) 382-6070
</TABLE>
or to such other address as any party shall specify by written notice so given
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.3. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors, and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4. ENTIRE AGREEMENT. This Agreement, the Exhibits, the FMP Disclosure
Schedule, the RG Disclosure Schedule, the Confidentiality Agreement dated
November 13, 1996, between RG and FMP and any documents delivered by the parties
in connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this
28
<PAGE> 163
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto. During the term of this Agreement, the
Confidentiality Agreement may not be terminated by either party thereto.
8.5. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the RG Merger by the
stockholders of RG, but after any such stockholder approval, no amendment shall
be made which by law requires the further approval of stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
8.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada without regard to its rules of
conflict of laws.
8.7. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
8.8. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.9. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
giving such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
8.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any provision of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court having jurisdiction of the matter,
this being in addition to any other remedy to which they may be entitled at law
or in equity.
8.13. SUBSIDIARIES. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner.
29
<PAGE> 164
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.
ROYAL GRIP, INC.
By: /s/ Danny Edwards
------------------------------------
Danny Edwards, President and
Chief Executive Officer
FM PRECISION GOLF CORP.
By: /s/ Christopher A. Johnston
------------------------------------
Christopher A. Johnston, President
and Chief Executive Officer
FMPSUB, INC
By: /s/ Christopher A. Johnston
------------------------------------
Christopher A. Johnston, President
and Chief Executive Officer
30
<PAGE> 165
ANNEX II
June 9, 1997
Board of Directors
Royal Grip, Inc.
444 West Geneva Drive
Tempe, AZ 85282
Gentlemen:
We understand that Royal GRIP, Inc. ("GRIP") has agreed to merge with FM
Precision Golf Corporation ("FMP"). Pursuant to the Agreement and Plan of Merger
dated May 14, 1997 (the "Merger Agreement") among GRIP, FMP, and FMP's wholly
owned subsidiary FMPSUB, Inc. ("Merger Sub"), GRIP shareholders and option and
warrant holders will exchange their holdings for like securities in FMP on a
2-for-1 basis (the "Exchange Rate"). Prior to the date of filing the Articles of
Merger with the appropriate governmental authorities ("Effective Date"), current
FMP shareholders and warrant and option holders will proportionately split their
holdings (the "FMP Stock Split") such that, on a combined basis, FMP
shareholders and option and warrant holders will hold 70% of the total of all
common shares outstanding and options and warrants granted in FMP. Current GRIP
shareholders, option holders, and warrant holders will own the remaining 30% of
FMP on the same basis.
We also understand that following the exchange of GRIP common stock,
options, and warrants and for like securities in FMP (based on the
aforementioned Exchange Rate) and the FMP Stock Split, Merger Sub will merge
with and into GRIP (the "Merger") which will be the surviving corporation in the
Merger (the "Surviving Corporation"). Merger Sub will cease to exist and the
Surviving Corporation will be a wholly owned subsidiary of FMP which will be a
publicly traded company.
You have requested our opinion as to whether the Merger with FMP is fair,
from a financial point of view, to the stockholders of GRIP.
For the purposes of the opinion set forth herein, we have, among other
things,
i) reviewed the Letter of Intent ("LOI") by and between GRIP and FMP
dated January 24, 1997;
ii) reviewed the Merger Agreement by and between GRIP and FMP;
iii) reviewed a draft of the Merger Proxy Statement/Prospectus dated
May 6, 1997;
iv) reviewed GRIP's annual reports on Form 10-K for the years ended
December 31, 1993, 1994, 1995, and 1996;
v) reviewed recent Form 8-K filings dated January 24, 1997 and
December 31, 1996 for GRIP related to the announcement of the Merger and of
the establishment of its manufacturing agreement with Acushnet Rubber
Company;
vi) reviewed certain non-public operating and financial information,
including projections relating to GRIP's business prepared by management of
GRIP;
vii) met with certain members of GRIP's management to discuss its
operations, financial statements, and future prospects;
viii) reviewed audited financial statements for FMP for the twelve
months ended May 31, 1996 and for the nine months ended February 28, 1997
prepared by Arthur Andersen, L.L.P.;
ix) reviewed certain non-public operating and financial information,
including internal management reports, and projections, relating to FMP's
business by management of FMP;
x) reviewed fixed asset appraisal reports prepared by Arthur Andersen,
L.L.P. (dated March 25, 1996) and Norm Levy Associates, Inc. (dated April
8, 1996);
<PAGE> 166
xi) met with certain members of FMP's management to discuss its
operations, financial statements, and future prospects;
xii) reviewed publicly available financial data and stock market
performance data of other public golf equipment manufacturers which we
deemed comparable to GRIP and FMP;
xiii) reviewed the terms of selected recent acquisitions of companies
which we deemed generally comparable to FMP;
xiv) reviewed the historical stock prices and reported traded volumes
of GRIP's common shares; and
xv) conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In arriving at our opinion, we have considered such factors as we have
deemed relevant including, but not limited to: (i) the relative contribution of
GRIP and FMP to the financial performance of the combined entity on a pro forma
basis, (ii) the market value of publicly held companies we deemed comparable to
GRIP and FMP relative to sales, Earnings Before Interest and Taxes, and net
income, (iii) the transaction values on business combinations which we believe
comparable to GRIP and FMP relative to sales, Earnings Before Interest and
Taxes, and net income, (iv) GRIP's recent financial performance and its impact
on shareholder value, (v) the pro forma effects on historical earnings of GRIP
from the Merger, (vi) the historical market prices and trading volume of the
common stock of GRIP, and (vii) other items we deemed to be relevant.
During our review, we relied upon and assumed, without independent
verification, the accuracy, completeness and fairness of the financial and other
information provided, and have further relied upon the assurances of management
that they are unaware of any facts that would make the information provided to
us to be incomplete or misleading for the purposes of this opinion. Although our
opinion does not encompass forward looking valuation techniques such as
discounted cash flow analysis, we have assumed that the financial projections
which we reviewed to have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of each company. Our opinion is necessarily based on the economic, market, and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In arriving at its opinion, we have not performed any
independent appraisal of the assets of GRIP or FMP. We disclaim any undertaking
or obligation to advise any person of any change in any fact or matter affecting
our opinion which may come or be brought to our attention after the date of this
opinion.
We have acted as financial advisor to the Board of Directors of GRIP in
connection with this opinion and will receive a fee for our services. We are
also serving as financial advisor to GRIP in connection with the Merger and will
receive a success fee upon its completion. In addition to the cash portion of
such fee, we will receive 100,000 warrants (prior to the effects of the Exchange
Rate) to purchase common stock in GRIP at a price of $0.01 per share. We have
also been granted 30,000 options in lieu of monthly cash retainer payments in
conjunction with our past role as financial advisor to GRIP. The options were
granted on May 14, 1996 at a strike price of $6.50 versus a stock price of $4.13
per share on that date. Of the 30,000 options granted, 3,750 options vested upon
execution of the Initial Engagement Letter on May 14, 1996, with the remaining
26,250 options vesting equally over seven quarters beginning on July 1, 1996 and
ending on January 1, 1998.
We are aware that FMP has agreed to advance to GRIP $85,000 to cover
general transaction costs. GRIP shall be obliged to repay FMP in the event that
the Merger does not occur through no fault of FMP.
It is understood that this opinion will be included in its entirety in any
proxy statement or other document distributed to shareholders of the Company in
connection with the Merger and this constitutes our express written approval for
that purpose. However, no summary of or excerpt from this opinion may be used,
and no published public reference (other than as provided in the preceding
sentence) to this opinion letter may be made except with our prior express
written approval, which shall not be unreasonably withheld.
This opinion does not constitute a recommendation to any shareholder of
GRIP as to how such shareholder should vote, or as to any other actions which
such shareholder should take in conjunction with the Merger. This opinion
relates solely to the question of fairness to the GRIP shareholders, from a
financial point
<PAGE> 167
of view, of the Merger as currently proposed. Further, we express no opinion
herein as to the structure, terms or effect of any other aspect of the Merger,
including, without limitation, any effects resulting from the application or any
bankruptcy, fraudulent conveyance or other federal or state insolvency law or of
any pending or threatened litigation affecting GRIP or FMP.
Based on the foregoing, we are of the opinion that the Merger which will
result in FMP shareholders and option and warrant holders owning 70% of the
total of the common shares outstanding and options and warrants granted in the
Surviving Corporation is fair, from a financial point of view, to the
shareholders of GRIP as of the date hereof.
Very truly yours,
EVEREN Securities, Inc.
By: /s/ MAURY J. BELL
------------------------------------
Maury J. Bell
Managing Director
<PAGE> 168
ANNEX III
ROYAL GRIP, INC.
1993 STOCK OPTION PLAN
(AS AMENDED THROUGH APRIL 22, 1997)
------------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of responsibility
within the Company, to provide additional incentive to employees, consultants
and advisors of the Company, and to promote the success of the Company's
business through the grant of options to purchase shares of the Company's Common
Stock.
Options granted hereunder may be either Incentive Stock Options or
Non-Statutory Stock Options, at the discretion of the Board; provided, however,
that no Incentive Stock Option shall be granted hereunder to any person who, at
the time of grant, is not an Employee. The type of options granted shall be
reflected in a Stock Option Agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company or the
Committee, if one has been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Articles of Incorporation, as amended.
(d) "Company" shall mean ROYAL GRIP, INC., a Nevada corporation, and
shall include any parent or subsidiary corporation of the Company as
defined in Sections 424(e) and (f), respectively, of the Code, and any
successors to the business of Royal Grip, Inc., a Nevada corporation.
(e) "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(g) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean, with respect to the date a given
Option is granted or exercised, the value of the Common Stock determined by
the Board in such manner as it may deem equitable for Plan purposes but, in
the case of an Incentive Stock Option, no less than is required by
applicable laws or regulations; provided, however, that where there is a
public market for the Common Stock, the Fair Market Value per Share shall
be the mean of the bid and asked prices of the Common Stock on the date of
grant, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers
Automated Quotation System) or, in the event the Common Stock is listed on
the New York Stock Exchange, the American Stock Exchange or the
NASDAQ/National Market System, the Fair Market Value per Share shall be the
closing price on such exchange on the date of grant of the Option, as
reported in the Wall Street Journal.
(j) "Incentive Stock Option" shall mean an Option which is intended
to qualify as an incentive stock option within the meaning of Section 422
of the Code.
A-1
<PAGE> 169
(k) "Option" shall mean a stock option granted under the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean a Participant who has been granted one or
more Options.
(n) "Nonstatutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
(o) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Participant" shall mean any Employee, advisor or consultant that
is selected to participate in the Plan.
(q) "Plan" shall mean this Stock Option Plan as amended from time to
time in accordance with the terms hereof.
(r) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(s) "Stock Option Agreement" shall mean the written agreement between
the Company and the Optionee relating to the grant of an Option.
(t) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(u) "Tax Date" shall mean the date an Optionee is required to pay the
Company an amount with respect to tax withholding obligations in connection
with the exercise of an option.
3. COMMON STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
11 of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is Five Hundred Fifty Thousand (550,000) Shares of Common
Stock. The Shares may be authorized, but unissued, or previously issued Shares
acquired by the Company and held in treasury.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares covered by such Option
shall, unless the Plan shall have been terminated, be available for future
grants of Options.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure.
(i) The Plan shall be administered by the Board or a Committee
appointed the Board to administer the Plan at any time or from time to
time. If the Company has a class of equity securities registered under
Section 12 of the Exchange Act, the Plan shall be administered by the
Board or a Committee of the Board in accordance with Rule 16b-3 under
the Exchange Act. With respect to persons subject to Section 16 of the
Exchange Act, from and after such date as any two or more of the
Company's directors become "disinterested directors" within the meaning
of Rule 16b-3, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Plan administrators fails to so comply, such action or provision shall
be deemed null and void, to the extent permitted by law and deemed
advisable by the Plan administrators.
(ii) Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause), appoint new members in
substitution therefor, and fill vacancies however caused; provided,
however, that, at no time when the Company has "disinterested directors"
as specified in said Rule 16b-3 available to serve as members of the
Committee may any person serve on the Committee if the Company has a
class of equity securities registered under Section 12 of the Exchange
Act and that person's membership would cause the Committee not to
satisfy the "disinterested administration" requirements of Rule 16b-3.
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(b) Powers Of The Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Options to
Participant and to determine the number of shares subject to an Option,
subject to Section 3 hereof; (ii) to determine, upon review of relevant
information and in accordance with Section 2 of the Plan, the Fair Market
Value of the Common Stock; (iii) to determine the exercise price per Share
of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Participant
to whom, and the time or times at which, Options shall be granted and the
number of Shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating
to the Plan; (vii) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the Optionee
thereof, modify or amend each Option; (viii) to accelerate or defer (with
the consent of the Optionee) the exercise date of any Option; (ix) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Board; (x) to accept or reject the election made by an Optionee pursuant to
Section 17 of the Plan; and (xi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect Of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Consistent with the Plan's purposes, Options may be granted only
to a Participant. Subject to the terms of the Plan, a Participant who has
been granted an Option may, if the Participant is otherwise eligible, be
granted an additional Option or Options. Incentive Stock Options may be
granted only to Employees who meet the requirements applicable under
Section 422 of the Code. No Incentive Stock Options shall be granted to
consultants or advisors of the Company.
(b) With respect to Incentive Stock Options, the aggregate Fair Market
Value (determined at the time the Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Employee during any calendar year (under all
employee benefit plans of the Company) shall not exceed One Hundred
Thousand Dollars ($100,000).
6. STOCKHOLDER APPROVAL AND EFFECTIVE DATES. The Plan became effective
upon approval by the stockholders of the Company on August 9, 1993. The Board of
Directors approved the Plan on July 14, 1993. No Option may be granted under the
Plan after December 31, 2003; provided, however, that the Plan and all
outstanding Options shall remain in effect until such Options have expired or
until such Options are canceled.
7. TERM OF OPTION. The term of each Option shall be determined by the
Board. Unless otherwise provided in the Stock Option Agreement, the term of each
Option shall be six (6) years from the date of grant thereof. In no case shall
the term of any Option exceed ten (10) years from the date of grant thereof.
Notwithstanding the above, in the case of an Incentive Stock Option granted to
an Employee who, at the time the Incentive Stock Option is granted, owns ten
percent (10%) or more of the Common Stock as such amount is calculated under
Section 422(b)(6) of the Code ("Ten Percent Stockholder"), the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.
8. EXERCISE PRICE AND PAYMENT.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the Board,
but in the case of an Incentive Stock Option shall be no less than one
hundred percent (100%) of the Fair Market Value per Share on the date of
grant, and in the case of a Nonstatutory Stock Option shall be no less than
seventy-five percent (75%) of the Fair Market Value per Share on the date
of grant. Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to an Employee who, at the time of the grant of such
Incentive Stock Option, is a Ten Percent Stockholder, the per Share
exercise price shall be no less than one hundred ten percent (110%) of the
Fair Market Value per Share on the date of grant.
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(b) Payment. The price of an exercised Option and any taxes
attributable to the delivery of Common Stock under the Plan, or portion
thereof, shall be paid:
(i) In United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
(ii) At the discretion of the Board, through the delivery of shares
of Common Stock with an aggregate Fair Market Value equal to the option
price and withholding taxes, if any;
(iii) At the election of the Optionee pursuant to Section 17 and
with the consent of the Board pursuant to Section 4(b)(x), by the
Company's retention of such number of shares of Common Stock subject to
the exercised Option which have an aggregate Fair Market Value on the
exercise date equal to the Company's aggregate federal, state, local and
foreign tax withholding and FICA and FUTA obligations with respect to
income generated by the exercise of the Option by Optionee;
(iv) By a combination of (i), (ii) and (iii) above; or
(v) In the manner provided in subsection (c) below.
The Board shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations
and prohibitions on the use of Common Stock to exercise an Option as it
deems appropriate.
(c) Financial Assistance To Optionees. The Board may assist Optionees
in paying the exercise price of Options granted under this Plan in the
following manner:
(i) The extension of a loan to the Optionee by the Company;
(ii) Payment by the Optionee of the exercise price in installments;
or
(iii) A guaranty by the Company of a loan obtained by the Optionee
from a third party.
The terms of any loans, installment payments or guarantees, including
the interest rate and terms of repayment, and collateral requirements, if
any, shall be determined by the Board, in its sole discretion. Subject to
applicable margin requirements, any loans, installment payments or
guarantees authorized by the Board pursuant to the Plan may be granted
without security, but the maximum credit available shall not exceed the
exercise price for the Shares for which the Option is to be exercised, plus
any federal and state income tax liability incurred in connection with the
exercise of the Option.
9. EXERCISE OF OPTION.
(a) Procedure For Exercise; Rights As A Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. Unless otherwise determined by the Board at
the time of grant, an Option may be exercised in whole or in part. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) or
8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
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Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination Of Status As An Employee, Advisor or
Consultant. Unless otherwise provided in the Stock Option Agreement (which
may reduce but not increase the time period described below), if a
Participant's employment or engagement by the Company is terminated, except
if such termination occurs due to death or disability, then the Optionee
may, but only within thirty (30) days after the date he or she ceases to be
an Employee, advisor or consultant of the Company, exercise his or her
Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee
does not exercise such Option (which the Optionee was entitled to exercise)
within the time specified herein, the Option shall terminate.
(c) Disability. Unless otherwise provided in the Stock Option
Agreement (which may reduce but not increase the time period described
below), notwithstanding the provisions of Section 9(b) above, in the event
a Participant is unable to continue as an Employee, advisor or consultant
(as to advisors or consultant that are individuals) as a result of the
Participant's permanent and total disability (as defined in Section
22(e)(3) of the Code), the Participant may, but only within twelve (12)
months from the date of termination, exercise his Option to the extent he
was entitled to exercise it at the date of such termination. To the extent
that he was not entitled to exercise the Option at the date of termination,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) Death. Unless otherwise provided in the Stock Option Agreement
(which may reduce but not increase the time period described below), if a
Participant dies during the term of the Option and is at the time of his
death an Employee, advisor or consultant (as to advisors or consultants
that are individuals), the Option may be exercised at any time within
twelve (12) months following the date of death by the decedent's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the decedent was entitled to
exercise the Option on the date of death. To the extent that decedent was
not entitled to exercise the Option on the date of death, or if the
decedent's estate, or person who acquired the right to exercise the Option
by bequest or inheritance, does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution, or pursuant to a "qualified
domestic relations order" under the Code and ERISA, and may be exercised, during
the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into Shares of stock of any class,
shall affect, and no adjustment by reason thereof, shall be made with respect to
the number or price of shares of Common Stock subject to an Option. The Common
Stock subject to the Plan as set forth in Section 3 has previously been adjusted
to
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reflect a 124.369 for I conversion in connection with the Company's merger with
Royal Grip, Inc., a Nevada corporation.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of sixty (60) days from the date of such notice
(but not later than the expiration of the term of the Option under the Option
Agreement), and the Option will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Participant to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment And Termination. The Board may amend or terminate the
Plan at any time or from time to time in such respects as the Board may
deem advisable; provided, however, that the following revisions or
amendments shall require approval of the stockholders of the Company, to
the extent required by law, rule or regulation:
(i) Any material increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 11 of
the Plan;
(ii) Any material change in the designation of the persons eligible
to be granted Options; or
(iii) Any material increase in the benefits accruing to
participants under the Plan.
Notwithstanding the foregoing, stockholder approval under this Section
13 shall only be required at such time as (A) any applicable rules of the
stock exchange or automated stock quotation system on which shares of the
Common Stock are listed shall require stockholder approval of a plan or
arrangement pursuant to which Common Stock may be acquired by officers or
directors of the Company, (B) Rule 16b-3 or its successors under the
Exchange Act shall require the approval of stockholders of a company of any
material amendment to any employee benefit plan of such company, and/or (C)
Section 422 of the Code shall require stockholder approval of an amendment
to the Plan.
(b) Effect Of Amendment Or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
In the case of an Incentive Stock Option, any Optionee who disposes of
Shares of Common Stock acquired upon the exercise of an Option by sale or
exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
15. RESERVATION OF SHARES. The Company will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by Stock Option
Agreements in such form as the Board shall approve.
17. WITHHOLDING TAXES. Subject to Section 4(b)(x) of the Plan and prior to
the Tax Date, the Optionee may make an irrevocable election to have the Company
withhold from those Shares that would otherwise be received upon the exercise of
any Option, a number of Shares having a Fair Market Value equal to the minimum
amount necessary to satisfy the Company's federal, state, local and foreign tax
withholding obligations and FICA and FUTA obligations with respect to the
exercise of such Option by the Optionee.
An Optionee who is also an officer or a director of the Company must make
the above described election:
(a) at least six months after the date of grant of the Option (except
in the event of death or disability); and
(b) either:
(i) six months prior to the Tax Date, or
(ii) prior to the Tax Date and during the period beginning on the
third business day following the date the Company releases its quarterly
or annual statement of sales and earnings and ending on the twelfth
business day following such date.
18. MISCELLANEOUS PROVISIONS.
(a) Plan Expense. Any expenses of administering this Plan shall be
borne by the Company.
(b) Use Of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate
purposes of the Company.
(c) Construction Of Plan. The place of administration of the Plan
shall be in the State of Nevada, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in
accordance with the laws of the State of Nevada without regard to conflict
of law principles and, where applicable, in accordance with the Code.
(d) Taxes. The Company shall be entitled if necessary or desirable to
pay or withhold the amount of any tax attributable to the delivery of
Common Stock under the Plan from other amounts payable to the Optionee
after giving the person entitled to receive such Common Stock notice as far
in advance as practical, and the Company may defer making delivery of such
Common Stock if any such tax may be pending unless and until indemnified to
its satisfaction.
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(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of
the Board shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any
action taken or failure to act under or in connection with the Plan or any
Option, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a finding of bad
faith; provided that upon the institution of any such action, suit or
proceeding a Board member shall, in writing, give the Company notice
thereof and an opportunity, at its own expense, to handle and defend the
same before such Board member undertakes to handle and defend it on her or
his own behalf.
(f) Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall
include the plural and vice versa, as appropriate.
(g) No Employment Agreement. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with his right or the Company's
right to terminate his employment at any time.
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ANNEX IV
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FM PRECISION GOLF CORP.
FM Precision Golf Corp., a corporation organized and existing under the
laws of the State of Delaware, does hereby certify as follows:
1. The name of the Corporation, as originally incorporated, is FM
Precision Golf Corp. Upon filing of this Amended and Restated Certificate of
Incorporation, the name of the Corporation will be Royal Precision, Inc.
2. The date of filing its original Certificate of Incorporation with the
Secretary of State was May 3, 1996.
3. This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the Certificate of Incorporation, as heretofore
amended, and was duly adopted in accordance with the provisions of Section 245
of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation shall
read in its entirety as follows:
FIRST: The name of the Corporation is Royal Precision, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
Section 1. Authorized Shares. The total number of shares of stock which
the Corporation shall have the authority to issue is 55,000,000 of which
5,000,000 are shares of Preferred Stock with a par value of one mil ($0.001) per
share ("Preferred Stock"), and 50,000,000 are shares of Common Stock with a par
value of one mil ($0.001) per share ("Common Stock").
Section 2. Preferred Stock. The Board of Directors is expressly
authorized to adopt, from time to time, a resolution or resolutions providing
for the issuance of Preferred Stock in one or more series, to fix the number of
shares in each such series and to fix the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of each such series.
Section 3. Common Stock. Holders of the issued and outstanding shares of
Common Stock shall be entitled to receive ratably, in proportion to the number
of shares of Common Stock held by them, (a) such dividends as may be declared by
the Board of Directors, from time to time, out of the assets or funds of the
Corporation legally available for the payment of dividends, and (b) upon the
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation remaining after the payment of creditors and the holders of shares
of any class or series of Preferred Stock to the extent that the then existing
terms of such class or series grant them priority over the holders of shares of
Common Stock. Neither the merger or consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor the sale, lease, exchange or other
disposition (for cash, shares of stock, securities or other consideration) of
all or substantially all of the assets of the Corporation, shall be deemed to be
a dissolution, liquidation, or winding up, voluntary or involuntary, of the
Corporation.
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Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the holders of Common Stock.
FIFTH:
Section 1. Classified Directors. (a) The Board of Directors shall be
divided into three classes; the term of office of those of the first class to
expire at the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each annual election
held after the initial classification of the Board of Directors and election of
directors to such classes, directors shall be chosen for a full term of three
years, as the case may be, to succeed those whose terms expire. The total number
of directors constituting the full Board of Directors and the number of
directors in each class shall be fixed by, or in the manner provided in the
by-laws, but the total number of directors shall not exceed seventeen (17) nor
shall the number of directors in any class exceed six (6). Subject to the
foregoing, the classes of directors need not have the same number of members. No
reduction in the total number of directors or in the number of directors in any
class shall be effective to remove any director or to reduce the term of any
director. If the Board of Directors increases the number of directors in a
class, it may fill the vacancy created thereby for the full remaining term of a
director in that class even though such term may extend beyond the next annual
election. The Board of Directors may fill any vacancy occurring for any other
reason for the full remaining term of the director whose death, resignation or
removal caused the vacancy, even though such term may extend beyond the next
annual election.
(b) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
express terms of such class or series, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
(c) Any director or the entire Board of Directors may be removed by the
holders of a majority of the shares then entitled to vote at an election of
directors only for cause. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor is elected and
qualified, or until his earlier resignation or removal from office for cause.
Section 2. Ballots. Elections of directors at a special or annual meeting
of stockholders need not be by written ballot unless the by-laws of the
Corporation shall provide otherwise.
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
SEVENTH: Action shall be taken by the stockholders of the Corporation only
at an annual or special meetings of stockholders, and stockholders may not act
by written consent. Special meetings of the Corporation may be called only as
provided in the by-laws.
EIGHTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of any
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derives an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval by the stockholders of this Article
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. The foregoing
limitation on liability shall not apply to acts or omissions occurring prior to
the effective date of this Article.
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NINTH:
Section 1. Indemnification. The Corporation shall indemnify any director
or officer who was or is a party or is threatened to be made a party to:
(a) Direct Actions. Any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; the termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful; or
(b) Derivative Actions. Any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Corporation may indemnify any of its other employees or agents to the
same extent and subject to the same procedures and limitations as are set forth
in this Section 1 and Section 3 below as it is required to indemnify its
directors and officers by this Section 1.
Section 2. Successful Defense. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. Standard of Conduct. Any indemnification under Section 1 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in said Section 1 of
this Article. Such determination shall be made (1) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 4. Payment of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
NINTH.
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<PAGE> 179
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 5. Not Exclusive. The indemnification and advancement of expenses
provided by, or granted pursuant to, the provisions of this Article NINTH shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the certificate
of incorporation, or any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 6. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
Section 7. Definitions.
(a) The Corporation. For purposes of this Article NINTH, references to
"the Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this NINTH with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(b) Other Enterprises. For purposes of this Article NINTH, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article NINTH.
Section 8. Contractual Nature. This Article NINTH shall be deemed to be a
contract between the Corporation and each director and officer who serves as
such at any time while this Article NINTH is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon such state of facts. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article NINTH shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
TENTH: Effective upon the filing of this Amended and Restated Certificate
of Incorporation, each share of the Common Stock, par value $.01 per share, of
the Corporation theretofore issued and outstanding ("Old Common Stock") shall be
split into 10 shares of the Common Stock described in Section 3 of Article
FOURTH above ("New Common Stock") and each holder of a certificate representing
Old Common Stock (an "Old Certificate") shall be entitled to receive a
certificate representing the number of shares of New Common Stock into which the
shares of Old Common Stock represented by the Older Certificate were split upon
surrender of such Old Certificate to the Corporation.
4
<PAGE> 180
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed by the duly authorized officer of the Corporation named below on
this day of , 1997.
FM PRECISION GOLF CORP.
By:
-----------------------------------
Print Name:
---------------------------
Print Title:
--------------------------
5
<PAGE> 181
UNTIL [INSERT DATE] ALL DEALERS EFFECTING TRANSACTIONS IN FMP
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FM Precision Golf Corp. ("FMP") is a Delaware corporation. Section 145 of
the Delaware General Corporation Law ("DGCL") provides that directors and
officers of Delaware corporations may, under certain circumstances, be
indemnified against expenses (including attorneys' fees) and other liabilities
actually and reasonably incurred by them as a result of any suit brought against
them in their capacity as a director or officer, if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. Section 145 also provides that directors and officers may also be
indemnified against expenses (including attorneys' fees) incurred by them in
connection with a derivative suit, if they acted in good faith and in the manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made without court approval
if such person was adjudged liable to the corporation.
Article NINTH of FMP's Amended and Restated Certificate of Incorporation
and Article VI of FMP's By-laws have provisions requiring FMP to indemnify its
directors and officers which are in substantially the same wording as Section
145.
Article EIGHTH of FMP's Amended and Restated Certificate of Incorporation
further provides that no director will be personally liable to FMP or its
stockholders for monetary damages or for any breach of fiduciary duty except for
breach of the director's duty of loyalty to FMP or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, pursuant to Section 174 of the DGCL (which imposes liability
in connection with the payment of certain unlawful dividends, stock purchases or
redemptions), or any amendment or successor provision thereto, or for any
transaction from which the director derived an improper personal benefit.
Pursuant to the terms of the Merger Agreement, at all times after the
Effective Date, FMP will, and will cause RG to, indemnify each person who was a
director or officer of RG on May 14, 1997 with respect to any claim, liability,
loss, damage, judgment, fine, penalty, amount paid in settlement or compromise,
cost or expense, including reasonable fees and expenses of legal counsel, to the
extent such party would have been indemnified pursuant to RG's Articles of
Incorporation or By-laws as then in effect, based in whole or in part on, or
arising in whole or in part out of, any matter existing or occurring at or prior
to the Effective Date whether commenced, asserted or claimed before or after the
Effective Date.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Form S-4. (Items
marked with an * are to be provided by amendment)
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
Exhibit 2.1.
Agreement and Plan of Merger dated as of May 14, 1997 among Royal Grip,
Inc., FM Precision Golf Corp. and FMPSUB, Inc. (incorporated by reference to
Annex I to the Prospectus in Part I of this Form S-4).
Exhibit 2.2.
Consulting Agreement dated as of May 14, 1997 between FM Precision Golf
Corp. and Danny Edwards.
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<PAGE> 183
Exhibit 2.3.
Registration Rights Agreement dated as of May 14, 1997 among Danny Edwards,
Drew M. Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp.
Exhibit 2.4.
Stockholder Agreement dated as of May 14, 1997 among Danny Edwards, Drew M.
Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp.
Exhibit 2.5.
Voting Agreement dated as of May 14, 1997 among Danny Edwards, Drew M.
Brown, Mark N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust,
DMB Property Ventures Limited Partnership and FM Precision Golf Corp.
(3) CERTIFICATE OF INCORPORATION AND BYLAWS
Exhibit 3.1.
Amended and Restated Certificate of Incorporation of FM Precision Golf
Corp. (incorporated by reference to Annex IV to the Prospectus in Part I of this
Form S-4).
Exhibit 3.2.
Bylaws of Royal Precision, Inc. (f/k/a FM Precision Golf Corp.)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Exhibit 4.1.
See Articles FOUR, FIVE and SEVEN of the Amended and Restated Certificate
of Incorporation of FM Precision Golf Corp. (see Exhibit 3.1 above).
Exhibit 4.2.
See Article I, Sections 2.1 and 2.2 of Article II and Section 7.3 of
Article VII of the Bylaws of Royal Precision, Inc. (f/k/a FM Precision Golf
Corp.) (see Exhibit 3.2 above).
(5) OPINION RE: LEGALITY
Exhibit 5.1.
Opinion of Kenneth J. Warren, Esq. as to the legality of the Common Stock
being registered.*
(8) OPINION RE: TAX MATTERS
Exhibit 8.1.
Opinion of Fabian & Clendenin as to tax matters.*
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<PAGE> 184
(10) MATERIAL CONTRACTS
Exhibit 10.1.1.
Asset Purchase Agreement dated May 31, 1996 between Brunswick Corporation
and FM Precision Golf Manufacturing Corp.
Exhibit 10.1.2.
Agreement and Plan of Merger dated May 14, 1997 among Royal Grip, Inc., FM
Precision Golf Corp. and FMPSUB, Inc. (see Exhibit 2.1 above).
Exhibit 10.1.3.
Registration Rights Agreement dated May 14, 1997 among Danny Edwards, Drew
M. Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp. (see Exhibit 2.3 above).
Exhibit 10.1.4.
Stockholder Agreement dated May 14, 1997 among Danny Edwards, Drew M.
Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp. (see Exhibit 2.4 above).
Exhibit 10.1.5.
Voting Agreement dated May 14, 1997 among Danny Edwards, Drew M. Brown,
Mark N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust, DMB
Property Ventures Limited Partnership and FM Precision Golf Corp. (see Exhibit
2.5 above).
Exhibit 10.1.6.
Letter agreement dated May 14, 1996 between EVEREN Securities, Inc. and
Royal Grip, Inc. (the "EVEREN Agreement").
Exhibit 10.1.7
Addendum dated June 25, 1996 to the EVEREN Agreement (the "EVEREN
Addendum")
Exhibit 10.1.8.
Letter Agreement dated April 29, 1997 between Royal Grip, Inc. and EVEREN
regarding delivery of fairness opinion and Addendum to EVEREN Agreement.
Exhibit 10.2.1.
Investment Fee Agreement dated May 28, 1996 among Merbanco Inc., Berenson,
Minella & Company, L.P. and FM Precision Golf Manufacturing Corp.
Exhibit 10.2.2.
Management Agreement dated May 28, 1996 between FM Precision Golf
Manufacturing Corp. and Merbanco, Inc.
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<PAGE> 185
Exhibit 10.2.3.
Management Agreement dated May 28, 1996 between FM Precision Golf
Manufacturing Corp. and Berenson, Minella & Company, L.P.
Exhibit 10.2.4.
Management Stockholders Agreement dated May 29, 1996 among Ronald L.
Chalmers, Warren K. Braly, Jeremiah S. Gourd, Peter D. Dripchak, John Lynch,
William B. Faragher, Anthony J. Montgomery and FM Precision Golf Corp.
Exhibit 10.2.5.
FM Precision Golf Corp. 1997 Stock Option Plan dated March 13, 1997.
Exhibit 10.2.6.
Form of Option Agreement between FM Precision Golf Corp. and officers,
directors, employees and consultants of FM Precision Golf Corp who are not
parties to the Management Stockholders Agreement dated May 29, 1996.
Exhibit 10.2.7.
Form of Option Agreement between FM Precision Golf Corp. and officers,
directors, employees and consultants of FM Precision Golf Corp who are parties
to the Management Stockholders Agreement dated May 29, 1996.
Exhibit 10.2.8.
Consulting Agreement dated May 14, 1997 between FM Precision Golf Corp. and
Danny Edwards (see Exhibit 2.2 above).
Exhibit 10.3.1.
Open-End Mortgage Deed, Security Agreement and Fixture Filing dated May 31,
1996 given by FM Precision Golf Manufacturing Corp. to Star Bank, National
Association.
Exhibit 10.3.2.
Financing Agreement dated May 31, 1996 between Star Bank, National
Association, FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales
Corp.
Exhibit 10.3.3.
Guaranty dated May 31, 1996 made by FM Precision Golf Manufacturing Corp.
to Star Bank, National Association.
Exhibit 10.3.4.
Guaranty dated May 31, 1996 made by FM Precision Golf Sales Corp. to Star
Bank, National Association.
Exhibit 10.3.5.
Guaranty dated May 31, 1996 made by FM Precision Golf Corp. to Star Bank,
National Association.
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<PAGE> 186
Exhibit 10.3.6.
Guaranty dated May 31, 1996 made by Christopher A. Johnston, Berenson
Minella & Company and Richard P. Johnston to Star Bank, National Association.
Exhibit 10.3.7.
Security Agreement dated May 31, 1996 between Star Bank, National
Association, FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales
Corp.
Exhibit 10.3.8.
Security Agreement dated May 31, 1996 between Star Bank, National
Association, and FM Precision Golf Corp.
Exhibit 10.3.9.
Credit and Security Agreement dated February 10, 1997 between Royal Grip,
Inc., Roxxi, Inc. and Norwest Business Credit, Inc. (incorporated by reference
to Exhibit 10.19 to Royal Grip, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 ("RG's 1996 Form 10-K"); Commission File No.
0-22230).
Exhibit 10.3.10.
First Amendment to Credit Agreement dated April 11, 1997 between Royal
Grip, Inc., Roxxi, Inc. and Norwest Business Credit, Inc. (incorporated by
reference to Exhibit 10.20 to RG's 1996 Form 10-K; Commission File No. 0-22230).
Exhibit 10.4.1.
Agreement between Royal Grip and Precision Japan Ltd. dated July 12, 1991
(incorporated by reference to Exhibit 10.7 to RG's 1996 Form 10-K; Commission
File No. 0-22230).
Exhibit 10.4.2.
Lease Agreement dated February 22, 1996 between HM Real Estate, L.L.C. and
Royal Grip for Royal Grip's Oklahoma City, Oklahoma facility (incorporated by
reference to Exhibit 10.12 to RG's 1996 Form 10-K; Commission File No. 0-22230).
Exhibit 10.4.3.
Manufacturing and Supply Agreement dated December 21, 1996 between Royal
Grip, Inc. and Acushnet Rubber Company, Inc. (incorporated by reference to
Exhibit 10.16 to RG's 1996 Form 10-K; Commission File No. 0-22230).
Exhibit 10.4.4.
Capital Lease Agreement between Royal Grip, Inc. and Acushnet Rubber
Company, Inc. (incorporated by reference to Exhibit 10.18 to RG's 1996 Form
10-K; Commission File No. 0-22230).
Exhibit 10.4.5.
Amendment to Manufacturing and Supply Agreement dated April 4, 1997 between
Royal Grip, Inc. and Acushnet Rubber Company (incorporated by reference to
Exhibit 10.17 to RG's 1996 Form 10-K; Commission File No. 0-22230).
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<PAGE> 187
Exhibit 10.4.6.
Manufacturers' Representative Agreement dated March 1, 1979 between Union
Tubular Products Brunswick Corporation and M.A. Clark.
Exhibit 10.4.7.
Distributor Agreement effective August 20, 1990 between the Brunswick Golf
group of the Brunswick Division, Brunswick Corporation and Infiniti Golf.
(16) LETTER ON CHANGE IN CERTIFYING ACCOUNTANT
Exhibit 16.1.
Letter re change in certifying accountant (incorporated by reference to
Exhibit 16.1, to Royal Grip's Current Report on Form 8-K filed on October 22,
1995; Commission File No. 0-22230).
(21) SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1.
Subsidiaries of the Registrant.
(23) CONSENT OF EXPERTS AND COUNSEL
Exhibit 23.1.
Consent of Arthur Andersen LLP.
Exhibit 23.2.
Consent of Ernst & Young LLP.
Exhibit 23.3.
Consent of Kenneth J. Warren (included in Exhibit 5.1 above).
Exhibit 23.4.
Consent of Fabian & Clendenin (included in Exhibit 8.1 above).
Exhibit 23.5.
Consent of Everen Securities, Inc. (included in Annex II Part I).
Exhibit 23.6.
Consent of Danny Edwards.
Exhibit 23.7.
Consent of Robert G. J. Burg, II.
Exhibit 23.8.
Consent of James G. DeMello.
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<PAGE> 188
(24) POWERS OF ATTORNEY
Exhibit 24.1.
Powers of attorney (filed herewith).
Exhibit 24.2.
Certified resolution of the Registrant's Board of Directors authorizing
officers and directors signing on behalf of the Registrant to sign pursuant to a
power of attorney.
(27) FINANCIAL DATA SCHEDULE (submitted electronically for SEC information
only).
(b) Not Applicable.
(c) See Annex II to the Proxy Statement/Prospectus in Part I of this
Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Jackson Hole, state of
Wyoming, on June , 1997.
FM PRECISION GOLF CORP.
By: /s/ CHRISTOPHER A. JOHNSTON
------------------------------------
Christopher A. Johnston
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on June , 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ CHRISTOPHER A. JOHNSTON Director, President, Chief Executive Officer,
- --------------------------------------------- Treasurer (principal executive officer and
Christopher A. Johnston principal financial and accounting officer)
/s/ DAVID E. JOHNSTON Director, Executive Vice President
- ---------------------------------------------
David E. Johnston
/s/ RICHARD P. JOHNSTON Director, Chairman of the Board
- ---------------------------------------------
Richard P. Johnston
/s/ KENNETH J. WARREN Director, Secretary
- ---------------------------------------------
Kenneth J. Warren
/s/ RONALD L. CHALMERS Director
- ---------------------------------------------
Ronald L. Chalmers
/s/ RAYMOND J. MINELLA Director
- ---------------------------------------------
Raymond J. Minella
*By: /s/ CHRISTOPHER A. JOHNSTON
----------------------------------------
[Christopher A. Johnston],
Attorney-in-fact
</TABLE>
<PAGE> 190
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
ROYAL GRIP, INC.
-----------------------------
FORM S-4
REGISTRATION STATEMENT
June 9, 1997
-----------------------------
EXHIBITS
-----------------------------
---------------------------------------------------------------------------
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<PAGE> 191
EXHIBIT INDEX
Exhibit 2.1.
Agreement and Plan of Merger dated as of May 14, 1997 among Royal Grip,
Inc., FM Precision Golf Corp. and FMPSUB, Inc.
Page 151 in the manually signed original.
Exhibit 2.2.
Consulting Agreement dated as of May 14, 1997 between FM Precision Golf
Corp. and Danny Edwards.
Page 215 in the manually signed original.
Exhibit 2.3.
Registration Rights Agreement dated as of May 14, 1997 among Danny Edwards,
Drew M. Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp.
Page 225 in the manually signed original.
Exhibit 2.4.
Stockholder Agreement dated as of May 14, 1997 among Danny Edwards, Drew M.
Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp.
Page 240 in the manually signed original.
Exhibit 2.5.
Voting Agreement dated as of May 14, 1997 among Danny Edwards, Drew M.
Brown, Mark N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust,
DMB Property Ventures Limited Partnership and FM Precision Golf Corp.
Page 249 in the manually signed original.
Exhibit 3.1.
Amended and Restated Certificate of Incorporation of FM Precision Golf
Corp.
Page 192 in the manually signed original.
Exhibit 3.2.
Bylaws of Royal Precision, Inc. (f/k/a FM Precision Golf Corp.)
Page 262 in the manually signed original.
Exhibit 4.1.
See Articles FOUR, FIVE and SEVEN of the Amended and Restated Certificate
of Incorporation of FM Precision Golf Corp. (see Exhibit 3.1 above).
<PAGE> 192
Exhibit 4.2.
See Article I, Sections 2.1 and 2.2 of Article II and Section 7.3 of
Article VII of the Bylaws of Royal Precision, Inc. (see Exhibit 3.2 above).
Exhibit 5.1.
Opinion of Kenneth J. Warren, Esq. as to the legality of the Common Stock
being registered.
*To be supplied by amendment.
Exhibit 8.1.
Opinion of Fabian & Clendenin as to tax matters.
*To be supplied by amendment.
Exhibit 10.1.1.
Asset Purchase Agreement dated May 31, 1996 between Brunswick Corporation
and FM Precision Golf Manufacturing Corp.
Page 274 in the manually signed original.
Exhibit 10.1.2.
Agreement and Plan of Merger dated May 14, 1997 among Royal Grip, Inc., FM
Precision Golf Corp. and FMPSUB, Inc. (see Exhibit 2.1 above).
Exhibit 10.1.3.
Registration Rights Agreement dated May 14, 1997 among Danny Edwards, Drew
M. Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp. (see Exhibit 2.3 above).
Exhibit 10.1.4.
Stockholder Agreement dated May 14, 1997 among Danny Edwards, Drew M.
Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth J. Warren, Berenson Minella &
Company, L.P. and FM Precision Golf Corp. (see Exhibit 2.4 above).
Exhibit 10.1.5.
Voting Agreement dated May 14, 1997 among Danny Edwards, Drew M. Brown,
Mark N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust, DMB
Property Ventures Limited Partnership and FM Precision Golf Corp. (see Exhibit
2.5 above).
Exhibit 10.1.6.
Letter agreement dated May 14, 1996 between EVEREN Securities, Inc. and
Royal Grip, Inc. (the "EVEREN Agreement").
Page 330 in the manually signed original.
Exhibit 10.1.7
Addendum dated June 25, 1996 to the EVEREN Agreement (the "EVEREN
Addendum")
<PAGE> 193
Page 336 in the manually signed original.
Exhibit 10.1.8.
Addendum dated April 29, 1997 to the EVEREN Agreement and the EVEREN
Addendum.
Page 337 in the manually signed original.
Exhibit 10.2.1.
Investment Fee Agreement dated May 28, 1996 among Merbanco Inc., Berenson,
Minella & Company, L.P. and FM Precision Golf Manufacturing Corp.
Page 342 in the manually signed original.
Exhibit 10.2.2.
Management Agreement dated May 28, 1996 between FM Precision Golf
Manufacturing Corp. and Merbanco, Inc.
Page 344 in the manually signed original.
Exhibit 10.2.3.
Management Agreement dated May 28, 1996 between FM Precision Golf
Manufacturing Corp. and Berenson, Minella & Company, L.P.
Page 347 in the manually signed original.
Exhibit 10.2.4.
Management Stockholders Agreement dated May 29, 1996 among Ronald L.
Chalmers, Warren K. Braly, Jeremiah S. Gourd, Peter D. Dripchak, John Lynch,
William B. Faragher, Anthony J. Montgomery and FM Precision Golf Corp.
Page 350 in the manually signed original.
Exhibit 10.2.5.
FM Precision Golf Corp. 1997 Stock Option Plan dated March 13, 1997.
Page 365 in the manually signed original.
Exhibit 10.2.6.
Form of Option Agreement between FM Precision Golf Corp. and officers,
directors, employees and consultants of FM Precision Golf Corp who are not
parties to the Management Stockholders Agreement dated May 29, 1996.
Page 372 in the manually signed original.
Exhibit 10.2.7.
Form of Option Agreement between FM Precision Golf Corp. and officers,
directors, employees and consultants of FM Precision Golf Corp who are parties
to the Management Stockholders Agreement dated May 29, 1996.
Page 378 in the manually signed original.
<PAGE> 194
Exhibit 10.2.8.
Consulting Agreement dated May 14, 1997 between FM Precision Golf Corp. and
Danny Edwards (see Exhibit 2.2 above).
Exhibit 10.3.1.
Open-End Mortgage Deed, Security Agreement and Fixture Filing dated May 31,
1996 given by FM Precision Golf Manufacturing Corp. to Star Bank, National
Association.
Page 392 in the manually signed original.
Exhibit 10.3.2.
Financing Agreement dated May 31, 1996 between Star Bank, National
Association, FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales
Corp.
Page 405 in the manually signed original.
Exhibit 10.3.3.
Guaranty dated May 31, 1996 made by FM Precision Golf Manufacturing Corp.
to Star Bank, National Association.
Page 465 in the manually signed original.
Exhibit 10.3.4.
Guaranty dated May 31, 1996 made by FM Precision Golf Sales Corp. to Star
Bank, National Association.
Page 472 in the manually signed original.
Exhibit 10.3.5.
Guaranty dated May 31, 1996 made by FM Precision Golf Corp. to Star Bank,
National Association.
Page 479 in the manually signed original.
Exhibit 10.3.6.
Guaranty dated May 31, 1996 made by Christopher A. Johnston, Berenson
Minella & Company and Richard P. Johnston to Star Bank, National Association.
Page 487 in the manually signed original.
Exhibit 10.3.7.
Security Agreement dated May 31, 1996 between Star Bank, National
Association, FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales
Corp.
Page 496 in the manually signed original.
Exhibit 10.3.8.
Security Agreement dated May 31, 1996 between Star Bank, National
Association, and FM Precision Golf Corp.
Page 509 in the manually signed original.
<PAGE> 195
Exhibit 10.3.9.
Credit and Security Agreement dated February 10, 1997 between Royal Grip,
Inc., Roxxi, Inc. and Norwest Business Credit, Inc. (incorporated by reference).
Exhibit 10.3.10.
First Amendment to Credit Agreement dated April 11, 1997 between Royal
Grip, Inc., Roxxi, Inc. and Norwest Business Credit, Inc. (incorporated by
reference).
Exhibit 10.4.1.
Agreement between Royal Grip and Precision Japan Ltd. dated July 12, 1991
(incorporated by reference).
Exhibit 10.4.2.
Lease Agreement dated February 22, 1996 between HM Real Estate, L.L.C. and
Royal Grip for Royal Grip's Oklahoma City, Oklahoma facility (incorporated by
reference).
Exhibit 10.4.3.
Manufacturing and Supply Agreement dated December 21, 1996 between Royal
Grip, Inc. and Acushnet Rubber Company, Inc. (incorporated by reference).
Exhibit 10.4.4.
Capital Lease Agreement between Royal Grip, Inc. and Acushnet Rubber
Company, Inc. (incorporated by reference).
Exhibit 10.4.5.
Amendment to Manufacturing and Supply Agreement dated April 4, 1997 between
Royal Grip, Inc. and Acushnet Rubber Company (incorporated by reference).
Exhibit 10.4.6.
Manufacturers' Representative Agreement dated March 1, 1979 between Union
Tubular Products Brunswick Corporation and M.A. Clark.
Page 521 in the manually signed original.
Exhibit 10.4.7.
Distributor Agreement effective August 20, 1990 between the Brunswick Golf
group of the Brunswick Division, Brunswick Corporation and Infiniti Golf.
Page 526 in the manually signed original.
Exhibit 16.1.
Letter re change in certifying accountant (incorporated by reference).
Exhibit 21.1.
Subsidiaries of the Registrant.
Page 534 in the manually signed original.
<PAGE> 196
Exhibit 23.1.
Consent of Arthur Andersen LLP.
Page 535 in the manually signed original.
Exhibit 23.2.
Consent of Ernst & Young LLP.
Page 536 in the manually signed original.
Exhibit 23.3.
Consent of Kenneth J. Warren (included in Exhibit 5.1 above).
Exhibit 23.4.
Consent of Fabian & Clendenin (included in Exhibit 8.1 above).
Exhibit 23.5.
Consent of Everen Securities, Inc. (included in Annex II Part I).
Exhibit 23.6.
Consent of Danny Edwards.
Page 537 in the manually signed original.
Exhibit 23.7.
Consent of Robert G. J. Burg, II.
Page 538 in the manually signed original.
Exhibit 23.8.
Consent of James G. DeMello.
Page 539 in the manually signed original.
Exhibit 24.1.
Powers of attorney (filed herewith).
Page 540 in the manually signed original.
Exhibit 24.2.
Certified resolution of the Registrant's Board of Directors authorizing
officers and directors signing on behalf of the Registrant to sign pursuant to a
power of attorney.
Page 546 in the manually signed original.
<PAGE> 1
EXHIBIT 2.2
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as of
the 14th day of May, 1997 by and between FM PRECISION GOLF CORP., a Delaware
corporation ("FMP") on the one hand, and DANNY EDWARDS, an individual residing
at 6724 North Whispering Hills Road, Paradise Valley, Arizona 85253
("Consultant") on the other hand.
WITNESSETH:
WHEREAS, Consultant is the founder and chief executive officer of Royal
Grip, Inc., a Nevada corporation (the "Company"), and
WHEREAS, FMP and the Company have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") pursuant to which the
Company will become a wholly-owned subsidiary of FMP and each of the
shareholders of the Company will receive Common Stock in FMP; and
WHEREAS, Consultant has extensive knowledge about the customers, business
practices, pricing procedures and other matters regarding the businesses of the
Company; and
WHEREAS, FMP desires to maintain, on a formal basis, access to the
knowledge, information, contacts and expertise of Consultant;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound, agree
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF CONSULTANT. Consultant hereby
represents and warrants to FMP that this Agreement is the legal, valid and
binding obligation of Consultant and is enforceable against Consultant in
accordance with its terms.
SECTION 2. REPRESENTATIONS OF FMP. FMP hereby represents and warrants to
Consultant that this Agreement has been duly authorized, executed and delivered
by FMP, is the legal, valid and binding obligation of FMP and is enforceable
against FMP in accordance with its terms.
SECTION 3. OBLIGATIONS OF CONSULTANT.
3.1. SCOPE. Consultant shall make himself reasonably available to consult
with FMP, and one or more Subsidiaries (as defined in the Merger Agreement) of
FMP as FMP may from time to time designate, on a regular basis as FMP may
reasonably request with respect to matters involving suppliers and purchasers,
potential suppliers and purchasers, business practices, business opportunities,
pricing points and practices, outlook for prices, negotiations of contracts,
personnel and other employment and employee matters relating to the business of
the Company. In addition, Consultant shall (a) make himself reasonably available
to consult with FMP, and one or more Subsidiaries of FMP, with respect to
business opportunities of every nature, including, but not limited to, joint
ventures, investment opportunities, consulting opportunities and other
<PAGE> 2
business matters relating to such parts of the golf industry where Consultant
has particular expertise, whether or not related to the business of the Company,
(b) introduce FMP, or one or more Subsidiaries of FMP as FMP may designate, to
potential suppliers and customers, potential business partners and other Persons
(as hereinafter defined) who may be useful to FMP or its Subsidiaries as they
attempt to develop business and discover investment opportunities in the golf
industry, (c) endorse all products of FMP and its Subsidiaries and use such
products in his activities hereunder or when appearing in the golf tournaments
sponsored by the Professional Golf Association or which are part of the Nike
tour (the "Tour") and (d) promote FMP and its products and those of its
Subsidiaries by actively appearing on the Tour, either as a player-participant
or otherwise.
3.2. LIMITATIONS. Consultant shall perform such consulting services as may
reasonably be requested by FMP; provided, however, that (a) Consultant shall not
be required to consult under this Agreement for more than 25 hours during any
calendar quarter (provided that time spent on the Tour shall not count towards
this minimum number of hours); and (b) FMP shall reimburse Consultant for all of
his reasonable out-of-pocket expenses (including, but not limited to, telephone,
fax and travel) incurred by Consultant in connection with the performance of the
consulting services required hereunder; provided that no reimbursement for Tour
expenses shall be required of FMP except to the extent set forth in Section 4.2
below.
3.3. COMPENSATION. Consultant shall be entitled to the payments
provided for in Section 4 below, regardless of the extent to which FMP or its
Subsidiaries request the use of the consulting services of Consultant.
3.4. DIRECTOR. During the term of this Agreement, FMP shall cause
Consultant to be nominated for election by the stockholders of FMP as a
director of FMP.
3.5. OFFICER. During the term of this Agreement, FMP shall cause
Consultant to be elected as a Vice Chairman of the Board of Directors of FMP.
3.6. TERM. The provisions of Sections 3 and 4 shall continue for a period
of two years commencing with the Effective Date (as defined in the Merger
Agreement) and ending on the second anniversary of the Effective Date, except
for the provisions of Section 3.7 which shall continue for an additional period
of two years following the Restricted Period (as hereinafter defined).
3.7. INDEMNITY. FMP agrees to indemnify and hold Consultant harmless
against any losses, claims, damages or liabilities to which Consultant may
become subject in connection with the services which are the subject of this
Agreement; provided, however, that FMP shall not be liable under the foregoing
indemnity in respect of any loss, claim, damage or liability to the extent that
such loss, claim, damage or liability resulted from a breach of the obligations
of Consultant to FMP in connection with the performance by Consultant of the
services which are the subject of this Agreement or from the willful misfeasance
or gross negligence of Consultant.
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<PAGE> 3
SECTION 4. PAYMENTS.
4.1. DIRECTOR FEES. FMP shall pay Consultant $10,000, as a director's fee,
for each full year on and after the Effective Date that Consultant is a director
of FMP, at the times that director fees are paid to other directors of FMP.
4.2. CONSULTING FEES. FMP shall pay Consultant $180,000 per year, in
equal monthly installments, which includes the total amount that FMP is
obligated to reimburse Consultant for all Tour expenses that may be incurred
by Consultant hereunder.
4.3. RELATIONSHIP. FMP is engaging Consultant as an independent
contractor and not as an employee. In performing his obligations under this
Agreement, Consultant shall not identify himself as an employee of FMP. In
the event that Consultant hires one or more employees, Consultant shall be
solely responsible for all costs and expenses of such employees.
4.4. LIMITATIONS. If Consultant does not complete the first two days of at
least 10 tournaments on the Tour in any year, FMP may reduce the payments due
under Section 4.2 by $15,000 for each tournament under 10 on the Tour not so
completed; provided, that if Consultant is unable to complete the first two days
of a tournament on the Tour due to injury, but Consultant does appear and is
able to promote FMP at such tournament, such tournament shall count towards the
minimum.
4.5. BONUS. The Compensation Committee of the Board of Directors of
FMP shall review the activities of Consultant at the end of each year and
determine, at its sole discretion, whether Consultant shall be entitled to a
bonus.
4.6. OTHER BENEFITS. During the term of this Agreement, Consultant shall
be provided with (a) the same health insurance and other employee benefits on
the same terms as is made available to executives of FMP, and (b) the same
benefits on the same terms as are made available to other non-employee directors
of FMP.
SECTION 5. DEFINITION OF "PERSON". For all purposes of this Agreement, "Person"
means any individual, partnership, corporation, limited liability company,
trust, or other entity.
SECTION 6. TERMINATION. Consultant recognizes the detriment to FMP that would
result from the impairment of public confidence in the honest and orderly
conduct, the integrity and good character of Consultant. Consultant therefore
acknowledges that if he was engaged or should engage in gross and willful
misconduct injurious to FMP, FMP will have the right to terminate this
Agreement. In addition, FMP may terminate this Agreement if (a) Consultant shall
fail to complete the first two days of at least five tournaments on the Tour
during any year provided, that if Consultant is unable to complete the first two
days of a tournament on the Tour due to injury, but Consultant does appear and
is able to promote FMP at such tournament, such tournament shall count towards
the minimum, or (b) Consultant fails, in any material respect, in the reasonable
determination of the Board of Directors of FMP, to perform his obligation under
this Agreement, and such failure, if curable, shall continue for 30 days after
written notice to Consultant specifying the events constituting such failure.
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<PAGE> 4
SECTION 7. COVENANT NOT TO COMPETE. Consultant acknowledges that (a) FMP is
engaged, through its ownership of the Company, in the business of designing and
distributing golf club grips and designing and manufacturing athletic headwear
(the "Business"), (b) Consultant is one of the limited number of persons who
developed such Business, and is the founder of the Company, (c) the Business is
conducted throughout the United States, (d) his work has given him, and his
consulting for the Company will continue to give him proprietary information and
trade secrets of and confidential information concerning the Company, and (e)
the agreements and covenants contained in this Section 7 are essential in order
to induce FMP to enter into the Agreement and Plan of Merger and to protect the
Business and goodwill of the Company that FMP will acquire thereunder.
Accordingly, Consultant covenants and agrees as follows:
7.1. TERM. For a period commencing on the Effective Date and ending on the
later of (a) the second anniversary of the Effective Date, or (b) the date of
the termination of Consultant's retention by FMP (such period of time being
referred to herein as the "Restricted Period") Consultant shall not, within the
United States of America or Japan (the "Territory"), directly or indirectly, (i)
engage in the Business or any aspect of the Business for the Consultant's own
account, (ii) enter the employ of, or render any services to, any Person (other
than FMP or any Subsidiary of FMP) engaged in the Business or any aspect of the
Business, (iii) become associated with any Person engaged in the Business as an
individual, partner, shareholder (other than as a shareholder owning not more
than 5% of the voting securities of any corporation having more than 500
stockholders), officer, director, employee, principal, agent, consultant or
trustee, or (iv) solicit, attempt to solicit or accept any business (which is
related to any aspect of the Business) to be conducted within the Territory (or
help any other Person solicit or accept any such business) from any Person who,
during the 12 months preceding the date of termination or expiration of
Consultant's retention by FMP, is a customer or supplier of the Company or who
during the Restricted Period becomes, and is known by Consultant to be, a
customer or supplier of the Company. Nothing in this Agreement shall prohibit
Consultant from sponsoring products or companies that are not directly
competitive with FMP or any Subsidiary of FMP.
7.2. EMPLOYEES; DISPARAGEMENT. Without the prior written consent of FMP,
during the Restricted Period, Consultant shall not, directly or indirectly, hire
or solicit any employee or consultant or advisor to the Company or encourage any
such employee or consultant or advisor to leave such employment or retention for
any business whether or not a competitor of the Company. During the Restricted
Period, Consultant shall not disparage FMP or any Subsidiary of FMP or their
personnel or services, or discourage or otherwise attempt to prevent any other
Person from doing business with FMP or any Subsidiary of FMP. Similarly, FMP,
during the Restricted Period, shall not disparage Consultant or his services, or
discourage or otherwise attempt to prevent any other Person from doing business
with Consultant.
7.3. CONSIDERATION. Consultant acknowledges that his acquisition of
shares of Common Stock of FMP as described in the Recitals to this Agreement
constitutes full and fair consideration for his covenants under this Section
7.
7.4. REFORMATION. If a court of competent jurisdiction shall determine
that the terms of this Section 7 are partially or wholly inoperative,
unenforceable or invalid in a particular case
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<PAGE> 5
because of their time or geographic scope or for any other reason, such court
shall have the power to limit such time or geographic scope or otherwise to
recast the terms of this Section 7 in such case so as to permit its enforcement
to the greatest extent permitted by applicable law.
7.5. INJUNCTIVE RELIEF. Consultant specifically acknowledges and agrees
that the remedy at law for any breach of the provisions of Section 7, 8 and 9
will be inadequate (for reasons which include, but are not limited to, the fact
that Consultant's talents, and the services to be provided by Consultant, are
unique) and that FMP, in addition to any other relief available to it, shall be
entitled to temporary and permanent injunctive relief.
SECTION 8. MAINTAINING CONFIDENTIAL INFORMATION.
8.1. FMP INFORMATION. Consultant agrees that at all times while he is
retained by FMP and for a period of one year thereafter, he will hold in
strictest confidence, and not use, except for the benefit of FMP, or disclose to
anyone, other than directors, officers, employees and counsel of FMP and Persons
to whom such disclosure is authorized by executive officers of FMP (other than
Consultant) and is made in furtherance of the interest of FMP, without the
written authorization of the Board of Directors of FMP, its Chairman of the
Board or President, any trade secrets, confidential knowledge, data or other
proprietary information of FMP or its Subsidiaries (including the trade secrets,
confidential knowledge, data or other proprietary information of the Company),
which by way of illustration and not limitation, include scientific, technical
and business information relating to products, processes, know-how, designs,
formulas, methods, developmental or experimental work, firmware, software
(whether executable or source code), improvements, discoveries, plans for
research, new products, marketing and selling, business plans, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers, and information regarding the skills and compensation of other
employees of FMP, the Company and their Subsidiaries, except for information
that becomes generally available to the public, or information received on a
non-confidential basis from sources other than FMP or the Company who are not in
violation of a confidentiality agreement with FMP or a Subsidiary of FMP.
8.2. THIRD PARTY INFORMATION. Consultant recognizes that FMP has received
and in the future will receive from third parties their confidential or
proprietary information subject to a duty on FMP's part to maintain the
confidentiality of such information and, in such cases, to use it only for
certain limited purposes. Consultant agrees that he owes FMP and such third
parties, during the term set forth in Section 8.1, a duty to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose it to any Person or use it for the benefit of anyone other than FMP or
such third party, except in a manner that is consistent with FMP's agreement
with the third party.
SECTION 9. ASSIGNMENT OF INVENTIONS AND ORIGINAL WORKS.
9.1. INVENTIONS AND ORIGINAL WORKS RETAINED BY CONSULTANT. Consultant
represents and warrants that he has heretofore assigned to the Company without
further payment or consideration all his right, title and interest in and to any
ideas, inventions, original works of authorship, developments, improvements or
trade secrets which he solely or jointly conceived or
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<PAGE> 6
reduced to practice, or caused to be conceived or reduced to practice while he
was an employee of the Company or which are related to the Business and has
granted to FMP a perpetual right to the molds used to inscribe his name on
packaging, grips and other items, and to the use of his name on such items
without any further consideration. Consultant has attached hereto as Exhibit A a
complete list of all inventions, original works of authorship, developments,
improvements, and trade secrets that Consultant has, alone or jointly with
others, conceived, developed or reduced to practice before the commencement of
this Agreement, that Consultant considers to be his property or the property of
third parties. If disclosure of an item on Exhibit A would cause Consultant to
violate any prior confidentiality agreement, Consultant understands that he is
not to list such in Exhibit A but is to inform FMP that all items have not been
listed for that reason. A space is provided on Exhibit A for such purpose. If no
list is attached, Consultant represents that there are no such items.
9.2. INVENTIONS AND ORIGINAL WORKS ASSIGNED TO FMP. Consultant agrees to
make prompt written disclosure to FMP of and will assign to FMP without further
payment or consideration all his right, title and interest in and to any ideas,
inventions, original works of authorship, developments, improvements or trade
secrets which Consultant may solely or jointly conceive or reduce to practice,
or cause to be conceived or reduced to practice during the period of his
retention by FMP. Consultant understands that only ideas, inventions, original
works of authorship, developments, improvements and trade secrets which
(a) were not developed or produced using equipment, supplies, facilities
or trade secrets that belong to FMP or any Subsidiary of FMP, and
(b) do not relate to (i) the Business as it is currently conducted or
contemplated to be conducted or as it may be conducted during the
term of Consultant's retention by FMP or (ii) actual or contemplated
research or development conducted by FMP, and
(c) were not developed or produced during hours that Consultant is
obligated to engage in FMP related activities hereunder or for which
FMP pays Consultant
are not covered by Consultant's obligations to report and assign under the first
sentence of this Section 9.2.
9.3. WORKS MADE FOR HIRE. Consultant acknowledges that all original works
of authorship which are made by Consultant (solely or jointly with others)
within the scope of his duties under this Agreement and which are protectable by
copyright are "works made for hire," as that term is defined in the United
States Copyright Act (17 U.S.C., Section 101).
9.4. OBTAINING LETTERS PATENT, COPYRIGHT REGISTRATIONS AND OTHER
PROTECTIONS. Consultant will assist FMP in every reasonable way, and at the sole
expense of FMP, to obtain and from time to time enforce United States and
foreign proprietary rights, including patents and copyrights, relating to any
and all inventions, original works of authorship, developments, improvements or
trade secrets of FMP in any and all countries. To that end Consultant will
execute, verify and deliver such documents and perform such other acts
(including appearing as a
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<PAGE> 7
witness) as FMP may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such proprietary rights and the
assignment thereof. In addition, Consultant will execute, verify and deliver
assignments of such proprietary rights to FMP or its designee, without payment
or further consideration. Consultant's obligation to assist FMP with respect to
proprietary rights in any and all countries shall continue beyond the
termination of his retention, but FMP will compensate Consultant at a reasonable
rate after his termination for the time actually spent by Consultant at FMP's
request on such assistance.
9.5. OBLIGATION TO KEEP FMP INFORMED. In addition to Consultant's
obligations under Section 9.2, during the Restricted Period, Consultant will
promptly disclose to FMP fully and in writing all patent applications filed by
Consultant or on his behalf. At the time of each such disclosure, Consultant
will advise FMP in writing of any inventions that he believes are not required
to be assigned to FMP by Section 9.2 above; and Consultant will at that time
provide to FMP in writing all evidence necessary to substantiate that belief.
Consultant understands that FMP will, and FMP agrees to, keep in confidence and
will not disclose to third parties without Consultant's consent any proprietary
information disclosed in writing to FMP pursuant to this Agreement relating to
such inventions. Consultant will preserve the confidentiality of any invention
that is required to be assigned to FMP by Section 9.2 above.
9.6. RETURN OF FMP DOCUMENTS. When Consultant is no longer a consultant to
FMP, he will deliver to FMP (and will not keep in his possession, recreate or
deliver to anyone else) any and all devices, records, data, notes, reports,
proposals, lists, correspondence, specifications, drawings, blueprints,
firmware, software (whether executable or source code), sketches, materials,
equipment, other documents or property, together with all copies thereof (in
whatever medium recorded) belonging to FMP or any of its Subsidiaries, their
successors or assigns.
SECTION 10. MISCELLANEOUS.
10.1. THIS AGREEMENT. This Agreement and the agreements and instruments
required to be executed and delivered hereunder set forth the entire agreement
of the parties with respect to the subject matter hereof and supersede and
discharge all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter and negotiations.
There are no oral conditions precedent to the effectiveness of this Agreement.
10.2. NON-WAIVER. Neither the failure of nor any delay by either party to
this Agreement to enforce any right hereunder or to demand compliance with its
terms is a waiver of any right hereunder. No action taken pursuant to this
Agreement on one or more occasions is a waiver of any right hereunder or
constitutes a course of dealing that modifies this Agreement.
10.3. WAIVERS. No waiver of any right or remedy under this Agreement shall
be binding on either party unless it is in writing and is signed by the party to
be charged. No such waiver of any right or remedy under any term of this
Agreement shall in any event be deemed to apply to any subsequent default under
the same or any other term contained herein.
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<PAGE> 8
10.4. AMENDMENTS. No amendment, modification or termination of this
Agreement shall be binding on either party hereto unless it is in writing and
is signed by the party to be charged.
10.5. SUCCESSORS. The terms of this Agreement shall be binding upon
and inure to the benefit of the parties and their respective heirs, personal
representatives or corporate successors.
10.6. THIRD PARTIES. Nothing herein expressed or implied is intended
or shall be construed to give any person other than the parties hereto any
rights or remedies under this Agreement.
10.7. JOINT PREPARATION. This Agreement shall be deemed to have been
prepared jointly by the parties hereto. Any ambiguity herein shall not be
interpreted against either party hereto and shall be interpreted as if each
of the parties hereto had prepared this Agreement.
10.8. RULES OF CONSTRUCTION. In this Agreement, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular; and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates words of the neuter
gender may refer to any gender. The preamble and the recitals are part of this
Agreement. The captions and section numbers appearing in this Agreement are
inserted only as a matter of convenience. They do not define, limit or describe
the scope or intent of the provisions of this Agreement.
10.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and
either party hereto may execute this Agreement by signing and delivering one
or more counterparts.
10.10. LEGAL MATTERS. The parties, being concerned that either party may
obtain some advantage by having the law of the jurisdiction of its principal
place of business apply, and agreeing in concept to have this Agreement subject
to the laws of a neutral jurisdiction, whose laws are perceived as being fair in
general to the business community at large, have determined and agreed as
follows: THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS. EACH OF THE PARTIES AGREES THAT ANY LEGAL ACTION BETWEEN
THE PARTIES RELATING TO THE ENTRY INTO OR PERFORMANCE OF THIS AGREEMENT, OR THE
INTERPRETATION OR ENFORCEMENT OF TERMS HEREOF, SHALL BE BROUGHT IN A FEDERAL OR
STATE COURT LOCATED IN NEW CASTLE COUNTY, DELAWARE, HAVING JURISDICTION OF THE
SUBJECT MATTER THEREOF, AND EACH PARTY IRREVOCABLY CONSENTS TO PERSONAL
JURISDICTION IN ANY SUCH FEDERAL OR STATE COURT, WAIVES ANY RIGHT TO OBJECT TO
SUCH VENUE OR TO ASSERT THE DEFENSE OF FORUM NON-CONVENIENS, AND AGREES THAT
SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL IN ACCORDANCE
WITH, SECTION 10.11 HEREOF.
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10.11. NOTICES. Any notices or other communications required or permitted
by this Agreement shall be in writing and shall be delivered either by personal
delivery, by nationally recognized overnight courier service, by facsimile, by
first class mail or by registered or certified mail, return receipt requested,
addressed to the party at the address appearing below the signature of such
party, or to such other address as either party shall have previously designated
to the other by written notice given in the manner hereinabove set forth.
Notices shall be deemed given one day after being sent, if sent by overnight
courier; when delivered and receipted for, if hand delivered; when received, if
sent by facsimile or other electronic means or by first class mail; or when
receipted for (or upon the date of attempted delivery where delivery is refused
or unclaimed), if sent by certified or registered mail, return receipt
requested.
SIGNATURES:
IN WITNESS WHEREOF the parties have signed this Agreement as of this 14th
day of May, 1997.
FM PRECISION GOLF CORP.
<TABLE>
<S> <C>
By: /s/ Christopher A. Johnston /s/ Danny Edwards
---------------------------- -------------------------------------
Christopher A. Johnston, President DANNY EDWARDS (Consultant)
Address: P.O. Box 25182 Address: 6724 North Whispering Oaks Road
3490 Clubhouse Drive, Suite 102 Paradise Valley, Arizona 85253
Jackson, Wyoming 83001
</TABLE>
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<PAGE> 1
EXHIBIT 2.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of May
14, 1997 and effective as of the Effective Date (as defined herein), among Danny
Edwards, an individual residing at 6724 North Whispering Hills Road, Paradise
Valley, Arizona 85253, Drew M. Brown, an individual whose address is 4201 North
24th Street, Suite 120, Phoenix, Arizona 85016, DMB Property Ventures Limited
Partnership, a Delaware limited partnership having an office at 4201 North 24th
Street, Suite 120, Phoenix, Arizona 85016, Mark N. Sklar, an individual whose
address is 4201 North 24th Street, Suite 120, Phoenix, Arizona 85016 and Bennett
Dorrance, Trustee of the Bennett Dorrance Trust dated April 21, 1989, as
amended, whose address is 4201 North 24th Street, Suite 120, Phoenix, Arizona
85016 (Messrs. Edwards, Brown, Sklar and Dorrance and DMB Property Ventures
Limited Partnership collectively referred to as the "Edwards Group"),
Christopher A. Johnston, an individual residing at 2784 Teton Pines Drive,
Jackson, Wyoming 83001, RPJ/JAJ Partners, Ltd., a Wyoming partnership having an
office at Teton Pines, 2627 Fairways Place West, Jackson, Wyoming 83001, David
E. Johnston, an individual residing at 1935 W. Muirhead Loop, Oro Valley,
Arizona 85737, Kenneth J. Warren, an individual residing at 5567 Caplestone
Lane, Dublin, Ohio 43017 (Messrs. Christopher A. Johnston, David E. Johnston and
Warren, and RPJ/JAJ Partners collectively referred to as the "Johnston Group")
and Berenson Minella & Company, L.P., a New York limited partnership having an
office at 667 Madison Avenue, New York, New York 10021 ("B&M") (B&M and each
member of the Edwards Group and the Johnston Group individually referred to as a
"Stockholder" and collectively as "Stockholders"), and FM Precision Golf Corp.,
a Delaware corporation (the "Company").
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meaning, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Common Stock" means the shares of common stock, par value $.001 per
share, of the Company.
"Effective Date" means the date and time at which properly executed
Articles of Merger are duly filed with the Secretary of State of the State of
Nevada in accordance with the provisions of that certain Agreement and Plan of
Merger among Royal Grip, Inc., FM Precision Golf Corp. and FMPSub, Inc. of even
date herewith.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Group" means any of the Edwards Group, the Johnston Group or B&M.
"Holder" means each Person (other than the Company) who shall be a
party to this Agreement, whether in connection with the execution and delivery
of the Agreement as of the date hereof or otherwise, so long as such Person
shall "beneficially own" (as such term is defined in Rule 13D-3 under the
Exchange Act) any shares of Common Stock.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or other
department or agency thereof.
"Public Offering" means any primary or secondary public offering of
equity securities of the Company, or any successor thereto, pursuant to an
effective registration statement under the Securities Act other than pursuant to
a registration statement on Form S-4 or Form S-8 or any successor or similar
form.
"Registrable Securities" means the shares of Common Stock held by any
Stockholder on the date of this Agreement, any Common Stock issued as a result
of the exercise of any option held by any Stockholder on the date of this
Agreement, any Common Stock issued as a result of any reorganization,
reclassification, merger, consolidation, stock split or dividend with respect to
such shares of Common Stock, and any capital stock for which such Common Stock
is exchanged or into which it is converted; provided that such securities shall
cease to be Registrable Securities when (a) a registration statement relating to
such securities shall have been declared effective by the SEC, and such
securities shall have been disposed of pursuant to such effective registration
statement, or (b) such securities are sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in effect)
under the Securities Act are met or such shares of Common Stock may be sold
pursuant to Rule 144(k).
"Registration Expenses" means all (a) registration and filing fees, (b)
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of a qualified independent underwriter, if
any, counsel in connection therewith and the reasonable fees and disbursements
of counsel in connection with blue sky qualifications of the Registrable
Securities), (c) printing expenses, (d) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees performing legal or accounting duties), (e) fees and disbursements of
counsel for the Company, (f) fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters), (g) fees and expenses of
any special experts retained by the Company in connection with such
registration, (h) reasonable fees and expenses of (i) one counsel for the
Edwards Group and its permitted transferees, (ii) one counsel for the Johnston
Group and its permitted transferees, and (iii) one counsel for B&M and its
permitted transferees, (i) fees and expenses of listing the Registrable
Securities on a securities exchange or on the NASDAQ National Market System, (j)
rating agency fees, (k) reasonable fees and expenses of counsel for the
Underwriter, (l) reasonable fees and expenses of the Underwriter (excluding
discounts or commissions relating to the distribution of the Registrable
Securities) and (m) out-of-pocket expenses of the Company.
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<PAGE> 3
"SEC" means the Securities and Exchange Commission and any successor
having similar powers.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means any Stockholder or any transferee of a
Stockholder who proposes to sell Registrable Securities pursuant to Article II.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as a principal in connection with a distribution of such Registrable
Securities and not as part of such dealer's market-making activities.
(b) Each of the following terms is defined in the Section
opposite such term:
<TABLE>
Term Section
---- -------
<S> <C>
Demand Registrant 2.1(a)
Demand Registration 2.1(a)
Indemnified Party 2.8
Indemnifying Party 2.8
Maximum Offering Size 2.3(a)
Piggyback Holder 2.2(a)
Piggy-Back Registration 2.2
Registration Request 2.1(a)
</TABLE>
ARTICLE II
REGISTRATION RIGHTS
Section 2.1. Demand Registration.
(a) At any time after the date hereof, any Group or any other
Holder to which rights under this Section 2.1 have been transferred or assigned
(a "Demand Registrant") may make a written request (the "Registration Request")
for registration (a "Demand Registration") under the Securities Act of
Registrable Securities having a value (determined in the good faith judgment of
the Board of Directors) of not less than five million dollars. The Registration
Request will specify the number of shares of Registrable Securities proposed to
be sold and will also specify the intended method of disposition thereof;
provided that the Company shall not be obligated to effect (i) more than one
Demand Registration for the Edwards Group and its transferees, (ii) more than
two Demand Registrations for the Johnston Group and its transferees, (iii) more
than one Demand Registration for B&M and its transferees, or (iv) a Demand
Registration if counsel to the Company delivers to the Demand Registrant a
written opinion in form and substance reasonably satisfactory to the Demand
Registrant to the effect that registration under the Securities Act is not
necessary in order for the Demand Registrant to sell the Registrable Securities
in the manner contemplated by the Demand Registrant and, following such sale,
the transferee (assuming such transferee is not the Company or an
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<PAGE> 4
Affiliate of the Company within the meaning of the Securities Act) will be free
to resell such Registrable Securities without restriction and without
registration under the Securities Act.
(b) For purposes of Section 2.1(a), a registration of
Registrable Securities will not count as a Demand Registration until it has
become effective under the Securities Act.
(c) If the Demand Registrant so elects, the offering of
Registrable Securities pursuant to a Demand Registration shall be in the form of
an underwritten offering. The Board of Directors shall select the book-running
managing Underwriter in connection with such offering, and the Demand Registrant
may select one additional investment banking firm to serve as co-managing
underwriter in connection with the offering.
(d) The Company will use its best efforts to effect the
registration and the sale of Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable in connection
with any Registration Request.
(e) Notwithstanding anything to the contrary herein contained,
the Company will not be obligated to effect (i) any Demand Registration until
after the first anniversary of the date of this Agreement, (ii) not more than
one Demand Registration between the first and second anniversaries of the date
of this Agreement, and (iii) any Demand Registration after the fifth anniversary
of the date of this Agreement.
Section 2.2. Piggy-Back Registration.
(a) If the Company proposes to file a registration statement
under the Securities Act with respect to an offering of its Registrable
Securities (i) for its own account (other than a registration statement on Form
S-4 or S-8 (or any substitute form that may be adopted by the SEC)), or (ii) for
the account of any holders of its capital stock, then the Company shall give
written notice of such proposed filing to each Holder and all transferees of any
Stockholder to which a Stockholder shall have transferred any of its rights
under this Section 2.2 (a "Piggyback Holder") as soon as practicable (but in any
event not less than 20 days before the anticipated filing date), and such notice
shall offer such Piggyback Holders the opportunity to register any and all
shares of Registrable Securities owned by such Piggyback Holders. If such
Piggyback Holders wish to register securities of the same class or series as the
Company or such holders, such registration shall be on the same terms and
conditions as the registration of the Company's or such holders' securities (a
"Piggy-Back Registration"). No registration effected under this Section 2.2
shall relieve the Company of its obligations to effect a Demand Registration to
the extent required by Section 2.1 hereof; provided that no Piggyback Holder may
participate in any Piggy-Back Registration or Demand Registration at a time when
such Piggyback Holder owns Registrable Securities which are already registered
under a then effective registration statement.
Section 2.3. Reduction of Offering.
(a) If a Demand Registration involves an underwritten Public
Offering and the managing Underwriter shall advise the Company and the Selling
Holders that, in its view, (i) the number of shares of Common Stock requested to
be included in such registration (including Common Stock which the Company
proposes to be included) or (ii) the inclusion of some or all of the shares of
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<PAGE> 5
Common Stock owned by the Holders, in either case, exceeds the largest number of
shares of Common Stock which can be sold without having an adverse effect on
such offering, including the price at which such shares of Common Stock can be
sold (the "Maximum Offering Size"), the Company will include in such
registration, in the priority listed below, up to the Maximum Offering Size:
(I) with respect to the Demand Registration which takes place
between the first and second anniversaries of the date of this
Agreement, all shares of Common Stock requested to be registered by the
Stockholders (allocated, if necessary for the offering not to exceed
the Maximum Offering Size, pro rata among such Stockholders on the
basis of the relative number of shares of Registrable Securities owned
by the Group to which such Stockholder belongs as of the date of the
first filing with the SEC);
(II) with respect to any other Demand Registration, first, all
shares of Common Stock requested to be registered by the Selling
Holders (allocated, if necessary for the offering not to exceed the
Maximum Offering Size, pro rata among such entities on the basis of the
relative number of shares of Registrable Securities requested to be
registered);
(III) second, all Registrable Securities requested to be
included in such registration by any other Holder (allocated, if
necessary for the offering not to exceed the Maximum Offering Size, pro
rata among such other Holders on the basis of the relative number of
shares of Registrable Securities requested to be included in such
registration); and
(IV) third, any Common Stock proposed to be registered by the
Company.
(b) If a registration pursuant to Section 2.2 involves an
underwritten Public Offering (other than in the case of an underwritten Public
Offering requested by any Demand Registrant in a Demand Registration, in which
case the provisions with respect to priority of inclusion in such offering set
forth in Section 2.3(a) shall apply) and the managing Underwriter advises the
Company that, in its view, the number of shares of Common Stock which the
Company and the Selling Holders intend to include in such registration exceeds
the Maximum Offering Size, the Company will include in such registration, in the
following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be
registered by the Company as would not cause the offering to exceed the
Maximum Offering Size; and
(ii) second, all Registrable Securities requested to be
included in such registration statement by any Holder pursuant to
Section 2.2 or otherwise (allocated, if necessary for the offering not
to exceed the Maximum Offering Size, pro rata among such entities on
the basis of the relative number of shares of Registrable Securities
requested to be so included).
Section 2.4. Registration Procedures. Whenever the Company is required
to effect the registration of Registrable Securities pursuant to Section 2.1 or
2.2 hereof, the Company will use reasonable efforts in good faith to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable, and in
connection with any such Registration Request:
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<PAGE> 6
(a) The Company will as expeditiously as possible prepare and
file with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use reasonable efforts in good faith to cause such filed
registration statement to become and remain effective for a period of not less
than 120 days; provided that in the case of a Demand Registration, if the
Company shall furnish to any Selling Holder a certificate signed by either its
Chairman, Chief Executive Officer or President stating that in his good faith
judgment it would materially adversely affect the Company or its stockholders
for such a registration statement to be filed as expeditiously as possible, the
Company shall have a period of not more than 120 days within which to file such
registration statement measured from the date of receipt of the Registration
Request in accordance with Section 2.1.
(b) The Company will, if requested, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish to any Selling Holder and each Underwriter, if any, drafts of such
documents proposed to be filed, and thereafter furnish to the Selling Holders
and such Underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as any Selling Holders or such Underwriter
may reasonably request in order to facilitate the sale of the Registrable
Securities.
(c) After the filing of the registration statement, the
Company will promptly notify any Selling Holders of any stop order issued or
threatened by the SEC and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(d) The Company will use reasonable efforts in good faith to
(i) register or qualify the Registrable Securities under such other securities
or blue sky laws of such jurisdictions in the United States as any Selling
Holders reasonably (in light of their intended plan of distribution) requests
and (ii) cause such Registrable Securities to be registered with or approved by
such other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company and do any and all other acts and
things that may be reasonably necessary or advisable to enable the Selling
Holders to consummate the disposition of their Registrable Securities; provided,
that the Company will not be required to (A) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (B) subject itself to taxation in any such jurisdiction
other than taxation arising with respect to the registration of securities or
(C) consent to general service of process in any such jurisdiction.
(e) At any time when a prospectus relating to the sale of
Registrable Securities is required to be delivered under the Securities Act, the
Company will immediately notify the Selling Holders of the occurrence of an
event requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly make
available to the Selling Holders and the Underwriters any such supplement or
amendment. The Selling Holders agree that, upon receipt of any notice from the
Company of the happening of any
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<PAGE> 7
event of the kind described in the preceding sentence, the Selling Holders will
forthwith discontinue the offer and sale of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until receipt of
the copies of such supplemented or amended prospectus and, if so directed by the
Company, the Selling Holders will deliver to the Company all copies, other than
permanent file copies then in the possession of the Selling Holders, of the most
recent prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective as provided in Section 2.4(a) hereof by the number of days during the
period from and including the date of the giving of such notice to the date when
the Company shall make available to the Selling Holders such supplemented or
amended prospectus.
(f) The Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Company will make available for inspection by any
Selling Holder and any Underwriter participating in any disposition pursuant to
a registration statement being filed by the Company pursuant to this Article II,
any attorney, accountant or other professional retained by any Selling Holder or
Underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records") as shall be reasonably requested by any Inspector, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any Inspectors in connection with such registration statement.
(h) The Company will furnish to the Selling Holders and to
each Underwriter, if any, a signed counterpart, addressed to the Selling Holders
or such Underwriter, of (i) an opinion or opinions of counsel to the Company and
(ii) a comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters as are customarily
covered by opinions and comfort letters, as the Selling Holders or the managing
Underwriter therefor reasonably request.
(i) The Company will otherwise use reasonable efforts in good
faith to comply with all applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(j) The Company will use reasonable efforts in good faith to
cause all such Registrable Securities to be listed on each securities exchange
on which similar securities issued by the Company are then listed.
(k) The Company may require any Selling Holder, and each
Selling Holder agrees, to furnish promptly in writing to the Company such
information regarding such Selling Holder, the plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.
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<PAGE> 8
Section 2.5. Registration Expenses. Registration Expenses incurred in
connection with any registration made or requested to be made pursuant to this
Article II will be borne by the Company, whether or not any such registration
statement becomes effective.
Section 2.6. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Selling Holder and its officers, directors and
agents, and each Person, if any, who controls each such Selling Holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished in writing to the Company
by or on behalf of such Selling Holder expressly for use therein; provided that
with respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, or in any prospectus, as the case
may be, the indemnity agreement contained in this paragraph shall not apply to
the extent that any such loss, claim, damage, liability or expense results from
the fact that a current copy of the preliminary prospectus (or, in the case of a
prospectus, the prospectus as amended or supplemented) was not sent or given to
the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities to
such Person if it is determined that the Company has provided such prospectus
and it was the responsibility of such Selling Holder to provide such Person with
a current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The Company also agrees
to indemnify any Underwriters of the Registrable Securities, their officers and
directors and each Person who controls such underwriters on substantially the
same basis as that of the indemnification of the Selling Holder provided in this
Section 2.6.
Section 2.7. Indemnification by the Selling Holders. Each Selling
Holder agrees to indemnify and hold harmless the Company, its officers,
directors and agents and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Selling Holder, but only with reference to information related to such
Selling Holder furnished in writing by or on behalf of such Selling Holder
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each Selling Holder also agrees to indemnify and hold
harmless Underwriters of the Registrable Securities, their officers and
directors and each Person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 2.7.
Section 2.8. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 2.6 or 2.7, such Person (the "Indemnified Party") shall promptly notify
the Person against whom such indemnity may be sought (the "Indemnifying Party")
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<PAGE> 9
in writing and the Indemnifying Party upon request of the Indemnified Party
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to the proceeding; provided that the failure of any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent that the Indemnifying
Party is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (a) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (b) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Party shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 Business Days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement, unless the Indemnifying Party has
contested such reimbursement obligation and provides reasonable assurances that
such payment can be made upon resolution of such dispute. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement (A) includes
an unconditional release of such Indemnified Party from all liability arising
out of such proceeding and (B) provides that such Indemnified Party does not
admit any fault or guilt with respect to the subject matter of such proceeding.
Section 2.9. Contribution. (a) If the indemnification provided for
herein is for any reason unavailable to the Indemnified Parties in respect of
any losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Selling Holders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and such Selling Holders on the one hand and the Underwriters on the
other from the offering of the securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits but also the relative fault of the Company and the
Selling Holders on the one hand and of the Underwriters on the other in
connection with the
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<PAGE> 10
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and any Selling Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
such Selling Holder in connection with such statements or omissions, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Holders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and such Selling Holders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and any Selling Holder or by the Underwriters. The
relative fault of the Company on the one hand and any Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(b) The Company and each Selling Holder agree that it would
not be just and equitable if contribution pursuant to this Section 2.9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 2.9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
no Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public (less underwriters' discounts and
commissions) exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
Section 2.10. Participation in Underwritten Registrations. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
- 10 -
<PAGE> 11
Section 2.11. Current and Periodic Reports. The Company covenants that
it will timely file all reports required to be filed by it under the Securities
Act and the Exchange Act. Upon the request of the Edwards Group, B&M or the
Johnston Group, the Company will deliver to the Edwards Group, B&M or the
Johnston Group a written statement as to whether it has complied with such
requirements.
Section 2.12. Holdback Agreements. If and to the extent requested by
the Company, in the case of a non-underwritten Public Offering, and if and to
the extent requested by the managing Underwriter or Underwriters, in the case of
an underwritten Public Offering, the Holders agree not to effect, except as part
of such registration, any public sale or distribution of the shares of Common
Stock being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144, during the 14 days prior to, and during the 120-day
period beginning on, the effective date of such registration statement.
Section 2.13. Minimum Ownership. No Stockholder, nor any transferee of
any Stockholder, shall have any rights under this Agreement to participate in
any registration statement, either as a Demand Registrant, or as a Piggyback
Holder, after the date when all Registrable Securities owned by the applicable
Group or transferees is less than 5% of the then outstanding shares of Common
Stock of the Company.
ARTICLE III
MISCELLANEOUS
Section 3.1. Headings. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
Section 3.2. No Inconsistent Agreements. The Company is not a party to
and will not hereafter enter into any agreement with respect to its securities
which is inconsistent with, or otherwise grant rights superior to, the rights
granted to the Johnston and Edwards Groups or B&M under this Agreement.
Section 3.3. Entire Agreement; Amendments; No Waivers.
(a) This Agreement and the other instruments and agreements
referred to herein embody the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements with
respect thereto. This Agreement may be amended but only in a writing signed by
the Edwards Group, the Johnston Group, B&M and the Company. Any provision hereof
may be waived but only in a writing signed by the party against which such
waiver is sought to be enforced.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
- 11 -
<PAGE> 12
Section 3.4. NOTICES. Any notices or other communications required or
permitted by this Agreement shall be in writing and shall be delivered either by
personal delivery, by nationally recognized overnight courier service, by
facsimile, by first class mail or by registered or certified mail, return
receipt requested, addressed to a party at the address set forth below such
party's signature, or to such other address as any party shall have previously
designated to the others by written notice given in the manner hereinabove set
forth. Notices shall be deemed given one day after being sent, if sent by
overnight courier; when delivered and receipted for, if hand delivered; when
received, if sent by facsimile or other electronic means or by first class mail;
or when receipted for (or upon the date of attempted delivery where delivery is
refused or unclaimed), if sent by certified or registered mail, return receipt
requested.
Section 3.5. Applicable Law. The parties, being concerned that either
party may obtain some advantage by having the law of the jurisdiction of its
principal place of business apply, and agreeing in concept to have this
Agreement subject to the laws of a neutral jurisdiction, whose laws are
perceived as being fair in general to the business community at large, have
determined and agreed as follows: THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES AGREES
THAT ANY LEGAL ACTION BETWEEN THE PARTIES RELATING TO THE ENTRY INTO OR
PERFORMANCE OF THIS AGREEMENT, OR THE INTERPRETATION OR ENFORCEMENT OF TERMS
HEREOF, SHALL BE BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW CASTLE
COUNTY, DELAWARE, HAVING JURISDICTION OF THE SUBJECT MATTER THEREOF, AND EACH
PARTY IRREVOCABLY CONSENTS TO PERSONAL JURISDICTION IN ANY SUCH FEDERAL OR STATE
COURT, WAIVES ANY RIGHT TO OBJECT TO SUCH VENUE OR TO ASSERT THE DEFENSE OF
FORUM NON-CONVENIENS, AND AGREES THAT SERVICE OF PROCESS MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL ADDRESSED TO SUCH PARTY AT ITS ADDRESS SET FORTH
IN,OR DETERMINED IN ACCORDANCE WITH, SECTION 3.11 HEREOF.
Section 3.6. Severability. The invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
Section 3.7. Successors, Assigns, Transferees. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, successors and assigns. Neither this Agreement nor
any provisions hereof shall be construed so as to confer any right or benefit
upon any Person other than the parties to this Agreement and their respective
heirs, successors and assigns.
Section 3.8. Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts, each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
- 12 -
<PAGE> 13
Section 3.9. Fees and Expenses. All fees and expenses incurred by any
party hereto in connection with the preparation of this Agreement and the
transactions contemplated hereby and all matters related thereto shall, except
as otherwise specifically provided herein, be borne by the party incurring such
fees or expenses.
Section 3.10. Remedies. The parties hereby acknowledge that money
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations of this Agreement. Therefore, each party hereto agrees that specific
performance is the only appropriate remedy under this Agreement and hereby
waives the claim or defense that any other party has an adequate remedy at law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FM PRECISION GOLF CORP.
By: /s/ Christopher A. Johnston
-----------------------------------------
Christopher A. Johnston, President
P.O. Box 25182
3490 Clubhouse Drive, Suite 102
Jackson, Wyoming 83001
Telecopier: (307) 739-2288
STOCKHOLDERS:
Signature of Stockholder: /s/ Danny Edwards
-----------------------------------------
Danny Edwards
6724 North Whispering Hills Road
Paradise Valley, Arizona 85253
Telecopier:
Signature of Stockholder /s/ Drew M. Brown
-----------------------------------------
Drew M. Brown
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Telecopier: (602) 956-7961
- 13 -
<PAGE> 14
Signature of Stockholder DMB PROPERTY VENTURES
LIMITED PARTNERSHIP
By: DMB GP, Inc., General Partner
By: /s/ Drew M. Brown
-----------------------------------------
Its President
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Telecopier: (602) 956-7961
Signature of Stockholder /s/ Mark N. Sklar
-----------------------------------------
Mark N. Sklar
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Telecopier: (602) 956-7961
Signature of Stockholder /s/ Bennett Dorrance
-----------------------------------------
Bennett Dorrance, Trustee of the Bennett
Dorrance
Trust dated April 21, 1989, as amended
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Telecopier: (602) 956-7961
Signature of Stockholder: /s/ Christopher A. Johnston
-----------------------------------------
Christopher A. Johnston
2784 Teton Pines Drive
Jackson, Wyoming 83001
Telecopier: (307) 739-2288
Signature of Stockholder: RPJ/JAJ PARTNERS, LTD.
By: /s/ Richard P. Johnston
-----------------------------------------
Richard P. Johnston, General Partner
Teton Pines
2627 Fairways Place West
Jackson, Wyoming 83001
Telecopier: (307) 739-1070
- 14 -
<PAGE> 15
Signature of Stockholder: /s/ David E. Johnston
-----------------------------------------
David E. Johnston
1935 W. Muirhead Loop
Oro Valley, Arizona 85737
Telecopier: (520) 575-0320
Signature of Stockholder: BERENSON MINELLA &
COMPANY, L.P.
By: /s/ Jeffrey L. Berenson
-----------------------------------------
Jeffrey L. Berenson, Managing
General Partner
667 Madison Avenue
New York, New York 10021
Telecopier: (212) 935-1499
Signature of Stockholder: /s/ Kenneth J. Warren
-----------------------------------------
Kenneth J. Warren
5567 Caplestone Lane
Dublin, Ohio 43017
Telecopier: (614) 487-1945
- 15 -
<PAGE> 1
EXHIBIT 2.4
STOCKHOLDER AGREEMENT
AGREEMENT, dated as of May 14, 1997, among Danny Edwards, an individual
residing at 6724 North Whispering Hills Road, Paradise Valley, Arizona 85253,
Drew M. Brown, an individual whose address is 4201 North 24th Street, Suite 120,
Phoenix, Arizona 85016, DMB Property Ventures Limited Partnership, a Delaware
limited partnership having an office at 4201 North 24th Street, Suite 120,
Phoenix, Arizona 85016, Mark N. Sklar, an individual whose address is 4201 North
24th Street, Suite 120, Phoenix, Arizona 85016 and Bennett Dorrance, Trustee of
the Bennett Dorrance Trust dated April 21, 1989, as amended, whose address is
4201 North 24th Street, Suite 120, Phoenix, Arizona 85016 (Messrs. Edwards,
Brown, Sklar and Dorrance, and DMB Property Ventures Limited Partnership
collectively referred to as the "Edwards Group"), Christopher A. Johnston, an
individual residing at 2784 Teton Pines Drive, Jackson, Wyoming 83001, RPJ/JAJ
Partners, Ltd., a Wyoming partnership having an office at Teton Pines, 2627
Fairways Place West, Jackson, Wyoming 83001, David E. Johnston, an individual
residing at 1935 W. Muirhead Loop, Oro Valley, Arizona 85737, Berenson Minella &
Company, L.P., a New York limited partnership having an office at 667 Madison
Avenue, New York, New York 10021, Kenneth J. Warren, an individual residing at
5567 Caplestone Lane, Dublin, Ohio 43017 (Messrs. Christopher A. Johnston, David
E. Johnston and Warren, and RPJ/JAJPartners and Berenson Minella collectively
referred to as the "Johnston Group" and each member of the Edwards Group and the
Johnston Group individually referred to as a "Stockholder" and collectively as
"Stockholders"), and FM Precision Golf Corp., a Delaware corporation ("FM").
WHEREAS, FM and Royal Grip, Inc., a Nevada corporation ("RGI"), are
entering into an Agreement and Plan of Merger dated as of even date herewith
(the "Merger Agreement"), providing for the merger of a wholly-owned subsidiary
of FM with and into RGI (the "Merger") pursuant to the terms and conditions of
the Merger Agreement, and setting forth certain representations, warranties and
agreements which each of the parties thereto is making thereby in connection
with the Merger; and
WHEREAS, in connection with the Merger, each Stockholder hereto desires to
provide for the voting of the Common Stock, par value $.001 per share, of FM
(the "Common Stock"), for directors for the FM Board; and
WHEREAS, in order to induce FM and RGI to enter into the Merger Agreement
and for other good and valuable consideration, receipt of which is hereby
acknowledged, Stockholders are willing, upon the terms and subject to the
conditions hereunder set forth, to make certain agreements;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE> 2
SECTION 1. Representations of Stockholders. Each Stockholder
represents and warrants:
1.1. Such Stockholder is the sole, true, lawful and beneficial owner
of the number of shares of Common Stock (the "Shares") listed on the signature
page hereof as being owned by such Stockholder with no restrictions on such
Stockholder's voting rights or rights of disposition pertaining thereto, except
those under the Securities Act of 1933, as amended (the "1933 Act") and those
that would not in any material way limit or otherwise adversely affect the
voting rights granted by such Stockholder under this Agreement or by the proxy
to be delivered by such Stockholder pursuant hereto. At the Effective Date (as
defined in the Merger Agreement), such Stockholder will have good and valid
title to the Shares listed on the signature page hereof as being owned by such
Stockholder free and clear of any and all claims, liens, charges, encumbrances
and security interests. None of the Shares owned by such Stockholder is subject
to any voting trust or other agreement or arrangement with respect to the voting
of such shares that would in any way limit or otherwise adversely affect the
voting rights granted by such Stockholder under this Agreement. Such Stockholder
does not "beneficially own" (as such term is defined in the Securities Exchange
Act of 1934, as amended (the "1934 Act")), any shares of Common Stock other than
the Shares listed on the signature page hereof as being beneficially owned by
such Stockholder and other than any shares of Common Stock which such
Stockholder may obtain upon the exercise of RGI Options (as defined in the
Merger Agreement).
1.2. The execution, delivery and performance by such Stockholder of
this Agreement does not and will not contravene or constitute a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of such Stockholder or to a loss of any benefit of such
Stockholder under any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree, or other instrument binding on
such Stockholder or result in the imposition of any lien on any asset of such
Stockholder.
1.3. This Agreement is the valid and binding Agreement of such
Stockholder. If this Agreement is being executed in a representative or
fiduciary capacity for such Stockholder, the person signing this Agreement for
such Stockholder has full power and authority to enter into and perform such
Agreement for such Stockholder.
SECTION 2. Composition of the Board.
2.1. The FM Board shall consist of at least nine members serving for
staggered terms of one, two and three years. The Johnston Group shall be
entitled, but not required, to designate six members of the FM Board (the
"Johnston Directors"), and the Edwards Group shall be entitled, but not
required, to designate three members of the FM Board (the "Edwards Directors").
At any time that the number of directors constituting the full Board shall be
increased, the director designation ratio of the Johnston Group and the Edwards
Group hereunder shall continue unless (i) the Edwards Group no longer owns 10%
of the outstanding voting securities of FM; or (ii) the vacancy resulting from
such increase is filled by an "independent" person not affiliated with the
Johnston Group. The Johnston Directors shall serve for terms of one, two and
three years, respectively, after the Effective Date, and the Edwards Directors
shall serve for terms of one, two and three years, respectively, after the
Effective Date. Danny
-2-
<PAGE> 3
Edwards and Bob Burg shall be entitled to serve on the Executive Committee, and
the Edwards Group shall be entitled to designate one member of the FM Board to
be elected to the Compensation Committee of the FM Board. Each Stockholder
entitled to vote for the election of directors to the FM Board agrees that it
will vote all of its Shares or execute consents, as the case may be, and take
all other necessary action (including causing FM to call a special meeting of
stockholders) in order to ensure that the composition of the Board is as set
forth in this Section 2.1.
2.2. Each Stockholder agrees that if, at any time, such Stockholder
is entitled to vote for the removal of one or more directors of FM, such
Stockholder will not vote any of its Shares in favor of the removal of any
director who shall have been designated or nominated pursuant to Section 2.1
unless such removal shall be for Cause or the Group entitled to designate or
nominate such director shall have consented to such removal in writing. Removal
for "Cause" shall mean removal of a director because of such director's (i)
willful and continued failure to substantially perform his duties as a director
of FM, (ii) willful conduct which is significantly injurious to FM, monetarily
or otherwise, or (iii) conviction for, or a guilty plea to, a felony.
2.3. If, as a result of death, disability, retirement, resignation,
removal (with or without cause) or otherwise, there shall exist or occur any
vacancy on FM's Board:
2.3.1. the Group entitled under Section 2.1 to designate or
nominate such director whose death, disability, retirement, resignation, removal
(with or without cause) or otherwise resulted in such vacancy may designate
another individual (the "Nominee") to fill such capacity and serve as a director
of FM. The selection of the Nominee by such Group shall be decided by the
Stockholders of such Group by a majority vote where the number of votes each
Stockholder has is determined by the number of Shares such Stockholder has; and
2.3.2. each Stockholder then entitled to vote for the election
of the Nominee as a director of FM agrees that it will vote all of its Shares or
execute a written consent, as the case may be, in order to ensure that the
Nominee be elected to the FM Board.
2.4. This Agreement is intended to bind the Stockholders only with
respect to the specific matters set forth herein, and shall not restrict the
Stockholders from taking any other action or failing to take any other action in
his capacity as an officer or director of FM in accordance with his fiduciary
duties.
SECTION 3. Termination. The provisions of this Agreement shall only be
effective on and after the Effective Date, and shall terminate and be of no
further force and effect three years from and after the Effective Date.
SECTION 4. No Voting Trusts. Each Stockholder agrees that it will not, and
will not permit any entity under any Stockholder's control to, deposit any of
its Shares in a voting trust or subject any of his Shares to any arrangement or
agreement with respect to the voting of such Shares, other than this Agreement.
-3-
<PAGE> 4
SECTION 5. No Proxy Solicitations. No Stockholder will, nor permit any
entity under its control to, (a) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation l4A under the 1934 Act),
in opposition to or competition with the provisions of Section 2.1; (b) initiate
a stockholders' vote or action by consent of FM stockholders in opposition to or
in competition with the provisions of Section 2.1; or (c) become a member of a
"group" (as such term is used in Section 13(d) of the 1934 Act) with respect to
any voting securities of FM for the purpose of opposing or competing with the
provisions of Section 2.1.
SECTION 6. Transfer and Encumbrance. Each Stockholder agrees not to
transfer, sell or offer to transfer or sell any of the Shares beneficially owned
by such Stockholder to an "Affiliate" (as hereinafter defined) for a period of
three years, unless such "Affiliate" agrees to be bound by the terms hereof, and
signs an agreement in the form of Exhibit 6 hereof to such effect. "Affiliate"
means any person, firm or corporation directly or indirectly controlling,
controlled by, or under common control with, such person, firm or corporation.
For purposes of this definition, "control" (including, with correlative meaning,
the terms "controlling", "controlled by" and "under common control with"), as
applied to any person, firm or corporation, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person, firm or corporation, whether through the ownership of
voting securities, by contract or otherwise. "Affiliate" includes any spouse,
child or parent of a Stockholder. All certificates representing the Shares or
New Shares shall be endorsed on the reverse side thereof substantially as
follows:
BY THE TERMS OF A STOCKHOLDER AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN
PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE AND
SUCH SHARES ARE SUBJECT TO CERTAIN VOTING AGREEMENTS. THE COMPANY WILL
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE.
SECTION 7. Additional Purchases. Each Stockholder agrees that it will not
purchase or otherwise acquire beneficial ownership of any shares of Common Stock
after the execution of this Agreement ("New Shares") nor will such Stockholder
acquire the right to vote or share in the voting of any shares of Common Stock,
other than the Shares, unless such Stockholder delivers to FM immediately after
such purchase or acquisition a written notice given to FM setting forth the
total number of New Shares. Each Stockholder also agrees that any New Shares
acquired or purchased by such Stockholder shall be subject to the terms of this
Agreement to the same extent as if they constituted Shares.
SECTION 8. Specific Performance. Each Stockholder hereto acknowledges that
it will be impossible to measure in money the damage to the other Stockholders
if a Stockholder hereto fails to comply with any of the obligations imposed by
this Agreement, that every such obligation is material and that, in the event of
any such failure, the other Stockholders will not have an adequate remedy at law
or in damages, and accordingly, each Stockholder hereto agrees
-4-
<PAGE> 5
that the issuance of an injunction or other equitable remedy is the appropriate
remedy for any such failure.
SECTION 9. Successors and Assigns. This Agreement and all obligations of
the Stockholders hereunder shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns and shall not
be assignable without the written consent of all the other parties hereto.
SECTION 10. Entire Agreement. This Agreement supersedes all prior
agreements among the parties hereto with respect to the subject matter hereof
and contains the entire agreement among the parties with respect to the subject
matter hereof. This Agreement may not be amended, supplemented or discharged,
and no provision hereof may be modified or waived, except expressly by an
instrument in writing signed by all the parties hereto. No waiver of any
provision hereof by any party shall be deemed a waiver by any other party nor
shall any such waiver be deemed a continuing waiver of any matter by such party.
SECTION 11. Miscellaneous.
11.1. The parties, being concerned that either party may obtain some
advantage by having the law of the jurisdiction of its principal place of
business apply, and agreeing in concept to have this Agreement subject to the
laws of a neutral jurisdiction, whose laws are perceived as being fair in
general to the business community at large, have determined and agreed as
follows: THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS. EACH OF THE PARTIES AGREES THAT ANY LEGAL ACTION BETWEEN
THE PARTIES RELATING TO THE ENTRY INTO OR PERFORMANCE OF THIS AGREEMENT, OR THE
INTERPRETATION OR ENFORCEMENT OF TERMS HEREOF, SHALL BE BROUGHT IN A FEDERAL OR
STATE COURT LOCATED IN NEW CASTLE COUNTY, DELAWARE, HAVING JURISDICTION OF THE
SUBJECT MATTER THEREOF, AND EACH PARTY IRREVOCABLY CONSENTS TO PERSONAL
JURISDICTION IN ANY SUCH FEDERAL OR STATE COURT, WAIVES ANY RIGHT TO OBJECT TO
SUCH VENUE OR TO ASSERT THE DEFENSE OF FORUM NON-CONVENIENS, AND AGREES THAT
SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL ADDRESSED TO SUCH
PARTY AT ITS ADDRESS SET FORTH IN, OR DETERMINED IN ACCORDANCE WITH, SECTION
11.5 HEREOF.
11.2. If any provision of this Agreement or the application of any
such provision to any person or circumstances shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, including the
remainder of the provision held invalid, or the application of such provision to
persons or circumstances other than those as to which it is held invalid, shall
not be affected.
11.3. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
-5-
<PAGE> 6
11.4. All Section headings herein are for convenience of reference
only and are not part of this Agreement and no construction or inference shall
be derived therefrom.
11.5. Any notices or other communications required or permitted by
this Agreement shall be in writing and shall be delivered either by personal
delivery, by nationally recognized overnight courier service, by facsimile, by
first class mail or by registered or certified mail, return receipt requested,
addressed to the party at the address appearing below the signature of such
party, or to such other address as any party shall have previously designated to
the others by written notice given in the manner hereinabove set forth. Notices
shall be deemed given one day after being sent, if sent by overnight courier;
when delivered and receipted for, if hand delivered; when received, if sent by
facsimile or other electronic means or by first class mail; or when receipted
for (or upon the date of attempted delivery where delivery is refused or
unclaimed), if sent by certified or registered mail, return receipt requested.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
FM PRECISION GOLF CORP.
By: /s/ Christopher A. Johnston
----------------------------------
Christopher A. Johnston, President
P.O. Box 25182
3490 Clubhouse Drive, Suite 102
Jackson, Wyoming 83001
STOCKHOLDERS:
Signature of Stockholder: /s/ Danny Edwards
----------------------------------
Danny Edwards
6724 North Whispering Hills Road
Paradise Valley, Arizona 85253
Shares owned: 1,133,605
----------------------------------
Signature of Stockholder: /s/ Drew M. Brown
----------------------------------
Drew M. Brown
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Shares owned: 789
----------------------------------
-6-
<PAGE> 7
Signature of Stockholder: DMB PROPERTY VENTURES
LIMITED PARTNERSHIP
By: DMB GP, Inc., General Partner
By: /s/ Drew M. Brown
----------------------------------
Its President
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Shares owned: 414,771
----------------------------------
Signature of Stockholder: /s/ Mark N. Sklar
----------------------------------
Mark N. Sklar
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Shares owned: 789
----------------------------------
Signature of Stockholder: /s/ Bennett Dorrance
----------------------------------
Bennett Dorrance, Trustee of the
Bennett Dorrance Trust dated April
21, 1989, as amended
4201 North 24th Street, Suite 120
Phoenix, Arizona 85016
Shares owned: 4,494
----------------------------------
Signature of Stockholder: /s/ Christopher A. Johnston
----------------------------------
Christopher A. Johnston
2784 Teton Pines Drive
Jackson, Wyoming 83001
Shares owned:
----------------------------------
Signature of Stockholder: RPJ/JAJ PARTNERS, LTD.
By: /s/ Richard P. Johnston
----------------------------------
Richard P. Johnston, General Partner
9651 North Pusch Ridge Place
Tucson, Arizona 85737
Shares owned:
----------------------------------
-7-
<PAGE> 8
Signature of Stockholder: /s/ David E. Johnston
----------------------------------
David E. Johnston
1935 W. Muirhead Loop
Oro Valley, Arizona 85737
Shares owned:
Signature of Stockholder: BERENSON MINELLA & COMPANY, L.P.
By: /s/ Jeffrey L. Berenson
----------------------------------
Jeffrey L. Berenson, Managing General
Partner
667 Madison Avenue
New York, New York 10021
Shares owned:
----------------------------------
Signature of Stockholder: /s/ Kenneth J. Warren
----------------------------------
Kenneth J. Warren
5567 Caplestone Lane
Dublin, Ohio 43017
Shares owned:
----------------------------------
-8-
<PAGE> 9
EXHIBIT 6
FORM OF AGREEMENT TO BE BOUND
[DATE]
Royal Precision, Inc.
Dear Sirs:
Reference is made to the Stockholder Agreement dated as of April __, 1997
(the "Agreement"), among Danny Edwards, Drew M. Brown, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust dated April 21, 1989, as
amended, DMB Property Ventures Limited Partnership, Christopher A. Johnston,
RPJ/JAJ Partners, Ltd., David E. Johnston, Berenson Minella & Company, L.P.,
Kenneth J. Warren and FM Precision Golf Corp., now known as Royal Precision,
Inc. (the "Company"). Capitalized terms not defined herein have the meanings
assigned to them in the Agreement.
In consideration of the covenants and agreements contained in the
Agreement and the transfer of the common stock, par value $.001 per share, of
the Company (the "Shares") to the undersigned by a Stockholder, the undersigned
hereby confirms and agrees to be bound by all of the provisions thereof.
[The undersigned acknowledges that it is a condition to an effective
pledge of the Shares under the Agreement that the pledgee agree, and the
undersigned hereby confirms and agrees, that upon foreclosure of such pledge,
the undersigned will take the Shares subject to all of the restrictions
applicable to the pledgor under the Agreement.]**
This letter shall be construed and enforced in accordance with the laws of
the State of Delaware.
Very truly yours,
----------------------------------
[Transferee]
** Include in the case of a pledge
-9-
<PAGE> 1
EXHIBIT 2.5
-----------
VOTING AGREEMENT
AGREEMENT, dated as of May 14, 1997, among the undersigned stockholders
(hereinafter referred to individually as a "Stockholder" and collectively as
"Stockholders") of Royal Grip, Inc., a Nevada corporation ("RGI"), and FM
Precision Golf Corp., a Delaware corporation ("FM").
WITNESSETH
WHEREAS, FM is entering into an Agreement and Plan of Merger dated as of
even date herewith, with RGI (the "Merger Agreement"), providing for the merger
of a wholly-owned subsidiary of FM with and into RGI (the "Merger") pursuant to
the terms and conditions of the Merger Agreement, and setting forth certain
representations, warranties, covenants and agreements which each of the parties
thereto is making thereby in connection with the Merger; and
WHEREAS, in connection with the Merger, Stockholders will exchange their
entire equity interest in RGI for equity in FM; and
WHEREAS, in order to induce FM to enter into the Merger Agreement, and FM
to exchange Stockholders' entire equity interest in RGI for equity in FM, and
for other good and valuable consideration, receipt of which is hereby
acknowledged, Stockholders are willing, upon the terms and subject to the
conditions hereunder set forth, to make certain agreements with FM;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. REPRESENTATIONS OF STOCKHOLDERS. Each Stockholder represents and
warrants to FM that:
1.1. Such Stockholder is the sole, true, lawful and beneficial owner
of the number of shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock"), of RGI listed on the signature page hereof as being
owned by such Stockholder with no restrictions on such Stockholder's voting
rights or rights of disposition pertaining thereto, except those under the
Securities Act of 1933, as amended (the "1933 Act") and those that would not in
any material way limit or otherwise adversely affect the voting rights granted
to FM hereby or by the proxy to be delivered by such Stockholder pursuant
hereto. At the Effective Date (as defined in the Merger Agreement), such
Stockholder will have good and valid title to the Shares listed on the signature
page hereof as being owned by such Stockholder free and clear of any and all
claims, liens, charges, encumbrances and security interests. None of the Shares
owned by such Stockholder is subject to any voting trust or other agreement or
arrangement with respect to the voting of such shares that would in any way
limit or otherwise adversely affect the voting rights granted to FM hereby or by
the proxy to be delivered by such Stockholder pursuant hereto. Such Stockholder
does not "beneficially own" (as such term is defined in the Securities Exchange
Act of 1934, as amended (the "1934 Act")), any shares of Common Stock other than
the Shares listed on the signature page hereof as being beneficially owned by
such Stockholder and other than any shares of Common Stock which such
Stockholder may obtain upon the exercise of RG Options (as defined in the Merger
Agreement).
1.2. The execution, delivery and performance by such Stockholder of
this Agreement (including, without limitation, the granting of the proxy created
pursuant to Section 5 hereof) does not and will not contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of such Stockholder or to a loss of any
benefit of such Stockholder
<PAGE> 2
under any provision of applicable law or regulation or of any agreement,
judgment, injunction, order, decree, or other instrument binding on such
Stockholder or result in the imposition of any lien on any asset of such
Stockholder
1.3. This Agreement is the valid and binding Agreement of such
Stockholder. If this Agreement is being executed in a representative or
fiduciary capacity for such Stockholder, the person signing this Agreement has
full power and authority to enter into and perform such Agreement for such
Stockholder.
SECTION 2. AGREEMENT TO VOTE SHARES. Each Stockholder shall vote the Shares
and any New Shares (as defined in Section 7 hereof) beneficially owned by such
Stockholder in favor of approval of the Merger Agreement and the Merger at every
meeting of the stockholders of RGI called therefor and at every adjournment
thereof. Each Stockholder agrees to vote all the Shares and New Shares, if any,
beneficially owned by such Stockholder against any merger (other than the
Merger), consolidation, sale of assets, reorganization, recapitalization,
liquidation or winding up of RGI at every meeting of the stockholders of RGI
called therefor and at every adjournment thereof held prior to the date the
Merger Agreement shall have terminated in accordance with the terms thereof.
This Agreement is intended to bind each Stockholder only with respect to the
specific matters set forth herein, and shall not restrict any Stockholder from
taking any other action or failing to take any other action in his capacity as
an officer or director of RGI in accordance with his fiduciary duties.
SECTION 3. NO VOTING TRUSTS. Each Stockholder will not, and will not permit
any entity under such Stockholder's control to, deposit any of his Shares in a
voting trust or subject any of his Shares to any arrangement or agreement with
respect to the voting of such Shares, other than agreements to which FM is a
party.
SECTION 4. NO PROXY SOLICITATIONS. Each Stockholder will not, and will not
permit any entity under his control to, (a) solicit proxies or become a
"participant" in a "solicitation" (as such terms are defined in Regulation l4A
under the 1934 Act), in opposition to or competition with the consummation of
the Merger or otherwise encourage or assist any party in taking or planning any
action which would compete with, restrain or otherwise serve to interfere with
or inhibit the timely consummation of the Merger in accordance with the terms of
the Merger Agreement; (b) initiate a stockholder's vote or action by consent of
RGI stockholders in opposition to or in competition with the consummation of the
Merger; or (c) become a member of a "group" (as such term is used in Section
13(d) of the 1934 Act) with respect to any voting securities of RGI for the
purpose of opposing or competing with the consummation of the Merger.
SECTION 5. IRREVOCABLE PROXY. Each Stockholder agrees to deliver to FM on
the date hereof a proxy in the form attached hereto as Exhibit A which shall be
irrevocable to the extent permitted by the Nevada General Corporation law, with
the total number of Shares beneficially owned by such Stockholder correctly
indicated in the blank provided therefor therein.
SECTION 6. TRANSFER AND ENCUMBRANCE. Each Stockholder agrees not to
transfer, sell or offer to transfer or sell or otherwise dispose of or encumber
any of the Shares or New Shares beneficially owned by such Stockholder prior to
the earlier of: (i) the Effective Date; or (ii) the date the Merger Agreement
shall have terminated in accordance with its terms, provided that such
Stockholder may transfer or sell the Shares and the New Shares beneficially
owned by such Stockholder to any person who agrees to be bound by the terms
hereof and delivers to FM on the date of such transfer a proxy substantially in
the form attached hereto as Exhibit A.
SECTION 7. ADDITIONAL PURCHASES. Each Stockholder agrees not to purchase or
otherwise acquire beneficial ownership of any shares of Common Stock after the
execution of this Agreement ("New Shares") nor will such Stockholder acquire the
right to vote or share in the voting of any shares of Common Stock, other than
the Shares or any New Shares, unless such Stockholder delivers to FM immediately
after such purchase or acquisition an irrevocable proxy substantially in the
form attached
-2-
<PAGE> 3
hereto as Exhibit A, with the total number of New Shares correctly indicated in
the blank provided therefor therein. Each Stockholder also agrees that any New
Shares acquired or purchased by him shall be subject to the terms of this
Agreement to the same extent as if they constituted Shares.
SECTION 8. SPECIFIC PERFORMANCE. Each party hereto acknowledges that it
will be impossible to measure in money the damage to the other party if a party
hereto fails to comply with any of the obligations imposed by this Agreement,
that every such obligation is material and that, in the event of any such
failure, the other party will not have an adequate remedy at law or in damages,
and accordingly, each party hereto agrees that the issuance of an injunction or
other equitable remedy is the appropriate remedy for any such failure.
SECTION 9. SUCCESSORS AND ASSIGNS. Except as provided in Section 6, this
Agreement and all obligations of Stockholder hereunder shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns and shall not be assignable without the written consent of all the
other parties hereto.
SECTION 10. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements among the parties hereto with respect to the subject matter hereof
and contains the entire agreement among the parties with respect to the subject
matter hereof. This Agreement may not be amended, supplemented or discharged,
and no provision hereof may be modified or waived, except expressly by an
instrument in writing signed by all the parties hereto. No waiver of any
provision hereof by any party shall be deemed a waiver by any other party nor,
shall any such waiver be deemed a continuing waiver of any matter by such party.
SECTION 11. MISCELLANEOUS.
11.1. This Agreement shall be deemed a contract made under, and for
all purposes shall be construed in accordance with, the laws of the State of
Nevada.
11.2. If any provision of this Agreement or the application of any
such provision to any person or circumstances shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, including the
remainder of the provision held invalid, or the application of such provision to
persons or circumstances other than those as to which it is held invalid, shall
not be affected.
11.3. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
11.4. This Agreement shall terminate upon the Effective Date or
termination of the Merger Agreement and all of the provisions hereof shall
terminate at such time.
11.5. All Section headings herein are for convenience of reference
only and are not part of this Agreement and no construction or inference shall
be derived therefrom.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
FM PRECISION GOLF CORP.
By: /s/ Christopher A. Johnston
------------------------------------
Christopher A. Johnston, President
-3-
<PAGE> 4
STOCKHOLDERS:
Signature of Stockholder: /s/ Danny Edwards
----------------------------------------
Danny Edwards
Shares owned: _______________________
Signature of Stockholder: /s/ Drew M. Brown
----------------------------------------
Drew M. Brown
Shares owned: _______________________
Signature of Stockholder: /s/ Mark N. Sklar
----------------------------------------
Mark N. Sklar
Shares owned: _______________________
Signature of Stockholder: /s/ Bennett Dorrance
----------------------------------------
Bennett Dorrance, Trustee of the Bennett
Dorrance Trust dated April 21, 1989,
as amended
Shares owned: _______________________
Signature of Stockholder: DMB PROPERTY VENTURE
LIMITED PARTNERSHIP
By: DMB GP, Inc., General Partner
By: /s/ Drew M. Brown
------------------------------------
Name: Drew M. Brown
Its President
Shares owned: _______________________
-4-
<PAGE> 5
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Royal Grip, Inc., a Nevada corporation
("RGI"), hereby irrevocably (to the extent permitted by the Nevada General
Corporation Law) appoints Christopher A. Johnston, Richard P. Johnston, and FM
Precision Golf Corp., a Delaware corporation ("FM"), or any of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
1,133,605 shares of Common Stock, par value $.001 per share, of RGI owned of
record or beneficially by the undersigned (the "Shares"), and any and all other
shares or securities issued or issuable in respect thereof on or after the date
hereof, until such time as the Effective Date, as defined in that certain
Agreement and Plan of Merger dated as of MAY 14, 1997, with FM (the "Merger
Agreement") or the Merger Agreement shall be terminated in accordance with its
terms. Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked and
no subsequent proxies will be given. This proxy is coupled with an interest and
is irrevocable (for one year from the date hereof) and is granted in
consideration of FM entering into the Merger Agreement and the Voting Agreement
dated as of May 14, 1997, with the undersigned stockholder. The attorneys and
proxies named above will be empowered at any time prior to the Effective Date or
such termination of the Merger Agreement to vote in favor of approval of the
Merger (as defined in the Merger Agreement) and the Merger Agreement at every
annual, special or adjourned meeting of RGI's stockholders, and in every written
consent in lieu of such a meeting, or otherwise.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto in favor of approval of the Merger and the Merger
Agreement at every meeting of the stockholders of RGI called therefor and at
every adjournment thereof and may not exercise this proxy on any other matter.
The undersigned may vote the Shares on all other matters. The undersigned hereby
represents and warrants that the undersigned has full power and authority to
grant the proxy created hereby and that the undersigned has good and
unencumbered title to the shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
above named attorneys and proxies to be necessary or desirable to effect the
irrevocable proxy created hereby.
-5-
<PAGE> 6
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated:_______________________________
Signature of Stockholder: /s/ Danny Edwards
----------------------------------------
[Name of Stockholder]
Shares owned: 1,133,605
-6-
<PAGE> 7
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Royal Grip, Inc., a Nevada corporation
("RGI"), hereby irrevocably (to the extent permitted by the Nevada General
Corporation Law) appoints Christopher A. Johnston, Richard P. Johnston, and FM
Precision Golf Corp., a Delaware corporation ("FM"),or any of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
4,494 shares of Common Stock, par value $.001 per share, of RGI owned of record
or beneficially by the undersigned (the "Shares"), and any and all other shares
or securities issued or issuable in respect thereof on or after the date hereof,
until such time as the Effective Date, as defined in that certain Agreement and
Plan of Merger dated as of MAY 14, 1997, with FM (the "Merger Agreement") or the
Merger Agreement shall be terminated in accordance with its terms. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked and no subsequent proxies
will be given. This proxy is coupled with an interest and is irrevocable (for
one year from the date hereof) and is granted in consideration of FM entering
into the Merger Agreement and the Voting Agreement dated as of May 14, 1997,
with the undersigned stockholder. The attorneys and proxies named above will be
empowered at any time prior to the Effective Date or such termination of the
Merger Agreement to vote in favor of approval of the Merger (as defined in the
Merger Agreement) and the Merger Agreement at every annual, special or adjourned
meeting of RGI's stockholders, and in every written consent in lieu of such a
meeting, or otherwise.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto in favor of approval of the Merger and the Merger
Agreement at every meeting of the stockholders of RGI called therefor and at
every adjournment thereof and may not exercise this proxy on any other matter.
The undersigned may vote the Shares on all other matters. The undersigned hereby
represents and warrants that the undersigned has full power and authority to
grant the proxy created hereby and that the undersigned has good and
unencumbered title to the shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
above named attorneys and proxies to be necessary or desirable to effect the
irrevocable proxy created hereby.
-7-
<PAGE> 8
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated:_______________________________
Signature of Stockholder: /s/ Bennett Dorrance
----------------------------------------
Bennett Dorrance, Trustee of the Bennett
Shares owned: 4,494 Dorrance Trust dated April 21, 1989, as
amended in its entirety on March 20,
1996, as further amended
-8-
<PAGE> 9
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Royal Grip, Inc., a Nevada corporation
("RGI"), hereby irrevocably (to the extent permitted by the Nevada General
Corporation Law) appoints Christopher A. Johnston, Richard P. Johnston, and FM
Precision Golf Corp., a Delaware corporation ("FM"), or any of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
789 shares of Common Stock, par value $.001 per share, of RGI owned of record or
beneficially by the undersigned (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as the Effective Date, as defined in that certain Agreement and
Plan of Merger dated as of MAY 14, 1997, with FM (the "Merger Agreement") or the
Merger Agreement shall be terminated in accordance with its terms. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked and no subsequent proxies
will be given. This proxy is coupled with an interest and is irrevocable (for
one year from the date hereof) and is granted in consideration of FM entering
into the Merger Agreement and the Voting Agreement dated as of May 14, 1997,
with the undersigned stockholder. The attorneys and proxies named above will be
empowered at any time prior to the Effective Date or such termination of the
Merger Agreement to vote in favor of approval of the Merger (as defined in the
Merger Agreement) and the Merger Agreement at every annual, special or adjourned
meeting of RGI's stockholders, and in every written consent in lieu of such a
meeting, or otherwise.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto in favor of approval of the Merger and the Merger
Agreement at every meeting of the stockholders of RGI called therefor and at
every adjournment thereof and may not exercise this proxy on any other matter.
The undersigned may vote the Shares on all other matters. The undersigned hereby
represents and warrants that the undersigned has full power and authority to
grant the proxy created hereby and that the undersigned has good and
unencumbered title to the shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
above named attorneys and proxies to be necessary or desirable to effect the
irrevocable proxy created hereby.
-9-
<PAGE> 10
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated:_______________________________
Signature of Stockholder: /s/ Mark N. Sklar
----------------------------------------
Mark N. Sklar
Shares owned: 789
-10-
<PAGE> 11
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Royal Grip, Inc., a Nevada corporation
("RGI"), hereby irrevocably (to the extent permitted by the Nevada General
Corporation Law) appoints Christopher A. Johnston, Richard P. Johnston, and FM
Precision Golf Corp., a Delaware corporation ("FM"), or any of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
789 shares of Common Stock, par value $.001 per share, of RGI owned of record or
beneficially by the undersigned (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as the Effective Date, as defined in that certain Agreement and
Plan of Merger dated as of MAY 14, 1997, with FM (the "Merger Agreement") or the
Merger Agreement shall be terminated in accordance with its terms. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked and no subsequent proxies
will be given. This proxy is coupled with an interest and is irrevocable (for
one year from the date hereof) and is granted in consideration of FM entering
into the Merger Agreement and the Voting Agreement dated as of May 14, 1997,
with the undersigned stockholder. The attorneys and proxies named above will be
empowered at any time prior to the Effective Date or such termination of the
Merger Agreement to vote in favor of approval of the Merger (as defined in the
Merger Agreement) and the Merger Agreement at every annual, special or adjourned
meeting of RGI's stockholders, and in every written consent in lieu of such a
meeting, or otherwise.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto in favor of approval of the Merger and the Merger
Agreement at every meeting of the stockholders of RGI called therefor and at
every adjournment thereof and may not exercise this proxy on any other matter.
The undersigned may vote the Shares on all other matters. The undersigned hereby
represents and warrants that the undersigned has full power and authority to
grant the proxy created hereby and that the undersigned has good and
unencumbered title to the shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
above named attorneys and proxies to be necessary or desirable to effect the
irrevocable proxy created hereby.
-11-
<PAGE> 12
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated:_______________________________
Signature of Stockholder: /s/ Drew M. Brown
----------------------------------------
Drew M. Brown
Shares owned: 789
-12-
<PAGE> 13
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Royal Grip, Inc., a Nevada corporation
("RGI"), hereby irrevocably (to the extent permitted by the Nevada General
Corporation Law) appoints Christopher A. Johnston, Richard P. Johnston, and FM
Precision Golf Corp., a Delaware corporation ("FM"), or any of them, the
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
414,771 shares of Common Stock, par value $.001 per share, of RGI owned of
record or beneficially by the undersigned (the "Shares"), and any and all other
shares or securities issued or issuable in respect thereof on or after the date
hereof, until such time as the Effective Date, as defined in that certain
Agreement and Plan of Merger dated as of MAY 14, 1997, with FM (the "Merger
Agreement") or the Merger Agreement shall be terminated in accordance with its
terms. Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked and
no subsequent proxies will be given. This proxy is coupled with an interest and
is irrevocable (for one year from the date hereof) and is granted in
consideration of FM entering into the Merger Agreement and the Voting Agreement
dated as of May 14, 1997, with the undersigned stockholder. The attorneys and
proxies named above will be empowered at any time prior to the Effective Date or
such termination of the Merger Agreement to vote in favor of approval of the
Merger (as defined in the Merger Agreement) and the Merger Agreement at every
annual, special or adjourned meeting of RGI's stockholders, and in every written
consent in lieu of such a meeting, or otherwise.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto in favor of approval of the Merger and the Merger
Agreement at every meeting of the stockholders of RGI called therefor and at
every adjournment thereof and may not exercise this proxy on any other matter.
The undersigned may vote the Shares on all other matters. The undersigned hereby
represents and warrants that the undersigned has full power and authority to
grant the proxy created hereby and that the undersigned has good and
unencumbered title to the shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
above named attorneys and proxies to be necessary or desirable to effect the
irrevocable proxy created hereby.
-13-
<PAGE> 14
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
DMB PROPERTY VENTURES LIMITED
Dated:____________________________ PARTNERSHIP, a Delaware limited partnership
By DMB GP, Inc., General Partner
Signature of Stockholder: By: /s/ Drew M. Brown
---------------------------------------
Its President
Shares owned: 414,771
-14-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ROYAL PRECISION, INC.
ARTICLE I. STOCKHOLDERS
SECTION 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by the Board of Directors.
Any other proper business may be transacted at the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of stockholders may be called
by the Board of Directors. Special meetings of stockholders shall be held for
such purpose or purposes and at such date, time and place, either within or
without the State of Delaware, as may be designated by the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
the purpose or purposes stated in the notice of meeting. No officer, director
nor stockholder shall have the authority to call a meeting of stockholders
without the express authorization of the Board of Directors.
SECTION 1.3. FIXING DATE FOR DETERMINATION OF STOCKHOLDER OF RECORD.
A. FIXING THE RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which record date: (a) in
the case of determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before
the date of such meeting; (b) in the case of determination of
stockholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (c) in the case of any other action, shall not be more
than sixty days prior to such other action.
B. ABSENCE OF A RECORD DATE. If no record date is fixed: (a) the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on
which the meeting is held; (b) the record date for determining
stockholders entitled to express consent to corporate action in writing
without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if
prior action by the Board of Directors is required by law, shall be at
the close of business on the day on which the Board of Directors adopts
the resolution taking such prior action; and (c) the record date for
determining stockholders for any other purpose
<PAGE> 2
shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
C. ADJOURNMENT OF THE MEETING. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned meeting
subject to Section 1.3.
SECTION 1.4. NOTICE OF MEETINGS.
A. CONTENTS. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be
given that shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which
the meeting is called.
B. TIME. Unless otherwise provided by law, the certificate of
incorporation or these by-laws, the written notice of any meeting shall
be given not less than ten nor more than sixty days before the date of
the meeting to each stockholder entitled to vote at such meeting. If
mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.
SECTION 1.5. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof and may be inspected
by any stockholder who is present. The stock ledger shall be the only evidence
as to who are the stockholders entitled to examine the stock ledger, the list
required by this Section 1.5 or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
SECTION 1.6. VOTING; PROXIES.
A. VOTING POWER. Except as otherwise provided by the certificate of
incorporation and subject to Section 1.3 of these By-laws, each
stockholder shall be entitled to one vote for each share of stock
held by such stockholder.
B. POWER TO AUTHORIZE PROXY. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides
for a longer period.
C. AUTHORIZATION. Without limiting the manner in which a stockholder
may authorize another person or persons to act for him as proxy, the
following shall constitute a valid means by which a stockholder may
grant such authority:
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1. WRITTEN. A stockholder may execute a writing authorizing another
person or persons to act for him as a proxy. Execution may be
accomplished by the stockholder or his authorized officer, director,
employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature.
2. ELECTRONIC. A stockholder may authorize another person or persons to
act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission
to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined
that such telegrams, cablegrams or other electronic transmissions
are valid, the inspectors or, if there are no inspectors, such other
persons making that determination shall specify the information upon
which they relied.
D. COPIES OF PROXIES. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant
to subsection C of this Section 1.6 may be substituted in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
E. POWER TO REVOKE PROXY. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by delivering to the
Secretary of the Corporation a duly executed proxy bearing a later date
or a written or electronic instrument revoking the proxy.
SECTION 1.7. QUORUM.
A. MAJORITY. Except as otherwise provided by law, the certificate of
incorporation or these by-laws, at each meeting of stockholders the
presence, in person or by proxy, of the holders of a majority of the
shares entitled to vote at the meeting shall constitute a quorum.
B. VOTING. In all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the stockholders. Directors shall be elected
by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the
election of directors.
C. CLASS VOTING. Where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and the
affirmative vote of the majority of shares of such class or classes
present in person or represented by proxy at the meeting shall be the
act of such class.
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D. ABSENCE OF A QUORUM. In the absence of a quorum, the stockholders
who are present or represented by proxy may adjourn the meeting,
from time to time, until a quorum is available.
E. TREASURY STOCK. Shares of its own capital stock belonging to the
Corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be
entitled to vote nor be counted for quorum purposes; provided, however,
that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
F. UNVOTED SHARES. Shares of stock that are present in person or
represented by proxy at a meeting which are not voted on a matter are
counted as part of the quorum for such meeting but will be disregarded
in determining the number of shares voted for and against approval of
such matter and in determining the total number of shares as to which
the majority is determined in such matter.
SECTION 1.8. ADJOURNMENTS. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting, if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business but may not conduct
any other business which might have been transacted at the original meeting. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 1.9. CONDUCT OF MEETINGS.
A. PRESIDING OFFICER. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or
in his absence by a Vice President, or in the absence of the foregoing
persons by a chairman designated by the Board of Directors, or in the
absence of such designation, a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but if the Secretary
is absent the chairman of the meeting may appoint another person to act
as secretary of the meeting.
B. AGENDA. The Board of Directors shall establish the agenda for each
meeting of the stockholders. No proposal of any corporate action by any
stockholder shall be considered at any meeting of stockholders unless
the stockholder who intends to propose such action has delivered a
timely written notice of his intention to put such proposal before the
meeting to the executive offices of the Corporation and the Board of
Directors places the proposal on the agenda for the meeting. A notice
of proposal will be deemed to not be timely unless it has been received
by the Corporation within the time limits prescribed by paragraph
(a)(iii) of Rule 14a-8 of the Proxy Rules of the Securities and
Exchange Commission. The Board of Directors may determine that a
proposal submitted by a stockholder has insufficient relationship to
the business of the Corporation to justify delay, disruption or other
interference with the meeting process or that implementation of such
proposal would be contrary to applicable law, and upon making such
determination, exclude such proposal from consideration at the meeting
of stockholders with respect to which such proposal was submitted.
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C. RULES AND REGULATIONS. The Board of Directors of the Corporation may
adopt such rules and regulations for the conduct of the meeting of
stockholders as it shall deem necessary or appropriate, but meetings of
stockholders shall not be required to be held in accordance with rules
of parliamentary procedure. Except to the extent inconsistent with such
rules and regulations adopted by the Board of Directors, the chairman
of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the board of Directors or prescribed by the chairman
of the meeting, may include, without limitation, the following: (a) the
order of business for the meeting; (b) rules and procedures for
maintaining order at the meeting and the safety of those present; (c)
limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the
meeting shall determine; (d) restrictions on entry to the meeting after
the time fixed for the commencement thereof; and (e) limitations on the
time allotted to questions or comments by participants.
SECTION 1.10. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
A. APPOINTING INSPECTORS. The Board of Directors shall in advance of any
meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Board of Directors may
designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act
at a meeting of stockholders, the chairman of the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
B. INSPECTOR'S DUTIES. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares
represented at a meeting and the validity of proxies and ballots, count
all votes and ballots, determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination
by the inspectors, and certify their determination of the numbers of
shares represented at the meeting, and their count of all votes and
ballots. The inspectors may appoint or retain other persons or entities
to assist the inspectors in the performance of the duties of the
inspectors.
C. OPENING AND CLOSING POLLS. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders
will vote at the meeting shall be announced at the meeting. No
ballot, proxies or votes, nor any revocations thereof shall be
accepted by the inspectors after the closing of the polls.
D. EXAMINATION. In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information
provided in accordance with Section 1.6 of these by-laws, ballots and
the regular books and records of the Corporation, except that the
inspectors may consider other reliable information for the limited
purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons which represent more
votes than the holder of the proxy is authorized by the record owner to
cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the same time they make their
certification shall specify the precise information considered by them
including
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the person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information
is accurate and reliable.
ARTICLE II. BOARD OF DIRECTORS
SECTION 2.1. COMPOSITION.
A. NUMBER OF DIRECTORS. The total number of directors constituting the
full Board of Directors and the number of directors in each class shall
be fixed by the Board of Directors, but the total number of directors
shall not exceed seventeen (17) nor shall the number of directors in
any class exceed six (6). Subject to the foregoing, the classes of
directors need not have the same number of members.
B. CLASSES. The Board of Directors shall be divided into three
classes; the term of office of those of the first class to expire at
the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each
annual election held after the initial classification of the Board
of Directors and election of directors to such classes, directors
shall be chosen for a full term of three years, as the case may be,
to succeed those whose terms expire.
C. TERM; REMOVAL. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor is
elected and qualified, or until his earlier resignation or removal from
office for cause. No reduction in the total number of directors or in
the number of directors in any class shall be effective to remove any
director or to reduce the term of any director. Any director or the
entire Board of Directors may be removed by the holders of a majority
of the shares then entitled to vote at an election of directors only
for cause.
D. VACANCIES. The Board of Directors may fill any vacancy occurring for
any other reason for the full remaining term of the director whose
death, resignation or removal caused the vacancy, even though such term
may extend beyond the next annual election. If the Board of Directors
increases the number of directors in a class, it may fill the vacancy
created thereby for the full remaining term of a director in that class
even though such term may extend beyond the next annual election.
E. PREFERRED STOCK VOTING RIGHTS. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of Preferred Stock
issued by the Corporation shall have the right, voting separately by
class or series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the express
terms of such class or series, and such directors so elected shall not
be divided into classes pursuant to this Section 2.1 unless expressly
provided by such express terms.
F. BALLOTS. Elections of directors at a special or annual meeting of
stockholders need not be by written ballot unless the by-laws
provide otherwise.
G. STOCK OWNERSHIP. Directors need not be stockholders.
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SECTION 2.2. CANDIDATES. At a meeting of stockholders at which directors are
to be elected, only persons nominated as candidates shall be eligible for
election as directors. Persons may be nominated as candidates by the Board of
Directors or duly constituted committee thereof, or by any stockholder entitled
to vote for the election of directors. Such nominations, if not made by the
Board of Directors or a duly constituted committee thereof, shall be made only
by a written notice (a) setting forth (i) the name, age, business address and
residence address of each nominee proposed in such notice, (ii) the principal
occupation or employment of each such nominee, and (iii) the number of shares of
capital stock of the Corporation beneficially owned by such nominee; (b) signed
and verified by the stockholder making such nomination; and (c) delivered to the
Secretary of the Corporation, together with each such nominee's written
acceptance of such nomination and agreement to serve if elected, not less than
one hundred twenty (120) days before the first anniversary of the date of the
mailing of the notice of the most recently concluded annual meeting, if such
nomination is for an election to be held at an annual meeting; provided,
however, that if the date of such annual meeting is more than thirty (30) days
before or after the first anniversary of the most recently concluded annual
meeting, or if such election is to be held at a special meeting, such notice
shall be delivered to the Corporation not more than seven (7) days after the
date of the notice of such annual or special meeting.
SECTION 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held at such places within or without the State of Delaware and at such times
as the Board of Directors may from time to time determine, and if so determined
at a regular meeting of the Board of Directors, notices thereof need not be
given.
SECTION 2.4. SPECIAL MEETINGS. Special meetings of the Board of Director may
be held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board or the President. Notice of a special
meeting of the Board of Directors shall be given by the person or persons
calling the meeting at least twenty-four hours before the special meeting.
SECTION 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 2.5 shall constitute presence in person at such meeting.
SECTION 2.6. QUORUM; VOTE REQUIRED FOR ACTION. A majority of the total number
of directors shall constitute a quorum for the transaction of business. The vote
of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
SECTION 2.7. WRITTEN ACTION BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
ARTICLE III. COMMITTEES
SECTION 3.1. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of the
committee, the member or
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members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, may authorize the
seal of the Corporation to be affixed to all papers which may require it and may
be granted power or authority to declare a dividend, authorize the issuance of
stock, and adopt a certificate of ownership and merger. Any such committee may,
to the extent authorized in any resolution or resolutions providing for the
issuance of stock adopted by the Board of Directors, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series.
SECTION 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
ARTICLE IV. OFFICERS
SECTION 4.1. EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS. The Board of
Directors shall elect a President and Secretary, and it may, if it so
determines, choose a Chairman of the Board and one or more Vice Chairmen of the
Board from among its members. The Board of Directors may also choose one or more
Vice Presidents, one or more Assistant Secretaries, a Treasurer, one or more
Assistant Treasurers and such other officers with such titles and duties as the
Board of Directors deems necessary or appropriate for the conduct of the
business of the Corporation. Any number of offices may be held by the same
person.
SECTION 4.2. TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Each officer of
the Corporation shall hold his office for an indefinite term at the pleasure of
the Board of Directors and until his successor is elected and qualified or until
his earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. The Board of Directors may remove any officer
with or without cause at any time, but such removal shall be without prejudice
to the contractual rights of such officer, if any, with the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors at any regular or
special meeting.
SECTION 4.2. POWERS AND DUTIES. The officers of the Corporation shall have
such powers and duties in the management of the Corporation as may be prescribed
by the Board of Directors and, to the extent not so prescribed, as generally
pertain to their respective offices, subject to the control of the Board of
Directors. The Secretary shall have the duty to record the proceedings of the
meetings of the stockholders and directors in a book to be kept for that purpose
unless the Board of Directors delegates this duty to another officer. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
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ARTICLE V. STOCK
SECTION 5.1. CERTIFICATES. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation certifying the number of shares owned
by him in the Corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI. INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION. The Corporation shall indemnify any
director or officer who was or is a party or is threatened to be made a party
to:
A. DIRECT ACTIONS. Any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful; the
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful; or
B. DERIVATIVE ACTIONS. Any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable
to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the
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adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall
deem proper.
The Corporation may indemnify any of its other employees or agents to the
same extent and subject to the same procedures and limitations as are set forth
in this Section 6.1 and Section 6.3 below as it is required to indemnify its
directors and officers by this Section 6.1.
SECTION 6.2. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
6.1 of these by-laws, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 6.3. STANDARD OF CONDUCT. Any indemnification under Section 6.1 of
these by-laws (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in said Section 6.1 of
these by-laws. Such determination shall be made (1) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
SECTION 6.4. PAYMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article VI.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
SECTION 6.5. NOT EXCLUSIVE. The indemnification and advancement of expenses
provided by, or granted pursuant to, the provisions of this Article VI shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under the certificate of
incorporation, or any agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 6.6. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
SECTION 6.7. DEFINITIONS.
A. THE CORPORATION. For purposes of this Article VI, references to
"the Corporation" shall include, in addition to the Corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent
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of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Article VI with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued.
B. OTHER ENTERPRISES. For purposes of this Article VI, references to
"other enterprises" shall include employee benefit plans; references
to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
SECTION 6.8. CONTRACTUAL NATURE. This Article VI shall be deemed to be a
contract between the Corporation and each director and officer who serves as
such at any time while this Article VI is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon such state of facts. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VI shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
ARTICLE VII. MISCELLANEOUS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 7.2. SEAL. The seal of the Corporation shall be circular in form and
shall have inscribed thereon the name of the Corporation and the state of its
incorporation, its year of incorporation, and the words "Corporate Seal," but
failure to affix the corporate seal shall not affect the validity of any
instrument.
SECTION 7.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 7.4. FORM OF RECORDS. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, computer
records, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time.
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SECTION 7.5. OFFICES. The Corporation may maintain such offices as are
necessary or convenient to the conduct of its business.
SECTION 7.6. EXECUTION OF DOCUMENTS GENERALLY. All contracts and other
instruments requiring execution by the Corporation may be executed and delivered
by the Chairman of the Board, any Vice Chairman of the Board, the President or
any Vice President and authority to sign any such contracts or instruments,
which may be general or confined to specific instances, may be conferred by the
Board of Directors upon any other person or persons. Any person having authority
to sign on behalf of the Corporation may delegate, from time to time, by
instrument in writing, all or any part of such authority to any person or
persons if authorized to do so by the Board of Directors.
SECTION 7.7. TIME PERIODS. In applying any provision of these by-laws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included. Where these by-laws
authorize or require the giving of notice or the performance of an act on a
Saturday or Sunday or a public holiday or authorize or require the giving of
notice or the performance of an act within or before or after a period of time
computed from a certain day, and such period of time ends on a Saturday or
Sunday or public holiday, such notice may be given or act performed on the next
succeeding business day, and if the period ends at a specified hour, such notice
may be given or act performed, at or before the same hour of such next
succeeding business day, with the same force and effect as if made or performed
in accordance with the terms of these by-laws.
SECTION 7.8. RULES OF CONSTRUCTION. In these by-laws, unless the context
otherwise requires, words in the singular number include the plural, and in the
plural include the singular, and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates words of the neuter
gender may refer to any gender. The numbers and titles of Articles and Sections
contained in these by-laws are inserted for convenience of reference only, and
they neither form a part of these by-laws nor are they to be used in the
construction or interpretation thereof.
SECTION 7.9. PARTIAL INVALIDITY. If any term or provision of these by-laws or
the application thereof to any person or circumstance, shall be invalid or
unenforceable, the remainder of these by-laws, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid, shall both be unaffected thereby and each term or provision of these
by-laws shall be valid and be enforced to the fullest extent permitted by law.
SECTION 7.10. AMENDMENT OF BY-LAWS. These by-laws may be amended or repealed,
and new by-laws may be adopted by the Board of Directors, but the stockholders
may make additional by-laws and may amend or repeal any by-laws whether adopted
by them or otherwise.
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EXHIBIT 10.1.1
ASSET PURCHASE AGREEMENT
This AGREEMENT, dated May 31, 1996 and effective as of 11:59 p.m., New
York time, on May 30, 1996, is entered into by and between BRUNSWICK
CORPORATION, a Delaware corporation ("Brunswick"), and FM Precision Golf
Manufacturing Corp., a Delaware corporation ("Buyer").
IT IS AGREED as follows:
Section 1. Definitions. The following terms have the following
meanings when used herein:
1.1 "Agreement" means this Asset Purchase Agreement, including all
schedules and exhibits hereto, as it may be amended from time to time in
accordance with its terms.
1.2 "Balance Sheet" means the balance sheet reflecting the Golf Assets and
Golf Liabilities as of December 31, 1995 attached hereto as Exhibit A.
1.3 "Brunswick" and "Buyer" have the meanings specified above.
1.4 "Closing Date" and "Closing" mean the date, time, and place for
closing the transactions described in Section 2.3 and the closing therein
referred to.
1.5 "Excluded Assets" means:
(a) all assets related to state, local and federal taxes including
income, sales or use and franchise taxes, and all prepaid
insurance, prepaid advertising and other prepaid expenses;
(b) any cash or cash equivalents (including letters of credit),
intracompany and intercompany payable and receivable balances
(between Brunswick and its divisions and affiliates),
advances, insurance policy coverages and other services
furnished to or for the benefit of the Golf Business by
Brunswick;
<PAGE> 2
(c) all names, trade names and trademarks containing the name
"Brunswick" or any derivation thereof whether in English or
any other language; and
(d) any claims, demands, causes of action, judgments and pending
litigation which relate to any Excluded Liabilities and which
are related to the Golf Business and as to which Brunswick is
a claimant, plaintiff, judgment creditor or beneficiary.
1.6 "Excluded Liabilities" means:
(a) any intercompany payable balances owing to Brunswick or any
of its subsidiaries or affiliates, from the Golf Business;
(b) the employee pension and welfare benefit obligations
retained by Brunswick pursuant to Section 5 hereof;
(c) the liabilities and obligations relating to environmental
matters retained by Brunswick pursuant to Section 6.5
hereof;
(d) any liability related to the matters set forth on Schedule
4.9;
(e) all product liability claims for which Brunswick is
responsible under Section 6.3;
(f) all liabilities and obligations of any nature arising out
of occurrences or circumstances prior to the Closing Date,
except Golf Liabilities; and
(g) all liabilities and obligations
(i) relating to any Excluded Asset; or
(ii) relating to any item listed on any Schedule identified
therein by a single asterisk (*) as not being included
as a Golf Liability.
1.7 "Golf Assets" means only the following properties and assets (except
the Excluded Assets) of Brunswick existing on the Closing Date:
(a) all assets reflected on the Balance Sheet and supplies owned
by Brunswick on the date of the Balance Sheet or acquired by
Brunswick between the date of the Balance Sheet and the
Closing Date pertaining to the Golf Business (except inventory
and supplies or other assets disposed
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of or used in the ordinary course of business since the date
of the Balance Sheet);
(b) the accounts (including the following Brunswick bank
accounts pertaining solely to the Golf Business: Fleet
Bank Bank Card Account No. 0430426, Fleet Bank Collection
Lock Box Account No. 0363238 (Lock Box No. 30050), and Bank
of Boston, Payroll Account No. 51131274) and notes
receivable of Brunswick pertaining to the Golf Business
existing on the Closing Date;
(c) finished goods, work-in-process, and raw materials
inventory pertaining to the Golf Business;
(d) sales order files, engineering order files, purchase order
files, manufacturing records, customer lists and business
files pertaining to the Golf Business;
(e) Golf Intangible Assets;
(f) all right and interest of Brunswick to or in all of its
agreements, options, contracts, distributor agreements, sales
representative agreements, leases, license agreements,
instruments, purchase orders, sales orders, and bids,
pertaining to the Golf Business, other than insurance
contracts;
(g) all computer programs and like property, and all records
thereof, pertaining to the Golf Business which are owned by
Brunswick;
(h) all machinery, equipment, tooling, dies and castings
pertaining to the Golf Business;
(i) the real property and improvements owned on the date of this
Agreement by Brunswick in Torrington, Connecticut pertaining
to the Golf Business (the "Owned Premises");
(j) any claims, demands, causes of action, judgments and pending
litigation which do not relate to any Excluded Liabilities and
which are related to the Golf Business and as to which
Brunswick is or may be claimant, plaintiff, judgment creditor
or beneficiary; and
(k) goodwill, going concern value or any other intangible asset
not listed above pertaining to the Golf Business.
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1.8 "Golf Business" means the golf shaft manufacturing, marketing and
distribution business of Brunswick, which has an operations facility in
Torrington, Connecticut.
1.9 "Golf Intangible Assets" means those trade names, trade secrets,
know-how, copyrights, service marks, trademarks, patents or applications
therefore owned by Brunswick relating solely to the Golf Business (other than
any name or mark which includes as a part thereof "Brunswick" or any derivation
thereof) (each of which is listed on Schedule 4.8 (other than unregistered
copyrights)), and such rights as Brunswick may have to sue for past infringement
thereof, and those licenses listed on Schedule 4.8 each of which grants to
Brunswick a license to use intellectual property rights owned by a third party
solely in the Golf Business.
1.10 "Golf Liabilities" means only the following liabilities of Brunswick
relating to the Golf Business existing on the Closing Date (except the Excluded
Liabilities):
(a) the obligations of Brunswick relating to events and
circumstances taking place on and after the Closing Date,
or accruing or becoming payable during the period beginning
on the Closing Date, and in each case arising under the
agreements, options, contracts, distributor agreements,
sales representative agreements, leases, license
agreements, instruments, purchase orders, sales orders, and
commitments (including outstanding bids) ("Contracts") set
forth on Schedule 4.6 pertaining to the Golf Business which
are to be assigned to Buyer by Brunswick pursuant to this
Agreement ("Contract Obligations");
(b) other current liabilities (except liability for any income,
sales, use and franchise taxes and insurance) incurred by
Brunswick in the ordinary course of the Golf Business and
existing at the Closing Date;
(c) additional current liabilities (except liability for any
income, sales, use and franchise taxes and insurance)
relating to events and circumstances taking place on and
after the Closing Date, or accruing or becoming payable
during the period beginning on the Closing Date, and in
each case arising under the agreements, options, contracts,
distributor
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agreements, sales representative agreements, leases, license
agreements, instruments, purchase orders, and commitments
(including outstanding bids) (collectively with the Contracts,
"Golf Contracts") entered into by Brunswick prior to the
Closing Date in the ordinary course of the Golf Business of a
kind not required to be reflected on Schedule 4.6, which are
to be assigned to Buyer by Brunswick pursuant to this
Agreement (collectively with the Contract Obligations,
"Contractual Obligations");
(d) any sales, use, transfer or other tax or recording cost or
other similar tax resulting from the sale or transfer of the
Golf Assets or the assumption of the Golf Liabilities
hereunder;
(e) warranty claims for defective products of the Golf Business
manufactured by Brunswick prior to the Closing Date, but
excluding any of such claims which were asserted prior to the
Closing;
(f) the employee pension and welfare benefit obligations
assumed by Buyer pursuant to Section 5 hereof;
(g) all vacation, termination and severance pay and accrued
sickness benefits for all employees of the Golf Business who
are employed by Brunswick on the Closing Date and who are
employed by Buyer immediately thereafter;
(h) all product liability claims for which Buyer is liable
under Section 8.3;
(i) all real estate, personal property and ad valorem taxes
relating to the Golf Assets which have been accrued but are
not payable prior to the Closing Date, or which accrue after
the Closing Date; and
(j) the liabilities and obligations relating to environmental
matters assumed by Buyer pursuant to Section 6.5 hereof.
1.11 "Permitted Encumbrances" means any of the following:
(a) liens in connection with the Golf Business securing taxes,
assessments, fees or other governmental charges or levies, or
securing the claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar persons;
(b) liens incurred or deposits made in the ordinary course of
the Golf Business (i) in connection with workers'
compensation, unemployment insurance, social security and
other similar laws or (ii) to secure the
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performance of bids, tenders, sales, contracts, public or
statutory obligations not incurred in connection with the
borrowing of money, the obtaining of advances or the payment
of the purchase price of property or services; and
(c) reservations, exceptions, easements, leases and other similar
title exceptions or encumbrances affecting real property
(including, without limitation, all matters set forth on
Schedule B of the Commitment (as hereafter defined)), provided
they do not in the aggregate materially interfere with the use
of such property in the ordinary course of the Golf Business.
1.12 "To Brunswick's knowledge," "To the best of Brunswick's knowledge"
and similar phrases only mean what those persons listed on Schedule 1.12 know or
should have known in the reasonable performance of their job responsibilities.
Section 2. Purchase Price; Closing; Transactions at Closing.
2.1 Purchase Price. The total purchase price for the Golf Assets shall be
$6,000,000 in cash, plus the assumption of the Golf Liabilities pursuant to
Section 2.3.2, subject to adjustment as provided in Section 2.6.3.
2.2 Closing Date. The Closing hereunder shall take place at the office of
Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603 at 10:00
a.m. Chicago time, on May 31, 1996, or at such other place or time as Brunswick
and Buyer may agree.
2.3 Transactions at Closing. At the Closing, and on the basis of the
representations, warranties, covenants and agreements made herein and in the
exhibits and schedules hereto and in the certificates and other instruments
delivered pursuant hereto, and subject to the terms and conditions hereof:
2.3.1 Transfer of Assets. Brunswick shall transfer and convey to
Buyer, and give possession to Buyer (where the context so permits) of, all of
the Golf Assets, delivering to
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<PAGE> 7
Buyer bills of sale and assignments and documents of conveyance each duly
executed and acknowledged by Brunswick, and such other good and sufficient
instruments of transfer and conveyance as shall be effective to vest in Buyer
good and valid title to all of the Golf Assets, free and clear of all liens
(except for tax liens for taxes not yet due and payable), encumbrances, charges,
imperfections of title, restrictions, equities and claims of every kind, except
for Permitted Encumbrances and as set forth on Schedule 4.3. The Owned Premises
shall be conveyed by Brunswick to Buyer at the Closing by Special Warranty Deed
in statutory form and Brunswick shall also make the deliveries required by
Section 2.3.3. In addition, Brunswick shall cause to be delivered the opinion
required by Section 7.2.
2.3.2 Payment. In consideration for the transfer of the Golf Assets,
Buyer shall pay to Brunswick $6,000,000 by wire transfer of immediately
available funds directly to Brunswick Corporation's Account No. 05-00259 at The
First National Bank of Chicago, Chicago, Illinois (ABA No. 0710-00013), and
shall deliver to Brunswick an instrument or instruments, acceptable to counsel
for Brunswick, whereby Buyer assumes the Golf Liabilities. In addition, Buyer
shall cause to be delivered the opinion required by Section 7.1.
2.3.3 Real Estate Provisions.
(a) Brunswick has provided to Buyer or provided Buyer an
opportunity to review a copy of each of the documents
referenced in this Section 2.3.3:
(i) All existing and proposed easements, covenants,
restrictions, agreements, options, contracts and other
documents which affect the Owned Premises, are known to
Brunswick and are not disclosed by the Commitment (as
hereafter defined), including
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<PAGE> 8
service, maintenance, utility and operating agreements
affecting the Owned Premises and any agreements relating
to the sale, leasing, or management of the Owned
Premises;
(ii) A preliminary owner's title report and owner's title
insurance commitment for the Owned Premises (the
"Commitment") issued by a financially responsible title
insurance company ("Title Company") authorized to issue
title insurance in the State of Connecticut, and
reasonably acceptable to Buyer;
(iii) A current ALTA survey of the Owned Premises certified to
Buyer, the Title Company and Star Bank, N.A.;
(iv) All existing and currently relevant reports in
Brunswick's possession or control relating to the soil,
seismological, geological, and drainage conditions and
the flood characteristics of the Owned Premises;
(v) All environmental assessments or impact reports in
Brunswick's possession or control relating to the Owned
Premises that are currently relevant to the Owned
Premises, and all approvals, conditions, orders, or
declarations issued by any governmental authority
relating to it that are currently relevant to the Owned
Premises; and
(vi) All building plans and drawings, any warranties
affecting the Owned Premises, any structural,
mechanical, engineering or
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<PAGE> 9
other reports, and any other information in Brunswick's
possession or control related to the improvements located on
the Owned Premises.
(b) In addition to the warranty deed referred to in Section 2.3.1
above, Brunswick shall deliver to Buyer at the Closing an
affidavit in form satisfactory to Buyer that Brunswick is not
a "foreign person" within the meaning of Section 1445(f)(3) of
the Internal Revenue Code of 1986, as amended (the "Code").
(c) Brunswick at its own expense shall cause the Title Company
to deliver to Buyer at the Closing a 1992 ALTA Owner's
Policy of Title Insurance or an unconditional marked-up
commitment for the same, in the amount of $200,000,
together in either case with such endorsements as Buyer may
request, showing fee title to the Owned Premises vested in
Buyer subject only to the Permitted Encumbrances (the
"Title Policy"). The Title Policy shall contain the
following endorsements: (i) a statement deleting all
standard printed exceptions; (ii) an access endorsement,
insuring, among other matters, that the Owned Premises and
all entrances, exits, driveways and access roads adjoin a
public road or highway; (iii) an ALTA 3.1 zoning
endorsement, if available; and (iv) affirmative insurance
of the state of facts revealed by the current ALTA survey
described in Section 2.3.3(a)(iii). At the Closing,
Brunswick shall sign and deliver to Buyer and the Title
Company an affidavit with respect to
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off-record title matters in the form promulgated by the
Connecticut Bar Association.
2.4 Consistent Treatment. The parties hereto agree to (a) allocate the
purchase price among the Golf Assets and the covenant not to compete set forth
in Section 10 in accordance with Section 1060 of the Code and Schedule 2.4, (b)
treat and report the transactions contemplated by this Agreement in all respects
consistently for purposes of any federal, state or local tax, and (c) not take
any action inconsistent with such obligation.
2.5 Procedures for Assets Not Transferable. If any of the contracts or
agreements or any other property or rights included in the Golf Assets is not
assignable or transferable either by virtue of the provisions thereof or under
applicable law without the consent of some party, this Agreement and the related
instruments of transfer shall not constitute an assignment or transfer thereof
and Buyer shall not assume Brunswick's obligations with respect thereto, but
Brunswick shall use all commercially reasonable efforts to obtain such consent
as soon as possible after the Closing Date or otherwise obtain for Buyer the
practical benefit of such property or rights, and Buyer shall use all
commercially reasonable efforts to assist in that endeavor. In the event that
any purchase order included in the Golf Assets is not assigned by Brunswick,
Buyer agrees to purchase from Brunswick at the contract price all property
thereunder which Brunswick is obligated to purchase, and Brunswick agrees to
sell the same to Buyer at such price. In the event that any sales order included
in the Golf Assets is not assigned by Brunswick, Buyer agrees to sell to
Brunswick any products required to complete such contracts at the same price
provided for therein and otherwise to complete such contracts on behalf of
Brunswick, and Brunswick agrees to purchase the same from Buyer at such price.
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Buyer shall provide all services and bear all costs necessary to complete such
contracts, and Brunswick shall hold for Buyer's account and promptly remit to
Buyer all amounts received with respect to such contracts. If Brunswick fails to
comply with the provisions of this Section 2.5, Buyer on 30 days advance written
notice to Brunswick may undertake to complete such contracts and collect amounts
due thereunder in the name of Brunswick. Notwithstanding the foregoing, the
parties agree that (a) all consents required to be obtained by Brunswick shall
be obtained solely at Brunswick's expense, and (b) no obligation is hereunder
imposed on Buyer to incur any expense in assisting Brunswick in obtaining any
consents as to which Brunswick has indicated it will not reimburse Buyer.
2.6 Purchase Price Adjustment.
2.6.1 Closing Balance Sheet. As soon as practicable, but within 45
days after the Closing Date, a balance sheet of the Golf Assets and Golf
Liabilities as of the close of business on the Closing Date (the "Closing
Balance Sheet") shall be prepared by Brunswick. The Closing Balance Sheet shall
be prepared on a basis consistent with the preparation of the Balance Sheet,
except that the Closing Balance Sheet shall include within "account payable" the
amount of $87,000 relating to an agreement between Buyer and Brunswick with
respect to the NAPCO plater. The Closing Balance Sheet prepared by Brunswick
shall then be audited by Arthur Andersen LLP, Brunswick's independent public
accountants, solely for purposes of determining whether the Closing Balance
Sheet has been prepared on a basis consistent with the preparation of the
Balance Sheet and to give effect to the physical inventories taken by Brunswick
shortly prior to the Closing Date. The cost of the audit shall be borne by
Brunswick. Inventory values shall be based on the physical inventories taken by
Brunswick in
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April 1996 and shall be on the cost (computed on a last-in first-out basis)
method of accounting.
2.6.2 Resolution of Disputes. Buyer and its accountants shall be
entitled to observe and consult with Brunswick and its accountants during the
preparation of the Closing Balance Sheet. Arthur Andersen LLP shall make its
workpapers available to Buyer and its accountants at the time of the delivery of
the Closing Balance Sheet to Buyer. Buyer may propose any adjustments to the
Closing Balance Sheet required such that the Closing Balance Sheet shall have
been prepared on a basis consistent with the preparation of the Balance Sheet,
provided that the aggregate amount of such adjustments exceeds $5,000 and that
Buyer shall notify Brunswick in writing of the proposed adjustments, specifying
the amount thereof and setting forth, in reasonable detail, the basis for each
such adjustment, within 20 days of Buyer's receipt of the Closing Balance Sheet.
In the event of a dispute with respect to a proposed adjustment, Buyer and
Brunswick shall attempt to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive on the
parties. If the Buyer and Brunswick are unable to reach a resolution of such
dispute(s) within 20 days, Buyer or Brunswick may submit the items remaining in
dispute for resolution to an independent accounting firm of national reputation
mutually appointed by Buyer and Brunswick, or if the parties are unable to agree
upon such accounting firm, then Price Waterhouse LLP shall be selected (such
accounting firm being herein referred to as the "Independent Accounting Firm").
The Independent Accounting Firm shall, within 20 days after submission,
determine and report to the parties upon such disputed items, and such report
shall be final, binding and conclusive on the parties hereto. The unsuccessful
party shall pay
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the fees and charges of the Independent Accounting Firm; provided, however, that
if more than one dispute is raised, the party whose claims, in amount of
dollars, was the most unsuccessful shall be deemed the unsuccessful party.
2.6.3 Additional Payment. If the net book value of the Golf Assets
transferred to Buyer, less the Golf Liabilities assumed by Buyer, as such
amounts are shown in the Closing Balance Sheet is less than $16,272,929,
Brunswick shall refund to Buyer the difference between those two amounts on a
dollar-for-dollar basis. If the net book value of such assets less such
liabilities shown on the Closing Balance Sheet is more than $16,272,929, Buyer
shall pay Brunswick the difference between such amounts on a dollar-for-dollar
basis. Any amount due under this Section 2.6.3 shall be paid within five
business days of the completion of the Closing Balance Sheet and the resolution
of all disputes with respect thereto. Either of such payments shall bear
interest at the prime rate charged by the First National Bank of Chicago from
the Closing Date to the date of payment.
Section 3. Representations, Warranties, Agreements and Covenants of
Buyer. Buyer represents and warrants to, and agrees with, Brunswick as
follows:
3.1 Organization. Buyer is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and is duly
qualified to do business in Connecticut.
3.2 Authority. Buyer has full corporate power and authority to execute,
deliver and perform this Agreement and all of the other agreements and documents
executed in connection herewith (including a document pursuant to which Buyer
assumes the Golf Liabilities) (all other agreements and documents executed in
connection herewith are herein referred to as the
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"Related Agreements"), and the execution and delivery of this Agreement and the
Related Agreements and the performance of all obligations hereunder and
thereunder have been duly authorized by Buyer and such execution and delivery
does not require the consent, approval or authorization of any person, public
authority or entity; and neither the execution and delivery nor the performance
of this Agreement or the Related Agreements will violate the Certificate of
Incorporation or the By-Laws of Buyer, or any indenture, loan agreement,
contract or instrument to which Buyer is a party or by which it is bound or any
applicable law, rule, regulation, judgment, order, writ, injunction or decree of
any court or government or governmental instrumentality. This Agreement has been
duly executed and delivered by Buyer and constitutes, and each Related
Agreement, when duly executed and delivered by Buyer will constitute, the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms except as enforcement thereof may be limited by bankruptcy,
insolvency and other laws affecting the enforcement of creditors' rights
generally.
3.3 Consents. Except as shown on Schedule 3.3, no notice to, filing with,
authorization of, exemption by, or consent of, any person, entity or public or
governmental authority is required for Buyer to consummate the transactions
contemplated hereby.
3.4 Litigation. Except as disclosed in Schedule 3.4, there is no
litigation, proceeding or claim pending or threatened relating to Buyer's
ability to purchase or operate the Golf Business or assume the Golf Liabilities
related thereto.
Section 4. Representations, Warranties, Agreements and Covenants of
Brunswick. Brunswick represents and warrants to, and agrees with, Buyer as
follows:
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4.1 Organization. Brunswick is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware duly qualified
to transact business as a foreign corporation in Connecticut. Brunswick has the
full power and authority (corporate and otherwise) to engage in the business in
which it is now engaged. The Golf Assets do not include any shares or other
equity interests of any corporation, limited liability company, or partnership.
4.2 Authority. Brunswick has full corporate power and authority to
execute, deliver and perform this Agreement and all Related Agreements, and the
execution and delivery of this Agreement and the Related Agreements and the
performance of all obligations hereunder and thereunder have been duly
authorized by Brunswick and such execution and delivery does not require the
consent, approval or authorization of any person, public authority or other
entity. The signing, delivery and performance of this Agreement and the Related
Agreements by Brunswick is not prohibited or limited by, and will not result in
the breach of or a default under, any provision of the Certificate of
Incorporation or By-Laws of Brunswick or of any agreement, franchise, permit or
instrument binding on Brunswick or any of the Golf Assets, or of any applicable
law, rule, regulation, judgment, order, writ, injunction or decree of any court
or government or governmental instrumentality, and will not result in the
creation or imposition of any lien, encumbrance, equity, restriction or charge
on any of the Golf Assets. This Agreement has been duly executed and delivered
by Brunswick and constitutes, and each Related Agreement, when duly executed and
delivered by Brunswick will constitute, the legal, valid and binding obligation
of Brunswick, enforceable against Brunswick in accordance with its terms except
as enforcement thereof may be limited by bankruptcy, insolvency and other
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laws affecting the enforcement of creditors' rights generally. Schedule 4.2 is a
true and correct list of all persons whose consents are needed to transfer the
Golf Assets to Buyer, except for any consents from purchasers of Golf Business
products whose consent is required as a result of a purchase order. Brunswick
shall use commercially reasonable efforts to obtain the consents of the persons
listed on Schedule 4.2 and the consents of such purchasers of Golf Business
products as Buyer requests.
4.3 Title. Brunswick has good and valid title to all Golf Assets; and
except for Permitted Encumbrances and as set forth on Schedule 4.3, none of such
property is held by Brunswick under any lease or conditional sales contract, or
is subject to any security agreement, lien (except for tax liens for taxes not
yet due and payable), encumbrance, charge, equity or claim. Upon delivery to
Buyer of the bills of sale and assignments referred to in Section 2.3.1, Buyer
will receive good and valid title to all of the Golf Assets, free and clear of
all liens (except for tax liens for taxes not yet due and payable),
encumbrances, charges, imperfections of title, restrictions, equities and claims
of every kind, except for Permitted Encumbrances and as set forth on Schedule
4.3. Brunswick has no knowledge of any pending or contemplated proceeding for
the review or adjustment of the real estate tax assessment of the Owned
Premises. Brunswick has not filed an appeal or protest for the real estate tax
assessment of the Owned Premises for the current tax period. Brunswick has not
received notice of any pending condemnation action against the Owned Premises or
any part thereof, nor does Brunswick have knowledge of any such condemnation
actions being threatened or contemplated. Brunswick has not received any notice
of existing actions, suits, proceedings, judgments, orders, decrees, defaults,
delinquencies, or deficiencies pending or outstanding
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against the Owned Premises or Brunswick which would affect Brunswick's ability
to perform its obligations under this Agreement and the Related Agreements, or
Brunswick's use and occupancy of the Owned Premises. Except as noted above, to
the best of Brunswick's knowledge, no such matters are threatened. Other than in
connection with Brunswick's agreement pursuant to Section 6.5.1, there are no
agreements with governmental authorities, agencies, utilities, or
quasi-governmental entities which affect the Owned Premises. Other than in
connection with Brunswick's agreement pursuant to Section 6.5.1, Brunswick knows
of no facts or conditions which would prevent Buyer from operating the Owned
Premises after the Closing in substantially the same manner as Brunswick
operated the Owned Premises immediately prior to the Closing. There are not, and
at the Closing there will not be, any tenants or lessees on or of the Owned
Premises or any part thereof arising through or under Brunswick. To the best of
Brunswick's knowledge, the documents submitted or to be submitted to Buyer
pursuant to this Agreement and the Related Agreements include, and will include
when submitted, all Contract Obligations to which Brunswick or its agents are
party which affect the Owned Premises. No agreement exists which provides for
the management of the Owned Premises by any person other than Brunswick.
Brunswick is not a "foreign person" within the meaning of Section 1445(f)(3) of
the Code. To the best of Brunswick's knowledge, there are no private or public
cemeteries or graveyards, Native American burial grounds, Native American
artifacts or other archaeological significant artifacts, and no endangered
species or endangered or protected plants, located on, under or about the Owned
Premises. No part of the Owned Premises has been listed or designated as an
historical landmark or
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historically significant site. The only interest in real property owned or used
by Brunswick in connection with the Golf Business is the Owned Premises.
4.4 Financial Statements. The balance sheet as of, and statement of income
for the year ended, December 31, 1995, of the Golf Business, a copy of which is
attached hereto as Exhibit B, has been prepared from the books and records of
Brunswick and fairly present the financial position, assets and liabilities of
the Golf Business at such date and the results of its operations for such year
and are in accordance with the books and records of Brunswick, which books and
records are correct and complete. There are no attorneys' letters to auditors
relating to the Golf Business.
4.5 Inventories. All inventories of Brunswick reflected in the Balance
Sheet were in existence on December 31, 1995 and the amounts thereof so shown
reflect, and the amounts on the Closing Balance Sheet shall reflect valuations
on the cost (computed on a last-in first-out basis) method of accounting, and
none of the inventories of the Golf Business subsequent to December 31, 1995 has
been stolen or otherwise unlawfully or improperly removed or diverted.
4.6 Certain Contracts. Schedule 4.6 is a full and complete list (subject,
in the case of clauses (a), (b), (g), (i) and (l) below, to the dollar amount
indicated therein, and in the case of clause (f), the time limitations indicated
therein) of all agreements, options, contracts, leases and instruments (but
excluding (x) contracts and agreements made in connection with Brunswick's sale
of the Golf Business that do not constitute Golf Assets, (y) employment
agreements for employment at will, and (z) purchase orders, sales orders,
service orders (other than as described in clause (g)) accounts payable and
accounts receivable made in the ordinary
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course of the Golf Business) to which Brunswick is a party or by which Brunswick
or the Golf Assets are bound, and which relate to the Golf Business, including
without limitation (a) each contract for the disposition, sale, lease (where
Brunswick is lessor) or otherwise, of equipment, goods, materials, research and
development, supplies, studies, capital assets, or for the performance of
services, in any case involving more than $1,000, (b) contracts for the joint
performance of work or services, and all other joint venture, partnership or
other similar agreements, (c) notes, mortgages, deeds of trust, loan agreements,
security agreements, guarantees, debentures, indentures, credit agreements,
warehousing agreements, repurchase agreements and other evidences of
indebtedness other than endorsements for collection or deposit in the ordinary
course of business, (d) licenses, sublicenses, royalty agreements and any other
contract to which Brunswick is a party, or otherwise subject, relating to
technical assistance, proprietary rights, confidentiality, non-disclosure, or
non-use and related to the Golf Business, (e) deeds (other than those relating
to Brunswick's acquisition of the Owned Premises) or contracts relating to the
Owned Premises, (f) leases, whether as lessor or lessee, with respect to
individual items of personal property which are not terminable without penalty
in 30 days, (g) contracts for the purchase of any equipment, capital assets or
services, except individual service orders made in the ordinary and usual course
of the Golf Business involving less than $1,000, provided, however, that if the
aggregate of such individual service orders from one party exceeds $50,000, such
information shall be included on Schedule 4.6, (h) contracts containing
covenants limiting the freedom of Brunswick to compete in the Golf Business or
to engage in the Golf Business in any geographic area, but excluding this
Agreement and any agreements with distributors or sales representatives, (i)
each other written
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or oral agreement of Brunswick made in the ordinary course of the Golf Business
to be assumed by Buyer which involves future payments by or to Brunswick after
the Closing Date of more than $1,000, (j) all agreements with distributors or
sales representatives for the Golf Business, (k) letters of credit related to
the Golf Business, and (l) each other contract related to the Golf Business not
made in the ordinary course of the Golf Business which involves future payments
by or to Brunswick of more than $1,000 or is not to terminate or is not
terminable without penalty to Buyer prior to 30 days from the Closing Date, and
which is to be performed at or after the Closing Date. Schedule 4.6 also lists
each outstanding proposal of Brunswick related to the Golf Business that
involves total payments to Brunswick in excess of $1,000 and is subject to
acceptance by third parties or could otherwise become a new sales contract.
Brunswick has made available to Buyer for its review and examination, written
summaries of all oral contracts referred to in this Section 4.6 and has provided
to Buyer or made available to Buyer for its review and examination true and
correct copies of all of such written contracts referred to in this Section 4.6
and all notices received by Brunswick pursuant to such contracts. Each of such
contracts is a legal, binding and enforceable obligation of or against Brunswick
except as enforcement thereof may be limited by bankruptcy, insolvency and other
laws affecting the enforcement of creditors' rights generally. Brunswick has
made available to Buyer true and correct copies of its standard invoice terms,
standard purchase order terms, all product warranties and any correspondence in
its possession from customers of the Golf Business relating to cancellations of
orders or complaints about quality or service. Schedule 4.6 also contains a true
and correct listing, by year, of the aggregate dollar value of (a) all
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warranty expense of the Golf Business for each of the past five years, and (b)
all product liability claims asserted against the Golf Business for each of the
past five years.
4.7 Fixed Assets. Schedule 4.7 is a full and complete list of the fixed
assets of Brunswick reflected on the Balance Sheet, showing cost, and net book
value, as of the date of the Balance Sheet; a list of all other Golf Assets
(other than goodwill, inventory, and trade accounts receivable) reflected on the
Balance Sheet at an amount exceeding $50,000; and a list of all fixed assets of
Brunswick related to the Golf Business acquired or disposed of by Brunswick
between December 31, 1995 and April 26, 1996. Except for the Excluded Assets,
corporate administrative services (including, but not limited to, legal,
accounting, tax, risk management, financial planning, benefit administration and
similar support services) and as otherwise set forth on Schedule 4.7, the Golf
Assets constitute all of the assets necessary to conduct the Golf Business in
the manner that the Golf Business was conducted by Brunswick prior to the date
hereof.
4.8 Intangible Rights. Schedule 4.8 is a full and complete list of all of
Brunswick's trade names, registered copyrights, service marks, trademarks,
patents or applications therefor and all licenses and other rights related
thereto which are used solely in the Golf Business, except for any name or mark
containing the name "Brunswick" or any derivation thereof whether in English or
another language. To the best of Brunswick's knowledge, Brunswick owns or
possesses adequate licenses or other rights to use the Golf Intangible Assets,
and the same are sufficient to conduct the Golf Business as it has been and is
now being conducted. To the best knowledge of Brunswick, the operations of the
Golf Business do not conflict with or
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infringe, and no one has asserted in writing to Brunswick that such operations
conflict with or infringe, any trade name, copyright, service mark, trademark or
patent or any other similar right ("Intangible Rights") owned, possessed or used
by any third party. To the best knowledge of Brunswick, there are no third
parties whose operations conflict with or infringe, nor has anyone asserted in
writing that such operations conflict with or infringe, any Golf Intangible
Assets. The Golf Intangible Assets are owned free and clear of all encumbrances
or have been duly licensed for use by Brunswick. Except as set forth on said
Schedule 4.8, to the best knowledge of Brunswick, there are no facts which would
reasonably serve as a basis of any claim that Brunswick does not have the
unrestricted right to use, free of any rights or claims of others, all Golf
Intangible Assets in the development, provision, use, sale or other disposition
of any or all products or services presently being or contemplated to be, used,
furnished or sold in the Golf Business.
On the Closing Date all the Golf Intangible Assets shall have been duly
transferred to Buyer, so as to vest in Buyer all right, title and interest
therein, and Brunswick shall, at its sole expense, make, execute and deliver
recordable assignments to effect and evidence such transfers as may be
reasonably requested by Buyer.
4.9 Litigation. Except with respect to any environmental matters (which
matters are the subject of Section 4.13), Schedule 4.9 is a true and complete
list and brief description of all litigation, proceedings and claims affecting
the Golf Business (by or against Brunswick or any predecessor) pending or, to
the knowledge of Brunswick, threatened against Brunswick, and the litigation
described on Schedule 4.9 does not constitute a Golf Liability. Except with
respect to any environmental matters (which matters are the subject of Section
4.13) and as set forth in Schedule 4.9, and whether or not covered by insurance,
there is no action, proceeding,
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suit or appeal or, to the best knowledge of Brunswick, claim, dispute,
investigation or inquiry, at law or in equity, involving Brunswick with respect
to the Golf Business, or involving any of the Golf Assets or Golf Liabilities,
and to the best knowledge of Brunswick, none has been threatened against
Brunswick. Except with respect to any environmental matters (which matters are
the subject of Section 4.13), Brunswick, with respect to the Golf Business, is
not subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal.
4.10 Employee Benefits. Schedule 4.10 is a list of all employee contracts
(other than oral agreements for employment at will), benefit plans, and
arrangements pertaining to the Golf Business (including all collective
bargaining, employment, compensation, pension, retirement, consulting,
severance, separation, incentive, hospitalization, vacation, sickness,
insurance, welfare, profit sharing and bonus plans and agreements but excluding
any agreements relating to retention bonuses to be paid to certain officers and
employees of the Golf Business by Brunswick) under which Brunswick has any
obligation. Brunswick has furnished to Buyer or provided Buyer with an
opportunity to review copies of instruments evidencing all such contracts,
benefit plans and arrangements and (a) all determination letters, audit reports
and other correspondence with any governmental body or officer concerning such
contracts, benefit plans and arrangements, (b) all benefit plan financial
statements, forms 5500 and actuarial reports, (c) any documents evidencing any
transactions between a benefit plan and any other person (other than the payment
of benefits, cash contributions and the purchase of professional services in the
ordinary course and the purchase and sale of investments in the
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ordinary course) and (d) information as to the amount of any allocable unfunded
vested benefits in any employee benefit plan.
4.11 Defaults. Except as listed on Schedule 4.11, Brunswick has performed
in all respects, or is now performing in all respects, the obligations of, and
is not in default (and would not by the lapse of time and/or the giving of
notice be in default), nor has it received notice of default or notice of
termination, in respect of any contract listed on any schedule to this
Agreement. Except as set forth in Schedule 4.11 (or as shown on Schedule 4.19
with respect to receivables), to the best knowledge of Brunswick, no party with
whom Brunswick has a contract listed on any schedule to this Agreement is in
payment or other monetary default, or to the best knowledge of Brunswick, any
other default, thereunder or has breached any terms or provisions thereof. To
the best knowledge of Brunswick, there are no facts or circumstances which make
a default under, or termination or suspension of, any of the contracts referred
to in Section 4.6 likely to occur subsequent to the date hereof, nor has any
third party raised any claim, dispute or controversy with respect to such
contracts.
4.12 Material Adverse Change. Except as set forth on Schedule 4.12 or as
specifically disclosed and identified as such on the exhibits or schedules to
this Agreement, there has not been since December 31, 1995 (a) any change which,
individually or in the aggregate, has had a material adverse effect on the
business, condition (financial or otherwise), assets, liabilities or obligations
of the Golf Business, other than such changes as may affect in general the
industry in which the Golf Business participates, or (b) any damage, destruction
or loss (including, without limitation, by reason of revocation of license or
right to do business, total or partial termination, suspension, default or
modification of contracts, governmental
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restriction, regulation, investigation or inquiry), whether or not covered by
insurance, materially and adversely affecting the business, condition (financial
or otherwise), assets or properties of Brunswick related to the Golf Business,
or (c) any entering into by Brunswick with respect to the Golf Business of any
transaction or contract, except in the ordinary and usual course of the Golf
Business, nor any waiver by Brunswick with respect to the Golf Business of any
right of substantial value or cancellation of any material debts or claims or
voluntarily suffering of any extraordinary losses, or (d) any amendment or
supplement to, or extension of, any employee profit-sharing, pension, bonus
(other than certain retention bonuses to be paid to certain officers and
employees of the Golf Business by Brunswick), incentive, retirement, medical
reimbursement, life insurance, deferred compensation or any other employee
benefit plan or arrangement to which employees in the Golf Business participate,
or (e) any material problems experienced by Brunswick with respect to the Golf
Business in employee relations, including, without limitation, strikes,
shutdowns, slowdowns, work stoppages or resignations of key employees in the
Golf Business, or (f) payment or prepayment of any material obligation or
liability (fixed, contingent or otherwise), or discharge or satisfaction of any
material lien or encumbrance, or settlement of any material liability, dispute,
proceeding, suit or appeal, pending or threatened against Brunswick with respect
to the Golf Business or the Golf Assets, except for current liabilities included
in the balance sheet attached hereto as Exhibit B, current liabilities incurred
since December 31, 1995 in the ordinary and usual course of the Golf Business,
and the settlement of the lawsuit between Brunswick and NAPCO, Inc. (which
settlement is subject to the approval of the United States Bankruptcy Court for
the District of Connecticut), or (g) except for individual expenditures
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and commitments made in the ordinary and usual course of the Golf Business, any
expenditure made by Brunswick for the purchase, acquisition, construction or
improvement of a capital asset which is a Golf Asset, or (h) any entering into
by Brunswick of any agreement or commitment, whether in writing or otherwise, to
take any action described in this Section 4.12.
4.13 Environmental Matters. Except as set forth in Schedule 4.13, to the
best of Brunswick's knowledge, the Golf Business has obtained all permits,
licenses and other authorizations which are required for the operation of the
Golf Business under applicable federal, state and local laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
(including without limitation ambient air, surface water, ground water or land),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
("Environmental Laws"). Except as set forth in Schedule 4.13, to the best of
Brunswick's knowledge, the Golf Business is in compliance in all respects with
all terms and conditions of such permits, licenses, decrees, judgments, orders
and authorizations. Except as set forth in Schedule 4.13, to the best of
Brunswick's knowledge, the Golf Business is in compliance in all material
respects with all federal, state and local Environmental Laws, whether or not
those require permits, licenses or other authorizations. Except as set forth in
Schedule 4.13, to the best of Brunswick's knowledge there are no hazardous
substances located in, on or under the Owned Premises. Brunswick has disclosed
to its contractor, GZA GeoEnvironmental, Inc.,
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the existence of all known hazardous substances located in, on or under the
Owned Premises so that the environmental investigations performed by it can
address fully the conditions on the Owned Premises. Except as set forth in
Schedule 4.13, to the best of Brunswick's knowledge, Brunswick, with respect to
the Golf Business, has not received notice of, any claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant, chemical, or industrial toxic or
hazardous substance or waste which could reasonably be expected to have a
material adverse effect on the Golf Assets or on the financial condition,
business or results of operations of the Golf Business. Except as set forth in
Schedule 4.13, there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or, to the best of Brunswick's knowledge,
threatened against Brunswick with respect to the Golf Business relating in any
way to those laws or any regulation, code, plan, order, decree, judgment or
injunction promulgated or approved thereunder.
4.14 Guarantees. Except as otherwise noted on Schedule 4.14, none of the
Golf Liabilities is guaranteed by any person, firm, association or corporation.
Schedule 4.14 is a correct and complete list of all guarantees by, or other
contingent obligations (excluding contingencies related to defaults under
contractual commitments and noncompliance under laws) of, Brunswick with respect
to the Golf Business showing the parties and amounts involved and the expiration
dates thereof.
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4.15 Compensation. The attached Schedule 4.15 constitutes a full and
complete list of each officer, employee or consultant of the Golf Business
(other than Wayne Rumble) whose total compensation from Brunswick (excluding any
retention bonuses to be paid to certain officers and employees of the Golf
Business by Brunswick) on an annualized basis exceeds $25,000, specifying their
names and job designations, the total amount paid or payable (excluding any
retention bonuses to be paid to certain officers and employees of the Golf
Business by Brunswick), the basis of such compensation, whether fixed or
commission or a combination thereof, and their current rate of pay. Except as
otherwise disclosed on Schedule 4.15, since December 31, 1995, there has been no
change in compensation, by means of wages, salaries, bonuses, gratuities or
otherwise, to any such officer, employee or consultant of the Golf Business, or
any change in compensation, other than in the ordinary and usual course of
business, to officers and employees for reimbursable business expenses.
4.16 Labor. There are no labor controversies pending or, to the best
knowledge of Brunswick, threatened against Brunswick which could reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the Golf Business.
4.17 Compliance with Laws. To Brunswick's knowledge, except as disclosed
on Schedule 4.17 and excluding any violations that have previously been
resolved, the Golf Business has been conducted in all material respects in
accordance with all applicable laws, rules, regulations, orders and other
requirements of governmental authorities, including, without limitation, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), all laws,
regulations and orders relating to antitrust or trade regulation, employment
practices and procedures, and the health and safety of employees, but excluding
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any Environmental Laws, compliance with which is the subject of Section 4.13.
Brunswick has not received any notice of alleged violations of the foregoing,
except as set forth in Schedule 4.17 or which have previously been resolved. In
particular, and without limiting the foregoing, to Brunswick's knowledge,
neither Brunswick, nor any officer, agent, employee, or other person associated
with or acting on behalf of Brunswick has, directly or indirectly, used any
corporate funds of the Golf Business for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from Golf Business funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets of the Golf Business; made any false or fictitious entry on the
books or records of the Golf Business; made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment of a similar or comparable nature,
whether lawful or not, to any person or entity, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions for the Golf Business, or to
pay for favorable treatment for business secured or for special concessions
already obtained for the Golf Business. Brunswick has furnished to Buyer or made
available to Buyer for its review copies of any and all occupational safety and
health survey information that has been prepared regarding the Owned Premises
and that is currently relevant to the Owned Premises, including, without
limitation, lead studies, particulate studies and noise studies.
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4.18 Schedules. The Schedules to this Agreement set forth all the
information concerning the Golf Business and Brunswick required in this Section
4. To the extent a statement in this Section 4 is untrue or omits to state a
material fact necessary to make such statement not misleading, the Schedules set
forth the statements necessary to make the statements in this Section 4 true and
not misleading. All information and statements set forth in the Schedules shall
be deemed to supersede and correct the statements made in this Section 4 and to
be additional representations and warranties of Brunswick.
4.19 Receivables. Schedule 4.19 sets forth a list, as of May 8, 1996, of
all trade receivables of Brunswick for sales, advances made or services rendered
in connection with the Golf Business and any other amounts in excess of $5,000
each owing to Brunswick from any person in connection with the Golf Business and
all such receivables arose in the ordinary course of the Golf Business. Except
as set forth in Schedule 4.19, such receivables are neither subject to any
offset nor counterclaim by such obligors nor any encumbrance.
4.20 Insurance. Except as set forth on Schedule 4.20, Brunswick has not
received any notices of any pending or threatened termination, nonrenewal or
material premium increases with respect to any insurance policies maintained by
Brunswick on its properties used in the Golf Business or on the Golf Business or
against liabilities incurred in the Golf Business. Except as described on
Schedule 4.20, there are no outstanding requirements or recommendations made by
or on behalf of any insurance company that issued a policy with respect to any
of the properties used in the Golf Business nor any operations or liabilities of
the Golf Business requiring or recommending any equipment or facilities to be
installed or in
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connection with any of the properties used in the Golf Business or any
operations or liabilities of the Golf Business.
4.21 Customers, Suppliers. Schedule 4.21 is a full and complete list of
(a) all customers of the Golf Business who accounted for more than five percent
of revenues in 1995 and (b) the ten largest (by dollar amount of material
supplied) suppliers that supplied material to the Golf Business in the ordinary
course of business of the Golf Business in 1995 .
4.22 Securities. Schedule 4.22 lists all the securities in the bank or
broker-dealer accounts in which Brunswick has deposited money or securities
which relate to the Golf Business, showing the name of the persons holding such
accounts, the type of account and the balance therein as of a stated date not
more than ten days before the date hereof.
4.23 Regulation. Schedule 4.23 lists all the governmental permits,
licenses and registrations held by Brunswick relating exclusively to the Golf
Business, which, except as otherwise described on Schedule 4.23, are all of the
governmental permits that Brunswick needs to carry on the Golf Business as
currently conducted without violating any law. Brunswick has not received
notice, nor does it have reason to believe, that any governmental body or
officer intends to cancel or terminate any governmental permit or that valid
grounds for such cancellation or termination currently exist.
4.24 "As is, Where is". Except as otherwise expressly provided in this
Section 4, Brunswick is making no representation or warranty as to the Owned
Premises, the Golf Assets or the Golf Business and Buyer acknowledges and agrees
that except as otherwise provided herein Brunswick is selling and conveying the
Golf Assets and the Golf Business on an "as is, where is" basis with all faults.
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Section 5. Employees' Pension and Other Benefit Plans.
5.1 Employees. The Buyer will offer employment as of the Closing Date to
all employees of the Golf Business who are actively employed on the Closing
Date, except for those listed on Schedule 5.1. Each employee of the Golf
Business who is on an approved leave of absence (including absences as a result
of workers' compensation injuries) on the Closing Date will be offered
employment by Buyer upon the termination of such leave of absence, provided the
leave of absence was the type of leave which would have entitled such employee
to resume active employment under the terms of the leave of absence policies of
the Golf Business at the date such leave of absence commenced. If upon
termination of an absence due to workers' compensation injuries an employee is
only permitted to do modified duty work, the Buyer will offer such modified duty
work to such employee to the extent such modified duty work is available.
5.2 Pension Plans. Employees of the Golf Business participate in the
following pension plans (the "Pension Plans"):
Brunswick Pension Plan for Salaried Employees
Brunswick Pension Plan for Hourly Wage Employees at the Torrington,
Connecticut Plant
Brunswick will continue to administer the Pension Plans following the Closing
Date. Participants in the Pension Plans will accrue no additional service or
benefits after the Closing Date, and participants in the Pension Plans will
receive benefits pursuant to the provisions of the Pension Plans. All
participants in the Pension Plans will be fully vested in all benefits accrued
through the Closing Date. Buyer will have no responsibility or liability with
respect to the Pension Plans.
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5.3 Other Benefit Plans. Buyer's and Brunswick's obligations and
liabilities under certain other employee benefit plans of the Golf Business
are as follows:
5.3.1 Medical Plan Claims. After the Closing Date the employees of
the Golf Business will no longer be covered by Brunswick's present medical
benefit plans. Brunswick shall retain liability for all medical claims of
employees of the Golf Business for expenses incurred prior to the Closing Date
as well as hospital expense claims arising from continuous hospitalization
periods which began prior to the Closing Date. Buyer shall provide medical
insurance coverage as of the Closing Date, with immediate eligibility without
regard for any pre-existing conditions, for all employees of the Golf Business
who were covered by Brunswick's medical benefit plans on the Closing Date and
who become employees of the Buyer on or after such date. Brunswick will comply
with applicable provisions of COBRA (Sections 601 through 607 of ERISA and
Section 4980B of the Code).
5.3.2 Disability Plan Claims. The employees of the Golf Business
will not be covered by Brunswick's present disability benefit plan after the
Closing Date. Any employee of the Golf Business or dependent of such employee
who is receiving disability plan benefits immediately prior to the Closing Date
and continues to receive benefits on and after the Closing Date and any employee
of the Golf Business and any dependent of such an employee who has filed for
disability plan claims but is in the waiting period for benefits as of the
Closing Date will be the responsibility of Brunswick for all benefit-related
expenses for as long as such employee continues to qualify for disability
benefits under the current plan provisions, as amended from time to time. A list
of those employees of the Golf Business who are
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receiving, have filed for or have qualified for disability plan benefits as of
the date of this Agreement is attached as Schedule 5.3.2.
5.3.3 Life Insurance Plan Claims. Life insurance claims, if any, for
employees of the Golf Business will be decided based on the provisions of the
applicable life insurance plans and the provisions of the master contract of the
insurer. In all cases, the language of the insurer's policy will govern.
5.4 Employee Records. Brunswick shall make available to the Buyer all
personnel records, including, but not limited to, names, Social Security
numbers, performance ratings and evaluations, dates of hire by Brunswick or any
affiliate of Brunswick, dates of birth, number of hours worked each calendar
year, and salary histories, for all of Brunswick's employees to be employed by
the Buyer from and after the Closing Date.
5.5 Termination and Severance Pay. Buyer will be responsible for any
accrued vacation and sickness benefits accrued as of the Closing Date and
reflected on the Closing Balance Sheet with respect to employees of the Golf
Business who become employed by Buyer on or immediately after the Closing Date.
Buyer shall also be responsible for all termination and severance pay for
employees of the Golf Business who are employed by Brunswick on the Closing Date
and who are employed by Buyer immediately thereafter, provided any such
termination or severance pay results from the transaction contemplated by this
Agreement or from any action taken by the Buyer or the employee on or after the
Closing Date.
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Section 6. Prorated Taxes, Brokerage Fees, Product Liability Claims,
Expenses, Environmental Matters and Cost of Asbestos and Noise Studies.
6.1 Proration of Taxes. All real estate, personal property and ad valorem
taxes relating to the Golf Assets which shall have accrued and become payable
prior to the Closing Date shall be paid by Brunswick. All such taxes which shall
be accrued but unpaid or which have been paid in advance shall be properly
reflected on the Closing Balance Sheet. In connection with such proration of
taxes, in the event that actual tax figures are not available at the Closing
Date, the taxes reflected on the Closing Balance Sheet shall be based upon the
actual taxes for the preceding year for which actual tax amounts are available
and such taxes shall be reprorated upon request of either party made within 60
days of the date that the actual amounts become available, provided that the
actual amount is at least 5% more or 5% less than the amount on which the
original proration was based.
6.2 Brokerage Fees. Brunswick and Buyer each represent, covenant, warrant
and agree with the other that it has not engaged any broker or any other person
who would be entitled to any brokerage fee or commission in respect of the
execution of this Agreement or the consummation of the transactions contemplated
hereby, except in the case of (i) Brunswick, for NationsBanc Capital Markets,
Inc., whose fees will be paid by Brunswick and (ii) Buyer, for Merbanco
Incorporated and Berenson Minella & Company, each of whose fees will be paid by
Buyer.
6.3 Product Liability. Brunswick agrees with Buyer that Brunswick is
solely responsible for any and all claims for injury (including death) or claims
for damage (other than warranty claims which Buyer has assumed pursuant to
Section 2.3.2), direct or consequential,
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resulting from or connected with finished products or services manufactured or
sold by the Golf Business, provided that such claims relate to injury or damage
occurring prior to the Closing Date (whether or not known to Brunswick on the
Closing Date), and Buyer shall have no liability for such claims. Buyer agrees
with Brunswick that Buyer is solely responsible for any and all claims for
injury (including death) or claims for damage (other than warranty claims which
Buyer has assumed pursuant to this Agreement), direct or consequential,
resulting from or connected with products or services manufactured or sold by
the Golf Business, provided that such claims relate to injury or damages
occurring on or after the Closing Date, and Brunswick shall have no liability
for such claims.
6.4 Expenses. Except as otherwise agreed to in this Agreement, each party
shall bear its own expenses with respect to the transactions contemplated by
this Agreement.
6.5 Environmental Matters. Brunswick's and Buyer's obligations and
liabilities with respect to environmental matters relating to the Golf
Business are as follows:
6.5.1 Brunswick's Obligations. (a) Brunswick agrees with Buyer that
Brunswick will submit Property Transfer Program-Form III and sign Section C
thereof as the Certifying Party under the Connecticut Transfer Act (Connecticut
General Statutes Section 22a-134 et. seq.) (the "Transfer Act") in connection
with the transfer and sale of the Owned Premises to Buyer in accordance with
this Agreement. Brunswick agrees to commence investigation and remediation of
the Owned Premises as required under the Transfer Act without undue delay, and
to use reasonable efforts to cause such investigation and remediation to occur
in such a manner so as to minimize the disruption of the Buyer's business. If,
during the course of any investigation or remediation of the Owned Premises
undertaken by Brunswick pursuant to the
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Transfer Act, Brunswick discovers previously unknown hazardous substances that
were present in, on or under the Owned Premises on the Closing Date and that
require remediation under the Transfer Act, Brunswick shall be solely
responsible for remediation of those hazardous substances in accordance with the
Transfer Act.
(b) Brunswick further agrees with Buyer that Brunswick is solely liable
for any and all liabilities (including all costs of required remediation of
environmental pollution), any and all claims for injury (including death) or
claims for damage, direct or consequential, to property or any person or entity,
resulting from the release by Brunswick or any prior owner of the Owned Premises
of any hazardous substance located in, on or under, or emanating from, the Owned
Premises if (i) such release occurs prior to the Closing Date, (ii) such release
is known to Brunswick as of the date of this Agreement or is discovered during
any investigation or remediation of the Owned Premises undertaken by Brunswick
pursuant to the Transfer Act and is required to be remediated by the Transfer
Act, and (iii) the claim relating to such release is made on or before the date
that is 25 years after the date of this Agreement, and Buyer shall have no
liability therefor; provided however, that Brunswick shall be solely
responsible, without regard to knowledge and without regard to the 25 year
period, for all such liabilities and claims resulting from any release by
Brunswick or any prior owner of the Owned Premises of any material that reaches
any location outside the Owned Premises prior to the Closing Date regardless of
whether the claims are made before or after the Closing Date.
(c) Brunswick also agrees with Buyer that Brunswick is solely responsible
(as between Brunswick and Buyer) for any and all claims for injury (including
death) or claims for damages to any property or person or entity (but excluding
claims for lost profits or consequential
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damages) resulting from the acts of Brunswick's employees or agents or any
persons hired by Brunswick in performing any investigation or remediation of the
Owned Premises under the provisions of the Transfer Act or any other remediation
program undertaken by Brunswick with respect to the Owned Premises.
(d) Brunswick represents that to the extent required by any Environmental
Law it has reported to the appropriate government agency all violations of
Environmental Laws by the Golf Business that are both known to Brunswick and
that occurred prior to the Closing. If Brunswick discovers its violation of any
Environmental Law during any investigation or remediation of the Owned Premises
undertaken by it pursuant to the Transfer Act, and Brunswick is required by law
to report said violation to a government agency, Brunswick will report the
violation in a timely manner. Brunswick also represents that the increased cost
(immediately after the Closing as compared to immediately prior to the Closing)
of transporting metal hydroxide sludge generated at the Owned Premises without
drying it (assuming the volume of such sludge does not change after the date of
this Agreement) will be no more than $15,000 per year.
(e) Brunswick agrees that if Brunswick knows, or discovers during any
investigation or remediation of the Owned Premises undertaken by it pursuant to
the Transfer Act, that it has violated any Environmental Law, Brunswick shall be
liable for any fines, penalties, assessments or other enforcement actions taken
by any governmental agency against Brunswick or Buyer for Brunswick's violation.
(f) Brunswick has submitted an application for a permit to the Connecticut
Department of Environmental Protection, and is obtaining any necessary local
approvals, relating to the
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discharge of heat treating quench water containing a mixture of potassium
nitrate, sodium nitrate and sodium nitrite salts from the Owned Premises as of
the Closing Date. Until the earliest of (i) such time as the permit relating to
such application is issued, (ii) the 150th day after the Closing Date or (iii)
the date that process modifications are implemented as described in the next
sentence, Brunswick agrees that it is solely responsible for all costs
associated with storing and transporting such quench water from on-site holding
tanks to an off-site disposal facility that has appropriate permits for the
disposal of such quench water. In the event that such a permit is not issued by
the Connecticut Department of Environmental Protection (i) within three months
after the date of this Agreement, but is issued within five months of the date
of this Agreement, Brunswick will reimburse the Buyer for any costs reasonably
incurred by the Buyer in attempting to implement any process modification
required in order to ensure that the treatment of such quench water and any
discharges thereof comply with all Environmental Laws in effect at the time of
the implementation of such solution, and (ii) within five months after the date
of this Agreement, Brunswick will be solely responsible for the cost of such
process modification; provided, however, that in no event shall Brunswick's
expenses relating to the obligations set forth in clauses (i) and (ii) above
exceed $150,000.
(g) Brunswick shall insure that all contractors hired by it to conduct
environmental investigations and remedial action at the Owned Premises possess
insurance to cover liabilities that may be incurred in the course of
investigation and remediation. Brunswick shall require that all such remediation
contractors obtain the following insurance coverage: (i) Comprehensive General
Liability ("CGL") in an amount not less than $5 million (including contractual
liability and completed operations hazards), (ii) Consultants Environmental
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Liability in an amount not less than $1 million (including errors and omissions
("E and O") and contractor's pollution liability), (iii) Automobile Liability in
an amount not less than $1 million, and (iv) Workers Compensation Insurance as
required by statute. Buyer shall be named as additional-insured on any such
contractor's CGL, Consultants Environmental Liability and Automobile Liability
policies, and evidence of such shall be provided to Buyer. Any such contractors
must agree to continue coverage under claims made policies for a period of at
least two years following completion of their work.
6.5.2 Buyer's Obligations. (a) Buyer agrees with Brunswick that
Brunswick (including its employees and agents and any persons hired by Brunswick
to perform environmental investigation or remediation work on the Owned
Premises) shall have all necessary and appropriate access rights to the Owned
Premises for purposes of performing any investigation and remediation of the
Owned Premises under the provisions of the Transfer Act, or any other
investigation or remediation program undertaken by Brunswick with respect to the
Owned Premises), until such time as Brunswick shall have completed any such
investigation or remediation programs.
(b) Buyer also agrees with Brunswick that Buyer shall not impede
Brunswick's investigation and remediation of the Owned Premises under the
provisions of the Transfer Act, or any other investigation or remediation
program undertaken by Brunswick with respect to the Owned Premises, subject to
Brunswick's obligation to use reasonable efforts to cause such program to occur
in such a manner so as to minimize the description of the Buyer's business.
Without Brunswick's prior written consent, Buyer shall not initiate any contacts
or discussions with any government or governmental authority (including, without
limitation, the
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Connecticut Department of Environmental Protection, but excluding courts) for
the purpose of relating environmental matters pertaining to Brunswick's
ownership or operation of the Golf Business, or Brunswick's investigation or
remediation of the Owned Premises under the provisions of the Transfer Act, or
any other investigation or remediation program undertaken by Brunswick with
respect to the Owned Premises, unless such contacts are required by law. The
provisions of this subparagraph (b) do not limit Buyer's ability to participate
fully in any and all public proceedings under the Transfer Act. The provisions
of this subparagraph (b) do not in any way limit Buyer's ability to pursue any
environmental permits, licenses, registrations or any other effort by Buyer to
ensure that Buyer is in compliance with all applicable environmental, health and
safety laws.
(c) Buyer further agrees with Brunswick that Buyer is solely liable
for any and all liabilities, any and all claims for injury (including death) or
claims for damage, direct or consequential, to property or any person or entity,
resulting from the release of any hazardous substance located in, on or under,
or emanating from, the Owned Premises (i) if such release occurs on or after the
Closing Date (provided, however, that if such release (x) constitutes a
continuing post-closing release of a substance that was known by Brunswick on
the Closing Date to be present at the site of such release and (y) is produced
by the operating processes of the Golf Business facilities conducted in the same
manner as conducted prior to the Closing Date, which source was not known on the
Closing Date, then Buyer shall only be responsible for the incremental liability
caused by such releases occurring on or after the Closing Date, so that
Brunswick shall be in no better or worse position than it would have been in had
no such post-Closing releases taken place), (ii) if such release occurs prior to
the
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Closing Date and the claim relating to such release is made after the date that
is 25 years after the date of this Agreement or (iii) if such release is not
known to Brunswick as of the date of this Agreement, and in any such case
Brunswick shall have no liability therefor.
6.5.3 Gasoline Seepage. Brunswick and Buyer agree to use
commercially reasonable efforts after the Closing Date to jointly address the
issue of the possible seepage of gasoline on or under the Owned Premises from a
location outside the Owned Premises. Nothing in Section 6.5.2(b) shall limit
Buyer's ability to initiate contacts with any government or governmental
authority with respect to such issue.
6.5.4. Release. When used in this Section 6.5, the term "release"
refers to the initial release of any hazardous substance on, into or under the
Owned Premises or off-site. Any further movement of the hazardous substance,
regardless of whether that further movement occurs prior to Closing or at any
time after Closing and before the completion of remediation of that hazardous
substance under the Transfer Act, is considered to be a release as if it had
occurred on the date of the initial release.
Section 7. Opinions.
7.1 Opinion of Counsel to Buyer. Brunswick shall receive from Kenneth J.
Warren, counsel to Buyer, an opinion dated the date hereof and in form and
substance satisfactory to Brunswick to the effect that:
(a) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware;
(b) Buyer has full corporate power and authority to execute,
deliver and perform this Agreement and the bills of sale and
other instruments of transfer contemplated by this Agreement;
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(c) this Agreement and the bills of sale and other instruments
of transfer contemplated by this Agreement, have been duly
authorized, executed and delivered by Buyer and, except for
the provisions of Section 8 of this Agreement, constitute
valid and legally binding obligations of Buyer enforceable
in accordance with their respective terms except as
enforcement thereof may be limited by bankruptcy,
insolvency and other laws affecting the enforcement of
creditors' rights generally; and
(d) neither the execution and delivery nor the performance by
Buyer of this Agreement, each Related Agreement or such
instrument will violate or breach or conflict with or
constitute a default under the Certificate of Incorporation
or By-Laws of Buyer or any indenture, loan agreement,
contract or instrument known to such counsel to which it is
a party or by which it is bound or any applicable law,
rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court asserting
jurisdiction over Buyer which is known to such counsel.
7.2 Opinion of General Counsel of Brunswick. Buyer shall receive from the
General Counsel of Brunswick an opinion dated the date hereof and in form and
substance satisfactory to Buyer to the effect that:
(a) Brunswick is a corporation duly organized and validly existing
under the laws of the State of Delaware;
(b) Brunswick has full corporate power and authority to own and maintain
the Golf Assets and to transact the Golf Business and to execute,
deliver and perform this Agreement and the bills of sale and other
instruments of transfer provided for in this Agreement;
(c) this Agreement and the bills of sales and other instruments of
transfer provided for in this Agreement, have been duly
authorized, executed and delivered by Brunswick and, except for
the provision of Section 8 of this Agreement, constitute the
valid and legally binding obligations of Brunswick enforceable in
accordance with their respective terms except as enforcement
thereof may be limited by bankruptcy, insolvency and other laws
affecting the enforcement of creditors' rights generally and,
based solely on such counsel's review of a lien search attached
to such opinion as an exhibit, such bills of sales and other
instruments of transfer are sufficient in form and substance to
vest in Buyer title to the Golf Assets (other than the Owned
Premises) free and clear of all liens, encumbrances, charges,
imperfections of title, restrictions, equities and claims of
record, and, to the knowledge of such counsel, without
independent
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investigation, all other liens, encumbrances, charges, imperfections
of title, restrictions, equities and claims of every kind, except
Permitted Encumbrances and those set forth on Schedule 4.3 to this
Agreement;
(d) neither the execution and delivery nor the performance of this
Agreement and the bills of sale and instruments of transfer by
Brunswick will violate or breach or conflict with or constitute
a default under the Certificate of Incorporation or By-Laws of
Brunswick, or any indenture, loan agreement, contract or
instrument known to such counsel to which Brunswick is a party or
by which it is bound, or any applicable law, rule, regulation,
judgment, order or decree of any government, governmental
instrumentality or court asserting jurisdiction over Brunswick
which is known to such counsel; and
(e) to the knowledge of such counsel, except as set forth in Schedule
4.9, there is no proceeding, action, claim, dispute, suit, appeal or
investigation, at law or in equity, pending or overtly threatened
against Brunswick with respect to the Golf Business, or involving a
Golf Asset or a Golf Liability before any court, agency, authority,
arbitration panel or other tribunal having jurisdiction over
Brunswick or its assets.
Section 8. Non-competition. Brunswick, in order to induce Buyer to enter
into this Agreement, expressly covenants and agrees that for a period of two
years from and after the Closing Date, Brunswick will not directly or
indirectly, own, manage, operate, join, control, or participate in or be
connected with any business, individual, partnership, firm or corporation, which
is at the time engaged, wholly or partly, in the Golf Business engaged in by
Brunswick on the Closing Date, provided that Brunswick or any of its affiliates
may acquire a business that otherwise would violate the foregoing restrictions
as long as no more than 25% of the annual sales of the acquired business is in
businesses which violate the foregoing restrictions. If more than 25% of the
annual sales of the acquired business is in businesses which violate the
foregoing restrictions, Brunswick or its affiliate may acquire such business as
long as it uses commercially reasonable efforts to divest itself of the
competing operations within eighteen months after such acquisition. It shall not
be a violation of any of the
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foregoing restrictions for a member of the board of directors of Brunswick to,
directly or indirectly, own, manage, operate, join, control, or participate in
or be connected with any business, individual, partnership, firm or corporation,
which is at the time engaged, wholly or partly, in the Golf Business engaged in
by Brunswick on the Closing Date.
Brunswick may own an aggregate of not more than five percent of the
outstanding stock of any class of any corporation engaged in any such business,
if such stock is listed on a national securities exchange or regularly traded in
the over-the-counter market by a member of a national securities exchange,
without violating the provisions of this Section, provided Brunswick does not
have the power to control or direct the management or affairs of such
corporation and is not otherwise associated with it. Brunswick expressly
covenants and agrees that the remedy at law for any breach of this Section 8
will be inadequate and that, in addition to any other remedies Buyer may have,
Buyer shall be entitled to temporary and permanent injunctive relief without the
necessity of proving actual damage or posting any bond. To the extent that any
part of this provision may be invalid, illegal or unenforceable for any reason,
it is intended that such part shall be enforceable to the extent that a court of
competent jurisdiction shall determine that such part if more limited in scope
would have been enforceable and such part shall be deemed to have been so
written and the remaining parts shall as written be effective and enforceable in
all events.
Section 9. Post Closing Covenants of Buyer.
9.1 Liabilities. Buyer agrees to keep a list describing in detail the Golf
Liabilities paid by Buyer and to retain all documentation supporting actual
payment of each Golf Liability. Buyer will submit such list and such
documentation to Brunswick within 30 days after the end
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of each calendar quarter until all such Golf Liabilities have been paid,
satisfied or discharged by Buyer. After all the Golf Liabilities have been paid,
satisfied or discharged and after the list and documentation regarding the
actual payment of each Golf Liability have been submitted to Brunswick, Buyer
shall no longer be required to keep such list and documentation.
9.2 Availability of Records. To the extent not located at the Owned
Premises, Brunswick shall, on or immediately prior to the Closing Date, have
delivered to Buyer all of the tangible Golf Assets. After the Closing, Buyer
shall make available to Brunswick as reasonably requested by Brunswick or any
taxing authority all information, records or documents relating to the Golf
Assets for all periods prior to Closing and shall preserve all such information,
records and documents until the later of (i) seven years after the Closing or
(ii) the expiration of all statutes of limitation for taxes for periods prior to
the Closing or extensions thereof applicable to Brunswick for tax information,
records or documents. Buyer shall also make available to Brunswick, as
reasonably requested by Brunswick, personnel responsible for preparing or
maintaining information, records and documents, both in connection with tax
matters as well as litigation and potential litigation, including without
limitation, claims for workers' compensation, product liability, general
insurance liability and automobile insurance liability. Any of such assistance
shall be at the sole cost and expense of Brunswick. Prior to destroying any
records or documents related to the Golf Business for all periods prior to the
Closing Date, Buyer shall notify Brunswick of its intent to destroy such records
or documents, and Buyer will, at the sole cost and expense of Brunswick, deliver
such records and documents to Brunswick and permit Brunswick to retain any and
all such records or documents. With respect to any claims which are Brunswick's
responsibility under Section
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8.3, Buyer shall, at the sole cost and expense of Brunswick, render all
reasonable assistance which Brunswick may request in defending such claim and
shall make available to Brunswick technical personnel most knowledgeable about
the product in question.
9.3 Use of Trade or Service Marks. Buyer shall not use or permit
distributors of Golf products to use the name "Brunswick" or any derivation
thereof whether in English or any other language, or corporate, trade or service
marks owned or used by Brunswick or its affiliates, unless such marks or names
are included in the Golf Assets or unless such use is permitted in writing by
Brunswick, except that (i) for twelve months after the Closing Date Buyer may
use all inventory produced prior to the Closing Date which are included in the
Golf Assets and which contain the name "Brunswick," (ii) for twelve months after
the Closing Date Buyer may use the name "Brunswick" on all inventory finished
during the first eight weeks after the Closing Date, and (iii) for six months
after the Closing Date Buyer may use all printed material and boxes which are
included in the Golf Assets and which contain the name "Brunswick". After the
relevant twelve month and six month periods referred to in the previous sentence
Buyer will place a sticker over the name "Brunswick" or otherwise remove the
name "Brunswick" from such material, boxes and inventory. The parties agree that
such use by Buyer of the name "Brunswick" on printed material, boxes and
products does not constitute representing the golf products sold by Buyer as
being Brunswick products. All products of the Golf Business manufactured by
Buyer after the Closing Date shall bear a new code identification which
indicates the products were manufactured by Buyer.
9.4 W-2 Forms for Employees and 1099 Forms for Other Payees. During the 90
days following the Closing Date, Buyer shall prepare for Brunswick such W-2
forms, payroll tax
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reports and forms, and 1099 forms for the employees and other payees of the Golf
Business at such times as Brunswick requests without cost or expense to
Brunswick. Buyer will provide W-2 information on Brunswick's employees to
Brunswick and to Brunswick's insurance company to enable Brunswick to comply
with workers' compensation laws.
Section 10. Indemnification, Survival and Termination.
10.1 Indemnification by Brunswick. Brunswick agrees to indemnify and hold
harmless Buyer and its affiliates at all times against and in respect of all
losses, liabilities, claims, damages, costs and expenses (including reasonable
attorneys' fees and expenses) insofar (and only insofar) as such losses,
liabilities, claims, damages, costs and expenses (including reasonable
attorneys' fees and expenses) exceed in the aggregate $300,000 (Buyer and its
affiliates shall not be entitled to indemnification for the first $300,000 of
such losses, liabilities, claims, damages, costs and expenses) and are caused by
any (a) Excluded Liabilities, (b) Golf Liability which is of a kind required to
be disclosed on a balance sheet and is of an amount in excess of the amount, if
any, reflected on the Closing Balance Sheet, provided that if such amount was
correct in accordance with the facts and circumstances as in existence as of the
Closing Date, no liability on the part of Brunswick with respect to such Golf
Liability shall exist, and (c) breach of the representations, warranties,
covenants and agreements of Brunswick set forth in this Agreement, provided that
the aggregate liability of Brunswick under this Section 10 shall not exceed
$3,000,000 except as otherwise provided in the next sentence. The foregoing
$300,000 aggregate threshold and the $3,000,000 aggregate liability limit shall
have no application to, and Brunswick hereby agrees to indemnify and hold
harmless Buyer and its affiliates at all times against any loss, liability,
claim, damage, cost or
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expense (including reasonable attorneys' fees and expenses) incurred by Buyer or
its affiliates with respect to (i) Excluded Liabilities, (ii) any payment
required by Brunswick under Section 2.6, (iii) any breach by Brunswick of its
representations contained in the first two sentences of Section 4.3, (iv) any
claims which are Brunswick's responsibility under Section 5.2, 6.2 or 6.3, (v)
any matters which are Brunswick's responsibility under Section 6.5, and (vi) any
Golf Liability which is of a kind required to be disclosed on a balance sheet
and is of an amount in excess of the amount, if any, reflected on the Closing
Balance Sheet; provided that if such amount was correct in accordance with the
facts and circumstances as in existence as of the Closing Date, no liability on
the part of Brunswick with respect to such Golf Liability shall exist.
No right of Buyer for indemnification hereunder shall be affected by any
examination made for or on behalf of Buyer (including any examination of the
Golf Business or Brunswick) or Brunswick, the knowledge of any of Buyer's,
Brunswick's or the Golf Business' officers, directors, shareholders, employees
or agents, or the acceptance by Buyer or Brunswick of any certificate or
opinion; provided, however, that Buyer hereby waives any right to
indemnification hereunder with respect to any representation if Richard P.
Johnston, Christopher A. Johnston, David E. Johnston, Kenneth J. Warren or
Raymond J. Minella had knowledge of each and every fact necessary to prove that
such representation was inaccurate and had not given written notice of such
knowledge to Brunswick prior to the Closing.
Buyer shall promptly notify Brunswick in writing of all matters of which
it has notice which may give rise to the right to indemnification hereunder, but
the failure so to notify shall not relieve Brunswick from any liability
Brunswick may have except to the extent such failure
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materially prejudices Brunswick. Brunswick shall have the right with the consent
of Buyer, which shall not be unreasonably withheld, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled, and to defend (without the consent of Buyer) through counsel of its own
choosing, at its own expense, any action which may be brought by a third party
in connection therewith, provided, however, that Buyer shall have the right to
have its counsel participate fully in such defense, but the fees and expenses of
such counsel shall be at the expense of Buyer unless (a) Brunswick and Buyer
shall have mutually agreed to the retention of such counsel or (b) the
defendants in or targets of any such action or proceeding (including any
impleaded parties) include both Brunswick and Buyer and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. Buyer and Brunswick shall keep each other
informed of all settlement negotiations with third parties and of the progress
of any litigation with third parties. Buyer and Brunswick shall permit each
other reasonable access to books and records and otherwise cooperate with all
reasonable requests of each other in connection with any matter or claim for
indemnification.
10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
Brunswick at all times against and in respect of all losses, liabilities,
claims, damages costs and expenses (including reasonable attorneys' fees and
expenses) insofar (and only insofar) as such losses, liabilities, claims,
damages, costs and expenses (including reasonable attorneys' fees and expenses)
are caused by any breach of the representations, warranties, covenants and
agreements of Buyer set forth in this Agreement.
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Brunswick shall promptly notify Buyer in writing of all matters of which
it has notice which may give rise to the right to indemnification hereunder, but
the failure so to notify shall not relieve Buyer from any liability Buyer may
have except to the extent such failure materially prejudices Buyer. Buyer shall
have the right with the consent of Brunswick, which shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled, and to defend (without the consent of
Brunswick) through counsel of its own choosing, at its own expense, any action
which may be brought by a third party in connection therewith, provided,
however, that Brunswick shall have the right to have its counsel participate
fully in such defense, but the fees and expenses of such counsel shall be at the
expense of Brunswick unless (a) Buyer and Brunswick shall have mutually agreed
to the retention of such counsel or (b) the named parties to any such action or
proceeding (including any impleaded parties) include both Brunswick and Buyer
and the representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. Buyer
and Brunswick shall keep each other informed of all settlement negotiations with
third parties and of the progress of any litigation with third parties. Buyer
and Brunswick shall permit each other reasonable access to books and records and
otherwise cooperate with all reasonable requests of each other in connection
with any matter or claim for indemnification.
10.3 Survival. The representations, warranties, and agreements in Sections
3 and 4 that are given in this Agreement shall survive the Closing for a period
of eighteen months, and no claim may be made based upon an alleged breach of any
of such representations, warranties, and agreements, whether for indemnification
in respect thereof or otherwise, unless
51
<PAGE> 52
written notice of such claim, in reasonable detail, is given to Buyer, or to
Brunswick, as the case may be, within the applicable eighteen month period.
Brunswick's and Buyer's agreements in Sections 2, 5 and 6 shall survive the
Closing in perpetuity, and claims for alleged breaches of such sections may be
made at any time. Brunswick's and Buyer's agreements in Sections 8 and 9 shall
survive the Closing for the periods stated in such sections, and claims for
alleged breaches of such sections may be made during such periods.
Section 11. Miscellaneous.
11.1 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that no assignment shall be made on or prior to the Closing
Date, except that Buyer may assign its rights hereunder to a wholly-owned
subsidiary or subsidiaries; provided that Buyer shall remain responsible for all
of its obligations under this Agreement.
11.2 No Press Release Without Consent. No press release related to this
Agreement or the transactions contemplated herein, or other announcement to the
employees, customers or suppliers of the Golf Business will be issued without
the joint approval of Brunswick and Buyer, except any public disclosure which
Brunswick or Buyer in its good faith judgment believes is required by law or by
any stock exchange on which its securities are listed (in which case the party
making the disclosure will consult with the other party prior to making any such
disclosure). Brunswick and Buyer will cooperate to prepare a joint press release
to be issued on the Closing Date or upon the request of Brunswick, at the time
of the signing of this Agreement.
52
<PAGE> 53
11.3 Severability. Each of the provisions contained in this Agreement
shall be severable, and the unenforceability of one shall not affect the
enforceability of any others or of the remainder of this Agreement.
11.4 Entire Agreement. This Agreement may not be amended, supplemented or
otherwise modified except by an instrument in writing signed by all of the
parties hereto. This Agreement contains the entire agreement of the parties
hereto with respect to the transactions covered hereby, superseding all
negotiations, prior discussions and preliminary agreements made prior to the
date hereof and is not intended to confer upon any other person any rights or
remedies hereunder.
11.5 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and their respective affiliates and no provision
of this Agreement shall be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
11.6 Waiver. The failure of any party to enforce any condition or part of
this Agreement at any time shall not be construed as a waiver of that condition
or part, nor shall it forfeit any rights to future enforcement thereof.
11.7 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Illinois without
regard to the conflicts of laws provisions thereof.
11.8 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
53
<PAGE> 54
11.9 Counterparts. More than one counterpart of this Agreement may be
executed by the parties hereto, and each fully executed counterpart shall be
deemed an original.
11.10 Choice of Forum. Buyer and Brunswick agree that any suit, action or
proceeding brought by either party against the other party to this Agreement in
connection with or arising out of this Agreement shall be brought solely in the
Federal Courts of the Northern District of Illinois, or if such court lacks
jurisdiction, in the Circuit Court for Lake County, Illinois.
11.11 Further Documents. Brunswick and Buyer will, at the request of the
other party, execute and deliver to such other party all such further
instruments, assignments, assurances and other documents as such other party may
reasonably request in connection with the carrying out of this Agreement.
11.12 Further Assurances. Brunswick and Buyer hereby agree to take
all such acts and do all such things as may be reasonably required to give
effect to the transactions contemplated by this Agreement.
11.13 Construction. The language in all parts of this Agreement shall be
construed, in all cases, according to its fair meaning. The parties acknowledge
that each party and its counsel have reviewed and revised this Agreement and
that any rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
11.14 Notices. All communications, notices and consents provided for
herein shall be in writing and be given in person or by means of telex, telecopy
or other wire transmission (with request for assurance of receipt in a manner
typical with respect to communications of
54
<PAGE> 55
that type) or by mail, and shall become effective (a) on delivery if given in
person, (b) on the date of transmission if sent by telex, telecopy or other wire
transmission, or (c) four business days after being deposited in the mails, with
proper postage for first-class registered or certified air mail, prepaid.
Notices shall be addressed as follows:
If to Buyer, to:
Merbanco, Incorporated
P.O. Box 25182
4015 West Lake Creek Drive
Suite 1
Jackson, Wyoming 83001
Attn: Christopher A. Johnston
Fax: 307-739-2288
with a copy to:
Kenneth J. Warren
Schwartz, Warren & Ramirez
41 South High Street
Columbus, Ohio 43215
Fax: 614-224-0360
If to Brunswick, to:
Brunswick Corporation
1 N. Field Ct.
Lake Forest, IL 60045-4811
Attn: General Counsel
Fax: 708-735-4050
with a copy to:
Paul W. Theiss
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Fax: 312-701-7711
55
<PAGE> 56
provided, however, that if either party shall have designated a different
address by notice to the other, then to the last address so designated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers as of the date first above written.
BRUNSWICK CORPORATION
By: /s/ Frederick J. Florjancic, Jr.
------------------------------------------
Name: Frederick J. Florjancic, Jr.
Title: Vice President
FM PRECISION GOLF MANUFACTURING CORP.
By: /s/ Christopher A. Johnston
------------------------------------------
Name: Christopher A. Johnston
Title: Chairman
- 56 -
<PAGE> 1
EXHIBIT 10.1.6
May 14, 1996
Royal Grip, Inc.
444 West Geneva Drive
Tempe, AZ 85282
Attention: Danny Edwards, Chairman and CEO
Gentlemen:
We are pleased to set forth the terms of the retention of EVEREN Securities,
Inc. ("ESI") by Royal Grip, Inc. (collectively with its affiliates, the
"Company"), in connection with the Company's possible acquisition (the
"Transaction") of assets or common stock of various businesses ("Acquisition
Candidate") and the advisory and consulting services relating to the Company's
future capitalization requirements. The Agreement will confirm ESI's engagement
by the Company on the following terms and conditions:
1. ESI will assist the Company as its exclusive financial advisor and agent in
connection with the Transaction and any Financing (as such term is defined
below). ESI has been advised by the Company that the Company will initially
require an aggregate of approximately $5,000,000 to $20,000,000 plus unspecified
amount(s) relating to future transactions. ESI has been further advised that
such amount is anticipated to be obtained from the proceeds of privately or
publicly placed debt and/or equity securities of the Company (the "Financing").
ESI agrees to assist the Company in the Company's efforts to structure and
obtain the Financing. ESI makes no representations, express or implied, that it
will succeed in completing the Transaction or its efforts to assist the Company
in securing the Financing. The commencement and scope of any discussions or
contacts, or the provision of any information, with or to any Acquisition
Candidate(s), prospective Financing sources or either of their respective
representatives, agents or advisors, whether initiated by ESI or such other
persons, shall be subject to the prior approval in each instance by the Company,
which approval may be granted or withheld in the sole discretion of the Company.
ESI agrees that all actions taken by it under this Agreement will
comply in all material respects with all applicable laws, regulations and rules
relating to the conduct of its services hereunder, including, without
limitation, the applicable rules and regulations of any self regulatory
organization of which ESI is a member; provided, however, that this Agreement
shall not extend to any activities undertaken by ESI with the Company's consent
(after being advised of the risk of non-compliance).
2. In connection with ESI's activities on the Company's behalf, the Company will
cooperate with ESI and will furnish ESI with all information and data concerning
the Company, the Financing, the Transaction and such other information which ESI
deems appropriate (the "Information") and will provide ESI and any prospective
Financing sources with access to the Company's officers, directors, employees,
agents, representatives, independent accounts and legal
<PAGE> 2
Danny Edwards, Chairman and CEO
Royal Grip, Inc.
May 14, 1996
Page 2 of 6
counsel. To the extent that the Company has access to the officers, directors,
employees, agents, representatives, independent accounts and legal counsel of
the Acquisition Candidate(s), it will provide such access to ESI and any
prospective Financing sources. The Company warrants and represents that all
Information (a) provided or otherwise made available to ESI by or on behalf of
the Company or (b) contained in any private placement memorandum prepared by the
Company with respect to the Financing (the "Memorandum") will, at all times
during the period of the engagement of ESI hereunder, be complete and correct in
all material respects and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances under which such
statements are made. The Company further warrants and represents that any
projections provided by it to ESI or contained in the Memorandum will have been
prepared in good faith and will be based upon assumptions which, in light of the
circumstances under which they are made, are reasonable. The Company
acknowledges and agrees that in rendering its services hereunder, ESI will be
using and relying upon the Information (and information available from public
sources and other sources deemed reliable by ESI) without independent
verification thereof by ESI or independent appraisal by ESI of any of the
Company's assets. ESI assumes no responsibility for the accuracy or completeness
of the Information or any other information regarding the Company, the Financing
or any Transaction. Any advice rendered by ESI pursuant to this Agreement may
not be publicly disclosed or otherwise utilized without the express prior
written consent of ESI, except to the extent such disclosure is required by
applicable law.
ESI agrees to keep all information confidential, except information
that (i) is or becomes generally available to the public (other than as a result
of a disclosure by ESI), (ii) was or becomes available to ESI on a
non-confidential basis prior to its disclosure by the Company or by a person or
entity other than the Company who, to the knowledge of ESI, is not bound by a
confidentiality agreement with the Company or otherwise prohibited from
transferring or disclosing such information, (iii) the Company agrees, prior to
its disclosure, may be disclosed to Acquisition Candidate(s), prospective
financing sources, or either of their respective professional advisors, pursuant
to the services to be provided by ESI hereunder; provided that, ESI obtains,
prior to the disclosure of such information, customary confidentiality of
nondisclosure agreements from such persons in a form reasonably acceptable to
and approved in advance by the Company. Upon termination of this Agreement by
either party hereto, ESI will return to the Company all written information (and
copies thereof) in ESI's possession, or will certify to the Company that all
such information not returned to the Company has been destroyed by ESI. The
confidentiality obligations of ESI shall survive termination of this Agreement
and ESI's services hereunder.
3. In consideration of the services to be rendered by ESI to the Company
pursuant to this Agreement, ESI shall be entitled to receive, and the Company
shall pay to ESI, the following compensation:
<PAGE> 3
Danny Edwards, Chairman and CEO
Royal Grip, Inc.
May 14, 1996
Page 3 of 6
(a) Upon execution of this Agreement, ESI shall receive 30,000
options to purchase the Company's common stock. Of the 30,000
options, 3,750 will vest immediately with the remaining 26,250
options vesting equally over seven consecutive quarters. The
options will have an exercise price of $6.50. Expiration of
the options is not to be less than two years from the date of
vesting. The options are to vest immediately upon a change of
control, and shall have registration rights in any public
offering of the Company's stock. A vesting and expiration
schedule is included as Attachment A.
(b) If a Transaction relating to Acquisition Candidate(s) is
consummated, then the Company shall pay ESI, upon such
consummation, an additional cash fee equal to 4% of the value
of the total consideration paid by the Company in the
Transaction in respect of (i) assets of the Acquisition
Candidate(s), (ii) capital stock of the Acquisition
Candidate(s) (and any securities convertible into, or options,
warrants or other rights to acquire, such capital stock) and
(iii) the assumption, directly or indirectly (by operation of
law or otherwise), or repayment of indebtedness (including,
without limitation, indebtedness secured by assets of the
Acquisition Candidate(s)). In no event, however, shall the
minimum fee paid to ESI be less than $200,000. The value of
total consideration paid will be calculated as the sum of the
following values at closing:
(i) Cash and cash equivalents paid to the shareholders of
an Acquisition Candidate(s);
(ii) Market value of any common stock issued to the
shareholders of an Acquisition Candidate(s);
(iii) The par value of any preferred stock issued to the
shareholders of an Acquisition Candidate(s), unless
market value is easily determinable;
(iv) The face value of any notes issued to the
shareholders of an Acquisition Candidate(s), unless
market value is easily determinable;
(v) Consideration paid or payable under covenants not to
compete, earn-outs and consulting arrangements with
any of an Acquisition Candidate(s) principals;
(vi) The face value of any debt owed by an Acquisition
Candidate(s) or its shareholders which has assumed
and/or forgiven unless market value is easily
determinable.
<PAGE> 4
Danny Edwards, Chairman and CEO
Royal Grip, Inc.
May 14, 1996
Page 4 of 6
(c) Upon the first closing of any part of the Financing, the
Company shall pay to ESI an additional cash fee equal to:
(i) one and one-half percent (1.5%) of the aggregate face
amount of any letters of credit, standby letters of
credit or other third-party guaranties arranged; plus
(ii) one and one-half percent (1.5%) of the aggregate
principal amount of any senior debt Financing raised;
plus
(iii) three percent (3%) of the aggregate principal amount
of any subordinated debt Financing raised; plus
(iv) four percent (4%) of the aggregate principal amount
of any preferred stock or convertible preferred stock
Financing raised; plus
(v) five percent (5%) of any equity Financing raised.
(d) ESI shall be entitled to the fees enumerated in any preceding
subparagraph of this paragraph 3 upon the occurrence during
the term, or within two years after the date of termination,
of this Agreement, of any event specified in any such
subparagraph.
4. The fees set forth in paragraph 3 above shall be in addition to any other
fees that the Company may be required to pay directly to any Financing source
(which may include ESI or its affiliates) to secure its financing commitment.
This Agreement does not constitute a commitment or undertaking on the part of
ESI or any of its affiliates to provide any part of the Financing and does not
ensure the successful arrangement or completion of the Financing or any portion
thereof. Notwithstanding any other term or provision of this Agreement, the
Company shall have the sole authority to consummate any Transaction or
Financing, and may proceed with, withdraw from or abandon any such Transaction
or Financing in its sole and absolute discretion. In no event shall the Company
incur any obligation to ESI under Section 3(b), 3(c) or 3(d) of this Agreement
with respect to any Transaction or Financing not consummated by Company.
5. In addition to the fees described in paragraph 3 above, the Company agrees to
promptly reimburse ESI, upon request from time to time, for all out-of-pocket
expenses incurred by ESI (including, without limitation, fees and disbursements
of counsel, and of other consultants and advisors retained by ESI with prior
approval of the Company) in connection with the matters contemplated by this
Agreement.
<PAGE> 5
Danny Edwards, Chairman and CEO
Royal Grip, Inc.
May 14, 1996
Page 5 of 6
Each party hereto agrees that it will not issue any press release or other
public disclosure of any Transaction or Financing without the prior approval of
the other, which shall not be unreasonably withheld, unless, in the good faith
opinion of counsel, such disclosure is required by law and time does not permit
the obtaining of such consent, or such consent is unreasonably withheld.
6. The Company hereby agrees to indemnify and hold harmless ESI and any company
controlling ESI or controlled by ESI and their respective directors, officers,
agents and employees to the full extent lawful, from and against any losses,
claims, damages or liabilities related to or arising out of this engagement or
in connection herewith, and to reimburse the party entitled to be indemnified
hereunder for all reasonable expenses (including counsel fees) as may be
incurred by such party in connection with investigating, preparing or defending
any such action or claim, whether or not in connection with pending or
threatened litigation or administrative proceedings; provided, however, the
Company will not be responsible for any claims, liabilities, losses, damages or
expenses which have been finally judicially determined to have resulted
primarily from the gross negligence or willful misconduct of such party, or from
the breach by such party of this Agreement.
7. Either party hereto may terminate this Agreement at any time with thirty (30)
days notice, without liability or continuing obligation except as set forth in
this paragraph 7. Neither the termination of this Agreement nor the completion
of the engagement contemplated hereby shall affect: (i) any compensation earned
by ESI up to the date of termination or completion, or after termination, as the
case may be, pursuant to paragraph 3; (ii) the reimbursement of expenses
incurred by ESI up to the date of termination or completion, as the case may be,
pursuant to paragraph 5; (iii) the indemnification provisions of paragraph 6;
(iv) the confidentiality obligations of ESI under paragraph 2; and (v) the
provisions of paragraphs 8 and 9 of this Agreement all of which shall remain
operative and in full force and effect.
8. The validity and interpretation of this Agreement shall be governed by, and
enforced in accordance with, the laws of the State of Illinois applicable to
agreements made and to be fully performed therein. The Company hereby
irrevocably submits to the jurisdiction of any court of the State of Illinois or
the United States District Court for the Northern District of the State of
Illinois for the purpose of any suit, action or other proceeding arising out of
this Agreement, or any of the agreements or transactions contemplated hereby,
which is brought by or against the Company and (i) hereby irrevocably agrees
that all claims in respect of any such suit, action or proceeding may be heard
and determined in any such court and (ii) to the extent that the Company has
acquired, or hereafter may acquire, any immunity from jurisdiction of any such
court or from any legal process therein, the Company hereby waives, to the
fullest extent permitted by law, such immunity. The Company hereby waives and
agrees not to assert in any such suit, action or proceeding, in each case, to
the fullest extent permitted by applicable law, any claim that (a) the Company
is not personally subject to the jurisdiction of any such court, (b) the Company
is immune from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to the Company or its property or (c) any such suit, action or
proceeding is brought in an inconvenient forum.
<PAGE> 6
Danny Edwards, Chairman and CEO
Royal Grip, Inc.
May 14, 1996
Page 6 of 6
9. This Agreement shall inure to the benefit of the respective successors and
assigns of the parties hereto and of the indemnified parties hereunder and their
successors and assigns and representatives, and the obligations and liabilities
assumed in this Agreement by the parties hereto shall be binding upon their
respective successors and assigns.
10. If a Transaction is consummated and the Company determines to refinance
(through either a public or private offering of debt or equity securities) any
portion of the purchase price paid by the Company in such Transaction (and any
assumed or repaid liabilities) within two years of such consummation, then ESI
shall have the right to act as Company's sole managing under-writer or exclusive
agent, as the case may be, in connection with raising the funds necessary to
complete such refinancing, subject to approval of ESI's Capital Commitment
Committee and the good faith negotiation of customary and mutually agreeable
terms.
11. For the convenience of the parties, any number of counterparts of this
Agreement may be executed by the parties hereto. Each such counterpart shall be,
and shall be deemed to be, an original instrument, but all such counterparts
taken together shall constitute one and the same Agreement. This Agreement may
not be modified or amended except in writing signed by the parties hereto. This
Agreement supercedes all previous agreements.
If the foregoing correctly sets forth our Agreement, please sign the
enclosed copy of this letter in the space provided and return it to us.
Very truly yours,
EVEREN SECURITIES, INC.
By: /s/ Glenn T. Tofil
---------------------------
Glenn T. Tofil
Vice President
Accepted and Agreed to this
14 day of May 1996
Royal Grip, Inc.
By: /s/ Danny Edwards
--------------------------
Danny Edwards, Chairman and CEO
<PAGE> 1
EXHIBIT 10.1.7
June 19, 1996
Danny Edwards
Chairman and CEO
Royal Grip, Inc.
444 West Geneva Drive
Tempe, AZ 85282
Dear Danny:
EVEREN Securities, Inc. ("ESI") is pleased to present this addendum to our
engagement letter dated May 14, 1996 to expand the scope of our investment
banking services to Royal Grip, Inc. (collectively with its affiliates, the
"Company"), to include exclusive representation of the Company in connection
with the possible sale of all, or part, the Company's assets or common stock
(the "Transaction").
As compensation for our services, we will utilize the buy-side advisory fee
schedule outlined in Paragraph 3, Section (b) of the May 14, 1996 engagement
letter. In the event that a fairness opinion is required by the Company's board
of directors, ESI shall furnish that report at a price to be determined at the
time of request.
The Company retains all rights to approve introduction of the opportunity to
any, and all, potential buyers. The remaining terms and conditions of the May
14, 1996 contract shall govern this addendum. If the foregoing is acceptable,
please sign this letter in the space provided below.
Very truly yours,
EVEREN SECURITIES, INC.
By: /s/ Glenn T. Tofil
---------------------------
Glenn T. Tofil
Vice President
Accepted and Agreed to this
25th day of June 1996
Royal Grip, Inc.
By: /s/ Danny Edwards
---------------------------------
Danny Edwards, Chairman and CEO
<PAGE> 1
EXHIBIT 10.1.8
April 29, 1997
Danny Edwards
Chairman and Chief Executive Officer
Royal Grip, Inc.
444 West Geneva Drive
Tempe, AZ 85282
Dear Danny:
EVEREN Securities, Inc. ("EVEREN") is pleased to present the revised terms to
our letter agreement dated May 14, 1996 and Addendum dated June 25, 1996 to
serve as Royal Grip Inc.'s ("GRIP") exclusive financial advisor in connection
with its proposed merger with FM Precision Golf Corporation ("FMP") (the "FMP
Transaction").
As compensation for our services as financial advisor, upon completion of the
FMP Transaction, EVEREN will receive $430,000 in cash (the "Success Fee") to be
paid as follows: $180,000 will be paid at closing, $125,000 will be paid on
September 30, 1997, and $125,000 paid on December 15, 1997. Prior to closing,
GRIP will also grant to EVEREN warrants to purchase 100,000 shares of GRIP
common stock at a price of $0.01 per share, which shall be issuable upon
closing.
In addition to its role as financial advisor, GRIP has retained EVEREN to render
an opinion to the Board of Directors of GRIP with respect to the fairness of the
FMP Transaction, from a financial point of view, to GRIP shareholders. Fees
related to that opinion total $170,000. Terms of that engagement are outlined in
the attached letter.
Except for payment of the fees outlined above and reimbursement of transaction
related expenses, GRIP shall have no further fee obligations (which does not
include obligations to indemnify, if any) to EVEREN, with respect to any other
Transaction (as that term is defined in the letter agreement dated May 14,
1996), regardless of whether such Transaction occurs before or after the date of
this addendum, except that which may be agreed to in subsequent agreements or in
connection with a transaction involving Belding Sports / Illah of California,
Inc. ("Illah"). Should GRIP complete a transaction with Illah on, or before,
February 5, 1998, EVEREN shall be entitled to a fee of 1 3/4% of the value of
the total consideration paid by GRIP in such transaction in the same manner
outlined under the letter agreement dated May 14, 1996 but not to exceed
$200,000.
<PAGE> 2
Danny Edwards
Royal Grip, Inc.
April 29, 1997
Page 2 of 2
Except as set forth in this letter, the terms and conditions of the May 14, 1996
letter agreement and the Addendum dated June 25, 1996 shall remain in full force
and effect. If the foregoing is acceptable, please sign this letter in the space
provided below.
Very truly yours,
EVEREN SECURITIES, INC.
By: /s/ Glenn T. Tofil
---------------------------
Glenn T. Tofil
Vice President
Accepted and Agreed to this 6TH day of May 1997
---------
ROYAL GRIP, INC.
By: /s/ Bob Burg President
---------------------------------------------------
Acknowledged by on this 6TH day of May 1997
FM PRECISION GOLF CORPORATION
By: /s/ Christopher A. Johnston
-------------------------------
Christopher Johnston, President
<PAGE> 3
EXHIBIT 10.1.8
April 29, 1997
Royal Grip, Inc.
444 West Geneva Drive
Tempe, AZ 85282
Attention: Danny Edwards, Chief Executive Officer
Gentlemen:
EVEREN is pleased to present the revised terms of our engagement by Royal Grip,
Inc. to render an opinion to the Board of Directors as to the fairness of the
Transaction, from a financial point of view (the "Opinion") to the Company and
its stockholders.
1. DESCRIPTION OF ENGAGEMENT. We understand that Royal Grip, Inc. (the
"Company") intends to merge with FM Precision Golf Corporation ("FM Precision")
(the "Transaction"). The purpose of this letter is to confirm the engagement of
EVEREN Securities, Inc. ("EVEREN") to render an opinion to the Board of
Directors as to the fairness of the Transaction, from a financial point of view
(the "Opinion") to the Company and its stockholders.
2. SCOPE AND USE OF OPINION. The nature and scope of EVEREN's study for
the purposes of this engagement shall be as EVEREN deems appropriate to enable
it to render the Opinion, and the form of the Opinion shall be such as EVEREN
considers appropriate and as is customary in the industry. The Opinion may state
in substance, among other things, that it is given in reliance upon the accuracy
and completeness of information furnished to EVEREN by the Company or on its
behalf. It is understood that the opinion will be included in its entirety in
any proxy statement or other document distributed to shareholders of the Company
in connection with the Transaction and this constitutes EVEREN's express written
approval for that purpose.. However, no summary of or excerpt from the Opinion
may be used, and no published public reference (other than as provided in the
preceding sentence) to the Opinion letter may be made except with EVEREN's prior
express written approval, which shall not be unreasonably withheld.
3. INFORMATION. In connection with EVEREN's activities on the Company's
behalf, pursuant to this engagement, the Company agrees to cooperate with
EVEREN, to furnish or cause to be furnished to EVEREN, such information and data
as EVEREN may reasonably request or as the Company may believe is necessary or
desirable (the "Information"), and to give EVEREN reasonable access to the
Company's officers, directors, employees, appraisers, independent accountants,
legal counsel and such other persons as EVEREN may designate. The Company
warrants and represents that all written Information provided or otherwise made
available to EVEREN by or on behalf of the Company will be complete and correct
in all material respects and will not contain any untrue statement of a material
fact. In addition the Company represents that all Exchange Act filings by the
Company
<PAGE> 4
Royal Grip, Inc.
April 29, 1997
Page 2
during the last two fiscal years did not omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances under which such statements were made. The Company further
warrants and represents that any projections provided by it to EVEREN will have
been prepared in good faith and will be based upon assumptions which, in light
of the circumstances under which they are made, are reasonable. The Company
acknowledges and agrees that in rendering its services hereunder, EVEREN will be
using and relying on the Information (and information available from public
sources and other industry recognized sources deemed reliable by EVEREN) without
independent verification thereof by EVEREN and without independent appraisal by
EVEREN of any of the Company's assets. EVEREN assumes no responsibility for the
accuracy or completeness of the Information or any other information regarding
the Company, the Transaction or FM Precision provided or otherwise made
available by the Company or FM Precision to EVEREN.
4. COMPENSATION. In consideration for EVEREN's services in connection
with rendering the Opinion, the Company shall pay, or cause to be paid, to
EVEREN an aggregate cash fee of $170,000. Of such fee, $85,000 is due upon
execution of this agreement and $85,000 payable to EVEREN at the time the
Opinion is first delivered to the Board of Directors of the Company.
5. EXPENSES. In addition to the fees described in the paragraphs
entitled "Compensation" and "Additional Compensation" above, the Company agrees
to promptly reimburse EVEREN, upon request from time to time, for all reasonable
out-of-pocket expenses incurred by EVEREN (including, without limitation, fees
and expenses of counsel, and other consultants and advisors retained by EVEREN)
in connection with the matters contemplated by this Agreement.
6. LEGAL PROCEEDINGS. EVEREN agrees that it shall, for an additional
fee to be agreed upon in writing and in advance, make appropriate personnel
available at reasonable times to testify in proceedings (including depositions)
relating to the Opinion. The Company agrees to reimburse EVEREN for all
out-of-pocket expenses (including, without limitation, fees and expenses of our
counsel) incurred in connection therewith. Such payments for out-of-pocket
expenses are in addition to the payments referred to in the preceding
paragraphs. Any services requested by the Company and provided by EVEREN in
addition to rendering the Opinion and testifying with respect thereto, will be
subject to mutually acceptable additional compensation.
7. INDEMNIFICATION. The Company agrees to indemnify EVEREN in
accordance with the indemnification provisions (the "Indemnification
Provisions") attached to this Agreement, which Indemnification Provisions are
incorporated herein and made a part hereof.
8. TERMINATION; SURVIVAL. Either party hereto may terminate this
Agreement at any time upon written notice, without liability or continuing
obligation except as set forth in the following sentence. Neither termination
nor completion of this assignment shall affect: (i) any compensation earned by
EVEREN up to the date of termination or completion, or after termination, as the
case may be, pursuant to the paragraphs herein entitled "Compensation" and
"Additional Compensation", (ii) the
<PAGE> 5
Royal Grip, Inc.
April 29, 1997
Page 3
reimbursement of expenses incurred by EVEREN up to the date of termination or
completion, as the case may be, pursuant to the paragraph herein entitled
"Expenses", (iii) the attached Indemnification Provisions, and (iv) the
provisions of the paragraphs herein entitled "Governing Law; Jurisdiction" and
"Successors and Assigns" of this Agreement, all of which shall remain operative
and in full force and effect.
9. SUCCESSORS AND ASSIGNS. The Agreement shall inure to the benefit of
the respective successors and assigns of the parties hereto and of the
indemnified parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this Agreement
by the parties hereto shall be binding upon their respective successors and
assigns.
10. GOVERNING LAW; JURISDICTION. The validity and interpretation of
this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Illinois applicable to agreements made and to be
fully performed therein. .
11. COUNTERPARTS; AMENDMENTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto.
Each such counterpart shall be, and shall be deemed to be, an original
instrument, but all such counterparts taken together shall constitute one and
the same Agreement. This Agreement may not be modified or amended except in
writing signed by the parties hereto.
If the above terms are in accordance with your understanding, please
sign the enclosed copy of this letter and return it to us.
Very truly yours,
EVEREN SECURITIES, INC.
By: /s/ Glenn T. Tofil
---------------------------
Glenn T. Tofil
Vice President
Accepted and Agreed to this
6th day of May , 1997:
ROYAL GRIP, INC.
By: /s/ Bob Burg President
---------------------------------------------
<PAGE> 6
INDEMNIFICATION PROVISIONS
The Company (as such term is defined in the attached Agreement (the
"Agreement") agrees to indemnify and hold harmless EVEREN Securities, Inc.
("EVEREN") from and against any and all losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements
(including without limitation fees and disbursements of counsel), and any and
all actions, suits, proceedings and investigations in respect thereof and any
and all legal and other costs, expenses and disbursements, whether in giving
testimony, furnishing documents in response to a subpoena or otherwise,
including, without limitation, the costs, expenses and disbursements, as and
when incurred, of investigating, preparing or defending any such action, suit,
proceeding or investigation (whether or not in connection with litigation to
which EVEREN is a party), directly or indirectly caused by, relating to, based
upon, arising out of, or in connection with any transactions or services
contemplated by, referred to in or in any manner otherwise arising out of the
Agreement and/or any act or omission of EVEREN under or pursuant to the
Agreement; PROVIDED, HOWEVER, such indemnity agreement shall not apply to any
portion of any such loss, claim, damage, obligation, penalty, judgment, award,
liability, cost, expense or disbursement to the extent it is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal) to
have resulted from the gross negligence or willful misconduct of EVEREN. The
Company also agrees that EVEREN shall not have any liability (whether direct or
indirect, in contract or tort or otherwise) to the Company or to any person
(including, with limitation, Company shareholders) claiming by or through the
Company for or in connection with the engagement of EVEREN pursuant to the
Agreement, except to the extent that any such liability is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal) to
have resulted from the gross negligence or willful misconduct of EVEREN.
This indemnification shall be in addition to any liability which the
Company may otherwise have to EVEREN or the persons indemnified below in this
sentence and shall extend to the following: EVEREN Capital Corporation, EVEREN
Securities, Inc., their respective affiliated entities, directors, officers,
employees, legal counsel, agents and any other person that directly or
indirectly controls or is controlled by or is under common control with any
person referred to above (within the meaning of the federal securities laws).
All references to EVEREN in these Indemnification Provisions shall be understood
to include any and all of the foregoing.
If any action, suit, proceeding or investigation is commenced, as to
which EVEREN proposes to demand indemnification, it shall notify the Company
with reasonable promptness; PROVIDED, HOWEVER, that any failure by EVEREN to
notify the Company shall not relieve the Company from its obligations hereunder
unless such failure has caused prejudice to the Company. EVEREN shall have the
right to retain counsel of its own choice to represent it, and the Company shall
pay the fees, expenses and disbursements of such counsel; and such counsel
shall, to the extent consistent with its professional responsibilities,
cooperate with the Company and any counsel designated by the Company. The
Company shall be liable for any settlement of any claim against EVEREN made with
the Company's prior written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of EVEREN,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof, unless such settlement, compromise or consent
includes, as an unconditional term thereof, the giving by the claimant to EVEREN
of an unconditional release from any and all liability in respect of such claim.
<PAGE> 7
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to this Indemnification Agreement is made but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the express provisions hereof provide for indemnification in such case,
then the Company, on the one hand, and EVEREN, on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements to which the indemnified
persons may be subject in accordance with (i) the relative benefits received by
the Company, on the one hand, and EVEREN, on the other hand; (ii) the relative
fault of the Company on the one hand and EVEREN on the other hand, in connection
with the statements, acts or omissions, as the case may be, which resulted in
such losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses or disbursements; and (iii) consideration of
relevant equitable principles. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation. Notwithstanding the
foregoing, EVEREN shall not be obligated to contribute any amount hereunder that
exceeds the amount of fees previously received by EVEREN pursuant to the
Agreement.
Neither the termination nor completion of the Agreement or of the
engagement of EVEREN referred to therein shall affect the indemnification
provided for hereunder, which shall remain operative and in full force and
effect.
<PAGE> 1
EXHIBIT 10.2.1
INVESTMENT FEE AGREEMENT
THIS INVESTMENT FEE AGREEMENT ("the Agreement") is made and entered into
as of the 28th day of May, 1996 by and among MERBANCO INC., an Ohio corporation
("Merbanco"), BERENSON, MINELLA & COMPANY, L.P., a Delaware limited
partnership("BM&C") and FM PRECISION GOLF MANUFACTURING CORP. (the "Company").
WHEREAS, the Company is concurrently purchasing the assets of BRUNSWICK
GOLF DIVISION (the "Purchase"); and
WHEREAS, Merbanco and BM&C have provided investment banking services to
the Company in connection with the Purchase.
NOW THEREFORE, in consideration of the mutual agreements hereafter set
forth, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1 Investment Fee. Subject to the terms hereof, the Company hereby
agrees to pay to each of Merbanco and BM&C $250,000 as set forth below:
$125,000 at the time of closing of the Purchase; and
$125,000 on the first anniversary of the closing of the Purchase;
provided that such payment does not cause the Company to be in violation of the
loan agreement, dated to be effective as of May 31, 1996, between the Company
and STAR BANK, NATIONAL ASSOCIATION.
Section 2 Waiver. No purported waiver by any party of any default by
another party of any term or provision contained herein shall be deemed to be a
waiver of such term or provision unless the waiver is in writing and signed by
the waiving party. No such waiver shall in any event be deemed a waiver of any
subsequent default under the same or any other term or provision contained
herein.
Section 3 Entire Agreement. This Agreement sets forth the entire
understanding between the parties concerning the subject matter of this
Agreement and incorporates all prior negotiations and understandings. There are
no covenants, promises, agreements, conditions or understandings, either oral or
written, between them relating to the subject matter of this Agreement other
than those set forth herein. No representation or warranty has been made by or
on behalf of any party to this Agreement (or any officer, director, employee or
agent thereof) to induce another party to enter into this Agreement or to abide
by or consummate any transactions contemplated by any terms of this Agreement,
except representations and warranties, if any, expressly set forth herein. No
alteration, amendment, change or addition to this Agreement shall be binding
upon any party unless in writing and signed by the party to be charged.
Section 4 No Partnership. Nothing contained in this Agreement shall be
deemed or construed by the parties hereto or by any third person to create the
relationship of partnership or of joint venture.
<PAGE> 2
Section 5 Captions. The captions and section numbers appearing in this
Agreement are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of the provisions of this
Agreement.
Section 6 Counterparts. This Agreement may be executed in counterparts,
each of which when executed by the parties hereto shall be deemed an original
and all of which together shall be deemed the same Agreement.
The parties hereto have caused this Agreement to be executed as of the day
and year first above written.
FM PRECISION GOLF MANUFACTURING
CORP.
By: /s/ Kenneth J. Warren
--------------------------------
Kenneth J. Warren, Secretary
MERBANCO INC.
By: /s/ Christopher A. Johnston
--------------------------------
Christopher A. Johnston, President
BERENSON, MINELLA & COMPANY
By: /s/ Gregg H. Feinstein
--------------------------------
Gregg H. Feinstein, Partner
-2-
<PAGE> 1
EXHIBIT 10.2.2
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 28th day of
May, 1996 between FM PRECISION GOLF MANUFACTURING CORP., a Delaware corporation
(the "Company"), and MERBANCO INC., an Ohio corporation ("Merbanco").
WHEREAS, the Company wishes to engage Merbanco to provide certain
management and investment banking services to the Company.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. General Services. Subject to the supervision of the board of
directors of the Company (the "Company Board"), and subject to any limitations
which the Company Board may from time to time place on the authority herein
granted to Merbanco, Merbanco shall perform advisory financial services
consisting of the following: investment of the Company's cash and client escrow
funds; the possible refinancing of indebtedness of the Company; trends and
prospects for interest rates as they may affect the aforementioned and other
aspects of the Company's operations; commercial and institutional financing
relationships of the Company including short-term loans; assistance to the
Company in developing cash flow projections, operating forecasts and capital
improvement schedules and projections; executive and other compensation;
acquisitions, mergers and leases or sales of assets; and advice and assistance
with respect to such other economic and financial matters as the Company may
from time to time request (the "General Services").
Section 2. Additional Services. In addition to the General Services, to
the extent requested and agreed to by the parties, Merbanco shall perform
additional services consisting of the identification of potential acquisition
and merger opportunities and assistance in negotiations of potential
acquisitions and mergers (the "Additional Services"). Merbanco shall be
compensated for the Additional Services for an additional fee to be negotiated
by the parties hereto.
Section 3. Personnel. Merbanco shall make available to the Company, as
needed, Richard P. Johnston, Christopher Johnston, and David Johnston who shall,
if elected, serve as officers and directors of the Company without salary or
other compensation except for reimbursement of expenses and, if approved by the
Company Board directors fees.
Section 4. Fee. As compensation for all General Services to be performed
hereunder, the Company shall pay Merbanco a fee of $150,000 per year (pro rated
through December 31, 1996) in equal monthly installments on the first day of
each month commencing June 1, 1996. In addition, the Company shall reimburse
Merbanco for all expenses incurred by Merbanco on behalf of the Company in the
performance of the General Services hereunder on presentation of appropriate
documentation thereof.
<PAGE> 2
Section 5. Parties in Interest. It is agreed between the parties hereto
that employees, officers, directors and shareholders of Merbanco are or may be
become interested in the Company or its parent as employees, officers or
shareholders or otherwise, and that employees, officers or shareholders of the
Company are or may be or become similarly interested in Merbanco.
Section 6. Non Exclusivity. The services of Merbanco to the Company are
not exclusive and Merbanco is free to render services to others and to engage in
other activities, provided that such other services and activities do not,
during the term of this Agreement, interfere in a material manner, with
Merbanco's ability to meet all of its obligations with respect to rendering
services hereunder. In the absence of gross negligence, Merbanco shall not be
subject to liability to the Company or to any shareholder of the Company for any
act or omission in the course of, or in connection with, the rendering of
services hereunder.
Section 7. Term. This Agreement shall remain in full force and effect for
the period commencing on the date hereof and ending on May 31, 2003; provided
that commencing on June 30, 1997 and on each successive June 30, the date of
termination of this Agreement shall be extended an additional year (i.e. from
June 1, 2003 to May 31, 2004) if at least 30 days before such June 30 no party
hereto shall have delivered written notice to the other party of its intention
to terminate this Agreement. Upon termination, and upon receipt of all monies
due Merbanco from the Company, Merbanco shall forthwith deliver to the Company
all property and documents of the Company then in the custody or control of
Merbanco.
Section 8. Indemnity. The Company agrees to indemnify and hold
harmless Merbanco, its officers, directors and shareholders from and against any
and all claims, liabilities, damages, losses, costs and expenses, including,
without limitation, reasonable counsel fees and expenses, resulting from the
performance or observance by Merbanco of any of the covenants or other
obligations which it is to perform or observe in this Agreement; provided that
no indemnity shall be applicable in the event of the gross negligence of
Merbanco. .
Section 9. Confidentiality. Merbanco agrees that all information which
Merbanco obtains with respect to the Company which the Company keeps
confidential (the "Confidential Information") will not be used by Merbanco in
any way detrimental to the Company, will be kept confidential by Merbanco and
its representatives (which term includes its agents, representatives, attorneys,
accountants, directors, officers, employees and financial advisors), shall not,
except as Merbanco may be legally obligated, without the prior written consent
of the Company, be disclosed by Merbanco or its representatives, in ant manner
whatsoever, in whole or in part, and shall not be used by Merbanco or its
representatives other than for the services Merbanco is to perform for the
Company. Merbanco further agrees to transmit the Confidential Information only
to those of its representatives who need to know such information for the
purpose of performing services for the Company and who shall (a) be advised by
Merbanco of this Agreement and (b) agree with Merbanco to be bound by the
provisions hereof. Merbanco shall be responsible for any breach of this
Agreement by its representatives.
Section 10. Notices. Any notice or other document given pursuant or
with respect to this Agreement shall be in writing (including telex, telecopy
or similar electronic mail) and shall
<PAGE> 3
be deemed given when the same is delivered personally, deposited in the United
Sates mail, postage prepaid, registered or certified mail, addressed to the
party at the following respective addresses, or sent to the telephone number or
telecopy number and address set for the below or such other address, telephone
number or telecopy number and address as the party may from time too time
designate by written notice to the other party hereto:
<TABLE>
<S> <C>
the Company Merbanco, Incorporated
535 Migeon Avenue P.O. Box 25182
Torrington, Connecticut 06790 4015 West Lake Creek Drive, Suite 1
Attn: Ronald Chalmers Jackson, Wyoming 83001
) Attn: Christopher A. Johnston. President
Tel. No. (203) 489-9254 x 274 Tel. No. (307) 739-1188
Fax No. (203) 489-5454 Fax No. (307) 739-2288
</TABLE>
Section 11. General Provision.
11.1. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Delaware applicable to contracts to
be performed entirely within the State of Delaware.
11.2. Amendments. This Agreement may be amended only in writing
by the consent of each of the parties hereto, evidenced by all necessary and
proper authority.
11.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and no
party hereto shall be bound by any communications between them on the subject
matter hereof unless such communications are in writing and bear a date
contemporaneous with or subsequent to the date hereof.
This Agreement has been executed on and is effective as of the date first
above written.
<TABLE>
<S> <C>
MERBANCO INC. FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ Christopher A. Johnston By: /s/ Kenneth J. Warren
----------------------------------- ----------------------------
Christopher A. Johnston, President Kenneth J. Warren, Secretary
</TABLE>
<PAGE> 1
EXHIBIT 10.2.3
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 28th day of
May, 1996 between FM PRECISION GOLF MANUFACTURING CORP., a Delaware corporation
(the "Company"), and BERENSON, MINELLA & COMPANY, L.P., a Delaware limited
partnership ("BM&C").
WHEREAS, the Company wishes to engage BM&C to provide certain management
and investment banking services to the Company.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. General Services. Subject to the supervision of the board of
directors of the Company (the "Company Board"), and subject to any limitations
which the Company Board may from time to time place on the authority herein
granted to BM&C, BM&C shall perform advisory financial services consisting of
the following: investment of the Company's cash and client escrow funds; the
possible refinancing of indebtedness of the Company; trends and prospects for
interest rates as they may affect the aforementioned and other aspects of the
Company's operations; commercial and institutional financing relationships of
the Company including short-term loans; assistance to the Company in developing
cash flow projections, operating forecasts and capital improvement schedules and
projections; executive and other compensation; acquisitions, mergers and leases
or sales of assets; and advice and assistance with respect to such other
economic and financial matters as the Company may from time to time request (the
"General Services").
Section 2. Additional Services. In addition to the General Services, to
the extent requested and agreed to by the parties, BM&C shall perform additional
services consisting of the identification of potential acquisition and merger
opportunities and assistance in negotiations of potential acquisitions and
mergers (the "Additional Services"). BM&C shall be compensated for the
Additional Services for an additional fee to be negotiated by the parties
hereto.
Section 3. Personnel. BM&C shall make available to the Company, as needed,
Raymond J. Minella, who shall, if elected, serve as an officer and director of
the Company without salary or other compensation except for reimbursement of
expenses and, if approved by the Company, board of directors fees.
Section 4. Fee. As compensation for all General Services to be performed
hereunder, the Company shall pay BM&C a fee of $50,000 per year (pro rated
through December 31, 1996) in equal monthly installments on the first day of
each month commencing June 1, 1996. In addition, the Company shall reimburse
BM&C for all expenses incurred by BM&C on behalf of the Company in the
performance of the General Services hereunder on presentation of appropriate
documentation thereof.
<PAGE> 2
Section 5. Parties in Interest. It is agreed between the parties hereto
that employees, officers, directors and shareholders of BM&C are or may be
become interested in the Company or its parent as employees, officers or
shareholders or otherwise, and that employees, officers or shareholders of the
Company are or may be or become similarly interested in BM&C.
Section 6. Non Exclusivity. The services of BM&C to the Company are not
exclusive and BM&C is free to render services to others and to engage in other
activities, provided that such other services and activities do not, during the
term of this Agreement, interfere in a material manner, with BM&C's ability to
meet all of its obligations with respect to rendering services hereunder. In the
absence of gross negligence, BM&C shall not be subject to liability to the
Company or to any shareholder of the Company for any act or omission in the
course of, or in connection with, the rendering of services hereunder.
Section 7. Term. This Agreement shall remain in full force and effect for
the period commencing on the date hereof and ending on May 31, 2003; provided
that commencing on June 30, 1997 and on each successive June 30, the date of
termination of this Agreement shall be extended an additional year (i.e., from
June 1, 2003 to May 31, 2004) if at least 30 days before such June 30 no party
hereto shall have delivered written notice to the other party of its intention
to terminate this Agreement. Upon termination, and upon receipt of all monies
due BM&C from the Company, BM&C shall forthwith deliver to the Company all
property and documents of the Company then in the custody or control of BM&C.
Section 8. Indemnity. The Company agrees to indemnify and hold harmless
BM&C, its officers, directors and shareholders from and against any and all
claims, liabilities, damages, losses, costs and expenses, including, without
limitation, reasonable counsel fees and expenses, resulting from the performance
or observance by BM&C of any of the covenants or other obligations which it is
to perform or observe in this Agreement; provided that no indemnity shall be
applicable in the event of the gross negligence of BM&C.
Section 9. Confidentiality. BM&C agrees that all information which BM&C
obtains with respect to the Company which the Company keeps confidential (the
"Confidential Information") will not be used by BM&C in any way detrimental to
the Company, will be kept confidential by BM&C and its representatives (which
term includes its agents, representatives, attorneys, accountants, directors,
officers, employees and financial advisors), shall not, except as BM&C may be
legally obligated, without the prior written consent of the Company, be
disclosed by BM&C or its representatives, in any manner whatsoever, in whole or
in part, and shall not be used by BM&C or its representatives other than for the
services BM&C is to perform for the Company. BM&C further agrees to transmit the
Confidential Information only to those of its representatives who need to know
such information for the purpose of performing services for the Company and who
shall (a) be advised by BM&C of this Agreement, and (b) agree with BM&C to be
bound by the provisions hereof. BM&C shall be responsible for any breach of this
Agreement by its representatives.
Section 10. Notices. Any notice or other document given pursuant to or
with respect to this Agreement shall be in writing (including telex, telecopy
or similar electronic mail) and
-2-
<PAGE> 3
shall be deemed given when the same is delivered personally, deposited in the
United Sates mail, postage prepaid, registered or certified mail, addressed to
the party at the following respective addresses, or sent to the telephone number
or telecopy number and address set for the below or such other address,
telephone number or telecopy number and address as the party may from time to
time designate by written notice to the other party hereto:
<TABLE>
<S> <C>
the Company: BM&C:
535 Migeon Avenue 667 Madison Avenue
Torrington, Connecticut 06790 New York, New York 10021
Attn.: Ronald Chalmers Attn.: Raymond J. Minella
Tel. No. (203) 489-9254, ext. 274 Tel. No. (212) 935-7676
Fax No. (203) 489-5454 Fax No. (212) 935-1499
</TABLE>
Section 11. General Provision.
11.1. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Delaware applicable to contracts to
be performed entirely within the State of Delaware.
11.2. Amendments. This Agreement may be amended only in writing
by the consent of each of the parties hereto, evidenced by all necessary and
proper authority.
11.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and no
party hereto shall be bound by any communications between them on the subject
matter hereof unless such communications are in writing and bear a date
contemporaneous with or subsequent to the date hereof.
11.4. Counterparts. This Agreement may be executed in
counterparts, each of which when executed by the parties hereto shall be
deemed an original and all of which together shall be deemed the same
Agreement.
This Agreement has been executed on and is effective as of the date first
above written.
BERENSON, MINELLA & COMPANY FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ Raymond J. Minella By: /s/ Christopher A. Johnston
------------------------------ ---------------------------
Raymond J. Minella Christopher A. Johnston, President
-3-
<PAGE> 1
EXHIBIT 10.2.4
--------------
MANAGEMENT STOCKHOLDERS AGREEMENT
THIS MANAGEMENT STOCKHOLDERS AGREEMENT (the "Agreement") is made and
entered into as of the 29th day of May, 1996, by and among the individuals
identified on Exhibit A hereto (the "Stockholders") and FM PRECISION GOLF CORP.,
a Delaware corporation (the "Company").
WHEREAS, the Stockholders are concurrently purchasing from the Company the
number of shares of the common stock of the Company as identified on Exhibit A
hereto (the "Shares"); and
WHEREAS, each of the Stockholders is currently employed by the Company or
one of its subsidiaries; and
WHEREAS, the Company and the Stockholders wish to formalize certain
agreements with respect to restrictions on transfer of the Shares and certain
other matters;
NOW THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. NO TRANSFER. The Stockholders shall not sell, assign, pledge,
encumber, or otherwise transfer, permit or suffer to exist any transfer of
(hereinafter called simply "transfer"), any legal or beneficial interest in the
Shares except as expressly provided in this Agreement. In addition to the
restrictions on transfer of the Shares contained in or resulting from other
provisions of this Agreement, no transfer of any Shares shall be made by or on
behalf of any Stockholder unless the Board of Directors of Company has
determined that such transfer is in compliance with the terms hereof and that
the applicable Shares have been duly registered under all applicable federal and
state securities laws pursuant to a then-effective registration which
contemplates the proposed transfer or unless the Company has received a written
opinion of or, at the option of the Company, satisfactory to its legal counsel
that the proposed transfer so complies with the terms hereof and is exempt from
such registration under all applicable federal and state securities laws.
Section 2. PERMITTED TRANSFEREES.
2.1. GENERAL. Any of the following transfers shall be in compliance
with this Agreement, subject to the provisions of Section 2.2:
(a) a transfer of Shares upon the death of a Stockholder to such
Stockholder's executors, administrators or testamentary trustees (the
"Stockholder's Estate"); or
(b) a transfer of Shares made as a gift in compliance with the
federal and all applicable state securities laws to the Stockholder's spouse or
parents or to children (including adopted children) of the Stockholder or his
spouse (collectively, "Family Members") or to a trust, the beneficiaries of
which include only the Stockholder and the Stockholder's Family Members, and
over which the Stockholder has the right, power and authority to exercise
control as to investment decisions and distributions, as trustee or otherwise,
or to a company or partnership,
<PAGE> 2
the stockholders or limited and general partners of which include only the
Stockholder and the Stockholder's Family Members. The Stockholder's Estate and
each Family Member, trust, company or partnership to whom Shares may be
transferred pursuant to this Section 2.1 are hereinafter sometimes referred to
as "Permitted Transferees."
2.2. RESTRICTION. No transfer pursuant to Section 2.1 shall be
permitted (and any such transfer shall be void and of no effect) unless and
until the applicable Permitted Transferee executes and delivers to the Company
one or more appropriate instruments, in form and substance reasonably
satisfactory to the Company, confirming and acknowledging that such Permitted
Transferee has acquired and will hold such Shares subject to all of the terms,
conditions and provisions of this Agreement. Upon the execution and delivery of
such instruments to the Company, the applicable Permitted Transferee shall be
deemed a "Stockholder" for purposes of this Agreement, with the same rights,
privileges, duties and obligations as the transferor of such Shares.
Notwithstanding anything to the contrary contained herein, no transfer to any
Permitted Transferee shall be made if, as a result thereof, the Company would be
required to register any Shares under any applicable federal or state securities
law.
Section 3. RIGHT OF FIRST REFUSAL.
3.1. POTENTIAL TRANSFER. If any Stockholder (an "Offering
Stockholder") wishes to transfer all, but only all, of the Shares then owned by
him (the "Transfer Shares") to any person other than a Permitted Transferee for
a purchase price to be paid in cash at the closing of such transfer and has
received a written offer to so purchase such Shares executed by the proposed
transferee, such Offering Stockholder shall give a written notice (the "Transfer
Notice") to the Company specifying the identity of the proposed transferee, the
amount per Share to be received (the "Transfer Price"), and any other terms and
conditions of the proposed transfer and including a photocopy of the executed
offer. Such Transfer Notice shall include an irrevocable offer (open to
acceptance for a period of 45 days after the date such Transfer Notice is given)
to sell the Transfer Shares to the Transfer Offerees (as defined in Section 3.6)
at the Transfer Price.
3.2. MANAGEMENT OFFEREES' OPTION. The Company shall, within 15 days of
the Transfer Notice, provide notice of receipt of the Transfer Notice (the
"Company's Notice") to (a) all Stockholders, other than the Offering Stockholder
(each such person, a "Management Offeree") and (b) each other person who then
owns any of the shares of common stock of the Company (each such person, a
"Non-Management Offeree"). Each Management Offeree shall have the option to
purchase, upon the terms set forth in the Transfer Notice, any or all of the
Transfer Shares. In order to exercise such option, a Management Offeree must
give notice of such exercise to the Company within 10 days after the date of the
Company's Notice, which exercise notice must include the maximum number of
Shares he agrees to purchase under the terms of the Transfer Notice (the
"Maximum Amount"). The Company shall, within 14 days after the date of the
Company's Notice, allocate to each Management Offeree for purchase a number of
Transfer Shares. Subject to adjustment, as follows, such allocation shall equal
the lesser of such Management Offeree's Pro Rata Share or Maximum Amount. If one
or more of the Management Offerees declines to participate in such purchase or
elects to purchase less than such Management Offeree's Pro Rata Share, then the
remaining Transfer Shares shall be allocated among Management Offerees who
specified a Maximum Amount in their respective notices of exercise in excess of
their Pro Rata Shares (with rounding to avoid fractional shares) in an amount
equal to the lesser of their Pro Rata Shares thereof or their Maximum Amounts.
Such
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<PAGE> 3
procedure shall be employed until the entire Maximum Amount of each Management
Offeree has been satisfied or all Transfer Shares have been allocated.
3.3. COMPANY'S INITIAL OPTION. To the extent the Management Offerees
do not elect to purchase all of the Transfer Shares, the Company shall have the
right to purchase any or all Transfer Shares which the Management Offerees have
not elected to purchase; PROVIDED that the Company must determine the number of
such Transfer Shares it will purchase within 15 days after the giving of the
Company's Notice.
3.4. NON-MANAGEMENT OFFEREES' OPTION. Each Non-Management Offeree
shall have the option to purchase, upon the terms set forth in the Transfer
Notice, any or all of the Transfer Shares not allocated to the Management
Offerees or the Company pursuant to Sections 3.2 or 3.3. In order to exercise
such option, a Non-Management Offeree must give notice of such exercise to the
Company within 10 days after the date of the Company's Notice, which exercise
notice must include a designation of the Non-Management Offeree's Maximum
Amount. The Company shall, within 20 days after the date of the Company's
Notice, allocate to each Non-Management Offeree for purchase a number of such
remaining Transfer Shares. Subject to adjustment, as follows, such allocation
shall equal the lesser of such Non-Management Offeree's Pro Rata Share or
Maximum Amount. If one or more of the Non-Management Offerees declines to
participate in such purchase or elects to purchase less than such Non-Management
Offeree's Pro Rata Share, then any remaining non-allocated Transfer Shares shall
be allocated among Non-Management Offerees who specified a Maximum Amount in
their respective notices of exercise in excess of their Pro Rata Shares (with
rounding to avoid fractional shares) in an amount equal to the lesser of their
Pro Rata Shares thereof or their Maximum Amounts. Such procedure shall be
employed until the entire Maximum Amount of each Non-Management Offeree has been
satisfied or all remaining Transfer Shares have been allocated.
3.5. COMPANY'S FINAL OPTION. The Company shall have the right but not
the obligation to purchase any Transfer Shares remaining unallocated after the
allocations set forth above and may assign all or any portion of such right to
any third party selected by the Board of Directors of the Company (a "Third
Party Purchaser"); PROVIDED, that no transfer of Shares shall be made to a Third
Party Purchaser unless and until such Third Party Purchaser executes and
delivers to the Company one or more appropriate instruments, in form and
substance reasonably satisfactory to the Company, confirming and acknowledging
that it has acquired and will hold such Shares subject to all of the terms,
conditions and provisions of this Agreement. Upon the execution and delivery of
such instruments to the Company, such Third Party Purchaser shall be deemed a
"Stockholder" for purposes of this Agreement, with the same rights, privileges,
duties and obligations as the transferor of such Shares and a "Non-Management
Offeree".
3.6. NOTICE OF ACCEPTANCE. If the offer to sell included in any
Transfer Notice is accepted as to all the Transfer Shares by any Management
Offerees, the Company, any Non-Management Offerees or any Third Party Purchaser
(collectively, the "Transfer Offerees") the Company, on behalf of all such
accepting Transfer Offerees shall provide the Offering Stockholder and each
accepting Transfer Offeree with written notice of such acceptance specifying the
number of the Transfer Shares as to which each Transfer Offeree is accepting the
offer (a "Notice of Acceptance") within 45 days after the date of the Transfer
Notice.
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3.7. CLOSING. The closing of the purchase by the accepting Transfer
Offerees of the Transfer Shares pursuant to this Section 3 shall take place at
the principal offices of the Company on the 15th day after the Notice of
Acceptance is given. At such closing, the accepting Transfer Offerees shall
deliver a certified check or checks in the appropriate amount to the Offering
Stockholder against delivery of certificates duly endorsed in blank representing
the Transfer Shares so purchased. The Transfer Shares shall be delivered free
and clear of all liens, claims, charges, assessments, options, security
interests and other legal and equitable encumbrances.
3.8. REALLOCATION. If any Transfer Shares allocated to a Transfer
Offeree are not purchased by such Transfer Offeree at the closing provided for
in Section 3.7 (the "Default Shares"), such Default Shares may be purchased by
the Management Offerees, up to each such Management Offeree's Pro Rata Share
(with any Default Shares any such Management Offeree elects not to purchase
being reallocated among the remaining Management Offerees in accordance with
their Pro Rata Shares until no such Management Offeree wishes to purchase any
more Default Shares or all such Default Shares have been allocated), and if the
Management Offerees do not purchase all such Default Shares, any remaining
Default Shares may be purchased by the Company and, if the Company elects not to
purchase all of them, any remaining Default Shares may be purchased by the
Non-Management Offerees, up to each Non-Management Offeree's respective Pro Rata
Share (with any Default Shares any such Non-Management Offeree elects not to
purchase being reallocated among the remaining Non-Management Offerees in
accordance with their Pro Rata Shares until no such Non-Management Offeree
wishes to purchase any more Default Shares or all such Default Shares have been
allocated) and if the Non-Management Offerees elect not to purchase all of them,
the Third Party Purchaser may purchase such Shares. Nothing contained herein
shall prejudice any person's right to maintain any cause of action or pursue any
other remedies available to it as a result of such default.
3.9. FAILURE TO EXERCISE RIGHT. If the Company has not delivered a
Notice of Acceptance within 45 days after the date of the Transfer Notice, or if
the closing does not occur as provided in Sections 3.7 and 3.8, or if the
Transfer Offerees are not ready, willing and able to purchase all of the
Transfer Shares at such closing, then the Offering Stockholder shall, subject to
the provisions of Section 1 hereof, be permitted to transfer the Transfer Shares
to the proposed transferee identified in the Transfer Notice at a price not
lower than the Transfer Price and on terms no more favorable to the transferee
than those contained in the Transfer Notice; PROVIDED that any such transfer
shall occur within 90 days after the date of the Transfer Notice and that no
transfer of Shares shall be made to a proposed transferee that is not already a
Stockholder unless and until such proposed transferee executes and delivers to
the Company one or more appropriate instruments, in form and substance
reasonably satisfactory to the Company, confirming and acknowledging that such
proposed transferee has acquired and will hold such Shares subject to all the
terms, conditions and provisions of this Agreement. Upon the execution and
delivery of such instruments to the Company, such transferee shall be deemed a
"Stockholder" for purposes of this Agreement, with the same rights, privileges,
duties and obligations as the transferor of such Shares. Promptly after any
transfer pursuant to this Section 3.9, the Offering Stockholder shall notify the
Company of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such transfer and of the terms thereof as
the Company may request. If, at the end of such 90 day period, the Offering
Stockholder has not completed the
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<PAGE> 5
transfer of the Transfer Shares, he shall no longer be permitted to transfer
such Shares pursuant to this Section 3.9 without again complying with Section 3
in its entirety.
3.10. EXEMPTION. The rights and obligations set forth in this Section
3 shall not apply to a transfer of Shares pursuant to Section 2, 4 or 5 hereof.
3.11. PRO RATA SHARE. For purposes of this Section 3, as to any
person, the term "Pro Rata Share" shall mean the total number of Transfer Shares
available for allocation among a group of potential purchasers ("Potential
Purchasers") multiplied by a fraction in which the numerator is the number of
shares of the common stock of the Company owned by such person and the
denominator is the number of such shares owned by all of the Potential
Purchasers, as a group.
Section 4. SALES ON TERMINATION OF EMPLOYMENT.
4.1. COMPANY'S RIGHT TO REPURCHASE. Upon any Stockholder's ceasing for
any reason to be employed by the Company, whether due to the Stockholder's
death, Permanent Disability, Termination for Cause, Involuntary Termination,
Retirement or otherwise (as such, a "Terminated Stockholder" and such cessation
of employment a "Termination Event"), subject to the provisions of this Section
4, the Company may purchase, and the Terminated Stockholder and the Terminated
Stockholder's Permitted Transferees shall sell, all of the Shares owned by the
Terminated Stockholder and the Terminated Stockholder's Permitted Transferees on
the date of the occurrence of such Termination Event or acquired thereafter (the
"Termination Shares") at a price per Termination Share equal to the Termination
Price.
4.2. TERMINATION PRICE. As used in this Agreement, the term
"Termination Price" shall mean (a) in the event of the Terminated Stockholder's
death, Permanent Disability, Retirement or Involuntary Termination, the Fair
Market Value of the Termination Shares on the date of the Termination Event, (b)
in the event of the Terminated Stockholder's Termination for Cause arising from
the Terminated Stockholder's conviction for fraud, embezzlement or any felony
involving moral turpitude, the lower of the original purchase price or the Fair
Market Value of the Termination Shares on the date of the occurrence of the
Termination Event; and (c) in the event of the Terminated Stockholder's
Termination for Cause (other than as provided in Section 4.2(b)) or termination
for any other reason not otherwise provided for herein, (i) the Fair Market
Value of the Termination Shares that are "Protected Shares" on the date of the
occurrence of the Termination Event (with 20% of the Shares purchased
concurrently with the execution hereof becoming "Protected Shares" on each of
the first through the fifth anniversaries of the date hereof) and (ii) the lower
of the original purchase price or the Fair Market Value of the Termination
Shares that are not Protected Shares on the date of the occurrence of the
Termination Event.
4.3. EXERCISE OF RIGHT. The Company shall notify the Terminated
Stockholder whether it will or will not exercise its option to purchase as set
forth in Section 4.1 within 45 days of the Termination Event, after which such
option will lapse if not exercised.
4.4. CLOSING. The closing of any purchase by the Company of
Termination Shares (the "Termination Closing") pursuant to this Section 4 shall
take place at the principal offices of the Company on the date chosen by the
Company, which date shall not, except as
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<PAGE> 6
otherwise provided in this Section 4, be more than 60 days after the occurrence
of the Termination Event. At the Termination Closing, the Company shall deliver
to the Terminated Stockholder and such Terminated Stockholder's Permitted
Transferees against delivery of duly endorsed certificates representing such
Termination Shares, free and clear of all encumbrances, a certified or bank
cashier's check or checks in the amount of the Termination Price.
Notwithstanding anything to the contrary contained in this Section 4.4, if, and
only if, and to the extent that the payment for Termination Shares with cash
would (a) violate any law, statute, order, writ, injunction, decree, rule,
regulation, policy or guideline promulgated, or judgment or order entered, by
any federal, state, local or foreign court or governmental authority applicable
to the Company or any of its subsidiaries, or (b) constitute or cause a breach
or default (immediately or with notice or lapse of time or both) of any loan,
credit or warrant agreement or debt instrument or warrant to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective assets is bound, the Company shall be
permitted to pay for the Termination Shares by delivery of a subordinated note
of the Company with a fixed interest rate equal to the interest rate the Company
is charged by its Bank at the time this current obligation comes into existence,
in the form annexed hereto as Exhibit B (a "Termination Note").
4.5. FAIR MARKET VALUE. The fair market value of Shares ("Fair Market
Value") shall be determined as follows:
4.5.1. If a public trading market for the Shares exists, the Fair
Market Value per Share shall be the average of the daily closing price for the
Shares for the 20 consecutive trading days prior to the date of determination of
the Fair Market Value of Shares, as reported on the primary national securities
exchange on which the Shares are listed or, if they are not so listed, in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, Inc. ("NASDAQ"), or a comparable
inter-dealer quotation system, or if the Shares are not listed or quoted on
NASDAQ or a comparable inter-dealer quotation system, the average of the closing
bid and asking prices for the Shares for the 20 consecutive trading days prior
to the date of determination as furnished by two members of the National
Association of Securities Dealers, Inc. selected by the Board of Directors.
4.5.2. In the absence of any such quotations, or if no public
trading market for the Shares exists, the Board of Directors shall determine the
Fair Market Value in the exercise of its good faith judgment, or if the Board of
Directors is unable to determine the Fair Market Value of any Shares, or if at
least 100 Shares are in issue and the Terminated Stockholder or Permitted
Transferee whose Shares are being acquired at Fair Market Value disagrees with
the Board of Directors' determination of Fair Market Value by written notice
delivered to the Company within five business days after the Board of Directors'
determination thereof is communicated to the Terminated Stockholder or Permitted
Transferee, which notice specifies such person's determination of the Fair
Market Value of the Termination Shares, then the Company shall request its
auditors to select a nationally recognized appraisal, accounting or investment
banking firm which has not had a material relationship with the Company, the
Terminated Stockholder, the applicable Permitted Transferee or any of the other
Management Stockholders within the preceding two years, which shall determine
the Fair Market Value of such Shares. Such firm's determination of such Fair
Market Value shall be final, binding and conclusive on the Company, the
Terminated Stockholder and such Permitted Transferee. If the Board of Directors
is unable to determine the Fair Market Value, all costs and fees of such firm
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shall be borne by the Company. If the Terminated Stockholder or Permitted
Transferee disagreed with the Board of Directors' determination of such value,
the party whose determination of such value differed from the Fair Market Value
determined by such firm by the greatest amount shall bear all costs and fees of
such firm. To the extent that a Terminated Stockholder or Permitted Transferee
is required to bear such costs and fees, the Company may, at its option, itself
pay such costs and fees and offset the amount so paid against amounts otherwise
due and owing from Company or any of its affiliates to such person.
4.6. DEFINITIONS. For purposes of this Section 4, the following terms
shall be defined as follows:
4.6.1. "Permanent Disability" shall mean the inability of the
Terminated Stockholder to perform his duties and responsibilities to the Company
or any of its subsidiaries by reason of a physical or mental disability or
infirmity (a) for a continuous period of 90 days or (b) at such earlier time as
the Terminated Stockholder submits medical evidence satisfactory to the Company
that the Terminated Stockholder has a physical or mental disability or infirmity
that will likely prevent him from substantially performing his duties and
responsibilities for 90 days or longer. The date of such Permanent Disability
shall be on the last day of such 90 day period or the day on which the
Terminated Stockholder submits such evidence, as the case may be.
4.6.2. "Termination for Cause" shall mean the termination of the
employment of the Terminated Stockholder by action of the Company if the Company
delivers to the Terminated Stockholder within 15 business days after such
termination, a notice of termination for cause specifying in reasonable detail
the occurrence of one or more of the following events prior to the date on which
the Terminated Stockholder was removed:
(a) a judgment of conviction is entered against the Terminated
Stockholder for fraud, embezzlement or any felony involving moral
turpitude; or
(b) the Terminated Stockholder has (i) willfully and continuously
failed to perform his duties to the Company or any of its subsidiaries in
any material respect, or (ii) failed in any material respect to follow
specific directions of the Board of Directors in the performance of his
duties; or
(c) the Terminated Stockholder has demonstrated willful
misconduct in the performance of his duties to the Company or any of its
subsidiaries in any material respect.
4.6.3. "Involuntary Termination" shall mean the termination of
the employment of the Terminated Stockholder by action of the Company not
constituting Termination for Cause.
4.6.4. "Retirement" shall mean the automatic termination of the
employment of the Terminated Stockholder upon his reaching the mandatory
retirement age for employees of the Company as established by the Company from
time to time.
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Section 5. DRAG-ALONG. Anything contained herein to the contrary
notwithstanding, if the Board of Directors of the Company approves a transaction
pursuant to which a person or persons will acquire all of the shares of the
Common Stock of the Company or substantially all of the assets of the Company,
or, as the result of a merger or consolidation, all of the shares of the common
stock of the Company will be exchanged for equity in the resulting entity or any
other consideration, each of the Stockholders agrees to sell all of his Shares
to such person or to vote his Shares in favor of such sale, merger or
consolidation, upon the terms and conditions for the transaction approved by the
Board of Directors. The Company agrees that, as a condition precedent to the
consummation of such transaction, all Termination Notes plus accrued interest
shall be paid in full or purchased at face value.
Section 6. TRANSFERS TO COMPETITORS. Notwithstanding any other provision of
this Agreement, no Stockholder shall transfer any Shares to any person
determined by the Board of Directors of the Company to be engaged in any
activity or business in competition with any business currently or at the time
of the proposed transfer carried on by the Company or any of its affiliates.
Section 7. MISCELLANEOUS.
7.1. LEGENDS. The certificates evidencing the Shares shall bear the
following legends in conspicuous type:
THE TRANSFER OF THESE SHARES IS SUBJECT TO THE TERMS OF A
MANAGEMENT STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND CERTAIN OF ITS
STOCKHOLDERS DATED __________, 1996. EXCEPT AS PROVIDED IN THE
MANAGEMENT STOCKHOLDERS AGREEMENT, THESE SHARES MAY NOT BE GIVEN,
SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED. THE COMPANY WILL
MAIL TO THE STOCKHOLDER A COPY OF SUCH AGREEMENT WITHOUT CHARGE WITHIN
FIVE DAYS AFTER RECEIPT OF WRITTEN REQUEST THEREFOR.
7.2. NO RIGHT OF EMPLOYMENT. Neither this Agreement nor any exercise
of any rights granted pursuant hereto shall create, or be construed or deemed to
create, any right of employment in favor of any Stockholder or any other person
by the Company or any of its subsidiaries.
7.3. RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of this
Agreement shall apply, to the fullest extent set forth herein with respect to
the Shares, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) that may be issued in respect of, in exchange for, or in
substitution of, Shares and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalizations and the like
occurring after the date hereof. Subject only to the provisions of the preceding
sentence, nothing contained in this Agreement shall prohibit or restrict the
Company from taking any corporate action, including, without limitation,
declaring any dividend (whether in cash or stock) or engaging in any corporate
transaction of any kind, including, without limitation, any merger,
consolidation, liquidation or sale of assets.
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<PAGE> 9
7.4. AVAILABILITY OF EQUITABLE REMEDIES. The Stockholders and the
Company acknowledge that a breach of the provisions of this Agreement could not
be adequately compensated by money damages. Accordingly, any party hereto or
beneficiary hereof shall be entitled, in addition to any other right or remedy
available to it, to an injunction restraining such breach or threatened breach
and to specific performance of any such provision of this Agreement, and in
either case no bond or security shall be required in connection therewith.
7.5. WAIVER. No purported waiver by any party of any default by any
other party of any term or provision contained herein shall be deemed to be a
waiver of such term or provision unless the waiver is in writing and signed by
the waiving party. No such waiver shall in any event be deemed a waiver of any
subsequent default under the same or any other term or provision contained
herein.
7.6. ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto
set forth the entire understanding among the parties concerning the subject
matter of this Agreement and incorporate all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, among them relating to the subject
matter of this Agreement other than those set forth herein. No representation or
warranty has been made by or on behalf of any party to this Agreement (or any
officer, director, employee or agent thereof) to induce any other party to enter
into this Agreement or to abide by or consummate any transactions contemplated
by any terms of this Agreement, except representations and warranties, if any,
expressly set forth herein. No alteration, amendment, change or addition to this
Agreement shall be binding upon any party unless in writing and signed by the
party to be charged.
7.7. NO PARTNERSHIP. Nothing contained in this Agreement shall be
deemed or construed by the parties hereto or by any third person to create the
relationship of principal and agent or of partnership or of joint venture.
7.8. SUCCESSORS. Each and all of the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and except
as otherwise specifically provided in this Agreement, their respective heirs,
legal representatives, successors and assigns, provided, however, that neither
this Agreement nor any rights herein granted may be assigned, transferred or
encumbered by any party.
7.9. NOTICES. Any consent, waiver, notice, demand, request or other
instrument required or permitted to be given under this Agreement shall be in
writing and be deemed to have been properly given when delivered in person or
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed, if to any Stockholder, to his address set forth on
Exhibit A hereto; and
If to the Company:
FM Precision Golf Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attn.: President
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with copies to:
Kenneth J. Warren, Esq. Christopher A. Johnston
41 South High Street, Suite 2300 4015 West Lake Creek Drive, Suite 1
Columbus, Ohio 43215 Jackson, Wyoming 83001
Any party may change its address for notices by notice in the manner set forth
above.
7.10. CAPTIONS. The captions and section numbers appearing in this
Agreement are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of the provisions of this
Agreement.
7.11. PARTIAL INVALIDITY. If any term or provision of this Agreement,
or the application thereof to any person, firm, corporation or circumstance,
shall be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons, firms, corporations or
circumstances other than those as to which it is held invalid, shall be
unaffected thereby and each term or provision of this Agreement shall be valid
and be enforced to the fullest extent permitted by law.
7.12. GOVERNING LAW. This Agreement shall be governed and construed by
the provisions hereof and in accordance with the laws of the State of Delaware
applicable to agreements to be performed in the State of Delaware.
7.13. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when executed by the parties hereto shall be deemed an original
and all of which together shall be deemed the same Agreement.
7.14. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement or the breach of any term or provision hereof, shall be
settled by arbitration in the City of Torrington, State of Connecticut, in
accordance with the Rules of the American Arbitration Association and judgment
upon the award rendered by the Arbitrator(s) may be entered in any Court having
jurisdiction thereof. The Arbitrator(s) sitting in any controversy shall have no
power to alter or modify any express provision of this Agreement, or to make any
award which by the terms effects any such alteration or modification.
The parties hereto have caused this Agreement to be executed as of the day
and year first above written.
FM PRECISION GOLF CORP.
By: /S/ Christopher A. Johnston
-----------------------------------
Christopher A. Johnston, President
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<PAGE> 11
"STOCKHOLDERS"
/s/ Ronald L. Chalmers
----------------------------------------
Ronald L. Chalmers
/s/ Warren K. Braly
----------------------------------------
Warren K. Braly
/s/ Jeremiah S. Gourd
----------------------------------------
Jeremiah S. Gourd
/s/ Peter D. Dripchak
----------------------------------------
Peter D. Dripchak
/s/ John M. Lynch
----------------------------------------
John Lynch
/s/ William Faragher
----------------------------------------
William B. Faragher
/s/ Anthony J. Montgomery
----------------------------------------
Anthony J. Montgomery
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EXHIBIT A
STOCKHOLDER ADDRESS SHARES OWNED
Ronald L. Chalmers 107 Red Oak Hill 30
Torrington CT 06790
Warren K. Braly 161 Blake Street 15
Torrington CT 06790
Jeremiah S. Gourd 43 Ashley Drive 15
Goshen CT 06756
Peter D. Dripchak 38 Lee Drive 15
Southington CT 06489
John Lynch 1518 Birkdale Lane 15
Ponte Vedra Beach FL 32082
William B. Faragher 17 Blue Berry Lane 10
Burlington CT 06013
Anthony J. Montgomery 5369 NW Wahkeena Lane 10
Portland OR 97229
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EXHIBIT B
TERMINATION NOTE
Chicago, Illinois
$_______________________ ___________________________ , 1996
Pursuant to the provisions of that certain Management Stockholders
Agreement dated ___________________, 1996 (the "Agreement") between FM PRECISION
GOLF CORP., a Delaware corporation ("Company"), and certain of its stockholders
including ____________________________ ("Stockholder"), Company hereby promises
to pay to Stockholder the principal amount of
_________________________________________ ($_______________), with interest at
_____% per annum accruing from the date hereof.
Section 1. PAYMENTS OF INTEREST AND PRINCIPAL. The interest accrued on this
Note and the principal balance of this Note shall be payable in four annual
installments, each consisting of one quarter of the principal balance plus any
accrued interest, on the first, second, third, and fourth anniversaries of the
date hereof (the "Payment Dates"). Notwithstanding the foregoing, if, on any
Payment Date, the making of any payment otherwise due hereunder would (x)
violate any law, statute, order, writ, injunction, decree, rule, regulation,
policy or guideline promulgated, or judgment or order entered, by any federal,
state, local or foreign court or governmental authority applicable to the
Company or any of its subsidiaries, or (y) constitute or cause a breach or
default (immediately or with notice or lapse of time or both) of any loan,
credit or warrant agreement or debt instrument or warrant to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective assets is bound, then, with regard to
that portion of the payment due causing the violation, breach or default, the
Payment Date shall be postponed until such time that such payment would not
cause such violation, breach or default.
Section 2. PREPAYMENT. The Company shall have the right, at any time and
from time to time, to prepay this Note in whole or in part without premium or
penalty.
Section 3. PLACE OF PAYMENT, ENDORSEMENT AND ALLOCATION. All payments
hereunder shall be made to the Stockholder at Stockholder's address set forth in
Section 7 or at such other address as the Stockholder may from time to time
designate.
Section 4. DEFAULT. The following shall be events of default under this
Note: (a) default in the payment of any installment of principal or interest
when due hereunder, taking into account the postponement of due dates provided
for in Section 1, and failure by the Company to cure the same within 15 days of
the Company's receipt of written notice thereof from the Stockholder; or (b) if
Company (i) makes an assignment for the benefit of, or enters into any
composition or arrangement with, creditors, (ii) becomes a debtor in a
proceeding under Title 11 of the United States Code, (iii) dissolves, (iv)
generally does not pay its debts as such debts become due, or (v) conceals,
removes, or transfers any part of its property with intent to hinder, delay or
defraud its creditors or makes or suffers a transfer of any of its property
which is fraudulent under any bankruptcy, fraudulent conveyance or similar law.
Upon the occurrence of
-13-
<PAGE> 14
any event of default, the Stockholder may, at its option, forthwith accelerate
the maturity hereof by notice to the Company, and the obligation evidenced
hereby shall thereupon be immediately due and payable.
Section 5. OFFSET. Company may offset against any amounts otherwise due
hereunder any and all amounts due from Stockholder or any affiliate of
Stockholder to Company or any affiliate of Company from time to time, whether
pursuant to the Agreement or otherwise.
Section 6. GOVERNING LAW. This Note shall be governed and construed by the
provisions hereof and in accordance with the laws of the State of Delaware
applicable to promissory notes to be performed in the State of Delaware.
Section 7. NOTICES. Any consent, waiver, notice, demand, request or other
instrument required or permitted to be given under this Note shall be in writing
and be deemed to have been properly given only when delivered in person or sent
by (a) national prepaid overnight delivery service, or (b) telecopy or other
facsimile transmission (followed with hard copy sent by national prepaid
overnight delivery service), or four business days after being sent by certified
or registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Stockholder:
*[*Insert Stockholder's Name Here*]*
------------------------------------
------------------------------------
Telephone:__________________________
If to Company:
FM Precision Golf Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attn.: President
Telephone: (203) 489-9254
Notice of change of address will be effective only upon receipt.
Section 8. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Note authorizes or
requires the payment of money or the performance of a condition or obligation on
a Saturday, Sunday or a public holiday, or authorizes or requires the payment of
money or the performance of a condition or obligation within or before or after
a period of time computed from a certain day, and such period of time ends on a
Saturday, Sunday or a public holiday, such payment may be made or condition or
obligation performed on the next succeeding business day, and if the period ends
at a specified hour, such payment may be made or condition performed at or
before the same hour of such next succeeding business day with the same force
and effect as if made or performed in accordance with the terms of this Note.
The Company has executed this Note as of the date first above written.
-14-
<PAGE> 15
FM PRECISION GOLF CORP.
By:_____________________________________
Name:___________________________________
Title:__________________________________
-15-
<PAGE> 1
Exhibit 10.2.5
FM PRECISION GOLF CORP.
1997 STOCK OPTION PLAN
MARCH 13, 1997
PREAMBLE:
1. FM PRECISION GOLF CORP., a Delaware corporation (the
"Company"), by means of this 1997 Stock Option Plan (the "Plan"), desires to
attract and retain capable employees, officers, directors and consultants and to
provide them with long term incentives to continue their services to the
Company, to maximize the value of the Company to its stockholders and to acquire
a continuing ownership interest in the Company.
2. The Company has determined that the foregoing objectives will
be promoted by granting Options (as hereinafter defined) under this Plan to
certain employees, officers, directors and consultants of the Company and of its
affiliated entities, if any, pursuant to this Plan.
TERMS:
ARTICLE 1. DEFINITIONS.
Section 1.1. General. Certain words and phrases used in this Plan
shall have the meanings given to them below in this section:
"Affiliate" means any parent corporation of the Company, any
Subsidiary of the Company or any of its parent corporations and any other entity
that is controlled by the Company or is under common control with the Company or
in which the Company has a significant equity interest.
"Board of Directors" means the board of directors of the Company.
"Code" means the Internal Revenue Code of 1986 and the
regulations thereunder, as now in effect or hereafter amended.
"Committee" means the Committee of the Board of Directors that
administers the Plan under Section 2.1 below.
"Consultant" means any person who provides services to the
Company or any Affiliate (other than in connection with the offer or sale of
securities of the Company in a capital raising transaction), who is an Employee.
"Date of Grant" means the date an Option is first granted.
"Director" means a member of the Board of Directors.
"Employee" means any employee, director or officer of the Company
or any Affiliate and includes consultants and advisers who render bona fide
services to the Company or any Affiliate which are not in connection with the
offer and sale of securities in a capital raising transaction within the meaning
of General Instruction A.1. to Form S-8 promulgated by the Securities and
Exchange Commission under the Securities Act..
"Employment" means to act as an Employee of the Company as the
term employee is broadly defined above.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934 and the
regulations thereunder, as now in effect or hereafter amended.
"Exercise Price" means, with respect to an Option, the amount of
consideration that must be delivered to the Company in order to purchase a
single Share thereunder.
"Grantee" means any Participant to whom an Option has been
granted.
"Holder" means any Grantee who holds a valid Option and any heir
or legal representative to whom such Grantee's Option has been transferred by
will or the laws of descent and distribution.
"Incentive Stock Option" means a Stock Option intended to comply
with the terms and conditions set forth in Section 422 of the Code.
"Nonqualified Option" means a Stock Option other than an
Incentive Stock Option.
"Officer" means an officer of the Company or an Affiliate as
defined in 17 C.F.R. Section 240.16a-1(f) as now in effect or hereafter amended.
"Option" or "Stock Option" means a right granted under Article 5
of the Plan to a Grantee to purchase a stated number of Shares.
"Option Agreement" means an agreement between the Grantee and the
Company setting forth rights and obligations with respect to the Option and
related issues.
"Option Certificate" means a certificate of the Company
evidencing an Option substantially in the form attached hereto.
"Participant" means a person who is eligible to receive an Option
under the Plan.
"Plan" means this Plan as it may be amended or restated from time
to time.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock, par value $.01 per
share.
"Subsidiary" means each partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company
or other entity of which or in which the Company or its other Subsidiaries own
directly or indirectly 51% or more of (a) the combined voting power of all
classes of stock having general voting power under ordinary circumstances to
elect a majority of the board of directors or equivalent body of such entity, if
it is a corporation or similar entity; (b) the capital interest or profits
interest of such entity, if it is a partnership, joint venture or similar
entity; or (c) the beneficial interest of such entity if it is a trust,
association or other unincorporated organization.
"Termination Without Cause" means a termination by the Company or
an Affiliate of the employment relationship, officer status, director status or
consulting status of a Grantee with the Company or an Affiliate that is not for
cause and is not occasioned by the resignation, death or disability of the
Grantee.
Section 1.2. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles.
Section 1.3. Effect of Definitions. The definitions set forth in
Section 1.1 above shall apply equally to the singular, plural, adjectival,
adverbial and other forms of any of the words and phrases defined regardless of
whether they are capitalized.
ARTICLE 2. ADMINISTRATION.
Section 2.1. Committee. The Plan shall be administered by the
Compensation Committee of the Board of Directors.
<PAGE> 3
Section 2.2. Authority. Subject to the express provisions of the
Plan and in addition to the powers granted by other sections of the Plan, the
Committee has the authority, in its discretion, to (a) determine the
Participants, grant Options and determine their timing, pricing and amount; (b)
define, prescribe, amend and rescind rules, regulations, procedures, terms and
conditions relating to the Plan; (c) make all other determinations necessary or
advisable for administering the Plan including, but not limited to, interpreting
the Plan, correcting defects, reconciling inconsistencies and resolving
ambiguities; and (d) review and resolve all claims of Employees, Grantees,
Holders and Participants. The actions and determinations of the Committee on
matters related to the Plan shall be conclusive and binding upon the Company and
all Employees, Grantees, Holders and Participants.
ARTICLE 3. SHARES.
Section 3.1. Number. The aggregate number of Shares offered and
sold under the Plan shall not exceed 40.66 Shares.
Section 3.2. Anti-Dilution.
(a) If the Shares are split or if a dividend of
Shares is paid on the Shares, the number of Shares on which each then
outstanding Option is based and the number of Shares as to which Options may be
granted under this Plan shall be increased automatically by the ratio between
the number of Shares outstanding immediately after such event and the number of
Shares outstanding immediately before such event and the Exercise Price thereof
shall be decreased automatically by the same ratio. If the Shares are combined
into a lesser number of Shares, the number of Shares for which each then
outstanding Option is based and the number of Shares as to which Options may be
granted under the Plan shall be decreased automatically by such ratio and the
Exercise Price thereof shall be increased automatically by such ratio.
(b) If any other change occurs in the Shares,
through recapitalization, merger, consolidation or exchange of shares or
otherwise, there shall automatically be substituted for each Share subject to an
unexercised Option and each Share available for additional grants of Options,
the number and kind of shares or other securities into which each outstanding
Share was changed, and the Exercise Price shall be increased or decreased
proportionally so that the aggregate Exercise Price for the securities subject
to each Option shall remain the same as immediately before such event. In
addition, the Committee may make such further equitable adjustments in the Plan
and the then outstanding Options as are deemed necessary and appropriate by the
Committee including, but not limited to, changing the number of Shares reserved
under the Plan or covered by outstanding Options, the Exercise Price of
outstanding Options and the vesting conditions of outstanding Options.
Section 3.3. Source. Except as otherwise determined by the Board
of Directors, the Shares issued under the Plan shall be drawn from the Company's
authorized but unissued Shares. However, Shares which are to be delivered under
the Plan may be obtained by the Company from its treasury, by purchases on the
open market or from private sources, as well as by issuing authorized but
unissued Shares. The proceeds of the exercise of any Option shall be general
corporate funds of the Company. No Shares may be sold under any Option for less
than the par value thereof.
Section 3.4. Rights of a Shareholder. No Holder or other person
claiming under or through any Holder shall have any right, title or interest in
or to any Shares allocated or reserved under the Plan or subject to any Option
except as to such Shares, if any, for which certificates representing such
Shares have been issued to such Holder.
Section 3.5. Securities Laws. The Shares sold under the Plan are
deemed to be restricted securities until the Plan is subject to an effective
registration statement under the Securities Act.
Section 3.6. Option Agreement. If there is no public market for
the Shares at the time an Option is granted, a Holder may be required to execute
and deliver to the Company an Option Agreement.
<PAGE> 4
ARTICLE 4. ELIGIBILITY.
Only Employees shall be eligible to receive Options under Article
5 below.
ARTICLE 5. STOCK OPTIONS.
Section 5.1. Determinations. The Committee shall determine which
Participants shall be granted Options, the number of Shares for which the
Options may be exercised, the times when they shall receive them and the terms
and conditions of individual Option grants (which need not be identical).
Section 5.2. Exercise Price. The Committee shall determine the
Exercise Price of each Option at the time that it is granted
Section 5.3. Term. Subject to the rule set forth in the next
sentence, the Committee shall determine the times when an Option vests and the
term during which an Option is exercisable at the time that it is granted. No
Option shall be exercisable after the expiration of ten years from the Date of
Grant. If no express determination of the times when Options are exercisable is
made by the Committee:
(a) each Option shall vest and first become exercisable as to 25% of the Shares
subject to such Option on each of the first four anniversaries of the Date of
Grant provided the Grantee has been an Employee continuously during the time
beginning on the Date of Grant and ending on the date when such portion vests
and first becomes exercisable; and
(b) each Option shall lapse and cease to be exercisable upon the earliest of:
(i) ten years after the Date of Grant,
(ii) nine months after the Grantee ceases to be an Employee because of death or
disability,
(iii) 90 days after the Termination Without Cause of the Grantee's Employment
with the Company, or
(iv) immediately upon termination of the Grantee's Employment with the Company
by the Company for cause or by the Grantee's resignation.
Section 5.4. Not Incentive Stock Options. All Options are
Nonqualified Options and no Option shall be treated as an Incentive Stock
Option.
Section 5.5. Exercise. An Option shall be exercised by the
delivery of the Option Certificate therefor, with the notice of exercise
attached thereto properly completed and duly executed by the Holder, to the
Treasurer of the Company, together with the aggregate Exercise Price for the
number of Shares as to which the Option is being exercised, after the Option has
become exercisable and before it has ceased to be exercisable. An Option may be
exercised as to less than all of the Shares purchasable thereunder, but not for
a fractional share unless it is exercised as to all of the Shares then available
thereunder. If an Option is exercised as to less than all of the Shares
purchasable thereunder, a new duly executed Option Certificate reflecting the
decreased number of Shares exercisable under such Option, but otherwise of the
same tenor, shall be returned to the Holder. The Committee may, in its sole
discretion and upon such terms and conditions as it shall determine at or after
the Date of Grant, permit the Exercise Price to be paid in cash, by the tender
to the Company of Shares owned by the Holder, by the tender to the Company of a
note, or by a combination thereof. If the Committee does not make such
determination, the Exercise Price shall be paid in cash. If any portion of the
Exercise Price of an Option is payable in cash, it may be paid by (a) delivery
of a certified or cashier's check payable to the order of the Company in such
amount, (b) wire transfer of immediately available funds to a bank account
designated by the Company or (c) reduction of a debt of the Company to the
Holder. If any portion of the Exercise Price of an Option is payable in Shares,
it may be paid by delivery of certificates representing a number of Shares
having a total fair market value on the date of exercise equal to or greater
than the required amount, duly endorsed for transfer with all signatures
guaranteed by a medallion signature guarantee. If more Shares than are necessary
to pay such Exercise Price based on their fair market value on the date of
exercise are delivered to the Company, it shall return to the Holder a
certificate for the balance of the whole number of Shares and a check payable to
the order of the Holder for any fraction of a Share. Shares may not be delivered
to the Company as payment for the
<PAGE> 5
exercise of an Option if such Shares have been owned by the Holder (together
with his or her decedent or testator) for less than six months, if such delivery
would require the Holder to pay to the Company any gain under the provisions of
Section 16(b) of the Exchange Act, or if such Shares were acquired upon the
exercise of an Incentive Stock Option and their disposition would be taxable.
Promptly after an Option is properly exercised, the Company shall issue to the
Holder a certificate representing the Shares purchased thereunder.
Section 5.6. Option Certificate and Option Agreement. Promptly
after the Date of Grant, the Company shall duly execute and deliver to the
Grantee an Option Certificate setting forth the terms of the Option. Option
Certificates are not negotiable instruments or securities (as such term is
defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Option
Certificates may be replaced without bond.
ARTICLE 6. PROVISIONS APPLICABLE TO ALL OPTIONS.
Section 6.1. Reserved.
Section 6.2. Withholding. The Company shall have the right to
withhold from any payments due under any Option or due to any Holder from the
Company as compensation or otherwise the amounts of any federal, state or local
withholding taxes not paid by the Holder at the time of the exercise or vesting
of any Option. If cash payments sufficient to allow for withholding of taxes are
not made at the time of exercise or vesting of an Option, the Holder exercising
such Option shall pay to the Company an amount equal to the withholding required
to be made less the withholding otherwise made in cash or, if allowed by the
Committee in its discretion and pursuant to rules adopted by the Committee
consistent with Section 5.5 above, Shares previously owned by the Holder. The
Company may make such other provisions as it deems appropriate to withhold any
taxes the Company determines are required to be withheld in connection with the
exercise of any Option, including, but not limited to, the withholding of Shares
from an Option upon such terms and conditions as the Committee may provide. The
Company may require the Holder to satisfy any relevant withholding requirements
before issuing Shares or delivering any Option to the Holder.
Section 6.3. Disability. If a Grantee who is an Employee is
absent from work because of a physical or mental disability, for purposes of the
Plan such Grantee will not be considered to have ended his or her Employment
with the Company while such Grantee has that disability, unless he or she
resigns or terminates such relationship, a termination occurs under the
provisions of any agreement between the Grantee and the Company or the Committee
decides in circumstances where there is no such agreement.
Section 6.4. Merger of the Company. If the Company merges or
consolidates with or sells substantially all of its assets to a person that was
not one of its Affiliates before such transaction, or any such unaffiliated
person or corporation has publicly announced a tender offer to purchase more
than 20% of the outstanding voting securities of the Company, the Committee, in
its discretion, may provide that, for a period of 30 days, not extending beyond
the ten year period referred to in Section 5.3 above, from the date of execution
of the acquisition agreement in final definitive form or the announcement of
such offer, notwithstanding the provisions of any Option, any Option may be
exercised in whole or in part during such 30 day period or that upon the
termination of such 30 day period any such Option shall expire and be null and
void.
Section 6.5. Surrender and Exchange. The Committee may permit the
voluntary surrender of all or a portion of any Option to be conditioned upon the
granting to the Holder of a new Option for the same or a different number of
Shares as the Option surrendered, or may require such voluntary surrender as a
condition precedent to a grant of a new Option to such Holder. Subject to the
provisions of the Plan, such new Option shall be exercisable at the price,
during the period and on such other terms and conditions as are specified by the
Committee at the time the new Option is granted. Upon surrender, the Option
surrendered shall be canceled and the Shares previously subject to it shall be
available for the grant of other Options.
Section 6.6. Acceleration. Notwithstanding anything else in the
Plan, the Committee may, in its
<PAGE> 6
sole discretion, at any time or from time to time, accelerate the time at which
any Options mature or vest or waive any provisions of the Plan relating to the
manner of payment or procedures for the exercise or maturity of any Option;
provided that any acceleration of the maturity of an Option may only occur in
connection with any merger of the Company, sale of substantially all of the
assets of the Company, or sale of a controlling interest in the Shares of the
Company. Any such acceleration may be made effective (a) with respect to one or
more or all Holders, (b) with respect to some or all of the Shares subject to or
forming the basis for any Option to any Holder or (c) for a period of time
ending at or before the expiration date of any Option.
Section 6.7. Actions by Committee After Grant. The Committee
shall have, subject to the written consent of the Holder where the action
impairs or adversely alters the rights of the Holder, the right, at any time and
from time to time after the Date of Grant of any Option, to modify the terms of
any Option.
ARTICLE 7. GENERAL PROVISIONS.
Section 7.1. No Right to Employment. Nothing in the Plan or any
Option or any instrument executed pursuant to the Plan will confer upon any
Grantee any right to continue to be employed by or provide services to the
Company or affect the right of the Company to terminate the Employment of any
Grantee or its other relationship with any Grantee.
Section 7.2. Limited Liability. The liability of the Company
under this Plan or in connection with any exercise of any Option is limited to
the obligations expressly set forth in the Plan and in the grant of any Option,
and no term or provision of this Plan nor of any Option shall be construed to
impose any duty, obligation or liability on the Company not expressly set forth
in the Plan or any grant of any Option.
Section 7.3. Assumption of Options. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company with one or more other entities as a result of which the Company is
not the surviving entity, or upon a sale of substantially all the assets of the
Company to another entity, any Options outstanding theretofore granted or sold
hereunder must be assumed by the surviving or purchasing entity, with
appropriate adjustments as to the number and kind of shares and price. Nothing
in this Section 7.3 shall be deemed to alter or supersede any provision of the
Plan contained in Sections 6.4 or 6.6.
Section 7.4. No Transfer. No Option or other benefit under the
Plan may be sold, pledged or otherwise transferred other than by will or the
laws of descent and distribution; and no Option may be exercised during the life
of the Grantee to whom it was granted except by such Grantee.
Section 7.5. Expenses. All costs and expenses incurred in
connection with the administration of the Plan including any excise tax imposed
upon the transfer of Shares pursuant to the exercise of an Option shall be borne
by the Company.
Section 7.6. Notices. Notices and other communications required
or permitted to be made under the Plan shall be in writing and shall be deemed
to have been duly given only if personally delivered or if sent by first class
mail addressed (a) if to a Holder, at his or her residence address set forth in
the records of the Company or (b) if to the Company, to its President at its
principal executive office.
Section 7.7. Third Parties. Nothing herein expressed or implied
is intended or shall be construed to give any person other than the Holders any
rights or remedies under this Plan.
Section 7.8. Saturdays, Sundays and Holidays. Where this Plan
authorizes or requires a payment or performance on a Saturday, Sunday or public
holiday, such payment or performance shall be deemed to be timely if made on the
next succeeding business day.
Section 7.9. Rules of Construction. The captions and section
numbers appearing in this Plan are inserted only as a matter of convenience.
They do not define, limit or describe the scope or intent of the provisions of
this Plan. In this Plan words in the singular number include the plural, and in
the plural include the singular; and words of the masculine gender include the
feminine and the neuter and, when
<PAGE> 7
the sense so indicates, words of the neuter gender may refer to any gender.
Section 7.10. Governing Law. The validity, terms, performance and
enforcement of this Plan shall be governed by laws of the State of Delaware that
are applicable to agreements negotiated, executed, delivered and performed
solely in the State of Delaware.
Section 7.11. Effective Date of the Plan. The Plan shall become
effective upon its approval by the Board of Directors.
Section 7.12. Amendment and Termination. The Board of Directors
may at any time terminate the Plan or make such amendment of the Plan as it may
deem advisable provided, however, that no amendment or termination of the Plan
shall be effective to alter or impair the rights of a Holder under any Option
granted before the adoption of such amendment or termination by the Board of
Directors, without the written consent of such Holder. No termination or
amendment of this Plan or any Option nor waiver of any right or requirement
under this Plan or any Option shall be binding on the Company unless it is in a
writing duly entered into its records and executed by a duly authorized Officer.
<PAGE> 1
EXHIBIT 10.2.6
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), dated as of March 13,
1997, is made by and between FM PRECISION GOLF CORP., a Delaware corporation
(the "Company"), and CHRISTOPHER A. JOHNSTON ("Stockholder").
WHEREAS, Stockholder is an Employee, Officer or Consultant of the
Company; and
WHEREAS, Stockholder has been granted a stock option (the "Stock
Option") under the Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the execution of an Option Agreement in the form hereof
has been duly authorized by a resolution of the Board of Directors of the
Company or the Stock Option Committee of the Board of Directors of the Company;
NOW THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) Terms used herein and defined in
the Plan shall have the meanings given to them in the Plan, and (b) the
following terms, as used herein, have the following meanings:
(b) Each of the following terms is defined in the Section
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Affiliate Plan
Board of Directors Plan
Company Preamble
Company's Notice 3.3.2
Consultant Plan
Default Shares 3.3.8
Demand Registration 4.1(a)
Stockholder Preamble
Exercise Price 2.1
Fair Market Value 3.4.5
Family Members 3.2.1(b)
Management Offeree 3.3.2
Management Stockholder 3.3.2
Maximum Amount 3.3.2
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Non-Management Offeree 3.3.2
Notice of Acceptance 3.3.6
Offering Stockholder 3.3.1
Officer Plan
Permitted Transferees 3.2.1(b)
Potential Purchasers 3.3.11
Pro Rata Share 3.3.11
Rule 144 4.1(b)
Securities Act Plan
Shares Plan
Stock Option Preamble
Stockholder's Estate 3.2.1(a)
Tax Offset Payment Plan
Terminated Stockholder 3.4.1
Termination Closing 3.4.4
Termination Event 3.4.1
Termination Note 3.4.4
Termination Price 3.4.2
Termination Shares 3.4.1
Third Party Purchaser 3.3.5
Transfer 3.1
Transfer Notice 3.3.1
Transfer Offerees 3.3.6
Transfer Price 3.3.1
Transfer Shares 3.3.1
</TABLE>
ARTICLE II
TERMS OF OPTION
The option shall have the following terms:
Section 2.1. Exercise Price. The Exercise Price shall be $1,000
per share (the "Exercise Price").
Section 2.2. Payment. Upon exercise, Stockholder shall pay the
Exercise Price by delivering to the Company funds in an amount sufficient to pay
the Exercise Price together with any applicable taxes or withholdings.
-2-
<PAGE> 3
ARTICLE III
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
Stockholder shall not sell, assign, pledge, encumber, or
otherwise transfer, permit or suffer to exist any transfer of (hereinafter
called simply "Transfer"), any legal or beneficial interest in the Shares except
as expressly provided in this Agreement. In addition to the restrictions on
Transfer of the Shares contained in or resulting from other provisions of this
Agreement, no Transfer of any Shares shall be made by or on behalf of
Stockholder unless the Board of Directors has determined that such Transfer is
in compliance with the terms hereof and that the applicable Shares have been
duly registered under all applicable federal and state securities laws pursuant
to a then-effective registration which contemplates the proposed Transfer or
unless the Company has received a written opinion of or, at the option of the
Company, satisfactory to its legal counsel that the proposed Transfer so
complies with the terms hereof and is exempt from such registration under all
applicable federal and state securities laws.
ARTICLE IV
INVESTMENT INTENT
Section 4.1. Investment Intent.
(a) Stockholder represents and warrants that he is acquiring the
Shares for investment, solely for his own account and not with a view to, or for
resale in connection with, the distribution or other disposition thereof, except
for such distribution and dispositions as are effected in compliance with the
Securities Act and the rules and regulations thereunder and all applicable state
securities or "blue-sky" laws. Stockholder agrees and acknowledges that he will
not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate
or otherwise dispose of any part of his Shares, or solicit any offers to
purchase, otherwise acquire or take a pledge of any part of his Shares, unless
such offer, transfer, sale, assignment, pledge, hypothecation or other
disposition or solicitation is either (i) pursuant to an effective registration
statement under the Securities Act and registered under any applicable state
securities or "blue-sky" laws, or (ii) effected only after the Company has been
furnished with an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to the Company, stating that no such registration is
required because of the availability of an exemption from registration in effect
thereunder and under applicable state securities or "blue-sky" laws.
(b) Stockholder acknowledges and represents and warrants that he
has been advised that (i) the issuance of his Shares has not been registered
under the Securities Act or any state securities or "blue-sky" laws; (ii) his
Shares must be held indefinitely and Stockholder must continue to bear the
economic risk of his investment in the Company unless the Transfer of his Shares
is subsequently registered under the Securities Act and any applicable state
securities or "blue-sky" laws or an exemption from such registration is
available; (iii) it is not anticipated that
-3-
<PAGE> 4
there will be any public market for the Shares; (iv) Rule 144 promulgated under
the Securities Act ("Rule 144") is not currently available with respect to sales
of securities of the Company, and the Company has made no covenant to make such
Rule 144 available; and (v) a restrictive legend in the form heretofore set
forth shall be placed on any certificate representing the Shares.
(c) Stockholder represents and warrants that (i) he is aware of
the merits and risks of an investment in the Company as contemplated by this
Agreement; (ii) he has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of this investment
in the Company as contemplated by this Agreement; (iii) he understands that the
Shares are a speculative investment that involves a high degree of risk of loss
of his investment therein, that there are substantial restrictions on the
transferability of the Shares and that for an indefinite period after the date
hereof, there will be no public market for the Shares, and accordingly it may
not be possible to liquidate his investment in the Company in case of emergency,
if at all; and (iv) he is familiar with the business of the Company and
understands and has evaluated all the risk factors related to an investment in
the Company.
ARTICLE V
MISCELLANEOUS
Section 5.1. Legends. The certificates evidencing the Shares shall bear
the following legends in conspicuous type:
THESE SHARES MAY NOT BE GIVEN, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION
OF COUNSEL, IN FORM AND SUBSTANCE ACCEPTABLE TO THE
COMPANY, TO THE EFFECT THAT THESE SHARES MAY BE SO
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT.
Section 5.2. No Right of Employment. Neither this Agreement nor any
exercise of any rights granted pursuant hereto shall create, or be construed or
deemed to create, any right of employment in favor of Stockholder or any other
person by the Company or any of its Subsidiaries.
Section 5.3. Recapitalizations, Exchanges, Etc. The provisions of this
Agreement shall apply, to the fullest extent set forth herein with respect to
the Shares, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) that may be issued in respect of, in exchange for, or in
substitution of, Shares and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalizations and the like
occurring after the date hereof. Subject only to the provisions of the preceding
sentence, nothing contained in this Agreement shall prohibit or restrict the
Company from taking any corporate action, including, without limitation,
declaring
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<PAGE> 5
any dividend (whether in cash or stock) or engaging in any corporate transaction
of any kind, including, without limitation, any merger, consolidation,
liquidation or sale of assets.
Section 5.4. Availability of Equitable Remedies. Stockholder and
the Company acknowledge that a breach of the provisions of this Agreement could
not be adequately compensated by money damages. Accordingly, either party hereto
or beneficiary hereof shall be entitled, in addition to any other right or
remedy available to it, to an injunction restraining such breach or threatened
breach and to specific performance of any such provision of this Agreement, and
in either case no bond or security shall be required in connection therewith.
Section 5.5. Waiver. No purported waiver by either party of any
default by the other party of any term or provision contained herein shall be
deemed to be a waiver of such term or provision unless the waiver is in writing
and signed by the waiving party. No such waiver shall in any event be deemed a
waiver of any subsequent default under the same or any other term or provision
contained herein.
Section 5.6. Entire Agreement. This Agreement and the Exhibits
attached hereto set forth the entire understanding between the parties
concerning the subject matter of this Agreement and incorporate all prior
negotiations and understandings. There are no covenants, promises, agreements,
conditions or understandings, either oral or written, between them relating to
the subject matter of this Agreement other than those set forth herein. No
representation or warranty has been made by or on behalf of any party to this
Agreement (or any officer, director, employee or agent thereof) to induce the
other party to enter into this Agreement or to abide by or consummate any
transactions contemplated by any terms of this Agreement, except representations
and warranties, if any, expressly set forth herein. No alteration, amendment,
change or addition to this Agreement shall be binding upon either party unless
in writing and signed by the party to be charged.
Section 5.7. No Partnership. Nothing contained in this Agreement
shall be deemed or construed by the parties hereto or by any third person to
create the relationship of principal and agent or of partnership or of joint
venture.
Section 5.8. Successors. Each and all of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and except as otherwise specifically provided in this Agreement, their
respective heirs, legal representatives, successors and assigns, provided,
however, that neither this Agreement nor any rights herein granted may be
assigned, transferred or encumbered by either party.
Section 5.9. Notices. Any consent, waiver, notice, demand,
request or other instrument required or permitted to be given under this
Agreement shall be in writing and be deemed to have been properly given when
delivered in person or sent by certified or registered United States mail,
return receipt requested, postage prepaid, addressed, if to Stockholder, to his
address set forth under his signature hereto; and
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<PAGE> 6
If to the Company:
FM Precision Golf Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attn.: President
with copies to:
Kenneth J. Warren, Esq. Christopher A. Johnston
2109 W. Fifth Avenue, Suite C 3490 Clubhouse Drive, Suite 102
Columbus, Ohio 43212 Jackson, Wyoming 83001
Either party may change its address for notices by notice in the manner set
forth above.
Section 5.10. Captions. The captions and section numbers appearing in
this Agreement are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of the provisions of this
Agreement.
Section 5.11. Partial Invalidity. If any term or provision of this
Agreement, or the application thereof to any person, firm, corporation or
circumstance, shall be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons, firms,
corporations or circumstances other than those as to which it is held invalid,
shall be unaffected thereby and each term or provision of this Agreement shall
be valid and be enforced to the fullest extent permitted by law.
Section 5.12. Governing Law. This Agreement shall be governed and
construed by the provisions hereof and in accordance with the laws of the State
of Delaware applicable to agreements to be performed in the State of Delaware.
Section 5.13. Counterparts. This Agreement may be executed in
counterparts, each of which when executed by the parties hereto shall be deemed
an original and all of which together shall be deemed the same Agreement.
Section 5.14. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach of any term or provision hereof, shall
be settled by arbitration in the City of Torrington, State of Connecticut, in
accordance with the Rules of the American Arbitration Association and judgment
upon the award rendered by the Arbitrator(s) may be entered in any Court having
jurisdiction thereof. The Arbitrator(s) sitting in any controversy shall have no
power to alter or modify any express provision of this Agreement, or to make any
award which by the terms effects any such alteration or modification.
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<PAGE> 7
The parties hereto have caused this Agreement to be executed as of the
day and year first above written.
FM PRECISION GOLF CORP.
By:
------------------------------------
Christopher A. Johnston, President
STOCKHOLDER
------------------------------------
CHRISTOPHER A. JOHNSTON
Address: 2784 Teton Pines Drive
Jackson, Wyoming 83001
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<PAGE> 1
EXHIBIT 10.2.7
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), dated as of March 13,
1997, is made by and between FM PRECISION GOLF CORP., a Delaware corporation
(the "Company"), and __________________ ("Stockholder").
WHEREAS, Stockholder is an Employee, Officer or Consultant of the
Company; and
WHEREAS, Stockholder has been granted a stock option (the "Stock
Option") under the Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the execution of an Option Agreement in the form hereof
has been duly authorized by a resolution of the Board of Directors of the
Company or the Stock Option Committee of the Board of Directors of the Company;
NOW THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) Terms used herein and defined in
the Plan shall have the meanings given to them in the Plan, and (b) the
following terms, as used herein, have the following meanings:
(b) Each of the following terms is defined in the Section
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Affiliate Plan
Board of Directors Plan
Company Preamble
Company's Notice 3.3.2
Consultant Plan
Default Shares 3.3.8
Demand Registration 4.1(a)
Stockholder Preamble
Exercise Price 2.1
Fair Market Value 3.4.5
Family Members 3.2.1(b)
Management Offeree 3.3.2
Management Stockholder 3.3.2
Maximum Amount 3.3.2
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Non-Management Offeree 3.3.2
Notice of Acceptance 3.3.6
Offering Stockholder 3.3.1
Officer Plan
Permitted Transferees 3.2.1(b)
Potential Purchasers 3.3.11
Pro Rata Share 3.3.11
Rule 144 4.1(b)
Securities Act Plan
Shares Plan
Stock Option Preamble
Stockholder's Estate 3.2.1(a)
Tax Offset Payment Plan
Terminated Stockholder 3.4.1
Termination Closing 3.4.4
Termination Event 3.4.1
Termination Note 3.4.4
Termination Price 3.4.2
Termination Shares 3.4.1
Third Party Purchaser 3.3.5
Transfer 3.1
Transfer Notice 3.3.1
Transfer Offerees 3.3.6
Transfer Price 3.3.1
Transfer Shares 3.3.1
</TABLE>
ARTICLE II
TERMS OF OPTION
The option shall have the following terms:
Section 2.1. Exercise Price. The Exercise Price shall be $1,000
per share (the "Exercise Price").
Section 2.2. Payment. Upon exercise, Stockholder shall pay the
Exercise Price by delivering to the Company funds in an amount sufficient to pay
the Exercise Price together with any applicable taxes or withholdings.
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<PAGE> 3
ARTICLE III
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
Section 3.1. No Transfer. Stockholder shall not sell, assign, pledge,
encumber, or otherwise transfer, permit or suffer to exist any transfer of
(hereinafter called simply "Transfer"), any legal or beneficial interest in the
Shares except as expressly provided in this Agreement. In addition to the
restrictions on Transfer of the Shares contained in or resulting from other
provisions of this Agreement, no Transfer of any Shares shall be made by or on
behalf of Stockholder unless the Board of Directors has determined that such
Transfer is in compliance with the terms hereof and that the applicable Shares
have been duly registered under all applicable federal and state securities laws
pursuant to a then-effective registration which contemplates the proposed
Transfer or unless the Company has received a written opinion of or, at the
option of the Company, satisfactory to its legal counsel that the proposed
Transfer so complies with the terms hereof and is exempt from such registration
under all applicable federal and state securities laws.
Section 3.2. Permitted Transferees.
3.2.1. Any of the following transfers shall be in
compliance with this Agreement, subject to the provisions of Section 3.2.2:
(a) a Transfer of Shares upon the death of
Stockholder to Stockholder's executors, administrators or testamentary trustees
(the "Stockholder's Estate"); or
(b) a Transfer of Shares made as a gift in
compliance with the federal and all applicable state securities laws to
Stockholder's spouse or parents or to children (including adopted children) of
Stockholder or his spouse (collectively, "Family Members") or to a trust, the
beneficiaries of which include only Stockholder and Stockholder's Family
Members, and over which Stockholder has the right, power and authority to
exercise control as to investment decisions and distributions, as trustee or
otherwise, or to a company or partnership, the stockholders or limited and
general partners of which include only Stockholder and Stockholder's Family
Members. Stockholder's Estate and each Family Member, trust, company or
partnership to whom Shares may be Transferred pursuant to this Section 3.2.1 are
hereinafter sometimes referred to as "Permitted Transferees."
3.2.2. No Transfer pursuant to Section 3.2.1 shall
be permitted (and any such Transfer shall be void and of no effect) unless and
until the applicable Permitted Transferee executes and delivers to the Company
one or more appropriate instruments, in form and substance reasonably
satisfactory to the Company, confirming and acknowledging that such Permitted
Transferee has acquired and will hold such Shares subject to all of the terms,
conditions and provisions of this Agreement. Upon the execution and delivery of
such instruments to the Company, the applicable Permitted Transferee shall be
deemed a "Stockholder" for purposes of this Agreement, with the same rights,
privileges, duties and
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<PAGE> 4
obligations as the transferor of such Shares. Notwithstanding anything to the
contrary contained herein, no transfer to any Permitted Transferee shall be made
if, as a result thereof, the Company would be required to register any Shares
under any applicable federal or state securities law.
Section 3.3. Right of First Refusal.
3.3.1. If the Stockholder (an "Offering
Stockholder") wishes to transfer all, but only all, of the Shares then owned by
him (the "Transfer Shares") to any person other than a Permitted Transferee for
a purchase price to be paid in cash at the closing of such transfer and has
received a written offer to so purchase such Shares executed by the proposed
transferee, such Offering Stockholder shall give a written notice (the "Transfer
Notice") to the Company specifying the identity of the proposed transferee, the
amount per Share to be received (the "Transfer Price"), and any other terms and
conditions of the proposed transfer and including a photocopy of the executed
offer. Such Transfer Notice shall include an irrevocable offer (open to
acceptance for a period of 45 days after the date such Transfer Notice is given)
to sell the Transfer Shares to the Transfer Offerees at the Transfer Price.
3.3.2. The Company shall, within 15 days of the
Transfer Notice, provide notice of receipt of the Transfer Notice (the
"Company's Notice") to (a) each person who then owns any of the shares of Common
Stock of the Company and is employed by the Company or FM Precision Golf
Manufacturing Corp. in a management capacity ("Management Stockholder"), other
than the Offering Stockholder (each such person, a "Management Offeree") and (b)
each other person who then owns any of the shares of common stock of the Company
(each such person, a "Non-Management Offeree"). Each Management Offeree shall
have the option to purchase, upon the terms set forth in the Transfer Notice,
any or all of the Transfer Shares. In order to exercise such option, a
Management Offeree must give notice of such exercise to the Company within 10
days after the date of the Company's Notice, which exercise notice must include
the maximum number of Shares he agrees to purchase under the terms of the
Transfer Notice (the "Maximum Amount"). The Company shall, within 14 days after
the date of the Company's Notice, allocate to each Management Offeree for
purchase a number of Transfer Shares. Subject to adjustment, as follows, such
allocation shall equal the lesser of such Management Offeree's Pro Rata Share or
Maximum Amount. If one or more of the Management Offerees declines to
participate in such purchase or elects to purchase less than such Management
Offeree's Pro Rata Share, then the remaining Transfer Shares shall be allocated
among Management Offerees who specified a Maximum Amount in their respective
notices of exercise in excess of their Pro Rata Shares (with rounding to avoid
fractional shares) in an amount equal to the lesser of their Pro Rata Shares
thereof or their Maximum Amounts. Such procedure shall be employed until the
entire Maximum Amount of each Management Offeree has been satisfied or all
Transfer Shares have been allocated.
3.3.3. To the extent the Management Offerees do not
elect to purchase all of the Transfer Shares, the Company shall have the right
to purchase any or all Transfer Shares which the Management Offerees have not
elected to purchase; provided that the Company must determine the number of such
Transfer Shares it will purchase within 15 days after the giving of the
Company's Notice.
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<PAGE> 5
3.3.4. Each Non-Management Offeree shall have the
option to purchase, upon the terms set forth in the Transfer Notice, any or all
of the Transfer Shares not allocated to the Management Offerees or the Company
pursuant to Sections 3.3.2 or 3.3.3. In order to exercise such option, a
Non-Management Offeree must give notice of such exercise to the Company within
10 days after the date of the Company's Notice, which exercise notice must
include a designation of the Non-Management Offeree's Maximum Amount. The
Company shall, within 20 days after the date of the Company's Notice, allocate
to each Non-Management Offeree for purchase a number of such remaining Transfer
Shares. Subject to adjustment, as follows, such allocation shall equal the
lesser of such Non-Management Offeree's Pro Rata Share or Maximum Amount. If one
or more of the Non-Management Offerees declines to participate in such purchase
or elects to purchase less than such Non-Management Offeree's Pro Rata Share,
then any remaining non-allocated Transfer Shares shall be allocated among
Non-Management Offerees who specified a Maximum Amount in their respective
notices of exercise in excess of their Pro Rata Shares (with rounding to avoid
fractional shares) in an amount equal to the lesser of their Pro Rata Shares
thereof or their Maximum Amounts. Such procedure shall be employed until the
entire Maximum Amount of each Non-Management Offeree has been satisfied or all
remaining Transfer Shares have been allocated.
3.3.5. The Company shall have the right but not the
obligation to purchase any Transfer Shares remaining unallocated after the
allocations set forth above and may assign all or any portion of such right to
any third party selected by the Board of Directors (a "Third Party Purchaser");
provided, that no transfer of Shares shall be made to a Third Party Purchaser
unless and until such Third Party Purchaser executes and delivers to the Company
one or more appropriate instruments, in form and substance reasonably
satisfactory to the Company, confirming and acknowledging that it has acquired
and will hold such Shares subject to all of the terms, conditions and provisions
of this Agreement. Upon the execution and delivery of such instruments to the
Company, such Third Party Purchaser shall be deemed a "Stockholder" for purposes
of this Agreement, with the same rights, privileges, duties and obligations as
the transferor of such Shares and a "Non-Management Offeree".
3.3.6. If the offer to sell included in any
Transfer Notice is accepted as to all the Transfer Shares by any Management
Offerees, the Company, any Non-Management Offerees or any Third Party Purchaser
(collectively, the "Transfer Offerees"), the Company, on behalf of all such
accepting Transfer Offerees shall provide the Offering Stockholder and each
accepting Transfer Offeree with written notice of such acceptance specifying the
number of the Transfer Shares as to which each Transfer Offeree is accepting the
offer (a "Notice of Acceptance") within 45 days after the date of the Transfer
Notice.
3.3.7. The closing of the purchase by the accepting
Transfer Offerees of the Transfer Shares pursuant to this Section 3 shall take
place at the principal offices of the Company on the 15th day after the Notice
of Acceptance is given. At such closing, the accepting Transfer Offerees shall
deliver a certified check or checks in the appropriate amount to the Offering
Stockholder against delivery of certificates duly endorsed in blank representing
the Transfer
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<PAGE> 6
Shares so purchased. The Transfer Shares shall be delivered free and clear of
all liens, claims, charges, assessments, options, security interests and other
legal and equitable encumbrances.
3.3.8. If any Transfer Shares allocated to a Transfer Offeree are
not purchased by such Transfer Offeree at the closing provided for in Section
3.3.7 (the "Default Shares"), such Default Shares may be purchased by the
Management Offerees, up to each such Management Offeree's Pro Rata Share (with
any Default Shares any such Management Offeree elects not to purchase being
reallocated among the remaining Management Offerees in accordance with their Pro
Rata Shares until no such Management Offeree wishes to purchase any more Default
Shares or all such Default Shares have been allocated), and if the Management
Offerees do not purchase all such Default Shares, any remaining Default Shares
may be purchased by the Company and, if the Company elects not to purchase all
of them, any remaining Default Shares may be purchased by the Non-Management
Offerees, up to each Non-Management Offeree's respective Pro Rata Share (with
any Default Shares any such Non-Management Offeree elects not to purchase being
reallocated among the remaining Non-Management Offerees in accordance with their
Pro Rata Shares until no such Non-Management Offeree wishes to purchase any more
Default Shares or all such Default Shares have been allocated) and if the
Non-Management Offerees elect not to purchase all of them, the Third Party
Purchaser may purchase such Shares. Nothing contained herein shall prejudice any
person's right to maintain any cause of action or pursue any other remedies
available to it as a result of such default.
3.3.9. If the Company has not delivered a Notice of Acceptance
within 45 days after the date of the Transfer Notice, or if the closing does not
occur as provided in Sections 3.3.7 and 3.3.8, or if the Transfer Offerees are
not ready, willing and able to purchase all of the Transfer Shares at such
closing, then the Offering Stockholder shall, subject to the provisions of
Section 1 hereof, be permitted to transfer the Transfer Shares to the proposed
transferee identified in the Transfer Notice at a price not lower than the
Transfer Price and on terms no more favorable to the transferee than those
contained in the Transfer Notice; provided that any such transfer shall occur
within 90 days after the date of the Transfer Notice and that no transfer of
Shares shall be made to a proposed transferee that is not already a stockholder
of the Company unless and until such proposed transferee executes and delivers
to the Company one or more appropriate instruments, in form and substance
reasonably satisfactory to the Company, confirming and acknowledging that such
proposed transferee has acquired and will hold such Shares subject to all the
terms, conditions and provisions of this Agreement. Upon the execution and
delivery of such instruments to the Company, such transferee shall be deemed a
"Stockholder" for purposes of this Agreement, with the same rights, privileges,
duties and obligations as the transferor of such Shares. Promptly after any
transfer pursuant to this Section 3.3.9, the Offering Stockholder shall notify
the Company of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such transfer and of the terms thereof as
the Company may request. If, at the end of such 90 day period, the Offering
Stockholder has not completed the transfer of the Transfer Shares, he shall no
longer be permitted to transfer such Shares pursuant to this Section 3.3.9
without again complying with Section 3 in its entirety.
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<PAGE> 7
3.3.10. The rights and obligations set forth in this Section 3.2
shall not apply to a transfer of Shares pursuant to Section 3.2 hereof.
3.3.11. For purposes of this Section 3.3, as to any person, the
term "Pro Rata Share" shall mean the total number of Transfer Shares available
for allocation among a group of potential purchasers ("Potential Purchasers")
multiplied by a fraction in which the numerator is the number of shares of the
common stock of the Company owned by such person and the denominator is the
number of such shares owned by all of the Potential Purchasers, as a group.
Section 3.4. Sales on Termination of Employment.
3.4.1. Upon Stockholder's ceasing for any reason to be employed
by the Company to be an Officer of the Company or to be a Consultant to the
Company, whether due to Stockholder's death, Permanent Disability, Termination
for Cause, Involuntary Termination, Retirement or otherwise (as such, a
"Terminated Stockholder" and such cessation of employment, office or consulting
status a "Termination Event"), subject to the provisions of this Section 3.4,
the Company may purchase, and the Terminated Stockholder and the Terminated
Stockholder's Permitted Transferees shall sell, all of the Shares owned by the
Terminated Stockholder and the Terminated Stockholder's Permitted Transferees on
the date of the occurrence of such Termination Event or acquired thereafter (the
"Termination Shares") at a price per Termination Share equal to the Termination
Price.
3.4.2. As used in this Agreement, the term "Termination Price"
shall mean (a) in the event of the Terminated Stockholder's death, Permanent
Disability, Retirement or Involuntary Termination, the Fair Market Value of the
Termination Shares on the date of the Termination Event, (b) in the event of the
Terminated Stockholder's Termination for Cause arising from the Terminated
Stockholder's conviction for fraud, embezzlement or any felony involving moral
turpitude, the lower of the original purchase price or the Fair Market Value of
the Termination Shares on the date of the occurrence of the Termination Event;
and (c) in the event of the Terminated Stockholder's Termination for Cause
(other than as provided in Section 3.4.2(b)) or termination for any other reason
not otherwise provided for herein, (i) the Fair Market Value of the Termination
Shares that are "Protected Shares" on the date of the occurrence of the
Termination Event (with 20% of the Shares subject to the Stock Option becoming
"Protected Shares" on each of the first through the fifth anniversaries of the
date hereof) and (ii) the lower of the original purchase price or the Fair
Market Value of the Termination Shares that are not Protected Shares on the date
of the occurrence of the Termination Event.
3.4.3. The Company shall notify the Terminated Stockholder
whether it will or will not exercise its option to purchase as set forth in
Section 3.4.1 within 45 days of the Termination Event, after which such option
will lapse if not exercised.
3.4.4. The closing of any purchase by the Company of Termination
Shares (the "Termination Closing") pursuant to this Section 3.4 shall take place
at the principal offices of the Company on the date chosen by the Company, which
date shall not, except as otherwise provided in this Section 3.4, be more than
60 days after the occurrence of the Termination Event.
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<PAGE> 8
At the Termination Closing, the Company shall deliver to the Terminated
Stockholder and such Terminated Stockholder's Permitted Transferees against
delivery of duly endorsed certificates representing such Termination Shares,
free and clear of all encumbrances, a certified or bank cashier's check or
checks in the amount of the Termination Price. Notwithstanding anything to the
contrary contained in this Section 3.4.4, if, and only if, and to the extent
that the payment for Termination Shares with cash would (a) violate any law,
statute, order, writ, injunction, decree, rule, regulation, policy or guideline
promulgated, or judgment or order entered, by any federal, state, local or
foreign court or governmental authority applicable to the Company or any of its
subsidiaries, or (b) constitute or cause a breach or default (immediately or
with notice or lapse of time or both) of any loan, credit or warrant agreement
or debt instrument or warrant to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of their
respective assets is bound, the Company shall be permitted to pay for the
Termination Shares by delivery of a subordinated note of the Company with a
fixed interest rate equal to the interest rate the Company is charged by its
Bank at the time this current obligation comes into existence, in the form
annexed hereto as Exhibit D (a "Termination Note").
3.4.5. The fair market value of Shares ("Fair Market Value")
shall be determined as follows:
(a) If a public trading market for the Shares exists, the
Fair Market Value per Share shall be the average of the daily closing price for
the Shares for the 20 consecutive trading days prior to the date of
determination of the Fair Market Value of Shares, as reported on the primary
national securities exchange on which the Shares are listed or, if they are not
so listed, in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ"),
or a comparable inter-dealer quotation system, or if the Shares are not listed
or quoted on NASDAQ or a comparable inter-dealer quotation system, the average
of the closing bid and asking prices for the Shares for the 20 consecutive
trading days prior to the date of determination as furnished by two members of
the National Association of Securities Dealers, Inc. selected by the Board of
Directors.
(b) In the absence of any such quotations, or if no public
trading market for the Shares exists, the Board of Directors shall determine the
Fair Market Value in the exercise of its good faith judgment, or if the Board of
Directors is unable to determine the Fair Market Value of any Shares, or if at
least 100 Shares are in issue and the Terminated Stockholder or Permitted
Transferee whose Shares are being acquired at Fair Market Value disagrees with
the Board of Directors' determination of Fair Market Value by written notice
delivered to the Company within five business days after the Board of Directors'
determination thereof is communicated to the Terminated Stockholder or Permitted
Transferee, which notice specifies such person's determination of the Fair
Market Value of the Termination Shares, then the Company shall request its
auditors to select a nationally recognized appraisal, accounting or investment
banking firm which has not had a material relationship with the Company, the
Terminated Stockholder, the applicable Permitted Transferee or any of the other
Management Stockholders within the preceding two years, which shall determine
the Fair Market Value of such Shares. Such firm's determination of such Fair
Market Value shall be final, binding and conclusive on the Company, the
Terminated Stockholder and such Permitted Transferee. If the
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<PAGE> 9
Board of Directors is unable to determine the Fair Market Value, all costs and
fees of such firm shall be borne by the Company. If the Terminated Stockholder
or Permitted Transferee disagreed with the Board of Directors' determination of
such value, the party whose determination of such value differed from the Fair
Market Value determined by such firm by the greatest amount shall bear all costs
and fees of such firm. To the extent that a Terminated Stockholder or Permitted
Transferee is required to bear such costs and fees, the Company may, at its
option, itself pay such costs and fees and offset the amount so paid against
amounts otherwise due and owing from Company or any of its Affiliates to such
person.
3.4.6. For purposes of this Section 3, the following terms shall be
defined as follows:
(a) "Permanent Disability" shall mean the inability of the
Terminated Stockholder to perform his duties and responsibilities to the Company
or any of its Subsidiaries by reason of a physical or mental disability or
infirmity (i) for a continuous period of 90 days or (ii) at such earlier time as
the Terminated Stockholder submits medical evidence satisfactory to the Company
that the Terminated Stockholder has a physical or mental disability or infirmity
that will likely prevent him from substantially performing his duties and
responsibilities for 90 days or longer. The date of such Permanent Disability
shall be on the last day of such 90 day period or the day on which the
Terminated Stockholder submits such evidence, as the case may be.
(b) "Termination for Cause" shall mean the termination of the
employment, office or consulting status of the Terminated Stockholder by action
of the Company if the Company delivers to the Terminated Stockholder within 15
business days after such termination, a notice of termination for cause
specifying in reasonable detail the occurrence of one or more of the following
events prior to the date on which the Terminated Stockholder was removed:
(i) a judgment of conviction is entered against the
Terminated Stockholder for fraud, embezzlement or any felony involving moral
turpitude; or
(ii) the Terminated Stockholder has (A) willfully and
continuously failed to perform his duties to the Company or any of its
Subsidiaries in any material respect, or (B) failed in any material respect to
follow specific directions of the Board of Directors in the performance of his
duties; or
(iii) the Terminated Stockholder has demonstrated
willful misconduct in the performance of his duties to the Company or any of its
Subsidiaries in any material respect.
(c) "Involuntary Termination" shall mean the termination of
the employment, office or consulting status of the Terminated Stockholder by
action of the Company not constituting Termination for Cause.
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<PAGE> 10
(d) "Retirement" shall mean the automatic termination of the
employment of the Terminated Stockholder upon his reaching the mandatory
retirement age for employees of the Company as established by the Company from
time to time.
Section 3.5. Drag-Along. Anything contained herein to the contrary
notwithstanding, if the Board of Directors approves a transaction pursuant to
which a person or persons will acquire all of the Shares or substantially all of
the assets of the Company, or, as the result of a merger or consolidation, all
of the Shares will be exchanged for equity in the resulting entity or any other
consideration, Stockholder agrees to sell all of his Shares to such person or to
vote his Shares in favor of such sale, merger or consolidation, upon the terms
and conditions for the transaction approved by the Board of Directors. The
Company agrees that, as a condition precedent to the consummation of such
transaction, all Termination Notes plus accrued interest shall be paid in full
or purchased at face value.
Section 3.6. Transfers to Competitors. Notwithstanding any other
provision of this Agreement, Stockholder shall not transfer any Shares to any
person determined by the Board of Directors to be engaged in any activity or
business in competition with any business currently or at the time of the
proposed transfer carried on by the Company or any of its Affiliates.
ARTICLE IV
INVESTMENT INTENT
Section 4.1. Investment Intent.
(a) Stockholder represents and warrants that he is acquiring
the Shares for investment, solely for his own account and not with a view to, or
for resale in connection with, the distribution or other disposition thereof,
except for such distribution and dispositions as are effected in compliance with
the Securities Act and the rules and regulations thereunder and all applicable
state securities or "blue-sky" laws. Stockholder agrees and acknowledges that he
will not, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of any part of his Shares, or solicit any
offers to purchase, otherwise acquire or take a pledge of any part of his
Shares, unless such offer, transfer, sale, assignment, pledge, hypothecation or
other disposition or solicitation is either (i) pursuant to an effective
registration statement under the Securities Act and registered under any
applicable state securities or "blue-sky" laws, or (ii) effected only after the
Company has been furnished with an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company, stating that no such
registration is required because of the availability of an exemption from
registration in effect thereunder and under applicable state securities or
"blue-sky" laws.
(b) Stockholder acknowledges and represents and warrants that
he has been advised that (i) the issuance of his Shares has not been registered
under the Securities Act or any state securities or "blue-sky" laws; (ii) his
Shares must be held indefinitely and Stockholder must continue to bear the
economic risk of his investment in the Company unless the Transfer of his
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<PAGE> 11
Shares is subsequently registered under the Securities Act and any applicable
state securities or "blue-sky" laws or an exemption from such registration is
available; (iii) it is not anticipated that there will be any public market for
the Shares; (iv) Rule 144 promulgated under the Securities Act ("Rule 144") is
not currently available with respect to sales of securities of the Company, and
the Company has made no covenant to make such Rule 144 available; and (v) a
restrictive legend in the form heretofore set forth shall be placed on any
certificate representing the Shares.
(c) Stockholder represents and warrants that (i) he is aware of the
merits and risks of an investment in the Company as contemplated by this
Agreement; (ii) he has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of this investment
in the Company as contemplated by this Agreement; (iii) he understands that the
Shares are a speculative investment that involves a high degree of risk of loss
of his investment therein, that there are substantial restrictions on the
transferability of the Shares and that for an indefinite period after the date
hereof, there will be no public market for the Shares, and accordingly it may
not be possible to liquidate his investment in the Company in case of emergency,
if at all; and (iv) he is familiar with the business of the Company and
understands and has evaluated all the risk factors related to an investment in
the Company.
ARTICLE V
MISCELLANEOUS
Section 5.1. Legends. The certificates evidencing the Shares shall bear
the following legends in conspicuous type:
THE TRANSFER OF THESE SHARES IS SUBJECT TO THE
TERMS OF AN OPTION AGREEMENT BETWEEN THE COMPANY
AND THE HOLDER OF THIS CERTIFICATE DATED MARCH 13,
1997. EXCEPT AS PROVIDED IN THE OPTION AGREEMENT,
THESE SHARES MAY NOT BE GIVEN, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED. THE COMPANY WILL
MAIL TO THE STOCKHOLDER A COPY OF SUCH AGREEMENT
WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF
WRITTEN REQUEST THEREFOR.
Section 5.2. No Right of Employment. Neither this Agreement nor
any exercise of any rights granted pursuant hereto shall create, or be construed
or deemed to create, any right of employment in favor of Stockholder or any
other person by the Company or any of its Subsidiaries.
Section 5.3. Recapitalizations, Exchanges, Etc. The provisions of
this Agreement shall apply, to the fullest extent set forth herein with respect
to the Shares, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) that may be issued in respect of, in exchange for, or in
substitution of, Shares and shall be appropriately adjusted for any stock
dividends, splits, reverse
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<PAGE> 12
splits, combinations, recapitalizations and the like occurring after the date
hereof. Subject only to the provisions of the preceding sentence, nothing
contained in this Agreement shall prohibit or restrict the Company from taking
any corporate action, including, without limitation, declaring any dividend
(whether in cash or stock) or engaging in any corporate transaction of any kind,
including, without limitation, any merger, consolidation, liquidation or sale of
assets.
Section 5.4. Availability of Equitable Remedies. Stockholder and
the Company acknowledge that a breach of the provisions of this Agreement could
not be adequately compensated by money damages. Accordingly, either party hereto
or beneficiary hereof shall be entitled, in addition to any other right or
remedy available to it, to an injunction restraining such breach or threatened
breach and to specific performance of any such provision of this Agreement, and
in either case no bond or security shall be required in connection therewith.
Section 5.5. Waiver. No purported waiver by either party of any
default by the other party of any term or provision contained herein shall be
deemed to be a waiver of such term or provision unless the waiver is in writing
and signed by the waiving party. No such waiver shall in any event be deemed a
waiver of any subsequent default under the same or any other term or provision
contained herein.
Section 5.6. Entire Agreement. This Agreement and the Exhibits
attached hereto set forth the entire understanding between the parties
concerning the subject matter of this Agreement and incorporate all prior
negotiations and understandings. There are no covenants, promises, agreements,
conditions or understandings, either oral or written, between them relating to
the subject matter of this Agreement other than those set forth herein. No
representation or warranty has been made by or on behalf of any party to this
Agreement (or any officer, director, employee or agent thereof) to induce the
other party to enter into this Agreement or to abide by or consummate any
transactions contemplated by any terms of this Agreement, except representations
and warranties, if any, expressly set forth herein. No alteration, amendment,
change or addition to this Agreement shall be binding upon either party unless
in writing and signed by the party to be charged.
Section 5.7. No Partnership. Nothing contained in this Agreement
shall be deemed or construed by the parties hereto or by any third person to
create the relationship of principal and agent or of partnership or of joint
venture.
Section 5.8. Successors. Each and all of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and except as otherwise specifically provided in this Agreement, their
respective heirs, legal representatives, successors and assigns, provided,
however, that neither this Agreement nor any rights herein granted may be
assigned, transferred or encumbered by either party.
Section 5.9. Notices. Any consent, waiver, notice, demand,
request or other instrument required or permitted to be given under this
Agreement shall be in writing and be deemed to have been properly given when
delivered in person or sent by certified or registered United States
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<PAGE> 13
mail, return receipt requested, postage prepaid, addressed, if to Stockholder,
to his address set forth under his signature hereto; and
If to the Company:
FM Precision Golf Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attn.: President
with copies to:
Kenneth J. Warren, Esq. Christopher A. Johnston
2109 W. Fifth Avenue, Suite C 3490 Clubhouse Drive, Suite 102
Columbus, Ohio 43212 Jackson, Wyoming 83001
Either party may change its address for notices by notice in the manner set
forth above.
Section 5.10. Captions. The captions and section numbers appearing
in this Agreement are inserted only as a matter of convenience. They do not
define, limit, construe or describe the scope or intent of the provisions of
this Agreement.
Section 5.11. Partial Invalidity. If any term or provision of this
Agreement, or the application thereof to any person, firm, corporation or
circumstance, shall be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons, firms,
corporations or circumstances other than those as to which it is held invalid,
shall be unaffected thereby and each term or provision of this Agreement shall
be valid and be enforced to the fullest extent permitted by law.
Section 5.12. Governing Law. This Agreement shall be governed and
construed by the provisions hereof and in accordance with the laws of the State
of Delaware applicable to agreements to be performed in the State of Delaware.
Section 5.13. Counterparts. This Agreement may be executed in
counterparts, each of which when executed by the parties hereto shall be deemed
an original and all of which together shall be deemed the same Agreement.
Section 5.14. Arbitration. Any controversy or claim arising out of
or relating to this Agreement or the breach of any term or provision hereof,
shall be settled by arbitration in the City of Torrington, State of Connecticut,
in accordance with the Rules of the American Arbitration Association and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
Court having jurisdiction thereof. The Arbitrator(s) sitting in any controversy
shall have no power to alter or modify any express provision of this Agreement,
or to make any award which by the terms effects any such alteration or
modification.
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<PAGE> 14
The parties hereto have caused this Agreement to be executed as
of the day and year first above written.
FM PRECISION GOLF CORP.
By:
----------------------------------
Christopher A. Johnston, President
STOCKHOLDER
----------------------------------
Address:
---------------------------
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<PAGE> 1
EXHIBIT 10.3.1
OPEN-END MORTGAGE DEED, SECURITY AGREEMENT AND FIXTURE FILING
THIS OPEN-END MORTGAGE DEED, SECURITY AGREEMENT AND FIXTURE
FILING (this "Mortgage") is made and granted this 31st day of May, 1996, by FM
PRECISION GOLF MANUFACTURING CORP. ("Mortgagor"), a Delaware corporation having
an office at 535 Migeon Avenue, Torrington, Connecticut 06790, to STAR BANK,
NATIONAL ASSOCIATION ("Bank"), a national banking association having an office
at 425 Walnut Street, Cincinnati, Ohio 45202.
Bank may make loans and other financial accommodations to
Mortgagor and FM Precision Golf Sales Corp., a Delaware corporation
(collectively, "Borrowers"), in the principal amount of up to Seven Million Five
Hundred Thousand Dollars ($7,500,000) in the aggregate, on and subject to the
terms and conditions set forth in a Financing Agreement, of even date herewith,
between Bank and Borrowers (the "Financing Agreement"). As a condition of the
Financing Agreement, Mortgagor is to execute and deliver this Mortgage to Bank.
This Mortgage constitutes an "open-end mortgage" pursuant to Section 49-2(c) of
the Connecticut General Statutes, as amended.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor does hereby mortgage,
grant, bargain, sell and convey to Bank, its successors and assigns, with
Mortgage Covenants, all of Mortgagor's present and future estate, right, title
and interest in and to the following described property (collectively, the
"Property"):
(A) The land described in Exhibit A which is attached hereto and made a
part hereof by this reference (the "Land");
(B) All structures, buildings and improvements now or hereafter located on
the Land; and all machinery and equipment which constitute fixtures now
or hereafter owned by Mortgagor and attached or affixed to the Land or
the structures, buildings or improvements thereon, together with all
replacements, replacement parts, additions, repairs, repair parts,
accessions and accessories incorporated in any of the foregoing or
affixed to any of the foregoing and the substitutions for and proceeds
(including insurance proceeds payable by reason of loss or damage
thereto) of any of the foregoing; it being intended and agreed that all
such items will be conclusively considered to be a part of the real
property conveyed by this Mortgage (all of the foregoing structures,
buildings, improvements, machinery, equipment and fixtures being
collectively called the "Improvements");
(C) All appurtenances of the Land and all rights of Mortgagor in and to any
streets, roads, public places, easements and rights of way relating to
the Land;
(D) All of the rents, issues and profits of the Land and Improvements, and
all rights of Mortgagor under all present and future leases affecting
the Land and Improvements, including, without limitation, any security
deposits, and all documents, agreements
<PAGE> 2
and instruments pertaining to such leases, whether any of the foregoing
constitute accounts, contract rights, general intangibles, documents,
instruments or chattel paper;
(E) All proceeds and claims arising on account of any damage to or taking
of the Land or Improvements or any part thereof, and all causes of
action and recoveries for any loss or diminution in the value of the
Land or Improvements; and
(F) To the extent assignable, all contract rights of Mortgagor in
connection with the Land and Improvements.
This Mortgage secures, in such order of priority as Bank may
elect, the payment, performance and observance of the Obligations (as defined in
the Financing Agreement).
This Mortgage is given to secure, among other things,
commercial revolving loans, as may be modified, extended and/or renewed from
time to time, and shall secure not only presently existing indebtedness under
the Financing Agreement, as may be modified, extended and/or renewed from time
to time but also any and all other indebtedness now owing or which may hereafter
be owing by Mortgagor to Bank, however incurred, whether interest, discount or
otherwise, and whether the same shall be deferred, accrued or capitalized (but
only at the option of the Bank), including future advances and readvances
pursuant to the Financing Agreement (which constitutes a commercial revolving
loan agreement under Connecticut General Statutes Section 49-2(c)), as may be
modified, extended and/or renewed from time to time, whether such advances are
obligatory or to be made at the option of Bank, or otherwise and whether or not
evidenced by a promissory note, so long as Bank records such advances in its
books and records, to the same extent as if such future advances were made on
the date of the execution of this Mortgage. The lien of this Mortgage shall be
valid as to all indebtedness and Obligations secured hereby, including future
advances, from the time of its filing for record in the land records of the town
in which the Property is located. The total principal amount of indebtedness
secured hereby may increase or decrease from time to time, but the total unpaid
principal balance of indebtedness secured hereby at any one time outstanding
shall not exceed $7,500,000 plus interest thereon, any termination fee and any
disbursements which Bank may make under this Mortgage, the Financing Agreement
or any of the other Loan Documents (as defined in the Financing Agreement)
(e.g., for payment of Impositions (as defined below) or insurance on the
Property) and interest on such disbursements (all such indebtedness being
hereinafter referred to as the "maximum amount secured hereby"). This Mortgage
is intended to and shall be valid and have priority over all subsequent liens
and encumbrances, including statutory liens to the extent of the maximum amount
secured hereby. The lien of this Mortgage with respect to any future advances,
modifications, extensions, and renewals referred to herein and made from time to
time shall have the same priority to which this Mortgage otherwise would be
entitled as of the date this Mortgage is executed and recorded without regard to
the fact that any such future advance, modification, extension, or renewal may
occur after this Mortgage is executed.
In addition to any other debt or obligation secured hereby,
this Mortgage shall also secure unpaid balances of advances made with respect to
the Property for the payment of taxes, assessments, insurance premiums and costs
incurred for the protection of the Property.
2
<PAGE> 3
Mortgagor hereby covenants and agrees as follows:
1. Performance of Obligations. Mortgagor shall duly and
punctually pay, perform and observe all of the Obligations.
2. Title Covenants. Mortgagor is lawfully seized of the Land
and Improvements and is and will be the owner of the Property. The Property is
and will be free and clear of all liens and encumbrances whatsoever, except for
the liens and encumbrances identified as items 1-10, 13 and 14 in Schedule B to
the title insurance commitment issued by Chicago Title Insurance Company to Bank
with respect to this Mortgage (collectively, the "Permitted Encumbrances").
Mortgagor will forever warrant and defend the Property unto Bank, its successors
and assigns, against the lawful claims of all persons and entities, except for
the Permitted Encumbrances. Mortgagor will execute and record, at Mortgagor's
expense, such further assurances as may be necessary or desirable in order more
fully to vest title to the Property in Mortgagor.
3. Impositions. Mortgagor shall pay all taxes, assessments and
other public charges levied or assessed against or payable in respect of the
Property (collectively, the "Impositions") as the same become due and payable,
and before any interest or penalty for non-payment shall attach. Notwithstanding
the foregoing sentence, Mortgagor shall have the right to contest the validity
or amount of any Impositions by appropriate proceedings timely instituted,
provided that (a) Mortgagor diligently prosecutes such contest and at all times
effectively stays and prevents the filing of any judicial proceedings for sale
of the Property by reason of non-payment of such Impositions, and (b) Mortgagor
(i) pays all Impositions being contested as the same become due and payable and
before any interest or penalty for non-payment shall attach, or (ii) pays to
Bank the amount of all Impositions being contested as the same would, in the
absence of such contest, become due and payable, together with the amount of any
interest or penalty for non-payment which could attach, such amount to be held
by Bank free of trust and without the obligation to pay any interest, to be paid
by Bank first, to the appropriate governmental authority upon resolution of such
contest, with the balance, if any, to be returned by Bank to Mortgagor after
resolution of such contest. Mortgagor shall furnish to Bank a copy of the tax
bill and evidence of full payment of all Impositions not later than the date the
same are due.
4. Insurance. Mortgagor shall keep and maintain in force with
respect to the Property policies of public liability insurance, fire and
extended coverage insurance, business interruption insurance, flood insurance
(if the Property is in an area which is considered a flood risk area by the U.S.
Department of Housing and Urban Development or any successor agency), and such
other appropriate insurance as Bank may from time to time reasonably require,
all such insurance to be in amounts, form and substance reasonably satisfactory
to Bank and to be issued by an insurance company or companies reasonably
satisfactory to Bank. Without limiting the foregoing, the fire and extended
coverage insurance shall contain an all risk endorsement written on a completed
value form (non-reporting basis) for the full replacement cost of the
Improvements, shall contain a standard, non-contributory mortgagee endorsement
in favor of Bank as mortgagee and a loss payee clause in favor of Bank, and
shall contain a special extended
3
<PAGE> 4
coverage endorsement; and all other policies of insurance shall name Bank as an
additional insured party, as its interest may appear. Upon the issuance of each
such policy, Mortgagor shall forthwith deliver a copy of the same to Bank, and
Mortgagor shall also deliver to Bank receipts for premiums paid for replacement
or renewal of each such policy (and, in the case of replacement, the replacement
policy and all endorsements thereto) not less than ten (10) days prior to the
expiration of such policy. In the event that Mortgagor does not deliver to Bank
any policy of insurance required hereunder upon the execution hereof or does not
deliver to Bank a receipt for the premium paid on any replacement or renewal of
each such policy (and, in the case of replacement, the replacement policy and
all endorsements thereto) at least ten (10) days prior to the expiration of such
policy, then Bank may, at its option, procure the policy and pay the premium
therefor, and any sum paid by Bank therefor, together with any expenses incurred
by Bank in connection therewith, shall be charged against Mortgagor in
accordance with paragraph 11 hereof. In the event of private or public sale,
transfer or exchange of the Property, all right, title and interest of Mortgagor
in and to any insurance policies then in force concerning the Property shall
pass to the transferee of the Property. In the event of the assignment of this
Mortgage, all right, title and interest of Bank in and to any insurance policies
then in force concerning the Property shall pass to the assignee.
5. Damage or Destruction. In the event that the Improvements,
or any part thereof, are lost, damaged or destroyed by fire, windstorm or any
other casualty, Mortgagor will give immediate notice thereof to Bank, and Bank
may thereupon make proof of such loss, damage or destruction; provided, however,
that the right of Bank to make proof of such loss, damage or destruction shall
not relieve Mortgagor of the obligation to make proof of such loss, damage or
destruction in a timely manner under any policy of insurance covering such loss,
damage or destruction. All proceeds of insurance payable by reason of any such
loss, damage or destruction shall be payable to Bank, and all affected insurance
companies are hereby authorized and directed to make payment thereof directly to
Bank. Mortgagor shall not settle, adjust or compromise any claims for loss,
damage or destruction under any policy of insurance without the prior written
approval of Bank, which shall not be unreasonably withheld, and Bank may, at its
option, participate in any negotiations regarding any such settlement,
adjustment or compromise. Bank shall apply the proceeds of insurance paid to it
pursuant to this paragraph in accordance with the provisions of paragraph 7
hereof. Bank shall not be deemed a trustee with respect to any funds received by
Bank pursuant to this paragraph 5, and Bank may commingle such funds with its
general funds and shall not be obligated to pay interest thereon.
6. Condemnation. In the event that the Property, or any part
thereof, is altered, damaged, taken or acquired, either temporarily or
permanently, in any condemnation proceeding, or by exercise of the power of
eminent domain, or by any acquisition made under threat of the exercise of the
power of eminent domain, or by the alteration of the grade of any street
affecting the Property (collectively, a "Taking"), the amount of any award or
other payment made in consideration thereof is hereby assigned to Bank, which is
empowered to collect and receive the same and to give proper receipts therefor
in the name of Mortgagor, and the same shall be paid forthwith to Bank. Any
award or payment so received by Bank shall be applied by Bank in accordance with
the provisions of paragraph 7 hereof. If Mortgagor receives notice, written or
unwritten, of any actual, intended or threatened Taking, Mortgagor shall
4
<PAGE> 5
forthwith furnish a copy of such notice to Bank if such notice was written, or
inform Bank in writing of such notice if such notice was unwritten. Bank shall
have the right, but not the obligation, to participate in any proceedings and
negotiations in connection with any Taking or threatened Taking, and Mortgagor
shall not compromise or settle the same without the prior written approval of
Bank. Bank shall not be deemed a trustee with respect to any funds received by
Bank pursuant to this paragraph, and Bank may commingle such funds with its
general funds and shall not be obligated to pay interest thereon.
7. Application of Proceeds. Bank may apply the proceeds of
insurance paid to Bank pursuant to paragraph 5 hereof and the amount of any
award or payment received by Bank pursuant to paragraph 6 hereof (collectively,
the "Proceeds") first, to the payment of all of Bank's costs and expenses
incurred in obtaining such Proceeds (including, without limitation, reasonable
legal fees and disbursements), and may, in its absolute discretion and without
regard to the adequacy of its security, apply the balance, in whole or in part,
in such order and priority as Bank may determine, (a) to the payment of the
indebtedness secured by this Mortgage, or (b) to or for the benefit of
Mortgagor, subject and pursuant to disbursement control procedures prescribed by
Bank, for the alteration, restoration, repair, replacement or rebuilding of any
part of the Property which may have been lost, altered, damaged or destroyed as
a result of the casualty or Taking; provided, however, that if Bank elects to
apply the balance of such proceeds to the payment of the indebtedness secured by
this Mortgage and there does not then exist an Event of Default, the amount
which Bank may apply to the repayment of the Term Loan (as defined in the
Financing Agreement) shall be limited to the amount of the Term Loan
Availability (as defined in the Financing Agreement) which had been allocable to
the Land and Improvements.
8. Condition of Property. Mortgagor shall maintain and keep
the Property in good condition and repair (subject to ordinary wear and tear to
the extent that the Property continues to be in good condition and repair) and
shall not commit or suffer any waste of the Property or take any actions which
might invalidate any policy of insurance in respect of the Property. Mortgagor
shall comply with, or cause to be complied with, all statutes, ordinances,
rules, regulations and other requirements of any governmental authority relating
to the Property and all restrictive covenants applicable to the Property, and
shall immediately notify Bank of any notice received from any governmental
authority of any non-compliance with any statute, ordinance, rule, regulation or
other governmental requirement relating to the Property. Mortgagor shall
promptly comply with, or cause to be complied with, any direction or certificate
of occupancy of any public officer or officers and the requirements of all
policies of insurance at any time in force in respect of the Property which
shall impose any duty upon Mortgagor with respect to any part of the Property or
the use, occupation or control thereof or the conduct of any business therein,
whether or not the same require structural repairs or alterations. Mortgagor
shall promptly repair, restore, replace or rebuild any part of the Property
which may be lost, damaged or destroyed by any casualty or as the result of any
Taking, except to the extent that Bank applies the applicable Proceeds to the
payment of the indebtedness secured by this Mortgage.
9. Environmental Conditions. As used herein, "Environmental
Condition" means any condition with respect to soil, surface waters, ground
waters, stream sediments,
5
<PAGE> 6
building materials and other environmental conditions on or off the Land or
Improvements which require remedial action with respect to the Land or
Improvements and/or may result in claims brought by, or liabilities to, third
parties, including, without limitation, governmental entities. Mortgagor shall
maintain and keep the Property free of any Environmental Condition. Mortgagor
shall indemnify and hold Bank harmless from and against any and all claims,
lawsuits, damages, losses, liabilities and expenses, including, without
limitation, reasonable legal, accounting, consulting, engineering and other
expenses, which may be imposed upon or incurred by Bank arising out of or in
connection with any Environmental Condition now existing or found to have been
created or present prior to the date on which the indebtedness secured by this
Mortgage is paid in full, including, without limitation, the exposure of any
person to any Environmental Condition, damages to natural resources, or the
actual or alleged violation of any federal, state or local statute or
regulation, regardless of whether such Environmental Condition or exposure
resulted from activities by Mortgagor or Mortgagor's predecessors in interest.
10. Alterations. Mortgagor shall not remove, demolish or
materially alter any of the Improvements or erect any buildings or structures or
additions to existing buildings or structures on the Land without the prior
written consent of Bank. Mortgagor shall not remove from the Property any
fixtures now or hereafter subject to the security interest granted in, or the
lien created by, this Mortgage without the prior written consent of Bank;
provided that Mortgagor may dispose of, free and clear of the security interest
granted herein and the lien hereof, any fixtures which, in the reasonable
opinion of Mortgagor, have become obsolete or unfit for use or which are no
longer useful in Mortgagor's operations, on the condition that Mortgagor shall
replace such fixtures with, or substitute for the same, other fixtures owned by
Mortgagor, which shall (a) be of at least equal value to the fixtures disposed
of and (b) perform a function or serve a purpose the same as, similar to or
related to that of the fixtures disposed of. Any such replacement fixtures shall
forthwith, without further action, become subject to the security interest
granted in, and the lien created by, this Mortgage, and such security interest
is hereby granted by Mortgagor.
11. Performance by Bank. Should Mortgagor fail to make payment
as and when required hereunder of any Impositions, of any insurance premiums, or
of any other charges or obligations payable by Mortgagor hereunder, or should
Mortgagor fail to make any other payment or take any other action as and when
required hereunder, then Bank may, at its option and after reasonable notice to
Mortgagor, make any such payments and take any such actions and, in doing so,
incur such reasonable costs and expenses as Bank, in its discretion, may deem to
be appropriate, whereupon Mortgagor shall immediately upon demand reimburse Bank
for the amount of all such payments made and reasonable costs and expenses
incurred, together with interest at the interest rate provided for in the
Financing Agreement, and such amount shall be secured by this Mortgage, shall be
a lien upon the Property prior to any right, title, interest or claim in, to or
upon the Property attaching or accruing subsequent to the lien of this Mortgage,
and may be collected in the same manner as the indebtedness hereby secured. No
payment or action by Bank pursuant to this paragraph shall constitute a waiver
by Bank of, or be deemed to have cured, any Event of Default.
6
<PAGE> 7
12. Transfer. Without the prior written consent of Bank,
Mortgagor shall not (a) create or suffer to be created any charge, lien or
encumbrance upon the Property, or any part thereof or interest therein,
excepting the lien of this Mortgage and the Permitted Encumbrances, or (b) sell,
convey, lease or transfer the Property, or any part thereof or interest therein,
legal or equitable.
13. Rents and Leases. Mortgagor assigns to Bank, as additional
security for the payment, performance and observance of the Obligations, all of
the rents, issues and profits of the Property, with the right to receive the
same and apply them to the indebtedness and obligations hereby secured upon the
occurrence of an Event of Default which continues beyond the applicable cure
period, if any. In addition, Mortgagor shall, as and when requested by Bank,
assign to Bank by specific assignment any leases now or hereafter on the
Property in which Mortgagor is lessor, with the right to give written notice of
such assignments to the lessees thereunder, but Bank shall not exercise any such
assignments until and unless there is an Event of Default which is continuing
beyond any applicable cure period. Upon the request of Bank, Mortgagor will
obtain subordination, non-disturbance and attornment agreements, executed by
Mortgagor and any of its lessees designated by Bank, in form and substance
reasonably satisfactory to Bank, which agreements shall provide for
subordination of such leases to the lien and operation of this Mortgage, the
attornment of such lessees to Bank and any purchaser of the Property and the
continual performance by such lessees of all of their respective duties,
obligations and covenants pursuant to their leases and shall further provide for
the non-disturbance by Bank of such lessees so long as they are not in default
under their respective leases. Any such agreements shall be drafted and executed
by Bank at Mortgagor's sole expense, including Bank's reasonable legal fees.
Mortgagor shall perform and observe all covenants, conditions and agreements
contained in any lease or leases now or hereafter affecting the Property, or any
part thereof, to be performed or observed by Mortgagor. If Mortgagor receives a
notice from any lessee claiming a default by Mortgagor under any lease,
Mortgagor shall forthwith furnish a copy of such notice to Bank. Mortgagor shall
not cancel, terminate or otherwise materially amend or modify any existing or
future lease of all or any part of the Property, or accept any prepayment of
installments of rent for more than one month in advance, without the prior
written consent of Bank.
14. Right of Possession Upon Default. If any Event of Default
should occur and continue beyond the applicable cure period, if any, then, for
so long thereafter as an Event of Default shall exist, Bank may, at its option,
take possession of the Property, rent the same, collect all rents, issues and
profits thereof and, after deducting the costs of collection thereof and the
costs of operating, managing, maintaining, repairing and improving the Property,
apply the net proceeds to the payment of any obligation secured hereby, and may
continue to do so until all obligations secured hereby have been fully paid and
discharged; and upon the commencement of any action to foreclose this Mortgage,
or at any time at which any such action is pending, the court shall on
application of Bank and without notice to Mortgagor, or to any party claiming
under Mortgagor (which notice Mortgagor hereby expressly waives), and regardless
of the adequacy of the security for the obligations then secured by this
Mortgage, appoint a receiver to take immediate possession of, manage and control
the Property, notwithstanding that the same or
7
<PAGE> 8
any part thereof may be occupied by Mortgagor, and to collect and receive the
rents, issues and profits thereof, and apply the same under the direction of the
court.
15. Security Agreement. This Mortgage, to the extent that any
part of the Property is not a part of the real property, shall, without the need
of any further agreement or act of Mortgagor or Bank, constitute a security
agreement between Mortgagor and Bank under the Uniform Commercial Code with
respect thereto, and a security interest therein, and in and to all
replacements, replacement parts, additions, repairs, repair parts, accessions
and accessories incorporated therein or affixed thereto and the substitutions
therefor and proceeds (including insurance proceeds payable by reason of loss or
damage thereto) thereof, is hereby granted by Mortgagor to Bank. With respect to
such part or parts of the Property, this instrument creates a security interest
in favor of Bank under the Uniform Commercial Code, and Bank shall have all
rights and remedies of a secured party under the Uniform Commercial Code,
without limitation upon or in derogation of the rights and remedies created
under and accorded Bank by this Mortgage or under any other laws, it being
understood that the rights and remedies of Bank under the Uniform Commercial
Code shall be cumulative and in addition to all other rights and remedies of
Bank arising under any other laws.
16. Bank's Expenses. If Bank shall incur or expend any sums,
including reasonable attorneys' fees, whether in connection with any action or
proceeding or not, to sustain the lien of this Mortgage or its priority, or to
protect or enforce any obligations hereby secured, all such sums shall become
immediately due and payable by Mortgagor to Bank with interest thereon at the
interest rate provided in the Financing Agreement. All such sums shall be
secured by this Mortgage and be a lien on the Property prior to any right,
title, interest or claim in, to or upon the Property attaching or accruing
subsequent to the lien of this Mortgage, and may be collected in the same manner
as the indebtedness hereby secured.
17. Additional Taxes. In the event any tax shall become due
and payable to the United States of America, the State of Connecticut or any
political subdivision thereof with respect to the execution and delivery or
recordation of this Mortgage or the interest of Bank in the Property, Mortgagor
shall pay such tax at the time and in the manner required by applicable law and
Mortgagor shall indemnify and hold Bank harmless from and against any liability
as a result of the imposition of any such tax. Mortgagor will not claim any
credit on, or make any deduction from, the indebtedness secured by this Mortgage
by reason of the payment of any such tax. In the event of the enactment, after
the date of this Mortgage, of any law changing in any way the present law as to
the taxation of notes or debts secured by mortgages, for Federal, State, or
local purposes, or the manner of collection of any taxes, so as to affect this
Mortgage or the indebtedness secured hereby, then Mortgagor shall upon demand
make such payments to Bank and take such other steps as may be necessary, in
Bank's reasonable judgment, to place Bank in the same financial position as it
was prior to any such enactment. If Mortgagor fails to make any such payments or
to take any such steps, or if Mortgagor is not permitted by law to make such
payments or take such steps, the indebtedness secured by this Mortgage shall, at
the option of Bank, immediately become due and payable.
8
<PAGE> 9
18. Events of Default. Any one or more of the following shall
constitute an Event of Default hereunder:
(a) the occurrence of an Event of Default under the Financing Agreement
which continues beyond the applicable cure period, if any, provided in
the Financing Agreement;
(b) default by Mortgagor in the due and punctual payment of any amount
payable under this Mortgage, whether payable to Bank or to any third
party, on the date such payment is due;
(c) default by Mortgagor in the due and punctual performance or observance
of any term, covenant, condition, obligation or agreement of Mortgagor
(other than the payment obligations which are the subject of subsection
(b) of this paragraph), now existing or hereafter arising, on the date
such performance is due under this Mortgage, which default Mortgagor
does not cure within ten (10) days after Bank gives Mortgagor notice
thereof; or, if such default could not reasonably be cured within such
ten (10) day period, Mortgagor does not commence to cure such default
within such ten (10) day period and thereafter diligently complete the
cure of such default;
(d) default by Mortgagor in the observance of the provisions of paragraph
12 hereof; and
(e) any representation or warranty made by Mortgagor herein is, or becomes,
untrue or misleading in any material respect.
19. Remedies. At any time as of which an Event of Default
shall have occurred and shall be continuing uncured, Bank, at its option, may,
but shall not be obligated to, exercise any one or more of the following
remedies without notice or demand, which notice and demand Mortgagor hereby
expressly waives:
(a) Declare any or all of the indebtedness secured by this Mortgage to be
due and payable immediately;
(b) Apply without notice (the same being hereby expressly waived) for the
appointment of a receiver to collect the rents, issues and profits of
the Property, or any portion or portions of the Property, and to
preserve the security hereof, as a matter of right, without
consideration of the value of the Property as security for the amount
due Bank, or the solvency of any person or persons liable for the
payment of such amounts; the rents, issues and profits of the Property
being assigned to Bank as additional security for the payment of such
indebtedness;
(c) Enter upon the Property, or any portion or portions of the Property, in
person or by agent or by court-appointed receiver, and take any and all
steps which may be desirable in Bank's judgment to manage and operate
the Property, or portion or portions of the Property, and Bank may
apply any rents, issues or profits collected against the
9
<PAGE> 10
indebtedness secured by this Mortgage without in any way curing or
waiving any default of Mortgagor;
(d) Foreclose the lien of this Mortgage by judicial proceeding with respect
to the Property or any parcel or parcels thereof, whereupon Bank shall
have the option of having the Property sold as a whole or in parcels;
and
(e) Exercise any other right or remedy available under any of the Loan
Documents or otherwise available at law or in equity.
20. Remedies Cumulative. All remedies available to Bank with
respect to this Mortgage and the indebtedness and obligations hereby secured,
whether provided for under this Mortgage or under any other of the Loan
Documents or available at law or in equity, shall be cumulative and may be
pursued concurrently or successively in such order as Bank may determine in its
sole discretion.
21. Waivers. Mortgagor waives, to the full extent permitted by
law, the benefit of all appraisement, valuation, stay, moratorium and redemption
laws now or hereafter in force with respect to this Mortgage or the indebtedness
hereby secured, including without limitation any statutory right of redemption;
and Mortgagor similarly waives all rights of marshaling in the event of any
proceeding for the foreclosure sale of the Property or any part thereof.
22. Inspection. Bank and its agents and employees shall have
access to and the right to inspect the Property at all times during normal
business hours upon reasonable prior notice, and shall have the right, but not
any obligation, to go upon the Property to maintain, repair, rebuild, replace
and protect the Improvements.
23. Non-Waiver. In the event that Bank (a) grants any
extension of time or forbearance with respect to the payment, performance or
observance of the Obligations; (b) takes other or additional security for the
payment, performance and observance of the Obligations; (c) waives or fails to
exercise any right or remedy granted herein or under any of the other Loan
Documents; (d) grants any release, with or without consideration, of the whole
or any part of the security held for the payment, performance and observance of
the Obligations; or (e) amends or modifies in any respect with the consent of
Mortgagor any of the terms and provisions hereof; then and in any such event,
such act or omission to act shall not release Mortgagor nor any other party
liable for the Obligations, nor preclude Bank from exercising any right, remedy,
power or privilege herein granted or intended to be granted in the event of any
other default then made or any subsequent default, nor in any way impair or
affect the lien or priority of this Mortgage.
24. Validity of Provisions. The parties intend that this
Mortgage and all of the other Loan Documents shall be in compliance with all
applicable laws and shall be enforceable in accordance with their terms. If any
provision of any such document shall be illegal or unenforceable, such provision
shall be deemed cancelled to the same extent as though it never had appeared
therein, but the remaining provisions shall not be affected thereby.
10
<PAGE> 11
25. Indemnification. Mortgagor shall indemnify and hold Bank
harmless from and against any loss suffered or liability, including without
limitation reasonable attorneys' fees, incurred by Bank on account of any damage
to the person or property of the parties hereto or of third parties by reason of
or in connection with the operation or management of the Improvements, unless
such damage was caused solely by the gross negligence or intentional misconduct
of Bank or its employees or agents while on the Property. Mortgagor shall
undertake, at its sole expense and through counsel reasonably satisfactory to
Bank, the defense of Bank in any lawsuit commenced as the result, or alleged to
be the result, of injury or damage occurring by reason of or in connection with
the operation or management of the Improvements, unless such injury or damage is
caused solely by the gross negligence or intentional misconduct of Bank or its
employees or agents while on the Property. The indemnification obligations of
Mortgagor under this paragraph 25 are in addition to the indemnification
obligations of Mortgagor under paragraph 9 hereof.
26. References. All references in this Mortgage to any of the
Loan Documents or any other documents or instruments shall be deemed to be
references to the Loan Documents or other documents or instruments as the same
may from time to time be modified, amended, renewed, consolidated or extended.
27. Notices. Any notice, certificate, request, notification
and other communication required, permitted or contemplated hereunder must be in
writing and given in accordance with Section 15.9 of the Financing Agreement.
28. Fixture Filing. This Mortgage shall constitute a financing
statement filed as a fixture filing under the Uniform Commercial Code. For such
purpose, Mortgagor shall be deemed to be the debtor and Bank shall be deemed to
be the secured party.
29. Binding Effect. The provisions hereof shall be binding
upon Mortgagor and Mortgagor's successors and assigns, and shall inure to the
benefit of Bank and its successors and assigns; provided that this paragraph
shall not be deemed to be a consent or approval by Bank of any transfer or
assignment of the Property by Mortgagor.
30. Governing Law. This Mortgage is to be governed by and
construed in accordance with the laws of the State of Ohio, except to the extent
that the laws of the State of Connecticut necessarily govern because of the fact
that the Property is situated in Connecticut.
31. Prejudgment Remedies. MORTGAGOR AGREES THAT THIS IS A
COMMERCIAL TRANSACTION AND NOT A CONSUMER TRANSACTION AND WAIVES ANY RIGHT TO
NOTICE AND A HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES
AFFECTING PREJUDGMENT REMEDIES AND AUTHORIZES BANK'S ATTORNEY TO ISSUE A WRIT
FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET
FORTH A COPY OF THIS WAIVER. MORTGAGOR FURTHER CONSENTS TO THE ISSUANCE OF ANY
PREJUDGMENT REMEDIES WITHOUT A BOND AND AGREES
11
<PAGE> 12
NOT TO REQUEST OR FILE MOTIONS SEEKING TO REQUIRE THE POSTING OF A BOND UNDER
PUBLIC ACT 93-431. FURTHER, TO THE EXTENT ALLOWED UNDER APPLICABLE LAW,
MORTGAGOR HEREBY WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST, NOTICE OF
PROTEST, NOTICE OF DISHONOR, NOTICE OF DEFAULT, DILIGENCE IN COLLECTION, NOTICE
OF NONPAYMENT AND ANY AND ALL NOTICES OF A LIKE NATURE.
This Mortgage is granted upon the condition that if Mortgagor
should duly and punctually pay, perform and observe all of the Obligations to
Bank, and shall fully keep and perform all the conditions and agreements to be
kept, done and performed by Mortgagor, then this Mortgage shall be void;
otherwise it shall remain in full force and virtue in law and equity forever.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of
the date first set forth above.
Signed and acknowledged
in the presence of: FM PRECISION GOLF
MANUFACTURING CORP.
/s/ Hani R. Kallas By: /s/ David E. Johnston
- ------------------------------- --------------------------------------
Print Name: Hani R. Kallas David E. Johnston, Vice President
/s/ Donald J. Shuller
- -------------------------------
Print Name: Donald J. Shuller
12
<PAGE> 13
STATE OF OHIO
COUNTY OF HAMILTON, SS:
The foregoing instrument was acknowledged before me this 31st
day of May, 1996, by David E. Johnston, Vice President of FM Precision Golf
Manufacturing Corp., a Delaware corporation, on behalf of the corporation.
/s/ Donald J. Shuller
---------------------------------
Notary Public
This instrument was prepared by:
Donald J. Shuller
Vorys, Sater, Seymour and Pease
Suite 2100
221 East Fourth Street
P.O. Box 0236
Cincinnati, Ohio 45201-0236
13
<PAGE> 1
EXHIBIT 10.3.2
U.S. $7,500,000
FINANCING AGREEMENT
dated as of May 31, 1996
between
STAR BANK, NATIONAL ASSOCIATION
as Bank
and
FM PRECISION GOLF MANUFACTURING CORP.
and
FM PRECISION GOLF SALES CORP.
as Borrowers
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS ....................................................... 1
1.1 Defined Terms ............................................... 1
1.2 Environmental Definitions ................................... 13
1.3 Other Definitional Provisions; Construction ................. 14
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS .......................... 15
2.1 Total Facility .............................................. 15
2.2 Revolving Loans ............................................. 15
2.3 Term Loan ................................................... 15
2.4 Letters of Credit ........................................... 16
2.5 No Deficiency ............................................... 18
2.6 Disbursement of Loans ....................................... 18
2.7 Procedure for Advancing Revolving Loans ..................... 19
2.8 No Limitation on Liens ...................................... 19
2.9 Discretion to Adjust Advance Rates .......................... 19
2.10 General Conditions .......................................... 19
2.11 One General Obligation; Cross-Collateralized ................ 20
3. INTEREST CHARGES; MINIMUM LOAN CHARGE; FEES ....................... 20
3.1 Interest on Loans ........................................... 20
3.2 Increased Costs ............................................. 21
3.3 Closing Fee ................................................. 21
3.4 Loan Administration Fee ..................................... 21
3.5 Letter of Credit Fees ....................................... 21
3.6 Interest Rate Protection .................................... 22
3.7 Calculation of Certain Charges .............................. 22
3.8 Payments; Charging Loan Account ............................. 22
3.9 Maximum Rate ................................................ 22
4.1 Joint, Several and Primary Obligations ...................... 23
4.2 Consolidated Borrowings ..................................... 23
4.3 Borrower Guaranties ......................................... 23
5. SECURITY; GUARANTY ................................................ 23
5.1 Security .................................................... 23
5.1 Affiliate Guaranties ........................................ 24
6. FURTHER ASSURANCES ................................................ 24
7. RECEIVABLES; INVENTORY; COLLECTION OF RECEIVABLES; DISPUTED
RECEIVABLES; PROCEEDS OF INVENTORY .......................... 24
7.1 Agreements Regarding Receivables ............................ 24
7.2 Agreements Regarding Inventory .............................. 24
7.3 Locked Box .................................................. 25
7.4 Special Account ............................................. 25
7.5 Crediting of Remittances .................................... 26
7.6 Cost of Collection .......................................... 26
8. EXAMINATION OF LOAN COLLATERAL; REPORTING ......................... 26
8.1 Maintenance of Books and Records ............................ 26
8.2 Access and Inspection ....................................... 27
8.3 Reporting Regarding Receivables ............................. 27
8.4 Reporting Regarding Inventory ............................... 27
8.5 Monthly Financial Statements ................................ 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.6 Annual Projections .......................................... 28
8.7 Audited Annual Financial Statements ......................... 28
8.8 Opening Day Balance Sheet ................................... 28
8.9 Management Reports .......................................... 29
8.10 Comparisons to Financials; Certificates ..................... 29
8.11 Tax Returns; Additional Information ......................... 29
9. WARRANTIES, REPRESENTATIONS AND COVENANTS ......................... 29
9.1 Corporate Status ............................................ 29
9.2 Due Authorization; Validity ................................. 29
9.3 No Violation ................................................ 30
9.4 Use of Loan Proceeds ........................................ 30
9.5 Management; Ownership of Assets; Licenses; Patents .......... 30
9.6 Indebtedness ................................................ 30
9.7 Title to Property; No Liens ................................. 31
9.8 Restrictions; Labor Disputes; Labor Contracts ............... 31
9.9 No Violation of Law ......................................... 31
9.10 Hazardous Substances ........................................ 31
9.11 Absence of Default .......................................... 31
9.12 Accuracy of Financials; No Material Changes ................. 32
9.13 Pension Plans ............................................... 32
9.14 Taxes and Other Charges ..................................... 32
9.15 No Litigation ............................................... 32
9.16 Brokerage Fees .............................................. 32
9.17 Affiliates .................................................. 33
9.18 Capitalization; Warrants .................................... 33
9.19 Noncompetition Agreements ................................... 33
9.20 Deposit and Other Accounts .................................. 33
9.21 Solvency .................................................... 33
9.22 Full Disclosure ............................................. 33
9.23 Casualties .................................................. 34
9.24 Leases ...................................................... 34
9.25 Insurance Policies .......................................... 34
9.26 Consents .................................................... 34
9.27 Updating Representations and Warranties ..................... 34
10. COVENANTS ........................................................ 34
10.1 Payment of Certain Expenses .................................. 34
10.2 Notice of Litigation ......................................... 35
10.3 Notice of ERISA Events ....................................... 35
10.4 Notice of Labor Disputes ..................................... 35
10.5 Compliance with Laws ......................................... 35
10.6 Notice of Violations of Law, Tax Assessments ................. 35
10.7 Notice of Violations of Certain Agreements ................... 35
10.8 Notice of Customer Defaults .................................. 36
10.9 Taxes and Charges ............................................ 36
10.10 Indebtedness; Guaranties ..................................... 36
10.11 Restrictions ................................................. 37
10.12 Pension Plans ................................................ 37
10.13 Solvency ..................................................... 37
10.14 Property Insurance ........................................... 38
10.15 Liability Insurance .......................................... 38
10.16 Changes to Acquisition Documents ............................. 38
10.17 Mergers; Acquisitions ........................................ 38
10.18 Investments .................................................. 38
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
10.19 Distributions; Loans; Fees ................................... 39
10.20 Redemption of Stock .......................................... 39
10.21 Stock Rights ................................................. 39
10.22 Capital Structure; Fiscal Year ............................... 39
10.23 Affiliate Transactions ....................................... 39
10.24 Operating Account ............................................ 40
10.25 Sale of Assets ............................................... 40
10.26 Intervention by Governmental Authority ....................... 40
10.27 Levy Against Loan Collateral ................................. 40
10.28 Judgments .................................................... 40
10.29 Financial Covenants .......................................... 40
11. EFFECTIVE DATE; TERMINATION ...................................... 41
11.1 Effective Date and Termination Date .......................... 41
11.2 Renewal by Bank .............................................. 41
11.3 Voluntary Termination by Borrower ............................ 41
11.4 Acceleration upon Termination ................................ 42
11.5 Borrower Remains Liable ...................................... 42
12. EVENTS OF DEFAULT ................................................ 42
12.1 Events of Default ............................................ 42
12.2 Cure Periods ................................................. 45
13. BANK'S RIGHTS AND REMEDIES ....................................... 45
13.1 Acceleration ................................................. 45
13.2 Fees and Expenses ............................................ 45
13.3 Actions in Respect of Letters of Credit ...................... 46
14. PARTICIPATIONS ................................................... 46
14.1 Participation ................................................ 46
14.2 Participant Consents ......................................... 46
14.3 Information .................................................. 47
14.4 Law Requirements ............................................. 47
15. GENERAL .......................................................... 47
15.1 Severability ................................................. 47
15.2 Governing Law ................................................ 47
15.3 WAIVER OF JURISDICTION ....................................... 47
15.4 Survival and Continuation of Representations and Warranties .. 48
15.5 Evidence of Loans ............................................ 48
15.6 Bank's Additional Rights Regarding Loan Collateral ........... 48
15.7 Application of Payments; Revival of Obligations .............. 48
15.8 Fees and Expenses ............................................ 48
15.9 Notices ...................................................... 49
15.10 Indemnification .............................................. 50
15.11 Additional Waivers by Borrower ............................... 51
15.12 Equitable Relief ............................................. 51
15.13 Entire Agreement ............................................. 51
15.14 Headings ..................................................... 52
15.15 Cumulative Remedies .......................................... 52
15.16 Waivers and Amendments in Writing ............................ 52
15.17 Assignment ................................................... 52
15.18 WAIVER OF JURY TRIAL ......................................... 52
</TABLE>
<PAGE> 5
EXHIBITS
Exhibit 3.1 Financial Tests for Interest Rate Reduction
Exhibit 4.3 Form of Borrower Guaranty
Exhibit 5.2A Form of Individual Guaranty
Exhibit 5.2B Form of Corporate Guaranty
Exhibit 7.2 Permitted Returns of Inventory
Exhibit 8.3 Borrowing Base Certificate
Exhibit 8.10 Officer's Certificate
Exhibit 9.4 Stock Pledge
Exhibit 9.5 Management; Licenses; Trademarks; Patents; Copyrights
Exhibit 9.8 Labor Matters
Exhibit 9.9 Compliance with Laws
Exhibit 9.10 Environmental Matters
Exhibit 9.13 Pension Matters
Exhibit 9.16 Financial Benchmarks for Payment of Brokerage Commissions
Exhibit 9.17 Affiliates
Exhibit 9.18 Capital Stock; Shareholders
Exhibit 9.19 Noncompetition Agreements
Exhibit 9.20 Bank Accounts
Exhibit 9.23 Casualties
Exhibit 9.24 Leases
Exhibit 9.25 Insurance Policies
Exhibit 10.10 Indebtedness
<PAGE> 6
Exhibit 10.29 Financial Covenants
SCHEDULES
Schedule 1 Financials
Schedule 2 Permitted Liens
<PAGE> 7
FINANCING AGREEMENT
THIS FINANCING AGREEMENT (this "Agreement") between STAR BANK,
NATIONAL ASSOCIATION, a national banking association ("Bank"), and FM PRECISION
GOLF MANUFACTURING CORP., a Delaware corporation ("FM Manufacturing"), and FM
PRECISION GOLF SALES CORP., a Delaware corporation ("FM Sales"), is as follows:
1. DEFINITIONS
1.1 Defined Terms. In addition to the other terms defined in this
Agreement, whenever the following capitalized terms (whether or not underscored)
are used, they shall be defined as follows:
"Acquisition" means the acquisition, pursuant to the Acquisition
Documents, of certain of the assets of Brunswick Corporation, a Delaware
corporation.
"Acquisition Documents" means the Asset Purchase Agreement dated as of
May 31, 1996 between Borrower and Brunswick Corporation, and all other
agreements, documents and instruments executed in connection therewith or the
transactions contemplated thereby.
"Affiliate" means, as to any Person (the "Subject Person"), any other
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with, the Subject Person. For purposes of this definition,
"control" of a Person means the power, direct or indirect, (i) to vote 10% (or
51% with respect to determining "control" by Berenson Minella & Company, L.P.)
or more of the securities having voting power for the election of directors of
the Person or (ii) otherwise to direct or cause the direction of the management
and policies of the Person, whether by contract or otherwise. All of each
Borrower's officers, shareholders, directors, parent corporations, subsidiary
corporations, joint venturers and partners and all of Individual Guarantors and
Corporate Guarantor shall be deemed to be Borrowers' Affiliates for purposes of
this Agreement.
"Applicable Agreement" means any agreement, commitment, arrangement or
instrument to which, as of any date, a Borrower is a party or by which a
Borrower or any of its properties is bound, including any note, indenture, loan
agreement, mortgage, lease, or deed, the performance or non-performance of which
could reasonably have a Material Adverse Effect, including the Acquisition
Documents.
"Attorneys' Fees" means the reasonable fees (determined at hourly rates
without premium), costs and expenses of all attorneys (and all paralegals
employed by such attorneys) retained by Bank from time to time in connection
with any matter whatsoever related to, or arising out of, the transactions
contemplated hereunder or the other Loan Documents.
"Availability Deficiency" means the occurrence, as of any time, of a
condition in which (i) the sum of (a) the then aggregate outstanding principal
amount of the Revolving Loans plus (b) the then outstanding principal amount of
the Term Loan plus (c) the then aggregate Letter of Credit Exposure exceeds (ii)
$7,500,000.
<PAGE> 8
"Borrower" means each of FM Manufacturing and FM Sales, and "Borrowers"
means, collectively, FM Manufacturing and FM Sales. To the extent a term or
provision of this Agreement is applicable to a "Borrower," it is applicable to
each Borrower unless the context expressly indicates otherwise.
"Borrower's Facility" means the facility located at 535 Migeon Avenue,
Torrington, Connecticut 06790.
"Borrowing Base" means, as of any date of determination, an amount
equal to:
(i) an amount equal to 85% (subject to adjustment as provided
in Section 2.9) of the net amount of then Eligible Receivables (i.e., less
maximum discounts, credits and allowances which may be taken by or granted to
account debtors in connection therewith); plus
(ii) the lesser of (a) $2,500,000 or (b) the sum of (1) an
amount equal to 60% (subject to adjustment as provided in Section 2.9) of the
then Eligible Inventory consisting of Finished Goods, completed shafts awaiting
frequency matching or in the process of being frequency matched, or purchased
composite shafts, plus (2) an amount equal to 50% (subject to adjustment as
provided in Section 2.9) of the then Eligible Inventory consisting of Raw
Materials, plus (3) the lesser of (X) $175,000 or (Y) 25% (subject to adjustment
as provided in Section 2.9) of the then Eligible Inventory consisting of
semi-finished composite shafts; less
(iii) the then Reserve Amount.
"Borrowing Base Deficiency" means any failure of the Revolving Loan
Availability to be greater than or equal to zero Dollars.
"Business Day" means any day which is not a Saturday, Sunday or a legal
holiday on which banks are authorized or required to be closed in Cincinnati,
Ohio. Periods of days referred to in this Agreement will be counted in calendar
days unless Business Days are expressly prescribed.
"Closing Date" means May 31, 1996, or such later date as is mutually
agreeable to Borrowers and Bank.
"Code" means the Uniform Commercial Code, as enacted in the State of
Ohio, Section 1301.01 et seq. of the Ohio Revised Code, as amended from time to
time.
"Collateral", "General Intangibles", "Inventory", "Equipment" and
"Receivables" shall have the meanings ascribed thereto in the Security Agreement
(as defined in Section 5.1).
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower,
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<PAGE> 9
are treated as a single employer under Section 414(b) or 414(c) of the Internal
Revenue Code or Section 4001(a)(14) of ERISA (as defined in Section 9.13).
"Corporate Guarantor" means FM Precision Golf Corp., a Delaware
corporation.
"Deficiency" means (collectively and individually) an Availability
Deficiency, a Borrowing Base Deficiency, a Term Loan Deficiency and a Letter of
Credit Deficiency.
"Dollars" and "$" means dollars in lawful currency of the United States
of America unless otherwise indicated.
"Eligible Equipment" means such Equipment (i) owned and held by FM
Manufacturing at Borrower's Facility which Bank, in its discretion exercised in
good faith, has deemed to be eligible based on those credit or collateral
considerations as Bank deems appropriate from time to time; (ii) which is
subject to a valid and prior, fully perfected security interest of Bank, free of
all Liens of any Person (except to the extent, if any, of the Permitted Liens
other than purchase money security interests or capitalized lease obligations);
(iii) which does not violate any representation or warranty contained in any of
the Loan Documents pertaining to Equipment; and (iv) for which the insurance
that is required to be maintained by the Loan Documents is payable to Bank as
mortgagee or loss payee in accordance with the Loan Documents. If (1) any item
of Eligible Equipment is lost, stolen, destroyed or damaged beyond economic
repair or (2) Borrower sells, scraps or trades-in, with Bank's consent, any item
of Eligible Equipment, then the affected Equipment will immediately cease to be
Eligible Equipment for all purposes of this Agreement.
"Eligible Inventory" means each Borrower's Inventory which meets the
criteria in clause (i) below of this definition and is not ineligible pursuant
to clause (ii) below. Eligible Inventory will be valued, for purposes of
determining the Borrowing Base, at the lower of cost or market value, determined
in accordance with the "first in-first out" cost accounting system.
(i) Except as otherwise provided in clause (ii) below,
Inventory is eligible if it is (a) (1) finished goods owned and held by a
Borrower at Borrower's Facility for sale in the ordinary course of a Borrower's
business as presently conducted by it ("Finished Goods"), or (2) raw materials
owned and held by FM Manufacturing at Borrower's Facility that will be converted
or fabricated into Finished Goods or are held separately for sale in the
ordinary course of FM Manufacturing's business as presently conducted by it
("Raw Materials"), and (b) subject to a valid and prior, fully perfected
security interest of Bank, free of all Liens of any Person (except to the
extent, if any, of the Permitted Liens).
(ii) The following Inventory will not, in any event,
constitute Eligible Inventory:
(a) Finished Goods which are (1) not in good
condition, (2) not of merchantable quality, (3) not readily saleable in the
ordinary course of a Borrower's business, (4) considered slow-moving by Bank, in
its discretion exercised in good faith, or (5) subject to defects
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<PAGE> 10
which materially affect their market value (including all Finished Goods for
which reserves for obsolescence have been provided for in a Borrower's financial
statements or for which obsolescence reserves are anticipated);
(b) Raw Materials which are (1) not in good
condition, (2) not of merchantable quality, (3) considered slow-moving by Bank,
in its discretion exercised in good faith, or (4) subject to defects which
materially affect their market value (including all Raw Materials for which
reserves for obsolescence have been provided for in FM Manufacturing's financial
statements or for which obsolescence reserves are anticipated);
(c) work in process;
(d) supplies and packaging materials;
(e) Inventory which Bank, in its discretion exercised
in good faith, determines to be ineligible because of age, type, category or
quantity;
(f) Inventory that is located outside of the United
States;
(g) Inventory which has been consigned to a Borrower
or has been sold to a Borrower in any sale on approval or sale and return
transaction;
(h) Inventory that is located on any premises not
owned by a Borrower or is in the possession of any Person other than a Borrower
except (subject to any additional requirements imposed by Bank, in its
discretion exercised in good faith, to protect a Borrower's title thereto or
Bank's Lien thereon): (1) Eligible Inventory in the possession of a warehouseman
or other bailee (including an inventory processor) if Bank has received a bailee
waiver letter acceptable to Bank from such warehouseman or bailee and such
warehousemen or bailee has not issued a negotiable document of title as to any
of the Eligible Inventory and (2) Eligible Inventory located on premises leased
by a Borrower if Bank has received a landlord waiver reasonably acceptable to
Bank with respect to such premises;
(i) Inventory that is subject to any trademark, trade
name, patent or licensing arrangement, any contractual arrangement, or any law,
rule or regulation that could, in any instance in Bank's reasonable judgment,
limit or impair the ability of Bank to promptly exercise any of its rights with
respect thereto;
(j) Inventory with respect to which insurance
proceeds, if any, are not payable to Bank as mortgagee or loss payee in
accordance with the Loan Documents;
(k) Inventory that is in transit to or from
Borrower's Facility; or
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<PAGE> 11
(l) Inventory which Bank, in its discretion exercised
in good faith, determines to be ineligible based on any other credit or
collateral considerations as Bank deems appropriate from time to time.
"Eligible Receivables" means such of the Receivables owing to a
Borrower that meet the criteria in clause (i) below of this definition and are
not ineligible pursuant to clause (ii) below.
(i) except as provided in clause (ii) below, Receivables
meeting all of the following criteria are Eligible Receivables:
(a) Receivables which consist of ordinary trade
accounts receivable owned solely by a Borrower, payable in cash in Dollars and
which arise out of an outright, bona fide, lawful and final sale of Finished
Goods or the provision of services in the ordinary course of a Borrower's
business as presently conducted by it to a Person who is not an Affiliate of a
Borrower (or who otherwise is controlled by a Borrower or by an Affiliate of
Borrower);
(b) Receivables which are due and payable absolutely
and unconditionally within (1) a Borrower's standard terms of 45 days from the
date of the invoice applicable thereto (or 60 days from the date of the invoice
applicable thereto with respect to account debtors described in clause (ii)(c)
below), or (2) such extended terms that Bank, in its discretion exercised in
good faith, approves after prior notice from a Borrower;
(c) Receivables with respect to which (1) the
services covered thereby have been rendered or (2) the Finished Goods covered
thereby have been delivered to the account debtor or its designee; and
(d) Receivables with respect to which not more than
60 days have elapsed since the due date of the original invoice applicable
thereto with respect to the account debtors described in clause (i)(b) above.
(ii) The following Receivables will not, in any event,
constitute Eligible Receivables:
(a) Receivables with respect to which the account
debtor or any Affiliate of the account debtor has filed or had filed against it
a petition in bankruptcy or for reorganization, made an assignment for the
benefit of creditors, or failed or suspended business operations, become
insolvent or in respect of which a receiver, custodian or trustee was appointed
for a significant portion of its assets or affairs;
(b) Receivables with respect to which the account
debtor is also a supplier to, or creditor of, a Borrower, unless the aggregate
amount owed to a Borrower by such account debtor exceeds the aggregate amount
owed to such account debtor by a Borrower, in which case such a Receivable, if
otherwise eligible, will be an Eligible Receivable only to the extent of such
excess;
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<PAGE> 12
(c) Receivables with respect to which the account
debtor (1) is a Person not domiciled in or organized under the laws of the
United States of America or Canada or a political subdivision of either of them,
is not qualified to do business in one or more States of the United States of
America or Canada, and the Finished Goods in respect of the Receivable are
delivered by a Borrower to a location outside of the United States of America or
Canada or (2) has its principal place of business or chief executive office
outside of the United States of America or Canada unless, in either case, the
Receivable is supported by an irrevocable, clean letter of credit or acceptance
issued (A) by a financial institution satisfactory to Bank and (B) on terms
acceptable to Bank, and, if so requested by Bank, delivered to Bank in pledge
for negotiation and presentment;
(d) Receivables with respect to which 25% or more of
the Receivables from the same account debtor, either alone or together with its
Affiliates, are ineligible for any reason, exclusive of those Receivables which
are ineligible pursuant to clauses (ii)(e) or (ii)(i);
(e) Receivables owing from any single account debtor
to the extent, as of any date, that the total amount of such account debtor's
indebtedness to a Borrower (whether evidenced by such Receivables or otherwise)
exceeds an amount which is greater than 20% of the face amount (less maximum
discounts, credits and allowances which may be taken by, or granted to, a
Borrower's account debtor in connection therewith) of the then outstanding
Eligible Receivables of the applicable Borrower;
(f) Receivables with respect to which the account
debtor is a Governmental Authority, unless with respect to such Receivables the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 and 41
U.S.C. Section 15), or comparable state statute or regulation has been complied
with to Bank's satisfaction;
(g) Receivables which (1) consist (or to the extent
consisting) of deposits, (2) consist of vendor warranty claims, (3) consist (or
to the extent consisting) of finance charges, service charges or interest on
delinquent accounts, (4) are proceeds of consigned Inventory, (5) are employee,
officer or director Receivables, or (6) are debit memoranda;
(h) Receivables with respect to which the terms or
conditions prohibit or restrict assignment or collection rights;
(i) Receivables (1) which are subject to set-off,
credit, allowance or adjustment by the account debtor (except discounts allowed
for prompt payment), or (2) with respect to which the account debtor has
returned any of the Inventory from the sale from which the Receivables arose,
provided that in either or both of such events (1) or (2), the net amount owed
by such account debtor to a Borrower in respect of such Receivable, as
determined by Bank in its discretion exercised in good faith, may be an Eligible
Receivable;
(j) Receivables which are evidenced by a promissory
note, chattel paper or other instrument;
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<PAGE> 13
(k) Receivables which are generated by a sale on
approval, a bill and hold sale, a sale on consignment or other type of
conditional sale;
(l) Receivables which are not subject to the first
priority security interest of Bank or are subject to any Lien of any Person
(except to the extent, if any, of the Permitted Liens);
(m) Receivables with respect to which the account
debtor is located in New Jersey (1) to the extent that the Receivables owing
from such account debtor exceed 5% of the face amount of the then outstanding
Eligible Receivables and (2) if all Receivables owing from all account debtors
located in New Jersey exceed 15% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has properly qualified to
do business in New Jersey or has filed a Notice of Business Activities Report
with the New Jersey Division of Taxation for the then current year;
(n) Receivables with respect to which the account
debtor is located in Minnesota (1) to the extent that the Receivables owing from
such account debtor exceed 5% of the face amount of the then outstanding
Eligible Receivables and (2) if all Receivables owing from all account debtors
located in Minnesota exceed 15% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has properly qualified to
do business in Minnesota or has filed a Notice of Business Activities Report
with the Minnesota Division of Taxation for the then current year;
(o) Receivables with respect to which the account
debtor is located in West Virginia (1) to the extent that the Receivables owing
from such account debtor exceed 5% of the face amount of the then outstanding
Eligible Receivables and (2) if all Receivables owing from all account debtors
located in West Virginia exceed 15% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has filed, or is exempt
from filing, a Business Activity Report with the Tax Commissioner of the State
of West Virginia for the then current year;
(p) Receivables which are subject to progress
billing;
(q) Receivables with respect to which the account
debtor has sold or is selling substantially all of its assets and has not
established adequate reserves or made provisions for the payment of all amounts
owed to such account debtor's trade creditors, as determined by Bank in its
discretion exercised in good faith;
(r) Receivables with respect to which the account
debtor is incompetent or has died;
(s) Receivables with respect to which Bank has
received a check for payment of such Receivable which has been returned
uncollected;
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<PAGE> 14
(t) Receivables with respect to which Bank, in its
discretion exercised in good faith, believes that the collection of such
Receivable is in doubt or impaired or that such Receivable may not be paid by
reason of the account debtor's financial inability to pay; or
(u) Receivables with respect to which Bank, in its
discretion exercised in good faith, has notified a Borrower that such
Receivables are, or Receivable is, ineligible based on such other credit and
collateral considerations as Bank deems appropriate from time to time.
"Event of Default" shall have the meaning ascribed thereto in Section
12, whether any requirement for the giving of notice, the lapse of time, the
satisfaction of any other condition, or all of them, have been satisfied.
"Financials" means those financial statements of Borrowers attached as
Schedule 1.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, government or any agency or instrumentality thereof.
"Indebtedness" means all of each Borrower's obligations, indebtedness
and liabilities to any Person, including all debts, claims and indebtedness,
contingent, fixed or otherwise, heretofore, now and from time to time hereafter
owing, due or payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under written or oral agreement, operation of law
or otherwise. Indebtedness includes, without limiting the foregoing, (i) the
Obligations, (ii) obligations or liabilities of any Person secured by a Lien on
property owned by a Borrower, even though a Borrower has not assumed or become
liable for the payment therefor, and (iii) obligations or liabilities created or
arising under any lease to a Borrower of real or personal property, any
conditional sales contract or other title retention agreement with respect to
property used or acquired by a Borrower, even though the rights and remedies of
the lessor, seller, or lender thereunder are limited to repossession of such
property.
"Individual Guarantors" means, collectively, Christopher A. Johnston,
Richard P. Johnston and Berenson Minella & Company, L.P., a Delaware limited
partnership. "Individual Guarantor" means each of the foregoing.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended or superseded from time to time. Any reference to a specific provision
of the Internal Revenue Code will be construed to include any comparable
provision of the Internal Revenue Code as amended or superseded after the date
of this Agreement.
"Letter of Credit" means, as applicable, either (i) a standby letter of
credit issued by Bank pursuant to Section 2.4 or (ii) a commercial letter of
credit issued by Bank pursuant to Section 2.4.
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<PAGE> 15
"Letter of Credit Availability" means, at any time, an amount equal to
the lesser of (i) an amount equal to (a) $250,000 less (b) the then Letter of
Credit Exposure or (ii) the then Revolving Loan Availability.
"Letter of Credit Deficiency" means any failure of the Letter of Credit
Availability to be greater than or equal to zero Dollars.
"Letter of Credit Documents" means, with respect to each and every
Letter of Credit, (i) either, as applicable, (a) a standby letter of credit
application and reimbursement agreement on Bank's then customary form with
respect to a standby Letter of Credit issued by Bank or (b) a commercial letter
of credit application and reimbursement agreement on Bank's then customary form
with respect to a commercial Letter of Credit issued by Bank (the "Letter of
Credit Application") and (ii) any other agreements, certificates, documents and
information as Bank may reasonably request relating to a Letter of Credit.
"Letter of Credit Exposure" means, as of any date, the sum of (i) the
Letter of Credit Face Amount of all outstanding Letters of Credit and (ii) all
unreimbursed drawings under any Letters of Credit (whether or not outstanding).
"Letter of Credit Face Amount" of any Letter of Credit means, at any
time, the face amount of the Letter of Credit, after giving effect to all
drawings paid thereunder and other reductions of the face amount and to all
reinstatements of the face amount effected, pursuant to the terms of the Letter
of Credit, prior to such time.
"Letter of Credit Obligations" shall mean, at any time, the sum of (i)
the aggregate Letter of Credit Face Amount for all Letters of Credit, plus (ii)
the aggregate amount of each Borrower's unpaid obligations in respect of all
Letters of Credit (whether or not outstanding) under this Agreement and the
Letter of Credit Documents, including any indebtedness, liability or obligation
of any sort whatsoever, however arising, whether present or future, fixed or
contingent, or paid, incurred, or arising in connection with any Letters of
Credit (including any drafts or acceptances thereunder, all amounts charged or
chargeable to a Borrower or by Bank, including any and all Bank charges,
expenses, fees and commissions, and all duties and taxes and costs of insurance
which may pertain either directly or indirectly to such Letters of Credit, so
long as such duties and taxes and costs of insurance are generally being charged
by Bank to its similarly situated borrowers).
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, charge, security interest, encumbrance, lien
(statutory or other), or any preference, priority or other security agreement or
any preferential arrangement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement, any lease deemed under the
UCC to be intended for security, and the authorized filing by or against a
Person as debtor of any financing statement under the UCC or comparable law of
any jurisdiction).
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<PAGE> 16
"Loan" means any advance or extension of credit made by Bank to, or for
the benefit of, a Borrower pursuant to Section 2 (including the Letter of Credit
Exposure), and the total of all such advances and extensions of credit
(including the Letter of Credit Exposure) outstanding at any time may be
referred to as "Loans".
"Loan Collateral" means the Collateral and any other security or
collateral provided from time to time by, or on behalf of, a Borrower for the
Obligations.
"Loan Documents" means this Agreement, the Security Agreement and all
other agreements, instruments and documents relating to the Loans, including
mortgages, deeds of trust, security agreements, subordination agreements,
intercreditor agreements, pledges, powers of attorney, consents, collateral
assignments, locked box agreements, letter agreements, contracts, notices,
leases, financing statements and letters of credit and applications therefor and
all other writings, all of which must be in form and substance satisfactory to
Bank, which have been, are as of the date of this Agreement, or will in the
future be signed by, or on behalf of, a Borrower and delivered to Bank.
"Material Adverse Effect" means a material adverse effect, as
determined by Bank in good faith, on (i) Borrowers' (a) business, property,
assets, operations or condition, financial or otherwise, or (b) ability to
perform any of their payment or other Obligations under this Agreement or any of
the other Loan Documents, or (ii) the value of the Loan Collateral or Bank's
rights or interests therein.
"Obligations" means the Loans, the Letter of Credit Obligations and all
other loans, advances, debts, liabilities, obligations, covenants and duties
owing to Bank or any Affiliate of Bank from a Borrower of any kind, present or
future, whether evidenced by or arising out of this Agreement, any of the other
Loan Documents, or any other agreement, transaction, extension of credit, letter
of credit, guaranty or indemnification or in any other manner and whether for
the payment of money, whether direct or indirect (including acquired by
assignment), related or unrelated, absolute or contingent, due or to become due,
now existing or hereafter arising and however acquired, and including all
interest, charges, expenses, fees and any other sums chargeable to a Borrower in
connection with any of the foregoing, and all Attorneys' Fees.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, as to which a Borrower or any corporation, trade or
business that is, along with a Borrower, a member of a Controlled Group may have
any liability, including any liability by reason of having been a substantial
employer within the meaning of section 4063 of ERISA at any time during any
preceding six year period, or by reason of being deemed to be a contributing
sponsor under section 4069 of ERISA.
"Permitted Liens" means the liens and interests in favor of Bank
granted or provided under the Loan Documents and, to the extent reflected on a
Borrower's books and records and not materially impairing the operations of a
Borrower or any performance under, or contemplated by, the Loan Documents: (i)
Liens arising by operation of law for taxes not yet due and payable; (ii)
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<PAGE> 17
Liens of mechanics, materialmen, shippers and warehousemen for services or
materials for which payment is not yet due; (iii) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens, if any, specifically permitted by Bank from time to time in writing; (v)
Liens on newly acquired equipment securing Indebtedness under capitalized leases
or purchase money Indebtedness if the total amount of obligations secured by the
purchase money security interests or the subject of capitalized leases during
any period does not, together with any other capital expenditures made by
Borrowers, exceed the maximum amount permitted during such period for capital
expenditures pursuant to Section 1 of Exhibit 10.29, provided that (a) any Liens
relating to such purchase money Indebtedness or capitalized lease Indebtedness
shall not extend to or cover any property of a Borrower other than the property
so acquired, and (b) the principal amount of such capitalized lease or purchase
money Indebtedness shall not, at the time of the incurrence thereof, exceed the
value of the property so acquired; (vi) Liens for taxes, assessments and other
similar charges to the extent payment thereof shall not at the time be required
to be made in accordance with the provisions of Section 10.9; (vii) those Liens
described on Schedule 2; and (viii) Liens arising from the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords, bailees and other
like Persons ("Third Party Claims") as long as the Third Party Claims are not
past due and if each of the following conditions is met: (a) the validity or
amount of the Third Party Claim is being contested in good faith and by
appropriate and lawful proceedings promptly initiated and diligently conducted,
(b) Borrowers have given prior notice to Bank of the Third Party Claim, (c)
Borrowers have established appropriate reserves (in Bank's discretion exercised
in good faith) for the Third Party Claim, (d) levy and execution on the Third
Party Claim have been and continue to be stayed, (e) the Third Party Claim does
not prevent Bank from having a perfected first priority security interest in, or
a first priority mortgage lien on, the Loan Collateral or with respect to future
advances made under this Agreement, (f) Borrower's title to, and its right to
use, any of the material Loan Collateral is not materially affected thereby, and
(g) the amount of all Third Party Claims do not exceed, as of any date, $50,000
in the aggregate; and, provided, further, that Borrowers must promptly pay each
such Third Party Claim when the dispute is finally settled.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, limited liability
company, corporation, institution, entity, party or Governmental Authority.
"Prime Rate" means the rate of interest per annum announced by Bank from time to
time as its prime lending rate (for reference purposes only) with any change
thereto being effective as of the opening of business on the date of change (or
if not a Business Day, the beginning of the day). The Prime Rate is determined
solely by Bank pursuant to market factors and its own operating needs and is not
necessarily Bank's best or most favorable rate for commercial or other loans.
"Reportable Event" means an event described in Section 4043 of ERISA
and the regulations issued thereunder (other than a Reportable Event not subject
to the provision for 30 day notice to the Pension Benefit Guaranty Corporation
under such regulations).
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<PAGE> 18
"Reserve Amount" means, as of any date of determination, the amounts
that Bank, in its discretion exercised in good faith (including in the manner
described in this definition), may from time to time establish in determining
the Borrowing Base based on such credit and collateral considerations as Bank
deems appropriate from time to time in its discretion exercised in good faith,
based on market conditions, or to reflect contingencies or risks which may
affect any or all of the Loan Collateral, the business, operations, financial
condition or business prospects of a Borrower or the security of the Loans. For
purposes of this definition and determining the Borrowing Base and without
limiting Bank's other discretion, Bank will be deemed to have acted in good
faith if reserves are established in respect of any one or more of the
following: (a) the occurrence of an Event of Default; (b) the payment of
Obligations then due and payable and unpaid; (c) for price adjustments, damages,
unearned discounts, returned Inventory, credit memoranda (issued or unissued),
credits, contras and other similar offsets to a Borrower's accounts receivable
except to the extent any of the foregoing have been dealt with by Bank by
designating a specific Receivable or Receivables as being ineligible pursuant to
the terms of this Agreement as opposed to the establishment of a reserve general
in nature; (d) for any claims, interests or rights (including Liens) of any
Person which (1) (A) as of the date Bank learns or is notified of the existence
of the same, has priority over the Liens of Bank on any or all of the Loan
Collateral or (B) will have priority over the Liens of Bank on any or all of the
Loan Collateral after any required notice or filing, the passage of time, the
satisfaction of any other condition, or otherwise and (2) pertain to, arise
from, or secure indebtedness, obligations, or liabilities in excess, as of any
date, of $25,000 in the aggregate; (e) for aged credits maintained by a Borrower
in respect of its accounts receivable; or (f) for any amounts expended by Bank
to protect or preserve any Loan Collateral or Bank's rights under the Loan
Documents which have not been reimbursed by a Borrower.
"Revolving Loan Availability" means, as of any time, an amount equal
to:
(i) an amount equal to the lesser of (a) the remainder of (1)
$7,500,000 less (2) the then outstanding principal amount of the Term Loan or
(b) the then Borrowing Base; less
(ii) the sum of (a) then aggregate outstanding principal
amount of all Revolving Loans and all due but unpaid interest on the Loans, and
all fees, commissions, expenses and other charges posted to Borrowers' loan
account with Bank and (b) the then Letter of Credit Exposure.
"Revolving Loans" has the meaning ascribed thereto in Section 2.2.
"Security Agreement" has the meaning ascribed thereto in Section 5.1.
"Solvent" means, with respect to any Person, that the Person is not
insolvent as defined or construed under any and all applicable laws. In
computing the amount of contingent liabilities at any time, it is intended that
they be computed at the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Term Loan" has the meaning ascribed thereto in Section 2.3.
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"Term Loan Availability" means, as of any time, an amount equal to:
(i) an amount equal to the lesser of: (a) $3,750,000; or (b)
the sum of (1) an amount up to 75% of the aggregate orderly liquidation value of
the Eligible Equipment owned and held by FM Manufacturing, plus (2) an amount up
to 60% of the fair market value of that portion of Borrower's Facility which
constitutes real estate, such fair market value to be determined in accordance
with an appraisal complying with all regulatory requirements applicable to Bank,
provided that Bank has obtained an environmental assessment of the real estate
satisfactory to Bank; less
(ii) the principal amortization payments of the Term Loan made
or required to have been made by Borrowers; less
(iii) the then outstanding principal amount of the Term Loan.
For purposes of determining the Term Loan Availability, the orderly liquidation
value of the Eligible Equipment owned and held by FM Manufacturing and the fair
market value of Borrower's Facility will be determined in accordance with
appraisals performed from time to time, but not more frequently than annually,
at Borrowers' cost by appraisers acceptable to Bank, in its discretion exercised
in good faith, based on methods of appraisal acceptable to Bank.
"Term Loan Deficiency" means the failure, as of any time, of the Term
Loan Availability to be greater than or equal to zero Dollars.
1.2 Environmental Definitions.
"Environmental Activity" means any actual, proposed or threatened
storage, holding, existence, Release, emission, discharge, generation,
processing, abatement, removal, disposition, handling, transportation or
disposal of any Hazardous Substance from, under, into or on any of a Borrower's
property or otherwise relating to any of a Borrower's property or any Use of any
of a Borrower's property which is regulated by or for which standards of conduct
or liability are imposed by any Environmental Requirements.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean Water Act, 33
U.S.C. Section 1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
regulations promulgated thereunder, and any other federal, state, county,
municipal, local or other statute, law, ordinance or regulation, or any common
law (including common law that may impose strict liability), which may relate to
or deal with human health, the environment, natural resources, or Hazardous
Substances, all as may be from time to time amended or modified.
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"Environmental Liability" means any liability, obligation,
indebtedness, or duty of, any claim or demand against, any requirement imposed
on, or any amount owed by or payable from, a Borrower, which is based on,
results from, is in connection with, arises out of, or otherwise is related to
any Environmental Activity, whether the foregoing described liability now exists
or arises in the future, is contingent or absolute, primary or secondary,
liquidated or unliquidated, due or to become due, and however created, incurred,
acquired, owing or arising.
"Environmental Requirements" means all present and future laws,
including Environmental Laws, authorizations, approvals, judgments, injunctions,
decrees, concessions, grants, orders, franchises, agreements and other
restrictions and requirements (whether or not arising under statutes or
regulations) relating to any Hazardous Substances or Environmental Activity.
"Hazardous Substances" means, at any time, (i) any "hazardous
substance" as defined in Section 101(14) of CERCLA (42 U.S.C. Section 9601(14))
or regulations promulgated thereunder; (ii) any "solid waste" as defined in RCRA
or regulations promulgated thereunder or any "hazardous waste" or "infectious
waste," as such terms are defined in any Environmental Law at such time; (iii)
asbestos, urea-formaldehyde, polychlorinated biphenyls (PCBs), nuclear fuel or
material, chemical waste, radioactive material, explosives, known carcinogens,
petroleum products and by-products and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law; and (iv) any additional
substances or materials which at such time are classified or considered to be
hazardous or toxic under any Environmental Law.
"Release" includes spilling, leaking, pumping, paving, emitting,
emptying, discharging, injecting, escaping, contaminating, leaching, disposing,
releasing or dumping into the environment.
"Use" includes, but is not limited to, use, ownership, development,
construction, maintenance, management, operation or occupancy.
1.3 Other Definitional Provisions; Construction. Unless otherwise
specified,
(i) All terms defined in this Agreement, whether or not
defined in Section 1, have the defined meanings provided in this Agreement when
used in this Agreement, in any other of the Loan Documents, or any other
certificate, instrument or other document made or delivered pursuant to this
Agreement or any other Loan Document, unless otherwise defined therein.
(ii) As used in this Agreement, in any other of the Loan
Documents, or in any other certificate, instrument or document made or delivered
pursuant hereto or thereto, accounting terms relating to a Borrower not defined
in this Agreement have the respective meanings given to them in accordance with
generally accepted accounting principles in the United States of America as in
effect at the time any determination is made or financial statement or
information is required or furnished under this Agreement ("GAAP").
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(iii) References to the Uniform Commercial Code, or UCC, mean
as enacted in the particular jurisdiction(s) encompassed by the reference.
(iv) The definition of any document or instrument includes all
schedules, attachments and exhibits thereto and all renewals, extensions,
supplements, restatements and amendments thereof.
(v) "Hereunder," "herein," "hereto," "this Agreement" and
words of similar import refer to this entire document; "including" is used by
way of illustration and not by way of limitation, unless the context clearly
indicates the contrary; the singular includes the plural and conversely.
(vi) All of the uncapitalized terms contained in the Loan
Documents which are defined under the Code will, unless the context indicates
otherwise, have the meanings provided for in the Code.
(vii) All Exhibits and Schedules attached to this Agreement
are incorporated into, made and form an integral part of, this Agreement for all
purposes.
(viii) The term "good faith" means honesty in fact in the
conduct or transaction concerned, without regard to whether standards which
might be deemed commercially reasonable have been observed.
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS
2.1 Total Facility. Subject to the terms and conditions of this
Agreement, Bank shall make up to $7,500,000 in total credit available to
Borrowers in the form of the following loans advanced or to be made under the
following facilities: (i) the Revolving Loans and (ii) the Term Loan, all as
more particularly described below.
2.2 Revolving Loans. Until the termination of this Agreement pursuant
to Section 11 and subject to the other terms and conditions of this Agreement,
Bank shall make loans ("Revolving Loans") to Borrowers, which loans may be lent
and relent from time to time, in an amount, as of any date, not exceeding the
Revolving Loan Availability then in effect.
2.3 Term Loan.
2.3.1 General. Subject to the terms and conditions of this
Agreement, Bank shall make a loan (the "Term Loan") to FM Manufacturing in the
amount of $3,750,000; provided, however, that the principal amount of the Term
Loan may not, as of any time, exceed the Term Loan Availability. Subject to the
terms of Section 2.3.2 and Section 11.4, the principal of the Term Loan shall be
due and payable by FM Manufacturing in equal consecutive monthly installments in
the amount of $62,500 each commencing on the first day of July, 1996 and
continuing on the first day of each month until the termination of this
Agreement, at which time the entire unpaid principal
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balance of, and accrued interest on, the Term Loan, if not sooner repaid, shall
be due and payable. No part of the Term Loan may, on the repayment thereof, be
redrawn or reborrowed by FM Manufacturing.
2.3.2 Additional Principal Payments.
(i) On each August 31, commencing on August 31, 1997
and continuing until the termination of this Agreement or the payment in full of
the entire principal of the Term Loan, FM Manufacturing will pay to Bank, in
addition to the payments required under Sections 2.3.1 and 2.3.2(ii), an
installment of principal of the Term Loan in an amount equal to 30% of
Borrowers' Excess Cash Flow (as defined below), if any, for Borrowers' fiscal
year then most recently ended. As used in this Section 2.3.2, "Excess Cash Flow"
means, for any period, Borrowers' consolidated net income, after taxes, for the
period, plus all depreciation, amortization and other noncash charges for the
period, plus all extraordinary expenses for the period, less all capital
expenditures (other than capital expenditures paid for with the proceeds of
long-term debt or capitalized leases) made during the period, but only to the
extent that such capital expenditures are permitted pursuant to Section 1 of
Exhibit 10.29, less the amount of principal payments on any long-term debt or
capitalized leases made during the period, less the dividends paid by Borrowers
during the period to the extent authorized pursuant to Section 10.19. For
purposes of this Section 2.3.2(i), Excess Cash Flow will be determined on the
basis of the annual financial statements required to be delivered to Bank
pursuant to Section 8.7. The portion of the Excess Cash Flow paid to Bank will
be applied by Bank against the Term Loan to the last to mature of the payments
of principal due on the Term Loan under this Section 2.3.
(ii) In the event that the State of Connecticut
provides direct financing to a Borrower on terms and conditions satisfactory to
Bank at any time prior to the payment in full of the entire principal of the
Term Loan, FM Manufacturing will pay to Bank, upon the closing of such
financing, and in addition to the payments required under Sections 2.3.1 and
2.3.2(i), an installment of principal in an amount equal to 50% of the net
proceeds of such financing (net only of the reasonable and customary costs of
closing such financing). Such payment will be applied by Bank against the Term
Loan to the last to mature of the payments of principal due on the Term Loan
under this Section 2.3.
2.4 Letters of Credit.
2.4.1 Letter of Credit Subfacility. Until the termination of
this Agreement pursuant to Section 11 and subject to the other terms and
conditions of this Agreement, a Borrower may request Bank to issue a Letter of
Credit by delivering to Bank: (i) a Letter of Credit Application completed to
the satisfaction of Bank, together with the proposed form of the Letter of
Credit (which, in all respects, will comply with the applicable requirements of
Section 2.4.2 below), (ii) a Borrowing Base Certificate (as defined in Section
8.3 below) which calculates the Letter of Credit Availability by giving effect
to the proposed Letter of Credit, and (iii) such Letter of Credit Documents that
Bank then requires. Bank, in addition to the other terms of this Agreement, will
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have no obligation to issue any such proposed Letter of Credit if, after giving
effect to such proposed Letter of Credit, the Letter of Credit Availability will
be less than zero.
2.4.2 Terms of Letter of Credit. Each Letter of Credit issued
under this Agreement will, among other things, be in such form requested by a
Borrower as is acceptable to Bank in its discretion exercised in good faith. No
standby Letter of Credit will have an expiry date occurring later than one year
after the date of issuance of the Letter of Credit, and no commercial Letter of
Credit will have an expiry date occurring later than 180 days after the date of
issuance of the Letter of Credit; however, in no event will any expiry date be
later than the earlier of (i) May 31, 1999 (or such later date to which Bank
renews the termination date of this Agreement as provided in Section 11.2 below)
or (ii) such earlier termination date of this Agreement which has resulted from
the delivery to Bank by a Borrower of a Termination Notice as provided in
Section 11.3 below. Each Letter of Credit Application and each Letter of Credit
will be subject to the Uniform Customs and Practices for Documentary Credits,
1993 Revision, ICC Publication No. 500 and, to the extent not inconsistent
therewith, the laws of the State of Ohio.
2.4.3 Advice of Issuance or Non-Issuance. Upon receipt of a
request from a Borrower to open any Letter of Credit and of all attendant Letter
of Credit Documents satisfactorily completed, Bank, within three Business Days,
may either (i) issue the requested Letter of Credit to the beneficiary thereof
and transmit a copy to the applicable Borrower, or (ii) elect, in its discretion
exercised in good faith, not to issue the proposed Letter of Credit. If Bank
elects not to issue such Letter of Credit, Bank will communicate in writing to
the applicable Borrower the reason(s) why Bank has declined such request.
2.4.4 Payment of Drafts. Subject to the terms of Section 13.3
below, Borrowers hereby irrevocably instruct Bank to reimburse Bank for any
drawing, expenditure or other payment made, or cost or expense incurred, by Bank
in respect of any Letter of Credit by debiting Borrowers' loan account with Bank
as an advance of the Revolving Loans pursuant to Section 2.2.
2.4.5 Letter of Credit Obligations. All Letter of Credit
Obligations will constitute part of the Obligations and be secured by the Loan
Collateral.
2.4.6 Increased Costs. If (i) any law, treaty, rule,
regulation, guideline or determination of a central bank or a Governmental
Authority or interpretation or application thereof by a central bank or
Governmental Authority or (ii) compliance by Bank with any request or directive
(whether having the force of law) from, or compliance by Bank with any official
pronouncement or statement of, or as a result of any audit, investigation, or
enforcement action (whether or not against Bank) by, a central bank or other
Government Authority shall either (a) impose, modify, deem or make applicable
any reserve, special deposits, assessment or similar requirement against letters
of credit issued by Bank or (b) impose on Bank any other condition regarding
this Agreement or any Letter of Credit, and, in Bank's judgment exercised in
good faith, the result of any event referred to in clause (a) or (b) above is
the increase of the cost to Bank of issuing or maintaining any Letter of Credit,
then, on demand by Bank, Borrowers will immediately pay to Bank, from time to
time as specified by Bank, additional amounts sufficient to compensate
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Bank for such increased cost, together with interest on each such amount from
the date demanded until payment in full thereof at a rate per annum equal to the
then applicable interest rate on the Loans; provided, however, that Bank may
charge Borrowers for such increased cost only to the extent that such cost is
generally charged by Bank to its other similarly situated borrowers. A
certificate as to such increased cost incurred by Bank, submitted by Bank to
Borrowers, shall be conclusive, absent manifest error, as to the amount thereof.
2.4.7 Unconditional Obligations. All Letter of Credit
Obligations and Obligations in respect of any and all Letters of Credit issued
by Bank shall be unconditional and irrevocable and will be paid strictly in
accordance with the terms of this Agreement and the Letter of Credit Documents
under all circumstances set forth in the Letter of Credit Documents, including
any or all of the following circumstances: (i) the existence of any claim,
set-off, defense or other right which a Borrower may have at any time against
any beneficiary, or any transferee, of any Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), Bank, or any
other Person, whether in connection with this Agreement or the other Loan
Documents, the transactions contemplated in this Agreement, or any unrelated
transaction; (ii) any statement or any other document presented under any Letter
of Credit (other than documents delivered by Bank) proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; (iii) payment by Bank under any
Letter of Credit against presentation of a draft or certificate which does not
comply with the terms of such Letter of Credit; (iv) the invalidity or
unenforceability of the Letter of Credit; or (v) any other circumstances or
happening whatsoever, whether or not similar to any of the foregoing; however,
nothing in this Section 2.4.7 will relieve Bank of any liability it may have to
a Borrower to the extent resulting from Bank's gross negligence or willful
misconduct.
2.5 No Deficiency. Notwithstanding anything in this Agreement to the
contrary, Bank shall not be obligated to make any loan or any advance of credit
or issue any Letter of Credit if, after giving effect to such loan, advance or
Letter of Credit, a Deficiency would occur. If, as of any date, a Deficiency
occurs, Borrowers shall immediately, without demand or notice, reduce the then
outstanding balance of the Loans so that such Deficiency shall no longer exist;
provided, however, that if such Deficiency occurs by reason of facts of which
Borrowers do not have knowledge, Borrowers shall have a grace period of 10
Business Days after the earlier of (i) Borrower's learning of such Deficiency or
(ii) Bank's giving written or oral notice of such Deficiency to Borrowers to
reduce the then outstanding balance of the Loans so that such Deficiency shall
no longer exist.
2.6 Disbursement of Loans. All disbursements of proceeds of the Loans
requested by Borrowers pursuant to Section 2.7 will be effectuated by Bank's
crediting Account No. 48577-5266 at Bank, which will be structured and utilized
as a controlled disbursement account in accordance with Bank's policies and
procedures ("Controlled Disbursement Account"). Bank may, however, at any time
hereafter elect not to credit proceeds of the Loans to the Controlled
Disbursement Account, but instead may establish a similar non-controlled
disbursement account or accounts for Borrowers at Bank and disburse proceeds of
the Loans by crediting such non-controlled disbursement account of Borrowers at
Bank.
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2.7 Procedure for Advancing Revolving Loans. Borrowers hereby authorize
Bank without any further written or oral request of Borrowers to make advances
of Revolving Loans to Borrowers in amounts necessary for the payment of checks
and other items drawn on the Controlled Disbursement Account as such checks and
other items are presented to Bank for payment if Bank makes advances of the
Revolving Loans in accordance with this Agreement. In addition to advances of
Revolving Loans made pursuant to Bank's controlled disbursement account system,
Bank will, from time to time prior to the termination of this Agreement pursuant
to Section 11 and subject to the other terms and conditions of this Agreement,
advance Revolving Loans to the Controlled Disbursement Account upon the written
request of a Borrower therefor. If Bank receives such a request from a Borrower
for a Revolving Loan prior to 12:00 noon, Cincinnati, Ohio time, Bank will make
such advance on that same Business Day to the extent that such Borrower is
entitled to such advance under the terms of this Agreement. If Bank receives
such a request from a Borrower for a Revolving Loan after 12:00 noon,
Cincinnati, Ohio time, Bank will make such advance on the next Business Day to
the extent that such Borrower is entitled to such advance under the terms of
this Agreement.
2.8 No Limitation on Liens. The limits on outstanding advances against
the Borrowing Base are not intended and shall not be deemed to limit in any way
Bank's security interest in, or other Liens on, the Receivables, Inventory,
Equipment, General Intangibles or any other Loan Collateral.
2.9 Discretion to Adjust Advance Rates. Borrowers acknowledge that
Bank, from time to time in its discretion exercised in good faith, may increase
or decrease the percentage advance rates and dollar limits on outstanding
advances against the Borrowing Base on the basis of such credit and collateral
considerations as Bank deems appropriate from time to time based on market
conditions, or to reflect contingencies or risks which may affect any or all of
the Loan Collateral, the business, operations, financial condition or business
prospects of Borrowers or the security of the Loans; provided, however, that so
long as there does not then exist an Event of Default, Bank shall give Borrowers
not less than 10 Business Days prior written notice of any decrease in the
percentage advance rates or dollar limits on outstanding advances against the
Borrowing Base. If Bank decreases the percentage advance rates or dollar limits
on outstanding advances against the Borrowing Base below those rates or limits
initially established in this Agreement at any time that there does not exist an
Event of Default, Borrowers may prepay the Loans in full without payment of the
termination fee under Section 11.3 so long as such prepayment in full is
tendered within 90 days following the date of such decrease.
2.10 General Conditions. In addition to any other provisions contained
in this Agreement, the making of any advances of credit under this Agreement
after the acceptance of this Agreement by Bank will be subject to the continued
existence or fulfillment to the reasonable satisfaction of Bank of each of the
following conditions throughout the term of this Agreement:
(i) No Event of Default has occurred and is continuing;
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(ii) No law or regulation prohibits, and no order, judgment or
decree of any arbitrator or Governmental Authority enjoins or restrains Bank,
from making the requested advance; and
(iii) Borrowers' representations and warranties contained in
this Agreement are complete and correct in all material respects as of the date
of this Agreement and continue to be true and correct in all material respects
throughout the term of this Agreement with the same effect as though such
representations and warranties had been made again on and as of each day of the
term of this Agreement subject to such changes as are not prohibited hereby or
do not constitute Events of Default under this Agreement.
2.11 One General Obligation; Cross-Collateralized. All advances of
credit by Bank to, or for the benefit of, either Borrower under this Agreement
and under any other Loan Document constitute one loan, and all of the
Obligations constitute one obligation. The Loans and all other advances or
extensions of credit to, or for the benefit of, either Borrower under this
Agreement or the other Loan Documents are made on the security of all of the
Loan Collateral.
3. INTEREST CHARGES; MINIMUM LOAN CHARGE; FEES.
3.1 Interest on Loans. Borrowers promise to pay to Bank interest on the
Loans as follows:
(i) All Revolving Loans will bear interest on the daily unpaid
principal amount thereof from the date made until paid in full at a rate per
annum equal to the sum of the Prime Rate, as in effect from day to day as
interest accrues, plus 1.25%; subject, however, to clauses (iv) and (v) of this
Section 3.1.
(ii) The Term Loan will bear interest on the daily unpaid
principal amount thereof from the date made until paid in full at a rate per
annum equal to the sum of the Prime Rate, as in effect from day to day as
interest accrues, plus 1.50%; subject, however, to clauses (iv) and (v) of this
Section 3.1.
(iii) Any adjustment in the rate of interest resulting from a
change in the Prime Rate will become effective on the date of such change in the
Prime Rate made by Bank.
(iv) If Borrowers' audited annual financial statements
delivered to Bank in compliance with Section 8.7 are accompanied by an
unqualified audit report and establish to Bank's satisfaction that Borrowers
have satisfied each of the financial tests set forth in Exhibit 3.1 as of the
end of and for Borrowers' fiscal year ending on or about May 31, 1997, then,
provided that there does not then exist an Event of Default, the applicable
rates of interest set forth above in clauses (i) and (ii) of this Section 3.1
will be reduced by 0.25% per annum effective as of the first Business Day of the
first calendar month following the calendar month in which the audited annual
financial statements, accompanied by an unqualified audit report, are delivered
to Bank.
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(v) The per annum rates of interest applicable at all times
after the occurrence and during the continuance of an Event of Default shall be
the applicable rates of interest set forth above in clauses (i), (ii) and (iv)
of this Section 3.1 plus an additional 2.00%.
3.2 Increased Costs. If (i) there occurs any change in law or any
rules, regulations, guidelines or orders (or any interpretation or application
thereof) of a Governmental Authority or any new laws, regulations or guidelines
are promulgated, enacted, issued, or made or any request, requirement or
directive (whether having the force of law) from any central bank or other
Governmental Authority is imposed or made effective (including a requirement
which affects the manner in which Bank allocates capital resources to any of its
credit facilities, including its credit facility hereunder), and (ii) as a
result of such change, enactment, or issuance (a) the rate of return on Bank's
capital as a consequence of the Loans is reduced to a level below that which
Bank could have achieved but for such circumstances (taking into consideration
Bank's policies with respect to capital adequacy and capital maintenance) by an
amount deemed by Bank to be material or (b) Bank is subjected to any tax of any
kind whatsoever with respect to this Agreement or any loan or other credit
advanced under this Agreement or the basis of taxation of payments to Bank of
principal, fees, interest or other amounts payable under this Agreement is
changed (except a tax on the overall net income or capital of Bank, including
"doing business," franchise and other similar taxes), then, and in each such
case, Bank may charge Borrowers an additional fee ("Additional Fee") which will
compensate Bank for such reduction in the rate of return caused by such
requirements or for such tax so long as additional fees (with respect to capital
adequacy, capital maintenance and such taxes) are being charged by Bank to its
other similarly situated borrowers to the extent Bank is legally empowered to do
so. In the event any Additional Fee is charged to Borrower by Bank under this
Section 3.2, Borrowers may prepay the Loans in full without payment of the
termination fee under Section 11.3 so long as such prepayment in full is
tendered to Bank within 90 days following the date Bank either first imposed the
Additional Fee or subsequently increased the Additional Fee for a reason other
than a change in the balance of the Loans or the interest rates under Section
3.1; however, should Borrowers elect to terminate this Agreement pursuant to
this Section 3.2, Borrowers will be liable for the aggregate Additional Fee
which has accrued through the date of termination.
3.3 Closing Fee. Borrowers shall pay to Bank a closing fee in the total
amount of $75,000 on or prior to the Closing Date.
3.4 Loan Administration Fee. Borrowers shall pay to Bank a loan
administration fee of $2,000 per month, commencing on June 1, 1996, and
continuing on the first Business Day of each month thereafter until the
Obligations are fully paid and satisfied. Each payment of the loan
administration fee is deemed fully earned and non-refundable when paid.
3.5 Letter of Credit Fees. Borrowers will pay to Bank, (i) with respect
to each standby Letter of Credit, a fee of 1.50% per annum on the amount
available to be drawn under each standby Letter of Credit plus Bank's then
customary issuance, administration, amendment and negotiation fees, and (ii)
with respect to each commercial Letter of Credit, a fee of 0.25% of the face
amount of the commercial Letter of Credit, subject to a $75 minimum fee, plus
Bank's then
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customary issuance, administration, amendment and negotiation fees. The fee for
issuance of each standby Letter of Credit and commercial Letter of Credit will
be due and payable in advance on issuance of the Letter of Credit.
3.6 Interest Rate Protection. Subject to Section 10.10, Borrowers may,
at Borrowers' cost, obtain and maintain interest rate protection to protect
against future increases in the Prime Rate.
3.7 Calculation of Certain Charges. Accrued interest charges shall be
computed on the basis of a year of 360 days and applied to actual days elapsed.
Except the closing fee, the loan administration fee and the Letter of Credit
fees to be paid in accordance with Sections 3.3, 3.4 and 3.5, all charges and
other fees hereunder shall be paid in arrears, and Borrowers will pay all such
charges and other fees monthly to Bank on the first Business Day of each month
hereafter, beginning on June 1, 1996.
3.8 Payments; Charging Loan Account. Borrowers promise to pay and to
perform, observe and comply with when due all of the Obligations. All payments
to be made by Borrowers on account of the Obligations will be made by Borrowers
without setoff, deduction, offset, recoupment or counterclaim in immediately
available funds. Borrowers hereby authorize Bank, at Bank's option, to charge
any account of Borrowers at Bank or charge or increase the Revolving Loans for
the payment or repayment of any interest or principal of the Loans or any fees,
charges or other amounts due to Bank under the Loan Documents.
3.9 Maximum Rate. If, at any time, the rate of interest computed in the
manner provided in this Section 3 ("Applicable Rate"), together with all fees
and charges as provided for herein or in any other Loan Document (collectively,
the "Charges"), which are treated as interest under applicable law, exceeds the
maximum lawful rate (the "Maximum Rate") allowed under applicable law, then the
rate of interest payable hereunder, together with all Charges, shall be limited
to the Maximum Rate; provided, however, that any subsequent reduction in the
Prime Rate shall not reduce the Applicable Rate below the Maximum Rate until the
total amount of interest earned hereunder, together with all Charges, equals the
total amount of interest which would have accrued at the Applicable Rate if the
Applicable Rate had at all times been in effect. If any payment hereunder, for
any reason, results in Borrowers having paid interest in excess of that
permitted by applicable law, then all excess amounts theretofore collected by
Bank shall be credited on the principal balance of the Obligations (or, if all
sums owing hereunder have been paid in full, refunded to Borrowers), and the
amounts thereafter collectible hereunder shall immediately be deemed reduced,
without the necessity of the execution of any new document, so as to comply with
applicable law and permit the recovery of the fullest amount otherwise called
for hereunder.
3.10 Monthly Loan Activity Accountings. Bank will provide Borrowers
monthly with a statement of advances, charges and payments made pursuant to this
Agreement, and such account rendered by Bank shall be conclusive evidence of the
amount of the Obligations owing and unpaid by Borrowers and shall be deemed to
be an account stated and binding as against Borrowers unless such statement
contains manifest errors.
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4. NATURE OF BORROWERS' OBLIGATIONS; GUARANTIES.
4.1 Joint, Several and Primary Obligations. The Obligations of
Borrowers under this Agreement and the other Loan Documents are joint, several
and primary. Neither Borrower will be or be deemed to be an accommodation party
with respect to any of the Loan Documents. For purposes of advancing funds,
rendering statements, receiving requests from, or otherwise communicating with
Borrowers or in Bank's administration of this loan transaction, FM Sales hereby
authorizes Bank to treat FM Manufacturing as the sole agent for Borrowers under
the Loan Documents and to deal with FM Manufacturing exclusively, and any act
done or omitted or any document, certificate, or instrument executed or
delivered by FM Manufacturing will be binding on each of Borrowers.
4.2. Consolidated Borrowings. To induce Bank to enter into this
Agreement and to make advances of the Loans in the manner set forth in this
Agreement, each Borrower hereby represents, warrants, covenants and states to
Bank that:
(i) Each Borrower shares with the other common management and
ownership;
(ii) Borrowers desire to utilize their borrowing potential on
a consolidated basis to the extent possible as if they were merged into a single
corporate entity and, consistent with realizing such potential, to make
available to Bank security commensurate with the amount and nature of their
aggregate borrowings;
(iii) each Borrower has determined that it will benefit
specifically and materially from the advances of credit contemplated by this
Agreement and that under a joint and several loan facility it is able to obtain
financing on terms more favorable than otherwise available to it separately; and
(iv) Borrowers have requested and bargained for the structure
and terms of and security for the advances contemplated by this Agreement.
4.3. Borrower Guaranties. It is both a condition precedent to the
obligations of Bank under this Agreement and a desire of Borrowers that they
each execute and deliver to Bank this Agreement, the Security Agreement and, to
the extent required thereunder, the other Loan Documents, and also execute and
deliver to Bank an irrevocable and unconditional guaranty of the full and prompt
payment of the Obligations and performance of the Loan Documents by each of them
in accordance with the terms of a Guaranty in the form of Exhibit 4.3.
5. SECURITY; AFFILIATE GUARANTIES
5.1 Security. The Obligations shall be secured (in such order as may be
determined by Bank in its discretion exercised in good faith) by (i) a first
priority security interest in all of the
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Collateral pursuant to the Security Agreement dated as of the date of this
Agreement between Borrowers and Bank (the "Security Agreement") and accompanying
financing statements, (ii) a Patent Assignment and Security Agreement dated as
of the date of this Agreement between FM Manufacturing and Bank, (iii) a
Trademark Security Agreement dated as of the date of this Agreement between FM
Manufacturing and Bank, (iv) a Mortgage dated as of the date of this Agreement
granted by FM Manufacturing to Bank, and (v) all of the security for the
Corporate Guaranty (as defined in Section 5.2) as referenced therein.
5.2 Affiliate Guaranties. Borrowers acknowledge that Bank is being
induced to accept the Loan Documents and to advance credit to Borrowers based,
in part, on reliance on the agreements of (i) Individual Guarantors to execute
and deliver to Bank contemporaneously with this Agreement a guaranty in the form
of Exhibit 5.2A (the "Individual Guaranty"), and (ii) Corporate Guarantor to
execute and deliver to Bank contemporaneously with this Agreement a guaranty in
the form of Exhibit 5.2B (the "Corporate Guaranty").
6. FURTHER ASSURANCES. Each Borrower agrees to execute and deliver or cause to
be executed and delivered any and all further documents and instruments and to
take any and all further actions as may be determined by Bank to be necessary or
appropriate to the transactions contemplated herein or in the other Loan
Documents.
7. RECEIVABLES; INVENTORY; COLLECTION OF RECEIVABLES; DISPUTED
RECEIVABLES; PROCEEDS OF INVENTORY.
7.1 Agreements Regarding Receivables. Borrowers may not backdate,
postdate or redate any of its invoices, and Borrowers may not make any sales on
extended dating or credit terms beyond that described in the definition of
Eligible Receivables unless approved by Bank. Borrowers shall notify Bank
promptly upon a Borrower's learning thereof, in the event any material Eligible
Receivable becomes ineligible for any reason, other than the aging of such
Receivable, and of the reasons for such ineligibility. Borrowers shall also
notify Bank promptly of all material disputes and claims with respect to its
material Receivables, and Borrowers will settle or adjust such material disputes
and claims at no expense to Bank; however, a Borrower may not, without Bank's
consent, grant (i) any discount, credit or allowance in respect of its
Receivables outside the ordinary course of business or (ii) any extension,
compromise or settlement to any customer or account debtor which has a Material
Adverse Effect. Nothing permitted by this Section 7.1 or Section 7.2, however,
may be construed to alter in any way the criteria for Eligible Receivables or
Eligible Inventory provided in Section 1.1.
7.2 Agreements Regarding Inventory. Except as shown in Exhibit 7.2,
Borrowers shall notify Bank promptly of all material returns and recoveries of
Inventory. Without Bank's prior consent and compliance with the applicable terms
of the Security Agreement, Borrowers will not (i) accept any returns of
Inventory outside the ordinary course of business, except as shown in Exhibit
7.2, (ii) enter into any agreement, practice, arrangement or transaction under
which title to, or ownership of, any Inventory which is being sold by a Borrower
is, or purports to be, transferred to, or held by, a Person other than a
Borrower before such Inventory is delivered to such Person by a
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Borrower, (iii) make a sale of Inventory to any customer on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment or any other
repurchase or return basis, or (iv) store any Inventory with, or place any
Inventory in the possession or control of, any bailee, processor, warehouseman,
consignee or any other Person not a party to a bailee or warehousemen's or
similar agreement with Bank under any arrangement, practice or agreement (oral
or written).
7.3 Locked Box. Borrowers have rented and shall continue to rent the
post office box at the U.S. Post Office bearing the following address: FM
Precision Golf, PO Box No. 6400566, Cincinnati, Ohio 45264-0566, or such other
address as Bank may notify Borrowers from time to time (the "Locked Box").
Borrowers shall notify all of their customers and account debtors to forward all
remittances of every kind due Borrowers ("Remittances") to the Locked Box (such
notices to be in such form and substance as Bank may reasonably require from
time to time), and immediately upon receipt thereof, Borrowers shall deposit all
other proceeds of Receivables or other Loan Collateral into the Locked Box (or
into the Special Account, as defined in Section 7.4). Bank shall have sole
access to the Locked Box at all times, and Borrowers shall take all action
necessary to grant Bank such sole access. At no time shall a Borrower remove any
item from the Locked Box without Bank's prior written consent, and no Borrower
shall notify any customer or account debtor to pay any Remittance to any other
place or address without Bank's prior written consent. If a Borrower should
neglect or refuse to notify any customer or account debtor to pay any Remittance
to the Locked Box, Bank shall be entitled to make such notification. Borrowers
hereby grant to Bank an irrevocable power of attorney, coupled with an interest,
to take in Borrowers' names all action necessary (a) to grant Bank sole access
to the Locked Box, (b) to contact account debtors to pay any Remittance to the
Locked Box in the event that any such account debtor is not paying any such
Remittance to the Locked Box, (c) to contact account debtors for any reason
during the existence of an Event of Default, and (d) to endorse each Remittance
delivered to the Locked Box for deposit to the Special Account.
7.4 Special Account. Upon collection of Remittances and other proceeds
of Receivables and other Loan Collateral from the Locked Box, Bank shall deposit
the same in Account No. 48577-5241 at Bank (the "Special Account"). Any
Remittance or other proceeds of Receivables or other Loan Collateral received by
a Borrower shall be deemed held by Borrowers in trust and as fiduciary for Bank,
and Borrowers immediately shall deliver the same, in its original form, to Bank
into the Locked Box. Pending such deposit, Borrowers agree that they will not
commingle any such Remittance or other proceeds of Receivables or other Loan
Collateral with any of Borrowers' other funds or property, but will hold it
separate and apart therefrom in trust for Bank until deposit is made into the
Locked Box or the Special Account, or until delivery is made to Bank by
overnight delivery carrier as described above. All deposits to the Special
Account or the Locked Box shall be Bank's property and shall be subject only to
the signing authority designated from time to time by Bank, and Borrowers shall
have no interest therein or control over such deposits or funds. Bank shall have
sole access to the Special Account and Borrowers shall have no access thereto.
Bank shall have, and Borrowers hereby grant to Bank, a security interest in all
funds held in the Special Account as security for the Obligations. The Special
Account shall not be subject to any deduction, set-off, banker's lien or any
other right in favor or any Person other than Bank. Deposits to the Special
Account shall be applied first, to the principal and interest of the
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Loans and second, to the other Obligations, in such order and method of
application as may be elected by Bank in its discretion exercised in good faith.
Any funds in the Special Account remaining after the applications set forth in
the preceding sentence may, at Bank's option, be paid over by Bank to Borrowers
or retained in the Special Account as continuing security for the Obligations;
provided, however, that if the Obligations are then fully paid and satisfied,
such funds shall be paid over by Bank to Borrowers. Borrowers hereby indemnify
and hold Bank harmless from and against any loss or damage with respect to any
Remittance deposited in the Special Account which is dishonored or returned for
any reason. If any Remittance deposited in the Special Account is dishonored or
returned unpaid for any reason, Bank, in its discretion, may charge the amount
of such dishonored or returned Remittance directly against Borrowers and any
account maintained by Borrowers with Bank and such amount shall be deemed part
of the Obligations hereunder. Bank shall not be liable for any loss or damage
resulting from any error, omission, failure or negligence on the part of Bank
under this Agreement, but shall be liable for any such loss or damage resulting
from Bank's gross negligence or willful misconduct. Until a payment is received
by Bank for Bank's account in Cincinnati, Ohio in finally collected funds, all
risks associated with such payment will be borne solely by Borrowers.
7.5 Crediting of Remittances. For the purpose of calculating interest,
all Remittances and other proceeds of Receivables and other Loan Collateral
shall be credited to Borrowers (conditional upon final collection) two Business
Days after Bank's Structured Capital Division receives notice of deposit of the
same into the Special Account; provided, however, in the event that Bank's
Structured Capital Division receives such deposit later than 12:00 noon on any
Business Day, such Remittance deposited shall be credited to Borrowers
(conditional upon final collection) three Business Days after such deposit. For
the purpose of determining the Revolving Loan Availability, all such Remittances
shall be credited on the Business Day on which Bank's Structured Capital
Division receives such deposit into the Special Account. From time to time, Bank
may adopt such regulations and procedures as it may deem reasonable and
appropriate with respect to the operation of the Special Account, the Locked Box
and the services to be provided by Bank under this Agreement so long as the
adoption of such regulations and procedures will not change the material terms
of this Agreement.
7.6 Cost of Collection. All reasonable costs of collection of a
Borrower's Receivables, including attorney's fees, out-of-pocket expenses,
administrative and recordkeeping costs, and all service charges and costs
related to the establishment and maintenance of the Locked Box and the Special
Account shall be the sole responsibility of Borrowers, whether the same are
incurred by Bank or Borrowers, and Bank, at its discretion, may charge the same
against Borrowers and any account maintained by a Borrower with Bank and the
same shall be deemed part of the Obligations.
8. EXAMINATION OF LOAN COLLATERAL; REPORTING
8.1 Maintenance of Books and Records. Borrowers shall keep and maintain
complete books of account, records and files with respect to its business in
accordance with GAAP consistently applied and shall accurately and completely
record all transactions therein. Borrowers will maintain a perpetual inventory
system in respect of its Inventory.
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8.2 Access and Inspection. Bank may at all times during normal business
hours have (i) access to, and the right to examine and inspect, all of
Borrowers' real and personal property and (ii) access to, and the right to
inspect, audit and make extracts from, all of Borrowers' records, files and
books of account, and Borrowers shall execute and deliver at the request of Bank
such instruments as may be necessary for Bank to obtain such information
concerning the business of Borrowers as Bank may require from any Person;
however, unless an Event of Default exists, Bank will give Borrowers reasonable
notice before it makes the inspections and examinations at any office or place
of business of a Borrower. Bank will exercise such care to maintain the
confidentiality of the documents and information obtained from any such
inspection or examination as Bank takes with respect to similarly situated
borrowers. Borrowers shall furnish Bank at reasonable intervals with such
statements and reports regarding Borrowers' financial condition and the results
of Borrowers' operations, in addition to those hereinafter required, and such
other information as Bank may reasonably request from time to time.
8.3 Reporting Regarding Receivables. Not less frequently than weekly,
and more frequently if Bank shall require or a Borrower shall so elect,
Borrowers shall deliver to Bank (i) a borrowing base certificate in the form of
Exhibit 8.3 (a "Borrowing Base Certificate") and (ii) reports of Borrowers'
sales, credits to sales or credit memoranda applicable to sales, collections and
non-cash charges (from whatever source, including sales and noncash journals or
other credits to Receivables) for the applicable period, and acceptable
supporting documentation thereto. By no later than the 15th day after the end of
each fiscal month, or sooner if available, Borrowers shall deliver to Bank
monthly agings, broken down by due date, of Receivables listed by due date,
reconciled to the Borrowing Base Certificate for the end of such month and each
Borrower's general ledger, and setting forth any changes in the reserves made
for bad accounts or any extensions of the maturity of, any refinancing of, or
any other material changes in the terms of any Receivables, together with such
further information with respect thereto as Bank may reasonably require.
8.4 Reporting Regarding Inventory. Each Borrower will undertake an
annual physical count of its Inventory in accordance with procedures approved by
Borrowers' independent certified public accountants. By no later than the 15th
day after the end of each fiscal month, each Borrower shall submit to Bank an
inventory report reconciled to (i) the Borrowing Base Certificate for the end of
such month, (ii) each Borrower's inventory records, and (iii) each Borrower's
general ledger, broken down into such detail and with such categories as Bank
shall reasonably require (including a report indicating the type, location, and
dollar value of each Borrower's Finished Goods and Raw Materials Inventory, and
all other information deemed necessary by Bank to determine levels of that which
is and is not Eligible Inventory). Values shown on reports of Inventory shall be
at the lower of cost or market value determined in accordance with "first in
first out" cost accounting system. Not less frequently than monthly, and more
frequently if Bank shall require or a Borrower shall so elect, Borrowers shall
deliver to Bank a Borrowing Base Certificate, and acceptable supporting
documentation thereto, reporting the value of each Borrower's Inventory as of
the end of the immediately preceding fiscal month period for which the
applicable Borrower has provided an inventory report in accordance with this
Section 8.4.
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8.5 Monthly Financial Statements. Promptly when available and in any
event not later than 15 days after the end of each fiscal month, Borrowers shall
furnish to Bank monthly financial statements, (a) showing each Borrower's
financial condition and the results of each Borrower's operations for the
periods covered by such statements in such detail as Bank may from time to time
require, (b) prepared in accordance with GAAP consistently applied (subject to
normal year-end adjustments and the omission of footnotes and as otherwise
disclosed to Bank to the extent such exceptions are acceptable to Bank), and (c)
containing all disclosures required to fully and accurately present the
financial position and results of operations of each Borrower (subject to normal
year-end adjustments and the omission of footnotes) and to make such statements
not misleading under the circumstances. By no later than the 15th day after the
end of each fiscal month, or sooner if available, Borrower shall deliver to Bank
monthly agings of accounts payable listed by invoice date, in each case
reconciled to each Borrower's general ledger.
8.6 Annual Projections. Promptly when available, and in any event not
later than 60 days prior to the end of each of Borrower's fiscal years,
Borrowers shall furnish to Bank detailed projections for the next 12 months
setting forth projected income and cash flow for each month, the monthly
operating budget, the monthly balance sheet, and the monthly borrowing
availability of Borrowers, in each case accompanied by a certificate of
Borrowers' chief financial officer, countersigned by Borrowers' chief executive
officer, stating (i) the assumptions on which the projections were prepared,
(ii) that the assumptions, except as otherwise noted, were prepared on a
consistent basis with the operation of each Borrower's business during the
immediately preceding fiscal year and with factors known to exist as of the date
of the certificate or reasonably anticipated to exist during the periods covered
by the projections, and (iii) that the officers signing the certificate have no
reason to believe that the projections are incorrect or misleading in any
material respect.
8.7 Audited Annual Financial Statements. Promptly when available and in
any event not later than 90 days after the end of each of Borrowers' fiscal
years ending on or about May 31, 1997 and thereafter, Borrowers shall submit to
Bank the consolidated financial statements of Borrowers and Corporate Guarantor,
showing Borrowers' financial condition, the results of operations, a balance
sheet and related statements of income, shareholders' equity, and changes in
cash flows and financial position for the year then ended. Such annual
consolidated financial statements shall be audited in accordance with generally
accepted auditing standards reasonably acceptable to Bank, shall be prepared and
presented in accordance with GAAP consistently applied, and shall be accompanied
by an audit report of Borrowers' independent certified public accountants. In
preparing such financial statements, such accountants will perform such
Inventory testing and review procedures which are approved by Bank.
8.8 Opening Day Balance Sheet. Promptly when available and in any event
not less than 60 days after the Closing Date, Borrowers shall submit to Bank
each Borrower's balance sheet with Agreed Upon Procedures Report by Borrowers'
independent certified public accountants, sufficient to permit such accountants
to opine on the first annual financial statements to be furnished pursuant to
Section 8.7.
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8.9 Management Reports. Borrowers shall furnish to Bank promptly upon
receipt copies of all management letters and any other material reports provided
by Borrowers' independent accountants. Borrowers hereby authorize Bank to
communicate directly with Borrowers' independent accountants to discuss
Borrowers' financial condition and Borrowers' financial statements.
8.10 Comparisons to Financials; Certificates. With each monthly or
annual financial statement submitted by Borrowers to Bank under Sections 8.5 and
8.7, Borrowers will deliver to Bank: (i) a comparison prepared by Borrowers of
the projected financial position and results of operations of Borrowers provided
for in Section 8.6 with the actual financial position and results of operations
of Borrowers and Corporate Guarantor for the applicable period and an
explanation of any material variations between them; and (ii) a comparison
prepared by Borrowers between actual calculated results for the applicable
period and the covenanted results for each of the Financial Covenants (as
defined in Section 10.29). Borrowers shall also furnish Bank, together with all
materials required pursuant to Sections 8.5, 8.6 and 8.7, a certificate signed
by the chief financial officer of Borrowers in the form of Exhibit 8.10.
8.11 Tax Returns; Additional Information. Promptly when available and
in any event not later than the filing of its tax returns with each applicable
Governmental Authority, Borrowers shall deliver to Bank a copy of all federal,
state and local tax returns and schedules filed by Borrowers and Corporate
Guarantor in respect of each fiscal year ending on or about May 31, 1997 and
thereafter. Borrowers shall furnish all other tax information as Bank may
reasonably request from time to time.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. In order to induce Bank to enter
into this Agreement and to make Loans hereunder, each Borrower warrants,
represents and covenants that, as of the date hereof, any date upon which a Loan
is made hereunder, and until the Obligations are fully paid, performed and
satisfied, the representations, warranties and covenants set forth below are and
shall remain true in all material respects.
9.1 Corporate Status Each Borrower (i) is duly organized and is and
shall remain validly existing and in good standing under the laws of the State
of Delaware, and is and shall remain qualified to do business as a foreign
corporation under the laws of each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect, and (ii)
has and shall maintain all requisite power and authority, corporate or
otherwise, to conduct its business, to own its property, to execute, deliver and
perform all of its obligations under this Agreement and each of the other Loan
Documents and the Acquisition Documents, and to grant the Liens on the Loan
Collateral.
9.2 Due Authorization; Validity. The signing and delivery of the Loan
Documents and the Acquisition Documents, the performance by each Borrower of its
obligations under the Loan Documents and the Acquisition Documents, the grant of
the Liens on the Loan Collateral to Bank have been duly authorized by all
requisite corporate or other action of each Borrower. This
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Agreement, each of the other Loan Documents, and the Acquisition Documents have
been duly executed and delivered by each Borrower party thereto, and each will
constitute, upon the due execution and delivery thereof by the other parties
thereto, the legal, valid, and binding obligations of each Borrower party
thereto enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
9.3 No Violation. The execution, delivery and performance by each
Borrower of this Agreement and the other Loan Documents, the grant of the Liens
on the Loan Collateral to Bank, and the consummation of the Acquisition do not
and will not (i) constitute a violation of any applicable law, (ii) constitute a
breach of any provision contained in a Borrower's Certificate of Incorporation
or By-Laws or contained in any order of any court or other Governmental
Authority or in any Applicable Agreement, or (iii) result in the creation or
imposition of any Lien on any of a Borrower's properties (other than in favor of
Bank hereunder).
9.4 Use of Loan Proceeds. Borrowers' uses of the proceeds of the Loans
made by Bank to Borrowers pursuant to this Agreement are, and will continue to
be, legal and proper corporate uses (duly authorized by each Borrower's Board of
Directors). Such uses do not and shall not violate any applicable laws or
statutes as in effect as of the date hereof or hereafter. The Loans are not and
shall not be secured, directly or indirectly, by any stock for the purpose of
purchasing or carrying any margin stock or for any purpose which would violate
either Regulation U, 12 C.F.R. Part 221, or Regulation X, 12 C.F.R. Part 224,
promulgated by the Board of Governors of the Federal Reserve System; subject,
however, to the disclosure set forth in Exhibit 9.4.
9.5 Management; Ownership of Assets; Licenses; Patents. Except as
described in Exhibit 9.5, each Borrower employs and shall continue to employ
active, full-time, professional management adequate to handle its affairs, and
each Borrower has, and will continue to have, adequate employees, assets,
governmental approvals, licenses, patents, copyrights, trademarks and trade
names to continue to conduct its business as heretofore and hereafter conducted
by it, and all such licenses, patents, copyrights, trademarks and trade names
existing as of the Closing Date are described in Exhibit 9.5.
9.6 Indebtedness. Except for (i) Indebtedness disclosed in the
Financials delivered on or before the Closing Date, (ii) Indebtedness assumed
pursuant to the Acquisition Documents, (iii) the Obligations, (iv) Indebtedness
(a) which is unsecured, (b) which is not for borrowed money, (c) which has been
incurred in the ordinary course of business, (d) which is not otherwise
prohibited under any provision of this Agreement, and (e) the nonpayment of or
other default under which would not have a Material Adverse Effect, and (v)
other Indebtedness permitted to be incurred or paid by a Borrower pursuant to
Section 10.10, Borrowers have no Indebtedness. Except as otherwise set forth or
reflected in the Financials, no Borrower has guaranteed the obligations of any
Person (except by endorsement of negotiable instruments payable at sight for
deposit or collection or similar banking transactions in the usual course of a
Borrower's business).
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9.7 Title to Property; No Liens. Each Borrower has (i) good and
indefeasible title to, and ownership of, all of its personal property, including
the Collateral and (ii) good and marketable fee simple title to all of its real
property, in each case free and clear of all Liens except to the extent of
Permitted Liens.
9.8 Restrictions; Labor Disputes; Labor Contracts. Except as described
in Exhibit 9.8, no Borrower is a party or subject to any charge, corporate
restriction, judgment, decree or order for which a Borrower's compliance or
non-compliance could have a Material Adverse Effect. Except as described on
Exhibit 9.8, no Borrower is (i) a party to any written employment contract or
labor contract or (ii) the subject of any material labor dispute.
9.9 No Violation of Law. Except as described on Exhibit 9.9, to
Borrower's knowledge, no Borrower is in violation of any applicable statute,
regulation or ordinance of any Governmental Authority (including any such
statute, regulation or ordinance relating to ecology, human health or the
environment), which violation could reasonably be expected to have a Material
Adverse Effect.
9.10 Hazardous Substances. Except as described on Exhibit 9.10, (i) to
Borrowers' knowledge, no investigations, inquiries, orders, hearings, actions or
other proceedings by or before any court or governmental agency are pending or
threatened in connection with any Environmental Activity or alleged
Environmental Activity; (ii) to Borrowers' knowledge, no Hazardous Substances
have been integrated into Borrower's Facility or any component thereof in such
manner or quantity as may reasonably be expected to or in fact does violate any
applicable Environmental Law or materially and adversely affect the value of
Borrower's Facility; (iii) the Use of Borrower's Facility does not result in any
Environmental Activity in violation of any applicable Environmental
Requirements; (iv) to Borrowers' knowledge, no occurrence or condition on any
real property adjoining or in the vicinity of Borrower's Facility exists which
could cause Borrower's Facility to be subject to any restrictions on ownership,
occupancy, transferability or operation under any Environmental Requirements;
(v) to Borrowers' knowledge, Borrower's Facility has not been used for the
disposal of Hazardous Substances and has not been the site of any Release of
Hazardous Substances which has a continuing Material Adverse Effect; (vi) to
Borrowers' knowledge, none of Borrowers' business operations have contaminated
lands, waters or other property of others with Hazardous Substances; (vii) to
Borrowers' knowledge, no underground or above ground storage tank (regardless of
contents) has been in the past, or is now, located on, at or beneath Borrower's
Facility; and (viii) Borrower's Facility has not been used by a Borrower for the
production, treatment, storage, generation, disposal or Release of any Hazardous
Substance other than in accordance with applicable Environmental Laws.
9.11 Absence of Default. No Borrower is in default under any Applicable
Agreement or has received any notice of breach, termination or acceleration or
demand for adequate assurances under any Applicable Agreement, which default,
breach, termination, acceleration or demand has, or can reasonably be expected
to have, a Material Adverse Effect.
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9.12 Accuracy of Financials; No Material Changes. The Financials have
been prepared from the books and records of Brunswick Corporation and fairly
present in all material respects Borrowers' assets, liabilities and financial
condition and results of operations of the business which is the subject of the
Acquisition as of the end of and for the period indicated, and are derived from
the books and records of Brunswick Corporation, which books and records are
correct and complete. There are no omissions from the Financials or other facts
or circumstances not reflected in the Financials which are or may be material,
and there has been no material and adverse change in a Borrower's assets,
liabilities or financial condition since the date of the Financials nor has
there been any material damage to or loss of any of a Borrower's assets of
properties since such date. Each Borrower's outstanding advances to any Person
do not constitute any equity or long term investment in any Person which is not
reflected in the Financials.
9.13 Pension Plans. Except as described on Exhibit 9.13, neither of
Borrowers nor any Controlled Group member has ever sponsored, maintained, or
contributed (or become obligated to sponsor, maintain, or contribute) to a
Pension Plan subject to Title IV of ERISA. No "prohibited transaction" or
"reportable event," as those terms are defined by the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), has occurred or is continuing as to
any Pension Plan of a Borrower or any Controlled Group member, which poses a
threat of the imposition of taxes or penalties against such Pension Plans (or
trusts related thereto), the imposition or payment of which could have a
Material Adverse Effect. Each Pension Plan that is intended to meet the
requirements of qualified pension benefit plans under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter to that
effect under the Internal Revenue Code or application for such determination
letter has been made with respect thereto, and neither of Borrowers nor, to the
best of Borrowers' knowledge (after making due inquiries), any Controlled Group
member has violated such requirements with respect to any Pension Plan.
9.14 Taxes and Other Charges. Each Borrower has filed all federal,
state and local tax returns and other reports which it is required by law to
file. Each Borrower has paid all taxes, assessments and other similar charges
that are due and payable except for any such taxes, assessments or charges which
are being contested in good faith in accordance with the terms of Section 10.9.
Each Borrower has withheld all employee and similar taxes which it is required
by law to withhold and has maintained adequate reserves for the payment of all
taxes and similar charges. No tax Liens have been filed with respect to a
Borrower and, to the best knowledge of Borrowers (after due inquiry), no claims
are being asserted with respect to any such taxes, assessments or charges (and
no basis exists for any such claims).
9.15 No Litigation. There is not any litigation, action or proceeding
pending or, to Borrowers' knowledge, threatened, against a Borrower, which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
9.16 Brokerage Fees. Except for brokerage commissions payable to
Merbanco, Incorporated and Berenson Minella & Company, Inc. (collectively,
"Brokers") in the aggregate amount of $500,000, no brokerage, finder's or
similar fee or commission is due to any Person by reason of Borrowers entering
into this Agreement or by reason of any of the transactions
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<PAGE> 39
contemplated hereby, and Borrowers shall indemnify and hold Bank harmless from
all such fees and commissions (including the commissions payable to Brokers as
described above). On the Closing Date, Borrowers may pay to Brokers the
aggregate amount of $250,000 to be applied to the commissions payable to
Brokers. At such time, if any, that the financial benchmarks set forth in
Exhibit 9.16 are satisfied, and provided that there does not then exist, and
would not thereby be created, an Event of Default, Borrowers may pay to Brokers
the additional aggregate amount of $250,000 to be applied to the commissions
payable to Brokers.
9.17 Affiliates. All Persons who are a Borrower's Affiliates are
identified in Exhibit 9.17. Neither Borrower has any subsidiaries.
9.18 Capitalization; Warrants. Exhibit 9.18 sets forth the number of
shares of capital stock of each Borrower and Corporate Guarantor which are
authorized and the number of such shares which are outstanding. Each outstanding
share of capital stock of each Borrower and Corporate Guarantor is a common
share and is duly authorized, validly issued, fully paid and nonassessable.
Exhibit 9.18 includes a complete and accurate list of all Persons who are record
and beneficial owners of the capital stock of each Borrower and Corporate
Guarantor. All warrants, subscriptions, options, instruments and agreements
under which any shares of capital stock of a Borrower or Corporate Guarantor are
or may be redeemed, retired, encumbered, bought, sold or issued are described in
Exhibit 9.18.
9.19 Noncompetition Agreements. Except as set forth in Exhibit 9.19, no
Borrower is subject to any contract or agreement containing a covenant of a
Borrower not to compete in any line of business with any Person.
9.20 Deposit and Other Accounts. All of the accounts maintained by a
Borrower with any bank, brokerage house or other financial institution are set
forth in Exhibit 9.20, and none of such other accounts (other than accounts
designated as "Payroll Accounts" or "Disbursement Accounts") is subject to
withdrawal other than by transfers of amounts therein to the Locked Box or the
Special Account.
9.21 Solvency. Each Borrower will be Solvent after (i) receipt and
application of the Loans in accordance with the terms of this Agreement, (ii)
the execution and delivery of this Agreement and the other Loan Documents, (iii)
the filing of any financing statements or other perfecting notices or actions in
connection with this Agreement, and (iv) the consummation of the Acquisition.
9.22 Full Disclosure. The representations and warranties made by
Borrowers in this Agreement, any other Loan Document or any other document
furnished from time to time in connection herewith or therewith do not contain
and will not contain, at the time the representations and warranties are made or
such document furnished, any untrue statement of a material fact and do not omit
and will not omit to state any material fact necessary to make the statements
herein or therein not misleading. There is no fact known to a Borrower which is
not set forth in the Loan Documents and the omission of which could have a
Material Adverse Effect.
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<PAGE> 40
9.23 Casualties. Except as described in Exhibit 9.23, neither the
business nor the properties of either Borrower are affected by any fire,
explosion, accident, drought, storm, hail, earthquake, act of God or of the
public enemy or other casualty loss which has any Material Adverse Effect (after
taking into effect insurance).
9.24 Leases. Except as listed on Exhibit 9.24, neither Borrower is a
party to any lease, assignment, sublease or other agreement relating to any real
property or leasehold interest in real property, or any material equipment or
other material personal property. Exhibit 9.24 correctly sets forth each lease,
assignment, sublease and other agreement, existing as of the Closing Date, to
which a Borrower is a party relating to (i) any real property or leasehold
interest in real property or (ii) any material equipment or other material
personal property.
9.25 Insurance Policies. Exhibit 9.25 correctly sets forth all of the
insurance policies maintained by each Borrower, including the carriers thereof,
and the types of coverage and insured amounts covered thereby.
9.26 Consents. Except for the filing of financing statements, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority, regulatory body or any other Person is required for
the due execution, delivery and performance by a Borrower of any Loan Document
to which it is or will be a party.
9.27 Updating Representations and Warranties. To the extent necessary
to cause the representations and warranties set forth in Section 9 to be true,
complete and accurate as of the date hereof and as of each day on which a Loan
is made hereunder, Borrowers shall update in writing any Exhibits provided for
in Section 9 promptly upon learning of any circumstance which has the effect of
making any such representation or warranty contained in Section 9 untrue or
misleading. The requirement of Borrowers to update any Exhibit provided for
herein is not, and may not be construed to be, a cure of any Event of Default
occurring prior to any such update or existing at the time of any such update
without the written waiver of such Event of Default of Bank.
10. COVENANTS. Until the Obligations are fully paid, performed and satisfied and
this Agreement is terminated, Borrowers will observe, perform, and comply with
each of the covenants set forth below in this Section 10.
10.1 Payment of Certain Expenses. Borrowers will pay to Bank
immediately any and all fees, costs and expenses which Bank pays to a bank or
other similar institution arising out of or in connection with (i) the
forwarding to a Borrower, or any other Person on a Borrower's behalf, by Bank of
proceeds of Loans made by Bank to Borrowers pursuant to this Agreement, and (ii)
the depositing for collection by Bank of any check or item of payment received
or delivered to Bank on account of the Obligations. Borrowers will reimburse
Bank immediately for any claims asserted by any bank at which a blocked account
is established for the deposit of proceeds of the Loan Collateral in connection
with such blocked account or any returned or uncollected checks received by such
bank as proceeds of the Loan Collateral.
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<PAGE> 41
10.2 Notice of Litigation Borrowers will notify Bank in writing,
promptly upon a Borrower's learning thereof of any litigation, suit or
administrative proceeding against a Borrower (i) if Borrowers, as of any date,
collectively have pending any claims, suits, proceedings or litigation which
seek more than $50,000 in the aggregate or (ii) that seek as against a Borrower
(a) more than $50,000 in monetary damages, fines or civil awards or (b) any
relief other than a monetary award (e.g., criminal sanctions or an injunction)
which if granted could reasonably have a Material Adverse Effect.
10.3 Notice of ERISA Events Borrowers will notify Bank in writing (i)
promptly upon the adoption by a Borrower or any Controlled Group member of any
Pension Plan subject to Title IV of ERISA; (ii) promptly upon the occurrence of
any Reportable Event, and (iii) 90 days prior to any termination, partial
termination or merger of a Pension Plan or a transfer of a Pension Plan's
assets.
10.4 Notice of Labor Disputes. Borrowers will notify Bank in writing
(i) promptly upon a Borrower's learning thereof, of (a) any labor dispute to
which a Borrower is a party and which could reasonably be expected to have a
Material Adverse Effect or (b) any strikes, walkouts, or lockouts relating to
any of its plants or other facilities, and (ii) the entering into of any labor
contract relating to any of its plants or other facilities.
10.5 Compliance with Laws. Borrowers will comply with the requirements
of all applicable laws, statutes, regulations, rules or ordinances of any
Governmental Authority, the noncompliance with which would have a Material
Adverse Effect.
10.6 Notice of Violations of Law, Tax Assessments. Borrowers will
notify Bank in writing, promptly upon a Borrower's learning thereof, of any
violation of any law, statute, regulation, rule or ordinance of any Governmental
Authority, and of the imposition of any federal, state or local tax withholding
or assessment, applicable to a Borrower, the violation or imposition of which
would have a Material Adverse Effect. Borrowers will (i) provide Bank with
copies of all communications between a Borrower and any Governmental Authorities
which relate to Environmental Activities, Environmental Requirements, or
Hazardous Substances affecting a Borrower and (ii) notify Bank immediately after
obtaining knowledge of the Release or alleged Release in a reportable quantity
(as defined under applicable Environmental Law) of any Hazardous Substance on,
in, under or affecting a Borrower's property or any surrounding area, and any
noncompliance with any Environmental Requirement.
10.7 Notice of Violations of Certain Agreements. Borrowers will notify
Bank in writing, within 5 Business Days after the earlier of when a Borrower
learns or is notified of the occurrence, of (i) any material breach by a
Borrower of, a notice of termination or acceleration or demand for adequate
assurances under, any Applicable Agreement or (ii) any default or an event of
default under any of the Acquisition Documents by any Person which could
reasonably have a Material Adverse Effect.
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<PAGE> 42
10.8 Notice of Customer Defaults. Borrowers will notify Bank in
writing, promptly upon the occurrence thereof, of any default by any obligor
under any note or other evidence of debt payable to a Borrower in an aggregate
amount in excess of $25,000 or of anything which might have a material adverse
effect on the credit of a material customer of a Borrower.
10.9 Taxes and Charges. Each Borrower will (i) file all federal, state
and local tax returns and other reports which it is required by law to file,
(ii) pay all taxes, assessments and other similar charges that are due and
payable, (iii) withhold all employee and similar taxes which it is required by
law to withhold, and (iv) maintain adequate reserves for the payment of all
taxes and similar charges; provided, however, that no such taxes, assessments or
charges need be paid during such period as they are being contested in good
faith by the applicable Borrower, in appropriate proceedings promptly commenced
and diligently prosecuted, if adequate reserves in accordance with GAAP have
been set aside on the applicable Borrower's books, and the continuance of such
contest does not (a) result in any part of the Loan Collateral or any other
property of a Borrower being made the subject of (1) any proceeding in
foreclosure, (2) any levy or execution (which shall not have been stayed or
dismissed), or (3) any seizure or other loss and (b) prevent Bank from having a
perfected first priority security interest in the Loan Collateral or with
respect to future advances made hereunder; and provided, further, that the
applicable Borrower will promptly pay such tax, assessment or charge when the
dispute is finally settled.
10.10 Indebtedness; Guaranties. (i) Other than the Obligations,
Borrowers will not incur any Indebtedness other than:
(a) Indebtedness reflected in the Financials delivered on or
before the Closing Date so long as such Indebtedness shall not be secured by any
of the Loan Collateral;
(b) Indebtedness assumed pursuant to the Acquisition
Documents;
(c) Indebtedness described in Exhibit 10.10;
(d) Indebtedness (1) which is unsecured, (2) which is not for
borrowed money, or the issuance of any letter of credit, acceptance transaction,
or similar credit instrument or facility (exclusive of interest rate protection
as contemplated by Section 3.6), (3) which is incurred in the ordinary course of
business, (4) which is not otherwise prohibited under any provision of this
Agreement, and (5) for which the incurrence would not have a Material Adverse
Effect;
(e) Indebtedness in respect of taxes, assessments or
governmental charges to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of Section 10.9; and
(f) Indebtedness in respect of judgments or awards which (1)
have been vacated, discharged or stayed within 10 days of the entry thereof or
have been in force for less than the applicable appeal period so long as
execution is not levied thereunder (or in respect of which (A) a Borrower shall
at the time in good faith be prosecuting an appeal or proceedings for review
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<PAGE> 43
and (B) a stay of execution shall have been obtained pending such appeal or
review), and (2) (A) are not, in the aggregate, in an amount in excess of
$75,000 of any available insurance coverage, as determined by Bank in its
discretion exercised in good faith, to be in effect to satisfy such judgments or
award for which the insurer has admitted in writing its liability for the full
amount thereof and (B) do not have a Material Adverse Effect; and
(g) Indebtedness under capitalized leases or purchase money
financing if the total amount of such Indebtedness during any period does not
exceed the maximum amount permitted during such period for capital expenditures
pursuant to Section 1 of Exhibit 10.29 attached;
provided, that no Indebtedness otherwise permitted to be incurred shall be
permitted to be incurred if, after giving effect to the incurrence thereof, any
Event of Default shall have occurred and be continuing.
(ii) Except as provided in this Agreement or the other Loan
Documents, and except as required by the Acquisition Documents, neither Borrower
will guaranty or enter into any agreements of guaranty or indemnity of the
obligations of any Person (except by endorsement of negotiable instruments
payable at sight for deposit or collection or similar banking transactions in
the usual course of a Borrower's business).
10.11 Restrictions. Neither Borrower will become a party or subject to
any charge, corporate restriction, judgment, decree or order or any labor
dispute or enter into any contract, agreement or arrangement which, in any case,
could have a Material Adverse Effect.
10.12 Pension Plans. Borrowers will not permit any Reportable Event or
"prohibited transaction" (as defined by ERISA) to occur or to continue as to any
Pension Plan of a Borrower or any Controlled Group member, which poses a threat
of (i) termination of such Pension Plans (or trusts related thereto), which
termination could have a Material Adverse Effect or (ii) the imposition of taxes
or penalties against such Pension Plans (or trusts related thereto), the
imposition or payment of which could have a Material Adverse Effect. With
respect to each Pension Plan that is intended to meet the requirements of
qualified pension benefit plans under Section 401(a) of the Internal Revenue
Code, each Borrower and the applicable Controlled Group members shall continue
to maintain the qualified status of such Pension Plans, and all contributions to
Pension Plans which a Borrower or any member of the Controlled Group is
obligated to make shall be timely made when due, unless the failure to do so
would not have a Material Adverse Effect. Borrowers will not and will not permit
any Controlled Group member to incur, any liability to the Pension Benefit
Guaranty Corporation, other than the liability for premium payments under
Section 4007 of ERISA, in connection with any Pension Plan, the incurrence of
which could have a Materially Adverse Effect.
10.13 Solvency. Each Borrower will continue to be, and will cause
Corporate Guarantor to continue to be, Solvent.
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<PAGE> 44
10.14 Property Insurance. Each Borrower will insure all of its real and
personal property, including the Loan Collateral, against loss or damage by
fire, theft, burglary, pilferage, loss in transit and such other hazards as Bank
shall specify in amounts and under policies by insurers reasonably acceptable to
Bank. The policies or a certificate thereof signed by the insurer evidencing
that such insurance coverage is in effect for periods of not less than one year
shall be delivered to Bank within 5 Business Days after the issuance of the
policies to a Borrower and after each renewal thereof. All premiums thereon
shall be paid by the applicable Borrower in advance. Each such policy shall name
Bank (and no other party) as loss payee and, as appropriate, mortgagee under a
New York standard mortgagee clause or other similar clause acceptable to Bank
and shall provide that such policy may not be amended or cancelled without 30
days prior written notice to Bank. If a Borrower fails to do so, Bank may (but
shall not be required to) procure such insurance and charge the cost to
Borrowers' account as part of the Obligations payable on demand and secured by
the Loan Collateral.
10.15 Liability Insurance. Each Borrower will, at all times, maintain
in full force and effect such liability insurance with respect to its activities
and business interruption, product liability and other insurance as may be
reasonably required by Bank, such insurance to be provided by insurer(s)
reasonably acceptable to Bank. If requested by Bank, such insurance shall name
Bank (and no other party) as an additional insured containing a severability of
interest/cross-liability endorsement acceptable to Bank.
10.16 Changes to Acquisition Documents. Without Bank's prior consent,
which consent will not be unreasonably withheld, Borrowers will not seek, agree
to or permit, directly or indirectly, the modification, waiver or amendment of
any terms or provisions under, or applicable to, any of the Acquisition
Documents.
10.17 Mergers; Acquisitions. Neither Borrower will, without Bank's
prior consent (which consent Bank may refuse to give for any reason in its
discretion exercised in good faith), merge or consolidate or be merged or
consolidated with or into any other corporation, or otherwise reorganize,
liquidate or wind-up or dissolve itself. Neither Borrower will (i) purchase or
otherwise acquire (a) all or substantially all of the assets of any Person or
(b) any partnership, joint venture or limited liability company interest in or
with any Person or (ii) purchase the securities of, create, form or invest in
any entity without the prior written consent of Bank, which Bank will not
unreasonably withhold.
10.18 Investments. Neither Borrower will invest in or purchase any
stock or securities of any Person except (i) any evidence of indebtedness issued
or directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States of America is pledged in support thereof); (ii)
certificates of deposit or acceptances of any financial institution that is a
member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500,000,000; (iii) commercial paper issued
by a corporation that is not an Affiliate of Borrower and is organized under the
laws of any state of the United States or the District of Columbia and rated at
least A by Standard & Poor's or at least P-1 by Moody's; and (iv) FM
Manufacturing may acquire evidence of
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<PAGE> 45
indebtedness issued by FM Sales with respect to the transfer of Finished Goods
by FM Manufacturing to FM Sales for resale.
10.19 Distributions; Loans; Fees. Neither Borrower will (i) declare or
pay cash or stock distributions or dividends upon any of a Borrower's stock
(including any preferred stock now or hereafter issued by a Borrower), (ii) make
any distributions of a Borrower's assets, (iii) incur, permit or make any loans,
advances or extensions of credit to any Person, including any of a Borrower's
Affiliates, officers or employees, or (iv) pay any consulting, management or
directors' fees to or for the account of any shareholder, director or officer of
a Borrower, except that: (a) Borrower may take the actions described in the
foregoing clauses 10.19(i) through (iv) with the prior consent of Bank (which
consent Bank may refuse to give for any reason in its discretion exercised in
good faith); (b) FM Manufacturing may make loans or extensions of credit to FM
Sales with respect to the transfer of Finished Goods by FM Manufacturing to FM
Sales for resale; and (c) provided that there does not then exist, and is not
thereby created, an Event of Default, Borrowers may pay cash distributions or
dividends to Corporate Guarantor in the aggregate amount in any fiscal year
equal to the sum of, and for the purpose of enabling Corporate Guarantor to pay,
(X) management fees payable by Corporate Guarantor to any of its shareholders,
directors or officers in the aggregate amount of up to $200,000 in any fiscal
year, and (Y) directors' fees (in addition to the aforesaid management fees)
payable by Corporate Guarantor to directors of Corporate Guarantor who are not
employees of Corporate Guarantor or a Borrower in the amount of up to $10,000
for each such director and in the aggregate amount of up to $80,000 for all such
directors in any fiscal year.
10.20 Redemption of Stock. Neither Borrower will voluntarily or
pursuant to any contractual or other obligations redeem, retire, purchase,
repurchase or otherwise acquire, directly or indirectly, or exercise any call
rights relating to, any of a Borrower's capital stock or any other securities
now or hereafter issued by a Borrower (including any warrants for stock of a
Borrower).
10.21 Stock Rights. Neither Borrower will change the rights or
obligations associated with or the terms of any class of stock now issued by a
Borrower or issue any new class of stock of a Borrower without Bank's prior
written consent.
10.22 Capital Structure; Fiscal Year. Neither Borrower will make any
change in its capital structure or in any of its business objectives, purposes
and operations which might in any way have a Material Adverse Effect. Neither
Borrower will change its fiscal year without Bank's prior written consent.
10.23 Affiliate Transactions. Neither Borrower will enter into, or be a
party to, any transaction with any of a Borrower's Affiliates, except (i) in the
ordinary course of business pursuant to the reasonable requirements of a
Borrower's business, (ii) the transfer of Finished Goods by FM Manufacturing to
FM Sales for resale and the corresponding Indebtedness of FM Sales to FM
Manufacturing, and (iii) upon fair and reasonable terms which are fully
disclosed to Bank and are no less favorable to a Borrower than a Borrower could
obtain in a comparable arm's length transaction with a Person not a Borrower's
Affiliate; however, neither Borrower may (a)
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<PAGE> 46
extend credit to, or have amounts owing from, its Affiliates or (b) pay in whole
or in part any Indebtedness of Borrower to any Affiliate, except for the
extension of credit by FM Manufacturing to FM Sales with respect to the transfer
of Finished Goods by FM Manufacturing to FM Sales for resale and the repayment
of such Indebtedness by FM Sales to FM Manufacturing. Except as contemplated by
Section 10.19, neither Borrower will pay any consulting, management or
directors' fees to or for the account of any shareholder, director or officer of
a Borrower or of Corporate Guarantor.
10.24 Operating Account. At all times until the Obligations are fully
paid and satisfied, each Borrower will maintain its primary operating account
with Bank. Borrowers will, within 45 days after the Closing Date, terminate the
existing locked box of Borrowers previously established by Brunswick Corporation
with Fleet Bank.
10.25 Sale of Assets. Neither Borrower will sell, lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation, liquidation,
dissolution or otherwise, any of its assets, including the Loan Collateral,
except (i) the sale of inventory in the ordinary course of business; however, a
sale in the ordinary course of business will not include a transfer in total or
partial satisfaction of Indebtedness, (ii) the transfer of Finished Goods by FM
Manufacturing to FM Sales for resale, and (iii) the sale of any item of
equipment having a fair market value of less than $50,000 provided that in any
12 month period the total amount of equipment sold by Borrowers may not exceed
an aggregate fair market value equal to $150,000. All of the proceeds from any
disposition of any equipment will be delivered to Bank to be applied by Bank to
the repayment of the Obligations in any order thereof Bank may elect.
10.26 Intervention by Governmental Authority. Neither Borrower will
permit to occur any seizure by, or the vesting of or intervention by or under
the jurisdiction of, any Governmental Authority by which a Borrower's management
is displaced or its authority in the conduct of its business is materially
curtailed.
10.27 Levy Against Loan Collateral. Neither Borrower will permit (i) to
occur any attachment or distraint of any of the material Loan Collateral or (ii)
any of the material Loan Collateral to become subject, at any time, to any
mandatory court order or other legal process.
10.28 Judgments. Borrowers will not permit any judgment or award to be
rendered against either or both Borrowers (i) (a) in excess of $50,000 (or any
number of judgments in excess of $100,000 in the aggregate) of any available
insurance coverage, as determined by Bank in its discretion exercised in good
faith, in effect to satisfy such judgments or award for which the insurer has
admitted in writing its liability for the full amount thereof and (b) which has
a Material Adverse Effect (regardless of monetary amount or insurance coverage),
and (ii) which have not been vacated, discharged or stayed within 30 days of the
entry thereof.
10.29 Financial Covenants. Borrowers will observe, perform and comply
with all of the financial covenants contained in Exhibit 10.29 (the "Financial
Covenants").
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11. EFFECTIVE DATE; TERMINATION
11.1 Effective Date and Termination Date. This Agreement shall be
effective on the date upon which it is signed by Bank. Unless this Agreement is
terminated earlier under Sections 11.3 or 11.4 or renewed as provided in Section
11.2, this Agreement shall terminate on May 31, 1999.
11.2 Renewal by Bank. Unless a Borrower has delivered a Termination
Notice (as defined in Section 11.3) to Bank, this Agreement may be extended by
Bank, in its discretion exercised in good faith, beyond May 31, 1999 for
successive two-year periods by giving Borrowers written notice of its election
to so extend this Agreement at least 30 days prior to May 31, 1999, or 30 days
prior to May 31 of the calendar year in which this Agreement is to terminate. If
Borrowers have not received the notice as set forth in the immediately preceding
sentence, this Agreement shall terminate on May 31, 1999 or, if this Agreement
has been previously extended, on May 31 of the applicable calendar year.
11.3 Voluntary Termination by Borrowers. Borrowers may terminate this
Agreement as of the last day of any month by (i) giving Bank written notice
("Termination Notice") of the date on which this Agreement is to terminate
("Voluntary Termination Date") (which date must be the last day of a month) at
least 90 days before the Voluntary Termination Date, and (ii) paying on any such
Voluntary Termination Date (a) all Obligations and (b) as compensation to Bank
for loss of bargain with respect to the credit advanced hereunder, and not as a
penalty, a termination fee in amounts as set forth below:
<TABLE>
<CAPTION>
Voluntary Termination Date Termination Fee
-------------------------- ---------------
<S> <C>
Before May 31, 1997 $187,500
After May 30, 1997 and before
May 31, 1998
$150,000
After May 30, 1998 and before
March 1, 1999
$75,000
After February 28, 1999 -0-
</TABLE>
Notwithstanding the foregoing provisions of this Section 11.3 to the contrary,
no termination fee shall be required to be paid by Borrowers to Bank in the
event that: (I) Borrowers terminate this Agreement by reason of a major casualty
loss which causes Borrowers to discontinue business operations; (II) Bank
terminates this Agreement by reason of an Event of Default that exists only
under clauses (j) or (l) of Section 12.1(i); or (III) this Agreement is
terminated for any other reason for which the provisions of this Agreement
expressly excuse Borrowers from the payment of the termination fee.
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<PAGE> 48
11.4 Acceleration upon Termination. Upon the effective date of
termination under Section 11.1 or Section 13.1, (i) all Loans and all other
Obligations will automatically and immediately become due and payable, and (ii)
Bank's obligations under this Agreement will automatically terminate
immediately, without notice or demand, which Borrowers expressly waive.
11.5 Borrowers Remains Liable. Notwithstanding any termination of this
Agreement, until all of the Obligations have been fully performed, paid and
satisfied, Borrower shall remain liable for the full and prompt performance and
payment of the Obligations and the indemnification set forth in Sections 15.8
and 15.10, and Bank shall retain all of its rights and privileges under the Loan
Documents, including the retention of its Liens on and interest in and to all of
the Loan Collateral. However, upon termination of this Agreement, payment of all
of the Obligations which then constitute monetary Obligations, and the
furnishing to Bank by a refinancing lender of an indemnification satisfactory to
Bank in the good faith exercise of its discretion, Bank will, at the request of
Borrowers, subordinate its Liens on and interest in and to the Loan Collateral
to the Liens of a refinancing lender.
12. EVENTS OF DEFAULT.
12.1 Events of Default. (i) Each of the following events, whether or
not caused by or within the control of a Borrower, will constitute an "Event of
Default" under this Agreement:
(a) A Borrower does not pay, when due, any of the Obligations
owing from a Borrower to Bank, including any amounts required to be paid to Bank
under Section 2.5;
(b) A Borrower does not observe, perform or comply with
Section 2.5 or any of the Financial Covenants;
(c) A Borrower does not observe, perform or comply with any
term or provision of this Agreement or of any of the other Loan Documents
(exclusive of those defaults covered by clauses (a), (b) and (d) through (u) of
this Section 12.1(i)), and such default is not cured within the cure period, if
any, provided in Section 12.2(i) and (ii);
(d) Any of the Loan Documents cease, for any reason, to be in
full force and effect in all material respects, or a Borrower or any other
Person which is a party to any of the Loan Documents so asserts in writing, or
the Lien created by any of the Loan Documents ceases to be enforceable in all
material respects in accordance with its terms or of the same effect as to
perfection required thereby and priority purported to be created thereby;
(e) A Borrower fails to make any payment due to any Affiliate
of Bank, materially breaches any agreement between such Borrower and any
Affiliate of Bank and fails to cure same within any applicable grace or cure
period provided therein, or makes any material misrepresentation to any
Affiliate of Bank;
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(f) Any representation, warranty or statement made by or on
behalf of a Borrower (1) in this Agreement, in connection with this Agreement,
in connection with any transaction relating to this Agreement or in any of the
other Loan Documents was false in any material respect when made or furnished or
when treated as being made or furnished or (2) to induce Bank to make any Loan
was false in any material respect when made or furnished or when treated as
being made or furnished;
(g) A Borrower, Corporate Guarantor or any Individual
Guarantor (1) is not Solvent, (2) becomes generally unable to pay its or his
respective debts as they become due, (3) makes a general assignment for the
benefit of creditors, (4) calls a meeting of creditors for the composition of
debts or (5) dies; subject, however, to the cure period provided in Section
12.2(iii) with respect to any such event of condition which occurs or exists
with respect to any Individual Guarantor;
(h) There is filed by or against a Borrower, Corporate
Guarantor or any Individual Guarantor (1) any case, petition, proceeding or
other action under any existing or future bankruptcy, insolvency,
reorganization, liquidation or arrangement or readjustment of debt law or any
similar existing or future law of any applicable jurisdiction, or (2) a
custodian, receiver, trustee, sequestrator or agent is appointed or authorized
to take charge of any of the properties of a Borrower, Corporate Guarantor or
any Individual Guarantor; subject, however, to the cure period provided in
Section 12.2(iii) with respect to any such event of condition which occurs or
exists with respect to any Individual Guarantor;
(i) Corporate Guarantor or any Individual Guarantor defaults
under the Corporate Guaranty or Individual Guaranty, as applicable, or denies
its or his obligation to guarantee any Obligations or attempts to limit or
terminate its or his obligation to guarantee any future Obligations (including,
without limitation, any future advance by Bank to Borrower), subject to the
terms of the Corporate Guaranty or Individual Guaranty, as applicable;
(j) Bank, in the exercise of its judgment in good faith,
determines that there has occurred any material and adverse change in the
business operations or condition, financial or otherwise, of a Borrower or in
its ability to perform any of its payment or other obligations under this
Agreement or any of the other Loan Documents;
(k) There occurs a material casualty loss with respect to any
of the Loan Collateral which is not covered by insurance;
(l) Bank, in the exercise of its judgment in good faith,
determines that there has occurred any material and adverse change in the
aggregate value of the Loan Collateral with the result that Bank's security for
the Obligations is materially diminished;
(m) (1) Any default occurs under the terms applicable to any
Indebtedness of a Borrower in an aggregate amount exceeding $100,000 which
represents any borrowing or financing or arises under any other Applicable
Agreement from, by or with any
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Person, which default causes such Indebtedness to be subject to acceleration, or
(2) there occurs a material breach by a Borrower under any Applicable Agreement
(other than the ones described in subitem (1) of this clause (l)), the result of
which breach is the suspension of the other parties' performance thereunder, the
delivery of a notice of acceleration, or the termination of such Applicable
Agreement;
(n) A contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a lien under Section 302(f) of ERISA;
(o) There is instituted against a Borrower any criminal
proceeding for which forfeiture of any material asset is a potential penalty, or
a Borrower is enjoined, restrained or in any way prevented by order of any
Governmental Authority from conducting any material part of its business affairs
and such order is not completely stayed, to the sole satisfaction of Bank, or
dissolved within one Business Day from the effective date of such order;
(p) A Borrower shall voluntarily dissolve or cease to exist,
or any final and nonappealable order or judgment shall be entered against a
Borrower decreeing its involuntary dissolution;
(q) There occurs a change in ownership of (1) Corporate
Guarantor such that Christopher A. Johnston, Richard P. Johnston, David E.
Johnston and Kenneth J. Warren together fail, directly or indirectly, to own
legally and beneficially more than 50%, on a fully diluted basis, of the issued
and outstanding voting securities of Corporate Guarantor, or no longer control
Corporate Guarantor; (2) FM Manufacturing such that FM Manufacturing shall cease
to be the wholly-owned subsidiary of Corporate Guarantor; or (3) FM Sales such
that FM Sales shall cease to be the wholly-owned subsidiary of Corporate
Guarantor;
(r) There is a default or an event of default under any of the
Acquisition Documents by any Person which has a Material Adverse Effect;
(s) Any Environmental Liability has been incurred, exists, or
is applicable (1) which has a Material Adverse Effect or (2) by which a
Borrower's title to, or its right to use or have access to, its property,
including the Loan Collateral, are materially affected thereby;
(t) There is enacted any legislation (federal, state or local)
which allows any Person to obtain a Lien on any material Loan Collateral which
is superior to the Liens and interests of Bank on and in such property; or
(u) The audit report required pursuant to Section 8.7 is not
an unqualified audit report, unless the reason for qualification is attributable
to the value recorded for the assets acquired under the Acquisition Documents or
not material to a Borrower's financial condition, taken as a whole.
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(ii) Each Event of Default will be deemed continuing until it
is waived in writing by Bank or cured.
12.2 Cure Periods. (i) Subject to Section 12.2(ii), a default under
clause (c) of Section 12.1(i) will constitute an Event of Default only if
Borrowers fail to cure the default within 5 Business Days after the earlier of
(a) the date on which a Borrower has knowledge of the existence of such default
or (b) the date on which Bank notifies Borrowers of the existence of such
default.
(ii) Section 12.2(i) will not be applicable with regard to (a)
any default which by its nature is not susceptible of cure, (b) a default if,
within the 12 calendar months immediately preceding the occurrence of such
default, a Borrower has previously breached the same provision of this
Agreement, (c) any default, as a result of which, Bank believes in good faith
that there exists an immediate and material risk, threat or danger to the value
of the Loan Collateral, Bank's interests in the Loan Collateral, or the
collectibility of the Obligations, or (d) any event of condition described in
clauses (a), (b) and (d) through (u) of Section 12.1(i).
(iii) An event or condition described in clauses (g) or (h) of
Section 12.1(i) with respect to an Individual Guarantor will constitute an Event
of Default only if Borrowers fail, within 45 days after the earlier of (a) the
date on which a Borrower has knowledge of the existence of such event or
condition or (b) the date on which Bank notifies Borrowers of the existence of
such event or condition, to substitute for such Individual Guarantor (X) another
Person, satisfactory to Bank in the good faith exercise of its discretion, as
guarantor of the Obligations pursuant to the terms of the Individual Guaranty or
(Y) a surety bond in the amount of $83,333 issued by a surety company, and in
form and substance, satisfactory to Bank.
13. BANK'S RIGHTS AND REMEDIES.
13.1 Acceleration. Upon the occurrence of any Event of Default, in
addition to all other rights and remedies provided in the Loan Documents or
available at law or in equity, Bank, without further notice or demand, (i) may
declare the Loans and all other Obligations to be immediately due and payable
(except that with respect to any Event of Default under Section 12.1(g) or (h),
such acceleration of the Loans shall be automatic), (ii), to the extent that the
maximum amount of the Loans has not yet been used or fully drawn on by
Borrowers, may terminate the undrawn amount thereof, (iii) may terminate this
Agreement, and (iv) will have all rights to realize upon, and exercise its
rights with respect to, the Loan Collateral pursuant to this Agreement and the
other Loan Documents, and as otherwise provided by applicable law. Bank's rights
and remedies under this Agreement shall be cumulative and not exclusive of any
other right or remedy which Bank have.
13.2 Fees and Expenses. Borrowers shall pay to Bank, immediately and as
part of the Obligations, all reasonable costs and expenses, including court
costs, Attorneys' Fees and costs of sale, incurred by Bank in exercising any of
its rights or remedies under the Loan Documents.
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13.3 Actions in Respect of Letters of Credit. If any Event of Default
shall have occurred and be continuing, Bank may, whether in addition to taking
any of the actions described in Section 13.1 above or otherwise, if any Letters
of Credit shall have been issued, make demand upon Borrowers to, and forthwith
upon such demand Borrowers will, pay to Bank in same day funds at Bank's office
designated in such demand, for deposit in a special interest bearing cash
collateral account (the "Letter of Credit Collateral Account") to be maintained
at such office of Bank, an amount equal to the Letter of Credit Exposure from
time to time in existence. The Letter of Credit Collateral Account shall be in
the name of Borrowers (as a cash collateral account), but under the sole
dominion and control of Bank exercised in good faith (with sole right of
withdrawal) and subject to the terms of this Agreement and the other Loan
Documents. On each drawing under a Letter of Credit, Bank shall seek
reimbursement from any amounts then on deposit in the Letter of Credit
Collateral Account; however, if (i) no amounts are then on deposit in the Letter
of Credit Collateral Account, (ii) the amount then on deposit in the Letter of
Credit Collateral Account is insufficient to pay the amount of such drawing, or
(iii) Bank is legally prevented or restrained from immediately applying amounts
on deposit in the Letter of Credit Collateral Account, then the amount of each
unreimbursed drawing under such Letter of Credit and payment required to be made
under this Section 13.3 shall automatically be converted into a Loan made on the
date of such drawing for all purposes of this Agreement. To the extent that Bank
applies amounts on deposit in the Letter of Credit Collateral Account as
provided in this Section 13.3, and, thereafter, such application (or any portion
thereof) is rescinded or any amount so applied must otherwise be returned by
Bank upon the insolvency, bankruptcy or reorganization of a Borrower or
otherwise, then the amount so rescinded or returned shall automatically be
converted into a Loan made on the date of such drawing for all purposes of this
Agreement.
14. PARTICIPATIONS.
14.1 Participation. Until such time, if any, that this Agreement is
amended to increase the maximum aggregate amount of the Loans to an amount not
less than $15,000,000 (it being understood that neither Bank nor Borrowers shall
be obligated to agree to any such amendment), Bank will not sell to any Person,
other than an Affiliate of Bank, any participating interest in the Loans. In the
event that this Agreement is amended to increase the maximum aggregate amount of
the Loans to an amount not less than $15,000,000, Bank, in the ordinary course
of its commercial banking business and in accordance with applicable law, may at
any time sell to one or more banks or other entities ("Participants")
participating interests in the Loans, the Loan Collateral or other security
provided to Bank, or any other interests of Bank under this Agreement or the
other Loan Documents; provided, however, that Bank shall at all times remain as
lead lender.
14.2 Participant Consents. Borrowers acknowledge that Participants have
or will have certain rights under their respective participation agreements with
Bank that may, subject to the terms of the participation agreements, require
Bank to obtain the consent (collectively, "Participant Consents") of some or all
of Participants before Bank takes or refrains from taking certain actions (other
than as required by the Loan Documents) or grants certain waivers, consents or
approvals in respect of the Loans, the Loan Documents or the Loan Collateral. In
addition, from time to time,
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Bank may request instructions from Participants in respect of the actions,
waivers, consents or approvals which by the terms of any of the Loan Documents
Bank is permitted or required to take or to grant or to not take or grant
("Participant Instructions"). If Participant Consents are, pursuant to the terms
of the respective participation agreements, required or Participant Instructions
are requested, Bank will (i) be absolutely empowered to take or refrain from
taking any action (other than as required by the Loan Documents) or withhold any
waiver, consent or approval and (ii) not be under any liability whatsoever to
any Person, including Borrowers and any Participant, from taking or refraining
from taking any action or withholding any waiver, consent or approval under any
of the Loan Documents until it has received the requisite Participant Consents
or, as applicable, the Participant Instructions.
14.3 Information. Borrowers authorize Bank to disclose to any
Participant any and all financial information in Bank's possession concerning
Borrowers which has been delivered to Bank by Borrowers pursuant to the Loan
Documents or in connection with Bank's credit evaluation of Borrowers or which
has been obtained independently by Bank in its credit evaluation or audit of
Borrowers.
14.4 Law Requirements. Nothing in the Loan Documents will prohibit Bank
from pledging or assigning its interests in the Loans to any Federal Reserve
Bank in accordance with applicable law.
15. GENERAL.
15.1 Severability. If any term of this Agreement is found invalid under
Ohio law or laws of mandatory application by a court of competent jurisdiction,
the invalid term will be considered excluded from this Agreement and will not
invalidate the remaining terms of this Agreement.
15.2 Governing Law. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AT
AND SHALL BE DEEMED TO HAVE BEEN MADE AT CINCINNATI, OHIO. THIS AGREEMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF OHIO (WITHOUT REFERENCE TO OHIO CONFLICTS OF LAW PRINCIPLES).
15.3 WAIVER OF JURISDICTION. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, BORROWERS
AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS
SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF BANK, ITS
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE LOAN COLLATERAL OR
INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO
REPAYMENT OF THE OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL
PARTIES AND THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. BANK AND BORROWERS
EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF
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JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT CINCINNATI, OHIO HAVING
JURISDICTION OVER THE SUBJECT MATTER, AND CONSENTS THAT ALL SERVICE OF PROCESS
BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWERS AND BANK AT THEIR RESPECTIVE
ADDRESSES SET FORTH IN SECTION 15.9 OR AS OTHERWISE PROVIDED UNDER THE LAWS OF
THE STATE OF OHIO. BORROWERS WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS,
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENT TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
15.4 Survival and Continuation of Representations and Warranties. All
of Borrowers' representations and warranties contained in this Agreement shall
(i) survive the execution, delivery and acceptance hereof by the parties hereto
and the closing of the transactions described herein or related hereto, (ii) be
deemed to be made as of each day of the term of this Agreement, and (iii) remain
true until the Obligations are fully performed, paid and satisfied, subject to
such changes as may not be prohibited hereby, do not constitute Events of
Default hereunder, and have been consented to by Bank in writing.
15.5 Evidence of Loans. Each Loan may or may not (at Bank's discretion)
be evidenced by notes or other instruments issued or made by Borrowers to Bank.
Where such Loan is not so evidenced, it shall be evidenced solely by entries
upon Bank's books and records.
15.6 Bank's Additional Rights Regarding Loan Collateral. In addition to
its other rights and remedies under the Loan Documents, Bank may, in its
discretion exercised in good faith, (i) exchange, enforce, waive or release any
Loan Collateral or portion thereof, (ii) apply the proceeds of the Loan
Collateral against the Obligations and direct the order or manner of the
liquidation thereof (including any sale or other disposition) as Bank may, from
time to time, determine, and (iii) settle, compromise, collect or otherwise
liquidate any such security in any manner following the occurrence of any Event
of Default without affecting or impairing its right to take any other further
action with respect to any security or any part thereof.
15.7 Application of Payments; Revival of Obligations. Bank shall have
the continuing right to apply or reverse and reapply any payments to any portion
of the Obligations. To the extent a Borrower makes a payment or payments to Bank
or Bank receives any payment or proceeds of the Loan Collateral or any other
security for a Borrower's benefit, which payment(s) or proceeds or any part
thereof are subsequently voided, invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or part thereof intended to be satisfied shall be revived and shall
continue in full force and effect, as if such payment or proceeds had not been
received by Bank.
15.8 Fees and Expenses. (i) Borrowers shall reimburse Bank for all
reasonable costs, fees, expenses and obligations incurred by Bank or for which
Bank becomes obligated ("Expenses") in connection with, arising out of, or
related to:
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(a) the entering into, negotiation, preparation, closing and
enforcement of this Agreement or any of the other Loan Documents and any of
Bank's rights hereunder and thereunder;
(b) any Loans or advances made by Bank hereunder;
(c) any transaction contemplated by this Agreement or the
Acquisition Documents;
(d) any inspection, audit, appraisal, or verification of the
Loan Collateral or a Borrower (Bank currently charges $450 per diem based on an
8 hour day plus out-of-pocket expenses) per auditor or field examiner for the
services of its auditors and field examiners and a potentially greater amount if
the auditor is not a Bank employee; however, so long as there does not exist an
Event of Default, Borrowers shall not be required to reimburse Bank for Expenses
of field examinations for more than three field examinations in any calendar
year;
(e) any liability under Section 3505 of the Internal Revenue
Code and all other local, state and federal statutes of similar import; and
(f) with respect to any or all of (1) enforcing any Obligation
or in foreclosing against any of the Loan Collateral or exercising or enforcing
any other right or remedy available by reason of any Event of Default, (2)
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a "work-out" or in any insolvency
or bankruptcy proceeding, (3) commencing, defending or intervening in any
litigation or in filing a petition, complaint, answer, motion or other pleadings
in any legal proceeding relating to a Borrower and related to or arising out of
the transactions contemplated hereby or by any of the Loan Documents, (4) taking
any other action in or with respect to any suit or proceeding (whether in
bankruptcy or otherwise), (5) protecting, preserving, collecting, leasing,
selling, taking possession of, or liquidating any of the Loan Collateral, or (6)
attempting to enforce or enforcing any lien on or security interest in any of
the Loan Collateral or any other rights under the Loan Documents.
(ii) The Expenses (a) will include Attorneys' Fees and fees of
other professionals, all lien search and title search fees, all filing and
recording fees and all travel expenses and (b) are part of the Obligations,
payable upon Bank's demand, and will secured by the Loan Collateral above.
(iii) The Obligations described under this Section 15.8 shall
survive any termination of this Agreement.
15.9 Notices. Any notice required, permitted or contemplated hereunder
shall be in writing and addressed to the party to be notified at the address set
forth below or at such other address as each party may designate for itself from
time to time by notice hereunder, and shall be
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deemed validly given (i) three days following deposit in the U.S. certified
mails (return receipt requested), with proper postage prepaid, or (ii) the next
Business Day after such notice was delivered to a regularly scheduled overnight
delivery carrier with delivery fees either prepaid or an arrangement
satisfactory with such carrier, made for the payment thereof, or (iii) upon
receipt of notice given by telecopy, mailgram, telegram, telex or personal
delivery:
To Bank: Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Steven C. Kieffner
Telecopy No.: (513) 632-2040
To Borrowers: FM Precision Golf Manufacturing Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attention: President
Telecopy No.: (203) 489-5454
Bank will, as a courtesy to Borrowers, endeavor to give a copy of any notice
given to Borrowers to Borrowers' attorney at the same time that Bank gives the
notice to Borrowers in the manner selected above; however, the failure of Bank
to give any such notice to Borrowers' attorney will not affect the validity or
effectiveness of the notice to Borrowers or impose any liability or obligation
upon Bank. For such purpose, the address of Borrowers' attorney is:
Kenneth J. Warren, Esq.
Schwartz, Warren & Ramirez
41 South High Street, Suite 2300
Columbus, Ohio 43215
Telecopy No.: (614) 224-0360
15.10 Indemnification. In consideration of the execution and delivery
of this Agreement by Bank and the making of any Loan hereunder, Borrowers hereby
indemnify, exonerate and hold Bank and each of its officers, directors,
employees, Affiliates, and agents (collectively the "Indemnified Parties" and,
individually, as "Indemnified Party") free and harmless from and against any and
all actions, causes of action, suits, demands, investigations, obligations,
judgments, losses, costs, liabilities, damages, and expenses (irrespective of
whether such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including attorneys' fees and
disbursements (the "Indemnified Liabilities"), which are incurred by, accrued,
asserted, made or brought against, charged to, or recoverable from the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to, or as a direct or indirect result of:
(i) any transaction financed or to be financed in whole or in part
or directly or indirectly with the proceeds of any Loan, including the
Acquisition;
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(ii) the entering into and performance of this Agreement and
the other Loan Documents by any of the Indemnified Parties;
(iii) any breach by a Borrower of any term, provision,
representation, warranty or covenant of this Agreement or the other Loan
Documents;
(iv) any Environmental Law relative to the Loan Collateral,
regardless of whether or not caused by, or within the control of, a Borrower,
unless caused by Bank; and
(v) any Remittance deposited in the Special Account which is
dishonored for any reason;
except to the extent that such Indemnified Liabilities are based on an
Indemnified Party's gross negligence or willful misconduct. If and to the extent
that the foregoing undertaking may be unenforceable for any reason, Borrowers
hereby agree to make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law,
except to the extent that such Indemnified Liabilities have arisen by reason of
an Indemnified Party's gross negligence or willful misconduct. The Obligations
described under this Section 15.10 shall survive any termination of this
Agreement.
15.11 Additional Waivers by Borrowers. Borrowers waive presentment and
protest of any instrument and notice thereof, and, except as expressly provided
in the Loan Documents, demand, notice of default and all other notices to which
Borrowers might otherwise be entitled.
15.12 Equitable Relief. Borrowers recognize that, in the event a
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Bank; therefore, Borrowers agree that Bank, if Bank so requests, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
15.13 Entire Agreement. This Agreement and the other Loan Documents set
forth the entire agreement of the parties with respect to its subject matter and
supersedes all previous understandings, written or oral, in respect thereof. Any
request from time to time by a Borrower for Bank's consent under any provision
in the Loan Documents must be in writing, and any consent to be provided by Bank
under the Loan Documents from time to time must be in writing in order to be
binding on Bank; however, Bank will have no obligation to provide any consent
requested by a Borrower, and Bank may, for any reason in its discretion
exercised in good faith, elect to withhold the requested consent. Two or more
duplicate originals of this Agreement may be signed by the parties, each of
which shall be an original but all of which together shall constitute one and
the same instrument. Any documents delivered by, or on behalf of, a Borrower by
fax transmission (i) may be relied on by Bank as if the document were a manually
signed original and (ii) will be binding on Borrowers for all purposes of the
Loan Documents.
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15.14 Headings. Section headings in this Agreement are included for
convenience of reference only and shall not relate to the interpretation or
construction of this Agreement.
15.15 Cumulative Remedies. The remedies provided in this Agreement and
the other Loan Documents are cumulative and not exclusive of any remedies
provided by law. Exercise of one or more remedy(ies) by Bank does not require
that all or any other remedy(ies) be exercised and does not preclude later
exercise of the same remedy.
15.16 Waivers and Amendments in Writing. Failure by Bank to exercise
any right, remedy or option under this Agreement or in any Loan Document or
delay by Bank in exercising the same shall not operate as a waiver by Bank of
its right to exercise any such right, remedy or option. No waiver by Bank shall
be effective unless it is in writing and then only to the extent specifically
stated. This Agreement cannot be changed or terminated orally.
15.17 Assignment. Bank shall have the right to assign this Agreement
and the other Loan Documents. However, if Bank assigns this Agreement (other
than the sale of a participating interest in the Loans to the extent permitted
by Section 14.1), Bank shall give Borrowers written notice of the assignment,
and Borrowers may prepay the Loans in full without payment of the termination
fee under Section 11.3 so long as such prepayment in full is tendered to Bank's
assignee within 90 days after Bank gives Borrower written notice of the
assignment. Neither Borrower may assign, transfer or otherwise dispose of any of
its rights or obligations hereunder, by operation of law or otherwise, and any
such assignment, transfer or other disposition without Bank's written consent
shall be void. All of the rights, privileges, remedies and options given to Bank
under the Loan Documents shall inure to the benefit of Bank's successors and
assigns, and all the terms, conditions, covenants, provisions and warranties
herein shall inure to the benefit of and bind the permitted successors and
assigns of Borrowers and Bank, respectively.
15.18 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, BORROWERS AND
BANK EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN BANK AND BORROWERS.
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IN WITNESS WHEREOF, this Agreement has been duly executed by Borrowers
as of May 31, 1996.
FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ David E. Johnston
---------------------------------
David E. Johnston, Vice President
FM PRECISION GOLF SALES CORP.
By: /s/ David E. Johnston
---------------------------------
David E. Johnston, Vice President
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<PAGE> 60
Accepted at Cincinnati, Ohio,
as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
------------------
Name: David L. Carey
Title: Vice President
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<PAGE> 1
EXHIBIT 10.3.3
GUARANTY
(FM Precision Golf Manufacturing Corp.)
THIS GUARANTY ("Guaranty"), made by FM PRECISION GOLF MANUFACTURING
CORP. a Delaware corporation ("Guarantor"), to, and for the benefit of, STAR
BANK, NATIONAL ASSOCIATION, a national banking association ("Lender"), is as
follows:
1. GUARANTY.
1.1 GUARANTY. For value received and in consideration of any loan,
advance or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or granted by Lender to FM Precision Golf Sales Corp.
("Borrower"), Guarantor unconditionally guarantees to Lender the full and prompt
payment when due of the principal of, all interest on, and all fees in respect
of, all of the Loans (as defined in the Financing Agreement defined below) and
the full and prompt payment and performance of any and all other Obligations (as
defined in the Financing Agreement) which are outstanding from time to time
under the Loan Documents (as defined in the Financing Agreement) (all of the
foregoing described indebtedness, liabilities and obligations which are
outstanding from time to time being hereinafter referred to as the "Guaranteed
Obligations"), whether all or any portion of the Guaranteed Obligations are now
or hereafter existing, direct or indirect, related or unrelated, joint or
several, or absolute or contingent, should all or any portion of the Guaranteed
Obligations not be paid when due under the terms of the Loan Documents,
including, without limitation, on the occurrence of an Event of Default (as
defined in the Financing Agreement), by reason of the maturity or acceleration
of any of the Loans, on the occurrence of a default under the terms of this
Guaranty, or otherwise, and at any times after the date when due. The "Financing
Agreement" means the Financing Agreement of even date herewith between Lender,
Guarantor and Borrower. Should there be any conflict between the terms of this
Guaranty (i.e., the terms in SECTION 2 and SECTION 5 of this Guaranty) and the
terms of the Financing Agreement the conflict shall be controlled by the terms
of the Financing Agreement.
1.2 SECURED OBLIGATIONS. The obligations of Guarantor under this
Guaranty constitute part of the Obligations (as defined in the Financing
Agreement), and, as such, are secured by the Loan Collateral (as defined in the
Financing Agreement).
2. NATURE OF THE GUARANTY.
2.1 ABSOLUTE OBLIGATIONS. The obligations of Guarantor under this
Guaranty are absolute, unconditional, and will be continuing and remain in full
force and effect subject to SECTION 2.2 below. This is a continuing guaranty of
payment and not of collection. Guarantor's obligations under this Guaranty will
not be released, discharged, affected, modified or impaired by any event,
including, without limitation, any of the following events:
<PAGE> 2
(i) the compromise, settlement, release, discharge or
termination of any or all of the obligations of Borrower to Lender by operation
of law or otherwise, except as may result from the full and prompt performance
and payment of the Guaranteed Obligations;
(ii) the extension of the time for payment of any obligation
under the Financing Agreement or any of the other Loan Documents, or the waiver,
modification or amendment (whether material or otherwise) of any obligation
under the Financing Agreement or any of the other Loan Documents or the
acceptance of partial payments of the Guaranteed Obligations;
(iii) the taking or failure to take any action under the
Financing Agreement, any of the other Loan Documents or this Guaranty;
(iv) the invalidity or unenforceability of any provision of
the Financing Agreement, any of the other Loan Documents, or this Guaranty;
(v) any (a) failure by Lender to take any steps to perfect,
maintain, or enforce its Liens (as defined in the Financing Agreement) on the
Loan Collateral (as defined in the Financing Agreement) or (b) loss, release,
substitution of, or other dealing with, any collateral or other security given
to Lender with respect to the Guaranteed Obligations;
(vi) the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all of the assets, the
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment, composition with creditors or readjustment of, or other similar
proceedings affecting Borrower, Guarantor or any other guarantor of the
Obligations;
(vii) any allegation of invalidity or contest of the validity
of this Guaranty in any of the proceedings described in clause (vi) of this
SECTION 2.1;
(viii) any act, election or remedy, or other election,
occurrence or circumstance of any nature, whether or not under Lender's control,
that may affect or impair any subrogation right of Guarantor or the
effectiveness or value thereof;
(ix) the default or failure of Guarantor to perform fully any
of its obligations set forth in this Guaranty;
(x) Lender's election, in any proceeding instituted under
Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.)
(the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(xi) any borrowing or grant of a security interest by
Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(xii) the disallowance of all or any portion of Lender's
claim(s) for repayment of the Guaranteed Obligations under Section 502 of the
Bankruptcy Code; or
2
<PAGE> 3
(xiii) any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
2.2 REVIVAL OF GUARANTY. If (i) any demand is made at any time on
Lender for the repayment of any amount received by it or as proceeds of any
collateral or security which have been applied in payment of any of the
Guaranteed Obligations, and (ii) Lender makes any repayment by reason of any
judgment, decree or order of any court or administrative body or by reason of
any settlement or compromise of such demand, Guarantor will be liable under this
Guaranty for all amounts so repaid to the same extent as if such amounts had
never been received originally by Lender.
2.3 WAIVERS BY GUARANTOR. Guarantor hereby covenants that this Guaranty
will not be discharged except by complete performance of the obligations
contained in this Guaranty. Guarantor waives all setoffs and counterclaims and
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, notices of acceptance of, and reliance
on this Guaranty. Guarantor further waives all (i) notices of the existence,
creation or incurring of new or additional indebtedness, arising either from
additional loans extended to Borrower or otherwise, (ii) notices that the
principal amount, or any portion thereof (and any interest thereon), of the
Loans or any of the other Guaranteed Obligations is due, (iii) notices of any
and all proceedings to collect from Borrower, any indorser or any other
guarantor of all or any part of the Guaranteed Obligations, or from anyone else,
and (iv), to the extent permitted by law, notices of exchange, sale, surrender
or other handling of any security or collateral given to Lender to secure
payment of all or any part of the Guaranteed Obligations.
2.4 APPLICATION OF PROCEEDS BY LENDER. Lender will have the exclusive
right to determine in its discretion the application of payments from, and
credits to, if any, Guarantor, Borrower or from any other Person (as defined in
the Financing Agreement) on account of the Guaranteed Obligations or of any
other liability of Guarantor to Lender.
2.5 RESPONSIBILITY OF GUARANTOR. Guarantor hereby assumes
responsibility for keeping itself informed of the financial condition of
Borrower, and any and all indorsers and other guarantors of any instrument or
document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing on the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal. Lender will
have no duty to advise Guarantor of information known to Lender regarding such
condition or any such circumstances.
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to extend the Guaranteed
Obligations, and for other good and valuable consideration, Guarantor hereby
represents and warrants to Lender that: (i) this Guaranty is the legal, valid
and binding obligation of Guarantor, enforceable in accordance with its terms;
(ii) the execution, delivery, and performance of this Guaranty does not and will
not violate or contravene (a) any authority having the force of law, (b) any
provision of Guarantor's Certificate of Incorporation or By-Laws, or (c) any
"Applicable Agreement" (as defined in the Financing Agreement) to which
Guarantor is a party or by which Guarantor or any of its properties is or may be
bound; and (iii) there is no
3
<PAGE> 4
action or proceeding pending before any court or governmental instrumentality or
agency which materially, adversely affects the condition (financial or
otherwise) of Guarantor or any of its properties.
4. EXPENSES. Guarantor will pay all of the reasonable costs, expenses and fees,
including, without limitation, all reasonable attorneys' fees, incurred by
Lender in enforcing or attempting to enforce this Guaranty following any default
on the part of Guarantor, whether the same is enforced by suit or otherwise, and
all amounts recoverable by law, including, without limitation, interest on any
unpaid amounts due under this Guaranty.
5. DEFAULT; SUBROGATION AND CONTRIBUTION RIGHTS; SUBORDINATION.
5.1 PAYMENT OF GUARANTEED OBLIGATIONS. At any time after all or any
portion of the Guaranteed Obligations are due and payable, whether on maturity,
after the acceleration of any of the Loans, on the occurrence of an Event of
Default (as defined in the Financing Agreement), on the occurrence of any
default under this Guaranty, or otherwise: (i) Lender will have the right (a) to
proceed directly against Guarantor under this Guaranty without first exhausting
any other remedy it may have and without resorting to any security or guaranty
held by it and (b) to compromise, settle, release, discharge or terminate any of
the obligations of any other guarantor(s) of the Guaranteed Obligations as
Lender, in its sole discretion, determines without thereby in any way affecting,
limiting or diminishing its rights thereafter to enforce the obligations of
Guarantor under this Guaranty; (ii) Guarantor will, on the demand of Lender,
immediately deposit with Lender in U.S. dollars the total amount of the
Guaranteed Obligations; (iii) Lender will have the right to sell, collect, or
otherwise dispose of and to apply the proceeds of any collateral or other
security given to Lender with respect to the Guaranteed Obligations in
satisfaction of the Guaranteed Obligations; and (iv) Lender will have the right
to exercise all of Lender's other powers, rights and remedies under the Loan
Documents and under applicable law. Lender will have no obligation to marshall
any assets in favor of Guarantor or against or in payment of any or all of the
Guaranteed Obligations.
5.2 SUBROGATION; CONTRIBUTION. Each of Guarantor, Borrower and FM
Precision Golf Corp., a Delaware corporation ("Parent Company"), is guaranteeing
the full and prompt payment and performance of the Guaranteed Obligations under
a separate guaranty. It is the intent of Guarantor, Borrower and Parent Company
(each of Guarantor, Borrower and Parent Company being sometimes called an
"Obligor") that this Guaranty and the guaranty of each other Obligor (this
Guaranty and the guaranty of each other Obligor being called, collectively, the
"Guaranties") not be subject to challenge on any basis. Accordingly, as of the
date of this Guaranty, the probable liability of Guarantor under this Guaranty,
together with all of its other liabilities to all Persons as of the date of this
Guaranty and as of any other date on which a transfer is deemed to occur by
virtue of the Loan Documents, calculated in amount sufficient to pay its
probable net liabilities on its existing debts as the same become absolute and
matured ("GUARANTOR'S DATED LIABILITIES") is, and is to be, less than the amount
of the aggregate of the present fair salable value of its property, and, if
different, at a fair valuation thereof, as of such corresponding date
("GUARANTOR'S DATED ASSETS"). To this end, Guarantor (i) grants to and
recognizes in each Obligor ratably rights of subrogation and contribution in the
amount, if any, by which Guarantor's Dated Assets, but for the aggregate of
subrogation and contribution rights
4
<PAGE> 5
in its favor recognized in all the Guaranties, would exceed Guarantor's Dated
Liabilities or, as the case may be, (ii) acknowledges receipt of and recognizes
rights of subrogation and contribution ratably from each Obligor in the amount,
if any, by which Guarantor's Dated Liabilities, but for the aggregate of
subrogation and contribution rights in its favor granted and recognized in all
the Guaranties, would exceed Guarantor's Dated Assets. In recognizing the value
of Guarantor's Dated Assets and Guarantor's Dated Liabilities, it is understood
that each Obligor will recognize, to at least the same extent of its aggregate
recognition of liabilities under its respective Guaranty, its rights (including
Lender's obligations) under the Loan Documents and its rights to subrogation and
contribution under the Guaranties. It is expressly recognized and agreed to by
Guarantor that Guarantor's rights of contribution and subrogation against
Borrower is expressly junior and subordinate to the prior payment and
performance in full of the Obligations. It is a material objective of this
SECTION 5.2 that each Obligor recognize rights of subrogation and contribution
rather than be deemed to be insolvent (or in contemplation thereof) by reason of
an arbitrary interpretation of any of the Guaranties or any of the Loan
Documents.
5.3 SUBORDINATION. Until the Guaranteed Obligations have been fully
paid, performed and satisfied, (i) any and all claims of Guarantor against
Borrower, any indorser or any other guarantor of all or any part of the
Guaranteed Obligations, or against any of their respective properties are, by
signing this Guaranty, made subordinate and subject in right of payment to the
prior payment to Lender in full of all Obligations (as defined in the Financing
Agreement); and (ii) Guarantor may not exercise any right to enforce any remedy
which Guarantor now has or may in the future have against Borrower, any indorser
or any other guarantor of all or any part of the Guaranteed Obligations.
6. GENERAL.
6.1 CUMULATIVE REMEDIES. No waiver by Lender of any default under this
Guaranty will operate as a waiver of any other default or of the same default on
a future occasion. No failure or delay on the part of Lender in the exercise of
any power, remedy or right will operate as a waiver thereof nor will any single
or partial exercise of any power, remedy or right or the exercise of any other
power, remedy or right operate as a waiver thereof. Lender may assert any of its
powers, rights or remedies successively, concurrently, independently or
cumulatively. The powers, remedies and rights of Lender provided for in this
Guaranty are not intended to be Lender's sole powers, remedies and rights.
6.2 NO IMPLIED WAIVER BY LENDER; AMENDMENTS. A waiver, amendment,
release or modification of this Guaranty will not be established by conduct,
custom or course of dealing and will occur solely by an instrument in writing
duly executed by Lender.
6.3 ENTIRE AGREEMENT. This Guaranty constitutes the entire agreement
between the parties with respect to the subject matter of this Guaranty, and
supersedes all prior written and oral agreements and understandings.
6.4 COUNTERPARTS; CONSTRUCTION. This Guaranty may be executed in
several counterparts, each of which will be regarded as an original instrument.
The captions in this Guaranty are for reference purposes only and will not
relate to the interpretation of any provision
5
<PAGE> 6
of this Guaranty. Any and all references in this Guaranty to any other document
or documents will be references to the other document or documents as they may,
from time to time, be modified, amended, renewed, consolidated, extended or
replaced.
6.5 SEPARATE INSTRUMENT. This Guaranty constitutes a separate
instrument, enforceable in accordance with its terms, and neither this Guaranty
nor the obligations of Guarantor under this Guaranty will, under any
circumstance or in any legal proceeding, be deemed to have merged into any other
agreement or obligation of Guarantor.
6.6 SEVERABILITY. If any term of this Guaranty is found invalid under
Ohio law (or laws of mandatory application) by a court with jurisdiction, the
invalid term will be considered excluded from this Guaranty and will not
invalidate the remaining terms of this Guaranty.
6.7 OHIO LAW. This Guaranty will be governed by and construed in
accordance with the internal laws of the State of Ohio (without regard to Ohio
conflicts of law principles).
6.8 CHOICE OF FORUM. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER
TO ACCEPT THIS GUARANTY AND TO EXTEND CREDIT TO GUARANTOR AND BORROWER,
GUARANTOR AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
OUT OF THIS GUARANTY, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF LENDER,
ITS SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF LENDER, ITS
SUCCESSORS AND ASSIGNS, TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION
ACTIONS RELATED TO REPAYMENT OF THE GUARANTEED OBLIGATIONS, WILL BE INITIATED
AND PROSECUTED AS TO ALL PARTIES AND THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI,
OHIO. LENDER AND GUARANTOR EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF
JURISDICTION OVER THEIR PERSON BY ANY COURT SITUATED AT CINCINNATI, OHIO HAVING
JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS ON THEM AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO GUARANTOR AND LENDER AT THEIR RESPECTIVE ADDRESSES
AS SET FORTH IN SECTION 15.9 OF THE FINANCING AGREEMENT (OR SUCH OTHER ADDRESS
AS A PARTY MAY FROM TIME TO TIME DESIGNATE FOR ITSELF BY NOTICE TO THE OTHER
PARTY) OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. GUARANTOR
AND LENDER EACH WAIVES TRIAL BY JURY, AND GUARANTOR WAIVES ANY OBJECTION BASED
ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
UNDER THIS GUARANTY.
6.9 SUCCESSORS AND ASSIGNS. This Guaranty will inure to the benefit of
Lender, its successors and assigns and be binding on the successors and assigns
of Guarantor.
6.10 NOTICES. Any notice or notification required, permitted or
contemplated hereunder shall be in writing, shall be addressed and given to the
party to be notified at the address set forth in, and in the manner required by,
SECTION 15.9 of the Financing Agreement.
6
<PAGE> 7
6.11 SEPARATE ACTION. Each default in payment of any amount due under
this Guaranty will, at Lender's sole option, give rise to a separate cause of
action under this Guaranty, and separate suits, at Lender's sole option, may be
brought under this Guaranty as each cause of action arises.
Guarantor has signed this Guaranty as of May 31, 1996.
FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ David E. Johnston
----------------------------
Name: David E. Johnston
--------------------------
Its: Vice-President
---------------------------
Accepted in Cincinnati, Ohio as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
-----------------------------------------------
David L. Carey , Vice President
- ------------------------- ------------------------
(Name) (Title)
7
<PAGE> 1
EXHIBIT 10.3.4
GUARANTY
(FM Precision Golf Sales Corp.)
THIS GUARANTY ("Guaranty"), made by FM PRECISION GOLF SALES CORP., a
Delaware corporation ("Guarantor"), to, and for the benefit of, STAR BANK,
NATIONAL ASSOCIATION, a national banking association ("Lender"), is as follows:
1. GUARANTY.
1.1 GUARANTY. For value received and in consideration of any loan,
advance or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or granted by Lender to FM Precision Golf Manufacturing
Corp. ("Borrower"), Guarantor unconditionally guarantees to Lender the full and
prompt payment when due of the principal of, all interest on, and all fees in
respect of, all of the Loans (as defined in the Financing Agreement defined
below) and the full and prompt payment and performance of any and all other
Obligations (as defined in the Financing Agreement) which are outstanding from
time to time under the Loan Documents (as defined in the Financing Agreement)
(all of the foregoing described indebtedness, liabilities and obligations which
are outstanding from time to time being hereinafter referred to as the
"Guaranteed Obligations"), whether all or any portion of the Guaranteed
Obligations are now or hereafter existing, direct or indirect, related or
unrelated, joint or several, or absolute or contingent, should all or any
portion of the Guaranteed Obligations not be paid when due under the terms of
the Loan Documents, including, without limitation, on the occurrence of an Event
of Default (as defined in the Financing Agreement), by reason of the maturity or
acceleration of any of the Loans, on the occurrence of a default under the terms
of this Guaranty, or otherwise, and at any times after the date when due. The
"Financing Agreement" means the Financing Agreement of even date herewith
between Lender, Guarantor and Borrower. Should there be any conflict between the
terms of this Guaranty (i.e., the terms in SECTION 2 and SECTION 5 of this
Guaranty) and the terms of the Financing Agreement, the conflict shall be
controlled by the terms of the Financing Agreement.
1.2 SECURED OBLIGATIONS. The obligations of Guarantor under this
Guaranty constitute part of the Obligations (as defined in the Financing
Agreement), and, as such, are secured by the Loan Collateral (as defined in the
Financing Agreement).
2. NATURE OF THE GUARANTY.
2.1 ABSOLUTE OBLIGATIONS. The obligations of Guarantor under this
Guaranty are absolute, unconditional, and will be continuing and remain in full
force and effect subject to SECTION 2.2 below. This is a continuing guaranty of
payment and not of collection. Guarantor's obligations under this Guaranty will
not be released, discharged, affected, modified or impaired by any event,
including, without limitation, any of the following events:
(i) the compromise, settlement, release, discharge or
termination of any or all of the obligations of Borrower to Lender by operation
of law or otherwise, except as may result from the full and prompt performance
and payment of the Guaranteed Obligations;
<PAGE> 2
(ii) the extension of the time for payment of any obligation
under the Financing Agreement or any of the other Loan Documents, or the waiver,
modification or amendment (whether material or otherwise) of any obligation
under the Financing Agreement or any of the other Loan Documents or the
acceptance of partial payments of the Guaranteed Obligations;
(iii) the taking or failure to take any action under the
Financing Agreement, any of the other Loan Documents or this Guaranty;
(iv) the invalidity or unenforceability of any provision of
the Financing Agreement, any of the other Loan Documents, or this Guaranty;
(v) any (a) failure by Lender to take any steps to perfect,
maintain, or enforce its Liens (as defined in the Financing Agreement) on the
Loan Collateral (as defined in the Financing Agreement) or (b) loss, release,
substitution of, or other dealing with, any collateral or other security given
to Lender with respect to the Guaranteed Obligations;
(vi) the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all of the assets, the
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment, composition with creditors or readjustment of, or other similar
proceedings affecting Borrower, Guarantor or any other guarantor of the
Obligations;
(vii) any allegation of invalidity or contest of the validity
of this Guaranty in any of the proceedings described in clause (vi) of this
SECTION 2.1;
(viii) any act, election or remedy, or other election,
occurrence or circumstance of any nature, whether or not under Lender's control,
that may affect or impair any subrogation right of Guarantor or the
effectiveness or value thereof;
(ix) the default or failure of Guarantor to perform fully any
of its obligations set forth in this Guaranty;
(x) Lender's election, in any proceeding instituted under
Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.)
(the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(xi) any borrowing or grant of a security interest by
Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(xii) the disallowance of all or any portion of Lender's
claim(s) for repayment of the Guaranteed Obligations under Section 502 of the
Bankruptcy Code; or
(xiii) any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
2
<PAGE> 3
2.2 REVIVAL OF GUARANTY. If (i) any demand is made at any time on
Lender for the repayment of any amount received by it or as proceeds of any
collateral or security which have been applied in payment of any of the
Guaranteed Obligations, and (ii) Lender makes any repayment by reason of any
judgment, decree or order of any court or administrative body or by reason of
any settlement or compromise of such demand, Guarantor will be liable under this
Guaranty for all amounts so repaid to the same extent as if such amounts had
never been received originally by Lender.
2.3 WAIVERS BY GUARANTOR. Guarantor hereby covenants that this Guaranty
will not be discharged except by complete performance of the obligations
contained in this Guaranty. Guarantor waives all setoffs and counterclaims and
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, notices of acceptance of, and reliance
on this Guaranty. Guarantor further waives all (i) notices of the existence,
creation or incurring of new or additional indebtedness, arising either from
additional loans extended to Borrower or otherwise, (ii) notices that the
principal amount, or any portion thereof (and any interest thereon), of the
Loans or any of the other Guaranteed Obligations is due, (iii) notices of any
and all proceedings to collect from Borrower, any indorser or any other
guarantor of all or any part of the Guaranteed Obligations, or from anyone else,
and (iv), to the extent permitted by law, notices of exchange, sale, surrender
or other handling of any security or collateral given to Lender to secure
payment of all or any part of the Guaranteed Obligations.
2.4 APPLICATION OF PROCEEDS BY LENDER. Lender will have the exclusive
right to determine in its discretion the application of payments from, and
credits to, if any, Guarantor, Borrower or from any other Person (as defined in
the Financing Agreement) on account of the Guaranteed Obligations or of any
other liability of Guarantor to Lender.
2.5 RESPONSIBILITY OF GUARANTOR. Guarantor hereby assumes
responsibility for keeping itself informed of the financial condition of
Borrower, and any and all indorsers and other guarantors of any instrument or
document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing on the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal. Lender will
have no duty to advise Guarantor of information known to Lender regarding such
condition or any such circumstances.
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to extend the Guaranteed
Obligations, and for other good and valuable consideration, Guarantor hereby
represents and warrants to Lender that: (i) this Guaranty is the legal, valid
and binding obligation of Guarantor, enforceable in accordance with its terms;
(ii) the execution, delivery, and performance of this Guaranty does not and will
not violate or contravene (a) any authority having the force of law, (b) any
provision of Guarantor's Certificate of Incorporation or By-Laws, or (c) any
"Applicable Agreement" (as defined in the Financing Agreement) to which
Guarantor is a party or by which Guarantor or any of its properties is or may be
bound; and (iii) there is no action or proceeding pending before any court or
governmental instrumentality or agency which materially, adversely affects the
condition (financial or otherwise) of Guarantor or any of its properties.
3
<PAGE> 4
4. EXPENSES. Guarantor will pay all of the reasonable costs, expenses and fees,
including, without limitation, all reasonable attorneys' fees, incurred by
Lender in enforcing or attempting to enforce this Guaranty following any default
on the part of Guarantor, whether the same is enforced by suit or otherwise, and
all amounts recoverable by law, including, without limitation, interest on any
unpaid amounts due under this Guaranty.
5. DEFAULT; SUBROGATION AND CONTRIBUTION RIGHTS; SUBORDINATION.
5.1 PAYMENT OF GUARANTEED OBLIGATIONS. At any time after all or any
portion of the Guaranteed Obligations are due and payable, whether on maturity,
after the acceleration of any of the Loans, on the occurrence of an Event of
Default (as defined in the Financing Agreement), on the occurrence of any
default under this Guaranty, or otherwise: (i) Lender will have the right (a) to
proceed directly against Guarantor under this Guaranty without first exhausting
any other remedy it may have and without resorting to any security or guaranty
held by it and (b) to compromise, settle, release, discharge or terminate any of
the obligations of any other guarantor(s) of the Guaranteed Obligations as
Lender, in its sole discretion, determines without thereby in any way affecting,
limiting or diminishing its rights thereafter to enforce the obligations of
Guarantor under this Guaranty; (ii) Guarantor will, on the demand of Lender,
immediately deposit with Lender in U.S. dollars the total amount of the
Guaranteed Obligations; (iii) Lender will have the right to sell, collect, or
otherwise dispose of and to apply the proceeds of any collateral or other
security given to Lender with respect to the Guaranteed Obligations in
satisfaction of the Guaranteed Obligations; and (iv) Lender will have the right
to exercise all of Lender's other powers, rights and remedies under the Loan
Documents and under applicable law. Lender will have no obligation to marshall
any assets in favor of Guarantor or against or in payment of any or all of the
Guaranteed Obligations.
5.2 SUBROGATION; CONTRIBUTION. Each of Guarantor, Borrower and FM
Precision Golf Corp., a Delaware corporation ("Parent Company"), is guaranteeing
the full and prompt payment and performance of the Guaranteed Obligations under
a separate guaranty. It is the intent of Guarantor, Borrower and Parent Company
(each of Guarantor, Borrower and Parent Company being sometimes called an
"Obligor") that this Guaranty and the guaranty of each other Obligor (this
Guaranty and the guaranty of each other Obligor being called, collectively, the
"Guaranties") not be subject to challenge on any basis. Accordingly, as of the
date of this Guaranty, the probable liability of Guarantor under this Guaranty,
together with all of its other liabilities to all Persons as of the date of this
Guaranty and as of any other date on which a transfer is deemed to occur by
virtue of the Loan Documents, calculated in amount sufficient to pay its
probable net liabilities on its existing debts as the same become absolute and
matured ("GUARANTOR'S DATED LIABILITIES") is, and is to be, less than the amount
of the aggregate of the present fair salable value of its property, and, if
different, at a fair valuation thereof, as of such corresponding date
("GUARANTOR'S DATED ASSETS"). To this end, Guarantor (i) grants to and
recognizes in each Obligor ratably rights of subrogation and contribution in the
amount, if any, by which Guarantor's Dated Assets, but for the aggregate of
subrogation and contribution rights in its favor recognized in all the
Guaranties, would exceed Guarantor's Dated Liabilities or, as the case may be,
(ii) acknowledges receipt of and recognizes rights of subrogation and
contribution ratably from each Obligor in the amount, if any, by which
Guarantor's Dated
4
<PAGE> 5
Liabilities, but for the aggregate of subrogation and contribution rights in its
favor granted and recognized in all the Guaranties, would exceed Guarantor's
Dated Assets. In recognizing the value of Guarantor's Dated Assets and
Guarantor's Dated Liabilities, it is understood that each Obligor will
recognize, to at least the same extent of its aggregate recognition of
liabilities under its respective Guaranty, its rights (including Lender's
obligations) under the Loan Documents and its rights to subrogation and
contribution under the Guaranties. It is expressly recognized and agreed to by
Guarantor that Guarantor's rights of contribution and subrogation against
Borrower is expressly junior and subordinate to the prior payment and
performance in full of the Obligations. It is a material objective of this
SECTION 5.2 that each Obligor recognize rights of subrogation and contribution
rather than be deemed to be insolvent (or in contemplation thereof) by reason of
an arbitrary interpretation of any of the Guaranties or any of the Loan
Documents.
5.3 SUBORDINATION. Until the Guaranteed Obligations have been fully
paid, performed and satisfied, (i) any and all claims of Guarantor against
Borrower, any indorser or any other guarantor of all or any part of the
Guaranteed Obligations, or against any of their respective properties are, by
signing this Guaranty, made subordinate and subject in right of payment to the
prior payment to Lender in full of all Obligations (as defined in the Financing
Agreement); and (ii) Guarantor may not exercise any right to enforce any remedy
which Guarantor now has or may in the future have against Borrower, any indorser
or any other guarantor of all or any part of the Guaranteed Obligations.
6. GENERAL.
6.1 CUMULATIVE REMEDIES. No waiver by Lender of any default under this
Guaranty will operate as a waiver of any other default or of the same default on
a future occasion. No failure or delay on the part of Lender in the exercise of
any power, remedy or right will operate as a waiver thereof nor will any single
or partial exercise of any power, remedy or right or the exercise of any other
power, remedy or right operate as a waiver thereof. Lender may assert any of its
powers, rights or remedies successively, concurrently, independently or
cumulatively. The powers, remedies and rights of Lender provided for in this
Guaranty are not intended to be Lender's sole powers, remedies and rights.
6.2 NO IMPLIED WAIVER BY LENDER; AMENDMENTS. A waiver, amendment,
release or modification of this Guaranty will not be established by conduct,
custom or course of dealing and will occur solely by an instrument in writing
duly executed by Lender.
6.3 ENTIRE AGREEMENT. This Guaranty constitutes the entire agreement
between the parties with respect to the subject matter of this Guaranty, and
supersedes all prior written and oral agreements and understandings.
6.4 COUNTERPARTS; CONSTRUCTION. This Guaranty may be executed in
several counterparts, each of which will be regarded as an original instrument.
The captions in this Guaranty are for reference purposes only and will not
relate to the interpretation of any provision of this Guaranty. Any and all
references in this Guaranty to any other document or documents will be
references to the other document or documents as they may, from time to time, be
modified, amended, renewed, consolidated, extended or replaced.
5
<PAGE> 6
6.5 SEPARATE INSTRUMENT. This Guaranty constitutes a separate
instrument, enforceable in accordance with its terms, and neither this Guaranty
nor the obligations of Guarantor under this Guaranty will, under any
circumstance or in any legal proceeding, be deemed to have merged into any other
agreement or obligation of Guarantor.
6.6 SEVERABILITY. If any term of this Guaranty is found invalid under
Ohio law (or laws of mandatory application) by a court with jurisdiction, the
invalid term will be considered excluded from this Guaranty and will not
invalidate the remaining terms of this Guaranty.
6.7 OHIO LAW. This Guaranty will be governed by and construed in
accordance with the internal laws of the State of Ohio (without regard to Ohio
conflicts of law principles).
6.8 CHOICE OF FORUM. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER
TO ACCEPT THIS GUARANTY AND TO EXTEND CREDIT TO GUARANTOR AND BORROWER,
GUARANTOR AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
OUT OF THIS GUARANTY, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF LENDER,
ITS SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF LENDER, ITS
SUCCESSORS AND ASSIGNS, TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION
ACTIONS RELATED TO REPAYMENT OF THE GUARANTEED OBLIGATIONS, WILL BE INITIATED
AND PROSECUTED AS TO ALL PARTIES AND THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI,
OHIO. LENDER AND GUARANTOR EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF
JURISDICTION OVER THEIR PERSON BY ANY COURT SITUATED AT CINCINNATI, OHIO HAVING
JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS ON THEM AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO GUARANTOR AND LENDER AT THEIR RESPECTIVE ADDRESSES
AS SET FORTH IN SECTION 15.9 OF THE FINANCING AGREEMENT (OR SUCH OTHER ADDRESS
AS A PARTY MAY FROM TIME TO TIME DESIGNATE FOR ITSELF BY NOTICE TO THE OTHER
PARTY) OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. GUARANTOR
AND LENDER EACH WAIVES TRIAL BY JURY, AND GUARANTOR WAIVES ANY OBJECTION BASED
ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
UNDER THIS GUARANTY.
6.9 SUCCESSORS AND ASSIGNS. This Guaranty will inure to the benefit of
Lender, its successors and assigns and be binding on the successors and assigns
of Guarantor.
6.10 NOTICES. Any notice or notification required, permitted or
contemplated hereunder shall be in writing, shall be addressed and given to the
party to be notified at the address set forth in, and in the manner required by,
SECTION 15.9 of the Financing Agreement.
6.11 SEPARATE ACTION. Each default in payment of any amount due under
this Guaranty will, at Lender's sole option, give rise to a separate cause of
action under this Guaranty, and
6
<PAGE> 7
separate suits, at Lender's sole option, may be brought under this Guaranty as
each cause of action arises.
Guarantor has signed this Guaranty as of May 31, 1996.
FM PRECISION GOLF
SALES CORP.
By: /s/ David E. Johnston
------------------------------
Name: David E. Johnston
----------------------------
Its: Vice-President
-----------------------------
Accepted in Cincinnati, Ohio as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
-----------------------------------------------
David L. Carey , Vice President
- ------------------------- ------------------------
(Name) (Title)
7
<PAGE> 1
EXHIBIT 10.3.5
GUARANTY
(FM Precision Golf Corp.)
THIS GUARANTY ("Guaranty"), made by FM PRECISION GOLF CORP., a Delaware
corporation ("Guarantor"), to, and for the benefit of, STAR BANK, NATIONAL
ASSOCIATION, a national banking association ("Lender"), is as follows:
1. GUARANTY. For value received and in consideration of any loan, advance or
financial accommodation of any kind whatsoever heretofore, now or hereafter
made, given or granted by Lender to either or both of FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp. (each a "Borrower" and,
collectively, "Borrowers"), Guarantor unconditionally guarantees to Lender, the
full and prompt payment when due of the principal of, all interest on, and all
fees in respect of, all Loans (as defined in the Financing Agreement defined
below) and the full and prompt payment and performance of any and all other
Obligations (as defined in the Financing Agreement) which are outstanding from
time to time under the Loan Documents (as defined in the Financing Agreement)
(all of the foregoing described indebtedness, liabilities and obligations which
are outstanding from time to time being hereinafter collectively referred to as
the "GUARANTEED OBLIGATIONS"), whether all or any portion of the Guaranteed
Obligations are now or hereafter existing, direct or indirect, related or
unrelated, joint or several, or absolute or contingent, should all or any
portion of the Guaranteed Obligations not be paid when due under the terms of
the Loan Documents, including, without limitation, on the occurrence of an Event
of Default (as defined in the Financing Agreement), by reason of the maturity or
acceleration of any of the Loans, on the occurrence of a default under the terms
of this Guaranty or otherwise, and at any times after the date when due. The
"Financing Agreement" means the Financing Agreement of even date herewith
between Lender and Borrowers.
2. NATURE OF THE GUARANTY.
2.1 ABSOLUTE OBLIGATIONS. The obligations of Guarantor under this
Guaranty are absolute, unconditional, and will be continuing and remain in full
force and effect subject to SECTION 2.2 below. This is a continuing guaranty of
payment and not of collection. Guarantor's obligations under this Guaranty will
not be released, discharged, affected, modified or impaired by any event,
including, without limitation, any of the following events:
(i) the compromise, settlement, release, discharge or
termination of any or all of the obligations of either or both of Borrowers to
Lender by operation of law or otherwise, except as may result from the full and
prompt performance and payment of the Guaranteed Obligations;
(ii) the extension of the time for payment of any obligation
under the Financing Agreement or any of the other Loan Documents, or the waiver,
modification or amendment (whether material or otherwise) of any obligation
under the Financing Agreement or any of the other Loan Documents or the
acceptance of partial payments of the Guaranteed Obligations;
<PAGE> 2
(iii) the taking or failure to take any action under the
Financing Agreement, any of the other Loan Documents or this Guaranty;
(iv) the invalidity or unenforceability of any provision of
the Financing Agreement, any of the other Loan Documents, or this Guaranty;
(v) any (a) failure by Lender to take any steps to perfect,
maintain, or enforce its Liens (as defined in the Financing Agreement) on the
Loan Collateral (as defined in the Financing Agreement) or (b) loss, release,
substitution of, or other dealings with, any collateral or other security given
to Lender with respect to the Guaranteed Obligations;
(vi) the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all of the assets, marshalling
of assets and liabilities, receivership, insolvency, bankruptcy, assignment,
composition with creditors or readjustment of, or other similar proceedings
affecting either or both of Borrowers, any Subsidiary (as defined in the
Financing Agreement) of either Borrower, or any other guarantor of the
Obligations;
(vii) any allegation of invalidity or contest of the validity
of this Guaranty in any of the proceedings described in clause (vi) of this
SECTION 2.1;
(viii) any act, election or remedy, or other election,
occurrence or circumstance of any nature, whether or not under Lender's control,
that may affect or impair any subrogation right of Guarantor or the
effectiveness or value thereof;
(ix) the default or failure of Guarantor to perform fully any
of its obligations set forth in this Guaranty;
(x) Lender's election, in any proceeding instituted under
Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.)
(the "BANKRUPTCY CODE"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(xi) any borrowing or grant of a security interest by
Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(xii) the disallowance of all or any portion of Lender's
claim(s) for repayment of the Guaranteed Obligations under Section 502 of the
Bankruptcy Code; or
(xiii) any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
2.2 REVIVAL OF GUARANTY. If (i) any demand is made at any time on
Lender for the repayment of any amount received by it or as proceeds of any
collateral or security which have been applied in payment of any of the
Guaranteed Obligations, and (ii) Lender makes any repayment by reason of any
judgment, decree or order of any court or administrative body or by reason of
any settlement or compromise of such demand, Guarantor will be liable under this
Guaranty for all amounts so repaid to the same extent as if such amounts had
never been received
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<PAGE> 3
originally by Lender. Except as provided in the preceding sentence, Guarantor's
obligations under this Guaranty will terminate when the Guaranteed Obligations
have been fully paid, performed and satisfied.
2.3 WAIVERS BY GUARANTOR. Guarantor hereby covenants that this Guaranty
will not be discharged except by complete performance of the obligations
contained in this Guaranty. Guarantor waives all setoffs and counterclaims and
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of, and
reliance on, this Guaranty. Guarantor further waives all (i) notices of the
existence, creation or incurring of new or additional indebtedness, arising
either from additional loans extended to either or both of Borrowers or
otherwise, (ii) notices that the principal amount, or any portion thereof (and
any interest thereon), of the Loans or any of the other Guaranteed Obligations
is due, (iii) notices of any and all proceedings to collect from either or both
of Borrowers, any indorser or any other guarantor of all or any part of the
Guaranteed Obligations, or from anyone else, and (iv), to the extent permitted
by law, notices of exchange, sale, surrender or other handling of any security
or collateral given to Lender to secure payment of all or any part of Guaranteed
Obligations.
2.4 APPLICATION OF PROCEEDS BY LENDER. Lender will have the exclusive
right to determine, in its discretion, the order and method of application of
payments from and credits to, if any, Guarantor, Borrowers or any other Person
(as defined in the Financing Agreement) on account of the Guaranteed Obligations
or of any other liability of Guarantor to Lender.
2.5 RESPONSIBILITY OF GUARANTOR. Guarantor hereby assumes
responsibility for keeping itself informed of the financial condition of each
Borrower, and any and all indorsers and other guarantors of any instrument or
document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing on the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal. Lender will
have no duty to advise Guarantor of information known to Lender regarding such
condition or any such circumstances.
2.6 SECURITY. This Guaranty and the Guaranteed Obligations are secured
by (i) a Security Agreement of even date herewith between Lender and Guarantor
and (ii) a Stock Pledge Agreement of even date herewith between Lender and
Guarantor (collectively, the "Security Documents").
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to extend the Guaranteed
Obligations, and for other good and valuable consideration, Guarantor hereby
represents and warrants to Lender that: (i) this Guaranty is the legal, valid
and binding obligation of Guarantor, enforceable in accordance with its terms,
(ii) the execution, delivery, and performance of this Guaranty does not and will
not, by the lapse of time, by the giving of notice, or the satisfaction of any
other condition: (a) violate or constitute a default under, any rule or
provision of Guarantor's Certificate of Incorporation, By-Laws, any resolution
of its Board of Directors or any committee thereof or any agreement or other
instrument to which Guarantor is a party or by which Guarantor or any of its
properties is or may be bound, (b) violate or constitute a default under any
law, requirement, rule, regulation, ordinance or restriction of any
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<PAGE> 4
governmental authority applicable to Guarantor or by which its properties are
bound or affected, (c) result in the creation or imposition of any Lien (as
defined in the Financing Agreement) on any of the properties of Guarantor; and
(d) does not require any consent or approval of any Person; and (iii) there is
no action or proceeding pending before any court or Governmental Authority (as
defined in the Financing Agreement) which materially, adversely affects the
condition (financial or otherwise) of Guarantor or any of its properties.
4. COVENANTS. From the date of the execution of this Guaranty until all
Guaranteed Obligations have been fully paid, performed and satisfied:
4.1 FINANCIAL STATEMENTS. Commencing June 1, 1997 and each subsequent
June 1 so long as this Guaranty remains in effect, Guarantor will furnish Lender
with Guarantor's financial statements and tax returns (including, without
limitation, applicable schedules) for the then most recently ended fiscal year
of Guarantor, certified by Guarantor to be accurate and complete and
acknowledged. Such financial statements will be in detail reasonably
satisfactory to Lender and will be prepared on a basis consistent with GAAP (as
defined in the Financing Agreement) (except the omission of footnotes and as
otherwise disclosed to Lender to the extent such exceptions are acceptable to
Lender);
4.2 NO DISPOSITION OF ASSETS; NO TRANSFER OF BORROWER STOCK. Guarantor
will not encumber, transfer or otherwise dispose of all or substantially all of
its properties. Guarantor will not (i) sell, assign, pledge, hypothecate or
otherwise encumber or transfer, or dispose of, any rights or interests in any
voting securities issued by either Borrower ("BORROWER STOCK") which are owned
legally or beneficially by it or (ii) allow any lien, interest, or adverse claim
to attach to any of its Borrower Stock.
4.3 PAYMENTS. Guarantor will pay all of the costs, expenses and fees,
including, without limitation, all reasonable attorneys' fees, incurred by
Lender in enforcing or attempting to enforce this Guaranty following any default
on the part of Guarantor, whether the same is enforced by suit or otherwise, and
all amounts recoverable by law, including, without limitation, interest on any
unpaid amounts due under this Guaranty.
4.4 SECURITY DOCUMENTS. Guarantor will duly and punctually pay, perform
and observe the obligations of Guarantor under the Security Documents.
5. DEFAULT; SUBROGATION AND CONTRIBUTION RIGHTS; SUBORDINATION.
5.1 PAYMENT OF GUARANTEED OBLIGATIONS. At any time after all or any
portion of the Guaranteed Obligations are due and payable, whether on maturity,
after the acceleration of the Obligations (as defined in the Financing
Agreement) on the occurrence of an Event of Default (as defined in the Financing
Agreement), or otherwise, or at any time after the occurrence of any default
under this Guaranty: (i) Lender will have the right: (a) to proceed directly
against Guarantor under this Guaranty without first exhausting any other remedy
it may have and without resorting to any security or guaranty held by it, and
(b) to compromise, settle, release, discharge or terminate any of the
obligations of any other guarantor(s) of the Guaranteed Obligations as Lender,
in its discretion, determines without thereby in any way affecting,
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<PAGE> 5
limiting or diminishing its rights thereafter to enforce the obligations of
Guarantor under this Guaranty; (ii) Guarantor will, on the demand of Lender,
immediately deposit with Lender in U.S. dollars the total amount of the
Guaranteed Obligations; (iii) Lender will have the right to sell, collect, or
otherwise dispose of and to apply the proceeds of any collateral or other
security given to Lender with respect to the Guaranteed Obligations in
satisfaction of the Guaranteed Obligations; and (iv) Lender will have the right
to exercise all of Lender's other powers, rights and remedies under this
Guaranty, the Loan Documents and under applicable law. Lender will have no
obligation to marshall any assets in favor of Guarantor or against or in payment
of any or all of the Guaranteed Obligations.
5.2 SUBROGATION; CONTRIBUTION. Each of Guarantor and Borrowers is
guaranteeing the full and prompt payment and performance of the Guaranteed
Obligations under a separate guaranty. It is the intent of Guarantor and
Borrowers (each of Guarantor and Borrowers being sometimes called an "Obligor")
that this Guaranty and the guaranty of each other Obligor (this Guaranty and the
guaranty of each other Obligor being called, collectively, the "Guaranties") not
be subject to challenge on any basis. Accordingly, as of the date of this
Guaranty, the probable liability of Guarantor under this Guaranty, together with
all of its other liabilities to all Persons as of the date of this Guaranty and
as of any other date on which a transfer is deemed to occur by virtue of this
Guaranty or any of the Security Documents, calculated in amount sufficient to
pay its probable net liabilities on its existing debts as the same become
absolute and matured ("GUARANTOR'S DATED LIABILITIES") is, and is to be, less
than the amount of the aggregate of the present fair salable value of its
property, and, if different, at a fair valuation thereof, as of such
corresponding date ("GUARANTOR'S DATED ASSETS"). To this end, Guarantor (i)
grants to and recognizes in each Obligor ratably rights of subrogation and
contribution in the amount, if any, by which Guarantor's Dated Assets, but for
the aggregate of subrogation and contribution rights in its favor recognized in
all the Guaranties, would exceed Guarantor's Dated Liabilities or, as the case
may be, (ii) acknowledges receipt of and recognizes in Guarantor rights of
subrogation and contribution ratably from each Obligor in the amount, if any, by
which Guarantor's Dated Liabilities, but for the aggregate of subrogation and
contribution rights in its favor granted and recognized in all the Guaranties,
would exceed Guarantor's Dated Assets. In recognizing the value of Guarantor's
Dated Assets and Guarantor's Dated Liabilities, it is understood that each
Obligor will recognize, to at least the same extent of its aggregate recognition
of liabilities under its respective Guaranty, its rights to subrogation and
contribution under the Guaranties. It is expressly recognized and agreed to by
Guarantor that Guarantor's rights of contribution and subrogation against
Borrower is expressly junior and subordinate to the prior payment and
performance in full of the Obligations. It is a material objective of this
SECTION 5.2 that each Obligor recognize rights of subrogation and contribution
rather than be deemed to be insolvent (or in contemplation thereof) by reason of
an arbitrary interpretation of any of the Guaranties or any of the Loan
Documents.
5.3 SUBORDINATION. Until the Guaranteed Obligations have been fully
paid, performed and satisfied, (i) if an Event of Default has occurred and is
continuing, any and all claims of Guarantor against either Borrower, any
indorser or any other guarantor of all or any part of the Guaranteed
Obligations, or against any of their respective properties are, by signing this
Guaranty, made subordinate and subject in right of payment to the prior payment
to Lender in full of all Obligations (as defined in the Financing Agreement);
and (ii) Guarantor may not
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<PAGE> 6
exercise any right to enforce any remedy which Guarantor now has or may in the
future have against either Borrower, any indorser or any other guarantor of all
or any part of the Guaranteed Obligations.
6. GENERAL.
6.1 CUMULATIVE REMEDIES. No waiver by Lender of any default under this
Guaranty will operate as a waiver of any other default or of the same default on
a future occasion. No failure or delay on the part of Lender in the exercise of
any power, remedy or right will operate as a waiver thereof nor will any single
or partial exercise of any power, remedy or right or the exercise of any other
power, remedy or right operate as a waiver thereof. Lender may assert any of its
powers, rights or remedies successively, concurrently, independently or
cumulatively. The powers, remedies, and rights of Lender provided for in this
Guaranty are not intended to be Lender's sole powers, remedies, or rights.
6.2 NO IMPLIED WAIVER BY LENDER; AMENDMENTS. A waiver, amendment,
release or modification of this Guaranty will not be established by conduct,
custom or course of dealing and will occur solely by an instrument in writing
duly executed by Lender.
6.3 ENTIRE AGREEMENT. This Guaranty, together with the Security
Documents, constitutes the entire agreement between the parties with respect to
the subject matter of this Guaranty, and supersedes all prior written and oral
agreements and understandings.
6.4 COUNTERPARTS; CONSTRUCTION. This Guaranty may be executed in
several counterparts, each of which will be regarded as an original instrument.
The captions in this Guaranty are for reference purposes only and will not
relate to the interpretation of any provision of this Guaranty. Any and all
references in this Guaranty to any other document or documents will be
references to this other document or documents as they may, from time to time,
be modified, amended, renewed, consolidated, extended or replaced.
6.5 SEPARATE INSTRUMENT. This Guaranty constitutes a separate
instrument, enforceable in accordance with its terms, and neither this Guaranty
nor the obligations of Guarantor under this Guaranty will, under any
circumstance or in any legal proceeding, be deemed to have merged into any other
agreement or obligation of Guarantor.
6.6 SEVERABILITY. If any term of this Guaranty is found invalid under
Ohio law (or laws of mandatory application) by a court with jurisdiction, this
invalid term will be considered excluded from this Guaranty and will not
invalidate the remaining terms of this Guaranty.
6.7 OHIO LAW. This Guaranty will be governed by and construed in
accordance with the internal laws of the State of Ohio (without regard to Ohio
conflicts of law principles).
6.8 CHOICE OF FORUM. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER
TO ACCEPT THIS GUARANTY AND TO EXTEND CREDIT TO BORROWERS, GUARANTOR AGREES THAT
ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS GUARANTY,
ITS VALIDITY OR PERFORMANCE, AT THE
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<PAGE> 7
SOLE OPTION OF LENDER, ITS SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE
ABILITY OF LENDER, ITS SUCCESSORS AND ASSIGNS, TO INITIATE AND PROSECUTE IN ANY
APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE GUARANTEED
OBLIGATIONS, WILL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR HEIRS,
SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. LENDER AND GUARANTOR EACH CONSENTS
TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER THEIR PERSON BY ANY COURT
SITUATED AT CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS ON THEM AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO GUARANTOR AND LENDER
AT THEIR RESPECTIVE ADDRESSES AS SET FORTH BELOW (OR SUCH OTHER ADDRESS AS A
PARTY MAY FROM TIME TO TIME DESIGNATE FOR ITSELF BY NOTICE TO THE OTHER PARTY)
OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. GUARANTOR AND
LENDER EACH WAIVES TRIAL BY JURY, AND GUARANTOR WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED UNDER
THIS GUARANTY.
6.9 SUCCESSORS AND ASSIGNS. This Guaranty will inure to the benefit of
Lender, its successors and assigns and be binding on the heirs, executors, legal
representatives, successors and assigns of Guarantor.
6.10 NOTICES. Any notice or notification required, permitted or
contemplated under this Guaranty must be in writing, addressed to the party to
be notified at the address set forth below or at such other address as each
party may designate for itself from time to time by notice under this Guaranty,
and will be deemed to have been validly served, given or delivered on the
earliest of receipt or (i) three Business Days following deposit in the United
States mails, via registered U.S. mail, with proper postage prepaid, or (ii) the
next Business Day after such notice was delivered to a regularly scheduled
overnight delivery carrier with delivery fees either prepaid or an arrangement,
satisfactory with such carrier, made for the payment of such fees, or (iii) on
receipt of notice given by telecopy, mailgram, telegram, telex, or personal
delivery:
To Guarantor: FM Precision Golf Corp.
535 Migeon Avenue
Torrington, Connecticut 06790
Attn: William Faragher
Telecopier No. (203) 489-5454
To Lender: Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attn: Steven C. Kieffner
Telecopier No. (513) 632-2040
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<PAGE> 8
6.11 SEPARATE ACTION. Each default in payment of any amount due under
this Guaranty will, at Lender's sole option, give rise to a separate cause of
action under this Guaranty, and separate suits, at Lender's sole option, may be
brought under this Guaranty as each cause of action arises.
Guarantor has signed this Guaranty as of May 31, 1996.
FM PRECISION GOLF CORP.
By: /s/ David E. Johnston
------------------------------
Name: David E. Johnston
----------------------------
Its: Vice-President
-----------------------------
Accepted in Cincinnati, Ohio
as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
----------------------------------------
David L. Carey , Vice President
------------------ ---------------------
(Name) (Title)
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<PAGE> 1
EXHIBIT 10.3.6
GUARANTY
(Individual Guarantors)
THIS GUARANTY ("Guaranty"), made by CHRISTOPHER A. JOHNSTON, BERENSON
MINELLA & COMPANY, L.P., a Delaware limited partnership, and RICHARD P. JOHNSTON
(each a "Guarantor" and collectively, "Guarantors"), to, and for the benefit of,
STAR BANK, NATIONAL ASSOCIATION, a national banking association ("Lender"), is
as follows:
1. GUARANTY.
1.1 GUARANTY. For value received and in consideration of any loan,
advance, or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or granted FM Precision Golf Manufacturing Corp. and FM
Precision Golf Sales Corp. (collectively, "Borrowers"), by Lender, Guarantors,
subject to the terms of this Guaranty, unconditionally guarantee to Lender, the
full and prompt payment when due of the principal of, all interest on, and all
fees in respect of, all Loans (as defined in the Financing Agreement), and the
full and prompt payment and performance of any and all other Obligations (as
defined in the Financing Agreement) which are outstanding from time to time
under the Loan Documents (as defined in the Financing Agreement) (all of the
foregoing described indebtedness, liabilities and obligations which are
outstanding from time to time being hereinafter collectively referred to as the
"Guaranteed Obligations"), whether all or any portion of the Guaranteed
Obligations are now or hereafter existing, direct or indirect, related or
unrelated, joint or several, or absolute or contingent and should all or any
portion of the Guaranteed Obligations not be paid when due under the terms of
the Loan Documents, on occurrence of an "Event of Default" (as defined in the
Financing Agreement), by reason of the maturity or acceleration of any of the
Loans, on the occurrence of a default under the terms of this Guaranty, or
otherwise, and at any times after the date when due. The "Financing Agreement"
means the Financing Agreement of even date herewith between Lender and
Borrowers.
1.2 LIMIT ON GUARANTY Notwithstanding any other provision of this
Guaranty but subject to SECTION 1.3 below, (i) Guarantors, collectively, will in
no event be required to pay to Lender under this Guaranty more than the total
sum (the total sum being, the "Maximum Aggregate Liability") of up to (a)
$250,000 of the Guaranteed Obligations and (b) all costs, expenses, fees and
amounts described in SECTION 4.4, and (ii) each Guarantor will in no event be
required to pay to Lender under this Guaranty more than his share of the Maximum
Aggregate Liability based, as applicable, on the following percentage amounts
(as applicable, the "Maximum Individual Liabilities"): (a) Christopher A.
Johnston is liable to Lender for 33.334% of Maximum Aggregate Liability; (b)
Berenson Minella & Company, L.P. is liable to Lender for 33.333% of Maximum
Aggregate Liability; and (c) Richard P. Johnston is liable to Lender for 33.333%
of Maximum Aggregate Liability; however, each Guarantor's liability under this
Guaranty will under no circumstances be affected or impaired by the existence,
from time to time, of total Guaranteed Obligations in excess of the Maximum
Aggregate Liability or the Maximum Individual Liabilities.
1.3 CONTINUING GUARANTY. Notwithstanding any of the provisions of
SECTION 1.2 to the contrary, Guarantors will not be entitled to any credit
against their obligations, individually and collectively, under this Guaranty by
reason of any amounts (i) recovered by Lender by reason of the enforcement by
Lender after an Event of Default of any of its remedies under the Loan
Documents,
<PAGE> 2
or (ii) paid by any other Guarantor to Lender under this Guaranty; provided,
however, that the total amount that Lender shall be entitled to recover from
Guarantors shall be limited to the amount that would fully repay the unpaid
balance of the Guaranteed Obligations up to the Maximum Aggregate Liability and
subject to the Maximum Individual Liabilities.
2. NATURE OF THE GUARANTY.
2.1 ABSOLUTE OBLIGATIONS. The obligations of Guarantors under this
Guaranty are absolute, unconditional, and will be continuing and remain in full
force and effect subject to SECTION 2.2 and SECTION 2.6 below. This is a
continuing guaranty of payment and not of collection. Guarantors' obligations
under this Guaranty will not be released, discharged, affected, modified or
impaired by any event, including, without limitation, any of the following
events:
(i) the compromise, settlement, release, discharge or
termination of any or all of the obligations of either or both of Borrowers to
Lender by operation of law or otherwise, except as may result from the full and
prompt performance and payment of the Guaranteed Obligations;
(ii) the extension of the time for payment of any obligation
under the Financing Agreement or any of the other Loan Documents, or the waiver,
modification or amendment (whether material or otherwise) of any obligation
under the Financing Agreement or any of the other Loan Documents or the
acceptance of partial payments of the Guaranteed Obligations;
(iii) the taking or failure to take any action under the
Financing Agreement, any of the other Loan Documents or this Guaranty;
(iv) the invalidity or unenforceability of any provision of
the Financing Agreement, any of the other Loan Documents, or this Guaranty;
(v) any (a) failure by Lender to take any steps to perfect,
maintain, or enforce its Liens (as defined in the Financing Agreement) on the
Loan Collateral (as defined in the Financing Agreement) or (b) loss, release,
substitution of, or other dealings with, any collateral or other security given
to Lender with respect to the Guaranteed Obligations;
(vi) the voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all of the assets, marshalling
of assets and liabilities, receivership, insolvency, bankruptcy, assignment,
composition with creditors or readjustment of, or other similar proceedings
affecting either or both of Borrowers, Guarantors, Corporate Guarantor (as
defined in the Financing Agreement), or any other guarantor of the Obligations
(as defined in the Financing Agreement);
(vii) any allegation of invalidity or contest of the validity
of this Guaranty in any of the proceedings described in clause (vi) of this
SECTION 2;
(viii) any act, election or remedy, or other election,
occurrence or circumstance of any nature, whether or not under Lender's control,
that may affect or impair any subrogation right of Guarantors (or any of them)
or the effectiveness or value thereof;
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<PAGE> 3
(ix) the default or failure of Guarantors (or any of them) to
perform fully any of his or their obligations set forth in this Guaranty;
(x) Lender's election, in any proceeding instituted under
Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.)
(the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(xi) any borrowing or grant of a security interest by either
Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(xii) the disallowance of all or any portion of Lender's
claim(s) for repayment of the Guaranteed Obligations under Section 502 of the
Bankruptcy Code; or
(xiii) any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
2.2 REVIVAL OF GUARANTY. If (i) any demand is made at any time on
Lender for the repayment of any amount received by it from either or both of
Borrowers or as proceeds of any collateral or security which have been applied
in payment of any of the Guaranteed Obligations, and (ii) Lender makes any
repayment to either or both of Borrowers (including any trustee,
debtor-in-possession or other Person (as defined in the Financing Agreement)
asserting the powers of a trustee in bankruptcy) or to any trustee, receiver,
sequestrator, liquidator, or custodian (as defined under the Bankruptcy Code) or
any other Person under the Bankruptcy Code, any other bankruptcy act, any state
or federal law, common law or equitable cause, by reason of any judgment, decree
or order of any court or administrative body or by reason of any settlement or
compromise of such demand, Guarantors, subject to the terms of this Guaranty,
will be liable under this Guaranty for all amounts so repaid to the same extent
as if such amounts had never been received originally by Lender.
2.3 WAIVERS BY GUARANTORS. Each Guarantor hereby covenants that this
Guaranty will not be discharged except by complete performance of the
obligations contained in this Guaranty. Each Guarantor waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of and reliance on this Guaranty. Each Guarantor further waives all
(i) notices of the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to either or both of
Borrowers or otherwise, (ii) notices that the principal amount, or any portion
thereof (and any interest thereon), of the Loans or any of the other Guaranteed
Obligations is due, (iii) notices of any and all proceedings to collect from
either or both of Borrowers, any indorser or any other guarantor of all or any
part of the Guaranteed Obligations, or from anyone else, and (iv), to the extent
permitted by law, notices of exchange, sale, surrender or other handling of any
security or collateral given to Lender to secure payment of all or any part of
Guaranteed Obligations.
2.4 APPLICATION OF PROCEEDS BY LENDER. Subject to SECTION 1.2 and
SECTION 1.3 above, Lender will have the exclusive right to determine the
application of payments from and credits to, if any, Guarantors, either or both
of Borrowers or from any other Person on account of the Guaranteed Obligations
or of any other liability of Guarantors (or any of them) to Lender.
-3-
<PAGE> 4
2.5 RESPONSIBILITY OF GUARANTORS. Each Guarantor hereby assumes
responsibility for keeping himself informed of the financial condition of each
Borrower, and any and all indorsers and other guarantors of any instrument or
document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing on the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal. Lender will
have no duty to advise Guarantors of information known to Lender regarding such
condition or any such circumstances.
2.6 TERMINATION OF GUARANTY. Except as provided in SECTION 2.2 above,
Guarantors' obligations under this Guaranty for the Guaranteed Obligations will
terminate on the earlier to occur of (i) the payment, performance and
satisfaction of the Guaranteed Obligations or (ii) the First Determination Date
(as defined below) provided that (a) Lender has received, in accordance with the
terms of Section 8.7 of the Financing Agreement, Borrowers' annual financial
statements for Borrowers' fiscal year ended on or about May 31, 1997 (the "1997
Statements") and (b) the following two conditions, as determined by Lender, have
been satisfied:
(1) Borrowers' EBITDA (as defined in Section 2 of Exhibit
10.29 of the Financing Agreement) on the First Determination Date is not less
than $2,400,000; and
(2) No Event of Default (as defined in the Financing
Agreement) has occurred and is continuing as of the First Determination Date;
PROVIDED, HOWEVER, THAT
if this Guaranty did not terminate pursuant to clause (ii) above of this SECTION
2.6, this Guaranty may nonetheless terminate on the Second Determination Date
provided that (a) Lender has received, in accordance with the terms of Section
8.7 of the Financing Agreement, Borrowers' annual financial statements for
Borrowers' fiscal year ended on or about May 31, 1998 (the "1998 Statements")
and (b) the following two conditions, as determined by Lender, have been
satisfied:
(1) Borrowers' EBITDA (as defined in Section 2 of Exhibit
10.29 of the Financing Agreement) on the Second Determination Date is not less
than $2,600,000; and
(2) No Event of Default (as defined in the Financing
Agreement) has occurred and is continuing as of the Second Determination Date.
"First Determination Date" means the date on which Lender received the 1997
Statements.
"Second Determination Date" means the date on which Lender received the 1998
Statements.
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<PAGE> 5
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to extend the Guaranteed
Obligations, and for other good and valuable consideration, each Guarantor
hereby represents and warrants to Lender that: (i) this Guaranty is the legal,
valid and binding obligation of Guarantor, enforceable in accordance with its
terms; (ii) the execution, delivery, and performance of this Guaranty does not
and will not, by the lapse of time, by the giving of notice, or the satisfaction
of any other condition: (a) violate or contravene any authority having the force
of law or any agreement or other instrument to which any Guarantor is a party or
by which any Guarantor or any of his or their properties is or may be bound, (b)
result in the creation or imposition of any Lien (as defined in the Financing
Agreement) on any of the properties of any Guarantor, and (c) does not require
any consent or approval of any Person; and (iii) there is no action or
proceeding pending before any court or Governmental Authority (as defined in the
Financing Agreement) which materially, adversely affects the condition
(financial or otherwise) of any Guarantor or any of his or their properties.
4. COVENANTS.
4.1 FINANCIAL STATEMENTS/CASH COLLATERAL ACCOUNT. On or before the
Closing Date (as defined in the Financing Agreement) and each subsequent June
1st so long as this Guaranty remains in effect, Christopher A. Johnston and
Richard P. Johnston will each furnish Lender with each Guarantor's respective
financial statements (including, without limitation, applicable schedules) for
the immediately preceding calendar year, certified by each Guarantor to fairly
present each Guarantor's assets, liabilities and financial condition as of the
dates thereof. Such financial statements will be in detail satisfactory to
Lender and will be prepared on a basis consistent with any preceding financial
statements furnished to Lender. Berenson Minella & Company, L.P. will not be
required to provide such financial statements. However, on or before the Closing
Date, Berenson Minella & Company, L.P. shall deposit cash in an amount equal to
Berenson Minella & Company, L.P.'s Maximum Individual Liability (other than the
costs, expenses and fees referenced in SECTION 4.4) in an interest-bearing
account with Lender, to be held by Lender as security for Berenson Minella &
Company, L.P.'s obligations under this Guaranty pursuant to the terms of a Cash
Collateral Agreement of even date herewith between Lender and Berenson Minella &
Company, L.P. (the "Cash Collateral Agreement").
4.2 NO DISPOSITION OF ASSETS. Each Guarantor will not encumber,
transfer or otherwise dispose of all or substantially all of his properties;
4.3 NO TRANSFER OF FM STOCK. Except as may be expressly permitted
pursuant to the Financing Agreement, no Guarantor will (i) sell, assign, pledge,
hypothecate or otherwise encumber or transfer, or dispose of any rights or
interests in any voting securities issued by FM Precision Golf Corp., a Delaware
corporation ("FM Stock") which are owned legally or beneficially by him or (ii)
allow any lien, interest, or adverse claim to attach to any of his FM Stock; and
4.4 PAYMENTS. Guarantors will, up to their respective Maximum
Individual Liabilities, pay all of the reasonable costs, expenses and fees,
including, without limitation, all reasonable attorneys' fees, incurred by
Lender in enforcing or attempting to enforce this Guaranty following any default
on the part of Guarantors (or any of them), whether the same is enforced by suit
or otherwise, and, in connection with any such default, all amounts recoverable
by law, including, without limitation, interest on any unpaid amounts due under
this Guaranty; PROVIDED, HOWEVER, that Berenson Minella & Company, L.P. will not
be responsible for any such costs, expenses and
-5-
<PAGE> 6
fees attributable to the other Guarantors if the sums held by Lender pursuant to
the Cash Collateral Agreement (as defined below) are applied by Lender to the
obligations of Berenson Minella & Company, L.P. hereunder and no claims are made
by, through or on behalf of Berenson Minella & Company, L.P. to recover such
amounts other than due to misapplication of such amounts by Lender or other
misfeasance or malfeasance by Lender.
5. DEFAULT; SUBORDINATION.
5.1 PAYMENT OF GUARANTEED OBLIGATIONS. At any time after all or any
portion of the Guaranteed Obligations are due and payable, whether on maturity,
on Lender's demand for payment, after the acceleration of the Obligations on the
occurrence of an Event of Default (as defined in the Financing Agreement), on a
default under this Guaranty, or otherwise: (i) Lender will have the right (a) to
proceed directly against each Guarantor (or any of them in any order) under this
Guaranty without first exhausting any other remedy it may have and without
resorting to any security or guaranty held by it and (b) to compromise, settle,
release, discharge or terminate any of the obligations of any of such
Guarantor(s) as Lender, in its sole and absolute discretion, determines without
thereby in any way affecting, limiting or diminishing its rights thereafter to
enforce the obligations of Guarantors (individually and collectively) under this
Guaranty; (ii) each Guarantor (except Berenson Minella & Company, L.P., to the
extent it has already done so) will, on the demand of Lender, immediately
deposit with Lender in U.S. dollars the total amount of the Guaranteed
Obligations up to the Maximum Individual Liability specified in SECTION 1.2
above; and (iii) Lender will have the right to sell, collect, or otherwise
dispose of and to apply the proceeds of any collateral or other security given
to Lender with respect to the Guaranteed Obligations in satisfaction of the
Guaranteed Obligations. Lender will have no obligation to marshall any assets in
favor of any Guarantor or against or in payment of any or all of the Guaranteed
Obligations.
5.2 SUBORDINATION. Except as may be expressly permitted pursuant to the
Financing Agreement, until the Guaranteed Obligations have been fully paid,
performed and satisfied, (i) any and all claims of each Guarantor against either
Borrower, any indorser or any other guarantor of all or any part of the
Guaranteed Obligations, or against any of their respective properties are, by
signing this Guaranty, made subordinate and subject in right of payment to the
prior payment to Lender in full of all Obligations; and (ii) no Guarantor may
exercise any right to enforce any remedy which any Guarantor now has or may in
the future have against either Borrower, any indorser or any other guarantor of
all or any part of the Guaranteed Obligations.
6. GENERAL.
6.1 CUMULATIVE REMEDIES. No waiver by Lender of any default under this
Guaranty will operate as a waiver of any other default or of the same default on
a future occasion. No failure or delay on the part of Lender in the exercise of
any power, remedy or right will operate as a waiver thereof nor will any single
or partial exercise of any power, remedy or right or the exercise of any other
power, remedy or right operate as a waiver thereof. Lender may assert any of its
powers, rights or remedies successively, concurrently, independently or
cumulatively. The powers, remedies, and rights of Lender provided for in this
Guaranty are not intended to be Lender's sole powers, remedies, or rights.
-6-
<PAGE> 7
6.2 NO IMPLIED WAIVER BY LENDER; AMENDMENTS. A waiver, amendment,
release or modification of this Guaranty will not be established by conduct,
custom or course of dealing and will occur solely by an instrument in writing
duly executed by Lender.
6.3 ENTIRE AGREEMENT. This Guaranty (and, with respect to Berenson
Minella & Company, L.P., the Cash Collateral Agreement) constitute the entire
agreement between the parties with respect to the subject matter of this
Guaranty, and supersede all prior written and oral agreements and
understandings.
6.4 COUNTERPARTS; CONSTRUCTION. This Guaranty may be executed in
several counterparts, each of which will be regarded as an original instrument.
The captions in this Guaranty are for reference purposes only and will not
relate to the interpretation of any provision of this Guaranty. Any and all
references in this Guaranty to any other document or documents will be
references to this other document or documents as they may, from time to time,
be modified, amended, renewed, consolidated, extended or replaced.
6.5 SEPARATE INSTRUMENT. This Guaranty constitutes a separate
instrument, enforceable in accordance with its terms, and neither this Guaranty
nor the obligations of Guarantors (individually and collectively) under this
Guaranty will, under any circumstance or in any legal proceeding, be deemed to
have merged into any other agreement or obligation of Guarantors.
6.6 SEVERABILITY. If any term of this Guaranty is found invalid under
Ohio law (or laws of mandatory application) by a court with jurisdiction, this
invalid term will be considered excluded from this Guaranty and will not
invalidate the remaining terms of this Guaranty.
6.7 OHIO LAW. This Guaranty will be governed by and construed in
accordance with the internal laws of the State of Ohio (without regard to Ohio
conflicts of laws principles).
6.8 CHOICE OF FORUM. AS SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER TO
ACCEPT THIS GUARANTY AND TO EXTEND CREDIT TO BORROWERS, EACH GUARANTOR AGREES
THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
GUARANTY, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF LENDER, ITS
SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF LENDER, ITS
SUCCESSORS AND ASSIGNS, TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION
ACTIONS RELATED TO REPAYMENT OF THE GUARANTEED OBLIGATIONS, WILL BE INITIATED
AND PROSECUTED AS TO ALL PARTIES AND THEIR HEIRS, SUCCESSORS AND ASSIGNS AT
CINCINNATI, OHIO. LENDER AND GUARANTORS EACH CONSENT TO AND SUBMIT TO THE
EXERCISE OF JURISDICTION OVER THEIR PERSON BY ANY COURT SITUATED AT CINCINNATI,
OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY
AND ALL PROCESS ON THEM AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO GUARANTORS AND LENDER AT THEIR RESPECTIVE ADDRESSES
AS SET FORTH BELOW (OR SUCH OTHER ADDRESS AS A PARTY MAY FROM TIME TO TIME
DESIGNATE FOR ITSELF BY NOTICE TO THE OTHER PARTY) OR AS OTHERWISE PROVIDED
UNDER THE LAWS OF THE STATE OF OHIO. GUARANTORS AND LENDER EACH WAIVE TRIAL BY
JURY, AND EACH GUARANTOR WAIVES ANY
-7-
<PAGE> 8
OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED UNDER THIS GUARANTY.
6.9 SUCCESSORS AND ASSIGNS. This Guaranty will inure to the benefit of
Lender, its successors and assigns and be binding on the heirs, executors, legal
representatives, successors and assigns of Guarantors.
6.10 NOTICES. Any notice or notification required, permitted or
contemplated under this Guaranty must be in writing, addressed to the party to
be notified at the address set forth below or at such other address as each
party may designate for himself or itself from time to time by notice under this
Guaranty, and will be deemed to have been validly served, given or delivered on
the earliest of receipt or (i) three Business Days (as defined in the Financing
Agreement) following deposit in the United States mails, via registered U.S.
mail, with proper postage prepaid, or (ii) the next Business Day after such
notice was delivered to a regularly scheduled overnight delivery carrier with
delivery fees either prepaid or an arrangement, satisfactory with such carrier,
made for the payment of such fees, or (iii) on receipt of notice given by
telecopy, mailgram, telegram, telex, or personal delivery:
To Mr. Christopher Johnston: Mr. Christopher Johnston
P.O. Box 25182
4015 West Lake Creek Drive, Suite 1
Jackson, Wyoming, 83001
Telecopy No. (307) 739-2288
To Berenson Minella
& Company, L.P.: Berenson Minella
& Company, L.P.
667 Madison Avenue
New York, New York 10021
Attn: Greg Feinstein
Telecopy No. (212) 935-1499
To Mr. Richard Johnston: Mr. Richard Johnston
Teton Pines
2627 Fairways Place West
Jackson, Wyoming 83001
Telecopy No. (307) 739-1070
To Lender: Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attn: Steven C. Kieffner
Telecopy No. (513) 632-2040
6.11 SEPARATE ACTION. Each default in payment of any amount due under
this Guaranty will, at Lender's sole option, give rise to a separate cause of
action under this Guaranty, and separate suits, at Lender's sole option, may be
brought under this Guaranty as each cause of action arises.
-8-
<PAGE> 9
Guarantors have signed this Guaranty as of May 31, 1996.
/s/ Christopher A. Johnston
- --------------------------------
CHRISTOPHER A. JOHNSTON
BERENSON MINELLA & COMPANY, L.P.
By: /s/ Gregg Feinstein
-------------------------------
Name: Gregg Feinstein
-----------------------------
Its: Partner
------------------------------
/s/ Richard P. Johnston by David E. Johnston, his Attorney in Fact under a
- -----------------------------------------------
RICHARD P. JOHNSTON Power of Attorney dated May 28, 1996
Accepted in Cincinnati, Ohio
as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
--------------------------------------
David L. Carey Vice President
- -----------------------------------------
(Name) (Title)
<PAGE> 1
EXHIBIT 10.3.7
SECURITY AGREEMENT
(Borrowers)
THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 31,
1996, between STAR BANK, NATIONAL ASSOCIATION, a national banking association
("Bank"), and FM PRECISION GOLF MANUFACTURING CORP., a Delaware corporation ("FM
Manufacturing") and FM PRECISION GOLF SALES CORP., a Delaware corporation ("FM
Sales"), is as follows:
1. DEFINITIONS.
1.1 Financing Agreement. Any capitalized term used but not defined herein
shall have the meaning ascribed thereto in the Financing Agreement dated as of
the date of this Agreement between Borrowers and Bank (the "Financing
Agreement").
1.2 Defined Terms. In addition to the other terms defined in this
Agreement, whenever the following capitalized terms (whether or not underscored)
are used, they shall be defined as follows:
"Borrower" means each of FM Manufacturing and FM Sales and "Borrowers"
means, collectively, FM Manufacturing and FM Sales. To the extent a term or
provision of this Agreement is applicable to a "Borrower", it is applicable to
each Borrower unless the context expressly indicates otherwise.
"Code" means the Uniform Commercial Code, as enacted in the State of
Ohio, Section 1301.01 et seq. of the Ohio Revised Code, as amended from time
to time.
"Collateral" means (i) all Equipment, General Intangibles, Inventory and
Receivables (all as defined below); (ii) all of each Borrower's rights, titles
and interests in and to any and all cash, funds, bank accounts, securities,
deposits, or other sums, whether maintained with Bank, an Affiliate of Bank or
any other Person and all other amounts at any time credited by, or due from Bank
or an Affiliate of Bank, as applicable, to either or both of Borrowers; (iii)
all of each Borrower's books, records and files of whatever type or nature,
whether or not written, stored electronically or electromagnetically or in any
other form, relating to any or all of the Equipment, Inventory, General
Intangibles, Receivables or the property or interests in property described in
clause (ii) above of this definition, or the proceeds of all of the foregoing,
whether or not such books, records, or files constitute Receivables, Equipment
or General Intangibles; (iv) all of the products and proceeds of all of the
foregoing, including proceeds of any insurance, whether or not in the form of
original collateral, Receivables, contract rights, General Intangibles,
Equipment, fixtures, chattel paper, instruments, leases, Inventory, securities,
documents, deposit accounts, or cash; and (v) all of the foregoing, whether now
owned or existing or hereafter acquired or arising, or in which either or both
of Borrowers now have or hereafter acquire any rights or interests.
<PAGE> 2
"Equipment" means all of each Borrower's equipment, fixtures, and other
goods, including furniture, machinery, tools, dies, jigs, molds, forklifts,
computers and associated hardware and equipment, trade fixtures, vehicles, and
all other tangible personal property not otherwise described herein, together
with any and all attachments, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof.
"General Intangibles" means all of each Borrower's general intangibles,
choses in action, causes of action and all other intangible personal property of
each Borrower of every kind and nature (other than Receivables), including
corporate or other business records, inventions, designs, patents, patent
applications, service marks, service mark applications, trademarks, trademark
applications, trade names, trade secrets, goodwill, registrations, copyrights,
leases, licenses, rights in and to all computer software and intellectual
property owned, developed, licensed or leased by each Borrower in the operation
of computers and associated hardware and other equipment, franchises, customer
lists, tax refunds, tax refund claims, pension plan refunds and reversions,
rights and claims against carriers and shippers and rights to indemnification
and rights as a lender or a secured party.
"Inventory" means all of each Borrower's inventory and other goods,
including all merchandise, raw materials, work in process, and finished goods,
all rejected, rerouted, repossessed, or returned goods sold or delivered in
respect of any Receivable, and all other tangible personal property held for
sale or lease or furnished or to be furnished under contracts of service or used
or consumed in each Borrower's business or in connection with the manufacture,
packaging, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property and all documents of title or documents
representing the same.
"Receivables" means all of each Borrower's accounts, accounts receivable,
contracts, contract rights, notes, bills, drafts, acceptances, instruments,
documents, shipping documents, documents of title, warehouse receipts, proceeds
of any letters of credit on which either or both of Borrowers is named as a
beneficiary, chattel paper, and all rights of each Borrower to payment for goods
sold or leased or for services rendered, whether or not earned by performance
and whether or not evidenced by an instrument, chattel paper, or a general
intangible, and all other debts, obligations and liabilities in whatever form
owing to each Borrower or however otherwise established or created, all
guaranties, sureties' obligations, and security therefor (including rights at
law and in equity), all right, title and interest of each Borrower in the
Inventory, goods, or merchandise or services which gave rise thereto (including
the rights of reclamation and stoppage of delivery in transit and all other
rights of an unpaid seller for merchandise or services), and all returned,
rejected, rerouted or repossessed goods, the sale of which gave rise to any
Receivable.
1.3 Other Definitional Provisions; Construction. Unless otherwise
specified,
(i) As used in this Agreement, accounting terms relating to
Borrowers not defined in this Agreement have the respective meanings given to
them in accordance with GAAP.
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(ii) References to the Uniform Commercial Code, or UCC, mean as
enacted in the particular jurisdiction(s) encompassed by the reference.
(iii) The definition of any document or instrument includes all
schedules, attachments and exhibits thereto and all renewals, extensions,
supplements, restatements and amendments thereof. All Exhibits attached to this
Agreement are incorporated into, made and form an integral part of this
Agreement for all purposes.
(iv) "Hereunder," "herein," "hereto," "this Agreement" and words of
similar import refer to this entire document; "including" is used by way of
illustration and not by way of limitation, unless the context clearly indicates
the contrary; the singular includes the plural and conversely; and any action
required to be taken by either or both of Borrowers is to be taken promptly,
unless the context clearly indicates the contrary.
(v) All of the uncapitalized terms contained in this Agreement
which are defined under the Code will, unless the context indicates otherwise,
have the meanings provided for in the Code.
2. GRANT OF SECURITY INTEREST; SET-OFF AND RELATED MATTERS.
2.1 Security Interest. As security for the full, prompt and complete
performance by each Borrower of the Obligations, including the Guaranteed
Obligations (as defined in each Guaranty dated of even date herewith executed by
each Borrower and delivered to Bank), each Borrower hereby grants to, and
creates in favor of, Bank a continuing security interest in all of the
Collateral.
2.2 Set-Off. All moneys, securities and other properties of either or both
of Borrowers and the proceeds thereof now or hereafter held or received by Bank
from or for the account of either or both of Borrowers, including any and all
deposits (general or special), account balances and credits of either or both of
Borrowers with Bank or any Affiliate of Bank at any time existing, (i) are part
of the Collateral, (ii) will be held as security for the Obligations, and (iii)
may be set-off and applied against any or all Obligations at any time that there
exists an Event of Default in any such account Borrowers authorize Bank's
Affiliates to pay or to deliver to Bank any deposits or other sums credited by,
or due from, Bank's Affiliates to either or both of Borrowers for application
against any or all of the Obligations, at any time upon the occurrence of any
Event of Default and after the lapse of any applicable period of cure, all
without further notice to Borrowers (such notice being expressly waived) and
without any necessity on Bank's part to resort to other security or sources of
reimbursement for the Obligations; provided that nothing in this Section 2.2
will impair or affect Bank's rights under Sections 3.8 or 7.5 of the Financing
Agreement, and provided, further, that neither Bank nor any Affiliate of Bank
shall set-off any moneys held by Bank or any Affiliate of Bank in any accounts
that are specifically dedicated for payment of taxes, workers' compensation
premiums or ERISA benefits on the condition that there is no commingling of
moneys not so specifically dedicated; if there is any such commingling, the
foregoing proviso respecting no set-off shall not be applicable. The rights
given to Bank hereunder are cumulative with Bank's other rights and
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remedies, including other rights of setoff. Bank will promptly notify Borrowers
of Bank's receipt of such funds for application against the Obligations, but
Bank's failure to do so will not affect the validity or enforceability thereof.
Bank may give notice of the above grants of security interests and assignment of
such deposits and other sums to any such Affiliate of Bank. Bank has
authorization to, and may make any suitable arrangements with, any such
Affiliate of Bank for effectuation thereof, and each Borrower hereby irrevocably
appoints Bank as its attorney to collect any and all such deposits or other sums
to the extent any such payment is not made to Bank by such Affiliate.
3. PERFECTION OF BANK'S SECURITY INTEREST; DUTY OF CARE.
3.1 Required Borrower Actions. Until the termination of this Agreement,
Borrowers shall perform any and all steps and take all actions requested by Bank
from time to time to perfect, maintain, protect, and enforce Bank's security
interest in the Collateral, including (i) executing and delivering all
appropriate documents and instruments as Bank may determine are necessary or
desirable to perfect, preserve, or enforce Bank's interest in the Collateral,
including financing statements, all in form and substance satisfactory to Bank,
(ii) delivering to Bank any warehouse receipts covering that portion of the
Collateral which, with Bank's consent, may be located in warehouses and in
respect of which warehouse receipts are issued, (iii) transferring Inventory to
warehouses approved by Bank, (iv) placing notations on each Borrower's books of
account to disclose Bank's security interests therein, (v) taking such other
steps and actions as deemed necessary or desirable by Bank to protect, perfect,
and enforce Bank's Liens on, and interests in, the Inventory, (vi) transferring
to Bank all letters of credit on which either or both of Borrowers is named as a
beneficiary, and (vii) immediately delivering to Bank any instrument (whether
negotiable or non-negotiable) or any chattel paper that evidences any amount
payable under or in connection with any of the Collateral, which, in each
instance, is duly indorsed to Bank in a manner acceptable to it, to be held as
Collateral pursuant to this Agreement.
3.2 Financing Statements; Notices. Bank is authorized by Borrowers (i) to
file one or more financing statements disclosing Bank's security interests under
this Agreement without either Borrower's signature appearing thereon, and (ii)
to give notice to any creditor or landlord of either or both of Borrowers or to
any other Person who Bank may determine is necessary or desirable under
applicable law to give notice to perfect or preserve Bank's interests in the
Collateral. Borrowers shall pay the costs of, or incidental to, any recording or
filing of any financing statements and other notices in all public offices where
filing is deemed by Bank to be necessary or desirable to perfect, protect or
enforce the Liens granted to Bank under this Agreement. Borrowers agree that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement. Bank's security
interests in proceeds or the notification of its interests in proceeds in any
financing statement or other filing will not be deemed to authorize any sale or
other disposition by any Borrower except as permitted by the Financing
Agreement.
3.3 Bailees; Warehousemen. If any Inventory is in the possession or
control of any warehouseman or any of either of both of Borrower's agents,
processors, or other bailees, Borrowers shall notify such warehousemen, agents,
processors or other bailees of Bank's
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security interests therein, and upon Bank's request, will obtain a bailee letter
agreement and financing statements acceptable to Bank from such warehouseman,
agent, processor or other bailee.
3.4 Impositions; Protection of Bank's Interests. To protect, perfect, or
enforce, from time to time, Bank's rights or interests in the Collateral, Bank
may, in its discretion exercised in good faith (but without any obligation to do
so), (i) discharge any Liens (other than Permitted Liens so long as no Event of
Default has occurred) at any time levied or placed on the Collateral, (ii) pay
any insurance, (iii) maintain guards where any Collateral is located if an Event
of Default has occurred and is continuing, and (iv) obtain any record from any
service bureau and pay such service bureau the cost thereof. All costs and
expenses incurred by Bank in exercising its discretion under this Section 3.4
will be part of the Obligations, payable on Bank's demand and secured by the
Collateral.
3.5 Bank's Duty of Care. Bank shall have no duty of care with respect to
the Collateral except that Bank shall exercise reasonable care with respect to
the Collateral in Bank's custody. Bank shall be deemed to have exercised
reasonable care if (i) such property is accorded treatment substantially equal
to that which Bank accords its own property or (ii) Bank takes such action with
respect to the Collateral as Borrowers shall request in writing; however,
neither (a) Bank's failure to comply with any such request or to do any such act
requested by Borrowers nor (b) Bank's failure to take steps to preserve rights
against any Persons in such property shall be deemed a failure to exercise
reasonable care. Borrowers agree that Bank has no obligation to take steps to
preserve rights against any prior parties.
3.6 Receivable Verification. At any time that there exists an Event of
Default, Bank, in its own name or in the name of others, may communicate with
each Borrower's account debtors to verify with them to Bank's satisfaction the
existence, amount and terms of any Receivables and the nature of such account
debtor's relationship with the applicable Borrower.
3.7 Equipment. Each Borrower will, on Bank's request, deliver to Bank any
and all evidences of ownership of the Equipment including any certificates of
title and applications for title pertaining to each Borrower's motor vehicles so
that Bank may cause its security interests to be noted on such certificates of
title.
4. POWER OF ATTORNEY.
4.1 Grant of Power. Each Borrower does hereby make, constitute and appoint
Bank (or any officer or agent of Bank) as each Borrower's true and lawful
attorney-in-fact, with full power of substitution, in the name of each Borrower
or in the name of Bank or otherwise, for the use and benefit of Bank, but at the
cost and expense of Borrowers, (i) to indorse the name of each Borrower on any
notes, checks, drafts, money orders, or other instruments of payment (including
payments payable under any policy of insurance on the Collateral) or Collateral
that may come into the possession of Bank in full or part payment of any of the
Obligations; (ii) after an Event of Default has occurred and is continuing, to
sign and indorse the name of each Borrower on any invoice, freight or express
bill, bill of lading, storage or warehouse receipts, drafts against
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debtors, assignments, verifications and notices in connection with Receivables
(exclusive of Bank's rights under Section 3.6 above), and any instrument or
document relating thereto or to either or both of Borrower's rights therein;
(iii) after an Event of Default has occurred and is continuing, to give written
notice to the United States Post Office to effect change(s) of address so that
all mail addressed to either Borrower may be delivered directly to Bank; (iv) to
sign and record financing statements pursuant to the UCC and other notices
appropriate under applicable law as Bank deems necessary or desirable to
perfect, preserve, and protect Bank's rights under this Agreement; (v) after an
Event of Default has occurred and is continuing, to obtain and cancel the
insurance referred to in Section 10.14 of the Financing Agreement and indorse
any drafts; (vi) to adjust and settle the insurance referred to in Section 10.14
of the Financing Agreement and indorse any drafts; and (vii) to do any and all
things necessary or desirable to perfect Bank's Lien in the Collateral, to
preserve and protect the Collateral and to otherwise carry out this Agreement.
4.2 Duration; Ratification of Acts. This power of attorney, being coupled
with an interest, will be irrevocable for the term of this Agreement and all
transactions under this Agreement and thereafter so long as any of the
Obligations remain in existence. Borrowers ratify and approve all acts of such
attorney, and neither Bank nor its attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law, except for
willful misconduct. Borrowers will execute and deliver promptly to Bank all
instruments necessary or desirable, as determined in Bank's discretion, to
further Bank's exercise of the rights and powers granted it in this Section 4.
5. WARRANTIES AND REPRESENTATIONS. To induce Bank to make each Loan, each
Borrower represents to Bank that the following statements are, and will
continue throughout the term of this Agreement to be, true:
5.1 Places of Business. Each Borrower's chief executive office and
principal place of business are set forth on Exhibit 5.1, and the only other
offices or locations where either Borrower keeps the Collateral (except for
Inventory in transit) or conduct any business are listed on Exhibit 5.1;
5.2 Prior Locations Of Collateral. None of the Inventory or Equipment
constituting part of the Collateral (except for Inventory in transit) has been
at, or has been removed from, any location during the five year period preceding
the date of this Agreement other than those locations set forth on Exhibit 5.1;
5.3 Names. All trade names, assumed names, fictitious names and
other names used by each Borrower are set forth on Exhibit 5.3;
5.4 State of Title. Borrowers have good and indefeasible title to,
and ownership of, the Collateral, free and clear of all Liens except to the
extent, if any, of the Permitted Liens; and
5.5 Priority. Bank has a first priority security interest in, and Lien on,
the Collateral except to the extent, if any, of the Permitted Liens.
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6. COLLATERAL COVENANTS. Until the Obligations are fully paid, performed
and satisfied and this Agreement is terminated, each Borrower will:
6.1 Claims Against Collateral. Maintain the Collateral, as the same is
constituted from time to time, free and clear of all Liens, except to the
extent, if any, of the Permitted Liens, and will defend or cause to be defended
the Collateral against all of the claims and demands of all Persons whomsoever
(except to the extent, if any, of the Permitted Liens);
6.2 Notice of Change in Place of Business. Give Bank at least 30 days
advance notice in writing of any change in its (i) chief executive office,
registered office, principal place of business, or other places of business, or
the opening of any new places of business and (ii) names from those set forth on
Exhibit 5.3 or the adoption by either Borrower of trade names, assumed names or
fictitious names;
6.3 Notice of Governmental or Foreign Receivables. Notify Bank in writing
immediately upon the creation of any Receivables with respect to which the
account debtor is (i) the United States of America or any state, city, county or
other governmental authority or any department, agency or instrumentality of any
of them, or any foreign government or instrumentality thereof or (ii) any
business which is located in a foreign country;
6.4 Notice of Adverse Information. Immediately notify Bank in writing of
any information which it has or may receive with respect to the Collateral which
might in any manner, in the reasonable judgment of one or more officers of the
Borrower, materially and adversely affect the value thereof or the rights of
Bank with respect thereto;
6.5 Equipment. Maintain the Equipment in good operating condition and
repair, make all necessary replacements thereof so that the value and operating
efficiency thereof shall at all times be maintained and preserved, and promptly
inform Bank of any additions to or, subject to the terms of the Financing
Agreement, deletions from the Equipment. Neither Borrower will permit any of the
Equipment to become a fixture to real property not mortgaged to Bank or an
accession to other personal property not constituting part of the Collateral;
6.6 Inventory. Maintain the Inventory in all material respects in good and
salable condition and will handle, maintain and store the Inventory in a safe
and careful manner in accordance with all applicable laws, rules, regulations,
ordinances and governmental orders;
6.7 Insurance. Insure the Collateral in accordance with the terms of
the Financing Agreement;
6.8 Removal of Collateral. Not remove its books and records concerning the
Collateral from the locations set forth in Exhibit 5.1 of this Agreement or keep
any of such books and records or the Collateral at any other office or location
without giving Bank at least 30 days prior notice of such action and complying
with the other terms of this Agreement; provided that such location is in the
continental United States; and
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6.9 No Liens. Not create or permit to be created or to exist any Lien on
any of the Collateral except to the extent, if any, of the Permitted Liens.
7. TERM. Subject to Section 11.6 below, this Agreement will terminate on
the later to occur of (i) the full performance, payment and satisfaction of
the Obligations and (ii) the termination the Financing Agreement.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Remedies. (i) On the occurrence of an Event of Default and immediately
on and after the lapse of any applicable period of cure, Bank may, at any time,
take any one or more of the following actions, without notice, demand or legal
process of any kind (except as may be required by law), all of which each
Borrower waives to the fullest extent permitted by law:
(a) proceed to enforce payment of the Obligations and to exercise
all of the rights and remedies afforded to Bank by the UCC, under the terms of
the Loan Documents and by law and in equity provided;
(b) take possession of the Collateral and maintain such possession
on each Borrower's premises at no cost to Bank, or remove the Collateral, or any
part thereof, to such other place(s) as Bank may desire;
(c) enter on any premises on which the Collateral, or any part or
records thereof, may be situated and remove the same therefrom, for which action
Borrowers will not assert against Bank any claim for trespass, breach of the
peace or similar claim and Borrowers will not hinder Bank's efforts to effect
such removal;
(d) require Borrowers, at their cost, to assemble the Collateral and
make it available at a place designated by Bank;
(e) collect, compromise, sell or otherwise deal with the Collateral
or proceeds thereof in its own name or in the name of either or both of
Borrowers and bring suit on the Receivables, in the name of either or both of
Borrowers or Bank, and exercise all such other rights respecting the
Receivables, including the right to accelerate or extend the time of payment,
settle, release in whole or in part any amounts owing on any Receivables and
issue credits in the name of either or both of Borrowers or Bank;
(f) sell part or all of the Collateral at public or private sale(s),
for cash, upon credit or otherwise, at such prices and upon such terms as Bank
deems advisable, at Bank's discretion, and Bank may, if Bank deems it
reasonable, postpone or adjourn any sale of the Collateral from time to time by
an announcement at the time and place of sale or by announcement at the time and
place of such postponed or adjourned sale, without being required to give a new
notice of sale;
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(g) to the extent Bank has not so acted or is currently so acting
pursuant to the other terms of this Agreement, notify each Borrower's account
debtors that the Receivables have been assigned to Bank and that payments should
be made directly to Bank;
(h) require each Borrower, using such form as Bank may approve, to
notify such account debtors, and to indicate on all of each Borrower's billings
to such account debtors, that their Receivables must be paid to Bank directly;
(i) sign any indorsements, assignments or other instruments of
conveyance or transfer in connection with any disposition of the Collateral;
(j) sell, assign, transfer or otherwise dispose of all or any part
of the Collateral in any manner permitted by law and do any other thing and
exercise any other right or remedy which Bank may, with or without judicial
process, do or exercise under applicable law; and
(k) apply for and have a receiver appointed under state or federal
law by a court of competent jurisdiction in any action taken by Bank to enforce
its rights and remedies under this Agreement and, as applicable, the other Loan
Documents in order to manage, protect, preserve, and sell and otherwise dispose
of all or any portion of the Collateral and continue the operation of the
businesses of either or both of Borrowers, and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, and to
the payment of the Obligations until a sale or other disposition of such
Collateral is finally made and consummated.
(ii) Borrowers acknowledge that portions of the Collateral could be
difficult to preserve and dispose of and be further subject to complex
maintenance and management. Accordingly, Bank, in exercising its rights under
this Section 8.1, shall have the widest possible latitude to preserve and
protect the Collateral and Bank's security interest therein.
8.2 Notice of Disposition; Allocations. If any notice is required by law
to effectuate any sale or other disposition of the Collateral, (i) Bank will
give the applicable Borrower(s) written notice of the time and place of any
public sale or of the time after which any private sale or other intended
disposition thereof will be made, and at any such public or private sale, Bank
may purchase all or any of the Collateral; and (ii) Bank and Borrowers agree
that such notice will not be unreasonable as to time if given in compliance with
this Agreement five days prior to any sale or other disposition. The proceeds of
the sale will be applied first to all costs and expenses of such sale including
Attorneys' Fees and other costs and expenses, and second to the payment of all
Obligations in the manner and order determined by Bank in its discretion.
Borrowers shall remain liable to Bank for any deficiency. Unless otherwise
directed by law, Bank will return any excess to the applicable Borrower(s).
8.3 Payment of Expenses. Borrowers shall pay to Bank, on its demand, all
costs and expenses, including court costs, Attorneys' Fees and costs of sale,
incurred by Bank in exercising
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any of its rights or remedies hereunder, all of which constitute part of the
Obligations and are secured by the Collateral.
9. INDEMNIFICATION. In consideration of the execution and delivery of the
Financing Agreement and the making of any Loan to Borrowers, Borrowers will
indemnify and hold Bank, and Bank's directors, Affiliates, and agents (for the
purposes of this Section 9 each is an "Indemnified Party") harmless from and
against any and all claims, losses, obligations and liabilities arising out of
or resulting from any or all of (i) this Agreement and (ii) the transactions
contemplated by this Agreement (including enforcement of this Agreement), except
for claims, losses or liabilities resulting from an Indemnified Party's bad
faith or willful misconduct. The indemnification provided for in this Section 9
is in addition to, and not in limitation of, any other indemnification or
insurance provided by Borrowers to Bank.
10. NOTICE. Any notice, certificate, request, notification and other
communication required, permitted or contemplated hereunder must be in
writing and given in accordance with Section 15.9 of the Financing Agreement.
11. GENERAL.
11.1 Severability. If any term of this Agreement is found invalid under
Ohio law or other laws of mandatory application by a court of competent
jurisdiction, the invalid term will be considered excluded from this Agreement
and will not invalidate the remaining terms of this Agreement.
11.2 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AT AND
SHALL BE DEEMED TO HAVE BEEN MADE AT CINCINNATI, OHIO. THIS AGREEMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF OHIO (WITHOUT REFERENCE TO OHIO CONFLICTS OF LAW PRINCIPLES).
11.3 WAIVER OF JURISDICTION. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, EACH BORROWER
AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS
SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF BANK, ITS
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE COLLATERAL OR INITIATE
AND PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE
OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR
SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. BANK AND EACH BORROWER EACH CONSENTS
TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT
SITUATED AT CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, AND
CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO
BORROWERS AND BANK AT THEIR RESPECTIVE
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ADDRESSES SET FORTH IN SECTION 15.9 OF THE FINANCING AGREEMENT OR AS OTHERWISE
PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. EACH BORROWER WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
11.4 Survival and Continuation of Representations and Warranties. All of
each Borrower's representations and warranties contained in this Agreement shall
(i) survive the execution, delivery and acceptance hereof by the parties hereto
and the closing of the transactions described herein or related hereto and (ii)
remain true until the Obligations are fully performed, paid and satisfied, made
by Borrowers with the same effect as though the representations and warranties
had been made again on, and as of, each day of the term of this Agreement,
subject to such changes as may not be prohibited hereby, do not constitute
Events of Default, and have been consented to by Bank in writing.
11.5 Bank's Additional Rights Regarding Collateral. All of the Obligations
shall constitute one loan secured by all of the Collateral. In addition to any
other rights or remedies under the Loan Documents, Bank may, in its discretion,
(i) exchange, enforce, waive or release any such security or portion thereof,
(ii) apply such security and direct the order or manner of sale thereof as Bank
may, from time to time, determine, and (iii) settle, compromise, collect or
otherwise liquidate any such security in any manner without affecting or
impairing its right to take any other further action with respect to any
security or any part thereof.
11.6 Application of Payments; Revival of Obligations. Bank shall have the
continuing right, but not the obligation, to apply or reverse and reapply any
payments to any portion of the Obligations. To the extent either or both of
Borrowers make a payment or payments to Bank or Bank receives any payment or
proceeds of the Collateral or any other security for either or both of
Borrower's benefit, which payment(s) or proceeds or any part thereof are
subsequently voided, invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
any bankruptcy act, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds received, the Obligations or part
thereof intended to be satisfied shall be revived and shall continue in full
force and effect, as if such payment or proceeds had not been received by Bank.
11.7 Equitable Relief. Borrowers recognize that, in the event either
Borrower fails to perform, observe or discharge any of their obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to Bank; therefore, Borrowers agree that Bank, if Bank so requests, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
11.8 Entire Agreement. This Agreement and the other Loan Documents set
forth the entire agreement of the parties with respect to its subject matter and
supersede all previous understandings, written or oral, in respect thereof.
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11.9 Headings. Section headings in this Agreement are included for
convenience of reference only and shall not relate to the interpretation or
construction of this Agreement.
11.10 Cumulative Remedies. The remedies provided in this Agreement and the
other Loan Documents are cumulative and not exclusive of any remedies provided
by law. Exercise of one or more remedy(ies) by Bank does not require that all or
any other remedy(ies) be exercised and does not preclude later exercise of the
same remedy.
11.11 Waivers and Amendments in Writing. Failure by Bank to exercise any
right, remedy or option under this Agreement or in any Loan Document or delay by
Bank in exercising the same shall not operate as a waiver by Bank of its right
to exercise any such right, remedy or option. No waiver by Bank shall be
effective unless it is in writing and then only to the extent specifically
stated. This Agreement cannot be changed or terminated orally.
11.12 Assignment. Bank shall have the right to assign this Agreement and
the other Loan Documents. Neither Borrower may assign, transfer or otherwise
dispose of any of its rights or obligations hereunder, by operation of law or
otherwise, and any such assignment, transfer or other disposition without Bank's
written consent shall be void. All of the rights, privileges, remedies and
options given to Bank under the Loan Documents shall inure to the benefit of
Bank's successors and assigns, and all the terms, conditions, covenants,
provisions and warranties herein shall inure to the benefit of and bind the
permitted successors and assigns of each Borrower and Bank, respectively.
11.13 Joint and Several Obligations. The obligations of Borrowers
under this Agreement are joint, several and primary.
11.14 Conflict. If there is any conflict, ambiguity, or inconsistency, in
Bank's judgment, between the terms of this Agreement and the Financing
Agreement, then the applicable terms and provisions, in Bank's judgment,
providing Bank with greater rights, remedies, powers, privileges, or benefits
will control.
11.15 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, EACH BORROWER
AND BANK EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN BANK AND BORROWERS.
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IN WITNESS WHEREOF, this Agreement has been duly executed by each Borrower
as of May 31, 1996.
FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ David E. Johnston
-----------------------------------
Name: David E. Johnston
Its: Vice President
FM PRECISION GOLF SALES CORP.
By: /s/ David E. Johnston
-----------------------------------
Name: David E. Johnston
Its: Vice President
Accepted at Cincinnati, Ohio, as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
-----------------------------------
David L. Carey, Vice President
- 13 -
<PAGE> 1
EXHIBIT 10.3.8
SECURITY AGREEMENT
(FM Precision Golf Corp.)
THIS SECURITY AGREEMENT (this "Agreement"), dated as of May
31, 1996, between STAR BANK, NATIONAL ASSOCIATION, a national banking
association ("Bank"), and FM PRECISION GOLF CORP., an Ohio corporation
("Guarantor"), is as follows:
1. DEFINITIONS.
1.1 Defined Terms. In addition to the other terms defined in this
Agreement, whenever the following capitalized terms (whether or not underscored)
are used, they shall be defined as follows:
"Borrowers" means, collectively, FM Precision Golf Manufacturing Corp.,
a Delaware corporation and FM Precision Golf Sales Corp., a Delaware
corporation. "Borrower" means each of the foregoing corporations.
"Code" means the Uniform Commercial Code, as enacted in the State of
Ohio, Section 1301.01 et seq. of the Ohio Revised Code, as amended from time to
time.
"Collateral" means (i) all Equipment, General Intangibles, Inventory
and Receivables (all as defined below); (ii) all of Guarantor's rights, titles
and interests in and to any and all cash, funds, bank accounts, securities,
deposits, or other sums, whether maintained with Bank, an Affiliate of Bank or
any other Person and all other amounts at any time credited by, or due from Bank
or an Affiliate of Bank, as applicable, to Guarantor; (iii) all of Guarantor's
books, records and files of whatever type or nature, whether or not written,
stored electronically or electromagnetically or in any other form, relating to
any or all of the Equipment, Inventory, General Intangibles, Receivables or the
property or interests in property described in clause (ii) above of this
definition, or the proceeds of all of the foregoing, whether or not such books,
records, or files constitute Receivables, Equipment or General Intangibles; (iv)
all of the products and proceeds of all of the foregoing, including proceeds of
any insurance, whether or not in the form of original collateral, Receivables,
contract rights, General Intangibles, Equipment, fixtures, chattel paper,
instruments, leases, Inventory, securities, documents, deposit accounts, or
cash; and (v) all of the foregoing, whether now owned or existing or hereafter
acquired or arising, or in which Guarantor now has or hereafter acquires any
rights or interests.
"Equipment" means all of Guarantor's equipment, fixtures, and other
goods, including furniture, machinery, tools, dies, jigs, molds, forklifts,
computers and associated hardware and equipment, trade fixtures, vehicles, and
all other tangible personal property not otherwise described herein, together
with any and all attachments, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof.
<PAGE> 2
"Financing Agreement" means the Financing Agreement of even date
herewith between Bank and Borrowers. "Affiliate," "Event of Default," "Lien,"
"Loan" and "Person" have the respective meanings ascribed thereto in the
Financing Agreement.
"General Intangibles" means all of Guarantor's general intangibles,
choses in action, causes of action and all other intangible personal property of
Guarantor of every kind and nature (other than Receivables), including corporate
or other business records, inventions, designs, patents, patent applications,
service marks, service mark applications, trademarks, trademark applications,
trade names, trade secrets, goodwill, registrations, copyrights, leases,
licenses, rights in and to all computer software and intellectual property
owned, developed, licensed or leased by Guarantor in the operation of computers
and associated hardware and other equipment, franchises, customer lists, tax
refunds, tax refund claims, pension plan refunds and reversions, rights and
claims against carriers and shippers and rights to indemnification and rights as
a lender or a secured party.
"Guaranteed Obligations" has the meaning ascribed thereto in the
Guaranty.
"Guaranty" means the Guaranty of even date herewith made by Guarantor
to and for the benefit of Bank.
"Inventory" means all of Guarantor's inventory and other goods,
including all merchandise, raw materials, work in process, and finished goods,
all rejected, rerouted, repossessed, or returned goods sold or delivered in
respect of any Receivable, and all other tangible personal property held for
sale or lease or furnished or to be furnished under contracts of service or used
or consumed in Guarantor's business or in connection with the manufacture,
packaging, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property and all documents of title or documents
representing the same.
"Receivables" means all of Guarantor's accounts, accounts receivable,
contracts, contract rights, notes, bills, drafts, acceptances, instruments,
documents, shipping documents, documents of title, warehouse receipts, proceeds
of any letters of credit on which Guarantor is named as a beneficiary, chattel
paper, and all rights of Guarantor to payment for goods sold or leased or for
services rendered, whether or not earned by performance and whether or not
evidenced by an instrument, chattel paper, or a general intangible, and all
other debts, obligations and liabilities in whatever form owing to Guarantor or
however otherwise established or created, all guaranties, sureties' obligations,
and security therefor (including rights at law and in equity), all right, title
and interest of Guarantor in the Inventory, goods, or merchandise or services
which gave rise thereto (including the rights of reclamation and stoppage of
delivery in transit and all other rights of an unpaid seller for merchandise or
services), and all returned, rejected, rerouted or repossessed goods, the sale
of which gave rise to any Receivable.
1.2 Other Definitional Provisions; Construction. Unless otherwise
specified,
(i) As used in this Agreement, accounting terms relating to
Guarantor not defined in this Agreement have the respective meanings given to
them in accordance with GAAP.
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(ii) References to the Uniform Commercial Code, or UCC, mean
as enacted in the particular jurisdiction(s) encompassed by the reference.
(iii) The definition of any document or instrument includes
all schedules, attachments and exhibits thereto and all renewals, extensions,
supplements, restatements and amendments thereof. All Exhibits attached to this
Agreement are incorporated into, made and form an integral part of this
Agreement for all purposes.
(iv) "Hereunder," "herein," "hereto," "this Agreement" and
words of similar import refer to this entire document; "including" is used by
way of illustration and not by way of limitation, unless the context clearly
indicates the contrary; the singular includes the plural and conversely; and any
action required to be taken by Guarantor is to be taken promptly, unless the
context clearly indicates the contrary.
(v) All of the uncapitalized terms contained in this
Agreement which are defined under the Code will, unless the context indicates
otherwise, have the meanings provided for in the Code.
2. GRANT OF SECURITY INTEREST; SET-OFF AND RELATED MATTERS.
2.1 Security Interest. As security for the full, prompt and complete
payment and performance of the Guaranteed Obligations, Guarantor hereby grants
to, and creates in favor of, Bank a continuing security interest in all of the
Collateral.
2.2 Set-Off. All moneys, securities and other properties of Guarantor
and the proceeds thereof now or hereafter held or received by Bank from or for
the account of Guarantor, including any and all deposits (general or special),
account balances and credits of Guarantor with Bank or any Affiliate of Bank at
any time existing, (i) are part of the Collateral, (ii) will be held as security
for the Guaranteed Obligations, and (iii) may be set-off and applied against any
or all Guaranteed Obligations at any time. Guarantor authorizes Bank's
Affiliates to pay or to deliver to Bank any deposits or other sums credited by,
or due from, Bank's Affiliates to Guarantor for application against any or all
Guaranteed Obligations, at any time upon the occurrence of any Event of Default
and after the lapse of any applicable period of cure, all without further notice
to Guarantor (such notice being expressly waived) and without any necessity on
Bank's part to resort to other security or sources of reimbursement for the
Guaranteed Obligations. The rights given to Bank hereunder are cumulative with
Bank's other rights and remedies, including other rights of setoff. Bank will
promptly notify Guarantor of Bank's receipt of such funds for application
against the Guaranteed Obligations, but Bank's failure to do so will not affect
the validity or enforceability thereof. Bank may give notice of the above grants
of security interests and assignment of such deposits and other sums to any such
Affiliate of Bank. Bank has authorization to, and may make any suitable
arrangements with, any such Affiliate of Bank for effectuation thereof, and
Guarantor hereby irrevocably appoints Bank as its attorney to collect any and
all such deposits or other sums to the extent any such payment is not made to
Bank by such Affiliate.
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<PAGE> 4
3. PERFECTION OF BANK'S SECURITY INTEREST; DUTY OF CARE.
3.1 Required Guarantor Actions. Until the termination of this
Agreement, Guarantor shall perform any and all steps and take all actions
requested by Bank from time to time to perfect, maintain, protect, and enforce
Bank's security interest in the Collateral, including (i) executing and
delivering all appropriate documents and instruments as Bank may determine are
necessary or desirable to perfect, preserve, or enforce Bank's interest in the
Collateral, including financing statements, all in form and substance reasonably
satisfactory to Bank, (ii) delivering to Bank any warehouse receipts covering
that portion of the Collateral which, with Bank's consent, may be located in
warehouses and in respect of which warehouse receipts are issued, (iii)
transferring Inventory to warehouses approved by Bank (iv) placing notations on
Guarantor's books of account to disclose Bank's security interests therein, (v)
taking such other steps and actions as deemed necessary or desirable by Bank to
protect, perfect, and enforce Bank's Liens on, and interests in, the Inventory,
(vi) transferring to Bank all letters of credit on which Guarantor is named as a
beneficiary, and (vii) immediately delivering to Bank any instrument (whether
negotiable or non-negotiable) or any chattel paper that evidences any amount
payable under or in connection with any Collateral, which, in each instance, is
duly indorsed to Bank in a manner acceptable to it, to be held as Collateral
pursuant to this Agreement.
3.2 Financing Statements; Notices. Bank is authorized by Guarantor (i)
to file one or more financing statements disclosing Bank's security interests
under this Agreement without Guarantor's signature appearing thereon, and (ii)
to give notice to any creditor or landlord of Guarantor or to any other Person
who Bank may determine is necessary or desirable under applicable law to give
notice to perfect or preserve Bank's interests in the Collateral. Guarantor
shall pay the costs of, or incidental to, any recording or filing of any
financing statements and other notices in all public offices where filing is
deemed by Bank to be necessary or desirable to perfect, protect or enforce the
Liens granted to Bank under this Agreement. Guarantor agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
3.3 Bailees; Warehousemen. If any Inventory is in the possession or
control of any warehouseman or any of Guarantor's agents, processors, or other
bailees, Guarantor shall notify such warehousemen, agents, processors or other
bailees of Bank's security interests therein, and upon Bank's request, will
obtain a bailee letter agreement and financing statements acceptable to Bank
from such warehouseman, agent, processor or other bailee.
3.4 Impositions; Protection of Bank's Interests. To protect, perfect,
or enforce, from time to time, Bank's rights or interests in the Collateral,
Bank may, in its discretion (but without any obligation to do so), (i) discharge
any Liens at any time levied or placed on the Collateral, (ii) pay any
insurance, (iii) maintain guards where any Collateral is located if an Event of
Default has occurred and is continuing, and (iv) obtain any record from any
service bureau and pay such service bureau the cost thereof. All costs and
expenses incurred by Bank in exercising its discretion under
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<PAGE> 5
this Section 3.4 will be part of the Guaranteed Obligations, payable on Bank's
demand and secured by the Collateral.
3.5 Bank's Duty of Care. Bank shall have no duty of care with respect
to the Collateral except that Bank shall exercise reasonable care with respect
to the Collateral in Bank's custody. Bank shall be deemed to have exercised
reasonable care if (i) such property is accorded treatment substantially equal
to that which Bank accords its own property or (ii) Bank takes such action with
respect to the Collateral as Guarantor shall request in writing; however,
neither (a) Bank's failure to comply with any such request or to do any such act
requested by Guarantor nor (b) Bank's failure to take steps to preserve rights
against any Persons in such property shall be deemed a failure to exercise
reasonable care. Guarantor agrees that Bank has no obligation to take steps to
preserve rights against any prior parties.
3.6 Receivable Verification. At any time that there exists an Event of
Default, Bank, in its own name or in the name of others, may communicate with
Guarantor's account debtors to verify with them to Bank's satisfaction the
existence, amount and terms of any Receivables and the nature of such account
debtor's relationship with Guarantor.
3.7 Equipment. Guarantor will, on Bank's request, deliver to Bank any
and all evidences of ownership of the Equipment including any certificates of
title and applications for title pertaining to Guarantor's motor vehicles so
that Bank may cause its security interests to be noted on such certificates of
title.
3.8 Inspection. Bank shall have the right to review the books and
records of Guarantor concerning the Collateral and to copy the same and make
excerpts therefrom, and to inspect and have access to the Collateral at all
times during regular business hours.
4. POWER OF ATTORNEY.
4.1 Grant of Power. Guarantor does hereby make, constitute and appoint
Bank (or any officer or agent of Bank) as Guarantor's true and lawful
attorney-in-fact, with full power of substitution, in the name of Guarantor or
in the name of Bank or otherwise, for the use and benefit of Bank, but at the
cost and expense of Guarantor, (i) to indorse the name of Guarantor on any
notes, checks, drafts, money orders, or other instruments of payment (including
payments payable under any policy of insurance on the Collateral) or Collateral
that may come into the possession of Bank in full or part payment of any of the
Guaranteed Obligations; (ii) after an Event of Default has occurred and is
continuing, to sign and indorse the name of Guarantor on any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with Receivables
(exclusive of Bank's rights under Section 3.6 above), and any instrument or
document relating thereto or to Guarantor's rights therein; (iii) after an Event
of Default has occurred and is continuing, to give written notice to the United
States Post Office to effect change(s) of address so that all mail addressed to
Guarantor may be delivered directly to Bank; (iv) to sign and record financing
statements pursuant to the UCC and other notices appropriate under applicable
law as Bank deems necessary or desirable to perfect, preserve, and
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<PAGE> 6
protect Bank's rights under this Agreement; and (v) after an Event of Default
has occurred and is continuing, to obtain and cancel the insurance required by
Section 6.7 of this Agreement and indorse any drafts; (vi) to adjust and settle
the insurance required by Section 6.7 of this Agreement and indorse any drafts;
and (vii) to do any and all things necessary or desirable to perfect Bank's
security interest in the Collateral, to preserve and protect the Collateral and
to otherwise carry out this Agreement.
4.2 Duration; Ratification of Acts. This power of attorney, being
coupled with an interest, will be irrevocable for the term of this Agreement and
all transactions under this Agreement and thereafter so long as any of the
Guaranteed Obligations remain in existence. Guarantor ratifies and approves all
acts of such attorney, and neither Bank nor its attorney will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law, except
for willful misconduct. Guarantor will execute and deliver promptly to Bank all
instruments necessary or desirable, as determined in Bank's discretion, to
further Bank's exercise of the rights and powers granted it in this Section 4.
5. WARRANTIES AND REPRESENTATIONS. To induce Bank to make each Loan, Guarantor
represents to Bank that the following statements are, and will continue
throughout the term of this Agreement to be, true:
5.1 Places of Business; Registered Office. Guarantor's chief executive
office and principal place of business are set forth on Exhibit 5.1, and the
only other offices or locations where Guarantor keeps the Collateral (except for
Inventory in transit) or conducts any business are listed on Exhibit 5.1;
5.2 Prior Locations Of Collateral. None of the Inventory or Equipment
constituting part of the Collateral (except for Inventory in transit) has been
at, or has been removed from, any location during the five year period preceding
the date of this Agreement other than those locations set forth on Exhibit 5.1;
5.3 Names. All trade names, assumed names, fictitious names and other
names used by Guarantor are set forth on Exhibit 5.3, and, except as set forth
on Exhibit 5.3, Guarantor has not acquired any of its assets in any bulk
transfer; and
5.4 State of Title. Guarantor has good and indefeasible title to, and
ownership of, the Collateral, free and clear of all Liens.
5.5 Priority. Bank has a first priority security interest in, and Lien
on, the Collateral.
6. COLLATERAL COVENANTS. Until the Guaranteed Obligations are fully paid,
performed and satisfied and this Agreement is terminated, Guarantor will:
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<PAGE> 7
6.1 Claims Against Collateral. Maintain the Collateral, as the same is
constituted from time to time, free and clear of all Liens, and will defend or
cause to be defended the Collateral against all of the claims and demands of all
Persons whomsoever;
6.2 Notice of Change in Place of Business. Give Bank at least 30 days
advance notice in writing of any change in its (i) chief executive office,
registered office, principal place of business, or other places of business, or
the opening of any new places of business and (ii) names from those set forth on
Exhibit 5.3 or the adoption by Guarantor of trade names, assumed names or
fictitious names;
6.3 Notice of Governmental or Foreign Receivables. Notify Bank in
writing immediately upon the creation of any Receivables with respect to which
the account debtor is (i) the United States of America or any state, city,
county or other governmental authority or any department, agency or
instrumentality of any of them, or any foreign government or instrumentality
thereof or (ii) any business which is located in a foreign country;
6.4 Notice of Adverse Information. Immediately notify Bank in writing
of any information which it has or may receive with respect to the Collateral
which might in any manner materially and adversely affect the value thereof or
the rights of Bank with respect thereto;
6.5 Equipment. Maintain the Equipment in good operating condition and
repair, make all necessary replacements thereof so that the value and operating
efficiency thereof shall at all times be maintained and preserved. Guarantor
will not permit any of the Equipment to become a fixture to real property not
mortgaged to Bank or an accession to other personal property not constituting
part of the Collateral;
6.6 Inventory. Maintain the Inventory in good and salable condition and
will handle, maintain and store the Inventory in a safe and careful manner in
accordance with all applicable laws, rules, regulations, ordinances and
governmental orders;
6.7 Insurance. Insure the Collateral in accordance with the insurance
requirements applicable to Borrowers as provided in the Financing Agreement;
6.8 Removal of Collateral. Not remove its books and records concerning
the Collateral from the locations set forth in Exhibit 5.1 of this Agreement or
keep any of such books and records or the Collateral at any other office or
location without giving Bank at least 30 days prior notice of such action and
complying with the other terms of this Agreement; provided that such location is
in the continental United States; and
6.9 No Liens. Not create or permit to be created or to exist any Lien
on any of the Collateral.
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<PAGE> 8
7. TERM. Subject to Section 11.5 below, this Agreement will terminate on the
later to occur of (i) the full performance, payment and satisfaction of the
Guaranteed Obligations and (ii) the termination of the Financing Agreement.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Remedies. (i) On the occurrence of an Event of Default and
immediately on and after the lapse of any applicable period of cure, Bank may,
at any time, take any one or more of the following actions, without notice,
demand or legal process of any kind, all of which Guarantor waives to the
fullest extent permitted by law:
(a) proceed to enforce payment of the Guaranteed Obligations
and to exercise all of the rights and remedies afforded to Bank by the UCC and
by law and in equity provided;
(b) take possession of the Collateral and maintain such
possession on Guarantor's premises at no cost to Bank, or remove the Collateral,
or any part thereof, to such other place(s) as Bank may desire;
(c) enter on any premises on which the Collateral, or any part
or records thereof, may be situated and remove the same therefrom, for which
action Guarantor will not assert against Bank any claim for trespass, breach of
the peace or similar claim and Guarantor will not hinder Bank's efforts to
effect such removal;
(d) require Guarantor, at its cost, to assemble the Collateral
and make it available at a place designated by Bank;
(e) collect, compromise, sell or otherwise deal with the
Collateral or proceeds thereof in its own name or in the name of Guarantor and
bring suit on the Receivables, in the name of Guarantor or Bank, and exercise
all such other rights respecting the Receivables, including the right to
accelerate or extend the time of payment, settle, release in whole or in part
any amounts owing on any Receivables and issue credits in the name of Guarantor
or Bank;
(f) sell part or all of the Collateral at public or private
sale(s), for cash, upon credit or otherwise, at such prices and upon such terms
as Bank deems advisable, at Bank's discretion, and Bank may, if Bank deems it
reasonable, postpone or adjourn any sale of the Collateral from time to time by
an announcement at the time and place of sale or by announcement at the time and
place of such postponed or adjourned sale, without being required to give a new
notice of sale;
(g) to the extent Bank has not so acted or is currently so
acting pursuant to the other terms of this Agreement, notify Guarantor's account
debtors that the Receivables have been assigned to Bank and that payments should
be made directly to Bank;
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(h) require Guarantor, using such form as Bank may approve, to
notify such account debtors, and to indicate on all of Guarantor's billings to
such account debtors, that their Receivables must be paid to Bank directly;
(i) sign any indorsements, assignments or other instruments of
conveyance or transfer in connection with any disposition of the Collateral;
(j) sell, assign, transfer or otherwise dispose of all or any
part of the Collateral in any manner permitted by law and do any other thing and
exercise any other right or remedy which Bank may, with or without judicial
process, do or exercise under applicable law; and
(k) apply for and have a receiver appointed under state or
federal law by a court of competent jurisdiction in any action taken by Bank to
enforce its rights and remedies under this Agreement in order to manage,
protect, preserve, and sell and otherwise dispose of all or any portion of the
Collateral and continue the operation of the business of Guarantor, and to
collect all revenues and profits thereof and apply the same to the payment of
all expenses and other charges of such receivership, including the compensation
of the receiver, and to the payment of the Guaranteed Obligations until a sale
or other disposition of such Collateral is finally made and consummated.
(ii) Guarantor acknowledges that portions of the Collateral could be
difficult to preserve and dispose of and be further subject to complex
maintenance and management. Accordingly, Bank, in exercising its rights under
this Section 8.1, shall have the widest possible latitude to preserve and
protect the Collateral and Bank's security interest therein.
8.2 Notice of Disposition; Allocations. If any notice is required by
law to effectuate any sale or other disposition of the Collateral, (i) Bank will
give Guarantor written notice of the time and place of any public sale or of the
time after which any private sale or other intended disposition thereof will be
made, and at any such public or private sale, Bank may purchase all or any of
the Collateral; and (ii) Bank and Guarantor agree that such notice will not be
unreasonable as to time if given in compliance with this Agreement five days
prior to any sale or other disposition. The proceeds of the sale will be applied
first to all costs and expenses of such sale including attorneys' fees and other
costs and expenses, and second to the payment of all Guaranteed Obligations in
the manner and order determined by Bank in its discretion. Guarantor shall
remain liable to Bank for any deficiency. Unless otherwise directed by law, Bank
will return any excess to Guarantor.
8.3 Payment of Expenses. Guarantor shall pay to Bank, on its demand,
all costs and expenses, including court costs, attorneys' fees and costs of
sale, incurred by Bank in exercising any of its rights or remedies hereunder,
all of which constitute part of the Guaranteed Obligations and are secured by
the Collateral.
9. INDEMNIFICATION. In consideration of the execution and delivery of the
Financing Agreement and the making of any Loan to Borrowers, Guarantor will
indemnify and hold Bank, and Bank's directors, Affiliates, and agents (for the
purposes of this Section 9 each is an
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"Indemnified Party") harmless from and against any and all claims, losses,
obligations and liabilities arising out of or resulting from any or all of (i)
this Agreement and (ii) the transactions contemplated by this Agreement
(including enforcement of this Agreement), except for claims, losses or
liabilities resulting from an Indemnified Party's bad faith or willful
misconduct. The indemnification provided for in this Section 9 is in addition
to, and not in limitation of, any other indemnification or insurance provided by
Borrowers to Bank.
10. NOTICE. Any notice, certificate, request, notification and other
communication required, permitted or contemplated hereunder must be in writing
and given in accordance with Section 6.10 of the Guaranty.
11. GENERAL.
11.1 Severability. If any term of this Agreement is found invalid under
Ohio law or other laws of mandatory application by a court of competent
jurisdiction, the invalid term will be considered excluded from this Agreement
and will not invalidate the remaining terms of this Agreement.
11.2 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AT
AND SHALL BE DEEMED TO HAVE BEEN MADE AT CINCINNATI, OHIO. THIS AGREEMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF OHIO (WITHOUT REFERENCE TO OHIO CONFLICTS OF LAW PRINCIPLES).
11.3 WAIVER OF JURISDICTION. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, GUARANTOR
AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS
SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF BANK, ITS
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE COLLATERAL OR INITIATE
AND PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE
GUARANTEED OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND
THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. BANK AND GUARANTOR EACH
CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY
COURT SITUATED AT CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER,
AND CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO
GUARANTOR AND BANK AT THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION 6.10 OF
THE GUARANTY OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO.
GUARANTOR WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION
TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
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11.4 Survival and Continuation of Representations and Warranties. All
of Guarantor's representations and warranties contained in this Agreement shall
(i) survive the execution, delivery and acceptance hereof by the parties hereto
and the closing of the transactions described herein or related hereto, and (ii)
remain true until the Guaranteed Obligations are fully performed, paid and
satisfied, made by Guarantor with the same effect as though the representations
and warranties had been made again on, and as of, each day of the term of this
Agreement, subject to such changes as may not be prohibited hereby, do not
constitute Events of Default, and have been consented to by Bank in writing.
11.5 Application of Payments; Revival of Guaranteed Obligations. Bank
shall have the continuing right, but not the obligation, to apply or reverse and
reapply any payments to any portion of the Guaranteed Obligations. To the extent
Bank receives any payment or payments in respect of the Guaranteed Obligations
or proceeds of the Collateral, which payment(s) or proceeds or any part thereof
are subsequently voided, invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment(s) or proceeds received, the Guaranteed
Obligations or part thereof intended to be satisfied shall be revived and shall
continue in full force and effect, as if such payment(s) or proceeds had not
been received by Bank.
11.6 Equitable Relief. Guarantor recognizes that, in the event
Guarantor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to Bank; therefore, Guarantor agrees that Bank, if Bank so requests,
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
11.7 Entire Agreement. This Agreement and the Guaranty set forth the
entire agreement of the parties with respect to the subject matter hereof and
supersede all previous understandings, written or oral, in respect thereof.
11.8 Headings. Section headings in this Agreement are included for
convenience of reference only and shall not relate to the interpretation or
construction of this Agreement.
11.9 Cumulative Remedies. The remedies provided in this Agreement and
the Guaranty are cumulative and not exclusive of any remedies provided by law.
Exercise of one or more remedy(ies) by Bank does not require that all or any
other remedy(ies) be exercised and does not preclude later exercise of the same
remedy.
11.10 Waivers and Amendments in Writing. Failure by Bank to exercise
any right, remedy or option under this Agreement or delay by Bank in exercising
the same shall not operate as a waiver by Bank of its right to exercise any such
right, remedy or option. No waiver by Bank shall be effective unless it is in
writing and then only to the extent specifically stated. This Agreement cannot
be changed or terminated orally.
11
<PAGE> 12
11.11 Assignment. Bank shall have the right to assign this Agreement.
Guarantor may not assign, transfer or otherwise dispose of any of its rights or
obligations hereunder, by operation of law or otherwise, and any such
assignment, transfer or other disposition without Bank's written consent shall
be void. All of the rights, privileges, remedies and options given to Bank under
this Agreement shall inure to the benefit of Bank's successors and assigns, and
all the terms, conditions, covenants, provisions and warranties herein shall
inure to the benefit of and bind the permitted successors and assigns of
Guarantor and Bank, respectively.
11.12 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, GUARANTOR AND
BANK EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN BANK AND GUARANTOR.
IN WITNESS WHEREOF, this Agreement has been duly executed by Guarantor
as of May 31, 1996.
FM PRECISION GOLF CORP.
By: /s/ David E. Johnston
-----------------------------
Name: David E. Johnston
Its: Vice President
Accepted at Cincinnati, Ohio,
as of May 31, 1996.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ David L. Carey
------------------------------------
David L. Carey, Vice President
12
<PAGE> 1
EXHIBIT 10.4.6
--------------
MANUFACTURERS' REPRESENTATIVE AGREEMENT
---------------------------------------
THIS AGREEMENT, made this 1st day of MARCH 1979, by and between
UNION Tubular Products BRUNSWICK CORPORATION, A Delaware, U.S.A. corporation
(hereinafter referred to as "UNION"), and M. A. CLARK an individual (hereinafter
referred to as Representative").
WITNESSETH
WHEREAS, UNION is engaged in the manufacture, sale and/or distribution
of golf shafts (hereinafter referred to as "Products"); and
WHEREAS, Representative represents that he is capable of and desires to
act as UNION's Representative in the solicitation of order for Products.
NOW THEREFORE, in consideration of the premises and the mutual
obligations hereinafter set forth, the parties agree as follows:
1. UNION hereby appoints Representative as its sole Representative to
promote sales of and solicit orders for Products from Golf Club Assemblers,
Customer Club Makers, Repair Operations and Component Part Distributors in the
United Kingdom and Europe.
2. Representative's solicitation of orders for Products shall be in
accordance with the prices, terms and conditions of sale determined solely by
UNION, which prices, terms and conditions may be changed from time to time and
become effective upon receipt of changes by Representative. It is understood
that specifications and models of Products may be changed at any time without
notice and at the sole discretion of UNION and that UNION may add or delete
products from the definition of Products herein.
3. UNION shall, if it deems necessary, supply Representative with
reasonable quantities of catalogues, samples and/or other sales and promotional
material to aid Representative in the promotion and sale of Products. No charge
shall be made for such material.
<PAGE> 2
4. Representative shall use its best efforts to promote and maximize
the good will of UNION and the sale of Products. Such efforts shall include, but
not be limited to:
a. Distribution of sales literature to prospective customers
for Products.
b. Advertising Products and participating in industry shows.
c. Courteous treatment of UNION's customers and customer
problems.
5. UNION may, at its discretion, forward to Representative certain
sales leads and inquiries for Products.
6. All orders for Products obtained by Representative shall be
immediately forwarded to UNION. Such orders shall not be deemed accepted by
UNION unless and until the ordered Products are shipped by UNINO or until such
orders are accepted in writing by UNION. Acceptance or rejection of any order or
part thereof shall be at the sole discretion of UNION and Representative shall
so inform customers, as well as encourage them, to send their orders directly to
UNION.
7. Representative may use the designation of "Authorized Manufacturers'
Representative of UNION" but shall not use UNION's name, trademarks and/or
tradenames in its business title nor in any other way except in connection with
the promotion and sale of Products and then only in accordance with UNION's
instructions. Representative hereby recognizes UNION's ownership of its name,
trademarks and/or tradenames, registered or unregistered, and shall not at any
time register, attempt to register nor assert any right of ownership therein.
Representative, upon request of UNION, shall co-operate with UNION in the
registration, protection and/or enforcement of UNION's rights in such trademarks
and/or tradenames. UNION shall indemnify Representative for all legal and other
expenses incurred by Representative in respect thereof, provided that written
permission from UNION as to such expenditures is first obtained, in the event
that this agreement is terminated for any reason. Upon termination,
Representative shall immediately cease all use of UNION's name, trademarks and
other designations. The requirements herein shall apply not only to specific
names, marks and designations presently used by UNION, but any names, marks and
designations adopted by UNION during the terms of this Agreement and any
colorable imitations thereof.
8. Upon written request of UNION, Representative shall supply UNION
with any available financial information concerning any account solicited by
Representative under the terms of this agreement providing such information has
been obtained by Representative solely because of the existence of this
Agreement, and Representative will co-operate with UNION in the collection of
any of UNION's accounts. UNION shall indemnify Representative for all expenses
thereby incurred. It shall be the responsibility of the Representative to inform
UNION of any extraordinary expenses related to UNION's request for information
that the Representative
2.
<PAGE> 3
would expect payment for in addition to normal commissions paid in accordance
with paragraph 13 (a) prior to incurring an extraordinary expense.
9. Representative shall not represent nor promote the sale of any
products competitive with Products. It is hereby agreed that Representative's
business associations with the LAMKIN LEATHER and RUBBER COMPANY, U.S.A., AND
BIRCHWOOD MANUFACTURING COMPANY, U.S.A. do not constitute a breach of this
clause.
10. Representative is not the agent nor employee of UNION, and has no
authority to and shall not attempt to legally bind UNION in any manner.
11. All expenses incurred by Representative hereunder are the sole
obligation of Representative except as otherwise agreed in Clauses 7, 8 and 18
and reimbursement for such expenses and compensation for work by Representative
done hereunder are recognized as being fully compensated by the commissions to
be paid Representative hereunder.
12. UNION shall pay Representative commissions on its sales of Products
solicited by Representative based upon UNION's net invoice amount during the
effective term of this Agreement. Such commissions shall be due and payable by
UNION on or before the end of each calendar month for the prior month's
shipments. "Net invoice amount" as used herein shall mean the invoice amount for
Products shipped, less any freight, shipment charges, duties, tariffs,
packaging, and taxes included therein. Products returned to UNION and invoices
not paid to UNION shall be deducted from monthly sales to compute commissions
due. UNION shall submit a report to Representative of shipments made during the
month, along with the commission payment. Commissions shall be paid in U.S.
dollars.
13. UNION shall pay commissions to Representative in the following
manner and on the following sales:
a. A Commission of 5% on sales of Products to any account
in the United Kingdom and Europe with the one exception of Ben Sayers, North
Berwick, Scotland, for which the commission paid will be 2% on shipments through
Dec. 31, 1979. Commencing Jan. 1, 1980, commissions on shipments to Ben Sayers
shall be 5%.
14. This Agreement shall become effective as of March 1, 1979 and may
be terminated by either party hereto, with or without cause, at any time upon
ninety days prior written notice to the other party. Such notice shall be deemed
made as of the date deposited in the mail (return receipt requested) and
properly addressed to the other party as follows:
3.
<PAGE> 4
UNION: Brunswick Corporation
Attn: Manager, UNION Tubular Products
P.O. Box 298
Torrington, CT 06790
Representative: M. A. Clark
2 Dinorben Close
Fleet
Aldershot
Hampshire, England
or such other address of which either party hereto has notified the other party
in writing.
a. In the event of termination by UNION, other than
termination under Clause 17 hereof, the commissions due under 13 (a) shall
continue to be paid on sales of Products to such accounts shipped by UNION
within one year of the date of termination. In addition, commissions due under
13 (a) shall continue to be paid at one half the commission rate set forth in 13
(a) for the second year following termination at which time such commissions
shall cease.
15. Termination of this Agreement in accordance with Paragraph 14
hereof shall be deemed a complete and total release by each party hereto of the
other party of all claims, actions and demands of any nature whatsoever which
either had or may have had, known or unknown, through the effective date of
termination except for commissions due or to become due Representative as herein
provided.
16. This contract shall be governed by the law of Connecticut.
17. Representative, its agents and employees, if any, shall fulfill its
obligations hereunder in accordance with the highest ethical business standards
and shall not in any manner, directly or indirectly, participate in any bribes,
fraudulent practices or secret payments to any governmental employee or
customer, nor engage in the purchase of influence or practice of kickbacks. Any
violation of this provision will render this Agreement void Ab initio.
18. UNION shall further indemnify Representative for any expenses
arising from any claims or demands whatsoever made on the Representative arising
from defects in Products and Products' labelling and packaging, in his capacity
as Manufacturers' Representative of UNION. It shall be the responsibility of the
Representative to immediately notify UNION of any such
4.
<PAGE> 5
claim and to refrain from negotiating a settlement of the claim except as
instructed by UNION in writing.
19. All expenses and indemnities not related to sales commissions will
be paid in pounds sterling within three months of notification by Representative
to UNION.
20. This Agreement constitutes the entire agreement between the parties
hereto relating to Products and supersedes all prior agreements, written or
oral, relating to Products. No modifications, changes or additions to the
provisions of this Agreement shall be binding upon either party unless
specifically provided for herein or reduced to writing and executed by
Authorized officials of both parties.
21. This Agreement shall not be assigned by Representative without
the prior written consent of UNION.
22. In the case of dispute or difference arising between Representative
and UNION as to any matter or thing arising out of or relating to this Contract
which is not settled by agreement between the said Parties, the same shall be
arbitrated by an independent, mutually acceptable, arbitration body. In the
event of the Parties not agreeing on a mutually acceptable body, the selection
of an Arbitrator shall be referred to the Director of the Institute of
Arbitrators, No. 16 Park Crescent, London, W.1., who shall appoint an Arbitrator
and both UNION and Representative shall be bound by the decision of the
appointed Arbitrator. UNION and Representative further agree that the expense
incurred in having an Arbitrator appointed, and the costs of the appointed
Arbitrator, will be borne equally between both Parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
UNION Tubular Products
BRUNSWICK CORPORATION
Representative: By: /s/ Joseph A. Donatillo
-----------------------------
Title Oper. Mgr.
/s/ M. S. Clark
- ---------------------------
M.S. Clark
5.
<PAGE> 1
EXHIBIT 10.4.7
--------------
DISTRIBUTOR AGREEMENT
---------------------
Effective August 20, 1990, the Brunswick Golf group of the Brunswick
Division, Brunswick Corporation, having a place of business at 535 Migeon
Avenue, Torrington, Connecticut 06790 U.S.A. (hereafter referred to as
"BRUNSWICK") and Infinity Golf having a place of business at P.O. Box 190, New
Westminster, British Columbia, V3L 4Y4, Canada (hereafter referred to as
"INFINITY GOLF") agree as follows:
ARTICLE 1. BACKGROUND
- ---------------------
BRUNSWICK is in the business of designing and manufacturing golf club
shafts. INFINITY GOLF desires to act as a distributor of certain of such shafts
in Canada.
ARTICLE 2. DEFINITIONS
- ----------------------
As used in this Agreement, the following terms, set forth in upper case
letters, shall have the meanings stated below, opposite each term:
2.1 PRECISION FM PRODUCTS -- BRUNSWICK's golf club shafts identified in
Appendix 1-A as available for purchase and sale by INFINITY golf under this
Agreement.
2.2 BRUNSWICK GOLF PRODUCTS -- BRUNSWICK's golf club shafts identified
in Appendix 1-B as available for purchase and sale by INFINITY GOLF under this
Agreement.
2.3 TERRITORY -- the geographical area described in Appendix 1-C.
2.4 BRUNSWICK GOLF PRODUCTS HOUSE ACCOUNTS -- Customers within the
TERRITORY directly served by BRUNSWICK and specifically identified in Appendix
1-D.
ARTICLE 3. AUTHORIZATION
- ------------------------
3.1 BRUNSWICK appoints INFINITY GOLF as its sole agent for the import
and sale of PRECISION FM PRODUCTS within the TERRITORY.
<PAGE> 2
3.2 BRUNSWICK appoints INFINITY GOLF as its non-exclusive agent for the
import and sale of BRUNSWICK GOLF PRODUCTS to the HOUSE ACCOUNTS.
3.3 Orders for PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS by
INFINITY GOLF shall be in accord with prices and terms established by BRUNSWICK.
Acceptance of any order shall be at the discretion of BRUNSWICK.
3.4 BRUNSWICK shall have the right to make modifications in PRECISION
FM PRODUCTS and BRUNSWICK GOLF PRODUCTS, and sales terms for PRECISION FM
PRODUCTS and BRUNSWICK GOLF PRODUCTS, upon thirty (30) days written notice to
INFINITY GOLF.
3.5 BRUNSWICK shall have the right to make modifications in TERRITORY
and HOUSE ACCOUNTS, upon one hundred twenty (120) days written notice to
INFINITY GOLF or upon written consent of INFINITY GOLF.
ARTICLE 4. ORDERS, PAYMENTS
- ---------------------------
4.1 For orders shipped to INFINITY GOLF for its stocking requirements
to meet the needs of its customers in the TERRITORY, INFINITY GOLF shall
purchase PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS at the prices in
effect and accepted by BRUNSWICK pursuant to Article 3.3.
4.2 All payments made to BRUNSWICK shall be in United States Dollars.
Past-due payments (i.e., payments made more than forty-five [45] days after the
date of invoice) shall accrue interest at the prevailing prime rate of CITIBANK,
N.A., New York, plus five percent (5%), based on the rate in effect on the last
banking day prior to the date of accrual. Interest from the date of accrual
shall also be considered a past-due payment.
ARTICLE 5. SALES OBLIGATIONS -- INFINITY GOLF
- ---------------------------------------------
INFINITY GOLF shall use its best efforts to promote the sale of
PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS, such as:
-2-
<PAGE> 3
5.1 DILIGENT PROMOTION OF SALES -- execute a systematic program of
TERRITORY coverage and diligently pursue sales leads and orders.
5.2 SUPPLY OF INFORMATION -- provide BRUNSWICK with all useful
information relating to competitive products in the TERRITORY, product
requirements of customers, and potential applications of PRECISION FM PRODUCTS
and BRUNSWICK GOLF PRODUCTS.
5.3 SALES FORECAST -- provide BRUNSWICK with an annual sales forecast
for each PRECISION FM PRODUCT and BRUNSWICK GOLF PRODUCT.
5.4 CUSTOMER ASSISTANCE -- ensure that the customer is instructed in
the proper use of the PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS and
provide additional assistance to aid customer in the maintenance of the
PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS purchased.
5.5 MAINTENANCE OF UP-TO-DATE KNOWLEDGE OF PRECISION FM PRODUCTS AND
BRUNSWICK GOLF PRODUCTS -- attend sales meetings, read PRECISION FM PRODUCT and
BRUNSWICK GOLF PRODUCT information provided by BRUNSWICK.
5.6 MAINTENANCE OF SALES FORCE -- maintain a properly trained and
experienced sales force and facilities adequate to service customer needs.
ARTICLE 6. SALES OBLIGATIONS -- BRUNSWICK
- -----------------------------------------
6.1 BRUNSWICK shall, without charge, provide INFINITY GOLF catalogs,
promotional materials, and samples deemed to be appropriate by BRUNSWICK.
6.2 BRUNSWICK will make reasonable efforts to promptly deliver all
orders submitted by INFINITY GOLF, provided that BRUNSWICK shall not be liable
for any failure or delay in delivery.
-3-
<PAGE> 4
ARTICLE 7. WARRANTY OBLIGATIONS, HOLD HARMLESS
- ----------------------------------------------
7.1 A printed warranty is issued to the original purchaser of PRECISION
FM PRODUCTS and BRUNSWICK GOLF PRODUCTS. With respect to PRECISION FM PRODUCTS
and BRUNSWICK GOLF PRODUCTS purchased by and thereafter sold by INFINITY GOLF,
such warranty shall extend to INFINITY GOLF's original purchaser. No warranties,
other than such printed warranty, shall extend to PRECISION FM PRODUCTS and
BRUNSWICK GOLF PRODUCTS.
7.2 BRUNSWICK shall hold INFINITY GOLF harmless from all losses and
claims arising out of inherent defects in PRECISION FM PRODUCTS and BRUNSWICK
GOLF PRODUCTS existing at the time such PRECISION FM PRODUCTS and/or BRUNSWICK
GOLF PRODUCTS are shipped by BRUNSWICK, provided that INFINITY GOLF gives
BRUNSWICK immediate notice of any such claim and cooperates to all reasonable
extent with BRUNSWICK in the defense and settlement thereof. INFINITY GOLF shall
hold BRUNSWICK harmless from all claims arising out of INFINITY GOLF's or its
customers' modification of PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS or
other abnormal uses or uses not in accord with BRUNSWICK's recommendations.
ARTICLE 8. PROTECTION OF BRUNSWICK's TRADEMARKS AND PROPRIETARY INFORMATION
- ---------------------------------------------------------------------------
8.1 INFINITY GOLF shall not use BRUNSWICK's or its parent's trade names
or trademarks in its business title and shall not otherwise use such tradenames
or trademarks except in connection with the promotion and sale of PRECISION FM
PRODUCTS and BRUNSWICK GOLF PRODUCTS and then only in accord with BRUNSWICK's
prior written approval. Upon termination of this Agreement, INFINITY GOLF shall
cease all use of such tradenames and trademarks.
ARTICLE 9. TERM
- ---------------
9.1 Either party may terminate this Agreement by giving written notice
to the other party, not less than one hundred twenty (120) days prior to the
date such termination is to become effective.
-4-
<PAGE> 5
9.2 Either party shall have the right to terminate this Agreement, upon
a material breach by the other party. The aggrieved party shall initially notify
the other in writing, describing with particularity the nature of the breach as
it applies to the provisions of this Agreement. If the other party has not cured
the breach within thirty (30) days of such initial notice, the aggrieved party
may terminate the Agreement, effective seven (7) days from the dispatch thereof.
9.3 Either party may terminate this Agreement upon written notice to
the other in the event the other becomes insolvent, files a petition in
bankruptcy or in insolvency, or if such a petition is filed against it by its
creditors and is not removed within three (3) months.
9.4 Upon termination, rights granted to INFINITY GOLF shall terminate,
provided that such termination shall not affect any rights and/or obligations
which from the context thereof are intended to survive, such as INFINITY GOLF's
rights and/or obligations under Articles 4.2, 7.1, 7.2, 8, 9.7, 10.3 and 10.6.
9.5 Expiration or termination shall not: (a) preclude INFINITY GOLF
from selling PRECISION FM PRODUCTS and/or BRUNSWICK GOLF PRODUCTS already in its
possession, to third parties; or (b) obligate BRUNSWICK to repurchase any such
PRECISION FM PRODUCTS and/or BRUNSWICK GOLF PRODUCTS from INFINITY GOLF.
9.6 Upon termination, neither party shall be liable to the other for
any losses of prospective profits or earnings, or any other loss or other
compensation arising as a result of such termination.
9.7 Upon termination, INFINITY GOLF shall provide BRUNSWICK with a
listing of all customer orders outstanding for delivery within a period of not
more than one hundred and eighty (180) days from the date of notice of
termination and a listing of PRECISION FM PRODUCTS and BRUNSWICK GOLF PRODUCTS
on hand in inventory. BRUNSWICK shall proceed with due diligence to deliver to
INFINITY GOLF any and all PRECISION FM
-5-
<PAGE> 6
PRODUCTS and BRUNSWICK GOLF PRODUCTS contained in the said orders required by
INFINITY GOLF to meet the ship dates specified and shall not, whether for its
own account or jointly with others, alter any of the said orders or ship dates
without the mutual consent of INFINITY GOLF and the customer.
ARTICLE 10. MISCELLANEOUS PROVISIONS
- -------------------------------------
10.a ASSIGNMENT -- This Agreement shall be binding upon and inure to
the benefit of the successors of the respective parties hereto, provided that
this Agreement shall not be assigned by INFINITY GOLF without the consent of
BRUNSWICK.
10.2 ENTIRE AGREEMENT -- This Agreement sets forth the entire agreement
between the parties and supercedes all prior discussions between them as to the
subject matter hereof.
10.3 ARBITRATION AND GOVERNING LAW -- In the event the parties are
unable to settle a dispute arising out of or in relation to this Agreement, such
dispute shall be settled under the rules of Conciliation & Arbitration of the
International Chamber of Commerce by three impartial arbitrators appointed in
accord therewith. Such arbitration shall be conducted in Toronto, Canada, and
the interpretation of this Agreement shall be governed by the laws of the State
of Illinois, U.S.A. The arbitration award shall be final, and judgement thereon
may be intered in any court having jurisdiction thereof.
10.4 NEGATION OF WAIVER -- Any failure of BRUNSWICK to enforce any of
the terms of this Agreement shall not constitute a waiver of BRUNSWICK's right
to strictly enforce such provisions in the future.
10.5 NEGATION OF AGENCY -- Nothing contained herein shall be construed
that either party is a partner or agent of the other, and neither party shall in
any way pledge the other's credit. INFINITY GOLF is not authorized to otherwise
bind BRUNSWICK to any agreement or to make collections without BRUNSWICK's
specific authorization.
-6-
<PAGE> 7
10.6 NON-COMPETITION -- During the term of this Agreement and for one
(1) year thereafter, INFINITY GOLF shall not, whether as principal or agent, or
whether for INFINITY GOLF's own account or jointly with others, solicit orders
or sell any products in the TERRITORY as Frequency Matched products other than
PRECISION FM PRODUCTS.
10.7 FORCE MAJEURE -- Failure in performance of any obligation assumed
hereunder by either party shall not be deemed a breach of this Agreement, if
such failure arises from a cause beyond the control of such party. The party
failing to perform as a result of such "Force Majeure" shall (i) promptly inform
the other as to such cause(s) and (ii) make a good faith attempt (taking into
account cost to party failing to perform) either to remove such cause(s) or to
utilize reasonable alternatives to effect equivalent performance.
ARTICLE II. NOTICE
- ------------------
All notices and reports required to be given hereunder shall be deemed
to have been properly given as of the date of the dispatch thereof, if sent by
registered airmail, addressed if sent to BRUNSWICK as follows:
Brunswick Golf
535 Migeon Avenue
Torrington, Connecticut 06790
U.S.A.
Attention: Director, Marketing
or if sent to INFINITY GOLF as follows:
Infinity Golf
P. O. Box 190
West Westminster, British Columbia V3L 4Y4
Canada
or to such other address of which either party has notified the other in
writing.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and to be effective as of the day and year first above written.
BRUNSWICK CORPORATION
BRUNSWICK DIVISION
By: /s/ Thomas C. Moritz
---------------------------
Title: Director of Marketing
INFINITY GOLF
By: /s/ Jill Brown
---------------------------
Title: President
By:
---------------------------
Title:
------------------------
-8-
<PAGE> 9
APPENDIX - I
------------
A. PRECISION FM PRODUCTS - Shafts which have been frequency matched using a
frequency analyzer, including those identified
as PRECISION FM, PRECISION FW, PRECISION MW, and
PRECISION FIBREMATCH.
B. BRUNSWICK GOLF PRODUCTS - All BRUNSWICK shafts other than PRECISION FM
PRODUCTS.
C. TERRITORY - All the provinces of Canada.
D. HOUSE ACCOUNTS - Sportsline International, Ltd.
Charles W. Stager Associates
Torkos Brothers
Cosmo Golf
-9-
<PAGE> 1
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The following are wholly owned subsidiaries of the Registrant:
FM Precision Golf Manufacturing Corp., a Delaware corporation
FM Precision Golf Sales Corp., a Delaware corporation
FMPSub, Inc., a Nevada corporation
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountant
----------------------------------------
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this Proxy
Statement/Prospectus.
Arthur Andersen LLP
Hartford, Connecticut
June 9, 1997
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 14, 1997, except as to Notes 10 and 15, as to
which the date is April 11, 1997, included in the Proxy Statement/Prospectus of
Royal Grip, Inc.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 6, 1997
<PAGE> 1
EXHIBIT 23.6
Consent
I hereby consent to be named in the Registration Statement on Form S-4 of FM
Precision Golf Corp. (the "Registrant") as a person who will be a director of
the Registrant.
/s/ Danny Edwards
June 9,1997
<PAGE> 1
EXHIBIT 23.7
Consent
I hereby consent to be named in the Registration Statement on Form S-4 of FM
Precision Golf Corp. (the "Registrant") as a person who will be a director of
the Registrant.
/s/ Robert G.J. Burg, II
June 9,1997
<PAGE> 1
EXHIBIT 23.8
Consent
I hereby consent to be named in the Registration Statement on Form S-4 of FM
Precision Golf Corp. (the "Registrant") as a person who will be a director of
the Registrant.
/s/ James G. DeMello
June 9,1997
<PAGE> 1
EXHIBIT 24.1
------------
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 5th day of June,
1997.
/s/ Christopher A. Johnston
-----------------------------
Christopher A. Johnston
<PAGE> 2
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 5th day of June,
1997.
/s/ Richard P. Johnston
------------------------------
Richard P. Johnston
<PAGE> 3
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 29th day of May,
1997.
/s/ David E. Johnston
------------------------------
David E. Johnston
<PAGE> 4
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 5th day of June,
1997.
/s/ Raymond J. Minella
-------------------------------
Raymond J. Minella
<PAGE> 5
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 5th day of June,
1997.
/s/ Kenneth J. Warren
----------------------------
Kenneth J. Warren
<PAGE> 6
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
FM PRECISION GOLF CORP.
The undersigned who is a director or officer of FM Precision Golf Corp., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and David E. Johnston
to be his agents and attorneys-in-fact;
Each with the power to act fully hereunder without the other and with full power
of substitution to act in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission one or more
Registration Statements on Form S-4 or other appropriate form under the
Securities Act of 1933 and any amendments or supplements (including
post-effective amendments) to such Registration Statements; and
To execute and deliver any instruments, certificates or other documents which
they shall deem necessary or proper in connection with the filing of such
Registration Statements, and generally to act for and in the name of the
undersigned with respect to such filings as fully as could the undersigned
if then personally present and acting.
Each agent named above is hereby empowered to determine in his discretion the
times when, the purposes for, and the names in which, any power conferred
upon him herein shall be exercised and the terms and conditions of any
instrument, certificate or document which may be executed by him pursuant
to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of this Power of Attorney shall be governed
by those laws of the State of Delaware that apply to instruments
negotiated, executed, delivered and performed solely within the State of
Delaware.
This Power of Attorney may be executed in any number of counterparts, each of
which shall have the same effect as if it were the original instrument and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 19th day of May,
1997.
/s/ Ronald L. Chalmers
----------------------------
Ronald L. Chalmers
<PAGE> 1
EXHIBIT 24.2
------------
SECRETARY'S CERTIFICATE
I, Kenneth J. Warren, certify that I am the duly elected, qualified and
acting Secretary of FM Precision Golf Corp., a Delaware corporation (the
"Corporation"), that I am authorized and empowered to execute this Certificate
on behalf of the Corporation with respect to a Form S-4 Registration Statement
of the Corporation and further certify that the following is a true, complete
and correct copy of a resolution adopted by the Board of Directors of the
Corporation on April 17, 1996 which resolution has not been amended, modified or
rescinded:
RESOLVED, that each officer or director who may be required to
execute the Registration Statement (whether on behalf of the Company or
as an officer or director thereof or by attesting the seal of the
Company or otherwise) be, and each of them hereby is, authorized to
execute a Power of Attorney appointing Christopher A. Johnston and
David E. Johnston, as his true and lawful attorney and agent to execute
in his name, place and stead (in any capacity) the Registration
Statement and all amendments thereto, and all other documents and
instruments necessary or in connection therewith, to attest the seal of
the Company thereof, and to file the same with the SEC, which attorneys
and agents shall have the full power and authority to do and perform in
the name of and on behalf of each of said officers and directors, or
both, as the case may be, every act whatsoever necessary or advisable
to be done in the premises as fully and to all intents and purposes as
such officer or director might or could do in person; and further
IN WITNESS WHEREOF, I have hereunto set may hand this 6th day of June,
1997.
/s/ Kenneth J. Warren
-----------------------------
Kenneth J. Warren, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001016395
<NAME> FM PRECISION GOLF CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-30-1996
<PERIOD-START> MAY-31-1996
<PERIOD-END> FEB-28-1997
<CASH> 67,061
<SECURITIES> 0
<RECEIVABLES> 3,000,690
<ALLOWANCES> 81,000
<INVENTORY> 3,370,189
<CURRENT-ASSETS> 6,811,252
<PP&E> 2,977,698
<DEPRECIATION> 163,000
<TOTAL-ASSETS> 9,625,950
<CURRENT-LIABILITIES> 5,256,458
<BONDS> 0
0
0
<COMMON> 4,177
<OTHER-SE> 1,738,405
<TOTAL-LIABILITY-AND-EQUITY> 9,625,950
<SALES> 15,690,215
<TOTAL-REVENUES> 15,690,215
<CGS> 11,151,442
<TOTAL-COSTS> 14,049,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34,000
<INTEREST-EXPENSE> 345,320
<INCOME-PRETAX> 1,295,558
<INCOME-TAX> 552,976
<INCOME-CONTINUING> 742,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 742,582
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
