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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended: May 31, 1998
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from _________ to __________
Commission file number: 0-22889
ROYAL PRECISION, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 06-1453896
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
15170 North Hayden Road, Suite 1, Scottsdale, AZ 85260
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(Address of Principal Executive Offices) (Zip Code)
(602) 627-0200
Issuer's Telephone Number, Including Area Code:
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was $27,621,000
The aggregate market value of shares of Common Stock held by
non-affiliates of the Registrant on July 31, 1998 was $6,652,753.
The number of shares of Common Stock outstanding on August 15, 1998 was
5,601,697.
The following documents have been incorporated by reference into this
Form 10-KSB:
Document Part of Form 10-KSB
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Registrant's Proxy Statement for its Part III
1998 Annual Meeting of Stockholders
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-KSB or any other written or
oral statements made by or on behalf of the Company may include forward looking
statements which reflect the current views of the Company with respect to future
events and financial performance. These forward-looking statements are subject
to certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
include, but are not limited to, uncertainties relating to economic conditions,
customer plans and commitments, the cost of raw materials, the competitive
environment in which the Company operates, year 2000 noncompliance and changes
in the financial markets relating to the Company's capital structure and cost of
capital. Statements in this Form 10-KSB, including the Notes to the Consolidated
Financial Statements and "Management's Discussion and Analysis or Plan of
Operation", describe factors among others, that could contribute to or cause
such differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward looking statements are detailed
below. The words "believe," "expect," "anticipate," "project," and similar
expressions identify forward looking statements, which speak only as of the date
the statement was made. The Company undertakes no obligation to publicly update
or revise any forward looking statements, whether as a result of new
information, future events, or otherwise.
ITEM 1. DESCRIPTION OF BUSINESS.
Royal Precision, Inc. (formerly FM Precision Golf Corp.) (the
"Company") and its subsidiaries, FM Precision Golf Manufacturing Corp. ("FMP")
and FM Precision Golf Sales Corp., were incorporated on May 3, 1996 by a group
of investors who acquired, through such companies, substantially all of the
assets of the golf shaft manufacturing business of Brunswick Corporation. In
1997, the Company acquired, through a merger, Royal Grip, Inc. ("RG"), a Nevada
corporation incorporated on July 16, 1993, and its subsidiary, Roxxi, Inc.
("Roxxi"), and the Company simultaneously changed its name from FM Precision
Golf Corp. to Royal Precision, Inc. See Note 1 of Notes to Consolidated
Financial Statements relating to the merger.
Principal Products; Markets
FMP produces steel and graphite golf shafts for golfers of all ability
levels. FMP developed the "Rifle," the first modern stepless steel golf shaft in
the industry. Management believes that this shaft combines the accuracy of steel
with the feel and vibration-damping effect of graphite. 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 the Company's golf club shafts is
enhanced by a process known as Frequency Coefficient Matching. Frequency
Coefficient Matching 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. The Company also sells the Frequency Coefficient Matching
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Analyzer and the Frequency Calculator. The Frequency Coefficient Matching
Analyzer is an electronic instrument manufactured for the Company by Micron
Machine Tools, Inc. The Frequency Calculator is a printed product utilizing
numerical information.
FMP's shafts are sold worldwide to manufacturers of golf clubs and
component retailers through FMP's 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 original
equipment manufacturers ("OEMs") 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 FMP's sales in fiscal 1998, with the remainder to distributors,
custom club assemblers, pro shops, and repair shops.
Of FMP's top 25 accounts, three are international. Precision Japan, a
distributor for over 15 years, is FMP's third largest account. Lamkin
International, from the U.K., is the fifteenth 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 an FMP distributor for ten years and is the
eighteenth largest account.
RG designs and distributes golf club grips. 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 durability. 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 these grips on
their newly manufactured golf clubs.
Many golf grip manufacturers sell their products to wholesale
distributors who in turn sell to dealers and other representatives. In the
United States, RG uses a single-tier distribution strategy in which its
independent sales representatives deal directly with thousands of golf club
professionals and off-course specialty store operators. They introduce RG's
products, explain their characteristics and performance advantages, and obtain
feedback with respect to market acceptance of RG's and competitors' products.
Although RG's independent sales representatives are permitted to sell other golf
products, they do not sell competing golf club grips. RG distributes a
substantial portion of its grips in Japan through Precision Japan.
In April 1994, RG acquired Roxxi, an Oklahoma-based manufacturer and
distributor of high-quality athletic headwear. Roxxi's products are sold through
the Company's golf-related sales force as well as Roxxi's own distribution
channels. While the Company markets its golf-related headwear primarily through
its grip sales representatives, other sales representatives market its other
headwear products to schools, sporting goods stores, college bookstores and team
outfitters. The market for athletic headwear is characterized by a broad range
of customers and a variety of market niches, 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
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their coaches to produce caps bearing the school logo, team outfitters, resorts
and country clubs; and businesses, which provide custom designed caps to
employees or customers to promote their organizations.
Competition
The sporting goods industry is highly competitive. FMP competes
primarily on the basis of quality, product specifications and design, quick
response and customer relationships. FMP competes primarily with two national
and international companies which manufacture and distribute steel golf shafts
to end users. There are numerous companies competing in various segments of the
golf equipment markets. Some 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
the Company. FMP is the second largest producer of steel golf shafts, after True
Temper Sports. 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. Management believes that their market share is
approximately 22% and 4%, respectively.
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 the Company. In addition, several OEMs that
do not currently manufacture premium quality grips could, in light of their
substantial resources, enter into this market segment.
The headwear market is large and also extremely competitive. The
principal competitors in the athletic headwear market include Texace and
Imperial in the golf cap segment and 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 the Company.
Principal Suppliers and Customers
FMP uses Worthington Industries as its sole supplier for strip steel
but has no supply contract with Worthington Steel. Should Worthington Industries
fail to deliver steel, there may be a disruption of operations at FMP until an
alternate supplier is procured. Worthington Industries provides steel from two
separate plant locations. If one Worthington Industries plant becomes unable to
fill the necessary requirements, orders could be filled from the alternate
location. Although FMP has elected to use Worthington Industries as its sole
supplier of strip steel, management believes that there are other acceptable
supply sources at comparable prices and that the loss of Worthington Industries
as a supplier would not have a material adverse effect on the Company.
RG and Precision Japan have entered into a ten-year agreement expiring
in 2001 under which Precision Japan was granted exclusive distribution rights
for RG products in Japan and certain other Far Eastern countries. Precision
Japan may renew this agreement for successive
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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 prior notice to RG. While RG currently enjoys a strong relationship
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.
In December 1996, RG outsourced all of its production of non-cord grips
to Acushnet. Acushnet experienced start-up delays and quality control problems
in the production of grips, which adversely affected RG (see Note 5 of Notes to
Consolidated Financial Statements). However, quality is now significantly better
and the timing of deliveries is good.
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 the
Company's business and operating results. Future revenue may be affected in part
by factors which influence the business of the Company's major customers who are
OEMs, such as the OEMs' product development, advertising and marketing,
purchasing patterns and inventory levels.
FMP is significantly dependent on sales to Taylor Made and Precision
Japan. These two customers represented in the aggregate approximately 25.5% of
FMP's sales for the year ended May 31, 1998. FMP does not have a supply
agreement with Taylor Made. The loss of sales to either of these companies
could have a material adverse effect on FMP's business.
RG supplies grips to OEMs such as Odyssey, Titleist, Slazenger, and
Mizuno. RG is not dependent on sales to any one OEM.
Patents, Trademarks
Patents held by the Company on frequency matching and the manufacture
of shafts and clubs have expired. While there can be no assurance that
competitors will not use the technology of the expired patents in the future,
the Company's competitors, True Temper and Apollo, have not adopted, nor does
management believe that they have plans to copy, the expired patents. The
Company has obtained a trademark on its Rifle product and has filed for a
utility patent. 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. These patents expire on May 9,
2006 and October 19, 2008, respectively.
The Company relies upon trademarks to establish and protect RG's
proprietary rights in its products and technologies. Its logo and the name
"Royal Grip" have been registered as trademarks in the United States, Japan, and
in other foreign countries. In addition, the Company has filed trademark
applications relating to the names and configurations of several of its products
in the United States and in foreign countries, including Japan. The Company has
also obtained design patents on some of its grips and applied for others that
are pending. The Company protects its proprietary rubber compound and related
technologies as trade secrets.
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Despite such safeguards, 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 the Company's proprietary rights.
In its headwear business, the Company 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.
Regulations
The design of new golf clubs is 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 the
Company believes that all of its 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.
Research and Development
The Company has two full-time employees and utilizes one consultant in
research and development. During the fiscal years ended May 31, 1997 and 1998,
the Company spent approximately $157,000 and $120,000 respectively, on research
and development. In addition, sales and other personnel of RG work to conceive
new product opportunities by creating prototypes and masters and by working with
suppliers and customers to design and produce finished products. New grip
products are tested through the Company's PGA Tour representatives and sales
force. Headwear products are tested to ensure that they conform with Company and
customer specifications relating to size and fit.
Environmental
During fiscal 1998, the Company expended $129,000 on the treatment,
storage and disposal of hazardous waste which included a $72,000 expenditure for
the removal of accumulated sludge from an outdoor holding basin at FMP's
Torrington, Connecticut manufacturing facility. Regulatory fees for various
environmental permits and costs were $50,000. The Company estimates that it will
spend an estimated $400,000 in capital expense for upgrading the wastewater
treatment facilities due to EPA mandates on water quality adopted by the State
of Connecticut.
Employees
As of June 30, 1998, the Company employed 389 persons, three of whom
are part-time employees. FMP's hourly employees are subject to a collective
bargaining agreement, which expires on November 14, 1999. The Company believes
its relationship with its employees is satisfactory.
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Risk Factors
Limited History.
The Company's golf club shaft manufacturing facility in Torrington,
Connecticut dates back over a century and the facility's manufacture of shafts
dates back to the 1920's. 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 the Company. At the end of August
1997, the Company acquired "RG". Consequently, the Company has a limited
operating history. There can be no assurance that the results of such a limited
history or of the predecessor operations will be indicative of future
performance. Also, while the Company's management has extensive experience in
the sporting goods and golf equipment industry, there can be no assurance that
their experience will assist in the successful management of the Company in its
current structure or the combined operations resulting from the acquisition of
RG.
Dependence on Discretionary Consumer Spending and OEMs.
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 the
Company's business and operating results. Future revenue may be affected in part
by factors which influence the business of the Company's major customers who are
OEMs, such as the OEMs' product development, advertising and marketing,
purchasing patterns and inventory levels.
New Product Introduction.
The Company believes that the introduction of new, innovative golf
shafts and grips will be crucial to its future success. New models and basic
design changes are frequently introduced into the golf club market but are often
met with consumer rejection. Although the Company has achieved certain successes
in the introduction of products, no assurances can be given that it will be able
to continue to design and manufacture products that meet with market acceptance.
The Company's grip business will be reliant to a large extent on Acushnet with
respect to new compounds and product innovations. There can be no assurance that
the Company will be able to increase its market share with its existing product
line or that the Company'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 equipment is also greatly
influenced by rules and interpretations of 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 the Company believes
that all of its 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.
Competition.
The golf equipment industry is highly competitive and is characterized
by numerous companies competing in various segments of the market. Many of the
Company's
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competitors have greater name recognition, more extensive engineering,
manufacturing and marketing capabilities, and greater financial, technological
and personnel resources than the Company. 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 the Company will be able
to compete successfully in the future with existing or new competitors.
Seasonality; Fluctuations in Operating Results.
Golf is generally considered a warm weather sport. Accordingly, the
Company has historically enjoyed its 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,
the Company 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.
The Company currently relies upon a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect certain of its
proprietary rights in its products. There can be no assurance that the steps
taken by the Company 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.
Acushnet Delays and Use of Third Party Suppliers.
The Company's grip business currently purchases and for an indefinite
period of time intends to purchase its entire supply of non-cord grips from
Acushnet. During the first quarter of 1997, Acushnet experienced start-up delays
and quality control problems in the production of grips which adversely affected
the Company's customer relationships and results of operations. RG and Acushnet
renegotiated their agreement in light of Acushnet's production difficulties. In
connection with this renegotiation, and subsequent production shortfalls,
Acushnet agreed to provide RG with aggregate credits of $472,393 against future
purchases of grips with possible additional credits in the event Acushnet did
not meet certain production requirements. RG reduced its current payments of
invoices to Acushnet by this amount in April and May 1997. The supply agreement
was also amended to, among other things, alter future production and purchase
requirements and provide for voluntary termination rights on the part of
Acushnet. Although RG modified its agreement with Acushnet, continued disruption
in the supply or quality of grips would have a material adverse impact on the
Company's business. Under the amended manufacturing agreement, either Acushnet
or the Company may voluntarily terminate the agreement upon payment of a
specified termination fee, among other things. If Acushnet continues to
experience production difficulties or loss of margin on grip sales to the
Company, either Acushnet or the Company may ultimately elect to exercise such
termination rights. In addition, during calendar year 1999 and beyond, the
Company is required to purchase a minimum number of grips. Failure by the
Company to purchase the minimum, during any calendar year, constitutes a
material breach of the Manufacturing and Supply Agreement
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pursuant to which Acushnet, at its option, may terminate the agreement without
paying the termination fee. Although the Company was not required to meet this
minimum requirement during 1998, the Company ordered fewer grips than the
minimum required during 1999 and beyond. The Company currently has no
immediately available back-up source of supply in the event the Company
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 the Company would result in production delays, the
loss of sales and key customers, and would materially and adversely affect the
Company's financial condition and results of operation. Although the Company
believes that it has certain remedies available to it under its agreement with
Acushnet arising out of Acushnet's production delays or the termination of the
agreement by Acushnet, including the accumulation of purchase credits, or the
payment of termination fees and expenses, there can be no assurance that the
Company would be able to successfully pursue such remedies or that such remedies
would adequately compensate the Company for any losses incurred by it.
Customer Concentration.
The Company's sales of golf grips to OEMs account for a significant
percentage of the Company's total net sales of grips. The Company currently
provides golf club grips to OEMs such as Odyssey, Titleist, Slazenger and
Mizuno. A substantial decrease in sales to RG's major OEM customers would have a
material adverse impact upon the Company's business.
The Company's shaft business is significantly dependent on sales to
Taylor Made and Precision Japan, which represented approximately 25.5% of FMP's
sales for the year ended May 31, 1998. The Company does not have a supply
agreement with Taylor Made. The loss of sales to either of these companies could
have a material adverse effect on the Company's business.
Dependence on "Rifle" Shaft Sales.
In January 1995, the Company introduced the "Rifle," the first modern
stepless steel golf shaft in the industry. The Company is substantially
dependent on sales of Rifle shafts. Sales of the Rifle shaft constituted 35.5%
and 54.3% of the Company's revenues during the fiscal years ended May 31, 1998
and May 31, 1997, respectively. The Rifle shaft also has a substantially higher
margin than the other shaft products of the Company.
Sales of the Rifle shaft decreased $2.0 million for the fiscal year
ended May 31, 1998 as compared to the fiscal year ended May 31, 1997. The
Company received a high concentration of customer orders during fiscal year
1997. Due to production capacity limitations, the Company's lead times for
processing these orders were longer than the Company's typical lead times. As a
result of the longer lead times, the Company lost some significant customers. In
order to reduce lead times and prevent the loss of additional customers, and in
an effort to obtain new customers, the Company is in the process of installing
additional manufacturing equipment. The Company believes that the new equipment
will allow the Company to manufacture approximately 1.0 million more Rifle
shafts per year than the Company could previously manufacture. There can be no
assurance that the new equipment will increase the Company's production capacity
to the extent management has estimated or reduce the Company's lead times, that
the Company will not lose additional customers, or that the new equipment will
help the Company regain lost customers or acquire additional customers.
While management believes that demand for the Rifle shaft should remain
high for the next several years, there can be no assurance that sales of the
Rifle shaft will not decline or that the Rifle shaft will retain its
profitability. If sales or profitability of the Rifle shaft continue to decrease
without the Company's introduction of new profitable products, the Company's
performance and financial position would be materially adversely affected.
Year 2000 Noncompliance.
The Company has assessed its internal year 2000 issues and completed
the last phase of its internal year 2000 compliance plan. The Company is in the
process of assessing its exposure from third party year 2000 noncompliance.
There can be no assurance that the Company's efforts to achieve year 2000
compliance will be successful or that third parties with whom the Company has
material relationships will be year 2000 compliant by January 1, 2000. Year 2000
noncompliance by either the Company or any of these material third
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parties could have a material adverse effect on the Company's business, results
of operations or financial condition.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's golf shaft manufacturing facility is located at 535
Migeon Avenue, Torrington, Connecticut 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 a Credit
Facility. See Note 6 to Notes to the Consolidated Financial Statements for
specific information concerning the amount outstanding under the Credit
Facility.
The Company's principal executive offices and customer service
operations of RG are located in an 8,000 square foot leased facility at 15170
North Hayden Road, Suite 1, Scottsdale, Arizona. The term of the lease expires
May 31, 2001.
The Company also leases a 30,000 square foot production facility in
Oklahoma City, Oklahoma which houses Roxxi's manufacturing operations, for a
term ending in March 2001. Aggregate monthly rental payments for the Oklahoma
and Arizona facilities is approximately $20,000.
In the opinion of management, all of these facilities are suitable and
adequate for the Company's intended use and are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On August 29, 1997, the Common Stock of the Company began trading on
The Nasdaq National Market under the trading symbol "RIFL". Prior thereto, there
was no public trading market for the Company's Common Stock. The prices set
forth below reflect the high and low sale prices for shares of Common Stock
since such trading began as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year 1998
Second Quarter $10.25 $8.00
Third Quarter $8.75 $5.75
Fourth Quarter $7.00 $4.50
</TABLE>
As of August 10, 1998, the Company had approximately 76 holders of
Common Stock of record.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain any earnings to finance the growth of its business.
Any determination as to the payment of dividends will depend upon the future
results of operations, capital requirements and financial condition of the
Company and such other facts as the Board of Directors of the Company may
consider, including any contractual or statutory restrictions on the Company's
ability to pay dividends. The credit facilities of RG and FMP each limit the
Company's ability to pay dividends on its Common Stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
Royal Precision, Inc. (RPI or the Company) has three wholly-owned subsidiaries
which are FM Precision Golf Manufacturing Corp. (FMP), FM Precision Golf Sales
Corp., Royal Grip, Inc. and its wholly-owned subsidiary, Roxxi, Inc.
(collectively, RG). RPI acquired RG on August 29, 1997 by means of a merger
whereby a subsidiary of RPI merged with and into RG with RG being the surviving
corporation (see Note 1 of Notes to Consolidated Financial Statements.)
Results of operations for RG are included in the Company's Consolidated
Statement of Operations since August 29, 1997, the effective date of the merger.
Accordingly, RG's operations from August 29, 1997, are included in the year
ended May 31, 1998, but are not included in the year ended May 31, 1997.
FMP is a manufacturer and distributor of golf shafts that are sold to original
equipment manufacturers (OEMs) and to distributors and retailers for use in the
replacement market. The majority of FMP's sales are to OEMs. FMP also sells golf
shafts in foreign markets including Japan, Canada and the United Kingdom.
RG designs and distributes golf club grips and manufactures and distributes
athletic headwear. RG's products are sold primarily throughout the United
States, Japan and the United Kingdom. RG sells substantially all of its grips to
OEMs, its Japanese distributor and the replacement market. In December 1996, RG
outsourced the manufacturing of its non-cord grips (see Note 5 of Notes to
Consolidated Financial Statements).
Sales - Net sales for the year ended May 31, 1998 were $27.6 million, an
increase of 27% over net sales of $21.7 million for the corresponding period in
1997. The increase in net sales of $5.9 million for the year ended May 31, 1998
as compared to the same period of the prior year is primarily attributable to
the inclusion of $6.6 million of net sales of golf club grips and headwear by
RG. Partially offsetting the inclusion of RG's sales for the year ended May 31,
1998 was a $720,000 or 3% decline in golf shaft sales. The reduction in shaft
sales for the year ended May 31, 1998 as compared to the same period last year
is primarily the result of lower Rifle shaft sales due to the loss of certain
customers. See "RISK FACTORS - Dependence on "Rifle" Shaft Sales." Sales of the
Rifle shaft decreased by $2.0 million for the year ended May 31, 1998, as
compared to the same period last year. This decrease was offset by an increase
of $1.3 million in sales of other steel shafts for the year ended May 31, 1998,
as compared to the same period last year.
Cost of Goods Sold - Cost of goods sold for the year ended May 31, 1998 was
$18.7 million, an increase of 16.9% over cost of $16.0 million for the same
period in 1997. The increase in cost of goods sold of $2.7 million for the year
ended May 31, 1998, as compared to the same period of the prior year is
attributable to the inclusion of $4.0 million of cost of goods sold for RG golf
club grips and headwear. Partially offsetting the inclusion of RG's cost of
goods sold was a decrease of $1.3 million golf shaft cost of sales for the year
ended May 31, 1998, as compared to
-12-
<PAGE> 13
the same period last year. The decrease in cost of goods sold for the golf shaft
business is primarily the result of a change in mix to lower cost commercial
grade shafts.
As a percentage of sales, the gross profit on shaft sales increased from 26.2%
to 30.2% for the year ended May 31, 1998, as compared to the same period in
1997. This increase in gross profit percentage for the year ended May 31, 1998
is primarily the result of an inventory writeoff of $193,000 in the year ended
May 31, 1997 and a reduction in the average cost per unit due to production
volume increases in the year ended May 31, 1998, as compared to the same period
last year.
RG's gross profit and gross profit percentage was positively impacted during the
year ended May 31, 1998 as a result of RG recording a $472,000 reduction in cost
of sales related to supply agreement credits. See Note 5 of Notes to
Consolidated Financial Statements.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the year ended May 31, 1998 were $7.8 million, an
increase of 100% over selling, general and administrative expenses of $3.9
million for the same period last year. The increase in selling, general and
administrative expenses of $3.9 million for the year ended May 31, 1998, is
primarily attributable to the inclusion of $2.8 million of selling, general and
administrative expenses from RG for the period reported. In addition, the
Company amortized $391,000 of goodwill during the year ended May 31, 1998 as a
result of the Merger. In addition, advertising expenses for FMP increased
$447,000 for the year ended May 31, 1998 as compared to the same period last
year.
Nonrecurring Merger Related Expenses - Nonrecurring Merger related expenses for
the year ended May 31, 1998 were $842,000. The primary components of this
expense are $348,000 related to a computer software installation that was
abandoned as a result of the Merger, $100,000 related to certain headwear
related contracts, $150,000 of relocation expenses and $244,000 of severance as
a result of organizational changes in connection with the Merger.
Interest Expense and Interest Income - Interest expense for the year ended May
31, 1998 was $695,000 compared to $485,000 for the year ended May 31, 1997. The
increase in interest expense is primarily attributable to the inclusion of
interest expense of RG of $122,000 for the year ended May 31, 1998.
Additionally, loan balances on FMP's revolving credit facility were higher
during the year ended May 31, 1998 as compared to the same period in 1997.
Interest income for the year ended May 31, 1998 was $170,000 compared to $0 for
the same period last year. This increase is due to the inclusion of interest
income from RG's capital lease receivable in the 1998 period.
Provision for Income Taxes - The provision for income taxes for the years ended
May 31, 1998 and 1997 was $28,000 and $586,000 or a tax rate of 12% and 43%,
respectively. The reduction in the effective rate is due to the effect of
nondeductible goodwill amortization partially offset by the change in the
valuation allowance (see Note 9 of Notes to Consolidated Financial Statements).
-13-
<PAGE> 14
Liquidity and Capital Resources - At May 31, 1998, RPI had working capital of
$401,000 and a current ratio of 1.05 to 1 as compared to working capital of $1.4
million and a current ratio of 1.27 to 1 at May 31, 1997. The reduction in
working capital is primarily due to an increase in the current portion of
long-term debt and capital lease obligations of $2.0 million from May 31, 1997
to 1998 partially as a result of increased borrowings on the Company's revolving
credit facilities to fund expenses related to the Merger (see Note 1 of Notes to
Consolidated Financial Statements) and the inclusion of RG's working capital in
the May 31, 1998 working capital amount.
RG's and FMP's revolving lines of credit mature in 2000 and management believes
no events have occurred which would cause repayment prior to maturity. However,
in order to comply with the consensus in EITF 95-22 regarding classification of
certain debt instruments that include provisions for a lock box requirement
and allow the lender certain subjective acceleration rights, the $3.5 million
outstanding on these lines as of May 31, 1998 has been classified as a current
liability in the accompanying consolidated balance sheet. There can be no
assurance that an event of default will not occur and the Company would then be
obligated to pay the entire balance outstanding on the applicable line of
credit. See Note 6 of Notes to Consolidated Financial Statements for a
description of the terms of RPI's credit facilities.
At May 31, 1998, FMP had $1.2 million available for borrowing under its
revolving line-of-credit and RG had $151,000 available for borrowing under its
line-of-credit. The Company believes that it has enough credit availability to
finance its operations over the next twelve months (see Note 6 of Notes to
Consolidated Financial Statements).
During the year ended May 31, 1998, net cash provided by operating activities
was $408,000 which primarily resulted from decreases in accounts receivable of
$509,000.
RPI used $2.0 million in investing activities during the year ended May 31,
1998, primarily due to $1.0 million used to purchase additional property, plant
and equipment during such period and Merger costs of $1.0 million. Capital
expenditures for the year ended May 31, 1998 were $828,000 for FMP and $212,000
for the period from acquisition to May 31, 1998 for RG. Capital expenditures for
fiscal 1999 are anticipated to be $1.5 million. The Company's actual 1999
capital expenditures may vary from the estimated amounts set forth herein.
Net cash provided by financing activities for the year ended May 31, 1998, was
$1.4 million primarily due to fundings of $1.6 million on FMP's term loan and
$1.4 million of net borrowings under FMP and RG's revolvers offset by repayments
on long-term debt and capital lease obligations of $1.6 million.
Year 2000 Assessment-The Company has assessed all internal year 2000 issues
including but not limited to computer hardware and software, alarm systems,
manufacturing equipment and software, and all other mechanical equipment. Based
on this assessment, a plan was developed and implemented to resolve all of the
internal year 2000 issues. The Company completed the last phase of the year 2000
internal compliance plan on June 1, 1998 by converting to a client server based
accounting system which is year 2000 compliant.
The Company is currently assessing external year 2000 exposure and risks. A plan
will be developed and implemented to contact external suppliers, assess risk
factors and find alternative suppliers, and develop contingency plans, as
necessary.
There can be no assurance that the Company's efforts to achieve year 2000
compliance will be successful or that third parties with whom the Company has
material relationships will be year 2000 compliant by January 1, 2000. Year 2000
noncompliance by either the Company or any of
-14-
<PAGE> 15
these material third parties could have a material adverse effect on the
Company's business, results of operations, or financial condition.
-15-
<PAGE> 16
ITEM 7. FINANCIAL STATEMENTS.
-16-
<PAGE> 17
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheet as of May 31, 1998 F-3
Consolidated Statements of Operations for the Years
Ended May 31, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended May 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the
Years Ended May 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders of
Royal Precision, Inc.:
We have audited the accompanying consolidated balance sheet of Royal Precision,
Inc. (formerly FM Precision Golf Corp.) (a Delaware corporation) and
subsidiaries as of May 31, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended May 31, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Royal Precision, Inc. and
subsidiaries as of May 31, 1998, and the results of their operations and their
cash flows for the years ended May 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, the Company has
given retroactive effect to the change in its method of accounting for
inventories.
/s/ Arthur Andersen LLP
Hartford, Connecticut
July 2, 1998
F-2
<PAGE> 19
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONSOLIDATED BALANCE SHEET
--------------------------
AS OF MAY 31, 1998
------------------
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------
1998
----
<S> <C>
CURRENT ASSETS:
Cash $ 28
Accounts receivable, net of allowance
for doubtful accounts of $602 4,042
Inventories 4,049
Current portion of net investment in capital lease 240
Other current assets 74
Deferred income taxes 265
-------
Total current assets 8,698
-------
PROPERTY, PLANT AND EQUIPMENT:
Land 123
Furniture, fixtures and office equipment 544
Buildings and improvements 689
Machinery and equipment 3,894
-------
5,250
Less - Accumulated depreciation (754)
-------
4,496
-------
GOODWILL, net 10,028
-------
NET INVESTMENT IN CAPITAL LEASE, less current portion
included above 2,593
-------
OTHER ASSETS 71
-------
Total assets $25,886
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Lines-of-credit $ 3,462
Current portion of long-term debt and capital
lease obligations 1,047
Accounts payable 1,769
Accrued salaries and benefits 760
Other accrued expenses 1,259
-------
Total current liabilities 8,297
-------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion included above 3,171
-------
DEFERRED INCOME TAXES 46
-------
OTHER LIABILITIES 45
-------
Total liabilities 11,559
-------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6, 7 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized; no shares issued -
Common stock, $.001 par value; 50,000,000
shares authorized; 5,601,697 shares issued
and outstanding 6
Additional paid-in capital 13,821
Retained earnings 500
-------
Total stockholders' equity 14,327
-------
Total liabilities and stockholders'
equity $25,886
=======
</TABLE>
The accompanying notes are an integral part
of this consolidated financial statement.
F-3
<PAGE> 20
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
As restated
(see Note 2)
<S> <C> <C>
NET SALES:
Golf shafts $ 21,023 $ 21,743
Golf grips 3,699 -
Headwear 2,899 -
-------- --------
27,621 21,743
-------- --------
COST OF SALES:
Golf shafts 14,683 16,036
Golf grips 1,805 -
Headwear 2,235 -
-------- --------
18,723 16,036
-------- --------
Gross profit 8,898 5,707
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,766 3,873
NONRECURRING MERGER RELATED EXPENSES 842 --
-------- --------
Operating income 290 1,834
INTEREST EXPENSE, net of interest income
of $170 and $0, for 1998 and 1997,
respectively 525 485
-------- --------
(Loss) income before provision for
income taxes (235) 1,349
PROVISION FOR INCOME TAXES 28 586
-------- --------
Net (loss) income $ (263) $ 763
======== ========
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE $ (.05) $ .18
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 21
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Issuance of common stock 4,175 $ 4 $ 996 $ - $ 1,000
-------- -------- -------- -------- --------
Compensation expense related
to grant of stock options - - 425 - 425
Net income, as restated (Note 2) - - - 763 763
-------- -------- -------- -------- --------
Balance, May 31, 1997 4,175 4 1,421 763 2,188
Issuance of common stock and
stock options in connection
with merger, net (Note 1) 1,371 2 12,385 - 12,387
Exercise of common stock options
and warrants 56 - 15 - 15
Net loss - - - (263) (263)
-------- -------- -------- -------- --------
Balance, May 31, 1998 5,602 $ 6 $ 13,821 $ 500 $ 14,327
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 22
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
(in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
As restated
(see Note 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (263) $ 763
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 990 202
Loss on writeoff of fixed assets 360 -
Compensation expense related to
grant of stock options - 425
Deferred income taxes 7 (362)
Changes in operating assets and liabilities -
Accounts receivable, net 509 (210)
Inventories, net (130) (36)
Other current assets 57 (63)
Accounts payable and accrued expenses (786) 1,646
Supply agreement credits (472) -
Other 136 -
-------- --------
Net cash provided by operating activities 408 2,365
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from Royal Grip, Inc. 18 -
Merger costs (1,031) (465)
Purchases of equipment, net (1,038) (936)
Payments from net investment in capital lease 148 -
Proceeds from sale of fixed assets 49 -
Acquisition of net assets of golf shaft division of
Brunswick Corporation - (6,824)
-------- --------
Net cash used in investing activities (1,854) (8,225)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - 1,000
Proceeds from exercise of common stock
options and warrants 15 -
Proceeds from long-term debt 1,600 4,125
Borrowings under lines-of-credit, net 1,438 1,498
Repayments of long-term debt and
capital lease obligations (1,607) (735)
-------- --------
Net cash provided by financing activities 1,446 5,888
-------- --------
INCREASE IN CASH - 28
CASH, beginning of year 28 -
-------- --------
CASH, end of year $ 28 $ 28
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 687 $ 438
======== ========
Income taxes $ 61 $ 911
======== ========
Non-cash transactions:
Issuance of common stock options
and warrants in connection with
merger $ 12,995 $ -
======== ========
Capital lease obligations $ - $ 195
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE> 23
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Organization and Business:
--------------------------
Organization -
------------
The accompanying consolidated financial statements include Royal
Precision, Inc. (formerly FM Precision Golf Corp.) and its three
wholly-owned subsidiaries (collectively, RPI or the Company), FM
Precision Golf Manufacturing Corp. (FMP), FM Precision Golf Sales Corp.
(FM Sales) and Royal Grip, Inc. and its wholly-owned subsidiary, Roxxi,
Inc.
Results of operations for Royal Grip, Inc. and Roxxi, Inc. (collectively,
RG) are included in RPI's Consolidated Statements of Operations since
August 29, 1997, the effective date of the business combination described
below.
Business -
--------
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. RG designs and manufactures golf club
grips and athletic headwear. RPI's products are sold throughout the
United States as well as internationally, primarily Japan and the United
Kingdom (Note 11).
Acquisitions -
------------
On May 31, 1996, FMP, which was formed in 1996, acquired the golf assets
and golf liabilities, as defined, of the golf shaft division of Brunswick
Corporation (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. The
following table summarizes the allocation of the cost of the Brunswick
Acquisition to the net assets acquired (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 3,047
Inventories 3,173
Property, plant and equipment 1,940
Accounts payable and accrued expenses (1,336)
-------
$ 6,824
=======
</TABLE>
F-7
<PAGE> 24
On May 14, 1997, RPI entered into an Agreement and Plan of Merger with
RG. Under the terms of the Merger agreement, effective August 29, 1997,
FMPSUB, Inc. (a wholly-owned subsidiary of RPI created for such purpose)
merged with and into RG (the Merger). RG was the surviving corporation
and became a wholly-owned subsidiary of RPI.
In the Merger, each outstanding share of RG common stock was converted
into one-half share of RPI common stock. No fractional shares of RPI were
issued in the Merger. In lieu of any such fractional shares, each holder
of fractional shares of RG common stock was paid in cash in an amount
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 Merger. As a result of the Merger,
the pre-Merger stockholders and option and warrant holders of RG owned or
had the right to acquire an aggregate of 30% of RPI's common stock on a
fully diluted basis.
The aggregate purchase price of $13,883,000 represents the sum of (i) the
fair value of the 1,371,058 shares of RPI common stock issued in exchange
for 2,742,116 of the shares of RG common stock outstanding as of the
Merger date at $3.925 per share (the average closing bid price of RG
common stock (pre-conversion) for the period from two days before until
the two days after the announcement of the revised Merger terms) of
$10,763,000, (ii) cash of $122 paid to RG stockholders in lieu of 31
fractional shares, as discussed above, (iii) the fair value of the
options and warrants to purchase 982,250 shares of RG common stock
outstanding as of the Merger date (which were converted into options and
warrants to purchase 491,125 shares of RPI common stock in connection
with the Merger) of $2,232,000, which amount was determined using the
Black Scholes Valuation Model, and (iv) RPI Merger expenses of $888,000
(RG's Merger costs of approximately $637,000 were expensed and RG's
registration statement costs of approximately $143,000 were charged to
stockholders' equity by RG prior to the acquisition). RPI also incurred
expenses of $608,000 associated with the Form S-4 Registration Statement
which were charged to stockholders' equity. The Merger was accounted for
as a purchase and the purchase price was allocated based on the fair
value of the assets acquired and liabilities assumed as follows (in
thousands):
<TABLE>
<S> <C>
Cash $ 18
Accounts receivable 1,293
Inventories 710
Net investment in lease 2,981
Prepaid expenses and other current
assets 68
Property and equipment 1,670
Goodwill 10,418
Accounts payable and accrued expenses (1,501)
Supply agreement credits (472)
Debt and capital lease obligations (1,166)
Other, net (136)
-------
$13,883
=======
</TABLE>
F-8
<PAGE> 25
In connection with the Merger, the Company amended its Certificate of
Incorporation to increase the number of authorized shares of common stock
from 3,000 to 50,000,000, reduce the par value of the common stock from
$.01 to $.001 per share, split each issued and outstanding share of
common stock into 4,175.394 shares of common stock and to authorize
5,000,000 shares of $.001 par value preferred stock. In connection with
the stock split, RPI paid $84 in lieu of issuing 10.46 fractional shares
of RPI common stock. The accompanying consolidated financial statements
have been restated to reflect this share split and change in par value
and authorized shares.
In connection with the Merger, RG issued warrants to purchase 50,000
shares of RG common stock to an investment banker. Such warrants are
included in the 982,250 RG options and warrants outstanding as of the
Merger date referred to above. The warrants were exercisable at a price
of $.02 per share. Such warrants were exercised in September 1997 for
$1,000.
RPI recorded a charge of $842,000 during the year ended May 31, 1998 for
nonrecurring Merger related expenses. The components of this expense are
$348,000 related to a computer software installation that was abandoned
as a result of the Merger, $100,000 related to certain headwear related
contracts, $150,000 of relocation expenses and $244,000 of severance as a
result of organizational changes in connection with the Merger.
The unaudited pro forma consolidated condensed statements of operations
for the years ended May 31, 1998 and 1997 as though the Merger had been
consummated at the beginning of these periods are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $30,818 $34,744
Net income (loss) $ 195 $(4,046)
Basic and diluted income (loss) per share $ 0.03 $ (0.73)
Weighted average shares outstanding 5,589 5,546
</TABLE>
The pro forma amounts above reflect annual goodwill amortization of
$521,000, the elimination of nonrecurring Merger related expenses of
$842,000 (included in the accompanying consolidated statement of
operations) and $637,000 (which amount was expensed by RG prior to the
Merger) for the year ended May 31, 1998 and 1997 and the issuance of
1,371,058 shares of common stock in connection with the Merger.
Dependence on "Rifle" Shaft Sales -
-----------------------------------
Sales of the "Rifle" shaft were $9.8 million and $11.8 million for the
years ended May 31, 1998 and 1997, respectively. Additionally, the
"Rifle" shaft has a substantially higher margin than other shaft
products. While management believes that demand for the "Rifle" shaft
should remain high for the next several years, there can be no assurance
that sales of the "Rifle" shaft will grow or that the product will retain
its profitability. If sales or profitability of the "Rifle" shaft
continue to decrease without RPI's introduction of new profitable
products, RPI's overall financial performance would be materially
adversely affected.
F-9
<PAGE> 26
2. Summary of Significant Accounting Policies:
-------------------------------------------
Principles of consolidation -
-----------------------------
All significant intercompany balances and transactions have been
eliminated in consolidation.
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.
Inventories -
-----------
Inventories are stated at the lower of cost or market. In prior years,
the cost of FMP's inventories was determined by the last-in, first out
(LIFO) method. In fiscal 1998, the Company changed its method of
determining cost for FMP's inventories to the first-in, first-out (FIFO)
method. As a result of this change, the FIFO method for determining cost
is used for all of the Company's inventories. This change has been made
retroactively and the consolidated financial statements for the prior
year have been restated.
The effect of the change in accounting principle was to reduce earnings
for the year ended May 31, 1997 by $171,000, or $0.04 per share. The
change did not have a significant effect on earnings for the year ended
May 31, 1998. Since the LIFO reserve for FMP as of May 31, 1996 was zero
the change had no effect on RPI's May 31, 1996 retained earnings.
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:
Useful Lives
------------
Buildings and improvements 27.5 years
Machinery and equipment 3-12 years
Furniture and fixtures 10 years
F-10
<PAGE> 27
Goodwill -
--------
Goodwill, which resulted from the RG merger (see Note 1), is being
amortized over 20 years. At May 31, 1998, accumulated amortization
related to goodwill amounted to $390,693. RPI evaluates the asset for
impairment by reviewing the estimated future cash flows of the acquired
operations on a quarterly basis. As of May 31, 1998, the Company believes
no impairment exists.
Long-lived assets -
-----------------
Effective May 31, 1996, RPI 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, RPI 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 undiscounted future cash flows,
excluding interest costs, exceed the carrying value of the related
assets. Prior to the adoption of SFAS No. 121, RPI's policy for reviewing
long-lived assets for impairment was substantially the same as that under
SFAS No. 121. Based on RPI's estimated future undiscounted cash flows,
excluding interest costs, no long-lived assets were impaired as of May
31, 1998 and 1997.
Income taxes -
------------
RPI accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement requires RPI to recognize
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in RPI'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.
Stock-based compensation -
------------------------
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards SFAS No. 123, "Accounting for
Stock-Based Compensation" which was adopted by RPI effective June 1,
1996. SFAS No. 123 requires the measurement of the fair value of stock
options or warrants granted to be included in the statement of operations
or that pro forma information related to the fair value be disclosed in
the notes to financial statements. RPI has determined that it will
continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123.
Revenue recognition -
-------------------
Revenue is recorded upon the passage of title to the customers which
generally occurs upon shipment.
F-11
<PAGE> 28
Research and development -
------------------------
RPI expenses costs of research and development as incurred. Research and
development expense was approximately $157,000 and $120,000 for the years
ended May 31, 1998 and 1997, respectively.
Advertising -
-----------
RPI expenses advertising costs as incurred.
Net income (loss) per share -
---------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which established new standards for computing and presenting earnings per
share. Additionally, on February 4, 1998, the Securities and Exchange
Commission released Staff Accounting Bulletin (SAB) No. 98 on
computations of earnings per share, which changed the guidance on how
cheap stock is treated in earnings per share computations. SFAS No. 128
is effective for financial statements issued for periods ending after
December 15, 1997 and SAB No. 98 was effective on February 4, 1998.
Accordingly, period earnings per share data presented has been restated
and all earnings per share data presented is in accordance with SFAS No.
128 and SAB No. 98.
Basic earnings (loss) per common share are based on the average number of
common shares outstanding during the year. Diluted earnings per common
share assumes, in addition to the above, a dilutive effect of common
share equivalents during the year. Common share equivalents represent
dilutive stock options using the treasury stock method. The number of
shares used in the earnings (loss) per common share computation for 1998
and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Basic:
Average common shares
outstanding 5,246 4,175
Diluted:
Stock options - 33
----- -----
Average common shares - diluted 5,246 4,208
===== =====
</TABLE>
Reclassifications -
-----------------
Certain prior year balances have been reclassified to conform with the
current year presentation.
F-12
<PAGE> 29
New accounting pronouncements -
-----------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income (net income together with other non-owner changes in
equity) and its components in a full set of general purpose financial
statements. SFAS No. 130 is effective for financial statements issued for
periods beginning after December 15, 1997 and earlier application is
permitted. RPI's comprehensive income is the same as RPI's net income for
the years ended May 31, 1998 and 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which requires disclosures for
each segment of an enterprise that are similar to those required under
current standards with the addition of quarterly disclosure requirements
and a finer partitioning of geographic disclosures. SFAS No. 131 is
effective for financial statements issued for periods beginning after
December 15, 1997 and RPI has elected early adoption of this disclosure
standard (Note 13).
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits", which revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
It standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. The Company will be
required to adopt SFAS No. 132 for the year ended May 31, 1999. The
Company does not anticipate any material impact resulting from the
adoption of SFAS No. 132.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company will be required to adopt SFAS No. 133 for the year
ended May 31, 1999. The Company does not anticipate any material impact
resulting from the adoption of SFAS No. 133.
3. Inventories:
------------
Inventories (see Note 2 for basis of presentation) as of May 31, 1998
consisted of the following (in thousands):
<TABLE>
<S> <C>
Raw materials $1,161
Work-in-process 1,206
Finished goods 1,682
------
$4,049
======
</TABLE>
F-13
<PAGE> 30
4. Investment in Capital Lease:
----------------------------
RG is the lessor of certain manufacturing equipment under a capital lease
agreement with Acushnet Rubber Company (Acushnet) (see Note 5) expiring
in December 2006, which transfers ownership of the equipment to the
lessee at the end of the lease term. RG's net investment in the direct
financing lease at May 31, 1998 consists of (in thousands):
<TABLE>
<S> <C>
Minimum lease payments receivable $3,908
Unearned income 1,075
------
2,833
Less - Current portion 240
------
$2,593
======
</TABLE>
At May 31, 1998, future minimum lease payments receivable under the
direct financing lease are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 451
2000 451
2001 451
2002 451
2003 451
Thereafter 1,653
------
$3,908
======
</TABLE>
5. Manufacturing and Supply Agreement Credits:
-------------------------------------------
During the first calendar quarter of 1997, Acushnet experienced startup
delays in the production of grips. In light of these difficulties, RG and
Acushnet renegotiated their Manufacturing and Supply Agreement (the
Agreement). In connection with this renegotiation, and subsequent
production shortfalls, Acushnet agreed to provide RG with aggregate
credits of $472,393 for future purchases of grips, to be applied against
current accounts payable due to Acushnet. Under certain circumstances
based upon the level of RG's purchase orders, the credits could be earned
back by Acushnet prior to December 31, 1997. Since the credits were not
earned back by Acushnet, RPI recorded $472,393 during the year ended May
31, 1998 as a reduction in grip cost of sales.
Acushnet has the right to terminate the Agreement at any time after June
30, 1998 by providing the Company not less than ten months written notice
and by paying the Company a cash termination fee in an amount equal to at
least $2.5 million. However, during calendar year 1999 and beyond, the
Company is required to purchase a minimum number of grips. Failure by the
Company to purchase the minimum, during any calendar year, constitutes a
material breach of the Agreement pursuant to which Acushnet, at its
option, may terminate the Agreement without paying the termination fee.
Although the Company was not required to meet this
F-14
<PAGE> 31
minimum requirement during 1998, the Company ordered fewer grips than the
minimum required during 1999 and beyond. At May 31, 1998, the Company
owed approximately $160,000 to Acushnet related to the Agreement which
amount is included in accounts payable in the accompanying consolidated
balance sheet. Included in finished goods inventories is approximately
$562,000 of inventory located at Acushnet.
6. Long-term Debt and Capital Lease Obligations:
---------------------------------------------
FMP has a credit facility that includes a revolving line-of-credit, (the
Revolver) a term loan (the Term Loan) and special advances (collectively,
the FMP Credit Facility). During fiscal 1998, FMP entered into several
amendments to the FMP Credit Facility with its lender. The effect of the
amendments included providing for a special advance of $250,000 which
amount was due and repaid on January 16, 1998, providing for a special
advance of $350,000 which amount was due and repaid in three installments
during May 1998 and increasing borrowings under the Term Loan of an
additional $1.0 million (used to pay down the Revolver). In addition, the
amendments changed certain terms, conditions and covenants of the FMP
Credit Facility.
The amount available for borrowings under the Term Loan, as amended, is
subject to a maximum of the lesser of $3,998,000 or a percentage of the
fair value of eligible plant and equipment, as defined. The amount
available for borrowing under 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 May 31, 1998, FMP had approximately $1,162,000 available for
additional borrowings under the FMP Credit Facility.
The Term Loan is due in monthly principal installments of $69,712
commencing December 1997 through June 2, 2000 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. This additional
principal payment was waived for the year ended May 31, 1997. No
additional principal payment was due for the year ended May 31, 1998. The
Revolver and Term Loan mature on June 2, 2000; however, the lender may
extend the maturity to May 31, 2001. If the lender does not extend the
maturity of the FMP Credit Facility, the remaining principal outstanding
under the Term Loan is due and payable June 2, 2000. 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 (8.5% at May 31, 1998) plus 1.25% and 1.0%,
respectively, and are secured by substantially all of FMP's assets.
In February 1997, RG entered into a credit facility with a commercial
bank consisting of a revolver of $1,750,000 and a term loan of $700,000
(the RG Credit Facility). The RG Credit Facility matures February 28,
2000. Effective January 1, 1998, the interest rate on the RG Credit
Facility was revised to the base rate plus 4% from the base rate plus 3%.
The interest rate increased in accordance with the agreement based on the
amount of RG's loss for the year ended December 31, 1997. As of May 31,
1998, RG had $151,000 available for additional borrowings.
F-15
<PAGE> 32
The FMP and RG credit facilities contain financial and other covenants
which are determined separately for FMP and RG and which, among other
things, limit annual capital expenditures and require the maintenance of
minimum quarterly (monthly for RG) earnings before interest, taxes,
depreciation and amortization, as defined, fixed charge coverage ratios,
as defined, and accounts receivable and inventory turnover ratios, as
defined. FMP and RG were in compliance with their respective financial
covenants at May 31, 1998.
Long-term debt and capital lease obligations as of May 31, 1998 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1998
----
<S> <C>
FMP Credit Facility:
Line-of-credit $2,438
Term loan 3,579
RG Credit Facility:
Line-of-credit 1,024
Term loan 533
Capital lease obligations 106
------
7,680
Less - Current portion, including
lines-of-credit of $3,462 4,509
------
$3,171
======
</TABLE>
Scheduled maturities of long-term debt at May 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending
May 31,
-------
<S> <C>
1999 $4,509
2000 1,264
2001 1,907
------
$7,680
======
</TABLE>
Future minimum lease payments under capital leases at May 31, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
May 31,
-------
<S> <C>
1999 $ 71
2000 41
----
112
Less - Amounts representing interest 6
----
Present value of future minimum lease payments $106
====
</TABLE>
F-16
<PAGE> 33
As of May 31, 1998, the carrying value of the lines-of-credit and term
loans approximated their fair market value since the obligations bear
interest at a variable rate of interest.
7. Leases:
-------
RPI leases corporate offices, manufacturing facilities and office
equipment under operating lease agreements. Minimum annual rental
commitments under noncancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ending
May 31,
-------
<S> <C>
1999 $226
2000 234
2001 222
2002 5
2003 1
----
$688
====
</TABLE>
Rental expense under operating leases totaled approximately $204,000 and
$0 for the years ended May 31, 1998 and 1997, respectively.
8. Stock Options Plan:
-------------------
In March 1997, FMP adopted the FM Precision Golf Corp. 1997 Stock Option
Plan (the FMP Plan). The FMP Plan is administered by the Board of
Directors and provides for the granting of nonqualified stock options. As
of May 31, 1998, 169,761 shares of common stock are reserved for issuance
under the FMP Plan. In March 1997, FMP granted nonqualified options to
purchase 169,761 shares of FMP's common stock to certain members of
management and a consultant. The options are exercisable at a price of
$0.24 per share, vested immediately and expire on March 12, 2007. As of
May 31, 1998, options with respect to 2,755 shares have been exercised
and all of the remaining options are exercisable. The estimated fair
market value of FMP's common stock on the date of grant exceeded the
exercise price of the options by approximately $425,000. Accordingly,
such amount was recorded as compensation expense in March 1997.
In connection with the Merger, options and warrants to purchase 982,250
shares of RG common stock outstanding as of the Merger date were
converted into options and warrants to purchase 491,125 shares of RPI
common stock.
In October 1997, RPI adopted the Royal Precision, Inc. Stock Option Plan
(the RPI Plan) which is subject to shareholder approval. The RPI Plan is
administered by the Board of Directors and provides for the granting of
nonqualified stock options to certain employees, consultants and
directors. As of May 31, 1998, 750,000 shares of common stock are
reserved for issuance under the RPI Plan. During the year ended May 31,
1998, 250,000 options were granted under the RPI plan. All of such
options were cancelled during the year ended May 31, 1998 and as of May
31, 1998, there are no options outstanding under the RPI Plan.
F-17
<PAGE> 34
Stock option and warrant activity is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at May 31, 1996 - $ -
Granted 169,761 0.24
-------- ------
Outstanding at May 31, 1997 169,761 0.24
Converted from RG options 491,125 7.53
in connection with RG merger
Granted 250,000 6.75
Exercised (55,255) .28
Cancelled (250,000) 6.75
Expired (1,875) 13.00
-------- ------
Outstanding at May 31, 1998 603,756 $ 6.13
======== ======
</TABLE>
A summary of information about stock options and warrants outstanding at
May 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at May 31, 1998 Life Price at May 31, 1998 Price
------ --------------- ---- ----- --------------- -----
<S> <C> <C> <C> <C> <C>
$0.24 167,006 8.9 years $0.24 167,006 $0.24
$5.26 - $9.00 278,625 5.6 years $6.07 260,723 $6.07
$10.00 - $24.50 158,125 2.7 years $12.44 158,125 $12.44
-------- --------
603,756 585,854
======== ========
</TABLE>
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS No. 123 requires the measurement of the fair value of
stock-based compensation to be included in the statement of operations or
disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based compensation
for employees under Accounting Principles Board Opinion No. 25 and elect
the disclosure-only alternative under SFAS No. 123. The Company has
computed the pro forma disclosures required under SFAS No. 123 for the
options granted in March 1997 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123. The weighted average assumptions
used are as follows for the year ended May 31, 1997:
<TABLE>
<S> <C>
Risk free interest rate 6.7%
Expected dividend yield None
Expected life 7 years
Expected volatility 55%
</TABLE>
The only options granted during the year ended May 31, 1998 were also
cancelled. Since the Company accounts for cancellations on an actual
basis for SFAS No. 123 disclosure purposes, the grant has no effect on
net loss for the year ended May 31, 1998. Had compensation cost for the
F-18
<PAGE> 35
Company's stock plan been determined consistent with SFAS No. 123, the
Company's net income and basic and diluted net income per share would
have been the following pro forma amounts for the year ended May 31, 1997
(in thousands, except per share data):
<TABLE>
<S> <C>
Net income:
As reported $763
Pro forma $753
Basic and diluted net income per share:
As reported $.18
Pro forma $.18
</TABLE>
The resulting pro forma compensation cost may not be representative of
that to be expected in future years, since the pro forma amounts above
consider only options granted in fiscal 1997.
9. Income Taxes:
-------------
The components of the provision for (benefit from) income taxes are as
follows for the years ended May 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current $21 $ 948
Deferred 7 (362)
--- -----
$28 $ 586
=== =====
</TABLE>
RPI's effective income tax rate, as a percent of pretax income, differs
from the statutory federal rate as follows for the years ended May 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Statutory federal income tax rate (34)% 34%
State taxes, net of federal benefit 9 6
Nondeductible goodwill amortization 67 -
Other - 3
Change in valuation allowance (30) -
---- ---
Effective income tax rate 12% 43%
==== ===
</TABLE>
F-19
<PAGE> 36
The components of deferred income tax assets (liabilities) as of May 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current asset -
Financial reserves not currently
deductible $ 621
Long-term asset (liability) -
Tax effect of net operating loss
carryforwards 2,170
Book basis in excess of tax for
property plant and equipment (453)
Compensation expense related to grant
of stock options 325
Other 377
Valuation allowance (2,821)
-------
$ 219
=======
</TABLE>
As of May 31, 1998, RPI has federal and state net operating loss (NOL)
carryforwards of approximately $6.4 million of which $5.8 million relate
to RG for periods prior to the Merger (Pre-Merger NOL's). Such Pre-merger
NOL's are available only to offset RG income after the merger.
Additionally, the use of such Pre-merger NOL's is limited to $620,000 per
annum under Section 382 of the Internal Revenue Code. As of May 31, 1998,
$465,000 (related to the post-Merger period for the nine months ended May
31, 1998), of Pre-Merger NOL's are available for usage. Due to
uncertainty of realization, a valuation allowance has been recorded to
fully offset the value of the NOL carryforwards. If any Pre-merger NOL's
carryforwards are used in the future, the related benefit will be
recorded as a reduction in goodwill. The NOL's, if unused, expire in 2008
through 2018.
10. Related Party Transactions:
---------------------------
In connection with the Brunswick Acquisition and the RG Merger (see Note
1), fees of approximately $500,000 and $607,000, respectively, were paid
to related parties. Additionally, certain of these companies receive
advisory fees.
Professional and advisory fees and expense reimbursements of
approximately $416,000 and $403,000 were paid to certain shareholders or
their affiliates during the years ended May 31, 1998 and 1997,
respectively.
11. Foreign Sales:
--------------
RPI has export sales to customers located primarily throughout Japan,
Canada and the United Kingdom. Foreign sales were approximately 18% and
10% of RPI's sales for the years ended May 31, 1998 and 1997,
respectively.
F-20
<PAGE> 37
12. Benefit Plans:
--------------
401(k) Plan -
-------------
The Company maintains a defined contribution benefit plan intended to
comply with Section 401(k) of the Internal Revenue Code. Each year,
eligible participants may elect to make salary reduction contributions on
their behalf up to a maximum of the lesser of 15% of compensation or the
annual maximum contribution established by the Internal Revenue Service.
Participants may also make voluntary after-tax contributions to the
defined contribution benefit plan. The Company does not contribute to the
defined contribution benefit plan.
Pension Plan -
--------------
The Brunswick Acquisition agreement required FMP to establish a pension
plan for union employees which provided benefits similar to those
provided to FMP's union employees prior to the Brunswick Acquisition.
Accordingly, the FM Precision Golf Corp. Pension Plan for Represented
Hourly Wage Employees (the Plan) was implemented effective January 1,
1997.
FMP contributes such amounts as are necessary on an actuarial basis to
provide the Plan with assets sufficient to meet the benefits to be paid
to participants. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be
earned in the future.
The following table sets forth the funded status of the Plan and amounts
recognized in RPI's consolidated balance sheet at May 31, 1998 (in
thousands):
<TABLE>
<CAPTION>
1998
----
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ -
Non-vested benefit obligation 181
----
Accumulated benefit obligation $181
====
Projected benefit obligation $181
Plan assets at fair value 120
----
Projected benefit obligation in excess of plan assets 61
Unrecognized net gain 15
----
Accrued pension expense $ 76
====
</TABLE>
F-21
<PAGE> 38
Net pension costs for the years ended May 31, 1998 and 1997 included the
following components (in thousands):
1998 1997
---- ----
Service cost - benefits earned during
the period $ 85 $ 80
Interest cost of projected benefit
obligations 7 8
Excess cost (return) on plan assets 10 (8)
Net amortization and deferral - 8
---- ----
Net periodic pension cost $102 $ 88
==== ====
Assumptions used in the actuarial valuations for the years ended May 31,
1998 and 1997 were as follows:
1998 1997
---- ----
Discount rate 7.5% 7.5%
Expected long-term rate of
return on assets 9.0 9.0
13. Information on Segments:
------------------------
The Company has three reportable segments: golf shafts, golf grips and
headwear. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance of these segments based on segment profit or
loss after income taxes. The Company allocates certain administrative
expenses to segments. The amounts in this illustration are assumed to be
the amounts in reports used by the chief operating decision maker as of
May 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Year Ended May 31, 1998
-------------------------------------------------------
Golf Golf
Shafts Grips Headwear Total
------ ----- -------- -----
<S> <C> <C> <C> <C>
Revenues from external customers $21,023 $3,699 $2,899 $27,621
Intersegment revenues - - 8 8
Interest expense 573 119 3 695
Depreciation and amortization 524 224 242 990
Segment profit (loss) 127 165 (555) (263)
Segment assets 9,276 12,249 1,956 23,481
Segment capital expenditures 828 206 4 1,038
Total assets for reportable segments $23,481
Elimination of investment in subsidiary (7,623)
Goodwill not allocated to segments 10,028
-------
Consolidated total assets $25,886
=======
</TABLE>
For the year ended May 31, 1997, the Company had only one segment, golf
shafts.
F-22
<PAGE> 39
14. Concentration of Credit Risk:
-----------------------------
RPI 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, RPI
requires letter of credit agreements from its Japanese distributor.
15. Significant Customer:
---------------------
The two largest customers each accounted for more than 10% of the
Company's net sales for the year ended May 31, 1998 and in the aggregate
accounted for 28% of the Company's net sales for that year. The largest
customer of the Company was the only customer that accounted for more
than 10% of the Company's net sales with 13% of the Company's net sales
for the year ended May 31, 1997.
16. Commitments and Contingencies:
------------------------------
RPI 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 RPI's financial
condition or future operating results.
F-23
<PAGE> 40
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information regarding the Company's directors is set forth at "ELECTION
OF DIRECTORS; Business Experience," in the Company's Proxy Statement for its
1998 Annual Meeting of Shareholders (the "1998 Proxy Statement") which
information is incorporated herein by reference.
The executive officers of the Company and their ages and positions are
as follows:
Name Age Position
---- --- --------
Thomas A. Schneider 38 President, Chief Operating Officer,
Chief Financial Officer
David E. Johnston 43 Executive Vice President,
Special Projects
Ronald L. Chalmers 52 Executive Vice President,
Administration/Manufacturing
Anthony Montgomery 35 Vice President, Sales
Kevin Neill 29 Corporate Controller
William B. Faragher 46 Division Controller, Chief
Accounting Officer
Thomas A. Schneider is a certified public accountant and was Vice
President - Finance and Secretary of Royal Grip, Inc. from January 1996 to
October, 1997 and served as Vice President, Chief Financial Officer of the
Company from October 1997 to August 1998, when he was elected to serve as
President, Chief Operating Officer and Chief Financial Officer. Prior to 1996,
Mr. Schneider served for five years as the controller of Karsten Manufacturing
Corp., the maker of Ping golf equipment.
David E. Johnston served as Vice President of the Company from its
organization in 1996 until October 1997, served as Executive Vice President,
Chief Operating Officer from October 1997 until August 1998 when he was
appointed Executive Vice President, Special Projects. Mr. Johnston has been a
director of the Company since June 1996. Mr. Johnston was Sales Manager of
Buckhorn Rubber Products, Inc., a molded rubber products manufacturer, from 1989
to 1996. Mr. Johnston is the son of Richard P. Johnston and the brother of
Leslie Reesing.
-17-
<PAGE> 41
Ronald L. Chalmers served as the Director of Sales/Marketing of
Brunswick Corporation from 1992 to May 1996. From May 1996 until October 1997,
he served as President of FM Precision Golf Manufacturing Corp., the Company's
shaft manufacturing subsidiary. He has served as Executive Vice President -
Administration/Manufacturing of the Company since October 1997 and has been a
director of the Company since June 1996.
Anthony Montgomery was President of Montgomery & Assoc. from 1993 to
1995 and Vice President of Unique Impressions from 1995 to 1996, companies
engaged in manufacturing and marketing of golf products, served as Director of
Sales of FM Precision Golf Manufacturing Corp., the Company's shaft
manufacturing subsidiary, in 1996 and 1997, and has been Vice President, Sales
of the Company since April 1998.
Kevin Neill has been Corporate Controller of the Company since June
1998. From July 1991 to October 1995, Mr. Neill was employed by Arthur Andersen
LLP an accounting firm, and from October 1995 to June 1998, he was Assistant
Controller of SunCor Development, a real estate development company.
William B. Faragher was Controller, chief accounting officer of the
Company from October 1997 to June 1998 when he was appointed Division
Controller, chief accounting officer. Prior to joining the Company in June 1996,
Mr. Faragher was Controller of Brunswick Golf from January 1991 to May 1996.
Information relating to compliance with Section 16(a) of the Exchange
Act is set forth at "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in
the 1998 Proxy Statement which information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is set forth at "COMPENSATION OF
MANAGEMENT" in the 1998 Proxy Statement which information is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth at "SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS"
in the 1998 Proxy Statement which information is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth at "CERTAIN
TRANSACTIONS" in the 1998 Proxy Statement which information is incorporated
herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
-18-
<PAGE> 42
(3) Certificate of Incorporation and Bylaws
3.1. Amended and Restated Certificate of Incorporation of registrant
(incorporated by reference to Annex IV to the Company's Form S-4, No. 333-28841)
(the "Form S-4").
3.2. Bylaws of Royal Precision, Inc. (incorporated by reference to
Exhibit 3.2 to the Form S-4).
(4) Instruments defining the rights of holders
4.1. See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of the registrant (incorporated by reference to
Exhibit 3.1 to the Form S-4).
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. (incorporated by reference
to Exhibit 3.2 to the Form S-4).
(10) Material Contracts (*indicates management contract or compensatory
plan or arrangement).
10.1. Management Stockholders Agreement dated May 29, 1996 with Ronald
L. Chalmers, et al (incorporated by reference to Exhibit 10.2.4 of the Form S-4.
10.2. 1997 Stock Option Plan dated March 13, 1997 (incorporated by
reference to Exhibit 10.2.5 of the Form S-4.*
10.3. Form of Option Agreement with those not parties to the Management
Stockholders Agreement (incorporated by reference to Exhibit 10.2.6 of the Form
S-4).*
10.4. Form of Option Agreement with those who are parties to the
Management Stockholders Agreement (incorporated by reference to Exhibit 10.2.7
of the Form S-4).*
10.5. Consulting Agreement with Danny Edwards (incorporated by
reference to Exhibit 2.2 of the Form S-4).*
10.6. Open-end Mortgage Deed, Security Agreement and Fixture Filing
dated May 31, 1996 to Star Bank (incorporated by reference to Exhibit 10.3.1 of
the Form S-4).
10.7. Financing Agreement dated May 31, 1996 with Star Bank
(incorporated by reference to Exhibit 10.3.2 of the Form S-4).
10.8. Guaranty dated May 31, 1996 to Star Bank from FM Precision Golf
Manufacturing Corp. (incorporated by reference to Exhibit 10.3.3 of the Form
S-4).
10.9. Guaranty dated May 31, 1996 to Star Bank from FM Precision Golf
Sales Corp. (incorporated by reference to Exhibit 10.3.4 of the Form S-4).
-19-
<PAGE> 43
10.10. Guaranty dated May 31, 1996 to Star Bank from FM Precision Golf
Corp. (incorporated by reference to Exhibit 10.3.5 of the Form S-4).
10.11. Guaranty dated May 31, 1996 by Christopher A. Johnston, Richard
P. Johnston and Berenson Minella to Star Bank (incorporated by reference to
Exhibit 10.3.6 of the Form S-4).
10.12 Security Agreement dated May 31, 1996 with Star Bank and FM
Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.7 of the Form S-4).
10.13. Security Agreement dated May 31, 1996 with Star Bank and FM
Precision Golf Corp. (incorporated by reference to Exhibit 10.3.8 of the Form
S-4).
10.14. Credit and Security Agreement dated February 10, 1997 with Royal
Grip, Roxxi and Norwest Business Credit (incorporated by reference to Exhibit
10.19 to Royal Grip, Inc.'s 1996 Form 10-K; Commission File No. 0-22230) ("RG's
1996 Form 10-K").
10.15. First Amendment to Credit Agreement dated April 11, 1997 with
Norwest (incorporated by reference to Exhibit 10.20 of RG's 1996 Form 10-K).
10.16 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).
10.17 Lease Agreement dated February 22, 1996 with HM Real Estate,
L.L.C. for Oklahoma City facility (incorporated by reference to Exhibit 10.12 to
RG's 1996 Form 10-K).
10.18 Manufacturing and Supply Agreement dated December 21, 1996 with
Acushnet (incorporated by reference to Exhibit 10.16 to RG's 1996 Form 10-K).
10.19. Capital Lease Agreement with Acushnet (incorporated by reference
to Exhibit 10.18 to RG's 1996 Form 10-K).
10.20. Amendment to Manufacturing and Supply Agreement dated April 4,
1997 with Acushnet (incorporated by reference to RG's 1996 Form 10-K).
10.21. Manufacturers' Representative Agreement dated March 1, 1979 with
Union Tubular Products, Brunswick Corporation and M.A. Clark (incorporated by
reference to Exhibit 10.4.6 of the Form S-4).
10.22. Distributor Agreement effective August 20, 1990 with Brunswick
and Infiniti Golf (incorporated by reference to Exhibit 10.4.7 of the Form S-4).
10.23. First Amendment to Financing Agreement dated January 29, 1997
between Star Bank National Association, FM Precision Golf Manufacturing Corp.
and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit 10.3.11
of the Quarterly Report on Form 10-
-20-
<PAGE> 44
QSB for the quarter ended November 29, 1997, Commission File No. 0-22889) (the
"November 1997 Form 10-QSB").
10.24. Second Amendment to Financing Agreement dated August 20, 1997
between Star Bank National Association, FM Precision Golf Manufacturing Corp.
and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit 10.3.12
of the November 1997 Form 10-QSB).
10.25 Third Amendment to Financing Agreement dated November 7, 1997
between Star Bank National Association, FM Precision Golf Manufacturing Corp.
and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit 10.3.13
of the November 1997 Form 10-QSB).
10.26. Fourth Amendment to Financing Agreement dated January 6, 1998
between Star Bank National Association, FM Precision Golf Manufacturing Corp.
and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit 10.3.14
of the November 1997 Form 10-QSB).
10.27. Fifth Amendment to Financing Agreement dated January 13, 1998,
between Star Bank National Association, FM Precision Golf Manufacturing Golf
Corp. and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit
10.3.15 of the Quarterly Report on Form 10-QSB for the quarter ended February
28, 1998, Commission File No. 0-22889) (the "February 1998 Form 10-QSB").
10.28. Sixth Amendment to Financing Agreement dated January 21, 1998,
between Star Bank National Association, FM Precision Golf Manufacturing Golf
Corp. and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit
10.3.16 of the February 1998 Form 10-QSB).
10.29. Seventh Amendment to Financing Agreement dated March 17, 1998,
between Star Bank National Association, FM Precision Golf Manufacturing Golf
Corp. and FM Precision Golf Sales Corp. (incorporated by reference to Exhibit
10.3.17 of the February 1998 Form 10-QSB).
10.30. Second Amendment to Credit Agreement dated August 28, 1997 with
Norwest Business Credit.
10.31. Third Amendment to Credit Agreement dated May 1, 1998 with
Norwest Business Credit.
10.32. Royal Precision, Inc. Stock Option Plan dated October 5, 1997*.
18. Letter on change in accounting principles.
(21) Subsidiaries of the Registrant.
(23) Consents
23.1. Consent of Arthur Andersen LLP.
-21-
<PAGE> 45
(24) Power of Attorney
24.1. Powers of Attorney.
24.2. Certified resolution of the Registrant's Board of Directors
authorizing officers and directors signing on behalf of the Company to sign
pursuant to a power of attorney.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No current report on Form 8-K was filed by the Registrant during the
fourth quarter of fiscal 1998.
-22-
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 24, 1998
ROYAL PRECISION, INC.
(the "Registrant")
By /s/ Thomas A. Schneider
-------------------------------
Thomas A. Schneider,
President, Chief Operating Officer and Chief
Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities on the
24th day of August, 1998.
Name Title (Capacity)
---- ----------------
/s/ Thomas A. Schneider President, Chief Operating Officer and
- --------------------------- Chief Financial Officer
Thomas A. Schneider
/s/ Richard P. Johnston* Director
- ---------------------------
Richard P. Johnston
/s/ David E. Johnston* Director
- ---------------------------
David E. Johnston
/s/ Lawrence Bain* Director
- ---------------------------
Lawrence Bain
/s/ Ronald L. Chalmers* Director
- ---------------------------
Ronald L. Chalmers
/s/ Raymond J. Minella* Director
- ---------------------------
Raymond J. Minella
/s/ Kenneth J. Warren* Director
- ---------------------------
Kenneth J. Warren
/s/ Danny Edwards* Director
- ---------------------------
Danny Edwards
/s/ Robert G. J. Burg, II* Director
- ---------------------------
Robert G. J. Burg, II
-23-
<PAGE> 47
/s/ Leslie Reesing Director
- ---------------------------
Leslie Reesing
* Thomas A. Schneider, by signing his name hereto, does sign this document on
behalf of the persons indicated above pursuant to a Power of Attorney duly
executed by such persons.
By: /s/ Thomas A. Schneider
---------------------------
Thomas A. Schneider, Attorney in Fact
-24-
<PAGE> 48
EXHIBIT INDEX
PAGE IN
SEQUENTIALLY
NUMBERED
EXHIBIT COPY
3.1 Amended and Restated Certificate of Incorporation of
registrant (incorporated by reference to Annex IV to the
Company's Form S-4, No. 333-28841) (the "Form S-4") *
3.2 Bylaws of Royal Precision, Inc. (incorporated by reference to
Exhibit 3.2 to the Form S-4) *
4.1 See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of the registrant (incorporated
by reference to Exhibit 3.1 to the Form S-4. *
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.
(incorporated by reference to Exhibit 3.2 to the Form S-4) *
10.1 Management Stockholders Agreement dated May 29, 1996 with
Ronald L. Chalmers, et al (incorporated by reference to
Exhibit 10.2.4 of the Form S-4. *
10.2 1997 Stock Option Plan dated March 13, 1997 (incorporated by
reference to Exhibit 10.2.5 of the Form S-4. *
10.3 Form of Option Agreement with those not parties to the
Management Stockholders Agreement (incorporated by reference
to Exhibit 10.2.6 of the Form S-4). *
10.4. Form of Option Agreement with those who are parties to the
Management Stockholders Agreement (incorporated by reference
to Exhibit 10.2.7 of the Form S-4). *
10.5 Consulting Agreement with Danny Edwards (incorporated by
reference to Exhibit 2.2 of the Form S-4). *
10.6. Open-end Mortgage Deed, Security Agreement and Fixture Filing
dated May 31, 1996 to Star Bank (incorporated by reference to
Exhibit 10.3.1 of the Form S-4). *
10.7 Financing Agreement dated May 31, 1996 with Star Bank
(incorporated by reference to Exhibit 10.3.2 of the Form S-4. *
10.8 Guaranty dated May 31, 1996 to Star Bank from FM Precision
Golf Manufacturing Corp. (incorporated by reference to
Exhibit 10.3.3 of the Form S-4). *
10.9 Guaranty dated May 31, 1996 to Star Bank from FM Precision
Golf Sales Corp. (incorporated by reference to Exhibit 10.3.4
of the Form S-4). *
10.10 Guaranty dated May 31, 1996 to Star Bank from FM Precision
Golf Corp. (incorporated by reference to Exhibit 10.3.5 of
the Form S-4). *
10.11 Guaranty dated May 31, 1996 by Christopher A. Johnston,
Richard P. Johnston and Berenson Minella to Star Bank
(incorporated by reference to Exhibit 10.3.6 of the Form
S-4). *
-25-
<PAGE> 49
10.12 Security Agreement dated May 31, 1996 with Star Bank and
FM Precision Golf Manufacturing Corp. and FM Precision Golf
Sales Corp. (incorporated by reference to Exhibit 10.3.7 of
the Form S-4). *
10.13 Security Agreement dated May 31, 1996 with Star Bank and FM
Precision Golf Corp. (incorporated by reference to Exhibit
10.3.8 of the Form S-4). *
10.14 Credit and Security Agreement dated February 10, 1997 with
Royal Grip, Roxxi and Norwest Business Credit (incorporated
by reference to Exhibit 10.19 to Royal Grip, Inc.'s 1996 Form
10-K; Commission File No. 0-22230) ("RG's 1996 Form 10-K"). *
10.15 First Amendment to Credit Agreement dated April 11, 1997 with
Norwest (incorporated by reference to Exhibit 10.20 of RG's
1996 Form 10-K). *
10.16 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). *
10.17 Lease Agreement dated February 22, 1996 with HM Real Estate,
L.L.C. for Oklahoma City facility (incorporated by reference
to Exhibit 10.12 to RG's 1996 Form 10-K. *
10.18 Manufacturing and Supply Agreement dated December 21, 1996
with Acushnet (incorporated by reference to Exhibit 10.16 to
RG's 1996 Form 10-K). *
10.19 Capital Lease Agreement with Acushnet (incorporated by
reference to Exhibit 10.18 to RG's 1996 Form 10-K). *
10.20 Amendment to Manufacturing and Supply Agreement dated April
4, 1997 with Acushnet (incorporated by reference to RG's 1996
Form 10-K). *
10.21 Manufacturers' Representative Agreement dated March 1, 1979
with Union Tubular Products, Brunswick Corporation and M.A.
Clark (incorporated by reference to Exhibit 10.4.6 of the
Form S-4). *
10.22 Distributor Agreement effective August 20, 1990 with
Brunswick and Infiniti Golf (incorporated by reference to
Exhibit 10.4.7 of the Form S-4). *
10.23 First Amendment to Financing Agreement dated January 29, 1997
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.11 of the
Quarterly Report on Form 10-QSB for the quarter ended
November 29, 1997, Commission File No. 0-22889) (the
"November 1997 Form 10-QSB"). *
10.24 Second Amendment to Financing Agreement dated August 20, 1997
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.12 of the November
1997 Form 10-QSB). *
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<PAGE> 50
10.25 Third Amendment to Financing Agreement dated November 7, 1997
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.13 of the November
1997 Form 10-QSB). *
10.26 Fourth Amendment to Financing Agreement dated January 6, 1998
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.14 of the November
1997 Form 10-QSB). *
10.27 Fifth Amendment to Financing Agreement dated January 13, 1998
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.15 of the
Quarterly Report on Form 10-QSB for the quarter ended
February 28, 1998, Commission File No. 0-22889) (the
"February 1998 Form 10-QSB"). *
10.28 Sixth Amendment to Financing Agreement dated January 21, 1998
between Star Bank National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.16 of the February
1998 Form 10-QSB). *
10.29 Seventh Amendment to Financing Agreement dated January 21,
1998 between Star Bank National Association, FM Precision
Golf Manufacturing Corp. and FM Precision Golf Sales Corp.
(incorporated by reference to Exhibit 10.3.17 of the February
1998 Form 10-QSB). *
10.30 Second Amendment to Credit Agreement dated August 28, 1997
with Norwest Business Credit 51
10.31 Third Amendment to Credit Agreement dated May 1, 1998 with
Norwest Business Credit 57
10.32 Royal Precision, Inc. Stock Option Plan dated October 5,
1997. 65
18 Letter on change in accounting principles 86
21 Subsidiaries of the Registrant 87
23.1 Consent of Arthur Andersen LLP 88
24.1 Powers of Attorney 89
24.2 Certified resolution of Registrant's Board of Directors
authorizing officers and directors signing on behalf of the
Company to sign pursuant to a power of attorney. 98
27 Financial Data Schedule (submitted for SEC purposes only)
<PAGE> 1
Exhibit 10.30
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 28th day of August, 1997 by and between
ROYAL GRIP, INC., a Nevada corporation ("Royal Grip") and ROXXI, INC., a Nevada
corporation ("Roxxi") (collectively, the "Borrower"), and NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of February 10, 1997, as amended by that certain First
Amendment to Credit Agreement dated as of April 11, 1997 (the "Credit
Agreement").
The Lender has agreed to make certain loan advances to the Borrower
pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's Revolving and Term Note dated as of February 10, 1997, in the maximum
principal amount of $2,450,000.00 and payable to the order of the Lender (the
"Note").
All indebtedness of the Borrower to the Lender is secured pursuant to
the terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless otherwise
defined herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of "Net Income" is hereby deleted in its
entirety and replaced as follows:
"Net Income" means consolidated after tax net income of both the
Borrowers from continuing operations, but before extraordinary gains,
provided however, during Borrower's 1997 fiscal year only, non-cash
out-of-pocket expenses of Borrower directly attributable to the issuance
of warrants and options to Everen shall be added back into the net
income calculation.
1
<PAGE> 2
(b) The definition of "Net Worth" is hereby deleted in its entirety
and replaced as follows:
"Net Worth" means the net worth of the Borrower determined in
accordance with generally accepted accounting principles consistent with
those used in preparing Borrower's most recent consolidating and
consolidated audited financial statements; provided however, during
Borrower's 1997 fiscal year only, non-cash out-of-pocket expenses of
Borrower directly attributable to the issuance of warrants and options
to Everen shall be added back into the net worth calculation
(c) There is hereby added new subsections (iv) and (v) to Section
7.4 of the Credit Agreement which provides as follows:
(iv) Loans, advances or any other credits shown on the balance sheet
of Borrower granted to Royal Precision, FM Precision Golf
Corp., or FMPSUB,, Inc. not to exceed in the aggregate
$25,000.00 at any time outstanding.
(v) Payments to Royal Precision, FM Precision Golf Corp or FMPSUB,
Inc. so long as they are expensed in accordance with generally
accepted accounting principles, and appear on all statements of
income required pursuant to Section 6.1.
(d) Section 7.10 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
7.10 CAPITAL EXPENDITURES. The Borrower will not expend or contract
to make unfinanced Capital Expenditures greater than (i) $400,000.00 in
the aggregate during the 1997 fiscal year, or (ii) $800,000.00 in the
aggregate during any fiscal year thereafter for the lease, purchase or
other acquisition of any capital asset, or for the lease of any other
asset, whether payable currently or in the future.
3. Except as specifically amended by this Amendment, all of the terms
and conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any Advance thereunder.
4. This Amendment shall be effective upon receipt by the Lender of an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying as to
(i) the approval of the board of directors of the Borrower regarding the
execution and delivery of this
2
<PAGE> 3
Amendment, (ii) the fact that the Articles of Incorporation and Bylaws of the
Borrower, which were certified and delivered to the Lender in connection with
the execution and delivery of the Credit Agreement continue in full force and
effect and have not been amended or otherwise modified except as set forth in
the Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender as being authorized
to sign and to act on behalf of the Borrower continue to be so authorized.
5. The Borrower hereby represents and warrants to the Lender as
follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and do not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article
V of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
6. All references in the Credit Agreement to "this Agreement" shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
7. The execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default, Event of
Default or Default Period under the Credit Agreement or breach, default or event
of default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
8. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the
3
<PAGE> 4
present and former directors, officers, agents and employees of any of the
foregoing, from any and all claims, demands or causes of action of any kind,
nature or description, whether arising in law or equity or upon contract or tort
or under any state or federal law or otherwise, which the Borrower has had, now
has or has made claim to have against any such person for or by reason of any
act, omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
9. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses
incurred by the Lender in connection with the Credit Agreement, the Security
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. The Borrower hereby agrees
that the Lender may, at any time or from time to time in its sole discretion and
without further authorization by the Borrower, make a loan to the Borrower under
the Credit Agreement, or apply the proceeds of any loan, for the purpose of
paying any such fees, disbursements, costs and expenses.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
ROYAL GRIP, INC., a Nevada corporation
By /s/ Thomas Schneider
-------------------------------------
Its Secretary
--------------------------------
ROXXI, INC., a Nevada corporation
By /s/ Thomas Schneider
-------------------------------------
Its Secretary
--------------------------------
4
<PAGE> 5
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
Its Vice President
--------------------------------
5
<PAGE> 1
Exhibit 10.31
THIRD AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 1st day of May, 1998 by and
between ROYAL GRIP, INC., a Nevada corporation ("Royal Grip") and ROXXI, INC., a
Nevada corporation ("Roxxi") (collectively, the "Borrower"), and NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and
Security Agreement dated as of February 10, 1997, as amended by that certain
First Amendment to Credit Agreement dated April 11, 1997, as amended by that
certain Second Amendment to Credit Agreement dated August 28, 1997
(collectively, the "Credit Agreement").
The Lender has agreed to make certain loan advances to the
Borrower pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by
the Borrower's Revolving and Term Note dated as of February 10, 1997, in the
maximum principal amount of $2,450,000.00 and payable to the order of the Lender
(the "Note").
All indebtedness of the Borrower to the Lender is secured
pursuant to the terms of the Credit Agreement and all other Security Documents
as defined therein (collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to
the Credit Agreement, which the Lender is willing to make pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. Prior to the date of this Amendment, the Borrower has (i) failed to
submit audited fiscal year end financial statements within 90 days of the fiscal
year ending 1997 as required by Section 6.1(a) of the Credit Agreement, (ii)
allowed Bob Burg to resign as President of Royal Grip and allowed Danny Edwards
to resign as Chief Executive Officer of Royal Grip in violation of Section 7.20
of the Credit Agreement, (iii) made advances to Royal Precision, FM Precision
Golf Corp., and FMPSUB, Inc., in excess of $25,000.00 in violation of Section
7.4(iv) of the Credit Agreement, and (iv) changed Royal Grip's fiscal year end
from December 31 to May 31 in violation of Section 7.11 of the Credit Agreement
(collectively the "Current Defaults"). Upon satisfaction by Borrower of all of
the terms and conditions set forth in this Amendment, the Lender, although under
no obligation to do so, shall waive the Current Defaults.
1
<PAGE> 2
Nothing herein shall be construed as a waiver by Lender of any existing default
or Default Period under the terms of the Credit Agreement other than the Current
Defaults. Nothing herein shall be construed as obligating Lender to waive any
future defaults or Default Period under the Credit Agreement including any
future defaults or Default Period under Sections 6.1, 7.4, 7.11 and 7.20 of the
Credit Agreement. Upon the satisfaction of all of the terms and conditions set
forth in this Amendment, the Default Period arising as a result of the Current
Defaults shall be deemed to have ceased.
3. The Credit Agreement is hereby amended as follows:
(a) Section 6.1(a) of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
(a) as soon as available, and in any event
within 90 days after the end of each fiscal year of the
Borrower, (i) unaudited consolidating financial statements,
prepared by the accountants described below, of FM Precision
Golf Corp., Royal Grip and Roxxi, which financial statements
shall include the balance sheets of said entities as of the
end of such fiscal year and the related statements of income,
retained earnings and cash flows of said entities for the
fiscal year then ended, all in reasonable detail and prepared
in accordance with generally accepted accounting principles
applied on a consistent basis with the accounting practices
applied in the financial statements referred to in Section
5.5, and (ii) consolidated audited financial statements of
Royal Precision, Inc. with the unqualified opinion of Arthur
Andersen, L.L.P. or such other independent certified public
accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the
consolidated balance sheet of FM Precision Golf Corp., Royal
Grip and Roxxi as at the end of such fiscal year and the
related consolidated statements of income, retained earnings
and cash flows, all in reasonable detail and prepared in
accordance with generally accepted accounting principles
applied on a basis consistent with the accounting practices
applied in the financial statements referred to in Section 5.5
hereof, together with (1) a report signed by such accountants
stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically
stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12
through 6.14 and Section 7.10 hereof; and (2) a certificate of
the Vice President of Finance or any other officer of each of
Royal Grip and Roxxi stating that FM Precision Golf Corp.'s,
Roxxi's and Royal Grip's unaudited consolidating financial
statements have been prepared in accordance with generally
accepted accounting
2
<PAGE> 3
principles applied on a basis consistent with the accounting
practices reflected in the annual financial statements
referred to in Section 5.5 hereof and whether or not such
officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto;
(b) Section 6.12 of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
Section 6.12 DEBT SERVICE COVERAGE RATIO. The
Borrower agrees that it shall, as of the last day of each
fiscal year, commencing on May 31, 1998 (based upon the
immediately preceding five month period) and continuing each
fiscal year thereafter (based upon the immediately preceding
twelve month period), maintain a minimum debt service coverage
ratio of 1.0 to 1.
The debt service coverage ratio shall be calculated
according to the following formula:
<TABLE>
<S> <C>
FUNDS FROM OPERATIONS + INTEREST EXPENSE - UNFINANCED PORTION OF CAPITAL EXPENDITURES
-------------------------------------------------------------------------------------
Current Maturities Long-Term Debt (actually paid during the period) + Interest Expense
</TABLE>
(c) Section 6.13 of the Credit Agreement is hereby deleted in
its entirety and replaced as follows:
Section 6.13 NET WORTH. The Borrower warrants that,
as of December 31, 1997 Borrower had a minimum Net Worth of
not less than $3,700,000.00.
The Borrower covenants that its minimum Net Worth as
of the end of each month listed below shall increase by not
less than (or in the event a decrease is allowed, decrease by
not more than) the amounts set forth below as measured from
the Borrower's Net Worth as of the applicable measurement date
set forth below.
<TABLE>
<CAPTION>
MONTH ENDING CUMULATIVE NET MEASUREMENT DATE
WORTH INCREASE
(DECREASE)
<S> <C> <C>
March 31, 1998 ($85,000.00) December 31, 1997
April 30, 1998 ($85,000.00) December 31, 1997
May 31, 1998 ($85,000.00) December 31, 1997
June 30, 1998 $12,000.00 May 31, 1998
July 31, 1998 $24,000.00 May 31, 1998
August 31, 1998 $39,000.00 May 31, 1998
September 30, 1998 $57,000.00 May 31, 1998
October 31, 1998 $39,000.00 May 31, 1998
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
November 30, 1998 $39,000.00 May 31, 1998
December 31, 1998 $0.00 May 31, 1998
January 31, 1999 and ($45,000.00) May 31, 1998 and for each
each January thereafter January thereafter the
immediately preceding May
31
February 28, 1999 and ($50,000.00) May 31, 1998 and for each
each February thereafter February thereafter the
immediately preceding May
31
March 31, 1999 and each ($15,000.00) May 31, 1998 and for each
March thereafter March thereafter the
immediately preceding May
31
April 30, 1999 and each $20,000.00 May 31, 1998 and for each
April thereafter April thereafter the
immediately preceding May
31
May 31, 1999 and each $48,000.00 May 31, 1998 and for each
May thereafter May thereafter the
immediately preceding May
31
June 30, 1999 and each $12,000.00 May 31, 1999 and for each
June thereafter June thereafter the
immediately preceding May
31
July 31, 1999 and each $24,000.00 May 31, 1999 and for each
July thereafter July thereafter the
immediately preceding May
31
August 31, 1999 and $39,000.00 May 31, 1999 and for each
each August thereafter August thereafter the
immediately preceding May
31
September 30, 1999 and $57,000.00 May 31, 1999 and for each
each September September thereafter the
thereafter immediately preceding May
31
October 31, 1999 and $39,000.00 May 31, 1999 and for each
each October thereafter October thereafter the
immediately preceding May
31
November 30, 1999 and $39,000.00 May 31, 1999 and for each
each November thereafter November thereafter the
immediately preceding May
31
December 31, 1999 and $0.00 May 31, 1999 and for each
each December thereafter December thereafter the
immediately preceding May
31
</TABLE>
4
<PAGE> 5
(d) Section 6.14 of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
6.14 NET INCOME. The Borrower covenants that it shall
achieve a Net Income of not less than (or in the event a Net
Loss is allowed, achieve a Net Loss of not more than) the
amounts set forth below as measured from the applicable
Measurement Date set forth below:
<TABLE>
<CAPTION>
MONTH ENDING NET INCOME/NET MEASUREMENT DATE
LOSS
<S> <C> <C>
March 31, 1998 ($85,000.00) December 31, 1997
April 30, 1998 ($85,000.00) December 31, 1997
May 31, 1998 ($85,000.00) December 31, 1997
June 30, 1998 $12,000.00 May 31, 1998
July 31, 1998 $24,000.00 May 31, 1998
August 31, 1998 $39,000.00 May 31, 1998
September 30, 1998 $57,000.00 May 31, 1998
October 31, 1998 $39,000.00 May 31, 1998
November 30, 1998 $39,000.00 May 31, 1998
December 31, 1998 $0.00 May 31, 1998
January 31, 1999 and ($45,000.00) May 31, 1998 and for each
each January thereafter January thereafter the
immediately preceding May
31
February 28, 1999 and ($50,000.00) May 31, 1998 and for each
each February thereafter February thereafter the
immediately preceding May
31
March 31, 1999 and each ($15,000.00) May 31, 1998 and for each
March thereafter March thereafter the
immediately preceding May
31
April 30, 1999 and each $20,000.00 May 31, 1998 and for each
April thereafter April thereafter the
immediately preceding May
31
May 31, 1999 and each $48,000.00 May 31, 1998 and for each
May thereafter May thereafter the
immediately preceding May
31
June 30, 1999 and each $12,000.00 May 31, 1999 and for each
June thereafter June thereafter the
immediately preceding May
31
July 31, 1999 and each $24,000.00 May 31, 1999 and for each
July thereafter July thereafter the
immediately preceding May
31
August 31, 1999 and $39,000.00 May 31, 1999 and for each
each August thereafter August thereafter the
immediately preceding May
31
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1999 and $57,000.00 May 31, 1999 and for each
each September September thereafter the
thereafter immediately preceding May
31
October 31, 1999 and $39,000.00 May 31, 1999 and for each
each October thereafter October thereafter the
immediately preceding May
31
November 30, 1999 and $39,000.00 May 31, 1999 and for each
each November thereafter November thereafter the
immediately preceding May
31
December 31, 1999 and $0.00 May 31, 1999 and for each
each December thereafter December thereafter the
immediately preceding May
31
</TABLE>
Notwithstanding anything to the contrary, beginning
with March of 1998, and continuing for each month thereafter,
the Borrower shall not suffer a Net Loss in excess of (i)
$100,000.00 in any month of February, March, April, May, June,
July, August, September, October or November, or (ii)
$130,000.00 in any month of December or January
(e) The figure "$25,000.00" contained in Section
7.14(iv) is hereby deleted and replaced with the figure "$100,000.00".
(f) Section 7.10 of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
7.10 CAPITAL EXPENDITURES. The Borrower will not
expend or contract to make unfinanced Capital Expenditure
greater than $450,000.00 in the aggregate during any fiscal
year for the lease, purchase or other acquisition of any
capital asset, or for the lease of any other asset, whether
payable currently or in the future.
4. Except as specifically amended by this Amendment, all of
the terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any Advance thereunder.
5. This Amendment shall be effective upon receipt by the
Lender of an executed original hereof, together with each of the following, each
in substance and form acceptable to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower
certifying as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this
6
<PAGE> 7
Amendment, (ii) the fact that the Articles of Incorporation and Bylaws of the
Borrower, which were certified and delivered to the Lender in connection with
the execution and delivery of the Credit Agreement continue in full force and
effect and have not been amended or otherwise modified except as set forth in
the Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lender as being authorized
to sign and to act on behalf of the Borrower continue to be so authorized.
6. The Borrower hereby represents and warrants to the Lender as
follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date hereof as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
8. From the date of this Amendment forward, Exhibit D of the Credit
Agreement shall be amended to comply with the revisions to the Credit Agreement
contained herein.
9. Except as specifically set forth in Section 2 above, the execution
of this Amendment and acceptance of any documents related hereto shall not be
deemed to be a waiver of any Default, Event of Default or Default Period under
the Credit Agreement or breach, default or event of default under any Security
Document or other document held by the Lender, whether or not known to the
Lender and whether or not existing on the date of this Amendment.
10. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of
7
<PAGE> 8
the present and former directors, officers, agents and employees of any of the
foregoing, from any and all claims, demands or causes of action of any kind,
nature or description, whether arising in law or equity or upon contract or tort
or under any state or federal law or otherwise, which the Borrower has had, now
has or has made claim to have against any such person for or by reason of any
act, omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
11. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses
incurred by the Lender in connection with the Credit Agreement, the Security
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. The Borrower hereby agrees
that the Lender may, at any time or from time to time in its sole discretion and
without further authorization by the Borrower, make a loan to the Borrower under
the Credit Agreement, or apply the proceeds of any loan, for the purpose of
paying any such fees, disbursements, costs and expenses.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
ROYAL GRIP, INC., a Nevada corporation
By /s/ Thomas Schneider
------------------------------------
Its Treasurer
---------------------------------
ROXXI, INC., a Nevada corporation
By /s/ Thomas Schneider
------------------------------------
Its Treasurer
---------------------------------
8
<PAGE> 9
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By /s/ [ILLEGIBLE SIGNATURE]
------------------------------------
Its Vice President
---------------------------------
9
<PAGE> 1
EXHIBIT 10.32
ROYAL PRECISION, INC.
STOCK OPTION PLAN
---------------------
OCTOBER 5, 1997
---------------------
PREAMBLE:
1. Royal Precision, Inc. a Delaware corporation (the "Company"), by
means of this 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 Parent
and Subsidiaries, 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:
"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.
"Common Stock" means the common stock with a par value of one mil
($0.001) per share, of the Company.
"Consultant" means any person who provides services to any Employer
(other than as an Employee or a Director or in connection with the offer or sale
of securities of the Employer in a capital raising transaction) and who is a
consultant or an adviser to the Employer within the meaning of General
Instruction A.1. to Form S-8 promulgated by the SEC under the Securities Act of
1933.
"Date of Grant" means the date an Option is first granted.
"Director" means a member of the Board of Directors.
"Effective Date" means the date this Plan is first adopted by the Board
of Directors.
"Employee" means any common law employee of an Employer.
"Employer" means the Company or any Parent or Subsidiary of the Company
which employs a given Employee or has engaged a given Consultant.
"Exchange Act" means the Securities Exchange Act of 1934 and the
regulations thereunder, as now in effect or hereafter amended.
<PAGE> 2
"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.
"Fair Market Value of a Share" means the amount determined to be the
fair market value of a single Share by the Committee based upon the trading
price of the Shares, their offering price in public and private offerings by the
Company and such other factors as it deems relevant. In the absence of such a
determination, the Fair Market Value of a Share shall be deemed to be (a) if the
Shares are listed or admitted to trading on a national securities exchange or
the NASDAQ - National Market System, the per Share closing price regular way on
the principal national securities exchange or the NASDAQ - National Market
System on which the Shares are listed or admitted to trading on the day prior to
the date of determination or, if no closing price can be determined for the date
of determination, the most recent date for which such price can reasonably be
ascertained, or (b) if the Shares are not listed or admitted to trading on a
national securities exchange or the NASDAQ - National Market System, the mean
between the representative bid and asked per Share prices in the
over-the-counter market at the closing of the day prior to the date of
determination or the most recent such bid and asked prices then available, as
reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished
by any market maker selected from time to time by the Company for that purpose.
"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" or "ISO" means a Stock Option intended to
comply with the terms and conditions set forth in Section 422 of the Code.
"Meeting Date" means the date of each annual meeting of the
stockholders of the Company at which Directors are elected.
"Nonqualified Option" means a Stock Option other than an Incentive
Stock Option.
"Officer" means an officer of the Company as defined in 17 C.F.R.ss.
240.16a-1(f) as now in effect or hereafter amended.
"Option" or "Stock Option" means a right granted under Article 5, 6 or
7 of the Plan to a Grantee to purchase a stated number of Shares at a stated
Exercise Price.
"Option Agreement" means an agreement evidencing an Option
substantially in the form of Exhibit A, Exhibit B or Exhibit C attached hereto.
"Parent" means a parent of a given corporation as such term is defined
in Section 424(e) of the Code.
"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.
"Rule 16b-3" means Rule 16b-3 (17 C.F.R. ss. 240.16b-3) promulgated
under Section 16(b) of the Exchange Act as now in effect or hereafter amended.
"SEC" means the Securities and Exchange Commission.
"Shares" means shares of Common Stock.
"Subsidiary" means a subsidiary of a given corporation as such term is
defined in Section 424(f) of the Code.
"Ten Percent Stockholder" means a person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary of the Company. Ownership shall, for the
purposes of the previous sentence, be determined under the rules set forth in
Section 424 of the Code.
"Termination without cause" means a termination by an Employer of the
employment or consulting relationship of a Grantee with the
<PAGE> 3
Employer 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 a committee
of the Board of Directors consisting of two or more Directors, each of whom is a
"Non--Employee Director" as described in paragraph (b)(3) of Rule 16b-3 and is
an "outside director" as described in Code Section 162(m) and the regulations
thereunder. Unless the Board of Directors designates another of its committees
to administer the Plan, the Plan shall be administered by a committee consisting
of those members of the Compensation Committee of the Board of Directors who are
disinterested persons and are outside directors, but, if the Compensation
Committee is abolished or its membership does not contain two persons who comply
with the requirements of the first sentence of this Section 2.1, the Board of
Directors shall either reconstitute the Compensation Committee in compliance
with, or create another Committee that complies with, the requirements of the
first sentence of this Section 2.1 to administer the Plan.
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, Consultants,
Directors, 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, Consultants, Directors, Grantees, Holders
and Participants.
ARTICLE 3. SHARES.
Section 3.1. Number. The aggregate number of Shares in respect of which
Options may be granted under the Plan shall not exceed 750,000, which number of
Shares is hereby reserved for issuance under the Plan out of the authorized but
unissued Shares.
Section 3.2. Cancellations. If any portion of an Option is canceled,
terminates or expires for any reason without having been exercised, the Shares
related to such unexercised portion, shall be available again for the purposes
of the Plan.
Section 3.3. 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 (ignoring for this purpose any provision for the
repurchase or cash payment of fractional shares) 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
<PAGE> 4
Share available for additional grants of Options, the number and kind of shares
or other securities or property 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 3.4. 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 Agreement
for less than the par value thereof. No fractional Shares shall be issued or
sold under the Plan nor will any cash payment be made in lieu of fractional
Shares.
Section 3.5. Rights of a Stockholder. No Holder nor any 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 upon the due exercise of an Option.
Section 3.6. Securities Laws. No Option shall be exercised nor shall
any Shares or other securities be issued or transferred pursuant to an Option
unless and until all applicable requirements imposed by federal and state
securities laws and by any stock exchanges upon which the Shares may be listed,
have been fully complied with. As a condition precedent to the exercise of an
Option or the issuance of Shares pursuant to the grant or exercise of an Option,
the Company may require the Holder to take any reasonable action to meet such
requirements including providing undertakings as to the investment intent of the
Holder, accepting transfer restrictions on the Shares issuable thereunder and
providing opinions of counsel, in form and substance acceptable to the Company,
as to the availability of exemptions from such requirements.
ARTICLE 4. ELIGIBILITY.
Section 4.1. Article 5. Only Employees who are not members of the
Committee shall be eligible to receive Options under Article 5 below.
Section 4.2. Article 6. Only Consultants shall be eligible to receive
Options under Article 6 below.
Section 4.3. Article 7. Only Directors who are not Employees shall be
eligible to receive Options under Article 7 below.
ARTICLE 5. EMPLOYEES' 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, but in no event shall the
Exercise Price of an Option be less than the Fair Market Value of a Share on the
Date of Grant. If no express determination of the Exercise Price of an Option is
made by the Committee, the Exercise Price thereof is equal to the Fair Market
Value of a Share on the Date of Grant.
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:
<PAGE> 5
(a) each Option shall vest and first become exercisable
(subject to the rule set forth in Section 5.4(c) below) 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 further provided that no portion of an Option
shall vest and become exercisable after the employment of the Grantee by his
Employer has terminated, regardless of the reason for such termination.
(b) any portion of an Option that has vested and become
exercisable shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) subject to the rule set forth in Section 5.4(d) below, nine months after
the Grantee ceases to be an Employee because of death or disability,
(iii) three months after the termination without cause of the Grantee's
employment with all Employers, or
(iv) immediately upon termination of the Grantee's employment with all Employers
by the applicable Employers for cause or by the Grantee's resignation.
Where both an Incentive Stock Option and a Nonqualified Option are granted, the
number of Shares which become exercisable under clause (a) of the previous
sentence at any time shall be calculated on the basis of the total of the Shares
subject to both Options and the Options shall become exercisable as to that
number of Shares first under the Incentive Stock Option and then under the
Nonqualified Option, unless the rule set forth in Section 5.4(c) below would
defer the exercisability of such Incentive Stock Option, in which case such
Nonqualified Options shall become exercisable first.
Section 5.4. Incentive Stock Options.
(a) The Committee shall determine whether any Option is an
Incentive Stock Option or a Nonqualified Option at the time that it is granted
and, if no express determination is made by the Committee, all Options shall be
Nonqualified Options.
(b) If the Committee grants Incentive Stock Options, they
shall be on such terms and conditions as may be necessary to render them
"incentive stock options" pursuant to Section 422 of the Code.
(c) The aggregate Fair Market Value of the Shares, determined
as of the time the Option is granted, which first become exercisable under all
Incentive Stock Options granted to any one Grantee under this Plan or any other
plan of the Company or any Parent or Subsidiary of the Company, shall not exceed
$100,000 during any calendar year and, if the foregoing limit would be exceeded
in any given calendar year by the terms of any Incentive Stock Option granted
hereunder, the exercisability of such portion of such Option as would exceed
such limit shall be deferred to the first day of the next calendar year and, if
such excess involves more than one Option, the exercisability of the most
recently granted Option shall be deferred first.
(d) If the employment of a Grantee, who holds an ISO, with any
Employer is terminated because of a "disability" (within the meaning of Section
22(e)(3) of the Code), the unexercised portion of the ISO may be exercised only
within six months after the date on which employment was terminated, and only to
the extent that such Grantee could have otherwise exercised such ISO as of the
date of termination. If a Grantee, who holds an ISO, dies while employed by an
Employer (or within six months after termination of employment by reason of a
disability or within 30 days after termination of employment without cause), the
unexercised portion of the ISO at the time of death may be exercised only within
six months after the date of death, and only to the extent that the Grantee
could have otherwise exercised such ISO at the time of death. In such event,
such ISO may be exercised by the executor or administrator of the Grantee's
estate or by any Holder.
(e) No Ten Percent Stockholder shall be granted an Incentive
Stock Option unless, at the time such Incentive Stock Option is granted, the
<PAGE> 6
Exercise Price thereof is at least 110% of the Fair Market Value of a Share on
the Date of Grant and the Incentive Stock Option, by its terms, is not
exercisable after the expiration of five years from the Date of Grant.
(f) If a Holder exercises an Incentive Stock Option and
disposes of any of the Shares received by such Holder as a result of such
exercise within two years from the Date of Grant or within one year after the
issuance of such Shares to such Holder upon such exercise, such Holder shall
notify the Company of such disposition and the consideration received as a
result thereof and pay or provide for the withholding taxes on such disposition
as required by Section 8.3 below.
(g) An Option that is designated as a Nonqualified Option
under this Plan shall not be treated as an "incentive stock option" as such term
is defined in Section 422(b) of the Code.
Section 5.5. Exercise.
(a) An Option shall be exercised by the delivery of the Option
Agreement 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 vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the
Shares purchasable thereunder, but not for a fractional share. No Option may be
exercised as to less than 100 Shares 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 Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) 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, or by a combination thereof. If the Committee does not make
such determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is
payable in cash, it may be paid by (i) delivery of a certified or cashier's
check payable to the order of the Company in such amount, (ii) wire transfer of
immediately available funds to a bank account designated by the Company or (iii)
reduction of a debt of the Company to the Holder.
(e) 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 exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) 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 Agreement. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are not negotiable
instruments or securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
Section 5.7. New Hires. A person to whom the Company is offering
employment may be granted
<PAGE> 7
a Nonqualified Option under this Article 5, but any such grant shall lapse if
the person does not subsequently become an Employee pursuant to such offer.
ARTICLE 6. CONSULTANTS' STOCK OPTIONS.
Section 6.1. 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 6.2. Exercise Price. The Committee shall determine the Exercise
Price of each Option at the time that it is granted, but in no event shall the
Exercise Price of an Option be less than the Fair Market Value of a Share on the
Date of Grant. If no express determination of the Exercise Price of an Option is
made by the Committee, the Exercise Price thereof is equal to the Fair Market
Value of a Share on the Date of Grant.
Section 6.3. 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 a Consultant continuously
during the time beginning on the Date of Grant and ending on the date when such
portion vests and first becomes exercisable and further provided that no portion
of an Option shall vest and become exercisable after the termination of the
Grantee's consulting relation with his Employer, regardless of the reason for
such termination.
(b) any portion of an Option that has vested and become
exercisable shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) nine months after the Grantee ceases to be a Consultant because of death or
disability, or
(iii) three months after the termination without cause of the Grantee's
consulting relation with the Employer, or
(iv) immediately upon termination of the Grantee's consulting relation with the
Employer for cause or by the Grantee's resignation.
Section 6.4. Not Incentive Stock Options. An Option under this Article
6 shall not be treated as an Incentive Stock Option.
Section 6.5. Exercise.
(a) An Option shall be exercised by the delivery of the Option
Agreement 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 vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the
Shares purchasable thereunder, but not for a fractional share. No Option may be
exercised as to less than 100 Shares 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 Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) 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, or by a combination thereof. If the Committee does not make
such determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is
payable in cash, it may be paid
<PAGE> 8
by (i) delivery of a certified or cashier's check payable to the order of the
Company in such amount, (ii) wire transfer of immediately available funds to a
bank account designated by the Company or (iii) reduction of a debt of the
Company to the Holder.
(e) 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 exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) Promptly after an Option is properly exercised, the
Company shall issue to the Holder a certificate representing the Shares
purchased thereunder.
Section 6.6. Option Agreement. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are neither negotiable
instruments nor securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
ARTICLE 7. DIRECTORS' OPTIONS.
Section 7.1. Grant. On each Meeting Date, an Option shall be
automatically granted to each Director who is eligible to receive Options under
Section 4.3 above and who attended at least seventy five per cent (75%) of the
total number of meetings of the Board of Directors (and committees thereof of
which he is a member) during the most recently ended fiscal year of the Company.
The number of Shares subject to each Option granted under this Section 7.1 shall
be determined by a resolution adopted by the [{Committee}{Board of Directors}]
on or before a Meeting Date, uniformly applying to all eligible Directors, which
establishes, increases or decreases the number of Shares subject to such Option
Any such resolution shall continue in force for the next Meeting Date, unless it
is amended or repealed, the Meeting Date is more than ten years after the
Effective Date or there are not a sufficient number of Shares remaining
available under Section 3.1 above. This Section 7.1 shall not be operative until
such time as such a resolution is adopted.
Section 7.2. Exercise Price. The Exercise Price of an Option shall be
equal to the Fair Market Value of a Share on the Date of Grant.
Section 7.3. Term.
(a) Each Option shall vest and first become exercisable as to
25% of the Shares originally subject to the Option on each Meeting Date which is
held more than six months after the Date of Grant if the Grantee is a Director
at the time of the adjournment of the meeting of stockholders held on such
Meeting Date and further provided that no portion of an Option shall vest and
become exercisable after the Grantee has ceased to be a Director, regardless of
the reason for such cessation.
(b) any portion of an Option that has vested and become
exercisable shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) nine months after the Grantee ceases to be a Director because of his death
or disability,
(iii) immediately upon resignation by the Grantee as a Director, or
(iv) three months after the Grantee ceases to be a Director for any reason other
than his death, disability or resignation.
<PAGE> 9
Section 7.4. Not Incentive Stock Options. An Option under this Article
7 shall not be treated as an Incentive Stock Option.
Section 7.5. Exercise.
(a) An Option shall be exercised by the delivery of the Option
Agreement 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 vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the
Shares purchasable thereunder but not for a fractional Share. No Option may be
exercised as to less than 100 Shares 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 Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) 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, or by a combination thereof. If the Committee does not make
such determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is
payable in cash, it may be paid by (i) delivery of a certified or cashier's
check payable to the order of the Company in such amount, (ii) wire transfer of
immediately available funds to a bank account designated by the Company or (iii)
reduction of a debt of the Company to the Holder.
(e) 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 exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) Promptly after an Option is properly exercised, the
Company shall issue to the Holder a certificate representing the Shares
purchased thereunder.
Section 7.6. Option Agreement. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are neither negotiable
instruments nor securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
ARTICLE 8. PROVISIONS APPLICABLE TO ALL TYPES OF OPTIONS.
Section 8.1. Maximum Shares. Notwithstanding any other provision of
this Plan, the maximum number of Shares with respect to which Options may be
granted during any fiscal year of the Company to any Employee shall be 250,000
Shares.
Section 8.2. Corporate Mergers and Acquisitions. The Committee may
grant Options having terms and conditions which vary from those specified in the
Plan if such Options are granted in substitution for, or in connection with the
assumption of, existing options granted by another business entity and assumed
or otherwise agreed to be provided for by the Company pursuant to or by reason
of a transaction involving a merger or consolidation of or acquisition of
substantially all of the assets or stock of another business entity that is
<PAGE> 10
not a Subsidiary of the Company prior to such acquisition, with or by the
Company or its Subsidiaries.
Section 8.3. 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 or upon a disposition of Shares received upon the exercise of an
Incentive Stock 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 or upon a disqualifying disposition
of Shares received upon the exercise of an Incentive Stock 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 8.4. Disability. If a Grantee who is an Employee or a
Consultant 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
employment or consulting relationship with the Company while such Grantee has
that disability, unless he resigns or terminates such relationship or the
Committee decides otherwise. If a Grantee who is a Director is absent from
meetings of the Board of Directors because of a physical or mental disability,
for purposes of the Plan such Grantee will not be considered to have ended his
service with the Board of Directors while such Grantee has that disability,
unless he resigns or is not re-elected by the stockholders.
Section 8.5. 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 time, not extending beyond the
ten year period referred to in Sections 5.3, 6.3, and 7.3 above and the five
year period referred to in Section 5.4(e) above, after the execution of the
acquisition agreement in final definitive form, the announcement of such offer
or the mailing of a proxy statement or prospectus concerning such transaction,
notwithstanding the provisions of any Option, any Option may be exercised in
whole or in part during such time period or that upon the termination of such
time period any such Option shall expire and be null and void. The Committee may
provide that any such action shall be conditioned on the completion of the
transaction that occasioned it, and that if such transaction is not timely
completed, any exercise or vesting of any Option shall be unwound.
Section 8.6. 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 8.7. Acceleration. Notwithstanding anything else in the Plan,
the Committee may, in its 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. 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
<PAGE> 11
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 8.8. 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 9. GENERAL PROVISIONS.
Section 9.1. 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. 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 a Director of the Company or affect the right of the
stockholders to terminate the directorship of any Grantee.
Section 9.2. 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 9.3. 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.
Section 9.4. 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 9.5. 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 9.6. 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 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 9.7. 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 9.8. 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; provided, however, that this Section 9.8 shall not
be construed to extend the ten year period referred to in Sections 5.3, 6.3, and
7.3 above or the five year period referred to in Section 5.4(e) above.
Section 9.9. 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 the sense so indicates, words of the neuter gender may
refer to any gender.
<PAGE> 12
Section 9.10. 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 9.11. Effective Date of the Plan. The Plan shall become
effective upon its approval by the affirmative vote of the holders of a majority
of the outstanding Shares present or represented and entitled to vote at a
meeting of the stockholders of the Company. Options may be granted by the
Committee before such approval, but all Options so granted shall be conditioned
on such approval and shall be void if such approval is not given within 12
months after the Effective Date.
Section 9.12. Amendment and Termination. No Option shall be granted
under the Plan more than ten years after the Effective Date. 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 shall be
effective without the approval of the stockholders of the Company by the
affirmative vote of the holders of a majority of the outstanding Shares present
or represented and entitled to vote at a meeting of stockholders duly held, if
it were to:
(a) authorize the grant of Options that may be exercised more
than ten years after the Date of Grant or that have an Exercise Price which is
less than the Fair Market Value of a Share on the Date of Grant; or
(b) materially increase the number of Shares which may be
issued under the Plan;
and, further, provided, however, that no amendment or termination of the Plan
shall be effective to materially 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> 13
EXHIBIT A
EMPLOYEES' OPTION AGREEMENT
ROYAL PRECISION, INC.
3490 CLUBHOUSE DRIVE
JACKSON HOLE, WYOMING 83001
<<Date of Grant>>
<<Name of Grantee>>
<<Street>>
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the
Company's Stock Option Plan dated October 5, 1997 (the "Plan") on the following
terms:
1. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is:<<Number>>
2. EXERCISE PRICE. The Exercise Price to purchase Shares under this Option is:
$<<Price>> per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on the first [four] anniversaries of the date of
this Agreement if you have been an Employee of the Company continuously
from the date of this Agreement through the date when such portion of the
Option vests[ subject to the special rule referred to in paragraph 5
below]. No portion of this Option shall vest and become exercisable after
your employment with your Employer has terminated, regardless of the reason
for such termination.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine [six] months after you cease to be an Employee because of
your death or disability,
(iii) three months after a termination without cause of your
employment with your Employer, or
(iv) immediately upon termination of your employment with your
Employer by such Employer for cause or by your resignation.
5. TAXATION. This Option is [an Incentive Stock Option][a Nonqualified
Option].[ Because this Option is an Incentive Stock Option vesting of a
portion of this Option or of other Incentive Stock Options held by you may
be deferred under a special rule set forth in Section 5.4 (c) of the Plan.
If you exercise this Option and dispose of any of the Shares received by
you as a result of such exercise within two years from the date above or
within one year after the issuance of such Shares to you upon such
exercise, you must notify the Company of such disposition and the amount
received as a result thereof and pay or provide for the withholding taxes
on such disposition.] [You will have taxable income upon the exercise of
this Option. At that time, you must pay to the Company an amount equal to
the required federal, state, and local tax withholding less any withholding
otherwise made from your salary or bonus. You must satisfy any relevant
withholding requirements before the Company issues Shares to you.]
<PAGE> 14
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, 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. The Exercise Price must be paid in cash 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 you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder.
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement
and nothing contained herein gives you any right to continue to be employed
by or provide services to the Company or affects the right of the Company
to terminate your employment or other relationship with you.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 5 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: ______________________________________
<<Name of Officer>>, <<Title>>
Accepted and Agreed to as of
the date first set forth above:
__________________________________
<<Name of Grantee>>
<PAGE> 15
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Option Plan dated October 5, 1997.
The undersigned hereby represents and warrants to the Company that he is not
exercising such rights or planning to transfer such shares while in the
possession of material inside information relating to the Company.
Date: ________________________
__________________________________
<<Name of Holder>>
_______________________________
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
P.O. Box 25182
Jackson Hole, Wyoming 83001
together with the Exercise Price in cash 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 you.
<PAGE> 16
EXHIBIT B
CONSULTANTS' OPTION AGREEMENT
ROYAL PRECISION, INC.
3490 CLUBHOUSE DRIVE
JACKSON HOLE, WYOMING 83001
<<Date of Grant>>
<<Name of Grantee>>
<<Street>>
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the
Company's Stock Option Plan dated October 5, 1997 (the "Plan") on the following
terms:
1. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is:<<Number>>
2. EXERCISE PRICE. The exercise price to purchase Shares under this Option is:
$<<Price>> per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on the first [four] anniversaries of the date of
this Agreement if you have been a Consultant to the Company continuously
from the date of this Agreement through the date when such portion of the
Option vests. No portion of this Option shall vest and become exercisable
after the termination of the your consulting relation with your Employer,
regardless of the reason for such termination.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Consultant because of your death
or disability,
(iii)three months after a termination without cause of your consulting
relationship with your Employer; or
(iv) immediately upon termination of your consulting relationship with your
Employer for cause or by your resignation.
5. TAXATION. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option. At that time, you must pay to the
Company an amount equal to the required federal, state, and local tax
withholding less any withholding otherwise made from compensation payable
to you. You must satisfy any relevant withholding requirements before the
Company issues Shares to you.
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, 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. The Exercise Price must be paid in cash 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
<PAGE> 17
Company to you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder.
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT A CONSULTING AGREEMENT. This Agreement is not a consulting agreement
and nothing contained herein gives you any right to continue to provide
services to the Company or affect the right of the Company to terminate the
consulting relationship with you.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 6 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: ______________________________________
<<Name of Officer>>, <<Title>>
Accepted and Agreed to as of
the date first set forth above:
__________________________________
<<Name of Grantee>>
<PAGE> 18
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Option Plan dated October 5, 1997.
Date: ________________________
__________________________________
<<Name of Holder>>
_______________________________
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
P.O. Box 25182
Jackson Hole, Wyoming 83001
together with the Exercise Price in cash 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 you.
<PAGE> 19
EXHIBIT C
DIRECTORS' OPTION AGREEMENT
ROYAL PRECISION, INC.
3490 CLUBHOUSE DRIVE
JACKSON HOLE, WYOMING 83001
<<Date of Grant>>
<<Name of Grantee>>
<<Street>>
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the
Company's Stock Option Plan dated October 5, 1997 (the "Plan") on the following
terms:
. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is:<<Number>>
2. EXERCISE PRICE. The exercise price to purchase Shares under this Option is:
$<<Price>> per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on each Meeting Date which occurs more than six
months after the date of this Agreement if you are a Director at the time
of the adjournment of the meeting of stockholders held on such Meeting
Date.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Director because of your
death or Disability,
(iii)immediately upon your resignation as a Director, or
(iv) three months after you cease to be a Director for any reason
other than your death, disability or resignation.
5. TAXATION. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option.
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, 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. The Exercise Price must be paid in cash 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 you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder.
<PAGE> 20
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement
and nothing contained herein gives you any right to continue to be a
Director of the Company or affect the right of the stockholders to
terminate your directorship.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 7 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: ______________________________________
<<Name of Officer>>, <<Title>>
Accepted and Agreed to as of
the date first set forth above:
__________________________________
<<Name of Grantee>>
<PAGE> 21
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Option Plan, dated October 5, 1997.
Date: ________________________
__________________________________
<<Name of Holder>>
_______________________________
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
P.O. Box 25182
Jackson Hole, Wyoming 83001
together with the Exercise Price in cash 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 you.
<PAGE> 1
EXHIBIT 18
-----------------------------
Arthur Andersen LLP
-----------------------------
One Financial Plaza
Hartford CT 06103-2699
860 280 0500
July 2, 1998
Royal Precision, Inc.
15170 North Hayden Road, Suite 1
Scottsdale, Arizona 85260
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
During fiscal 1998, Royal Precision, Inc. (the Company) changed from the
Last-In-First-Out (LIFO) method of accounting for inventory to the
First-In-First-Out (FIFO) method of accounting for the Company's golf shaft
subsidiary, FM Precision Golf Manufacturing Corp. (FMP). The Company has given
retroactive effect to the change and the consolidated financial statements for
the prior year have been restated. According to the management of the Company,
this change was made since FMP previously had a debit LIFO reserve. Although the
effect of the debit reserve did not result in FMP's inventory being stated at an
amount in excess of net realizable value, it did not reflect the current
replacement cost of FMP's inventories.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting for
FMP's inventories is to an acceptable alternative method of accounting, which,
based upon the reasons stated for the change and our discussions with you, is
also preferable under the circumstances in this particular case. In arriving at
this opinion, we have relied on the business judgment and business planning of
your management.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The registrant has the following wholly owned subsidiaries:
FM Precision Golf Manufacturing Corp., a Delaware corporation
FM Precision Golf Sales Corp., a Delaware corporation
Royal Grip, Inc., a Nevada corporation
Roxxi, Inc., a Nevada corporation, is a wholly-owned subsidiary of
Royal Grip, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 333-35605.
/s/ Arthur Andersen LLP
Hartford, Connecticut
August 24, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas
Schneider 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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Danny Edwards
-----------------------------------
Danny Edwards
<PAGE> 2
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas
Schneider 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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Robert G.J. Burg, II
-----------------------------------
Robert G. J. Burg, II
<PAGE> 3
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Ronald L. Chalmers
-----------------------------------
Ronald L. Chalmers
<PAGE> 4
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ David E. Johnston
-----------------------------------
David E. Johnston
<PAGE> 5
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Richard P. Johnston
-----------------------------------
Richard P. Johnston
<PAGE> 6
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report for the fiscal year ended
May 31, 1998; 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
Annual Report, 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 23rd day of
August, 1998.
/s/ Raymond J. Minella
-----------------------------------
Raymond J. Minella
<PAGE> 7
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Lawrence Bain
-----------------------------------
Lawrence Bain
<PAGE> 8
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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 23rd day of
July, 1998.
/s/ Thomas Schneider
-----------------------------------
Thomas Schneider
<PAGE> 9
POWER OF ATTORNEY
The undersigned who is a director or officer of Royal Precision, Inc., a
Delaware corporation (the "Company");
Does hereby constitute and appoint Christopher A. Johnston and Thomas Schneider
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 the Annual
Report of the Company on Form 10-KSB or other appropriate form and any
amendments or supplements to such Annual Report; 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
Annual Report, 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
August, 1998.
/s/ Leslie Reesing
-----------------------------------
Leslie Reesing
<PAGE> 1
EXHIBIT 24.2
CERTIFICATE
I, KENNETH J. WARREN, hereby certify that I am the duly elected
Secretary of Royal Precision, Inc., a Delaware corporation (the "Corporation"),
and do further certify that the following resolutions were duly adopted by the
Board of Directors of the Corporation at a meeting duly called and held on July
23, 1998, and that such resolutions have not been amended or rescinded, and are
in full force and effect:
RESOLVED, that each officer and director who may be required to execute
an annual report on Form 10-KSB or any amendment or supplement thereto (whether
on behalf of the Company or as an officer or director thereof or otherwise) be,
and each of them hereby is, authorized to execute a power of attorney appointing
Christopher A. Johnston and Thomas Schneider and each of them severally, his
true and lawful attorneys and agents to execute in his name, place and stead (in
any such capacity) said Form 10-KSB and all instruments or reports necessary or
in connection therewith, and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to act with or
without the other, to have full power and authority to do and to perform in the
name and on behalf of each of said officers and directors, or both, as the case
may be, every act which is necessary or advisable to be done as fully, and to
all intents and purposes, as any such officer or director might or could do in
person; and further ...
Dated this 24th day of August, 1998.
/s/ Kenneth J. Warren
Kenneth J. Warren
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