<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
For the transition period from __________ to _________.
Commission File Number: 0-71735
ROYAL PRECISION, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 06-1453896
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15170 North Hayden Road
SUITE 1
Scottsdale, AZ 85260
(Address of Principal Executive Offices) (Zip code)
(602) 627-0200
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if Changed Since Last
Report)
3490 Clubhouse Drive
Suite 102
Jackson Hole, Wyoming 83001
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___
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Title of each class Outstanding at April 13, 1998
- ---------------------- -------------------------------
<S> <C>
Common Stock, par value $.001 5,601,697 Shares
</TABLE>
Transitional Small Business Disclosure Format (Check One):
Yes___ No x
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<PAGE> 2
ITEM 1.
ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
February 28, May 31,
1998 1997
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 28
Accounts receivable, net of allowance
for doubtful accounts of $617
at February 28, 1998 and $88
at May 31, 1997 3,918 3,258
Inventories, net 3,776 3,493
Current portion of net investment
in lease 235 --
Prepaid expenses and other current assets 74 63
Deferred income taxes 223 223
-------- --------
Total current assets 8,226 7,065
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 123 38
Buildings and improvements 683 363
Machinery and equipment 4,315 2,670
-------- --------
5,121 3,071
Less - Accumulated depreciation (629) (203)
-------- --------
4,492 2,868
-------- --------
GOODWILL, net 10,158 --
-------- --------
DEFERRED MERGER COSTS -- 465
-------- --------
NET INVESTMENT IN LEASE, less current portion 2,635 --
-------- --------
DEFERRED INCOME TAXES 26 26
-------- --------
$ 25,537 $ 10,424
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 4,146 $ 2,466
Accounts payable 2,093 1,258
Accrued expenses 1,457 1,725
-------- --------
Total current liabilities 7,696 5,449
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion 3,435 2,617
-------- --------
OTHER LIABILITIES 189 --
-------- --------
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; 5,598,942 and
4,175,394 shares issued and
outstanding at February 28, 1998 and
May 31, 1997, respectively 6 4
Additional paid-in capital 13,820 1,421
Retained earnings 391 933
-------- --------
Total stockholders' equity 14,217 2,358
-------- --------
$ 25,537 $ 10,424
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 3
ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Golf shafts $ 5,326 $ 5,123 $ 14,790 $ 15,690
Golf grips 1,093 -- 2,391 --
Headwear 814 -- 1,836 --
----------- ----------- ----------- -----------
7,233 5,123 19,017 15,690
----------- ----------- ----------- -----------
COST OF SALES:
Golf shafts 3,954 4,332 10,853 11,311
Golf grips 686 -- 1,029 --
Headwear 602 -- 1,407 --
----------- ----------- ----------- -----------
5,242 4,332 13,289 11,311
----------- ----------- ----------- -----------
Gross profit 1,991 791 5,728 4,379
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,227 905 5,495 2,738
NONRECURRING MERGER
RELATED EXPENSES 90 -- 765 --
----------- ----------- ----------- -----------
Operating income (loss) (326) (114) (532) 1,641
INTEREST EXPENSE 191 126 484 345
INTEREST INCOME (56) -- (113) --
----------- ----------- ----------- -----------
Income (loss) before income
taxes (461) (240) (903) 1,296
BENEFIT FROM (PROVISION FOR)
INCOME TAXES 184 106 361 (553)
----------- ----------- ----------- -----------
Net income (loss) $ (277) $ (134) $ (542) $ 743
=========== =========== =========== ===========
BASIC AND DILUTED NET INCOME
(LOSS) PER COMMON SHARE $ (0.05) $ (0.03) $ (0.11) $ 0.18
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 5,596,914 4,175,394 5,127,624 4,175,394
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 4
ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
February 28, February 28,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (542) $ 743
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Depreciation and amortization 737 163
Loss on write-off of fixed assets,net 347 --
Changes in operating assets and
liabilities -
Accounts receivable 633 47
Inventories 427 (197)
Prepaid expenses and other
assets 166 (189)
Accounts payable and accrued
expenses (880) 1,326
Deferred income taxes -- (91)
Supply agreement credits (472) --
-------- --------
Net cash provided by
operating activities 416 1,802
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from Royal Grip, Inc. 18 --
Purchases of equipment, net (776) (843)
Merger costs (1,032) --
Acquisition of net assets of
predecessor business -- (6,824)
-------- --------
Net cash used in investing
activities (1,790) (7,667)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock -- 1,000
Proceeds from exercise of common stock
options 14 --
Proceeds from long-term debt 1,000 3,750
Borrowings under lines-of-credit, net 1,075 1,693
Repayments of long-term debt and
capital lease obligations (743) (511)
-------- --------
Net cash provided
by financing activities 1,346 5,932
-------- --------
INCREASE (DECREASE) IN CASH (28) 67
CASH, beginning of period 28 --
-------- --------
CASH, end of period $ -- $ 67
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 473 $ 306
======== ========
Income taxes $ 60 $ 742
======== ========
Non-cash transaction -
Issuance of common stock and options
and warrants to purchase common
stock for acquisition of RG $ 12,995 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-4-
<PAGE> 5
ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Significant Accounting Policies:
Basis of presentation -
The condensed consolidated financial statements of Royal Precision,
Inc. and subsidiaries (collectively, RPI or the Company) presented
herein have been prepared pursuant to the rules of the Securities and
Exchange Commission for quarterly reports on Form 10-QSB and do not
include all of the information and note disclosures required by
generally accepted accounting principles. These condensed consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended
May 31, 1997 included in the Company's Form S-4 Registration Statement
dated August 15, 1997 (Registration Statement No. 333-28841). In the
opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows
of the Company. Quarterly operating results are not necessarily
indicative of the results that would be expected for the full year.
Reclassifications -
Certain prior year amounts have been reclassified to conform to current
year presentation.
Principles of consolidation -
The accompanying consolidated financial statements include Royal
Precision, Inc. (RPI)(formerly FM Precision Golf Corp.) and its three
wholly-owned subsidiaries, FM Precision Golf Manufacturing Corp. (FMP),
FM Precision Golf Sales Corp. (FM Sales) and Royal Grip, Inc (formerly
FMPSUB, Inc.)and its wholly owned subsidiary, Roxxi, Inc. (collectively
RG). Results of operations for RG are included in the Company's
Condensed Consolidated Statement of Operations since August 29, 1997,
the effective date of the merger (see Note 2). Accordingly, RG's
operations from August 29,1997 are included in the three and nine-month
periods ended February 28, 1998 and RG's operations are not included in
the three and nine-month periods ended February 28, 1997. All
significant intercompany balances and transactions have been eliminated
in consolidation.
Reporting periods -
The Company's first three fiscal quarters end on a Saturday. The
Company's year end is May 31.
New accounting standard -
In June 1997, the Financial Accounting Standards Board adopted a new
standard on reporting comprehensive income, which established standards
for reporting and display of comprehensive income (net income (loss)
together with other non-owner changes in equity) and its components in
a full set of general purpose financial statements. The standard will
become effective for the Company in fiscal 1999 and will require
reclassification of comparative financial statements for prior years.
-5-
<PAGE> 6
2. Business Combination:
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 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 own or have 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 market 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>
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<PAGE> 7
The estimated fair values are subject to further refinement; however,
RPI does not expect that the final allocation of the Merger purchase
price will differ materially from the preliminary allocation included
above.
RPI is amortizing the goodwill related to the RG acquisition over 20
years and evaluates the asset for impairment by reviewing the estimated
future cash flows of the acquired operations on a quarterly basis.
As of December 31, 1996, RG had Federal and state net operating loss
(NOL) carry-forwards of approximately $4.3 million. Due to uncertainty
of realization, a valuation allowance has been recorded to fully offset
the value of the NOL carryforwards. If such carryforwards are used in
the future, the related benefit will be recorded as a reduction in
goodwill.
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 condensed
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. 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 $765,000 in the nine months ended February 28,
1998 for nonrecurring Merger related expenses. The components of this
expense are $375,000 related to a computer software installation that
was abandoned as a result of the Merger, $100,000 related to certain
headwear related contracts, $140,000 of relocation expenses and
$150,000 of severance as a result of organizational changes in
connection with the Merger.
3. In February 1997, the Financial Accounting Standards Board adopted a
new standard (SFAS No. 128) on accounting for earnings per share (EPS).
This new standard replaced the presentation of primary EPS with a
presentation of basic EPS and changed the fully diluted terminology to
diluted. It also requires dual presentation of basic and diluted EPS on
the face of the income statement. In February 1998, the SEC issued
Staff Accounting Bulletin (SAB) No. 98, which, among other things,
addresses the impact of cheap stock in earnings per share computations.
All weighted average share and net income (loss) per share amounts for
all periods have been presented, and where necessary, restated to
conform to the SFAS No. 128 and SAB No. 98 requirements.
Basic earnings per common share are based on the average number of
common shares outstanding. Diluted earnings per common share assumes,
in addition to the above, a dilutive effect of common share equivalents
during the year. Stock options, if outstanding, were antidilutive in
all periods presented. Therefore, basic and diluted net income (loss)
per share amounts are computed using the actual weighted average shares
of common stock outstanding.
-7-
<PAGE> 8
4. Inventories:
Inventories as of February 28, 1998 and May 31, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------ ------
<S> <C> <C>
Raw materials $1,163 $1,137
Work-in-process 1,238 965
Finished goods 1,091 1,107
LIFO Reserve 284 284
------ ------
$3,776 $3,493
====== ======
</TABLE>
Included in the inventory balance as of February 28, 1998 are reserves
of $1.0 million.
5. Supply Agreement Credits:
In December 1996, RG outsourced all of its production of non-cord grips
to Acushnet Rubber Company (Acushnet). 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 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. The Company
determined that the credits would not be earned back by Acushnet, and
therefore recorded $472,393 during the second fiscal quarter of 1998 as
a reduction in cost of sales. The credits were not earned back by
Acushnet due to RG's purchase orders in the second half of calendar
1997 being below levels which would allow Acushnet to earn back the
credits. A difference of opinion has arisen between the parties as to
the timing of payments for certain grips that have been manufactured by
Acushnet. RG has offered a payment schedule for certain grips, which
offer was rejected. In response to a formal claim for payment, RG has
denied any legal liability but has offered to negotiate this issue
along with other issues concerning damages RG incurred during the
transition to Acushnet. RG anticipates that this issue will be resolved
between the parties or will be settled through the dispute resolution
procedures provided in the Acushnet Agreement. However, there can be no
assurances that the resolution procedures will provide a mutually
satisfactory result.
6. Long-Term Debt:
FMP has a credit facility that includes a revolving line-of-credit and
term loan. As of February 28, 1998, FMP had $2.5 million outstanding on
its revolving line-of-credit and $3.8 outstanding on its term loan.
During fiscal 1998, FMP has entered into several amendments to the
credit facility with its lender. The effect of the amendments was to
provide for an additional advance of $250,000 which amount was due and
repaid on January 16, 1998, provide for an additional advance of
$350,000 which amount is due and is repayable in three installments
during May 1998, reduce the interest rate on the term loan and
revolving credit portions of the credit facility to the prime rate plus
1.25% and the prime rate plus 1.0%, respectively, advance an additional
$1.0 million on the term loan (used to pay down the revolver) and
revise the financial covenants for FMP effective December 31, 1997. In
addition, the amendments also eliminated all personal guarantees and
extended the maturity date from May 31, 1999 to June 2, 2000; however,
the lender may extend the maturity to May 31, 2001. The Term Loan is
due in monthly principal installments of $69,712 commencing March 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. FMP is in compliance with all debt
covenants at February 28, 1998. Based on eligible receivables and
inventory as of February 28, 1998, FMP had $1.6 million available for
additional borrowings.
-8-
<PAGE> 9
In February 1997, RG entered into a credit facility with a commercial
bank consisting of a revolver of $1.75 million and a term loan of
$700,000. The credit facility matures February 10, 2000 and contains
net worth requirements, prohibits dividend payments and limits capital
expenditures. Effective January 1, 1998, the credit facility bears
interest at the prime rate plus 4%. The interest rate increased in
accordance with the agreement based on the amount of RG's loss for the
year ended December 31, 1997. RG is in compliance with all debt
covenants at February 28, 1998. RG is currently renegotiating its
financial covenants for periods after March 31, 1998 to conform with
RG's fiscal reporting periods as a result of the Merger. As of February
28, 1997, RG had $0.5 million outstanding on its revolving
line-of-credit, $0.6 million outstanding on its term loan and $352,000
available for additional borrowings.
-9-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements -
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-QSB, any other
Form 10-QSB, Form 10-KSB, or Form 8-K, or any other written or oral
statements made by or on behalf of RPI may include forward looking
statements which reflect RPI's current views 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, RPI's cost of raw materials, the competitive environment
in which RPI operates, and changes in the financial markets relating to
RPI's capital structure and cost of capital. Statements in this Form
10-QSB, including the Notes to the Condensed Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", 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 in RPI's Form
S-4 Registration Statement dated August 15, 1997. Please refer to "Risk
Factors" therein. The words "believe," "expect," "anticipate,"
"project," and similar expressions identify forward looking statements,
which speak only as of the date the statement was made. RPI undertakes
no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events, or
otherwise.
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. (formerly known as
FMPSUB,Inc.) and its wholly owned subsidiary, Roxxi, Inc. (collectively
RG). RPI acquired RG on August 29, 1997 by means of a merger whereby
FMPSUB, Inc. merged with and into RG with RG being the surviving
corporation. See Note 2 of Notes to Condensed Consolidated Financial
Statements.
Results of operations for RG are included in the Company's Condensed
Consolidated Statement of Operations since August 29, 1997, the
effective date of the merger (See Note 2). Accordingly, RG's operations
from August 29, 1997, are included in the three and nine-month periods
ended February 28, 1998, but are not included in the three and
nine-month periods ended February 28, 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 OEM's. 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. The
majority of RG's grip sales are to the replacement market. In December
1996, RG outsourced the manufacturing of its non-cord grips (see Note 4
of Notes to Condensed Consolidated Financial Statements).
-10-
<PAGE> 11
Three and Nine Months Ended February 28, 1998 Compared to the Three and
Nine Months Ended February 28, 1997.
Net Sales. Net sales for the three months ended February 28, 1998
(third quarter) were $7.2 million, an increase of 41.2% over net sales
of $5.1 million for the corresponding period in 1997. For the nine
months ended February 28, 1998, net sales were $19.0 million, an
increase of 21.2% over net sales of $15.7 million for the same period
in 1997. The increase in net sales of $2.1 million and $3.3 million for
the three and nine months ended February 28, 1998, respectively, as
compared to the same periods of the prior year is primarily
attributable to the inclusion of $1.9 million and $4.2 million of net
sales of golf club grips and headwear by RG, respectively. Net sales of
golf shaft sales for the three months ended February 28, 1998 increased
by $0.2 million or 4.0%. Partially offsetting the inclusion of RG's
sales for the nine months ended February 28, 1998 was a $0.9 million,
or 5.7%, decline in golf shaft sales. The increase in shaft sales for
the quarter ended February 28, 1998 as compared to the same quarter
last year is primarily attributable to an increase in commercial grade
shaft sales of $436,000 partially offset by a decrease in Rifle shaft
sales of $305,000. The reduction in shaft sales for the nine months
ended February 28, 1998 as compared to the same period last year is
primarily the result of lower Rifle shaft sales. Sales of the Rifle
shaft decreased by $2.4 million for the nine months ended February 28,
1998, as compared to the same period last year. This decrease was
offset by an increase of $1.5 million in sales of other steel shafts
for the nine months ended February 28, 1997, compared to the same
period last year. The reduction in Rifle shaft sales is due to reduced
sales to the international markets.
Cost of Goods Sold. Cost of goods sold for the three months ended
February 28, 1998 was $5.2 million, an increase of 21.0% over cost of
goods sold of $4.3 million for the same period in 1997. For the nine
months ended February 28, 1998, cost of goods sold was $13.3 million,
an increase of 17.4% over cost of goods sold of $11.3 million for the
same period in 1997. The increase in cost of goods sold of $0.9 million
and $2.0 million for the three and nine months ended February 28, 1998,
respectively, as compared to the same periods of the prior year is
attributable to the inclusion of $1.3 million and $2.4 million,
respectively, 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 $0.4 million and $0.5 million in golf shaft cost of
sales for the three and nine months ended February 28, 1998,
respectively, as compared to the same periods 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 15.4% to 25.8% and decreased from 27.9% to 26.6% for the three and
nine months ended February 28, 1998, respectively as compared to the
same periods in 1997. This increase in gross profit percentage for the
quarter ended February 28, 1998 is primarily the result of an inventory
writeoff of $197,000 in the three months ended February 28, 1997 and a
positive change in manufacturing spending variance of $166,000 in the
three months ended February 28, 1998 as compared to the same quarter
last year.
RG's gross profit and gross profit percentage was positively impacted
during the nine months ended February 28, 1998 as a result of RG
recording a $472,000 reduction in cost of sales related to supply
agreement credits. See Note 4 of Notes to Condensed Consolidated
Financial Statements.
-11-
<PAGE> 12
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended February 28, 1998
were $2.2 million, an increase of 146.1% over selling, general and
administrative expenses of $0.9 million for the same period last year.
For the nine months ended February 28, 1998, selling, general and
administrative expenses were $5.5 million, an increase of 101.5% over
selling, general and administrative expenses of $2.7 million for the
same period last year. The increase in selling, general and
administrative expenses of $1.3 million and $2.8 million for the three
and nine months ended February 28, 1998, respectively, is primarily
attributable to the inclusion of $0.8 million and $1.9 million of
selling, general and administrative expenses from RG for the periods
reported. In addition, the Company amortized $130,000 and $260,000 of
goodwill during the three and nine months ended February 28, 1998 as a
result of the Merger. In addition, advertising expenses for FMP
increased $90,000 and $156,000 for the three and nine months ended
February 28, 1998 as compared to the same periods last year.
Nonrecurring Merger Related Expenses. Nonrecurring Merger related
expenses for the three and nine months ended February 28, 1997 were
$90,000 and $765,000 as compared to $0 for the corresponding periods
last year. The primary components of this expense are $375,000 related
to a computer software installation that was abandoned as a result of
the Merger, $100,000 related to certain headwear related contracts,
$140,000 of relocation expenses and $150,000 of severance as a result
of organizational changes in connection with the Merger.
Interest Expense and Interest Income. Interest expense for the three
months ended February 28, 1998 and 1997 was $191,000 compared to
$126,000 and for the nine months ended February 28, 1998 and 1997 was
$484,000 compared to $345,000, respectively. The increase in interest
expense is primarily attributable to the inclusion of interest expense
of RG of $37,000 and $73,000 for the three and nine month periods
reported, respectively. Additionally, loan balances on FMP's revolving
credit facility were higher during the three and nine months ended
February 28, 1998 as compared to the same periods in 1997.
Interest income for the three and nine months ended February 28, 1998
was $56,000 and $113,000, respectively, compared to $0 for the same
periods last year. This increase is due to the inclusion of interest
income from RG's capital lease receivable in the 1998 periods.
Income taxes. Income taxes for the three months ended February 28, 1998
and 1997 were a benefit of $184,000 and $106,000, or a tax rate of 40%
and 44%, respectively. Income taxes for the nine months ended February
28, 1998 and February 28, 1997 were a benefit of $361,000, or a tax
rate of 40%, and a provision of $553,000 or a tax rate of 43%. The
reduction in the effective rate is due to the loss in the 1998 period.
Liquidity and capital resources. At February 28, 1998, RPI had working
capital of $530,000 and a current ratio of 1.1 to 1 as compared to
working capital of $1.6 million and a current ratio of 1.3 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 $1.7 million from May 31, 1997 to February 28, 1998
partially as a result of the costs related to the Merger and the
inclusion of RG's debt in the February 28, 1998 balances.
See Note 6 of Notes to Condensed Consolidated Financial Statements for
a description of the terms of RPI's credit facilities.
Currently RG does not own the inventory manufactured by Acushnet under
its Manufacturing and Supply Agreement. Acushnet invoices RG when
shipment is made to the ultimate customer. See Note 5 of Notes to
Condensed Consolidated Financial Statements relating to the purchase of
grip inventory.
-12-
<PAGE> 13
At April 2, 1998, FMP had $1.5 million available for borrowing under
its revolving line of credit after giving effect to the amendments to
its credit facility and RG had $267,000 available for borrowing under
its revolver. The Company believes that it has enough credit
availability to finance its operations over the next twelve months.
During the nine months ended February 28, 1998, net cash provided by
operating activities was $412,000 which primarily resulted from
decreases in accounts receivable and inventory of $1.1 million offset
by a decrease in accounts payable of $880,000.
RPI used $1.8 million in investing activities during the nine months
ended February 28, 1998, primarily due to $776,000 used to purchase
additional property plant and equipment during such period and Merger
costs of $1,015,000. RPI estimates that capital expenditures for the
year ended May 31, 1998 will be approximately $1.1 million for FMP and
$300,000 for the period from acquisition to May 31, 1998 for RG.
Net cash provided by financing activities for the nine months ended
February 28, 1998, was $1.3 million primarily due to the funding of
$1.0 million on FMP's term loan and $1.1 million of net borrowings
under FMP and RG's revolvers offset by repayments on long-term debt and
capital lease obligations of $743,000.
Business Environment and Future Results.
Reliance on Third Party Suppliers. RG currently purchases, and for an
indefinite period of time intends to purchase, 100% of its entire
supply of non-cord grips from Acushnet. During the transition to
Acushnet, Acushnet experienced delays and quality problems in the
production of grips, which adversely affected RG's customer
relationships and results of operations. Net sales of golf club grips
for the nine months ended February 28, 1998 and 1997 were $6.2 million
and $4.4 million, respectively. The decrease in net sales of $1.8
million is due to problems that arose during the transition. See note 1
of Notes to Condensed Consolidated Financial Statements for an
explanation of why nine month comparative information for RG is not
included in the financial statements.
Under the amended Manufacturing and Supply Agreement, either Acushnet
or RG may voluntarily terminate the agreement upon payment of a
specified termination fee, among other things. If Acushnet elects to
utilize such termination rights, RG currently has no back-up source of
supply, and any transition to alternative suppliers or the resumption
of in-house manufacturing operations by RG may result in production
delays, the loss of sales and key customers which would materially
affect RG's financial condition and results of operations. However, the
contract requires Acushnet to provide RG with 10 months notice to
terminate the contract. Such ten-month notice may be given by Acushnet
on or after June 30, 1998. Although RG believes that it has certain
remedies available to it under its agreement with Acushnet arising out
of a voluntary termination of the agreement by Acushnet, including the
payment of termination fees and expenses, there can be no assurance
that RG would be able to successfully pursue such remedies or that such
remedies would adequately compensate RG for any losses incurred by it.
A dispute has arisen as to payment for certain grips that have been
manufactured by Acushnet at the request of RG. While RG denies any
contractual obligation to pay, RG has offered to pay for certain grips
over time which offer was rejected. In response to a formal claim for
payment RG has denied any legal liability but has offered to negotiate
this issue along with other issues concerning damages RG incurred
during the transition to Acushnet. RG anticipates that this issue will
be resolved between the parties or will be settled through the dispute
resolution procedures provided in the Acushnet Agreement. However,
there can be no assurances that the resolution procedures will provide
a mutually satisfactory result.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
6(a) Exhibits
(3) Certificate of Incorporation and Bylaws
Exhibit 3.1
Amended and Restated Certificate of Incorporation of FM Precision Golf
Corp. (incorporated by reference to Annex IV to the Company's Form S-4;
No. 333-28841).
Exhibit 3.2
Bylaws of Royal Precision, Inc. (incorporated by reference to Exhibit
3.2 to the Company's Form S-4; No. 333-28841).
(4) Instruments Defining the Rights of Security Holders
Exhibit 4.1
See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of FM Precision Golf Corp. (incorporated
by reference to Exhibit 3.1 to the Company's Form S-4; No. 333-28841).
Exhibit 4.2
See Article I, Sections 2.1 and 2.2 of Article II and Section 7.3 of
Article VII of the Bylaws of Royal Precision, Inc. (incorporated by
reference to Exhibit 3.2 to the Company's Form S-4; No. 333-28841).
-14-
<PAGE> 15
(10) Material Contracts
Exhibit 10.3.11
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 registrant's quarterly report on Form 10-QSB for the
period ended November 29, 1997 (the "November 1997 Form 10-QSB");
commission file no. 0-71735).
Exhibit 10.3.12
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).
Exhibit 10.3.13
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).
Exhibit 10.3.14
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).
Exhibit 10.3.15
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.
Exhibit 10.3.16
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.
Exhibit 10.3.17
Seventh Amendment to Financing Agreement dated March 17, 1998, between
Star Bank, National Association, FM Precision Golf Manufacturing Corp.
and FM Precision Golf Sales Corp.
Exhibit 27
Financial Data Schedule (submitted electronically for SEC Information
only)
-15-
<PAGE> 16
6(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended February 28, 1998.
-16-
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROYAL PRECISION, INC.
(Registrant)
Dated: April 13, 1998 By: /s/ Christopher A. Johnston
--------------------------
Christopher A. Johnston
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas A. Schneider
--------------------------
Thomas A. Schneider
Chief Financial Officer
(principal financial and accounting
officer)
-17-
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Page Number
Exhibit
<S> <C>
(3) Certificate of Incorporation and Bylaws
Exhibit 3.1
Amended and Restated Certificate of Incorporation of FM Precision
Golf Corp. (incorporated by reference to Annex IV to the Company's *
Form S-4; No. 333-28841).
Exhibit 3.2
Bylaws of Royal Precision, Inc. (incorporated by reference
to Exhibit 3.2 to the Company's Form S-4; No. 333-28841). *
(4) Instruments Defining the Rights of Security Holders
Exhibit 4.1
See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of FM Precision Golf Corp. *
(incorporated by reference to Exhibit 3.1 to the Company's
Form S-4; No. 333-28841).
Exhibit 4.2
See Article I, Sections 2.1 and 2.2 of Article II and Section
7.3 of Article VII of the Bylaws of Royal Precision, Inc.
(incorporated by reference to Exhibit 3.2 to the *
Company's Form S-4; No. 333-28841).
Exhibit 10.3.11
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.
Exhibit 10.3.12
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.
Exhibit 10.3.13
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.
Exhibit 10.3.14
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.
Exhibit 10.3.15
Fifth Amendment to Financing Agreement dated January 13, 1998, 19
between Star Bank, National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
Exhibit 10.3.16
Sixth Amendment to Financing Agreement dated January 21, 1998, 22
between Star Bank, National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
Exhibit 10.3.17
Seventh Amendment to Financing Agreement dated March 17, 1998, 26
between Star Bank, National Association, FM Precision Golf
Manufacturing Corp. and FM Precision Golf Sales Corp.
*Incorporated by reference
</TABLE>
-18-
<PAGE> 1
EXHIBIT 10.3.15
FIFTH AMENDMENT TO FINANCING AGREEMENT
THIS FIFTH AMENDMENT TO FINANCING AGREEMENT (this "Amendment")
is made and entered as of January ___, 1998, by and between STAR BANK, NATIONAL
ASSOCIATION, a national banking association ("Bank"), and FM PRECISION GOLF
MANUFACTURING CORP., a Delaware corporation, and FM PRECISION GOLF SALES CORP.,
a Delaware corporation (collectively, "Borrowers").
PRELIMINARY STATEMENTS
A. Borrowers and Bank have entered into a Financing Agreement
dated as of May 31, 1996, as amended by (i) a First Amendment to Financing
Agreement dated as of January 29, 1997, (ii) a Second Amendment to Financing
Agreement dated as of August 20, 1997, (iii) a Third Amendment to Financing
Agreement dated as of November 10, 1997, and (iv) a Fourth Amendment to
Financing Agreement dated as of January 6, 1998 (as amended, the "Financing
Agreement"). Capitalized terms used, but not defined, in this Amendment which
are defined in the Financing Agreement will have the meanings given to them in
the Financing Agreement.
B. Bank and Borrowers desire to amend the Financing Agreement
on and subject to the terms and conditions set forth in this Amendment.
STATEMENT OF AMENDMENT
In consideration of the mutual covenants and agreements set
forth in this Amendment, and for other good and valuable consideration, Bank and
Borrowers hereby agree as follows:
1. AMENDMENT OF EXHIBIT 10.29. Subject to the satisfaction of
the conditions of this Amendment, Exhibit 10.29 to the Financing Agreement is
amended in its entirety by substituting therefor the Exhibit 10.29 which is
attached hereto as Exhibit A. Borrowers anticipate revising their financial
projections between the date of this Amendment and February 13, 1998. If
Borrowers reasonably revise their financial projections prior to February 13,
1998, and if such projections justify a revision of the Financial Covenants,
Bank and Borrowers will negotiate in good faith to agree upon a revision of the
Financial Covenants and a further amendment of Exhibit 10.29 to the Financing
Agreement. However, if, by February 13, 1998, Bank and Borrowers do not agree
upon a revision of the Financial Covenants and enter into a further amendment of
Exhibit 10.29 to the Financing Agreement, then the Financial Covenants as set
forth in Exhibit 10.29 hereto shall remain in full force and effect.
2. REAFFIRMATION OF CORPORATE GUARANTY. As a condition of this
Amendment, Borrowers will cause Corporate Guarantor to execute and deliver to
Bank the Reaffirmation of Corporate Guaranty set forth at the end of this
Amendment.
3. OTHER DOCUMENTS. As a condition of this Amendment,
Borrowers will execute and deliver, or cause to be executed and delivered, to
Bank such other documents, instruments and agreements deemed necessary or
desirable by Bank to effect the amendments to Borrowers' credit facilities with
Bank contemplated by this Amendment.
4. REPRESENTATIONS. To induce Bank to accept this Amendment,
Borrowers hereby represent and warrant to Bank as follows:
4.1 Each of Borrowers has full power and authority to enter
into, and to perform its obligations under, this Amendment, and the execution
and delivery of, and the performance of its obligations under and arising out
of, this Amendment have been duly authorized by all necessary corporate action.
<PAGE> 2
4.2 This Amendment constitutes the legal, valid and binding
obligations of Borrowers enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
4.3 Borrowers' representations and warranties contained in the
Financing Agreement are complete and correct as of the date of this Amendment
with the same effect as though these representations and warranties had been
made again on and as of the date of this Amendment, subject to those changes as
are not prohibited by, or do not constitute Events of Default under, the
Financing Agreement.
5. COSTS AND EXPENSES. As a condition of this Amendment, Borrowers will
promptly on demand pay or reimburse Bank for the costs and expenses incurred by
Bank in connection with this Amendment, including, without limitation,
attorneys' fees.
6. RELEASE. Borrowers hereby release Bank from any and all liabilities,
damages and claims therefor arising from or in any way related to the Loans,
other than such liabilities, damages and claims which arise after the execution
of this Amendment. The foregoing release does not release or discharge, or
operate to waive performance by, Bank of its express agreements and obligations
stated in the Loan Documents on and after the date of this Amendment.
7. DEFAULT. Any default by Borrowers in the performance of Borrowers'
obligations under this Amendment shall constitute an Event of Default under the
Financing Agreement.
8. CONTINUING EFFECT OF FINANCING AGREEMENT. Except as expressly
amended hereby, all of the provisions of the Financing Agreement are ratified
and confirmed and remain in full force and effect.
9. ONE AGREEMENT; REFERENCES. The Financing Agreement, as amended by
this Amendment, will be construed as one agreement. All references in any of the
Loan Documents to the Financing Agreement will be deemed to be references to the
Financing Agreement as amended by this Amendment.
10. COUNTERPARTS. This Amendment and the Reaffirmation of Corporate
Guaranty provided below may be executed in multiple counterparts, each of which
shall be an original but all of which together shall constitute one and the same
instrument.
11. ENTIRE AGREEMENT. This Amendment sets forth the entire agreement of
the parties with respect to the subject matter of this Amendment and supersedes
all previous understandings, written or oral, in respect of this Amendment.
IN WITNESS WHEREOF, Bank and Borrowers have executed this
Amendment to be effective as of the date in the opening paragraph of this
Amendment.
FM PRECISION GOLF
MANUFACTURING CORP.
By:________________________________
Name:______________________________
Title:_____________________________
FM PRECISION GOLF SALES CORP.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 3
Accepted at Cincinnati, Ohio, as of January ___, 1998.
STAR BANK, NATIONAL ASSOCIATION
By:__________________________
Name:________________________
Title:_______________________
REAFFIRMATION OF CORPORATE GUARANTY
In satisfaction of the condition set forth in Section 2 of the
above Fifth Amendment to Financing Agreement (the "Amendment"), Corporate
Guarantor hereby consents to the Amendment and to the transactions contemplated
thereby, reaffirms the Corporate Guaranty, and acknowledges and agrees that it
is not released from its obligations under the Corporate Guaranty by reason of
the Amendment and that the obligations of Corporate Guarantor under the
Corporate Guaranty extend to the Financing Agreement and the other Loan
Documents as amended by the Amendment. This Reaffirmation of Corporate Guaranty
shall not be construed, by implication or otherwise, as imposing any requirement
that Bank notify or seek the consent of Corporate Guarantor to any past or
future extension of credit, or modification, extension or other action with
respect thereto, in order for any such extension of credit or modification,
extension or other action with respect thereto to be subject to the Corporate
Guaranty, it being expressly acknowledged and reaffirmed that Corporate
Guarantor has under the Corporate Guaranty consented to modifications,
extensions and other actions with respect thereto without any notice thereof.
All capitalized terms used in this Reaffirmation of Corporate Guaranty and not
otherwise defined herein shall have the meanings ascribed thereto in the
Amendment.
IN WITNESS WHEREOF, Corporate Guarantor has executed this
Reaffirmation of Corporate Guaranty to be effective as of the date of the
Amendment.
ROYAL PRECISION, INC., formerly known as
FM Precision Golf Corp.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 1
EXHIBIT 10.3.16
SIXTH AMENDMENT TO FINANCING AGREEMENT
THIS SIXTH AMENDMENT TO FINANCING AGREEMENT (this "Amendment")
is made and entered as of January 21, 1998, by and between STAR BANK, NATIONAL
ASSOCIATION, a national banking association ("Bank"), and FM PRECISION GOLF
MANUFACTURING CORP., a Delaware corporation, and FM PRECISION GOLF SALES CORP.,
a Delaware corporation (collectively, "Borrowers").
PRELIMINARY STATEMENTS
A. Borrowers and Bank have entered into a Financing Agreement
dated as of May 31, 1996, as amended by (i) a First Amendment to Financing
Agreement dated as of January 29, 1997, (ii) a Second Amendment to Financing
Agreement dated as of August 20, 1997, (iii) a Third Amendment to Financing
Agreement dated as of November 10, 1997, and (iv) a Fourth Amendment to
Financing Agreement dated as of January 6, 1998, and (v) a Fifth Amendment to
Financing Agreement dated as of January 13, 1998 (as amended, the "Financing
Agreement"). Capitalized terms used, but not defined, in this Amendment which
are defined in the Financing Agreement will have the meanings given to them in
the Financing Agreement.
B. Bank and Borrowers desire to amend the Financing Agreement
on and subject to the terms and conditions set forth in this Amendment.
STATEMENT OF AMENDMENT
In consideration of the mutual covenants and agreements set
forth in this Amendment, and for other good and valuable consideration, Bank and
Borrowers hereby agree as follows:
1. AMENDMENTS. Subject to the satisfaction of the conditions
of this Amendment, the Financing Agreement is amended as follows:
a. AMENDMENT OF SECTION 2.12. Section 2.12 of the
Financing Agreement is amended to provide in its entirety as follows:
2.12 Special Advance. Subject to the terms and conditions of
this Agreement, Bank, in its discretion exercised in good faith, may
make a loan (the "Special Advance") to Borrowers in the principal
amount of $350,000. The proceeds of the Special Advance shall be used
by Borrowers only for working capital purposes. Subject to the terms of
Section 11.4, the principal of the Special Advance shall be due and
payable $100,000 on May 11, 1998, $100,000 on May 18, 1998 and $150,000
on May 30, 1998. No part of the Special Advance may, on the repayment
thereof, be redrawn or reborrowed by Borrowers.
b. AMENDMENT OF SECTION 3.1(ii). Clause (ii) of
Section 3.1 of the Financing Agreement is amended to provide in its entirety as
follows:
(ii) The Term Loan will bear interest on the daily
unpaid principal amount thereof from the date made until paid in full
at a rate per annum equal to the sum of the Prime Rate, as in effect
from day to day as interest accrues, plus 1.50%; subject, however, to
clauses (iv) and (v) of this Section 3.1. The Special Advance will bear
interest on the daily unpaid principal amount thereof from the date
made until paid in full at a rate per annum equal to the sum of the
Prime Rate, as in effect from day to day as interest accrues, plus
1.50%; subject, however, to clause (v) of this Section 3.1.
c. AMENDMENT OF SECTION 3.1(iv). Clause (iv) of
Section 3.1 of the Financing Agreement is amended to provide in its entirety as
follows:
(iv) If Borrowers' audited annual financial
statements delivered to Bank in compliance with Section 8.7 are
accompanied by an unqualified audit report and establish to Bank's
satisfaction that Borrowers have satisfied each of the financial
<PAGE> 2
tests set forth in Exhibit 3.1 as of the end of and for Borrowers'
fiscal year ending on or about May 31, 1997, then, provided that there
does not then exist an Event of Default, the applicable rates of
interest with respect to the Revolving Loans and the Term Loan set
forth above in clauses (i) and (ii) of this Section 3.1 will be reduced
by 0.25% per annum effective as of the first Business Day of the first
calendar month following the calendar month in which the audited annual
financial statements, accompanied by an unqualified audit report, are
delivered to Bank.
d. AMENDMENT OF SECTION 15.8(i)(d). Clause (i)(d) of
Section 15.8 of the Financing Agreement is amended to provide in its entirety as
follows:
(d) any inspection, audit, appraisal, or
verification of the Loan Collateral or a Borrower (Bank currently
charges $450 per diem based on an 8 hour day plus out-of-pocket
expenses) per auditor or field examiner for the services of its
auditors and field examiners and a potentially greater amount if the
auditor is not a Bank employee; however, so long as there does not
exist an Event of Default, Borrowers shall not be required to reimburse
Bank for Expenses of field examinations for more than four field
examinations in any calendar year;
2. REAFFIRMATION OF CORPORATE GUARANTY. As a condition of this
Amendment, Borrowers will cause Corporate Guarantor to execute and deliver to
Bank the Reaffirmation of Corporate Guaranty set forth at the end of this
Amendment.
3. OTHER DOCUMENTS. As a condition of this Amendment,
Borrowers will execute and deliver, or cause to be executed and delivered, to
Bank such other documents, instruments and agreements deemed necessary or
desirable by Bank to effect the amendments to Borrowers' credit facilities with
Bank contemplated by this Amendment.
4. REPRESENTATIONS. To induce Bank to accept this Amendment,
Borrowers hereby represent and warrant to Bank as follows:
4.1 Each of Borrowers has full power and authority to
enter into, and to perform its obligations under, this Amendment, and the
execution and delivery of, and the performance of its obligations under and
arising out of, this Amendment have been duly authorized by all necessary
corporate action.
4.2 This Amendment constitutes the legal, valid and
binding obligations of Borrowers enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
4.3 Borrowers' representations and warranties
contained in the Financing Agreement are complete and correct as of the date of
this Amendment with the same effect as though these representations and
warranties had been made again on and as of the date of this Amendment, subject
to those changes as are not prohibited by, or do not constitute Events of
Default under, the Financing Agreement.
5. COSTS AND EXPENSES. As a condition of this Amendment,
Borrowers will promptly on demand pay or reimburse Bank for the costs and
expenses incurred by Bank in connection with this Amendment, including, without
limitation, attorneys' fees.
6. RELEASE. Borrowers hereby release Bank from any and all
liabilities, damages and claims therefor arising from or in any way related to
the Loans, other than such liabilities, damages and claims which arise after the
execution of this Amendment. The foregoing release does not release or
discharge, or operate to waive performance by, Bank of its express agreements
and obligations stated in the Loan Documents on and after the date of this
Amendment.
7. DEFAULT. Any default by Borrowers in the performance of
Borrowers' obligations under this Amendment shall constitute an Event of Default
under the Financing Agreement.
<PAGE> 3
8. CONTINUING EFFECT OF FINANCING AGREEMENT. Except as
expressly amended hereby, all of the provisions of the Financing Agreement are
ratified and confirmed and remain in full force and effect.
9. ONE AGREEMENT; REFERENCES. The Financing Agreement, as
amended by this Amendment, will be construed as one agreement. All references in
any of the Loan Documents to the Financing Agreement will be deemed to be
references to the Financing Agreement as amended by this Amendment.
10. COUNTERPARTS. This Amendment and the Reaffirmation of
Corporate Guaranty provided below may be executed in multiple counterparts, each
of which shall be an original but all of which together shall constitute one and
the same instrument.
11. ENTIRE AGREEMENT. This Amendment sets forth the entire
agreement of the parties with respect to the subject matter of this Amendment
and supersedes all previous understandings, written or oral, in respect of this
Amendment.
IN WITNESS WHEREOF, Bank and Borrowers have executed this
Amendment to be effective as of the date in the opening paragraph of this
Amendment.
FM PRECISION GOLF
MANUFACTURING CORP.
By:________________________________
Name:______________________________
Title:_____________________________
FM PRECISION GOLF SALES CORP.
By:________________________________
Name:______________________________
Title:_____________________________
Accepted at Cincinnati, Ohio, as of January ___, 1998.
STAR BANK, NATIONAL ASSOCIATION
By:__________________________
Name:________________________
Title:_______________________
REAFFIRMATION OF CORPORATE GUARANTY
In satisfaction of the condition set forth in Section 2 of the
above Sixth Amendment to Financing Agreement (the "Amendment"), Corporate
Guarantor hereby consents to the Amendment and to the transactions contemplated
thereby, reaffirms the Corporate Guaranty, and acknowledges and agrees that it
is not released from its obligations under the Corporate Guaranty by reason of
the Amendment and that the obligations of Corporate Guarantor under the
Corporate Guaranty extend to the Financing Agreement and the other Loan
Documents as amended by the Amendment. This Reaffirmation of Corporate Guaranty
shall not be construed, by implication or otherwise, as imposing any requirement
that Bank notify or seek the consent of Corporate Guarantor to any past or
future extension of credit, or modification, extension or other action with
respect thereto, in order for any such extension of credit or modification,
extension or other action with respect thereto to be subject to the Corporate
Guaranty, it being expressly acknowledged and reaffirmed that Corporate
Guarantor has under the Corporate Guaranty consented to modifications,
<PAGE> 4
extensions and other actions with respect thereto without any notice thereof.
All capitalized terms used in this Reaffirmation of Corporate Guaranty and not
otherwise defined herein shall have the meanings ascribed thereto in the
Amendment.
IN WITNESS WHEREOF, Corporate Guarantor has executed this
Reaffirmation of Corporate Guaranty to be effective as of the date of the
Amendment.
ROYAL PRECISION, INC., formerly known as
FM Precision Golf Corp.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 1
EXHIBIT 10.3.17
SEVENTH AMENDMENT TO FINANCING AGREEMENT
THIS SEVENTH AMENDMENT TO FINANCING AGREEMENT (this
"Amendment") is made and entered as of March 17, 1998, by and between STAR
BANK, NATIONAL ASSOCIATION, a national banking association ("Bank"), and FM
PRECISION GOLF MANUFACTURING CORP., a Delaware corporation, and FM PRECISION
GOLF SALES CORP., a Delaware corporation (collectively, "Borrowers").
PRELIMINARY STATEMENTS
A. Borrowers and Bank have entered into a Financing Agreement
dated as of May 31, 1996, as amended by (i) a First Amendment to Financing
Agreement dated as of January 29, 1997, (ii) a Second Amendment to Financing
Agreement dated as of August 20, 1997, (iii) a Third Amendment to Financing
Agreement dated as of November 10, 1997, (iv) a Fourth Amendment to Financing
Agreement dated as of January 6, 1998, (v) a Fifth Amendment to Financing
Agreement dated as of January 13, 1998, and a Sixth Amendment to Financing
Agreement dated as of January 21, 1998 (as amended, the "Financing Agreement").
Capitalized terms used, but not defined, in this Amendment which are defined in
the Financing Agreement will have the meanings given to them in the Financing
Agreement.
B. Bank and Borrowers desire to amend the Financing Agreement
on and subject to the terms and conditions set forth in this Amendment.
STATEMENT OF AMENDMENT
In consideration of the mutual covenants and agreements set
forth in this Amendment, and for other good and valuable consideration, Bank and
Borrowers hereby agree as follows:
1. AMENDMENT OF EXHIBIT 10.29. Subject to the satisfaction of
the conditions of this Amendment, Exhibit 10.29 to the Financing Agreement is
amended in its entirety by substituting therefor the Exhibit 10.29 which is
attached hereto as Exhibit A.
2. REAFFIRMATION OF CORPORATE GUARANTY. As a condition of this
Amendment, Borrowers will cause Corporate Guarantor to execute and deliver to
Bank the Reaffirmation of Corporate Guaranty set forth at the end of this
Amendment.
3. OTHER DOCUMENTS. As a condition of this Amendment,
Borrowers will execute and deliver, or cause to be executed and delivered, to
Bank such other documents, instruments and agreements deemed necessary or
desirable by Bank to effect the amendments to Borrowers' credit facilities with
Bank contemplated by this Amendment.
4. REPRESENTATIONS. To induce Bank to accept this Amendment,
Borrowers hereby represent and warrant to Bank as follows:
<PAGE> 2
4.1 Each of Borrowers has full power and authority to
enter into, and to perform its obligations under, this Amendment, and the
execution and delivery of, and the performance of its obligations under and
arising out of, this Amendment have been duly authorized by all necessary
corporate action.
4.2 This Amendment constitutes the legal, valid and
binding obligations of Borrowers enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
4.3 Borrowers' representations and warranties
contained in the Financing Agreement are complete and correct as of the date of
this Amendment with the same effect as though these representations and
warranties had been made again on and as of the date of this Amendment, subject
to those changes as are not prohibited by, or do not constitute Events of
Default under, the Financing Agreement.
5. COSTS AND EXPENSES. As a condition of this Amendment,
Borrowers will promptly on demand pay or reimburse Bank for the costs and
expenses incurred by Bank in connection with this Amendment, including, without
limitation, attorneys' fees.
6. RELEASE. Borrowers hereby release Bank from any and all
liabilities, damages and claims therefor arising from or in any way related to
the Loans, other than such liabilities, damages and claims which arise after the
execution of this Amendment. The foregoing release does not release or
discharge, or operate to waive performance by, Bank of its express agreements
and obligations stated in the Loan Documents on and after the date of this
Amendment.
7. DEFAULT. Any default by Borrowers in the performance of
Borrowers' obligations under this Amendment shall constitute an Event of Default
under the Financing Agreement.
8. CONTINUING EFFECT OF FINANCING AGREEMENT. Except as
expressly amended hereby, all of the provisions of the Financing Agreement are
ratified and confirmed and remain in full force and effect.
9. ONE AGREEMENT; REFERENCES. The Financing Agreement, as
amended by this Amendment, will be construed as one agreement. All references in
any of the Loan Documents to the Financing Agreement will be deemed to be
references to the Financing Agreement as amended by this Amendment.
10. COUNTERPARTS. This Amendment and the Reaffirmation of
Corporate Guaranty provided below may be executed in multiple counterparts, each
of which shall be an original but all of which together shall constitute one and
the same instrument.
2
<PAGE> 3
11. ENTIRE AGREEMENT. This Amendment sets forth the entire
agreement of the parties with respect to the subject matter of this Amendment
and supersedes all previous understandings, written or oral, in respect of this
Amendment.
IN WITNESS WHEREOF, Bank and Borrowers have executed this
Amendment to be effective as of the date in the opening paragraph of this
Amendment.
FM PRECISION GOLF
MANUFACTURING CORP.
By: /s/ Christopher C. Johnston
Name: Christopher C. Johnston
Title: Chairman
FM PRECISION GOLF SALES CORP.
By: /s/ Christopher C. Johnston
Name: Christopher C. Johnston
Title: Chairman
Accepted at Cincinnati, Ohio, as of March , 1998.
STAR BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
REAFFIRMATION OF CORPORATE GUARANTY
In satisfaction of the condition set forth in Section 2 of the
above Seventh Amendment to Financing Agreement (the "Amendment"), Corporate
Guarantor hereby consents to the Amendment and to the transactions contemplated
thereby, reaffirms the Corporate Guaranty, and acknowledges and agrees that it
is not released from its obligations under the
3
<PAGE> 4
Corporate Guaranty by reason of the Amendment and that the obligations of
Corporate Guarantor under the Corporate Guaranty extend to the Financing
Agreement and the other Loan Documents as amended by the Amendment. This
Reaffirmation of Corporate Guaranty shall not be construed, by implication or
otherwise, as imposing any requirement that Bank notify or seek the consent of
Corporate Guarantor to any past or future extension of credit, or modification,
extension or other action with respect thereto, in order for any such extension
of credit or modification, extension or other action with respect thereto to be
subject to the Corporate Guaranty, it being expressly acknowledged and
reaffirmed that Corporate Guarantor has under the Corporate Guaranty consented
to modifications, extensions and other actions with respect thereto without any
notice thereof. All capitalized terms used in this Reaffirmation of Corporate
Guaranty and not otherwise defined herein shall have the meanings ascribed
thereto in the Amendment.
IN WITNESS WHEREOF, Corporate Guarantor has executed this
Reaffirmation of Corporate Guaranty to be effective as of the date of the
Amendment.
ROYAL PRECISION, INC., formerly known
as FM Precision Golf Corp.
By: /s/ Christopher A. Johnston
--------------------------
Name: Christopher A. Johnston
Title: President & CEO
4
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