<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended November 29, 1997
[ ] 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.)
3490 CLUBHOUSE DRIVE
SUITE 102
JACKSON HOLE, WYOMING 83001
(Address of Principal Executive Offices) (Zip code)
(307) 739-1188
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if Changed Since Last
Report)
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:
Title of each class Outstanding at January 5, 1998
- --------------------- -------------------------------
Common Stock, par value $.001 5,596,442 Shares
Transitional Small Business Disclosure Format (Check One):
Yes___ No x
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ITEM 1.
ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
November 29, May 31,
1997 1997
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 28
Accounts receivable, net of allowance
for doubtful accounts of $617
at November 29, 1997 and $88
at May 31, 1997 3,256 3,258
Inventories, net 4,231 3,493
Current portion of net investment
in lease 230 --
Prepaid expenses and other current assets 118 63
Deferred income taxes 223 223
-------- --------
Total current assets 8,058 7,065
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 38 38
Buildings and improvements 662 363
Machinery and equipment 4,257 2,670
-------- --------
4,957 3,071
Less - Accumulated depreciation (424) (203)
-------- --------
4,533 2,868
-------- --------
GOODWILL, net 10,271 --
-------- --------
DEFERRED MERGER COSTS -- 465
-------- --------
NET INVESTMENT IN LEASE, less current portion 2,696 --
-------- --------
DEFERRED INCOME TAXES 26 26
-------- --------
$ 25,584 $ 10,424
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 3,287 $ 2,466
Accounts payable 1,932 1,258
Accrued expenses 2,002 1,725
-------- --------
Total current liabilities 7,221 5,449
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion 3,695 2,617
-------- --------
OTHER LIABILITIES 187 --
-------- --------
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;
5,596,442 and 4,175,394 shares issued and
outstanding at November 29, 1997 and
May 31, 1997, respectively 7 4
Additional paid-in capital 13,806 1,421
Retained earnings 668 933
-------- --------
Total stockholders' equity 14,481 2,358
-------- --------
$ 25,584 $ 10,424
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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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 Six Months Ended
--------------------------- ---------------------------
November 29, November 30, November 29, November 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Golf shafts $ 4,542 $ 5,714 $ 9,464 $ 10,563
Golf grips 1,298 -- 1,298 --
Headwear 1,022 -- 1,022 --
----------- ----------- ----------- -----------
6,862 5,714 11,784 10,563
----------- ----------- ----------- -----------
COST OF SALES:
Golf shafts 3,172 3,641 6,899 6,983
Golf grips 343 -- 343 --
Headwear 805 -- 805 --
----------- ----------- ----------- -----------
4,320 3,641 8,047 6,983
----------- ----------- ----------- -----------
Gross profit 2,542 2,073 3,737 3,580
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,243 1,074 3,268 1,822
NONRECURRING MERGER
RELATED EXPENSES 675 -- 675 --
----------- ----------- ----------- -----------
Operating income (loss) (376) 999 (206) 1,758
INTEREST EXPENSE 170 99 293 219
INTEREST INCOME (57) -- (57) --
----------- ----------- ----------- -----------
Income (loss) before income
taxes (489) 900 (442) 1,539
INCOME TAXES (198) 385 (177) 659
----------- ----------- ----------- -----------
Net income (loss) $ (291) $ 515 $ (265) $ 880
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (0.05) $ 0.12 $ (0.05) $ 0.20
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,596,442 4,334,055 4,965,249 4,334,055
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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ROYAL PRECISION, INC. AND SUBSIDIARIES
(formerly, FM Precision Golf Corp. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
November 29, November 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (265) $ 880
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Depreciation and amortization 400 105
Loss on write-off of fixed assets,net 347 --
Changes in operating assets and
liabilities -
Accounts receivable 1,295 100
Inventories (28) (377)
Prepaid expenses and other
assets 120 (233)
Accounts payable and accrued
expenses (550) 1,108
Supply agreement credits (472) --
-------- --------
Net cash provided by
operating activities 847 1,583
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from Royal Grip, Inc. 18 --
Purchases of equipment, net (612) (293)
Merger costs (1,015) --
Acquisition of net assets of
predecessor business -- (6,824)
-------- --------
Net cash used in investing
activities (1,609) (7,117)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock -- 1,000
Proceeds from exercise of common stock
warrants 1 --
Proceeds from long-term debt 1,000 3,750
Borrowings under lines-of-credit, net 217 1,127
Repayments of long-term debt and
capital lease obligations (484) (313)
-------- --------
Net cash provided
by financing activities 734 5,564
-------- --------
INCREASE (DECREASE) IN CASH (28) 30
CASH, beginning of period 28 --
-------- --------
CASH, end of period $ -- $ 30
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 269 $ 202
======== ========
Income taxes $ 60 $ 514
======== ========
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.
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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.
Principles of consolidation -
The accompanying consolidated financial statements include Royal
Precision, Inc. (RPI)(formerly FM Precision Golf Corp.) and its four
wholly-owned subsidiaries, FM Precision Golf Manufacturing Corp. (FMP),
FM Precision Golf Sales Corp. (FM Sales) and Royal Grip, Inc.
(formerly FMPSUB, Inc.), and Roxxi, Inc. (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 six-month period ended November 29, 1997 and RG's operations
are not included in the three and six-month periods ended November 30,
1996. 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 yearend is May 31.
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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 $13,866,000 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 $872,000
(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 10,401
Accounts payable and accrued expenses (1,501)
Supply agreement credits (472)
Debt and capital lease obligations (1,166)
Other, net (136)
---------
$ 13,866
=========
</TABLE>
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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 will amortize goodwill related to the RG acquisition over 20 years
and will evaluate the asset for impairment by reviewing the estimated
future cash flows of RG 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 authorized
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 $675,000 in the second quarter of fiscal 1998
for nonrecurring Merger related expenses. 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 and $150,000 of severance as a result of organizational
changes in connection with the Merger.
3. Inventories:
Inventories as of November 29, 1997 and May 31, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
November 29, 1997 May 31, 1997
------ ------
<S> <C> <C>
Raw materials $1,662 $1,137
Work-in-process 1,142 965
Finished goods 1,143 1,107
LIFO Reserve 284 284
------ ------
$4,231 $3,493
====== ======
</TABLE>
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4. Supply Agreement Credits:
In December 1996, RG outsourced all of its production of non-cord grips
to Acushnet Rubber Company (Acushnet). During the first 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 has determined that the credits will not be
earned back by Acushnet, and therefore recorded $472,393 during the
quarter ended November 29, 1997 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 1997 being below levels which would allow Acushnet to
earn back the credits.
5. Long-Term Debt:
FMP has a credit facility that includes a revolving line-of-credit and
term loan. As of November 29, 1997, FMP had $1.6 million outstanding on
its revolving line-of-credit and $4.0 outstanding on its term loan. In
November 1997, the credit facility was amended (FMP Amendment) to
eliminate certain personal guarantees, reduce the interest rate and
extend the maturity date from May 31, 1999 to June 2, 2000; however, the
lender may extend the maturity to May 31, 2001. Borrowings on the credit
facility, as amended, bear interest at the prime rate plus 1.25% (Term
Loan) and at the prime rate plus 1.0% (Revolver). 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. The additional principal payment for fiscal 1997
was waived by the lender. The amount available for borrowings under the
Revolver is determined pursuant to a formula which is based upon the
levels of eligible accounts receivable and inventory subject to a maximum
amount of $7.5 million, less the amount outstanding on the term portion
of the credit facility. The FMP Amendment also resulted in the bank
advancing an additional $1.0 million on the term loan. This advance was
used to pay down the Revolver. Additionally, the FMP Amendment required
FMP to provide certain projections to the bank by December 15, 1997 so
that FMP and the lender could renegotiate the financial covenants as a
result of the Merger. Accordingly, in January 1998, the financial
covenants have been amended and restated for periods subsequent to the
Merger. Based on eligible receivables and inventory as of November 29,
1997, FMP had $1.6 million available for additional borrowings.
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. The credit facility bears interest at the lender's prime
rate plus 3%, subject to change based on the operating results of RG. As
a result of the Merger, RG and the lender are in the process of modifying
the loan covenant related to intercompany transfers. As of November 29,
1997, RG had $0.5 million outstanding on its revolving
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line-of-credit, $0.6 million outstanding on its term loan and $355,000
available for additional borrowings.
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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 four 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 Roxxi, Inc. (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 six-month periods ended November
29, 1997, but are not included in the three and six-month periods ended
November 30, 1996.
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 such as, Japan,
Canada and the United Kingdom.
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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).
Three and Six Months Ended November 29, 1997 Compared to the Three and
Six Months Ended November 30, 1996.
Net Sales. Net sales for the three months ended November 29, 1997 (second
quarter) were $6.9 million, an increase of 21.1% over net sales of $5.7
million for the corresponding period in 1996. For the six months ended
November 29, 1997, net sales were $11.8 million, an increase of 11.3%
over net sales of $10.6 million for the same period in 1996. The increase
in net sales of $1.1 million and $1.2 million for the three and six
months ended November 29, 1997, respectively, as compared to the same
periods of the prior year is primarily attributable to the inclusion of
$2.3 million of net sales of golf club grips and headwear by RG for both
periods reported. Partially offsetting the inclusion of RG's sales was a
$1.2 million, or 21.1%, decline in golf shaft sales for the three months
ended November 29, 1997, and a $1.1 million, or 10.4% decline in golf
shaft sales, for the six months ended November 29, 1997. The reduction in
shaft sales is primarily the result of lower Rifle shaft sales. Sales of
the Rifle shaft decreased by $1.7 million and $2.1 million for the three
and six months ended November 29, 1997, respectively, as compared to the
same periods last year. This decrease was offset by an increase of $0.5
million and $1.0 million in sales of other steel shafts for the three and
six months ended November 29, 1997, respectively, compared to the same
periods last year. The Company believes the reduction in sales of Rifle
shafts is due primarily to increased inventory levels at golf pro-shops
and retail outlets resulting in a reduction in demand.
Cost of Goods Sold. Cost of goods sold for the three months ended
November 29, 1997 was $4.3 million, an increase of 19.4% over cost of
goods sold of $3.6 million for the same period in 1996. For the six
months ended November 29, 1997, cost of goods sold was $8.0 million, an
increase of 14.3% over cost of goods sold of $7.0 million for the same
period in 1996. The increase in cost of goods sold of $0.6 million and
$1.0 million for the three and six months ended November 29, 1997,
respectively, as compared to the same periods of the prior year is
primarily attributable to the inclusion of $1.1 million of cost of goods
sold for RG golf club grips and headwear for both periods reported.
Partially offsetting the inclusion of RG's cost of goods sold was a
decrease of $0.5 million and $0.1 million in golf shaft cost of sales for
the three and six months ended November 29, 1997, 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 the reduction
in sales.
As a percentage of sales, the gross profit on shaft sales declined from
36.3% to 30.2% and from 33.9% to 27.1% for the three and six months ended
November 29, 1997, respectively. This reduction in gross profit
percentage is primarily the result of a change in mix from the
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<PAGE> 12
higher margin Rifle shafts to the lower margin commercial grade shafts.
RG's gross profit and gross profit percentage was positively impacted
during the quarter ended November 29, 1997 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended November 29, 1997 were
$2.2 million, an increase of 100.0% over selling, general and
administrative expenses of $1.1 million for the same period last year.
For the six months ended November 29, 1997, selling, general and
administrative expenses were $3.3 million, an increase of 83.3% over
selling, general and administrative expenses of $1.8 million for the same
period last year. The increase in selling, general and administrative
expenses of $1.1 million and $1.5 million for the three and six months
ended November 29, 1997, respectively, is primarily attributable to the
inclusion of $1.0 million of selling, general and administrative expenses
from RG for the periods reported. In addition, the Company amortized
$130,000 of goodwill during the quarter and six months ended November 29,
1997 as a result of the Merger.
Nonrecurring Merger Related Expenses. Nonrecurring Merger related
expenses for the three and six months ended November 29, 1997 were
$675,000 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 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 November 29, 1997 and November 30, 1996 was $170,000
compared to $99,000 and for the six months ended November 29, 1997 and
November 30, 1996 was $293,000 compared to $219,000, respectively. The
increase in interest expense is primarily attributable to the inclusion
of interest expense of RG of $36,000 for the periods reported.
Additionally, loan balances on FMP's Revolver were higher during 1997 as
compared to 1996.
Interest income for the three and six months ended November 29, 1997 was
$57,000 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 1997 periods.
Income taxes. Income taxes for the three months ended November 29, 1997
and November 30, 1996 were a benefit of $198,000, or 40% and a provision
of $385,000 or 43% respectively. Income taxes for the six months ended
November 29, 1997 and November 30, 1996 were a benefit of $177,000, or
40%, and a provision of $659,000 or 43%. The reduction in the effective
rate is due to the loss in the 1997 periods.
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<PAGE> 13
Liquidity and capital resources. At November 29, 1997, RPI had working
capital of $837,000 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 is primarily due to an increase in the current
portion of long-term debt and capital lease obligations of $0.8 million
from May 31, 1997 to November 29, 1997 partially as a result of the costs
related to the Merger and the inclusion of RG's debt.
See Note 5 of Notes to Consolidated Financial Statements relating to
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. In the third fiscal quarter of
1997, RG expects to own certain inventory manufactured by Acushnet until
it is sold to the customer. RG is in the process of obtaining financing
for this inventory from its current lender. There can be no assurance
that RG will be able to obtain this financing in amounts and on terms
acceptable to the Company or which would allow the Company to finance
this inventory.
At January 7, 1998, FMP had $390,000 available for borrowing under its
revolver after giving effect to the increase discussed below, and RG had
$112,000 available for borrowing under its revolver. The reduction in
availability from November 29, 1997 is a result of significant investment
banking, severance, printing and legal payments made in December 1997
related to the Merger and the reduction in sales during the Company's
seasonally slow months. On January 5, 1998 FMP's lender increased FMP's
revolver availability by $250,000 for ten days in order to allow the
lender and FMP time to negotiate a short-term increase in the Company's
revolver. In addition, RG is seeking a short-term increase in its
revolver with its lender. The Company believes that the increases in
availability will provide enough cash to allow the Company to finance
operations until the spring golf sales season begins. However, there can
be no assurance that FMP and RG will obtain increases in their respective
revolver availabilities in amounts and on terms acceptable to the Company
or which would allow the Company to continue to finance its current
operations or at all.
During the six months ended November 29, 1997, net cash provided by
operating activities was $847,000 which primarily resulted from
reductions in accounts payable and accrued expenses of $0.6 million
offset by a decrease in accounts receivable of $1.3 million excluding the
impact of the RG Acquisition.
FMP used $1.6 million in investing activities during the six months ended
November 29, 1997, primarily due to $612,000 used to purchase additional
property plant and equipment during such period and Merger costs of
approximately $1,015,000. RPI estimates that capital expenditures for
the year ended May 31, 1998 will be approximately $1.5 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 six months ended
November 29, 1997, was $0.7 million primarily due to the funding of $1.0
million on FMP's term loan and $0.2 million of net borrowings under FMP
and RG's revolvers offset by repayments on long-term debt and capital
lease obligations of $484,000.
-13-
<PAGE> 14
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.
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.
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.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
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 filed 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).
(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.
-15-
<PAGE> 16
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 27
Financial Data Schedule (submitted electronically for SEC
Information only)
-16-
<PAGE> 17
6(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended November 29, 1997.
-17-
<PAGE> 18
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: January 13, 1997 By: /s/ Allen W. Ritchie
--------------------------
Allen W. Ritchie
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas A. Schneider
--------------------------
Thomas A. Schneider
Chief Financial Officer
(principal financial and accounting
officer)
-18-
<PAGE> 19
Exhibit Index
Page Number
Exhibit
(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 22
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 29
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 33
Manufacturing Corp. and FM Precision Golf Sales Corp.
Exhibit 10.3.14
Fourth Amendment to Financing Agreement dated January 6, 1998_, 40
-19-
<PAGE> 20
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)
* Incorporated by reference
-20-
<PAGE> 1
EXHIBIT 10.3.11
FIRST AMENDMENT TO FINANCING AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (this "Amendment") is
made and entered as of January 29, 1997, 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 (each a "Borrower" and collectively, "Borrowers").
Preliminary Statements
A. Borrowers and Bank have entered into a Financing Agreement dated
as of May 31, 1996 (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. Borrowers have requested that Bank amend the Financing Agreement
to make a $375,000 increase in the Term Loan to facilitate the purchase of a
Lawsure polishing and buffing machine.
C. Bank is willing to increase the Term Loan by $375,000 to
facilitate the purchase of a Lawsure polishing and buffing machine, all as
contemplated by the terms, and subject to the conditions, of 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 TO FINANCING AGREEMENT. The Financing Agreement is
hereby amended as follows:
1.1 DEFINITION OF "TERM LOAN AVAILABILITY". The definition of "Term
Loan Availability" in Section 1.1 of the Financing Agreement is hereby amended
in its entirety by substituting in its stead the following:
"Term Loan Availability" means, as of any time, an amount equal to:
(i) an amount equal to the lesser of: (a) $3,625,000; or (b) the sum
of (1) an amount up to 75% of the aggregate orderly liquidation value of the
Eligible Equipment owned
-1-
<PAGE> 2
and held by FM Manufacturing (excluding the Lawsure polishing and buffing
machine installed in January, 1997 (the "Lawsure Machine")), plus (2) an amount
up to 60% of the fair market value of that portion of Borrower's Facility which
constitutes real estate, such fair market value to be determined in accordance
with an appraisal complying with all regulatory requirements applicable to Bank,
provided that Bank has obtained an environmental assessment of the real estate
satisfactory to Bank; plus (3) 70% of the hard cost of the Lawsure Machine; less
(ii) the principal amortization payments of the Term Loan made
or required to have been made by Borrowers; less
(iii) the then outstanding principal amount of the Term Loan.
For purposes of determining the Term Loan Availability, the orderly liquidation
value of the Eligible Equipment owned and held by FM Manufacturing and the fair
market value of Borrower's Facility will be determined in accordance with
appraisals performed from time to time, but not more frequently than annually,
at Borrowers' cost by appraisers acceptable to Bank, in its discretion exercised
in good faith, based on methods of appraisal acceptable to Bank.
1.2 Section 2.3.1 of the Financing Agreement is hereby amended in
its entirety by substituting in its stead the following:
2.3.1 General. Subject to the terms and conditions of this
Agreement, Bank shall make a loan (the "Term Loan") to FM Manufacturing in the
amount of $3,625,000; provided, however, that the principal amount of the Term
Loan may not, as of any time, exceed the Term Loan Availability. Borrowers
acknowledge that, on the Closing Date, Bank made a term loan to FM Manufacturing
in the amount of $3,750,000, the principal balance of which will be, after the
installment due and payable on February 1, 1997, $3,250,000, and further
acknowledge that, on or after the date the First Amendment to Financing
Agreement is signed by Bank, Bank will advance to FM Manufacturing $375,000 to
bring the balance of the Term Loan to $3,625,000. Subject to the terms of
Section 2.3.2 and Section 11.4, the principal of the Term Loan shall be due and
payable by FM Manufacturing in equal consecutive monthly installments in the
amount of $69,711.54 each, commencing on the first day of March, 1997 and
continuing on the first day of each month thereafter until the termination of
this Agreement, at which time the entire unpaid principal balance of, and
accrued interest on, the Term Loan, if not sooner repaid, shall be due and
payable. No part of the Term Loan may, on the repayment thereof, be redrawn or
reborrowed by FM Manufacturing.
1.3 Section 1 of Exhibit 10.29 of the Financing Agreement is hereby
amended in its entirety by substituting the following in its stead:
Section 1. Capital Expenditures. Borrowers will not make
capital expenditures (including, without limitation, expenditures for fixed
assets or leases capitalized or required, in accordance with GAAP consistently
applied, to be capitalized by purchase, lease-purchase agreement, option or
otherwise) in an aggregate amount exceeding $___________
-2-
<PAGE> 3
during the fiscal year of Borrowers ending on or about May 31, 1997 and $700,000
during each fiscal year of Borrowers ending on or about May 31, 1998 and May 31,
1999.
2. OTHER CLOSING DELIVERIES. With the signing of this Amendment,
Borrowers will cause the delivery to Bank of (i) the Reaffirmation of Individual
Guaranty signed by Individual Guarantors, (ii) the Reaffirmation of Corporate
Guaranty signed by Corporate Guarantor, and (iii) all 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.
3. REPRESENTATIONS. To induce Bank to accept this Amendment,
Borrowers hereby represent and warrant to Bank as follows:
3.1 Each Borrower 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.
3.2 This Amendment constitutes the legal, valid and binding
obligations of each Borrower enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
3.3 Each Borrower's 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.
4. 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.
5. RELEASE. Each Borrower hereby releases 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.
6. DEFAULT. Any default by Borrowers in the performance of Borrowers'
obligations under this Amendment shall constitute an Event of Default under the
Financing Agreement.
-3-
<PAGE> 4
7. 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.
8. 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.
9. COUNTERPARTS. This Amendment and each Reaffirmation of 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.
10. 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 ____________ __, 1997
STAR BANK, NATIONAL ASSOCIATION
By:________________________________
Name:______________________________
Title:_____________________________
-4-
<PAGE> 5
REAFFIRMATION OF EACH INDIVIDUAL GUARANTY
In satisfaction of the condition set forth in Section 2 of the above
First Amendment to Financing Agreement (the "Amendment"), each Individual
Guarantor hereby consents to the Amendment and to the transactions contemplated
thereby, reaffirms his or its respective Individual Guaranty, and acknowledges
and agrees that he or it is not released from his or its obligations under his
or its respective Individual Guaranty by reason of the Amendment and that the
obligations of such Individual Guarantor under his or its respective Individual
Guaranty extend to the Financing Agreement and the other Loan Documents as
amended by the Amendment. This Reaffirmation of Individual Guaranty shall not be
construed, by implication or otherwise, as imposing any requirement that Bank
notify or seek the consent of Individual Guarantors relative 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 an Individual
Guaranty, it being expressly acknowledged and reaffirmed that Individual
Guarantors have under each respective Individual Guaranty consented to
modifications, extensions and other actions with respect thereto without any
notice thereof. All capitalized terms used in this Reaffirmation of Individual
Guaranty and not otherwise defined herein shall have the meanings ascribed
thereto in the Amendment.
IN WITNESS WHEREOF, Individual Guarantors have executed this
Reaffirmation of Individual Guaranty to be effective as of the date of the
Amendment.
BERENSON MINELLA & COMPANY, L.P.
By:_______________________________
Name:_____________________________
Title:____________________________
__________________________________________
Christopher A. Johnston
__________________________________________
Richard P. Johnston
-5-
<PAGE> 6
REAFFIRMATION OF CORPORATE GUARANTY
In satisfaction of the condition set forth in Section 2 of the above
First 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.
FM PRECISION GOLF CORP.
By:_______________________________
Name:_____________________________
Title:____________________________
-6-
<PAGE> 1
EXHIBIT 10.3.12
AMENDMENT NO. 2 DC TO FINANCING AGREEMENT
THIS AMENDMENT NO. 2 DC TO FINANCING AGREEMENT (this "Amendment") between STAR
BANK, NATIONAL ASSOCIATION, a national banking association, and FM PRECISION
GOLF MANUFACTURING CORP., a Delaware corporation, and FM PRECISION GOLF SALES
CORP., a Delaware corporation.
WHEREAS, the parties hereto entered into a Financing Agreement dated as of
May 31, 1996, as amended, (the "Financing Agreement"); and
WHEREAS, the parties hereto desire to amend the Financing Agreement.
NOW THEREFORE, the parties do hereby agree as follows:
1. Amendment to Section 12.1(i)(q). The number 50 appearing in Section
12.1(i)(q) is deleted and the number 40 substituted therefor.
2. Ratification. In all other respects, the Financing Agreement, as herein
amended, is hereby ratified and affirmed.
IN WITNESS WHEREOF, this amendment has been duly executed as of August 20,
1997.
FM PRECISION GOLF MANUFACTURING CORP.
By ______________________________________
Christopher A. Johnston, Chairman of the Board
FM PRECISION GOLF SALES CORP.
By _______________________________________
Christopher A. Johnston, Chairman of the Board
STAR BANK, NATIONAL ASSOCIATION
By ______________________________________
<PAGE> 2
EXHIBIT 9.18 - (UPDATED 7/3/97)
Authorized shares of Corporate Guarantor 3,000
Outstanding shares of Corporate Guarantor 1,000
Management Stockholders Agreement between the Corporate Guarantor and its
stockholders contains various transfer restriction.
Stockholders Agreement among Christopher A. Johnston, Kenneth J. Warren, David
J. Lyon and Sherry Joy Rothfield contains transfer restrictions.
STOCKHOLDERS OF PARENT
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares Number of Options
------------------- ---------------- -----------------
<S> <C> <C>
Ronald L. Chamers 30 2.00
Warren K. Braly 15 .66
Jeremiah S. Gourd 15 .66
Peter D. Dripchak 15 .66
John Lynch 15 .66
William B. Faragher 10 2.66
Anthony J. Montgomery 10 2.66
Christopher A. Johnston 296 13.07
BM&Co. 297
Raymond J. Minella 2.00
RPJ/JAJ Partners Ltd. 147 6.00
David E. Johnston 50 2.66
Kenneth J. Warren 80 3.67
David J. Lyon 10
Sherry Joy Rothfield 10
Chad Lehr .66
Michael Biviano .66
John W. Gill .66
</TABLE>
<PAGE> 3
[STAR BANK LETTERHEAD]
April 14, 1997
Mr. William B. Faragher
FM Precision Golf Manufacturing Corp.
P.O. Box 298
Torrington, CT 06790
Dear Bill:
This letter shall serve to modify the definition of EBITDA contained in Exhibit
10.29 (Financial Covenants) of the Financing Agreement between Star Bank and FM
Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp., dated May
31, 1996, for the following periods; (1) 9 fiscal months ending on or about
2/28/97 and (2) Fiscal year ending on or about 5/31/97.
EBITDA shall be defined as follows for the previously referenced measurement
periods; "EBITDA" means the consolidated earnings of Borrowers and Corporate
Guarantor before interest, income taxes, depreciation and amortization expense,
all as determined in accordance with GAAP consistently applied. EBITDA, for
purposes of this Exhibit 10.29 will (i) be calculated utilizing a first-in-first
out method of cost accounting for Inventory ("FIFO"), with the exception of
Borrowers combined $382,446 LIFO reserve adjustment recorded in January and
February 1997 which will be included in earnings of Borrowers and (ii) not
include any gains recognized by Borrowers as earnings which relate to
adjustments made by Borrowers as a result of the Tax Reform Act of 1986 or any
other extraordinary accounting adjustments or non-recurring items of income.
This letter will not effect the definition of EBITDA for Exhibit 3.1 (Financial
Benchmarks for Interest Rate Reduction).
Sincerely,
David L. Carey
Vice President
(513) 287-8321
cc: Mr. Jack A. Krichavsky
File: Letters/FMCOV.Sam
<PAGE> 1
EXHIBIT 10.3.13
THIRD AMENDMENT TO FINANCING AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AGREEMENT (this "Amendment") is
made and entered as of November ___, 1997, 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, and (ii) a Second Amendment to Financing Agreement
dated as of August 20, 1997 (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 TO FINANCING AGREEMENT. Subject to the satisfaction
of the conditions of this Amendment, the Financing Agreement is amended as
follows:
1.1 DEFINITION OF CORPORATE GUARANTOR. The definition of
"Corporate Guarantor" in Section 1.1 of the Financing Agreement is amended to
provide in its entirety as follows:
"Corporate Guarantor" means Royal Precision, Inc., a Delaware
corporation, formerly known as FM Precision Golf Corp.
1.2 DEFINITION OF TERM LOAN AVAILABILITY. The definition of
"Term Loan Availability" in Section 1.1 of the Financing Agreement is amended to
provide in its entirety as follows:
"Term Loan Availability" means, as of any time, an amount equal to:
(i) an amount equal to the lesser of: (a) $3,997,596.14; or
(b) the sum of (1) an amount up to 75% of the aggregate orderly
liquidation value of
<PAGE> 2
the Eligible Equipment owned and held by FM Manufacturing (excluding the
Lawsure polishing and buffing machine installed in January, 1997 (the
"Lawsure Machine")), plus (2) an amount up to 60% of the fair market value
of that portion of Borrower's Facility which constitutes real estate, such
fair market value to be determined in accordance with an appraisal
complying with all regulatory requirements applicable to Bank, provided
that Bank has obtained an environmental assessment of the real estate
satisfactory to Bank; plus (3) 70% of the hard cost of the Lawsure
Machine; less
(ii) the principal amortization payments of the Term Loan made
or required to have been made on or after December 1, 1997 by Borrowers;
less
(iii) the then outstanding principal amount of the
Term Loan.
For purposes of determining the Term Loan Availability, the orderly
liquidation value of the Eligible Equipment owned and held by FM
Manufacturing and the fair market value of Borrower's Facility will be
determined in accordance with appraisals performed from time to time, but
not more frequently than annually, at Borrowers' cost by appraisers
acceptable to Bank, in its discretion exercised in good faith, based on
methods of appraisal acceptable to Bank.
1.3 Section 2.3.1 of the Financing Agreement is amended to
provide in its entirety as follows:
2.3.1 General. Subject to the terms and conditions of this
Agreement, Bank shall make a loan (the "Term Loan") to FM Manufacturing in
the amount of $3,997,596.14; provided, however, that the principal amount
of the Term Loan may not, as of any time, be such as would create a Term
Loan Deficiency. Borrowers acknowledge that, as of the date of the Third
Amendment to Financing Agreement, immediately prior to the advance of the
Term Loan provided for below, the principal balance of the Term Loan has
been paid down to $2,997,596.14. On or after the date the Third Amendment
to Financing Agreement is signed by Bank, Bank will re-advance to FM
Manufacturing $1,000,000 as an advance of the Term Loan, to bring the
principal balance of the Term Loan to $3,997,596.14. Subject to the terms
of Section 2.3.2 and Section 11.4, the principal of the Term Loan shall be
due and payable by FM Manufacturing in equal consecutive monthly
installments in the amount of $69,711.54 each, commencing on the first day
of December, 1997 and continuing on the first day of each month thereafter
until the termination of this Agreement, at which time the entire unpaid
principal balance of, and accrued interest on, the Term Loan, if not
sooner repaid, shall be due and payable. No part of the Term Loan may, on
the repayment thereof, be redrawn or reborrowed by FM Manufacturing.
2
<PAGE> 3
1.4 AMENDMENT OF SECTIONS 11.1 AND 11.2. Sections 11.1 and
11.2 are amended to change "May 31, 1999," where it appears therein, to "June 2,
2000."
1.5 AMENDMENT OF EXHIBIT 10.29. 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 December 15, 1997.
If Borrowers reasonably revise their financial projections prior to December 15,
1997, and if such projections justify a revision of the Financial Covenants,
Bank and Borrower 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 December 15, 1997, Bank and Borrower 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. WAIVER OF TERM LOAN PAYMENT BASED ON EXCESS CASH FLOW.
Pursuant to Section 2.3.2 of the Financing Agreement, an installment of
principal of the Term Loan in an amount equal to 30% of Borrowers' Excess Cash
Flow, if any, for Borrowers' fiscal year ending on or about May 31, 1997, was
due and payable on August 31, 1997. Subject to the satisfaction of the
conditions of this Amendment, Bank waives the obligation of Borrowers to pay
such installment of principal of the Term Loan. Such waiver shall not operate to
waive or release Borrowers from, or in any way affect, the obligation of
Borrowers to make any other payment in respect of the Loans, including but not
limited to any future payment of principal of the Term Loan which becomes due
under Section 2.3.2 of the Financing Agreement.
3. CONFIRMATION OF INTEREST RATE REDUCTION. Bank confirms that
Borrowers have qualified for the interest rate reduction provided for in clause
(iv) of Section 3.1 of the Financing Agreement, effective as of September 1,
1997.
4. TERMINATION OF INDIVIDUAL GUARANTY AND CASH COLLATERAL
AGREEMENT. Bank acknowledges that the conditions for termination of the
Individual Guaranty, as set forth in Section 2.6 of the Individual Guaranty,
have been satisfied, and that the Individual Guaranty is terminated. Bank
further acknowledges that, by reason of the satisfaction of such conditions for
termination of the Individual Guaranty, the Cash Collateral Agreement, dated May
31, 1996, between Berenson, Minella & Company, L.P. and Bank is terminated.
5. 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.
6. 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.
3
<PAGE> 4
7. REPRESENTATIONS. To induce Bank to accept this Amendment,
Borrowers hereby represent and warrant to Bank as follows:
7.1 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.
7.2 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.
7.3 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.
8. 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.
9. 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.
10. DEFAULT. Any default by Borrowers in the performance of
Borrowers' obligations under this Amendment shall constitute an Event of Default
under the Financing Agreement.
11. 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.
12. 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.
4
<PAGE> 5
13. 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.
14. 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 ______________, 1997
STAR BANK, NATIONAL ASSOCIATION
By:_______________________________
Name:_____________________________
Title:____________________________
REAFFIRMATION OF CORPORATE GUARANTY
5
<PAGE> 6
In satisfaction of the condition set forth in Section 5 of the above
Third 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:____________________________
6
<PAGE> 1
EXHIBIT 10.3.14
FOURTH AMENDMENT TO FINANCING AGREEMENT
THIS FOURTH AMENDMENT TO FINANCING AGREEMENT (this "Amendment") is
made and entered as of January 6, 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, and (iii) a Third Amendment to Financing Agreement
dated as of November 10, 1997 (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. DEFINITION OF SPECIAL ADVANCE. Section 1.1 of the Financing
Agreement is amended to add the following definition of "Special Advance":
"Special Advance" has the meaning ascribed thereto in Section 2.12.
b. AMENDMENT OF SECTION 2.1. Section 2.1 of the Financing
Agreement is amended to provide in its entirety as follows:
2.1 Total Facility. Subject to the terms and conditions of this
Agreement, Bank shall make up to $7,500,000 in total credit available to
Borrowers in the form of the following loans advanced or to be made under
the following facilities: (i) the Revolving Loans, (ii) the Term Loan, and
(iii) the Special Advance, all as more particularly described below.
<PAGE> 2
c. ADDITION OF SECTION 2.12. The Financing Agreement is
amended to add the following Section 2.12:
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
$250,000. The proceeds of the Special Advance shall be used by Borrowers
only for working capital purposes. No part of the Special Advance may, on
the repayment thereof, be redrawn or reborrowed by Borrowers. Unless an
earlier termination of this Agreement occurs pursuant to Section 11, the
entire principal balance of, and accrued interest on, the Special Advance,
if not sooner repaid, will be due and payable on January 16, 1998.
d. AMENDMENT OF SECTION 3.1. Clause (ii) of Section 3.1 of the
Financing Agreement is amended to provide in its entirety as follows:
(ii) The Term Loan and 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
clauses (iv) and (v) of this Section 3.1.
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:
a. 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.
b. 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.
2
<PAGE> 3
c. 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. INCONSISTENCIES; CONTINUING EFFECT OF FINANCING AGREEMENT. To
the extent that the provisions of this Amendment are inconsistent with the
provisions of the Financing Agreement, the provisions of this Amendment will
control and the Financing Agreement will be deemed to be amended hereby. Except
as 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. CAPTIONS. The headings to the Sections of this Amendment have
been inserted for convenience of reference only and shall in no way modify or
restrict any provisions hereof or be used to construe any such provisions.
11. 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.
12. 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.
3
<PAGE> 4
13. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, Borrowers have executed this Amendment to be
effective as of the date set forth 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
Fourth 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
4
<PAGE> 5
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:____________________________
5
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