U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended November 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________ to _________.
Commission File Number: 0-22889
ROYAL PRECISION, INC.
(Exact Name of Registrant 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)
(480) 627-0200
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate 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 10, 2000
------------------- -------------------------------
Common Stock, par value $.001 5,672,885 Shares
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
------------ ---------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 62 $ 184
Accounts receivable, net of allowance for doubtful accounts of
$381 at November 30, 1999 and $433 at May 31, 1999, respectively 3,513 4,617
Inventories 5,533 4,514
Other current assets 537 783
Deferred income taxes 647 647
-------- --------
Total current assets 10,292 10,745
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 123 123
Furniture, fixtures and office equipment 513 499
Buildings and improvements 670 670
Machinery and equipment 4,190 4,144
Construction in progress 1,191 402
-------- --------
6,687 5,838
Less - Accumulated depreciation (1,284) (929)
-------- --------
5,403 4,909
-------- --------
GOODWILL, net 8,614 8,857
-------- --------
DEFERRED INCOME TAXES 70 70
-------- --------
OTHER ASSETS 74 29
-------- --------
Total assets $ 24,453 $ 24,610
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 911 $ 1,203
Accounts payable 1,390 1,839
Accrued salaries and benefits 681 595
Accrued pension liability 193 251
Other accrued expenses 1,248 1,079
-------- --------
Total current liabilities 4,423 4,967
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion
included above 6,219 6,191
-------- --------
Total liabilities 10,642 11,158
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 1,000,000 shares authorized
(reduced from 5,000,000 shares on October 19, 1999);
no shares issued -- --
Common stock, $.001 par value; 10,000,000 shares authorized
(reduced from 50,000,000 shares on October 19, 1999);
5,672,885 and 5,667,375 shares issued and outstanding at
November 30, 1999 and May 31, 1999, respectively 6 6
Additional paid-in capital 13,898 13,897
Accumulated deficit (46) (404)
Accumulated other comprehensive loss (47) (47)
-------- --------
Total stockholders' equity 13,811 13,452
-------- --------
Total liabilities and stockholders' equity $ 24,453 $ 24,610
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Golf club shafts $5,586 $ 3,041 $10,872 $ 8,042
Golf club grips 834 810 2,064 1,847
------ -------- ------- -------
6,420 3,851 12,936 9,889
------ -------- ------- -------
COST OF SALES:
Golf club shafts 4,031 1,946 7,250 5,220
Golf club grips 565 426 1,415 977
------ -------- ------- -------
4,596 2,372 8,665 6,197
------ -------- ------- -------
Gross profit 1,824 1,479 4,271 3,692
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,485 1,356 3,124 3,121
AMORTIZATION OF GOODWILL 121 131 243 261
------ -------- ------- -------
Operating income (loss) 218 (8) 904 310
INTEREST EXPENSE 147 228 298 389
OTHER INCOME 55 64 110 125
------ -------- ------- -------
Income (loss) from continuing operations
before provision for (benefit from)
income taxes 126 (172) 716 46
PROVISION FOR (BENEFIT FROM) INCOME TAXES 62 (60) 358 (55)
------ -------- ------- -------
Income (loss) from continuing operations 64 (112) 358 101
DISCONTINUED OPERATIONS:
Loss from operations of Roxxi, Inc. -- (179) -- (389)
------ -------- ------- -------
Net income (loss) $ 64 $ (291) $ 358 $ (288)
====== ======== ======= =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.01 $ (0.02) $ 0.06 $ 0.02
Loss from discontinued operations -- (0.03) -- (0.07)
------ -------- ------- -------
Net income (loss) $ 0.01 $ (0.05) $ 0.06 $ (0.05)
====== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-3-
<PAGE>
ROYAL PRECISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 358 $ (288)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities of continuing operations--
Loss from discontinued operations -- 389
Depreciation and amortization 603 463
Loss on sale of fixed assets 7 --
Changes in operating assets and liabilities--
Accounts receivable, net 1,104 1,774
Inventories (1,019) (1,290)
Other assets 201 46
Accounts payable and accrued expenses (252) (900)
Other liabilities -- (44)
------- -------
Net cash provided by operating activities of
continuing operations 1,002 150
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments from net investment in capital lease -- 137
Purchases of equipment, net (861) (617)
------- -------
Net cash used in investing activities of
continuing operations (861) (480)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 5,140
Proceeds from exercise of common stock options 1 17
Borrowings (repayments) under lines-of-credit, net 482 (730)
Repayments of long-term debt and capital lease obligations (746) (3,810)
------- -------
Net cash (used in) provided by financing activities
of continuing operations (263) 617
------- -------
NET CASH USED IN DISCONTINUED OPERATIONS -- (244)
------- -------
(DECREASE) INCREASE IN CASH (122) 43
CASH, beginning of period 184 28
------- -------
CASH, end of period $ 62 $ 71
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest $ 316 $ 461
======= =======
Income taxes $ 31 $ 28
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-4-
<PAGE>
ROYAL PRECISION, INC. 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, "RP" or the "Company") presented herein
have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q 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, 1999 included in the Company's
Form 10-KSB. 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.
ORGANIZATION --
The accompanying condensed consolidated financial statements include Royal
Precision, Inc. and its three wholly-owned subsidiaries, FM Precision Golf
Manufacturing Corp. ("FMP"), FM Precision Golf Sales Corp. ("FMP Sales")
and Royal Grip, Inc. ("RG") which has a wholly-owned subsidiary, Royal Grip
Headwear Company. All significant intercompany balances and transactions
have been eliminated in consolidation. As discussed in Note 7, the Company
disposed of the operating assets of Royal Grip Headwear Company (formerly
known as Roxxi, Inc. "Roxxi") in March 1999. Results of operations for
Roxxi for all periods through May 31, 1999 are reflected as discontinued
operations.
BUSINESS --
RP is a holding company which carries on its business operations through
its subsidiaries. FMP is a manufacturer and distributor of golf club shafts
which are sold to original equipment manufacturers ("OEMs") and to
distributors and retailers for use in the replacement market. RG designs
and distributes golf club grips. RP's products are sold throughout the
United States as well as internationally, primarily in Japan, Australia,
the United Kingdom and Canada.
USE OF ESTIMATES --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements such as the estimate for impairment of long-lived
assets and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. EARNINGS (LOSS) PER SHARE:
The Company accounts for earnings (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share." Basic earnings (loss) per share are based on
the average number of common shares outstanding during the period. Diluted
earnings (loss) per share assumes, in addition to the above, a dilutive
effect of common share equivalents during the period. Common share
equivalents represent dilutive stock options using the treasury stock
method. The number of shares used in computing income (loss) from
continuing operations per share for the three and six months ended November
30, 1999 and 1998 were as follows (in thousands):
-5-
<PAGE>
Three Months Ended November 30,
-------------------------------
1999 1998
---- ----
Basic:
Average common shares outstanding 5,670 5,663
Diluted:
Dilutive effect of stock options 125 --
----- -----
Average common shares outstanding 5,795 5,663
===== =====
Six Months Ended November 30,
-----------------------------
1999 1998
---- ----
Basic:
Average common shares outstanding 5,669 5,632
Diluted:
Dilutive effect of stock options 130 --
----- -----
Average common shares outstanding 5,799 5,632
===== =====
For the three and six months ended November 30, 1998, basic and diluted
average common shares outstanding for discontinued operations were
5,663,000 and 5,632,000, respectively. Basic and diluted earnings (loss)
per share were the same for all periods presented.
3. NEW ACCOUNTING PRONOUNCEMENT:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133. The Company will be required to adopt SFAS
No. 133 during the fiscal year ending May 31, 2001. The Company does not
anticipate any material impact resulting from the adoption of SFAS No. 133.
4. INVENTORIES:
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out method. Inventories as of November 30, 1999 and
May 31, 1999 consisted of the following (in thousands):
November 30, 1999 May 31, 1999
----------------- ------------
Raw materials $ 528 $ 471
Work-in-process 2,037 1,566
Finished goods 2,968 2,477
------ ------
$5,533 $4,514
====== ======
5. BORROWING ARRANGEMENTS:
FMP has a credit facility consisting of a term loan and a revolving
line-of-credit. The FMP term loan of $3,047,000 at November 30, 1999 is due
in monthly principal installments of $65,000 until its maturity in
September 2002. The amount available for borrowings under the revolving
line-of-credit is based upon the levels of eligible FMP accounts receivable
and inventories, as defined, subject to a maximum borrowing of $5.0
million. As of November 30, 1999, FMP had $3,491,000 outstanding under its
revolving line-of-credit and $865,000 available for additional borrowings.
The FMP line-of-credit expires in September 2002.
RG has a credit facility consisting of a term loan and a revolving
line-of-credit. The RG term loan of $493,500 at November 30, 1999 is due in
monthly principal installments of $10,500 until its maturity in September
-6-
<PAGE>
2002. The amount available for borrowings under the revolving
line-of-credit is based upon the levels of eligible RG accounts receivable
and inventories, as defined, subject to a maximum borrowing of $1.5
million. As of November 30, 1999, RG had $94,000 outstanding under its
revolving line-of-credit and $532,000 available for additional borrowings.
The RG line-of-credit expires in September 2002.
The FMP and RG credit facilities were amended and restated on November 10,
1999 resulting in a reduction of interest rates by 1%, an extension of the
maturity dates by one year, and a $1.0 million increase in the FMP
line-of-credit. Effective November 10, 1999, borrowings under the term
loans and revolving lines-of-credit of both credit facilities bear interest
at a rate per annum equal to the prime rate (8.50% at November 30, 1999)
plus 0.75% and 0.25%, respectively, and are secured by substantially all of
the Company's assets.
The FMP and RG credit facilities contain financial and other covenants
which, among other things, limit annual capital expenditures and dividends
and require the maintenance of minimum monthly and quarterly earnings or
maximum monthly and quarterly losses, and minimum quarterly debt service
coverage ratios, as defined. The Company was in compliance with all
financial loan covenants at November 30, 1999.
6. INFORMATION ON SEGMENTS:
The Company has two reportable segments in continuing operations: golf club
shafts and golf club grips. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies
in Form 10-KSB for the fiscal year ended May 31, 1999. The Company
evaluates the performance of these segments based on segment operating
income or loss and cash flows. The Company allocates certain administrative
expenses to segments. The amounts in this illustration are the amounts in
reports used by the chief operating officer as of November 30, 1999 (in
thousands):
Three Months Ended November 30, 1999
------------------------------------
Golf Golf
Shafts Grips Total
------ -------- ---------
Net sales $ 5,586 $ 834 $ 6,420
Operating income (loss) 263 (45) 218
Depreciation and amortization 87 213 300
Assets 12,311 18,262 30,573
Total assets for reportable segments $ 30,573
Elimination of investment in subsidiaries (6,120)
--------
Consolidated total assets $ 24,453
========
Three Months Ended November 30, 1998
------------------------------------
Golf Golf
Shafts Grips Total
------ -------- ---------
Net sales $3,041 $ 810 $ 3,851
Operating income (loss) 24 (32) (8)
Depreciation and amortization 63 140 203
Assets 9,698 21,229 30,927
Total assets for reportable segments $ 30,927
Assets of discontinued operation 1,615
Elimination of investment in subsidiaries (7,271)
--------
Consolidated total assets $ 25,271
========
-7-
<PAGE>
Six Months Ended November 30, 1999
----------------------------------
Golf Golf
Shafts Grips Total
------ ----- -----
Net sales $10,872 $ 2,064 $12,936
Operating income (loss) 996 (92) 904
Depreciation and amortization 174 429 603
Six Months Ended November 30, 1998
----------------------------------
Golf Golf
Shafts Grips Total
------ ----- -----
Net sales $8,042 $1,847 $9,889
Operating income 284 26 310
Depreciation and amortization 137 326 463
7. DISCONTINUED OPERATIONS:
In March 1999, the operating assets of Roxxi were disposed of through two
separate transactions. Roxxi sold its trade name, customer list, design
database and related computer software and hardware for a royalty of 16% of
the buyer's net sales of Roxxi-licensed products for the two-year period
beginning May 1, 1999. Roxxi also sold its headwear manufacturing
equipment, headwear inventory and raw materials to another company for
$300,000 and a royalty of 2% of the buyer's net sales until the buyer has
paid an additional $200,000. Subsequently, Roxxi's name was changed to
Royal Grip Headwear Company. The Company is accounting for royalties as
income is earned during the two year period beginning May 1, 1999. For the
three and six months ended November 30, 1999, royalties of $51,000 and
$89,000 were recorded, respectively, and are reflected as other income in
the accompanying condensed consolidated statements of operations.
Selected financial data for the discontinued operations is as follows for
the six months ended November 30, 1998 (in thousands):
Net sales $1,446
Loss from operations 389
Depreciation 145
8. TERMINATION OF MANUFACTURING SUPPLY CONTRACT:
In May 1999, RG and Acushnet Rubber Company ("Acushnet") executed a mutual
release agreement terminating their manufacturing and supply agreement and
capital lease agreement (the "Termination Agreement"). As a result in May
1999, RG received $1.5 million in cash and $1.0 million in purchase credits
from Acushnet to be applied against current and future amounts owed to
Acushnet for the production of grips. As of November 30, 1999, $0.5 million
of the purchase credits had been utilized and the remaining $0.5 million is
included in other current assets in the accompanying condensed consolidated
balance sheet. In connection with the Termination Agreement, RG is entitled
to receive the manufacturing equipment which was leased to Acushnet and
Acushnet's obligation to make additional payments to RG under the capital
lease was terminated. Additionally, Acushnet is obligated to continue
producing grips for RG through January 2000 and to pay up to $100,000 for
shipping and installation of the manufacturing equipment at a new location.
RG currently purchases the majority of its supply of non-cord, injected
grips from Acushnet and has no immediate replacement supply source. The
Company believes that it can obtain a sufficient supply of grips from
Acushnet and other existing vendors to satisfy customer demand through
December 31, 2000. Included in finished goods inventories at November 30,
1999 are grips at a cost of approximately $0.8 million located at Acushnet.
The Company has identified and is in various stages of negotiations with
three separate grip manufacturers which the Company believes can maintain
RG's standard of product quality and will facilitate a smooth transition.
There can be no assurances that the Company will be able to secure a source
for grips on as favorable terms or with the same or better quality as
Acushnet. In addition, there can be no assurances that a transition to new
suppliers will not result in production delays, the loss of sales and key
customers which would materially affect RG's financial condition and
results of operations.
-8-
<PAGE>
Acushnet warehoused and distributed RG's grips under the manufacturing and
supply agreement. In connection with the Termination Agreement, the Company
will assume responsibility for these functions. In September 1999, $0.2
million of grips were transferred from the Acushnet facility to the
Company's manufacturing and distribution facility in Torrington,
Connecticut and are included in finished goods inventories at November 30,
1999. The Torrington warehouse has been configured to accommodate storage
and shipment of grips. In November 1999, the Company entered into a lease
of approximately 9,000 square feet of warehouse space in Scottsdale,
Arizona which will serve as a West Coast distribution center. In December
1999, approximately $0.3 million of grips were transferred from the
Acushnet facility to the Company's Scottsdale warehouse. When Acushnet has
fulfilled its manufacturing obligations under the Termination Agreement,
all remaining inventory will be transferred from the Acushnet facility to
the Torrington and Scottsdale warehouses. The Company will warehouse and
distribute its grips from both the Scottsdale and Torrington locations when
the relationship with Acushnet is completed.
9. TERMINATED MERGER AGREEMENT:
In February 1999, the Company and Coyote Sports, Inc. ("Coyote") entered
into a merger agreement pursuant to which RP would become a wholly-owned
subsidiary of Coyote (the "RP-Coyote Merger"). In June 1999, the RP-Coyote
Merger agreement was terminated at the request of the Company due to a
material change in the business of Coyote resulting in an inability to
obtain suitable long-term financing. The Company incurred professional fees
of $975,000 related to the RP-Coyote Merger during the second half of the
fiscal year ended May 31, 1999.
10. LITIGATION:
In November 1999, a lawsuit was commenced in an Arizona state court by R.
R. Donnelley & Sons Company ("Donnelley") against RP. Donnelley alleges
that RP is liable for approximately $280,000 in fees arising from the
preparation of a Joint Proxy Statement/Prospectus related to the RP-Coyote
Merger. Management believes that the action is without merit and intends to
defend it vigorously.
-9-
<PAGE>
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. The Company believes it has made forward-looking
statements within the meaning of the Litigation Reform Act in this Form 10-Q,
Forms 10-QSB, Forms 10-KSB, Forms 8-K, and other written or oral statements made
by or on behalf of RP which reflect RP'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 international,
national, and local economic conditions, RP's dependence on discretionary
consumer spending, customer concentration and their plans and commitments, RP's
cost and available supply of raw materials, the competitive environment in which
RP operates, the timeliness and market acceptance of RP's new product
introductions, RP's limited operating history, RP's ability to protect its
intellectual property rights, seasonality of sales, fluctuations in operating
results, and changes in the financial markets relating to RP's capital structure
and cost of capital. Statements in this Form 10-Q, including the Notes to the
Condensed Consolidated Financial Statements ("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 RP's Form 10-KSB for the fiscal year ended May 31, 1999. 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.
OVERVIEW --
Royal Precision, Inc. ("RP" or the "Company") is a holding company with three
wholly-owned subsidiaries which are FM Precision Golf Manufacturing Corp.
("FMP"), FM Precision Golf Sales Corp. ("FMP Sales"), and Royal Grip, Inc.
("RG") which has a wholly-owned subsidiary, Royal Grip Headwear Company. RP
acquired RG on August 29, 1997 by means of a merger whereby FMPSUB, Inc. (a
wholly-owned subsidiary of RP created for such purpose) merged with and into RG
(the "FMP-RG Merger"). RG was the surviving corporation and became a
wholly-owned subsidiary of RP. As discussed in Note 7 to the Financial
Statements, the Company disposed of the operating assets of Royal Grip Headwear
Company (formerly known as Roxxi, Inc. "Roxxi") in March 1999. Results of
operations for Roxxi in all periods through May 31, 1999 are reflected as
discontinued operations.
FMP is a manufacturer and distributor of golf club shafts that are sold to
original equipment manufacturers ("OEMs") and to distributors and retailers for
use in the replacement market. The majority of FMP's sales are to OEMs. FMP also
sells golf club shafts in foreign markets including Japan, Australia, the United
Kingdom, and Canada. RG designs and distributes golf club grips. RG's products
are sold primarily throughout the United States, Japan, and the United Kingdom.
The majority of RG's grip sales are to its Japanese distributor. In December
1996, RG outsourced the manufacturing of its non-cord grips to Acushnet Rubber
Company ("Acushnet"). In May 1999, RG and Acushnet executed a mutual release
agreement terminating their manufacturing and supply agreement and capital lease
agreement. See Note 8 to the Financial Statements and Reliance on Third Party
Suppliers under Business Environment and Future Results below.
The Company principally operates in the golf equipment industry which has
historically been seasonal in nature with consumer demand for product being the
strongest during the spring and summer months.
THREE MONTHS ENDED NOVEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
30, 1998--
NET SALES. Net sales from continuing operations for the three months ended
November 30, 1999 were $6.4 million, an increase of $2.6 million or 67% over net
sales from continuing operations of $3.9 million during the corresponding period
in 1998. Net sales of golf club shafts increased by $2.5 million or 84% and net
sales of golf club grips increased by $24,000 or 3%. The increased golf club
shaft sales reflect continued strong demand for the Company's proprietary
"Rifle" shafts. Net sales of the Company's higher priced, pro grade golf club
shafts including the "Rifle" increased by $2.6 million or 113%. Sales of the
Company's lower priced, commercial grade golf club shafts were consistent at
$0.8 million during both of the three month periods ended November 30, 1999 and
1998.
-10-
<PAGE>
COST OF SALES. Cost of goods sold from continuing operations for the three
months ended November 30, 1999 was $4.6 million, an increase of $2.2 million or
94% over cost of goods sold from continuing operations of $2.4 million during
the corresponding period in 1998. Golf club shafts cost of goods sold increased
by $2.1 million or 107% and golf club grips cost of goods sold increased by $0.1
million or 33%, both as a result of higher total net sales.
GROSS PROFIT. Gross profit from continuing operations for the three months ended
November 30, 1999 was $1.8 million, an increase of $0.3 million or 23% from
gross profit from continuing operations of $1.5 million for the corresponding
period in 1998. Gross profit from sales of golf club shafts increased by $0.5
million or 42% to $1.6 million due to higher total net sales. As a percentage of
sales, the gross profit on sales of golf club shafts decreased from 36% to 28%
due to several factors, principally the mix of products sold during the two
periods. Sales of pro grade golf club shafts during the three months ended
November 30, 1999 consisted principally of products which are not subject to the
Company's Frequency Coefficient Matching ("FCM") technology and are sold at a
lower price and a lower profit margin than the Company's FCM products.
Conversely, a majority of the pro grade shaft sales during the three months
ended November 30, 1998 were FCM products. Additionally, the FMP manufacturing
facility was operating at high levels of production of pro grade shafts during
the three months ended November 30, 1999 to fulfill significant OEM orders
during the quarter. Additional production costs such as overtime wages,
additional supplies and machinery maintenance were incurred to ramp up
production to levels not typically required until the third and fourth fiscal
quarters. These additional costs resulted in a higher average unit production
cost during the three months ended November 30, 1999 than during the
corresponding period in 1998. Finally, inventory write-downs totaling $0.1
million were recorded during the three months ended November 30, 1999 to reduce
the book value of certain slow moving inventory items, principally graphite
shafts purchased for resale, to estimated net realizable value.
Gross profit from sales of golf club grips decreased by $0.1 million or 30% to
$0.3 million despite a slight increase in net sales. As a percentage of sales,
the gross profit on sales of golf club grips decreased from 47% to 32%. This
decreased margin reflects a different mix of products sold during the two
periods. Beginning in November 1998, the Company introduced a buffed golf club
grip product for the Japanese market which is being manufactured at a higher
cost and is being sold at a lower profit margin than other RG products. Sales of
this buffed product represented 25% of sales during the three months ended
November 30, 1999 compared to only 1% during the corresponding period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended November 30, 1999 were $1.5
million, an increase of 10% from selling, general and administrative expenses of
$1.4 million during the corresponding period in 1998. Additional advertising
costs of approximately $175,000 were incurred during the three months ended
November 30, 1999 which contributed to the higher sales volumes realized during
the period. As a percentage of sales, selling, general and administrative
expenses declined from 35% during the three months ended November 30, 1998 to
23% during the corresponding period in 1999.
AMORTIZATION OF GOODWILL. Goodwill was reduced in the fourth quarter of fiscal
1999 as a result of the utilization of pre-merger NOL carryforwards and partial
reversal of the valuation allowance on pre-merger deferred tax assets.
Therefore, amortization expense was reduced from $131,000 during the three
months ended November 30, 1998 to $121,000 during the corresponding period in
1999.
INTEREST EXPENSE. In October 1998, FMP entered into a new credit facility with
RG's lender and paid off all existing loans to FMP's previous lender. A
prepayment penalty of $75,000 was incurred related to this transaction and was
reflected as a component of the $0.2 million interest expense during the three
months ended November 30, 1998. Interest expense during the corresponding period
in 1999 was $0.1 million.
OTHER INCOME. Other income of $55,000 for the three months ended November 30,
1999 is principally comprised of royalties earned on sales of Roxxi headwear
products. Other income of $64,000 for the three months ended November 30, 1998
is principally comprised of interest income on the Acushnet capital lease
receivable.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. A provision of $62,000 was recorded
for taxes on income from continuing operations during the three months ended
November 30, 1999 and a benefit of $60,000 was recorded on the loss from
continuing operations during the corresponding period in 1998. Taxes are
provided based on the estimated effective tax rate for the year which considers
the effect of nondeductible goodwill amortization.
DISCONTINUED OPERATIONS. As discussed in Note 7 to the Financial Statements, the
Company disposed of the operating assets of Roxxi in March 1999. Losses from the
operations of Roxxi for the three months ended November 30, 1998 were $0.2
million.
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<PAGE>
SIX MONTHS ENDED NOVEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30,
1998--
NET SALES. Net sales from continuing operations for the six months ended
November 30, 1999 were $12.9 million, an increase of $3.0 million or 31% from
net sales from continuing operations of $9.9 million during the corresponding
period in 1998. Net sales of golf club shafts increased by $2.8 million or 35%
and net sales of golf club grips increased by $0.2 million or 12%. The increased
golf club shaft sales reflect continued strong demand for the Company's
proprietary "Rifle" shafts. Net sales of the Company's higher priced, pro grade
golf club shafts including the "Rifle" increased by $3.5 million or 58%. Sales
of the Company's lower priced, commercial grade golf club shafts decreased by
$0.7 million or 33%. Sales of this product have been negatively impacted since
the Company instituted a significant price increase during the first quarter of
fiscal 1999. In response to these unfavorable results, the Company subsequently
modified its pricing structure in an effort to increase sales of this product in
future periods. The increased golf club grip sales reflect the success of the
new buffed product introduced to the Japanese market in November 1998. Sales of
this product for the six months ended November 30, 1999 were $0.8 million
compared to $10,000 during the corresponding period in 1998.
COST OF SALES. Cost of goods sold from continuing operations for the six months
ended November 30, 1999 was $8.7 million, an increase of $2.5 million or 40%
from cost of goods sold from continuing operations of $6.2 million during the
corresponding period in 1998. Golf club shafts cost of goods sold increased by
$2.0 million or 39% and golf club grips cost of goods sold increased by $0.4
million or 45%, both as a result of higher total net sales.
GROSS PROFIT. Gross profit from continuing operations for the six months ended
November 30, 1999 was $4.3 million, an increase of $0.6 million or 16% from
gross profit from continuing operations of $3.7 million for the corresponding
period in 1998. Gross profit from sales of golf club shafts increased by $0.8
million or 28% to $3.6 million due to higher total net sales. As a percentage of
sales, the gross profit on sales of golf club shafts decreased from 35% to 33%
due to several factors, principally the mix of products sold during the two
periods. Sales of pro grade golf club shafts during the six months ended
November 30, 1999 consisted principally of products which are not subject to the
Company's FCM technology and are sold at a lower price and a lower profit margin
than the Company's FCM products. Conversely, a majority of the pro grade shaft
sales during the six months ended November 30, 1998 were FCM products.
Additionally, inventory write-downs totaling $0.2 million were recorded during
the six months ended November 30, 1999 to reduce the book value of certain slow
moving inventory items, principally graphite shafts purchased for resale, to
estimated net realizable value.
Gross profit from sales of golf club grips decreased by $0.2 million or 25% to
$0.6 million despite an increase in net sales. As a percentage of sales, the
gross profit on sales of golf club grips decreased from 47% to 31%. This
decreased margin reflects a different mix of products sold during the two
periods. Beginning in November 1998, the Company introduced the new buffed
product for the Japanese market which is being manufactured at a higher cost and
is being sold at a lower profit margin than other RG products. Sales of this
product represented 37% of sales during the six months ended November 30, 1999
compared to only 1% during the corresponding period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended November 30, 1999 and 1998 were
consistent at $3.1 million. Additional advertising costs of approximately
$184,000 were incurred during the six months ended November 30, 1999 which
contributed to the higher sales volumes realized during the period. As a
percentage of sales, selling, general and administrative expenses declined from
32% during the six months ended November 30, 1998 to 24% during the
corresponding period in 1999.
AMORTIZATION OF GOODWILL. Goodwill was reduced in the fourth quarter of fiscal
1999 as a result of the utilization of pre-merger NOL carryforwards and partial
reversal of the valuation allowance on pre-merger deferred tax assets.
Therefore, amortization expense was reduced from $261,000 during the six months
ended November 30, 1998 to $243,000 during the corresponding period in 1999.
INTEREST EXPENSE. In October 1998, FMP entered into a new credit facility with
RG's lender and paid off all existing loans to FMP's previous lender. A
prepayment penalty of $75,000 was incurred related to this transaction and was
reflected as a component of the $0.4 million interest expense during the six
months ended November 30, 1998. Interest expense during the corresponding period
in 1999 was $0.3 million.
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<PAGE>
OTHER INCOME. Other income of $110,000 for the six months ended November 30,
1999 is principally comprised of royalties earned on sales of Roxxi headwear
products. Other income of $125,000 for the six months ended November 30, 1998 is
principally comprised of interest income on the Acushnet capital lease
receivable.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. A provision of $358,000 was recorded
for taxes on income from continuing operations during the six months ended
November 30, 1999 and a benefit of $55,000 was recorded on the loss from
continuing operations during the corresponding period in 1998. Taxes are
provided based on the estimated effective tax rate for the year which considers
the effect of nondeductible goodwill amortization.
DISCONTINUED OPERATIONS. As discussed in Note 7 to the Financial Statements, the
Company disposed of the operating assets of Roxxi in March 1999. Losses from the
operations of Roxxi for the six months ended November 30, 1998 were $0.4
million.
LIQUIDITY AND CAPITAL RESOURCES--
At November 30, 1999, RP had working capital of $5.9 million and a current ratio
of 2.3 to 1 as compared to working capital of $5.8 million and a current ratio
of 2.2 to 1 at May 31, 1999.
FMP has a credit facility consisting of a term loan and a revolving
line-of-credit. The FMP term loan of $3,047,000 at November 30, 1999 is due in
monthly principal installments of $65,000 until its maturity in September 2002.
The amount available for borrowings under the revolving line-of-credit is based
upon the levels of eligible FMP accounts receivable and inventories, as defined,
subject to a maximum borrowing of $5.0 million. As of November 30, 1999, FMP had
$3,491,000 outstanding under its revolving line-of-credit and $865,000 available
for additional borrowings. The FMP line-of-credit expires in September 2002.
RG has a credit facility consisting of a term loan and a revolving
line-of-credit. The RG term loan of $493,500 at November 30, 1999 is due in
monthly principal installments of $10,500 until its maturity in September 2002.
The amount available for borrowings under the revolving line-of-credit is based
upon the levels of eligible RG accounts receivable and inventories, as defined,
subject to a maximum borrowing of $1.5 million. As of November 30, 1999, RG had
$94,000 outstanding under its revolving line-of-credit and $532,000 available
for additional borrowings. The RG line-of-credit expires in September 2002.
The FMP and RG credit facilities were amended and restated on November 10, 1999
resulting in a reduction of interest rates by 1%, an extension of the maturity
dates by one year, and a $1.0 million increase in the FMP line of credit.
Effective November 10, 1999, borrowings under the term loans and revolving
lines-of-credit of both credit facilities bear interest at a rate per annum
equal to the prime rate (8.50% at November 30, 1999) plus 0.75% and 0.25%,
respectively, and are secured by substantially all of the Company's assets.
The FMP and RG credit facilities contain financial and other covenants which,
among other things, limit annual capital expenditures and dividends and require
the maintenance of minimum monthly and quarterly earnings or maximum monthly and
quarterly losses, and minimum quarterly debt service coverage ratios, as
defined. The Company was in compliance with all financial loan covenants at
November 30, 1999.
The Company believes that its existing capital resources and credit lines
available are sufficient to fund its operations and capital requirements as
presently planned over the next twelve months.
During the six months ended November 30, 1999, net cash provided by operating
activities was $1.0 million which primarily resulted from net income of $0.4
million, depreciation and amortization of $0.6 million and a decrease in
accounts receivable of $1.1 million. Cash provided by operating activities was
reduced by an increase in inventories of $1.0 million.
Net cash used in investing activities for the six months ended November 30, 1999
was $0.9 million for the purchase of property, plant and equipment. The Company
estimates that capital expenditures for the fiscal year ending May 31, 2000 will
be approximately $2.0 million including $0.8 million to complete the upgrade of
FMP's wastewater treatment facilities. To finance a portion of the estimated
$1.0 million total cost of the wastewater treatment project, the Company has
received a funding commitment of $750,000 from the Connecticut Development
Authority which can be advanced to the Company upon the completion of the
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<PAGE>
facility and approval by the Connecticut Department of Environmental Protection.
The Company is assessing its steel golf shaft manufacturing capacities compared
to the current and anticipated future volume of customer orders. Based on this
assessment and the success of ongoing projects to increase production volumes,
significant future capital expenditures may be required at the FMP manufacturing
facility.
Net cash used in financing activities for the six months ended November 30,
1999, was $0.3 million resulting from repayments of long term debt and capital
lease obligations of $0.7 million and net borrowings under lines-of-credit of
$0.5 million.
YEAR 2000 ASSESSMENT --
The following Year 2000 discussion contains various forward-looking statements
that represent the Company's beliefs or expectations regarding future events.
When used in the Year 2000 discussion, the words "believe," "expects,"
"estimates" and other similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it and its significant
distributors, customers and suppliers will complete the implementation and
compliance phases of the Year 2000 plan, and the Company's belief that its
internal systems and equipment are Year 2000 compliant. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the availability of
qualified personnel and other information technology resources; the ability to
identify and rectify all date sensitive lines of code or to replace embedded
chips in affected systems or equipment; unanticipated delays or expenses related
to correction of the problems; and the actions of independent third-parties with
respect to Year 2000 problems.
During the previous two-year period, the Company expended approximately $100,000
to purchase and install new computer hardware and software resulting in all
Company hardware and software being Year 2000 compliant. Expenses associated
with evaluation of the Company's internal systems for Year 2000 problems were
approximately $20,000. The Company believes that any future internal Year 2000
costs will be immaterial.
Due to the Company's extensive internal Year 2000 analysis and completion of the
Year 2000 project, the Company determined that an internal contingency plan was
not necessary. The Company completed a review of its significant suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. All significant suppliers and utilities
indicated that their products and company are Year 2000 compliant. The primary
supplier of the Company's golf club grips recently completed a conversion of its
accounting system and indicated that its operations, products and services it
provides are Year 2000 compliant. The Company has no practical means to verify
the information provided by these independent third parties. Based upon this
assessment and where practicable, the Company will attempt to mitigate its risks
with respect to any suppliers that may not meet the requirements, including
seeking alternative suppliers.
Some independent sales representatives that the Company uses may have
applications that are not Year 2000 compliant. The Company does not believe this
is a material concern since product orders are either manually written and
submitted via fax, or are submitted on a Company supplied automated order form
that is Year 2000 compliant.
The Company's comprehensive evaluation of its internal systems and equipment
addressed both information technology systems ("IT," i.e. business systems and
the software development environment) and non-IT systems, (i.e. elevators,
building security and HVAC systems) including hardware, software and firmware.
The Company's critical internal systems including versions of Macola, ADP,
Oracle, Microsoft Exchange, Microsoft Office 97, Microsoft Windows NT, Microsoft
Windows 9x, and Microsoft SQL Server products operated successfully during the
transition from 1999 to 2000. However, there can be no assurance that the
Company will not experience disruptions in its ability to conduct business
because of Year 2000 problems experienced by the Company's distributors or
vendors, such problems remain a possibility and could have an adverse impact on
the Company's results of operations and financial condition. To the extent that
its key distributors or vendors experience problems relative to achieving Year
2000 compliance, the Company could suffer unanticipated revenue losses.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of such litigation, it is
uncertain whether, or to what extent, the Company may be affected. However, at
this time the Company believes that it is not likely to have a material adverse
effect on the Company or its operations.
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<PAGE>
BUSINESS ENVIRONMENT AND FUTURE RESULTS --
RELIANCE ON THIRD PARTY SUPPLIERS. In May 1999, RG and Acushnet Rubber Company
("Acushnet") executed a mutual release agreement terminating their manufacturing
and supply agreement and capital lease agreement (the "Termination Agreement").
As a result in May 1999, RG received $1.5 million in cash and $1.0 million in
purchase credits from Acushnet to be applied against current and future amounts
owed to Acushnet for the production of grips. As of November 30, 1999, $0.5
million of the purchase credits had been utilized and the remaining $0.5 million
is included in other current assets in the accompanying condensed consolidated
balance sheet. In connection with the Termination Agreement, RG is entitled to
receive the manufacturing equipment which was leased to Acushnet and Acushnet's
obligation to make additional payments to RG under the capital lease was
terminated. Additionally, Acushnet is obligated to continue producing grips for
RG through January 2000 and to pay up to $100,000 for shipping and installation
of the manufacturing equipment at a new location.
RG currently purchases the majority of its supply of non-cord, injected grips
from Acushnet and has no immediate replacement supply source. The Company
believes that it can obtain a sufficient supply of grips from Acushnet and other
existing vendors to satisfy customer demand through December 31, 2000. Included
in finished goods inventories at November 30, 1999 are grips at a cost of
approximately $0.8 million located at Acushnet. The Company has identified and
is in various stages of negotiations with three separate grip manufacturers
which the Company believes can maintain RG's standard of product quality and
will facilitate a smooth transition. There can be no assurances that the Company
will be able to secure a source for grips on as favorable terms or with the same
or better quality as Acushnet. In addition, there can be no assurances that a
transition to new suppliers will not result in production delays, the loss of
sales and key customers which would materially affect RG's financial condition
and results of operations.
Acushnet warehoused and distributed RG's grips under the manufacturing and
supply agreement. In connection with the Termination Agreement, the Company will
assume responsibility for these functions. In September 1999, approximately $0.2
million of grips were transferred from the Acushnet facility to the Company's
manufacturing and distribution facility in Torrington, Connecticut and are
included in finished goods inventories at November 30, 1999. The Torrington
warehouse has been configured to accommodate storage and shipment of grips. In
November 1999, the Company entered into a lease of approximately 9,000 square
feet of warehouse space in Scottsdale, Arizona which will serve as a West Coast
distribution center. In December 1999, approximately $0.3 million of grips were
transferred from the Acushnet facility to the Company's Scottsdale warehouse.
When Acushnet has fulfilled its manufacturing obligations under the Termination
Agreement, all remaining inventory will be transferred from the Acushnet
facility to the Torrington and Scottsdale warehouses. The Company will warehouse
and distribute its grips from both the Scottsdale and Torrington locations when
the relationship with Acushnet is completed.
DISCONTINUED OPERATIONS. In March 1999, the operating assets of Roxxi were
disposed of through two separate transactions. Roxxi sold its trade name,
customer list, design database and related computer software and hardware for a
royalty of 16% of the buyer's net sales of Roxxi-licensed products for the
two-year period beginning May 1, 1999. Roxxi also sold its headwear
manufacturing equipment, headwear inventory and raw materials to another company
for $300,000 and a royalty of 2% of the buyer's net sales until the buyer has
paid an additional $200,000. Subsequently, Roxxi's name was changed to Royal
Grip Headwear Company. The Company is accounting for royalties as income is
earned during the two year period beginning May 1, 1999. For the three and six
months ended November 30, 1999, royalties of $51,000 and $89,000 were recorded,
respectively, and are reflected as other income in the accompanying condensed
consolidated statements of operations.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS.
At November 30, 1999, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under Statement of Financial Accounting
Standards No. 107. The Company holds no investment securities that would require
disclosure of market risk.
PRIMARY MARKET RISK EXPOSURE.
The Company's primary market risk exposure relates to its variable rate debt
obligations which are fully described in Note 5 to the Financial Statements. A
one percent change in the prime lending rate would have an effect of $17,000 and
$33,000 on interest expense for the three and six months ended November 30,
1999, respectively.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 2, 1999, R. R. Donnelley & Sons Company, Plaintiff, vs. Royal
Precision, Inc., Defendant, was filed in Superior Court, Maricopa County,
Arizona. In the matter, R. R. Donnelley & Sons Company ("Donnelley") alleges
that the Company is liable under breach of contract for approximately $280,000
in printing costs arising from the preparation of a Joint Proxy
Statement/Prospectus related to a proposed merger agreement between the Company
and Coyote Sports, Inc. which was terminated prior to the effective date of the
merger. Management believes that the action is without merit and intends to
defend it vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Amended and Restated Certificate of Incorporation was amended on
October 19, 1999 as approved by the stockholders of the Company at their Annual
Meeting held October 12, 1999, which amendment decreased the number of
authorized shares of Preferred Stock from 5,000,000 to 1,000,000 and decreased
the number of authorized shares of Common Stock from 50,000,000 to 10,000,000.
This amendment had no effect upon the rights of the holders of such securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of stockholders was held on October 12, 1999.
(b) At the annual meeting, David E. Johnston and Thomas A. Schneider were
elected as directors, each to serve a term of three years. Other directors whose
terms of office continued after the annual meeting are Danny Edwards, Richard P.
Johnston and Raymond J. Minella.
(c) The only matters voted on at the annual meeting were the election of
directors and approval of an amendment to the Amended and Restated Certificate
of Incorporation. Results of the voting were as follows:
Total number of shares entitled to vote present or represented at the
annual meeting: 3,334,411
Election of Directors:
For Authority Withheld
--- ------------------
David E. Johnston 3,334,011 400
Thomas A. Schneider 3,334,061 350
Approval of amendment to Certificate of Incorporation:
For Against Abstain Not Voted
--- ------- ------- ---------
3,334,211 200 -0- -0-
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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<PAGE>
(3) Certificate of Incorporation and Bylaws
Exhibit 3.1. Amended and Restated Certificate of Incorporation of Royal
Precision, Inc., as amended (restated to reflect amendment filed with the
Secretary of State of Delaware on October 19, 1999).
Exhibit 3.2. Bylaws of Royal Precision, Inc. (incorporated by reference to
Annex IV to the Company's Form S-4; No. 333-28841 (the "Form S-4")).
(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 at Exhibit 3.1.
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 Form S-4).
(10) Material Contracts
Exhibit 10.1. Royal Precision Stock Option Plan (restated to reflect
amendments adopted by the Board of Directors on November 30, 1999 pursuant to
authority granted in the Plan).
Exhibit 10.2. Second Amendment to Credit and Security Agreement between FM
Precision Golf Manufacturing Corp., FM Precision Golf Sales Corp. and Wells
Fargo Business Credit, Inc. dated November 10, 1999.
Exhibit 10.3. Third Amendment to Amended and Restated Credit and Security
Agreement between Royal Grip, Inc., Royal Grip Headwear Company and Wells Fargo
Business Credit, Inc. dated November 10, 1999.
Exhibit 27.
Financial Data Schedule (submitted electronically for SEC information only)
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Registrant during the
quarter ended November 30, 1999.
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<PAGE>
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.
Date January 10, 2000 By /s/ Thomas Schneider
--------------------------------------
Thomas Schneider, President
By /s/ Kevin Neill
--------------------------------------
Kevin Neill, Vice President - Finance
and Chief Financial Officer
(chief accounting officer)
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<PAGE>
EXHIBIT INDEX
PAGE IN
SEQUENTIALLY
NUMBERED
EXHIBIT COPY
3.1 Amended and Restated Certificate of Incorporation of 21
Royal Precision, Inc., as amended (restated to reflect
amendment filed with the Secretary of State of Delaware
on October 19, 1999).
3.2 Bylaws of Royal Precision, Inc. (incorporated by reference *
to Annex IV to the Company's Form S-4; No. 333-28841
(the "Form S-4")).
4.1 See Articles FOUR, FIVE and SEVEN of the Amended and
Restated Certificate of Incorporation of the registrant
at Exhibit 3.1.
4.2 See Article I, Sections 2.1 and 2.2 of Article II and
Section 7.3 of Article VII of the Bylaws of Royal
Precision, Inc. (incorporated by reference to Exhibit
3.2 to the Form S-4).
10.1 Royal Precision Stock Option Plan (restated to reflect 26
amendments adopted by the Board of Directors on November
30, 1999 pursuant to authority granted in the Plan).
10.2 Second Amendment to Credit and Security Agreement between 47
FM Precision Golf Manufacturing Corp., FM Precision Golf
Sales Corp. and Wells Fargo Business Credit, Inc. dated
November 10, 1999.
10.3 Third Amendment to Amended and Restated Credit and 54
Security Agreement between Royal Grip, Inc., Royal Grip
Headwear Company and Wells Fargo Business Credit, Inc.
dated November 10, 1999.
27. Financial Data Schedule (submitted electronically for
SEC information only).
- ----------
*Incorporated by reference
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROYAL PRECISION, INC.
(Restated to reflect Amendment of October 19, 1999)
FIRST: The name of the Corporation is Royal Precision, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
Section 1. AUTHORIZED SHARES. The total number of shares of stock which the
Corporation shall have the authority to issue is 11,000,000 of which 1,000,000
are shares of Preferred Stock with a par value of one mil ($0.001) per share
("Preferred Stock"), and 10,000,000 are shares of Common Stock with a par value
of one mil ($0.001) per share ("Common Stock").
Section 2. PREFERRED STOCK. The Board of Directors is expressly authorized
to adopt, from time to time, a resolution or resolutions providing for the
issuance of Preferred Stock in one or more series, to fix the number of shares
in each such series and to fix the designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions thereof, of each
such series.
Section 3. COMMON STOCK. Holders of the issued and outstanding shares of
Common Stock shall be entitled to receive ratably, in proportion to the number
of shares of Common Stock held by them, (a) such dividends as may be declared by
the Board of Directors, from time to time, out of the assets or funds of the
Corporation legally available for the payment of dividends, and (b) upon the
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation remaining after the payment of creditors and the holders of shares
of any class or series of Preferred Stock to the extent that the then existing
terms of such class or series grant them priority over the holders of shares of
Common Stock. Neither the merger or consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor the sale, lease, exchange or other
disposition (for cash, shares of stock, securities or other consideration) of
all or substantially all of the assets of the Corporation, shall be deemed to be
<PAGE>
a dissolution, liquidation, or winding up, voluntary or involuntary, of the
Corporation. Each share of Common Stock entitles the holder thereof to one vote
on all matters submitted to a vote of the holders of Common Stock.
FIFTH:
Section 1. CLASSIFIED DIRECTORS. (a) The Board of Directors shall be
divided into three classes; the term of office of those of the first class to
expire at the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each annual election
held after the initial classification of the Board of Directors and election of
directors to such classes, directors shall be chosen for a full term of three
years, as the case may be, to succeed those whose terms expire. The total number
of directors constituting the full Board of Directors and the number of
directors in each class shall be fixed by, or in the manner provided in the
by-laws, but the total number of directors shall not exceed seventeen (17) nor
shall the number of directors in any class exceed six (6). Subject to the
foregoing, the classes of directors need not have the same number of members. No
reduction in the total number of directors or in the number of directors in any
class shall be effective to remove any director or to reduce the term of any
director. If the Board of Directors increases the number of directors in a
class, it may fill the vacancy created thereby for the full remaining term of a
director in that class even though such term may extend beyond the next annual
election. The Board of Directors may fill any vacancy occurring for any other
reason for the full remaining term of the director whose death, resignation or
removal caused the vacancy, even though such term may extend beyond the next
annual election.
(b) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
express terms of such class or series, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
(c) Any director or the entire Board of Directors may be removed by the
holders of a majority of the shares then entitled to vote at an election of
directors only for cause. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor is elected and
qualified, or until his earlier resignation or removal from office for cause.
Section 2. BALLOTS. Elections of directors at a special or annual meeting
of stockholders need not be by written ballot unless the by-laws of the
Corporation shall provide otherwise.
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
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<PAGE>
SEVENTH: Action shall be taken by the stockholders of the Corporation only
at an annual or special meeting of stockholders, and stockholders may not act by
written consent. Special meetings of the Corporation may be called only as
provided in the by-laws.
EIGHTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of any
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derives an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval by the stockholders of this Article
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. The foregoing
limitation on liability shall not apply to acts or omissions occurring prior to
the effective date of this Article.
NINTH:
Section 1. INDEMNIFICATION. The Corporation shall indemnify any director or
officer who was or is a party or is threatened to be made a party to:
(a) DIRECT ACTIONS. Any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; the termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful; or
(b) DERIVATIVE ACTIONS. Any threatened, pending or completed action or suit
by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
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Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
The Corporation may indemnify any of its other employees or agents to the
same extent and subject to the same procedures and limitations as are set forth
in this Section 1 and Section 3 below as it is required to indemnify its
directors and officers by this Section 1.
Section 2. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. STANDARD OF CONDUCT. Any indemnification under Section 1 of this
Article (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in said Section 1 of this
Article. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 4. PAYMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
NINTH. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 5. NOT EXCLUSIVE. The indemnification and advancement of expenses
provided by, or granted pursuant to, the provisions of this Article NINTH shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the certificate
of incorporation, or any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
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<PAGE>
Section 6. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
Section 7. DEFINITIONS.
(a) THE CORPORATION. For purposes of this Article NINTH, references to "the
Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this NINTH with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(b) OTHER ENTERPRISES. For purposes of this Article NINTH, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article NINTH.
Section 8. CONTRACTUAL NATURE. This Article NINTH shall be deemed to be a
contract between the Corporation and each director and officer who serves as
such at any time while this Article NINTH is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon such state of facts. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article NINTH shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
TENTH: Effective upon the filing of this Amended and Restated Certificate
of Incorporation, each share of the Common Stock, par value $.01 per share, of
the Corporation theretofore issued and outstanding ("Old Common Stock") shall be
split into 10 shares of the Common Stock described in Section 3 of Article
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<PAGE>
FOURTH above ("New Common Stock") and each holder of a certificate representing
Old Common Stock (an "Old Certificate") shall be entitled to receive a
certificate representing the number of shares of New Common Stock into which the
shares of Old Common Stock represented by the Older Certificate were split upon
surrender of such Old Certificate to the Corporation.
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ROYAL PRECISION, INC.
STOCK OPTION PLAN
----------
OCTOBER 5, 1997
(RESTATED TO REFLECT AMENDMENT ADOPTED NOVEMBER 30, 1999)
----------
PREAMBLE:
1. Royal Precision, Inc. a Delaware corporation (the "COMPANY"), by means
of this Stock Option Plan (the "PLAN"), desires to attract and retain capable
employees, officers, directors and consultants and to provide them with long
term incentives to continue their services to the Company, to maximize the value
of the Company to its stockholders and to acquire a continuing ownership
interest in the Company.
2. The Company has determined that the foregoing objectives will be
promoted by granting Options (as hereinafter defined) under this Plan to certain
employees, officers, directors and consultants of the Company and of its Parent
and Subsidiaries, if any, pursuant to this Plan.
TERMS:
ARTICLE 1. DEFINITIONS.
Section 1.1. GENERAL. Certain words and phrases used in this Plan shall
have the meanings given to them below in this section:
"BOARD OF DIRECTORS" means the board of directors of the Company.
"CODE" means the Internal Revenue Code of 1986 and the regulations
thereunder, as now in effect or hereafter amended.
"COMMITTEE" means the Board of Directors or a committee of the Board of
Directors that administers the Plan under Section 2.1 below.
"COMMON STOCK" means the common stock with a par value of one mil ($0.001)
per share, of the Company.
"CONSULTANT" means any person who provides services to any Employer (other
than as an Employee or a Director or in connection with the offer or sale of
securities of the Employer in a capital raising transaction) and who is a
consultant or an adviser to the Employer within the meaning of General
Instruction A.1. to Form S-8 promulgated by the SEC under the Securities Act of
1933.
"DATE OF GRANT" means the date an Option is first granted.
"DIRECTOR" means a member of the Board of Directors.
"EFFECTIVE DATE" means the date this Plan is first adopted by the Board of
Directors.
"EMPLOYEE" means any common law employee of an Employer.
"EMPLOYER" means the Company or any Parent or Subsidiary of the Company
which employs a given Employee or has engaged a given Consultant.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and the
regulations thereunder, as now in effect or hereafter amended.
"EXERCISE PRICE" means, with respect to an Option, the amount of
consideration that must be delivered to the Company in order to purchase a
single Share thereunder.
<PAGE>
"FAIR MARKET VALUE OF A SHARE" means the amount determined to be the fair
market value of a single Share by the Committee based upon the trading price of
the Shares, their offering price in public and private offerings by the Company
and such other factors as it deems relevant. In the absence of such a
determination, the Fair Market Value of a Share shall be deemed to be (a) if the
Shares are listed or admitted to trading on a national securities exchange or
the NASDAQ - National Market System, the per Share closing price regular way on
the principal national securities exchange or the NASDAQ - National Market
System on which the Shares are listed or admitted to trading on the day prior to
the date of determination or, if no closing price can be determined for the date
of determination, the most recent date for which such price can reasonably be
ascertained, or (b) if the Shares are not listed or admitted to trading on a
national securities exchange or the NASDAQ - National Market System, the mean
between the representative bid and asked per Share prices in the
over-the-counter market at the closing of the day prior to the date of
determination or the most recent such bid and asked prices then available, as
reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished
by any market maker selected from time to time by the Company for that purpose.
"GRANTEE" means any Participant to whom an Option has been granted.
"HOLDER" means any Grantee who holds a valid Option and any heir or legal
representative to whom such Grantee's Option has been transferred by will or the
laws of descent and distribution.
"INCENTIVE STOCK OPTION" or "ISO" means a Stock Option intended to comply
with the terms and conditions set forth in Section 422 of the Code.
"MEETING DATE" means the date of each annual meeting of the stockholders of
the Company at which Directors are elected.
"NONQUALIFIED OPTION" means a Stock Option other than an Incentive Stock
Option.
"OFFICER" means an officer of the Company as defined in 17 C.F.R.ss.
240.16a-1(f) as now in effect or hereafter amended.
"OPTION" or "STOCK OPTION" means a right granted under Article 5, 6 or 7 of
the Plan to a Grantee to purchase a stated number of Shares at a stated Exercise
Price.
"OPTION AGREEMENT" means an agreement evidencing an Option substantially in
the form of Exhibit A, Exhibit B or Exhibit C attached hereto.
"PARENT" means a parent of a given corporation as such term is defined in
Section 424(e) of the Code.
"PARTICIPANT" means a person who is eligible to receive an Option under the
Plan.
"PLAN" means this Plan as it may be amended or restated from time to time.
"RULE 16b-3" means Rule 16b-3 (17 C.F.R. ss. 240.16b-3) promulgated under
Section 16(b) of the Exchange Act as now in effect or hereafter amended.
"SEC" means the Securities and Exchange Commission.
"SHARES" means shares of Common Stock.
"SUBSIDIARY" means a subsidiary of a given corporation as such term is
defined in Section 424(f) of the Code.
"TAX OFFSET PAYMENT" means a payment in cash which may be authorized by the
Committee to be paid to a Grantee of a Nonqualified Option in an amount
determined by the following formula:
1-[A + (1-A) + B]
----------------- - C = D
C
where "A" is the maximum federal marginal income tax rate imposed on
individuals, "B" is the maximum marginal income tax rate imposed on individuals
by the State in which the Grantee is domiciled, "C" is the difference between
the Exercise Price and the Fair Market Value of a Share at the time of exercise,
times the number of Shares subject to such exercise, and "D" is the amount of
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<PAGE>
the Tax Offset Payment. If at the time of exercise of a Nonqualified Option with
respect to which a Tax Offset Payment has been authorized, in the reasonable
opinion of the chief financial officer of the Company, (a) the Company may
offset from income an amount equal to the full amount of the Tax Offset Payment,
the Tax Offset Payment shall be paid at such time by first paying any
withholding taxes due with respect to the exercise and grant of the Tax Offset
Payment, and then by paying to the Grantee the balance, or (b) the Company may
not offset from income an amount equal to the full amount of the Tax Offset
Payment, only that portion of the Tax Offset Payment, if any, equal to the
amount of the tax benefit available to the Company or its stockholders (the
"Partial Tax Offset Payment") shall be paid at such time by first paying any
withholding taxes due with respect to the exercise and grant of the Tax Offset
Payment, and then by paying to the Grantee the balance, if any, of the Partial
Tax Offset Payment. The balance of the Tax Offset Payment shall be paid to such
Grantee as and when the Company may utilize the tax benefit resulting therefrom.
"TEN PERCENT STOCKHOLDER" means a person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary of the Company. Ownership shall, for the
purposes of the previous sentence, be determined under the rules set forth in
Section 424 of the Code.
"TERMINATION WITHOUT CAUSE" means a termination by an Employer of the
employment or consulting relationship of a Grantee with the Employer that is not
for cause and is not occasioned by the resignation, death or disability of the
Grantee.
Section 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles.
Section 1.3. EFFECT OF DEFINITIONS. The definitions set forth in Section
1.1 above shall apply equally to the singular, plural, adjectival, adverbial and
other forms of any of the words and phrases defined regardless of whether they
are capitalized.
ARTICLE 2. ADMINISTRATION.
Section 2.1. COMMITTEE. The Plan shall be administered by a committee of
the Board of Directors consisting of two or more Directors, each of whom is a
"Non-Employee Director" as described in paragraph (b)(3) of Rule 16b-3 and is an
"outside director" as described in Code Section 162(m) and the regulations
thereunder. Unless the Board of Directors designates another of its committees
to administer the Plan, the Plan shall be administered by (a) a committee
consisting of those members of the Compensation Committee of the Board of
Directors who are disinterested persons and are outside directors, but, if the
Compensation Committee is abolished or its membership does not contain two
persons who comply with the requirements of the first sentence of this Section
2.1, the Board of Directors shall either reconstitute the Compensation Committee
in compliance with, or create another Committee that complies with, the
requirements of the first sentence of this Section 2.1 to administer the Plan or
(b) the Board of Directors.
Section 2.2. AUTHORITY. Subject to the express provisions of the Plan and
in addition to the powers granted by other sections of the Plan, the Committee
has the authority, in its discretion, to (a) determine the Participants, grant
Options, determine whether Tax Offset Payments should be authorized and, if
authorized, the percentage of such Tax Offset Payment, and determine the timing,
pricing and amount of the Options; (b) define, prescribe, amend and rescind
rules, regulations, procedures, terms and conditions relating to the Plan; (c)
make all other determinations necessary or advisable for administering the Plan
including, but not limited to, interpreting the Plan, correcting defects,
reconciling inconsistencies and resolving ambiguities; and (d) review and
resolve all claims of Employees, Consultants, Directors, Grantees, Holders and
Participants. The actions and determinations of the Committee on matters related
to the Plan shall be conclusive and binding upon the Company and all Employees,
Consultants, Directors, Grantees, Holders and Participants.
ARTICLE 3. SHARES.
Section 3.1. NUMBER. The aggregate number of Shares in respect of which
Options may be granted under the Plan shall not exceed 750,000, which number of
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Shares is hereby reserved for issuance under the Plan out of the authorized but
unissued Shares.
Section 3.2. CANCELLATIONS. If any portion of an Option is canceled,
terminates or expires for any reason without having been exercised, the Shares
related to such unexercised portion, shall be available again for the purposes
of the Plan.
Section 3.3. ANTI-DILUTION.
(a) If the Shares are split or if a dividend of Shares is paid on the
Shares, the number of Shares on which each then outstanding Option is based and
the number of Shares as to which Options may be granted under this Plan shall be
increased automatically by the ratio between the number of Shares outstanding
immediately after such event and the number of Shares outstanding immediately
before such event (ignoring for this purpose any provision for the repurchase or
cash payment of fractional shares) and the Exercise Price thereof shall be
decreased automatically by the same ratio. If the Shares are combined into a
lesser number of Shares, the number of Shares for which each then outstanding
Option is based and the number of Shares as to which Options may be granted
under the Plan shall be decreased automatically by such ratio and the Exercise
Price thereof shall be increased automatically by such ratio.
(b) If any other change occurs in the Shares, through
recapitalization, merger, consolidation or exchange of shares or otherwise,
there shall automatically be substituted for each Share subject to an
unexercised Option and each Share available for additional grants of Options,
the number and kind of shares or other securities or property into which each
outstanding Share was changed, and the Exercise Price shall be increased or
decreased proportionally so that the aggregate Exercise Price for the securities
subject to each Option shall remain the same as immediately before such event.
In addition, the Committee may make such further equitable adjustments in the
Plan and the then outstanding Options as are deemed necessary and appropriate by
the Committee including, but not limited to, changing the number of Shares
reserved under the Plan or covered by outstanding Options, the Exercise Price of
outstanding Options and the vesting conditions of outstanding Options.
Section 3.4. SOURCE. Except as otherwise determined by the Board of
Directors, the Shares issued under the Plan shall be drawn from the Company's
authorized but unissued Shares. However, Shares which are to be delivered under
the Plan may be obtained by the Company from its treasury, by purchases on the
open market or from private sources, as well as by issuing authorized but
unissued Shares. The proceeds of the exercise of any Option shall be general
corporate funds of the Company. No Shares may be sold under any Option Agreement
for less than the par value thereof. No fractional Shares shall be issued or
sold under the Plan nor will any cash payment be made in lieu of fractional
Shares.
Section 3.5. RIGHTS OF A STOCKHOLDER. No Holder nor any person claiming
under or through any Holder shall have any right, title or interest in or to any
Shares allocated or reserved under the Plan or subject to any Option except as
to such Shares, if any, for which certificates representing such Shares have
been issued to such Holder upon the due exercise of an Option.
Section 3.6. SECURITIES LAWS. No Option shall be exercised nor shall any
Shares or other securities be issued or transferred pursuant to an Option unless
and until all applicable requirements imposed by federal and state securities
laws and by any stock exchanges upon which the Shares may be listed, have been
fully complied with. As a condition precedent to the exercise of an Option or
the issuance of Shares pursuant to the grant or exercise of an Option, the
Company may require the Holder to take any reasonable action to meet such
requirements including providing undertakings as to the investment intent of the
Holder, accepting transfer restrictions on the Shares issuable thereunder and
providing opinions of counsel, in form and substance acceptable to the Company,
as to the availability of exemptions from such requirements.
ARTICLE 4. ELIGIBILITY.
Section 4.1. ARTICLE 5. Only Employees shall be eligible to receive Options
under Article 5 below.
Section 4.2. ARTICLE 6. Only Consultants shall be eligible to receive
Options under Article 6 below.
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<PAGE>
Section 4.3. ARTICLE 7. Only Directors shall be eligible to receive Options
under Article 7 below.
ARTICLE 5. EMPLOYEES' STOCK OPTIONS.
Section 5.1. DETERMINATIONS. The Committee shall determine which
Participants shall be granted Options, which Participants will be granted Tax
Offset Payments and the percentage of Tax Offset Payments, the manner of
payment, the number of Shares for which the Options may be exercised, the times
when they shall receive them and the terms and conditions of individual Option
grants (which need not be identical).
Section 5.2. EXERCISE PRICE. The Committee shall determine the Exercise
Price of each Option at the time that it is granted, but in no event shall the
Exercise Price of an Option be less than the Fair Market Value of a Share on the
Date of Grant. If no express determination of the Exercise Price of an Option is
made by the Committee, the Exercise Price thereof is equal to the Fair Market
Value of a Share on the Date of Grant.
Section 5.3. TERM. Subject to the rule set forth in the next sentence, the
Committee shall determine the times when an Option vests and the term during
which an Option is exercisable at the time that it is granted. No Option shall
be exercisable after the expiration of ten years from the Date of Grant. If no
express determination of the times when Options are exercisable is made by the
Committee:
(a) each Option shall vest and first become exercisable (subject to
the rule set forth in Section 5.4(c) below) as to 25% of the Shares subject to
such Option on each of the first four anniversaries of the Date of Grant
provided the Grantee has been an Employee continuously during the time beginning
on the Date of Grant and ending on the date when such portion vests and first
becomes exercisable and further provided that no portion of an Option shall vest
and become exercisable after the employment of the Grantee by his Employer has
terminated, regardless of the reason for such termination.
(b) any portion of an Option that has vested and become exercisable
shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) subject to the rule set forth in Section 5.4(d) below, nine
months after the Grantee ceases to be an Employee because of death or
disability,
(iii) three months after the termination without cause of the
Grantee's employment with all Employers, or
(iv) immediately upon termination of the Grantee's employment
with all Employers by the applicable Employers for cause or by the Grantee's
resignation.
Where both an Incentive Stock Option and a Nonqualified Option are granted, the
number of Shares which become exercisable under clause (a) of the previous
sentence at any time shall be calculated on the basis of the total of the Shares
subject to both Options and the Options shall become exercisable as to that
number of Shares first under the Incentive Stock Option and then under the
Nonqualified Option, unless the rule set forth in Section 5.4(c) below would
defer the exercisability of such Incentive Stock Option, in which case such
Nonqualified Options shall become exercisable first.
Section 5.4. INCENTIVE STOCK OPTIONS.
(a) The Committee shall determine whether any Option is an Incentive
Stock Option or a Nonqualified Option at the time that it is granted and, if no
express determination is made by the Committee, all Options shall be
Nonqualified Options.
(b) If the Committee grants Incentive Stock Options, they shall be on
such terms and conditions as may be necessary to render them "incentive stock
options" pursuant to Section 422 of the Code.
(c) The aggregate Fair Market Value of the Shares, determined as of
the time the Option is granted, which first become exercisable under all
Incentive Stock Options granted to any one Grantee under this Plan or any other
plan of the Company or any Parent or Subsidiary of the Company, shall not exceed
$100,000 during any calendar year and, if the foregoing limit would be exceeded
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<PAGE>
in any given calendar year by the terms of any Incentive Stock Option granted
hereunder, the exercisability of such portion of such Option as would exceed
such limit shall be deferred to the first day of the next calendar year and, if
such excess involves more than one Option, the exercisability of the most
recently granted Option shall be deferred first.
(d) If the employment of a Grantee, who holds an ISO, with any
Employer is terminated because of a "disability" (within the meaning of Section
22(e)(3) of the Code), the unexercised portion of the ISO may be exercised only
within six months after the date on which employment was terminated, and only to
the extent that such Grantee could have otherwise exercised such ISO as of the
date of termination. If a Grantee, who holds an ISO, dies while employed by an
Employer (or within six months after termination of employment by reason of a
disability or within 30 days after termination of employment without cause), the
unexercised portion of the ISO at the time of death may be exercised only within
six months after the date of death, and only to the extent that the Grantee
could have otherwise exercised such ISO at the time of death. In such event,
such ISO may be exercised by the executor or administrator of the Grantee's
estate or by any Holder.
(e) No Ten Percent Stockholder shall be granted an Incentive Stock
Option unless, at the time such Incentive Stock Option is granted, the Exercise
Price thereof is at least 110% of the Fair Market Value of a Share on the Date
of Grant and the Incentive Stock Option, by its terms, is not exercisable after
the expiration of five years from the Date of Grant.
(f) If a Holder exercises an Incentive Stock Option and disposes of
any of the Shares received by such Holder as a result of such exercise within
two years from the Date of Grant or within one year after the issuance of such
Shares to such Holder upon such exercise, such Holder shall notify the Company
of such disposition and the consideration received as a result thereof and pay
or provide for the withholding taxes on such disposition as required by Section
8.3 below.
(g) An Option that is designated as a Nonqualified Option under this
Plan shall not be treated as an "incentive stock option" as such term is defined
in Section 422(b) of the Code.
Section 5.5. EXERCISE.
(a) An Option shall be exercised by the delivery of the Option
Agreement therefor, with the notice of exercise attached thereto properly
completed and duly executed by the Holder, to the Treasurer of the Company,
together with the aggregate Exercise Price for the number of Shares as to which
the Option is being exercised, after the Option has vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the Shares
purchasable thereunder, but not for a fractional share. No Option may be
exercised as to less than 100 Shares unless it is exercised as to all of the
Shares then available thereunder. If an Option is exercised as to less than all
of the Shares purchasable thereunder, a new duly executed Option Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) The Committee may, in its sole discretion and upon such terms and
conditions as it shall determine at or after the Date of Grant, permit the
Exercise Price to be paid in cash, by the tender to the Company of Shares owned
by the Holder, or by a combination thereof. If the Committee does not make such
determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is payable in
cash, it may be paid by (i) delivery of a certified or cashier's check payable
to the order of the Company in such amount, (ii) wire transfer of immediately
available funds to a bank account designated by the Company or (iii) reduction
of a debt of the Company to the Holder.
(e) If any portion of the Exercise Price of an Option is payable in
Shares, it may be paid by delivery of certificates representing a number of
Shares having a total fair market value on the date of exercise equal to or
greater than the required amount, duly endorsed for transfer with all signatures
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<PAGE>
guaranteed by a medallion signature guarantee. If more Shares than are necessary
to pay such Exercise Price based on their fair market value on the date of
exercise are delivered to the Company, it shall return to the Holder a
certificate for the balance of the whole number of Shares and a check payable to
the order of the Holder for any fraction of a Share. Shares may not be delivered
to the Company as payment for the exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) Promptly after an Option is properly exercised, the Company shall
issue to the Holder a certificate representing the Shares purchased thereunder.
Section 5.6. OPTION AGREEMENT. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are not negotiable
instruments or securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
Section 5.7. NEW HIRES. A person to whom the Company is offering employment
may be granted a Nonqualified Option under this Article 5, but any such grant
shall lapse if the person does not subsequently become an Employee pursuant to
such offer.
ARTICLE 6. CONSULTANTS' STOCK OPTIONS.
Section 6.1. DETERMINATIONS. The Committee shall determine which
Participants shall be granted Options, the number of Shares for which the
Options may be exercised, the times when they shall receive them and the terms
and conditions of individual Option grants (which need not be identical).
Section 6.2. EXERCISE PRICE. The Committee shall determine the Exercise
Price of each Option at the time that it is granted, but in no event shall the
Exercise Price of an Option be less than the Fair Market Value of a Share on the
Date of Grant. If no express determination of the Exercise Price of an Option is
made by the Committee, the Exercise Price thereof is equal to the Fair Market
Value of a Share on the Date of Grant.
Section 6.3. TERM. Subject to the rule set forth in the next sentence, the
Committee shall determine the times when an Option vests and the term during
which an Option is exercisable at the time that it is granted. No Option shall
be exercisable after the expiration of ten years from the Date of Grant. If no
express determination of the times when Options are exercisable is made by the
Committee:
(a) each Option shall vest and first become exercisable as to 25% of
the Shares subject to such Option on each of the first four anniversaries of the
Date of Grant provided the Grantee has been a Consultant continuously during the
time beginning on the Date of Grant and ending on the date when such portion
vests and first becomes exercisable and further provided that no portion of an
Option shall vest and become exercisable after the termination of the Grantee's
consulting relation with his Employer, regardless of the reason for such
termination.
(b) any portion of an Option that has vested and become exercisable
shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) nine months after the Grantee ceases to be a Consultant
because of death or disability, or
(iii) three months after the termination without cause of the
Grantee's consulting relation with the Employer, or
(iv) immediately upon termination of the Grantee's consulting
relation with the Employer for cause or by the Grantee's resignation.
Section 6.4. NOT INCENTIVE STOCK OPTIONS. An Option under this Article 6
shall not be treated as an Incentive Stock Option.
Section 6.5. EXERCISE.
(a) An Option shall be exercised by the delivery of the Option
Agreement therefor, with the notice of exercise attached thereto properly
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<PAGE>
completed and duly executed by the Holder, to the Treasurer of the Company,
together with the aggregate Exercise Price for the number of Shares as to which
the Option is being exercised, after the Option has vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the Shares
purchasable thereunder, but not for a fractional share. No Option may be
exercised as to less than 100 Shares unless it is exercised as to all of the
Shares then available thereunder. If an Option is exercised as to less than all
of the Shares purchasable thereunder, a new duly executed Option Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) The Committee may, in its sole discretion and upon such terms and
conditions as it shall determine at or after the Date of Grant, permit the
Exercise Price to be paid in cash, by the tender to the Company of Shares owned
by the Holder, or by a combination thereof. If the Committee does not make such
determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is payable in
cash, it may be paid by (i) delivery of a certified or cashier's check payable
to the order of the Company in such amount, (ii) wire transfer of immediately
available funds to a bank account designated by the Company or (iii) reduction
of a debt of the Company to the Holder.
(e) If any portion of the Exercise Price of an Option is payable in
Shares, it may be paid by delivery of certificates representing a number of
Shares having a total fair market value on the date of exercise equal to or
greater than the required amount, duly endorsed for transfer with all signatures
guaranteed by a medallion signature guarantee. If more Shares than are necessary
to pay such Exercise Price based on their fair market value on the date of
exercise are delivered to the Company, it shall return to the Holder a
certificate for the balance of the whole number of Shares and a check payable to
the order of the Holder for any fraction of a Share. Shares may not be delivered
to the Company as payment for the exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) Promptly after an Option is properly exercised, the Company shall
issue to the Holder a certificate representing the Shares purchased thereunder.
Section 6.6. OPTION AGREEMENT. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are neither negotiable
instruments nor securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
ARTICLE 7. DIRECTORS' OPTIONS.
Section 7.1. GRANT. On each Meeting Date, an Option shall be automatically
granted to each Director who is eligible to receive Options under Section 4.3
above and who attended at least seventy five per cent (75%) of the total number
of meetings of the Board of Directors (and committees thereof of which he is a
member) during the most recently ended fiscal year of the Company. The number of
Shares subject to each Option granted under this Section 7.1 shall be determined
by a resolution adopted by the [{Committee}{Board of Directors}] on or before a
Meeting Date, uniformly applying to all eligible Directors, which establishes,
increases or decreases the number of Shares subject to such Option Any such
resolution shall continue in force for the next Meeting Date, unless it is
amended or repealed, the Meeting Date is more than ten years after the Effective
Date or there are not a sufficient number of Shares remaining available under
Section 3.1 above. This Section 7.1 shall not be operative until such time as
such a resolution is adopted.
Section 7.2. EXERCISE PRICE. The Exercise Price of an Option shall be equal
to the Fair Market Value of a Share on the Date of Grant.
Section 7.3. TERM.
(a) Each Option shall vest and first become exercisable as to 25% of
the Shares originally subject to the Option on each Meeting Date which is held
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<PAGE>
more than six months after the Date of Grant if the Grantee is a Director at the
time of the adjournment of the meeting of stockholders held on such Meeting Date
and further provided that no portion of an Option shall vest and become
exercisable after the Grantee has ceased to be a Director, regardless of the
reason for such cessation.
(b) any portion of an Option that has vested and become exercisable
shall lapse and cease to be exercisable upon the earliest of:
(i) the expiration of ten years from the Date of Grant,
(ii) nine months after the Grantee ceases to be a Director
because of his death or disability,
(iii) immediately upon resignation by the Grantee as a Director,
or
(iv) three months after the Grantee ceases to be a Director for
any reason other than his death, disability or resignation.
Section 7.4. NOT INCENTIVE STOCK OPTIONS. An Option under this Article 7
shall not be treated as an Incentive Stock Option.
Section 7.5. EXERCISE.
(a) An Option shall be exercised by the delivery of the Option
Agreement therefor, with the notice of exercise attached thereto properly
completed and duly executed by the Holder, to the Treasurer of the Company,
together with the aggregate Exercise Price for the number of Shares as to which
the Option is being exercised, after the Option has vested and become
exercisable and before it has lapsed and ceased to be exercisable.
(b) An Option may be exercised as to less than all of the Shares
purchasable thereunder but not for a fractional Share. No Option may be
exercised as to less than 100 Shares unless it is exercised as to all of the
Shares then available thereunder. If an Option is exercised as to less than all
of the Shares purchasable thereunder, a new duly executed Option Agreement
reflecting the decreased number of Shares exercisable under such Option, but
otherwise of the same tenor, shall be returned to the Holder.
(c) The Committee may, in its sole discretion and upon such terms and
conditions as it shall determine at or after the Date of Grant, permit the
Exercise Price to be paid in cash, by the tender to the Company of Shares owned
by the Holder, or by a combination thereof. If the Committee does not make such
determination, the Exercise Price shall be paid in cash.
(d) If any portion of the Exercise Price of an Option is payable in
cash, it may be paid by (i) delivery of a certified or cashier's check payable
to the order of the Company in such amount, (ii) wire transfer of immediately
available funds to a bank account designated by the Company or (iii) reduction
of a debt of the Company to the Holder.
(e) If any portion of the Exercise Price of an Option is payable in
Shares, it may be paid by delivery of certificates representing a number of
Shares having a total fair market value on the date of exercise equal to or
greater than the required amount, duly endorsed for transfer with all signatures
guaranteed by a medallion signature guarantee. If more Shares than are necessary
to pay such Exercise Price based on their fair market value on the date of
exercise are delivered to the Company, it shall return to the Holder a
certificate for the balance of the whole number of Shares and a check payable to
the order of the Holder for any fraction of a Share. Shares may not be delivered
to the Company as payment for the exercise of an Option if such Shares have been
owned by the Holder (together with his decedent or testator) for less than six
months or if the disposition of such Shares would require the giving of a notice
under Section 5.4(f) above.
(f) Promptly after an Option is properly exercised, the Company shall
issue to the Holder a certificate representing the Shares purchased thereunder.
Section 7.6. OPTION AGREEMENT. Promptly after the Date of Grant, the
Company shall duly execute and deliver to the Grantee an Option Agreement
setting forth the terms of the Option. Option Agreements are neither negotiable
instruments nor securities (as such term is defined in Article 8 of the Uniform
Commercial Code). Lost and destroyed Option Agreements may be replaced without
bond.
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<PAGE>
ARTICLE 8. PROVISIONS APPLICABLE TO ALL TYPES OF OPTIONS.
Section 8.1. MAXIMUM SHARES. Notwithstanding any other provision of this
Plan, the maximum number of Shares with respect to which Options may be granted
during any fiscal year of the Company to any Employee shall be 250,000 Shares.
Section 8.2. CORPORATE MERGERS AND ACQUISITIONS. The Committee may grant
Options having terms and conditions which vary from those specified in the Plan
if such Options are granted in substitution for, or in connection with the
assumption of, existing options granted by another business entity and assumed
or otherwise agreed to be provided for by the Company pursuant to or by reason
of a transaction involving a merger or consolidation of or acquisition of
substantially all of the assets or stock of another business entity that is not
a Subsidiary of the Company prior to such acquisition, with or by the Company or
its Subsidiaries.
Section 8.3. WITHHOLDING. The Company shall have the right to withhold from
any payments due under any Option or due to any Holder from the Company as
compensation or otherwise the amounts of any federal, state or local withholding
taxes not paid by the Holder at the time of the exercise or vesting of any
Option or upon a disposition of Shares received upon the exercise of an
Incentive Stock Option. If cash payments sufficient to allow for withholding of
taxes are not made at the time of exercise or vesting of an Option, the Holder
exercising such Option shall pay to the Company an amount equal to the
withholding required to be made less the withholding otherwise made in cash or,
if allowed by the Committee in its discretion and pursuant to rules adopted by
the Committee consistent with Section 5.5 above, Shares previously owned by the
Holder. The Company may make such other provisions as it deems appropriate to
withhold any taxes the Company determines are required to be withheld in
connection with the exercise of any Option or upon a disqualifying disposition
of Shares received upon the exercise of an Incentive Stock Option, including,
but not limited to, the withholding of Shares from an Option upon such terms and
conditions as the Committee may provide. The Company may require the Holder to
satisfy any relevant withholding requirements before issuing Shares or
delivering any Option to the Holder.
Section 8.4. DISABILITY. If a Grantee who is an Employee or a Consultant is
absent from work because of a physical or mental disability, for purposes of the
Plan such Grantee will not be considered to have ended his employment or
consulting relationship with the Company while such Grantee has that disability,
unless he resigns or terminates such relationship or the Committee decides
otherwise. If a Grantee who is a Director is absent from meetings of the Board
of Directors because of a physical or mental disability, for purposes of the
Plan such Grantee will not be considered to have ended his service with the
Board of Directors while such Grantee has that disability, unless he resigns or
is not re-elected by the stockholders.
Section 8.5. MERGER OF THE COMPANY. If the Company merges or consolidates
with or sells substantially all of its assets to a person that was not one of
its affiliates before such transaction, or any such unaffiliated person or
corporation has publicly announced a tender offer to purchase more than 20% of
the outstanding voting securities of the Company, all Options shall immediately
vest and may thereafter, but not beyond the ten year period referred to in
Sections 5.3, 6.3, and 7.3 above and the five year period referred to in Section
5.4(e) above, be exercised in whole or in part If such transaction is not timely
completed, any exercise or vesting of any Option shall be unwound.
Section 8.6. SURRENDER AND EXCHANGE. The Committee may permit the voluntary
surrender of all or a portion of any Option to be conditioned upon the granting
to the Holder of a new Option for the same or a different number of Shares as
the Option surrendered, or may require such voluntary surrender as a condition
precedent to a grant of a new Option to such Holder. Subject to the provisions
of the Plan, such new Option shall be exercisable at the price, during the
period and on such other terms and conditions as are specified by the Committee
at the time the new Option is granted. Upon surrender, the Option surrendered
shall be canceled and the Shares previously subject to it shall be available for
the grant of other Options.
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<PAGE>
Section 8.7. ACCELERATION. Notwithstanding anything else in the Plan, the
Committee may, in its sole discretion, at any time or from time to time,
accelerate the time at which any Options mature or vest or waive any provisions
of the Plan relating to the manner of payment or procedures for the exercise or
maturity of any Option. Any such acceleration may be made effective (a) with
respect to one or more or all Holders, (b) with respect to some or all of the
Shares subject to or forming the basis for any Option to any Holder or (c) for a
period of time ending at or before the expiration date of any Option.
Section 8.8. ACTIONS BY COMMITTEE AFTER GRANT. The Committee shall have,
subject to the written consent of the Holder where the action impairs or
adversely alters the rights of the Holder, the right, at any time and from time
to time after the Date of Grant of any Option, to modify the terms of any
Option.
ARTICLE 9. GENERAL PROVISIONS.
Section 9.1. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Option or
any instrument executed pursuant to the Plan will confer upon any Grantee any
right to continue to be employed by or provide services to the Company or affect
the right of the Company to terminate the employment of any Grantee or its other
relationship with any Grantee. Nothing in the Plan or any Option or any
instrument executed pursuant to the Plan will confer upon any Grantee any right
to continue to be a Director of the Company or affect the right of the
stockholders to terminate the directorship of any Grantee.
Section 9.2. LIMITED LIABILITY. The liability of the Company under this
Plan or in connection with any exercise of any Option is limited to the
obligations expressly set forth in the Plan and in the grant of any Option, and
no term or provision of this Plan nor of any Option shall be construed to impose
any duty, obligation or liability on the Company not expressly set forth in the
Plan or any grant of any Option.
Section 9.3. ASSUMPTION OF OPTIONS. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more other entities as a result of which the Company is not the
surviving entity, or upon a sale of substantially all the assets of the Company
to another entity, any Options outstanding theretofore granted or sold hereunder
must be assumed by the surviving or purchasing entity, with appropriate
adjustments as to the number and kind of shares and price.
Section 9.4. NO TRANSFER. No Option or other benefit under the Plan may be
sold, pledged or otherwise transferred other than by will or the laws of descent
and distribution; and no Option may be exercised during the life of the Grantee
to whom it was granted except by such Grantee.
Section 9.5. EXPENSES. All costs and expenses incurred in connection with
the administration of the Plan including any excise tax imposed upon the
transfer of Shares pursuant to the exercise of an Option shall be borne by the
Company.
Section 9.6. NOTICES. Notices and other communications required or
permitted to be made under the Plan shall be in writing and shall be deemed to
have been duly given only if personally delivered or if sent by first class mail
addressed (a) if to a Holder, at his residence address set forth in the records
of the Company or (b) if to the Company, to its President at its principal
executive office.
Section 9.7. THIRD PARTIES. Nothing herein expressed or implied is intended
or shall be construed to give any person other than the Holders any rights or
remedies under this Plan.
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<PAGE>
Section 9.8. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Plan authorizes or
requires a payment or performance on a Saturday, Sunday or public holiday, such
payment or performance shall be deemed to be timely if made on the next
succeeding business day; PROVIDED, HOWEVER, that this Section 9.8 shall not be
construed to extend the ten year period referred to in Sections 5.3, 6.3, and
7.3 above or the five year period referred to in Section 5.4(e) above.
Section 9.9. RULES OF CONSTRUCTION. The captions and section numbers
appearing in this Plan are inserted only as a matter of convenience. They do not
define, limit or describe the scope or intent of the provisions of this Plan. In
this Plan words in the singular number include the plural, and in the plural
include the singular; and words of the masculine gender include the feminine and
the neuter and, when the sense so indicates, words of the neuter gender may
refer to any gender.
Section 9.10. GOVERNING LAW. The validity, terms, performance and
enforcement of this Plan shall be governed by laws of the State of Delaware that
are applicable to agreements negotiated, executed, delivered and performed
solely in the State of Delaware.
Section 9.11. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective
upon its approval by the affirmative vote of the holders of a majority of the
outstanding Shares present or represented and entitled to vote at a meeting of
the stockholders of the Company. Options may be granted by the Committee before
such approval, but all Options so granted shall be conditioned on such approval
and shall be void if such approval is not given within 12 months after the
Effective Date.
Section 9.12. AMENDMENT AND TERMINATION. No Option shall be granted under
the Plan more than ten years after the Effective Date. The Board of Directors
may at any time terminate the Plan or make such amendment of the Plan as it may
deem advisable; PROVIDED, HOWEVER, that no amendment shall be effective without
the approval of the stockholders of the Company by the affirmative vote of the
holders of a majority of the outstanding Shares present or represented and
entitled to vote at a meeting of stockholders duly held, if it were to:
(a) authorize the grant of Options that may be exercised more than ten
years after the Date of Grant or that have an Exercise Price which is less than
the Fair Market Value of a Share on the Date of Grant; or
(b) materially increase the number of Shares which may be issued under
the Plan;
and, FURTHER, PROVIDED, HOWEVER, that no amendment or termination of the Plan
shall be effective to materially impair the rights of a Holder under any Option
granted before the adoption of such amendment or termination by the Board of
Directors, without the written consent of such Holder. No termination or
amendment of this Plan or any Option nor waiver of any right or requirement
under this Plan or any Option shall be binding on the Company unless it is in a
writing duly entered into its records and executed by a duly authorized Officer.
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EXHIBIT A
EMPLOYEES' OPTION AGREEMENT
ROYAL PRECISION, INC.
15170 N. HAYDEN ROAD, SUITE 1
SCOTTSDALE, AZ 85260
(Date of Grant)
(Name of Grantee)
(Street)
(City, State, Zip)
Congratulations. You have been granted a Stock Option under the Company's
Stock Option Plan dated October 5, 1997 (the "PLAN") on the following terms:
1. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is: (Number)
2. EXERCISE PRICE. The Exercise Price to purchase Shares under this Option is:
$(Price) per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on the first [four] anniversaries of the date of
this Agreement if you have been an Employee of the Company continuously
from the date of this Agreement through the date when such portion of the
Option vests[ subject to the special rule referred to in paragraph 5
below]. No portion of this Option shall vest and become exercisable after
your employment with your Employer has terminated, regardless of the reason
for such termination.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine [six] months after you cease to be an Employee because of your
death or disability,
(iii) three months after a termination without cause of your employment
with your Employer, or
(iv) immediately upon termination of your employment with your Employer by
such Employer for cause or by your resignation.
5. TAXATION. This Option is [an Incentive Stock Option][a Nonqualified
Option]. [Because this Option is an Incentive Stock Option vesting of a
portion of this Option or of other Incentive Stock Options held by you may
be deferred under a special rule set forth in Section 5.4 (c) of the Plan.
If you exercise this Option and dispose of any of the Shares received by
you as a result of such exercise within two years from the date above or
within one year after the issuance of such Shares to you upon such
exercise, you must notify the Company of such disposition and the amount
received as a result thereof and pay or provide for the withholding taxes
on such disposition.] [You will have taxable income upon the exercise of
this Option. At that time, you must pay to the Company an amount equal to
the required federal, state, and local tax withholding less any withholding
otherwise made from your salary or bonus. You must satisfy any relevant
withholding requirements before the Company issues Shares to you.]
<PAGE>
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased
to be exercisable. The Exercise Price must be paid in cash by (a) delivery
of a certified or cashier's check payable to the order of the Company in
such amount, (b) wire transfer of immediately available funds to a bank
account designated by the Company, or (c) reduction of a debt of the
Company to you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder. [You have been granted a ____% Tax
Offset Payment.]
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement
and nothing contained herein gives you any right to continue to be employed
by or provide services to the Company or affects the right of the Company
to terminate your employment or other relationship with you.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 5 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: _________________________________________
(Name of Officer), (Title)
Accepted and Agreed to as of
the date first set forth above:
- --------------------------------------------
(Name of Grantee)
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<PAGE>
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
(Date of Grant) under the Company's Stock Option Plan dated October 5, 1997. The
undersigned hereby represents and warrants to the Company that he is not
exercising such rights or planning to transfer such shares while in the
possession of material inside information relating to the Company.
Date: _____________________ ________________________________________
(Name of Holder)
______________________________________________________________
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
15170 N. Hayden Road, Suite 1
Scottsdale, AZ 85260
together with the Exercise Price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
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<PAGE>
EXHIBIT B
CONSULTANTS' OPTION AGREEMENT
ROYAL PRECISION, INC.
15170 N. HAYDEN ROAD, SUITE 1
SCOTTSDALE, AZ 85260
(Date of Grant)
(Name of Grantee)
(Street)
(City, State, Zip)
Congratulations. You have been granted a Stock Option under the Company's
Stock Option Plan dated October 5, 1997 (the "PLAN") on the following terms:
1. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is: (Number)
2. EXERCISE PRICE. The exercise price to purchase Shares under this Option is:
$(Price) per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on the first [four] anniversaries of the date of
this Agreement if you have been a Consultant to the Company continuously
from the date of this Agreement through the date when such portion of the
Option vests. No portion of this Option shall vest and become exercisable
after the termination of the your consulting relation with your Employer,
regardless of the reason for such termination.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Consultant because of your death
or disability,
(iii) three months after a termination without cause of your consulting
relationship with your Employer; or
(iv) immediately upon termination of your consulting relationship with your
Employer for cause or by your resignation.
5. TAXATION. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option. At that time, you must pay to the
Company an amount equal to the required federal, state, and local tax
withholding less any withholding otherwise made from compensation payable
to you. You must satisfy any relevant withholding requirements before the
Company issues Shares to you.
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased
to be exercisable. The Exercise Price must be paid in cash by (a) delivery
of a certified or cashier's check payable to the order of the Company in
such amount, (b) wire transfer of immediately available funds to a bank
account designated by the Company, or (c) reduction of a debt of the
<PAGE>
Company to you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder.
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT A CONSULTING AGREEMENT. This Agreement is not a consulting agreement
and nothing contained herein gives you any right to continue to provide
services to the Company or affect the right of the Company to terminate the
consulting relationship with you.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 6 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: ______________________________________
(Name of Officer), (Title)
Accepted and Agreed to as of the date first set forth above:
- ------------------------------------------------------------
(Name of Grantee)
-2-
<PAGE>
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
(Date of Grant) under the Company's Stock Option Plan dated October 5, 1997.
Date: __________________________ ________________________________________
(Name of Holder)
- --------------------------------------------------------------
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
15170 N. Hayden Road, Suite 1
Scottsdale, AZ 85260
together with the Exercise Price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
-3-
<PAGE>
EXHIBIT C
DIRECTORS' OPTION AGREEMENT
ROYAL PRECISION, INC.
15170 N. HAYDEN ROAD, SUITE 1
SCOTTSDALE, AZ 85260
(Date of Grant)
(Name of Grantee)
(Street)
(City, State, Zip)
Congratulations. You have been granted a Stock Option under the Company's
Stock Option Plan dated October 5, 1997 (the "PLAN") on the following terms:
1. NUMBER OF SHARES. The number of Shares of Common Stock of the Company that
you may purchase under this Option is:(Number)
2. EXERCISE PRICE. The exercise price to purchase Shares under this Option is:
$(Price) per Share.
3. VESTING. [25%] of the Shares originally subject to this Option will vest
and become exercisable on each Meeting Date which occurs more than six
months after the date of this Agreement if you are a Director at the time
of the adjournment of the meeting of stockholders held on such Meeting
Date.
4. LAPSE. This Option will lapse and cease to be exercisable upon the earliest
of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Director because of your death or
Disability,
(iii) immediately upon your resignation as a Director, or
(iv) three months after you cease to be a Director for any reason other
than your death, disability or resignation.
5. TAXATION. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option.
6. EXERCISE. This Option may be exercised by the delivery of this Agreement,
with the notice of exercise attached hereto properly completed and signed
by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased
to be exercisable. The Exercise Price must be paid in cash by (a) delivery
of a certified or cashier's check payable to the order of the Company in
such amount, (b) wire transfer of immediately available funds to a bank
account designated by the Company, or (c) reduction of a debt of the
Company to you. This Option may be exercised as to less than all of the
Shares purchasable hereunder, but not for a fractional share, nor may it be
exercised as to less than 100 Shares unless it is exercised as to all of
the Shares then available hereunder.
7. NO TRANSFER. This Option may not be sold, pledged nor otherwise transferred
other than by will or the laws of descent and distribution; and it may be
exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8
of the Uniform Commercial Code).
8. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement
and nothing contained herein gives you any right to continue to be a
Director of the Company or affect the right of the stockholders to
terminate your directorship.
9. PLAN CONTROLS. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 7 of the Plan. The terms of this
Agreement are subject to, and controlled by, the terms of the Plan, as it
is now in effect or may be amended from time to time hereafter, which are
incorporated herein as if they were set forth in full. Any words or phrases
defined in the Plan have the same meanings in this Agreement. The Company
will provide you with a copy of the Plan promptly upon your written or oral
request made to its Treasurer.
10. MISCELLANEOUS. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This
Agreement may not be amended or terminated except by a writing signed by
the party against whom any such amendment or termination is sought. If any
one or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement shall be governed by the laws of the State of
Delaware.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
ROYAL PRECISION, INC.
By: ______________________________________
(Name of Officer), (Title)
Accepted and Agreed to as of the date first set forth above:
- -------------------------------------------
(Name of Grantee)
<PAGE>
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
(Date of Grant) under the Company's Stock Option Plan, dated October 5, 1997.
Date: _____________________ ________________________________________
(Name of Holder)
- --------------------------------------------------------------
Sign and complete this Option Exercise Form and deliver it to:
ROYAL PRECISION, INC.
Attn.: Treasurer
15170 N. Hayden Road, Suite 1
Scottsdale, AZ 85260
together with the Exercise Price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of November 10, 1999, is made by and between FM
PRECISION GOLF MANUFACTURING CORP., a Delaware corporation, and FM PRECISION
GOLF SALES CORP., a Delaware corporation (collectively, jointly and severally,
the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation,
formerly known as Norwest Business Credit, Inc. (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and Security
Agreement dated as of October 9, 1998, as amended by that certain Amendment to
Credit and Security Agreement and Waiver of Defaults dated April 13, 1999
(collectively, the "Credit Agreement"). Capitalized terms used in these recitals
have the meanings given to them in the Credit Agreement unless otherwise
specified.
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. DEFINED TERMS. Capitalized terms used in this Amendment which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.
2. AMENDMENTS. The Credit Agreement is hereby amended as follows:
(a) The definition of "Base Rate" contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following definition of "Prime Rate":
"PRIME RATE" means the rate of interest publicly announced from time to
time by Wells Fargo Bank, N.A. as its "prime rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated by
the Lender.
(b) Each and every reference to "Base Rate" contained in the Credit
Agreement is hereby deleted and replaced with the term "Prime Rate".
(c) The definition of "Borrowing Base" contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced as follows:
"BORROWING BASE" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
1
<PAGE>
(A) the lesser of (x) 85% of Eligible Accounts, or (y)
$5,000,000.00, plus
(B) the lesser of (x) 60% of Eligible Inventory (exclusive of
Eligible Raw Materials Inventory), or (y) $2,500,000.00 from March 1
through September 30 of each year and $3,500,000.00 from October 1 of
each year through February 28 of each subsequent year.
(C) the lesser of (x) 50% of Eligible Raw Materials Inventory, or
(y) $2,500,000.00 from March 1 through September 30 of each year and
$3,500,000.00 from October 1 of each year through February 28 of each
subsequent year.
(d) The definition of "Debt Service Coverage Ratio" contained in
Section 1.1 of the Credit Agreement is hereby deleted and replaced as follows:
"Debt Service Coverage Ratio" means the ratio of (i) the sum of (A) Funds
from Operations plus (estimated taxes less cash tax payments) plus (B)
Interest Expense minus (C) unfinanced portion of Capital Expenditures
(exclusive of not more than $750,000.00 of Capital Expenditures (the
"Wastewater Capital Expenditures") related to the construction of a
wastewater treatment facility) to (ii) the sum of (A) Current Maturities of
Long Term Debt (actually paid during the period) plus (B) Interest Expense.
The Borrower acknowledges that in the event the Wastewater Capital
Expenditures are not refinanced in full on or before May 30, 2000, the
Wastewater Capital Expenditures shall be included in said ratio.
(e) The year "2001" contained in the definition of "Maturity Date"
contained in Section 1.1 of the Credit Agreement is hereby deleted and replaced
with the year "2002".
(f) The figure "$4,000,000.00" contained in the definition of "Maximum
Line" contained in Section 1.1 of the Credit Agreement is hereby deleted and
replaced with the figure "$5,000,000.00".
(g) The definition of "Revolving Floating Rate" contained in Section
1.1 of the Credit Agreement is hereby deleted and replaced as follows:
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus one-quarter of one percent (0.25%), which annual rate shall
change when and as the Prime Rate changes.
(h) The definition of "Term Floating Rate" contained in Section 1.1 of
the Credit Agreement is hereby deleted and replaced as follows:
2
<PAGE>
"Term Floating Rate" means an annual rate equal to the sum of the Prime
Rate plus three-quarters of one percent (0.75%), which annual rate shall
change when and as the Prime Rate changes.
(i) There is hereby added to Section 1.1 of the Credit Agreement a new
definition for "Wells Fargo Bank, N.A." which provides as follows:
"Wells Fargo Bank, N.A." means Wells Fargo Bank, National Association.
(j) The introductory sentence of Section 2.8 of the Credit Agreement
is hereby deleted and replaced as follows:
INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST; PARTICIPATIONS; USURY.
Interest accruing on the Notes shall be due and payable in arrears on the
first day of each month.
(k) Section 2.9(a) of the Credit Agreement is hereby deleted and
replaced as follows:
(a) UNUSED LINE FEE. For the purposes of this Section 2.9(b), "Unused
Amount" means the $4,500,000.00 reduced by (1) outstanding Revolving
Advances and (2) the L/C Amount, until such time as the outstanding
Revolving Advances are greater than $4,500,000.00 at which point
(regardless of whether or not at some point thereafter the outstanding
Revolving Advances are less than $4,500,000.00) the term "Unused Amount"
means the Maximum Line reduced by (1) outstanding Revolving Advances and
(2) the L/C Amount.
(l) The figure "$60.00" contained in Section 2.9(d) of the Credit
Agreement is hereby deleted and replaced with the figure "$75.00".
(m) Sections 2.13(a) and 2.13(b) of the Credit Agreement are hereby
deleted and replaced as follows:
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay the Lender a fee
in an amount equal to a percentage of $4,500,000.00, until such time as the
outstanding Revolving Advances are greater than $4,500,000.00, at which
time said figure shall automatically be increased to the Maximum Line
regardless of whether or not at some point thereafter the outstanding
Revolving Advances are less than $4,500,000.00 (or the reduction, as the
case may be) as follows: (i) three percent (3%) if the termination or
reduction occurs on or before September 30, 2000; (ii) two percent (2%) if
the termination or reduction occurs after September 30, 2000 but on or
before September 30, 2001; and (iii) one percent (1%) if the termination or
reduction occurs after September 30, 2001.
3
<PAGE>
(b) PREPAYMENT FEES. If the Term Note is prepaid as of a date other than
the Maturity Date for any reason except in accordance with Section 2.7, the
Borrower shall pay to the Lender a fee in an amount equal to a percentage
of the amount prepaid as follows: (i) three percent (3%) if prepayment
occurs on or before September 30, 2000; (ii) two percent (2%) if prepayment
occurs after September 30, 2000 but on or before September 30, 2001; and
(iii) one percent (1%) if prepayment occurs after September 30, 2001.
(n) Section 6.12 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
DEBT SERVICE COVERAGE RATIO. The Borrower covenants that FMM and FMS and
the Covenant Entities shall, as of the last day of each fiscal quarter, on
and after November 30, 1999, maintain a consolidated average minimum debt
service coverage ratio (based upon the period set forth below) as follows:
Quarter Ending Debt Service Coverage Ratio
-------------- ---------------------------
November 30, 1999 .0001 based upon the immediately
preceding six month period
February 29, 2000 .50 to 1 based upon the immediately
preceding nine month period
May 31, 2000 and each May 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
August 31, 2000 and each August 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
November 30, 2000 and each 1.05 to 1 based upon the immediately
November 30 thereafter preceding twelve month period
February 28, 2001 and each 1.05 to 1 based upon the immediately
February 28 thereafter preceding twelve month period
(o) Section 6.15 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
MONTHLY NET INCOME/NET LOSS. The Borrower covenants that beginning with
June, 1999, and continuing for each month thereafter, FMM, FMS and the
Covenant Entities shall achieve an aggregate consolidated Net Income of not
less than (or in the event a Net Loss is permitted, a Net Loss of not more
than) the amounts set forth below for each month as measured from the last
day of the immediately preceding month.
4
<PAGE>
Month Net Income/(Net Loss)
----- ---------------------
June, 1999 $50,000.00
July, 1999 $0.00
August, 1999 ($400,000.00)
September, 1999 ($150,000.00)
October, 1999 ($200,000.00)
November, 1999 ($200,000.00)
December, 1999 ($350,000.00)
January, 2000 ($100,000.00)
February, 2000 $0.00
March, 2000 $50,000.00
April, 2000 $75,000.00
May, 2000 $75,000.00
June of each year thereafter $0.00
July of each year thereafter $0.00
August of each year thereafter ($300,000.00)
September of each year thereafter ($150,000.00)
October of each year thereafter ($200,000.00)
November of each year thereafter ($100,000.00)
December of each year thereafter ($350,000.00)
January of each year thereafter ($50,000.00)
February of each year thereafter $0.00
March of each year thereafter $0.00
April of each year thereafter $0.00
May of each year thereafter $0.00
(p) Section 6.16 of the Credit Agreement is hereby deleted without
replacement.
5
<PAGE>
(q) Section 7.4(a)(iv) of the Credit Agreement is hereby deleted in
its entirety and replaced as follows:
(iv) loans, advances or any other credits at any time disbursed and
outstanding after the date of this Agreement shown on the balance sheet of
Borrower granted to the Covenant Entities for fair and adequate
consideration which will not increase from the date hereof by more than in
the aggregate (i) $1,500,000.00 through September 30, 2000, (ii)
$2,250,000.00 after September 30, 2000 through September 30, 2001, and
(iii) $3,000,000.00 after September 30, 2001 through the Termination Date.
This subsection (iv) shall not apply to the payment of Expense
Reimbursements, as hereafter defined, to Guarantor.
(r) Section 7.22 of the Credit Agreement is hereby deleted without
replacement.
(s) Section 7.10 of the Credit Agreement is hereby deleted and
replaced as follows:
CAPITAL EXPENDITURES. During each fiscal year, FMM, FMS and the Covenant
Entities will not incur or contract to incur Capital Expenditures in the
aggregate of more than $2,000,000.00. In addition, during each fiscal year,
FMM, FMS and the Covenant Entities will not incur or contract to incur
Capital Expenditures paid with working capital in the aggregate of more
than $1,250,000.00. The Borrower acknowledges that in the event the
Wastewater Capital Expenditures are not refinanced in full on or before May
30, 2000, the Wastewater Capital Expenditures shall be considered Capital
Expenditures paid with working capital.
(t) Section 7.19 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
PAYMENTS TO AFFILIATES. Neither FMM nor FMS shall, without the express
written consent of Lender, which consent may be granted or withheld in
Lender's sole discretion, make any transfer, conveyance, loan or payment of
any kind ("Payment") to FMM (from FMS), FMS (from FMM), to any Covenant
Entity or to any other Affiliate which is not for fair and adequate
consideration or which is in the aggregate in excess of $1,500,000.00 for
any fiscal year. Notwithstanding the above, FMM and FMS may make Payments
to Guarantor on their behalf so long as such Payments are a reimbursement
of expenses which are related solely to the costs associated with FMM's and
FMS's normal and customary day to day operations ("Expense
Reimbursements").
6
<PAGE>
(u) Section 7.17 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
SALARIES. The Borrower will not pay excessive or unreasonable salaries,
bonuses, commissions, consultant fees or other compensation; or increase
the salary, bonus, commissions, consultant fees or other compensation of
any director in a director capacity, officer or any member of their
families, by more than 20% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment. Notwithstanding the
above, so long as there is not a then existing Event of Default or Default
Period, Borrower may make payments to Borrower's executives in accordance
with the terms of that certain Executive Bonus Plan dated September 14,
1999. The Executive Bonus Plan will not be amended without the consent of
the Lender.
3. SATISFACTION OF CONDITIONS. Upon the terms and subject to the conditions
set forth in this Amendment, the Lender hereby acknowledges that the conditions
contained in the Lender's October 14, 1999 letter have been satisfied.
4. AMENDMENT FEE. The Borrower shall pay the Lender a fully earned,
non-refundable fee in the amount of $10,000.00 in consideration of the Lender's
execution of this Amendment. Said fee shall be due and payable as follows: (i)
$5,000.00 as of the date hereof, and (ii) $5,000.00 as of that date on which the
outstanding Revolving Advances are greater than $4,500,000.00.
5. NO OTHER CHANGES. Except as explicitly amended by this Amendment, all of
the terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any advance or letter of credit thereunder.
6. CONDITIONS PRECEDENT. This Amendment, and the waiver set forth in
Paragraph 4 hereof, shall be effective when the Lender shall have received an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:
(a) The replacement revolving note substantially in the form of
Exhibit A-2 hereto, duly executed on behalf of the Borrower (the "Replacement
Note").
(b) The Acknowledgment and Agreement of Guarantor set forth at the end
of this Amendment, duly executed by the Guarantor.
(c) A Certificate of the Secretary of the Borrower certifying as to
(i) the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the articles of
incorporation and bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of Authority of the Borrower's secretary
or assistant secretary dated as of October 9, 1998 in connection with the
execution and delivery of the Credit Agreement continue in full force and effect
and have not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and agents
7
<PAGE>
of the Borrower who have been certified to the Lender, pursuant to the
Certificate of Authority of the Borrower's secretary or assistant secretary
dated as of October 9, 1998, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
(d) An opinion of the Borrower's counsel as to the matters set forth
in paragraphs 7(a) and 7(b) hereof and as to such other matters as the Lender
shall require.
7. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender as follows:
(a) The Borrower has all requisite corporate power and authority to
execute this Amendment and the Replacement Note and to perform all of its
obligations hereunder, and this Amendment and the Replacement Note have been
duly executed and delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Replacement Note have been duly authorized by all necessary
corporate action and do not (i) require any authorization, consent or approval
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any law,
rule or regulation or of any order, writ, injunction or decree presently in
effect, having applicability to the Borrower, or the articles of incorporation
or by-laws of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
8. WAIVER OF INTEREST. That portion of accrued but unpaid interest (which
accrued commencing on January 1, 1999 through the date hereof at a rate of 1% of
the Revolving Advances and 1% of the Term Advances) which was, prior to the
effectiveness of this Amendment, due and payable by Borrower upon the prepayment
in whole of the Obligations is hereby forgiven by Lender.
9. REFERENCES. All references in the Credit Agreement to "this Agreement"
shall be deemed to refer to the Credit Agreement as amended hereby; and any and
all references in the Security Documents to the Credit Agreement shall be deemed
to refer to the Credit Agreement as amended hereby. Upon the satisfaction of
each of the conditions set forth in paragraph 5 hereof, the definition of
"Revolving Note" and all references thereto in the Credit Agreement shall be
deemed amended to describe the Replacement Note, which Replacement Note shall be
issued by the Borrower to the Lender in replacement, renewal and amendment, but
not in repayment, of the Note.
8
<PAGE>
10. NO WAIVER. Except as set forth above with respect to Lender's October
14, 1999 letter, the execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or Event of
Default or Default Period under the Credit Agreement or breach, default or event
of default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
11. RELEASE. The Borrower, and Guarantor by signing the Acknowledgment and
Agreement of Guarantor set forth below, each hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower or Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
12. COSTS AND EXPENSES. The Borrower hereby reaffirms its agreement under
the Credit Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Credit Agreement, the
Security Documents and all other documents contemplated thereby, including
without limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, the Borrower specifically
agrees to pay all fees and disbursements of counsel to the Lender for the
services performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses, and the fee
required under paragraph 6 hereof.
13. MISCELLANEOUS. This Amendment and the Acknowledgment and Agreement of
Guarantor may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
WELLS FARGO BUSINESS CREDIT, INC.
By /s/ Clifton Moschnik
-------------------------------------
Its Business Banking Officer
9
<PAGE>
FM PRECISION GOLF MANUFACTURING CORP.,
a Delaware corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
FM PRECISION GOLF SALES CORP.,
a Delaware corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
10
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of FM Precision Golf
Manufacturing Corp., and FM Precision Golf Sales Corp., each Delaware
corporations (collectively, jointly and severally, the "Borrowers") to Wells
Fargo Business Credit, Inc., formerly known as Norwest Business Credit, Inc.
(the "Lender") pursuant to a Guaranty dated as of October 9, 1998 (the
"Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii)
consents to the terms (including without limitation the release set forth in
paragraph 11 of the Amendment) and execution thereof; (iii) reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv)
acknowledges that the Lender may amend, restate, extend, renew or otherwise
modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under the Guaranty for all of the
Borrowers' present and future indebtedness to the Lender.
ROYAL PRECISION, INC.,
a Delaware corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
11
<PAGE>
EXHIBIT A-2
REPLACEMENT REVOLVING NOTE
$5,000,000.00 Phoenix, Arizona
_________, 1999
For value received, the undersigned, FM PRECISION GOLF MANUFACTURING CORP.,
a Delaware corporation, and FM PRECISION GOLF SALES CORP., a Delaware
corporation (collectively, jointly and severally, "Borrower"), hereby jointly
and severally promise to pay on the Termination Date under the Credit Agreement
(defined below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), at its main office in Phoenix, Arizona, or at any
other place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal sum
of FIVE MILLION and N0/100 Dollars ($5,000,000.00) or, if less, the aggregate
unpaid principal amount of all Revolving Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement dated October 8, 1998, as amended from
time to time (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
Both entities constituting the Borrower hereby jointly and severally agree
to pay all costs of collection, including attorneys' fees and legal expenses in
the event this Note is not paid when due, whether or not legal proceedings are
commenced.
This Note, upon its execution, is a replacement of, issued in substitution
and not in satisfaction of a promissory note, and a portion of the indebtedness
hereunder is the same indebtedness evidenced by that certain Revolving Note in
the amount of $4,000,000.00, made by the undersigned, which Revolving Note was
executed pursuant to the Credit Agreement. The indebtedness evidenced by said
Revolving Note is not extinguished hereby.
12
<PAGE>
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
FM PRECISION GOLF MANUFACTURING CORP.,
a Delaware corporation
By
-------------------------------------
Its
---------------------------------
FM PRECISION GOLF SALES CORP.,
a Delaware corporation
By
-------------------------------------
Its
---------------------------------
13
THIRD AMENDMENT TO AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of November 10, 1999, is made by and between ROYAL
GRIP, INC., a Nevada corporation and ROYAL GRIP HEADWEAR COMPANY, a Nevada
corporation, formerly known as ROXXI, INC. (collectively, jointly and severally,
the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation,
formerly known as Norwest Business Credit, Inc. (the "Lender").
Recitals
The Borrower and the Lender have entered into an Amended and Restated
Credit and Security Agreement dated as of October 9, 1998, as amended by that
certain Amendment to Amended and Restated Credit and Security Agreement and
Waiver of Defaults dated March 16, 1999, as amended by that certain Second
Amendment to Credit and Security Agreement and Waiver of Defaults dated April
14, 1999 (collectively, the "Credit Agreement"). Capitalized terms used in these
recitals have the meanings given to them in the Credit Agreement unless
otherwise specified.
The Borrower has requested that certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.
2. Amendments. The Credit Agreement is hereby amended as follows:
(a) The definition of "Base Rate" contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following definition of "Prime Rate":
"Prime Rate" means the rate of interest publicly announced from time to
time by Wells Fargo Bank, N.A. as its "prime rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated by
the Lender.
(b) Each and every reference to "Base Rate" contained in the Credit
Agreement is hereby deleted and replaced with the term "Prime Rate".
(c) The definition of Borrowing Base contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced as follows:
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
1
<PAGE>
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(A) the lesser of (x) 80% of Eligible Accounts, or (y)
$1,500,000.00, plus
(B) the lesser of (x) 60% of Eligible Royal Grip Inventory, or
(y) $1,000,000.00.
(d) The definition of "Debt Service Coverage Ratio" contained in
Section 1.1 of the Credit Agreement is hereby deleted and replaced as follows:
"Debt Service Coverage Ratio" means the ratio of (i) the sum of (A) Funds
from Operations plus (estimated taxes less cash tax payments) plus (B)
Interest Expense minus (C) unfinanced portion of Capital Expenditures
(exclusive of not more than $750,000.00 of Capital Expenditures (the
"Wastewater Capital Expenditures") incurred by FMM related to the
construction of a wastewater treatment facility) to (ii) the sum of (A)
Current Maturities of Long Term Debt (actually paid during the period) plus
(B) Interest Expense. The Borrower acknowledges that in the event the
Wastewater Capital Expenditures are not refinanced in full on or before May
30, 2000, the Wastewater Capital Expenditures shall be included in said
ratio.
(e) The year "2001" contained in the definition of "Maturity Date"
contained in Section 1.1 of the Credit Agreement is hereby deleted and replaced
with the year "2002".
(f) The definition of "Revolving Floating Rate" contained in Section
1.1 of the Credit Agreement is hereby deleted and replaced as follows:
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus one-quarter of one percent (0.25%), which annual rate shall
change when and as the Prime Rate changes.
(g) The definition of "Roxxi" contained in Section 1.1 of the Credit
Agreement is hereby deleted without replacement.
(h) There is hereby added to Section 1.1 of the Credit Agreement a new
definition of "Royal Headwear" which provides as follows:
"Royal Headwear" means Royal Grip Headwear Company, a Nevada corporation
formerly known as Roxxi, Inc.
(i) Each and every reference to "Roxxi" contained in the Credit
Agreement is hereby deleted and replaced with "Royal Headwear".
2
<PAGE>
(j) The definition of "Term Floating Rate" contained in Section 1.1 of
the Credit Agreement is hereby deleted and replaced as follows:
"Term Floating Rate" means an annual rate equal to the sum of the Prime
Rate plus three-quarters of one percent (0.75%), which annual rate shall
change when and as the Prime Rate changes.
(k) There is hereby added to Section 1.1 of the Credit Agreement a new
definition for "Wells Fargo Bank, N.A." which provides as follows:
"Wells Fargo Bank, N.A." means Wells Fargo Bank, National Association.
(l) The introductory sentence of Section 2.8 of the Credit Agreement
is hereby deleted and replaced as follows:
INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST; PARTICIPATIONS; USURY.
Interest accruing on the Notes shall be due and payable in arrears on the
first day of each month.
(m) The dollar figure "$6,500.00" contained in Section 2.8(c) of the
Credit Agreement is hereby deleted and replaced with the dollar figure
"$4,000.00".
(n) The figure "$60.00" contained in Section 2.9(d) of the Credit
Agreement is hereby deleted and replaced with the figure "$75.00".
(o) Sections 2.13(a) and 2.13(b) of the Credit Agreement are hereby
deleted and replaced as follows:
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay the Lender a fee
in an amount equal to a percentage of the Maximum Line (or the reduction,
as the case may be) as follows: (i) three percent (3%) if the termination
or reduction occurs on or before September 30, 2000; (ii) two percent (2%)
if the termination or reduction occurs after September 30, 2000, but on or
before September 30, 2001; and (iii) one percent (1%) if the termination or
reduction occurs after September 30, 2001.
(b) PREPAYMENT FEES. If the Term Note is prepaid as of any date other than
the Maturity Date for any reason except in accordance with Section 2.7, the
Borrower shall pay to the Lender a fee in an amount equal to a percentage
of the amount prepaid as follows: (i) three percent (3%) if prepayment
occurs on or before September 30, 2000; (ii) two percent (2%) if prepayment
occurs after September 30, 2000 but on or before September 30, 2001; and
(iii) one percent (1%) if prepayment occurs after September 30, 2001.
3
<PAGE>
(p) Section 6.12 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
DEBT SERVICE COVERAGE RATIO. The Borrower covenants that Royal Grip and
Royal Headwear and the Covenant Entities shall, as of the last day of each
fiscal quarter, on and after November 30, 1999, maintain a consolidated
average minimum debt service coverage ratio (based upon the period set
forth below) as follows:
Quarter Ending Debt Service Coverage Ratio
-------------- ---------------------------
November 30, 1999 .0001 based upon the immediately
preceding six month period
February 29, 2000 .50 to 1 based upon the immediately
preceding nine month period
May 31, 2000 and each May 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
August 31, 2000 and each August 31 1.05 to 1 based upon the immediately
thereafter preceding twelve month period
November 30, 2000 and each 1.05 to 1 based upon the immediately
November 30 thereafter preceding twelve month period
February 28, 2001 and each 1.05 to 1 based upon the immediately
February 28 thereafter preceding twelve month period
(q) Section 6.15 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
MONTHLY NET INCOME/NET LOSS. The Borrower covenants that beginning with
June, 1999, and continuing for each month thereafter, Royal Grip and Royal
Headwear and the Covenant Entities shall achieve an aggregate consolidated
Net Income of not less than (or in the event a Net Loss is permitted, a Net
Loss of not more than) the amounts set forth below for each month as
measured from the last day of the immediately preceding month.
Month Net Income/(Net Loss)
----- ---------------------
June, 1999 $50,000.00
July, 1999 $0.00
August, 1999 ($400,000.00)
September, 1999 ($150,000.00)
October, 1999 ($200,000.00)
November, 1999 ($200,000.00)
4
<PAGE>
December, 1999 ($350,000.00)
January, 2000 ($100,000.00)
February, 2000 $0.00
March, 2000 $50,000.00
April, 2000 $75,000.00
May, 2000 $75,000.00
June of each year thereafter $0.00
July of each year thereafter $0.00
August of each year thereafter ($300,000.00)
September of each year thereafter ($150,000.00)
October of each year thereafter ($200,000.00)
November of each year thereafter ($100,000.00)
December of each year thereafter ($350,000.00)
January of each year thereafter ($50,000.00)
February of each year thereafter $0.00
March of each year thereafter $0.00
April of each year thereafter $0.00
May of each year thereafter $0.00
(r) Section 6.16 of the Credit Agreement is hereby deleted without
replacement.
(s) Section 7.4(a)(iv) of the Credit Agreement is hereby deleted in
its entirety and replaced as follows:
(iv) loans, advances or any other credits at any time disbursed and
outstanding after the date of this Agreement shown on the balance sheet of
Borrower granted to the Covenant Entities for fair and adequate
consideration which will not increase from the date hereof by more than in
the aggregate (i) $1,500,000.00 through September 30, 2000, (ii)
$2,250,000.00 after September 30, 2000 through September 30, 2001, and
(iii) $3,000,000.00 after September 30, 2001 through the Termination Date.
This subsection (iv) shall not apply to the payment of Expense
Reimbursements, as hereafter defined, to Guarantor.
5
<PAGE>
(t) Section 7.10 of the Credit Agreement is hereby deleted and
replaced as follows:
CAPITAL EXPENDITURES. During each fiscal year, Royal Grip, Royal Headwear,
and the Covenant Entities will not incur or contract to incur Capital
Expenditures in the aggregate of more than $2,000,000.00. In addition,
during each fiscal year, Royal Grip, Royal Headwear, and the Covenant
Entities will not incur or contract to incur Capital Expenditures paid with
working capital in the aggregate of more than $1,250,000.00. The Borrower
acknowledges that in the event the Wastewater Capital Expenditures are not
refinanced in full on or before May 30, 2000, the Wastewater Capital
Expenditures shall be considered Capital Expenditures paid with working
capital by the Covenant Entities.
(u) Section 7.22 of the Credit Agreement is hereby deleted without
replacement.
(v) Section 7.19 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
PAYMENTS TO AFFILIATES. Neither Royal Grip nor Royal Headwear shall,
without the express written consent of Lender, which consent may be granted
or withheld in Lender's sole discretion, make any transfer, conveyance,
loan or payment of any kind ("Payment") to Royal Grip (from Royal
Headwear), Royal Headwear (from Royal Grip), to any Covenant Entity or to
any other Affiliate which is not for fair and adequate consideration or
which is in the aggregate in excess of $1,500,000.00 for any fiscal year.
Notwithstanding the above, Royal Grip and Royal Headwear may make Payments
to Guarantor on their behalf so long as such Payments are a reimbursement
of expenses which are related solely to the costs associated with Royal
Grip's and Royal Headwear's normal and customary day to day operations
("Expense Reimbursements").
(w) Section 7.17 of the Credit Agreement is hereby deleted in its
entirety and replaced as follows:
SALARIES. The Borrower will not pay excessive or unreasonable salaries,
bonuses, commissions, consultant fees or other compensation; or increase
the salary, bonus, commissions, consultant fees or other compensation of
any director in a director capacity, officer or any member of their
families, by more than 20% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment. Notwithstanding the
above, so long as there is not a then existing Event of Default or Default
Period, Borrower may make payments to Borrower's executives in accordance
with the terms of that certain Executive Bonus Plan dated September 14,
1999. The Executive Bonus Plan will not be amended without the consent of
the Lender.
6
<PAGE>
3. SATISFACTION OF CONDITIONS. Upon the terms and subject to the conditions
set forth in this Amendment, the Lender hereby acknowledges that the conditions
contained in the Lender's October 14, 1999 letter have been satisfied.
4. NO OTHER CHANGES. Except as explicitly amended by this Amendment, all of
the terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any advance or letter of credit thereunder.
5. CONDITIONS PRECEDENT. This Amendment, and the waiver set forth in
Paragraph 4 hereof, shall be effective when the Lender shall have received an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of Guarantor set forth at the end
of this Amendment, duly executed by the Guarantor.
(b) A Certificate of the Secretary of the Borrower certifying as to
(i) the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the articles of
incorporation and bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of Authority of the Borrower's secretary
or assistant secretary dated as of October 9, 1998 in connection with the
execution and delivery of the Credit Agreement continue in full force and effect
and have not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and agents
of the Borrower who have been certified to the Lender, pursuant to the
Certificate of Authority of the Borrower's secretary or assistant secretary
dated as of October 9, 1998, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
(c) An opinion of the Borrower's counsel as to the matters set forth
in paragraphs 6(a) and 6(b) hereof and as to such other matters as the Lender
shall require.
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Lender as follows:
(a) The Borrower has all requisite corporate power and authority to
execute this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and does
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the Borrower, or
7
<PAGE>
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
7. WAIVER OF INTEREST. That portion of accrued but unpaid interest (which
accrued commencing on January 1, 1999 through the date hereof at a rate of 1% of
the Revolving Advances and 1% of the Term Advances) which was, prior to the
effectiveness of this Amendment, due and payable by Borrower upon the prepayment
in whole of the Obligations is hereby forgiven by Lender.
8. REFERENCES. All references in the Credit Agreement to "this Agreement"
shall be deemed to refer to the Credit Agreement as amended hereby; and any and
all references in the Security Documents to the Credit Agreement shall be deemed
to refer to the Credit Agreement as amended hereby.
9. NO WAIVER. Except as set forth above with respect to Lender's October
14, 1999 letter, the execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or Event of
Default or Default Period under the Credit Agreement or breach, default or event
of default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
10. RELEASE. The Borrower, and Guarantor by signing the Acknowledgment and
Agreement of Guarantor set forth below, each hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower or Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
11. COSTS AND EXPENSES. The Borrower hereby reaffirms its agreement under
the Credit Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Credit Agreement, the
Security Documents and all other documents contemplated thereby, including
without limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, the Borrower specifically
agrees to pay all fees and disbursements of counsel to the Lender for the
services performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
8
<PAGE>
12. Miscellaneous. This Amendment and the Acknowledgment and Agreement of
Guarantor may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
WELLS FARGO BUSINESS CREDIT, INC.
By /s/ Clifton Moschnik
-------------------------------------
Its Business Banking Officer
ROYAL GRIP, INC., a Nevada corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
ROYAL GRIP HEADWEAR COMPANY,
a Nevada corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
9
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of Royal Grip, Inc. and
Royal Grip Headwear Company, formerly known as Roxxi, Inc., each a Nevada
corporation (collectively, jointly and severally, the "Borrowers") to Wells
Fargo Business Credit, Inc., formerly known as Norwest Business Credit, Inc.
(the "Lender") pursuant to a Guaranty dated as of October 9, 1998 (the
"Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii)
consents to the terms (including without limitation the release set forth in
paragraph 10 of the Amendment) and execution thereof; (iii) reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv)
acknowledges that the Lender may amend, restate, extend, renew or otherwise
modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under the Guaranty for all of the
Borrowers' present and future indebtedness to the Lender.
ROYAL PRECISION, INC.,
a Delaware corporation
By /s/ Thomas A. Schneider
-------------------------------------
Its President
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 3,894
<ALLOWANCES> 381
<INVENTORY> 5,533
<CURRENT-ASSETS> 10,292
<PP&E> 6,687
<DEPRECIATION> 1,284
<TOTAL-ASSETS> 24,453
<CURRENT-LIABILITIES> 4,423
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 13,805
<TOTAL-LIABILITY-AND-EQUITY> 24,453
<SALES> 12,936
<TOTAL-REVENUES> 12,936
<CGS> 8,665
<TOTAL-COSTS> 3,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 716
<INCOME-TAX> 358
<INCOME-CONTINUING> 358
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358
<EPS-BASIC> 0.06
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</TABLE>
