<PAGE> 1
AMENDMENT NO. 2 to
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant X
Filed by a party other than the registrant _
Check the appropriate box:
X Preliminary proxy statement
Definitive proxy statement
_ Definitive additional materials
_ Soliciting material pursuant to Section 240.14a-11(c) or Section 240.14a-12
Royal Grip, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
_ No Fee Required
X Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share,
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,725,678 shares
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$3.50, which was the average of high and low prices of the Common Stock on the
Nasdaq National Market on June 5, 1997
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
$13,039,873
________________________________________________________________________________
(5) Total fee paid:
$2,607
________________________________________________________________________________
_ Fee paid previously with preliminary materials.
X Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount previously paid: $3,952
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
Registration Statement Number 333-28841
- --------------------------------------------------------------------------------
(3) Filing party: FM Precision Golf Corp.
- --------------------------------------------------------------------------------
(4) Date filed: June 9, 1997
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<PAGE> 2
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
15170 NORTH HAYDEN ROAD, SUITE 1,
SCOTTSDALE, ARIZONA 85260
AUGUST 18, 1997
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Royal Grip, Inc. ("RG") to be held on August 29, 1997 at 8:00 a.m. (local time)
at 15170 North Hayden Road, Suite 1, Scottsdale, Arizona.
At this Special Meeting, you will be asked to consider and vote upon: (i) a
proposal (the "Merger Proposal") to approve and adopt the Agreement and Plan of
Merger dated as of May 14, 1997 (the "Merger Agreement"), entered into among RG,
FM Precision Golf Corp., a Delaware corporation ("FMP"), and FMPSUB, Inc., a
Nevada corporation and wholly-owned subsidiary of FMP ("Merger Sub"); and (ii) a
proposal to approve and adopt an amendment (the "Amendment") to the Royal Grip
1993 Stock Option Plan (the "Plan").
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
RG (the "Merger"), and RG will become a wholly-owned subsidiary of FMP, which
will amend and restate its Certificate of Incorporation and change its name to
Royal Precision, Inc. In the Merger, each outstanding share of common stock of
RG, par value $0.001 per share, will be converted into the right to receive
one-half share of common stock of FMP, par value $0.001 per share, less
fractional shares which will be paid in cash, on the terms and subject to the
conditions set forth in the Merger Agreement. Details of the proposed Merger and
Merger Agreement and the other matters to be voted upon by shareholders are set
forth in the accompanying Proxy Statement/Prospectus, which you are urged to
review carefully in its entirety. A copy of the Merger Agreement is attached as
Annex I to the Proxy Statement/Prospectus.
Pursuant to the Amendment, the number of shares authorized for issuance
under the Plan would be increased from 400,000 to 550,000.
We urge you to complete, sign, date and return the enclosed proxy card as
soon as possible, whether or not you plan to attend the Special Meeting in
person and regardless of the number of shares which you own. You may, of course,
attend the Special Meeting and vote in person even if you have previously
returned your proxy card.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH THE PROXY CARD.
Sincerely,
Danny Edwards
Danny Edwards
Chief Executive Officer and
Chairman of the Board
<PAGE> 3
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
15170 NORTH HAYDEN ROAD, SUITE 1,
SCOTTSDALE, ARIZONA 85260
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of
ROYAL GRIP, INC.
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of ROYAL GRIP, INC., a Nevada corporation ("RG"), will be held on
Friday, August 29, 1997, at 8:00 a.m. (local time) at 15170 North Hayden Road,
Suite 1, Scottsdale, Arizona, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to approve
and adopt the Agreement and Plan of Merger dated as of May 14, 1997 (the "Merger
Agreement") entered into among RG, FM Precision Golf Corp., a Delaware
corporation ("FMP"), and FMPSUB, Inc., a Nevada corporation and a wholly-owned
subsidiary of FMP ("Merger Sub"). Pursuant to the Merger Agreement, (a) Merger
Sub will be merged with and into RG (the "Merger") and RG will be the surviving
corporation in the Merger and will become a wholly-owned subsidiary of FMP and
(b) each outstanding share of common stock, par value $.001 per share, of RG
("RG Common Stock") and each right to acquire RG Common Stock will be converted
into the right to receive one-half share of common stock, par value $.001 per
share, of FMP ("FMP Common Stock"), less the amount of any fractional share
which will be paid in cash, on the terms and subject to the conditions set forth
in the Merger Agreement; and
2. To consider and vote upon a proposal to approve and adopt an Amendment
(the "Amendment") to the Royal Grip 1993 Stock Option Plan (the "Plan").
Pursuant to the Amendment, the number of shares authorized for issuance under
the Plan would be increased from 400,000 to 550,000.
Pursuant to a Voting Agreement dated May 14, 1997 among Danny Edwards, Drew
M. Brown, Mark N. Sklar, Bennett Dorrance, Trustee, DMB Property Ventures
Limited Partnership and FMP (the "Voting Agreement"), the parties have agreed to
vote their shares of RG (approximately 54% of the outstanding shares) in favor
of the Merger Proposal, and such vote will be sufficient to approve and adopt
the Merger Proposal. The Voting Agreement applies only to the Merger Proposal
and not to the Amendment.
The Board of Directors has fixed the close of business on August 14, 1997 as
the record date ("Record Date") for the determination of shareholders entitled
to receive notice of and to vote at, the Special Meeting. Accordingly, only
shareholders of record of RG at the close of business on August 14, 1997 are
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or postponement thereof.
The Board of Directors of RG has determined that the Merger is in the best
interests of RG and its shareholders. The Board of Directors has been advised by
EVEREN Securities, Inc. that, in its opinion, the Merger is fair from a
financial point of view to RG shareholders as of the date of such opinion.
Accordingly, the RG Board of Directors recommends that you vote FOR the Merger.
Details of the Merger and other important information concerning RG and FMP
are more fully described in the accompanying Proxy Statement/Prospectus. Please
give this information your careful consideration.
All shareholders are invited to attend the Special Meeting in person.
Whether or not you plan to attend the Special Meeting, please promptly date,
sign and return the enclosed proxy. A postage prepaid envelope is provided for
mailing. A person giving a proxy has the power to revoke it in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the Special Meeting. If you attend the Special Meeting, your
proxy will not be counted with respect to any matter upon which you vote in
person.
By Order of the Board of Directors
Thomas A. Schneider
Thomas A. Schneider
Secretary
Scottsdale, Arizona
August 18, 1997
------------------------
DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR STOCK CERTIFICATES.
<PAGE> 4
PRELIMINARY PROXY MATERIALS
ROYAL GRIP, INC.
PROXY STATEMENT
------------------------
FM PRECISION GOLF CORP.
PROSPECTUS
1,862,839 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus is being furnished to holders
("Shareholders" or "RG Shareholders") of common stock, par value $.001 per share
("RG Common Stock"), of Royal Grip, Inc., a Nevada corporation ("RG"), as a
proxy statement in connection with the solicitation of proxies by the Board of
Directors of RG (the "RG Board") to be used at a Special Meeting of the
Shareholders, to be held on Friday, August 29, 1997 at 8:00 a.m. (local time) at
15170 North Hayden Road, Suite 1, Scottsdale, Arizona, and at any adjournment or
postponement thereof (the "Special Meeting").
At the Special Meeting, Shareholders will be asked to consider and vote
upon: (a) a proposal (the "Merger Proposal") to approve and adopt the Agreement
and Plan of Merger dated as of May 14, 1997 (the "Merger Agreement"), entered
into among RG, FM Precision Golf Corp., a Delaware corporation ("FMP"), and
FMPSUB, Inc., a Nevada corporation and a wholly-owned subsidiary of FMP ("Merger
Sub"); and (b) a proposal to approve and adopt an amendment (the "Amendment") to
the Royal Grip 1993 Stock Option Plan (the "Plan"), and the transactions
contemplated thereby.
Pursuant to the Merger Agreement (a copy of which is attached hereto as
Annex I), Merger Sub will be merged with and into RG (the "Merger"), RG, as the
surviving corporation in the Merger will become a wholly-owned subsidiary of FMP
and FMP will amend and restate its Certificate of Incorporation and change its
name to Royal Precision, Inc. In the Merger, each outstanding share of RG Common
Stock, will be converted into the right to receive one-half share of common
stock, par value $.001 per share, of FMP ("FMP Common Stock"). Upon completion
of the Merger, the Shareholders and holders of RG Options (as defined below)
will own or have the right to acquire 30% of the outstanding shares of FMP
Common Stock on a fully diluted basis. After the Merger, principal stockholders
of FMP will control approximately 82% of its aggregate voting power. See "RISK
FACTORS -- FMP Corporate Risks: Control By Principal Stockholders."
No fractional shares of FMP Common Stock will be issued in the Merger. In
lieu of any such fractional shares, each holder of RG Common Stock who otherwise
would be entitled to receive a fractional share of FMP Common Stock pursuant to
the Merger will be paid an amount in cash equal to such fractional interest
multiplied by the average of the high and low trading prices per share of RG
Common Stock for the five trading days ended immediately prior to the Effective
Date (defined below).
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROXY STATEMENT/PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY THE
SHAREHOLDERS IN DETERMINING HOW TO VOTE ON THE MERGER AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pursuant to the Amendment, the number of shares authorized for issuance
under the Plan would be increased from 400,000 to 550,000.
This Proxy Statement/Prospectus also constitutes the prospectus of FMP with
respect to up to 1,862,839 shares of FMP Common Stock that may be issued in
connection with the Merger. See "THE MERGER AGREEMENT -- Terms of the Merger"
and "DESCRIPTION OF FMP CAPITAL STOCK -- Common Stock."
<PAGE> 5
This Proxy Statement/Prospectus does not contain all the information set
forth in the registration statement, together with any amendments thereto (the
"Registration Statement"), on Form S-4 filed by FMP with the Securities and
Exchange Commission (the "SEC") in connection with the issuance of the FMP
Common Stock to be exchanged for the RG Common Stock. See "AVAILABLE
INFORMATION."
On May 14, 1997, the last full trading day prior to the public announcement
of the Merger Agreement, the last reported sale price of RG Common Stock on the
Nasdaq National Market was $3.75 per share. On August 12, 1997, the last
reported sale price of RG Common Stock on the Nasdaq National Market was $3.69
per share.
It is a condition of the Merger that the FMP Common Stock be included as a
Nasdaq National Market security or listed on the American Stock Exchange.
Application has been made for such inclusion on the Nasdaq National Market,
although there can be no assurance the FMP Common Stock will be approved for
such inclusion (see "RISK FACTORS -- FMP Corporate Risks: Market Listing") or
that an active trading market will develop for FMP Common Stock. See "RISK
FACTORS -- FMP Corporate Risks: Absence of Trading Market for FMP Common Stock."
This Proxy Statement/Prospectus and related Notice of Special Meeting and
form of proxy are first being mailed on or about August 18, 1997 to Shareholders
of record at the close of business on August 14, 1997 (the "Record Date"). There
were 2,742,178 shares of RG Common Stock outstanding at the close of business on
the Record Date. Only Shareholders of record on the Record Date will be entitled
to notice of and to vote at the Special Meeting. Consummation of the Merger is
subject to various conditions, including the inclusion of the FMP Common Stock
on the Nasdaq National Market or the listing of FMP Common Stock on the American
Stock Exchange.
THE ABOVE AND OTHER MATTERS ARE DISCUSSED IN DETAIL ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER THIS PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY.
All information contained in this Proxy Statement/Prospectus relating
specifically to RG has been provided by RG. All information contained in this
Proxy Statement/Prospectus relating specifically to FMP or Merger Sub has been
provided by FMP. All information regarding the Merger Proposal has been provided
by FMP and RG.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS AUGUST 18, 1997
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
SUMMARY
The Companies....................................................................... 1
The Special Meeting................................................................. 1
The Merger and the Merger Agreement................................................. 2
Amendment to Plan................................................................... 4
Interests of Certain Persons in the Merger.......................................... 4
Risk Factors........................................................................ 6
Surrender of Certificates........................................................... 6
Shareholder Rights.................................................................. 6
RISK FACTORS.......................................................................... 7
Sporting Goods Industry............................................................. 7
Risks Related to RG................................................................. 8
Risks Related to FMP................................................................ 9
FMP Corporate Risks................................................................. 10
Risks Related to the Merger......................................................... 12
MARKET PRICE OF RG COMMON STOCK....................................................... 15
THE SPECIAL MEETING................................................................... 16
General; Date, Time and Place of the Special Meeting................................ 16
Purposes of the Special Meeting..................................................... 16
Shareholders Entitled to Vote; Requisite Approval................................... 16
Proxies............................................................................. 16
Tabulation.......................................................................... 17
BACKGROUND OF THE MERGER.............................................................. 18
THE MERGER............................................................................ 21
RG's Reasons for the Merger; Recommendation of the RG Board......................... 21
Opinion of Financial Adviser to the RG Board........................................ 22
FMP's Reasons for the Merger........................................................ 26
Interests of Certain Persons in the Merger.......................................... 27
Management and Operations of FMP after the Merger................................... 29
Management and Operations of RG after the Merger.................................... 29
Anticipated Accounting Treatment.................................................... 29
Regulatory Approvals; Registration of FMP Common Stock.............................. 29
Resale of FMP Stock; Affiliates..................................................... 30
Nasdaq National Market Inclusion.................................................... 30
No Dissenters' Rights of Appraisal.................................................. 30
THE MERGER AGREEMENT.................................................................. 31
The Merger.......................................................................... 31
Effective Date...................................................................... 31
Terms of the Merger................................................................. 31
Surrender and Payment............................................................... 32
Representations and Warranties...................................................... 33
Conduct of Business Pending the Merger.............................................. 33
Certain Covenants................................................................... 34
Exclusivity......................................................................... 35
Indemnification..................................................................... 35
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conditions.......................................................................... 35
Termination; Effect of Termination.................................................. 37
Fees and Expenses................................................................... 38
Amendment........................................................................... 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................... 39
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ 42
INFORMATION CONCERNING FMP............................................................ 44
History............................................................................. 44
Market.............................................................................. 44
Products............................................................................ 44
Proprietary Property................................................................ 45
Competition......................................................................... 45
Sales and Marketing................................................................. 46
Customers........................................................................... 47
Suppliers........................................................................... 47
Product Development................................................................. 47
Employees........................................................................... 47
Properties.......................................................................... 47
Management.......................................................................... 48
FMP Management's Discussion and Analysis............................................ 49
Merger Sub.......................................................................... 52
CERTAIN FMP TRANSACTIONS.............................................................. 52
FMP EXECUTIVE COMPENSATION............................................................ 52
Summary Compensation Table.......................................................... 53
Option Grants in Last Fiscal Year................................................... 53
Fiscal Year End Option Values....................................................... 53
FMP Option Plan..................................................................... 54
Compensation of FMP Directors....................................................... 57
INFORMATION CONCERNING RG............................................................. 57
Business............................................................................ 57
Industry and Market Background...................................................... 57
Products and Product Features....................................................... 58
Customers........................................................................... 59
Sales and Marketing................................................................. 59
Manufacturing....................................................................... 60
Product Development................................................................. 62
Competition......................................................................... 62
Proprietary Rights.................................................................. 62
Properties.......................................................................... 63
Employees........................................................................... 63
Management.......................................................................... 63
RG Management's Discussion and Analysis............................................. 65
CHANGE IN ACCOUNTANT.................................................................. 72
CERTAIN RG TRANSACTIONS............................................................... 72
RG EXECUTIVE COMPENSATION............................................................. 72
Summary Compensation Table.......................................................... 73
Option Grants in Last Fiscal Year................................................... 73
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Fiscal Year End Option Values....................................................... 74
Amendment........................................................................... 74
Compensation of Directors........................................................... 74
Employment Contracts and Termination of Employment Arrangements..................... 75
DESCRIPTION OF FMP CAPITAL STOCK...................................................... 75
Common Stock........................................................................ 75
Preferred Stock..................................................................... 75
Certain Charter Provisions and Laws................................................. 76
Transfer Agent...................................................................... 77
Options............................................................................. 77
Shares Eligible for Future Sale..................................................... 77
OWNERSHIP OF FMP COMMON STOCK......................................................... 79
DESCRIPTION OF RG CAPITAL STOCK....................................................... 80
OWNERSHIP OF RG COMMON STOCK.......................................................... 80
COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND RG CAPITAL STOCK............. 81
Size and Classification of the Board of Directors................................... 81
Duties of Directors................................................................. 82
Removal of Directors................................................................ 82
Newly Created Directorships and Vacancies........................................... 82
Limitation on Directors' Liability.................................................. 82
Indemnification of Directors and Officers........................................... 84
Loans to Directors.................................................................. 85
Dividends........................................................................... 85
Action by Shareholders through Written Consent...................................... 85
Special Meetings of Shareholders.................................................... 86
Cumulative Voting................................................................... 86
Necessary Vote to Effect Merger (Not Involving Interested Stockholder).............. 86
Business Combinations Involving Interested Stockholders............................. 87
Shareholders' Right to Inspect Corporate Books and Records.......................... 89
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 89
General............................................................................. 89
Consequences of the Merger.......................................................... 89
Limitations and Qualifications...................................................... 90
AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN........................................ 91
General............................................................................. 91
Amended Plan Grants................................................................. 92
Reasons for Approval................................................................ 92
Plan Provisions..................................................................... 92
Federal Income Tax Consequences for Nonstatutory Stock Options...................... 93
Federal Income Tax Consequences for Incentive Stock Options......................... 93
Other Tax Consequences.............................................................. 94
Required Vote....................................................................... 94
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
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<S> <C>
EXPERTS............................................................................... 94
RG SHAREHOLDER PROPOSALS.............................................................. 94
LEGAL MATTERS......................................................................... 95
AVAILABLE INFORMATION................................................................. 95
REPORTS TO STOCKHOLDERS............................................................... 96
INDEMNIFICATION....................................................................... 96
FINANCIAL STATEMENTS..................................................................F-1(RG)
ANNEX I -- Agreement and Plan of Merger
ANNEX II -- Opinion of EVEREN Securities, Inc.
ANNEX III -- Royal Grip 1993 Stock Option Plan, as amended
ANNEX IV -- Amended and Restated Certificate of Incorporation of FMP
</TABLE>
"ROYAL GRIP, INC. AND DESIGN," "SCOTTIE GRIP," "ARTHRI GRIP," "ROYAL GRIP,"
"RG," "ROXXI," "ROYAL GRIP DEVICE," "SAND WRAP," "DANNY EDWARDS" and "SAND
MAXIMUM" are registered trademarks and servicemarks owned by RG. "CHAMPION,"
"FCM," "FIBRE SELECT," "FIBREMATCH," "FREQUENCY CALCULATOR," "FREQUENCY
COEFFICIENT MATCHING ANALYZER," "FM," "FM AND DESIGN," "FM RIFLE," "FT AND
DESIGN," "FW AND DESIGN," "GOLD RIFLE," "GOLF (STYLIZED)," "GOLFER MATCH," "MARK
II," "MICROTAPER," "MW (STYLIZED)," "PERFORMANCE PLUS," "PHOENIX," "PRECISION
FM," "PRECISION SELECT SERIES," "PROPEL," "PROPEL II," "PROPEL MICROTAPER,"
"PROTAPER," "RIFLE," "SUPER CHAMPION," "THE SHAFT COMPANY," "UCV," "UCV 304,"
"UCV 304R," "UNION," "UNION HARDWARE COMPANY," "UNION TUBULAR PRODUCTS" and
"VANADIUM SONIC" are registered trademarks and servicemarks owned by FMP. This
Proxy Statement/Prospectus may also include other trademarks and trade names
which are the property of their respective owners.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY RG, FMP OR ANY OTHER PERSON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF RG OR FMP SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iv
<PAGE> 10
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto. This summary does not
contain a complete description of all material information relating to the
Merger Proposal, the Amendment and the transactions related thereto. Reference
is made to, and this summary is qualified in its entirety by, the more detailed
information and financial statements and notes thereto contained, or
incorporated by reference, in this Proxy Statement/Prospectus and the Annexes
hereto. Unless otherwise defined herein, capitalized terms used in this summary
have the respective meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. Shareholders are urged to read this Proxy
Statement/Prospectus and the Annexes hereto in their entirety. Unless the
context otherwise requires, the references to FMP and RG include their
respective subsidiaries. Unless otherwise specified, all information in this
Proxy Statement/Prospectus has been adjusted to give effect to a 4,176.8 for one
split/dividend of the FMP Common Stock prior to the Merger.
THE COMPANIES
RG. RG designs and distributes golf club grips and designs and
manufactures athletic headwear. In 1989, RG introduced a rubber wrap golf grip
that gained widespread acceptance in the golf industry and enabled RG to achieve
brand name recognition. RG currently offers a wide variety of standard and
custom grip models, all of which feature a distinctive feel and appearance and
durability.
RG believes it has established a reputation within the golf industry for
innovation in the design and creation of golf grips. It continually seeks to
improve these products with design and raw material innovations. RG has
developed distribution channels to several thousand club professionals, club
repair shops, and retail golf outlets, and has established relationships with
several original equipment manufacturers.
RG is a Nevada corporation incorporated on July 16, 1993. RG's principal
executive offices are located at 15170 North Hayden Road, Suite 1, Scottsdale,
Arizona 85260, and its telephone number is (602) 627-0200. See "INFORMATION
CONCERNING RG."
FMP. FMP is a leading designer and manufacturer of high-quality innovative
golf shafts. FMP offers a complete line of golf shafts at a wide range of price
points and performance specifications. FMP's products are designed to improve
the performance of any golfer, from novice to professional.
FMP is currently a supplier of shafts to many of the top domestic golf club
companies, including Taylor Made, Wilson Sporting Goods, Slazenger, Ben Hogan,
and Karsten Manufacturing (Ping). FMP seeks to develop strong manufacturing and
marketing relationships with its customers by providing high quality engineering
and manufacturing test experience, and quick response for golf shaft orders.
FMP is a Delaware corporation incorporated on May 3, 1996. FMP's principal
executive offices are located at 3490 Clubhouse Drive, Suite 102, Jackson Hole,
Wyoming 83001, and its telephone number is (307) 739-1188. See "INFORMATION
CONCERNING FMP."
THE SPECIAL MEETING
Date, Time and Place of the Special Meeting. The Special Meeting will be
held on Friday, August 29, 1997 commencing at 8:00 a.m. (local time), at 15170
North Hayden Road, Suite 1, Scottsdale, Arizona. See "THE SPECIAL
MEETING -- General; Date, Time and Place of the Special Meeting."
Purposes of the Special Meeting. The purposes of the Special Meeting are
to consider and vote upon the Merger Proposal and the Amendment. See "THE
SPECIAL MEETING -- Purposes of the Special Meeting."
Shareholders Entitled to Vote; Requisite Approval. Shareholders of record
on the Record Date are entitled to notice of and to vote at the Special Meeting.
At such date, there were 2,742,178 shares of RG Common Stock outstanding, each
of which will be entitled to one vote on each matter to be acted upon at the
1
<PAGE> 11
Special Meeting. The Merger Proposal must be approved by the affirmative vote of
the holders of a majority of the shares of RG Common Stock entitled to vote at
the Special Meeting. Pursuant to the Voting Agreement, all shares subject
thereto (approximately 54% of the outstanding shares of RG Common Stock) will be
voted in favor of the Merger Proposal and such vote will be sufficient to
approve and adopt the Merger Proposal. Therefore, approval of the Merger
Proposal is assured. The Voting Agreement applies only to the Merger Proposal
and not the Amendment. The Amendment must be approved by the affirmative vote of
the holders of a majority of the shares of RG Common Stock present, in person or
by proxy, and entitled to vote at the meeting at which a quorum is present. See
"THE SPECIAL MEETING -- Shareholders Entitled to Vote; Requisite Approval." As
of the Record Date, RG directors, executive officers and their affiliates owned
approximately 46% of the shares of RG Common Stock entitled to vote at the
Special Meeting.
Recommendation of the RG Board. The RG Board has unanimously approved the
Merger Proposal and the Amendment and believes that they are in the best
interests of RG and its Shareholders. The RG Board recommends that Shareholders
vote FOR the Merger Proposal and the Amendment. For a detailed description of
the factors considered by the RG Board and the reasons for its recommendation
and approval, see "THE MERGER -- RG's Reasons for the Merger; Recommendation of
the RG Board."
THE MERGER AND THE MERGER AGREEMENT
Terms of the Merger. Pursuant to the Merger Agreement, Merger Sub will be
merged with and into RG and RG will survive the Merger and become a wholly-owned
subsidiary of FMP, which will amend and restate its Certificate of Incorporation
and change its name to Royal Precision, Inc. A copy of the Merger Agreement is
attached hereto as Annex I. A copy of FMP's Amended and Restated Certificate of
Incorporation is attached hereto as Annex IV.
In the Merger, each outstanding share of RG Common Stock will be converted
into the right to receive one-half share of FMP Common Stock. Each RG Option
outstanding immediately prior to the Effective Date will be assumed by FMP and
will become an option to acquire, as of the Effective Date, FMP Common Stock.
No fractional shares of FMP Common Stock will be issued in the Merger. In
lieu of any such fractional shares, each Shareholder who otherwise would be
entitled to receive a fractional share of FMP Common Stock pursuant to the
Merger will be paid an amount in cash equal to such fractional interest
multiplied by the average of the high and low trading prices per share of RG
Common Stock for the five trading days ended immediately prior to the Effective
Date. See "THE MERGER AGREEMENT -- Terms of the Merger."
Upon completion of the Merger, the Shareholders and holders of RG Options
will own or have the right to acquire 30% of the outstanding shares of FMP
Common Stock on a fully diluted basis.
RG's Reasons for the Merger; Recommendation of the RG Board. The RG Board
has unanimously approved the Merger and believes the Merger is in the best
interest of RG and the Shareholders. In reaching their decision, the directors
considered, with the assistance of management and its legal and financial
advisers, several factors, including: (a) the Merger offers Shareholders an
opportunity to acquire shares in a larger company with improved financial
strength and flexibility and to participate in the long-term growth and
appreciation that may result from FMP's future participation in the
consolidation of the sporting goods industry and from the combined company's
more diversified product offerings; (b) the strategic fit between RG and FMP and
the complementary nature of their respective businesses and similar customer
base; (c) anticipated operating synergies and cost savings; and (d) the opinion
of EVEREN Securities, Inc. ("EVEREN") that the Merger is fair, from a financial
point of view, to the Shareholders. See "THE MERGER -- Opinion of Financial
Adviser to the RG Board" and "-- RG's Reasons for the Merger; Recommendation of
the RG Board."
Opinion of Financial Adviser to the RG Board. EVEREN, which was engaged by
RG to serve as its financial adviser, delivered a report and its opinion to the
RG Board opining that the Merger is fair to the Shareholders from a financial
point of view. The full text of the written opinion of EVEREN, which sets forth
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<PAGE> 12
the assumptions made, procedures followed, matters considered and limits of the
review, updated but materially the same as delivered to the RG Board, is
attached hereto as Annex II. Shareholders are urged to, and should, read the
opinion in its entirety. See "THE MERGER -- Opinion of Financial Adviser to the
RG Board."
FMP's Reasons for the Merger. The FMP Board of Directors (the "FMP Board")
believes that the Merger is in the best interests of FMP and its stockholders.
The FMP Board believes that the sporting goods industry in which both FMP and RG
participate is entering into a phase of consolidation driven by the need to
expand marketing through high cost media channels and expensive sports star
endorsements, and the globalization of the sporting goods industry which will
demand even more resources for effective participation in the industry. FMP
currently manufactures shafts for golf clubs used by original equipment
manufacturers and distributed directly to consumers under various trade names.
FMP believes that there is a natural fit between its golf club shaft business
and the golf club grip business of RG and that the similar customer base of the
combined companies may provide enhanced operating efficiencies and marketing
opportunities in the sporting goods industry. See "THE MERGER -- FMP's Reasons
for the Merger."
Conditions to the Merger. The respective obligations of RG and FMP to
consummate the Merger are subject to the satisfaction or waiver where
permissible of certain conditions, including the absence of any preliminary or
permanent injunction which prevents the consummation of the Merger and the
inclusion of FMP Common Stock as a Nasdaq National Market security or the
listing of FMP Common Stock on the American Stock Exchange. Application has been
made for such inclusion on the Nasdaq National Market, although there can be no
assurance the FMP Common Stock will be approved for such inclusion (see "RISK
FACTORS -- FMP Corporate Risks: Market Listing") or that an active trading
market will develop for FMP Common Stock. See "RISK FACTORS -- FMP Corporate
Risks: Absence of Trading Market for FMP Common Stock." At any time prior to the
Effective Date, RG or FMP by action taken by its Board of Directors, may, to the
extent legally allowed, waive compliance with a condition for the benefit of
such party. See "THE MERGER AGREEMENT -- Conditions."
Amendment of Merger Agreement. The Merger Agreement may be amended by the
parties thereto, by action taken by their respective Boards of Directors, at any
time before or after approval of the Merger Proposal by the Shareholders, but
after any such Shareholder approval, no amendment shall be made which by law
requires the further approval of Shareholders without obtaining such further
approval. See "THE MERGER AGREEMENT -- Amendment."
Exclusivity. The Merger Agreement provides that RG shall not, directly or
indirectly, take (nor shall RG authorize or permit its subsidiaries, officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or affiliates to take) any action, except as
otherwise required in the exercise of its fiduciary duties, to (a) encourage,
solicit or initiate the submission of any Acquisition Proposal (see "THE MERGER
AGREEMENT -- Exclusivity"), (b) enter into any agreement with respect to any
Acquisition Proposal, or (c) participate in any way in discussions or
negotiations with, or furnish any information to, any person in connection with,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal. If the Merger Agreement is terminated in connection with
the acceptance of an alternative acquisition proposal, as required by the
exercise of its fiduciary duties by the RG Board, RG shall be obligated to pay
FMP a termination fee of $400,000. See "THE MERGER AGREEMENT -- Exclusivity;
- --Fees and Expenses."
Termination; Results of Termination. The Merger Agreement may be
terminated, and the Merger abandoned at any time prior to the Effective Date,
either before or, if applicable, after its approval by Shareholders as follows:
(a) by mutual written consent of RG and FMP; (b) by either RG or FMP upon notice
to the other party if such other party is in breach of any material
representation, warranty or covenant contained in the Merger Agreement; (c) by
either RG or FMP if the Merger fails to receive the requisite approval by the
Shareholders; (d) by either RG or FMP if the Merger shall not have been
consummated on or before September 30, 1997; provided that the party seeking to
terminate the Merger Agreement shall have
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<PAGE> 13
used all reasonable efforts in good faith to consummate the Merger in a timely
manner; or (e) under certain other circumstances. See "THE MERGER
AGREEMENT -- Termination; Effect of Termination."
Anticipated Accounting Treatment. The Merger is intended to be a purchase
for accounting and financial reporting purposes. The qualification of the Merger
as a purchase is not a condition to the Merger. See "THE MERGER -- Anticipated
Accounting Treatment."
Regulatory Approvals. In connection with the Merger, FMP has filed with the
SEC, [ ] a Registration Statement to register with the SEC the issuance of
the FMP Common Stock to be issued to holders of RG Common Stock upon
consummation of the Merger. This Proxy Statement/Prospectus contains some, but
not all, of the information set forth in the Registration Statement. See
"AVAILABLE INFORMATION." Under the Securities Act and pursuant to the terms of
the Merger Agreement, for the Merger to be consummated, the Registration
Statement must have been declared effective by the SEC and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. There are no other federal or state
regulatory requirements which must be complied with or obtained in connection
with the Merger.
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(A) and
Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"). RG has received an opinion of counsel to that effect, subject to the
qualifications and assumptions contained therein. Accordingly, if the Merger
qualifies as a tax-free reorganization, Shareholders will not recognize gain or
loss for federal income tax purposes by reason of their exchange of shares of RG
Common Stock for FMP Common Stock. Shareholders who receive cash in lieu of
fractional shares may be required to recognize a gain or loss as to such
fractional shares for federal income tax purposes. All Shareholders should
carefully read the section of this Proxy Statement/Prospectus entitled "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" for a discussion of the anticipated tax
consequences of the Merger.
FMP Approval. The Merger was approved by the holders of a majority of the
FMP Common Stock on April 17, 1997. FMP directors, executive officers and their
affiliates beneficially owned approximately 90% of the shares of FMP Common
Stock as of May 31, 1997.
Effective Date of the Merger. The Merger will be consummated and become
effective after the requisite approval of Shareholders has been obtained and all
other conditions to the Merger have been satisfied or waived and upon the filing
by Merger Sub and RG of properly executed Articles of Merger with the Secretary
of State of the State of Nevada or at such time thereafter as is provided in the
Articles of Merger (the "Effective Date"). It is anticipated that, assuming all
conditions are met, the Merger will occur on or about August 29, 1997. See "THE
MERGER AGREEMENT -- Effective Date."
No Dissenters' Rights of Appraisal. Shareholders are not entitled to
dissenters' rights of appraisal in connection with the Merger. See "RISK
FACTORS -- Risks Related to the Merger: No Dissenters' Rights of Appraisal," and
"THE MERGER -- No Dissenters' Rights of Appraisal."
AMENDMENT TO PLAN
The Shareholders will vote upon the approval of the Amendment to increase
the number of shares authorized for issuance under the Plan from 400,000 to
550,000. Options for the additional 150,000 shares of RG Common Stock have,
subject to Shareholder approval of the Amendment, already been granted to Danny
Edwards (40,000 shares) and Robert G. J. Burg, II (110,000 shares). See
"AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the RG Board with respect to
the Merger Proposal, Shareholders should be aware that certain members of the RG
Board and management have interests in the
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<PAGE> 14
Merger that are in addition to or different from the interests of Shareholders
generally. In connection with the Merger, Danny Edwards, Chairman and Chief
Executive Officer of RG, has entered into a Consulting Agreement dated May 14,
1997 with FMP (the "Consulting Agreement") for a period of two years (commencing
on the Effective Date) pursuant to which Mr. Edwards will be compensated at an
annual rate of $180,000. Under the Consulting Agreement, Mr. Edwards will
endorse and promote FMP products. Certain officers of RG are entitled to
severance payments from RG if their employment is terminated. Certain
shareholders of FMP and RG will have certain registration rights with regard to
their shares and have entered into an agreement concerning the election of FMP's
directors. See "THE MERGER -- Interests of Certain Persons in the Merger."
Beneficial Ownership of RG Common Stock by Directors and Officers of RG;
Voting Agreement. As of June 30, 1997, RG's directors and executive officers
and their affiliates beneficially owned approximately 46% of the outstanding RG
Common Stock. Pursuant to the Voting Agreement, Danny Edwards, Drew M. Brown,
Mark N. Sklar, Bennett Dorrance, Trustee, and DMB Property Ventures Limited
Partnership, a Delaware limited partnership ("DMB"), who collectively own 54% of
the outstanding RG Common Stock (the "Edwards Group"), have agreed to vote in
favor of the Merger Proposal, which vote will be sufficient to approve the
Merger Proposal, and have granted FMP an irrevocable proxy to vote their shares
of RG Common Stock in favor of the Merger Proposal. Of RG's directors and
executive officers, only Danny Edwards is a party to the Voting Agreement. See
"OWNERSHIP OF RG COMMON STOCK." The Voting Agreement applies only to the Merger
Proposal and not the Amendment.
Treatment of RG Options. Each of the RG Options outstanding at the
Effective Date, will be assumed by FMP and, immediately after the Effective
Date, will be an option to acquire FMP Common Stock on the same terms and
conditions as were applicable under such RG Option at the Effective Date; except
that the number of shares of FMP Common Stock subject to each RG Option will be
one-half the number of shares of RG Common Stock subject to the RG Option and
the per share exercise price of the option to purchase FMP Common Stock will be
twice the exercise price of the RG Option. RG Options held by non-employee
directors of RG will become exercisable immediately on the Effective Date. As of
June 30, 1997, RG's directors and executive officers held RG Options to purchase
290,077 shares of RG Common Stock in the aggregate (not including options
granted subject to approval of the Amendment). See "THE MERGER
AGREEMENT -- Terms of the Merger," "OWNERSHIP OF RG COMMON STOCK," "RG EXECUTIVE
COMPENSATION" and "AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN."
Interests of EVEREN. For the issuance of the fairness opinion, RG paid
EVEREN an aggregate cash fee of $170,000 plus reimbursement for out-of-pocket
expenses. Upon completion of the Merger, EVEREN will be compensated with a cash
advisory fee of $430,000, payable in three installments, and will be granted
warrants to purchase 100,000 shares of RG Common Stock at a price of $0.01 per
share (prior to the effects of the exchange rate). In the Merger, these warrants
will be converted into warrants to purchase 50,000 shares of FMP Common Stock at
a price of $0.02 per share. In connection with past advisory services, RG
granted EVEREN options to purchase 30,000 shares of RG Common Stock at $6.50 per
share.
Indemnification. Pursuant to the terms of the Merger Agreement, at all
times after the Effective Date, FMP will, and will cause RG to, indemnify each
person who was a director or officer of RG on May 14, 1997 with respect to any
claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel, to the extent such party would have been indemnified
pursuant to RG's Articles of Incorporation or By-laws as then in effect, based
in whole or in part on, or arising in whole or in part out of, any matter
existing or occurring at or prior to the Effective Date whether commenced,
asserted or claimed before or after the Effective Date. See "THE MERGER
AGREEMENT -- Indemnification."
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<PAGE> 15
RISK FACTORS
For a discussion of certain risk factors that should be considered
carefully by Shareholders in considering whether to vote in favor of the Merger
Proposal and the Amendment, see "RISK FACTORS."
SURRENDER OF CERTIFICATES
Promptly after the Effective Date, FMP shall cause American Securities
Transfer & Trust, Inc., as its exchange agent, to mail a notice and transmittal
form and exchange instructions to each Shareholder of record. CERTIFICATES FOR
SHARES OF RG COMMON STOCK SHOULD NOT BE SURRENDERED UNTIL SUCH NOTICE,
TRANSMITTAL FORM AND EXCHANGE INSTRUCTIONS ARE RECEIVED. See "THE MERGER
AGREEMENT -- Surrender and Payment."
SHAREHOLDER RIGHTS
As a result of the Merger, Shareholders will be entitled to receive shares
of FMP Common Stock. The rights of Shareholders are presently governed by the
laws of Nevada and RG's Articles of Incorporation and By-laws. After the
Effective Date, the rights of holders of FMP Common Stock (including the former
holders of RG Common Stock) will be governed by the laws of Delaware and FMP's
Certificate of Incorporation and By-laws. There are certain differences between
Nevada law and RG's Articles of Incorporation and By-laws, on one hand, and
Delaware law and FMP's Certificate of Incorporation and By-laws on the other
hand. See "COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND RG CAPITAL
STOCK."
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RISK FACTORS
The following risk factors should be considered carefully by Shareholders
in evaluating how to vote on the Merger Proposal. These factors should be
considered in conjunction with the other information included in this Proxy
Statement/Prospectus.
SPORTING GOODS INDUSTRY
Dependence on Discretionary Consumer Spending and OEMs. Sales of golf
equipment historically have been dependent on discretionary spending by
consumers, which may be adversely affected by general economic conditions and
the popularity of golf in general. A decrease in consumer spending on golf
equipment could have an adverse effect on RG's and FMP's business and operating
results. Future revenue may be affected in part by factors which influence the
business of FMP's and RG's major customers who are original equipment
manufacturers ("OEMs"), such as the OEMs' product development, advertising and
marketing, purchasing patterns and inventory levels.
New Product Introduction. RG and FMP believe that the introduction of new,
innovative golf shafts and grips will be crucial to their future success. New
models and basic design changes are frequently introduced into the golf club
market but are often met with consumer rejection. Although RG and FMP have
achieved certain successes in the introduction of products, no assurances can be
given that either will be able to continue to design and manufacture products
that meet with market acceptance. RG will be reliant to a large extent on
Acushnet Rubber Company, Inc. ("Acushnet") with respect to new compounds and
product innovations. See "INFORMATION CONCERNING RG -- Manufacturing." There can
be no assurance that RG will be able to increase its market share with its
existing product line or that RG's alliance with Acushnet will result in new
product offerings that will be successful. In addition, prior successful designs
may be rendered obsolete within a relatively short period of time as new
products are introduced into the market. The design of new golf clubs is also
greatly influenced by rules and interpretations of the United States Golf
Association (the "USGA"). Although the golf equipment standards established by
the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new products to assure
compliance with USGA standards. Although RG and FMP believe that all their grips
and shafts comply with current USGA standards, no assurance can be given that
any new products will receive USGA approval or that existing USGA standards will
not be altered in ways that adversely affect the sales of products. See
"INFORMATION CONCERNING FMP -- Product Development" and "INFORMATION CONCERNING
RG -- Product Development."
Competition. The golf equipment industry is highly competitive and is
characterized by numerous companies competing in various segments of the market.
Many of RG's and FMP's competitors have greater name recognition, more extensive
engineering, manufacturing and marketing capabilities, and greater financial,
technological and personnel resources than RG and FMP. In addition, certain
companies in the golf equipment industry have expanded their product lines in
recent years as a result of acquisitions. There can be no assurance that RG and
FMP will be able to compete successfully in the future with existing or new
competitors. See "INFORMATION CONCERNING FMP -- Competition" and "INFORMATION
CONCERNING RG -- Competition."
Seasonality; Fluctuations in Operating Results. Golf is generally
considered a warm weather sport. Accordingly, RG and FMP have historically
enjoyed strongest sales in the first and second calendar quarters in
anticipation of consumer purchases of golf products during the second and third
calendar quarters, the principal selling season for golf equipment. The
increased sales during this period result in a corresponding build up of
receivables. Income from operations is typically lower in the third and fourth
calendar quarters as fixed operating costs are spread over a generally lower
sales volume. In order to minimize the effect of seasonality, RG and FMP may
build product inventories during the third and fourth calendar quarters to allow
use of production resources more effectively. The timing of orders from OEMs and
fluctuations in demand due to the sudden popularity or decline in popularity of
specific golf clubs assembled by customers also may contribute to quarterly or
other periodic fluctuations.
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Product Protection and Intellectual Property. RG and FMP currently rely
upon a combination of patents, copyrights, trademarks and trade secret laws to
establish and protect certain of their proprietary rights in their products.
There can be no assurance that the steps taken by RG or FMP in this regard will
be adequate to prevent misappropriation of proprietary property rights or that
competitors will not independently develop proprietary property that is
substantially equivalent or superior. See "INFORMATION CONCERNING
FMP -- Proprietary Property" and "INFORMATION CONCERNING RG -- Proprietary
Rights."
RISKS RELATED TO RG
Losses from Operations, Net Losses and Decline in Working Capital. RG's
losses from operations and net losses have increased significantly in recent
years. For the years ended December 31, 1996 and 1995 and the six months ended
June 30, 1997 and 1996, RG reported operating losses of $4.4 million, $3.1
million, $1.2 million and $1.1 million, respectively. RG reported net losses for
the same periods of $4.4 million, $2.8 million, $1.2 million and $1.1 million,
respectively. RG attributes this to a variety of factors, including a decline in
overall grip sales and an increase in lower margin OEM sales as a percentage of
total grip sales, delays in the introduction of certain new grips, expenses
incurred in connection with headwear production, a one-time charge to earnings
related to a barter transaction, expenses incurred resulting from fixed asset,
inventory and accounts receivable write-offs, the write-off of intangible assets
of Roxxi, Inc. ("Roxxi"), an RG subsidiary, expenses incurred in connection with
the transition of grip manufacturing to Acushnet and expenses incurred in
connection with the Merger. There can be no assurance that RG will not sustain
losses in the future. In addition, RG's cash and cash equivalents and working
capital have decreased significantly in recent years. RG finances its
expenditures, in part, through a $1.75 million revolving line of credit and a
$700,000 term loan. RG's access to this line of credit and term loan may be
restricted in the event RG fails to satisfy certain loan covenants, which could
result in the acceleration of RG's indebtedness and would impair its ability to
fund its operations. RG recently was in default of certain loan covenants at
March 31, 1997, and obtained waivers and modifications of such covenants to
better enable RG to satisfy such covenants at June 30, 1997 and in the future.
In the event RG fails to achieve budgeted levels of sales, gross margins, and
expenses, it may require additional funds to finance its operations. There can
be no assurance that RG will be able to satisfy current loan covenants or obtain
additional funds on terms and conditions acceptable to RG, if at all. See
"INFORMATION CONCERNING RG -- RG Management's Discussion and Analysis."
The problems described above have led to a significant decline in RG's
stockholders' equity. At March 31, 1997, RG was in technical default on certain
covenants related to its credit facility with Norwest Business Credit Inc.
("Norwest") and was forced to re-negotiate those covenants. Notwithstanding its
success in re-negotiating its credit agreement, RG's financial flexibility has
been impaired. Given this impairment and absent the Merger, EVEREN believes
that, in the short term, RG will be unable to take significant steps to enhance
shareholder value. See "THE MERGER -- Opinion of Financial Adviser to the RG
Board: RG's Recent Financial Performance."
Acushnet Delays and Use of Third Party Suppliers. RG currently purchases
and for an indefinite period of time intends to purchase its entire supply of
grips from two third party suppliers, including Acushnet. Acushnet has
experienced delays and quality control problems in the production of grips which
have adversely affected RG's customer relationships and results of operations,
impaired RG's ability to satisfy loan covenants, and may make it more difficult
for RG to satisfy lending covenants in the future. In addition, Acushnet's
start-up delays and the limited availability of grips have caused RG to alter
its total sales mix in 1997, which may have an adverse impact on future customer
retention and gross margins from grip sales. RG and Acushnet have renegotiated
their agreement in light of Acushnet's production difficulties. In connection
with this renegotiation, Acushnet has agreed to provide RG with a credit of
$400,000 against future purchases of grips with possible additional credits in
the event Acushnet does not meet certain production requirements. RG reduced its
current payments of invoices to Acushnet by this amount in April and May 1997.
The credit may be reduced if Acushnet exceeds production requirements specified
in the amendment during the balance of 1997 or as a result of the cancellation
of certain stock options granted to Acushnet. However, these credits may be
reduced only to the extent RG orders grips above such specified levels. The
supply agreement has also been amended to, among other things, alter future
production and purchase requirements and provide for
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<PAGE> 18
voluntary termination rights on the part of Acushnet. Although RG has modified
its agreement with Acushnet and has obtained modifications and waivers of
certain of its loan covenants resulting from Acushnet's production difficulties,
continued disruption in the supply or quality of grips would have a material
adverse impact on RG's business and may cause RG to be in violation of its loan
covenants. Under the amended manufacturing agreement, either Acushnet or RG may
voluntarily terminate the agreement upon payment of a specified termination fee,
among other things. If Acushnet continues to experience production difficulties
or loss of margin on grip sales to RG, either Acushnet or RG may ultimately
elect to exercise such termination rights. RG currently has no immediately
available back-up source of supply in the event RG encounters further disruption
in or termination of the supply of its grips, and any transition to alternative
suppliers or the resumption of in-house manufacturing operations by RG would
result in production delays, the loss of sales and key customers, and would
materially and adversely affect RG's financial condition and results of
operation. Although RG believes that it has certain remedies available to it
under its agreement with Acushnet arising out of Acushnet's production delays or
the termination of the agreement by Acushnet, including the accumulation of
purchase credits, or the payment of termination fees and expenses, there can be
no assurance that RG would be able to successfully pursue such remedies or that
such remedies would adequately compensate RG for any losses incurred by it.
RG Customer Concentration. RG's sales of golf grips to OEMs account for a
significant percentage of RG's total net sales. RG currently provides golf club
grips used on many of Cobra's premium golf club lines, which accounted for 11.7%
of RG's total net sales in 1996, and is the primary vendor for Odyssey and Tommy
Armour Golf. RG also supplies grips to other OEMs such as Titleist, Bridgestone,
Mizuno, and Tad Moore Golf. A substantial decrease in sales to any of RG's major
OEM customers would have a material adverse impact upon RG's business. Further,
there can be no assurance that sales to OEMs will increase. See "INFORMATION
CONCERNING RG -- Customers."
International Sales. International sales, which primarily consisted of
sales of golf club grips, represented 20.8% and 22.2% of RG's total net sales in
1996 and 1995, respectively. RG uses distributors to sell its products in
foreign markets, including the United Kingdom, Japan, Sweden and Canada. Sales
to Precision Japan, RG's exclusive distributor for Japan, accounted for 90.7%
and 96.3% of RG's international sales during 1996 and 1995, respectively.
Precision Japan has begun to market RG's athletic headwear products as well,
primarily targeting the golf market. However, the Japanese economy has been
relatively stagnant and RG's Japanese sales have decreased in recent years. RG
anticipates that international sales will continue to decrease. In addition,
RG's international business may be affected by changes in demand resulting from
fluctuations in currency exchange rates, trade restrictions, duties, general
economic conditions and other factors. RG seeks to mitigate its direct exposure
to exchange rate fluctuations by transacting most international business in
United States dollars. See "INFORMATION CONCERNING RG -- Sales and Marketing."
RISKS RELATED TO FMP
Limited History. FMP's manufacturing facility in Torrington, Connecticut
dates back over a century and the facility's manufacture of golf club shafts
dates back to the 1920s. However, the facility has been operated by three
different owners. Most recently, in 1996 a group of investors joined the current
management in acquiring substantially all of the assets and certain liabilities
of the golf shaft manufacturing business from Brunswick Corporation, resulting
in the current structure and ownership of FMP. Consequently, FMP has a limited
operating history. There can be no assurance that the results of such limited
history or of the predecessor operations will be indicative of future
performance. Also, while FMP's management has extensive experience in the
sporting goods and golf shaft industry, there can be no assurance that their
experience will assist in the successful management of FMP in its current
structure or the combined operations of FMP and RG resulting from the Merger.
See "INFORMATION CONCERNING FMP -- History."
Effect of RG Losses. RG experienced net losses of approximately $4.4
million and $2.8 million in 1996 and 1995, respectively. There can be no
assurance that losses will not continue in the future when RG is a wholly-owned
subsidiary of FMP. If losses continue for RG, they will materially and adversely
affect the operating results of FMP. See "INFORMATION CONCERNING FMP -- FMP
Management's Discussion
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and Analysis" and "INFORMATION CONCERNING RG -- RG Management's Discussion and
Analysis."
Pursuant to the Financing Agreement dated May 31, 1996, among Star Bank,
National Association, and FMP's subsidiaries, FMP's subsidiaries have agreed
that they will not declare or pay cash dividends upon any of their respective
stock. Unless FMP derives sources of cash other than the operations of its
subsidiaries, these restrictions will limit FMP's ability to fund RG's net
losses.
Dependence on Certain Customers. FMP is significantly dependent on sales
to Taylor Made. Taylor Made represented approximately 13% of FMP's sales for the
year ended May 31, 1997. FMP does not have a supply agreement with Taylor Made
and the loss of sales to Taylor Made could have a material adverse effect on
FMP's business.
Dependence on "Rifle" Shaft Sales. In January 1995, FMP introduced the
first modern stepless steel golf shaft in the industry, the "Rifle." Sales of
the Rifle shaft increased $5.1 million for the fiscal year ended May 31, 1997
compared to the year ended May 30, 1996 and have been a significant factor in
FMP's return to profitability in 1997. Sales of the Rifle shaft constituted 54%
of FMP's revenue during the fiscal year ended May 31, 1997 compared to 35%
during the fiscal year ended May 31, 1996. While management believes that demand
for the Rifle shaft should remain high for the next several years, there can be
no assurance that sales of the Rifle shaft will continue to grow or that the
product will retain its profitability. If sales or profitability of the Rifle
shaft decrease without FMP's introduction of new profitable products, FMP's
overall financial performance would be materially adversely affected. See
"INFORMATION CONCERNING FMP--FMP Management's Discussion and Analysis: Year
Ended May 31, 1997 (Successor Period) Compared to the Year ended May 30, 1996
(Predecessor Period): Net Sales.
Dependence on Sole Supplier. FMP uses Worthington Industries as its sole
supplier for strip steel. Should Worthington Industries fail to deliver steel,
there may be a disruption of operations at FMP until an alternate supplier is
procured. FMP does not have any short or long term supply contracts with
Worthington Industries. Worthington Industries provides steel from two separate
plant locations. If one Worthington Industries plant becomes unable to fill the
necessary requirements, orders could be filled from the alternate location.
Although FMP has elected to use Worthington Industries as its sole supplier of
strip steel, FMP's management believes that there are other acceptable supply
sources at comparable prices and that the loss of Worthington Industries as a
supplier would not have a material adverse effect on FMP. See "INFORMATION
CONCERNING FMP -- Suppliers."
No Employment Contract with CEO. Christopher A. Johnston serves as FMP's
President and Chief Executive Officer. He also serves as the president of
Merbanco, Inc. Although it is expected that Mr. Johnston will spend
substantially all of his business time on the affairs of FMP after the Merger,
FMP does not have an employment contract with Mr. Johnston. See "INFORMATION
CONCERNING FMP -- Management."
FMP CORPORATE RISKS
Absence of Trading Market for FMP Common Stock. Prior to the Effective
Date, there will have been no market for FMP Common Stock and there can be no
assurance that an active market in FMP Common Stock will develop or be
sustained. In the absence of an active public trading market, a holder of FMP
Common Stock may be unable to liquidate his shares received in the Merger. Until
FMP Common Stock is distributed in the Merger and an orderly market develops (if
one does), trading prices may be volatile. Prices for FMP Common Stock will be
determined in the marketplace and may be influenced by many factors, including
the operating performance of FMP, the depth and liquidity of the market for FMP
Common Stock, and general economic and market conditions.
Market Listing. It is a condition to the Merger that at the Effective
Date, the FMP Common Stock will be included on the Nasdaq National Market, or
listed on the American Stock Exchange. Application has been made for inclusion
on the Nasdaq National Market. To be, or continue to be, included on the Nasdaq
National Market or listed on the American Stock Exchange, FMP must comply with
all requirements for original inclusion or listing at the Effective Date. These
requirements include a per share price of $5 or more
10
<PAGE> 20
and a market value of the publicly held shares of at least $3 million. FMP and
RG believe that these requirements will be met if the five-day average market
price of RG Common Stock is $2.50 or higher at the Effective Date. However,
there can be no assurance that the FMP Common Stock will be approved for
inclusion or listing, or that if so approved, it will not subsequently be
removed from the Nasdaq National Market or the American Stock Exchange. If the
FMP Common Stock were to be removed from the Nasdaq National Market or the
American Stock Exchange, the value of FMP Common Stock could be adversely
affected. See "THE MERGER -- Nasdaq National Market Inclusion."
Effect of Penny Stock Rules. As noted above, FMP Common Stock has not
previously been traded. See "-- Absence of Trading Market for FMP Common Stock."
Because RG Common Stock has traded at less than $2.50 at times since the
beginning of 1996 (see "MARKET PRICE OF RG COMMON STOCK") and given the exchange
rate between RG Common Stock and FMP Common Stock in the Merger, it is
conceivable that FMP Common Stock could trade for less than $5 per share. If FMP
Common Stock trades below $5 per share after the Merger, FMP Common Stock may be
designated a "penny stock". The Securities Exchange Act of 1934 (the "Exchange
Act") and the rules thereunder impose special requirements on the trading of
"penny stock". Those requirements include, but are not limited to, a requirement
that a broker-dealer give investment risk, penny stock price history and
broker-dealer direct and indirect compensation disclosures to a customer, that
the broker-dealer make a reasonable determination that transactions in penny
stocks are suitable for the customer and that the customer has sufficient
knowledge and experience in financial matters to evaluate the risks of penny
stock transactions prior to effecting any penny stock transactions for the
customer. If FMP Common Stock is designated a penny stock, these requirements
may have an adverse impact on the price of and market for FMP Common Stock.
Shares Eligible for Future Sale. Immediately after the Effective Date, the
number of outstanding shares of FMP Common Stock will be approximately
5,548,000. Of this number, approximately 4,177,000 shares will be "restricted
securities" under SEC Rule 144. Under that rule, restricted securities that have
been held for more than one year and less than two years, and any other shares
held by affiliates of FMP (generally, its officers, directors and principal
stockholders), may only be sold without registration under the Securities Act of
1933 (the "Securities Act"), in limited quantities, through ordinary brokerage
transactions. After May 31, 1998, Rule 144 restrictions on restricted shares of
FMP Common Stock held by non-affiliates of FMP (approximately 376,000 shares out
of the 4,177,000 at the Effective Date) will lapse. These 376,000 shares may
then be sold without restriction except that they are subject to shareholders'
agreements which restrict their transfer. However, the shareholders' agreements
are not "lock-up" agreements intended to restrict the flow of shares into the
market and the parties thereto may allow any of the subject shares to be sold in
compliance with the securities laws at any time. In addition to the 4,177,000
shares of FMP Common Stock which will be restricted securities, approximately
778,000 shares of FMP Common Stock issuable in the Merger will be issuable to
persons who have been identified as affiliates of RG. These shares are subject
to the restrictions imposed by SEC Rule 145, under which shares of FMP Common
Stock issued in the Merger to persons who were affiliates of RG and will not be
affiliates of FMP may be resold without registration during one year after the
Effective Date in limited quantities, through ordinary brokerage transactions.
Shares issued in the Merger to persons who will be affiliates of FMP will be
subject to the Rule 144 restrictions described above. See "THE MERGER -- Resale
of FMP Stock; Affiliates."
Regardless of Rule 144 and Rule 145, any stockholder may sell securities in
transactions that have been registered under the Securities Act if he complies
with its prospectus delivery requirements. Christopher A. Johnston, RPJ/JAJ
Partners Ltd., David E. Johnston, Berenson Minella & Company and certain of its
affiliates ("Berenson Minella") and Kenneth J. Warren (collectively, the
"Johnston Group") who will own approximately 3,740,000 shares of FMP Common
Stock, and the Edwards Group, who will receive approximately 777,000 shares of
FMP Common Stock in the Merger, have entered into a Registration Rights
Agreement with FMP. Under the Registration Rights Agreement, a group (for this
purpose Berenson Minella is treated as a separate group) may demand registration
of FMP Common Stock under the Securities Act having a value of not less than $5
million. FMP will not be obligated to effect more than one demand registration
for the Edwards Group, more than two demand registrations for the Johnston Group
or more than one demand registration for the Berenson Minella Group. No demand
can be made during the first year, and
11
<PAGE> 21
only one demand can be made during the second year. Any group may join in pro
rata only during the second year. The parties to the Registration Rights
Agreement also have the right to have their shares of FMP Common Stock included
in certain other registration statements filed by FMP from time to time. The
number of shares to be registered is subject to reduction at the request of an
underwriter. Under the Registration Rights Agreement, FMP will indemnify selling
stockholders against liabilities created by untrue statements of material fact
or omissions of material fact from a registration statement and each of the
security holders agrees to indemnify FMP for a liability created by untrue
statements of material fact or omissions of material fact in information
supplied by the stockholder to FMP which is included in a registration
statement. A stockholder will cease to have registration rights when the
applicable group or its transferees hold FMP Common Stock existing at the
Effective Date of the Merger or received upon the exercise of an option held by
a party to the Registration Rights Agreement on the Effective Date which is less
than five percent of the then outstanding shares. For this purpose, shares of
FMP Common Stock that have been registered for sale under the Securities Act or
that may be sold without restriction under Rule 144(k) are not counted. Sales of
substantial amounts of FMP Common Stock under a registration statement or the
perception that such sales may occur, which may be created by the mere filing of
a registration statement, could have a material adverse effect on the market
price of the FMP Common Stock. See "THE MERGER -- Interests of Certain Persons
in the Merger: Registration Rights Agreement."
FMP has granted options to purchase approximately 170,000 shares of FMP
Common Stock under its 1997 Stock Option Plan. See "FMP EXECUTIVE COMPENSATION."
On the Effective Date, FMP will assume options and warrants, issued by RG, to
purchase an additional approximately 492,000 shares of FMP Common Stock. See
"THE MERGER -- Interests of Certain Persons in the Merger: RG Options."
Absence of Dividends. Neither RG nor FMP has ever paid any cash dividends
on its capital stock and FMP does not anticipate paying any cash dividends on
its capital stock in the foreseeable future. FMP's subsidiaries and RG are
prohibited by their agreements with their respective lending institutions from
declaring or paying cash dividends without the prior consent of their respective
lenders. Unless FMP derives sources of cash other than the operations of its
subsidiaries, these restrictions will limit FMP's ability to pay cash dividends.
See "MARKET PRICE OF RG COMMON STOCK."
Control by Principal Stockholders. Following the completion of the Merger,
the Johnston Group and the Edwards Group will own approximately 68% and 14%,
respectively, of the outstanding FMP Common Stock. Because the FMP Common Stock
does not have cumulative voting rights, the Johnston Group would control the
election and removal of all the directors and the affairs of FMP. However, the
Johnston Group and the Edwards Group have entered into a stockholder agreement
("Stockholder Agreement") whereby both groups have agreed to vote their shares
cooperatively so that the Johnston Group will elect six of FMP's nine directors
and the Edwards Group will elect the remaining three. See "THE
MERGER -- Interests of Certain Persons in the Merger: Stockholder Agreement,"
and "THE MERGER -- Management and Operations of FMP after the Merger."
Anti-Takeover Provisions; Blank Check Preferred Stock. Certain provisions
of FMP's charter and applicable corporate laws could be used to hinder or delay
a takeover bid for FMP. Such provisions may inhibit takeover bids, decrease the
chance of stockholders realizing a premium over market price for their FMP
Common Stock as a result of a takeover and further entrench management.
Specifically, FMP's Certificate of Incorporation provides for a classified Board
of Directors, divided into three classes with terms of three years each. In
addition, FMP's Certificate of Incorporation authorizes the Board of Directors,
without stockholder approval, to issue "blank check" preferred stock with such
designations, rights, preferences and restrictions as may be determined from
time to time by the Board of Directors. If FMP issues preferred stock, the
issuance could be used to thwart a takeover bid and may have a dilutive effect
upon FMP's common stockholders. See "DESCRIPTION OF FMP CAPITAL STOCK."
RISKS RELATED TO THE MERGER
Potential Effect of Merger on Business. RG and FMP anticipate that they
may experience changes in their businesses due to the Merger. Such changes may
include, among other things, a potential change in the
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<PAGE> 22
current buying patterns of resellers and potential customers as a result of the
announced Merger, and the decision on the part of certain customers to defer
purchasing decisions as they evaluate the future product strategy and
competitive positioning of RG and FMP after the Merger. Any such changes could
have a material adverse effect upon the results of operations of RG and FMP both
in the short term and the long term.
No Dissenters' Rights of Appraisal. Under the Nevada Revised Statutes,
dissenters' rights of appraisal are not available for shares of any class of
stock which, on the applicable record date for the shareholder vote on a merger,
are included as Nasdaq National Market securities and which are to be converted
into shares of stock of any other corporation which are so designated or which
are listed on the effective date of the merger on a national securities
exchange. On the Record Date, RG Common Stock was included as a Nasdaq National
Market security and it is a condition to consummation of the Merger that the FMP
Common Stock to be issued to Shareholders in the Merger be included as a Nasdaq
National Market security or listed on the American Stock Exchange, upon official
notice of issuance. Application has been made for such inclusion on the Nasdaq
National Market, although there can be no assurance the FMP Common Stock will be
approved for such inclusion. See "RISK FACTORS -- FMP Corporate Risks: Market
Listing." If such application is approved, Shareholders will not be entitled to
dissenters' rights of appraisal in connection with the Merger. See "THE
MERGER--No Dissenters' Rights of Appraisal."
Tax Treatment. As described below, RG has received an opinion from FMP's
tax counsel based upon certain representations and assumptions that the Merger
will be tax-free for federal income tax purposes, but no ruling from the
Internal Revenue Service ("IRS") to that effect has been or will be sought. Such
counsel's opinion with respect to the Merger is based upon certain
representations and assumptions and represents such counsel's best legal
judgment, but is not binding upon the IRS or the courts. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES." If the Merger does not qualify for tax-free treatment
as a reorganization described in Section 368(a)(1)(A) and Section 368(a)(2)(E)
of the Code, then, in general, although the matter is not entirely free from
doubt, for federal income tax purposes it is likely that each Shareholder would
recognize gain measured by the excess, if any, of the fair market value of the
FMP Common Stock received in the Merger plus the amount of cash received in lieu
of a fractional share over the Shareholder's tax basis in the RG Common Stock.
Dilution of Shareholders' Voting Power. The Merger will result in the
Shareholders' loss of control over RG. Prior to the Merger, Shareholders have
100% of the voting power over RG. After the Merger, Shareholders will have
approximately 25% of the voting power over FMP (assuming that no RG Options are
exercised) which will own 100% of RG. In addition, following the Merger, the
Johnston Group and the Edwards Group will own approximately 68% and 14%,
respectively, of the outstanding FMP Common Stock. Because the FMP Common Stock
does not have cumulative voting rights, the Johnston Group would control the
election of all the directors and the affairs of FMP. However, the Johnston
Group and the Edwards Group have entered into the Stockholder Agreement whereby
both groups have agreed to vote their shares cooperatively such that the
Johnston Group will elect six of FMP's nine directors and the Edwards Group will
elect the remaining three. See "THE MERGER--Interests of Certain Persons in the
Merger: Stockholder Agreement."
Dilution of Shareholders' Interest in Earnings Per Share. The Merger will
result in a dilution of the Shareholders' interest in RG's earnings. Prior to
the Merger, Shareholders as a group have an interest in 100% of the earnings of
RG. After the Merger, Shareholders as a group would have an interest in 30% of
the earnings of FMP, assuming the exercise of all outstanding options and
warrants. While there is a dilution in the percentage of interest in the
earnings of RG, it is not certain that Shareholders will experience a decrease
in actual value in earnings per share. RG's unaudited historical earnings per
share was a net loss of $1.64 for the twelve months ended June 30, 1997. The net
loss per share of FMP Common Stock, calculated on a pro forma basis giving
effect to the Merger, is $.58 per share. See "UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS --FM Precision Golf Corp. and Royal Grip, Inc.
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)." The
Merger will be accounted for using the purchase method of accounting. Under the
purchase method of accounting, FMP's
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<PAGE> 23
earnings per share after the Merger may significantly differ from the earnings
per share calculated on a pro forma basis.
Dilution of Shareholders' Book Value. The net tangible book value of RG's
Common Stock at June 30, 1997 was $4.2 million, or $1.53 per common share. Net
tangible book value per common share represents the book value of a company's
tangible net assets less total liabilities divided by the number of common
shares outstanding. The pro forma consolidated net tangible book value of the
combined companies' common stock, giving effect to the Merger as if it had
occurred on May 31, 1997, is $5.3 million or $.95 per FMP common share.
Shareholders will be exchanging two shares of RG Common Stock for one share of
FMP Common Stock. Therefore, the Merger would result in a reduction of $1.05
tangible book value per share of RG Common Stock as of June 30, 1997 accounting
for the Merger on a pro forma basis. The Merger will be accounted for using the
purchase method of accounting. Under the purchase method of accounting, FMP's
tangible book value per share after the Merger may significantly differ from the
tangible book value calculated on a pro forma basis.
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<PAGE> 24
MARKET PRICE OF RG COMMON STOCK
RG's Common Stock is traded on the Nasdaq National Market under the symbol
"GRIP." The following table sets forth the high and low per share sale prices of
the Common Stock reported on the Nasdaq National Market for the two most recent
fiscal years.
<TABLE>
<CAPTION>
RANGE OF SALE
PRICES
-------------
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1997
First Quarter.............................................................. $6 $2 7/8
Second Quarter............................................................. $4 5/8 $2 1/2
Fiscal 1996
First Quarter.............................................................. $8 1/2 $5 1/4
Second Quarter............................................................. $8 $4
Third Quarter.............................................................. $5 5/8 $3 1/4
Fourth Quarter............................................................. $4 5/8 $1 3/4
Fiscal 1995
First Quarter.............................................................. $6 3/4 $4
Second Quarter............................................................. $5 1/2 $3 1/2
Third Quarter.............................................................. $6 1/2 $3 1/4
Fourth Quarter............................................................. $6 3/8 $3 3/4
</TABLE>
As of August 14, 1997, there were approximately 121 Shareholder accounts of
record. This figure does not reflect beneficial ownership of shares held in
nominee names.
On May 14, 1997, the last full trading day prior to the public announcement
of the Merger Agreement, the last reported sale price of RG Common Stock on the
Nasdaq National Market was $3.75 per share. On August 12, 1997, the last
reported sale price of RG Common Stock on the Nasdaq National Market was $3.69
per share.
Neither RG nor FMP has ever paid any cash dividends on its capital stock
and FMP does not anticipate paying any cash dividends on its capital stock in
the foreseeable future. Pursuant to the Revolving and Term Note issued by RG and
Roxxi and the corresponding Credit and Security Agreement entered into by RG,
Roxxi and Norwest Business Credit, Inc., RG and Roxxi have agreed not to declare
or pay any dividends (other than dividends payable solely in their respective
stock) on any class of their respective stock or make any payment on account of
the purchase, redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly. Pursuant to
the Financing Agreement dated May 31, 1996, among Star Bank, National
Association, and FMP's subsidiaries, FMP's subsidiaries have agreed that they
will not declare or pay cash dividends upon any of their respective stock.
Unless FMP derives sources of cash other than the operations of its
subsidiaries, these restrictions will limit FMP's ability to pay cash dividends.
See "RISK FACTORS -- FMP Corporate Risks: Absence of Dividends."
Prior to consummation of the Merger, there has been no public trading
market for FMP Common Stock. See "RISK FACTORS -- FMP Corporate Risks: Absence
of Trading Market for FMP Common Stock." However, the inclusion of FMP Common
Stock on the Nasdaq National Market or listing of the FMP Common Stock on the
American Stock Exchange is a condition to the Merger. Application has been made
for inclusion on the Nasdaq National Market, although there can be no assurance
the FMP Common Stock will be approved for inclusion. See "RISK FACTORS -- FMP
Corporate Risks: Market Listing" and "THE MERGER AGREEMENT -- CONDITIONS." There
can be no assurance that an active trading market will develop for FMP Common
Stock.
15
<PAGE> 25
THE SPECIAL MEETING
GENERAL; DATE, TIME AND PLACE OF THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to Shareholders in
connection with the solicitation of proxies by the RG Board for use at the
Special Meeting to be held on August 29, 1997 at 8:00 a.m. (local time) at 15170
North Hayden Road, Suite 1, Scottsdale, Arizona, and at any adjournment or
postponement thereof for the purposes set forth herein and in the accompanying
Notice of Special Meeting.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to Shareholders on or about August 18, 1997.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, Shareholders will consider and vote upon proposals
to approve and adopt the Merger Proposal and the Amendment. Other business will
not be in order at the Special Meeting.
SHAREHOLDERS ENTITLED TO VOTE; REQUISITE APPROVAL
The RG Board has fixed August 14, 1997 as the record date for the
determination of Shareholders entitled to notice of, and to vote at, the Special
Meeting. Accordingly, only holders of record of RG Common Stock on the Record
Date will be entitled to notice of, and to vote at, the Special Meeting. As of
August 14, 1997, there were 2,742,178 shares of RG Common Stock outstanding and
entitled to vote. Each Shareholder of record on the Record Date is entitled to
cast one vote per share on each proposal in person or by proxy, at the Special
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of RG Common Stock entitled to vote at the Special
Meeting, is necessary to constitute a quorum at the Special Meeting.
Pursuant to the Voting Agreement, the Edwards Group, which holds
approximately 54% of the outstanding RG Common Stock, has agreed to vote in
favor of the Merger Proposal and has granted FMP an irrevocable proxy to vote
its shares of RG Common Stock at the Special Meeting in favor of the Merger
Proposal. Such vote will be sufficient to approve and adopt the Merger Proposal.
Therefore, approval of the Merger Proposal is assured. RG directors, executive
officers and their affiliates collectively hold approximately 46% of the
outstanding RG Common Stock. The Voting Agreement applies only to the Merger
Proposal and not the Amendment.
At the Special Meeting, although abstentions will be counted and broker
non-votes will not be counted for purposes of determining the presence of a
quorum, abstentions and broker non-votes will have the same effect as a vote
against the Merger Proposal with respect to determining whether the Merger
Proposal has received the requisite number of affirmative votes. For purposes of
the Amendment, abstentions will have the same effect as a vote against approval
of the Amendment, whereas broker non-votes will not be counted as a vote for or
against the approval of the Amendment.
PROXIES
This Proxy Statement/Prospectus is being furnished to Shareholders in
connection with the solicitation of proxies by and on behalf of the RG Board for
use at the Special Meeting.
All shares of RG Common Stock which are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted FOR approval and adoption of the Merger Proposal and the
Amendment.
The business of the Special Meeting is limited to consideration of and
voting upon the Merger Proposal and the Amendment. If any procedural matters are
properly presented at the Special Meeting, including, among other things, a
motion to adjourn the Special Meeting to another time and/or place (including,
without
16
<PAGE> 26
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matter in accordance with their best judgment except that such persons
will not have discretionary authority under proxies voting against the Amendment
to vote the shares subject to such proxies for an adjournment for the purpose of
soliciting votes to approve the Amendment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (a) filing
with the Secretary of RG at or before the taking of the vote at the Special
Meeting a written notice of revocation bearing a later date than the proxy, or
(b) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to Royal Grip, Inc., 15170 North Hayden Road, Suite 1,
Scottsdale, Arizona 85260, Attention: Secretary, or hand delivered to the
Secretary of RG, at or before the taking of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/Prospectus, will be borne by RG. FMP has paid
$85,000 to RG as reimbursement of general expenses related to the Merger
incurred or to be incurred by RG. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers and employees of RG in
person or by telephone, telegram, facsimile or other means of communication.
Such directors, officers and employees will not be additionally compensated for,
but may be reimbursed for reasonable out-of-pocket expenses in connection with,
such solicitation. Arrangements will be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and RG will reimburse such custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
The procedure for the exchange of shares after the Merger is consummated is set
forth below in this Proxy Statement/Prospectus.
TABULATION
Under Section 78.320 of the General Corporation Law of the State of Nevada
("NGCL") and the By-laws of RG, a quorum must be present at a special meeting of
shareholders in order for any valid action, including the election of directors
and voting on other matters presented to the meeting, other than adjournment, to
be taken thereat. Section 78.320 of NGCL and the By-laws of RG provide that a
quorum consists of a majority of the shares entitled to vote at the Special
Meeting present in person or represented by proxy. Shares represented by signed
proxies that are returned to RG will be counted toward the quorum in all matters
even though they are marked as "Abstain" or "Against" on one or more or all
matters or they are not marked at all. Pursuant to the Voting Agreement, holders
of more than a majority of the outstanding shares of RG will be represented at
the meeting, and therefore the presence of a quorum will be assured.
Broker/dealers, who hold their customers' shares in street name, may, under the
applicable rules of the exchanges and other self-regulatory organizations of
which such broker/dealers are members, sign and submit proxies for such shares
and may vote such shares on routine matters which, under such rules, typically
include the election of directors, but broker/dealers may not vote such shares
on other matters, which typically include mergers and the approval of stock
compensation plans without specific instructions from the customer who owns such
shares. Proxies signed and submitted by broker/dealers which have not been voted
on certain matters as described in the previous sentence are referred to as
broker non-votes.
Under Section 92A.120 of the NGCL, the Merger Proposal must be approved by
the affirmative vote of the holders of a majority of the shares of RG Common
Stock entitled to vote at the Special Meeting. Proxies marked "Abstain" and
broker non-votes have the same effect as votes against approval. However,
pursuant to the Voting Agreement, all shares subject thereto (approximately 54%
of the outstanding shares of RG Common Stock) will be voted in favor of the
Merger Proposal and such vote will be sufficient to approve and adopt the Merger
Proposal. Therefore, approval of the Merger Proposal is assured.
Under Nasdaq National Market rules and Section 13 of the Plan, the
Amendment must be approved by the affirmative vote of the holders of a majority
of the shares of RG Common Stock present in person, or
17
<PAGE> 27
represented by proxy, and entitled to vote at the meeting at which a quorum is
present. A proxy marked "Abstain" has the same effect as a vote against
approval, but a broker non-vote is disregarded in determining the number of
shares voted for approval and in determining the total number of shares that
constitute a majority in that matter. The Voting Agreement applies only to the
Merger Proposal and not to the Amendment.
BACKGROUND OF THE MERGER
As part of its efforts to maximize shareholder value, the RG Board has from
time to time over the past several years discussed the advisability of RG
engaging in a strategic combination with another company involved in the golf
industry. In September 1995, RG engaged EVEREN, an investment banking firm, and
began locating companies that could potentially enter into a strategic business
relationship with RG or be acquired by RG. As part of this process, EVEREN
developed a list of potential candidates and selectively contacted certain
candidates on behalf of RG. On October 25, 1995, RG signed a letter of intent
with Belding-Sports/Illah of California, Inc. ("Belding"), a golf bag
manufacturer. For two months, RG and Belding attempted to negotiate an agreement
whereby RG would acquire Belding. Negotiations terminated when the parties could
not agree upon definitive terms and transaction pricing. EVEREN and RG
management do not believe that this transaction is relevant to an evaluation of
the Merger because the RG/Belding transaction contemplated RG purchasing
Belding.
Following the termination of RG's discussions with Belding, Danny Edwards,
Chairman of the Board of RG, and Robert G. J. Burg, II, President of RG, with
the assistance of EVEREN, conducted exploratory talks with five public golf
companies. EVEREN solicited all but one of these potential acquisition
discussions. However, none of these talks led to any firm offers, bids or other
proposals.
On June 19, 1996, Christopher A. Johnston, President of FMP, contacted Mr.
Edwards to explore generally the possibility of FMP entering into a business
combination with RG. Following their conversation, Mr. Edwards provided Mr.
Johnston with publicly available information related to RG, and Mr. Johnston
provided information on FMP's business to Mr. Edwards. Following review of the
FMP information, Mr. Edwards decided to obtain additional information regarding
FMP in preparation for consulting the entire RG Board regarding a potential
business combination.
On July 30, 1996, Christopher A. Johnston, Richard P. Johnston, Chairman of
the Board of FMP, Ronald Chalmers, President of FMP's operating subsidiaries,
and David Johnston, Executive Vice-President of FMP, met in Phoenix, Arizona
with Messrs. Edwards, Burg, and Lawrence Bain of EVEREN. The purpose of the
meeting was to obtain additional background information, for presentation to the
RG Board, regarding FMP's business, product lines, markets, profitability and
management and to discuss the operating philosophies of the two companies. RG
also provided additional general information regarding RG. At the meeting, the
participants toured the RG manufacturing facility.
On August 14, 1996, a regular meeting of the RG Board was held at which all
of the RG Board members were present. During that meeting, Mr. Burg apprised the
RG Board of the discussions between RG and FMP. Mr. Burg provided the RG Board
with background information regarding FMP's business, products, markets,
financial situation, and management. The RG Board also reviewed the results of
the discussions that Messrs. Edwards, Burg and Bain had engaged in with other
companies regarding a possible business combination with RG. Following these
discussions, the RG Board concluded that it would be in the best interest of RG
to explore further the possibility of a strategic business relationship with
FMP, and it directed Messrs. Edwards and Burg to continue discussions with FMP
representatives.
In early August 1996, Messrs. Edwards and Burg met with Mr. Christopher
Johnston at which time the parties began to develop the potential synergies that
could result from a combination of the companies. They discussed the relative
strengths and the complementary nature of the customer base and respective
products of each company, including RG's strength in sales and marketing and
FMP's management resources and financial condition.
In early September 1996, officers of each company entered into a
confidentiality agreement. The agreement generally provided that each party
would maintain in confidence any non-public information provided to the other
and that such information would not be used for any purpose other than
evaluating a business relationship between the companies.
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On September 4, 1996, Messrs. Edwards, Burg and Bain met with Messrs.
Christopher Johnston and Chalmers. During the meeting, Mr. Edwards made a
comprehensive presentation of RG's business, products and management personnel.
On September 9, 1996, Mr. Christopher Johnston met with Mr. Bain to discuss
generally the potential business combination and specifically the background and
experience of FMP's management, FMP's products and markets, and its financial
condition. Numerous telephone calls between Messrs. Edwards, Burg, Bain and
Johnston occurred during the ensuing several weeks. These discussions focused
generally on possible business synergies that the two companies might pursue on
a post-merger basis and to discuss generally the future of the golf industry.
The parties also exchanged significant amounts of due diligence information.
On September 10, 1996, Messr. Edwards and Burg met with Messrs. Christopher
and Richard Johnston. At this meeting, Mr. Burg presented an overview of RG's
products and markets. The parties also discussed how a combination of the two
companies could provide enhanced operating efficiencies and marketing potential.
Over the next several weeks the parties reviewed the due diligence materials
that were provided to each.
On December 3, 1996, Messrs. Edwards, Burg, Bain and Tom Schneider, Vice
President of Finance of RG, met with Messrs. Christopher and Richard Johnston.
The parties discussed potential synergies of a business combination as well as
financial information and proposed marketing plans.
On December 11, 1996, the RG Board met at a regular meeting at which all of
the members were present. During that meeting Messrs. Edwards and Burg apprised
the RG Board of the ongoing discussions between RG and FMP. These discussions
focused on the potential benefits of a business combination to RG and the lack
of possible alternatives to a business combination with FMP. The Board directed
Messrs. Edwards and Burg to discontinue pursuing alternative business
combinations and to continue discussions with FMP.
On January 8, 1997, Messrs. Edwards, Burg and Bain met with Messrs.
Christopher and Richard Johnston to establish pro forma operating budgets and
estimate cost savings and synergies which would result from a combination of the
two companies. During these discussions Mr. Christopher Johnston proposed a
business combination that would result in FMP security holders owning 65% and
RG's securityholders owning 35%, on a fully diluted basis, of the combined
companies. For the next several days the parties continued their discussions
regarding the proposed transaction.
At FMP's Board meeting held on January 9, 1997, Christopher Johnston gave
the FMP Board an overview of the proposed transaction and led the Board in a
discussion of the material provisions of a proposed letter of intent. Members of
the FMP Board severally approved the proposed letter of intent.
On January 21, 1997, the RG Board met in a special meeting to discuss the
letter of intent. All of the RG Board members were in attendance. Mr. Burg
provided the Board with an overview of (a) FMP's business and the results of
RG's due diligence review and (b) the proposed combination with FMP. Mr. Edwards
led the Board in a discussion of the merits and risks of the proposed
transaction and the material provisions of the proposed letter of intent. RG's
legal counsel also advised the Board regarding its fiduciary duties and the
terms of the proposed letter of intent. After discussion, the RG Board
determined that the transaction would be in RG's best interest (considering the
lack of strategic alternatives), approved the letter of intent by unanimous vote
and instructed management and legal counsel to begin the work required to
finalize a merger agreement.
On January 21, 1997, RG and FMP executed the letter of intent. The parties
issued a press release announcing the transaction at the PGA Show in Orlando on
January 24.
On February 12, 1997, Messrs. Edwards and Burg attended a meeting of the
Board of FMP in Tucson, Arizona. The focus of the meeting was the business and
operations of FMP.
On February 13, 1997, Messrs. Schneider, Bain, and additional
representatives from EVEREN, met with Messrs. Christopher Johnston, Chalmers and
other FMP management in Torrington, Connecticut to discuss results of the
diligence investigations and to hear presentations of FMP's operations, product
and market information. After the presentation, Mr. Johnston conducted a tour of
FMP's manufacturing facility.
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In late February 1997, representatives of Arthur Andersen, FMP's
independent auditors, met with representatives of Ernst & Young LLP, RG's
independent auditors, and Mr. Schneider. The meeting focused on financial issues
related to RG and included a review of RG accounting papers. Also, Messrs.
Christopher and Richard Johnston met with Messrs. Burg and Bain regarding
financial issues.
Also in late February 1997, FMP distributed drafts of a Merger Agreement to
the various parties and their representatives. During the ensuing weeks, the
parties negotiated the terms of the definitive Merger Agreement and related
documents and the content of the disclosure schedules to be delivered in
connection with execution of the Merger Agreement.
On March 10 and 11, 1997, Messrs. Schneider, Gordon Johnson, Director of
Management Information Systems of RG, and a representative of Ernst & Young met
with Messrs. Christopher Johnston, Chalmers and other FMP management regarding
financial information and other business operations issues.
On March 28, 1997, the RG Board met to discuss the status of the proposed
Merger. The Board reviewed drafts of the Merger Agreement and related documents
and memoranda prepared by (a) legal counsel regarding the Board's fiduciary
obligations and (b) Messrs. Burg and Schneider regarding the due diligence
review of FMP. Mr. Burg presented an overview of RG and FMP's existing product
lines and development activities and how the respective products could enhance
their existing markets and discussed preliminary short and long term objectives
to be considered with respect to the post-merger operations of FMP and RG. Mr.
Burg also summarized the status of the negotiations with FMP and the discussions
with EVEREN regarding the fairness of the Merger. The Board directed Messrs.
Edwards and Burg to continue negotiations with FMP.
On April 2 and 3, 1997, Ms. Horton of FMP and a representative of Arthur
Andersen met with Mr. Schneider and Management Information Systems personnel of
RG to determine the compatibility of the companies' systems and potential
synergies between the systems and communication needs.
On April 9, 1997, Messrs. Edwards and Burg met in Tempe, Arizona with
Messrs. Richard and Christopher Johnston regarding the companies' businesses
including the poor financial performance of RG during the first quarter of 1997.
In light of the discussions, the parties agreed to revise the terms of the
transaction so that FMP security holders would receive 70% and the RG security
holders would receive 30%, on a fully diluted basis, of the shares of FMP.
On April 17, 1997, the Board and stockholders of FMP met to discuss the
Merger. The Board and stockholders of FMP determined that the Merger was in the
best interest of FMP and its stockholders and approved the Merger and Merger
Agreement.
On April 22, 1997, RG held a meeting of the Board at which all directors
were present. At the meeting, Mr. Burg gave the Board an overview of the
proposed Merger. Mr. Edwards led the Board in a discussion of the merits and
risks of the transaction. As part of this discussion, representatives of EVEREN
provided detailed analyses regarding the various methods they had been using to
evaluate the fairness of the transaction to the Shareholders. EVEREN indicated,
subject to final internal review, they were prepared to deliver an opinion to
the effect that the proposed Merger was fair from a financial point of view to
the Shareholders. EVEREN and management also discussed RG's strategic
alternatives, the future prospects for RG, and the potential benefits of the
business combination with FMP. RG's legal counsel presented a summary of the
Merger Agreement and related documents and discussed generally the RG Board's
fiduciary duties in regard to the transaction. The Board determined to continue
with the negotiations of the Merger Agreement.
On May 12, 1997, RG held a special meeting of the Board at which all
directors were present. The Board reviewed final versions of the Merger
Agreement and related documents and a summary of the material provisions of the
documents. EVEREN presented a draft of its fairness opinion and reviewed and
confirmed its analysis regarding the fairness of the Merger, from a financial
point of view to the Shareholders. After careful deliberation, the RG Board
unanimously approved the Merger Agreement and recommended that the Shareholders
also approve the Merger Agreement, subject to the condition that the RG Board
receive a signed fairness opinion from EVEREN, which EVEREN delivered to the
Board on May 14, 1997.
On May 14, 1997, each company executed and delivered the Merger Agreement
and related documents. Execution of the Merger Agreement was announced on May
15, 1997 by issuance of a joint press release.
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THE MERGER
RG'S REASONS FOR THE MERGER; RECOMMENDATION OF THE RG BOARD
The RG Board has unanimously approved the Merger and believes the Merger is
in the best interest of the Shareholders. In reaching their decision, the
directors considered, with the assistance of management and its legal and
financial advisers, the following factors:
(a) The Merger offers the Shareholders an opportunity to acquire shares in a
larger company with improved financial strength and flexibility. Ownership in
FMP will allow the Shareholders to participate in the long-term growth and
appreciation that may result from FMP's future participation in the
consolidation of the sporting goods industry and from the combined companies'
more diversified product offerings.
(b) The strategic fit between RG and FMP and the complementary nature of
their respective businesses and similar customer base. These factors could
strengthen existing, and develop new, customer relationships through the
combined design and marketing capabilities of the combined companies.
(c) Anticipated operating synergies and cost savings, including possible
synergies and cost savings with respect to (i) more effective expenditures for
sales and marketing and (ii) reduced administrative expenses resulting from
the consolidation of sales, corporate, administrative and support functions.
The RG Board did not perform any analysis of such synergies or consider any
quantified amount of such cost savings in reaching its decision to approve the
Merger.
(d) The opinion of EVEREN that the Merger is fair to the Shareholders from a
financial point of view. See "-- Opinion of Financial Adviser to the RG
Board."
(e) The RG Board considered the financial and other terms of the Merger,
and, while the Merger Agreement contains an "exclusivity" clause and a
termination fee provision (see "THE MERGER AGREEMENT -- Exclusivity"), the
Merger Agreement permits RG to provide information to or enter into
discussions or negotiations with other persons if the RG Board determines that
it is appropriate in the exercise of the directors' fiduciary duties.
(f) Information with respect to the financial condition and business of FMP,
including, among other things, FMP's recent profitability and management
resources.
In the course of its deliberations, the RG Board reviewed the following
additional factors relevant to the Merger: (a) the financial presentations and
analysis of EVEREN prepared in connection with its fairness opinion; (b) reports
from management and legal advisers on specific terms of the Merger Agreement;
(c) reports from management regarding the financial performance, conditions,
business operations and prospects of FMP; and (d) the proposed terms, timing and
structure of the Merger.
The RG Board also considered the following potentially negative factors in
its deliberations concerning the Merger: (a) the possibility of management
disruption associated with the Merger and the risk that, despite the efforts of
the combined companies, key management personnel of RG might not continue their
employment with the combined companies; (b) the possibility that certain of the
operating economies of scale such as more effective expenditures for sales and
marketing and the reduction of administrative costs sought to be achieved as a
result of the Merger might not be obtained; (c) dilution of the voting power and
book value of RG's Shareholders and (d) the possibility that the Merger may not
be consummated and the potential adverse effect of announcement of the Merger,
or its failure to be consummated, on RG's customers and employees.
The foregoing discussion of information and factors considered by the RG
Board is not intended to be exhaustive but is intended to include the material
factors considered. In view of the wide variety of factors considered, the RG
directors did not find it practical to, and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors may
have given differing weights to different factors.
After taking into consideration all of the factors set forth above,
together with an analysis of the presentations of management, EVEREN, and legal
counsel, the RG Board unanimously approved the Merger
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and determined that the Merger is fair to and in the best interests of RG and
its Shareholders and that RG should proceed with the Merger. Accordingly, the RG
Board unanimously recommends that the Shareholders vote FOR approval of the
Merger Agreement.
OPINION OF FINANCIAL ADVISER TO THE RG BOARD
RG has retained EVEREN as its financial adviser to render its opinion with
respect to the fairness, from a financial point of view, to the Shareholders, of
the Merger per the Merger Agreement. EVEREN was selected as an adviser of RG
because of its reputation and expertise as a nationally recognized investment
banking firm. EVEREN, as part of its investment banking business, is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwriting, competitive bidding, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
EVEREN rendered its opinion to the RG Board on May 14, 1997, that, as of
the date of such opinion, and as of the date of this Proxy Statement/Prospectus,
the Merger is fair from a financial point of view to the Shareholders.
THE FULL TEXT OF THE OPINION OF EVEREN, UPDATED AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN QUALIFICATIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS
ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS, AND SHOULD BE READ IN ITS ENTIRETY.
THE SUMMARY OF THE OPINION OF EVEREN SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS CONTAINS THE MATERIAL ELEMENTS OF THE OPINION. THE SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. EVEREN'S OPINION
SHOULD NOT BE CONSTRUED BY SHAREHOLDERS AS A RECOMMENDATION AS TO HOW SUCH
SHAREHOLDERS SHOULD VOTE AT THE SPECIAL MEETING. THE INFORMATION SET FORTH BELOW
WAS PROVIDED TO THE RG BOARD BY EVEREN AND DESCRIBES, AMONG OTHER THINGS, THE
MATERIAL FACTORS CONSIDERED BY EVEREN IN ARRIVING AT ITS OPINION. EVEREN HAS
CONSENTED TO THE SUMMARY OF ITS ANALYSIS CONTAINED HEREIN.
In arriving at its opinion, EVEREN reviewed, among other things, the Merger
Agreement, together with exhibits and schedules thereto, certain publicly
available information relating to the business, financial condition and
operations of RG and FMP as well as certain other non-public information,
primarily financial in nature, furnished to it by RG and FMP relating to the
respective businesses, earnings, assets and prospects of RG and FMP. EVEREN also
held discussions with members of senior management of RG and FMP concerning
their operations, business strategy, financial performance, and prospects. With
respect to financial forecasts used in its analysis, EVEREN assumed that such
forecasts were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of RG and FMP as to the
future performance of RG and FMP. EVEREN also reviewed certain publicly
available information concerning the trading of, and the trading market for, RG
Common Stock and certain publicly available information concerning comparable
companies and transactions, all as more fully set forth in EVEREN's opinion.
EVEREN did not use the discounted cash flow methodology in rendering its
fairness opinion because management of neither RG nor FMP prepare long term
projections as a matter of course which are necessary for such methodology. In
addition, in the opinion of EVEREN, the variability in net earnings for RG and
the uncertainty as to future acquisition efforts by the combined companies would
make the discounted cash flow analysis unreliable as a means of valuing RG.
EVEREN was not engaged to and did not conduct a physical inspection of any
of the assets, properties or facilities of either RG or FMP, and was not engaged
to and did not make or obtain, and was not furnished with any independent
evaluation or appraisal of any of such assets, properties or facilities or any
of the liabilities of RG or FMP (except for two appraisals of FMP that were
furnished to EVEREN including an Arthur Andersen real estate appraisal dated
March 29, 1996, and an equipment appraisal by Norman Levy Associates, Inc. dated
April 18, 1996). EVEREN assumed and relied upon, without independent
investigation, the accuracy and completeness of the financial and other
information provided to it or publicly available, relied upon the
representations and warranties of RG and FMP contained in the Merger Agreement,
and was not engaged to and did not independently attempt to verify any of such
information. EVEREN also assumed that all of the conditions to the Merger as set
forth in the Merger Agreement, including the tax free treatment
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of the Merger to the Shareholders, would be satisfied and that the Merger would
be consummated on a timely basis in the manner contemplated by the Merger
Agreement. No limitations were imposed by RG upon EVEREN with respect to the
scope of its investigation nor were any specific instructions given to EVEREN in
connection with its fairness opinion.
The following is a summary discussion of selected valuation methodologies
considered and prepared by EVEREN and discussed with the RG Board in connection
with EVEREN's written opinion dated May 14, 1997, June 9, 1997, July 24, 1997
and August 15, 1997 and additional analyses related to such methodologies.
Relative Contribution Analysis. Immediately following the Merger, current
FMP stockholders and option and warrant holders will collectively own 70% of the
combined entities assuming the exercise of all options and warrants granted by
both companies. EVEREN compared this ownership position relative to the
contribution which FMP would make to the combined entities over several recently
ended nine and twelve month periods on a pro forma basis (excluding the effects
of goodwill and transaction costs generated through the Merger). For the nine
months ended December 31, 1996 and the nine months ended March 31, 1997 for RG
and the nine months ended February 28, 1997 for FMP, FMP would have contributed
57.1% and 63.2%, respectively, of the net sales on a pro forma basis for the
combined companies and greater than 100% of the operating income and net income
for both comparative periods. For the twelve months ended December 31, 1996 and
March 31, 1997 for RG and February 28, 1997 for FMP, FMP would have contributed
57.7% and 60.7%, respectively, of the net sales on a pro forma basis for the
combined companies and greater than 100% of the operating income and net income
for these comparative periods. Based on the December 31, 1996 and March 31, 1997
balance sheet for RG and the February 28, 1997 balance sheet for FMP, FMP would
have contributed 53.1% and 55.8%, respectively, of the combined companies' total
assets. Based on the appraised orderly liquidation value of these assets
(derived from the two asset appraisals described above), FMP's assets on
February 28, 1997 would have been approximately $15.8 million versus the
reported $7.6 million for RG as of March 31, 1997. Based on the December 31,
1996 and March 31, 1997 balance sheet for RG and the adjusted February 28, 1997
balance sheet for FMP, FMP would have contributed 65.9% and 67.4%, respectively,
of the combined companies' total assets.
For the twelve months ended May 31, 1997 for FMP and June 30, 1997 for RG,
FMP would have contributed 63.5% of the net sales on a pro forma basis for the
combined companies and greater than 100% of the operating income and net income.
Based on the May 31, 1997 balance sheet for FMP and the June 30, 1997 balance
sheet for RG, FMP would have contributed 58% of the combined companies' total
assets. Assuming the appraised orderly liquidation value of these assets, FMP's
assets would have been approximately $16.6 million as of May 31, 1997 versus the
reported $7.6 million for RG as of June 30, 1997. Given the substantial
contribution of FMP to the profitability of the combined entities, EVEREN
believes that the lower percentage contributions in sales and assets when
compared to post-closing ownership is justified by the economic benefit derived
by Shareholders through the Merger.
Comparable Company Analysis. Utilizing an RG share price of $3.08 (the
average closing bid for 20 days prior to the announcement of an agreement on May
14, 1997), the implied value of FMP's shares (excluding the effects of a
$425,000 non-recurring, non-cash expense related to FMP's option program) is:
1.5 times latest twelve months ("LTM") net sales and 12.5 times LTM earnings
before interest and taxes ("EBIT") on an aggregate value basis, and 3.0 times
book value adjusted to reflect a pro forma write up of FMP assets to recently
appraised values and 22.7 times LTM net income on an equity basis of implied
value through the Merger.
Utilizing an RG share price of $3.08 (the average closing bid 20 days prior
to the announcement of an agreement on May 14, 1997), the implied value of FMP's
shares (including the effects of a $425,000 non-recurring, non-cash expense
related to FMP's option program) is 1.5 times LTM net sales and 15.0 times LTM
EBIT on an aggregate value basis, and 3.1 times book value adjusted to reflect a
pro forma write up of FMP assets to recently appraised values and 28.6 times LTM
net income on an equity basis of implied value through the Merger.
EVEREN utilized the following eight publicly traded peers in its comparable
company analysis: Callaway Golf Company, Coastcast Corporation, Aldila, Inc., S2
Golf, Inc., Teardrop Golf Company, Golf
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Technology Holdings, Inc., Golf Training Systems, Inc., and Black Rock Golf
Corporation (the peer group was chosen by EVEREN and formulated based on all of
the publicly traded golf companies that had business lines comparable to that of
RG). The range of aggregate valuation multiples which capture the low and the
high of industry peers includes 0.4 times to 4.1 times LTM net sales and 8.5
times to 12.2 times LTM EBIT. On an equity value basis, the range of trading
multiples is 1.6 times to 6.8 times book value and 11.9 times to 19.8 times LTM
net income. Notwithstanding the fact that the implied net income and EBIT
multiples of the stock issued by FMP in the Merger are currently outside of the
range of industry peers, EVEREN believes it is justified given the strong
revenue growth performance of FMP's business, its strong profit performance
since its acquisition from Brunswick Corporation, and the fact that FMP is the
only smaller industry competitor with significant positive net earnings. In this
regard, EVEREN compared FMP to S2 Golf, Inc., Teardrop Golf Company, Golf
Technology Holding, Inc., Golf Training Systems, Inc., and Black Rock Golf
Corporation.
Comparable Transaction Analysis. Since 1994, there has been only one
comparable transaction in the golf industry where terms have been released and
financial information on the target is publicly available. This transaction
involved the purchase of Cobra Golf, Inc. by American Brands, Inc. in December
1995. The aggregate valuation of $718.8 million represented a purchase price
multiple of 4.0 times LTM net sales, 13.1 times LTM EBIT, and 20.8 times LTM net
income. With the exception of net income, all multiples are comparable, or
exceed, the valuation multiples involved in the Merger. Shareholders should
evaluate this information with caution. The American Brands/Cobra Golf
transaction was valued at greater than 100 times the value of the Merger, and as
a result this transaction may not be directly comparable.
RG's Recent Financial Performance. Since fiscal 1995, a series of
non-recurring charges and ongoing operational problems has led to a significant
decline in RG's stockholders' equity. At the end of fiscal 1996, RG was in
technical default on certain covenants related to its credit facility with
Norwest and was forced to re-negotiate those covenants. Notwithstanding its
success in re-negotiating its credit agreement, RG's financial flexibility has
been impaired. Given this impairment and absent the Merger, EVEREN believes
that, in the short term, RG will be unable to take significant steps to enhance
shareholder value.
Pro Forma Earnings Analysis. Despite significant dilution in ownership
which will occur to Shareholders through the Merger, RG's historical net losses
would have been significantly reduced as a result of the Merger on a pro forma
basis. Assuming the Merger had impacted financial results for the nine months
ended December 31, 1996 for RG and February 28, 1997 for FMP, the combined
entities' earnings would have been a net loss of $2.9 million or $0.25 per share
(prior to the effects of the one for one-half exchange rate) versus a net loss
for RG on a stand-alone basis of $3.9 million or $1.42 per share and a net loss
(exclusive of non-recurring charges for RG) of $0.62 per share.
Similarly, for the twelve months ended December 31, 1996 for RG and
February 28, 1997 for FMP, the combined entities' earnings would have been a net
loss of $3.2 million or $0.28 per share (prior to the effect of the one for
one-half exchange rate) versus a net loss for RG on a stand-alone basis of $4.4
million or $1.63 per share and a net loss (exclusive of non-recurring charges
for RG) of $0.83 per share.
For the twelve months ended June 30, 1997 for RG and May 31, 1997 for FMP,
the combined entities' earnings would have been a net loss of $3.3 million or
$0.29 per share (prior to the effect of the one for one-half exchange rate)
versus a net loss for RG on a stand-alone basis of $4.5 million or $1.64 per
share and a net loss (exclusive of non-recurring charges for RG) of $0.85 per
share.
Adjusted for the non-recurring , non-cash charge of $425,000 for FMP
relating to its option program, for the twelve months ended June 30, 1997 for RG
and May 31, 1997 for FMP, the combined entities' earnings would have been a net
loss of $3.1 million or $0.27 per share (prior to the effect of the one for
one-half exchange rate) versus a net loss for RG on a stand-alone basis of $4.5
million or $1.64 per share and a net loss (exclusive of non-recurring charges
for RG) of $0.85 per share.
The Merger will be accounted for using the purchase method of accounting.
Under the purchase method of accounting, FMP's earnings per share may
significantly differ from the earnings per share calculated on a pro forma
basis.
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Other Relevant Issues. In addition to the analytical work performed,
EVEREN believes that the absence of other bidders for RG provides a strong
indication of the fairness of the Merger to the Shareholders. The lack of
additional bidders is significant given (a) the fact that a proposed
post-closing ownership split was disclosed as well as summary financial
information on FMP for the six months ended November 30, 1996 in a press release
issued on January 24, 1997, and (b) that no bidders have emerged following the
release of revised terms following the execution of the Merger Agreement on May
15, 1997.
Stock Market Reaction. On January 24, 1997, RG announced its intention to
merge with FMP in a preliminary press release. That first press release was
followed by a second press release which included more information as to the
post-Merger ownership position of the two companies' shareholders and certain
financial data on FMP. On the date of the announcement, RG's share price closed
at $4.75, an 11.8% premium over the prior day and 46.2% premium over the day two
weeks before the announcement.
In the period following the announcement, RG's stock price performance has
compared favorably to an index made up of its industry peers including Callaway
Golf Company, Coastcast Corporation, Aldila, Inc., S2 Golf, Inc., Teardrop Golf
Company, Golf Technology Holdings, Inc., Golf Training Systems, Inc., and Black
Rock Golf Corporation in the time period between the announcement and the close
of trading on May 14, 1997 (the peer group was chosen by EVEREN and formulated
based on all of the publicly traded golf companies that had business lines
comparable to that of RG). During this time, RG's stock price increased from
$3.25 to $4.00, an increase of 23%. During the same time, the industry peer
group increased only 8% (based on equal weighted stock price changes for the
peer group). Since the initial announcement of the Merger, its structure has
changed in response in part to poor operating results for RG during the first
quarter of 1997. EVEREN believes that the increase in FMP's ownership of the
combined entities is significant, but not unreasonable. Following RG's
announcement of its execution of the Merger Agreement and its terms, RG's shares
closed at $4.00 on Thursday, May 15, 1997 versus a $2.88 closing price on April
30, 1997. On August 14, 1997, RG's shares closed at $3.75.
Stock Performance Analyses. The analyses performed by EVEREN are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of EVEREN's opinion. The term "fair from a financial
point of view" is a standard phrase contained in investment banker fairness
opinions and refers to the fact that EVEREN's opinion as to the fairness of the
consideration to be received by Shareholders is addressed solely to the
financial attributes of such considerations. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold.
Finally, as described above, EVEREN's opinion was one of many factors taken into
consideration by the RG Board in making its determination to approve the Merger
Agreement. Consequently, EVEREN's analyses described above should not be viewed
as determinative of the RG Board's decision to agree to the consideration to be
received by holders of RG Common Stock.
In connection with its opinion based as of the date of this Proxy
Statement/Prospectus, EVEREN performed procedures to update certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith. EVEREN's opinion is based on
economic and market conditions and other circumstances existing on, and
information made available as of, the date of the opinion.
EVEREN's opinion does not address RG's underlying business decision to
effect the Merger or any other terms of the Merger. EVEREN was not asked to
consider and its opinion does not address the relative merits of the Merger
compared to any alternative business strategies that might exist for RG or the
effect of any other transaction in which RG might engage. EVEREN's opinion does
not represent its opinion as to what the value of RG Common Stock or FMP Common
Stock may be at the Effective Date.
Fees Paid to EVEREN and Relationship with RG. Pursuant to the terms of an
engagement letter dated April 29, 1997, RG agreed to pay EVEREN an aggregate
cash fee of $170,000 plus reimbursement for out-of-pocket expenses for
preparation of the fairness opinion. Of such fee, $85,000 was paid to EVEREN
upon execution of the engagement letter. The remaining $85,000 of such fee was
paid to EVEREN when it delivered the EVEREN Opinion to the RG Board on May 14,
1997. Upon completion of the Merger, EVEREN will also be compensated with a cash
advisory fee in the amount of $430,000 payable in three
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installments and will be granted warrants to purchase 100,000 shares of RG
Common Stock at a price of $0.01 per share (prior to the effects of the exchange
rate). In the Merger, the warrants to purchase 100,000 shares of RG Common Stock
will be converted into warrants to purchase 50,000 shares of FMP Common Stock.
The warrants will be included as part of RG's Common Stock equivalents for
purposes of calculating the number of shares and options to be received by FMP
stockholders and option holders.
In connection with the past financial advisory services, RG granted to
EVEREN options to purchase 30,000 shares of RG's Common Stock at an exercise
price of $6.50 per share. Such options were granted in connection with an
engagement agreement between RG and EVEREN, pursuant to which EVEREN agreed to
provide certain financial advisory and consulting services to RG. Of the options
granted to EVEREN, options to purchase 3,750 shares were vested and exercisable
on the date of grant, and additional options to purchase 3,750 shares were
vested (and will vest) on the first day of each three month period commencing
July 1, 1996. All options will vest immediately upon a change in control of RG
(such as the Merger). All unexercised options will expire two years after
vesting. Exemption from registration for this transaction was claimed pursuant
to Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering. In addition, Danny Edwards maintains a retail
brokerage account with EVEREN and may from time to time borrow against the
account by pledging his personal securities of RG.
FMP'S REASONS FOR THE MERGER
The FMP Board has unanimously approved the Merger and believes the Merger
is in the best interest of FMP and its stockholders. In reaching their decision,
the directors considered, with the assistance of management and its legal and
financial advisers, the following factors:
(a) The Merger offers FMP and its stockholders an opportunity to own shares
in a publicly-held company with the enhanced credibility and financial
flexibility that being publicly held entails and gives FMP stockholders the
opportunity to participate in the long-term growth and appreciation that may
result from FMP's future participation in the consolidation of the sporting
goods industry and from the combined companies' more diversified product
offerings.
(b) The strategic fit between FMP and RG and the complementary nature of
their respective businesses and similar customer base. These factors could
strengthen existing, and develop new customer relationships through the
combined design and marketing capabilities of the combined companies.
(c) Anticipated operating synergies and cost savings, including possible
synergies and cost savings with respect to (i) more effective expenditures for
sales, marketing and distribution and (ii) reduced administrative expenses
resulting from the consolidation of sales, corporate, administrative and
support functions. The FMP Board did not perform any analysis of such
synergies or consider any quantified amount of such cost savings in reaching
its decision to approve the Merger.
(d) The FMP Board believes that the sporting goods industry in which both
FMP and RG participate is entering into a phase of consolidation driven by the
need to expand marketing through high cost media channels and expensive sports
star endorsements as well as the globalization of the sporting goods industry
which will demand even more resources in order to be an effective participant
in the industry.
(e) FMP currently manufactures shafts for golf clubs used by OEMs and
distributed directly to consumers under various trade names. FMP believes that
there is a natural fit between its golf club shaft business and the golf club
grip business of RG and that the similar customer base of the combined
companies may provide enhanced operating efficiencies and marketing
opportunities in the sporting goods industry.
(f) Information with respect to the financial condition and business of RG
including, among other things, steps taken to eliminate RG's operating loss.
In the course of its deliberations, the FMP Board reviewed the following
additional factors relevant to the Merger: (a) reports from management and legal
advisers on specific terms of the Merger Agreement;
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(b) reports from management and accounting advisers regarding the financial
performance, conditions, business operations and prospects of RG; and (c) the
proposed terms, timing and structure of the Merger.
The FMP Board also considered the following potentially negative factors in
its deliberations concerning the Merger: (a) the possibility that FMP may not be
able to reverse RG's operating losses; (b) the possibility that certain of the
operating economies of scale such as more effective expenditures for sales,
marketing and distribution and the reduction of administrative costs sought to
be achieved as a result of the Merger might not be obtained; and (c) the
possibility that the Merger may not be consummated and the potential adverse
effect of announcement of the Merger, or its failure to be consummated, on FMP's
customers and employees.
The foregoing discussion of information and factors considered by the FMP
Board is not intended to be exhaustive but is intended to include material
factors considered. In view of the wide variety of factors considered, the FMP
directors did not find it practical to, and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors may
have given differing weights to different factors.
After taking into consideration all of the factors set forth above, the FMP
Board and stockholders unanimously approved the Merger and determined that the
Merger is fair to and in the best interests of FMP and its stockholders and that
FMP should proceed with the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the RG Board with respect to
the Merger Agreement, Shareholders should be aware that certain members of the
RG Board and management have interests in the Merger that are in addition to or
different from the interests of Shareholders generally. As described in the
following paragraphs: (a) Danny Edwards has entered into a Consulting Agreement
with FMP; (b) FMP has agreed to treat RG Options in the manner described below;
(c) certain officers of RG, if their employment is terminated, are entitled to
severance payments and vesting and extension of their RG Options; and (d) the
Edwards Group and the Johnston Group have certain registration rights and have
agreed as to the future composition of the FMP Board of Directors. The aggregate
value of benefits to be received by RG directors and executive officers as a
result of the Merger is approximately $620,000, the components of which are
discussed in the sections below entitled "Consulting Agreement" and "Severance
Agreements."
Consulting Agreement. FMP has entered into a Consulting Agreement with
Danny Edwards, all of the material terms of which are summarized below. The
summary is qualified in its entirety by the detailed terms of the Consulting
Agreement, a copy of which has been filed with the SEC. See "AVAILABLE
INFORMATION." Under the Consulting Agreement, Mr. Edwards will make himself
available to consult with FMP on matters relating to its business and Mr.
Edwards has agreed to endorse the products of FMP and promote FMP and its
products by actively appearing on the "Nike" tour and in golf tournaments
sponsored by the PGA. Mr. Edwards' consulting obligations are limited to 25
hours during a calendar quarter. The term of the agreement commences with the
Effective Date and expires on its second anniversary. FMP has agreed to pay Mr.
Edwards $180,000 per year and provide him with health insurance for his services
as a consultant. If Mr. Edwards does not complete the first two days of at least
ten tournaments on the Nike tour or PGA events in any year, FMP may reduce the
payment to him by $15,000 for each tournament not completed, unless the
non-completion is due to injury and Mr. Edwards appears and promotes FMP
products at such tournament. FMP may terminate the agreement if Mr. Edwards
engages in gross and wilful misconduct injurious to FMP or if Mr. Edwards fails
to complete the first two days of at least five tournaments during any year
unless non-completion is due to injury and Mr. Edwards appears at the tournament
and promotes FMP products. Mr. Edwards has agreed not to compete with FMP during
the term of the agreement and to hold confidential information in confidence
during the term of the agreement and for one year thereafter. The value of this
Consulting Agreement to Mr. Edwards for the two-year term is approximately
$370,000. Mr. Edwards is the only RG executive officer to receive a consulting
agreement.
RG Options. Each option or warrant to purchase RG Common Stock issued
pursuant to the Non-Employee Director Stock Plan, the Non-Employee Directors
Stock Option Plan, and the 1993 Stock Option Plan of RG, or otherwise which is
outstanding as of the Effective Date (the "RG Options") shall be assumed
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by FMP and converted into an option or warrant (or a substitute option shall be
granted) to purchase the number of shares of FMP Common Stock (rounded to the
nearest whole share) equal to the number of shares of RG Common Stock subject to
such RG Option divided by two, at an exercise price per share of FMP Common
Stock (rounded to the nearest penny) equal to the former exercise price per
share of RG Common Stock under the RG Option immediately prior to the Effective
Date multiplied by two; provided, however, that in the case of any RG Option
which is an incentive stock option under the Code, the conversion formula shall
be adjusted, if necessary, to comply with the Code. Except as otherwise provided
in the applicable plan or agreement granting the RG Options, the duration,
vesting and other terms of each new option to purchase shares of FMP Common
Stock shall be the same as the original RG Option except that all references in
the option agreement to RG shall be deemed to be references to FMP. As soon as
practicable after the Effective Date, FMP shall deliver to each holder of an RG
Option a notice that accurately reflects the changes to such option under the
Merger Agreement. FMP agreed to file a registration statement with respect to
any FMP stock option plan, to the extent that such filings are required to
enable holders of options granted under the Merger Agreement to freely exercise
such options and (except for holders who may be deemed to be affiliates of FMP)
to freely sell shares acquired by the exercise of such options (assuming such
shares would be freely saleable pursuant to an effective registration statement
covering such plans).
Severance Agreements. If the employment of Robert G. J. Burg, II
(President of RG) with RG, FMP or any other successor is terminated by his
employer for any reason other than for gross and wilful misconduct or if Mr.
Burg terminates his employment because of certain changes to the conditions of
his employment (the Merger itself not constituting such a change), Mr. Burg will
be entitled to twelve months of severance pay to be paid upon termination along
with existing health benefits for a like period, and extension of the exercise
period of his RG Options for one year. Mr. Burg's RG Options are all currently
vested. Thomas A. Schneider (Vice President of RG) has a substantially similar
severance agreement, except that the period for severance pay and benefits is
nine months rather than twelve and all options held by Mr. Schneider will
immediately vest upon termination. The value of the severance agreements for Mr.
Burg and Mr. Schneider is approximately $153,000 and $97,000, respectively,
assuming these amounts were payable as of the date of the Merger. The value of
Mr. Schneider's agreement includes the value of immediate vesting of nonvested
RG Options calculated using the closing RG Common Stock price on June 30, 1997
of $3.25, less the exercise prices, multiplied by the number of options which
vest immediately upon termination.
Registration Rights Agreement. The Edwards Group and the Johnston Group
have entered into a Registration Rights Agreement with FMP. Under the
Registration Rights Agreement, a group (for this purpose Berenson Minella is
treated as a separate group) may demand registration under the Securities Act of
FMP Common Stock having a value of not less than $5 million. FMP will not be
obligated to effect more than one demand registration for the Edwards Group,
more than two demand registrations for the Johnston Group or more than one
demand registration for the Berenson Minella Group. No demand can be made during
the first year, and only one demand can be made during the second year. Any
group may join in pro rata only during the second year. The parties to the
Registration Rights Agreement also have the right to have their shares of FMP
Common Stock included in certain other registration statements filed by FMP from
time to time. The number of shares to be registered is subject to reduction at
the request of an underwriter. Under the Registration Rights Agreement, FMP will
indemnify selling stockholders against liabilities created by untrue statements
of material fact or omissions of material facts from a registration statement
and each of the security holders agrees to indemnify FMP for a liability created
by untrue statements of material fact or omissions of material fact in
information supplied by the stockholder to FMP which is included in a
registration statement. A stockholder will cease to have registration rights
when the applicable group or its transferees hold FMP Common Stock existing at
the Effective Date of the Merger or received upon the exercise of an option held
by a party to the Registration Rights Agreement on the Effective Date which is
less than 5% of the then outstanding shares. For this purpose, shares of FMP
Common Stock that have been registered for sale under the Securities Act or that
may be sold without restriction under Rule 144(k) are not counted.
Stockholder Agreement. The Edwards Group and the Johnston Group have
entered into a Stockholder Agreement, which will take effect at the Effective
Date of the Merger and will terminate three years after the Effective Date.
Under the Stockholder Agreement, the Johnston Group will be entitled to
designate six
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members of the FMP Board and the Edwards Group shall be entitled to designate
three members of the FMP Board. The FMP Board of Directors will consist of at
least nine members serving for staggered three year terms. If the FMP Board is
expanded, the groups will designate directors in a ratio of two to one unless
the Edwards Group no longer owns 10% of FMP's voting securities or the vacancy
is filled by an independent director. Members of each group shall serve in each
class of directors. Danny Edwards and Robert G.J. Burg, II will serve on the
Executive Committee and the Edwards Group will be entitled to designate a member
of the Compensation Committee. Each of the parties to the Stockholder Agreement
has agreed to vote his shares of FMP Common Stock in favor of designees of the
Johnston Group and the Edwards Group and to not vote for the removal of a
director designated under the Stockholder Agreement unless for cause, which is
limited to wilful and continued failure to substantially perform his duties,
wilful conduct which is significantly injurious to FMP or conviction for a
felony, or with the written consent of the group that designated the director.
See "RISK FACTORS -- FMP Corporate Risks: Control by Principal Stockholders."
Beneficial Ownership of RG Common Stock by Directors and Officers of
RG. As of June 30, 1997, directors and executive officers of RG and their
affiliates may be deemed to be beneficial owners of approximately 46% of the RG
Common Stock. Pursuant to the Voting Agreement, the Edwards Group, which holds
54% of the outstanding RG Common Stock, has agreed to vote in favor of the
Merger Proposal. Their vote is sufficient to approve and adopt the Merger
Proposal. Of RG's directors and executive officers, only Danny Edwards is a
party to the Voting Agreement. The Voting Agreement applies only to the Merger
Proposal and not the Amendment. See "OWNERSHIP OF RG COMMON STOCK."
MANAGEMENT AND OPERATIONS OF FMP AFTER THE MERGER
FMP will be the parent company of RG after the Effective Date. From and
after the Effective Date, until their respective successors are duly elected or
appointed, the officers of FMP will be Richard P. Johnston, Chairman of the
Board; Danny Edwards, Vice Chairman of the Board; Christopher A. Johnston,
President, Chief Executive Officer and Treasurer; Ronald L. Chalmers, Executive
Vice President; Robert G.J. Burg, II, Executive Vice President; David E.
Johnston, Executive Vice President; and Kenneth J. Warren, Secretary. The
Directors of FMP will be Messrs. Burg, Edwards, Richard Johnston, Christopher
Johnston, David Johnston, Chalmers and Warren, Raymond J. Minella and James G.
DeMello. See "INFORMATION CONCERNING FMP -- Management" and "-- Interests of
Certain Persons in the Merger: Stockholder Agreement."
MANAGEMENT AND OPERATIONS OF RG AFTER THE MERGER
RG will be the surviving corporation in the Merger and, following the
Merger, will be operated as a wholly-owned subsidiary of FMP. One of the
directors of the surviving corporation shall be Robert G.J. Burg, II, and the
officers of RG immediately prior to the Effective Date shall be the officers of
the surviving corporation, in each case until their respective successors are
duly elected or appointed. See "INFORMATION CONCERNING RG -- Management."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase of RG by FMP for accounting and
financial reporting purposes. The accounting treatment of the Merger is not a
condition to the consummation of the Merger.
REGULATORY APPROVALS; REGISTRATION OF FMP COMMON STOCK
In connection with the Merger, FMP has filed with the SEC, [ ] the
Registration Statement to register with the SEC the issuance of the FMP Common
Stock to be issued to Shareholders upon consummation of the Merger. This Proxy
Statement/Prospectus contains some, but not all, of the information set forth in
the Registration Statement. See "AVAILABLE INFORMATION."
Under the Securities Act and pursuant to the terms of the Merger Agreement,
for the Merger to be consummated, the SEC must declare the Registration to be
effective and no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and remain in effect.
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There are no other federal or state regulatory requirements which must be
complied with or obtained in connection with the Merger.
RESALE OF FMP STOCK; AFFILIATES
All shares of FMP Common Stock received by Shareholders in the Merger will
be freely transferable, except that FMP Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
FMP or RG prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of RG, or Rule 144 under the Securities Act with respect
to persons who are or become affiliates of FMP or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of FMP or RG
generally include individuals or entities that control, are controlled by, or
are under common control with RG or FMP, as the case may be, and may include
certain officers and directors of such party as well as principal shareholders
of such party. See "RISK FACTORS -- FMP Corporate Risks: Shares Eligible for
Future Sale."
Prior to the execution of the Merger Agreement, RG delivered to FMP a
letter identifying the members of the Edwards Group and Robert G.J. Burg, II and
Thomas A. Schneider as the only persons who RG believed to be "affiliates" of RG
as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act (the "RG Affiliates"). Prior to distribution of this Prospectus/Proxy
Statement, RG has delivered to FMP agreements from each of the RG Affiliates
representing that he will not offer, sell, pledge, transfer or otherwise dispose
of any of the FMP Common Stock issued to him pursuant to the Merger, except in
compliance with Rule 145 or another exemption from the registration requirements
of the Securities Act. FMP may print an appropriate legend on any certificate
representing FMP Common Stock issued to an RG Affiliate in the Merger and impose
transfer restrictions on those shares. The Edwards Group has entered into a
Registration Rights Agreement with FMP and the Johnston Group pursuant to which
they will be allowed to demand registration of their shares of FMP Common Stock
under certain conditions. See "-- Interests of Certain Persons in the Merger:
Registration Rights Agreement."
NASDAQ NATIONAL MARKET INCLUSION
The inclusion of the FMP Common Stock to be issued in the Merger on the
Nasdaq National Market or listing of such stock on the American Stock Exchange
is a condition to the Merger. Application has been made for such inclusion on
the Nasdaq National Market, although there can be no assurance the FMP Common
Stock will be approved for such inclusion (see "RISK FACTORS -- FMP Corporate
Risks: Market Listing") or that an active trading market will develop for FMP
Common Stock. See "RISK FACTORS -- FMP Corporate Risks: Absence of Trading
Market for FMP Common Stock."
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Nevada Revised Statutes Chapter 92A, the holders of RG Common
Stock are not entitled to any dissenters' rights of appraisal with respect to
the Merger. Under the Nevada Revised Statutes, dissenters' rights of appraisal
are not available for shares of any class of stock which, on the applicable
Record Date for the shareholder vote on a merger, are included as Nasdaq
National Market securities and which are to be converted into shares of stock of
any other corporation which are so designated or which are listed on the
effective date of the merger on a national securities exchange. On the Record
Date, RG Common Stock was included on the Nasdaq National Market and it is a
condition to consummation of the Merger that the FMP Common Stock to be issued
to Shareholders in the Merger be included on the Nasdaq National Market or
listed, or eligible for listing, on the American Stock Exchange, upon official
notice of issuance. Application has been made for such inclusion on the Nasdaq
National Market, although there can be no assurance the FMP Common Stock will be
approved for such inclusion (see "RISK FACTORS -- FMP Corporate Risks: Market
Listing"). If such application is approved, holders of RG Common Stock will not
be entitled to dissenters' rights of appraisal in connection with the Merger.
See "RISK FACTORS -- FMP Corporate Risks: Market Listing; -- Risks Related to
the Merger: No Dissenters' Rights of Appraisal."
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THE MERGER AGREEMENT
The following is a summary of all of the material provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders are
urged to read the Merger Agreement in its entirety for a more complete
description of the Merger.
THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
by Shareholders and the satisfaction of the other conditions to the Merger,
Merger Sub will be merged with and into RG, the separate existence of Merger Sub
will cease and RG will be the surviving corporation of the Merger and a
wholly-owned subsidiary of FMP.
At the Effective Date, by virtue of the Merger and without any action on
the part of RG, FMP, the Merger Sub or Shareholders, each share of RG Common
Stock, each RG Option then outstanding and each share of common stock of Merger
Sub shall be converted pursuant to the terms of the Merger Agreement, as
described below.
The Articles of Incorporation of RG as in effect immediately prior to the
Effective Date and as amended in accordance with the provisions of the Merger
Agreement, will be the Articles of Incorporation of RG following the Merger. The
By-laws of RG as in effect immediately prior to the Effective Date and as
amended in accordance with the provisions of the Merger Agreement will be the
By-laws of RG following the Merger, and thereafter both the Articles of
Incorporation and the By-laws may be amended in accordance with their terms and
as provided by law. The name of the surviving corporation of the Merger will, by
virtue of the Merger, remain "Royal Grip, Inc.," until changed.
EFFECTIVE DATE
The Merger will be consummated and become effective after the requisite
approval of Shareholders has been obtained and all other conditions to the
Merger have been satisfied and upon the filing by Merger Sub and RG of properly
executed Articles of Merger with the Secretary of State of the State of Nevada
or at such time thereafter as is provided in the Articles of Merger.
TERMS OF THE MERGER
General. Upon consummation of the Merger, each issued and outstanding
share of RG Common Stock will be converted into the right to receive one-half
share of FMP Common Stock. Each share of the common stock, without par value, of
Merger Sub issued and outstanding immediately prior to the Effective Date shall
be converted into one fully paid and nonassessable share of RG Common Stock.
Immediately before the Effective Date, FMP will amend and restate its
Certificate of Incorporation in the form of Annex IV which will change its name
to Royal Precision, Inc. FMP will split the shares of FMP Common Stock which
were outstanding immediately before the Effective Date, and/or issue stock
dividends to FMP stockholders of record who were stockholders of record
immediately before the Effective Date, and/or adjust the terms of options or
warrants to acquire FMP Common Stock which were outstanding immediately before
the Effective Date so that, immediately after the Effective Date, the holders of
shares of FMP Common Stock which were outstanding immediately before the
Effective Date and the holders of options and warrants to acquire shares of FMP
Common Stock that were outstanding immediately before the Effective Date, taken
as a group, will own or have the right to acquire the aggregate number of shares
of FMP Common Stock determined by multiplying seven-thirds (7/3) times the sum
of (a) the number of shares of FMP Common Stock which is required to be issued
to the Shareholders under the Merger Agreement, and (b) the number of shares of
FMP Common Stock which is issuable under options and warrants issued by RG and
assumed by FMP under the Merger Agreement. Any stock split or dividend shall be
made pro rata among the stockholders entitled to participate therein as required
by the General Corporation Law of the State of
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Delaware and any adjustment of the terms of any option or warrant shall be made
in accordance with the terms of the applicable anti-dilution provisions thereof.
Upon completion of the Merger, the Shareholders and holders of RG Options
will own or have the right to acquire 30% of the outstanding shares of FMP
Common Stock on a fully diluted basis.
Treatment of RG Options. Each RG Option shall be assumed by FMP and
converted into an option or warrant (or a substitute option shall be granted) to
purchase the number of shares of FMP Common Stock (rounded to the nearest whole
share) equal to the number of shares of RG Common Stock subject to such RG
Option divided by two, at an exercise price per share of FMP Common Stock
(rounded to the nearest penny) equal to the former exercise price per share of
RG Common Stock under the RG Option immediately prior to the Effective Date
multiplied by two; provided, however, that in the case of any RG Option which is
an incentive stock option under the Code, the conversion formula shall be
adjusted, if necessary, to comply with the Code. Except as otherwise provided in
the applicable plan or agreement granting the RG Options, the duration, vesting
and other terms of each new option to purchase shares of FMP Common Stock shall
be the same as the original RG Option except that all references in the option
agreement to RG shall be deemed to be references to FMP. As soon as practicable
after the Effective Date, FMP shall deliver to each holder of an RG Option a
notice that accurately reflects the changes to such option under the Merger
Agreement. FMP has agreed to file a registration statement with respect to any
FMP stock option plan, to the extent that such filings are required to enable
holders of options granted under the Merger Agreement to freely exercise such
options and (except for holders who may be deemed to be affiliates of FMP) to
freely sell shares acquired by the exercise of such options (assuming such
shares would be freely saleable pursuant to an effective registration statement
covering such plans).
Fractional Shares. No fractional shares of FMP Common Stock will be issued
in the Merger. In lieu of any such fractional shares, each Shareholder who
otherwise would be entitled to receive a fractional share of FMP Common Stock
pursuant to the Merger will be paid an amount in cash equal to such fractional
interest multiplied by the average of the high and low trading prices of RG
Common Stock for the five trading days prior to the Effective Date.
SURRENDER AND PAYMENT
Promptly after the Effective Date, American Securities Transfer & Trust,
Inc., the Exchange Agent, shall mail to each holder of record (as shown on the
books of RG's transfer agent as of the Effective Date) of any certificates which
immediately prior to the Effective Date represented outstanding shares of RG
Common Stock (the "Certificates") a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for exchange. Upon surrender of Certificates for cancellation to
the Exchange Agent, together with such letter of transmittal duly executed and
any other required documents, the holder of such Certificates shall be entitled
to receive for each of the shares of RG Common Stock represented by such
Certificates the number of shares of FMP Common Stock into which such shares of
RG Common Stock are converted in the Merger and the Certificates so surrendered
shall forthwith be canceled. SHAREHOLDERS ARE REQUESTED NOT TO AND SHOULD NOT
SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH TRANSMITTAL FORM AND
INSTRUCTIONS ARE RECEIVED.
Until so surrendered, Certificates shall represent solely the right to
receive the number of shares of FMP Common Stock into which such shares of RG
Common Stock are converted in the Merger and any cash in lieu of fractional
shares of FMP Common Stock with respect to each of the shares of RG Common Stock
represented thereby. The holders of Certificates will not be entitled to
exercise any rights of holders of FMP Common Stock until such Certificates are
so surrendered. No dividends or other distributions that are declared or made on
FMP Common Stock will be paid to persons entitled to receive certificates
representing FMP Common Stock pursuant to the Merger Agreement until they
surrender their Certificates representing RG Common Stock. Upon such surrender,
there shall be paid to the person in whose name the certificates representing
such FMP Common Stock shall be issued any dividends or other distributions which
shall have become payable with respect to such FMP Common Stock, if any, in
respect of a record date after the
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Effective Date. In no event shall the person entitled to receive such dividends
be entitled to receive interest on such dividends. If any cash in lieu of
fractional shares or any certificate representing FMP Common Stock is to be paid
to or issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such FMP Common Stock in a name other than that of
the registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties, respectively, relating to, among other things: (a) ownership of shares;
(b) existence and good standing; (c) authorization, validity and effect of the
Merger Agreement; (d) capital stock; (e) subsidiaries; (f) the execution and
delivery of the Merger Agreement not being in violation of RG's and FMP's
respective corporate governance documents, agreements or other instruments; (g)
financial statements of FMP; (h) filings with the SEC by RG; (i) litigation; (j)
absence of changes in financial condition; (k) tax matters and filings; (l)
employee benefit plans and compliance with the Employee Retirement Income
Security Act of 1974, as amended, (m) labor matters; (n) environmental matters;
(o) real property leases, subleases, licenses, deeds and other agreements; (p)
insurance; (q) intellectual property; (r) certain contracts; (s) the absence of
any agreement to pay a brokerage commission in connection with the Merger; (t)
conflicts of interest; (u) ownership of personal property; (v) disclosure of all
material facts; and (w) the absence of any reorganization plans by FMP other
than the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, RG and FMP have agreed that, during the
period from the date of the Merger Agreement to the Effective Date, except as
contemplated by the Merger Agreement, RG and FMP will and will cause each of
their respective subsidiaries to conduct its operations in the ordinary course
of business, and, to the extent consistent therewith, use all reasonable efforts
to: (a) preserve intact its current business organization and good will; (b)
keep available the services of its current employees; (c) preserve its
relationship with those persons having business dealings with it; (d) confer on
a regular basis with one or more representatives of the other party to report
operational matters of materiality and any proposals to engage in material
transactions; (e) promptly notify the other party of (i) any material emergency
or other material change in the condition (financial or otherwise), of such
party's or any subsidiary's business, properties, assets, liabilities, prospects
or the normal course of its businesses or in the operation of its properties,
(ii) any material litigation or material governmental complaints, investigations
or hearings (or communications indicating that the same may be contemplated), or
(iii) the breach in any material respect of any representation or warranty or
covenant contained herein; and (f) promptly deliver to the other party true and
correct copies of any report, statement or schedule filed by such party with the
SEC subsequent to the date of the Merger Agreement.
Pursuant to the Merger Agreement, RG and FMP have agreed that, prior to the
Effective Date, except as otherwise consented to in writing by the other party
or as contemplated by the Merger Agreement, as specifically set forth in the
schedules to the Merger Agreement, each shall not: (a) except pursuant to the
exercise of options, warrants, conversion rights and other contractual rights
disclosed, issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it exists on the date of the Merger
Agreement; (b) grant, confer or award any option, warrant, conversion right or
other right not existing on the date hereof to acquire any shares of its capital
stock; (c) increase any compensation or enter into or amend any employment,
severance, termination or similar agreement with any of its present or future
officers or directors, except for normal increases in compensation to employees
not earning more than $75,000 in annual base compensation, consistent with past
practice, and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs; (d) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or amend
any existing employee benefit plan in any material respect, except for changes
which are less favorable to participants in such plans or as may be required by
33
<PAGE> 43
applicable law; (e) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock; (f)
except in connection with the use of shares of capital stock to pay the exercise
price or tax withholding in connection with stock-based RG benefit plans,
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any subsidiaries, or make any commitment for
any such action; (g) split, combine or reclassify any of its capital stock; (h)
sell, lease or otherwise dispose of any of its assets (including capital stock
of subsidiaries) which are material, individually or in the aggregate, except in
the ordinary course of business; (i) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business; (j) except for obligations of
wholly-owned subsidiaries; assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practices in an amount not material to such party, taken as
a whole; (k) other than wholly-owned subsidiaries, make any loans, advances or
capital contributions to or investments in, any other person; (l) pledge or
otherwise encumber shares of capital stock of such party or its subsidiaries;
(m) mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to create any material mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect to such asset; (n) sell, lease or
dispose of any assets outside the ordinary course of business or any assets
which in the aggregate are material to such party taken as a whole, or enter
into any commitment or transaction outside the ordinary course of business
consistent with past practice which would be material to such party taken as a
whole; (o) except as may be required as a result of a change in law or in
generally accepted accounting principles, shall not change any of the accounting
principles or practices used by such party, except that both parties shall use
their best efforts to make all filings under Regulation S-B promulgated by the
SEC for all periods ending after December 31, 1996; (p) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership,
limited liability company or other business organization or division thereof or
any equity interest therein; (q) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice which would be
material to such party taken as a whole; (r) authorize any new capital
expenditure or expenditures which, individually, is in excess of $25,000 or, in
the aggregate, is in excess of $1,500,000; provided, that none of the foregoing
shall limit any capital expenditure within the aggregate amount previously
authorized by such party's Board of Directors for capital expenditures and
written evidence thereof has been previously provided to the other party; (s)
enter into or amend any contract, agreement, commitment or arrangement providing
for the taking of any action which would be prohibited hereunder; (t) make any
tax election or settle or compromise any income tax liability material to such
party taken as a whole; (u) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
liabilities reflected or reserved against in, and contemplated by, the financial
statements (or the notes thereto) of such party or incurred in the ordinary
course of business consistent with past practice; (v) settle or compromise any
pending or threatened suit, action or claim relating to the transaction
contemplated hereby; (w) take, or agree in writing or otherwise to take any
action that would make any of the representations and warranties of a party
hereto contained in the Merger Agreement untrue or incorrect as of the date when
made; or (x) amend its certificate or articles of incorporation or by-laws.
CERTAIN COVENANTS
Under the Merger Agreement, FMP, Merger Sub and RG have each agreed to (a)
promptly give written notice to the others upon becoming aware of the occurrence
or, to its knowledge, impending or threatened occurrence, of any event which
could cause or constitute a breach of any of its representations, warranties or
covenants contained or referenced in the Merger Agreement, and (b) use its best
efforts to obtain all such waivers, permits, approvals and authorizations and to
effect all such registrations and filings as may be required to consummate the
transactions contemplated by the Merger Agreement.
FMP has agreed that between the date of execution of the Merger Agreement
and the closing date with respect to RG, FMP will not and will cause its
affiliates not to induce any person who is an employee, officer or agent of RG
and its affiliates to terminate such relationship or to employ or assist in
employing any such person.
34
<PAGE> 44
EXCLUSIVITY
The Merger Agreement provides that RG shall not, directly or indirectly,
take (nor shall RG authorize or permit its subsidiaries, officers, directors,
employees, representatives, investment bankers, attorneys, accountants or other
agents or affiliates to take) any action to: (a) encourage, solicit or initiate
the submission of any Acquisition Proposal (as defined below); (b) enter into
any agreement with respect to any Acquisition Proposal; or (c) participate in
any way in discussions or negotiations with, or furnish any information to, any
person in connection with, or take any other action to facilitate any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal. RG will promptly communicate to FMP in
writing the terms of any proposal or inquiry, including the identity of the
person and its affiliates making the same, that it may receive in respect of any
such transaction, or of any such information requested from it or of any such
negotiations or discussions being sought to be initiated with it.
Notwithstanding the foregoing, the provisions contained in the Merger Agreement
shall not prohibit the RG Board or RG from: (i) furnishing information to or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide written proposal to acquire RG pursuant to a merger,
consolidation, share exchange, purchase of a substantial portion of the assets,
business combination or other similar transaction, if the RG Board determines in
good faith, based as to legal matters on the written advice of outside legal
counsel, that such action is required for the Board of Directors to comply with
its fiduciary duties to stockholders imposed by law; and (ii) complying with
Rule 14d-2 of the Exchange Act, with regard to any Acquisition Proposal, if
applicable. "Acquisition Proposal" shall mean any proposed: (A) merger,
consolidation or similar transaction involving RG; (B) sale, lease or other
disposition directly or indirectly by merger, consolidation, share exchange or
otherwise of assets of RG representing 10% or more of the consolidated assets of
RG; (C) issue, sale, or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 10% or more of the voting power of RG; or (D)
transaction in which any person shall acquire beneficial ownership (as such term
is defined in Rule 13d-3 under the Exchange Act), or the right to acquire
beneficial ownership, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to acquire
beneficial ownership, of 10% or more of the outstanding RG Common Stock. See
"THE MERGER AGREEMENT -- Fees and Expenses."
INDEMNIFICATION
The Merger Agreement provides that FMP shall, at all times after the
Effective Date, and shall cause RG to, indemnify each person who is a director
or officer of RG on the date of the Merger Agreement (individually an
"Indemnified Party" and collectively the "Indemnified Parties"), with respect to
any claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel ("Indemnified Liability"), to the extent such
Indemnified Party would have been indemnified pursuant to RG's Articles of
Incorporation or By-laws as then in effect as of the date of the Merger
Agreement, based in whole or in part on, or arising in whole or in part out of,
any matter existing or occurring at or prior to the Effective Date whether
commenced, asserted or claimed before or after the Effective Date, and shall
advance expenses to such Indemnified Party to the extent such Indemnified Party
would have been advanced expenses pursuant to RG's Articles of Incorporation or
By-laws as in effect as of the date of the Merger Agreement. FMP shall, and
shall cause RG to, maintain in effect for not less than four years after the
Effective Date, the current policies of directors' and officers' liability
insurance maintained by RG on the date hereof (provided that FMP may substitute
therefor policies having at least the same coverage and containing terms and
conditions which are no less advantageous to the persons currently covered by
such policies as insureds) with respect to matters existing or occurring on or
prior to the Effective Date.
CONDITIONS
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of RG and FMP to effect the Merger are subject to the following
material conditions. The Merger Agreement provides that at
35
<PAGE> 45
any time prior to the Effective Date, RG or FMP, by action taken by its Board of
Directors, may, to the extent legally allowed, waive compliance with a condition
for the benefit of such party.
(a) the Merger Agreement and the transaction contemplated thereby shall have
been approved in the manner required by applicable law or by applicable
regulations of any stock exchange or other regulatory body and by the holders
of the issued and outstanding shares of capital stock of each of RG and FMP
entitled to vote thereon;
(b) none of the parties to the Merger Agreement shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the transaction contemplated by the Merger Agreement or has a
material adverse effect on a party thereto. In the event any such order or
injunction shall have been issued, each party will use its reasonable efforts
to have any such injunction lifted;
(c) all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
the Merger Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Date and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a material adverse effect following the Effective Date;
(d) the FMP Common Stock issuable in the Merger shall have been approved for
inclusion on the Nasdaq National Market or listing on the American Stock
Exchange;
(e) the Registration Statement shall have been declared effective; and
(f) all applicable Blue Sky laws shall have been complied with.
Conditions to Obligation of RG to Effect the Merger. The obligation of RG
to effect the Merger is subject to the following additional conditions:
(a) FMP shall have performed its agreements contained in the Merger
Agreement required to be performed on or prior to the closing and the
representations and warranties of FMP contained in the Merger Agreement and in
any document delivered in connection therewith shall be true and correct as of
the closing date, and RG shall have received a certificate of the President or
a Vice President of FMP, dated the closing date, certifying to such effect;
(b) through the Effective Date, there shall not have occurred any change in
the financial condition, business, operations or prospects of FMP and its
subsidiaries, taken as a whole, that would reasonably be expected to have a
material adverse effect;
(c) RG shall have received a favorable opinion from counsel to FMP, in the
form attached to the Merger Agreement;
(d) RG shall have received a certificate from the Secretary of FMP and
Merger Sub, in form and substance reasonably satisfactory to RG certifying the
adoption of resolutions by the Board of Directors and stockholders of FMP and
Merger Sub in favor of the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement; and
(e) RG shall have received an opinion from EVEREN, in form and substance
reasonably satisfactory to the Board of Directors of RG, to the effect that
the Merger is fair to the RG Shareholders from a financial point of view.
Conditions to Obligations of FMP and Merger Sub to Effect the Merger. The
obligations of FMP and Merger Sub to effect the Merger are subject to the
following additional conditions, including:
(a) RG shall have performed its agreements contained in the Merger Agreement
required to be performed on or prior to the closing and the representations
and warranties of RG contained in the Merger Agreement and in any document
delivered in connection therewith shall be true and correct as of the
Effective Date, and FMP shall have received a certificate of the President or
a Vice President of RG, dated the Effective Date, certifying to such effect;
36
<PAGE> 46
(b) through the Effective Date, there shall not have occurred any change in
the financial condition, business, operations or prospects of RG and its
subsidiaries taken as a whole, that would reasonably be likely to have a
material adverse effect;
(c) FMP shall have received a favorable opinion of counsel to RG, in the
form attached to the Merger Agreement;
(d) FMP shall have received a certificate from the Secretary of RG, in form
and substance reasonably satisfactory to FMP certifying the adoption of
resolutions by the RG Board and Shareholders in favor of the Merger Agreement,
the Merger and the transactions contemplated by the Merger Agreement; and
(e) FMP shall have received an opinion from EVEREN, in form and substance
reasonably satisfactory to the FMP Board as to the fairness of the terms of
the Merger to the RG Shareholders from a financial point of view.
TERMINATION; EFFECT OF TERMINATION
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Date, before or after the approval
of the Merger Agreement by the Shareholders, by the mutual consent of the
parties hereto.
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either RG or FMP if the Merger shall not
have been consummated on or before September 30, 1997; provided that the party
seeking to terminate the Merger Agreement pursuant to this clause shall have
used all reasonable efforts in good faith to consummate the Merger in a timely
manner; the terminating party shall not have breached in any material respect
its obligations under the Merger Agreement in any manner that shall have
proximately contributed to the occurrence of the failure referred to in said
clause; or the approval of the Shareholders required by the Merger Agreement has
not been obtained at a meeting duly convened therefor or at an adjournment
thereof; or a United States federal or state court of competent jurisdiction or
United States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transaction contemplated by the Merger Agreement and such order, decree, ruling
or other action shall have become final and non-appealable provided that the
party seeking to terminate the Merger Agreement pursuant to this clause shall
have used all reasonable efforts to remove such injunction, order or decree.
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either RG or FMP if the RG Board shall have
withdrawn or modified in a manner adverse to FMP its approval or recommendation
to the Shareholders of the Merger Agreement or the Merger or shall have approved
or recommended to Shareholders that they accept the terms of any Acquisition
Proposal, or shall have resolved to take any of the foregoing actions; a Third
Party Acquisition shall have occurred; provided, however, that such termination
shall not relieve RG of its fee obligations under the Merger Agreement. "Third
Party Acquisition" means the acquisition of RG by merger, tender offer or
otherwise by any person other than FMP, Merger Sub or any affiliate thereof (a
"Third Party"); provided, however, that in the event FMP terminates the Merger
Agreement pursuant to the foregoing provision, a fee shall be payable under the
Merger Agreement only so long as, and on or after the date when, RG: (a) is
acquired (or enters into an agreement to be acquired) by merger, tender offer or
otherwise by such Third Party; or (b) enters into an agreement with a Third
Party providing for the acquisition by said Third Party of substantially all of
the assets of RG in each case, prior to the end of the twelfth month after the
termination of the Merger Agreement.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, before or after the adoption and approval
by the Shareholders, by action of the RG Board if: (a) in the exercise of its
good faith judgment as to its fiduciary duties to the Shareholders imposed by
law, the RG Board determines that such termination is required by reason of an
Acquisition Proposal being made; (b) there has been a breach by FMP of any
representation or warranty contained in the Merger Agreement
37
<PAGE> 47
which would reasonably be expected to have a material adverse effect; or (c)
there has been a material breach of any of the covenants or agreements set forth
in the Merger Agreement on the part of FMP, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by RG to FMP.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date by action of the FMP Board, if (a) there
has been a breach by RG of any representation or warranty contained in the
Merger Agreement which would have or would be reasonably likely to have a
material adverse effect, or (b) there has been a material breach of any of the
covenants or agreements set forth in the Merger Agreement on the part of RG,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by FMP to RG.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement and the abandonment of the Merger, all obligations of the
parties thereto shall terminate, except the obligations of the parties relating
to the information supplied for inclusion in documents required to be filed with
the SEC, fees and expenses, the representations and warranties of the parties,
the conditions to the Merger, the termination and miscellaneous provisions and
the confidentiality agreement signed by the parties at the beginning of
negotiations. A termination for cause does not prejudice the ability of the
non-breaching party to seek damages from the other party for any breach of the
Merger Agreement, including without limitation, attorneys' fees and the right to
pursue any remedy; although if RG terminates the Merger Agreement because the RG
Board has determined that such termination is required by reason of an
Acquisition Proposal being made in the exercise of its good faith judgment as to
its fiduciary duties to its stockholders, FMP's exclusive remedy will be the
payment of fees.
FEES AND EXPENSES
If the Merger is not effected, all costs and expenses incurred in
connection with the Merger Agreement and in the transaction contemplated thereby
shall be paid by the party incurring such expense except that RG and FMP each
agreed to pay 50% of all printing expenses incurred in connection with the
Registration Statement and the Proxy Statement/Prospectus and FMP shall pay any
legal and accounting fees incurred by RG in connection with the Merger on and
after the date of the Merger Agreement to the extent that such fees and expenses
exceed $100,000 up to $300,000, and FMP paid additional transaction costs equal
to $85,000 upon execution of the Merger Agreement. RG shall be obligated to
repay the $85,000 of additional transaction costs if the Merger does not occur
due to no fault of FMP. In any suit to enforce any provision of the Merger
Agreement, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other out-of-pocket expenses from the losing party.
If the Merger Agreement is terminated by FMP for cause, FMP will not be
obligated to make any further payments described above, and RG will pay to FMP
all actual out-of-pocket costs, expenses and fees (including without limitation,
attorneys and accountants fees and expenses and other professional or service
fees and expenses) incurred or to be incurred by FMP in connection with the
Merger Agreement and the transaction contemplated thereby up to $500,000. If the
Merger Agreement is terminated by RG for cause, FMP will pay to RG all actual
out-of-pocket costs, expenses and fees (including, without limitation, fees
payable to all investment banking firms and other institutions, and their
respective agents, and including attorneys and accountants fees and expenses and
other professional or service fees and expenses) incurred or to be incurred by
RG in connection with the Merger Agreement and the transaction contemplated
thereby up to $500,000.
In addition to the foregoing, RG will pay to FMP a fee of $400,000 if the
Merger Agreement is terminated by FMP because the Board of Directors of RG has
withdrawn or modified in a manner adverse to FMP its approval or recommendation
to Shareholders of the Merger Agreement or the Merger or has approved or
recommended to Shareholders that they accept the terms of any Acquisition
Proposal or has resolved to take any of the foregoing actions; or a Third Party
Acquisition has occurred; or the Merger Agreement is terminated by RG under its
fiduciary duty and within 12 months thereafter, RG enters into an agreement with
respect to a Third Party Acquisition, or a Third Party Acquisition occurs,
involving a Third
38
<PAGE> 48
Party with whom RG (or its agents) had any discussions with respect to a Third
Party Acquisition, to whom RG (or its agents) furnished information with respect
to or with a view to a Third Party Acquisition or who expressed any interest
publicly or to RG in a Third Party Acquisition, at any time from and after the
date of the Merger Agreement to the date of such termination.
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by action taken
by their respective Boards of Directors, at any time before or after approval of
matters presented in connection with the Merger by the Shareholders, but after
any such Shareholder approval, no amendment shall be made which by law requires
the further approval of Shareholders without obtaining such further approval.
The Merger Agreement may not be amended except by an instrument in writing
signed by or on behalf of each of the parties thereto.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated statement of
operations gives effect to the Merger, which will be accounted for as a
purchase, as if the Merger had occurred as of May 31, 1996. The accompanying
unaudited condensed consolidated balance sheet gives effect to the Merger as if
it had occurred on May 31, 1997. These pro forma condensed consolidated
financial statements have been prepared based upon the audited financial
statements of FMP as of May 31, 1997 and for the year then ended, and the
unaudited consolidated financial statements of RG as of June 30, 1997 and for
the year then ended. Pro forma adjustments have been applied to FMP's and RG's
historical financial statements to account for the Merger as a purchase;
accordingly, assets acquired and liabilities assumed are reflected at their
estimated fair values, which values are subject to further refinement after the
closing of the Merger. FMP and RG do not expect that the final allocation of the
aggregate purchase price for the Merger will differ materially from the
preliminary allocation reflected in the accompanying pro forma condensed
consolidated financial statements.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
of FMP as of May 31, 1997 and FMP's Predecessor Business as of May 30, 1996 and
for the years then ended, the audited consolidated financial statements of RG as
of December 31, 1996 and 1995 and for the years then ended and the unaudited
condensed consolidated financial statements of RG as of June 30, 1997 and for
the six months ended June 30, 1997 and 1996 included elsewhere in this Proxy
Statement/Prospectus.
The accompanying pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the consolidated operating
results or financial position that would have occurred if the Merger had been
consummated as of May 31, 1996 or May 31, 1997, as the case may be, nor is it
necessarily indicative of future consolidated operating results or financial
position.
Refer to the accompanying notes to unaudited pro forma condensed
consolidated financial statements for an explanation of each pro forma
adjustment.
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<PAGE> 49
FM PRECISION GOLF CORP. AND ROYAL GRIP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
FM PRECISION
GOLF CORP. ROYAL GRIP, INC.
AS OF AS OF PRO FORMA PRO FORMA
MAY 31, 1997 JUNE 30, 1997 ADJUSTMENTS NOTE 2 CONSOLIDATED
------------- ---------------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 27,841 $ -- $ -- $ 27,841
Accounts receivable, net......... 3,257,932 1,563,904 -- 4,821,836
Inventories, net................. 3,493,080 784,608 -- 4,277,688
Other current assets............. 286,168 283,774 -- 569,942
---------- ---------- ---------- -----------
Total current assets..... 7,065,021 2,632,286 -- 9,697,307
Property and equipment, net...... 2,868,440 1,857,315 -- 4,725,755
Intangibles, net................. -- 255,177 772,639 (a, b) 9,565,851
8,538,035 (b)
Net investment in lease.......... -- 2,793,813 -- 2,793,813
Deferred merger costs............ 465,136 -- (465,136) (a) --
Other assets..................... 25,799 23,750 -- 49,549
---------- ---------- ---------- -----------
$ 10,424,396 $7,562,341 $ 8,845,538 $ 26,832,275
========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt, and line-of-credit...... $ 2,466,136 $ 958,527 $ -- $ 3,424,663
Accounts payable................. 1,258,082 1,147,249 815,003 (a) 3,220,334
Accrued expenses................. 1,724,815 472,393 -- 2,197,208
---------- ---------- ---------- -----------
Total current
liabilities............ 5,449,033 2,578,169 815,003 8,842,205
---------- ---------- ---------- -----------
Long-term debt and capital leases,
net of current portion........... 2,616,808 515,417 -- 3,132,225
---------- ---------- ---------- -----------
Other liabilities.................. -- 8,588 -- 8,588
---------- ---------- ---------- -----------
Stockholders' equity:
Preferred stock.................. -- -- -- --
Common stock..................... 10 2,742 2,796 (b) 5,548
Paid-in capital.................. 1,424,990 12,630,338 362,326 (b) 13,910,154
(507,500) (a)
Retained earnings (deficit)...... 933,555 (8,172,913) 8,172,913 (b) 933,555
---------- ---------- ---------- -----------
Total stockholders'
equity................. 2,358,555 4,460,167 8,030,535 14,849,257
---------- ---------- ---------- -----------
$ 10,424,396 $7,562,341 $ 8,845,538 $ 26,832,275
========== ========== ========== ===========
</TABLE>
40
<PAGE> 50
FM PRECISION GOLF CORP. AND ROYAL GRIP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FM PRECISION
GOLF CORP. ROYAL GRIP, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED PRO FORMA PRO FORMA
MAY 31, 1997 JUNE 30, 1997 ADJUSTMENTS NOTE 2 CONSOLIDATED
------------------ ------------------ ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................... $21,742,517 $12,505,606 $ -- $34,248,123
Cost of sales................ 15,387,789 9,517,469 -- 24,905,258
----------- ----------- --------- -----------
Gross margin............ 6,354,728 2,988,137 -- 9,342,865
Selling, general and
administrative expenses.... 4,236,535 5,045,165 465,533 (c) 9,747,233
Loss on write-down and
disposition of property and
equipment.................. -- 446,166 -- 446,166
Write-off of intangible
assets..................... -- 684,329 -- 684,329
Manufacturing and outsourcing
costs...................... -- 1,052,900 -- 1,052,900
----------- ----------- --------- -----------
Operating income
(loss)................ 2,118,193 (4,240,423) (465,533) (2,587,763)
Interest (income) expense.... 485,601 (30,532) -- 455,069
Other expense, net........... -- 290,605 -- 290,605
----------- ----------- --------- -----------
Income (loss) before
income taxes.......... 1,632,592 (4,500,496) (465,533) (3,333,437)
Provision for income taxes... 699,037 -- (699,037) (d) --
----------- ----------- --------- -----------
Net income (loss)............ $ 933,555 $(4,500,496) $ 233,504 $(3,333,437)
=========== =========== ========= ===========
Net income (loss) per
share...................... $ 899.38 $ (1.64) $ (0.58)
=========== =========== ===========
Shares used in computing net
income (loss) per share.... 1,038 2,737,390 5,707,288(Note 3)
=========== =========== ===========
</TABLE>
41
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
The pro forma condensed consolidated financial statements reflect a
reduction in the par value of FMP's common stock from $.01 to $.001 per share, a
split of each issued and outstanding share of FMP common stock into 4,176.796
shares of common stock and the conversion of the 2,742,178 shares of RG's common
stock outstanding as of June 30, 1997 into 1,371,089 shares of FMP's common
stock pursuant to the Merger, which amount will represent approximately 25% of
the outstanding shares of FMP common stock (30% assuming the exercise of all
outstanding RG warrants and options). In connection with the Merger, options and
warrants to purchase 983,500 shares of RG common stock will be converted into
options and warrants to purchase approximately 491,750 shares of FMP common
stock. The Merger will be accounted for as a purchase.
NOTE 2.
The accompanying unaudited condensed consolidated balance sheet gives
effect to the Merger as if it had occurred on May 31, 1997 and reflects the
allocation of the purchase price based on the fair value of the net assets
acquired. The pro forma condensed consolidated statements of operations include
the adjustments necessary to give effect to the Merger as if it had occurred on
May 31, 1996. Also reflected in the pro forma condensed consolidated balance
sheet are the estimated Merger and registration statement costs, including
payments to financial advisors, independent accountants, attorneys and others.
Adjustments included in the pro forma condensed consolidated financial
statements are as follows:
(a) Total estimated transaction costs are approximately $1,560,000,
consisting of $1,052,500 of costs related to the Merger and $507,500 of
costs related to the registration statement. The pro forma adjustment
includes a reclassification of Merger costs deferred by FMP as of May 31,
1997 as purchase price and also reflects $279,861 of costs related to the
Merger which have been expensed by RG as of June 30, 1997.
(b) To reflect the purchase price which represents the sum of (i) the
estimated fair value of the 1,371,089 shares of FMP common stock, $.001 par
value, to be issued in exchange for the 2,742,178 shares of RG common stock
outstanding as of June 30, 1997 (the estimated fair value of the shares of
FMP common stock issued represents the average closing bid price of RG
common stock for the five-day period from May 12, 1997 to May 16, 1997,
which includes two days before and after the announcement of the revised
Merger exchange ratio and the signing of the definitive Merger agreement,
of $3.925 times the 2,742,178 shares of RG stock to be exchanged for the
shares of FMP common stock), (ii) the estimated fair value of the 983,500
options and warrants to purchase RG common stock outstanding (which will be
converted into options and warrants to purchase approximately 491,750
shares of FMP common stock) of $2,235,153 which amount was determined using
the Black Scholes valuation model and (iii) estimated Merger costs of
$1,052,500 discussed in (a) above. The estimated fair value of the RG
options and warrants includes warrants to purchase 100,000 shares of RG
common stock at $.01 per share valued at approximately $400,000 which will
be issued to an investment banker in connection with the Merger. The value
of the warrants to be issued to the investment banker will be expensed by
RG upon consummation of the Merger. The excess of purchase price over the
fair value of net assets acquired of $9,310,674 represents the difference
between the aggregate purchase price of $14,050,702 described above, less
$279,861 which was previously expensed by RG and less RG's equity as of
June 30, 1997 of $4,460,167 since the book value of RG's net assets
approximates their fair value.
42
<PAGE> 52
(c) To reflect amortization of the $9,310,674 of goodwill resulting
from the Merger over an estimated life of 20 years.
(d) To eliminate the income tax provision due to a consolidated net
loss.
NOTE 3.
The pro forma consolidated shares used in computing the pro forma
consolidated net loss per share for the periods presented represents the
weighted average common and common equivalent shares outstanding for FMP as
adjusted for the stock split (4,336,199 shares) and the issuance of 1,371,089
shares of the FMP common stock to RG as described in Note 1.
43
<PAGE> 53
INFORMATION CONCERNING FMP
HISTORY
In 1854, the Torrington, Connecticut facility was established to form
various products utilizing metal. Some of its early products included the metal
roller skate and key, hammers, and other metal tubular products. This expertise
in bending and shaping metal led to early success in the manufacturing of golf
shafts. In 1924, the facility was the first to manufacture and market high
alloy, seamless steel golf shafts. The facility continued to operate under
private ownership for the next 37 years.
In 1961, the Brunswick Corporation acquired MacGregor Sporting Goods
Company. In that year, Brunswick also acquired the Torrington operations to
provide golf shafts to MacGregor's golf club assembly operations. Brunswick sold
MacGregor in 1979, but kept the Torrington operation as a supplier of golf
shafts primarily to golf club head OEMs. At this point, management of Brunswick
began aggressively marketing steel golf shafts both domestically and
internationally.
In order to enhance its technology base, Brunswick purchased the assets of
Precision Shaft in 1986. Precision Shaft had been a customer since 1983 and had
developed Frequency Coefficient Matching technology for matching the flexibility
of a set of golf shafts. In 1996, a group of investors joined management to
acquire substantially all of the assets of the golf shaft manufacturing business
of Brunswick, resulting in the current structure and ownership of FMP. FMP now
offers a wide selection of steel and graphite golf shafts. See "RISK
FACTORS -- Risks Related to FMP: Limited History."
MARKET
The following statistics were obtained from the National Golf Foundation.
An estimated 11.3% of Americans played golf in 1996. In 1996, approximately
24.7 million people played an estimated 477 million rounds of golf in the U.S.,
including two million beginning golfers. Of the total U.S. golfer population,
11.4 million are core golfers (adults who play at least 8 rounds per year), 11.6
million are occasional golfers (those who play 1 to 7 rounds per year) and 1.8
million are junior golfers. Consumer spending on golf equipment and related
merchandise in the U.S. totaled $16.3 billion in 1994 (the last year such data
is available), of which $6.2 billion was spent on golf equipment and $10.1
billion on playing fees, membership fees, and other related golf fees.
PRODUCTS
Most golf club OEMs do not manufacture the three principal parts of the
golf club (the grip, the shaft, and the club head). Rather, these companies
purchase source components from independent suppliers such as FMP.
Golf club shafts are made primarily from steel or graphite fibers
reinforced with epoxy resin. FMP offers to both amateurs and professionals a
full line of steel and graphite shafts. FMP management believes that the
manufacture of steel shafts will continue to be the main focus of FMP's
business. FMP manufactures both customized and standard golf shafts featuring
different combinations of various performance characteristics such as weight,
flex, flex point, and torque. The prices for FMP steel shafts range from $1.40
to $13.00. The prices for FMP graphite shafts range from $11.50 to $39.00.
FMP produces steel shafts for men, women, juniors, and seniors of all
ability levels. FMP seeks to provide all golfers the opportunity to improve
performance by building confidence. FMP shafts are played by approximately 175
touring golf professionals and many PGA club professionals. FMP developed the
first modern stepless steel golf shaft in the industry, the Rifle. FMP
management believes that this shaft combines the accuracy of steel with the feel
and vibration-damping effect of graphite.
FMP also manufactures graphite (also referred to as composite) shafts which
incorporate a patented braided resin transfer molding process. However,
approximately 85% of graphite shafts sold by FMP are produced by other
manufacturers in accordance with FMP's specifications.
44
<PAGE> 54
The value of certain lines of FMP's golf club shafts is enchanced by a
process known as Frequency Coefficient Matching ("FCM"). FCM measures the
flexibility of a set of golf clubs and assures a golfer that the flex from one
club to the next throughout a set is exactly the same. FCM was first introduced
on the PGA Tour in 1981. In less than a decade, FMP's Precision FCM shaft had
been used to win every major championship in the U.S. at least once and numerous
regular tour events. FMP believes that real game improvements mostly come from
having a set of clubs that is matched to a player's build and swing.
The shaft business has historically been driven by new club sales. FMP
management believes that golf club manufacturers are seeking to reduce the
number of suppliers of golf shafts. FMP management believes that technology will
play a key role in the future growth of the industry and that successful growth
will depend upon cost-effective and quick-response manufacturing, a
well-conceived marketing strategy, and an ability to offer OEMs
"one-stop-shopping" for golf shafts. See "RISK FACTORS -- Sporting Goods
Industry: New Product Introduction."
FMP also sells the Frequency Coefficient Matching Analyzer and Frequency
Calculator. The Frequency Coefficient Matching Analyzer is an electronic
instrument manufactured for FMP by Micron Machine Tools, Inc. The Frequency
Calculator is a printed product utilizing FMP numerical information. For the
year ended May 31, 1997, FMP sold 170 Frequency Coefficient Matching Analyzers
and 53 Frequency Calculators for use in pro shops and tour vans. See "RISK
FACTORS -- Sporting Goods Industry: Product Protection and Intellectual
Property."
As of May 30, 1996 and May 31, 1997, FMP had firm commitments for orders of
approximately $4.9 million and $2.3 million, respectively. The decrease in FMP's
backlog is due to a significant backlog of Rifle shafts at May 30, 1996 since
initial production could not meet demand related to the Rifle shaft. FMP
subsequently purchased additional equipment and FMP's backlog as of May 31, 1997
is more representative of the level FMP expects in the future.
PROPRIETARY PROPERTY
In 1995 and in May 1997, patents FMP held on frequency matching and the
manufacture of shafts and clubs expired. However, FMP's management believes that
the expiration of the patents will have no material effect on FMP's business.
While there can be no assurance that competitors will not use the technology of
the expired patents in the future, FMP's competitors, True Temper and Apollo,
have not adopted, nor does FMP management believe that they have plans to copy,
FMP's expired patents. FMP has obtained a trademark on its Rifle product and has
filed for a utility patent. FMP management believes that its only patents
material to its future success are its patent #4,736,093, which enables a club
maker to take frequency sorted steel shafts and calculate what new frequency
shafts are needed to produce a Frequency Matched product, and patent #5,040,270
which relates to the same frequency sorting, but for graphite shafts. Those
patents expire on May 9, 2006 and October 19, 2008, respectively.
COMPETITION
The sporting goods industry is highly competitive. FMP competes primarily
on the basis of quality, product specifications and design, quick response,
price and customer relationships. FMP competes with numerous national and
international companies which manufacture and distribute golf shafts to end
users. The golf equipment industry is highly competitive and competition is
expected to intensify. There are numerous companies competing in various
segments of the golf equipment markets. Many of FMP's competitors have greater
name recognition, more extensive engineering, manufacturing and marketing
capabilities, and greater financial, technological and personnel resources than
those available to FMP. In addition, certain companies in the golf equipment
industry have expanded their product lines in recent years as a result of
acquisitions. There can be no assurance that FMP will be able to compete
successfully in the future with existing or new competitors.
The market for steel golf shafts is highly fragmented and is price driven
on the low-end, high volume segment. As mentioned earlier, two million beginning
golfers entered the market last year, and steel was
45
<PAGE> 55
generally their club shaft of choice. The number of steel shafts estimated to be
sold in 1997 is expected to increase by one-half million over those sold in
1996.
FMP management estimates the total shaft market to be approximately 52
million units, of which steel represents 60% and graphite 40%. Management
believes graphite will grow to approximately 50% by the turn of the century.
However, management believes that at that time, the total shaft market will be
in excess of 60 million units. Graphite sales generally have no effect on the
low-end steel shaft business and little or no effect on high-end steel shaft
products such as the Rifle-type products. Increases in graphite shaft sales do
have an adverse effect on traditional pro-grade steel shaft products.
FMP is the second largest producer of steel golf shafts, after True Temper
Sports. FMP management believes that its market share in steel golf shafts is
approximately 26% while True Temper Sports' market share in steel golf shafts is
believed to be 48%. Other competitors in steel golf shafts include Apollo Golf
and Nippon Shaft Co., Ltd. FMP management believes that their market share is
approximately 22% and 4%, respectively.
FMP also faces potential competition from golf club manufacturers that
currently purchase graphite golf shaft components from outside suppliers but
that may have or acquire the ability to manufacture graphite shafts internally.
However, FMP believes that the ability of FMP to offer graphite shafts that
exceed the quality offered by its competitors will allow FMP continued growth
over individual component and internal manufacturers. See "RISK
FACTORS -- Sporting Goods Industry: Competition."
SALES AND MARKETING
FMP's shafts are sold worldwide to manufacturers of golf clubs and
component retailers through its direct sales staff and a network of independent
distributors located in Canada, Japan, Europe, Australia, New Zealand, and Asia.
In addition, FMP's team of engineers provides field support to FMP's sales
representatives. Each of FMP's products are sold by the OEM of the complete golf
club through a variety of channels including sporting goods stores, discount
stores, mail order catalogs, pro shops, and mass merchandisers. Sales to golf
club OEMs accounted for the vast majority of sales in 1996, with the remainder
to distributors, custom club assemblers, pro shops, and repair shops.
FMP has gained a position with its customers through an organized sales
process that offers assistance on golf club technology and customer service. The
sales and marketing staff work closely with customers to maintain a strong
vendor and marketing partner relationship.
Of FMP's top 25 accounts, three are international. Precision Japan, who has
been a distributor for over 15 years, is FMP's third largest account. Lamkin
International, from the U.K., is the ninth largest account. Lamkin has been
associated with FMP for over 15 years and represents all of FMP's European
sales. Infinity of Canada has been FMP's distributor for ten years. Infinity is
the twentieth largest account. Foreign sales were approximately 10% and 12.9% of
FMP's sales for the year ended May 30, 1996 and year ended May 31, 1997,
respectively.
FMP focuses its advertising efforts on a combination of printed
advertisements and a variety of promotional techniques to build brand and
quality awareness. FMP utilizes popular publications including Golf Digest, Golf
Illustrated, Golf World, Golf Week, and Golf and trade association publications
for its advertising. FMP estimates that it will spend $1.0 million on
advertising in 1997.
Other forms of advertisement FMP utilizes include attending PGA Shows,
producing product brochures, and developing co-operative advertisement
campaigns.
In addition to a direct sales force and advertisement initiatives, FMP
operates an FMP Tour Van in the United States. The Tour Van is operated by a Pro
Tour Manager. The Pro Tour Manager not only explains the benefits of FMP's
products, but also serves as additional advertising at tournament sites. The FMP
Tour Van travels to at least 40 PGA, Senior, Nike, and LPGA Tour events each
year. The Pro Tour Manager is teamed with a Pro Tour Club Technician, who offers
technical service to professionals on such tours.
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<PAGE> 56
CUSTOMERS
FMP's customers include golf club manufacturers, distributors, custom club
assemblers, pro shops, and repair shops. For the year ended May 31, 1997, FMP's
top ten customers accounted for 59% of sales. Taylor Made is FMP's largest
customer, accounting for 13% of sales for the year ended May 31, 1997. Taylor
Made is an OEM that markets to pro shops and off-course shops. See "RISK
FACTORS -- Risks Related to FMP: Dependence on Certain Customers."
SUPPLIERS
FMP uses Worthington Industries as its sole supplier for strip steel.
Should Worthington Industries fail to deliver steel, there may be a disruption
of operations at FMP until an alternate supplier is procured. FMP does not have
any short or long term supply contracts with Worthington Industries. Worthington
Industries provides steel from two separate plant locations. If one Worthington
Industries plant becomes unable to fill the necessary requirements, orders could
be filled from the alternate location. Although FMP has elected to use
Worthington Industries as its sole supplier of strip steel, FMP's management
believes that there are other acceptable supply sources at comparable prices and
that the loss of Worthington Industries as a supplier would not have a material
adverse effect on FMP. See "RISK FACTORS -- Risks Related to FMP: Dependence on
Sole Supplier."
PRODUCT DEVELOPMENT
FMP has two full time employees and utilizes one consultant in research and
development. During the year ended May 31, 1997, FMP spent approximately
$150,000 on research and development and plans to expend $300,000 in research
and development during the year ending May 31, 1998. Research and development
studies call for a project to determine the factors that affect the stability
and dynamic characteristics of the shaft at impact with a golf ball. FMP
anticipates that the consultant will be able to develop new products from these
characteristics using the natural frequencies, slope and damping loss factors.
See "RISK FACTORS -- Sporting Goods Industry: New Product Introduction."
EMPLOYEES
As of April 30, 1997, FMP employed 277 persons, 214 of whom were primarily
engaged in manufacturing, 12 in sales, marketing, customer support and related
activities, 42 in engineering, manufacturing salaried staff and research and
development and 9 in management and finance. In November of 1996, FMP's hourly
employees went on strike for two days. The strike ended by the adoption of the
current collective bargaining agreement with FMP's 214 hourly employees, which
expires on November 14, 1999. FMP believes its relationship with its employees
is satisfactory.
PROPERTIES
FMP's executive offices are located in leased space at 3490 Clubhouse
Drive, Suite 102, Jackson Hole, Wyoming 83001. FMP's manufacturing facility is
located at 535 Migeon Avenue, Torrington, Connecticut 06790 and comprises
approximately 229,400 square feet. The manufacturing facility is owned subject
to an open-end mortgage granted to Star Bank, National Association, on May 31,
1996 under the Credit Facility. See Note 4 to the Consolidated Financial
Statements of FMP as of May 31, 1997 for specific information concerning the
amount outstanding under the Credit Facility. In the opinion of the management
of FMP, these facilities are suitable and adequate for FMP's intended use and
are adequately covered by insurance.
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<PAGE> 57
MANAGEMENT
The directors and executive officers of FMP are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------
<S> <C> <C>
Christopher A. Johnston...... 36 President, Chief Executive Officer, Treasurer and
Director
Richard P. Johnston.......... 66 Chairman of the Board and Director
David E. Johnston............ 42 Executive Vice President and Director
Raymond J. Minella........... 47 Director
Kenneth J. Warren............ 53 Secretary and Director
Ronald L. Chalmers........... 51 Director; president of FMP's operating
subsidiaries
</TABLE>
Christopher A. Johnston has been President of Merbanco, Inc. ("Merbanco"),
a merchant banking company, since 1991 (see "CERTAIN FMP TRANSACTIONS"), and
President, Chief Executive Officer and Treasurer and director of FMP since its
organization in 1996. It is expected that Mr. Johnston will devote substantially
all of his business time to the affairs of FMP. FMP does not have an employment
agreement with Mr. Johnston. See "RISK FACTORS -- Risks Related to FMP: No
Employment Contract with CEO." Christopher A. Johnston is the son of Richard P.
Johnston and the brother of David E. Johnston.
Richard P. Johnston has been Chairman of the Board of Merbanco since 1991
(see "CERTAIN FMP TRANSACTIONS"), served as Chairman of the Board of Republic
Realty Mortgage Co., a commercial mortgage company, from 1992 to 1995, was
Managing Director of Hamilton Robinson & Co., an investment advisory company,
from 1991 to 1994, and has been Chairman of the Board and director of FMP since
its organization in 1996. Mr. Johnston is a founder and a director of AGCO
Corporation (AG: NYSE), a farm implement manufacturer and distributor, and a
director of Myers Industries, Inc. (MYE: AMEX) a plastic and rubber products
manufacturer. Richard P. Johnston is the father of Christopher A. Johnston and
David E. Johnston.
David E. Johnston served as Vice President and director of FMP since its
organization in 1996 and its Executive Vice President since April 1997. Prior
thereto, Mr. Johnston was associated with Buckhorn Rubber Products, Inc., a
molded rubber products manufacturer, and served as Sales Manager from 1989 to
1996. Mr. Johnston is the son of Richard P. Johnston and the brother of
Christopher A. Johnston.
Raymond J. Minella has been a director of FMP since its organization in
1996. Since 1990, Mr. Minella has been an indirect managing general partner of
Berenson Minella, an investment and merchant banking firm. See "CERTAIN FMP
TRANSACTIONS." Mr. Minella has been a director of Zorro Hollup, Inc., a Canadian
retailer and manufacturer. Mr. Minella is also a director of Champion Health
Care, Inc., a Florida health management organization, and a director of
NRXClaim, Inc., an insurance recovery business. Mr. Minella also is a member of
the board of National Network of Estate Planning Attorneys, located in Denver,
Colorado.
Kenneth J. Warren has been Secretary and a director of FMP since its
organization in 1996. Mr. Warren has been a practicing attorney in Columbus,
Ohio for over 20 years. Before 1996 he was a partner in Schwartz, Kelm, Warren &
Ramirez. During 1996, he was of counsel to its successor, Schwartz, Warren &
Ramirez L.L.C. In January 1997, he opened his own office for the practice of
law. Mr. Warren is also Secretary of PH Group Inc., a manufacturer of presses.
Ronald L. Chalmers joined Brunswick in 1992 and served as its Director of
Sales/Marketing to May 1996. Since the organization of FMP in May 1996, he has
served as a director of FMP and President and Treasurer of FMP's subsidiaries.
Prior to joining Brunswick, Mr. Chalmers was the founder, consultant, President
and Chief Executive Officer of the Merit Golf Company and the International
Sales Director of Sounder Sports.
Pursuant to the Merger Agreement, FMP has agreed that, from and after the
Effective Date, and until their respective successors are duly elected or
appointed, the officers of FMP shall be, in addition to the
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<PAGE> 58
foregoing persons, Danny Edwards, Vice Chairman of the Board, and Robert G. J.
Burg, II, Executive Vice President, and that the number of directors of FMP
shall be increased to nine from six by the addition of Mr. Edwards, Mr. Burg,
and James G. DeMello as directors of FMP. See "THE MERGER -- Interests of
Certain Persons in the Merger: Stockholder Agreement" and "-- Management and
Operations of FMP after the Merger." See "INFORMATION CONCERNING
RG -- Management" for biographical information concerning Mr. Edwards and Mr.
Burg.
James G. DeMello, age 56, has been President and Chief Executive Officer of
Acushnet Rubber Co., Inc., a manufacturing company, since December 1994. Prior
thereto, he served as Executive Vice President and General Manager from January
1992 to January 1994 and President, Chief Operating Officer, from January 1994
to December 1994 of Acushnet Company, a manufacturing company. See "INFORMATION
CONCERNING RG -- Manufacturing; and -- RG Management's Discussion and Analysis."
The officers of FMP serve for indefinite terms at the pleasure of the Board
of Directors. Pursuant to the Consulting Agreement, during the two years after
the Effective Date, Mr. Edwards will be Vice Chairman of the Board. After the
Effective Date, the FMP Board will be classified and the terms of the members
will be staggered. See "DESCRIPTION OF FMP COMMON STOCK -- Certain Charter
Provisions and By-Laws: Classified Board." On the Effective Date, the FMP Board
will be classified and the FMP Directors will be elected to the following terms:
Robert G. J. Burg, II, Ronald L. Chalmers and Christopher A. Johnston will serve
for a term of one year; James G. DeMello, Kenneth J. Warren and David E.
Johnston will serve for a term of two years; and Danny Edwards, Richard P.
Johnston and Raymond J. Minella will serve for a term of three years.
FMP MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements of FMP and the Notes thereto included elsewhere in this
Proxy Statement/Prospectus. The following discussion contains forward-looking
statements and FMP's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors," "Information Concerning FMP" and
elsewhere in this Proxy Statement/Prospectus.
On May 31, 1996, FMP, which was formed in 1996 for such purpose, acquired
the golf related assets and certain golf liabilities of the golf shaft division
(the Predecessor Business, an unrelated business) of Brunswick Corporation
("Brunswick"), in the Brunswick Acquisition. The Brunswick Acquisition was
accounted for as a purchase and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values at the date of the Brunswick Acquisition as follows:
<TABLE>
<S> <C>
Accounts receivable................................... $3,047,440
Inventories........................................... 3,173,181
Property, plant and equipment......................... 1,939,923
Accounts payable and accrued expenses................. (1,336,338)
----------
$6,824,206
==========
</TABLE>
The Brunswick Acquisition was financed by proceeds from FMP's Credit
Facility and proceeds from the sale of FMP's Common Stock. The cost of the
Brunswick Acquisition was for an amount less than the net book value of the
Predecessor Business. Accordingly, the carrying value of property, plant and
equipment of the Predecessor Business was $10.5 million compared to an acquired
cost of $1.9 million for FMP. The results for the year ended May 30, 1996 (the
"Predecessor Period") do not reflect the purchase accounting adjustments made or
the financing obtained as a result of the Brunswick Acquisition which are
reflected in the results for the year ended May 31, 1997 (the "Successor
Period").
FMP is a manufacturer and distributor of golf shafts which are sold to OEMs
and to distributors and retailers for use in the replacement market.
Approximately 69% and 68% of FMP's sales for the years ended
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<PAGE> 59
May 30, 1996 and May 31, 1997 were to OEMs. FMP sells primarily steel golf
shafts to customers in the United States and foreign markets. Approximately 10%
and 13% of FMP's sales for the years ended May 30, 1996 and May 31, 1997,
respectively, were exported to foreign markets in Japan, Canada and the United
Kingdom. FMP maintains its sole operating facility in Torrington, Connecticut.
Year Ended May 31, 1997 (Successor Period) Compared to the Year Ended May 30,
1996 (Predecessor Period).
Net Sales. Net sales for the year ended May 31, 1997 were $21.7 million as
compared to $19 million for the year ended May 30, 1996. FMP introduced the
Rifle, a new steel shaft, in January 1995. Rifle sales increased by $5.1 million
for the year ended May 31, 1997 compared to the year ended May 30, 1996. This
increase was partially offset by decreases of $1.3 million in sales of other
steel shafts and $1.1 million in shafts manufactured using graphite for the year
ended May 31, 1997, compared to the year ended May 30, 1996. Sales of composite
shafts for the year ended May 31, 1997 represented approximately 3% of FMP's
total net sales. See "RISK FACTORS -- Dependence on "Rifle" Shaft Sales."
Cost of Goods Sold. Cost of goods sold was $15.4 million, or 70.7% of
sales for the year ended May 31, 1997 as compared to $17.0 million, or 89.7% of
sales for the year ended May 30, 1996. The decrease is due to lower depreciation
expense of approximately $1.1 million for the year ended May 31, 1997, due to
the reduction in the carrying value of property, plant and equipment as of May
30, 1996 as a result of the Brunswick Acquisition. Additionally, FMP accounts
for inventory using the last-in, first-out (LIFO) method compared to the
first-in, first-out (FIFO) method used by the Predecessor Business. The effect
of using LIFO by FMP reduced cost of goods sold by $284,000 for the year ended
May 31, 1997. Furthermore, after the Brunswick Acquisition, FMP discontinued
manufacturing certain lower margin composite products which resulted in the
termination of approximately 40 employees and significantly reduced the
percentage of cost of sales to sales for the Successor Period compared to the
Predecessor Period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4.2 million or 19.5% of sales for the year ended
May 31, 1997 as compared to $3.5 million or 18.6% of sales for the year ended
May 30, 1996. This increase is due to $425,000 in compensation expense related
to stock options granted in fiscal 1997 and approximately $300,000 in increased
management and professional fees related to the Successor Period.
Interest Expense. Interest expense was $486,000 for the year ended May 31,
1997 and there was no interest for the year ended May 30, 1996. In connection
with the Brunswick Acquisition, FMP entered into a Credit Facility for revolving
credit and term financing. Prior to the Brunswick Acquisition, FMP had no debt
outstanding.
Income Taxes. The provision for income taxes for the year ended May 31,
1997 was $699,000 compared to none for the year ended May 30, 1996. A tax
benefit was not recorded by the Predecessor Business due to uncertainty of
realization of the related deferred tax asset. FMP's effective tax rate is
approximately 43% (see Note 8 to FMP's Consolidated Financial Statements).
Liquidity and Capital Resources
At May 31, 1997, FMP had working capital of $1.6 million and a current
ratio of 1.3 to 1 as compared to working capital of $5.1 million and a current
ratio of 3.9 to 1 at May 30, 1996. As of May 31, 1997, FMP had $5.1 million
outstanding on its Credit Facility, all of the material terms of which are set
forth below, of which $2.5 million was classified as a current liability which
reduced FMP's working capital compared to the year ended May 30, 1996.
Borrowings on the Credit Facility bear interest at the prime rate plus 1.5%
(Term Loan) and at the prime rate plus 1.25% (Revolver). The Term Loan is due in
monthly principal installments of $69,712 commencing March 1997 through May 31,
1999 plus an additional annual principal payment each August in an amount equal
to 30% of excess cash flow, as defined, for FMP's preceding fiscal year. An
additional principal payment of approximately $69,000 will be payable on August
31, 1997. The Revolver and Term Loan mature on May 31, 1999; however, the lender
may extend the maturity to May 31, 2001. If the lender does not extend the
maturity of the Credit Facility, the remaining principal outstanding under the
Term
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<PAGE> 60
Loan is due and payable May 31, 1999. Certain terms of the Revolver require that
the obligation be classified as a current liability in the accompanying
consolidated balance sheet. FMP's Credit Facility is secured by substantially
all of the stock and assets of FMP's subsidiaries. The Credit Facility limits
the type and amount of indebtedness which may be incurred by FMP's subsidiaries,
prevents FMP's subsidiaries from declaring distributions or dividends, and
prevents FMP's subsidiaries from disposing of assets. The Credit Facility
matures on May 31, 1999. The amount available for borrowings under the revolving
credit portion of FMP's Credit Facility is determined pursuant to a formula
which is based upon the levels of eligible accounts receivable and inventory
subject to a maximum amount of $7.5 million, less the amount outstanding on the
term portion of the Credit Facility. Based on eligible receivables and inventory
at May 31, 1997, FMP had $2.4 million available for additional borrowings at
such date. FMP believes that the funds anticipated to be generated from
operations and the availability under the Credit Facility will be sufficient to
satisfy FMP's working capital and capital expenditure requirements for at least
the next year.
During the year ended May 31, 1997, net cash provided by operating
activities was $2.4 million which primarily resulted from $900,000 of net income
generated for the period, an increase of $1.6 million in accounts payable and
accrued expenses, and $600,000 of non-cash charges related to depreciation and
compensation expense relating to the grant of stock options, partially offset by
increases in inventories and other current assets of $700,000. FMP's accounts
payable and accrued expenses increased primarily due to accrued transaction
fees, advisory fees payable (see Note 9 to FMP's Consolidated Financial
Statements as of May 31, 1997) and a change in the timing of paying vendors
since the Brunswick Acquisition.
FMP used $8.2 million in investing activities during the year ended May 31,
1997, primarily due to the $6.8 million purchase of the net assets of the
Predecessor Business, $900,000 used to purchase additional property plant and
equipment during the year, as well as, $500,000 of deferred costs relating to
the Merger with RG. FMP estimates that capital expenditures for the year ended
May 31, 1998 will be approximately $1.6 million.
Net cash provided by financing activities was $5.9 million primarily due to
$1 million of proceeds from the sale of common stock related to the purchase of
the Predecessor Business as well as borrowings on FMP's Credit Facility of $5.6
million, which is offset by repayments of $700,000.
FMP entered into the Merger Agreement with RG (see "THE MERGER
AGREEMENT -- Terms of the Merger"). FMP believes that after the consummation of
the Merger the existing financing arrangements currently in place with FMP and
RG would be adequate to meet the working capital and capital expenditure
requirements of the merged company for the first twelve months of its
operations. Following the Merger, FMP will change its name to Royal Precision,
Inc.
Seasonality
Golf is generally considered a warm weather sport. Accordingly, FMP has
historically enjoyed strongest sales in the first and second calendar quarters
(54.7% in the most recent fiscal year) in anticipation of consumer purchases of
golf products during the second and third calendar quarters, the principal
selling season for golf equipment. The increased sales during the first and
second quarters result in a corresponding build up of receivables. Income from
operations is typically lower in the third and fourth calendar quarters as fixed
operating costs are spread over a generally lower sales volume. In order to
minimize the effect of seasonality, FMP may build product inventories during the
third and fourth calendar quarters to allow use of production resources more
effectively. The timing of orders from OEMs and fluctuations in demand due to
the sudden popularity or decline in popularity of specific golf clubs assembled
by OEMs also may contribute to quarterly or other periodic fluctuations. See
"RISK FACTORS -- Sporting Goods Industry: Seasonality; Fluctuations in Operating
Results."
Effect of Recent Accounting Pronouncements
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
is effective for transactions occurring after
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<PAGE> 61
December 31, 1996. FMP does not expect the statement to have a material impact
on FMP's consolidated financial position or results of operations upon adoption.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997 and earlier application is not permitted. Upon adoption, all
prior period earnings per share data presented will be restated. Basic earnings
per share and diluted earnings per share for the nine months ended February 28,
1997, calculated in accordance with SFAS No. 128, are the same as net income per
common share computed using the existing rules.
MERGER SUB
Merger Sub is a Nevada corporation recently formed by FMP for the sole
purpose of facilitating the Merger. Merger Sub is a wholly-owned subsidiary of
FMP with no assets (other than those received in connection with its initial
capitalization) or liabilities (other than those incurred in connection with its
incorporation). The principal executive offices of Merger Sub are located at
3490 Clubhouse Drive, Suite 102, Jackson Hole, Wyoming 83001 and its telephone
number is (307) 739-1188.
CERTAIN FMP TRANSACTIONS
In May 1996, the current stockholders of FMP (see "OWNERSHIP OF FMP COMMON
STOCK") organized FMP as a Delaware corporation and capitalized it by purchasing
all of its capital stock for $1,000,000. FMP purchased the golf shaft
manufacturing, marketing and distribution business of Brunswick Corporation,
including the operating facility in Torrington, Connecticut for a purchase price
of approximately $6,800,000, including transaction costs, and the assumption of
certain liabilities related to the acquired business (approximately $1,300,000).
The amount of the purchase price above the initial capital contribution was
provided by proceeds from FMP's Credit Facility. The Credit Facility is secured
by liens on substantially all of the stock and assets of FMP's subsidiaries and
by limited guaranties from Richard P. Johnston, Christopher A. Johnston and
Berenson Minella. Prior to the Brunswick Acquisition, FMP entered into an
agreement with Merbanco, an investment banking firm owned by Christopher A.
Johnston and by Richard P. Johnston and his spouse, and Berenson Minella, an
investment banking firm in which Raymond J. Minella is an indirect general
partner, pursuant to which FMP paid a $250,000 fee to each of Merbanco and
Berenson Minella. Additionally, FMP entered into agreements with Merbanco and
Berenson Minella under which Merbanco and Berenson Minella would provide further
financial advisory services to FMP. Under these agreements, Merbanco is to be
paid $150,000 annually and Berenson Minella is to be paid $50,000 annually. FMP
paid the first quarterly installment of its fees for the fiscal year beginning
June 1, 1997 under these agreements in June 1997. These agreements required
seven years notice of termination. Under the agreement between FMP and Merbanco,
Merbanco provided the services of Christopher A. Johnston and David E. Johnston
to FMP on a substantially full-time basis and Richard P. Johnston on a part-time
basis. See "FMP EXECUTIVE COMPENSATION -- Summary Compensation Table." Under the
agreement between FMP and Berenson Minella, Berenson Minella provided financial
advisory services of Raymond Minella as needed. The parties will terminate these
agreements at the Effective Date which is expected to be at the end of August
1997, but the first installment of fees will not be prorated upon termination.
Christopher A. Johnston and David E. Johnston became salaried employees of FMP
on July 7, 1997 with annual salaries of $150,000 and $100,000, respectively.
During the fiscal year ended May 31, 1997, FMP paid legal fees of $90,312 to Mr.
Warrren.
FMP EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to FMP during the fiscal
year ended May 31, 1997, of those persons who were, at
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<PAGE> 62
May 31, 1997: (a) the chief executive officer of FMP; and (b) the other
executive officers of FMP whose annual salary and bonus exceeded $100,000 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
-------------------- SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR $ $ OPTIONS (a)
- -------------------------------------------- ---- ------- ------ ---------------
<S> <C> <C> <C> <C>
Christopher A. Johnston..................... 1997 150,500(b) -- 54,590
President, Chief Executive Officer,
Treasurer
Ronald L. Chalmers.......................... 1997 90,000 28,800(c) 5,555
President of operating subsidiaries
</TABLE>
- ---------------
(a) The amounts in this column represent outstanding stock options granted in
March 1997. See "-- Option Grants in Last Fiscal Year."
(b) This amount was paid by Merbanco. See "CERTAIN FMP TRANSACTIONS."
(c) The amount shown in this column represents an annual bonus granted pursuant
to FMP's bonus program for salaried employees.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers of FMP in 1997:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED(a) IN FISCAL YEAR PRICE PER SHARE DATE(a)
- -------------------------------------- ---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Christopher A. Johnston............... 54,590 32% $ 0.24 3/12/07
Ronald L. Chalmers.................... 5,555 3% $ 0.24 3/12/07
</TABLE>
- ---------------
(a) The options were fully vested upon grant and terminate on the earlier of the
expiration date given above, nine months after the grantee ceases to be an
employee because of death or disability, 90 days after termination of
employment without cause or immediately upon termination of employment for
cause or by resignation. See "-- FMP Option Plan."
FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the fiscal year end
value of unexercised options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END: AT FISCAL YEAR-END (a)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Christopher A. Johnston............................ 54,590 -- $136,612 --
Ronald L. Chalmers................................. 5,555 -- 13,889 --
</TABLE>
- ---------------
(a) Calculated on the basis of the difference between the fair market value of
the underlying securities at fiscal year end, as determined by management of
FMP and the exercise price of the option.
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<PAGE> 63
FMP OPTION PLAN
The following is a summary of all of the material terms of FMP's 1997 Stock
Option Plan (the "FMP Plan"). This summary is qualified in its entirety by the
more detailed information contained in the FMP Plan, a copy of which has been
filed with the SEC. See "AVAILABLE INFORMATION."
Purpose, Duration, Amendment and Termination. The FMP Plan was adopted by
FMP's Board of Directors on March 13, 1997. The FMP Plan is designed to attract
and retain capable employees, officers, directors and consultants and to provide
them with the opportunity to acquire a continuing ownership interest in FMP and
long term incentives to continue their services to FMP, and also to maximize the
value of FMP to its stockholders. The Board of Directors may at any time
terminate the FMP Plan or make such amendments to the FMP Plan as it may deem
advisable. The FMP Plan was designed for a privately held company. After the
Effective Date, FMP may adopt a new stock option plan in a format appropriate
for a public company. No amendment or termination of the FMP Plan will alter or
impair the rights of a person to whom a stock option ("FMP Option") was granted
(a "Grantee"), or any Grantee's heir or legal representative to whom such
Grantee's FMP Option has been transferred by will or the laws of descent and
distribution (collectively with the Grantee, a "Holder"), under any FMP Option
issued before the adoption of such amendment or termination by the Board of
Directors, without the written consent of such Holder.
Administration. The FMP Plan is administered by the compensation
committee of the Board of Directors (the "Committee"). The FMP Plan does not
require that the Committee be composed of directors who are "Non-Employee
Directors" as described in paragraph (b)(3) of SEC Rule 16b-3 or "outside
directors" as described in Section 162(m) of the Code. Subject to the express
provisions of the FMP Plan, and in addition to the other powers granted by the
FMP Plan, the Committee has the authority, in its discretion, to determine the
Grantees; grant Options and determine their timing, pricing and amount; define,
prescribe, amend and rescind rules, regulations, procedures, terms and
conditions relating to the FMP Plan; make all other determinations necessary or
advisable for administering the FMP Plan including, but not limited to,
interpreting the FMP Plan, correcting defects, reconciling inconsistencies and
resolving ambiguities; and review and resolve all claims.
FMP Shares. The aggregate number of shares of FMP Common Stock ("FMP
Shares") in respect of which Options may be granted under the FMP Plan may not
exceed approximately 169,830. All of these FMP Shares have been granted and FMP
does not intend to grant any more FMP Options under the FMP Plan. The number of
FMP Shares as to which FMP Options may be granted under the FMP Plan and the
terms of any FMP Option will be adjusted proportionately if FMP Shares are
split, combined or altered by a share dividend or a merger, recapitalization or
other corporate event. If any FMP Option is canceled, terminates or expires for
any reason without having been exercised in full, the FMP Shares related to the
unexercised portion of the FMP Option may not be used again. Except as otherwise
determined by the Board of Directors, the FMP Shares issued under the FMP Plan
will be drawn from FMP's authorized but unissued shares. However, FMP Shares
which are to be delivered under the FMP Plan may be obtained by FMP from its
treasury, by purchases on the open market or from private sources. The proceeds
of the exercise of any FMP Option will be general corporate funds of FMP.
Stock Options. An FMP Option gives the Holder the right to purchase a
given number of FMP Shares from FMP at a fixed price from the time the FMP
Option vests and becomes exercisable until it lapses and ceases to be
exercisable. Employees of FMP, including directors and officers and consultants
and advisers who render bona fide services to FMP or any Affiliate, are eligible
to receive Options under the FMP Plan. The Committee has the power to determine
which eligible employees will be granted FMP Options, the number of FMP Shares
for which each FMP Option may be exercised, the times when they will receive
them and the terms and conditions of individual FMP Option grants (which need
not be identical). The Committee has the power to determine the exercise price
of each FMP Option at the time that it is granted. All of the FMP Options
granted in 1997 had an exercise price of $0.24 per FMP Share.
The Committee has the power to determine the term during which an FMP
Option is exercisable at the time that it is granted, but no FMP Option will be
exercisable after ten years from the date of grant. Unless the Committee
determines otherwise at the time an FMP Option is granted, each FMP Option will
vest and
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<PAGE> 64
first become exercisable as to 25% of the FMP Plan Shares originally subject to
the FMP Option on each of the first four anniversaries of the date of grant
provided the Grantee has been an employee continuously during the time beginning
on the date of grant and ending on the date when such portion of the FMP Option
first becomes exercisable. Unless the Committee determines otherwise at the time
an FMP Option is granted, each FMP Option will lapse and cease to be exercisable
upon the earliest of ten years after the date of grant, nine months after the
Grantee ceases to be an officer or director-employee because of death or
disability, three months after the Grantee's employment with FMP is terminated
without cause, or immediately upon termination of the Grantee's employment with
FMP for cause or by the Grantee's resignation. All of the FMP Options granted in
1997 have terms of ten years, vested immediately and lapse on the conditions
described above.
The Committee may, in its sole discretion and upon such terms and
conditions as it shall determine at or after the date of grant, permit the
exercise price of an FMP Option to be paid in cash, by the tender to FMP of FMP
Shares owned by the Grantee or by a combination thereof. If the Committee does
not make such determination, the exercise price must be paid in cash, by
certified or cashier's check, wire transfer or the reduction of a debt owed by
FMP to the Holder. FMP Shares may not be delivered to FMP as payment for the
exercise of an FMP Option if such shares have been owned by the Holder (together
with his or her decedent or testator) for less than six months or if such shares
were acquired upon the exercise of an incentive stock option and their
disposition would be taxable.
Provisions Applicable to all Options. The Committee may permit the
voluntary surrender of all or a portion of any FMP Option to be conditioned upon
the granting to the Holder of a new FMP Option for the same or a different
number of shares as the FMP Option surrendered, or may require such voluntary
surrender as a condition precedent to a grant of a new FMP Option to such
Holder. Subject to the other provisions of the FMP Plan, such new FMP Option
shall be exercisable at the price, during the period and on such other terms and
conditions as are specified by the Committee at the time of the grant of the new
FMP Option. The Committee, subject to the written consent of the Holder where
the action impairs or adversely alters the rights of the Holder, has the right
at any time after the date of grant of any FMP Option to modify its terms.
If FMP merges or consolidates with or sells substantially all of its assets
to a person that was not one of its affiliates before such transaction, or any
such unaffiliated person or corporation has publicly announced a tender offer to
purchase more than 20% of the outstanding voting securities of FMP, the
Committee, in its discretion, may provide that, for a period of 30 days not
extending beyond the ten year period referred to in the description of Options
above from the date of execution of the acquisition agreement in final
definitive form or the announcement of such offer, notwithstanding the
provisions of any FMP Option, any FMP Option may be exercised in whole or in
part during such 30-day period or that upon the termination of such 30-day
period any such FMP Option shall expire and be null and void.
Disability. If a Grantee who is an employee with FMP is absent from work
because of a physical or mental disability, such Grantee will not be considered
to have ended his or her employment relationship with FMP for purposes of the
FMP Plan while the Grantee has that disability, unless the Grantee resigns or
the Committee decides otherwise.
Transfer Restrictions. No FMP Option may be sold, pledged or otherwise
transferred other than by will or the laws of descent and distribution; and no
FMP Option may be exercised during the life of the Grantee to whom it was
granted except by such Grantee.
Section 16 of the Exchange Act and Rule 144 of the Securities Act impose
restrictions on the ability of certain insiders to resell FMP Shares acquired
upon the exercise of an FMP Option.
Taxation.
HOLDERS SHOULD CONSULT THEIR INDIVIDUAL TAX ADVISERS BEFORE EXERCISING ANY
FMP OPTION OR DISPOSING OF ANY SHARES ACQUIRED ON THE EXERCISE OF AN FMP OPTION.
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<PAGE> 65
FMP Options will not be incentive stock options under the Code. Holders
will not recognize taxable income upon the grant of an FMP Option. Upon exercise
of an FMP Option, the Holder will realize ordinary income to the extent that the
fair market value of the FMP Shares purchased on the date of exercise exceeds
the exercise price. The Holder's basis for determining capital gain or capital
loss upon sale of the shares will be the higher of their fair market value on
the date of exercise and the exercise price. FMP will be entitled to a deduction
equal to the ordinary compensation income realized by the Holder upon the
exercise of the Options.
FMP believes that the FMP Options will be exempt from the requirements of
Code Section 162(m) and the regulations thereunder because they were issued
while FMP was a privately held company. Amounts deductible by FMP upon the
exercise of FMP Options will not be limited by the cap on the deductibility of
compensation paid to certain executive officers of public corporations which
exceeds $1,000,000. Because Section 162(m) is a new provision of the Code,
compliance may depend upon factors, such as relationships between FMP and the
members of the Compensation Committee, which are presently unforeseeable. No
assurance can be given that FMP will remain in compliance with these rules or
that non-compliance will not cause amounts payable under the FMP Plan to become
non-deductible.
FMP Plan Benefits. The following table sets forth the number of shares of
FMP Common Stock subject to each FMP Option, and its per share exercise price,
granted under the FMP Plan to (a) each of FMP's executive officers named in the
Summary Compensation Table above and each of its directors, (b) the current
executive officers of FMP as a group, (c) the current directors of FMP who are
not executive officers, as a group, and (d) all employees of FMP, including all
current officers of the Company who are not executive officers of FMP, as a
group.
1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
PER SHARE EXPIRATION DATE
NAME AND POSITION NUMBER OF SHARES EXERCISE PRICE (a)
- ---------------------------------------- ---------------- -------------- ------------------
<S> <C> <C> <C>
Christopher A. Johnston 54,590 $ 0.24 3/12/07
President, Chief Executive Officer,
Treasurer and Director
Richard P. Johnston 25,060 $ 0.24 3/12/07
Chairman of the Board and Director
David E. Johnston 11,110 $ 0.24 3/12/07
Executive Vice President and Director
Raymond J. Minella 8,353 $ 0.24 3/12/07
Director
Kenneth J. Warren 15,328 $ 0.24 3/12/07
Secretary and Director
Ronald L. Chalmers 5,555 $ 0.24 3/12/07
Director
Executive Group 71,255 $ 0.24 3/12/07
Non-Executive Director Group 48,741 $ 0.24 3/12/07
Non-Executive Officer Employee Group 49,829 $ 0.24 3/12/07
</TABLE>
- ---------------
(a) The FMP Options were fully vested and exercisable on their grant date of
March 13, 1997 and terminate on the earlier of the expiration date given
above, nine months after the grantee ceases to be an employee because of
death or disability, 90 days after termination of employment without cause
or immediately upon termination of the employment for cause or by
resignation.
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<PAGE> 66
COMPENSATION OF FMP DIRECTORS
Members of the FMP Board are paid $10,000 per year payable in quarterly
installments at the time of each quarterly Board meeting for attendance at
regular or special Board meetings or meetings of committees of which they are
members. FMP's directors are also reimbursed for travel expenses incurred in
connection with attendance at each Board and committee meeting.
INFORMATION CONCERNING RG
BUSINESS
RG designs and distributes golf club grips and designs and manufactures
athletic headwear. In 1989, RG introduced a rubber wrap golf grip that gained
widespread acceptance in the golf industry and enabled RG to achieve brand name
recognition. RG currently offers a wide variety of standard and custom models,
all of which feature a distinctive feel and appearance and durability.
RG believes it has established a reputation within the golf industry for
innovation in the design and creation of golf grips. It continually seeks to
improve these products with design and raw material innovations. RG has
developed distribution channels to several thousand club professionals, club
repair shops, and retail golf outlets, and has established relationships with
several original equipment manufacturers.
In April 1994, RG acquired Roxxi, an Oklahoma-based manufacturer and
distributor of high-quality athletic headwear, which now operates as a
wholly-owned subsidiary of RG. Roxxi's products are sold through RG's
golf-related sales force as well as Roxxi's own distribution channels, and
enables RG to offer a wider array of products.
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet. Although this arrangement is expected to have positive long-term
implications to RG's cost structure and to its research and development efforts,
RG incurred transaction and related costs of approximately $1.4 million in the
fourth quarter of 1996 in connection with the transition of its manufacturing
operations. Further, Acushnet has experienced start-up delays and quality
control problems in the production of grips, which has adversely affected RG's
customer relationships and results of operations, has impaired RG's ability to
meet its loan covenants and may make it more difficult for RG to satisfy lending
covenants in the future. Acushnet's production delays may also cause RG to
significantly alter its total sales mix in 1997, which may have an adverse
impact on future customer retention and gross margins from grip sales.
RG and Acushnet have recently renegotiated their agreement in light of
Acushnet's production difficulties. In connection with this renegotiation,
Acushnet has agreed to provide RG with a credit of $400,000 against future
purchases of grips, and additional credits in the event Acushnet fails to meet
future production requirements. These credits may be reduced depending upon
Acushnet's production beyond levels specified in the amendment during 1997 or as
a result of the cancellation of stock options granted to Acushnet. However,
these credits may be reduced only to the extent that RG orders grips above such
specified levels. The renegotiated agreement also provides, among other things,
for modified future production and purchase requirements and for termination
rights exercisable by Acushnet. RG has also recently obtained certain
modifications of its loan covenants that waive past covenant defaults and are
intended to better enable RG to satisfy such covenants in the future.
RG was founded by PGA member and PGA Tour professional, Danny Edwards. Mr.
Edwards is a five-time PGA Tour winner, three-time Collegiate All-American,
member of the 1973 United States Walker Cup Team, and winner of the Japanese
Masters.
INDUSTRY AND MARKET BACKGROUND
Golf Grip Market. RG's principal business is the sale of golf club grips.
These grips are sold into the replacement market, which serves those golfers
seeking to replace grips that have become worn and slick due to prolonged use,
as well as to OEMs, who incorporate RG's grips on their newly manufactured golf
clubs.
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<PAGE> 67
In recent years, RG and other grip manufacturers have begun to educate
golfers and grip suppliers about the performance benefits associated with
periodic grip replacement. In addition, the availability of
performance-enhancing grip products such as those offered by RG has contributed
to the growth of the replacement market. RG believes its golf grips provide
golfers with a supple, "tacky" surface that provides enhanced feel and control
over the golf club. The cost of regripping a standard set of golf clubs is
approximately $70 and is relatively modest compared to the initial purchase
price of a set of clubs.
Acceptance of RG's products by the replacement market has facilitated its
efforts to market golf grips to OEMs. Most golf club manufacturers obtain some
or all of the major components of their golf clubs, including grips, from
independent suppliers that design and manufacture components to the OEMs'
specifications. RG targets sales of its grips to manufacturers of premium brand
golf clubs who seek to improve the performance characteristics and the
marketability of their clubs. RG works with these OEMs to create customized golf
grips bearing the manufacturer's distinctive logo.
Athletic Headwear Market. The market for athletic headwear is
characterized by a broad range of customers, a variety of market niches, and
intense competition. Companies that offer athletic headwear generally compete in
one of two principal markets. Some produce headwear designed for mass sales
through low-priced outlets, such as supermarkets and retail superstores, and
compete almost exclusively on the basis of price, while others offer
high-quality products and compete on the basis of quality, delivery time, and
customer service. Within this latter market segment, in which RG competes, there
are a variety of marketing niches, including retail sporting goods stores, which
typically consist of regional stores that carry athletic headwear bearing local
team logos; large chain sporting goods stores, which generally carry a full line
of professional and collegiate athletic team caps as well as caps bearing the
logos of various corporations involved in the sports industry; college
bookstores and team sales, in which athletic headwear manufacturers contract
with colleges and their coaches to produce caps bearing the school logo, which
can then be used on the field and sold in the school's bookstore; team
outfitters, which supply local teams, such as high schools or little league
teams, with uniforms and related sports equipment; resorts and country clubs,
which often stock caps bearing their special logos or insignias; and businesses,
which provide custom-designed caps to employees or customers to promote the
organization.
RG directs its headwear sales efforts primarily to the retail sporting
goods stores, college bookstores and team sales, team outfitters, and resorts
and country clubs segments, although it also addresses the business and chain
store markets.
PRODUCTS AND PRODUCT FEATURES
Golf Grips. Many manufacturers produce grips through a compression molding
process in which two grip halves are molded together. Compression molding leaves
a noticeable seam in the grip, which must be removed through a buffing or
grinding process that alters the grip surface and causes it to become slick over
time. By contrast, with the exception of its cord grip models, RG's grips are
manufactured through an injection molding process using RG's proprietary rubber
compound. This proprietary compound, when used in conjunction with injection
molding, produces, in RG's view, a more durable grip. RG believes that the raw
materials and the production techniques used in the manufacture of its grips, as
well as the innovative designs of its grips, have made it a leader in the golf
grip market.
RG currently offers a wide variety of standard and customized grips,
including its new Slot Wrap, Royal Wrap and Slot Wrap Cord line of grips, which
feature a new rubber compound, the Sandwrap and Sand Maximum line of grips,
which are designed to provide enhanced adhesion, and its cord line of grips,
which provide greater adhesion, particularly in very wet or humid playing
conditions, through the addition of a cotton material embedded in the surface of
the grip. RG also offers men's and ladies' perforated wrap, men's oversize
perforated wrap, men's and junior's smooth wrap, perforated wrap pistol putter,
fine texture putter, fine texture oversize putter, and Sandmax putter grips. RG
also manufactures and sells certain specialty grips, including the Arthrigrip,
which is designed for golfers suffering from arthritis. RG designs and produces
its customized grips primarily for OEMs, incorporating into each one the
particular manufacturer's distinctive logo, color
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scheme, and pattern. The majority of RG's grips bear the Royal Grip name as part
of its program to build brand awareness and customer loyalty.
Athletic Headwear. RG produces four different styles of athletic headwear:
authentic and casual baseball caps, golf caps and visors. The caps and visors
are typically made of high quality wool serge or cotton twill, although RG does
offer fabrics such as brushed giant twill, distressed cotton, wool plaid, washed
denim, sanded cotton, wool flannel and leather suede. RG utilizes fine quality
materials for other structural components of the headwear, including sweatbands,
visor boards, and covered buttons. RG's baseball caps include the authentic
model, which features a six-panel, high crown design, as well as casual models
and officials' caps. The golf caps feature a five-panel design. All of RG's caps
feature a comfortable fit and durable finish, and are offered in both fitted and
adjustable styles and in a variety of colors and logos.
RG utilizes computerized embroidering machines to design and create logos
or insignias for its headwear. This technology enables RG to meet the needs and
product specifications of all types of customers, from small clubs or teams to
major national colleges. RG sews, embroiders and assembles its caps and visors
at its Oklahoma City facility using raw materials from outside vendors.
CUSTOMERS
RG directed its initial sales efforts on behalf of its golf grips to the
golf pro shops, golf club repair shops, and retail golf equipment stores that
service the replacement grip market. Grip sales to OEMs increased to 39.5% of
total net sales of grips in 1996 from 29.5% in 1995. Due to production startup
delays at Acushnet, grip sales to OEMs for the six months ended June 30, 1997
decreased to 24.9% of total net sales of grips from 33.3% for the corresponding
period in 1996. RG provides golf club grips used on many of Cobra's premium golf
club lines, which accounted for 11.7% of RG's total net sales in 1996. RG is the
primary vendor for Tommy Armour Golf and Odyssey. RG also supplies grips to
other OEMs such as Titleist, Bridgestone, Slazenger, Mizuno and Tad Moore Golf.
While RG utilizes its grip sales representatives to market its golf-related
headwear, a separate sales force markets its other headwear products to schools,
sporting goods stores, college bookstores and team outfitters. RG currently has
agreements to produce baseball caps for several leading college baseball teams,
including Arizona State University, the University of Oklahoma, and the
University of Notre Dame.
SALES AND MARKETING
Domestic Grip Sales. Sales of golf grips to the domestic replacement
market represented 34.8% and 42.9% of RG's total net sales of grips in 1996 and
1995, respectively, and 40.7% of total net sales of grips in the six months
ended June 30, 1997. While many golf grip manufacturers sell their products to
wholesale distributors, who in turn sell to dealers and other representatives,
RG uses a single-tier distribution strategy in which its sales representatives
sell grips directly to thousands of golf club professionals and off-course
specialty store operators. RG's sales force, which includes 17 independent sales
representatives and 6 company sales representatives, target those domestic
replacement market retailers most likely to promote RG's grips. They introduce
RG's products, explain their characteristics and performance advantages, and
obtain feedback regarding the market's acceptance of RG's and its competitors'
products.
RG's independent sales representatives, who receive training from RG's
internal sales and marketing staff, cover particular geographical regions. These
representatives are permitted to sell other golf products, but may not sell
competing golf grips or caps.
Grip sales to OEMs accounted for 39.5% and 29.5% of RG's total net sales of
grips in 1996 and 1995, respectively, reflecting RG's successful efforts to
develop customer relationships with several major club manufacturers. Grip sales
to OEMs accounted for 24.9% of RG's total net sales of grips in the six months
ended June 30, 1997. Typically, RG commences a relationship with a club
manufacturer by supplying grips for one or a few of its product lines. Once RG
has established an ongoing relationship with the OEM, it seeks to expand the
relationship to supply grips for additional product lines.
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Domestic Headwear Sales. Sales of headwear accounted for 31.8% and 27.2%
of total sales in 1996 and 1995, respectively, and 43.1% of total sales in the
six months ended June 30, 1997. RG utilizes its grip sales force to market its
baseball-style caps to college bookstores, corporate accounts and golf resorts
and country clubs. RG targets customers with national reputations and high name
recognition in order to increase market awareness of its products.
International Sales. RG's international sales, which consist primarily of
sales of grips, accounted for 20.8% and 22.2% of RG's total net sales during
1996 and 1995, respectively, and 24.0% of total net sales in the six months
ended June 30, 1997. RG utilizes distributors to sell its products in foreign
markets, including the United Kingdom, Japan, Sweden and Canada. In May 1996, RG
closed its office in England, which supplied the United Kingdom and Western
Europe markets, and converted its operations in those markets to a
distributorship relationship. All of RG's sales are in U.S. dollars. Therefore,
RG is not exposed to any foreign currency exchange risks.
Precision Japan, the exclusive distributor of RG's golf club grips and
athletic headwear in Japan, accounted for 18.9% and 21.4% of RG's total net
sales during 1996 and 1995, respectively, and 21.8% of total net sales in the
six months ended June 30, 1997. Through Precision Japan, RG has established
relationships with leading Japanese OEMs, including Bridgestone, Mizuno, and
Daiwa. Precision Japan also markets RG's golf-related headwear.
RG and Precision Japan have entered into a ten-year agreement expiring in
2001 pursuant to which RG granted Precision Japan exclusive distribution rights
with respect to RG's products for Japan and certain other Far Eastern countries.
Precision Japan has the option to renew this agreement for successive five-year
terms. The agreement is terminable by either party for cause or if they fail to
agree upon pricing terms, or by Precision Japan at any time upon six months'
notice to RG. While RG currently enjoys a strong relationship with Precision
Japan, the loss of Precision Japan as a distributor of RG's products would have
a significant adverse effect on RG's business.
Advertising and Promotion. RG advertises its grips in trade publications
and national golf magazines, such as Golf World, Golf Week and Golf Product
News. In addition, as point-of-purchase selling aids, RG distributes to its
customers various promotional items, such as caps, visors, grip displays, window
stickers, and brochures. At the grass-roots level, RG's sales representatives
promote its products through a nationwide series of consumer "Demo Days" at
local golf facilities. To further increase sales, RG grants promotional
incentives to qualified golf professionals to encourage them to introduce and
recommend RG's grip products to their customers. RG also provides its products
to PGA Tour professionals at no charge by supplying the various repair vans that
service the professional tours from week to week.
RG promotes its headwear products through its various sales forces and by
participating in industry trade shows. RG believes that its best promotional
opportunities in this area come through supplying caps to successful college
teams, whose use of RG's headwear influences the choice of headwear of other
potential customers, such as team outfitters and sporting goods stores.
MANUFACTURING
Golf Grips. On December 21, 1996, RG entered into a Manufacturing and
Supply Agreement with Acushnet (the "Acushnet Supply Agreement"). On April 4,
1997, RG and Acushnet renegotiated certain aspects of their agreement. This
agreement, as amended, makes Acushnet the exclusive supplier of non-cord grips
to RG, subject to RG's ability to use other suppliers in the event Acushnet
fails to meet production requirements, and requires that RG purchase minimum
annual volumes (commencing after January 1, 1999) at fixed prices specified in
the contract. Acushnet is obligated to provide ongoing research and development
with respect to grip compounds, manufacturing processes, and engineering and
quality control support.
The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject to RG's right to extend the agreement for up to three additional periods
of five years each. The Acushnet Supply Agreement is subject to termination by
either party upon certain material breaches thereof or of the Equipment Lease
described below. Upon termination of the Acushnet Supply Agreement by RG arising
out of a material breach by Acushnet, RG may at its option repurchase any grip
manufacturing equipment owned by Acushnet at fair
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market value. In addition, RG may terminate the Acushnet Supply Agreement at any
time upon written notice, and Acushnet may terminate the agreement on or after
June 30, 1998 upon ten months' prior written notice and payment by the
terminating party to the other party of a termination fee, which includes the
repurchase at prescribed values of the manufacturing equipment owned by
Acushnet, an additional fee of $2,500,000 and other fees and commitments
relating, among other things, to the transition of production operations. RG
currently has no immediate contingency plans for the transition of grip
manufacturing to other third parties or in-house manufacturing in the event
Acushnet determines to terminate the agreement. There can be no assurance that
the termination fees and expenses payable to RG in the event of such termination
would adequately compensate RG for any losses incurred by it as a result of such
termination, or that Acushnet would have the financial resources to pay such
termination fees and expenses.
In connection with the Acushnet Supply Agreement, RG leased to Acushnet
RG's specialized manufacturing equipment used in the production of its non-cord
grips, pursuant to a Capital Lease Agreement dated as of December 21, 1996 (the
"Equipment Lease"). Under the Equipment Lease, RG granted to Acushnet an option
to purchase RG's manufacturing equipment. Further, the Equipment Lease
terminates on December 31, 2006, at which time the equipment will be transferred
to Acushnet at no further cost.
Acushnet is recognized as a leading manufacturer of quality precision
molded rubber components and RG believes that the manufacturing alliance with
Acushnet may better enable RG to focus on the development of its product
innovation, marketing, and customer service and support capabilities. However,
Acushnet has experienced start-up delays and quality control problems in the
production of grips which has adversely affected RG's customer relationships and
results of operations, has impaired RG's ability to satisfy its loan covenants
and may make it more difficult for RG to satisfy lending covenants in the
future. Acushnet's production delays may also result in a significant change in
RG's total sales mix in 1997, which may have an adverse impact on future
customer retention and gross margins from grip sales.
The recent amendments to the Acushnet Supply Agreement provide RG with a
credit of $400,000 against future grip purchases, and additional purchase
credits in the event Acushnet fails to meet production requirements. These
credits may be reduced depending upon Acushnet's production beyond levels
specified in the amendment during the balance of 1997 or as a result of its
cancellation of stock options granted to it by RG. However, these credits may be
reduced only to the extent that RG orders grips above such specified levels. The
modified agreement also alters the future production and purchase requirements
of the parties. RG has also recently obtained certain modifications of its loan
covenants that waive past covenant defaults and are intended to better enable RG
to satisfy such covenants in the future. RG currently uses another third party
manufacturer to produce its cord grips.
All of RG's grips are designed to Company specifications and are made of
its proprietary rubber compound. Other than RG's cord grips, which are
compression molded, RG's golf grips are produced through an injection
manufacturing process in which a viscous compound is vertically injected into a
seamless cavity, producing a finished grip that does not require buffing or
grinding.
In the ordinary course of its manufacturing process, RG uses various
citrus-based, biodegradable solvents and paints. To date, RG has not experienced
any material environmental compliance problems.
Athletic Headwear. RG produces headwear primarily at its Oklahoma City
facility. In 1995, RG decided to consolidate the majority of its Tempe and
Oklahoma City facilities capacities in a newly-leased 30,000 square foot
facility in Oklahoma City. The resulting move was targeted at reducing overhead
and improving productivity. In July 1996, RG subleased approximately 11,000
square feet of space at its Tempe facility after the consolidation of headwear
production.
Upon receiving a headwear order, RG works with the customer to design an
appropriate logo or insignia, establish a color scheme, and choose the
appropriate fabrics. RG's art department creates a hand-drawn version of the
logo that is computerized through the use of a digital scanning device.
Computerized embroidering machines utilize this computer image to stitch the
logo into the appropriate panels of the cap. RG employees then hand sew the
remaining portions of the cap, including the bill and the sweatband. With
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each embroidering machine capable of stitching logos on several caps at once,
production time for a "run" of caps averages about 30 minutes.
Ordinarily, because RG fills many of its orders within 48 hours after
receipt of a purchase order, backlog is insignificant. Although many of RG's OEM
customers provide RG with purchase orders weeks or months prior to the requested
date, these orders are generally cancelable without penalty, as is customary in
the industry.
PRODUCT DEVELOPMENT
RG believes that its future growth and success will depend significantly on
its ability to increase market share with its present product lines while
concurrently developing new products and product categories. In this regard,
RG's sales and other personnel work to conceive new product opportunities by
creating prototypes and masters and by working with RG's suppliers and customers
to design and produce finished products. New grip products are tested through
RG's PGA Tour representatives and sales force.
The development of new golf club grips is influenced by the standards and
interpretations promulgated by the USGA. RG believes that it must develop
products that comply with those standards even though they apply only to
USGA-sanctioned competitive events.
RG tests its headwear products to ensure that they conform with Company and
customer specifications relating to size and fit. In addition, RG utilizes a
variety of materials, including sanded cotton, washed denim, and leather suede,
in an attempt to give each hat a distinctive look and feel, and continues to
experiment with new materials.
COMPETITION
RG's principal competitors in the golf grip market include Eaton/Golf Pride
and Lamkin Corp., with Eaton's Golf Pride division currently maintaining a
majority of the total golf grip market. These companies, as well as several
other grip manufacturers with which RG competes, have greater financial,
marketing, and other resources than RG. In addition, several OEMs that do not
currently manufacture premium quality grips could, in light of their substantial
resources, enter into this market segment. Competition in the grip market is
intense.
The golf industry is characterized by widespread imitation of successful
product offerings and, consequently, the commercial success of RG's grips has
spawned several imitation grip products. These imitation grips appear
cosmetically similar to RG's grips and are typically priced lower, which has
attracted and may continue to attract consumers and club manufacturers. RG,
however, believes that such imitation grips do not deliver the performance and
durability of RG's grips. To the extent imitation grips infringe upon its
patents, which RG is not sure about at this time, RG intends to protect its
proprietary rights.
The headwear market is large and also extremely competitive. RG's principal
competitors in the athletic headwear market include Texace and Imperial in the
golf cap segment and Pro-Line, New Era, and DeLong in the team sports and
college bookstore markets. Each of these companies may possess greater
financial, marketing and other resources than RG. See "RISK FACTORS -- Sporting
Goods Industry: Competition."
PROPRIETARY RIGHTS
RG relies upon trademarks to establish and protect RG's proprietary rights
in its products and technologies. RG's logo and the name "Royal Grip" have been
registered as trademarks in the United States, Japan, and in other foreign
countries. In addition, RG has filed trademark applications relating to the
names and configurations of several of RG's products in the United States and in
foreign countries, including Japan. RG has also obtained design patents on some
of its grips and applied for others that are pending. RG protects its
proprietary rubber compound and related technologies as trade secrets. Despite
the safeguards undertaken by RG, there can be no assurance that its proprietary
rights are adequately protected or that competitors will not be able to produce
golf club grips that successfully imitate RG's designs and materials without
infringing RG's proprietary rights.
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In its headwear business, RG licenses the trademarks of several
organizations. It also from time to time seeks to trademark various
"catch-phrases" that can be included on or used in connection with its sports
apparel. See "RISK FACTORS -- Sporting Goods Industry: Product Protection and
Intellectual Property."
PROPERTIES
RG's principal executive offices and customer service operations are
located in an 8,000 square foot leased facility in Scottsdale, Arizona. RG's
lease runs through May 2001. RG recently signed a lease for a 30,000 square foot
production facility in Oklahoma City which runs through March 2001. RG believes
that its facilities are in good condition and adequate and suitable for RG's
intended uses. In the opinion of the management of RG, the facilities are
adequately covered by insurance. Aggregate monthly rental payments for RG's
office and production facilities are approximately $20,000. In December 1996, RG
outsourced its grip manufacturing operations to Acushnet and subsequently has
negotiated a termination of the lease at its former facility in Tempe, Arizona
and relocated to its current facility in Scottsdale.
EMPLOYEES
As of July 31, 1997, RG employed 162 persons on a full-time basis and two
persons on a part time-basis. In addition, RG hires independent consultants and
temporary help from time to time. RG has never had a work stoppage, no employees
are represented by a labor organization, and RG considers its employee relations
to be good.
MANAGEMENT
The names, ages, positions with RG, and the business experience of RG's
current directors and officers is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES
------------------------------- --- -------------------------------------- ------------
<S> <C> <C> <C>
Danny Edwards.................. 45 Chairman of the Board, Chief Executive 1997
Officer and Director
Gardiner Dutton................ 66 Director 1997
Barry Entous................... 52 Director 1998
James W. Myers................. 62 Director 1999
Robert G. J. Burg, II.......... 40 President
Thomas A. Schneider............ 37 Vice President -- Finance and
Secretary
</TABLE>
Danny Edwards has been Chairman of the Board and Chief Executive Officer
since founding RG in 1988, and served as President from 1988 to 1994. Mr.
Edwards has played on the Professional Golf Association Tour since 1975 and has
won five tournaments. Mr. Edwards was a three-time Collegiate All-American at
Oklahoma State University and a member of the 1973 United States Walker Cup
Team. Currently, Mr. Edwards competes annually in three to five PGA Tour events
as well as selected regional tournaments and charity events in order to maintain
his high profile in the golf industry. Mr. Edwards is also a principal of Danny
Edwards Profile Sports ("Profile Sports"), which conducts corporate golf schools
for executives throughout the country. Mr. Edwards' activities on behalf of
Profile Sports occupy approximately 12 days of his professional time annually
and afford him an opportunity to further promote RG's products.
Gardiner Dutton has served as a director of RG since August 1995. From 1990
to 1995, Mr. Dutton served as President and Chief Executive Officer of Bowmar
Instruments Corp., an electronics manufacturer. From 1980 to 1990, Mr. Dutton
served as Chairman and Chief Executive Officer of Inertia Dynamics, Inc., a
manufacturer of lawn and garden equipment. Mr. Dutton currently serves on the
board of directors of National Health Enhancement Systems, Inc., a developer of
medical management software and call centers for the health care industry.
Barry Entous has served as a director of RG since June 1989. Mr. Entous is
a certified public accountant and, since 1977, has been a principal with Entous
& Entous, Inc., an independent accounting firm that
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provides personal accounting services to Mr. Edwards. Mr. Entous serves on the
Audit Committee of the Board of Directors.
James W. Myers has served as a director of RG since April 1990. Since
January 1996, Mr. Myers has served as President of Myers Management and Capital
Group, Inc., a management consulting firm. From 1986 to 1995, Mr. Myers was a
principal of Myers Craig Vallone Francois, Inc., an investment banking and
management advisory firm he founded in May 1986. Mr. Myers currently serves on
the boards of directors of National Health Enhancement Systems, Inc. and ILX,
Inc.
Robert G. J. Burg, II has been the Company's President since February 1995.
Mr. Burg joined RG in January 1992 as the Regional Sales Manager for the Western
Sales Region and became RG's Senior Vice President, Marketing, Sales, and Tour
Relations in January 1992, serving in that capacity until February 1995. For the
five years prior to joining RG, Mr. Burg was self-employed in the sporting goods
industry as a distributor of sporting goods products, including ski and golf
equipment.
Thomas A. Schneider is a certified public accountant and has been RG's Vice
President -- Finance and Secretary, since January 1996. Prior to joining RG, Mr.
Schneider served for five years as the Controller of Karsten Manufacturing
Corp., the maker of Ping golf equipment. He has also served as Controller of
various companies in the real estate and financial services industries.
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RG MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet. Although this arrangement is expected to have positive long-term
implications to RG's cost structure and to its research and development efforts,
RG incurred transaction and related costs of approximately $1.4 million in the
fourth quarter of 1996 in connection with the transition of its manufacturing
operations. Further, Acushnet has experienced start-up delays in the production
of grips which has adversely affected RG's customer relationships and results of
operations, has impaired RG's ability to meet its loan covenants and may make it
more difficult for RG to satisfy lending covenants in the future. Acushnet's
production delays may result in a significant change in total sales mix in 1997
among the grip replacement, OEM and Japanese markets, which may have an adverse
impact on gross margins from grip sales.
RG and Acushnet have renegotiated their agreement in light of Acushnet's
production difficulties. In connection with this renegotiation, among other
things, Acushnet has agreed to provide RG with an initial credit of $400,000
against future purchases of grips with possible additional credits in the event
Acushnet does not meet certain production requirements. The credit may be
reduced if Acushnet exceeds production requirements specified in the amendment
during the balance of 1997 or as a result of the cancellation of certain stock
options granted to Acushnet. However, these credits may be reduced only to the
extent that RG orders grips above such specified levels. The supply agreement
has also been amended to, among other things, alter future production and
purchase requirements and provide for voluntary termination rights on the part
of Acushnet. RG has also recently obtained certain modifications of its loan
covenants that waive past covenant defaults and are intended to better enable RG
to satisfy such covenants in the future.
In addition to entering into the Acushnet agreement, which establishes
fixed pricing for its grips, RG implemented a significant cost cutting program
in 1996 which included closing its headwear production facility in Tempe,
subletting approximately 11,000 square feet at its Tempe facility, converting
its United Kingdom operations to a distributorship relationship, and reducing
its management staffing and compensation as well as other general and
administrative costs.
RG's ability to return to profitability is dependent upon a number of
factors, including the ability of Acushnet to reach appropriate levels of
production, effective cost management, particularly with respect to its headwear
operations, growth in sales, and competitive factors.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by each line item in RG's statements of operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------- ---------------
1997 1996 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ 75.1 76.1 76.5 70.8
----- ----- ----- -----
Gross profit............................................ 24.9 23.9 23.5 29.2
Selling, general, and administrative expenses............. 41.2 35.7 37.3 43.2
Other operating expenses.................................. 4.8 -- 13.5 3.8
----- ----- ----- -----
Loss from operations.................................... (21.1) (11.8) (27.3) (17.8)
Other income (expense) net................................ 0.6 (0.3) 0.1 0.1
----- ----- ----- -----
Loss before income taxes................................ (20.5) (12.1) (27.5) (18.1)
Income tax benefit........................................ -- -- -- (2.1)
----- ----- ----- -----
Net Loss................................................ (20.5)% (12.1)% (27.5)% (16.0)%
===== ===== ===== =====
</TABLE>
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Six Months Ended June 30, 1997 Versus Six Months Ended June 30, 1996
Net Sales. Net sales for the six months ended June 30, 1997 were $5.8
million, a decrease of 39.0% over net sales of $9.5 million for the
corresponding period in the prior year. The decrease in net sales of $3.7
million for the first six months of 1997 from the same period of the prior year
is primarily attributable to a decrease in grip sales of $3.4 million. This
decrease in grip sales is due to a lack of grip production resulting from the
transition of RG's entire grip manufacturing operation to Acushnet. Grip sales
of $3.3 million accounted for 56.9% of total net sales for the six months ended
June 30, 1997 as compared to grip sales of $6.7 million, which accounted for
70.5% of total net sales for the corresponding period of the prior year.
Sales of golf grips in the domestic replacement and Japanese markets
decreased by 46.8% and 30.6% compared to the corresponding period in 1996. OEM
sales decreased by 60.6% for the six months ended June 30, 1997 compared to the
corresponding period in 1996. For the six months ended June 30, 1997, the
percentage of sales of golf grips to the domestic replacement market increased
to 40.7% of total net sales of grips as compared to 40.3% for the corresponding
period of the prior year and grip sales to OEMs decreased to 24.9% of total net
sales of grips from 33.3% for the corresponding period in 1996. For the six
months ended June 30, 1997, the percentage of sales of golf grips to the
Japanese market increased to 30.7% of total net sales of grips as compared to
23.3% for the corresponding period of the prior year. All of RG's sales are in
U.S. dollars. Therefore, RG is not exposed to any foreign currency exchange
risks.
RG's headwear subsidiary, Roxxi Inc., reported a decrease in sales of
$333,000, or 11.9%, for the six months ended June 30, 1997, as compared to the
same period of the prior year. This decrease in net sales is due primarily to
reduced production staffing in 1997 as compared to 1996. In the first two
quarters of 1996, RG still had two headwear production facilities, the existing
Oklahoma City facility and the Tempe plant that was closed in June 1996. Roxxi
sales accounted for $2.5 million or 43.1% of RG's total net sales for the six
months ended June 30, 1997 as compared to $2.8 million or 29.5% of total net
sales for the corresponding period of the prior year.
Gross Profit. Gross profit decreased to $1.5 million in the first six
months of 1997 from $2.3 million in the first six months of 1996. As a
percentage of net sales, gross profit increased to 24.9% from 23.9%. The decline
in gross profit primarily was attributable to Acushnet's production delays
resulting in significantly lower grip sales as compared to the same period in
1996. The gross profit on grips was $1.1 million or 33.3% of grip sales for the
six months ended June 30, 1997 as compared to $2.4 million or 35.8% of grip
sales for the corresponding period of the prior year. The decrease in grip sales
caused a major shift in the sales mix that resulted in a reduction of higher
margin grip sales as a percentage of the total sales mix. The gross profit on
grip sales decreased by 2.5 percentage points compared to the same six months
last year primarily due to a reduction in sales as a result of the transition to
Acushnet. Also, RG incurred significant expenses associated with facilitating
the transition such as travel costs for its employees and overnight shipping
costs in order to satisfy customer needs. During the first six months of 1997,
the margin on headwear sales increased by 19.9% compared to the same six months
last year due to manufacturing cost reductions and efficiencies.
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet Rubber Company. During the first quarter of 1997, Acushnet experienced
startup delays in the production of grips. In light of these difficulties, RG
and Acushnet renegotiated their agreement. In connection with this
renegotiation, Acushnet agreed to provide RG with a credit of $400,000 against
future purchases of grips, to be applied against current accounts payable due to
Acushnet, and additional credits in the event Acushnet fails to meet future
production requirements. These credits may be reduced, during 1997 only,
depending upon Acushnet's production beyond levels specified in the amendment to
the Manufacturing and Supply Agreement, but only to the extent that RG orders
grips above such specified levels. The credits may also be reduced as a result
of the cancellation of stock options granted to Acushnet. Because of the
contingent nature of this credit, RG recorded this amount as a liability under
the Supply Agreement Credits line item and a reduction in accounts payable to
Acushnet. RG intends to recognize these credits as a reduction in cost of sales
when it becomes probable and estimable that Acushnet will not be able to earn
back the credits by either increasing its production or by virtue of a reduction
in RG's orders below levels specified in the amendment. At June 30,
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<PAGE> 76
1997, RG has not recorded any of the credits as a reduction of cost of sales as
Acushnet can still earn back the credits and such amounts, if earned back, are
payable in cash.
During the quarter ended June 30, 1997, RG recorded an additional $72,000
of credits related to Acushnet's production shortfalls. The total credit
recorded as a liability at June 30, 1997 is approximately $472,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2.4 million in the six months ended June
30, 1997 as compared to $3.4 million in the comparable period of 1996. Selling,
general and administrative expenses decreased due to several factors. During the
second and third quarters of 1996, RG eliminated many administrative and selling
employees resulting in a reduction in salaries of $197,000 for the six months
ended June 30, 1997 as compared to the same period last year. As a result of
lower sales caused by the production difficulties at Acushnet and reduced
headwear production as a result of the elimination of the headwear production
facility in Tempe, RG paid $184,000 less in commission for the six months ended
June 30, 1997 as compared to the same period last year. RG has also improved its
collection procedures which has resulted in a reduction of bad debt expense of
$104,000 for the six months ended June 30, 1997 as compared to the corresponding
period in 1996. RG also has reduced many of its selling expenses related to the
advertising and promotion of its products.
Merger Costs. In May 1997, RG entered into the Merger Agreement with FMP.
During the six months ended June 30, 1997, RG incurred $280,000 in investment
banking, legal and accounting fees related to the Merger. RG will also record
merger costs of approximately $400,000 (which approximates its fair value) for
warrants to be issued to its investment banker upon consummation of the Merger.
Other Income (Expense). Other income was $34,000 in the first six months
of 1997 compared to other expense of $29,000 in the same period of 1996. This
difference is primarily due to recording interest income of $122,000 related to
the capital lease receivable from Acushnet. For the same period, this interest
income has been netted against interest expense of $73,000 that was incurred on
RG's line of credit and term loan. The expense in 1996 resulted primarily from
interest expense incurred on a revolving line of credit and a loss on fixed
asset dispositions.
Income Taxes. RG did not record a tax benefit for the loss generated in
the first six months of 1997 as utilization of such loss in future periods is
uncertain.
Fiscal Year Ended December 31, 1996 Versus Fiscal Year Ended December 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 decreased $1.25
million, or 7.5%, to $16.1 million from $17.4 million in 1995. Net sales of golf
grips for the year ended December 31, 1996 decreased $1.7 million or 13.4% to
$11.0 million from $12.7 million in 1995. Net sales of headwear for the year
ended December 31, 1996 increased $384,000 or 8.2% to $5.1 million from $4.7
million in 1995. Grip and headwear sales accounted for 68.3% and 31.7% of total
net sales in 1996, respectively, and 73.0% and 27.0% of total net sales in 1995,
respectively.
Sales of golf grips in the domestic replacement and Japanese markets
decreased by 22.7% and 28.2%, respectively, compared to 1995. OEM sales
increased by 15.9% compared to 1995. This increase in OEM sales is reflective of
new customer relationships with Odyssey Golf and Tommy Armour Golf. RG
attributes the decrease in Japanese and domestic replacement market sales to
continued price pressure in both markets and a delay in the introduction of a
new line of grips featuring new designs and a new compound. As a result of these
factors, the percentage of sales of golf grips to the domestic replacement
market decreased to 34.8% of total net sales of grips in 1996 from 42.9% in
1995, and grip sales to OEMs increased to 39.5% of total net sales of grips in
1996 from 29.5% in 1995. For the year ended December 31, 1996, the percentage of
sales of golf grips to the Japanese market decreased to 22.6% of total net sales
of grips as compared to 27.5% for the year ended December 31, 1995.
Sales of headwear accounted for 31.7% of total net sales in 1996 compared
to 27.2% in 1995. This increase on a percentage basis is primarily the result of
decreased grip sales and partially the result of an increase in headwear sales
in 1996 of 8.1% as compared to 1995.
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International sales accounted for 20.8% of total net sales of RG in 1996,
compared to 22.2% in 1995. All of RG's sales are in U.S. dollars. Therefore, RG
is not exposed to any foreign currency exchange risks.
Gross Profit. Gross profit decreased $1.3 million, or 25.5%, to $3.8
million in 1996 from $5.1 million in 1995. As a percentage of net sales, gross
margin decreased to 23.5% in 1996 from 29.2% in the previous year. Gross profit
on golf grips for the year ended December 31, 1996 decreased $1.2 million or
25.5% to $3.5 million from $4.7 million in 1995. Gross profit on grips accounted
for 31.8% of grip sales in 1996 and 37.0% of grip sales in 1995. Gross profit on
headwear for the year ended December 31, 1996 decreased $107,000 or 28.5% to
$269,000 from $376,000 in 1995. Gross profit on headwear accounted for 5.3% of
headwear sales in 1996 and 8.0% of headwear sales in 1995. The major factors
contributing to the decrease in gross profit were the increased percentage of
headwear sales (which has lower gross margins) to total sales, the overall
decrease in grip sales which resulted in fixed expenses being spread over fewer
units sold and the significant change in the grip sales mix as discussed above.
Gross profit also was affected by modifications to its pricing policies directed
at maintaining OEM market share and remaining price competitive in other golf
grip markets. For the first two quarters of 1996, RG experienced certain quality
problems and delivery delays in the manufacturing of headwear, which contributed
to the decrease in gross profit. RG believes it has resolved such problems with
the consolidation of headwear manufacturing locations and changes in headwear
management. The 1995 gross profit was negatively impacted as a result of the
start-up costs of the headwear production facility in Tempe, changes in sales
mix to lower margin grips, and inventory write-offs and reserves of
approximately $588,000.
RG expects that gross margins will improve in 1997 as a result of improved
efficiencies in the manufacturing process related to the headwear business and
the manufacturing and supply agreement (as amended) between RG and Acushnet
Rubber Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $6.0 million in 1996, or 20.0%, from $7.5
million in 1995. This change was primarily attributable to decreases in
advertising and promotion of $825,000, commissions of $122,000, travel and
entertainment of $62,000 and a reduction of approximately 12 selling and
administrative positions.
Other Operating Expenses. In connection with the Acushnet Supply
Agreement, RG recorded significant transaction related expenses. RG incurred
severance expenses of $304,000 and professional and consulting fees of $246,000.
In addition, RG expensed $359,000 related to options granted to Acushnet with
vesting upon date of grant and expensed $376,000 of capitalized leasehold
improvements and accrued $102,000 in rent expense related to its grip
manufacturing facilities as a result of the outsourcing of grip manufacturing to
Acushnet in December 1996. All of the expenses listed above were classified in
the line item designated Manufacturing Outsourcing and Acquisition Costs in RG's
Consolidated Statements of Operations for the years ended December 31, 1996 and
1995 except for $334,000 which is included in the Loss on Writedown and
Disposition of Property and Equipment line item. In early 1996, RG wrote off
approximately $100,000 of leasehold improvements upon the move of the headwear
manufacturing facilities in Oklahoma City. In the fourth quarter of 1996, RG
wrote off $684,000 of goodwill and covenants not to compete related to the Roxxi
operations as RG determined that these intangibles were not recoverable. In
1995, RG incurred a loss on the write-down of property and equipment of $531,000
previously used in connection with various discontinued grip models and other
equipment not used in operations.
Loss From Operations. RG reported a loss from operations of $4.4 million
in 1996 compared to a loss of $3.1 million in 1995. This decrease in operating
income is primarily attributable to the $1.4 million in expenses associated with
the Acushnet transaction, the $684,000 loss on the write-off of Roxxi
intangibles, and reduced sales of $1.3 million. During 1995, RG incurred $1.5
million of charges related to the write-down of fixed assets, inventory and
accounts receivable.
Income Taxes. RG did not record a tax benefit for the loss generated in
1996 as utilization of such loss in future periods is uncertain. RG has a net
operating loss carry-forward of approximately $4.3 million which will expire for
federal tax purposes in 2014 and for state tax purposes generally in 2000. The
difference between the actual income tax benefit and the reported benefit by
applying the statutory income tax rate consists primarily of a valuation
allowance provided for the deferred tax assets related to the net operating loss
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carry-forward and other deferred tax assets of $1.3 million at December 31,
1996. RG recorded an income tax benefit of $359,000 in 1995 resulting from the
carry-back of the loss generated in 1995 to prior tax years.
Fiscal Year Ended December 31, 1995 Versus Fiscal Year Ended December 31, 1994
Net Sales. Net sales for the year ended December 31, 1995 increased $3.8
million, or 27.9%, to $17.4 million from $13.6 million in 1994. Net sales of
golf grips for the year ended December 31, 1995 increased $700,000 or 5.8% to
$12.7 million from $12.0 million in 1994. Net sales of headwear for the year
ended December 31, 1995 increased $3.1 million or 193.8% to $4.7 million from
$1.6 million in 1994. Grip and headwear sales accounted for 73.0% and 27.0% of
total sales in 1995, respectively, and 88.2% and 11.8% of total sales in 1994,
respectively.
Sales of golf grips in the domestic replacement and Japanese markets
increased by 13.6% and 13.8%, respectively, compared to 1994. Sales of grips in
the OEM market increased by .6% compared to 1994. OEM sales dollars grew at a
significantly lower rate in 1995 despite the 28.7% increase in OEM unit sales.
This decrease in unit sales prices to OEMs reflects the implementation of volume
pricing policies in 1995. RG attributes the increase in the domestic replacement
market largely to the introduction in 1995 of RG's new sand wrap line of grips.
As a result of these factors, the percentage of sales of golf grips to the
domestic replacement market increased to 42.9% of total net sales of grips in
1995 from 39.6% in 1994, and grip sales to domestic OEMs decreased to 29.5% of
total net sales of grips in 1995 from 30.8% in 1994. For the year ended December
31, 1995, the percentage of sales of golf grips to the Japanese market increased
to 27.5% of total net sales of grips as compared to 25.3% for the year ended
December 31, 1994.
International sales accounted for 22.2% of total net sales of RG in 1995,
compared to 26.0% in 1994. This decrease is partly attributable to the increased
percentage of headwear sales to total sales, as RG's international sales consist
largely of sales of grips. Sales of headwear accounted for 27.2% of total net
sales in 1995 compared to 12.2% in 1994. This significant increase on a
percentage basis is partially the result of including RG's headwear operations
in its results for a full year. RG acquired its headwear subsidiary, Roxxi,
Inc., on April 8, 1994. Sales of headwear increased $3.1 million in 1995
reflecting this first full year of operations, as well as the integration of the
headwear sales into the grip sales force. All of RG's sales are in U.S. dollars.
Therefore, RG is not exposed to any foreign currency exchange risks.
Gross Profit. Gross profit decreased $326,000, or 6.0%, to $5.1 million in
1995 from $5.4 million in 1994. As a percentage of net sales, gross margin
decreased to 29.2% in 1995 from 39.5% in the previous year. Gross profit on golf
grips for the year ended December 31, 1995 decreased $571,000 or 10.8% to $4.7
million from $5.3 million in 1994. Gross profit on grips accounted for 37.0% of
grip sales in 1995 and 44.2% of grip sales in 1994. Gross profit on headwear for
the year ended December 31, 1995 increased $216,000 or 135% to $376,000 from
$160,000 in 1994. Gross profit on headwear accounted for 8.0% of headwear sales
in 1995 and 10.0% of headwear sales in 1994. The major factors contributing to
the decrease in gross profit were the start-up costs of the headwear production
facility in Tempe, which resulted in inefficiencies related to the development
and training of the labor force, the increased percentage of headwear sales
(which has lower gross margins) to total sales, the effect of sales of economy
grips, which also have lower margins, and the significant inventory write-offs
and reserves referenced above. Gross profit also was affected by the new pricing
policy established for OEM golf grip customers, as well as other modifications
to its pricing policies directed at maintaining OEM market share and improving
sales in other golf grip markets.
RG determined to eliminate its economy-priced grips from its product line
in the fourth quarter of 1995 and concentrate on its higher performance grips.
As a result, RG recorded reserves as of December 31, 1995 of $188,000 related to
its inventory of economy and other grips.
RG also recorded a $331,000 inventory write-down in 1995. During the first
quarter of 1995, RG sold certain selected inventory items in a bartering
transaction to distribute its product internationally in areas where it did not
have a current distribution system. In exchange, RG received trade credit rights
to be used in the purchase of goods and services over a three year period. No
profit was recorded on the initial transaction and the rights were to be
amortized as they were utilized. Although a plan of utilization is being pursued
by RG, no trade credit rights had been used as of December 31, 1995. Due to the
uncertainty as to the timing and
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extent of the utilization of the trade credit rights, it was determined that
such trade credits should be fully reserved. Any future use of the trade credit
rights within the three year period will be recorded as cost reductions. The
effect of these and other inventory charges, which aggregated $588,000, was a
decrease in gross margins in 1995 of 3.4%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $7.5 million in 1995, or 41.7%, from $5.3
million in 1994. This change was attributable to increases in advertising and
promotion of $658,000, commissions of $243,000 and salaries of $949,000, of
which approximately $210,000 was severance pay relating in part to a realignment
of management.
Other Operating Expenses. In 1995, RG incurred a loss on the write-down of
property and equipment which had been used in connection with various types of
grips which have been discontinued by RG.
Loss From Operations. RG had a loss from operations of $3.1 million in
1995 compared to operating income of $62,000 in 1994. This substantial decrease
in operating income is primarily attributable to the $1.9 million operating loss
at the Roxxi headwear operation, reflecting the costs associated with the
start-up of the Tempe operations, and the $1.5 million of one-time charges
discussed above. Of these one-time charges, $1.1 million had no cash impact in
1995 and will have no future impact.
Income Taxes. RG recorded an income tax benefit of $359,000 in 1995, due
to the loss incurred in 1995, compared to a provision of $44,000 in 1994 and
$315,000 in 1993. RG carried the net operating loss back to September 23, 1993.
Prior to this date, RG had elected to be taxed as an S Corporation and,
therefore, was not subject to federal (and some state) income taxes. RG recorded
deferred income taxes of $195,000 at this date for the cumulative temporary
differences. After the effect of the carry-back, RG has a net operating loss
carry-forward of approximately $2.9 million which will expire for federal
purposes in 2010 and for state purposes generally in 2000. The difference
between the actual income tax benefit and the reported benefit by applying the
statutory income tax rate consists of a valuation allowance provided for the
deferred tax asset related to the net operating loss carry-forward and other
deferred tax assets of $776,000 at December 31, 1995. RG has an income tax
refund receivable related to the carry-back of $101,000 at December 31, 1995.
Liquidity and Capital Resources
During the six months ended June 30, 1997, RG used $511,000 to fund
operating activities including a loss of $1,198,000 and a reduction in trade
accounts payable and other accrued expenses of $780,000. These factors were
partially offset by a reduction in inventory of $597,000 and an increase in
supply agreement credits of $472,000. RG attributes the reduction in trade
accounts payable to the application of the Acushnet credits to payments due
Acushnet and the elimination of its grip manufacturing operation thus
eliminating purchases of raw material. The inventory levels decreased
substantially due to RG ceasing its grip manufacturing operation. Many of the
shipments occurring in the first six months of 1997 were from inventory produced
prior to the transition of manufacturing. As a result of the Acushnet
transaction, RG intends to maintain substantially lower grip inventory levels in
future periods as compared to 1996.
During the six months ended June 30, 1997, RG used $83,000 to fund
investing activities consisting of $189,000 of purchases of property and
equipment offset by $105,000 of payments received on the capital lease
receivable. RG estimates that its capital expenditures for 1997 will be
approximately $500,000.
During the six months ended June 30, 1997, net cash provided by financing
activities was $556,000 which was primarily attributable to borrowings on RG's
line of credit of $672,000.
RG funded its shortfall in cash from borrowings under its line of credit.
Borrowings on RG's line of credit totaled $732,000 at June 30, 1997. On July 31,
1997, RG had $490,000 drawn on its line of credit of $1.75 million. (See Note
(4) to the Condensed Consolidated Financial Statements.) Available borrowings on
the line at June 30, 1997 were $546,000.
In recent periods RG has financed its operations through internally
generated funds and borrowings. RG used $314,000 in cash to fund operating
activities during 1996. Although RG experienced a net loss of $4.4 million in
1996, the cash used from operations was only $314,000 primarily due to the
non-cash effect from the
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write-off of property and equipment of $446,000, the increase of allowance for
doubtful accounts and inventory reserves of $440,000, the expensing of certain
stock options granted of $394,000, and depreciation and amortization of
$1,653,000. In 1995, operating activities produced $566,000 in cash. RG
generated cash flow from operating activities although it experienced a net loss
for 1995 primarily due to the effect of the property and equipment and inventory
write-offs, which were primarily non-cash, and depreciation and amortization.
In 1996, RG used $710,000 to fund investing activities consisting of
$1,450,000 of purchases of property and equipment partially offset by proceeds
on the sale of certain fixed assets of $740,000.
During 1996, net cash provided by financing activities was $648,000 which
was primarily attributable to proceeds from issuance of long-term debt and
borrowings on RG's line of credit of $786,000 partially offset by payments on
long-term debt of $146,000.
RG's Equipment Lease with Acushnet will provide approximately $450,000 in
annual payments to RG.
At December 31, 1996, RG had positive working capital of $1.2 million, down
from $2.4 million at December 31, 1995. The decrease in working capital is
primarily the result of expenses incurred related to the Acushnet transaction
and a decrease in inventory of $339,000.
In February 1997, RG entered into a new $1.75 million line of credit
facility and a $700,000 term loan with a commercial bank. The material terms of
the agreement are as follows. These credit arrangements mature on February 10,
2000 and contain net worth, debt service coverage and minimum income
requirements and prohibit dividend payments and limit capital expenditures. In
addition, the line of credit facility and term loan is secured by substantially
all of RG's assets. The term loan requires monthly principal payments of $12,000
beginning March 1997. At December 31, 1996 and March 31, 1997, RG was not in
compliance with its quarterly net income (loss), debt service, and net worth
debt covenants and anticipated not meeting many of its quarterly and monthly
covenants during 1997. In April 1997, RG obtained an amended bank agreement
which waived the net income (loss), debt service, and net worth covenant
defaults at December 31, 1996 and March 31, 1997 and amended the debt agreement
whereby the net income (loss) limits have been modified to a loss of no more
than $1,000,000 for the quarter ended March 31, 1997 and a cumulative loss of no
more than $1,600,000 for the quarter ending June 30, 1997, and for each month
thereafter in 1997. The agreement amended the net worth covenants to correlate
with the net loss covenants above. The quarterly debt service and monthly loss
limit covenants were waived by the bank for 1997. In addition, the interest rate
was amended to the prime rate plus 3.0% effective April 1, 1997, subject to
change based on the operating results of RG. At June 30, 1997 RG was in
compliance with its debt covenants and believes that it is probable that RG will
comply with the debt covenants at the measurement dates over the next twelve
months, therefore, the long term portion of RG's term loan is classified as
non-current in the balance sheet. If RG's operations were to deteriorate or RG
was unable to meet its current or future loan covenants which could result in an
acceleration of its indebtedness or restrict RG's access to such loans, RG's
ability to fund its operations would be impaired unless or until RG secures an
alternative source of funding. See "RISK FACTORS -- Risks Related to FMP: Effect
of RG Losses." There can be no assurance that RG would be able to secure an
alternative source of funding. RG believes its available borrowings and expected
cash flows from operations will satisfy its working capital and capital
requirements for the foreseeable future. See Notes 6 and 15 to Notes to
Consolidated Financial Statements.
Impact of Recently Issued Accounting Standards
In the first quarter of 1996, RG adopted Financial Accounting Standards
Board Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets' carry
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. Due to the historical losses at Roxxi, RG
determined that the intangibles acquired as part of the Roxxi acquisition were
not recoverable and consequently wrote off $684,000 during 1996.
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In 1996, RG adopted SFAS No. 123, Accounting for Stock Based Compensation,
which establishes a fair value method of accounting for stock-based compensation
plans and for transactions in which an entity acquires goods or services from
non-employees in exchange for equity instruments. SFAS No. 123 encourages, but
does not require, companies to record compensation costs for stock-based
employee compensation. RG has recorded expense equal to the fair value of
certain stock options granted to non-employees over the vesting period of the
related options. In 1996, RG recorded expenses of $394,000 pursuant to SFAS No.
123.
In February 1997, Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which is required to be adopted on December 31, 1997. At
that time, RG will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of SFAS No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material for the first
quarters ended March 31, 1996 and 1997.
CHANGE IN ACCOUNTANT
On October 18, 1995, RG dismissed its independent auditors, KPMG Peat
Marwick LLP ("KPMG"). The decision to dismiss KPMG was approved by the RG Board.
There were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
KPMG to make reference to the subject matter of the disagreement in connection
with its report on RG's financial statements. KPMG's reports on the financial
statements of RG for the fiscal years ended December 31, 1994 and 1993 contained
no adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope, or accounting principles. On October 18, 1995,
RG engaged Ernst & Young LLP to be RG's independent auditors.
CERTAIN RG TRANSACTIONS
Under an agreement among RG, DMB and Danny Edwards, DMB has been granted
the right to sell its shares of RG Common Stock in conjunction with any sale of
shares of RG Common Stock held by Mr. Edwards (other than into the public
market). In addition, pursuant to the agreement, RG agreed to use its best
efforts, so long as DMB beneficially owns at least 10% of RG's Common Stock, to
have the Board of Directors nominate a designee of DMB satisfactory to the
Board, for election to the Board of Directors. Drew M. Brown, a principal of
DMB, served as a director of RG until November 1996. DMB currently has no
representatives serving on the RG Board. Upon completion of the Merger, this
agreement will terminate and be of no further effect.
RG EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to RG during the fiscal
years ended December 31, 1996, 1995, and 1994, of those
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persons who were, at December 31, 1996: (a) the chief executive officer of RG;
and (b) the other executive officers of RG whose annual salary and bonus
exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------
------------------ SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#)(a)
- ------------------------------------------------------ ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Danny Edwards......................................... 1996 139,108(b) -- 85,100
Chairman of the Board 1995 250,000 -- --
of Directors and Chief 1994 250,000 -- --
Executive Officer
Robert G. J. Burg, II................................. 1996 154,663 -- 106,066
President 1995 150,000 -- --
1994 120,000 -- --
</TABLE>
- ---------------
(a) The amounts shown in this column include, with respect to Mr. Edwards,
options for 10,100 shares that were granted on November 15, 1996 as a
result of the repricing of outstanding stock options originally granted to
Mr. Edwards pursuant to RG's Stock Option Plan, and, with respect to Mr.
Burg, options for 12,132 shares that were granted on the same date as a
result of the repricing of outstanding stock options originally granted to
Mr. Burg pursuant to RG's Stock Option Plan. See -- "Option Grants in Last
Fiscal Year."
(b) During a portion of 1996, Mr. Edwards voluntarily reduced his salary.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Executive Officers by RG in 1996:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#) (%) ($/SH) DATE
- --------------------------------------- ---------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Danny Edwards (a)...................... 4,714 1.4% 2.75 11/15/2001
5,386 1.6% 3.03 11/15/2001
75,000 22.3% 3.30 11/15/2001
------- -----
85,100 25.3%
======= =====
12,132 3.6% 2.75 11/15/2004
93,934 27.9% 3.00 11/15/2004
------- -----
Robert G. J. Burg, II (b).............. 106,066 31.5% 11/15/2004
======= =====
</TABLE>
- ---------------
(a) Prior to November 15, 1996, Mr. Edwards was the holder of vested stock
options to purchase 21,000 shares of RG's Common Stock at an exercise price
of $12.25 per share, and an additional 24,000 shares at an exercise price
of $13.48 per share. On November 15, 1996, all of Mr. Edwards' outstanding
stock options were canceled and RG reissued to Mr. Edwards new stock
options to purchase 4,714 shares of RG's Common Stock at an exercise price
of $2.75 per share (the market price of RG's Common Stock on the date of
grant) and 5,386 shares of RG's Common Stock at $3.03 per share. In
addition, on November 15, 1996, in conjunction with the repricing described
above, RG granted to Mr. Edwards new options to purchase an additional
75,000 shares at an exercise price of $3.30 per share. All of the above
stock options were fully vested and exercisable on the date of grant. All
unexercised options expire on November 15, 2001.
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(b) Prior to November 15, 1996, Mr. Burg was the holder of vested stock options
to purchase 37,500 shares of RG's Common Stock at an exercise price of
$8.50 per share. On November 15, 1996, Mr. Burg's outstanding options were
canceled and RG reissued to Mr. Burg new options to purchase 12,132 shares
of RG's Common Stock at an exercise price of $2.75 per share. In addition,
on November 15, 1996, in conjunction with the repricing described above, RG
granted to Mr. Burg new options to purchase 93,934 additional shares at an
exercise price of $2.75 per share. All of Mr. Burg's above-described stock
options were fully vested and exercisable on the date of grant. All
unexercised new stock options will expire on November 15, 2004.
FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the fiscal year end
value of unexercised options held by the Named Executive Officers. The Named
Executive Officers did not exercise any options in 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(a)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Danny Edwards............................ 85,100 -- -- --
Robert G. J. Burg, II.................... 106,066 -- -- --
</TABLE>
- ---------------
(a) Options are considered to be "in-the-money" if the fair market value of the
underlying securities exceeds the exercise price of the options on a
specified date. No values have been reported in these columns insofar as the
exercise price of all options held by the Named Executive Officers was equal
to or greater than the closing price of the Common Stock at December 31,
1996.
AMENDMENT
The Shareholders will vote upon the approval of the Amendment to increase
the number of shares authorized for issuance under the Plan from 400,000 to
550,000. Options for the additional 150,000 shares of RG Common Stock have,
subject to Shareholder approval of the Amendment, already been granted to Danny
Edwards (40,000 shares) and Robert G. J. Burg, II (110,000 shares). The exercise
price of Mr. Edwards' options is $3.30 per share and such options will vest over
three years; with one-third of the shares vesting on the date of grant, and
one-third vesting on each of the second and third anniversaries of the grant
date. The exercise price of Mr. Burg's options is $3.00 per share and all such
options were vested on the date of grant. See "AMENDMENT TO ROYAL GRIP 1993
STOCK OPTION PLAN."
COMPENSATION OF DIRECTORS
Beginning April 1, 1996, non-employee members of the RG Board were paid
$750 for attendance at, or participation by telephone in, regular or special
Board meetings or meetings of committees of which they are members. Such
directors are also reimbursed for reasonable travel expenses incurred in
connection with attendance at each Board and committee meeting. In addition,
non-employee directors are eligible to receive annual stock option grants under
RG's 1996 Non-Employee Director Stock Plan (the "Director Plan").
James W. Myers, an independent director of RG, was paid $1,500 in
directors' fees in 1996 for his attendance at meetings of the RG Board and
committees thereof. In addition, Myers Management and Capital Group, Inc., a
management consulting firm of which Mr. Myers is a principal, was paid $24,500
in consulting fees by RG during 1996. RG granted to Mr. Myers stock options to
purchase 1,500 shares of RG's Common Stock in 1996 pursuant to the Director
Plan. Such options have an exercise price of $6.375 per share.
Gardiner S. Dutton, an independent director of RG, was paid $1,500 in
directors' fees in 1996 for his attendance at meetings of the RG Board and
committees thereof. RG granted to Mr. Dutton stock options to purchase 1,500
shares of RG's Common Stock in 1996 pursuant to the Director Plan. Such options
have an exercise price of $6.375 per share.
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<PAGE> 84
Barry Entous, an independent director of RG, was paid $1,500 in directors'
fees in 1996 for his attendance at meetings of the RG Board and committees
thereof. RG granted to Mr. Entous stock options to purchase 1,500 shares of RG's
Common Stock in 1996 pursuant to the Director Plan. Such options have an
exercise price of $6.375 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
RG was a party to an employment agreement with Danny Edwards that expired
in August 1996. Mr. Edwards has entered into a Consulting Agreement dated May
14, 1997 with FMP effective on the Effective Date. See "THE MERGER -- Interests
of Certain Persons in the Merger: Consulting Agreement." Robert G. J. Burg, II
and Thomas A. Schneider are entitled to certain severance payments and benefits
if their employment is terminated. See "THE MERGER -- Interests of Certain
Persons in the Merger: Severance Agreements."
DESCRIPTION OF FMP CAPITAL STOCK
The following summary of the material provisions of FMP's capital stock is
qualified in its entirety by reference to the applicable provisions of Delaware
law, FMP's Amended and Restated Certificate of Incorporation which will become
effective immediately before the Effective Date ("FMP's Certificate of
Incorporation"), a copy of which is attached as Annex IV, and FMP's By-laws, a
copy of which has been filed with the SEC (see "AVAILABLE INFORMATION").
FMP is authorized to issue 50,000,000 shares of Common Stock, par value
$.001 per share, approximately 5,548,000 shares of which will be outstanding
immediately after the Effective Date, and 5,000,000 shares of Preferred Stock,
par value $.001 per share, none of which will be outstanding as of the Effective
Date.
COMMON STOCK
All outstanding shares of FMP Common Stock are, and the shares of FMP
Common Stock issuable upon the consummation of the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. Each share of FMP
Common Stock entitles the holder thereof to one vote on all matters submitted to
a vote of the stockholders including the election of directors. Since the
holders of FMP Common Stock do not have cumulative voting rights, the holders of
a simple majority of the outstanding shares have the power to elect all of the
directors to be elected at a given meeting and the holders of the remaining
shares by themselves would not be able to elect any directors at that meeting.
See "RISK FACTORS -- FMP Corporate Risks: Control by Principal Stockholders."
The holders of FMP Common Stock do not have preemptive, redemption or conversion
rights. Holders of FMP Common Stock are entitled to receive ratably such
dividends as may be declared by the FMP Board, from time to time, out of funds
legally available therefor. See "RISK FACTORS -- FMP Corporate Risks: Absence of
Dividends." If FMP is liquidated, dissolved, or wound up, holders of the FMP
Common Stock have the right to receive a ratable portion of the assets remaining
after the payment of creditors and the holders of the shares of any class or
series of preferred stock to the extent that the then existing terms of the
preferred stock grant them priority over the holders of shares of FMP Common
Stock.
PREFERRED STOCK
FMP's Certificate of Incorporation authorizes the issuance of "blank check"
preferred stock in one or more classes or series with such designations, rights,
preferences and restrictions as may be determined from time to time by the FMP
Board. As of the date hereof, there are no shares of preferred stock
outstanding. The FMP Board may, without prior stockholder approval, issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
holders of FMP Common Stock. Preferred stock could be used, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of FMP. Although FMP has no present intention of issuing any shares of
preferred stock, there can be no assurance that it will not do so in the future.
If FMP
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<PAGE> 85
issues preferred stock, such issuance may have a dilutive effect upon the common
stockholders. See "RISK FACTORS -- FMP Corporate Risks: Anti-Takeover
Provisions; Blank Check Preferred Stock."
CERTAIN CHARTER PROVISIONS AND LAWS
In addition to the preferred stock provisions described above, certain
features of the FMP's Certificate of Incorporation and By-laws and the Delaware
General Corporation Law ("DGCL") which are further described below, may have the
effect of deterring third parties from making takeover bids for control of FMP
or may be used to hinder or delay a takeover bid thereby decreasing the chance
of the stockholders of FMP realizing a premium over market price for their
shares of FMP Common Stock as a result of such bids and may further entrench
management. See "RISK FACTORS -- FMP Corporate Risks: Anti-Takeover Provisions;
Blank Check Preferred Stock."
Limitations on Stockholder Actions. FMP's Certificate of Incorporation
provides that stockholder action may only be taken at a meeting of the
stockholders. Thus a holder of a majority of the voting power could not take
action to replace the FMP Board, or any class thereof, without a meeting of the
stockholders nor could such a holder amend the By-laws without presenting the
amendment to a meeting of the stockholders. Furthermore, under the provisions of
the FMP's Certificate of Incorporation and By-laws, special meetings of the
stockholders may only be called by the Board. Therefore, a stockholder, even one
who holds a majority of the voting power, may neither replace sitting Board
members nor amend the By-laws before the next annual meeting of stockholders.
Advance Notice Provisions. FMP's By-laws provide for an advance notice
procedure for the nomination, other than by the Board, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at meetings must be received by FMP not
less than 120 days before the first anniversary of the mailing of FMP's proxy
statement for the previous year's annual meeting, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
Delaware Law. FMP is subject to Section 203 of the DGCL, which provides
that a corporation may not engage in any business combination with an
"interested stockholder" during the three years after he becomes an interested
stockholder unless the corporation's board of directors approved in advance
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced; or the business combination is approved by the
corporation's board of directors and the affirmative vote of at least two-thirds
of the outstanding voting stock which is not owned by the interested
stockholder. An interested stockholder is anyone who owns 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the previous three years; and the
affiliates and associates of any such person. Under certain circumstances,
Section 203 of the DGCL makes it more difficult for an "interested stockholder"
to effect various business combinations with a corporation for a three-year
period, although the stockholders of a corporation may elect to exclude a
corporation from the section's restrictions.
Classified Board. FMP's Certificate of Incorporation and By-laws divide
the board into three classes with staggered three year terms. On the date
hereof, there are six directors. Pursuant to the Merger Agreement, upon the
Effective Date, there will be nine directors, three in each class. See "THE
MERGER -- Management and Operations of FMP after the Merger." At each annual
meeting of stockholders, the terms of one class of directors will expire and the
newly nominated directors of that class will be elected for a term of three
years. The board will be able to determine the total number of directors
constituting the full board and the number of directors in each class, but the
total number of directors may not exceed 17 nor may the number of directors in
any class exceed six. Subject to these rules, the classes of directors need not
have equal numbers of members. No reduction in the total number of directors or
in the number of directors in a given class will have the effect of removing a
director from office or reducing the term of any then sitting director.
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<PAGE> 86
Stockholders may only remove directors for cause. If the board increases the
number of directors in a class, it will be able to fill the vacancies created
for the full remaining term of a director in that class even though the term may
extend beyond the next annual meeting. The directors will also be able to fill
any other vacancies for the full remaining term of the director whose death,
resignation or removal caused the vacancy.
A person who has a majority of the voting power at a given meeting will not
in any one year be able to replace a majority of the directors since only one
class of the directors will stand for election in any one year. As a result, at
least two annual meeting elections will be required to change the majority of
the directors by the requisite vote of stockholders. The purpose of classifying
the board is to provide for a continuing body, even in the face of a person who
accumulates a sufficient amount of voting power, whether by ownership or proxy
or a combination, to have a majority of the voting power at a given meeting and
who may seek to take control of FMP without paying a fair premium for control to
all the holders of Common Stock. This will allow the board time to negotiate
with such a person and to protect the interests of the other stockholders who
may constitute a majority of the shares not actually owned by such person.
However, it may also have the effect of deterring third parties from making
takeover bids for control of FMP or may be used to hinder or delay a takeover
bid thereby decreasing the chance of the stockholders of FMP realizing a premium
over market price for their shares of FMP Common Stock as a result of such bids.
See "RISK FACTORS -- FMP Corporate Risks: Anti-Takeover Provisions; Blank Check
Preferred Stock."
Stockholder Agreement. The Edwards Group and the Johnston Group have
entered into a Stockholder Agreement. The Stockholder Agreement will take effect
at the Effective Date of the Merger and will terminate three years after the
Effective Date. Under the Stockholder Agreement, the Johnston Group will be
entitled to designate six members of the FMP Board and the Edwards Group shall
be entitled to designate three members of the FMP Board. The FMP Board will
consist of at least nine members serving for staggered three year terms. If the
FMP Board is expanded, the groups will designate directors in a ratio of two to
one unless the Edwards Group no longer owns 10% of FMP's voting securities or
the vacancy is filled by an independent director not affiliated with the
Johnston Group. Members of each group shall serve in each class of directors.
Danny Edwards and Robert G. J. Burg, II will serve on the Executive Committee
and the Edwards Group will be entitled to designate a member of the Compensation
Committee. Each of the parties to the Stockholder Agreement has agreed to vote
his shares of FMP Common Stock in favor of designees of the Johnston Group and
the Edwards Group and to not vote for the removal of a director designated under
the Stockholder Agreement unless for cause, which is limited to wilful and
continued failure to substantially perform his duties, wilful conduct which is
significantly injurious to FMP or conviction for a felony, or with the written
consent of the group that designated the director. See "RISK FACTORS -- FMP
Corporate Risks: Control by Principal Stockholders."
TRANSFER AGENT
The transfer agent for the FMP Common Stock is American Securities Transfer
& Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, CO 80202-1817; (303)
298-5370.
OPTIONS
FMP has granted options to purchase approximately 170,000 shares of FMP
Common Stock under its 1997 Stock Option Plan. See "FMP EXECUTIVE COMPENSATION."
On the Effective Date, FMP will assume options and warrants, issued by RG, to
purchase an additional approximately 492,000 shares of FMP Common Stock. See
"THE MERGER -- Interests of Certain Persons in the Merger: RG Options."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of FMP Common Stock by FMP and its stockholders
could adversely affect the prevailing market price of the FMP Common Stock. See
"RISK FACTORS -- FMP Corporate Risks: Shares Eligible for Future Sale."
Immediately after the Effective Date, the number of outstanding shares of FMP
Common Stock will be approximately 5,548,000. Of this number, approximately
4,177,000 shares will be "restricted securities" under SEC Rule 144. Under that
Rule, restricted securities that have been held for
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<PAGE> 87
more than one year and less than two years and any shares held by affiliates of
FMP (generally, officers, directors and principal stockholders), may only be
sold without registration under the Securities Act, in
limited quantities, through ordinary brokerage transactions. After May 31, 1998,
Rule 144 restrictions on FMP Common Stock held by non-affiliates of FMP
(approximately 376,000 shares out of the 4,177,000 at the Effective Date) will
lapse. These 376,000 shares could be sold without restriction except that they
are subject to shareholders' agreements which restrict their transfer. However,
the shareholders' agreements are not "lock-up" agreements intended to restrict
the flow of shares into the market and the parties thereto may allow any of the
subject shares to be sold in compliance with the securities laws at any time. In
addition to the 4,177,000 shares of FMP Common Stock which will be restricted
securities, approximately 778,000 shares of FMP Common Stock issuable in the
Merger will be issuable to persons who have been identified as affiliates of RG.
These shares are subject to the restrictions imposed by SEC Rule 145, under
which shares of FMP Common Stock issued in the Merger to persons who were
affiliates of RG and will not be affiliates of FMP may be resold without
registration during one year after the Effective Date, in limited quantities,
through ordinary brokerage transactions. Shares issued in the Merger to persons
who will be affiliates of FMP will be subject to the Rule 144 restrictions
described above. See "THE MERGER -- Resale of FMP Stock; Affiliates."
Regardless of Rule 144 and Rule 145, any stockholder may sell securities in
transactions that have been registered under the Securities Act if he complies
with its prospectus delivery requirements. The Edwards Group, who will receive
approximately 777,000 shares of FMP Common Stock in the Merger, and the Johnston
Group, who will own approximately 3,740,000 shares of FMP Common Stock, have
entered into a Registration Rights Agreement with FMP. Under the Registration
Rights Agreement, a group (for this purpose Berenson Minella is treated as a
separate group) may demand registration of FMP Common Stock under the Securities
Act having a value of not less than $5 million. FMP will not be obligated to
effect more than one demand registration for the Edwards Group, more than two
demand registrations for the Johnston Group or more than one demand registration
for the Berenson Minella Group. No demand can be made during the first year, and
only one demand can be made during the second year. Any group may join in pro
rata only during the second year. The parties to the Registration Rights
Agreement also have the right to have their shares of FMP Common Stock included
in certain other registration statements filed by FMP from time to time. The
number of shares to be registered is subject to reduction at the request of an
underwriter. Under the Registration Rights Agreement, FMP will indemnify selling
stockholders against liabilities created by untrue statements of material fact
or omissions of material facts from a registration statement and each of the
security holders agrees to indemnify FMP for a liability created by untrue
statements of material fact or omissions of material fact in information
supplied by the stockholder to FMP which is included in a registration
statement. A stockholder will cease to have registration rights when the
applicable group or its transferees hold FMP Common Stock existing at the
Effective Date of the Merger or received upon the exercise of an option held by
a party to the Registration Rights Agreement on the Effective Date which is less
than five percent of the then outstanding shares. For this purpose, shares of
FMP Common Stock that have been registered for sale under the Securities Act or
that may be sold without restriction under Rule 144(k) are not counted. Sales of
substantial amounts of FMP Common Stock under a registration statement or the
perception that such sales may occur, could have a material adverse effect on
the market price of the FMP Common Stock. See "THE MERGER -- Interests of
Certain Persons in the Merger: Registration Rights Agreement."
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<PAGE> 88
OWNERSHIP OF FMP COMMON STOCK
The following table sets forth, as of May 31, 1997, certain information
with respect to the beneficial ownership of shares of FMP Common Stock by (a)
each person known to FMP to be the beneficial owner of more than 5% of the
outstanding shares of FMP Common Stock, (b) each director of FMP, (c) each of
the Named Executives (see "FMP Executive Compensation--Summary Compensation
Table"), and (d) FMP's directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PRE-MERGER
SHARES PERCENT POST-MERGER
BENEFICIALLY OF CLASS PERCENT
BENEFICIAL OWNER OWNED (a) (b) OF CLASS(c)
- --------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Ronald L. Chalmers (d)................................... 130,859 3.13% 2.36%
Berenson Minella (e)(f).................................. 1,232,154 29.50% 22.21%
Christopher A. Johnston (e)(g)........................... 1,286,745 30.41% 22.97%
David E. Johnston (e)(h)................................. 219,950 5.25% 3.96%
Richard P. Johnston (i).................................. 651,580 15.51% 11.69%
Raymond J. Minella (j)................................... 1,240,508 29.64% 23.33%
RPJ/JAJ Partners (e)(k).................................. 626,519 15.00% 11.29%
Kenneth J. Warren (e)(l)................................. 349,472 8.34% 6.28%
All directors and officers as a group (6 persons) (m).... 3,879,115 90.28% 68.45%
</TABLE>
- ---------------
(a) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power over these shares subject to the spousal rights, if any,
of the spouses of those beneficial owners who have spouses.
(b) Percentage of the outstanding FMP Common Stock as of May 31, 1997.
(c) Percentage of the FMP Common Stock that would have been outstanding if May
31, 1997 had been the Effective Date and no RG Options had been exercised on
or before that date.
(d) Mr. Chalmers' address is c/o FMP, P.O. Box 298, Torrington, CT 06790. This
amount includes 5,555 shares issuable upon the exercise of options which are
exercisable within 60 days. Mr. Chalmers' shares are subject to an agreement
with FMP which grants FMP a right of first refusal and a call right upon
termination of his employment with FMP. These rights are not currently
exercisable within 60 days.
(e) The members of the Johnston Group are parties to the Stockholder Agreement
pursuant to which they have agreed to vote their shares of FMP Common Stock
for the election of certain persons as directors of FMP. See "THE MERGER --
Interests of Certain Persons in the Merger: Stockholder Agreement."
(f) The address of Berenson Minella is 667 Madison Avenue, New York, NY 10021.
(g) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 54,590 shares issuable upon the
exercise of options which are exercisable within 60 days, but it does not
include 433,008 shares owned by Mr. Warren and others subject to a
stockholders agreement which grants Mr. Johnston a right of first refusal
and a call right which are not currently exercisable. Mr. Warren is a party
to this stockholders agreement.
(h) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 11,110 shares issuable on the exercise
of options which are exercisable within 60 days and 208,839 shares which
have been pledged to RPJ/JAJ Partners, Ltd. under a pledge agreement
pursuant to which the pledgee will only acquire voting power or dispositive
power over the shares upon the occurrence of certain contingencies which
have not yet occurred.
(i) Mr. Johnston's address is c/o FMP, 3490 Clubhouse Drive, Suite 102, Jackson
Hole, WY 83001. This amount includes 626,519 shares owned by RPJ/JAJ
Partners, Ltd. Mr. Johnston is a general partner in RPJ/JAJ Partners
together with his wife and shares voting and dispositive power over the
shares owned by the partnership. This amount also includes 25,060 shares
issuable upon the exercise of options which are exercisable within 60 days.
This amount does not include 584,751 shares which have been pledged to
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<PAGE> 89
RPJ/JAJ Partners under pledge agreements which grant voting and dispositive
power over such shares upon the occurrence of certain contingencies which
have not yet occurred.
(j) Mr. Minella's address is c/o Berenson Minella, 667 Madison Avenue, New York,
New York 10021. This amount includes 1,232,154 shares owned by Berenson
Minella of which Mr. Minella is an indirect general partner. As such, Mr.
Minella shares voting and dispositive powers over these shares. This amount
also includes 8,353 shares issuable upon the exercise of options which are
exercisable within 60 days.
(k) The address of RPJ/JAJ Partners is c/o FMP, 3490 Clubhouse Drive, Suite 102,
Jackson Hole, WY 83001. This amount does not include 584,751 shares pledged
to RPJ/JAJ Partners pursuant to pledge agreements which only grant voting
and dispositive power over such shares to RPJ/JAJ Partners upon the
occurrence of certain contingencies which have not yet occurred.
(l) Mr. Warren's address is 2109 West Fifth Avenue, Suite C, Columbus, Ohio
43212. This amount includes 15,328 shares issuable upon the exercise of
options which are exercisable within 60 days. Mr. Warren is a party to a
stockholders agreement under which the holders of 83,536 shares have granted
him rights of first refusal which are not currently exercisable and Mr.
Warren has granted a right of first refusal and a call right to Christopher
A. Johnston which are not currently exercisable.
(m) This amount includes 119,999 shares issuable upon the exercise of options
which are exercisable within 60 days. This amount does not include any
shares excluded by notes (b) through (i) above.
Before the Effective Date, FMP had 14 stockholders.
DESCRIPTION OF RG CAPITAL STOCK
The authorized capital stock of RG consists of 15,000,000 shares of Common
Stock, $.001 par value per share and 5,000,000 shares of preferred stock, par
value $.001 per share. As of June 30, 1997, there were 2,742,178 shares of RG
Common Stock issued and outstanding and no shares of preferred stock issued and
outstanding. All such issued and outstanding RG Common Stock is duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. As of
June 30, 1997, 882,250 shares of RG Common Stock were reserved for issuance and
are issuable upon or otherwise deliverable in connection with the exercise of
outstanding options. Pursuant to a revolving and term note, RG has agreed that
it will not declare or pay cash dividends upon any of RG's stock without prior
lender consent.
OWNERSHIP OF RG COMMON STOCK
The following table sets forth, as of June 30, 1997, based in part on
information provided to RG by the persons named in the table, the number of
shares of RG Common Stock owned by the members of the RG Board, RG's Chief
Executive Officer and the other executive officers of RG, all directors and
executive officers as a group, and beneficial owners of more than 5% of the
shares of RG Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF BENEFICIAL OWNER(a) BENEFICIAL OWNERSHIP(a) OWNERSHIP(a)
- --------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
Danny Edwards(b)(i)...................................... 1,146,938 40.4%
Barry Entous(c).......................................... 6,000 *
James W. Myers(c)........................................ 6,000 *
Gardiner Dutton(d)....................................... 6,000 *
Robert G. J. Burg, II(e)................................. 217,066 7.3%
DMB(f)(i)................................................ 414,771 15.1%
Acushnet(g).............................................. 250,000 8.4%
FMP(i)................................................... 1,567,781 55.2%
All directors and executive officers as a group(h)(i).... 1,422,974 45.8%
</TABLE>
- ---------------
* Less than 1%
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<PAGE> 90
(a) This information regarding beneficial ownership of RG Common Stock by
certain beneficial owners and management of RG is as of June 30, 1997. The
percent owned calculations are based on the number of shares of RG Common
Stock outstanding on June 30, 1997, plus, with respect to each person or
group, those shares subject to unexercised options which are exercisable on
June 30, 1997, or within 60 days thereafter. The persons named in the table,
to the Company's knowledge, have sole voting and sole investment power with
respect to all shares of RG Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the
information contained in the footnotes hereunder. Unless otherwise
indicated, the address for each person named in this table is c/o Royal
Grip, Inc., 15170 North Hayden Road, Suite 1, Scottsdale, Arizona 85260.
(b) The total for Mr. Edwards includes 98,433 shares subject to unexercised
options that are exercisable within 60 days.
(c) The totals for Messrs. Entous and Myers include 12,000 shares subject to
unexercised options that are exercisable within 60 days.
(d) The total for Mr. Dutton includes 5,000 shares subject to unexercised
options that are exercisable within 60 days.
(e) The total for Mr. Burg includes 216,066 shares subject to unexercised
options that are exercisable within 60 days.
(f) DMB is an investment management firm. The address of DMB is 4201 North 24th
Street, Suite 120, Phoenix, Arizona 85016. Mr. Drew M. Brown, a principal of
DMB Property Ventures, was a member of the Board of Directors of the Company
from April 1990 until November 1996.
(g) The total for Acushnet consists of 250,000 shares of Common Stock subject to
unexercised options that are exercisable within 60 days. Such options were
issued to Acushnet pursuant to the Acushnet Supply Agreement. The address of
Acushnet is 744 Belleville Avenue, New Bedford, Massachusetts 02742-6916.
(h) The total for all directors and executive officers as a group includes an
aggregate of 368,469 shares subject to unexercised options that are
exercisable within 60 days.
(i) Under the Voting Agreement, the Edwards Group, which collectively owns
approximately 53.6% of the outstanding RG Common Stock, has agreed to vote
all shares of RG Common Stock held by them in favor of the Merger Proposal
and has granted FMP an irrevocable proxy to vote their shares of RG Common
Stock at the Special Meeting in favor of the Merger Proposal. FMP may be
deemed to be the beneficial owner of these shares. See "THE
MERGER -- Interests of Certain Persons in the Merger: Voting Agreement."
COMPARISON OF RIGHTS OF HOLDERS OF FMP CAPITAL STOCK AND
RG CAPITAL STOCK
All descriptions in the following and in other portions of this Proxy
Statement/Prospectus that describe provisions of FMP's Certificate of
Incorporation and By-laws refer to such provisions as they will exist as of the
Effective Date pursuant to amendments made thereto immediately preceding the
Effective Date.
If the Merger is consummated, Shareholders will become holders of FMP
Common Stock and the rights of Shareholders will be governed by FMP's Amended
and Restated Certificate of Incorporation ("FMP Certificate") and FMP's By-laws
("FMP Bylaws"). The rights of FMP stockholders differ in certain respects from
the rights of Shareholders. The material differences are summarized below. This
summary is qualified in its entirety by reference to the full text of such
documents. The FMP Certificate is Annex IV hereto. The FMP Bylaws are an exhibit
to the Registration Statement. For information as to how copies of such
documents may be obtained, see "AVAILABLE INFORMATION."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Section 141(b) of the DGCL provides that the board of directors shall
consist of one or more members. The number of directors shall be fixed by, or in
the manner provided in, the by-laws, unless the certificate of
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incorporation fixes the number of directors, in which case a change in the
number of directors shall be made only by amendment of the certificate. Pursuant
to Section 141(d) of the DGCL, the directors of any Delaware corporation may, by
the certificate of incorporation, by an initial by-law or by a by-law adopted by
a vote of the shareholders, be divided into one, two or three classes.
Section 78.115 of the NGCL provides that a corporation must have at least
one director and may provide in its articles of incorporation or its by-laws for
a fixed number of directors or a variable number of directors within a fixed
maximum and minimum and for the manner in which the number of directors may be
increased or decreased. Section 78.330 of the NGCL provides that the articles of
incorporation or the by-laws may provide for a classified board of directors,
but at least one-fourth of the directors must be elected annually.
Article VI Section 1 of the Articles of Incorporation of RG ("RG Articles")
provides that the board of directors shall be divided into three classes, as
nearly equal in number as may be. Article III Section 2 of RG's By-laws ("RG
Bylaws") provides that the board of directors shall consist of five members
until the board of directors shall otherwise determine and that each director
shall hold office until his successor is duly elected or until his earlier
death, resignation or removal.
Article FIFTH Section 1 of the FMP Certificate and Article II Sections
2.1.A and 2.1.B of the FMP Bylaws provide that: (a) the total number of
directors on the board of directors shall be fixed by the board of directors but
the total number of directors may not exceed seventeen; (b) the board of
directors shall be divided into three classes; (c) the number of directors in
any class may not exceed six; and (d) one class of directors shall be chosen for
a term of three years at each annual meeting of stockholders.
DUTIES OF DIRECTORS
Section 78.138 of the NGCL allows directors and officers of a corporation
to consider a variety of non-shareholder interests in discharging their duties
to the corporation. There are no corresponding provisions in the DGCL, the RG
Articles, the RG Bylaws, the FMP Certificate or the FMP Bylaws.
REMOVAL OF DIRECTORS
Section 141(k) of the DGCL provides that any director or the entire board
of directors may generally be removed with or without cause by a majority
shareholder vote. However, a director of a corporation with a classified board
of directors may be removed only for cause unless the certificate of
incorporation otherwise provides.
Under Section 78.335 of the NGCL, directors may be removed from office by a
two-thirds shareholder vote, or by the vote of such larger percentage of shares
as may be provided in the articles of incorporation. A director elected by a
voting group, unless otherwise provided in the articles of incorporation, may
only be removed by a vote of two-thirds of the members of the group or by the
vote of such larger percentage of the group as may be provided in the articles
of incorporation for the removal of directors.
Article VII Section 3 of the RG Articles and Article III Section 11 of the
RG Bylaws provide that a director may be removed from office by the shareholders
only for cause at a special meeting of the shareholders, called for the purpose
of removing the director, with the affirmative vote of the holders of two-thirds
of the voting power of all shares entitled to vote at such meeting.
Article FIFTH Section 1(c) of the FMP Certificate and Article II Section
2.1.C of the FMP Bylaws provide that any director or the entire board of
directors may be removed by the holders of a majority of shares then entitled to
vote at an election of directors and only for cause.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under Section 223 of the DGCL, unless the certificate of incorporation or
the by-laws of a corporation provide otherwise, a majority vote of the directors
then in office may fill vacancies and newly created directorships, even if the
number of current directors is less than a quorum or only one director remains.
If the directors filling an open slot on the board constitute less than a
majority of the whole board (as measured
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before an increase in the size of the board), the Delaware Court of Chancery
may, upon application of shareholders holding at least 10% of the outstanding
voting shares, summarily order an election to fill the open slots or replace
directors chosen by the directors then in office. Unless otherwise provided in
the certificate of incorporation or by-laws, when one or more directors resign
effective at a future date, a majority of directors then in office, including
those who have so resigned, may vote to fill the vacancy.
Similarly, under Section 78.335 of the NGCL, all vacancies, including those
caused by an increase in the number of directors may be filled by a majority of
the remaining directors, though less than a quorum, unless the articles of
incorporation provide otherwise. If a director gives notice of his or her
resignation to the board of directors, to become effective at a future date, the
board may fill the vacancy to take effect when the resignation becomes
effective, with the director so appointed to hold office during the remainder of
the term of office of the resigning director.
Article VII Section 2 of the RG Articles provides that vacancies on the
board of directors, including those caused by an increase in the number of
directors, shall be filled by a vote of a majority of the directors then
remaining in office. Article III Section 12 of the RG Bylaws provides that: (a)
vacancies and newly created directorships resulting from an increase in the
authorized number of directors may be filled by a majority of directors then in
office, although less than a quorum, or by a sole remaining director; (b) if the
corporation has no directors in office, then any officer or any shareholder or
an executor, administrator, trustee or guardian of a shareholder, may call a
special meeting of shareholders to fill the vacancies on the board of directors;
and (c) if one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided elsewhere in the RG Bylaws.
Article FIFTH Section 1 of the FMP Certificate and Article II Section 2.1.D
of the FMP Bylaws provide that: (a) if the board of directors increases the
number of directors in any class, the board may fill the vacancy created thereby
for the full remaining term of a director in that class even though such term
may extend beyond the next annual meeting; and (b) the board of directors may
fill any vacancy occurring for any other reason for the full remaining term of
the director whose death, resignation or removal caused the vacancy, even though
such term may extend beyond the next annual election.
LIMITATION ON DIRECTORS' LIABILITY
Section 102(b)(7) of the DGCL allows a corporation, through its certificate
of incorporation, to limit or eliminate the personal liability of directors to
the corporation and its shareholders for monetary damages for breach of
fiduciary duty. However, this provision excludes any limitation on liability for
(a) any breach of the director's duty of loyalty to the corporation or its
shareholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) wilful or negligent
violation of the laws governing the payment of dividends or the purchase or
redemption of stock or (d) any transaction from which the director derives an
improper personal benefit.
Section 78.037 of the NGCL allows a corporation, through its articles of
incorporation, to limit or eliminate the personal liability of directors to the
corporation and its shareholders for damages for breach of fiduciary duty.
However, this provision excludes any limitation on liability for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (b) the payment of distributions in violation of Section 78.300 of the
NGCL.
Article XIV of the RG Articles provides that, to the fullest extent
permitted by the NGCL, a director of the corporation shall not be liable to the
corporation or its shareholders for monetary or other damages for breach of
fiduciary duties as a director.
Article EIGHTH of the FMP Certificate provides that a director shall not be
personally liable to the corporation or its shareholders for monetary damages
for breach of any fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(b) for acts not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174
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of the DGCL which imposes liability for the payment of unlawful dividends and
unlawful stock purchases or redemptions, or (d) for any transaction from which
the director derives an improper personal benefit. This Article also provides
that if the DGCL is ever amended to authorize further limits of director
liability, then the liability of a director of the corporation shall be limited
to the fullest extent permitted by the DGCL.
None of these provisions allows a corporation to limit the availability of
equitable relief.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL and Section 78.751 of the NGCL both provide that a
corporation may indemnify any person made a party or threatened to be made a
party to any type of proceeding (other than certain actions by or in right of
the corporation) because he or she is or was a director, officer, employee or
agent of the corporation or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such proceeding if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation; or in a criminal proceeding, if he or she had no
reasonable cause to believe his or her conduct was unlawful. Expenses incurred
by an officer or director (or other employees or agents as deemed appropriate by
the board of directors) in defending civil or criminal proceedings may be paid
by the corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it is ultimately determined that such person is not entitled to be indemnified
by the corporation. To indemnify a party, the corporation must determine that
the party met the applicable standards of conduct.
Article XI of the RG Articles provides that the corporation shall
indemnify, defend and hold harmless any person who incurs expenses, claims,
damages or liability by reason of the fact that he is, or was, an officer,
director, employee or agent of the corporation, to the fullest extent allowed
under the NGCL. The indemnification called for under the RG Articles is
mandatory in all circumstances where indemnification is permitted under the
NGCL.
Article X Section 1 of the RG Bylaws provides terms for the indemnification
of directors, officers, employees and agents of the corporation in
non-derivative actions. This Section provides that the corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Article X Section 2 of the RG Bylaws provides terms of indemnification in
derivative actions. This Section provides that the corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including amounts paid in settlement and
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect
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of any claim, issue or matter as to which such person shall have been adjudged
by a court of competent jurisdiction after exhaustion of all appeals therefrom
to be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which such action
or suit was brought or other court of competent jurisdiction shall determine
upon application that, in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Article X Section 3 of the RG Bylaws provides that to the extent a
director, officer, employee or agent of the corporation has been successful on
the merits or otherwise in defense of any direct or derivative action, suit or
proceeding resulting from his relationship with the corporation or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Article NINE of FMP's Certificate and Article VI Sections 6.1 and 6.2 of
the FMP Bylaws provide terms of indemnification of directors, officers,
employees and agents of the corporation. FMP's indemnification provisions are
essentially identical to RG's indemnification provisions except that only
indemnification of directors and officers is mandatory under FMP's
indemnification provisions. Under FMP's Certificate and Bylaws, indemnification
of other employees and agents of the corporation is permissive.
LOANS TO DIRECTORS
Section 143 of the DGCL allows a corporation to lend money to or guarantee
an obligation of an officer or employee, including one who acts as a director,
if the assistance is reasonably expected to benefit the corporation. Such
assistance may be provided without shareholder approval. The NGCL contains no
corresponding provision.
The RG Articles, the RG Bylaws, the FMP Certificate and the FMP Bylaws
contain no provisions directly concerning loans to directors, officers or other
employees of the corporation.
DIVIDENDS
Subject to additional restrictions in a corporation's certificate of
incorporation, Section 170 of the DGCL allows the board of directors of a
Delaware corporation to pay dividends out of surplus or, if there is no surplus,
out of its net profits for the fiscal year in which the dividend is declared or
the preceding fiscal year.
Section 78.288 of the NGCL allows a board of directors to make
distributions to shareholders, unless otherwise provided in the articles of
incorporation. However, no distribution may be made if it would cause (a) the
corporation to be unable to pay its debts as they become due or (b) except as
otherwise specifically allowed by the articles of incorporation, the
corporation's assets to be less than the sum of its liabilities plus the amount
that would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential shareholders whose rights are superior
to those receiving the distribution.
Article VIII of the RG Bylaws provides that the board of directors may from
time to time declare, and the corporation may pay, dividends on its outstanding
shares of stock in the manner and upon the terms and conditions provided in the
NGCL.
Article FIFTH of the FMP Certificate provides that the holders of issued
and outstanding shares of common stock of the corporation shall be entitled to
receive ratably, in proportion to the number of shares held by them, such
dividends as may be declared by the board of directors, from time to time, out
of the assets or funds of the corporation legally available for the payment of
dividends.
ACTION BY SHAREHOLDERS THROUGH WRITTEN CONSENT
Under Section 228(a) of the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
an annual or special meeting of the shareholders may be taken in the absence of
a meeting, without prior notice and without a vote. Such action may be taken by
the written consent of shareholders in lieu of a meeting setting forth the
action so taken and signed by the holders
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of outstanding stock representing the number of shares necessary to take such
action at a meeting at which all shares entitled to vote were present and voted.
Under Section 78.320 of the NGCL, unless otherwise provided in a
corporation's articles of incorporation or by-laws, any action required or to be
taken at an annual or special meeting of the shareholders may be taken in the
absence of a meeting, without prior notice and without a vote. Such action may
be taken by the written consent of shareholders in lieu of a meeting setting
forth the action so taken and signed by the holders of outstanding stock
representing the number of shares necessary to take such action at a meeting at
which all shares entitled to vote were present and voted.
Under Section 78.320 of the NGCL, unless otherwise provided in a
corporation's articles of incorporation or by-laws, any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a written consent thereto is signed by shareholders holding at least
a majority of the voting power, except that if a different proportion of voting
power is required for such an action at a meeting, then that proportion of
written consents is required.
Article IX of the RG Articles and Article II Section 14 of the RG Bylaws
provide that and so long as the corporation shall be registered as a public
company pursuant to the Exchange Act and subject to the reporting requirements
of Section 13 of said Act, all action by holders of the corporation's
outstanding voting securities shall be taken at an annual or special meeting of
the shareholders following notice as provided by law or in the RG Bylaws and
shareholders of the corporation shall not have the power to act by means of
written consent.
Article SEVENTH of the FMP Certificate provides that shareholders may not
act by written consent and that action shall be taken by the shareholders of the
corporation only at annual and special meetings of shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Section 211(d) of the DGCL, special meetings of shareholders may be
called by the board of directors and by such other person or persons as may be
authorized to do so by the corporation's certificate of incorporation or
by-laws. Under Section 78.310 of the NGCL, meetings may be held in the manner
provided by the by-laws of the corporation.
Article II Section 2 of the RG Bylaws provides that special meetings of the
shareholders may be called for any purpose or purposes at any time by a majority
of the board of directors or by the chairman of the board or the president.
Article 1 Section 1.2 of the FMP Bylaws provides that special meetings of
shareholders may be called by the board of directors. Special meetings of
shareholders shall be held for such purpose or purposes and at such date, time
and place, either within or without the State of Delaware, as may be designated
by the board of directors. Business transacted at any special meeting of
shareholders shall be limited to the purpose or purposes stated in the notice of
meeting. No officer, director nor shareholder shall have the authority to call a
meeting of shareholders without the express authorization of the board of
directors.
CUMULATIVE VOTING
Both Section 214 of the DGCL and Section 78.360 of the NGCL allow a
corporation to provide for cumulative voting in the certificate of incorporation
or the articles of incorporation.
Article IV of the RG Articles and Article II Section 12 of the RG Bylaws
provide that shareholders shall not have cumulative voting rights with respect
to the election of directors or for any other purpose.
The FMP Certificate does not provide for cumulative voting.
NECESSARY VOTE TO EFFECT MERGER (NOT INVOLVING INTERESTED STOCKHOLDER)
The DGCL requires a majority vote of the shares entitled to vote in order
to effectuate a merger between two Delaware corporations (Section 251(c)) or
between a Delaware corporation and a corporation organized
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under the laws of another state (a "foreign corporation") (Section 252(c)).
However, unless required by the certificate of incorporation, Sections 251(f)
and 252(e) do not require a vote of the shareholders of a constituent
corporation surviving the merger if (a) the merger agreement does not amend that
corporation's certificate of incorporation, (b) each share of that corporation's
stock outstanding before the effective date of the merger is identical to an
outstanding or treasury share of the surviving corporation after the merger and
(c) in the event the merger plan provides for the issuance of common stock or
securities convertible into common stock by the surviving corporation, the
common stock issued and the common stock issuable upon conversion of the issued
securities does not exceed 20% of the shares outstanding immediately before the
effective date of the merger.
Section 92A.120 of the NGCL requires a majority vote of the shares entitled
to vote in order to effect any merger. However, the articles of incorporation or
the board of directors may provide for a greater vote under some circumstances.
In addition, Section 92A.130 of the NGCL provides that the vote of the
stockholders of the surviving corporation on a plan of merger is not required
under substantially the same conditions as are specified in Sections 251(f) and
252(e) of the DGCL.
The RG Articles, the RG Bylaws, the FMP Certificate and the FMP Bylaws
contain no provisions directly addressing the vote required to effect a merger
not involving an interested shareholder.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
Pursuant to Section 203 of the DGCL, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations and sales of assets, with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless (a) the transaction that results in the
person's becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the shareholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans or
(c) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
shareholders. Under Section 203 of the DGCL, an "interested stockholder" is
defined as any person, other than the corporation and any direct or indirect
majority-owned subsidiary, that is (a) the owner of 15% or more of the
outstanding voting stock of the corporation or (b) an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it sought to be determined whether such person is an
interested stockholder. Section 203 of the DGCL does not apply to a corporation
that so provides in an amendment to its certificate of incorporation or by-laws
passed by a majority of its outstanding shares at any time. Such stockholder
action does not become effective for 12 months following its adoption and would
not apply to persons who were already interested stockholders at the time of the
amendment.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period
although the shareholders may elect to exclude a corporation from the
restrictions imposed thereunder. The provisions of Section 203 of the DGCL may
encourage companies interested in an acquisition to negotiate in advance with
the target company's Board of Directors, because the shareholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction which results in the
shareholder becoming an interested shareholder. Such provisions also may have
the effect of preventing changes in the management. It is further possible that
such provisions could make it more difficult to accomplish transactions which
shareholders may otherwise deem to be in their best interests.
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Under certain circumstances, the following selected provisions of the NGCL
may delay or make difficult acquisitions or changes of control. It is possible
that such provisions could make it more difficult to accomplish transactions
which shareholders may otherwise deem to be in their best interests.
Pursuant to Sections 78.378 to 78.3793 of the NGCL, an "acquiring person"
who acquires a "controlling interest" in an "issuing corporation" may not
exercise voting rights on any "control shares" unless such voting rights are
conferred by a majority vote of the disinterested shareholders of the issuing
corporation at a special meeting of such shareholders held upon the request and
at the expense of the acquiring person. In the event that the control shares are
accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all the voting power, any shareholder, other than the
acquiring person, who does not vote in favor of authorizing voting rights for
the control shares is entitled to demand payment for the fair value of his or
her shares, and the corporation must comply with the demand. For purposes of the
above provisions, "acquiring person" means (subject to certain exceptions) any
person who, individually or in association with others, acquires or offers to
acquire, directly or indirectly, a controlling interest in an issuing
corporation. "Controlling interest" means the ownership of outstanding voting
shares of an issuing corporation sufficient to enable the acquiring person,
individually or in association with others, directly or indirectly, to exercise
(a) one-fifth or more but less than one-third, (b) one-third or more but less
than a majority, (c) a majority or more of the voting power of the issuing
corporation in the election of directors, and voting rights must be conferred by
a majority of the disinterested shareholders as each threshold is reached and/or
exceeded. "Control Shares" means those outstanding voting shares of an issuing
corporation which an acquiring person acquires or offers to acquire in an
acquisition or within 90 days immediately preceding the date when the acquiring
person became an acquiring person. "Issuing corporation" means a corporation
which is organized in Nevada, has 200 or more shareholders, at least 100 of whom
are shareholders of record and residents of Nevada, and does business in Nevada
directly or through an affiliated corporation. The above provisions do not apply
if the articles of incorporation or by-laws of the corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person provide that said provisions do not apply.
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years after the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For purposes of the above provisions, "resident domestic
corporation" means a Nevada public corporation that has 200 or more
shareholders. "Interested stockholder" means any person, other than the resident
domestic corporation or its subsidiaries, who is (a) the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the outstanding
voting shares of the resident domestic corporation or (b) an affiliate or
associate of the resident domestic corporation and at any time within three
years immediately before the date in question was the beneficial owner, directly
or indirectly, of 10% or more of the voting power of the then outstanding shares
of the resident domestic corporation. The above provisions do not apply to
corporations that so elect in a charter amendment approved by a majority of the
disinterested shares. Such a charter amendment, however, would not become
effective for 18 months after its passage and would apply only to stock
acquisitions occurring after its effective date.
Article VIII of the RG Articles provides that a business combination
involving the corporation and an interested shareholder of the corporation shall
not be consummated without the affirmative vote of the holders of at least
two-thirds of the combined voting power of the then outstanding shares of stock
of all classes and series of the corporation entitled to vote generally in the
election of directors ("Voting Stock"), voting together as a single class,
unless (i) the Fair Market Value (as defined in Article VIII) of the
consideration to be received per share by holders of Voting Stock in the
business combination is at least equal to the Highest Per Share Price (as
defined in Article VIII), and (ii) the form of consideration to be received per
share by holders of Voting Stock in the business combination shall be United
States currency or the form of
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consideration used by the interested shareholder, to acquire the largest
aggregate Fair Market Value Voting Stock which such interested shareholder has
previously acquired. The aforesaid affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by the RG Articles or in any agreement
with any national securities exchange or otherwise. Notwithstanding the
foregoing, the provisions of this Article shall not apply to any business
combination involving the corporation and an interested shareholder if the board
of directors of the corporation shall by resolution have approved, prior to the
time that such interested shareholder shall have become an interested
shareholder, a memorandum of understanding or an agreement with such interested
shareholder setting forth, at least generally, the substance of the terms upon
which such transaction shall thereafter be consummated or if a majority of the
disinterested directors shall by resolution have approved such transaction.
The FMP Certificate and the FMP Bylaws do not specifically address business
combinations involving interested shareholders.
SHAREHOLDERS' RIGHT TO INSPECT CORPORATE BOOKS AND RECORDS
Section 220(b) of the DGCL provides that any shareholder, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of its
shareholders, and its other books and records, and to make copies or extracts
therefrom. A "proper purpose" means a purpose reasonably related to such
person's interest as a shareholder.
Section 78.257 of the NGCL provides that a shareholder of record of a
corporation who owns 15% or more of the issued and outstanding stock of the
corporation may, upon at least five days' written demand, inspect in person or
by agent or attorney, during normal business hours, the books of account and all
financial records of the corporation, to make extracts therefrom, and to conduct
an audit of such records. The right of such shareholders may not be limited in
the articles or bylaws of the corporation. A shareholder's rights under this
section may be denied if the shareholder refuses to furnish the corporation an
affidavit that such inspection, extracts or audit is not desired for any purpose
not related to his interest in the corporation as a shareholder.
The RG Articles, the RG Bylaws, the FMP Certificate and the FMP Bylaws
contain no provisions concerning the shareholders' rights to inspect corporate
books and records.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material federal income tax consequences
of the Merger to the Shareholders. The federal income tax discussion set forth
below is for general information only and may not apply to particular categories
of Shareholders subject to special treatment under the Code, including without
limitation, foreign holders and holders whose RG Common Stock was acquired
pursuant to the exercise of any employee stock option or otherwise as
compensation. EACH SHAREHOLDER AND HOLDER OF AN RG OPTION IS URGED TO CONSULT
HIS TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE MERGER AND THE
OTHER TRANSACTIONS DISCUSSED HEREIN, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
CONSEQUENCES OF THE MERGER
RG has received an opinion from FMP's tax counsel, Fabian & Clendenin
("Counsel"), to the effect that, on the basis of the facts, representations and
assumption set forth in the opinion, for federal income tax purposes, the Merger
will qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
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The representations (among others) relied upon by Counsel in giving its
opinion contain statements or agreements to the effect that: RG will be
maintained as a separate corporation by FMP; FMP assets will not be used to pay
any Shareholders dissenting to the Merger; and FMP owns no RG Common Stock and
has no intention to reacquire any stock issued in the Merger.
The favorable tax treatment of the Merger also depends upon the historic
shareholders of RG maintaining a so-called "continuity of interest" in the FMP
Common Stock received in the Merger. Under Revenue Procedures issued by the IRS,
continuity of interest is maintained in the transaction if the historic
shareholders of RG continue to maintain at least one-half their stock investment
in RG in the modified form of FMP Common Stock received by them in the proposed
transactions. RG has represented that it knows of no plan or intent by any
Shareholder owning less than 5% of the RG Common Stock to sell more than one-
half of his FMP Common Stock received in the proposed transactions. Further,
each Shareholder owning more than 5% of the RG Common Stock prior to the Merger
will represent that such Shareholder has no plan or intention to sell more than
one-half of his FMP Common Stock received in the Merger. Counsel is of the
opinion, based upon the foregoing representations regarding the plans and
intentions of the Shareholders, that the Merger meets the continuity of interest
requirement.
As described above under the heading "The Merger Agreement," immediately
after the Transfer and the Distribution, pursuant to the Merger Agreement,
Merger Sub will merge with and into RG. Assuming that the Merger will be treated
as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code for federal income tax purposes, as Counsel has opined, the specific
consequence of this treatment will be that:
1. No gain or loss will be recognized by RG or FMP as a result of the
Merger.
2. No gain or loss will be recognized by Shareholders whose shares of RG
Common Stock are exchanged solely for FMP Common Stock pursuant to the Merger,
except with respect to the cash received by such Shareholders in lieu of a
fractional share interest in FMP Common Stock.
3. A Shareholder who receives cash in lieu of a fractional share interest of
FMP Common Stock will be treated as if such cash had been received in
redemption of the fractional share interest. The receipt of such cash
generally should result in gain or loss in an amount equal to the difference
between the amount of the cash received and the portion of the Shareholder's
tax basis in the RG Common Stock. Such gain or loss generally will be treated
as capital gain or loss, provided that such fractional share is held by such
Shareholder as a capital asset at the Effective Date.
4. The aggregate tax basis of the FMP Common Stock received or, in the case
of fractional shares, deemed received by Shareholders who exchange their RG
Common Stock for FMP Common Stock in the Merger will be the same as the tax
basis of the RG Common Stock surrendered in exchange therefor.
5. The holding period for the shares of FMP Common Stock received in the
Merger will include the period during which the shares of RG Common Stock
surrendered in exchange therefor were held, provided that such shares of RG
Common Stock were held as capital assets at the Effective Date.
Counsel's opinion with respect to the Merger is based upon certain
representations and represents Counsel's best legal judgment, but is not binding
upon the IRS or the courts. If any representation or assumption relied upon in
rendering Counsel's opinion with respect to the Merger is inaccurate, or if the
Service were to challenge successfully the federal income tax treatment of the
Merger set forth in Counsel's opinion, then, in general, although not entirely
free from doubt, for federal income tax purposes it is likely that each
Shareholder would recognize gain measured by the excess of the fair market value
of the FMP Common Stock received in the Merger plus the amount of cash in lieu
of a fractional share over the tax basis in his RG Common Stock. See "RISK
FACTORS -- Risks Related to the Merger: Tax Treatment."
LIMITATIONS AND QUALIFICATIONS
The foregoing discussion of the anticipated material federal income tax
consequences of the Merger is based on the law in effect as of the date hereof,
including the Code, the Treasury Regulations promulgated
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<PAGE> 100
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (possibly on a retroactive basis). This discussion
does not address any aspect of state, local or foreign taxation. In addition,
this discussion does not attempt to address all issues that may be relevant to a
particular Shareholder in light of such holder's personal circumstances, and
does not apply to holders subject to special treatment under the federal income
tax laws. Further, this discussion may not apply to a Shareholder who acquired
his stock pursuant to the exercise of an employee stock option or otherwise as
compensation, and does not apply to a holder of RG Options who receives shares
of FMP Common Stock upon the exercise thereof. Accordingly, each Shareholder
should consult such holder's own tax adviser as to the specific tax consequences
to such holder of the Merger, including the effect of state, local, foreign and
other tax laws.
AMENDMENT TO ROYAL GRIP 1993 STOCK OPTION PLAN
GENERAL
At the Special Meeting, Shareholders will vote upon whether to approve the
Amendment to increase the number of shares of RG Common Stock authorized for
issuance under the Plan from 400,000 to 550,000. The Amendment has been
unanimously approved by the RG Board. The following discussion is qualified in
its entirety by reference to the text of the Plan, as amended, set forth in
Annex III.
The Plan was originally adopted by the RG Board and approved by the
Shareholders on August 9, 1993. Initially, a total of 250,000 shares of RG
Common Stock was reserved for issuance upon exercise of options granted
thereunder. On June 3, 1994, RG amended the Plan to increase the number of
shares of RG Common Stock authorized for issuance thereunder from 250,000 to
400,000. In September 1994, RG amended the Plan to permit RG to grant
nonstatutory stock options to consultants and advisers of RG.
The Plan authorizes grants of "incentive stock options" ("ISO") as defined
in Section 422 of the Code, to all eligible RG employees and nonstatutory stock
options ("NSO"), which do not qualify as incentive stock options, to consultants
and advisers. There are approximately 150 eligible employees of RG, as well as
several advisers and consultants. Any RG employee, consultant and adviser to RG
that is selected to participate in the Plan is hereinafter referred to as a
"Participant." Options to purchase all 550,000 shares of RG Common Stock under
the Plan have been granted, although options for 2,500 shares were subsequently
canceled due to employee terminations. The closing price for the RG Common Stock
on August 12, 1997, as reported on the Nasdaq National Market, was $3.69 per
share.
As set forth below, the RG Board has granted options to acquire 40,000
shares of RG Common Stock to Danny Edwards at an exercise price of $3.30 per
share and options to acquire 110,000 shares to Robert G. J. Burg, II at an
exercise price of $3.00 per share, subject to approval of the Amendment by the
Shareholders. The options granted to Mr. Edwards shall vest one-third upon grant
and one-third on each of the two successive anniversaries of the grant. The
expiration date for options granted to Mr. Edwards is five years from the date
of grant. The options granted to Mr. Burg shall vest immediately. The expiration
date for options granted to Mr. Burg is eight years from the date of grant.
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<PAGE> 101
AMENDED PLAN GRANTS
1993 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF SHARES EXERCISE PRICE DOLLAR VALUE (a)
------------------------------------- ---------------- -------------- ----------------
<S> <C> <C> <C>
Danny Edwards, CEO................... 40,000 $ 3.30 $ 15,600
Robert G. J. Burg II, President...... 110,000 $ 3.00 $ 75,900
Executive Group...................... 150,000 $ 3.00-$3.30 $ 91,500
Non-Executive Director Group......... -- -- --
Non-Executive Officer Employee
Group.............................. -- -- --
</TABLE>
- ---------------
(a) Based on the difference between the exercise price and the closing price of
the RG Common Stock on August 12, 1997, as reported on the Nasdaq National
Market of $3.69 per share assuming that the options were exercised on that
date.
REASONS FOR APPROVAL
The RG Board believes that the Plan promotes the success and enhances the
value of RG by (a) linking the personal interests of Participants to those of
the Shareholders, and (b) providing Participants with an incentive for
outstanding performance. The RG Board believes that increasing the number of
options available under the Plan and granting them as provided above is
consistent with the purpose of the Plan and appropriate to provide an additional
incentive to the recipients to continue to contribute to RG until and after
completion of the Merger.
PLAN PROVISIONS
The Plan is administered by the Compensation Committee of the RG Board,
none of the members of which is eligible to participate in the Plan. The
Compensation Committee has the exclusive authority to administer the Plan,
including the power to determine eligibility, the type of options to be granted,
the number of awards to be granted, and the terms and conditions of any award
granted, including, but not limited to, the price and timing of awards. The
exercise price of an ISO must be equal to the fair market value per share of the
RG Common Stock on the date of grant, or 110% of fair market value if the
grantee beneficially owns 10% or more of the outstanding RG Common Stock. The
exercise price of an NSO may not be less than 75% of the fair market value per
share of the RG Common Stock on the date of grant.
In general, a Participant may be granted any number of options and each
option may be for any number of shares. The aggregate market value of RG Common
Stock with respect to which incentive stock options are exercisable for the
first time by a Participant during any calendar year may not exceed $100,000.
Upon exercise of an option, the exercise price may be paid in cash, shares
of RG Common Stock with an aggregate fair market value equal to the option price
plus applicable taxes, or a combination of the foregoing. Except as otherwise
provided in a Participant's option agreement, options generally expire six years
from the date of grant and generally vest over a three year period. In no event
may the term of an option exceed ten years. If a Participant's status as an
employee, consultant, or adviser is terminated by RG, except if such termination
is due to death or disability, then the Participant may, but only within 30 days
after the date of termination, exercise his or her option to the extent that it
was exercisable at the date of termination. If a Participant ceases to be an
employee of RG due to death or disability, the Participant (or the Participant's
legal representative) may, for a period of 12 months, exercise the option to the
extent it was exercisable at the date of termination. However, no option may be
exercised after its expiration date.
Subject to the approval of the RG Board, the Participant may make an
irrevocable election to have RG withhold from those shares that would otherwise
be received upon the exercise of the option a number of shares having a fair
market value equal to the minimum amount necessary to satisfy RG's federal,
state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such
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<PAGE> 102
option by the Participant. RG shall be entitled if necessary or desirable to pay
or withhold the amount of any tax attributable to the delivery of RG Common
Stock under the Plan from other amounts payable to the Participant after giving
the person entitled to receive such RG Common Stock notice as far in advance as
practical, and RG may defer making delivery of such RG Common Stock if any such
tax may be pending unless and until indemnified to its satisfaction.
Generally, an option may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner except in the following limited
circumstances: (a) by will, (b) by the laws of descent or distribution, (c)
pursuant to a "qualified domestic relations order" under the Code and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or (d) if
the Participant's status as an employee, consultant or adviser is terminated due
to death or disability, the Participant (or the Participant's legal
representative) may exercise his or her vested, unexpired options within 12
months from the date of termination.
Upon the merger of RG with or into another corporation all options granted
under the Plan must be assumed or an equivalent option must be substituted by
the successor corporation. The RG Board has the authority to determine, in its
sole discretion and instead of such assumption or substitution, that the holders
of any options granted under the Plan have the right to exercise such options.
The RG Board may amend or terminate the Plan. However, the RG Board may not
amend the Plan without prior approval of the Shareholders if such amendment
would materially increase the benefits accruing to Participants under the Plan,
materially increase the number of shares of RG Common Stock which may be issued
under the Plan or materially modify the requirements as to eligibility for
participation in the Plan. The Plan terminates on December 31, 2003, unless
terminated earlier by the RG Board. Amendment or termination of the Plan will
not affect outstanding stock options without the consent of the Participants.
FEDERAL INCOME TAX CONSEQUENCES FOR NONSTATUTORY STOCK OPTIONS
A nonstatutory stock option, or NSO, does not qualify as an "incentive
stock option" under Section 422 of the Code.
A Participant does not realize any compensation income upon the grant of an
NSO. Additionally, RG may not take a tax deduction at the time of the grant.
Upon exercise of an NSO, a Participant realizes and must report as compensation
income an amount equal to the difference between the fair market value of the RG
Common Stock on the date of exercise and the exercise price. RG is entitled to
take a deduction at the same time and in the same amount as the Participant
reports compensation income, provided that RG meets all withholding requirements
with respect to the taxable income realized by the Participant.
When a Participant disposes of the shares of RG Common Stock received upon
exercise of an NSO, he or she will realize capital gain income if the amount
realized on the sale exceeds the Participant's basis in the shares. If the
Participant's basis in the shares exceeds the amount realized on the sale, the
Participant will realize a capital loss. A Participant's basis in the optioned
shares is equal to the exercise price plus any additional compensation income
realized by the Participant upon exercise of the option. There is no tax impact
to RG upon the subsequent disposition of shares by a Participant.
FEDERAL INCOME TAX CONSEQUENCES FOR INCENTIVE STOCK OPTIONS
Options granted under the Plan may be "incentive stock options" qualifying
under Section 422 of the Code for special tax treatment. Neither the grant of
the ISO nor the exercise of the ISO by a Participant will result in the
recognition of taxable income to the Participant. However, the exercise of an
ISO will result in an item of tax preference to a Participant potentially
subject to the alternative minimum tax. The ultimate sale or other disposition
by the Participant of the shares obtained upon exercise of the ISO will result
in capital gain or loss equal to the difference between the fair market value on
the date of sale and the exercise price. RG will not be entitled to a deduction
with regard to the ISO at the time of the grant, the exercise or the ultimate
sale of the shares.
Notwithstanding the foregoing, if a Participant sells or disposes of the
shares prior to two years after the date of the grant of the ISO or one year
after the date of the exercise, the Participant will recognize
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<PAGE> 103
compensation income equal to the lesser of the fair market value of the stock on
the date of exercise over the exercise price or the amount realized on the
disposition over the exercise price. The excess of the amount received on the
sale over the value on the date of exercise will be capital gain. In the case of
such a disqualifying disposition of shares, RG may deduct the amount recognized
as compensation income.
The foregoing is intended to serve only as a general discussion of certain
federal income tax consequences. In addition to the foregoing federal tax
considerations, the exercise of an ISO or NSO and the ultimate sale or other
disposition of the shares acquired thereby will in most cases be subject to
state income taxation.
OTHER TAX CONSEQUENCES
Section 162(m) of the Code, adopted as part of the Revenue Reconciliation
Act of 1993, generally limits to $1 million the deduction that can be claimed by
any publicly-held corporation for compensation paid to any "covered employee" in
any taxable year beginning after December 31, 1993. The term "covered employee"
for this purpose is defined generally as the chief executive officer and the
four other highest paid employees of the corporation.
Performance-based compensation is outside the scope of the $1 million
limitation, and, hence, generally can be deducted by a publicly-held corporation
without regard to amount; provided that, among other requirements, such
compensation is approved by stockholders. Among the items of performance-based
compensation that can be deducted without regard to amount (assuming stockholder
approval and other applicable requirements are satisfied) is compensation
associated with the exercise of a stock option provided that the option has an
exercise price equal to or greater than the fair market value of the underlying
stock at the time of the option grant and the plan under which such stock
options were granted sets forth a limit on the maximum number of shares that can
be acquired pursuant to options awarded to plan participants. The Plan does not
provide for such limitation; therefore, any compensation in excess of $1 million
associated with the exercise of stock options granted under the Plan cannot be
deducted pursuant to Section 162(m) of the Code.
REQUIRED VOTE
Approval of the Amendment to increase the number of shares authorized under
the Plan requires the affirmative vote of the holders of a majority of the
shares of RG Common Stock present at the Special Meeting in person or by proxy.
The RG Board has unanimously approved the Amendment and unanimously
recommends that Shareholders vote for approval of the Amendment.
EXPERTS
The consolidated financial statements of RG as of December 31, 1995 and
1996, and for the years then ended appearing in this Proxy Statement/Prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of FMP and subsidiaries as of May 30,
1996 (the "Predecessor Business") and May 31, 1997 (the "Successor Company") and
for the years then ended, respectively, included in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
RG SHAREHOLDER PROPOSALS
A date for RG's 1997 Annual Meeting of Shareholders has not been set and if
the Merger occurs, no such annual meeting may be held. If such annual meeting
date is set, shareholders will be notified of the date by
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<PAGE> 104
which proposals intended to be presented at such annual meeting must be received
by RG for inclusion in RG's proxy statement.
FMP may not be required to include an FMP stockholder's proposal in FMP's
proxy statement or form of proxy relating to a meeting of FMP stockholders
unless the FMP stockholder, at the time he submits the proposals, is a record or
beneficial owner of at least one percent or $1,000 in market value of FMP
securities entitled to be voted on the proposal at the meeting and has held such
securities for at least one year, and he continues to own such securities
through the date on which such meeting is held. If FMP holds a stockholders
meeting for which stockholders' proposals must be submitted before the first
anniversary of the Merger, FMP may require that proposals made by an FMP
stockholder, who became an FMP stockholder as a result of the receipt of shares
of FMP Common Stock in the Merger, should not be included in FMP's proxy
statement or form of proxy for such meeting because such stockholder will not
have held FMP voting securities for at least one year prior to making the
proposals.
LEGAL MATTERS
The validity of the shares of FMP Common Stock to be issued in connection
with the Merger will be passed upon for FMP by Kenneth J. Warren,
Attorney-at-Law, Columbus, Ohio. Mr. Warren is the beneficial owner of 349,472
shares of FMP Common Stock, and is a director and Secretary of FMP. See
"OWNERSHIP OF FMP COMMON STOCK." Mr. Warren participated in the organization of
FMP and has received legal fees from FMP. See "CERTAIN FMP TRANSACTIONS" and
"FMP EXECUTIVE COMPENSATION."
Certain of the tax consequences of the Merger will be passed upon by the
law firm of Fabian & Clendenin, Salt Lake City, Utah, on behalf of FMP. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES." David J. Lyon, of counsel to Fabian &
Clendenin, owns 41,767 shares of FMP Common Stock and participated in the
organization of FMP. See "CERTAIN FMP TRANSACTIONS."
AVAILABLE INFORMATION
RG is (and, following the Merger, FMP will be) subject to the informational
requirements of the Exchange Act, and in accordance therewith files (and, in the
case of FMP, following the Merger it will file) reports, proxy statements and
other information with the SEC. The reports, proxy statements and other
information filed by RG (and, following the Merger, to be filed by FMP) with the
SEC can be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC located at 7 World Trade Center,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such information also can be obtained by mail from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The SEC's web site can be accessed at
http://www.sec.gov. RG Common Stock is quoted on The Nasdaq National Market.
Such reports, proxy statements and other information filed by RG can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 1735 K Street, N.W., Washington, DC 20006.
FMP has filed with the SEC the Registration Statement under the Securities
Act, of which this Proxy Statement/Prospectus is a part, with respect to the
shares of FMP Common Stock to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the
SEC's principal office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or attached as an annex hereto or such
other document, each such statement being qualified in all respects by such
reference. Any such contract
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<PAGE> 105
or other document filed as an exhibit to the Registration Statement is available
at the SEC's web site (http://www.sec.gov).
REPORTS TO STOCKHOLDERS
FMP intends to furnish its stockholders with annual reports containing
financial statements audited and reported upon by its independent accounting
firm and such other periodic reports as FMP may determine to be appropriate or
as may be required by law or the rules of any exchange on which its securities
may be listed.
INDEMNIFICATION
FMP is a Delaware corporation. Section 145 of the DGCL provides that
directors and officers of Delaware corporations may, under certain
circumstances, be indemnified against expenses (including attorneys' fees) and
other liabilities actually and reasonably incurred by them as a result of any
suit brought against them in their capacity as a director or officer, if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful. Section 145 also provides that directors and officers may
also be indemnified against expenses (including attorneys' fees) incurred by
them in connection with a derivative suit, if they acted in good faith and in
the manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made without
court approval if such person was adjudged liable to the corporation.
Article NINTH of the FMP Certificate and Article VI of the FMP Bylaws have
provisions requiring FMP to indemnify its directors and officers which are in
substantially the same wording as Section 145.
Article EIGHTH of the FMP Certificate further provides that no director
will be personally liable to FMP or its stockholders for monetary damages or for
any breach of fiduciary duty except for breach of the director's duty of loyalty
to FMP or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, pursuant to Section 174 of
the DGCL (which imposes liability in connection with the payment of certain
unlawful dividends, stock purchases or redemptions), or any amendment or
successor provision thereto, or for any transaction from which the director
derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of FMP pursuant
to the foregoing provisions, or otherwise, FMP has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
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<PAGE> 106
FINANCIAL STATEMENTS
ROYAL GRIP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995........................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996 and
1995............................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996 and 1995.................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1997............................ F-19
Condensed Consolidated Statements of Operations for the Six Months Ended June 30,
1997 and 1996.................................................................... F-20
Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 1997
and 1996......................................................................... F-21
Notes to Condensed Consolidated Financial Statements................................ F-22
</TABLE>
F-1(RG)
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ROYAL GRIP, INC.
We have audited the accompanying consolidated balance sheets of Royal Grip,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Royal Grip, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, on January
1, 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
/s/ Ernst & Young LLP
Phoenix, Arizona
February 14, 1997,
except as to Notes 10 and 15,
as to which the date is April 11, 1997.
F-2(RG)
<PAGE> 108
ROYAL GRIP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 38,099 $ 413,345
Trade accounts receivable (net of allowance for doubtful
accounts of $549,455 in 1996 and $227,070 in 1995)......... 1,593,554 1,864,012
Income tax refund receivable.................................. -- 101,139
Inventories, net.............................................. 1,381,215 1,720,296
Prepaid expenses.............................................. 39,628 54,252
Current portion of net investment in lease.................... 214,506 --
Other current assets.......................................... 92,929 90,576
---------- ----------
Total current assets.................................. 3,359,931 4,243,620
Property and equipment, net................................... 1,925,056 6,258,292
Net investment in lease, less current portion................. 2,907,494 --
Intangibles, net.............................................. 251,554 1,083,240
Other assets.................................................. 51,250 58,675
---------- ----------
$ 8,495,285 $11,643,827
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................ $ 60,000 $ --
Trade accounts payable........................................ 829,211 900,501
Accrued payroll and commissions............................... 220,390 236,943
Accrued expenses.............................................. 878,436 534,182
Current portion of long-term debt and capital leases.......... 207,230 136,643
---------- ----------
Total current liabilities............................. 2,195,267 1,808,269
Long-term debt and capital leases, less current portion......... 671,054 161,422
Other liabilities............................................... 8,147 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized
5,000,000 shares; none issued.............................. -- --
Common stock, par value $.001 per share. Authorized 15,000,000
shares; 2,734,678 shares issued and outstanding in 1996 and
1995....................................................... 2,735 2,735
Additional paid-in capital.................................... 12,592,906 12,199,288
Accumulated deficit........................................... (6,974,824) (2,527,887)
---------- ----------
Total stockholders' equity............................ 5,620,817 9,674,136
---------- ----------
$ 8,495,285 $11,643,827
========== ==========
</TABLE>
See accompanying notes.
F-3(RG)
<PAGE> 109
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales....................................................... $16,120,617 $17,373,451
Cost of goods sold.............................................. 12,324,745 12,307,334
----------- -----------
Gross profit.................................................... 3,795,872 5,066,117
Selling, general and administrative expenses.................... 6,016,913 7,512,092
Loss on write-down and disposition of property and equipment.... 446,166 530,788
Manufacturing outsourcing and acquisition costs................. 1,052,900 110,754
Loss on write-off of intangibles................................ 684,329 --
----------- -----------
Loss from operations............................................ (4,404,436) (3,087,517)
Other income (expense):
Interest income................................................. 11,123 25,524
Interest expense................................................ (52,348) (62,904)
Other expense, net.............................................. (1,276) (7,424)
----------- -----------
Loss before income tax benefit.................................. (4,446,937) (3,132,321)
Income tax benefit.............................................. -- 359,000
----------- -----------
Net loss........................................................ $(4,446,937) $(2,773,321)
=========== ===========
Net loss per share.............................................. $ (1.63) $ (1.01)
=========== ===========
Weighted average shares used in computation..................... 2,734,678 2,734,678
=========== ===========
</TABLE>
See accompanying notes.
F-4(RG)
<PAGE> 110
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1995............. $2,735 $12,199,288 $ 245,434 $ 12,447,457
Net loss................................ -- -- (2,773,321) (2,773,321)
------ ----------- ----------- -----------
Balances at December 31, 1995........... 2,735 12,199,288 (2,527,887) 9,674,136
Issuance of stock options to
non-employees......................... -- 393,618 -- 393,618
Net loss................................ -- -- (4,446,937) (4,446,937)
------ ----------- ----------- -----------
Balances at December 31, 1996........... $2,735 $12,592,906 $(6,974,824) $ 5,620,817
====== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5(RG)
<PAGE> 111
ROYAL GRIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................ $(4,446,937) $(2,773,321)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 1,652,981 1,948,196
Allowance for doubtful accounts............................... 322,385 83,010
Loss on write-down and disposition of property and
equipment.................................................. 446,166 530,788
Loss on write-off of intangibles.............................. 684,329 --
Inventory write-down and reserves............................. 117,827 588,203
Issuance of stock options to non-employees.................... 393,618 --
Deferred income taxes......................................... -- (272,000)
Changes in operating assets and liabilities:
Trade accounts receivable.................................. (51,927) (572,502)
Income tax refund receivable............................... 101,139 349,800
Inventories................................................ 221,254 (191,713)
Prepaids and other current assets.......................... 12,271 121,126
Other assets and intangibles............................... (23,561) 37,514
Trade accounts payable and accrued expenses................ 256,411 716,762
----------- -----------
Net cash provided by (used in) operating activities... (314,044) 565,863
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................... (1,449,593) (830,842)
Proceeds from sale of property and equipment.................. 740,025 34,229
----------- -----------
Net cash used in investing activities................. (709,568) (796,613)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt...................... 726,309 36,155
Repayments on long-term debt and capital leases............... (146,090) (105,969)
Increase (decrease) in revolving line of credit............... 60,000 (480,000)
Increase in other liabilities................................. 8,147 --
----------- -----------
Net cash provided by (used in) financing activities... 648,366 (549,814)
----------- -----------
Net decrease in cash and cash equivalents............. (375,246) (780,564)
Cash and cash equivalents at beginning of year........ 413,345 1,193,909
----------- -----------
Cash and cash equivalents at end of year.............. $ 38,099 $ 413,345
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................................ $ 52,348 $ 62,062
</TABLE>
See accompanying notes.
F-6(RG)
<PAGE> 112
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Royal Grip, Inc. ("RG") designs and manufactures golf club grips and
athletic headwear. RG's products are sold throughout the United States as well
as internationally, largely Japan and the United Kingdom. During December 1996,
RG outsourced the manufacturing of their golf club grips (see Note 10).
Principles of Consolidation
The consolidated financial statements include the financial statements of
RG and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. All of the companies operate
within the sports industry; therefore, no segment information is provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
RG considers all highly liquid investments with maturities at the date of
purchase of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of weighted average cost or market.
Intangible Assets
Intangible assets consist of trademarks, covenants not to compete and
goodwill primarily arising from the acquisition of Roxxi, Inc. (Roxxi). Costs
incurred in securing trademark rights are amortized over a 20-year period.
Covenants not to compete are amortized on a straight-line basis over the
contractual lives which range from two to five years. Goodwill, representing the
excess of the purchase price over the estimated fair value of the net assets of
Roxxi, is amortized on a straight-line basis over the period of expected benefit
of 15 years. Due to the historical losses of Roxxi, during the fourth quarter of
1996, RG assessed the recoverability of Roxxi intangibles based upon expected
future undiscounted cash flows of Roxxi and other relevant information. Based on
this evaluation, RG determined that the recoverability of goodwill and covenants
not to compete were impaired, and consequently, recorded a loss of $684,329 to
write-off the related assets.
Property and Equipment
Property and equipment is stated at cost or, if acquired under capital
lease, at the lower of the present value of minimum lease payments or fair value
at the inception of the lease.
Depreciation of property and equipment is provided over estimated useful
lives of three to twelve years on the straight-line method. Equipment under
capital leases and leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Amortization of capitalized leases is included in depreciation and
amortization expense.
F-7(RG)
<PAGE> 113
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
RG recognizes revenues as of the date merchandise is shipped to its
customers.
Income Taxes
RG accounts for income taxes under the asset and liability method of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
Advertising
RG expenses advertising as incurred. Advertising expense for the years
ended December 31, 1996 and 1995 approximated $621,000 and $1,446,000,
respectively.
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding. Stock options were not included in 1996 and
1995 since they were antidilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share" which is required to be adopted on December 31, 1997.
At that time, RG will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of SFAS No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
Stock Based Compensation
RG grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. RG
accounts for stock option grants to employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25).
RG adopted SFAS No. 123 "Accounting for Stock Based Compensation" in 1996
related to stock options granted to non-employees. Expense equal to the fair
value of the options granted to non-employees is recorded over the vesting
period of the related options. The adoption of SFAS No. 123 did not have a
material impact on the consolidated operations of RG.
Long-Lived Assets
RG adopted in 1996, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flow estimated to
be generated by these assets are less than the assets' carrying amounts. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. Due to the historical losses at Roxxi, RG determined that the
property and equipment and goodwill acquired as part of the Roxxi acquisition
may not be recoverable through the undiscounted cash flow of the Roxxi
operation. RG's estimate of the fair value (based on appraisals), less selling
costs, of the property and equipment approximated its net carrying value, and
accordingly, no loss was recorded related to the property and equipment.
However, RG wrote off the goodwill and covenants not to compete related to
Roxxi.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on
the basis that RG will continue as a going concern. RG has incurred successive
losses and, in order for RG to continue as a going
F-8(RG)
<PAGE> 114
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
concern, RG must achieve profitable operations in the near term. If not
successful in achieving profitable operations, RG could be placed in default of
certain debt covenants which could accelerate the maturity of outstanding debt
balances or restrict RG's access to the loans. In the event RG fails to achieve
budgeted levels of sales and expenses, it may be required to obtain additional
funds to finance its operations. There can be no assurance that RG will be able
to obtain these funds on terms and conditions acceptable to RG, if at all.
Management's plans with respect to achieving profitable operations include
outsourcing its golf club grip manufacturing during 1997 (see Note 10) to
Acushnet Rubber Company, Inc. (Acushnet) in order to decrease and fix its grip
manufacturing costs. Acushnet has experienced start-up delays in the production
of grips, which has adversely affected RG's customer relationships. Accordingly,
RG is experiencing losses in early 1997 greater than anticipated. RG has entered
into an agreement with Acushnet whereby Acushnet will reimburse RG for amounts
which approximate the gross margin on sales lost as a result of failure to
produce sufficient quantities.
RG's plans also include cost reductions, improving purchasing arrangements,
new product introductions, and changes to the headwear manufacturing process.
Management has also developed production, sales and financing plans that call
for significant improvements in 1997, including a significant improvement in net
income (loss). Management believes that these plans, when coupled with available
credit facilities, and the improved operations subsequent to year-end will
enable RG to continue as a going concern at least through December 31, 1997.
2. INTANGIBLE ASSETS
Intangible assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Goodwill................................................... $ -- $ 641,311
Covenants not to compete................................... -- 543,250
Trademarks and patents..................................... 317,958 298,522
-------- ----------
317,958 1,483,083
Less accumulated amortization.............................. (66,404) (399,843)
-------- ----------
$251,554 $1,083,240
======== ==========
</TABLE>
Amortization of intangibles expense of $178,343 and $220,574 was recorded
in 1996 and 1995, respectively. During the fourth quarter of 1996, RG wrote off
the goodwill and covenants not to compete related to Roxxi aggregating $684,329.
3. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods............................................ $ 849,769 $1,144,516
Work in process........................................... 100,092 188,677
Raw materials............................................. 476,354 575,306
---------- ----------
1,426,215 1,908,499
Less reserves............................................. (45,000) (188,203)
---------- ----------
$1,381,215 $1,720,296
========== ==========
</TABLE>
F-9(RG)
<PAGE> 115
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the first quarter of 1995, RG sold certain inventory in a bartering
transaction in exchange for trade credit rights to be used in the purchase of
goods and services over a three year period. No profit was recognized on the
initial transaction and the rights were to be amortized as they were utilized.
Due to the uncertainty as to the timing and extent of utilization of the trade
credit rights, management recorded a write-down in expense to cost of goods sold
of the trade credit rights of approximately $331,000 in 1995. No trade credit
rights had been used as of December 31, 1996.
During the fourth quarter of 1995, RG recorded approximately $188,000 in
expense to cost of goods sold to reserve for certain excess and obsolete
inventory.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment................................. $1,406,160 $7,894,240
Furniture and fixtures and office equipment............. 1,391,698 1,023,241
Transportation.......................................... 73,702 906,833
Leasehold improvements.................................. 229,891 863,498
Embroidery tapes........................................ 93,518 93,177
---------- ----------
3,194,969 10,780,989
Less accumulated depreciation and amortization.......... (1,269,913) (4,522,697)
---------- ----------
Property and equipment, net............................. $1,925,056 $6,258,292
========== ==========
</TABLE>
Depreciation expense of $1,474,638 and $1,727,622 was recorded in 1996 and
1995, respectively.
5. INVESTMENT IN LEASE
RG is the lessor of certain manufacturing equipment under a capital lease
agreement expiring in December 2006, which transfers ownership of the equipment
to the lessee at the end of the lease term (see Note 10). RG's net investment in
the direct financing lease at December 31, 1996 consists of:
<TABLE>
<S> <C>
Minimum lease payments receivable..................... $4,508,385
Unearned income....................................... (1,386,385)
----------
3,122,000
Less current portion.................................. (214,506)
----------
$2,907,494
==========
</TABLE>
F-10(RG)
<PAGE> 116
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, future minimum lease payments receivable under the
direct financing lease are as follows:
<TABLE>
<S> <C>
1997................................................... $ 450,838
1998................................................... 450,838
1999................................................... 450,838
2000................................................... 450,838
2001................................................... 450,838
Thereafter............................................. 2,254,195
----------
$4,508,385
==========
</TABLE>
6. LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASES
At December 31, 1996, RG was in default of certain covenants on its
existing $1,200,000 line of credit which were waived by the bank. In February
1997, RG refinanced the outstanding balance of $760,000 through $60,000 in
advances under a new $1,750,000 revolving line of credit and $700,000 of
advances under a new $700,000 term note agreement with a bank. The new line of
credit and term loan require payment of monthly interest at the bank's interest
rate (prime) plus 1.75 percent. Should RG attain certain stipulated net income
levels as defined in the agreement, the interest rate shall be payable monthly
at prime plus 1.00 percent. The term loan requires monthly principal payments of
$12,000 beginning March 1997. The line of credit and term loan mature in
February 2000. The $700,000 outstanding at December 31, 1996 under the prior
line of credit, which was due to mature in 1997, and refinanced with the new
term loan, has been classified as long-term debt in RG's consolidated balance
sheet.
The new line of credit allows RG to borrow an amount up to $1,750,000, but
restricts the borrowings based on certain receivable and inventory levels. As of
the date of the refinancing, approximately $950,000 was available for borrowings
under the terms of its new line of credit based upon available collateral. The
line of credit and term loan are collateralized by substantially all of RG's
assets and contain certain covenants, the more restrictive of which prohibit the
payment of dividends, limit capital expenditures, and require RG to comply with
certain financial ratios. RG must maintain a debt service coverage ratio of 1.0
to 1.0 for each quarter commencing June 30, 1997 and 1.25 to 1.00 for each
quarter commencing December 31, 1997, and thereafter. RG has a covenant to
maintain a minimum net worth of $6,300,000 at December 31, 1996, and net worth
can not decrease by more than $300,000 for the quarter ending March 31, 1997;
increase less than $400,000 for the quarter ending June 30, 1997; increase less
than $150,000 for the quarter ending September 30, 1996; decrease more than
$250,000 for the quarter ending December 31, 1997; and increase less than
$300,000 for each fiscal year thereafter. RG also has net income covenants which
correlate to the net worth covenants described above, and beginning in April
1997, RG cannot have a loss in excess of $100,000 in any one month. RG was in
default of its net worth covenant at December 31, 1996 and received a waiver
from the bank. See Note 15 regarding the modification to this covenant. The
weighted average interest rates on short-term borrowings as of December 31, 1996
and 1995 were approximately 8.75 percent and 8.50 percent, respectively.
F-11(RG)
<PAGE> 117
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt and capital leases consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Amounts payable under line of credit with a commercial
bank, refinanced subsequent to December 31, 1996 through
a term loan (see above).................................. $ 700,000 $ --
Note payable to a former employee of RG, $330,000 face
value, discounted at a rate of 8 percent interest,
payable in four annual principal and interest
installments of $82,500, maturing April 1998............. 155,947 225,367
Capital lease obligations, paid in full in 1996............ -- 50,011
Other...................................................... 22,337 22,687
--------- ---------
878,284 298,065
Less current portion....................................... (207,230) (136,643)
--------- ---------
$ 671,054 $ 161,422
========= =========
</TABLE>
At December 31, 1996, the maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997.................................................... $207,230
1998.................................................... 222,626
1999.................................................... 149,673
2000.................................................... 298,211
2001.................................................... 544
--------
$878,284
========
</TABLE>
7. INCOME TAXES
Income tax benefit consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal.................................................. $ -- $ (87,000)
State.................................................... -- --
---------- ----------
(87,000)
Deferred:
Federal.................................................. -- (186,000)
State.................................................... -- (86,000)
---------- ----------
-- (272,000)
---------- ----------
$ -- $(359,000)
========== ==========
</TABLE>
F-12(RG)
<PAGE> 118
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax benefit differs from amounts computed by applying the U.S.
federal income tax rate of 35 percent to loss before income taxes as a result of
the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Computed "expected" tax benefit......................... $(1,556,000) $(1,096,000)
Graduated surtax exemptions............................. 44,000 31,000
State income tax benefit, net of federal benefit........ -- (57,000)
Increase in valuation allowance......................... 1,270,000 776,000
Non-deductible goodwill amortization.................... 226,000 17,000
Other, net.............................................. 16,000 (30,000)
----------- -----------
$ -- $ (359,000)
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31
are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 220,000 $ 91,000
Inventory obsolescence reserves......................... 18,000 75,000
Amortization of covenants not to compete................ 184,000 99,000
Inventory cost capitalization........................... 14,000 20,000
Financial advisor fee................................... 47,000 55,000
Non-employee stock options.............................. 172,000 --
Alternative minimum tax credit.......................... -- 6,000
Other, net.............................................. 47,000 8,000
Net operating loss carry-forwards....................... 1,716,000 1,196,000
---------- ----------
Gross deferred tax assets............................... 2,418,000 1,550,000
Valuation allowance..................................... (2,273,000) (776,000)
---------- ----------
Net deferred tax assets................................. 145,000 774,000
Deferred tax liabilities:............................... -- --
Depreciation............................................ (145,000) (774,000)
---------- ----------
Total gross deferred tax liabilities.................... (145,000) (774,000)
---------- ----------
Net deferred tax assets................................. $ -- $ --
========== ==========
</TABLE>
The valuation allowance increased $1,497,000 and $776,000 during the years
ended December 31, 1996 and 1995, respectively.
At December 31, 1996, RG had federal and state net operating loss
carry-forwards of approximately $4,290,000. The federal and state net operating
loss carry-forwards will begin to expire in 2010 and 2000, respectively, if not
utilized.
F-13(RG)
<PAGE> 119
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
RG leases corporate offices, manufacturing facilities and office equipment
under operating lease agreements expiring through March 2001. RG is negotiating
to move its corporate facilities in 1997. Minimum annual rental commitments
under noncancelable leases are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997.................................................... $261,558
1998.................................................... 245,731
1999.................................................... 65,472
2000.................................................... 65,472
2001.................................................... 15,000
--------
$653,233
========
</TABLE>
Rental expense under operating leases totaled approximately $312,000 and
$295,000 for the years ended December 31, 1996 and 1995, respectively.
9. SIGNIFICANT CUSTOMERS
Sales to RG's exclusive Japanese distributor represented 19 percent and 21
percent of net sales for the years ended December 31, 1996 and 1995,
respectively. Additionally, during 1996 and 1995, sales to one original
equipment manufacturer accounted for 12 percent and 9 percent of net sales,
respectively.
International sales represented 21 percent and 22 percent of net sales for
the years ended December 31, 1996 and 1995, respectively.
10. MANUFACTURING AND SUPPLY AGREEMENT
On December 21, 1996, RG entered into a Manufacturing and Supply Agreement
(Acushnet Supply Agreement) with Acushnet. On April 4, 1997, RG and Acushnet
renegotiated certain aspects of their agreement. This agreement, as amended,
makes Acushnet the exclusive supplier of non-cord grips to RG, subject to RG's
ability to use other suppliers in the event Acushnet fails to meet production
requirements, and requires that RG purchase minimum annual volumes (commencing
after January 1, 1999) at fixed prices specified in the contract. Acushnet is
obligated to provide ongoing research and development with respect to grip
compounds, manufacturing processes, and engineering and quality control support.
The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject to RG's right to extend the agreement for up to three additional periods
of five years each. The Acushnet Supply Agreement is subject to termination by
either party upon certain material breaches thereof or of the equipment lease
described below. Upon termination of the Acushnet Supply Agreement by RG's
arising out of a material breach by Acushnet, RG may at its option repurchase
any grip manufacturing equipment owned by Acushnet at fair market value. In
addition, RG may terminate the Acushnet Supply Agreement at any time upon
written notice, and Acushnet may terminate the agreement on and after June 30,
1998, by providing ten months' prior written notice and payment by the
terminating party to the other party of a termination fee, which includes the
repurchase at prescribed values of the manufacturing equipment owned by
Acushnet, an additional fee of $2,500,000 and other fees and commitments
relating, among other things, to the transition of production operations.
In connection with the Acushnet Supply Agreement, RG leased to Acushnet
RG's specialized manufacturing equipment used in the production of its non-cord
grips, pursuant to a capital lease agreement dated as of December 21, 1996
(Equipment Lease). Under the Equipment Lease, RG granted to Acushnet an
F-14(RG)
<PAGE> 120
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option to purchase RG's manufacturing equipment. Further, the Equipment Lease
terminates on December 31, 2006, at which time the equipment will be transferred
to Acushnet at no further cost. As a result, RG has recorded a $3,122,000 direct
finance lease receivable for the lease of such equipment receivable in monthly
installments of $37,570 including interest at 7.8 percent and maturing in
December 2006 (see Note 5). No gain or loss was recorded on the transaction.
Acushnet has experienced start-up delays in the production of grips which
has adversely affected RG's customer relationships and results of operations,
has impaired RG's ability to satisfy its loan covenants and may make it more
difficult for RG to satisfy lending covenants in the future. The recent
amendments to the Acushnet Supply Agreement provide RG with a credit of $400,000
against future grip purchases and additional purchase credits in the event
Acushnet fails to meet production requirements. These credits may be reduced
depending upon Acushnet's production beyond levels specified in the amendment
during 1997 or as a result of its cancellation of stock options granted to it by
RG. These credits may be reduced only to the extent that RG orders grips above
such specified levels. The modified agreement also alters the future production
and purchase requirements of the parties.
As a result of the Acushnet Supply Agreement, RG incurred certain
additional expenses during the fourth quarter of 1996 including approximately
$304,000 in employee termination benefits, largely paid prior to December 31,
1996, $246,000 of professional and consulting fees, $478,000 in projected lease
termination and related leasehold improvement costs and $359,000 in stock option
costs (see Note 11). Such costs are included in the manufacturing outsourcing
costs and loss on write-down and disposition of property and equipment line
items in the consolidated statements of operations. Approximately $440,000 of
these related costs are unpaid at December 31, 1996.
11. STOCK OPTIONS
RG has elected to follow APB 25 and related Interpretations in accounting
for its employee stock options because, as discussed below, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of RG's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Employee Stock Options
RG has a Stock Option Plan (Plan), which provided for options on up to
400,000 shares of RG's common stock. These options are available for grant under
the Plan to employees and certain consultants of RG. Under the terms of the
Plan, the exercise price of the incentive stock options must equal the fair
market value per share of the common stock on the grant date or 110 percent of
the fair market value if the grantee beneficially owns 10 percent or more of the
outstanding stock of RG. The options vest over varying periods up to three years
and expire in five to eight years.
RG has a Non-Employee Director Stock Option Plan (Director Option Plan)
with 24,000 shares of common stock reserved for issuance thereunder. Pursuant to
the terms of the Director Option Plan, each non-employee director of RG receives
a one-time option grant of 3,000 shares. The exercise price is equal to the fair
market value on the date of grant. The options vest over a 3-year term and
expire in five years.
In 1996, the Board of Directors approved an additional Non-Employee
Director Stock Plan (Director Stock Plan) with 30,000 shares of common stock
reserved for issuance thereunder. Pursuant to the terms of the Director Stock
Plan, each non-employee director of RG receives options to purchase 1,500 shares
of RG's common stock on the third day following the day upon which RG releases
its earning report for the previous
F-15(RG)
<PAGE> 121
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal year. The exercise price granted under the Director Stock Plan will be
the fair market value of the common stock on the grant date. The options vest
upon the grant date and expire in six years.
Pro forma information regarding net loss and loss per share is required by
SFAS 123 which also requires that the information be determined as if RG has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1996: risk-free interest rate of
5.17 percent, dividend yield of 0.00 percent, volatility factor of the expected
market price of RG's common stock of .552 and a weighted-average expected life
of the options of four years. During 1995, no significant employee options were
granted.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because RG's stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. RG's pro forma
information for the year ended December 31, 1996, follows:
<TABLE>
<S> <C>
Net loss, as reported.................................. $4,446,937
Pro forma compensation expense for stock options:
1996 grants.......................................... 294,000
----------
Pro forma net loss..................................... $4,740,937
==========
Pro forma loss per share............................... $ 1.73
==========
</TABLE>
Employee stock options granted in 1995 were not material to the operations
of RG. Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 1999.
A summary of stock option activity granted within the plans and related
information for the years ended December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------
OPTIONS WEIGHTED
AVAILABLE EXERCISE AVERAGE
FOR GRANT SHARES PRICE RANGE EXERCISE PRICE
--------- -------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.............. 158,774 265,226 $8.50-$13.48
Shares reserved....................... -- -- --
Options granted....................... (18,250) 18,250 $4.00-$12.25
Options exercised..................... -- -- --
Options canceled...................... 103,476 (103,476) $7.31-$12.25
-------- --------
Balance at December 31, 1995............ 244,000 180,000 $4.00-$13.48 $10.13
Shares reserved....................... 30,000 -- --
Options granted....................... (405,839) 405,839 $ 2.75-$6.50 $ 3.24
Options exercised..................... -- -- --
Options canceled...................... 219,000 (219,000) $5.38-$13.48 $ 9.11
-------- --------
Balance at December 31, 1996............ 87,161 366,839 $2.75-$12.00 $ 3.65
======== ========
</TABLE>
F-16(RG)
<PAGE> 122
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and 1995, options granted within the plans for 298,006
and 145,050 shares were exercisable, respectively, with exercise prices ranging
from $2.75 to $12.00 and $5.25 to $13.48, respectively. The weighted average
exercise price of exercisable options was approximately $3.64 at December 31,
1996. The weighted-average fair value of options granted during the year ended
December 31, 1996 was approximately $1.18. The weighted average remaining
contractual life of options outstanding at December 31, 1996 was approximately 7
years. RG recorded in selling, general and administrative expenses approximately
$35,000 in expense for options granted within these plans and vested during the
year ended December 31, 1996.
Other Stock Options
At December 31, 1996 and 1995, RG has 58,000 and 33,000, respectively,
outstanding options granted to certain former employees in connection with their
severance packages at exercise prices ranging from $8.50 to $12.25 and expiring
between 2001 and 2004. These options replaced options held by the former
employees at their dates of termination. The original options were added back to
the reserved shares available for grant under RG's stock option plans. The
exercise price granted was equal to the exercise price of the original option
grant and was above the fair value of RG's stock at the date of grant of the
replacement options, therefore, no compensation expense was recorded by RG.
Options of 25,000 and 33,000 were granted during the years ended December 31,
1996 and 1995, respectively. The weighted average exercise price and fair value
of those options granted in 1996 were $12.25 and $1.40, respectively, at the
date of grant. The weighted average exercise price and remaining contractual
life of these outstanding options (100% vested) at December 31, 1996 were $10.63
and 5 years, respectively.
During 1996, RG granted to Acushnet 50,000 options at $4.00 and 200,000
options at $5.00 to purchase common shares of RG. The options vested immediately
and expire in 1999. Approximately $359,000 in expense was recorded as
manufacturing outsourcing costs in the consolidated statement of operations for
the year ended December 31, 1996 to reflect the immediate vesting of the granted
options. The fair value for these options was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: risk free
interest rate 5.17 percent, dividend yield of -0- percent, volatility factor of
the expected market price of RG's common stock of .552 and a weighted average
expected life of three years. The weighted average exercise price and fair value
of these options at the date of grant were $4.80 and $1.44, respectively. The
weighted average exercise price and remaining contractual life of these options
outstanding at December 31, 1996 were $4.80 and 3 years, respectively.
12. RELATED PARTY TRANSACTIONS
During 1996 and 1995, RG paid approximately $24,000 and $53,000,
respectively, in management consulting and other fees to a firm and its
affiliate, having a member who is also a director of RG.
13. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
RG is subject to a concentration of credit risk as a result of sales to its
significant customers including its exclusive Japanese distributor and an
original equipment manufacturer. To reduce its credit risk, RG requires letter
of credit agreements from its Japanese distributor. The original equipment
manufacturer purchased finished goods throughout the year under normal terms.
Bad debt losses have been considered in establishing allowances for doubtful
accounts.
F-17(RG)
<PAGE> 123
ROYAL GRIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Values
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, net investment in lease, accounts payable and
long-term debt approximates their fair value at December 31, 1996. The fair
values of long-term debt are estimated using discounted cash flow analyses,
based on RG's current incremental borrowing rates for similar types of borrowing
arrangements.
14. BENEFIT PLAN
During 1995, RG adopted a 401(k) Savings Plan (401(k) Plan) covering
substantially all employees who have completed one year of service during which
an employee must work at least 1,000 hours. Under the terms of the 401(k) Plan,
employees may make voluntary contributions up to 15 percent of their
compensation, subject to Internal Revenue Service limitations. RG does not make
contributions to the Plan. RG offers, as one of the investment mediums to the
participants, common stock of RG and has reserved 50,000 shares for issuance
under the 401(k) Plan.
15. SUBSEQUENT EVENTS
During January 1997, RG entered into a letter of intent to merge with an
unrelated golf club shaft manufacturing company, FM Precision Golf Corporation
(FMP). The preliminary terms contemplate that the shareholders of FMP will
receive 65 percent of the resulting company, on a fully diluted basis, and will
control the board of directors. The transaction is subject to a number of
conditions, including the completion of due diligence by both parties, execution
of a definitive agreement, and approval by the board of directors and
stockholders of each company.
Should the merger occur, the use of certain tax net operating loss
carry-forwards available to RG may be limited. There can be no assurances as to
whether the merger will occur or if it occurs, the ultimate terms of the merger.
At December 31, 1996 and March 31, 1997, RG was not in compliance with its
quarterly net income (loss), debt service, and net worth debt covenants and
anticipated not meeting many of its quarterly and monthly covenants during 1997.
In April 1997, RG obtained an amended bank agreement which waived the net income
(loss), debt service, and net worth covenant defaults and amended the debt
agreement whereby the net income (loss) limits have been modified to a loss of
no more than $1,000,000 for the quarter ending March 31, 1997 and a cumulative
loss of no more than $1,600,000 for the quarter ending June 30, 1997, and for
each month thereafter in 1997. The agreement amended the net worth covenants to
correlate with the net loss covenants above. The quarterly debt service and
monthly loss limit covenants were waived by the bank for 1997. In addition, the
interest rate was amended to the prime rate plus 3.0 percent effective April 1,
1997, subject to change based on the operating results of RG.
F-18(RG)
<PAGE> 124
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ --
Trade accounts receivable (net of allowance for doubtful accounts of
$450,140)................................................................... 1,563,904
Inventories................................................................... 784,608
Current portion of net investment in lease.................................... 223,022
Prepaid expenses and other current assets..................................... 60,752
-----------
Total current assets.......................................................... 2,632,286
-----------
Property and equipment, net................................................... 1,857,315
Net investment in capital lease, less current portion......................... 2,793,813
Intangible assets, net........................................................ 255,177
Other assets.................................................................. 23,750
-----------
$ 7,562,341
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.............................................................. $ 732,027
Accounts payable and accrued expenses....................................... 1,147,249
Supply agreement credits.................................................... 472,393
Current portion of long-term debt and capital leases........................ 226,500
-----------
Total current liabilities................................................... 2,578,169
-----------
Long-term debt and capital leases, less current portion....................... 515,417
Other liabilities............................................................. 8,588
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000 shares;
none issued.............................................................. --
Common stock, par value $.001 per share. Authorized 15,000,000 shares;
issued and outstanding 2,742,178 shares at June 30, 1997................. 2,742
Additional paid-in capital.................................................. 12,630,338
Accumulated deficit......................................................... (8,172,913)
-----------
Total stockholders' equity.................................................. 4,460,167
-----------
$ 7,562,341
===========
</TABLE>
See accompanying notes.
F-19(RG)
<PAGE> 125
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales....................................................... $ 5,837,100 $ 9,452,111
Cost of goods sold.............................................. 4,385,424 7,192,700
---------- ----------
Gross profit.................................................... 1,451,676 2,259,411
Selling, general and administrative expenses.................... 2,403,617 3,375,365
Merger costs.................................................... 279,861 --
---------- ----------
Loss from operation............................................. (1,231,802) (1,115,954)
Other income (expenses), net.................................... 33,713 (28,576)
---------- ----------
Loss before income taxes........................................ (1,198,089) 1,144,530
Income taxes.................................................... -- --
---------- ----------
Net loss........................................................ $(1,198,089) $(1,144,530)
========== ==========
Net loss per share.............................................. $ (0.44) $ (0.42)
========== ==========
Weighted average shares used in net loss per share.............. 2,740,101 2,734,678
========== ==========
</TABLE>
See accompanying notes.
F-20(RG)
<PAGE> 126
ROYAL GRIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(1,198,089) $(1,144,530)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization................................. 263,811 835,131
Compensatory stock option grants.............................. 16,813 14,504
(Gain) loss on disposition of property and equipment.......... (30) 22,175
Changes in operating assets and liabilities
Trade accounts receivable.................................. 29,650 (1,048,856)
Income tax refund receivable............................... -- 101,139
Inventories................................................ 596,607 252,337
Prepaid expenses and other current assets.................. 71,805 97,575
Other assets and intangibles............................... 16,341 (21,354)
Supply agreement credits................................... 472,393 --
Trade accounts payable and accrued expenses................ (780,788) (45,634)
--------- -----------
Net cash used by operating activities................. (511,487) (937,513)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (188,534) (578,075)
Principal payments received on capital lease receivable....... 105,165 --
Proceeds from sale of property and equipment.................. 30 788,919
--------- -----------
Net cash provided by (used in) investing activities........... (83,339) 210,844
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations............ -- (15,161)
Net payments on notes payable................................. (136,367) (65,528)
Exercise of employee options.................................. 20,626 --
Increase in line of credit.................................... 672,027 425,000
Increase in other liabilities................................. 441 --
--------- -----------
Net cash provided by financing activities..................... 556,727 344,311
--------- -----------
Net decrease in cash.......................................... (38,099) (382,358)
Cash at beginning of period................................... 38,099 413,345
--------- -----------
Cash at end of period......................................... $ -- $ 30,987
========= ===========
</TABLE>
See accompanying notes.
F-21(RG)
<PAGE> 127
ROYAL GRIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed financial statements include
all adjustments (of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures have been condensed or omitted pursuant to
such rules and regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements for
the year ended December 31, 1996, included elsewhere herein. Results of
operations in interim periods are not necessarily indicative of results to be
expected for a full year. In February 1997, Financial Accounting Standards Board
issued Statement No. 128 "Earnings Per Share" which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the calculation of primary and fully diluted earnings per share is
not expected to be material for the six months ended June 30, 1997 and June 30,
1996.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Finished goods......................................................... $219,186
Work in process........................................................ 102,634
Raw materials.......................................................... 462,788
--------
$784,608
========
</TABLE>
(3) MANUFACTURING AND SUPPLY AGREEMENT
In December 1996, the Company outsourced all of its production of non-cord
grips to Acushnet Rubber Company. During the first quarter of 1997, Acushnet
experienced startup delays in the production of grips. In light of these
difficulties, the Company and Acushnet renegotiated their agreement. In
connection with this renegotiation, Acushnet agreed to provide the Company with
a credit of $400,000 against future purchases of grips, to be applied against
current accounts payable due to Acushnet, and additional credits in the event
Acushnet fails to meet future production requirements. These credits may be
reduced, during 1997 only, depending upon Acushnet's production beyond levels
specified in the amendment to the Manufacturing and Supply Agreement, but only
to the extent that the Company orders grips above such specified levels. The
credits may also be reduced as a result of the cancellation of stock options
granted to Acushnet. Because of the contingent nature of this credit, the
Company recorded this amount as a liability under the Supply Agreement Credits
line item and a reduction in accounts payable to Acushnet. The Company intends
to recognize these credits as a reduction in cost of sales when it becomes
probable and estimable that Acushnet will not be able to earn back the credits
by either increasing its production or by virtue of a reduction in the Company's
orders below levels specified in the amendment. At June 30, 1997, the Company
has not recorded any of the credits as a reduction of cost of sales as Acushnet
can still earn back the credits and such amounts, if earned back, are payable in
cash.
During the quarter ended June 30, 1997, the Company recorded an additional
$72,000 of credits related to Acushnet's production shortfalls. The total credit
recorded as a liability at June 30, 1997 is approximately $472,000.
F-22(RG)
<PAGE> 128
(4) REVOLVING LINE OF CREDIT AND TERM DEBT
In February 1997, the Company entered into a new line of credit facility of
$1.75 million and term loan of $700,000 with a commercial bank. These credit
arrangements mature on February 10, 2000 and contain net worth requirements,
prohibit dividend payments and limit capital expenditures. At March 31, 1997,
the Company was not in compliance with its quarterly net income (loss), debt
service, and net worth debt covenants and anticipated not meeting many of its
quarterly and monthly covenants during 1997. The Company obtained an amended
bank agreement which waived the existing net income (loss), debt service, and
net worth covenant defaults and amended the debt agreement whereby the net
income (loss) limits have been modified to a loss of no more than $1 million for
the quarter ended March 31, 1997 and a cumulative loss of no more than $1.6
million for the quarter ending June 30, 1997, and for each month thereafter in
1997. The agreement amended the net worth covenants to correlate with the net
loss covenants above. The quarterly debt service and monthly loss limit
covenants were waived by the bank for 1997. In addition, the interest rate was
amended to the bank's prime rate plus 3.0 percent effective April 1, 1997,
subject to change based on the operating results of the Company. At June 30,
1997 RG was in compliance with its debt covenants and believes that it is
probable that RG will comply with the debt covenants at the measurement dates
over the next twelve months, therefore, the long term portion of RG's term loan
is classified as non-current in the balance sheet.
(5) MERGER COSTS
In May 1997, the Company entered into a definitive merger agreement with FM
Precision Golf Corp. During the six months ended June 30, 1997, the Company
incurred $280,000 in investment banking, legal and accounting fees related to
this transaction. The Company will also record merger costs of approximately
$400,000 (which approximates its fair value) for warrants to be issued to its
investment banker upon consummation of the Merger.
(6) DEFERRED INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
No tax benefit is available in the first two quarters of 1997 due to a 100%
valuation allowance on a deferred tax asset. The Company recorded this valuation
allowance because it believed that it is more likely than not that the deferred
tax assets will not be realized.
F-23(RG)
<PAGE> 129
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 130
FM PRECISION GOLF CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................... F-2
Consolidated Balance Sheets as of May 30, 1996
(Predecessor Business) and May 31, 1997.............................................. F-3
Consolidated Statements of Operations for the Years Ended May 30, 1996
(Predecessor Business) and May 31, 1997.............................................. F-4
Consolidated Statements of Net Assets and Stockholders' Equity for the Years Ended May
30, 1996
(Predecessor Business) and May 31, 1997.............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended May 30, 1996
(Predecessor Business) and May 31, 1997.............................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1(FMP)
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
FM Precision Golf Corp.:
We have audited the accompanying consolidated balance sheets of FM
Precision Golf Corp. (a Delaware corporation) and subsidiaries as of May 30,
1996 and May 31, 1997 and the related consolidated statements of operations, net
assets and stockholders' equity and cash flows for the years ended May 30, 1996
(the Predecessor Period) and May 31, 1997 (the Successor Period). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FM Precision
Golf Corp. and subsidiaries as of May 30, 1996 and May 31, 1997, and the
consolidated results of their operations and their cash flows for the
Predecessor Period and Successor Period, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
June 25, 1997
F-2(FMP)
<PAGE> 132
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
BUSINESS COMPANY
MAY 30, 1996 MAY 31, 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................... $ 341,160 $ 27,841
Accounts receivable, net of allowance for doubtful accounts
of $86,000 at May 30, 1996 and $88,000 at May 31, 1997.... 3,047,440 3,257,932
Inventories, net............................................. 3,173,181 3,493,080
Other current assets......................................... 272,540 63,291
Deferred income taxes........................................ -- 222,877
------------ ----------
Total current assets................................. 6,834,321 7,065,021
------------ ----------
PROPERTY, PLANT AND EQUIPMENT:
Land......................................................... 154,368 37,500
Buildings and improvements................................... 5,349,934 363,491
Machinery and equipment...................................... 18,122,990 2,669,898
------------ ----------
23,627,292 3,070,889
Less -- Accumulated depreciation............................. (13,164,038) (202,449)
------------ ----------
10,463,254 2,868,440
------------ ----------
DEFERRED INCOME TAXES.......................................... -- 25,799
------------ ----------
DEFERRED MERGER COSTS.......................................... -- 465,136
------------ ----------
$ 17,297,575 $ 10,424,396
============ ==========
LIABILITIES AND NET ASSETS AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations............................................... $ -- $ 2,466,136
Accounts payable............................................. 664,304 1,258,082
Accrued salaries and benefits................................ 798,694 868,999
Other accrued expenses....................................... 286,263 855,816
------------ ----------
Total current liabilities............................ 1,749,261 5,449,033
------------ ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion included above....................................... -- 2,616,808
------------ ----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 13)
NET ASSETS (division equity)................................... 15,548,314 --
------------ ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 3,000 shares authorized; 1,000
shares issued and outstanding............................. -- 10
Additional paid-in capital................................... -- 1,424,990
Retained earnings............................................ -- 933,555
------------ ----------
Total stockholders' equity........................... -- 2,358,555
------------ ----------
$ 17,297,575 $ 10,424,396
============ ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-3(FMP)
<PAGE> 133
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
PREDECESSOR SUCCESSOR
BUSINESS COMPANY
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MAY 30, 1996 MAY 31, 1997
------------ ------------
NET SALES....................................................... $19,002,271 $21,742,517
COST OF SALES................................................... 17,052,952 15,387,789
----------- ------------
Gross profit.......................................... 1,949,319 6,354,728
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 3,526,610 4,236,535
----------- ------------
Operating income (loss)............................... (1,577,291) 2,118,193
INTEREST EXPENSE................................................ -- 485,601
----------- ------------
Income (loss) before provision for income taxes....... (1,577,291) 1,632,592
PROVISION FOR INCOME TAXES...................................... -- 699,037
----------- ------------
Net income (loss)..................................... $(1,577,291) $ 933,555
=========== ============
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE............... $ 899.38
============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING................................................... 1,038
============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4(FMP)
<PAGE> 134
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF NET ASSETS
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------------------------------------
COMMON STOCK ADDITIONAL
NET ASSETS ---------------- PAID-IN RETAINED
(DIVISION EQUITY) SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------------- ------ ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR BUSINESS:
Balance, June 1, 1995... $14,455,591 -- $ -- $ -- $ -- $ --
Net contributions from
Parent Company....... 2,670,014 -- -- -- -- --
Net loss................ (1,577,291) -- -- -- -- --
----------------- ------ ------ ---------- -------- ----------
Balance, May 30, 1996... $15,548,314 -- $ -- $ -- $ -- $ --
============= ===== ====== ========= ======== =========
SUCCESSOR COMPANY:
Issuance of common
stock................ $ -- 1,000 $ 10 $ 999,990 $ -- $1,000,000
Compensation expense
related to grant of
stock options........ -- -- -- 425,000 -- 425,000
Net income.............. -- -- -- -- 933,555 933,555
----------------- ------ ------ ---------- -------- ----------
Balance, May 31, 1997... $ -- 1,000 $ 10 $1,424,990 $933,555 $2,358,555
============= ===== ====== ========= ======== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5(FMP)
<PAGE> 135
FM PRECISION GOLF CORP. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS SUCCESSOR COMPANY
FOR YEAR ENDED FOR YEAR ENDED
MAY 30, 1996 MAY 31, 1997
--------------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $(1,577,291) $ 933,555
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation........................................ 1,259,204 202,449
Compensation expense related to grant of stock
options........................................... -- 425,000
Deferred income taxes............................... -- (248,676)
Changes in operating assets and liabilities --
Accounts receivable............................... (723,586) (210,492)
Inventories....................................... 136,712 (319,899)
Other current assets.............................. 12,377 (63,291)
Accounts payable and accrued expenses............. (219,343) 1,646,559
----------- -----------
Net cash provided by (used in) operating
activities................................... (1,111,927) 2,365,205
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of net assets of Predecessor Business...... -- (6,824,206)
Purchases of equipment, net............................ (1,373,475) (935,684)
Deferred merger costs.................................. -- (465,136)
----------- -----------
Net cash used in investing activities.......... (1,373,475) (8,225,026)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock..................... -- 1,000,000
Proceeds from long-term debt........................... -- 4,125,000
Borrowings under line-of-credit, net................... -- 1,497,763
Repayments of long-term debt and capital lease
obligations......................................... -- (735,101)
Net contributions from Parent Company.................. 2,670,014 --
----------- -----------
Net cash provided by financing activities...... 2,670,014 5,887,662
----------- -----------
INCREASE IN CASH......................................... 184,612 27,841
CASH, beginning of period................................ 156,548 --
----------- -----------
CASH, end of period...................................... $ 341,160 $ 27,841
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................ $ -- $ 438,281
=========== ===========
Income taxes........................................ $ -- $ 910,650
=========== ===========
Non-cash transactions:
Capital lease obligations........................... $ -- $ 195,282
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6(FMP)
<PAGE> 136
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 30, 1996 AND MAY 31, 1997
1. BUSINESS AND ORGANIZATION:
Business --
FM Precision Golf Corp. (FMP or the Successor Company) is a manufacturer
and distributor of golf shafts which are sold to original equipment
manufacturers and to distributors and retailers for use in the replacement
market. FMP sells its products both in the United States and foreign markets
(see Note 11).
Organization --
On May 31, 1996, FMP, which was formed in 1996 for such purpose, acquired
the golf assets and golf liabilities, as defined, of the golf shaft division
(the Predecessor Business, an unrelated business) of Brunswick Corporation (the
Parent Company), in a transaction referred to as the "Brunswick Acquisition".
The Brunswick Acquisition has been accounted for as a purchase and, accordingly,
the purchase price has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of the Brunswick
Acquisition. The following table summarizes the allocation of the cost of the
Brunswick Acquisition to the net assets acquired:
<TABLE>
<S> <C>
Accounts receivable................................................... $3,047,440
Inventories........................................................... 3,173,181
Property, plant and equipment......................................... 1,939,923
Accounts payable and accrued expenses................................. (1,336,338)
----------
$6,824,206
==========
</TABLE>
The Brunswick Acquisition was financed by proceeds from FMP's credit
facility and proceeds from the sale of FMP common stock (see Note 5). Had the
Brunswick Acquisition occurred on June 1, 1995, pro forma sales and net loss for
the year ended May 30, 1996 of the Predecessor Business would have been
approximately $19,002,000 and $1,657,000, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation --
The accompanying consolidated financial statements as of and for the year
ended May 31, 1997 include FMP and its three wholly-owned subsidiaries FM
Precision Golf Manufacturing Corp., FM Precision Golf Sales Corp. and FMPSUB,
Inc. (see Note 3). All significant intercompany balances and transactions have
been eliminated in consolidation.
Year-end --
FMP's fiscal year-end is May 31. The results of operations for the
Predecessor Business for the year ended May 30, 1996 include the period from
June 1, 1995 to May 30, 1996. The results of operations for the Successor
Company include the twelve-month period from May 31, 1996 to May 31, 1997.
Use of estimates in the preparation of financial statements --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7(FMP)
<PAGE> 137
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories --
Inventories for the Predecessor Business are valued using the first-in,
first-out (FIFO) method of accounting. Inventories for the Successor Company are
valued using the last-in, first-out (LIFO) method of accounting. Inventories for
the Successor Company would have been approximately $284,000 lower at May 31,
1997 if the FIFO method of accounting had been used. FMP periodically evaluates
the realizability of its inventories and establishes a reserve for excess or
obsolete inventories, as necessary.
Property, plant and equipment --
Property, plant and equipment are carried at acquired cost. Major additions
and betterments are capitalized, while replacements, maintenance and repairs
which do not extend the useful lives of the assets are charged to operations as
incurred. Upon the disposition of property, plant and equipment, any resulting
gain or loss is recognized in income.
Depreciation and amortization of plant and equipment are provided for,
commencing when such assets become operational, using the straight-line basis
over the following estimated useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C>
Buildings and improvements........................ 27.5 years
Machinery and equipment........................... 3-12 years
Furniture and fixtures............................ 10 years
</TABLE>
Long-lived assets --
Effective May 31, 1996, FMP adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", which had no impact upon adoption.
In accordance with this statement, FMP reviews long-lived assets and certain
identifiable intangible assets to be held and used by an entity for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Impairment losses are recognized when the
undiscounted future cash flows, excluding interest costs, exceed the carrying
value of the related assets. Prior to the adoption of SFAS No. 121, FMP's policy
for reviewing long-lived assets for impairment was substantially the same as
that under SFAS No. 121. Based on FMP's estimated future undiscounted cash
flows, excluding interest costs, no long-lived assets were impaired as of May
30, 1996 and May 31, 1997.
Income taxes --
FMP accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." This statement requires FMP to recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in FMP's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities and tax net operating loss carry-forwards available for tax
reporting purposes, using applicable tax rates for the years in which the
differences are expected to reverse. A valuation allowance is recorded on
deferred tax assets unless realization is more likely than not.
Prior to the Brunswick Acquisition, FMP was included in the income tax
returns of the Parent Company. The provision for income taxes for the year ended
May 30, 1996, is computed as if FMP filed separate tax returns. Accordingly, no
tax benefit is recorded for the year ended May 30, 1996 since the resulting
deferred tax asset would be fully offset by a valuation allowance. All changes
in current and deferred taxes for the Predecessor Business are reflected as
increases or decreases in the division equity (see Note 6).
F-8(FMP)
<PAGE> 138
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options --
FMP accounts for stock options in accordance with the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25.
Revenue recognition --
Revenue is recorded upon the passage of title to the customers which
generally occurs upon shipment.
Research and development --
FMP expenses costs of research and development as incurred. Research and
development expense was approximately $105,000 and $120,000 for the years ended
May 30, 1996 and May 31, 1997, respectively.
Advertising --
FMP expenses advertising costs as incurred.
Net income per share --
Net income per common and common equivalent share for the year ended May
31, 1997 is computed by dividing net income by the weighted average number of
common and common stock equivalents during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock equivalents
resulting from the 40.66 options granted in March 1997 have been included in the
calculation of the weighted average number of common and common equivalent
shares for the year ended May 31, 1997 using the treasury stock method (see Note
7).
In February 1997, the Financial Accounting Standards Board Issued SFAS No.
128, "Earnings Per Share", which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and earlier
application is not permitted. Upon adoption, all prior period earnings per share
data presented will be restated.
New accounting pronouncement --
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." FMP does not expect the
statement to have a material impact on FMP's consolidated financial position or
results of operations upon adoption.
3. BUSINESS COMBINATION:
On May 14, 1997, FMP entered into an Agreement and Plan of Merger with
Royal Grip, Inc. (the Merger Agreement). Under the terms of the Merger
Agreement, on the effective date, FMPSUB, Inc. (a wholly-owned subsidiary of FMP
created for such purpose) will be merged with and into Royal Grip, Inc. (RG)
which will be the surviving corporation in the merger (the Merger). The separate
existence of FMPSUB, Inc. will cease and the name of the surviving corporation
will be RG. In connection with the Merger, RG shareholders will receive common
shares representing approximately 25% of FMP's common stock (30% of FMP's common
stock, assuming the exercise of all outstanding RG warrants and options.) The
proposed transaction is subject to approval by RG shareholders. The merger is
expected to be treated as a purchase for accounting purposes. FMP and RG
transaction costs are expected to be approximately $1,560,000. As of May 31,
1997, FMP has incurred costs of $465,136 which have been classified as deferred
merger costs in the accompanying balance sheet. In addition, warrants to
purchase 100,000 shares of RG common stock at $.01 per share will be issued to
an investment banker upon consummation of the Merger. The estimated value of the
warrants is approximately $400,000.
F-9(FMP)
<PAGE> 139
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Merger Agreement, FMP has filed a Registration
Statement with the Securities and Exchange Commission related to an initial
public offering relating to the shares of the Company's unissued common stock
which are being offered to the shareholders of RG.
FMP anticipates amending its Certificate of Incorporation in connection
with the Merger to increase the number of authorized shares of common stock from
3,000 to 50,000,000, reducing the par value of the common stock from $.01 to
$.001 per share, splitting each issued and outstanding share of common stock
into 4,176.796 shares of common stock, authorizing 5,000,000 shares of $.001 par
value preferred stock and changing the name of FMP to Royal Precision, Inc. The
accompanying financial statements have not been restated to give effect to the
anticipated stock split.
4. INVENTORIES:
Inventories as of May 30, 1996 and May 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
MAY 30, MAY 31,
1996 1997
---------- ----------
<S> <C> <C>
Raw materials............................................. $1,207,447 $1,137,189
Work-in-process........................................... 818,587 964,904
Finished goods............................................ 1,147,147 1,107,266
LIFO reserve.............................................. -- 283,721
---------- ----------
$3,173,181 $3,493,080
========== ==========
</TABLE>
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
In connection with the Brunswick Acquisition (see Note 1), FMP entered into
a credit facility (the Credit Facility) with a bank for revolving credit and
term financing. In January 1997, the Credit Facility was amended to increase the
term financing by $375,000 for the purchase of a machine. As of February 28,
1997, FMP had purchased the machine with borrowings on the line-of-credit. In
March 1997, the additional term loan proceeds of $375,000 were received and used
to reduce the amount of the then outstanding balance on the line-of-credit.
The amount available for borrowings under the term loan, as amended, (the
Term Loan) is subject to a maximum of the lesser of $3,625,000 or a percentage
of the fair value of eligible plant and equipment, as defined. The amount
available for borrowings under the revolving credit loan (the Revolver) is based
upon the levels of eligible accounts receivable and inventories, as defined,
subject to maximum borrowings of $7,500,000, less the amount outstanding on the
Term Loan. As of May 31, 1997, FMP had approximately $2,400,000 available for
additional borrowings under the Credit Facility.
The Term Loan is due in monthly principal installments of $69,712
commencing March 1997 ($62,500 per month prior to the amendment) through May 31,
1999 plus an additional annual principal payment each August in an amount equal
to 30% of excess cash flow, as defined, for FMP's preceding fiscal year. An
additional principal payment of approximately $69,000 will be payable on August
31, 1997. The Revolver and Term Loan mature on May 31, 1999; however, the lender
may extend the maturity to May 31, 2001. If the lender does not extend the
maturity of the Credit Facility, the remaining principal outstanding under the
Term Loan is due and payable May 31, 1999. Certain terms of the Revolver require
that the obligation be classified as a current liability in the accompanying
consolidated balance sheet.
Borrowings under the Term Loan and Revolver bear interest at a rate per
annum equal to the prime rate (8.5% at May 31, 1997) plus 1.5% and 1.25%,
respectively, are secured by substantially all of FMP's assets and the stock of
FMP's subsidiaries and are partially guaranteed by certain shareholders. The
Credit Facility
F-10(FMP)
<PAGE> 140
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides for an early termination fee of $150,000 if the agreement is terminated
prior to May 31, 1998. The early termination fee is reduced to $75,000 on May
31, 1998 and is eliminated in March 1999.
The Credit Facility contains financial and other covenants which, among
other things, limit annual capital expenditures and require FMP to maintain
minimum quarterly earnings before interest, taxes, depreciation and
amortization, as defined, fixed charge coverage ratios, as defined, and accounts
receivable and inventory turnover ratios, as defined, and is guaranteed by
certain of FMP's shareholders. FMP was in compliance with these financial
covenants at May 31, 1997.
Long-term debt and capital lease obligations as of May 31, 1997 consisted
of the following:
<TABLE>
<CAPTION>
MAY 31,
1997
----------
<S> <C>
Line-of-credit......................................................... $1,497,763
Term loan.............................................................. 3,415,865
Capital lease obligations.............................................. 169,316
----------
5,082,944
Less -- Current portion, including line-of-credit...................... 2,466,136
----------
$2,616,808
==========
</TABLE>
Future minimum lease payments under capital leases at May 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
MAY 31,
-----------------------------------------------------------------------
<S> <C>
1998................................................................... $ 69,696
1999................................................................... 69,696
2000................................................................... 40,656
--------
180,048
Less -- Amounts representing interest.................................. 10,732
--------
Present value of minimum lease payments................................ $ 169,316
========
</TABLE>
Scheduled maturities of long-term debt at May 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MAY 31,
-----------------------------------------------------------------------
<S> <C>
1998................................................................... $2,466,136
1999................................................................... 2,616,808
----------
$5,082,944
==========
</TABLE>
As of February 28, 1997, the carrying value of the Revolver and Term Loan
approximated their fair market value since the obligations bear interest at a
variable rate of interest.
6. NET ASSETS (DIVISION EQUITY):
Certain treasury management expenses incurred by the Parent Company were
not charged to the Predecessor Business. Accordingly, estimated expenses of
$50,000 have been imputed as general and administrative expenses in the
accompanying statement of operations for the year ended May 30, 1996. Other
expenses incurred by the Parent Company were charged to the Predecessor Business
on a specific
F-11(FMP)
<PAGE> 141
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
identification basis. Management believes that the specific identification
method used to charge expenses by the Parent Company to the Predecessor Business
was reasonable.
The Parent Company provided a centralized cash management system which the
Predecessor Business participated in. The amounts expended by the Parent
Business exceeded the cash receipts generated by the Predecessor Company by
approximately $2,670,014 for the year ended May 30, 1996. Such amount has been
reflected as a contribution and is included in net assets (division equity) in
the accompanying balance sheet. Interest was not charged on these amounts.
7. STOCK OPTIONS PLAN:
In March 1997, FMP adopted the FM Precision Golf Corp. 1997 Stock Option
Plan (the Plan). The Plan is administered by the Board of Directors and provides
for the granting of nonqualified stock options. As of May 31, 1997, 40.66 shares
of common stock are reserved for issuance under the Plan. In March 1997, FMP
granted nonqualified options to purchase 40.66 shares of FMP's common stock to
certain members of management and a consultant. The options are exercisable at a
price of $1,000 per share, vested immediately and expire on March 12, 2007. As
of May 31, 1997, all of the options are exercisable and no options have been
exercised. The estimated fair market value of FMP's common stock on the date of
grant exceeded the exercise price of the options by approximately $425,000.
Accordingly, such amount was recorded as compensation expense in March 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires the measurement of the fair value of
stock-based compensation to be included in the statement of operations or
disclosed in the notes to financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123. The Company has computed the pro forma
disclosures required under SFAS No. 123 for the options granted in March 1997
using the Black-Scholes option pricing model as prescribed by SFAS No. 123. The
weighted average assumptions used are as follows:
<TABLE>
<S> <C>
Risk free interest rate................................................... 6.7%
Expected dividend yield................................................... None
Expected life............................................................. 7 years
Expected volatility....................................................... 55%
</TABLE>
Had compensation cost for the Company's stock plan been determined
consistent with SFAS No. 123, the Company's net income applicable to common
stockholders and net income per common and common equivalent share would have
been the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1997
------------
<S> <C>
Net income available to common stockholders:
As reported......................................................... $933,555
Pro forma........................................................... 923,745
Net income per common and common equivalent share:
As reported......................................................... $ 899.38
Pro forma........................................................... $ 887.65
</TABLE>
The resulting pro forma compensation cost may not be representative of that
to be expected in future years.
F-12(FMP)
<PAGE> 142
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The components of the provision for (benefit from) income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1997
------------
<S> <C>
Current............................................................... $947,713
Deferred.............................................................. (248,676)
--------
$699,037
========
</TABLE>
FMP's effective tax rate, as a percent of pretax income, differs from the
statutory federal rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 30, 1996 MAY 31, 1997
------------ -----------------
<S> <C> <C>
Statutory Federal tax rate............................ (34)% 34%
State taxes, net of Federal benefit................... (6) 6
Other................................................. -- 3
Change in valuation allowance......................... 40 --
--
----
Effective tax rate.................................... --% 43%
==== ==
</TABLE>
Deferred income taxes as of May 30, 1996 are included in net assets
(division equity) (see Note 1). The components of deferred income tax assets
(liabilities) as of May 31, 1997 are as follows:
<TABLE>
<CAPTION>
AS OF
MAY 31, 1997
------------
<S> <C>
Current asset --
Financial reserves not currently deductible......................... $ 222,877
Long-term asset (liability) --
Book basis in excess of tax for property, plant and equipment....... (238,068)
Compensation expense related to grant of stock options.............. 170,000
Other............................................................... 93,867
-------
$ 248,676
=======
</TABLE>
9. RELATED PARTY TRANSACTIONS:
In connection with the Brunswick Acquisition, companies controlled by the
shareholders of FMP received aggregate fees of approximately $500,000 and
certain of these companies are receiving aggregate advisory fees of $200,000 per
annum. FMP expensed $200,000 related to these agreements during the year ended
May 31, 1997. Additionally, professional fees of approximately $203,000 were
paid to certain shareholders during the year ended May 31, 1997 of which $85,000
is included in deferred merger costs as of May 31, 1997 (see Note 3).
10. SIGNIFICANT CUSTOMER:
During the year ended May 31, 1997, one customer represented approximately
13% of FMP's sales for such period. As of May 31, 1997, such customer
represented approximately 10% of FMP's accounts receivable balance. During the
year ended May 30, 1996, no single customer represented over 10% of FMP's sales
for such period.
F-13(FMP)
<PAGE> 143
FM PRECISION GOLF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FOREIGN SALES:
FMP has export sales to customers located primarily throughout the United
States, Japan, Canada and the United Kingdom. Foreign sales were approximately
10% and 13% of FMP's sales for the years ended May 30, 1996 and May 31, 1997,
respectively.
12. BENEFIT PLANS:
FMP maintains a defined contribution benefit plan intended to comply with
Section 401(k) of the Internal Revenue Code. Each year, eligible participants
may elect to make salary reduction contributions on their behalf up to a maximum
of the lesser of 15% of compensation or the annual maximum contribution
established by the Internal Revenue Service. Participants may also make
voluntary after-tax contributions to the Plan. The Company does not contribute
to the Plan.
The Brunswick Acquisition agreement requires FMP to establish a pension
plan for union employees which provides benefits similar to those provided to
FMP's union employees prior to the Acquisition. Accordingly, as of June 25,
1997, FMP is in the process of finalizing the FM Precision Golf Corp. Pension
Plan for Represented Hourly Wage Employees. As of May 31, 1997, FMP has accrued
approximately $120,000, which amount represents the estimated obligation as of
such date for services for the period from the Brunswick Acquisition date to May
31, 1997. The accompanying statement of operations for the year ended May 30,
1996, includes pension expense of approximately $65,000 related to the pension
plan for hourly wage employees prior to the Brunswick Acquisition.
13. COMMITMENTS AND CONTINGENCIES:
FMP is a party to various legal proceedings arising in the ordinary course
of business which management believes, after consultation with legal counsel,
will not have a material adverse effect on FMP's financial condition or future
operating results.
F-14(FMP)
<PAGE> 144
ANNEX I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of May 14,
1997 among ROYAL GRIP, INC., a Nevada corporation having a business address of
444 West Geneva Drive, Tempe, Arizona 85282 ("RG"), FM PRECISION GOLF CORP., a
Delaware corporation having a business address of 3490 Clubhouse Drive, Suite
102, Jackson, Wyoming 83001 ("FMP"), and FMPSUB, INC., a Nevada corporation
having a business address of 3490 Clubhouse Drive, Suite 102, Jackson, Wyoming
83001, and a wholly owned subsidiary of FMP ("Merger Sub"), evidences that, for
and in consideration of the mutual covenants set forth herein, the parties
hereto, intending to be legally bound, hereby agree as follows:
RECITALS
A. The Board of Directors and stockholders of FMP, and the Boards of
Directors of Merger Sub and RG have approved the merger of Merger Sub into RG
upon the terms and subject to the conditions set forth herein (the "Merger").
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE 1. THE TRANSACTION.
1.1. THE MERGER. Upon the terms and subject to the conditions hereof, on
the Effective Date (as defined in Section 1.2), Merger Sub shall be merged with
and into RG which shall be the surviving corporation in the Merger (the
"Surviving Corporation"), the separate existence of Merger Sub shall thereupon
cease, and the name of the Surviving Corporation shall by virtue of the Merger
remain "Royal Grip, Inc."
1.2. EFFECTIVE DATE OF THE MERGER. The Merger shall become effective when
properly executed Articles of Merger are duly filed with the Secretary of State
of the State of Nevada, which filing shall be made concurrently with the closing
of the transaction contemplated by this Agreement in accordance with Section
1.13. When used in this Agreement, the term "Effective Date" shall mean the date
and time at which such Articles of Merger are so filed or at such time
thereafter as is provided in such Articles of Merger.
1.3. CERTIFICATE OF INCORPORATION; STOCK SPLIT. FMP agrees that, on or
prior to the Effective Date, it will effect the following transactions:
1.3.1. Amend and restate its Certificate of Incorporation
substantially in the form of Exhibit 1.3.1 to this Agreement; and
1.3.2. Split the shares of FMP Common Stock (as hereinafter defined)
which were outstanding immediately before the Effective Date, and/or issue
stock dividends to FMP stockholders of record who were stockholders of
record immediately before the Effective Date, and/or adjust the terms of
options or warrants to acquire FMP Common Stock which were outstanding
immediately before the Effective Date so that, immediately after the
Effective Date, the holders of shares of FMP Common Stock which were
outstanding immediately before the Effective Date and the holders of
options and warrants to acquire shares of FMP Common Stock which were
outstanding immediately before the Effective Date, taken as a group, will
own or have the right to acquire the aggregate number of shares of FMP
Common Stock determined by multiplying seven-thirds ( 7/3) times the sum of
(i) the number of shares of FMP Common Stock which are required to be
issued under clause (b) of Section 1.5.1 below, and (ii) the number of
shares of FMP Common Stock which are issuable under options and warrants
assumed by FMP under Section 1.9.1 below. Any stock split or dividend shall
be made pro-rata among the stockholders entitled to participate therein as
required by the General Corporation Law of the State of Delaware and any
adjustment of the terms of any option or warrant shall be made in
accordance with the terms of the applicable anti-dilution provisions
thereof.
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1.4. TAX-FREE REORGANIZATION. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. In
this regard, FMP represents that it presently intends, and that at the Effective
Date it will intend, to continue RG's historic business or use a significant
portion of RG's business assets in a business.
1.5. EXCHANGE RATE.
1.5.1. As of the Effective Date, by virtue of the Merger and without
any action on the part of any holder of any shares of RG's Common Stock,
$.001 par value ("RG Shares" or "RG Common Stock"):
(a) All shares of RG Common Stock which are held by RG or any
Subsidiary (as defined in Section 8.13) of RG shall be canceled.
(b) Subject to Section 1.8, each remaining outstanding share of RG
Common Stock shall be converted into the number of fully paid and
nonassessable shares of the Common Stock, $.001 par value, of FMP ("FMP
Shares" or "FMP Common Stock") equal to the Exchange Rate (as defined
below).
(c) In the event of any stock dividend, stock split,
reclassification, recapitalization, combination or exchange of shares
with respect to, or rights issued in respect of, FMP Common Stock, other
than as described in Section 1.3.2 of this Agreement, after the date
hereof and prior to or as of the Effective Date, the Exchange Rate shall
be adjusted accordingly.
(d) Each issued and outstanding share of Common Stock, without par
value, of Merger Sub ("Merger Sub Common Stock") shall be converted into
and become one fully paid and nonassessable share of Common Stock, $.001
par value, of the Surviving Corporation.
1.5.2. The "Exchange Rate" shall mean: 50%.
1.6. TERMS OF EXCHANGE. The manner of exchanging RG Common Stock for FMP
Common Stock in the Merger shall be as follows:
1.6.1. On the Effective Date, FMP shall make available to Star Bank
or such other exchange agent as selected by FMP and reasonably acceptable
to RG (the "Exchange Agent"), for the benefit of each holder of RG Common
Stock, a sufficient number of certificates representing FMP Common Stock to
effect the delivery of FMP Common Stock required to be issued pursuant to
Section 1.5. FMP shall enter into an agreement (the "Exchange Agent
Agreement") with the Exchange Agent pursuant to which the Exchange Agent
shall be obligated to provide the services set forth in Section 1.6.2.
1.6.2. The Exchange Agent Agreement shall provide that promptly after
the Effective Date, the Exchange Agent shall mail to each holder of record
(as shown on the books of RG's transfer agent as of the Effective Date) of
a certificate or certificates which immediately prior to the Effective Date
represented outstanding shares of RG Common Stock (individually, a
"Certificate" and collectively, the "Certificates") (a) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (b) instructions for use in
effecting the surrender of the Certificates for exchange. Upon surrender of
Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents, the
holder of such Certificates shall be entitled to receive for each of the
shares of RG Common Stock represented by such Certificates the number of
shares of FMP Common Stock into which such shares of RG Common Stock are
converted in the Merger and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, Certificates shall represent solely the
right to receive the number of shares of FMP Common Stock into which such
shares of RG Common Stock are converted in the Merger and any cash in lieu
of fractional shares of FMP Common Stock as contemplated by Section 1.8
with respect to each of the shares of RG Common Stock represented thereby.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the FMP Common Stock held by it from time to time
hereunder,
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except that it shall receive and hold all dividends or other distributions
paid or distributed with respect to such FMP Common Stock for the account
of the persons entitled thereto.
1.6.3. Certificates surrendered for exchange by any Affiliate (as
defined in Section 5.8.1) shall not be exchanged for certificates
representing shares of FMP Common Stock until FMP has received the written
agreements from such Affiliate as provided in Section 5.8.2.
1.7. DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that
are declared or made on FMP Common Stock will be paid to persons entitled to
receive certificates representing FMP Common Stock pursuant to this Agreement
until such persons surrender their Certificates representing RG Common Stock.
Upon such surrender, there shall be paid to the person in whose name the
certificates representing such FMP Common Stock shall be issued any dividends or
other distributions which shall have become payable with respect to such FMP
Common Stock in respect of a record date after the Effective Date. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any cash in lieu of fractional shares or any
certificate representing FMP Common Stock is to be paid to or issued in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such FMP Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of RG Common Stock for any shares of FMP Common Stock or
dividends thereon properly delivered to a public official pursuant to any
applicable escheat laws.
1.8. NO FRACTIONAL SHARES. No certificates or scrip representing less
than one share of FMP Common Stock shall be issued upon the surrender for
exchange of Certificates representing RG Common Stock pursuant to Section 1.5.2.
In lieu of any such fractional share, each holder of RG Common Stock who would
otherwise have been entitled to a fraction of a share of FMP Common Stock upon
surrender of Certificates for exchange pursuant to Section 1.5.2 shall be paid
upon such surrender cash (without interest) in an amount equal to such
fractional interest multiplied by the product of the Exchange Rate and the
average of the high and low trading prices of RG Common Stock for the five
trading days prior to the Effective Date. As soon as practicable after the
determination of the amount of cash to be paid to former stockholders of RG in
lieu of any fractional interests, FMP shall make available to the Exchange
Agent, which shall in turn make available in accordance with this Agreement,
such amounts to such former stockholders.
1.9. STOCK OPTIONS.
1.9.1. Each option or warrant to purchase RG Common Stock issued
pursuant to the Nonemployee Director Stock Plan, the Non-Employee Directors
Stock Option Plan, and the 1993 Stock Option Plan of RG, or otherwise which
is (a) set forth in the RG Disclosure Schedule (as hereinafter defined),
and (b) outstanding as of the Effective Date (individually, an "RG Option"
and, collectively, the "RG Options") shall be assumed by FMP and converted
into an option or warrant (or a substitute option shall be granted) to
purchase the number of shares of FMP Common Stock (rounded to the nearest
whole share) equal to the number of shares of RG Common Stock subject to
such RG Option multiplied by the Exchange Rate, at an exercise price per
share of FMP Common Stock (rounded to the nearest penny) equal to the
former exercise price per share of RG Common Stock under the RG Option
immediately prior to the Effective Date divided by the Exchange Rate;
provided, however, that in the case of any RG Option to which Section 421
of the Code applies by reason of its qualification under Section 422 of the
Code, the conversion formula shall be adjusted, if necessary, to comply
with Section 424(a) of the Code and the regulations issued thereunder.
Except as otherwise provided in the applicable plan or agreement granting
the RG Options, the duration, vesting and other terms of each new option to
purchase shares of FMP Common Stock shall be the same as the original RG
Option except that all references in the option agreement to RG shall be
deemed to be references to FMP; and further provided, that those RG Options
listed on Exhibit 1.9.1 shall be deemed amended so that such exercise price
per
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share is $4.00. FMP and RG agree to take such action as may be necessary to
effectuate the foregoing provisions.
1.9.2. As soon as practicable after the Effective Date, FMP shall
deliver to each holder of an option to purchase FMP Common Stock a notice
that accurately reflects the changes to such option contemplated by this
Section 1.9.
1.10. STOCKHOLDER APPROVAL. RG shall take all action reasonably
necessary, in accordance with applicable law and its Articles of Incorporation
and By-laws, to convene a special meeting of the holders of RG Common Stock (the
"RG Meeting") as promptly as practicable for the purpose of considering and
taking action upon this Agreement. Subject to Section 5.1, the Board of
Directors of RG will recommend that holders of RG Common Stock vote to approve
the Merger and to adopt this Agreement at the RG Meeting.
1.11. CLOSING OF RG'S TRANSFER BOOKS. At the Effective Date, the stock
transfer books of RG shall be closed and no transfer of shares of RG Common
Stock shall be made thereafter. In the event that, after the Effective Date,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for FMP Common Stock and/or cash as provided in Sections 1.5, 1.6,
1.7 and 1.8.
1.12. ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of FMP, Merger Sub
and RG shall provide all reasonable assistance to, and shall cooperate with,
each other to bring about the consummation of the Merger as soon as practicable
in accordance with the terms and conditions of this Agreement. FMP shall cause
Merger Sub to perform all of its obligations in connection with this Agreement.
1.13. CLOSING. The closing of the transaction contemplated by this
Agreement shall take place (a) at the offices of Snell & Wilmer, L.L.P., One
Arizona Center, Phoenix, Arizona at 10:00 A.M. local time on the day which is
not more than one business day after the day on which the last of the conditions
set forth in Article 6 (other than those requiring an exchange of a certificate,
opinion or other document, or the taking of other action, at the closing) is
fulfilled or waived or (b) at such other time and place as FMP and RG shall
agree in writing.
ARTICLE 2. SURVIVING CORPORATION.
2.1. ARTICLES OF INCORPORATION. The Amended and Restated Articles of
Incorporation of RG attached hereto as Exhibit 2.1 shall be the Articles of
Incorporation of the Surviving Corporation until duly amended by the
stockholders of the Surviving Corporation subsequent to the Effective Date.
2.2. BY-LAWS. The By-laws of RG as in effect immediately prior to the
Effective Date shall be the By-laws of the Surviving Corporation, and thereafter
may be amended in accordance with their terms and as provided by law.
2.3. OFFICERS; BOARDS OF DIRECTORS.
2.3.1. One of the directors of the Surviving Corporation shall be
Robert Burg II, and the officers of RG immediately prior to the Effective
Date shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed.
2.3.2. FMP covenants and agrees that, from and after the Effective
Date, until their respective successors are duly elected or appointed, the
officers of FMP shall be Richard P. Johnston ("RPJ"), Chairman of the
Board, Danny Edwards ("DE"), Vice Chairman of the Board, Christopher A.
Johnston ("CAJ"), President, chief executive officer, Ronald L. Chalmers
("RC"), Executive Vice President, Robert Burg, II ("RB"), Executive Vice
President, David E. Johnston ("DEJ"), Executive Vice President, and Kenneth
J. Warren ("KJW"), Secretary, and the directors of FMP shall be DE, RB,
RPJ, CAJ, RC, DEJ, RJM, KJW, Raymond J. Minella and James G. DeMello.
2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 92A.250 of the NGCL.
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ARTICLE 3. REPRESENTATIONS OF FMP. FMP hereby represents and warrants to RG
that:
3.1. FMP DISCLOSURE SCHEDULE
3.1.1. The FMP Disclosure Schedule sets forth all of the information
concerning FMP, its Subsidiaries and the FMP Shares required in this
Article 3. To the extent any statement in this Article 3 is untrue or omits
to state a material fact necessary to make such statement not misleading,
the FMP Disclosure Schedule sets forth the statements necessary to make the
statements in this Article 3 true and not misleading. All information and
statements set forth in the FMP Disclosure Schedule shall be deemed to
supersede and correct the statements made in this Article 3 and to be
additional representations and warranties of FMP. The FMP Disclosure
Schedule sets forth all of the information and statements required in
numbered sections bearing the number of the Section of this Agreement
calling for such information and in the order of such numbers in this
Agreement.
3.1.2. FMP has delivered to RG complete and accurate copies of (a)
any written contract or other document referred to in the FMP Disclosure
Schedule or herein and (b) the financial statements referred to in Section
3.8 of this Agreement.
3.1.3. To the knowledge of FMP, neither the FMP Disclosure Schedule
nor any financial statement, exhibit, certificate or other instrument or
document concerning the FMP Shares or FMP delivered by or on behalf of FMP
in connection with the transaction contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact required to
be stated or necessary to make the statements herein or therein not
misleading.
3.2. OWNERSHIP OF SHARES. Each holder of FMP Shares and, to the knowledge
of FMP, each holder of any right, option, warrant, security or agreement
providing for the purchase, issuance or sale of any shares of capital stock of
FMP is listed on the FMP Disclosure Schedule and is the lawful owner of the
number of FMP Shares and other rights listed opposite the name of such holder on
the FMP Disclosure Schedule.
3.3. EXISTENCE AND GOOD STANDING OF FMP. FMP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. FMP is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of FMP and its Subsidiaries (an "FMP Material Adverse
Effect"). Each of FMP's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and corporate authority to own its
properties and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so licensed or qualified or to be in good standing would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect. Neither FMP nor any of its Subsidiaries is in violation
of any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which FMP or
any FMP Subsidiary or any of their respective properties or assets is subject,
except where such violation would not have, individually or in the aggregate, an
FMP Material Adverse Effect. FMP and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted, where the failure to obtain any such items or to take any such
action would reasonably be expected to have an FMP Material Adverse Effect. The
copies of FMP's and Merger Sub's certificate or articles of incorporation and
bylaws previously delivered to RG are true and correct.
3.4. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. Each of FMP and
Merger Sub has the requisite corporate power and corporate authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transaction
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contemplated hereby by the holders of a majority of the outstanding FMP Shares,
the consummation by FMP of the transaction contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of FMP, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
3.5. CAPITAL STOCK. FMP has an authorized capitalization consisting of
3,000 shares of Common Stock, par value $.01 per share, of which 1,000 shares
are issued and outstanding. On or immediately prior to the Effective Date, FMP
will have authorized capitalization as set forth in Exhibit 1.3.1 of which no
shares of FMP Common Stock or shares of Preferred Stock will be issued and
outstanding, except pursuant to the provisions of Sections 1.3.1 and 1.5.1(b).
FMP has no outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the stockholders of FMP on any
matter. All such outstanding shares have been and will be duly authorized and
validly issued and are and will be fully paid and non-assessable. There are, and
at the Effective Date, there will be no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, convertible securities,
rights of exchange, plans or other agreements providing for the purchase,
issuance or sale of any shares of the capital stock of FMP by or to FMP, other
than as contemplated by this Agreement.
3.6. SUBSIDIARIES. FMP owns each of the outstanding shares of capital
stock of each of FMP's Subsidiaries. Each of the outstanding shares of capital
stock of each of FMP's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned by FMP free and clear of all liens,
pledges, security interests, claims or other encumbrances. The FMP Disclosure
Schedule sets forth with respect to each FMP Subsidiary (a) its name and
jurisdiction of incorporation, (b) its authorized capital stock, and (c) the
number of issued and outstanding shares of capital stock. Except for interests
in the FMP Subsidiaries, neither FMP nor any FMP Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, limited liability company, business,
trust or entity.
3.7. NO VIOLATIONS. The execution and delivery of this Agreement by FMP
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the certificate of incorporation or by-laws of FMP or its
Subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of FMP or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which FMP or any of its
Subsidiaries is a party, or by which FMP or any of its Subsidiaries or any of
their properties is bound or affected, except for any of the foregoing matters
which would not reasonably be expected to have, individually or in the
aggregate, an FMP Material Adverse Effect; (c) will not violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to FMP or any of
its Subsidiaries or any of their respective properties or assets, except for
violations which would not reasonably be expected to have, individually or in
the aggregate, an FMP Material Adverse Effect, or (d) other than the filings
provided for in Section 1, filings under the Securities Exchange Act of 1934
(the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities
Act") or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), will not require any
material consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority, the
failure to obtain or make which would reasonably be expected to have,
individually or in the aggregate, an FMP Material Adverse Effect.
3.8. FINANCIAL STATEMENTS.
3.8.1. FMP has furnished RG with (a) consolidated balance sheets of
FMP and its Subsidiaries (the "FMP Balance Sheet") as of May 30, 1996 and
February 28, 1997 (the February 28, 1997 date
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hereinafter referred to as the "FMP Balance Sheet Date"), and (b) FMP's
related consolidated statements of operations, net assets and,
stockholders' equity and cash flows for year ended May 30, 1996 and for the
nine months ended February 28, 1997. Such consolidated financial statements
(the "FMP Financial Statements"), present fairly, in all material respects
the consolidated financial position of FMP and its Subsidiaries as of May
30, 1996 and February 28, 1997, and the consolidated results of their
operations and their cash flows for such fiscal periods, in conformity with
generally accepted accounting principles ("GAAP"). Except as and to the
extent set forth on the FMP Balance Sheet, neither FMP nor any of its
Subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required
to be reflected on, or reserved against in, a consolidated balance sheet of
FMP, prepared in accordance with GAAP, except liabilities arising in the
ordinary course of business since such date.
3.8.2. The accounts and notes receivable reflected on the FMP
Financial Statements as of the FMP Balance Sheet Date or acquired
thereafter by FMP or its Subsidiaries arose in the ordinary course of
business from bona fide transactions. None of such accounts or notes
receivable reflects work-in-progress or goods not yet delivered. Such
accounts and notes receivable are the enforceable obligations of the
obligors thereof and are neither subject to any offset or counter-claim by
such obligors nor any encumbrance other than immaterial encumbrances.
3.8.3. The inventory reflected on the FMP Financial Statements as of
the FMP Balance Sheet Date or acquired or manufactured since the FMP
Balance Sheet Date consists entirely of items saleable at regular prices or
usable in the ordinary course of business of FMP and its Subsidiaries,
except for an immaterial quantity of defective or obsolete items that have
been written off in the ordinary course of business since the FMP Balance
Sheet Date in a manner consistent with GAAP applied on a consistent basis.
There are no encumbrances on such inventory other than immaterial
encumbrances.
3.9. LITIGATION. There is no action, suit or proceeding pending against
FMP or the FMP Subsidiaries, or, to the knowledge of FMP, overtly threatened
against FMP or its Subsidiaries or any of their respective properties or assets,
at law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, an FMP Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither FMP nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, in the future would have an FMP Material
Adverse Effect or would prevent or delay the consummation of the transaction
contemplated hereby.
3.10. ABSENCE OF CERTAIN CHANGES. Since the FMP Balance Sheet Date, each
of FMP and its Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to FMP and its Subsidiaries having, individually or in the aggregate, an
FMP Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock, or (c) any
material change in its accounting principles, practices or methods.
3.11. TAX MATTERS.
3.11.1. For all periods ended prior to the date of this Agreement,
each of FMP and its Subsidiaries (a) has timely filed or caused to be filed
all federal, state, local and foreign tax returns, declarations and reports
which are required to be filed by, or with respect to, any of them (taking
into account all applicable extensions), (b) has paid or accrued all taxes,
including interest, penalties and additions to tax, if any, shown to be due
and payable on all such returns, and (c) has, for purposes of preparing and
issuing all annual and quarterly income statements and balance sheets,
adequately accrued or otherwise provided for the payment of additional
federal, state or local taxes which were not reported on the applicable
returns or reports as required under GAAP.
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3.11.2. Each of FMP and its Subsidiaries has timely and properly
accrued or paid in all material respects all taxes for all periods
subsequent to the periods covered by returns filed for periods ended prior
to the date of this Agreement.
3.11.3. Complete and accurate copies of all FMP federal, state and
local income tax returns have been made available to RG.
3.11.4. With respect to federal income taxes, the statute of
limitations has not expired for FMP for any year. There are no federal,
state or local audits of FMP currently ongoing and there are no current
cases filed relating to the determination of the amount of taxes due from
FMP and/or its Subsidiaries. To the extent FMP has notified RG of any such
audits or cases, complete and accurate copies of all relevant
communications and filings have been made available to RG (including, but
not limited to, Forms 5701, Revenue Agent's Reports, 30-Day-Letters,
90-Day-Letters and any petition, complaint or claim made in any court
having jurisdiction and all documents relating to any case currently before
any such court). Neither FMP nor any of its Subsidiaries has granted a
power-of-attorney relating to tax matters to any person. All final
adjustments made by the Internal Revenue Service ("IRS") with respect to
any federal tax return of FMP or its Subsidiaries have been reported for
state and local income tax purposes to the relevant state or local taxing
authorities.
3.11.5. No requests for ruling or determination letters relating to
federal, state or local income taxes paid or payable by FMP or any of its
Subsidiaries are pending with any taxing authority.
3.11.6. (a) Neither FMP nor any FMP Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method initiated by FMP or its
Subsidiaries or required by law, (b) FMP has no knowledge that the IRS has
proposed or purported to require any such adjustment or change in
accounting method and (c) FMP has no knowledge or belief that any such
adjustment under Section 481(a) of the Code will be required of FMP or its
Subsidiaries upon the completion of, or by reason of, the transaction
contemplated by this Agreement.
3.11.7. (a) There are no deferred intercompany transactions between
FMP and/or any of its Subsidiaries which will or may result in the
recognition of income upon the consummation of the transaction contemplated
by this Agreement, and (b) there are no other transactions or facts
existing with respect to FMP and/or its Subsidiaries which by reason of the
consummation of the transaction contemplated by this Agreement will result
in FMP and/or its Subsidiaries recognizing income.
3.11.8. FMP is not a foreign person within the meaning of Section
1445 of the Code and FMP does not conduct operations which would require it
to report or pay income tax to any foreign taxing authority.
3.11.9. There are no tax liens on any of the assets or property of
FMP or its Subsidiaries.
3.11.10. There are no contracts, agreements or plans entered into by
FMP or its Subsidiaries covering any person that individually or
collectively would require FMP or any of its Subsidiaries to make any
payments of any amount which would not be deductible by reason of the
provisions of Section 162(m) or Section 280G of the Code.
3.11.11. Neither FMP nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f) of the Code) owned by it.
3.12. CERTAIN EMPLOYEE PLANS.
3.12.1. (a) "Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), any fringe benefit plan, any equity
compensation plan or arrangement (including without limitation, stock
option, restricted stock and stock purchase plans), any plan, policy or
arrangement for the provision of executive compensation, incentive
benefits, bonuses or severance benefits, any employment contract,
collective bargaining agreement, deferred compensation agreement, Code
section 125 cafeteria plan or split dollar
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arrangement, any participation or similar agreement with a multi-employer
pension fund, or any other plan, policy, arrangement or scheme for the
provision or funding of employee benefits with respect to which an FMP or
RG Controlled Group Member in the past or present, directly or indirectly
maintained or maintains, sponsored or sponsors, or had or has any liability
or obligation.
(b) "FMP Controlled Group Member" means FMP and each other person
or entity required to be aggregated with FMP under Code section 414(b),
(c), (m) or (o).
(c) "RG Controlled Group Member" means RG and each other person or
entity required to be aggregated with RG under Code section 414(b), (c),
(m) or (o).
3.12.2. Each Benefit Plan maintained by any FMP Controlled Group
Member (the "FMP Benefit Plans") complies with, and has been administered
in accordance with, in all material respects, all applicable requirements
of law, except for instances of non-compliance that would not reasonably be
expected to have caused, individually or in the aggregate, an FMP Material
Adverse Effect. The FMP Benefit Plans are listed in the FMP Disclosure
Schedule and copies or descriptions of all material Plans have previously
been provided to RG.
3.12.3. With respect to each FMP Benefit Plan intended to qualify
under Section 401(a) of the Code, (a) a favorable determination letter has
been issued by the IRS with respect to the qualification of each FMP
Benefit Plan, and (b) no "reportable event" or "prohibited transaction" (as
such terms are defined in ERISA) or termination has occurred under
circumstances which present a risk of material liability by any FMP
Controlled Group Member to any governmental entity or other person,
including an FMP Benefit Plan. Each FMP Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has
been maintained in compliance with the minimum funding standards of ERISA
and the Code and no such FMP Benefit Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code and Section 302
of ERISA), whether or not waived. No FMP Controlled Group Member directly
or indirectly contributes to, has an obligation to contribute to or has
liability with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any time
within the 10 year period ending on the date of the Closing, any employee
benefit plan which is a multi-employer plan subject to the requirements of
Subtitle E of Title IV of ERISA.
3.12.4. Except as required by Code Section 4980(b) or 162 or Part 6
of Title I of ERISA, no FMP Controlled Group Member provides any health,
welfare or life insurance benefits to any of their former or retired
employees, which benefits would be material either individually or in the
aggregate to FMP.
3.13. LABOR MATTERS.
3.13.1. Neither FMP nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of FMP, overtly threatened against FMP or its Subsidiaries
relating to their business, except for any such proceeding which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect. To the knowledge of FMP, there are no
organizational efforts with respect to the formation of a collective
bargaining unit presently being made or overtly threatened involving
employees of FMP or any of its Subsidiaries.
3.13.2. FMP has delivered to RG copies of all material employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other agreements, plans or
arrangements with respect to compensation of the employees of FMP and its
Subsidiaries (the "FMP Compensation Arrangements"). The Merger will not
accelerate or otherwise give rise to payments pursuant to the FMP
Compensation Arrangements.
3.14. ENVIRONMENTAL LAWS AND REGULATIONS.
3.14.1. FMP and each of its Subsidiaries is in compliance in all
material respects with all applicable federal, state and local laws and
regulations relating to pollution or protection of human health
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or the environment (collectively, "Environmental Laws") which compliance
includes, but is not limited to, the possession by FMP and its Subsidiaries
of all material permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof, except for non-compliance that would not reasonably be
expected to have, individually or in the aggregate, an FMP Material Adverse
Effect. Neither FMP nor any of its Subsidiaries has received written notice
of, or, to the knowledge of FMP, is the subject of, or to the knowledge of
FMP is there any basis for, any action, cause of action, claim,
investigation, demand or notice, including without limitation,
non-compliance orders, warning letters, notices of violation, by any person
or entity alleging liability under or non-compliance with any Environmental
Law (an "FMP Environmental Claim") that would reasonably be expected to
have, individually or in the aggregate, an FMP Material Adverse Effect. To
the knowledge of FMP there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance in the future.
3.14.2. There are no FMP Environmental Claims, which would reasonably
be expected to have, individually or in the aggregate, an FMP Material
Adverse Effect, that are pending or, to the knowledge of FMP, overtly
threatened against FMP or any of its Subsidiaries or, to the knowledge of
FMP, against any person or entity whose liability for any FMP Environmental
Claim FMP or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
3.14.3. Neither FMP nor any FMP Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle or
discharge, any hazardous substances to, at or upon: (i) any location other
than a site lawfully permitted to receive such hazardous substances, (ii)
any parcel of real property owned or leased by FMP or any FMP Subsidiary,
except in compliance with applicable Environmental Laws; (iii) any site
which, pursuant to CERCLA or any similar state law (x) has been placed on
the National Priorities List or its state equivalent, or (y) the
Environmental Protection Agency or the relevant state agency has notified
FMP that it has proposed or is proposing to place on the National
Priorities List or its state equivalent; or (b) has any knowledge that
there has occurred or is presently occurring a discharge, or threatened
discharge, of any hazardous substance on, into or beneath the surface of,
or adjacent to, any real property owned or leased by FMP or any FMP
Subsidiary.
3.14.4. The FMP Disclosure Schedule identifies (a) all environmental
audits, assessments, or occupational health studies undertaken by FMP or
its agents on its behalf, or, to the knowledge of FMP, undertaken by any
governmental authority, or any third party, relating to or affecting any
real property owned or leased by FMP or any FMP Subsidiary; (b) the results
of any ground, water, soil, air or asbestos monitoring undertaken by FMP or
its agents on its behalf, or, to the knowledge of FMP, undertaken by any
governmental authority or any third party, relating to or affecting any
real property owned or leased by FMP or any FMP Subsidiary; (c) all
material written communications between FMP and any governmental authority
arising under or related to Environmental Laws; and (d) all outstanding
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings or decrees relating
to or affecting any real property owned or leased by FMP or any FMP
Subsidiary.
3.15. REAL PROPERTY.
3.15.1. FMP has delivered to RG either copies or fair and accurate
summaries (the "FMP Property Documents") of each of its leases, subleases,
licenses, deeds or other agreements or instruments (and any amendments
thereto) under which FMP or any of its Subsidiaries owns, uses or occupies
or has the right to use or occupy, now or in the future, any real property
(the "FMP Real Estate Agreements"). Each FMP Real Estate Agreement is
valid, binding and in full force and effect, all rent and other sums and
charges payable by FMP and its Subsidiaries as tenants thereunder are
current, no termination event or condition or uncured default of a material
nature on the part of FMP or any such Subsidiary or, to the knowledge of
FMP, as to a landlord, exists under any FMP Real Estate Agreement, except
for any of the foregoing matters which would not reasonably be expected to
have, individually or in the aggregate, an FMP Material Adverse Effect. The
information contained in the FMP Property Documents is true and correct in
all material respects.
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3.15.2. Since the FMP Balance Sheet Date, no portion of the real
property subject to the FMP Real Estate Agreements has suffered any
material damage by fire or other casualty which has not heretofore been
substantially repaired or restored.
3.15.3. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect:
(a) FMP has not granted, and to the best of FMP's knowledge, no
other person has granted, any leases, subleases, licenses or other
agreements granting to any person other than FMP any right to
possession, use, occupancy or enjoyment of the property covered by the
FMP Real Estate Agreements, or any portion thereof, and
(b) FMP is not obligated under any option, right of first refusal
or any contractual right to purchase, acquire, sell or dispose of any
real property covered by the FMP Real Estate Agreements.
3.15.4. None of the FMP Real Estate Agreements contains continuous
operating covenants, radius restrictions or provisions requiring the
consent of the landlord to the Merger or the assumption of FMP's
obligations under the FMP Real Estate Agreements in the manner contemplated
by this Agreement, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an FMP
Material Adverse Effect.
3.16. INSURANCE. FMP and its Subsidiaries maintain with respect to their
operations and their assets, in full force and effect, policies of insurance in
the ordinary course of business as is usual and customary for businesses
similarly situated to FMP. FMP has provided RG copies of claims associated with
its operations and the operations of its Subsidiaries since their incorporation.
3.17. INTELLECTUAL PROPERTY. Every material trade secret, including
know-how, inventions, designs and processes, patent, patent right, trademark,
trademark right, service mark, trade name or copyright, or application thereof,
and licenses and rights with respect to the foregoing, used in connection with
the business of FMP and its Subsidiaries, including the "frequency matched"
technology (the "FMP Intellectual Property"), is protected by FMP in a manner
which, under the circumstances, is prudent and commercially reasonable, and
owned by FMP or its Subsidiaries free and clear of any liens, encumbrances,
claims or restrictions whatsoever which would have an FMP Material Adverse
Effect, direct or indirect, and, to the knowledge of FMP, the FMP Intellectual
Property does not infringe upon the rights of any person. Neither FMP nor any of
its Subsidiaries has granted to any other person the right to use the FMP
Intellectual Property, or any part thereof. FMP is not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner of, licensor of, or other claimant to, any patent, patent rights,
trademark, trademark rights, trade name, trade name rights, copyright or other
intangible assets, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
3.18. CERTAIN CONTRACTS. FMP has delivered copies of each material
contract to which FMP or any of its Subsidiaries is a party, or by which any of
their respective properties or assets is bound. FMP and its Subsidiaries are in
compliance in all material respects with all material terms of such contracts.
3.19. NO BROKERS. Neither FMP nor any FMP Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of FMP or RG or Merger Sub to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby.
3.20. CONFLICTS OF INTEREST. No shareholder, officer, or director, or, to
the knowledge of FMP, no employee or consultant of FMP or any FMP Subsidiary, or
any affiliate of such person has any direct or indirect interest (a) in any
corporation, partnership, proprietorship, association, or other person or entity
which does business with FMP or any FMP Subsidiary, (b) in any property, asset
or right which is used by FMP or any FMP Subsidiary in the conduct of its
business, or (c) in any contract to which FMP is a party or by which FMP or any
FMP Subsidiary may be bound.
3.21. PERSONAL PROPERTY. FMP owns all of its material personal property,
including, without limitation, the material personal property reflected in the
FMP Balance Sheet, except for personal property disposed of in
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the ordinary course of business since the FMP Balance Sheet Date, subject to no
mortgage, pledge, lien, charge, security interest, encumbrance or restriction,
except those which are shown and described in the FMP Balance Sheet or the notes
thereto. All personal properties purported to be leased by FMP are subject to
valid and effective leases.
3.22. DISCLOSURE. Neither FMP nor any FMP Subsidiary has knowingly
withheld from RG any material facts relating to FMP's and any FMP Subsidiary's
assets, business, operations, financial conditions, or prospects. No
representation or warranty in this Agreement contains any untrue statement of a
material fact required to make the statements herein contained not misleading or
omits to state any material fact required to be stated herein or necessary to
make the statements herein not misleading.
3.23. STATUS AS REORGANIZATION.
3.23.1. FMP has no plan or intent to:
(a) Liquidate RG;
(b) Merge RG with or into another corporation;
(c) Sell or otherwise dispose of the stock of RG except for
transfers of stock to corporations "controlled" (within the meaning of
Section 368(c) of the Code) by FMP;
(d) Reacquire any of its stock issued in connection with the
Merger;
(e) Cause RG to issue additional shares of stock of RG that would
result in FMP losing "control" (within the meaning of Section 368(c) of
the Code) of RG;
(f) Cause RG to sell or otherwise dispose of any of its assets or
any assets of Merger Sub acquired in the Merger except for dispositions
made in the ordinary course of business or transfers described in
Section 368 (a)(2)(C) of the Code; or
(g) Take any other action that might otherwise cause the Merger
not to be treated as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
3.23.2. FMP and any of the major stockholders of FMP do not own, nor
have they owned during the past five years, any shares of stock of RG.
3.23.3. Neither FMP nor Merger Sub is an "investment company" (within
the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code);
3.23.4. Merger Sub is being formed solely for the purpose of merging
with and into RG and, as of the Effective Date, will not have had any
existing operation, assets or liabilities (other than liabilities for
franchise taxes, if applicable, and liabilities under this Agreement); and
3.23.5. FMP will, as of the Effective Date, own all of the stock of
Merger Sub.
ARTICLE 4. REPRESENTATIONS OF RG. RG hereby represents and warrants to FMP
that:
4.1. RG DISCLOSURE SCHEDULE.
4.1.1. The RG Disclosure Schedule sets forth all of the information
concerning RG and its Subsidiaries and the RG Shares required in this
Article 4. To the extent any statement in this Article 4 is untrue or omits
to state a material fact necessary to make such statement not misleading,
the RG Disclosure Schedule sets forth the statements necessary to make the
statements in this Article 4 true and not misleading. All information and
statements set forth in the RG Disclosure Schedule shall be deemed to
supersede and correct the statements made in this Article 4 and to be
additional representations and warranties of RG. The RG Disclosure Schedule
sets forth all of the information and statements required in numbered
sections bearing the number of the Section of this Agreement calling for
such information and in the order of such numbers in this Agreement.
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4.1.2. RG has delivered to FMP complete and accurate copies of (a)
any written contract or other document referred to in the RG Disclosure
Schedule or herein and (b) the RG Reports referred to in Section 4.7 of
this Agreement.
4.1.3. To the knowledge of RG, neither the RG Disclosure Schedule nor
any financial statement, exhibit, certificate or other instrument or
document concerning the RG Shares or RG delivered by or on behalf of RG in
connection with the transaction contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact required to
be stated or necessary to make the statements herein or therein not
misleading.
4.2. EXISTENCE AND GOOD STANDING OF RG. RG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. RG is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of RG and its Subsidiaries (an "RG Material Adverse
Effect"). Each RG Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, has the
corporate power and corporate authority to own its properties and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the ownership
of its property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so licensed or qualified or
to be in good standing would not reasonably be expected to have, individually or
in the aggregate, an RG Material Adverse Effect. Neither RG nor any of its
Subsidiaries is in violation of any order of any court, governmental authority
or arbitration board or tribunal, or any law, ordinance, governmental rule or
regulation to which RG or any of its Subsidiaries or any of their respective
properties or assets is subject, except where such violation would not have,
individually or in the aggregate, an RG Material Adverse Effect. RG and its
Subsidiaries have obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or governmental regulations in
connection with their business as now conducted, where the failure to obtain any
such items or to take any such action would reasonably be expected to have an RG
Material Adverse Effect. The copies of RG's articles of incorporation and
by-laws previously delivered to FMP are true and correct.
4.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. RG has the
requisite corporate power and corporate authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. Subject only to
the approval of this Agreement and the transaction contemplated hereby by the
holders of a majority of the outstanding RG Shares, the consummation by RG of
the transaction contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of RG,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
4.4. CAPITAL STOCK. The authorized capital stock of RG consists of
15,000,000 shares of common stock and 5,000,000 shares of preferred stock, par
value $.001 per share. As of March 14, 1997, there were 2,740,928 shares of
common stock issued and outstanding and no shares of preferred stock issued and
outstanding. Since such date, no additional shares of capital stock of RG have
been issued. RG has no outstanding bonds, debentures, notes or other obligations
the holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of RG
on any matter. All such issued and outstanding RG Shares are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Other
than as contemplated by this Agreement or the RG Option Plans, there are not at
the date of this Agreement any outstanding subscriptions, options, warrants,
rights, calls, commitments, conversion rights, convertible securities, rights of
exchange, plans or other agreements providing for the purchase, issuance or sale
of any of the shares of the capital stock of RG by or to RG. As of December 31,
1996, 674,839 RG Shares were reserved for issuance and are issuable upon or
otherwise
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deliverable in connection with the exercise of outstanding options; since that
date, no options have been granted under the RG Option Plans or otherwise and no
new option plans have been authorized or adopted.
4.5. SUBSIDIARIES. RG owns all of the outstanding shares of capital stock
of each of the RG Subsidiaries. All of the outstanding shares of capital stock
of the RG Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and are owned by RG free and clear of all liens, pledges,
security interests, claims or other encumbrances. The RG Disclosure Schedule
sets forth with respect to each RG Subsidiary (a) its name and jurisdiction of
incorporation, (b) its authorized capital stock, and (c) the number of issued
and outstanding shares of capital stock. Except for interests in the RG
Subsidiaries, neither RG nor any RG Subsidiary owns directly or indirectly any
interest or investment (whether equity or debt) in any corporation, partnership,
joint venture, limited liability company, business, trust or entity.
4.6. NO VIOLATIONS. The execution and delivery of this Agreement by RG
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the articles of incorporation or by-laws of RG or the RG
Subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of RG or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which RG or the RG Subsidiaries is
a party, or by which RG or the RG Subsidiaries or any of their properties is
bound or affected, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an RG Material
Adverse Effect; (c) will not violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to RG or the RG Subsidiaries or any of
their properties or assets, except for violations which would not reasonably be
expected to have, individually or in the aggregate, an RG Material Adverse
Effect, or (d) other than the Regulatory Filings, will not require any material
consent, approval or authorization of, or declaration, filing or registration
with, any domestic governmental or regulatory authority, the failure to obtain
or make which would reasonably be expected to have, individually or in the
aggregate, an RG Material Adverse Effect.
4.7. SEC DOCUMENTS.
4.7.1. RG has furnished FMP each registration statement, report, proxy
statement or information statement, including all exhibits thereto, prepared by
it since September 23, 1993, including, without limitation, (a) its Annual
Report on Form 10-K for its fiscal year ended December 31, 1996 (the "RG Balance
Sheet Date"), which includes the consolidated balance sheet for RG as of such
date (the "RG Balance Sheet") and (b) its proxy statement for its annual meeting
of stockholders held on May 7, 1996, each of (a) and (b) in the form (including
exhibits and any amendments thereto) filed with the Securities and Exchange
Commission (the "SEC") and the items in (a) and (b), the "RG Reports". As of
their respective dates, the RG Reports (including, without limitation, any
financial statements or schedules included or incorporated by reference therein)
(i) were prepared in all material respects in accordance with the applicable
requirements of the Exchange Act, and the respective rules and regulations
thereunder, and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The 1996 and 1995 consolidated financial statements
of RG included in or incorporated by reference into the RG Reports (including
the related notes and schedules) present fairly, in all material respects, the
consolidated financial position of RG at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended of RG in conformity with GAAP consistently applied during the periods
involved. Except as and to the extent set forth on the RG Balance Sheet,
including all notes thereto, or as set forth in the RG Reports, RG has no
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of RG or in the notes thereto, prepared in
accordance with GAAP consistently applied, except liabilities arising in the
ordinary course of business since such date.
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4.7.2. The accounts and notes receivable reflected on the RG Balance
Sheet as of the RG Balance Sheet Date or acquired thereafter by RG or its
Subsidiaries arose in the ordinary course of business from bona fide
transactions. None of such accounts or notes receivable reflects
work-in-progress or goods not yet delivered. Such accounts and notes
receivable are the enforceable obligations of the obligors thereof and are
neither subject to any offset nor counter-claim by such obligors nor any
encumbrance other than immaterial encumbrances.
4.7.3. The inventory reflected on the RG Balance Sheet as of the RG
Balance Sheet Date or acquired or manufactured since the RG Balance Sheet
Date consists entirely of items saleable at regular prices or usable in the
ordinary course of business of RG and its Subsidiaries, except for an
immaterial quantity of defective or obsolete items that have been written
off in the ordinary course of business since the RG Balance Sheet Date in a
manner consistent with GAAP applied on a consistent basis. There are no
encumbrances on such inventory other than immaterial encumbrances.
4.8. LITIGATION. There is no action, suit or proceeding pending against
RG or the RG Subsidiaries, or, to the knowledge of RG, overtly threatened
against RG or the RG Subsidiaries or any of their properties or assets, at law
or in equity, or before or by any federal or state commission, board, bureau,
agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, an RG Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither RG nor any of the RG Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future would have
an RG Material Adverse Effect or would prevent or delay the consummation of the
transaction contemplated hereby.
4.9. ABSENCE OF CERTAIN CHANGES. Since the RG Balance Sheet Date, each of
RG and the RG Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to RG and the RG Subsidiaries having, individually or in the aggregate,
an RG Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock, or (c) any
material change in its accounting principles, practices or methods.
4.10. TAX MATTERS.
4.10.1. For all periods ended prior to the date of this Agreement,
each of RG and the RG Subsidiaries (a) has timely filed or caused to be
filed all federal, state, local and foreign tax returns, declarations and
reports which are required to be filed by, or with respect to, any of them
(taking into account all applicable extensions), (b) has paid or accrued
all taxes, including interest, penalties and additions to tax, if any,
shown to be due and payable on all such returns, and (c) has, for purposes
of preparing and issuing all annual and quarterly income statements and
balance sheets, adequately accrued or otherwise provided for the payment of
additional federal, state or local taxes which were not reported on the
applicable returns or reports as required under GAAP.
4.10.2. Each of RG and its Subsidiaries has timely and properly
accrued or paid in all material respects all taxes for all periods
subsequent to the periods covered by returns filed for periods ended prior
to the date of this Agreement.
4.10.3. Complete and accurate copies of all RG federal, state and
local income tax returns have been made available to FMP.
4.10.4. With respect to federal income taxes, the statute of
limitations has expired for RG for all years ended on or prior to September
21, 1993. There are no federal, state or local audits of RG currently
ongoing and there are no current cases filed relating to the determination
of the amount of taxes due from RG and/or its Subsidiaries. To the extent
RG has notified FMG of any such audits or cases, complete and accurate
copies of all relevant communications and filings have been made available
to FMP (including, but not limited to, Forms 5701, Revenue Agent's Reports,
30-Day-Letters, 90-Day-Letters and any petition, complaint or claim made in
any court having jurisdiction and all documents relating to any case
currently before any such court). Neither RG nor any of its Subsidiaries
has granted a power-of-
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attorney relating to tax matters to any person. All final adjustments made
by the IRS with respect to any federal tax return of RG or its Subsidiaries
have been reported for state and local income tax purposes to the relevant
state or local taxing authorities.
4.10.5. No requests for ruling or determination letters relating to
federal, state or local income taxes paid or payable by RG or its
Subsidiaries are pending with any taxing authority.
4.10.6. (a) Neither RG nor any RG Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method initiated by RG or its Subsidiaries
or required by law, (b) RG has no knowledge that the IRS has proposed or
purported to require any such adjustment or change in accounting method and
(c) RG has no knowledge or belief that any such adjustment under Section
481(a) of the Code will be required of RG or its Subsidiaries upon the
completion of, or by reason of, the transaction contemplated by this
Agreement.
4.10.7. (a) There are no deferred intercompany transactions between
RG and its Subsidiaries or between its Subsidiaries which will or may
result in the recognition of income upon the consummation of the
transaction contemplated by this Agreement, and (b) there are no other
transactions or facts existing with respect to RG and/or its Subsidiaries
which by reason of the consummation of the transaction contemplated by this
Agreement will result in RG and/or its Subsidiaries recognizing income.
4.10.8. RG is not a foreign person within the meaning of Section 1445
of the Code and RG does not conduct operations which would require it to
report or pay income tax to any foreign taxing authority.
4.10.9. There are no tax liens on any of the assets or property of RG
or its Subsidiaries.
4.10.10. There are no contracts, agreements or plans entered into by
RG or its Subsidiaries covering any person that individually or
collectively would require RG or its Subsidiaries to make any payments of
any amount which would not be deductible by reason of the provisions of
Section 162(m) or Section 280G of the Code.
4.10.11. Neither RG nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f) of the Code) owned by it.
4.11. CERTAIN EMPLOYEE PLANS.
4.11.1. Each Benefit Plan maintained by any RG Controlled Group
Member (the "RG Benefit Plans") complies with, and has been administered in
accordance with, in all material respects, all applicable requirements of
law, except for instances of non-compliance that would not reasonably be
expected to have caused, individually or in the aggregate, an RG Material
Adverse Effect. The RG Benefit Plans are listed in the RG Disclosure
Schedule and copies or descriptions of all material Plans have previously
been provided to FMP.
4.11.2. With respect to each RG Benefit Plan intended to qualify
under Section 401(a) of the Code, (a) a favorable determination letter has
been issued by the IRS with respect to the qualification of each RG Benefit
Plan and (b) no "reportable event" or "prohibited transaction" (as such
terms are defined in ERISA) or termination has occurred under circumstances
which present a risk of material liability by any RG Controlled Group
Member to any governmental entity or other person, including an RG Benefit
Plan. Each RG Benefit Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA or Section 412 of the Code has been maintained in
compliance with the minimum funding standards of ERISA and the Code and no
such RG Benefit Plan has incurred any "accumulated funding deficiency" (as
defined in Section 412 of the Code and Section 302 of ERISA), whether or
not waived. No RG Controlled Group Member directly or indirectly
contributes to, has an obligation to contribute to or has liability with
respect to, and has not directly or indirectly maintained, sponsored,
contributed to or had an obligation to contribute to at any time within the
10 year period ending on the date of the Closing, any employee benefit plan
which is a multi-employer plan subject to the requirements of Subtitle E of
Title IV of ERISA.
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4.11.3. Except as required by Code section 4980(b) or 162 or Part 6
of Title I of ERISA, no RG Controlled Group Member provides any health,
welfare or life insurance benefits to any of its former or retired
employees, which benefits would be material either individually or in the
aggregate to RG.
4.12. LABOR MATTERS.
4.12.1. Neither RG nor any RG Subsidiary is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge
of RG, overtly threatened against RG or the RG Subsidiaries relating to
their business, except for any such proceeding which would not reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect. To the knowledge of RG, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently
being made or overtly threatened involving employees of RG or the RG
Subsidiaries.
4.12.2. RG has delivered to FMP copies of all material employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other agreements, plans or
arrangements with respect to compensation of the employees of RG and the RG
Subsidiaries (the "RG Compensation Arrangements"). The Merger will not
accelerate or otherwise give rise to payments pursuant to the RG
Compensation Arrangements.
4.13. ENVIRONMENTAL LAWS AND REGULATIONS.
4.13.1. Each of RG and the RG Subsidiaries is in compliance in all
material respects with all applicable Environmental Laws which compliance
includes, but is not limited to, the possession by RG and the RG
Subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms
and conditions thereof, except for non-compliance that would not reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect. Neither RG nor any RG Subsidiary has received written
notice of, or, to the knowledge of RG, is the subject of, or to the
knowledge of RG is there any basis for, any action, cause of action, claim,
investigation, demand or notice, including without limitation,
non-compliance orders, warning letters or notices of violation, by any
person or entity alleging liability under or non-compliance with any
Environmental Law (an "RG Environmental Claim") that would reasonably be
expected to have, individually or in the aggregate, an RG Material Adverse
Effect. To the knowledge of RG there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in
the future.
4.13.2. There are no RG Environmental Claims which would reasonably
be expected to have, individually or in the aggregate, an RG Material
Adverse Effect that are pending or, to the knowledge of RG, overtly
threatened against RG or the RG Subsidiaries or, to the knowledge of RG,
against any person or entity whose liability for any RG Environmental Claim
RG or any RG Subsidiary has or may have retained or assumed either
contractually or by operation of law.
4.13.3. Neither RG nor any RG Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle or
discharge, any hazardous substances to, at or upon: (i) any location other
than a site lawfully permitted to receive such hazardous substances, (ii)
any parcel of real property owned or leased by RG or the RG Subsidiaries,
except in compliance with applicable Environmental Laws; (iii) any site
which, pursuant to CERCLA or any similar state law (x) has been placed on
the National Priorities List or its state equivalent, or (y) the
Environmental Protection Agency or the relevant state agency has notified
RG that it has proposed or is proposing to place on the National Priorities
List or its state equivalent; or (b) has any knowledge that there has
occurred or is presently occurring a discharge, or threatened discharge, of
any hazardous substance on, into or beneath the surface of, or adjacent to,
any real property owned or leased by RG or the RG Subsidiaries.
4.13.4. The RG Disclosure Schedule identifies (a) all environmental
audits, assessments, or occupational health studies undertaken by RG or its
agents on its behalf, or, to the knowledge of RG, undertaken by any
governmental authority, or any third party, relating to or affecting any
real property
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owned or leased by RG or the RG Subsidiaries; (b) the results of any
ground, water, soil, air or asbestos monitoring undertaken by RG or its
agents on its behalf, or, to the knowledge of RG, undertaken by any
governmental authority or any third party, relating to or affecting any
real property owned or leased by RG or the RG Subsidiaries; (c) all
material written communications between RG and any governmental authority
arising under or related to Environmental Laws; and (d) all outstanding
citations issued under OSHA, or similar state or local statutes, laws,
ordinances, codes, rules, regulations, orders, rulings or decrees relating
to or affecting any real property owned or leased by RG or the RG
Subsidiaries.
4.14. REAL PROPERTY.
4.14.1. RG has delivered to FMP either copies or fair and accurate
summaries (the "RG Property Documents") of each of its leases, subleases,
licenses, deeds or other agreements or instruments (and any amendments
thereto) under which RG or any RG Subsidiary owns, uses or occupies or has
the right to use or occupy, now or in the future, any real property (the
"RG Real Estate Agreements"). Each RG Real Estate Agreement is valid,
binding and in full force and effect, all rent and other sums and charges
payable by RG and any RG Subsidiary as tenants thereunder are current, no
termination event or condition or uncured default of a material nature on
the part of RG or any RG Subsidiary or, to the knowledge of RG, as to a
landlord, exists under any RG Real Estate Agreement, except for any of the
foregoing matters which would not reasonably be expected to have,
individually or in the aggregate, an RG Material Adverse Effect. The
information contained in the RG Property Documents is true and correct in
all material respects.
4.14.2. Since the RG Balance Sheet Date, no portion of the real
property subject to the RG Real Estate Agreements has suffered any material
damage by fire or other casualty which has not heretofore been
substantially repaired or restored.
4.14.3. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, an RG
Material Adverse Effect:
(a) RG has not granted, and to the best of RG's knowledge, no
other person has granted, any leases, subleases, licenses or other
agreements granting to any person other than RG any right to possession,
use, occupancy or enjoyment of the property covered by the RG Real
Estate Agreements, or any portion thereof, and
(b) RG is not obligated under any option, right of first refusal
or any contractual right to purchase, acquire, sell or dispose of any
real property covered by the RG Real Estate Agreements.
4.14.4. None of the RG Real Estate Agreements contains continuous
operating covenants, radius restrictions or provisions requiring the
consent of the landlord to the Merger or the assumption of RG's obligations
under the RG Real Estate Agreements in the manner contemplated by this
Agreement, except for any of the foregoing matters which would not
reasonably be expected to have, individually or in the aggregate, an RG
Material Adverse Effect.
4.15. INSURANCE. RG and the RG Subsidiaries maintain with respect to
their operations and their assets, in full force and effect, policies of
insurance in the ordinary course of business as is usual and customary for
businesses similarly situated to RG. RG has provided FMP copies of claims
associated with its operations for the past 18 months.
4.16. INTELLECTUAL PROPERTY. Every material trade secret, including
know-how, inventions, designs and processes, patent, patent right, trademark,
trademark right, service mark, trade name or copyright, or application thereof,
and licenses and rights with respect to the foregoing, used in connection with
the business of RG and the RG Subsidiaries, including the "grip manufacturing"
technology (the "RG Intellectual Property"), is protected by RG in a manner
which, under the circumstances, is prudent and commercially reasonable and owned
by RG or its Subsidiaries free and clear of any liens, encumbrances, claims or
restrictions whatsoever which would have an RG Material Adverse Effect, direct
or indirect, and, to the knowledge of RG, the RG Intellectual Property does not
infringe upon the rights of any person. Neither RG nor any RG Subsidiary has
granted to any other person the right to use the RG Intellectual Property, or
any
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part thereof. RG is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any patent, patent rights, trademark, trademark rights, trade
name, trade name rights, copyright or other intangible assets, with respect to
the use thereof or in connection with the conduct of its business or otherwise.
4.17. CERTAIN CONTRACTS. RG has delivered copies of each material contract
to which RG or any RG Subsidiary is a party, or by which any of their properties
or assets are bound. RG and the RG Subsidiaries are in compliance in all
material respects with all material terms of such contracts.
4.18. NO BROKERS. Neither RG nor any RG Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of RG or FMP or Merger Sub to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby, except that RG has retained Everen Securities, Inc. as its
financial advisor and to render a fairness opinion as set forth below. The
arrangements with Everen Securities, Inc. have been disclosed in writing to FMP
prior to the date hereof.
4.19. CONFLICTS OF INTEREST. No shareholder, officer, or director, or, to
the knowledge of RG, no employee or consultant of RG or any RG Subsidiary, or
any affiliate of such person has any direct or indirect interest (a) in any
corporation, partnership, proprietorship, association, or other person or entity
which does business with RG or any RG Subsidiary, (b) in any property, asset or
right which is used by RG or any RG Subsidiary in the conduct of its business,
or (c) in any contract to which RG is a party or by which RG may be bound.
4.20. PERSONAL PROPERTY. RG owns all of its material personal property,
including, without limitation, the material personal property reflected in the
RG Balance Sheet, except for personal property disposed of in the ordinary
course of business since the RG Balance Sheet Date, subject to no mortgage,
pledge, lien, charge, security interest, encumbrance or restriction, except
those which are shown and described in the RG Balance Sheet or the notes
thereto. All personal properties purported to be leased by RG are subject to
valid and effective leases.
4.21. DISCLOSURE. Neither RG nor any RG Subsidiary has knowingly withheld
from FMP any material facts relating to RG's and the RG Subsidiary's assets,
business, operations, financial conditions, or prospects. No representation or
warranty in this Agreement contains any untrue statement of a material fact
required to make the statements herein contained not misleading or omits to
state any material fact required to be stated herein or necessary to make the
statements herein not misleading.
ARTICLE 5. COVENANTS.
5.1. NO SOLICITATION. RG shall not, directly or indirectly, take (nor
shall RG authorize or permit any RG Subsidiary, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates to take) any action to (a) encourage, solicit or initiate the
submission of any Acquisition Proposal (as defined in this Section 5.1), (b)
enter into any agreement with respect to any Acquisition Proposal, or (c)
participate in any way in discussions or negotiations with, or furnish any
information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. RG will promptly
communicate to FMP in writing the terms of any proposal or inquiry, including
the identity of the person and its affiliates making the same, that it may
receive in respect of any such transaction, or of any such information requested
from it or of any such negotiations or discussions being sought to be initiated
with it. Notwithstanding the foregoing, neither the provisions contained in this
Section 5.1 or elsewhere in this Agreement shall prohibit the Board of Directors
of RG from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
written proposal to acquire RG pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or other similar transaction, if the Board of Directors of RG determines in good
faith, based as to legal matters on the written advice of outside legal counsel,
that such action is required for the Board of Directors to comply with its
fiduciary duties to stockholders imposed by law (the "RG Board Fiduciary
Duties") and (ii) complying with Rule 14e-2 of the Exchange Act with regard to
any Acquisition Proposal, if applicable. "Acquisition Proposal" shall mean any
proposed (A) merger, consolidation or similar
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transaction involving RG, (B) sale, lease or other disposition directly or
indirectly by merger, consolidation share exchange or otherwise of assets of RG
representing 10% or more of the consolidated assets of RG, (C) issue, sale, or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 10% or
more of the voting power of RG or (D) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, or any "group" (as
such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership, of 10% or
more of the outstanding RG Common Stock. The exercise of the RG Board Fiduciary
Duties, notwithstanding any other provision of this Agreement, shall not
constitute a breach or violation of any provision of this Agreement; provided,
that the parties acknowledge that nothing contained in this Section 5.1 shall
either expand or narrow the obligations of RG under Section 5.12.
5.2. CONDUCT OF BUSINESSES. Prior to the Effective Date, except as set
forth in the FMP Disclosure Schedule, the RG Disclosure Schedule or as
contemplated by any other portion of this Agreement, unless both parties have
consented in writing thereto, which consent will not be unreasonably withheld,
each party:
5.2.1. Shall, and shall cause each of its Subsidiaries to, conduct
its operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
5.2.2. Shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those persons having
business relationships with it;
5.2.3. Shall confer on a regular basis with one or more
representatives of the other party to report operational matters of
materiality and any proposals to engage in material transactions;
5.2.4. Shall not amend its articles or certificate of incorporation
or by-laws;
5.2.5. Shall promptly notify the other party of (a) any material
emergency or other material change in the condition (financial or
otherwise), of such party's or any Subsidiary's business, properties,
assets, liabilities, prospects or the normal course of its businesses or in
the operation of its properties, (b) any material litigation or material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or (c) the breach in any
material respect of any representation or warranty or covenant contained
herein;
5.2.6. Shall promptly deliver to the other party true and correct
copies of any report, statement or schedule filed by such party with the
SEC subsequent to the date of this Agreement;
5.2.7. Shall not (a) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it exists on the date hereof, (b) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock, (c) increase any
compensation or enter into or amend any employment severance, termination
or similar agreement with any of its present or future officers or
directors, except for normal increases in compensation to employees not
earning more than $75,000 in annual base compensation, consistent with past
practice, and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs, nor (d) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any material respect,
except for changes which are less favorable to participants in such plans
or as may be required by applicable law;
5.2.8. Shall not (a) declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its capital
stock, (b) except in connection with the use of shares of capital stock to
pay the exercise price or tax withholding in connection with stock-based RG
Benefit Plans, directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital
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stock of any of its Subsidiaries, or make any commitment for any such
action, nor (c) split, combine or reclassify any of its capital stock;
5.2.9. Shall not, and shall not permit any of its Subsidiaries to
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) which are material, individually or in the
aggregate, except in the ordinary course of business;
5.2.10. Shall not (a) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing
lines of credit in the ordinary course of business, (b) except for
obligations of wholly-owned Subsidiaries; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practices in an
amount not material to such party, taken as a whole, (c) other than to
wholly-owned Subsidiaries, make any loans, advances or capital
contributions to or investments in, any other person, (d) pledge or
otherwise encumber shares of capital stock of such party or its
Subsidiaries, nor (e) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to create any material
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect to such asset;
5.2.11. Shall not acquire, sell, lease or dispose of any assets
outside the ordinary course of business or any assets which in the
aggregate are material to such party taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business
consistent with past practice which would be material to such party taken
as a whole;
5.2.12. Except as may be required as a result of a change in law or
in GAAP, shall not change any of the accounting principles or practices
used by such party, except that both parties shall use their best efforts
to make all filings under Regulation S-B promulgated by the SEC for all
periods ending after December 31, 1996;
5.2.13. Shall not (a) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division thereof or any
equity interest therein, (b) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice which
would be material to such party taken as a whole, (c) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$25,000 or, in the aggregate, is in excess of $1,500,000; provided, that
none of the foregoing shall limit any capital expenditure within the
aggregate amount previously authorized by such party's Board of Directors
for capital expenditures and written evidence thereof has been previously
provided to the other party, nor (d) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
which would be prohibited hereunder;
5.2.14. Shall not make any tax election or settle or compromise any
income tax liability material to such party taken as a whole;
5.2.15. Shall not pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
liabilities reflected or reserved against in, and contemplated by, the
financial statements (or the notes thereto) of such party or incurred in
the ordinary course of business consistent with past practice;
5.2.16. Shall not settle or compromise any pending or threatened
suit, action or claim relating to the transaction contemplated hereby; or
5.2.17. Shall not take, or agree in writing or otherwise to take, any
of the actions described in Section 5.2.1 through 5.2.16 or any action that
would make any of the representations and warranties of a party hereto
contained in this Agreement untrue or incorrect as of the date when made.
5.3. MEETINGS OF STOCKHOLDERS.
5.3.1. RG has, retained Everen Securities, Inc. to issue its opinion
on the fairness to the holders of RG Shares, from a financial point of
view, of the terms of the Merger, pursuant to the terms of an
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engagement letter presented to FMP. After receipt of such opinion, RG will
take all action reasonably necessary in accordance with applicable law and
its Articles of Incorporation and By-laws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the
approval of this Agreement and the transaction contemplated hereby. The
Board of Directors of RG shall recommend such approval and RG shall take
all reasonable lawful action to solicit such approval, including, without
limitation, timely mailing the Proxy Statement (as defined in Section
5.10); provided, however, that the Board of Directors of RG shall not be
required to make such recommendation or solicitation if the Board of
Directors determines in good faith, based as to legal matters on the
written advice of outside legal counsel, that such action would violate the
RG Board Fiduciary Duties. FMP shall coordinate and cooperate with RG with
respect to the timing of such meeting and RG shall use its best efforts to
hold such meeting as soon as is practicable. It shall be a condition to the
mailing of the Proxy Statement that RG shall have received the opinion of
Everen Securities, Inc., dated the date of the Proxy Statement, to the
effect that, as of the date thereof, the terms of the Merger are fair to
the holders of RG Shares from a financial point of view.
5.3.2. FMP duly called and held a meeting of the FMP stockholders on
April 17, 1997, at which meeting the FMP stockholders unanimously approved
this Agreement and the transaction contemplated hereby. FMP, as the sole
stockholder of Merger Sub, and Merger Sub will take all action necessary in
accordance with applicable law and the Articles of Incorporation and
By-laws of Merger Sub to promptly approve this Agreement and the
transaction contemplated hereby
5.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, each party shall: (a) use all reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Date with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Date from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transaction contemplated hereby, and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transaction
contemplated by this Agreement. If, at any time after the Effective Date, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of each party shall take all such
necessary action.
5.5. INSPECTION OF RECORDS; ACCESS. From the date hereof to the Effective
Date, each party shall allow all designated officers, attorneys, accountants and
other representatives of the other party (the "Other Party's Representatives")
access at all reasonable times to all employees, stores, offices, warehouses,
and other facilities and to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of such party and its Subsidiaries; provided, however, the Other
Party's Representatives shall use their reasonable best efforts to avoid
interfering with, hindering or otherwise disrupting the employees of such party
in the execution of their employment duties during any visit to, or inspection
of, such party's facilities.
5.6. PUBLICITY. The initial press release relating to this Agreement
shall be a joint press release and thereafter each party shall, subject to its
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), consult with each other, and use reasonable
efforts to agree upon the text of any press release, before issuing any such
press release or otherwise making public statements with respect to the
transaction contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect thereto.
5.7. REGISTRATION STATEMENT/PROXY STATEMENT.
5.7.1. As promptly as practicable after the execution of this
Agreement and receipt of the fairness opinion referred to in Section
5.3.1(a), FMP and RG shall prepare and file with the SEC preliminary proxy
materials which shall constitute the preliminary Proxy Statement (as
defined in Section 5.10) and a preliminary prospectus with respect to the
FMP Common Stock to be issued in connection with the Merger. As promptly as
practicable after comments are received from the SEC with respect to the
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preliminary proxy materials and after the furnishing by RG and FMP of all
information required to be contained therein, RG shall file with the
Commission the definitive Proxy Statement and FMP shall file with the
Commission the Registration Statement (as defined in Section 5.10) and FMP
and RG shall use all reasonable efforts to cause the Registration Statement
to become effective as soon thereafter as practicable.
5.7.2. FMP and RG shall make all necessary filings with respect to
the Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable Blue Sky or similar securities
laws, and shall use all reasonable efforts to obtain required approvals and
clearances with respect thereto.
5.8. COMPLIANCE WITH THE SECURITIES ACT.
5.8.1. Prior to the Effective Date, RG shall deliver to FMP a letter
setting forth a true and complete list of persons whom the Company believes
may be deemed to be "affiliates" of RG as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act (the "Affiliates").
5.8.2. RG shall use its reasonable best efforts to obtain as promptly
as practicable a written agreement from each person who is identified as an
Affiliate in the letter referred to in Section 5.8.1 above, in the form
previously approved by the parties, that he or she will not offer to sell,
sell or otherwise dispose of any of the FMP Common Stock issued to him or
her pursuant to the Merger, except in compliance with Rule 145 under the
Securities Act or another exemption from the registration requirements of
the Securities Act. RG shall deliver all such written agreements obtained
by it to FMP on or prior to the Effective Date.
5.9. TAKEOVER PROVISIONS INAPPLICABLE. RG agrees that it will not take
any action to render Sections 78.378 through 78.3793 and Sections 78.411 through
78.444 of the NGCL applicable to the Merger and the other transaction
contemplated hereby.
5.10. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENTS,
ETC. Each of FMP, Merger Sub and RG agree that none of the information supplied
by it for inclusion in (a) the Registration Statement to be filed with the SEC
by FMP on Form S-4 under the Securities Act for the purpose of registering
shares of FMP Common Stock to be issued in the Merger (the "Registration
Statement") and all other documents required to be filed by FMP with the SEC and
(b) the prospectus/proxy statement of RG and FMP (the "Proxy Statement")
required to be mailed to the stockholders of RG in connection with the Merger
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of mailing of the Proxy Statement or any amendments or
supplements thereto, and at the time of the RG Meeting to be held in connection
with the Merger, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. FMP and Merger Sub
agree that the Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. RG agrees that the Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
5.11. FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Date of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
5.12. FEES AND EXPENSES.
5.12.1. Except as provided below in this Section 5.12, if the Merger
is not effected, all costs and expenses incurred in connection with this
Agreement and in the transaction contemplated hereby shall be paid by the
party incurring such expense except that (a) RG and FMP each agree to pay
50% of all printing expenses incurred by either party in connection with
the Registration Statement and the Proxy Statement and (b) FMP agrees to
pay any legal and accounting fees incurred by RG in connection with this
transaction on and after the date hereof to the extent that such fees and
expenses exceed $100,000 up
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to $300,000, and (c) FMP agrees to pay additional transaction costs equal
to $85,000 upon execution of this Agreement. Notwithstanding the provisions
of the preceding sentence, (i) in any action, suit or other proceeding
under or to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and other
out-of-pocket expenses from the losing party, and (ii) RG shall be
obligated to repay the $85,000 of additional transaction costs where the
Merger does not occur due to no fault of FMP.
5.12.2. If this Agreement is terminated by FMP pursuant to Section
7.4 hereof or because of the nonfulfillment of any condition set forth in
Section 6.3, (a) FMP shall not be obligated to make any further payments
required to be made under Section 5.12.1, and (b) RG shall pay, or cause to
be paid, in same day funds to FMP upon demand (i) all actual out-of-pocket
costs, expenses and fees (including without limitation, attorneys and
accountants fees and expenses and other professional or service fees and
expenses) incurred or to be incurred by FMP or Merger Sub in connection
with this Agreement and the transaction contemplated hereby up to $500,000,
and (ii) any amounts due under Section 5.12.4.
5.12.3. If this Agreement is terminated by RG pursuant to Section
7.3(b) or (c) hereof or because of the nonfulfillment of any condition set
forth in Section 6.2, FMP shall pay, or cause to be paid, in same day funds
to RG upon demand, all actual out-of-pocket costs, expenses and fees
(including, without limitation, fees payable to all investment banking
firms and other institutions, and their respective agents, and including
attorneys and accountants fees and expenses and other professional or
service fees and expenses) incurred or to be incurred by RG in connection
with this Agreement and the transaction contemplated hereby up to $500,000.
5.12.4. In addition to any amounts payable under Section 5.12.2, RG
shall pay, or cause to be paid, in same day funds to FMP upon demand a fee
of $400,000 if:
(a) this Agreement is terminated by FMP pursuant to Section 7.2.2,
giving effect to the proviso contained in the definition of Third Party
Acquisition; or
(b) this Agreement is terminated by RG pursuant to clause (a) of
Section 7.3 and within 12 months thereafter, RG enters into an agreement
with respect to a Third Party Acquisition, or a Third Party Acquisition
occurs, involving a Third Party (i) with whom RG (or its agents) had any
discussions with respect to a Third Party Acquisition, (ii) to whom RG
(or its agents) furnished information with respect to or with a view to
a Third Party Acquisition or (iii) who expressed any interest publicly
or to RG in a Third Party Acquisition, in the case of each of clauses
(i), (ii) and (iii), at any time from and after the date hereof to the
date of such termination.
5.13. EMPLOYMENT AGREEMENTS; STOCKHOLDERS' AGREEMENT; LOCK-UP AGREEMENT;
AND REGISTRATION RIGHTS AGREEMENT. Simultaneously with the execution of this
Agreement FMP is entering into, (a) a consulting agreement with Danny Edwards,
(b) a Stockholder Agreement with DE,, Drew M. Brown, Mark N. Sklar, Bennett
Dorrance, Trustee of the Bennett Dorrance Trust dated April 21, 1989, as
amended, DMB Property Venture Limited Partnership, RPJ/JAJ Partners, Ltd., CAJ,
DEJ, KJW and Berenson Minella & Company, L.P. providing for the election of
directors, (c) a Voting Agreement pursuant to which DE, Drew M. Brown, Mark N.
Sklar, Bennett Dorrance, as Trustee, and DMB Property Venture Limited
Partnership agree to vote all shares of RG Common Stock over which they have
voting power in favor of the Merger, and (d) a Registration Rights Agreement
with certain individuals to provide certain registration rights.
5.14. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. FMP agrees
that at all times after the Effective Date, it will and shall cause the
Surviving Corporation to indemnify each person who is a director or officer of
RG on the date hereof (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense, including reasonable fees and expenses of legal counsel ("Indemnified
Liability"), to the extent such Indemnified Party would have been indemnified
pursuant to RG's articles of incorporation or by-laws as in effect as of the
date hereof, based in whole or in part on, or arising in whole or in part out
of, any matter existing or occurring at or prior to the Effective Date whether
commenced, asserted or claimed before or after the Effective Date, and shall
advance expenses to such Indemnified Party to the extent
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<PAGE> 168
such Indemnified Party would have been advanced expenses pursuant to RG's
articles of incorporation or by-laws as in effect as of the date hereof. FMP
shall, and shall cause the Surviving Corporation to, maintain in effect for not
less than four years after the Effective Date, the current policies of
directors' and officers' liability insurance maintained by RG on the date hereof
(provided that FMP may substitute therefor policies having at least the same
coverage and containing terms and conditions which are no less advantageous to
the persons currently covered by such policies as insured) with respect to
matters existing or occurring on or prior to the Effective Date,.
5.15. CONTINUATION OF RG OPERATIONS. FMP shall cause RG to continue its
historic business or use a significant portion of its historic business assets
in a business for at least (a) the two year period commencing on the Effective
Date or (b) such shorter period following the Effective Date as shall not cause
the Merger not to be treated as a reorganization within the meaning of Section
368 of the Code.
5.16. RG EMPLOYEES. All employees who were RG employees prior to the
Effective Date shall continue to be RG employees on and after the Effective Date
under the terms and conditions of such employment, including the right to change
such terms and conditions, as were in existence prior to the Effective Date.
5.17. RG STOCK PLANS. FMP agrees to file a registration statement with
respect to any FMP stock option plan, to the extent that such filings are
required to enable holders of options granted under Section 1.9.1 to freely
exercise such options and (except for holders who may be deemed to be affiliates
of FMP) to freely sell shares acquired by the exercise of such options (assuming
such shares would be freely salable pursuant to an effective registration
statement covering such plans). Nothing set forth herein shall require FMP to
register such exercises on any form other than Form S-8. On and after the
Effective Date, FMP will assume and discharge all obligations of RG with respect
to registration rights agreements disclosed on the RG Disclosure Schedule.
ARTICLE 6. CONDITIONS.
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of the following conditions:
6.1.1. This Agreement and the transaction contemplated hereby shall
have been approved in the manner required by applicable law or by
applicable regulations of any stock exchange or other regulatory body and
by the holders of the issued and outstanding shares of capital stock of
each of RG and FMP entitled to vote thereon.
6.1.2. None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transaction contemplated by this Agreement or has a
material adverse effect on a party hereto. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
6.1.3. All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to
be filed after the Effective Date and except where the failure to have
obtained or made any such consent authorization, order, approval, filing or
registration would not have an FMP Material Adverse Effect or an RG
Material Adverse Effect following the Effective Date.
6.1.4. The FMP Common Stock issuable in the Merger shall have been
listed or approved for listing upon notice of issuance on the NASDAQ
National Market System or on the American Stock Exchange.
6.1.5. The Registration Statement shall have been declared effective.
6.1.6. All applicable Blue Sky laws have been complied with.
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6.2. CONDITIONS TO OBLIGATION OF RG TO EFFECT THE MERGER. The obligation
of RG to effect the Merger shall be subject to the fulfillment at or prior to
the Closing of the following conditions:
6.2.1. FMP shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing and the
representations and warranties of FMP contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as
of the Closing Date, and RG shall have received a certificate of the
President or a Vice President of FMP, dated the Closing Date, certifying to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 6.2.1 shall be deemed to have been satisfied even if
such representations or warranties are not true and correct, unless the
failure of any of the representations or warranties to be so true and
correct would reasonably be expected to have an FMP Material Adverse
Effect.
6.2.2. From the date of this Agreement through the Effective Date,
there shall not have occurred any change in the financial condition,
business, operations or prospects of FMP and its Subsidiaries, taken as a
whole, that would reasonably be expected to have an FMP Material Adverse
Effect.
6.2.3. RG shall have received a favorable opinion from counsel to
FMP, in the form of Exhibit 6.2.3.
6.2.4. RG shall have received a certificate from the Secretary of FMP
and Merger Sub, in form and substance reasonably satisfactory to RG
certifying the adoption of resolutions by the Board of Directors and
stockholders of FMP and Merger Sub in favor of this Agreement, the Merger
and the transactions contemplated by this Agreement.
6.2.5. RG shall have received an opinion from Everen Securities,
Inc., in form and substance reasonably satisfactory to the Board of
Directors of RG, to the effect that the terms of the Merger are fair to the
holders of RG Shares from a financial point of view.
6.3. CONDITIONS TO OBLIGATION OF FMP TO EFFECT THE MERGER. The
obligations of FMP to effect the Merger shall be subject to the fulfillment at
or prior to the Closing of the following conditions:
6.3.1. RG shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing and the
representations and warranties of RG contained in this Agreement and in any
document delivered in connection herewith shall be true and correct as of
the Closing Date, and FMP shall have received a certificate of the
President or a Vice President of RG, dated the Closing Date, certifying to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 6.3.1 shall be deemed to have been satisfied even if
such representations or warranties are not true and correct, unless the
failure of any of the representations or warranties to be so true and
correct would reasonably be likely to have an RG Material Adverse Effect.
6.3.2. From the date of this Agreement through the Effective Date,
there shall not have occurred any change in the financial condition,
business, operations or prospects of RG and the RG Subsidiaries, taken as a
whole, that would reasonably be likely to have an RG Material Adverse
Effect.
6.3.3. FMP shall have received a favorable opinion of counsel to RG,
in the form of Exhibit 6.3.3.
6.3.4. FMP shall have received a certificate from the Secretary of
RG, in form and substance reasonably satisfactory to FMP certifying the
adoption of resolutions by the RG Board of Directors and stockholders in
favor of this Agreement, the Merger and the transactions contemplated by
this Agreement.
6.3.5. FMP shall have received an opinion from Everen Securities,
Inc., in form and substance reasonably satisfactory to the Board of
Directors of FMP, to the effect that the terms of the Merger are fair to
the holders of RG Shares from a financial point of view.
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ARTICLE 7. TERMINATION.
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Date, before or
after the approval of this Agreement by the stockholders of RG, by the mutual
consent of the parties hereto.
7.2. TERMINATION BY EITHER RG OR FMP. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either RG
or FMP if:
7.2.1. (a) the Merger shall not have been consummated on or before
September 30, 1997; provided that the party seeking to terminate the
Agreement pursuant to clause (a) shall have used all reasonable efforts in
good faith to consummate the Merger in a timely manner; (b) the approval of
RG's stockholders required by Section 6.1.1 has not been obtained at a
meeting duly convened therefor or at an adjournment thereof; or (c) a
United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the transaction contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable provided,
that the party seeking to terminate this Agreement pursuant to this clause
(c) shall have used all reasonable efforts to remove such injunction, order
or decree; and provided, in the case of a termination pursuant to clause
(a) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure
referred to in said clause; or
7.2.2. (a) if the Board of Directors of RG shall have withdrawn or
modified in a manner adverse to FMP its approval or recommendation to RG's
stockholders of this Agreement or the Merger or shall have approved or
recommended to RG's stockholders that they accept the terms of any Acquisition
Proposal or shall have resolved to take any of the foregoing actions; or (b) a
Third Party Acquisition (as hereinafter defined) shall have occurred; provided,
however, that such termination under this Section 7.2.2 shall not relieve RG of
its fee obligations under Section 5.12 hereof. "Third Party Acquisition" means
the acquisition of RG by merger, tender offer or otherwise by any person other
than FMP, Merger Sub or any affiliate thereof (a "Third Party")provided,
however, that in the event FMP terminates the Agreement pursuant to this clause
(b), a fee shall be payable under Section 5.12.4 only so long as, and on or
after the date when, RG (y) is acquired (or enters into an agreement to be
acquired) by merger, tender offer or otherwise by such Third Party or (z) enters
into an agreement with a Third Party providing for the acquisition by said Third
Party of substantially all of the assets of RG in each case, prior to the end of
the twelfth month following the termination of this Agreement.
7.3. TERMINATION BY RG. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date, before or after the
adoption and approval by the stockholders of RG referred to in Section 6.1.1, by
action of the Board of Directors of RG, if (a) in the exercise of its good faith
judgment as to its fiduciary duties to its stockholders imposed by law the Board
of Directors of RG determines that such termination is required by reason of an
Acquisition Proposal being made, or (b) there has been a breach by FMP of any
representation or warranty contained in this Agreement which would reasonably be
expected to have an FMP Material Adverse Effect, or (c) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of FMP, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by RG to FMP.
7.4. TERMINATION BY FMP. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date by action of the Board
of Directors of FMP, if (a) there has been a breach by RG of any representation
or warranty contained in this Agreement which would have or would be reasonably
likely to have an RG Material Adverse Effect, or (b) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of RG, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by FMP to RG.
7.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article 7,
all obligations of the parties hereto shall terminate,
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except the obligations of the parties pursuant to Sections 5.10, 5.12, and this
7.5 and Articles 3, 4, 6, 7 and 8 and the Confidentiality Agreement referred to
in Section 8.4. Moreover, in the event of termination of this Agreement pursuant
to Section 7.3 or 7.4 (except for Section 7.3(a) for which the exclusive remedy
is provided in Section 5.12.4), nothing herein shall prejudice the ability of
the non-breaching party from seeking damages from the other party for any breach
of this Agreement, including without limitation, attorneys' fees and the right
to pursue any remedy at law or in equity.
7.6. EXTENSION; WAIVER. At any time prior to the Effective Date, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties made to such party contained herein or in
any document to be delivered pursuant hereto, and (c) waive compliance with any
of the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by or on
behalf of the party granting such extension or waiver.
ARTICLE 8. GENERAL PROVISIONS.
8.1. NONSURVIVAL, REPRESENTATIONS AND WARRANTIES. All representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall be deemed to the extent expressly provided herein to be
conditions to the Merger and shall not survive the Merger.
8.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
<TABLE>
<S> <C>
If to RG: If to FMP:
Danny Edwards Christopher A. Johnston
Chairman of the Board, President President and Chief Executive Officer
and Chief Executive Officer FM Precision Golf Corp.
Royal Grip, Inc. P.O. Box 25182
444 West Geneva Drive 3490 Clubhouse Drive, Suite 102
Tempe, Arizona 85282 Jackson, Wyoming 83001
Facsimile: (602) 829-9100 Facsimile: (307) 739-2288
With copies to: With copies to:
Steve Pidgeon, Esq. Kenneth J. Warren, Esq.
Snell & Wilmer 2109 West Fifth Avenue, Suite C
One Arizona Center Columbus, Ohio 43212
Phoenix, Arizona 85004 Facsimile: (614) 487-1945
Facsimile: (602) 382-6070
</TABLE>
or to such other address as any party shall specify by written notice so given
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.3. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors, and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4. ENTIRE AGREEMENT. This Agreement, the Exhibits, the FMP Disclosure
Schedule, the RG Disclosure Schedule, the Confidentiality Agreement dated
November 13, 1996, between RG and FMP and any documents delivered by the parties
in connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this
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Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto. During the term of this Agreement, the
Confidentiality Agreement may not be terminated by either party thereto.
8.5. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the RG Merger by the
stockholders of RG, but after any such stockholder approval, no amendment shall
be made which by law requires the further approval of stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
8.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada without regard to its rules of
conflict of laws.
8.7. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
8.8. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.9. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
giving such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
8.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any provision of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court having jurisdiction of the matter,
this being in addition to any other remedy to which they may be entitled at law
or in equity.
8.13. SUBSIDIARIES. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.
ROYAL GRIP, INC.
By: /s/ Danny Edwards
------------------------------------
Danny Edwards, President and
Chief Executive Officer
FM PRECISION GOLF CORP.
By: /s/ Christopher A. Johnston
------------------------------------
Christopher A. Johnston, President
and Chief Executive Officer
FMPSUB, INC
By: /s/ Christopher A. Johnston
------------------------------------
Christopher A. Johnston, President
and Chief Executive Officer
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ANNEX II
August 15, 1997
Board of Directors
Royal Grip, Inc.
15170 North Hayden Road, Suite 1
Scottsdale, Arizona 85260
Gentlemen:
We understand that Royal GRIP, Inc. ("GRIP") has agreed to merge with FM
Precision Golf Corporation ("FMP"). Pursuant to the Agreement and Plan of Merger
dated May 14, 1997 (the "Merger Agreement") among GRIP, FMP, and FMP's wholly
owned subsidiary FMPSUB, Inc. ("Merger Sub"), GRIP shareholders and option and
warrant holders will exchange their holdings for like securities in FMP on a one
for one-half basis (the "Exchange Rate"). Prior to the date of filing the
Articles of Merger with the appropriate governmental authorities ("Effective
Date"), current FMP shareholders and warrant and option holders will
proportionately split their holdings (the "FMP Stock Split") such that, on a
combined basis, FMP shareholders and option and warrant holders will hold 70% of
the total of all common shares outstanding and options and warrants granted in
FMP. Current GRIP shareholders, option holders, and warrant holders will own the
remaining 30% of FMP on the same basis.
We also understand that following the exchange of GRIP common stock,
options, and warrants and for like securities in FMP (based on the
aforementioned Exchange Rate) and the FMP Stock Split, Merger Sub will merge
with and into GRIP (the "Merger") which will be the surviving corporation in the
Merger (the "Surviving Corporation"). Merger Sub will cease to exist and the
Surviving Corporation will be a wholly owned subsidiary of FMP which will be a
publicly traded company.
You have requested our opinion as to whether the Merger with FMP is fair,
from a financial point of view, to the stockholders of GRIP.
For the purposes of the opinion set forth herein, we have, among other
things,
i) reviewed the Letter of Intent ("LOI") by and between GRIP and FMP
dated January 24, 1997;
ii) reviewed the Merger Agreement by and between GRIP and FMP;
iii) reviewed a draft of the Merger Proxy Statement/Prospectus in
substantially final form;
iv) reviewed GRIP's annual reports on Form 10-K for the years ended
December 31, 1993, 1994, 1995, and 1996, and GRIP's Forms 10-Q for the
three months period ended March 31, 1997 and June 30, 1997;
v) reviewed recent Form 8-K filings dated January 24, 1997 and
December 31, 1996 for GRIP related to the announcement of the Merger and of
the establishment of its manufacturing agreement with Acushnet Rubber
Company;
vi) reviewed certain non-public operating and financial information,
including projections relating to GRIP's business prepared by management of
GRIP;
vii) met with certain members of GRIP's management to discuss its
operations, financial statements, and future prospects;
viii) reviewed audited financial statements for FMP for the twelve
months ended May 31, 1996 and for the nine months ended February 28, 1997
and for the twelve months ended May 31, 1997 prepared by Arthur Andersen,
L.L.P.;
ix) reviewed certain non-public operating and financial information,
including internal management reports, and projections, relating to FMP's
business by management of FMP;
<PAGE> 175
x) reviewed fixed asset appraisal reports prepared by Arthur Andersen,
L.L.P. (dated March 25, 1996) and Norm Levy Associates, Inc. (dated April
8, 1996);
xi) met with certain members of FMP's management to discuss its
operations, financial statements, and future prospects;
xii) reviewed publicly available financial data and stock market
performance data of other public golf equipment manufacturers which we
deemed comparable to GRIP and FMP;
xiii) reviewed the terms of selected recent acquisitions of companies
which we deemed generally comparable to FMP;
xiv) reviewed the historical stock prices and reported traded volumes
of GRIP's common shares; and
xv) conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In arriving at our opinion, we have considered such factors as we have
deemed relevant including, but not limited to: (i) the relative contribution of
GRIP and FMP to the financial performance of the combined entity on a pro forma
basis, (ii) the market value of publicly held companies we deemed comparable to
GRIP and FMP relative to sales, Earnings Before Interest and Taxes, and net
income, (iii) the transaction values on business combinations which we believe
comparable to GRIP and FMP relative to sales, Earnings Before Interest and
Taxes, and net income, (iv) GRIP's recent financial performance and its impact
on shareholder value, (v) the pro forma effects on historical earnings of GRIP
from the Merger, (vi) the historical market prices and trading volume of the
common stock of GRIP, and (vii) other items we deemed to be relevant.
During our review, we relied upon and assumed, without independent
verification, the accuracy, completeness and fairness of the financial and other
information provided, and have further relied upon the assurances of management
that they are unaware of any facts that would make the information provided to
us to be incomplete or misleading for the purposes of this opinion. Although our
opinion does not encompass forward looking valuation techniques such as
discounted cash flow analysis, we have assumed that the financial projections
which we reviewed to have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of each company. Our opinion is necessarily based on the economic, market, and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In arriving at its opinion, we have not performed any
independent appraisal of the assets of GRIP or FMP. We disclaim any undertaking
or obligation to advise any person of any change in any fact or matter affecting
our opinion which may come or be brought to our attention after the date of this
opinion.
We have acted as financial advisor to the Board of Directors of GRIP in
connection with this opinion and will receive a fee for our services. We are
also serving as financial advisor to GRIP in connection with the Merger and will
receive a success fee upon its completion. In addition to the cash portion of
such fee, we will receive 100,000 warrants (prior to the effects of the Exchange
Rate) to purchase common stock in GRIP at a price of $0.01 per share. We have
also been granted 30,000 options in lieu of monthly cash retainer payments in
conjunction with our past role as financial advisor to GRIP. The options were
granted on May 14, 1996 at a strike price of $6.50 versus a stock price of $4.13
per share on that date. Of the 30,000 options granted, 3,750 options vested upon
execution of the Initial Engagement Letter on May 14, 1996, with the remaining
26,250 options vesting equally over seven quarters beginning on July 1, 1996 and
ending on January 1, 1998.
We are aware that FMP has agreed to advance to GRIP $85,000 to cover
general transaction costs. GRIP shall be obliged to repay FMP in the event that
the Merger does not occur through no fault of FMP.
It is understood that this opinion will be included in its entirety in any
proxy statement or other document distributed to shareholders of the Company in
connection with the Merger and this constitutes our express written approval for
that purpose. However, no summary of or excerpt from this opinion may be used,
and no published public reference (other than as provided in the preceding
sentence) to this opinion letter may be made except with our prior express
written approval, which shall not be unreasonably withheld.
<PAGE> 176
This opinion does not constitute a recommendation to any shareholder of
GRIP as to how such shareholder should vote, or as to any other actions which
such shareholder should take in conjunction with the Merger. This opinion
relates solely to the question of fairness to the GRIP shareholders, from a
financial point of view, of the Merger as currently proposed. Further, we
express no opinion herein as to the structure, terms or effect of any other
aspect of the Merger, including, without limitation, any effects resulting from
the application or any bankruptcy, fraudulent conveyance or other federal or
state insolvency law or of any pending or threatened litigation affecting GRIP
or FMP.
Based on the foregoing, we are of the opinion that the Merger which will
result in FMP shareholders and option and warrant holders owning 70% of the
total of the common shares outstanding and options and warrants granted in the
Surviving Corporation is fair, from a financial point of view, to the
shareholders of GRIP as of the date hereof.
Very truly yours,
EVEREN Securities, Inc.
By: /s/ MAURY J. BELL
------------------------------------
Maury J. Bell
Managing Director
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<PAGE> 178
ANNEX III
ROYAL GRIP, INC.
1993 STOCK OPTION PLAN
(AS AMENDED THROUGH APRIL 22, 1997)
------------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of responsibility
within the Company, to provide additional incentive to employees, consultants
and advisors of the Company, and to promote the success of the Company's
business through the grant of options to purchase shares of the Company's Common
Stock.
Options granted hereunder may be either Incentive Stock Options or
Non-Statutory Stock Options, at the discretion of the Board; provided, however,
that no Incentive Stock Option shall be granted hereunder to any person who, at
the time of grant, is not an Employee. The type of options granted shall be
reflected in a Stock Option Agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company or the
Committee, if one has been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Articles of Incorporation, as amended.
(d) "Company" shall mean ROYAL GRIP, INC., a Nevada corporation, and
shall include any parent or subsidiary corporation of the Company as
defined in Sections 424(e) and (f), respectively, of the Code, and any
successors to the business of Royal Grip, Inc., a Nevada corporation.
(e) "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(g) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean, with respect to the date a given
Option is granted or exercised, the value of the Common Stock determined by
the Board in such manner as it may deem equitable for Plan purposes but, in
the case of an Incentive Stock Option, no less than is required by
applicable laws or regulations; provided, however, that where there is a
public market for the Common Stock, the Fair Market Value per Share shall
be the mean of the bid and asked prices of the Common Stock on the date of
grant, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers
Automated Quotation System) or, in the event the Common Stock is listed on
the New York Stock Exchange, the American Stock Exchange or the
NASDAQ/National Market System, the Fair Market Value per Share shall be the
closing price on such exchange on the date of grant of the Option, as
reported in the Wall Street Journal.
(j) "Incentive Stock Option" shall mean an Option which is intended
to qualify as an incentive stock option within the meaning of Section 422
of the Code.
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(k) "Option" shall mean a stock option granted under the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean a Participant who has been granted one or
more Options.
(n) "Nonstatutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
(o) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Participant" shall mean any Employee, advisor or consultant that
is selected to participate in the Plan.
(q) "Plan" shall mean this Stock Option Plan as amended from time to
time in accordance with the terms hereof.
(r) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(s) "Stock Option Agreement" shall mean the written agreement between
the Company and the Optionee relating to the grant of an Option.
(t) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(u) "Tax Date" shall mean the date an Optionee is required to pay the
Company an amount with respect to tax withholding obligations in connection
with the exercise of an option.
3. COMMON STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
11 of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is Five Hundred Fifty Thousand (550,000) Shares of Common
Stock. The Shares may be authorized, but unissued, or previously issued Shares
acquired by the Company and held in treasury.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares covered by such Option
shall, unless the Plan shall have been terminated, be available for future
grants of Options.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure.
(i) The Plan shall be administered by the Board or a Committee
appointed the Board to administer the Plan at any time or from time to
time. If the Company has a class of equity securities registered under
Section 12 of the Exchange Act, the Plan shall be administered by the
Board or a Committee of the Board in accordance with Rule 16b-3 under
the Exchange Act. With respect to persons subject to Section 16 of the
Exchange Act, from and after such date as any two or more of the
Company's directors become "disinterested directors" within the meaning
of Rule 16b-3, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Plan administrators fails to so comply, such action or provision shall
be deemed null and void, to the extent permitted by law and deemed
advisable by the Plan administrators.
(ii) Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause), appoint new members in
substitution therefor, and fill vacancies however caused; provided,
however, that, at no time when the Company has "disinterested directors"
as specified in said Rule 16b-3 available to serve as members of the
Committee may any person serve on the Committee if the Company has a
class of equity securities registered under Section 12 of the Exchange
Act and that person's membership would cause the Committee not to
satisfy the "disinterested administration" requirements of Rule 16b-3.
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<PAGE> 180
(b) Powers Of The Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Options to
Participant and to determine the number of shares subject to an Option,
subject to Section 3 hereof; (ii) to determine, upon review of relevant
information and in accordance with Section 2 of the Plan, the Fair Market
Value of the Common Stock; (iii) to determine the exercise price per Share
of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Participant
to whom, and the time or times at which, Options shall be granted and the
number of Shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating
to the Plan; (vii) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the Optionee
thereof, modify or amend each Option; (viii) to accelerate or defer (with
the consent of the Optionee) the exercise date of any Option; (ix) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Board; (x) to accept or reject the election made by an Optionee pursuant to
Section 17 of the Plan; and (xi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect Of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Consistent with the Plan's purposes, Options may be granted only
to a Participant. Subject to the terms of the Plan, a Participant who has
been granted an Option may, if the Participant is otherwise eligible, be
granted an additional Option or Options. Incentive Stock Options may be
granted only to Employees who meet the requirements applicable under
Section 422 of the Code. No Incentive Stock Options shall be granted to
consultants or advisors of the Company.
(b) With respect to Incentive Stock Options, the aggregate Fair Market
Value (determined at the time the Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Employee during any calendar year (under all
employee benefit plans of the Company) shall not exceed One Hundred
Thousand Dollars ($100,000).
6. STOCKHOLDER APPROVAL AND EFFECTIVE DATES. The Plan became effective
upon approval by the stockholders of the Company on August 9, 1993. The Board of
Directors approved the Plan on July 14, 1993. No Option may be granted under the
Plan after December 31, 2003; provided, however, that the Plan and all
outstanding Options shall remain in effect until such Options have expired or
until such Options are canceled.
7. TERM OF OPTION. The term of each Option shall be determined by the
Board. Unless otherwise provided in the Stock Option Agreement, the term of each
Option shall be six (6) years from the date of grant thereof. In no case shall
the term of any Option exceed ten (10) years from the date of grant thereof.
Notwithstanding the above, in the case of an Incentive Stock Option granted to
an Employee who, at the time the Incentive Stock Option is granted, owns ten
percent (10%) or more of the Common Stock as such amount is calculated under
Section 422(b)(6) of the Code ("Ten Percent Stockholder"), the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.
8. EXERCISE PRICE AND PAYMENT.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the Board,
but in the case of an Incentive Stock Option shall be no less than one
hundred percent (100%) of the Fair Market Value per Share on the date of
grant, and in the case of a Nonstatutory Stock Option shall be no less than
seventy-five percent (75%) of the Fair Market Value per Share on the date
of grant. Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to an Employee who, at the time of the grant of such
Incentive Stock Option, is a Ten Percent Stockholder, the per Share
exercise price shall be no less than one hundred ten percent (110%) of the
Fair Market Value per Share on the date of grant.
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(b) Payment. The price of an exercised Option and any taxes
attributable to the delivery of Common Stock under the Plan, or portion
thereof, shall be paid:
(i) In United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
(ii) At the discretion of the Board, through the delivery of shares
of Common Stock with an aggregate Fair Market Value equal to the option
price and withholding taxes, if any;
(iii) At the election of the Optionee pursuant to Section 17 and
with the consent of the Board pursuant to Section 4(b)(x), by the
Company's retention of such number of shares of Common Stock subject to
the exercised Option which have an aggregate Fair Market Value on the
exercise date equal to the Company's aggregate federal, state, local and
foreign tax withholding and FICA and FUTA obligations with respect to
income generated by the exercise of the Option by Optionee;
(iv) By a combination of (i), (ii) and (iii) above; or
(v) In the manner provided in subsection (c) below.
The Board shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations
and prohibitions on the use of Common Stock to exercise an Option as it
deems appropriate.
(c) Financial Assistance To Optionees. The Board may assist Optionees
in paying the exercise price of Options granted under this Plan in the
following manner:
(i) The extension of a loan to the Optionee by the Company;
(ii) Payment by the Optionee of the exercise price in installments;
or
(iii) A guaranty by the Company of a loan obtained by the Optionee
from a third party.
The terms of any loans, installment payments or guarantees, including
the interest rate and terms of repayment, and collateral requirements, if
any, shall be determined by the Board, in its sole discretion. Subject to
applicable margin requirements, any loans, installment payments or
guarantees authorized by the Board pursuant to the Plan may be granted
without security, but the maximum credit available shall not exceed the
exercise price for the Shares for which the Option is to be exercised, plus
any federal and state income tax liability incurred in connection with the
exercise of the Option.
9. EXERCISE OF OPTION.
(a) Procedure For Exercise; Rights As A Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. Unless otherwise determined by the Board at
the time of grant, an Option may be exercised in whole or in part. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) or
8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
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Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination Of Status As An Employee, Advisor or
Consultant. Unless otherwise provided in the Stock Option Agreement (which
may reduce but not increase the time period described below), if a
Participant's employment or engagement by the Company is terminated, except
if such termination occurs due to death or disability, then the Optionee
may, but only within thirty (30) days after the date he or she ceases to be
an Employee, advisor or consultant of the Company, exercise his or her
Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee
does not exercise such Option (which the Optionee was entitled to exercise)
within the time specified herein, the Option shall terminate.
(c) Disability. Unless otherwise provided in the Stock Option
Agreement (which may reduce but not increase the time period described
below), notwithstanding the provisions of Section 9(b) above, in the event
a Participant is unable to continue as an Employee, advisor or consultant
(as to advisors or consultant that are individuals) as a result of the
Participant's permanent and total disability (as defined in Section
22(e)(3) of the Code), the Participant may, but only within twelve (12)
months from the date of termination, exercise his Option to the extent he
was entitled to exercise it at the date of such termination. To the extent
that he was not entitled to exercise the Option at the date of termination,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) Death. Unless otherwise provided in the Stock Option Agreement
(which may reduce but not increase the time period described below), if a
Participant dies during the term of the Option and is at the time of his
death an Employee, advisor or consultant (as to advisors or consultants
that are individuals), the Option may be exercised at any time within
twelve (12) months following the date of death by the decedent's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the decedent was entitled to
exercise the Option on the date of death. To the extent that decedent was
not entitled to exercise the Option on the date of death, or if the
decedent's estate, or person who acquired the right to exercise the Option
by bequest or inheritance, does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution, or pursuant to a "qualified
domestic relations order" under the Code and ERISA, and may be exercised, during
the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into Shares of stock of any class,
shall affect, and no adjustment by reason thereof, shall be made with respect to
the number or price of shares of Common Stock subject to an Option. The Common
Stock subject to the Plan as set forth in Section 3 has previously been adjusted
to
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<PAGE> 183
reflect a 124.369 for I conversion in connection with the Company's merger with
Royal Grip, Inc., a Nevada corporation.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of sixty (60) days from the date of such notice
(but not later than the expiration of the term of the Option under the Option
Agreement), and the Option will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Participant to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment And Termination. The Board may amend or terminate the
Plan at any time or from time to time in such respects as the Board may
deem advisable; provided, however, that the following revisions or
amendments shall require approval of the stockholders of the Company, to
the extent required by law, rule or regulation:
(i) Any material increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 11 of
the Plan;
(ii) Any material change in the designation of the persons eligible
to be granted Options; or
(iii) Any material increase in the benefits accruing to
participants under the Plan.
Notwithstanding the foregoing, stockholder approval under this Section
13 shall only be required at such time as (A) any applicable rules of the
stock exchange or automated stock quotation system on which shares of the
Common Stock are listed shall require stockholder approval of a plan or
arrangement pursuant to which Common Stock may be acquired by officers or
directors of the Company, (B) Rule 16b-3 or its successors under the
Exchange Act shall require the approval of stockholders of a company of any
material amendment to any employee benefit plan of such company, and/or (C)
Section 422 of the Code shall require stockholder approval of an amendment
to the Plan.
(b) Effect Of Amendment Or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
In the case of an Incentive Stock Option, any Optionee who disposes of
Shares of Common Stock acquired upon the exercise of an Option by sale or
exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
15. RESERVATION OF SHARES. The Company will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by Stock Option
Agreements in such form as the Board shall approve.
17. WITHHOLDING TAXES. Subject to Section 4(b)(x) of the Plan and prior to
the Tax Date, the Optionee may make an irrevocable election to have the Company
withhold from those Shares that would otherwise be received upon the exercise of
any Option, a number of Shares having a Fair Market Value equal to the minimum
amount necessary to satisfy the Company's federal, state, local and foreign tax
withholding obligations and FICA and FUTA obligations with respect to the
exercise of such Option by the Optionee.
An Optionee who is also an officer or a director of the Company must make
the above described election:
(a) at least six months after the date of grant of the Option (except
in the event of death or disability); and
(b) either:
(i) six months prior to the Tax Date, or
(ii) prior to the Tax Date and during the period beginning on the
third business day following the date the Company releases its quarterly
or annual statement of sales and earnings and ending on the twelfth
business day following such date.
18. MISCELLANEOUS PROVISIONS.
(a) Plan Expense. Any expenses of administering this Plan shall be
borne by the Company.
(b) Use Of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate
purposes of the Company.
(c) Construction Of Plan. The place of administration of the Plan
shall be in the State of Nevada, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in
accordance with the laws of the State of Nevada without regard to conflict
of law principles and, where applicable, in accordance with the Code.
(d) Taxes. The Company shall be entitled if necessary or desirable to
pay or withhold the amount of any tax attributable to the delivery of
Common Stock under the Plan from other amounts payable to the Optionee
after giving the person entitled to receive such Common Stock notice as far
in advance as practical, and the Company may defer making delivery of such
Common Stock if any such tax may be pending unless and until indemnified to
its satisfaction.
A-7
<PAGE> 185
(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of
the Board shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any
action taken or failure to act under or in connection with the Plan or any
Option, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a finding of bad
faith; provided that upon the institution of any such action, suit or
proceeding a Board member shall, in writing, give the Company notice
thereof and an opportunity, at its own expense, to handle and defend the
same before such Board member undertakes to handle and defend it on her or
his own behalf.
(f) Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall
include the plural and vice versa, as appropriate.
(g) No Employment Agreement. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with his right or the Company's
right to terminate his employment at any time.
A-8
<PAGE> 186
ANNEX IV
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FM PRECISION GOLF CORP.
FM Precision Golf Corp., a corporation organized and existing under the
laws of the State of Delaware, does hereby certify as follows:
1. The name of the Corporation, as originally incorporated, is FM
Precision Golf Corp. Upon filing of this Amended and Restated Certificate of
Incorporation, the name of the Corporation will be Royal Precision, Inc.
2. The date of filing its original Certificate of Incorporation with the
Secretary of State was May 3, 1996.
3. This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the Certificate of Incorporation, as heretofore
amended, and was duly adopted in accordance with the provisions of Section 245
of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation shall
read in its entirety as follows:
FIRST: The name of the Corporation is Royal Precision, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
Section 1. Authorized Shares. The total number of shares of stock which
the Corporation shall have the authority to issue is 55,000,000 of which
5,000,000 are shares of Preferred Stock with a par value of one mil ($0.001) per
share ("Preferred Stock"), and 50,000,000 are shares of Common Stock with a par
value of one mil ($0.001) per share ("Common Stock").
Section 2. Preferred Stock. The Board of Directors is expressly
authorized to adopt, from time to time, a resolution or resolutions providing
for the issuance of Preferred Stock in one or more series, to fix the number of
shares in each such series and to fix the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of each such series.
Section 3. Common Stock. Holders of the issued and outstanding shares of
Common Stock shall be entitled to receive ratably, in proportion to the number
of shares of Common Stock held by them, (a) such dividends as may be declared by
the Board of Directors, from time to time, out of the assets or funds of the
Corporation legally available for the payment of dividends, and (b) upon the
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation remaining after the payment of creditors and the holders of shares
of any class or series of Preferred Stock to the extent that the then existing
terms of such class or series grant them priority over the holders of shares of
Common Stock. Neither the merger or consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor the sale, lease, exchange or other
disposition (for cash, shares of stock, securities or other consideration) of
all or substantially all of the assets of the Corporation, shall be deemed to be
a dissolution, liquidation, or winding up, voluntary or involuntary, of the
Corporation.
<PAGE> 187
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the holders of Common Stock.
FIFTH:
Section 1. Classified Directors. (a) The Board of Directors shall be
divided into three classes; the term of office of those of the first class to
expire at the annual meeting next ensuing; of the second class one year
thereafter; of the third class two years thereafter; and at each annual election
held after the initial classification of the Board of Directors and election of
directors to such classes, directors shall be chosen for a full term of three
years, as the case may be, to succeed those whose terms expire. The total number
of directors constituting the full Board of Directors and the number of
directors in each class shall be fixed by, or in the manner provided in the
by-laws, but the total number of directors shall not exceed seventeen (17) nor
shall the number of directors in any class exceed six (6). Subject to the
foregoing, the classes of directors need not have the same number of members. No
reduction in the total number of directors or in the number of directors in any
class shall be effective to remove any director or to reduce the term of any
director. If the Board of Directors increases the number of directors in a
class, it may fill the vacancy created thereby for the full remaining term of a
director in that class even though such term may extend beyond the next annual
election. The Board of Directors may fill any vacancy occurring for any other
reason for the full remaining term of the director whose death, resignation or
removal caused the vacancy, even though such term may extend beyond the next
annual election.
(b) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
express terms of such class or series, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
(c) Any director or the entire Board of Directors may be removed by the
holders of a majority of the shares then entitled to vote at an election of
directors only for cause. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor is elected and
qualified, or until his earlier resignation or removal from office for cause.
Section 2. Ballots. Elections of directors at a special or annual meeting
of stockholders need not be by written ballot unless the by-laws of the
Corporation shall provide otherwise.
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
SEVENTH: Action shall be taken by the stockholders of the Corporation only
at an annual or special meetings of stockholders, and stockholders may not act
by written consent. Special meetings of the Corporation may be called only as
provided in the by-laws.
EIGHTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of any
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derives an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval by the stockholders of this Article
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. The foregoing
limitation on liability shall not apply to acts or omissions occurring prior to
the effective date of this Article.
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<PAGE> 188
NINTH:
Section 1. Indemnification. The Corporation shall indemnify any director
or officer who was or is a party or is threatened to be made a party to:
(a) Direct Actions. Any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; the termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful; or
(b) Derivative Actions. Any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Corporation may indemnify any of its other employees or agents to the
same extent and subject to the same procedures and limitations as are set forth
in this Section 1 and Section 3 below as it is required to indemnify its
directors and officers by this Section 1.
Section 2. Successful Defense. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. Standard of Conduct. Any indemnification under Section 1 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in said Section 1 of
this Article. Such determination shall be made (1) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 4. Payment of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
NINTH.
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<PAGE> 189
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 5. Not Exclusive. The indemnification and advancement of expenses
provided by, or granted pursuant to, the provisions of this Article NINTH shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the certificate
of incorporation, or any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 6. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
Section 7. Definitions.
(a) The Corporation. For purposes of this Article NINTH, references to
"the Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this NINTH with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(b) Other Enterprises. For purposes of this Article NINTH, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article NINTH.
Section 8. Contractual Nature. This Article NINTH shall be deemed to be a
contract between the Corporation and each director and officer who serves as
such at any time while this Article NINTH is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon such state of facts. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article NINTH shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
TENTH: Effective upon the filing of this Amended and Restated Certificate
of Incorporation, each share of the Common Stock, par value $.01 per share, of
the Corporation theretofore issued and outstanding ("Old Common Stock") shall be
split into 10 shares of the Common Stock described in Section 3 of Article
FOURTH above ("New Common Stock") and each holder of a certificate representing
Old Common Stock (an "Old Certificate") shall be entitled to receive a
certificate representing the number of shares of New Common Stock into which the
shares of Old Common Stock represented by the Older Certificate were split upon
surrender of such Old Certificate to the Corporation.
4
<PAGE> 190
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed by the duly authorized officer of the Corporation named below on
this day of , 1997.
FM PRECISION GOLF CORP.
By:
------------------------------------
Print Name:
-------------------------------
Print Title:
--------------------------------
5
<PAGE> 191
UNTIL SEPTEMBER 23, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN
FMP COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 192
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE PROXIES
ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS THEREOF.
DATED: , 1997
-----------
----------------------------------
(Sign Here)
----------------------------------
(Sign Here, if Held Jointly)
Please sign EXACTLY as your name
appears hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title. If more than one
trustee, all should sign. All joint
owners should sign. If a
corporation, sign in full corporate
name by president or other
authorized officer. If a
partnership, sign in partnership
name by authorized person.
[ ] PLEASE CHECK IF YOU PLAN TO ATTEND THE SHAREHOLDER MEETING.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
- --------------------------------------------------------------------------------
ROYAL GRIP, INC.
Special Meeting of Shareholders August 29, 1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Danny Edwards and Robert G.J. Burg, II,
jointly and severally, proxies with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock of Royal Grip, Inc. (the "Company") held of record by the
undersigned on August 14, 1997, at the Special Meeting of Shareholders to be
held on August 29, 1997, and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2 BELOW
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
---------------------------------------------------
In their discretion, the proxies are authorized to vote upon such
procedural matters as may properly come before the special meeting or any
adjournments thereof.
PLEASE SIGN AND DATE ON THE REVERSE SIDE
