* Indicated that confidential portion
has been omitted and filed separately
with the Securities and Exchange Commission
Exhibit 10.17
AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
This AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT (the "Amendment")
is made as of this 4th day of April, 1997 by and between ROYAL GRIP, INC., a
Nevada corporation ("Purchaser"), and ACUSHNET RUBBER COMPANY, INC., a
Massachusetts corporation ("Vendor").
RECITALS
--------
A. Purchaser and Vendor are parties to that certain Manufacturing and Supply
Agreement dated as of December 21, 1996 (the "Agreement") whereby, among other
things, Vendor became the exclusive supplier of non-cord grips (the "Grips") to
Purchaser.
B. Vendor has experienced delays in the production of Grips and, as a result
thereof, has failed to meet production requirements under the Agreement.
C. The parties have agreed to amend and to waive certain provisions of the
Agreement and are entering into this Amendment in furtherance of such
agreements.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereby agree as follows:
1. Amendments. The parties to the Agreement hereby agree to amend and
to waive certain provisions of the Agreement as follows:
(i) Section 1.1(b) is hereby amended by deleting such
subsection in its entirety and by inserting in lieu thereof the
following: "Subject to the terms hereof, Purchaser hereby agrees to
purchase from Vendor 100% of its requirements of Grips during the term
of this Agreement; provided, however, that if and to the extent that
Vendor fails for any reason to supply (or fails to notify Purchaser in
accordance herewith of its ability to supply) a number of Grips
sufficient to meet Purchaser's requirements at any time or from time to
time during the term of this Agreement, Purchaser may (whether or not
such notice is provided), at its option and discretion and without
prejudice to any of its rights or remedies arising hereunder or under
applicable law, purchase from one or more third party suppliers the
Grips not supplied by Vendor in accordance herewith that are necessary
to fulfill Purchaser's requirements (the "Additional Grips"). Vendor
further agrees that in the event Purchaser purchases Additional Grips
from other third party suppliers, Vendor shall promptly notify
Purchaser from time to time of its ability to manufacture and supply
all or any portion of such Additional Grips (on an ongoing basis), and
Purchaser shall use reasonable efforts to transition the manufacture
and supply of such Additional Grips (or portion thereof) back to Vendor
as soon as is reasonably practicable, subject to any supply agreements
entered into by Purchaser for such Additional Grips. Nothing contained
herein shall relieve Vendor from either the minimum production
requirements or the penalties for failing to meet such requirements set
forth in Section 2.1(b) or elsewhere herein."
* Confidential portion has been omitted
and filed separately with the Commission
(ii) Section 2.1 is hereby amended by deleting such section in
its entirety and by inserting in lieu thereof the following:
"Purchase Requirements.
-----------------------
(a) Upon receipt of Purchaser's firm orders therefor,
Vendor hereby agrees to manufacture and supply to
Purchaser Grips during each calendar month beginning
April 1, 1997 and ending December 31, 1997 (the
"Transition Term") at a rate of up to [ * ] Grips per
month. For purposes of calculating Vendor's
production requirements pursuant to this Section 2.1,
the number of Grips manufactured and supplied by
Vendor shall constitute the number of Grips actually
manufactured and supplied by Vendor and the number of
Grips not manufactured by Vendor but with respect to
which Vendor completes secondary buffing, trimming or
painting, in each case pursuant to Purchaser's orders
during each month of the Transition Term, and shall
not include any Grips manufactured by Vendor or
otherwise in Vendor's inventory prior to April 1,
1997, or during any period prior to the commencement
of any calendar month during the Transition Term.
(b) In the event Purchaser orders from Vendor a
number of Grips equal to or less than [ * ] Grips
during any calendar month during the Transition Term,
and Vendor fails for any reason to manufacture and
supply the number of Grips ordered by Purchaser (up
to [ * ] Grips) during any month of such Transition
Term, Purchaser shall be entitled to, and Vendor
shall provide Purchaser with, a credit (each a
"Purchase Credit" and collectively, the "Purchase
Credits"), to be applied against invoices for
purchases of Grips by Purchaser during the term of
this Agreement. Each such Purchase Credit shall be
equal to the product of (i) the number of Grips
ordered by Purchaser for delivery to its customers or
distributors each calendar month (up to [ * ] Grips),
minus the number of Grips manufactured and supplied
by Vendor in accordance with this Agreement during
each such month, (ii) multiplied by $[ * ]. In the
event that this Agreement is terminated or expires
prior to the time that Purchaser has used all of its
accumulated Purchase Credits and other credits
pursuant to Section 3.3 (d) hereof, Vendor shall pay
to Purchaser, in addition to any other amounts owing
hereunder, an amount in cash equal to all unused
Purchase Credits existing at the time of such
termination or expiration, such payment to be made
within
2
* Confidential portion has been omitted
and filed separately with the Commission
three (3) days after the date of such termination or
expiration.
(c) In the event Purchaser is permitted to order from
Vendor (and orders from Vendor and sells) more than [
* ] Grips during any calendar month during the
Transition Term, and Vendor manufactures and supplies
in such calendar month a number of Grips in excess of
[ * ] Grips ordered and sold by Purchaser (such
excess amount over [ * ] Grips being referred to
herein as the "Excess Grips"), Vendor shall be
entitled, in addition to the base price for such
Grips in accordance with Section 3.1 hereof, to a sum
equal to (i) $[ * ] per Grip, multiplied by (ii) the
number of Excess Grips; provided, however, that the
maximum amount payable to Vendor pursuant to this
Section 2.1(c) shall in no event exceed an aggregate
of $[ * ] plus the amount of any additional Purchase
Credits previously earned by Purchaser. If on the due
date of any payment owing to Vendor by Purchaser
under this Section 2.1(c) Purchaser has unused
Purchase Credits or any unused portion of its Initial
Credit under Section 3.3(d) hereof, such payment
obligations shall be satisfied by appropriate offset
or reduction of Purchaser's unused credits. In the
event Purchaser has no accumulated unused credits at
the time such payment obligation is due hereunder,
and subject to the remaining provisions hereof,
Purchaser shall be obligated to pay such amounts to
Vendor in accordance with the then existing payment
terms between Purchaser and Vendor.
(d) Subject to Section 7.3(d) hereof, Purchaser
hereby agrees to purchase Grips from Vendor in each
calendar year of this agreement commencing January 1,
1999 at the annualized rate of [ * ] Grips per year."
(iii) Section 2.2 is hereby amended by adding to such section a new
subsection (e) which provides as follows: "(e) Purchaser agrees that no
later than June 30 of each year (commencing June 30, 1997) during the
term of this Agreement it shall provide Vendor with a forecast of its
annual purchase requirements of Grips for the following year, such
forecast to be provided by part number. Such forecasts shall not be
considered binding commitments on the part of Purchaser to order the
quantity or types of Grips specified therein. Vendor hereby agrees that
it will be obligated to produce the number of Grips identified in such
forecast to the extent the number of Grips identified therein does not
constitute an increase of more than ten percent (10%) of the number of
Grips ordered by Purchaser during the immediately preceding calendar
year (the "Maximum Annual Requirement"), and agrees to notify Purchaser
in writing within thirty (30) days after receipt of Purchaser's annual
forecast of its ability or inability to produce the Maximum
3
* Confidential portion has been omitted
and filed separately with the Commission
Annual Requirement of Grips in accordance herewith. Vendor and
Purchaser hereby further agree that Vendor shall not be obligated to
produce more than ten percent (10%) of the Maximum Annual Requirement
of Grips during any one calendar month of the applicable calendar year.
For 1998, Vendor shall be obligated to produce and supply a minimum of
[ * ] Grips, if ordered by Purchaser. By way of example, an annual
forecast for Purchaser's Grip requirements in calendar year 1999 shall
be provided to Vendor on or before June 30, 1998. If Purchaser's total
Grip requirement for 1998 was [ * ] Grips, Vendor will be obligated to
supply the number of Grips specified in Purchaser's forecast for 1999
up to [ * ] Grips, and no more than [ * ] Grips in any one month during
1999. In the event Vendor fails for any reason to supply the number of
Grips required hereunder, Purchaser shall be entitled to the amounts
set forth in Section 7.2 hereof. The forecasts set forth in Sections
2.2(a) and 2.2(b) of this Agreement shall be subject in all respects to
the production and output requirements set forth in Sections 2.1 and
this 2.2(e)."
(iv) Section 3.1 is hereby amended by deleting the first sentence and
by inserting in lieu thereof the following: "Purchaser and Vendor
hereby agree that the purchase price per Grip ordered by Purchaser
hereunder shall be as set forth on a pricing schedule agreed to by
Purchaser and Vendor, which pricing schedule shall reference this
Agreement and shall be binding on the parties in accordance with its
terms."
(v) Section 3.2(c) is hereby amended by deleting such subsection in its
entirety and by inserting in lieu thereof the following: "Purchaser
shall use its reasonable best efforts to cause the shares underlying
the options to be registered for resale under the Securities Act of
1933, as amended, as promptly as is reasonably practicable after the
receipt of written demand therefor by Vendor, but in no event on or
before a date that is one hundred and eighty (180) days after the
consummation of Purchaser's proposed transaction with FM Precision Golf
Corporation. Vendor shall be entitled to cause Purchaser to cancel
166,667 (but not more or less than 166,667) of the 250,000 options
granted pursuant to Section 3.2(b) above upon sixty (60) days' prior
written notice to Purchaser; provided, however, that Vendor shall not
be entitled to cancel such options if (i) Vendor is then in breach (or
but for the passage of time would be in breach) of this Agreement, or
(ii) if Purchaser's accountants determine that the cancellation of such
options will not result in a positive impact on Purchaser's earnings.
Upon proper cancellation of such options, Vendor shall be entitled,
subject to the limitations set forth below, to an offset or reduction
of the then unused portion of the Initial Credit provided to Purchaser
under Section 3.3(d) hereof, if any. In no event shall Vendor be
entitled to payment in cash or anything else of value other than such
credit offset . The amount of such offset shall be equal to the value
of such options on the date notice of cancellation is provided, as
valued by Purchaser's accountants in accordance with the Black-Scholes
option pricing model, but in no event shall the value of such options
exceed in the aggregate the lesser of (y) $239,333 or (z) the amount of
any then unused portion of Purchaser's Initial Credit, regardless of
the value of the options determined by such accountants. "
4
(vi) Section 3.3 is hereby amended by adding to such section a new
subsection (d) which provides as follows: "(d) Purchaser shall be
entitled to, and Vendor hereby provides to Purchaser, a purchase credit
in the amount of $400,000 (the "Initial Credit"), such Initial Credit
to be in addition to any and all Purchase Credits owed to Purchaser
from time to time under Section 2.1(b) hereof. The Initial Credit under
this subsection (d) and all Purchase Credits under Section 2.1(b) shall
be applied by Purchaser against, and shall constitute timely payment
of, any unpaid invoices of Vendor for Grips existing as of the date of
this Agreement or thereafter (up to the amount of all such credits)."
(vii) Section 7.2 is hereby amended by adding a new sentence
immediately after the second sentence thereof which provides as
follows: "The reimbursement amounts set forth in the immediately
preceding sentence shall not apply to any failure of Vendor to supply
the quantity of Grips specified in Section 2.1(b) hereof during the
Transition Term, which failure shall be subject to the reimbursement
provisions set forth in Section 2.1(b)."
(viii) Section 7.3(b) is hereby amended by deleting the first sentence
of such subsection and by inserting in lieu thereof the following:
"Purchaser shall have a grace period of ten (10) days with respect to
the provision of forecasts and firm orders required pursuant to Section
2.2(a) of the Agreement, and shall have a grace period of thirty (30)
days with respect to the provision of non-binding annual forecasts
required pursuant to Section 2.2(e) of the Agreement."
(ix) The provisions of Section 7.3(d) of the Agreement are hereby
waived with respect to the purchase of Grips by Purchaser during
calendar years 1997 and 1998.
(x) Section 7.7 is hereby re-designated as Section 7.8 and there shall
be added a new Section 7.7 to provide as follows:
"7.7 Voluntary Termination by Vendor.
--------------------------------
(a) Vendor shall have the right to terminate this Agreement
with Purchaser at any time on or after June 30, 1998 by giving
Purchaser not less than ten (10) months' prior written notice
of termination and by paying to Purchaser in cash a
termination fee which shall be the sum of the following:
(i) The aggregate profit realized or realizable by
Vendor with respect to the exercise and subsequent
sale of 166,667 of the options granted pursuant to
Section 3.2(b) hereof (the "Retained Options"). For
purposes of this subsection (a)(i), the profit
realized or realizable by Vendor with respect to such
Retained Options shall mean (y) with respect to any
shares of Common Stock of Purchaser acquired by
Vendor upon exercise of such Retained Options and
subsequently sold by Vendor, the aggregate sales
price of such Common Stock (less reasonable brokerage
commissions
5
incurred by Vendor pursuant to such sales), less the
aggregate exercise price paid by Vendor upon exercise
of the Retained Options underlying such shares, and
(z) with respect to any shares of Common Stock of
Purchaser acquired by Vendor upon exercise of
Retained Options which have not subsequently been
sold by Vendor (the "Retained Shares"), the closing
price of the Company's Common Stock as provided by
the NASD on the termination date multiplied by the
number of Retained Shares then held by Vendor, less
the exercise price paid by Vendor upon exercise of
the Retained Options underlying such shares, in each
case plus or minus the aggregate Tax Benefit or Tax
Liability (as defined below) to Vendor arising out of
the transactions described herein. For purposes of
this Section 7.7(a)(i), Vendor's Tax Liability shall
be equal to the aggregate amount of any capital gains
or income taxes incurred by it (or its shareholders)
as a result of its sale or other disposition of
shares of Common Stock acquired pursuant to exercise
of the Retained Options, and Vendor's Tax Benefit
shall be equal to the aggregate tax benefit to it (or
its shareholders) arising out of the payment of
profits or other amounts pursuant to this subsection
(a)(i) before giving effect to any other amounts paid
or payable by Vendor as a result of its termination
of this Agreement. In the event Vendor's Tax
Liability exceeds the amount of its Tax Benefits as
provided herein, the difference shall be deducted
from the profits payable hereunder to Purchaser. In
the event Vendor's Tax Benefits exceeds the amount of
its tax Liabilities as provided herein, the
difference shall be payable to Purchaser as
additional profits pursuant to this subsection
(a)(i);
(ii) An amount equal to all shipping and installation
costs of all Grip manufacturing tools, molds and
other equipment incurred in connection with the
transition of production operations, up to $100,000;
and
(iii) An additional $2.5 million.
(b) In addition to payment of the termination fee set forth in
subsection (a) above, Vendor hereby further agrees that, upon
termination or notice of termination, as the case may be, of
this Agreement pursuant to this Section 7.7:
(i) All Retained Options originally granted to Vendor
under Section 3.2(b) that are unexercised on the date
of Vendor's termination notice shall be canceled by
Purchaser and not subject to exercise by any holder
thereof effective immediately on an as of the notice
of termination;
(ii) Vendor shall continue to produce Grips in
accordance with this Agreement, and shall be subject
to the penalties and damages provided under this
Agreement in connection therewith, during the ten
(10) month
6
period following Vendor's notice of termination,
which production and penalty provisions shall survive
notice of termination and termination of this
Agreement. Purchaser agrees that it will use its
reasonable best efforts to begin transition of Grip
production as early as is reasonably practicable
under the circumstances upon termination of the
Agreement;
(iii) Vendor shall provide all Grip compounds to
Purchaser and any new suppliers engaged by Purchaser
at Vendor's cost for a period of two (2) years after
the start-up of production by Purchaser or such new
suppliers. For purposes of this subsection (b)(iii),
Vendor's cost shall mean Vendor's actual and direct
cost of materials, labor and overhead attributable to
the purchase of such compounds;
(iv) Vendor shall sell to Purchaser all Grip
production equipment used or owned by Vendor covered
under the Lease Agreement. The purchase price payable
by Purchaser for such equipment shall be the
outstanding balance of the Lease Agreement. In
addition, Vendor shall, at Purchaser's option and
election, sell to Purchaser any or all additional
Grip production equipment owned by Vendor that is not
subject to the Lease Agreement, which equipment shall
be sold to Purchaser at Vendor's net book value
thereof; and
(v) Vendor shall, immediately upon providing notice
of termination to Purchaser, promptly and fully
assist Purchaser in finding new Grip suppliers and in
the orderly transitioning of Grip production
operations to one or more new suppliers (or to
Purchaser, if Purchaser elects to resume Grip
production operations), which assistance shall
include but not be limited to the provision of all
recipe and mixing instructions to Purchaser and
Purchaser's new suppliers. It is hereby understood
and agreed that Purchaser will use its reasonable
best efforts to transition Grip production operations
to other third party suppliers upon receipt of
Vendor's notice of termination of this Agreement;
provided, however, that Purchaser shall have full
discretion in selecting other third party suppliers
in accordance with Purchaser's then existing quality
and pricing objectives."
(xi) Section 7.8 (formerly Section 7.7) is hereby amended by adding to
the end of such sentence after the term "prior to termination" and
before the period the following: "and during any notice of termination
period."
7
* Confidential portion has been omitted
and filed separately with the Commission
(xii) The parties hereby agree that all purchase orders for Grips in
excess of [ * ] Grips provided by Purchaser prior to the effective date
of this Amendment are hereby canceled, and there shall be effective as
of the date hereof purchase orders for no greater than [ * ] Grips per
month.
(xiii) The parties hereby agree that, for purposes of clause (i) of
Schedule 7.6 to the Agreement, Vendor's up-front costs in establishing
manufacturing operations under the Agreement were $500,000.
2. Effective Date. The agreements of each of the parties set forth
herein shall be effective on and as of March 31, 1997, except that the amendment
adding a new Section 2.1(d) to the Agreement, the amendments to Section 3.2(c)
of the Agreement, and the waivers to Section 7.3(d) of the Agreement shall be
effective on and as of December 21, 1996.
3. No Other Effect. Except as specifically set forth herein, all other
terms, conditions, and provisions of the Agreement shall remain in full force
and effect and no amendment, waiver, release, or consent of or with respect to
any of the matters set forth in such Agreement shall be implied except as
otherwise expressly set forth in this Amendment.
4. Counterparts. This Amendment may be executed by facsimile and in any
number of counterparts, each of which shall be deemed to be an original and all
of which shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized representatives on the day and year first
above written.
"VENDOR" "PURCHASER"
ACUSHNET RUBBER COMPANY, INC. ROYAL GRIP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇ ▇▇▇▇
-------------------------- --------------------------
Its: Executive V.P. C.O.O. Its: President
------------------------- -------------------------
8