<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NO. 333-36179
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRASS EAGLE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 5091 71-0578572
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION NUMBER) IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
1203A NORTH SIXTH STREET
ROGERS, ARKANSAS 72756
(501) 621-4390
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
E. LYNN SCOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BRASS EAGLE INC.
1203A NORTH SIXTH STREET
ROGERS, ARKANSAS 72756
(501) 621-4390
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES OF COMMUNICATION TO:
PAUL B. BENHAM, III ALAN D. ALFORD
FRIDAY, ELDREDGE & CLARK BAKER & HOSTETLER LLP
2000 FIRST COMMERCIAL BUILDING 1900 EAST 9TH STREET, SUITE 3200
400 WEST CAPITOL AVENUE CLEVELAND, OHIO 44114-3485
LITTLE ROCK, ARKANSAS 72201-3493 (216) 621-0200
(501) 376-2011
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 1997
2,275,000 SHARES
[BRASS EAGLE LOGO]
BRASS EAGLE PAINTBALL PRODUCTS
COMMON STOCK
All of the 2,275,000 shares of Common Stock offered hereby are being sold by
Brass Eagle Inc. ("Brass Eagle" or the "Company"). The Company expects that
approximately $12.0 million to $14.0 million of the proceeds from this Offering
(the "Offering"), representing certain intercompany indebtedness owed to, and
divisional equity in the Company held by, Daisy (as defined herein) will be
paid to Daisy. See "Use of Proceeds" on page 16. Prior to the Offering, there
has been no public market for the Common Stock. It is currently anticipated
that the initial public offering price will be between $10.00 and $12.00 per
share. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. Application has
been made for the Common Stock to be approved for quotation on the Nasdaq
National Market under the symbol "XTRM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
THE PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................ $ $ $
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Total(3)............................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses estimated to be $610,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 341,250 additional shares of Common Stock solely to cover over-
allotments, if any. If that option is exercised in full, the Price to the
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ , and $ , respectively. See "Underwriting."
-----------
At the request of the Company, up to 113,750 shares offered in the Offering
have been reserved for sale to employees of the Company and certain members of
their families at the initial public offering price. The shares of Common Stock
are offered by the Underwriters, subject to receipt and acceptance of the
shares by them. The Underwriters reserve the right to reject any order in whole
or in part. It is expected that delivery of the shares of Common Stock will be
made against payment therefor at the offices of McDonald & Company Securities,
Inc. or through the facilities of the Depository Trust Company on or about
November , 1997.
MCDONALD & COMPANY DAIN BOSWORTH
SECURITIES, INC. INCORPORATED
The date of this Prospectus is , 1997.
<PAGE>
[INSERT PHOTOS HERE]
Pictured on the Inside Front Cover:
The innovative Rainmaker (TM) gun, Xtreme Vision (TM) paintball mark, Talon
Player's Kit, assorted paintball guns, Brass Eagle Paintballs, various
accessories, and a complete product assortment displayed in a retail format.
2
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, financial statements and
related notes appearing elsewhere in this Prospectus, including the information
contained under the heading "Risk Factors" beginning on page 8. Unless
otherwise indicated, all share, per share, and financial information set forth
herein: (i) assumes an initial public offering price of $11.00 per share; (ii)
has been adjusted to reflect a 1777.96-for-1 stock split in the form of a stock
dividend which will be effected prior to the Offering; (iii) gives effect to a
corporate reorganization which will take effect concurrently with the Offering;
and (iv) assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Brass Eagle is a worldwide leader in the design, manufacture, marketing, and
distribution of paintball products, including paintball guns, paintballs, and
accessories. The Company believes it is the only manufacturer with a full line
of products that address step-by-step price points for beginner, recreational,
and competition level paintball participants. In addition, Brass Eagle is the
only manufacturer to offer paintball products to consumers through easily
accessible channels such as mass merchandisers and major sporting goods
retailers. As a result of these initiatives, Brass Eagle provides a large
consumer base with high quality paintball products and accessories that
generally sell for substantially less than those of its competitors. These
advances have significantly broadened the paintball industry's consumer base,
increased the overall number of paintball participants, and heightened the
general awareness of and excitement for the sport.
Approximately 80% of the Company's sales are to national and regional mass
merchandisers, such as Kmart, Wal*Mart, and Meijer, and major sporting goods
retailers, such as The Sports Authority, Dick's Sporting Goods, and Jumbo
Sports. Brass Eagle products are currently the only paintball products sold
through Kmart and Wal*Mart, and through most major sporting goods chains. The
Company's products are also sold through sporting goods distributors, specialty
distributors of paintball products, and paintball specialty shops.
The Company's sales have grown rapidly, from $2.6 million in 1994 to $4.3
million in 1995 and to $13.8 million in 1996, a compound annual growth rate of
130.4%. This growth has continued in 1997 with sales of $18.4 million through
August 31, 1997, compared to $7.0 million through August 31, 1996, an increase
for the eight month period of 162.9%. The Company believes its growth has been
the result of increasing market acceptance of paintball and, more specifically,
growing consumer demand through mass merchandisers and major sporting goods
retailers for Brass Eagle products. The Company believes significant
opportunities for additional growth exist worldwide and intends to increase
paintball participation and the Company's sales both nationally and
internationally through an active growth campaign.
The Company has developed the following growth strategies to capitalize on
its strong brand name, successful products, and operating capabilities:
. EXPAND PENETRATION OF NEW AND EXISTING MARKETS. Brass Eagle's sales and
marketing programs are aimed at increasing its presence in its existing
markets and expanding into new markets. In addition to selling to mass
merchandisers and major sporting goods retailers, the Company has a direct
sales program to reach consumers with unique, branded accessories and
apparel. It also intends to focus on increasing sales to wholesale
distributors which supply Brass Eagle products to specialty retailers and
international markets.
3
<PAGE>
. INCREASE PARTICIPATION IN THE SPORT OF PAINTBALL. The Company believes that
its marketing efforts will heighten media exposure of paintball generally
and increase paintball participation. The Company promotes its brand name
and the paintball industry through focused marketing efforts such as
designing packaging and point-of-sale materials, sponsoring paintball
events, two professional paintball teams, and the National Professional
Paintball League ("NPPL"), developing fast-paced, modular field concept
games, such as Hyperball(TM), participating in trade shows, and advertising.
. INCREASE INTERNATIONAL SALES OF PAINTBALL PRODUCTS. The Company believes
that international markets for paintball products and accessories present
significant opportunities for growth. Through its relationship with WDP
Ltd., its European distributor, the Company has been successful in expanding
its market share in Europe, primarily in Germany and the United Kingdom.
Also, the Company believes that Central and South America offer significant
growth opportunities.
. INCREASE PRODUCT SALES THROUGH STEP-BY-STEP PRICE SEGMENTATION. The Company
believes that the total number of paintball guns sold in 1996 more than
doubled from 1995 to over 250,000 units worldwide (146,000 of which were
sold by the Company). Brass Eagle offers six paintball guns and has
successfully expanded the primary market for its paintball guns to price
points that range from approximately $35 to $500. The Company believes that
by offering products spanning a wide range of price points it is able to
meet the needs of new paintball consumers, as well as recreation and
competition players as they move to more sophisticated products.
. EVALUATE STRATEGIC ACQUISITIONS. The Company may, when and if the
opportunity arises, acquire other businesses involved in activities or
having product lines that are compatible with those of the Company. The
Company will evaluate acquisition opportunities as they arise and focus on
prospects that it believes complement its business and product lines.
However, the Company has no current or pending agreements, understandings or
arrangements with respect to any material acquisition.
CORPORATE HISTORY
The Company, including its predecessor organizations, has manufactured air
powered guns for over 100 years. The Company, operating under the name Daisy
Manufacturing Company, Inc. ("Daisy"), began manufacturing paintball guns as a
device to mark trees and cattle for commercial purposes in the early 1970's, a
market in which it was active through 1993. In 1993, Daisy began manufacturing,
marketing and distributing paintball products for sports and recreational use
under a royalty arrangement with Brass Eagle, Inc., a Mississauga, Ontario,
Canada company ("BEI"). In October 1995, Daisy purchased certain assets,
patents, and trademarks, including the Brass Eagle name, from BEI (the "BEI
Acquisition"), and from 1993 to September 1997 sold paintball products through
its Brass Eagle division. In September 1997, Daisy changed its name to Brass
Eagle Inc. Pursuant to a corporate reorganization to be effected concurrently
with the Offering, the Company will transfer all of its non-paintball related
assets, operations, and liabilities to a newly created subsidiary, Daisy
Manufacturing Company, a Delaware corporation ("New Daisy"). The Company has a
limited operating history and, prior to the Reorganization (as defined herein),
operated as a division of Daisy and not as a stand alone entity.
EXECUTIVE OFFICES
The Company is a Delaware corporation with its executive offices located at
1203A North Sixth Street, Rogers, Arkansas 72756, and its telephone number is
(501) 621-4390.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock outstanding
prior to the Offering(1)... 4,608,899 shares
Common Stock offered by the
Company(2)................. 2,275,000 shares
Common Stock outstanding
after the Offering(1)(2)... 6,883,899 shares
Use of proceeds............. The Company intends to use the proceeds from the Offering to
(i) repay certain indebtedness outstanding under Daisy's
credit facility which has been specifically allocated to the
Company, (ii) repay certain intercompany indebtedness owed
to Daisy, and (iii) pay to Daisy the value of its divisional
equity in the Company. As of August 31, 1997, these amounts
were as follows: (i) $1.5 million, (ii) approximately $2.2
million, and (iii) approximately $3.1 million, respectively,
for a total of $6.8 million. The Company anticipates that
intercompany borrowings from Daisy will increase
significantly (to approximately $7.0 to $8.0 million) prior
to the consummation of this Offering due to the Company's
increased working capital needs to support sales growth, and
that divisional equity will also increase significantly (to
approximately $3.5 to $4.5 million) as a result of increased
income. Consequently, the Company expects that total
payments to Daisy from the proceeds of this Offering will be
approximately $12.0 to $14.0 million. The balance of the net
proceeds from the Offering will be used for working capital
to support the planned growth of its business and for other
general corporate purposes, which may include the investment
in or acquisition of complementary businesses. See "Use of
Proceeds."
Proposed Nasdaq National
Market Symbol.............. XTRM
</TABLE>
- --------
(1) After giving effect to a 1,777.96-for-1 stock split to be effected in the
form of a stock dividend to stockholders of record as of November 19, 1997,
which will be effected prior to the Offering. Does not include 944,561
shares of Common Stock reserved for issuance under various stock option
plans, stock purchase agreements, and a director compensation arrangement.
See "Management--Director Compensation," "--Employment Agreements," "--1997
Stock Option Plan," "--Employee Stock Purchase Plan," and "--Certain
Additional Options."
(2) Does not include 341,250 shares of Common Stock that may be sold by the
Company if the over-allotment option granted by the Company to the
Underwriters is exercised in full.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, EIGHT MONTHS EIGHT MONTHS
------------------------------------------------ ENDED ENDED
1992 1993 1994 1995 1996 AUGUST 31, 1996 AUGUST 31, 1997
-------- -------- -------- -------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $ 159 $ 851 $ 2,615 $ 4,319 $ 13,838 $ 6,977 $ 18,391
Cost of sales......... 155 615 1,258 2,456 9,625 4,962 12,308
-------- -------- -------- -------- --------- -------- ---------
Gross profit.......... 4 236 1,357 1,863 4,213 2,015 6,083
Operating expenses.... 27 296 957 1,774 2,424 1,456 3,097
-------- -------- -------- -------- --------- -------- ---------
Operating income
(loss)............... (23) (60) 400 89 1,789 559 2,986
Interest expense and
other, net(1)........ -- -- -- 87 360 222 162
-------- -------- -------- -------- --------- -------- ---------
Income (loss) before
income taxes......... (23) (60) 400 2 1,429 337 2,824
Provision (benefit)
for income taxes..... 9 (23) 153 1 547 129 1,081
-------- -------- -------- -------- --------- -------- ---------
Net income (loss)..... $ (14) $ (37) $ 247 $ 1 $ 882 $ 208 $ 1,743
======== ======== ======== ======== ========= ======== =========
Net income per
share(2)............. $ 0.17 $ 0.33
Weighted average
shares
outstanding(2)....... 5,296,204 5,312,977
PRO FORMA STATEMENT OF
OPERATIONS DATA:
Net income(3)......... $ 1,315 $ 2,024
Net income per
share(4)............. $ 0.17 $ 0.27
Weighted average
shares
outstanding(4)....... 7,571,204 7,587,977
<CAPTION>
DECEMBER 31, AUGUST 31, 1997
------------------- -------------------------------
AS
1995 1996 ACTUAL ADJUSTED(5)
-------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
cit)................. $ (993) $ (734) $ 597 $ 19,150
Total assets.......... 6,288 9,269 15,549 31,408
Long-term debt (less
current portion)..... 3,043 1,892 1,414 414
Divisional equity..... 248 1,130 3,110 --
Stockholders equi-
ty(6)................ -- -- -- 22,663
</TABLE>
- --------
(1) Intercompany borrowings from Daisy are non-interest bearing. See Note 9 to
Financial Statements.
(2) The net income per share has been calculated on a pro forma basis by
dividing net income by the weighted average shares outstanding after the
Reorganization, dilutive stock options and the number of shares to be
issued in the Offering the proceeds from which would be sufficient to pay
the divisional equity owed to Daisy.
(3) Pro forma net income has been computed by adjusting historical net income
for the year ended December 31, 1996, and the eight months ended August 31,
1997, to give effect to (i) repayment of the $1.5 million term debt
specifically allocated to Brass Eagle and the elimination of interest
expense with respect thereto, and (ii) investment of the proceeds from the
Offering after the repayment of the intercompany indebtedness owed to Daisy
and the payment to Daisy of the value of its divisional equity of
approximately $10.8 million in the aggregate at a 5.7% return, net of the
tax effects, as if the Offering had occurred on January 1, 1996, and 1997,
respectively. See "Use of Proceeds."
(4) The pro forma net income per share has been calculated by dividing pro
forma net income by the weighted average shares outstanding after the
Reorganization, the issuance of 2,275,000 shares in the Offering, dilutive
stock options and the number of shares to be issued in the Offering whose
proceeds will be used to pay the divisional equity owed to Daisy.
(5) Gives effect to the application of the proceeds from the Offering after the
deduction of the estimated expenses. See "Use of Proceeds."
(6) Stockholders' equity at August 31, 1997 (as adjusted) reflects divisional
equity after giving effect to the Offering and the application of the
proceeds therefrom.
6
<PAGE>
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including
statements made with respect to the results of operations and businesses of the
Company. When used in this Prospectus, the words "may," "should," "believe,"
"anticipate," "estimate," "expect," "intend," "plan," and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated, projected,
forecast, estimated, or budgeted in such forward-looking statements include,
among others, the following possibilities: (i) intensifying competition,
including specifically the intensification of price competition, the entry of
new competitors and the introduction of new products by new and existing
competitors; (ii) failure to obtain new customers or retain existing customers;
(iii) inability to carry out marketing and sales plans; (iv) loss of key
executives; (v) general economic and business conditions which are less
favorable than expected; and (vi) unanticipated changes in industry trends.
Such forward-looking statements may be found in the "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business" sections as well as in this Prospectus
generally. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors.
7
<PAGE>
RISK FACTORS
Prospective investors should take into account the following considerations,
as well as the other information set forth in this Prospectus, before
purchasing any of the shares of the Common Stock offered hereby.
RISKS ASSOCIATED WITH MARKET DEVELOPMENT; INDUSTRY AND PRODUCT CONCENTRATION
The market for paintball products has historically consisted primarily of a
relatively small consumer niche of paintball enthusiasts who purchased their
equipment through catalogue distributors and specialty retail outlets. The
Company believes that much of the rapid recent growth of paintball product
sales is attributable to its distribution of paintball products through mass
merchandisers and major sporting goods chains. The Company currently designs,
manufactures, markets, and distributes paintball products only. As a result of
the current dependence of the industry's growth upon the Company's efforts and
this industry and product concentration, the Company's future success will
depend primarily upon its ability to attract new paintball participants. There
can be no assurance that paintball will continue to grow at the rate at which
it is currently growing or that its popularity will not decline. The Company's
failure to expand the market and to accurately predict future trends could
have a material adverse effect on the Company and its prospects. See
"Business--Introduction," "--Industry Overview," and "--Products."
RISKS ASSOCIATED WITH MANAGING A GROWING BUSINESS
The Company has experienced rapid and sustained growth since 1993, when it
commenced its Brass Eagle paintball operations. However, there can be no
assurance that the Company will be able to implement its growth strategies in
the future or that, if implemented, such strategies will result in growth in,
or maintenance of, the Company's profitability. The Company's growth has
placed significant demands on the Company's management, working capital, and
financial and management control systems. Several members of the Company's
senior management have only recently been employed with the Company in their
present capacities. Effective management of future growth will require the
Company (i) to plan for and implement changes in its business as the market
for paintball products matures and (ii) to expand its operations, facilities,
and internal controls consistent with increased demand for its paintball
products. Management's inability to respond effectively to or plan for the
Company's future expansion, or encountering unexpected difficulties during
expansion, could have a material adverse effect on the Company and its
prospects. See "Corporate History," "Reorganization," "Business--
Introduction," "--Industry Overview," and "--Products," "Management--Executive
Officers and Directors," and "Certain Transactions--Administrative Services
Agreement."
LIMITED OPERATING HISTORY; CERTAIN ADMINISTRATIVE SERVICES
The Company has conducted Brass Eagle paintball operations since 1993. The
Company will not exist as a separately capitalized entity until the
consummation of the Reorganization, which is to be effected concurrently with
the Offering. Consequently, although Daisy has been in existence for over one
hundred years, the Company has a limited operating history, all of which has
been as a division of Daisy. Concurrently with the Reorganization the Company
will enter into an administrative services agreement with New Daisy, pursuant
to which New Daisy will agree to provide the Company with certain legal,
administrative, warehousing, shipping, and computer information services
through December 31, 1998, although the Company expects that it will terminate
this agreement with respect to all services except legal and computer
information services prior to that date. Although the Company's paintball
operations have been profitable, there can be no assurance that the Company
will be able to continue to operate profitably as a stand alone business
following the Reorganization. See "Corporate History," "Reorganization," and
"Certain Transactions--Administrative Services Agreement."
CERTAIN TAX AND CONTINGENT LIABILITY RISKS RELATED TO THE REORGANIZATION
Pursuant to the Reorganization, New Daisy will acquire and assume from the
Company all of the Company's non-paintball related assets, operations, and
liabilities, including, without limitation, certain products liability,
employee benefits, and tax liabilities and obligations.
8
<PAGE>
For the period from July 1, 1993, to November 15, 1997, the Company has
self-insured the first $1.0 million of products liability claims exposure with
respect to each policy year included therein and maintains third party
insurance for certain excess exposure. In addition, the Company maintains
certain employee benefit plans, including an unfunded post-retirement medical
benefits plan and a defined benefit pension plan. In connection with the
Reorganization, New Daisy has agreed to indemnify the Company and its
officers, directors, employees and stockholders against all liabilities and
obligations related to the Company's non-paintball related operations,
including, without limitation (i) any products liability claim relating to any
products sold by the Company prior to the Reorganization (other than products
sold under the Brass Eagle name) and any products sold by New Daisy after the
Reorganization, (ii) any claim by any employee or former employee of the
Company or of New Daisy to the extent that such claim relates to post-
retirement medical or pension benefits that are attributable to the employment
of any such individual in the Company's non-paintball related operations.
In addition, the Reorganization will include (i) the transfer of certain
assets and liabilities from the Company to New Daisy, and (ii) the
distribution by the Company of all of the outstanding capital stock of New
Daisy to the Company's existing stockholders in a spin-off transaction.
Although the Company does not believe that it will incur any material tax
liability in connection with the transfer or the spin-off, there can be no
assurance that the Internal Revenue Service (the "Service") will agree with
the Company's treatment of these transactions for Federal income tax purposes.
The Company will be required to recognize gain on the transfer to the extent
that the value of the liabilities assumed by New Daisy exceeds the Company's
adjusted tax basis in the assets transferred. However, the Company believes
that it has available to it tax loss carryforwards from prior years and
current year tax losses incurred prior to the Reorganization (attributable in
each case to the Company's historical non-paintball operations) that are
sufficient to offset all of this gain. In addition, the Company would be
required to recognize gain on the spin-off if and to the extent that the fair
market value of the outstanding capital stock of New Daisy exceeds the
Company's adjusted tax basis in such stock. New Daisy has agreed to indemnify
the Company against all tax consequences related to the transactions
contemplated by the Reorganization. The indemnification obligations of New
Daisy will be guaranteed by certain stockholders of New Daisy pursuant to a
guaranty agreement. See "Certain Transactions--Guaranty Agreement."
Although the Company believes that such indemnity obligations and insurance
coverage are adequate to protect it from any material financial exposure with
respect to these risks, there can be no assurance that New Daisy will be able
to satisfy its indemnity obligations or that such insurance coverage will be
adequate or available or that the applicable insurer will be solvent at the
time of any covered loss. The occurrence of any of these events could have a
material adverse effect on the Company and its prospects. See "Corporate
History" and "Reorganization."
DEPENDENCE ON CERTAIN CUSTOMERS
Kmart and Wal*Mart accounted for 21.9% and 13.7%, respectively, of the
Company's sales in 1996. The Company's largest customers have significantly
greater financial and organizational resources than the Company and are
generally able to exert considerable influence over their suppliers. The
Company does not have long-term contracts with these customers or any of its
other customers, and there is no assurance that these or any other customer
will continue to purchase the Company's paintball products. Although the
Company is currently the only supplier of paintball products to Kmart and
Wal*Mart, it does not have any exclusive contractual supply rights. The loss
or financial insolvency of, or a substantial decline in purchases by, any of
the Company's largest customers individually, or a number of the Company's
other customers in the aggregate, could have a material adverse effect on the
Company and its prospects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Introduction"
and "--Sales and Distribution."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS; EXCLUSIVE ARRANGEMENTS AND
NONCOMPETITION COVENANTS
The Company is aware of only four manufacturers of the gelatin encapsulated
paintballs necessary for paintball play. The Company believes that the cost of
equipment and the knowledge required for the encapsulation process have
historically been significant barriers to the entry of additional paintball
suppliers.
9
<PAGE>
Accordingly, there can be no assurance that additional paintball suppliers
will exist in the future. Because the Company does not manufacture its own
paintballs, it has entered into a strategic alliance with a paintball
producer, Goldcaps, Inc., a subsidiary of IVAX Corp. of Miami, Florida,
pursuant to which the Company has agreed to serve as such producer's exclusive
worldwide paintball distributor. This agreement extends through August 1999,
but is terminable prior to that time upon one year's notice, and contains
certain provisions which prohibit the Company from selling any competing
products during the term of the agreement. In addition, the Company has
entered into a strategic alliance with a producer of facemasks, Leader
Industries ("Leader") of Montreal, Quebec, Canada pursuant to which the
Company has agreed to serve as such producer's exclusive worldwide distributor
of such products (except in Canada, where such producer also sells its
products). This agreement extends through August 31, 1999, but is terminable
prior to that time on six months' notice, and also contains certain provisions
which prohibit the Company from selling any competing products within its
distribution territory during the term of the agreement. Despite these
contractual arrangements, there can be no assurance that these suppliers will
continue to be able to supply sufficient quantities of their products in order
to meet the Company's current needs or to support any growth in sales by the
Company. The Company does not currently have long-term contracts with any of
its other vendors, nor does it currently have multiple vendors for parts,
components, tooling, supplies and services critical to its manufacturing
process. The Company's supplier of paintballs for its European sales has
indicated that it wishes to terminate its supply relationship with the
Company, but has also indicated that it will continue to supply the Company
with its requirements of paintballs until an alternative source of supply can
be arranged. The Company's success will depend, in part, on its ability to
maintain relationships with its current suppliers and on the ability of these
and the Company's other suppliers to satisfy its product requirements. Failure
of a key supplier to meet the Company's product needs on a timely basis or
loss of a key supplier could have a material adverse effect on the Company and
its prospects. See "Business--Manufacturing; Strategic Alliances; Backlog."
DIFFICULTY IN FORECASTING PRODUCT DEMAND
Although the Company works closely with its customers to determine their
purchasing requirements, because of the rapid recent growth of paintball and
the relative newness of the sport, it has been difficult to forecast
accurately the demand for paintball products. Consequently, although the
Company believes that its current manufacturing facilities and access to
temporary and permanent labor are sufficient to accommodate significant surges
in production demand, as well as sustained increases in growth, there can be
no assurance that the Company's manufacturing resource planning systems will
be adequate to support product demand. The Company's failure to fulfill the
orders of its largest customers on a timely basis could have a material
adverse effect on the Company and its prospects. See "Business--Sales and
Distribution" and "--Manufacturing; Strategic Alliances; Backlog."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may pursue strategic acquisitions as part of its growth
strategy. Such acquisitions would require investment of operational and
financial resources and could require integration of dissimilar operations,
assimilation of new employees, diversion of management time and resources,
increases in administrative costs, potential loss of key employees of the
acquired company, and additional costs associated with debt or equity
financing. Any future acquisition by the Company could have an adverse effect
on the Company's results of operations or could result in dilution to existing
stockholders, including those purchasing shares of Common Stock in the
Offering. See "Use of Proceeds," "Business--Growth Strategies," and "--
Competition."
PRODUCT SAFETY AND LIABILITY
Because of the risks inherent in the use of paintball products, there is a
substantial risk that the Company will be a defendant in product liability
lawsuits and claims from time to time in the ordinary course of business. The
Company believes that any current lawsuits and claims will be resolved without
a material adverse effect.
Historically, paintball was played primarily by relatively experienced
enthusiasts at remote locations. The Company is currently expanding the
paintball market to a broader, less experienced group of participants, who
10
<PAGE>
may participate in paintball in private yards and other less remote areas.
Although the Company stresses proper safety practices at all levels of play
and requires in its product packaging materials and promotional efforts that
proper face, eye, and ear protection be worn at all times, there can be no
assurance that all paintball participants, particularly less experienced ones,
will observe all proper safety practices. Failure to observe proper safety
practices may result in injuries to such participants, as well as to nearby
non-participants. Consequently, the Company anticipates that the frequency of
product liability lawsuits and claims against it may increase as its sales
increase.
The Company maintains product liability, general liability, and excess
liability insurance to insure against potential claims, and believes that such
insurance and its anticipated cash flows will be adequate to cover its product
liability claims exposure. However, because of the uncertainty as to the
number of claims or the nature and extent of liability for personal injuries
and to changes in the historical or future levels of insurance coverage or the
terms or costs thereof, there can be no assurance that such insurance
coverages will be adequate or available in the future to cover product
liability claims or that the applicable insurer will be solvent at the time of
any covered loss. Moreover, even if the Company maintains adequate insurance,
any successful claim could materially and adversely affect the business,
reputation, and prospects of the Company and divert management time and
resources. See "Business--Legal Proceedings."
GOVERNMENT REGULATION
Paintball products are within the jurisdiction of the United States Consumer
Products Safety Commission (the "CPSC") and other Federal, state, local, and
foreign regulatory bodies. The CPSC has the authority under certain Federal
laws and regulations to protect consumers from hazardous goods. The CPSC may
exclude from the market goods it determines are hazardous, and may require a
manufacturer to repurchase such goods under certain circumstances. Some state,
local, and foreign governments have similar laws and regulations. If the
Company is found to have violated any such law or regulation, the sale of the
relevant products could be prohibited and the Company could be required to
repurchase such products. In addition, although the Company is not aware of
any legislation specifically targeted at paintball products, the Company
understands that certain local and foreign jurisdictions have enacted
legislation that prohibits retailers from selling certain product categories
that are or may be sufficiently broad to include paintball guns. Although the
Company is not aware of any Federal or state legislative or regulatory
initiatives to enact similar legislation or to prohibit or restrict
specifically the sale of paintball products, there can be no assurance that
such legislation will not be adopted in the future. Any such legislative
initiatives, if adopted, and any negative publicity surrounding such efforts,
whether or not adopted, could have a material adverse effect on the Company
and its prospects. See "Business--Government Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the management and leadership skills of the
members of its senior management team and other key personnel, including
certain members of its product development team. Several members of the
Company's senior management have only recently been employed with the Company
in their present capacities. The loss of any such personnel or the inability
to attract, retain, and motivate key personnel could have a material adverse
effect on the Company and its prospects. E. Lynn Scott, the President and
Chief Executive Officer of the Company, has entered into an employment and
noncompetition agreement with the Company that extends through the year 2000
and he is the only employee of the Company with an employment agreement. The
Company does not maintain key-man life insurance on any employee. See
"Management--Executive Officers and Directors" and "--Employment Agreements."
DISCRETIONARY USE OF PROCEEDS
The Company intends to use the proceeds of the Offering to (i) repay certain
indebtedness outstanding under Daisy's credit facility which has been
specifically allocated to the Company, (ii) repay certain intercompany
11
<PAGE>
indebtedness owed to Daisy, and (iii) pay to Daisy the value of its divisional
equity in the Company, representing historical retained earnings. The Company
anticipates that the sum of these amounts will total approximately $12.0 to
$14.0 million by the time of the consummation of the Offering. The balance of
the net proceeds from the Offering will be used for working capital to support
the planned growth of the Company's business and for other general corporate
purposes, which may include the investment in or acquisition of complimentary
business. As a result, the Company's success will depend substantially on the
discretion and judgment of the Company's management with respect to the
application and allocation of a substantial portion of the net proceeds of the
Offering. See "Use of Proceeds."
ALLOCATION OF HISTORICAL FINANCIAL INFORMATION
Historically, Daisy and its Brass Eagle division shared operational and
administrative facilities, including management information systems. As a
result, in preparing the historical financial information included elsewhere
in this Prospectus, certain manufacturing, selling, and administrative
expenses that could not be specifically attributed to paintball operations had
to be allocated between Daisy and the Company. These allocations were based on
various factors and assumptions, including quantity of inventory produced,
quantity of materials received, number of shipments, number of employees, and
amount of time spent by Daisy employees performing paintball-related
operations. The Company believes that all historical allocations were
reasonable and that any errors in the historical allocations would not have a
material adverse effect on the Company and its prospects. However, there can
be no assurance that these allocations are reflective of costs the Company
will incur as an independent entity in the future. Effective September 1,
1997, it was no longer necessary to allocate certain of these costs due to the
implementation of a new computer management information services system. See
"Summary Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The Company believes that the market for paintball products is currently
fragmented and underdeveloped. The Company believes it faces a limited number
of competitors, particularly in the beginner and recreational segments, where
it concentrates its business, and that it has the leading market share in
paintball products. However, there can be no assurance that any number of new
competitors, some of which may have significantly greater financial and
organizational resources than the Company, will not emerge in the future as
the market for paintball products develops, or that the present competitors of
the Company will not be able to compete more successfully in the future. For
the Company to maintain or increase its market share, it must continue to
compete successfully in the design, manufacture, marketing, and distribution
of paintball products. See "--Limited Protection for Technology" and
"Business--Competition."
LIMITED PROTECTION FOR TECHNOLOGY
The Company has obtained patents for the design of certain of its paintball
gun products and will seek patent protection in the future for new products.
Nevertheless, the Company's competitors currently replicate and may continue
to replicate certain features and functions of the Company's paintball gun
products. There can be no assurance that current or future patent protection
will prevent competitors from offering competing products, that any issued
patents will be upheld, or that patent protection will be granted in any or
all of the countries in which applications are currently pending or granted on
the breadth of the description of the invention. In addition, due to
considerations relating to, among other things, cost, delay, or adverse
publicity, there can be no assurance that the Company will elect to enforce
its intellectual property rights. There can be no assurance that the failure
to enforce such rights will not have a material adverse effect on the Company
and its prospects.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. There can be no assurance
that the Company's competitors will not assert against the Company claims of
intellectual property rights that relate to
12
<PAGE>
the Company's paintball gun products and product features and, if asserted,
that the Company will not incur material liabilities in the future. See
"Business--Intellectual Property."
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS AND MARKET DEMAND
Although the Company currently manufactures its products only in the United
States, it distributes and sells its paintball products internationally,
principally in Europe. Although international sales only accounted for 14.5%
of the Company's sales in 1996, 82.0% of its foreign sales were to WDP Ltd.,
the Company's European distributor, pursuant to a non-exclusive agreement.
Loss of the Company's relationship with this distributor or changes in
economic conditions, currency exchange rates, tariff regulations, or other
trade restrictions or political instability ("International Conditions") could
adversely affect the international market for the Company's paintball
products, which in turn could have a material adverse effect on the Company
and its prospects. In addition, insufficient international demand for the
Company's paintball products, whether due to changes in International
Conditions, consumer preferences, or other factors, could have a material
adverse effect on the Company and its prospects. See "Business--Sales and
Distribution."
NO PRIOR PUBLIC MARKET; MAINTENANCE OF LISTING REQUIREMENTS AND POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company will apply to have the shares listed on the Nasdaq
National Market, there can be no assurance that an active trading market will
develop or be sustained. The Nasdaq National Market has certain requirements
that must be satisfied to obtain and maintain listing status, including
certain requirements with respect to the number of market makers for, and
number of stockholders of, the Common Stock that are out of the Company's
control. Although the Company believes that it will satisfy the initial
listing requirements, there can be no assurance that it will be able to
continue to satisfy the listing maintenance requirements. Any failure by the
Company to satisfy these requirements could have a material adverse effect on
the liquidity and market price of the Common Stock.
The initial public offering price of the Common Stock offered hereby will be
determined by negotiations among the Company and the Underwriters and may not
be indicative of the market price for the Common Stock after the Offering. The
market price for shares of the Common Stock may be volatile and may fluctuate
based upon a number of factors, including, without limitation, business
performance, timing of revenues, news announcements, or changes in general
trading market conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Shares Eligible for Future
Sale," and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
6,883,899 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, all of the 2,275,000 shares sold in
the Offering will be freely transferable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act") by persons other than "affiliates" (as defined in the Securities Act) of
the Company. Future sales of substantial amounts of Common Stock (including
shares issued upon the exercise of options that may be granted pursuant to any
employee stock option or other equity plan of the Company), or the perception
that such sales could occur, could have an adverse effect on the market price
of the Common Stock. If such sales or any other factor should reduce the
market price of Common Stock, the Company's ability to raise additional
capital in the public equity markets could be adversely affected. The Company
and its directors and executive officers and certain shareholders have agreed,
subject to certain exceptions, not to sell, offer to sell, grant any option
(other than pursuant to the Company's 1997 Stock Option Plan) for the sale of,
or otherwise dispose of, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock (except for shares
offered in the Offering) for a period of 180 days after the date of this
Prospectus without the prior written consent of McDonald & Company Securities,
Inc. See "Description of Capital Stock," "Shares Eligible for Future Sale,"
and "Underwriting."
13
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDER
Upon consummation of the Offering, without taking into account any dilutive
stock options, Charter Oak Partners, a Connecticut limited partnership, will
beneficially own 53.4% of the Common Stock of the Company. As a result,
Charter Oak Partners will be in a position to control the outcome of all
matters requiring stockholder approval, including the election or removal of
directors and approval of significant corporate transactions, and will have
the ability generally to direct the Company's affairs. Such concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company, including transactions in which the holders of the Company's
Common Stock might otherwise receive a premium over current market prices for
their shares. See "Principal Stockholders."
DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of the Common Stock. Investors purchasing shares
of Common Stock in the Offering will therefore incur immediate and substantial
dilution of $7.71 per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company does not expect to pay any cash dividends on shares of the
Common Stock in the foreseeable future. See "Dividend Policy."
FUTURE CAPITAL NEEDS
The Company believes that funds generated from operations, together with the
net proceeds of this Offering and borrowings under contemplated future credit
facilities, will be sufficient to meet working capital needs of the Company
for at least the next 18 months. The Company's long-term capital requirements
beyond that time will depend on many factors, including, but not limited to,
the rate at which the Company expands its business. To the extent that the
funds generated from the sources described above are insufficient to fund the
Company's activities in the short- or long-term, the Company will need to
raise additional funds through public or private financings. No assurance can
be given that additional financing will be available on terms favorable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
CORPORATE HISTORY
The Company, including its predecessor organizations, has manufactured air
powered guns for over 100 years. The Company, operating as Daisy, began
manufacturing paintball guns as a device to mark trees and cattle for
commercial purposes in the early 1970's. Daisy manufactured paintball guns
under contract for the Nelson Paint Company and remained active in this market
until 1993. In 1993, Daisy began manufacturing, marketing and distributing
paintball products for sports and recreational use under a royalty arrangement
with BEI. In October 1995, Daisy purchased certain assets, patents, and
trademarks, including the Brass Eagle name, from BEI in the BEI Acquisition,
and from 1993 to September 1997 sold paintball products through its Brass
Eagle division. In September 1997, Daisy changed its name to Brass Eagle Inc.
Pursuant to a corporate reorganization to be effected concurrently with the
Offering, the Company will transfer all of its non-paintball related assets,
operations, and liabilities to a newly created subsidiary, New Daisy . See
"Risk Factors--Limited Operating History; Certain Administrative Services,"
"--Certain Tax and Contingent Liability Risks Related to the Reorganization,"
"Reorganization," "Business--Manufacturing; Strategic Alliances; Backlog," and
"Certain Transactions--Administrative Services Agreement."
REORGANIZATION
Concurrently with the Offering, the Company will effect a reorganization
(the "Reorganization"), pursuant to which (i) all of the issued and
outstanding preferred stock of the Company will be cancelled for no
consideration, (ii) the Company will transfer all of its non-paintball related
assets, operations, and liabilities to New Daisy, retaining only its paintball
related assets, operations, and liabilities, (iii) the Company will then
distribute all of the outstanding capital stock of New Daisy to the Company's
existing stockholders in a spin-off transaction, and (iv) New Daisy will agree
to indemnify and hold harmless the Company and its officers, directors,
employees, and stockholders from and against all liabilities and obligations
related to the Company's non-paintball related operations, including, without
limitation, (A) any products liability claim relating to any products sold by
the Company prior to the Reorganization (other than products sold under the
Brass Eagle name) and any products sold by New Daisy after the Reorganization,
and (B) any claim by any employee or former employee of the Company or of New
Daisy to the extent that such claim relates to post-retirement medical or
pension benefits that are attributable to the employment of any such
individual in the Company's non-paintball related operations. The
indemnification obligations of New Daisy will be guaranteed by certain
stockholders of New Daisy pursuant to a guaranty agreement. See "Certain
Transactions--Guaranty Agreement." Although the Company does not believe that
it will incur any material tax liability in connection with the transfer or
the spin-off, there can be no assurance that the Service will agree with the
Company's treatment of these transactions for Federal income tax purposes. The
Company will be required to recognize gain on the transfer to the extent that
the value of the liabilities assumed by New Daisy exceeds the Company's
adjusted tax basis in the assets transferred. However, the Company believes
that it has available to it tax loss carryforwards from prior years and
current year tax losses incurred prior to the Reorganization (attributable in
each case to the Company's historical non-paintball operations) that are
sufficient to offset all of this gain. In addition, the Company would be
required to recognize gain on the spin-off if and to the extent that the fair
market value of the outstanding capital stock of New Daisy exceeds the
Company's adjusted tax basis in such stock. New Daisy has agreed to indemnify
the Company against all tax consequences related to the transactions
contemplated by the Reorganization. Following the Reorganization, the Company
will concentrate on its paintball operations and New Daisy intends to continue
to market airguns, toy guns, and steel shot. See "Risk Factors--Certain Tax
and Contingent Liability Risks Related to the Reorganization" and "Certain
Transactions--Tax Allocation Agreement."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to reinvest its earnings, if any, in the
development and expansion of the Company's business. Any future declaration of
cash dividends will be at the discretion of the Company's Board of Directors
and will depend upon the earnings, capital requirements, and financial
position of the Company, general economic conditions, and other pertinent
factors.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
offered hereby are approximately $22.7 million after deducting underwriting
discounts and commissions, and estimated offering expenses payable by the
Company.
The Company intends to use the net proceeds from the Offering to (i) repay
certain indebtedness outstanding under Daisy's credit facility which has been
specifically allocated to the Company, which matures in January 1998 and bears
interest at LIBOR plus 2.5%, (ii) repay certain intercompany indebtedness owed
to Daisy, and (iii) pay to Daisy the value of its divisional equity in the
Company. As of August 31, 1997, these amounts were as follows (i) $1.5
million, (ii) approximately $2.2 million, and (iii) approximately $3.1
million, respectively, for a total of $6.8 million.
The Company anticipates, however, that intercompany borrowings from Daisy
will increase significantly (to approximately $7.0 to $8.0 million) prior to
the consummation of the Offering due to the Company's increased working
capital needs to support sales growth, and that divisional equity will also
increase significantly (to approximately $3.5 to $4.5 million) as a result of
increased income. Consequently, the Company expects that total payments to
Daisy from the proceeds of the Offering will be approximately $12.0 to $14.0
million. The balance of the net proceeds from the Offering will be used for
working capital to support the planned growth of its business and for other
general corporate purposes, which may include the investment in or acquisition
of complementary businesses.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1997, and as adjusted to reflect the sale by the Company of
2,275,000 shares of Common Stock offered hereby, after the deduction of the
estimated expenses of the Offering, assuming an initial public offering price
of $11.00 per share (the mid-point of the estimated initial public offering
price range), and the application of the net proceeds therefrom as described
under "Use of Proceeds." The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and the financial statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt................... $1,358 $858
Intercompany debt...................................... 2,194 --
------ -------
$3,552 $858
====== =======
Long-term debt, less current maturities(2)............... $1,414 $414
------ -------
Stockholders' equity:
Common Stock, $.01 par value, 10,000,000 shares
authorized;
6,883,899 issued and outstanding(3) .................. -- 69
Additional paid-in capital............................. 237 22,594
Retained earnings...................................... -- --
Divisional retained earnings........................... 2,873 --
------ -------
Total stockholders' equity............................. 3,110 22,663
------ -------
Total capitalization................................. $4,524 $23,077
====== =======
</TABLE>
- --------
(1) Gives effect to the application of the proceeds from the Offering after
the deduction of the estimated expenses. See "Use of Proceeds."
(2) See Note 5 to Financial Statements for information regarding the Company's
long-term indebtedness.
(3) Does not include 944,561 shares of the Common Stock reserved for issuance
under various stock option plans, stock purchase agreements, and director
compensation arrangements and 341,250 shares of Common Stock which the
Underwriters may purchase pursuant to the over-allotment option. See
"Management--Director Compensation," "--Employment Agreements," "--1997
Stock Option Plan," "--Employee Stock Purchase Plan," and "--Certain
Additional Options."
16
<PAGE>
DILUTION
The net tangible book value of the Company as of August 31 1997, was
approximately $3.1 million, or $.67 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less its
total liabilities divided by the number of shares of Common Stock outstanding.
The Company estimates the net proceeds from the Offering will be approximately
$22.7 million. After giving effect to the sale by the Company of 2,275,000
shares of Common Stock in the Offering, and after deducting underwriting
discounts and commissions, estimated offering expenses payable by the Company,
and the value of the divisional equity to be paid to Daisy, the pro forma net
tangible book value of the Company as of August 31, 1997, would have been
approximately $22.7 million, or $3.29 per share. This represents an immediate
net tangible book value dilution of $7.71 per share to investors purchasing
shares in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $11.00
------
Net tangible book value at August 31, 1997.................. $0.67
-----
Increase attributable to new investors in the Offering...... $2.62
-----
Pro forma net tangible book value per share after the Offer-
ing.......................................................... $ 3.29
------
Dilution per share to new investors........................... $ 7.71
======
</TABLE>
The following table summarizes on a pro forma basis as of August 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
the existing stockholders of the Company ("Existing Stockholders") and the
investors purchasing shares in the Offering ("New Investors").
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ----------------------------------
Average Price
NUMBER PERCENT AMOUNT PERCENT Per Share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1).. 4,608,899 66.95% $12,129,240 32.65% $ 2.63
New Investors............. 2,275,000 33.05 25,025,000 67.35 11.00
</TABLE>
- --------
(1) Does not include 944,561 shares of the Common Stock reserved for issuance
under various stock option plans, stock purchase agreements, and director
compensation arrangements and 341,250 shares of Common Stock which the
Underwriters may purchase pursuant to the over-allotment option. See
"Management--Director Compensation," "--Employment Agreements," "--1997
Stock Option Plan," "--Employee Stock Purchase Plan," and "--Certain
Additional Options."
17
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto included
elsewhere in this Prospectus. The statement of operations data set forth below
for each of the three years ended December 31, 1996, and the eight months
ended August 31, 1996 and 1997, and the balance sheet data at December 31,
1996, and 1995, and August 31, 1997 are derived from, and are qualified by
reference to, the financial statements included elsewhere in this Prospectus,
and should be read in conjunction with those financial statements and the
notes thereto. The statement of operations data for the year ended December
31, 1992 and 1993 is derived from unaudited financial statements not included
in this Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, EIGHT MONTHS EIGHT MONTHS
------------------------------------------- ENDED ENDED
1992 1993 1994 1995 1996 AUGUST 31, 1996 AUGUST 31, 1997
---- ------- -------- -------- --------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $159 $ 851 $ 2,615 $ 4,319 $ 13,838 $ 6,977 $ 18,391
Cost of sales........... 155 615 1,258 2,456 9,625 4,962 12,308
---- ------- -------- -------- --------- ------- ---------
Gross profit............ 4 236 1,357 1,863 4,213 2,015 6,083
Operating expenses
Selling and
marketing............ 14 78 279 640 1,472 622 2,008
General and
administrative....... 13 70 219 595 750 704 953
Royalty expense....... -- 148 459 487 -- -- --
Amortization expense.. -- -- -- 52 202 130 136
---- ------- -------- -------- --------- ------- ---------
27 296 957 1,774 2,424 1,456 3,097
---- ------- -------- -------- --------- ------- ---------
Operating income
(loss)................. (23) (60) 400 89 1,789 559 2,986
Other expense
Interest expense(1)... -- -- -- 87 315 222 162
Other, net............ -- -- -- -- 45 -- --
---- ------- -------- -------- --------- ------- ---------
-- -- -- 87 360 222 162
---- ------- -------- -------- --------- ------- ---------
Income (loss) before
income taxes........... (23) (60) 400 2 1,429 337 2,824
Provision (benefit) for
income taxes........... 9 (23) 153 1 547 129 1,081
---- ------- -------- -------- --------- ------- ---------
Net income (loss)....... $(14) (37) $ 247 $ 1 $ 882 $ 208 $ 1,743
==== ======= ======== ======== ========= ======= =========
Net income per
share(2)............... $ 0.17 $ 0.33
Weighted average shares
outstanding(2)......... 5,296,204 5,312,977
PRO FORMA STATEMENT OF
OPERATIONS DATA:
Net income(3)........... $ 1,315 $ 2,024
Net income per
share(4)............... $ 0.17 $ 0.27
Weighted average shares
outstanding(4)......... 7,571,204 7,587,971
<CAPTION>
DECEMBER 31, AUGUST 31, 1997
------------------- -------------------------------
1995 1996 ACTUAL AS ADJUSTED(5)
-------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit).............. $ (993) $ (734) $ 597 $ 19,150
Total assets............ 6,288 9,269 15,549 31,408
Long-term debt (less
current portion)....... 3,043 1,892 1,414 414
Divisional equity....... 248 1,130 3,110 --
Stockholders'
equity(6).............. -- -- -- 22,663
</TABLE>
18
<PAGE>
- --------
(1) Intercompany borrowings from Daisy are non-interest bearing. See Note 9 to
Financial Statements.
(2) The net income per share has been calculated on a pro forma basis by
dividing net income by the weighted average shares outstanding after the
Reorganization, dilutive stock options and the number of shares to be
issued in the Offering the proceeds from which would be sufficient to pay
the divisional equity owed to Daisy.
(3) Pro forma net income has been computed by adjusting historical net income
for the year ended December 31, 1996, and the eight months ended August
31, 1997, to give effect to (i) repayment of the $1.5 million term debt
specifically allocated to Brass Eagle and the elimination of interest
expense with respect thereto, and (ii) investment of the proceeds from the
Offering after the repayment of the intercompany indebtedness owed to
Daisy and the payment to Daisy of the value of its divisional equity of
approximately $10.8 million in the aggregate at a 5.7% return, net of the
tax effects, as if the Offering had occurred on January 1, 1996, and 1997,
respectively. See "Use of Proceeds."
(4) The pro forma net income per share has been calculated by dividing pro
forma net income by the weighted average shares outstanding after the
Reorganization, the issuance of 2,275,000 shares in the Offering, dilutive
stock options and the number of shares to be issued in the Offering the
proceeds from which would be sufficient to pay the divisional equity to
Daisy.
(5) Gives effect to the application of the proceeds from the Offering after
the deduction of the estimated expenses. See "Use of Proceeds."
(6) Stockholders' equity at August 31, 1997 (as adjusted) reflects divisional
equity after giving effect to the Offering and the application of the
proceeds therefrom.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Financial Statements and the related notes
thereto, which are included elsewhere in this Prospectus.
GENERAL
Brass Eagle is a worldwide leader in the design, manufacture, marketing, and
distribution of paintball products. The Company's sales have grown rapidly,
from $2.6 million in 1994 to $4.3 million in 1995 and to $13.8 million in
1996, a compound annual growth rate of 130.4%. This growth has continued in
1997 with sales of $18.4 million through August 31, 1997, compared to $7.0
million through August 31, 1996, an increase for the eight month period of
162.9%. The Company believes its growth has been the result of increasing
market acceptance of paintball and, more specifically, growing demand from
consumers through mass merchandisers and major sporting goods retailers for
Brass Eagle products. The Company believes significant opportunities for
growth continue to exist worldwide and intends to increase market awareness
both nationally and internationally through an active growth campaign.
The Company sells paintball guns and a full line of paintball-related
accessories, including paintballs, facemasks, and refillable CO/2/ cartridges.
Approximately 80% of the Company's sales are to national and regional mass
merchandisers, such as Kmart, Wal*Mart, and Meijer, and major sporting goods
retailers, such as The Sports Authority, Dick's Sporting Goods, and Jumbo
Sports. Brass Eagle products are currently the only paintball products sold
through Kmart and Wal*Mart, and through most major sporting goods chains. The
Company's products are also sold through sporting goods distributors,
specialty distributors of paintball products, and paintball specialty shops.
See "Risk Factors--Dependence on Certain Customers" and "Business--Sales and
Distribution."
In connection with the BEI Aquisition, the Company purchased certain assets,
trademarks, and patents from BEI in October 1995 for cash and a long-term,
non-interest bearing note. As a result of this purchase, payments under a
royalty arrangement with BEI were discontinued. The purchase price is being
allocated over the useful lives of the tangible and intangible assets acquired
from BEI.
While the Company's gross profits have increased from $1.4 million in 1994
to $4.2 million in 1996, the Company's gross margins have been negatively
impacted by increased sales of lower margin paintballs and paintball
accessories. Operating expenses as a percentage of sales continue to decrease
as the Company realizes operating efficiencies from increased volume, as well
as from the decrease in royalty expense beginning in October 1995.
For the years ended December 31, 1994, 1995, and 1996, and the eight-month
period ended August 31, 1997, Brass Eagle shared operational and
administrative facilities with Daisy. As a result, manufacturing, selling, and
administrative expenses had to be allocated from Daisy to Brass Eagle.
Allocations were based on various activities including quantity of inventory
produced, quantity of inventory received, number of shipments, headcount, and
estimates of time spent on Brass Eagle. Sales, returns, material cost, and
direct labor cost were not allocated because they could be specifically
identified to Brass Eagle. Management must make estimates and assumptions in
preparing financial statements that affect the amounts reported therein and
the disclosures provided. The Company believes all allocations made were
reasonable and that any errors in the historical allocations would not have a
material adverse affect on the Company and its prospects. However, there can
be no assurance that these historical allocations reflect the costs the
Company will incur as an independent entity in the future.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operations data as a percentage of sales for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,
------------------- --------------------
1994 1995 1996 1996 1997
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales ............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 48.1% 56.9% 69.6% 71.1% 66.9%
Gross margin......................... 51.9% 43.1% 30.4% 28.9% 33.1%
Operating expenses................... 36.6% 41.1% 17.5% 20.9% 16.8%
Operating income..................... 15.3% 2.0% 12.9% 8.0% 16.3%
Net income........................... 9.4% -- 6.4% 3.0% 9.5%
</TABLE>
EIGHT MONTHS ENDED AUGUST 31, 1997, COMPARED TO EIGHT MONTHS ENDED AUGUST 31,
1996
Sales. Sales increased by 162.9% to $18.4 million for the first eight months
of 1997 compared to $7.0 million in the first eight months of 1996. The
increase in sales was primarily due to higher unit volume of all products.
Domestic sales increased by 175.4% to $16.8 million (or 91.3% of sales) in the
first eight months of 1997 from $6.1 million (or 87.8% of sales) in the first
eight months of 1996. International sales increased by 87.4% to $1.6 million
(or 8.7% of sales) in the first eight months of 1997 from $854,000 (or 12.2%
of sales) in the first eight months of 1996, principally due to the addition
of a new distributor in Europe.
Gross margin. Gross margin (gross profit as a percentage of net sales)
increased to 33.1% for the first eight months of 1997 compared to 28.9% for
the first eight months of 1996 principally due to raw materials purchasing and
manufacturing spending efficiencies.
Operating expenses. Operating expenses increased by 106.7% to $3.1 million
in the first eight months of 1997 compared to $1.5 million in the first eight
months of 1996 due to selling and marketing expense increases and compensation
expense associated with options granted, but decreased as a percentage of
sales from 20.9% to 16.8%. The decrease in operating expenses as a percent of
sales was primarily the result of certain fixed expenses being allocated over
an increased sales base.
Operating income. Operating income increased by 436.7% to $3.0 million in
the first eight months of 1997 compared to $559,000 in the first eight months
of 1996. The increase was primarily due to higher unit sales volume.
Interest expense. The Company incurred interest expense of $162,000 in the
first eight months of 1997 compared to $222,000 in the first eight months of
1996. The decrease was primarily due to the scheduled debt payments reducing
outstanding borrowings incurred in connection with the BEI Acquisition.
Income tax rate. The Company's effective Federal and state income tax rate
was 38.3% based upon tax expenses allocated on a separate return basis in the
first eight months of 1997 and 1996.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales. Sales increased by 220.9% to $13.8 million in 1996 compared to $4.3
million in 1995. The increase was primarily due to higher unit volume in all
of the Company's products, the addition of new products in the accessories
category, and the introduction of the new Raptor paintball gun. Domestic sales
increased by 187.8% to $11.8 million (or 85.5% of sales) in 1996 from $4.1
million (or 93.9% of sales) in 1995. International sales increased by 660.5%
to $2.0 million (or 14.5% of sales) in 1996 from $263,000 (or 6.1% of sales)
in 1995.
Gross margin. Gross margin decreased to 30.4% in 1996 compared to 43.1% in
1995. The decrease was primarily due to increases in unit volume of
paintballs, which have significantly lower margins than the Company's other
products.
21
<PAGE>
Operating expenses. Operating expenses increased by 33.3% to $2.4 million in
1996, compared to $1.8 million in 1995, principally due to increased sales and
marketing expenses. The increase related in part to an increase in the number
of employees, but was primarily due to increased unit volume related expenses,
e.g., freight and commission. Operating expenses in 1995 decreased from 41.1%
to 17.5% of sales in 1996 primarily due to the termination in October 1995 of
the royalty arrangement with BEI, which accounted for $487,000 (or 11.2% of
sales in 1995) and increases in unit volume.
Operating income. Operating income increased by 1,922.5% to $1.8 million in
1996, compared to $89,000 in 1995. The increase was primarily due to higher
unit sales volume.
Interest expense. The Company incurred interest expense of $315,000 in 1996,
compared to $87,000 in 1995. The increase was due to debt incurred in
connection with the BEI Acquisition.
Income tax rate. The Company's effective Federal and state income tax rate
was 38.3% based upon tax expenses being allocated on a separate return basis
in 1996 and 1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Sales. Sales increased by 65.4% to $4.3 million in 1995, compared to $2.6
million in 1994. The increase was primarily due to the introduction of several
new products in 1995 and continued higher unit volume sales of all of the
Company's products. Domestic sales increased by 64.0% to $4.1 million (or
93.9% of sales) in 1995 from $2.5 million (or 94.5% of sales) in 1994.
International sales increased by 82.6% to $263,000 (or 6.1% of sales) in 1995
from $144,000 (or 5.5% of sales) in 1994.
Gross margin. Gross margin decreased to 43.1% in 1995, compared to 51.9% in
1994. The decrease was due to increased sales volume of paintballs, which have
significantly lower margins than the Company's other products, and
accessories.
Operating expenses. Operating expenses increased by 80.0% to $1.8 million in
1995 compared to $1.0 million in 1994. The increase was principally due to
increased marketing activities; increased volume related costs, e.g.,
commissions and freight; and was partially offset by a lower royalty cost as a
percent of sales due to the termination of the royalty arrangement in
connection with the BEI Acquisition in October 1995.
Operating income. Operating income decreased by 349.4% to $89,000 in 1995,
compared to $400,000 in 1994. The decrease was primarily due to lower gross
margins along with higher selling, marketing, general, and administrative
expenses.
Interest expense. Interest expense was $87,000 in 1995, compared to $0 in
1994, due to the debt incurred in connection with the BEI Acquisition.
Income tax rate. The Company's effective Federal and state income tax rate
was 38.3% based upon tax expenses being allocated on a separate return basis
in 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to finance increases in inventory and
receivables resulting from the rapid growth of its business. During the past
three years the Company has satisfied its operating cash needs, other than
cash required to finance the BEI Acquisition in October 1995, through
intercompany borrowings from Daisy.
Net cash used in operations for 1996 was $499,000, which consisted primarily
of net income of $882,000, depreciation and amortization expense of $426,000,
and a net increase of accounts payable and accrued expenses over prepaid
expenses of $994,000, less the increases in accounts receivable of $2.4
million and inventory of $649,000. Net cash provided by operating activities
for the eight months ended August 31, 1997, was $2.1 million, which consisted
primarily of net income of $1.7 million, depreciation and amortization expense
of
22
<PAGE>
$455,000, stock option compensation expense of $237,000, less increases in
accounts receivable of $2.9 million and inventory of $2.4 million and an
increase in accounts payable and accrued expenses over prepaid expenses of
$5.0 million.
Net cash used in investing activities was $112,000 for 1996 and $668,000 for
the eight months ending August 31, 1997, which consisted of purchases of
property, equipment, and other assets. The Company does not have any capital
commitments for the next 12 months but expects to spend approximately $1.0
million during that period for the following: plant and facilities, a
distribution center, product development, and increased production capacity.
Net cash provided by financing activities was $611,000 in 1996, which
consisted of a $1.1 million reduction of the long-term debt and $1.7 million
of additional borrowings from Daisy. Net cash used in financing activities was
$1.4 million in the eight months ended August 31, 1997, which consisted of a
$271,000 reduction of long-term debt and $1.2 million reduction of the
intercompany borrowings from Daisy.
As of August 31, 1997, the Company had existing term debt specifically
allocated from the Daisy credit facility of $1.5 million, which matures in
January 1998 and bears interest at LIBOR plus 2.5%, and an additional non-
interest bearing term debt with a remaining face value of $1.4 million payable
to the prior owners of BEI. The BEI term note was discounted at 8.4% which was
the Company's incremental borrowing rate as of October 1, 1995, the date of
inception of the note. The present value of the note outstanding at August 31,
1997 was $1.2 million. The face value of the note is payable in three
installments of $650,000, $350,000, and $395,000, on October 31, 1997, January
31, 1998 and October 3, 1998, respectively. The Daisy credit facility is
secured by all personal and intangible properties of Daisy and Brass Eagle.
The bank will release its security interest in the personal and intangible
properties of Brass Eagle upon repayment of the intercompany debt and the
credit facility term loan specifically allocated to Brass Eagle. The non-
interest bearing promissory note payable to BEI is secured by the assets
acquired in the BEI Acquisition.
At August 31, 1997, the Company had working capital of $597,000, including a
balance due to Daisy of $2.2 million of non-interest bearing intercompany
borrowings. The Company expects significant increases in intercompany
borrowings prior to the time of the Offering. The Company intends to replace
the intercompany borrowings from Daisy with the proceeds from the Offering and
establish a separate credit facility and line of credit for the Company.
Although the Company has contacted financial institutions regarding the new
credit facility, the Company has not entered into any letter of intent or
other agreements relating to such facility. See "Use of Proceeds."
The Company believes that funds generated from operations, together with the
net proceeds of the Offering and borrowings under contemplated future credit
facilities, will be adequate to meet its anticipated cash requirements for at
least the next 18 months.
SEASONALITY
While more sales of the Company's paintball products occur in the spring and
fall, the Company does not believe that seasonality has had a material effect
on the Company's operations to date.
23
<PAGE>
BUSINESS
INTRODUCTION
Brass Eagle is a worldwide leader in the design, manufacture, marketing, and
distribution of paintball products, including paintball guns, paintballs, and
accessories. The Company believes it is the only manufacturer with a full line
of products that address step-by-step price points for beginner, recreational,
and competition level paintball participants. In addition, Brass Eagle is the
only manufacturer to offer paintball products to consumers through easily
accessible channels such as mass merchandisers and major sporting goods
retailers. As a result of these initiatives, Brass Eagle provides a large
consumer base with high quality paintball products and accessories that
generally sell for substantially less than those of its competitors. These
advances have significantly broadened the paintball industry's consumer base,
increased the overall number of paintball participants, and heightened the
general awareness of and excitement for the sport.
Approximately 80% of the Company's sales are to national and regional mass
merchandisers, such as Kmart, Wal*Mart, and Meijer, and major sporting goods
retailers, such as The Sports Authority, Dick's Sporting Goods, and Jumbo
Sports. Brass Eagle products are currently the only paintball products sold
through Kmart and Wal*Mart, and through most major sporting goods chains. The
Company's products are also sold through sporting goods distributors,
specialty distributors of paintball products, and paintball specialty shops.
See "Risk Factors--Dependence on Certain Customers."
The Company's sales have grown rapidly, from $2.6 million in 1994 to $4.3
million in 1995 and to $13.8 million in 1996, a compound annual growth rate of
130.4%. This growth has continued in 1997 with sales of $18.4 million through
August 31, 1997, compared to $7.0 million through August 31, 1996, an increase
for the eight month period of 162.9%. The Company believes its growth has been
the result of increasing market acceptance of paintball and, more
specifically, growing demand from consumers through mass merchandisers and
major sporting goods retailers for Brass Eagle products. The Company believes
significant opportunities for additional growth exist worldwide and intends to
increase paintball participation and the Company's sales both nationally and
internationally through an active growth campaign.
The Company's growth strategy is to increase market awareness of paintball
worldwide, thereby expanding the paintball industry and strengthening its
leadership position. The principal strategies developed by the Company to
reach its objective are as follows: (i) expand penetration of new and existing
markets; (ii) increase participation in the sport of paintball; (iii) increase
international sales of paintball products; (iv) increase product sales through
step-by-step price segmentation; and (v) evaluate strategic acquisitions.
INDUSTRY OVERVIEW
Based on published industry data compiled by the Company, the Company
estimates that 1996 retail sales of sports equipment were $17.6 billion, and
projects 1997 sales of $18.1 billion. This category includes extreme sporting
goods such as mountain bikes, snowboards, alpine and cross-country snow skis,
water skis, in-line skates, and skateboards, which represented over $1.4
billion in sales in 1996, or 7.7% of total sports equipment sales. Moreover,
certain of these activities have experienced substantial growth over the past
several years. For example, participation rates in mountain biking and in-line
skating have grown at compound annual growth rates of 14.6% and 34.7%,
respectively, over the past five years.
The Company believes that paintball, as an extreme sport, is positioned to
experience substantial growth as the sport becomes available to a broader
consumer group. Based on published industry data compiled by the Company, the
Company believes that total paintball expenditures, including paintball guns,
paintballs, accessories, and playing field fees, will be approximately $250.0
million for 1997 and projects these expenditures to increase substantially in
the near future. Historically, paintball was played primarily by avid
enthusiasts, generally with relatively expensive, high-end paintball guns and
accessories. Enthusiasts typically obtained their equipment from a highly
fragmented base of catalogue distributors and specialty retailers. Recently,
an increasingly broader group of players, including corporate groups, youth
leagues, church organizations, and
24
<PAGE>
others, have begun participating in paintball. These beginner and recreational
players often purchase paintball guns and accessories at mass merchandise
stores or sporting goods stores and play paintball several times per year. The
Company believes that its strategy of providing a full range of products at
various price and performance points has contributed significantly to the
broadening of the industry's consumer base, the increase in the overall number
of paintball participants, and the growing acceptance of the sport.
A key component in the continued growth of paintball is the availability of
playing facilities. Historically, these facilities have consisted of
commercial and private fields, typically located outside urban centers and in
rural areas and used primarily by paintball enthusiasts. In order to further
develop the market for paintball in more densely populated areas, the Company
intends to promote a modular paintball field concept that can be played in a
relatively small, self-contained area that can easily be adapted or designed
to fit into existing family amusement centers such as go-cart tracks, batting
cages and miniature golf courses or as a stand-alone facility. The Company
recently began marketing a version of this concept under the Hyperball(TM)
name. In addition, the Company believes that a significant number of field
operators are upgrading their facilities to cater to the growing number of
beginner and recreational players. Many operators are constructing "scenario
fields" where mock battlefields, forts, and other props are utilized to
provide a fun, exciting, fantasy-like experience.
GROWTH STRATEGIES
The Company has developed the following growth strategies to capitalize on
its strong brand name, successful products, and operating capabilities:
. EXPAND PENETRATION OF NEW AND EXISTING MARKETS. Brass Eagle's sales and
marketing programs are aimed at increasing its presence in its existing
markets and expanding into new markets. Approximately 80% of the
Company's sales are to national and regional mass merchandisers, such as
Kmart, Wal*Mart, and Meijer, and major sporting goods retailers, such as
The Sports Authority, Dick's Sporting Goods, and Jumbo Sports. The
Company estimates that its products are currently sold in approximately
3,500 retail outlets, and believes significant opportunities exist for
increased market penetration. In addition, the Company expects to
increase sales to wholesale distributors, which supply Brass Eagle
products to specialty retailers and international markets. The Company
also has a direct sales program to reach consumers with unique, branded
accessories and apparel, and intends to pursue aggressively new markets,
such as family amusement centers and parks, using concepts such as
Hyperball(TM) and shooting booths.
. INCREASE PARTICIPATION IN THE SPORT OF PAINTBALL. The Company believes
that its increased marketing efforts and heightened media exposure are
helping to promote and grow the sport of paintball. Through high
visibility promotion campaigns, such as the Company's "Ballin' on the
Beach at Spring Break '97" in Panama City Beach, Florida, professional
paintball tournament coverage on ESPN, MTV's Road Rules, and other
televised programs, paintball is being introduced to a broader group of
potential participants. The Company is involved in numerous paintball
events and promotions and currently sponsors the National Professional
Paintball League ("NPPL") and two professional paintball teams. The
Company has been featured and advertises in paintball-related
publications.
The Company is currently marketing a modular field concept under the
Hyperball(TM) name in a variety of urban areas through an exclusive
North and South American licensing agreement with WDP Europe Limited,
the Company's European distributor. High speed modular games such as
Hyperball(TM) provide the beginner, recreational, and competition level
participant with convenient access to playing fields and the
opportunity to participate in an exciting new paintball activity. The
modular field concept has been widely accepted in the competition
segment with the introduction of Hyperball(TM) in 1996 at the World
Paintball Championships in Orlando, Florida, and the Company believes
that it will continue to be an important part of bringing the sport to
people of all skill levels. The Company has licensed modular fields
operated under the Hyperball(TM) name in Newberg, New York and Mantua,
New Jersey, to be opened in November 1997, and anticipates that it will
license several additional locations over the next 12 months.
25
<PAGE>
. INCREASE INTERNATIONAL SALES OF PAINTBALL PRODUCTS. The Company believes
that international markets for paintball products and accessories
present significant opportunities for growth. Through its relationship
with WDP Ltd., its European distributor, the Company has been successful
in expanding its market share in Europe, primarily in Germany and the
United Kingdom. The Company believes that significant additional growth
opportunities exist in Europe, as well as in South and Central America.
Sales outside of North America accounted for 14.5% of the Company's
total sales in 1996. As the popularity of paintball continues to grow
and the Company increases its marketing and sales efforts abroad, the
Company expects that sales outside of North America will account for a
larger portion of its sales.
. INCREASE PRODUCT SALES THROUGH STEP-BY-STEP PRICE SEGMENTATION. The
Company believes that the total number of paintball guns sold in 1996
more than doubled from 1995 to over 250,000 units worldwide (146,000 of
which were sold by the Company), primarily due to the growth in the
number of new users in the beginner price segment. In 1996, Brass Eagle
offered four paintball guns to consumers at price points from $35 for
beginner products to $110 for recreational products. The Company
believes that new 1997 product introductions in the competition segment,
such as the Raptor and the Rainmaker(TM), will satisfy the demands of
competition-level paintball participants. The Company believes that by
offering products spanning a wide range of price points it is able to
meet the needs of new paintball consumers as well as recreation and
competition players as they move to more sophisticated products. The
Company intends to continue to focus on research and development to
ensure that Brass Eagle is able to offer high quality paintball products
at step-by-step price points.
. EVALUATE STRATEGIC ACQUISITIONS. The Company may, when and if the
opportunity arises, acquire other businesses involved in activities or
having product lines that are compatible with those of the Company.
OPERATING STRATEGIES
The Company believes it currently has the leading market share in paintball
guns and is a major participant in the paintball and paintball accessories
markets. Brass Eagle has established and continues to enhance its position as
a worldwide leader in the design, manufacture, marketing, and distribution of
paintball products through the following operating strategies:
. STRONG RELATIONSHIPS WITH CUSTOMER BASE. The Company introduced
paintball products to mass merchandisers and major sporting goods
retailers at price points familiar to them and, due to the strong demand
for paintball products and their attractive retail profit margins, has
become an increasingly important supplier to this customer base. Brass
Eagle is currently the primary supplier of paintball products to the
leading mass merchandisers and major sporting goods retailers selling
paintball products and is the only supplier to Kmart and Wal*Mart. The
Company strives to maintain these strong relationships by providing
retailers high quality paintball products and strong sales and marketing
support through co-op advertising, unique promotions, and point-of-sale
support.
. PRODUCT LINE EXPANSION AND DISTRIBUTION CHANNEL SEGMENTATION. The
Company has expanded the market for paintball products by extending its
product line and segmenting product distribution to address a growing
range of price points and performance needs. In 1994, the Company
offered only two paintball guns and participated in a narrow market
segment represented by paintball guns which retailed from $200 to over
$1,000. Today, the Company's primary target market is the beginner and
recreational price segment. Brass Eagle now offers six paintball guns
and has successfully expanded the primary market for its paintball guns
to price points that range from approximately $35 to $500. The Company
believes its broad, segmented product lines enable it to capitalize on
its design and manufacturing capabilities to meet the cost and
performance needs of its customers at various price points, while
enhancing its brand name.
26
<PAGE>
. WIDELY RECOGNIZED BRAND NAME AND DISTINCTIVE PRODUCTS. The Company is
responsible for expansion of paintball product distribution to mass
merchandisers and major sporting goods retailers, making Brass Eagle one
of the most widely recognized brand names in the paintball industry.
Brass Eagle paintball products are currently the only paintball products
sold by Kmart and Wal*Mart and most major sporting goods retailers. The
Company promotes its brand name and image through focused marketing
programs, including sponsorship of professional paintball teams and
creative advertising in a variety of U.S. and international paintball
publications. The Company's brand name and products also receive further
promotion through frequent editorial references in these paintball
publications.
. INNOVATIVE PRODUCT DEVELOPMENT. Brass Eagle has established itself as a
leader in the growing paintball market by introducing a series of new
and innovative paintball products, such as the original semi-automatic
Stingray paintball gun, the new Rainmaker(TM) paintball gun, and the
Xtreme Vision 280(TM) facemask. The Company has introduced three new
paintball gun products and an array of new accessory products in the
last 18 months, while continuing to improve its earlier product
offerings. Brass Eagle supports its research and development efforts
with a team of professionals and sophisticated computer-based design
tools. The Company does extensive field tests on its new products
through teams of avid players who use the products in all types of
playing situations.
. INCREASINGLY EFFICIENT DESIGN AND MANUFACTURING PROCESSES. The Company
continually seeks to improve efficiency in its product development and
manufacturing activities. Continuing improvements in product design, as
well as the Company's ability to bring critical new technology and
advances to its products, have generated significant new opportunities.
As a result, Brass Eagle has been able to expand its market by
introducing more moderately-priced products. The Company believes that
its emphasis on design and manufacturing efficiencies will continue to
be a critical factor in its ability to expand the market for its
products.
PRODUCTS
The Company offers a full line of paintball products, including paintball
guns, paintballs, and accessories at various price points.
Paintball Guns. The Company designs and manufactures a full product line of
paintball guns with a variety of performance characteristics. There are three
primary classifications of paintball guns: 12 gram, pump action, and semi-
automatic. The 12 gram paintball gun, such as the Company's Talon model, is a
direct descendent of the original "splotch marker" used to mark cattle and
trees before the advent of the sport of paintball. These paintball guns use 12
gram CO/2/ jets, are actuated using a pump action, and usually have a small
paintball capacity. Pump action paintball guns, such as the Company's
Tigershark, differ from a 12 gram paintball gun in that they use a refillable
cylinder as a power source and a hopper to feed multiple paintballs into the
chamber. While a pump action gun needs to be cocked before each shot, a semi-
automatic paintball gun needs to be cocked only once before firing the first
shot. Thereafter it fires automatically after each trigger pull. Depending
upon the skill and equipment of the paintball participant, some semi-automatic
paintball guns can be fired in excess of 14 times per second. Most organized
paintball tournaments are played exclusively with semi-automatic paintball
guns. The Company currently offers four semi-automatic paintball pistols and
guns: Eagle, Stingray, Raptor, and Rainmaker(TM).
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<PAGE>
The following table summarizes the Company's line of paintball guns:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
APPROXIMATE 1996 ENDED AUGUST
EXPERIENCE RETAIL UNIT 1997 UNIT
PRODUCT DESCRIPTION LEVEL PRICE VOLUME VOLUME
- ------------------------ ------------------------------------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Talon................... . Introduced in September 1996 Beginner $35 3,374 8,267
. 12 gram paintball gun
. Least expensive paintball gun
Player's Kit............ . Introduced in September 1996 Beginner $50 54,320 57,549
. Includes Talon paintball gun,
accessories such as a barrel plug
and ten round feed tube, "Fun
of Paintball" video covering
basic safety procedures, game
formats, and helpful hints for
new players, and a $5 rebate
coupon on purchase of Deluxe
Facemask
Tigershark.............. . Introduced in April 1994 Beginner $70 32,980 28,189
. Pump action, constant air capable
Eagle................... . Introduced in August 1995 Recreational $90 10,811 1,944
. Semi-automatic paintball pistol
. Spring fed internal magazine
. Shoots approximately 4 paintballs
per second
Stingray................ . Introduced in October 1993 Recreational $100-$110 41,506 34,310
. Semi-automatic paintball gun
. Co-polymer construction
. Shoots approximately 4 paintballs
per second
Raptor.................. . Introduced in September 1996 Competition $185-$200 3,465 11,593
. Semi-automatic paintball gun
. Extruded aircraft grade aluminum
. Shoots up to approximately 7 paintballs
per second
Rainmaker(TM) . Introduced in August 1997 Competition $500-$550 -- --
. Semi-automatic paintball gun
. Electronically controlled firing
system
. Electronically controlled feed
system to eliminate ball breakage
(patent pending)
. Shoots up to approximately 14 paintballs
per second
</TABLE>
Paintballs. Paintballs are made of a gelatinous material and the paint is
non-toxic, biodegradable, and easily washable. Paintballs are manufactured
using an encapsulation process requiring special equipment and certain
technical knowledge. Brass Eagle sells its paintballs in multiple colors in
packages of 200, 500, 1,800, and 2,500. In 1996, the Company sold
approximately 153.9 million paintballs and for the eight months ended August
31, 1997, the Company sold approximately 278.6 million paintballs. The Company
purchases all of its paintball requirements from Goldcaps, Inc. through an
exclusive distribution arrangement. See "Risk Factors--Dependence on Limited
Number of Suppliers; Exclusive Arrangements and Noncompetition Covenants" and
"--Manufacturing; Strategic Alliances; Backlog."
28
<PAGE>
Accessory Products. Brass Eagle markets a broad product line of paintball
accessories complementary to its paintball guns and paintballs. These
accessory products include facemasks, paintball hoppers, cleaning squeegees,
and refillable CO/2/ tanks. Facemasks, a requirement for safe paintball play,
are a primary component of the Company's accessory product line. The Company's
facemasks are designed to provide full facial and ear protection.
The following table summarizes the Company's line of facemasks:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
APPROXIMATE 1996 ENDED AUGUST
RETAIL UNIT 1997 UNIT
PRODUCTS DESCRIPTION PRICE VOLUME VOLUME
- ------------------------ -------------------------------------------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Deluxe Facemask......... . Introduced in August 1995 $35 50,858 59,248
. Complete eye, face, forehead, and ear protection
. Anti-scratch and anti-fog coated lens
Xtreme Vision 280(TM)... . Introduced in August 1997 $55 -- --
. 280 degrees of peripheral vision
. Optically correct bubble lens
. Complete eye, face, forehead, and ear protection
. Anti-scratch and anti-fog coated lens
</TABLE>
SALES AND DISTRIBUTION
Brass Eagle's sales and distribution strategy is unique in the paintball
industry. Unlike its competitors, Brass Eagle makes its products readily
available to mainstream consumers through mass merchandisers, major sporting
goods retailers, and specialty retailers.
Mass Merchandisers. These retailers include major retail chains such as
Kmart, Wal*Mart, and Meijer. The Company believes that accessing these
retailers is instrumental in introducing its product line to a large and
diverse demographic group. For 1996 and for the first eight months of 1997,
21.9% and 32.6%, respectively, of the Company's sales were to Kmart, and 13.7%
and 17.1%, respectively, of the Company's sales were to Wal*Mart. See "Risk
Factors--Dependence on Certain Customers."
Major Sporting Goods Retailers. These retailers include national and
regional chains such as The Sports Authority, Dick's Sporting Goods, Jumbo
Sports, Academy, Gart Brothers, and Galyan's. In addition to providing Brass
Eagle products to a large consumer base, the sale of the Company's products
through major sporting goods retailers helps to position paintball as a new
and growing sport. No customer in this channel accounted for more than 10% of
the Company's sales for 1996 or for the first eight months of 1997.
Specialty Retailers. These retailers include a variety of small sporting
goods stores, outdoor equipment retailers, and paintball specialty stores. The
Company sells paintball products to specialty retailers through distributors,
sales representatives, and telemarketing activities. Specialty retailers
complement the Company's sales and distribution strategies by penetrating
niche markets and providing paintball products to avid participants. No
customer in this channel accounted for more than 10% of the Company's sales
for 1996 or for the first eight months of 1997.
The Company's distribution strategy is centered on a product segmentation
approach. Brass Eagle sells the product mix which it believes most accurately
addresses the price points and demand characteristics of its customers' end
consumers. In this manner, the Company believes it can best manage the long-
term growth and brand loyalty of its products while maximizing the efficiency
of its customers' space.
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<PAGE>
To facilitate its sales and distribution strategy, the Company maintains a
sales and marketing staff, including senior management and in-house sales and
marketing personnel, and retains nine independent manufacturers' sales
representative organizations to service the United States market. The sales
representatives generally offer various lines of sporting goods and have
established relationships with retailers in the Company's targeted
distribution channels. Sales representatives operate under standard contracts
in defined geographic territories and are contractually prohibited from
selling competitors' paintball products.
The Company's products are distributed internationally by WDP Ltd., a UK-
based supplier of paintball guns and accessories primarily to European
specialty retailers. Additionally, the Company sells its products directly to
other organizations, such as the Army Air Force Exchange Sevice that sells
products at post exchanges on military bases. For 1996 and the first eight
months of 1997, the Company's international sales were $2.0 million and $1.6
million, respectively. In addition, 10.0% of the Company's sales were to WDP
Ltd. for 1996.
MARKETING
The Company's marketing strategy is to maintain and further develop Brass
Eagle as the leading paintball guns and accessories brand and to expand the
paintball industry. The Company promotes its brand name and the paintball
industry through focused marketing efforts such as designing packaging and
point-of-sale materials, sponsoring paintball events, two professional
paintball teams, and the NPPL, developing modular field concepts such as
Hyperball(TM), participating in trade shows, and advertising.
Brass Eagle assists customers in designing appropriate product layouts to
display paintball guns, paintballs, and accessories. In addition, the Company
has created unique packaging to attract players at varying skill levels. For
example, the Player's Kit, which is targeted to beginning players and retails
for only $50, offers the Talon paintball gun, an introductory safety video,
and a rebate toward the purchase of a Deluxe Facemask.
The Company believes that a key component to the continued growth of the
paintball industry is the availability of playing facilities, especially in
urban areas. The Company markets a modular paintball arena under the
Hyperball(TM) name that provides an exciting, fast-paced game that allows for
public viewing. Brass Eagle licenses the Hyperball(TM) name, and will provide
operators with equipment and accessories. The Company anticipates that modular
field operators will offer walk-on games as well as planned events such as
league play. The Company also directs consumers by offering free admission to
local playing areas through its Eagles Nest program, which provides incentives
to field operators and retail outlets to carry Brass Eagle products.
The sponsorship of paintball events, two professional paintball teams, and
the NPPL is an important part of the Company's marketing strategy, as well as
its product development activities. By associating its name with
professionally staged events, the Company increases consumer awareness of, and
demand for, paintball and Brass Eagle products. The Brass Eagle sponsored
professional paintball teams compete in professional and amateur events, stage
demonstration events for retailers and other groups, and attend trade shows on
the Company's behalf. Team members also test new products and provide valuable
feedback to the Company's product development staff. The Company has also
sponsored other promotional events, such as "Ballin on the Beach at Spring
Break '97," an activity staged on a Hyperball(TM) field erected on a beach in
Panama City, Florida, during collegiate spring break, and various other
amateur tournaments.
The Company attends several key trade shows throughout each calendar year to
promote its product line to retailers and entertainment providers, including
the Super Show and the International Amusement Parks and Attractions Show. In
addition, the Company places print advertisements in outdoor recreation and
paintball magazines, including Paintball Sports International, Paintball Games
International, and Paintball Player's Bible, as well as on its website at
http://www.brasseagle.com.
30
<PAGE>
MANUFACTURING; STRATEGIC ALLIANCES; BACKLOG
The Company designs all of its paintball guns and, in cooperation with
Leader and certain of its other key suppliers, facemasks and other accessory
items. The Company designs all tooling and dies necessary for the production
of paintball guns, and has non-exclusive contracts with a number of suppliers
to provide all necessary components using the Company's tooling and dies. All
assembly manufacturing is then done at the Company's Granby, Missouri,
facility on continuous flow assembly lines. The Company generally operates a
single shift comprised of four 10-hour days. If overtime is required, it is
generally scheduled for the fifth weekday. The assembly lines are comprised of
a combination of automated and manual assembly stations supported by satellite
subassembly operations. They are designed for maximum efficiency and can
handle significant additional capacity. The Company provides extensive
training to all personnel to enable supervisors and lead assemblers to manage
their own work areas and continually monitor product quality. Each paintball
gun is individually pressure tested and fired prior to shipment. Finished
products are stored at warehouse space located at Daisy's Rogers, Arkansas,
manufacturing facilities, a portion of which the Company leases from Daisy
Manufacturing pursuant to an administrative services agreement that expires in
December 1998.
Production planning starts with a general forecast several months before the
beginning of each year. This general forecast is then refined and expanded
into a more complete, time-phased forecast which guides initial planning for
parts and labor requirements. As the year progresses, the forecast is
constantly reviewed and compared with actual customer orders. The planning
process is controlled by a fully-integrated manufacturing resource planning
system. Finished goods purchases, such as paintballs and protective facemasks,
are planned through the same materials planning system. The Company does not
consider its backlog to be significant. See "Risk Factors--Difficulty in
Forecasting Product Demand."
The Company has entered into an agreement with Goldcaps, Inc., a subsidiary
of IVAX Corp. of Miami, Florida, pursuant to which the Company has agreed to
act as Goldcaps' exclusive worldwide paintball distributor to all retail and
wholesale outlets. This agreement extends through August 1999, but is
terminable prior to that time upon one year's notice and contains certain
provisions which prohibit the Company from selling any competing products
during the term of the agreement. The Company's European paintball
requirements are supplied through Gelkaps, also a subsidiary of IVAX, which is
located in Falkenhagen, Germany, providing the Company a local source of
paintballs for the European market.
The Company has also entered into an agreement with Leader of Montreal,
Quebec, Canada, a well known manufacturer of eye protective equipment,
pursuant to which the Company has agreed to serve as Leader's exclusive
worldwide distributor of facemasks (except in Canada, where Leader also sells
its products). This agreement extends through August 1999, but is terminable
prior to that time on six months' notice, and also contains certain provisions
which prohibit the Company from selling any competing products within its
distribution territory during the term of the agreement. The facemask is a
crucial accessory item, since its use is required for safe paintball play and
is mandated by all commercially operated paintball fields.
The Company works closely with a variety of vendors to meet its production
needs, including machine shops, die casters, and injection molders. Although
the Company has established relationships with its principal suppliers and
manufacturing sources, it does not have long-term contracts with any vendors
other than Goldcaps and Leader, nor does it maintain multiple simultaneous
relationships with vendors for parts, tooling, supplies, or services critical
to its manufacturing processes, although it believes that alternative vendors
are available if necessary. The Company continually reviews its vendor
relationships with regard to cost, delivery, and quality. See "Risk Factors--
Dependence on Limited Number of Suppliers; Exclusive Arrangements and
Noncompetition Covenants."
COMPETITION
The Company believes that paintball competes in the extreme sports segment
of the sports and recreation industry, which is highly competitive. This
industry includes mountain biking, snowboarding, alpine and cross-
31
<PAGE>
country snow skiing, water skiing, in-line skating, and skateboarding. The
market for paintball products specifically, however, is currently fragmented
and underdeveloped. The Company believes that it is the largest manufacturer
and marketer of paintball guns and accessories, particularly to new paintball
players, and is a leader in the design, manufacture, marketing, and
distribution of paintball products generally. The Company believes that it
competes primarily on the basis of price and product performance. There can be
no assurance, however, that any number of new competitors, some of which may
have significantly greater financial and organizational resources than the
Company, will not emerge in the future as the market for paintball products
develops further, or that the present competitors of the Company will not be
able to compete more successfully in the future. In order for the Company to
maintain or grow its market share and profitability, it must continue to
develop the market for paintball while competing successfully with others in
the extreme sports segment of the sports and recreation industries, as well as
with other current and potential paintball product manufacturers. See "Risk
Factors--Competition."
INTELLECTUAL PROPERTY
The Company acquired certain patents and trademarks in the BEI Acquisition.
Also, the Company has applied for patent protection on the design of the new
Rainmaker(TM) paintball gun and anticipates seeking patent protection on
paintball guns or certain features of paintball guns developed in the future.
Nevertheless, the Company's competitors currently replicate and may continue
to replicate certain features and functions of the Company's products. There
can be no assurance that current or future patent protection will prevent
competitors from offering competing products, that any issued patents will be
upheld, or that patent protection will be granted in any or all of the
countries in which applications are currently pending or granted on the
breadth of the description of the invention. In addition, due to
considerations relating to, among other things, cost, delay, or adverse
publicity, there can be no assurance that the Company will elect to enforce
its intellectual property rights. The Company has not been and is not
currently a party to any material intellectual property litigation.
The Company currently holds patents in the United States and Canada on most
of its paintball guns and has a patent pending in the United States on the new
Rainmaker(TM) paintball gun. The Company also has trademark registrations for
its name and the name of its products in the United States and both
registrations and applications in Canada. Although the Company believes that
patents are useful in maintaining the Company's competitive position, it
considers other factors, such as the Company's brand name, ability to design
innovative products, technical and marketing expertise, and customer service
to be its primary competitive advantages.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. See "Risk Factors--
Limited Protection for Technology."
FACILITIES
The Company leases 6,400 square feet of space for its sales and
administrative offices in Rogers, Arkansas, and a 32,000 square foot
manufacturing facility located in Granby, Missouri, pursuant to two separate
leases, both of which expire in December 1999. The Company, through an
agreement with the Granby Economic Development Council, holds an option to
acquire the four-acre parcel upon which the Company's manufacturing facility
is located. There will be no cost to the Company for this acquisition provided
the Company employs 25 people at the time the option is exercised. The
Company's finished goods warehouse and shipping functions are located in New
Daisy's warehouse in Rogers, Arkansas.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state, and local laws, regulations, and
ordinances that (i) govern activities or operations that may have adverse
environmental effects (such as emissions to air, discharges to water, and the
generation, handling, storage, transportation, treatment, and disposal of
solid and hazardous
32
<PAGE>
wastes) or (ii) impose liability for cleaning up or remediating contaminated
property (or the costs therefor), including damages from spills, disposals, or
other releases of hazardous substances or wastes in certain circumstances
without regard to fault. The Company's manufacturing operations routinely
involve the handling of small amounts of chemicals and wastes, some of which
are or may be regulated as hazardous substances. The Company has not incurred,
and does not expect to incur, any significant expenditures or liabilities for
environmental matters. As a result, the Company believes that its
environmental obligations will not have a material adverse effect on its
operations or financial position.
LEGAL PROCEEDINGS
Due to the risks inherent in paintball, the Company anticipates that it will
be a defendant in product liability lawsuits from time to time. Through August
31, 1997, the Company had been named as a defendant in one lawsuit and has had
three other claims made against it by persons alleging to have been injured by
its products. In each case, the alleged injury was to the eye of a paintball
participant. The lawsuit and one of the claims were each resolved without a
material adverse effect on the Company and its prospects. The Company believes
that the other two claims will also be resolved without a material adverse
effect on the Company or its prospects. However, the Company expects that the
volume of such claims and suits will increase as sales increase. The Company
may also from time to time be a party to various other claims, complaints, and
other legal actions that arise in the normal course of business. See "Risk
Factors--Product Safety and Liability" and "--Certain Tax and Contingent
Liability Risks Related to the Reorganization."
GOVERNMENT REGULATION
Paintball products are within the jurisdiction of the United States Consumer
Products Safety Commission (the "CPSC") and other Federal, state, and foreign
regulatory bodies. Under CPSC regulations, a manufacturer of consumer goods is
obligated to notify the CPSC if, among other things, the manufacturer becomes
aware that one of its products has a defect that could create a substantial
risk of injury. If the manufacturer has not already undertaken to do so, the
CPSC may require a manufacturer to recall a product, which may involve product
repair, replacement, or refund. The Company is unaware of any activity by the
CPSC in the area of paintball products regarding the Company or any competitor
of the Company.
The Company understands that certain local and foreign jurisdictions have
legislation that prohibits retailers from selling certain product categories
that are or may be sufficiently broad to include paintball guns. Although the
Company is not aware of any state or Federal initiatives to enact comparable
legislation, there can be no assurance that such legislation will not be
enacted in the future.
The American Society of Testing Materials ("ASTM"), a non-governmental self-
regulating association, has been active in developing voluntary standards
regarding paintball fields, paintball face protection, and paintball guns.
Company representatives are active on the relevant ASTM subcommittees and in
developing the relevant safety standards. The Company does not believe that
any current or pending ASTM standards will have a material adverse effect on
the Company's cost of doing business.
Adverse publicity relating to the sport of paintball, or publicity
associated with actions by the CPSC or others expressing concern about the
safety or function of the Company's products or competitors products (whether
or not such publicity is associated with a claim against the Company or
results in any action by the Company or the CPSC) could have a material
adverse effect on the Company's reputation, brand image, or markets, any of
which could have a material adverse effect on the Company or its prospects.
See "Risk Factors--Government Regulation."
EMPLOYEES
As of August 31, 1997, the Company employed approximately 50 full-time
employees. In addition, the Company utilizes additional temporary personnel in
its assembly operations to meet production demand when necessary. The Company
is not a party to any labor agreements and none of its employees is
represented by a labor union. The Company considers its relationship with its
employees to be excellent.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Certain information regarding the Company's executive officers, directors,
and certain key employees is set forth below. The Board currently has five
members.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Marvin W. Griffin....... 59 Chairman of the Board of Directors
E. Lynn Scott........... 43 President; Chief Executive Officer; Director
Charles L. Prudhomme.... 46 Vice President, Marketing and Business Development
Steven R. DeMent........ 39 Vice President, Operations
Steven R. Cherry........ 41 Vice President, Brand Development
Daniel L. Obergfell..... 37 Vice President, Sales
Stephen J. Mattia....... 49 Controller; Assistant Secretary
J.J. Brookshire......... 32 Marketing Manager
Anthony J. Dowd......... 38 Director
H. Gregory Wold......... 63 Director
Stephen J. Schaubert.... 51 Director
</TABLE>
Marvin W. Griffin has been Chairman of the Board of the Company since its
inception in September 1997. He has been the Chairman of the Board, President
and Chief Executive Officer of Daisy since 1988 and will continue to serve in
that capacity with New Daisy after the Offering. From 1983 to 1987, Mr.
Griffin was the Chief Executive Officer of the Coca-Cola Bottling Company
Consolidated, a soft-drink bottling company, and was the Senior Vice President
of Sales and Marketing at Coca-Cola U.S.A., a soft-drink maker, from 1980 to
1983.
E. Lynn Scott has been President and Chief Executive Officer of the Company
since its inception in September 1997. Mr. Scott was responsible for
developing Daisy's paintball operations through its Brass Eagle division and
he has served as President of the division since November 1996. Prior to that,
he served as Vice President, Sales and Marketing of Daisy from June 1989 to
April 1997. Before joining Daisy, Mr. Scott served as Vice President, Sales
and Marketing at Skeeter Products and Crosman, both divisions of The Coleman
Company that specialize in sporting goods. He is also a Director of New Daisy.
Charles L. Prudhomme has been Vice President of Marketing and Business
Development of the Company since its inception in September 1997. Prior to
that, he served as Vice President of Business Development and Director of
Marketing of Daisy from April 1996 and as a consultant at Daisy from August
1994 until March 1996. Mr. Prudhomme's responsibilities at Daisy included
developing paintball marketing programs. Before joining Daisy as an employee,
Mr. Prudhomme served as a principal in the Coronado Group, a management
consulting firm, from March 1993 to March 1996, and as a Vice President of the
Joey Reiman Advertising Agency, an advertising firm, from December 1991 to
February 1993.
Steven R. DeMent has been Vice President of Operations of the Company since
its inception in September 1997. Prior to that, he served as Director of
Operations of Daisy from September 1995 to August 1997. Mr. DeMent was
instrumental in the development and installation of Daisy's paintball
manufacturing processes. Before joining Daisy, Mr. DeMent served as President
of New Way Tours, a charter bus and transportation service, from May 1994 to
September 1995, Vice President of Operations for Competec International, Ltd.,
a maker of custom plastics, from April 1993 to May 1994, and as Plant Manager
for Key Tronic Corporation, a maker of computer key boards, from 1988 to March
1993.
Steven R. Cherry has been Vice President, Brand Management, of the Company
since its inception in September 1997. Prior to that, he served as Director of
Product Development of Daisy from May 1995 to August 1997. Mr. Cherry served
as a liaison between Daisy's paintball sales and manufacturing groups. He
served as Product Manager from October 1990 to May 1995, as Manufacturing
Engineering Manager from June 1988 to October 1990, and Chief Industrial
Engineer of Daisy from June 1986 to June 1988.
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<PAGE>
Daniel L. Obergfell has been Vice President, Sales, of the Company since its
inception in September 1997. Prior to that, he served as Sales Manager of the
Brass Eagle division of Daisy from June 1997 to September 1997. Before joining
Daisy, he served as National Account Sales Manager for DeVilbiss Air Power
Company, a manufacturer of retail power equipment, from June 1996 to March
1997, and as National Account Sales Manager for the WD-40 Company, a multi-
purpose lubricant manufacturer, from November 1988 to May 1996.
Stephen J. Mattia has been Controller and Assistant Secretary of the Company
since its inception in September 1997. Prior to that, he served as Finance
Manager of the Brass Eagle division of Daisy from May 1997 to August 1997.
Before joining Daisy, Mr. Mattia served as Controller of the Global Stone
Corporation, an Oklahoma manufacturer of quick lime products, from November
1996 to May 1997, and as Controller of the Sierra Corporation, an Oklahoma
manufacturer of sporting goods, from September 1992 to September 1995.
J. J. Brookshire has been Marketing Manager of the Company since its
inception in September 1997. Prior to that, he served as Marketing Manager of
the Brass Eagle division of Daisy from October 1995 to August 1997. Before
joining Daisy, Mr. Brookshire served as Director of Marketing for National
Paintball/International Management Associates, Inc., a paintball products
distributor, from February 1992 to October 1995.
Anthony J. Dowd has been a Director of the Company since its inception in
September 1997. He also serves as Director of Private Investments for Charter
Oak Partners, a private investment firm, and has served in that capacity since
May 1992. Mr. Dowd has served as a director of Daisy since June 1993, and
serves as a director of several privately-held companies. Prior to joining the
Company, he served as a Senior Associate at James D. Wolfensohn, Inc. (now BT
Wolfensohn), an investment banking firm, from 1988 to 1991. Mr. Dowd is also a
director of New Daisy.
H. Gregory Wold has been a Director of the Company since its inception in
September 1997. Mr. Wold joined the Ford Motor Company, an auto manufacturer,
in 1964 and served as its Director of Business Development from 1996 to 1997
and its Associate Director-Corporate Strategy from 1986 to 1996. Mr. Wold
retired from the Ford Motor Company in 1997. He is also a director of New
Daisy.
Stephen J. Schaubert has been a Director of the Company since its inception
in September 1997. He is also a Director at Bain & Company Inc., an
international consulting firm headquartered in Boston. Prior to joining Bain
in 1979, Mr. Schaubert worked in the healthcare and aerospace industries in a
series of general management positions, both domestic and international.
BOARD COMMITTEES
The Company's By-laws provide that the Board may elect such directorate
committees as it may from time to time determine. Two such committees of the
Board have been established: the Audit Committee and the Compensation
Committee. The members of the Audit Committee are Messrs. Wold and Dowd,
neither of whom are officers or employees of, or otherwise affiliated with,
the Company. The Audit Committee will review the professional services
provided by the Company's independent auditors and the independence of such
auditors from management of the Company. The Audit Committee will also review
the scope of the audit by the Company's independent auditors, the annual
financial statements of the Company, the Company's system of internal
accounting controls, and such other matters with respect to the accounting,
auditing, and financial reporting practices and procedures of the Company as
it finds appropriate or as are brought to its attention. The Compensation
Committee's principal function will be to establish the compensation of
officers of the Company and to establish and administer the Company's
compensation programs. Messrs. Dowd, Scott, and Griffin will serve on the
Compensation Committee.
DIRECTOR COMPENSATION
Each director of the Company who is not also an employee of the Company (or
his or her designee) will receive, as an annual fee, Common Stock having a
fair market value of $8,000 at the time of its issuance in quarterly
installments. A director who is also an employee of the Company will receive
no additional
35
<PAGE>
compensation for serving as a director. All directors are reimbursed for out-
of-pocket expenses incurred in connection with attendance at meetings of the
Board and Board committees and other activities relating thereto.
EMPLOYMENT AGREEMENTS
Mr. Scott is the only key employee who has entered into an employment
agreement with the Company. The agreement provides for an initial three-year
term expiring September 15, 2000, which automatically extends each year,
subject to the right of either party not to extend the agreement upon ninety
days notice. In addition, Mr. Scott may elect to terminate his employment in
the event of a change-in-control of the Company or the sale of all or
substantially all of its assets. Mr. Scott will be paid an annual base salary
of $140,000 in 1997, increasing to $160,000 in 1998. In 1997, he will receive
a bonus of up to $46,667 based upon the Company's 1997 operating results. Mr.
Scott's bonus compensation for subsequent years will be determined based upon
performance targets set by the Company's Board of Directors after consultation
with Mr. Scott.
Under his employment agreement, Mr. Scott is subject to certain non-
disclosure, non-competition, and non-solicitation covenants applicable during
the term of his employment under the agreement and until one year after
termination of his employment.
Pursuant to the 1997 Stock Option Plan, Mr. Scott was granted options to
purchase up to 72,250 shares of Common Stock at the initial public offering
price. His options vest in four annual installments after completion of this
Offering. Mr. Scott is eligible to receive additional options under the 1997
Stock Option Plan. See "--1997 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks in 1996. E. Lynn Scott
currently serves on the Company's compensation committee and also serves on
the Board of Directors for New Daisy. Marvin W. Griffin is the Chairman of the
Board, President and Chief Executive Officer of New Daisy and also serves on
the Company's compensation committee.
EXECUTIVE COMPENSATION
The following tables set forth, with respect to the Company and Daisy,
certain information regarding compensation paid or accrued for services
rendered to Daisy during 1996 for its Chief Executive Officer and five most
highly compensated employees (collectively, the "Named Executive Officers"),
based on salary and bonus earned for services rendered to Daisy during 1996.
The table captioned "Brass Eagle" sets forth such information with respect to
1996 for Named Executive Officers who will be employed by the Company
following the Reorganization. The table captioned "Daisy" sets forth such
information with respect to 1996 for Named Executive Officers who will not be
employed by the Company following the Reorganization.
36
<PAGE>
SUMMARY COMPENSATION TABLE -- BRASS EAGLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------- ---------------------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) OPTIONS SATION
------------------ ---- -------- ------ ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Lynn Scott(1)........ 1996 $130,200 -- -- -- 22,331 $ 2,463
President and Chief Ex-
ecutive Officer
Steven R. DeMent(2)..... 1996 106,845 -- -- -- -- 11,268
Vice President, Opera-
tions
</TABLE>
- --------
(1) Consists of: (i) Company contributions to the 401(k) Retirement Savings
Plan of $1,302 and (ii) Company payments of life insurance premiums of
$1,161 for Mr. Scott.
(2) Mr. DeMent became employed by the Company as of February 12, 1996.
Consequently, Mr. DeMent's salary for 1996 as set forth above represents
only eleven months of his annual salary. Had Mr. DeMent been employed for
the entire twelve months of 1996, his salary for such year would have been
approximately $120,000. Additionally, "All Other Compensation" consists of
(i) Company payments of life insurance premiums of $1,115 and (ii) $10,153
of reimbursed relocation expenses.
SUMMARY COMPENSATION TABLE -- DAISY
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- ---------------------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) OPTIONS SATION
------------------ ---- ------- ------ ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Marvin Griffin(1)....... 1996 $62,020 -- -- -- 22,367 $720
President and Chief Ex-
ecutive Officer
Robert Degarmo(2)....... 1996 4,715 -- -- -- -- 778
Vice President, Opera-
tions
Jerry Watkins(3)........ 1996 15,335 -- -- -- 11,166 281
Chief Financial Officer
</TABLE>
(1) Consists of Company payments of life insurance premiums of $720 for Mr.
Griffin.
(2) Mr. Degarmo became employed by the Company on September 1, 1996.
Consequently Mr. Degarmo's salary for 1996 as set forth above represents
only four months of this annual salary. Had Mr. Degarmo been employed for
the entire twelve months of 1996, his salary for such year would have been
approximately $14,000. Additionally, "All Other Compensation" consists of
(i) Company payments of life insurance premiums of $48 and (ii) $730 of
reimbursed relocation expenses.
(3) Mr. Watkins became employed by the Company on April 2, 1996. Consequently,
Mr. Watkins' salary for 1996 as set forth above represents only nine months
of this annual salary. Had Mr. Watkins been employed for the entire twelve
months of 1996, his salary for such year would have been approximately
$20,180. Additionally, "All Other Compensation" consists of (i) Company
payments of life insurance premiums of $17 and (ii) $1,050 of reimbursed
relocation expenses.
The above salary and other compensation represent the amounts allocated from
Daisy to Brass Eagle. See "Risk Factors--Allocation of Historical Financial
Information." Mr. Griffin's total salary and other compensation, consisting of
life insurance premiums were $310,100 and $3,600, respectively. Mr. Degarmo's
total salary, life insurance premiums and reimbursed relocation expenses were
$47,146, $480 and $7,300, respectively, for the four months he was employed by
the Company. Had Mr. Degarmo been employed for the entire twelve months of
1996, his salary, life insurance premiums and reimbursed relocation expenses
would have been $140,000, $1,400 and $7,300, respectively. Mr. Watkins total
salary, life insurance premiums and reimbursed relocation expenses were
$76,676, $675 and $7,391, respectively, for the nine months he was employed by
the Company. Had Mr. Watkins been employed for the entire twelve months of
fiscal year 1996, his salary, life insurance premiums and reimbursed relocation
expenses would have been $100,676, $900 and $7,391, respectively.
37
<PAGE>
Option Grants During 1996. The following table provides information related
to options to purchase common stock of the Company granted to the Named
Executive Officers during 1996. See "Reorganization."
OPTION GRANTS IN 1996 -- BRASS EAGLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICES
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERMS
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME OPTIONS YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
E. Lynn Scott........... 22,331 40% $0.56 July 1, 2003 $ 5,091 $ 11,864
</TABLE>
OPTION GRANTS IN 1996 -- DAISY
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICES
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERMS
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME OPTIONS YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marvin Griffin.......... 22,331 40% $0.56 July 1, 2003 $ 5,091 $ 11,864
Robert Degarmo.......... -- -- -- -- -- --
Jerry Watkins........... 11,167 20% $0.56 July 1, 2003 $ 2,545 $ 5,932
</TABLE>
Options Exercised During 1996 and Year Ended Option Values. The following
table provides information related to options to purchase common stock of the
Company exercised by the Named Executive Officers during 1996 and the number
and value of such options held on August 31, 1997. The Company does not have
any outstanding stock appreciation rights. See "Reorganization."
OPTION EXERCISES IN 1996 -- BRASS EAGLE
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES
ACQUIRED UNDERLYING UNEXERCISED
ON VALUE OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 1996
-------- -------- -------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C> <C> <C>
E. Lynn Scott...................... -- -- 135,161 --
</TABLE>
OPTION EXERCISES IN 1996 -- DAISY
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES
ACQUIRED UNDERLYING UNEXERCISED
ON VALUE OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 1996
-------- -------- -------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C> <C> <C>
Marvin Griffin..................... -- -- 236,824 --
Robert Degarmo..................... -- -- -- --
Jerry Watkins...................... -- -- 11,166 --
</TABLE>
1997 STOCK OPTION PLAN
The 1997 Stock Option Plan ("Stock Option Plan") provides for the granting
to the Company's executive officers and other key employees of incentive stock
options and non-qualified stock options to purchase an
38
<PAGE>
aggregate of up to 430,000 shares of the Common Stock. The Stock Option Plan
is intended to provide an equity interest in the Company to eligible employees
and thereby enable such employees to share in the long-term growth and success
of the Company. The Stock Option Plan is also intended to aid in attracting
and retaining executive officers and other key employees essential to the
success of the Company. The Stock Option Plan is administered by the Company's
Compensation Committee.
All stock options granted under the Stock Option Plan will have an exercise
price per share to be determined by the Compensation Committee that will not
be less than the fair market value of the Common Stock on the date of grant.
The maximum term for all stock options granted under the Stock Option Plan is
10 years and may be subject to acceleration in the event of a change-in-
control of the Company. These change-in-control features may affect whether
amounts realized upon the receipt or exercise of stock options will be
deductible by the Company under the Internal Revenue Code.
EMPLOYEE STOCK PURCHASE PLAN
Prior to consummation of the Offering the Company intends to adopt an
Employee Stock Purchase Plan (the "Purchase Plan"), pursuant to which a total
of 70,000 shares of Common Stock will be reserved for issuance. The Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code as an "employee stock purchase plan," will be implemented by overlapping
offering periods, each with a maximum duration of 24-months, with purchases
occurring at six-month intervals. The initial offering period will commence on
the closing of the Offering and will end on December 31, 1998, with the first
purchase date to be May 1, 1998. The Purchase Plan will be administered by the
Board of Directors of the Company or the Compensation Committee of the Board.
Employees will be eligible to participate if they are customarily employed by
the Company for more than five months per year and are regularly scheduled to
work more than 20 hours per week. The Purchase Plan permits eligible employees
to purchase Common Stock through payroll deductions, which may not exceed
10.0% of an employee's cash compensation. No more than 500 shares may be
purchased by each participant on the initial purchase date and 250 shares per
participant on all subsequent purchase dates. The price of stock purchased
under the Purchase Plan will be 85.0% of the lower of the fair market value of
the Common Stock at the beginning of the offering period or on the applicable
semi-annual purchase date. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. Each outstanding
purchase right will be exercised immediately prior to a merger or
consolidation or at the next purchase date thereafter. The Board may amend or
terminate the Purchase Plan immediately after the close of any purchase date.
However, the Board may not, without stockholder approval, materially increase
the number of shares of Common Stock available for issuance or materially
modify the eligibility for participation. The Purchase Plan will in all events
terminate December 31, 2000.
CERTAIN ADDITIONAL OPTIONS
Pursuant to a program adopted by Daisy in 1993, Daisy has granted to certain
current and former Daisy employees options to purchase 256,809 shares of
Common Stock of the Company at a price of $0.56 per share. Of these options,
111,656, 72,576 and 11,166 are held by Mr. Griffin, Mr. Scott and Mr. DeMent,
respectively, and the remaining 61,411, of which 11,166 were granted in
September 1997, are held in the aggregate by one former and two current Daisy
employees who will not be employed by the Company following the
Reorganization. All of the foregoing options were fully vested as of September
15, 1997, and may be exercised in whole or in part, at any time prior to July
1, 2003.
Pursuant to a separate program also adopted by Daisy in 1993, Daisy has
granted to Mr. Griffin and Mr. Scott options to purchase an additional 125,168
and 62,584 shares of Common Stock of the Company, respectively, at a purchase
price of $0.56 per share. All of these options were fully vested as of
September 15, 1997, and may be exercised, in whole or in part, at any time
prior to the fifth anniversary of the consummation of the Offering. See
"Reorganization."
39
<PAGE>
CERTAIN TRANSACTIONS
ASSIGNMENT, ASSUMPTION AND INDEMNIFICATION AGREEMENT
Mr. Scott is the President, Chief Executive Officer and a director of the
Company and a director and shareholder of New Daisy. Mr. Griffin is the
Chairman of the Board of Directors of the Company and the Chairman of the
Board and President of New Daisy. Mr. Scott is a stockholder of New Daisy and
each of Mr. Griffin and Charter Oak Partners ("Charter Oak") are greater than
five percent stockholders of New Daisy. As a consequence, each of these
persons may be deemed to have a material direct or indirect interest in New
Daisy. The Reorganization will be effected pursuant to an assignment,
assumption and indemnification agreement which provides that (i) the Company
will transfer all of its non-paintball related assets, operations, and
liabilities to New Daisy, retaining only its paintball related assets,
operations, and liabilities, and (ii) New Daisy will agree to indemnify and
hold harmless the Company and its officers, directors, employees, and
stockholders from and against all liabilities and obligations related to the
Company's non-paintball related operations, including, without limitation, (A)
any products liability claim relating to any products sold by the Company
prior to Reorganization (other than products sold under the Brass Eagle name)
and any products sold by New Daisy after the Reorganization , and (B) any
claim by an employee or former employee of the Company or of New Daisy to the
extent that such claim relates to post-retirement medical or pension benefits
that are attributable to the employment of any such individual in the
Company's non-paintball related operations. See "Risk Factors--Certain Tax and
Contingent Liability Risks Related to the Reorganization," "--Control by
Principal Stockholder," and "Reorganization."
GUARANTY AGREEMENT
Each of Charter Oak and Messrs. Griffin and Scott are guarantors under a
Guaranty Agreement (the "Guaranty") pursuant to which they have guaranteed the
obligations of New Daisy under the Assignment, Assumption and Indemnification
Agreement. It is anticipated that each of Messrs. Wold and Schaubert, who are
directors of the Company, and Messrs. Prudhomme, DeMent, Cherry, and
Obergfell, who are executive officers of the Company, will also be guarantors
under the Guaranty. The obligations of the guarantors will be several and
separate according to their pro rata ownership of the outstanding shares of
New Daisy common stock at the time that the spin-off of the New Daisy common
stock by the Company (the "Spin-Off") becomes effective (the "Effective
Time"). The aggregate amount of New Daisy's obligations guaranteed is Five
Million Dollars for the two years following the Spin-Off and Three Million
Dollars for the following two years. The term of the Guaranty expires on the
earlier of (i) four years following the date of the Spin-Off or (ii) the date
that one of the nation's six largest accounting firms renders a determination
that Daisy alone may satisfy its obligations under the Assignment, Assumption
and Indemnification Agreement. Obligations of guarantors for claims made prior
to the fourth anniversary of the effective date of the Guaranty shall survive
its termination.
TAX ALLOCATION AGREEMENT
Concurrently with the Reorganization, the Company and New Daisy will enter
into a tax allocation agreement (the "Tax Allocation Agreement") pursuant to
which the Company will file a consolidated income tax return with respect to
the taxable period ending as of the date of the Reorganization. The Tax
Allocation Agreement provides generally that for each taxable period the
Company and New Daisy shall compute their separate Federal and state tax
liabilities as if they had filed separate returns. For each taxable period the
Company and New Daisy have agreed to pay to the other an amount equal to the
difference between the actual regular tax due and the tax liability computed
on a separate return basis. See "Risk Factors--Certain Tax and Contingent
Liability Risks Related to the Reorganization," "--Control by Principal
Stockholder," and "Reorganization."
ADMINISTRATIVE SERVICES AGREEMENT
Concurrently with the Reorganization, the Company will enter into an
administrative services agreement with New Daisy (the "Administrative
Agreement"), pursuant to which New Daisy will agree to provide the
40
<PAGE>
Company with certain legal, administrative, warehousing, shipping and computer
information services through December 31, 1998 for $37,598 monthly. Unless
terminated by prior written notice, the Administrative Agreement is
automatically renewed annually for three years. The Administrative Agreement
is terminable, in whole or in part, without penalty by agreement of the
parties if such services are no longer required. The Company anticipates
terminating the Administrative Agreement with respect to all services except
legal and computer information services prior to December 31, 1998. See "Risk
Factors--Limited Operating History; Certain Administrative Services" and
"Reorganization."
TAX INDEMNIFICATION
Messrs. Griffin and Scott, are holders of shares of the preferred stock of
the Company which will be canceled in connection with the Reorganization. The
Company has agreed to enter into agreements with Messrs. Griffin and Scott
concurrently with the Offering and the Reorganization, pursuant to which the
Company will indemnify each of them against any income tax imposed on them as
a result of such cancellation of their preferred stock. It is not possible to
predict whether any such tax will be imposed, and consequently, whether such
indemnification will be required. If such indemnification is required, it is
also not possible to estimate the precise amount thereof, although the Company
does not believe that its obligation would exceed approximately $240,000 with
respect to Mr. Griffin and approximately $90,000 with respect to Mr. Scott. If
any such indemnification payment is required, the Company believes that it
would be entitled to claim a corresponding compensation deduction for income
tax purposes, and therefore, any additional indemnification costs would be
offset by these income tax deductions. Consequently, the Company believes that
any additional indemnification payments that it may be required to make would
not have a material adverse effect on the Company or its prospects.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 31, 1997, and as adjusted to give effect
to the Offering by (i) each beneficial owner of more than 5% of Common Stock,
(ii) each of the Company's directors, (iii) each of the Named Executive
Officers, and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------------------
PERCENT PRIOR PERCENT AFTER
NAME AND ADDRESS(2) NUMBER TO THE OFFERING THE OFFERING
------------------- --------- --------------- -------------
<S> <C> <C> <C>
Charter Oak Partners.... 3,674,474 72.7% 50.1%
Marvin W. Griffin(3).... 604,506 12.0 8.3
E. Lynn Scott(3)........ 256,772 5.1 3.5
Anthony J. Dowd(4)...... 3,674,474 72.7 50.1
H. Gregory Wold......... 42,671 0.8 0.6
Stephen J. Schaubert.... 14,224 0.3 0.2
Steven R. DeMent(3)..... 18,277 0.4 0.3
All directors and
officers as a group.... 4,610,924 91.3% 63.0%
</TABLE>
- --------
(1) Determined in accordance with the regulations of the Securities and
Exchange Commission. Beneficial ownership may include securities owned by
or for, among others, the spouse and/or minor children of the individual
and any other relative who has the same home as such individual, as well as
other securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) Unless otherwise indicated, the address of each beneficial owner is 1203A
North Sixth Street, Rogers, Arkansas 72756.
(3) Amount includes the following number of currently exercisable options to
purchase shares of Common Stock by the individuals indicated: Marvin W.
Griffin (236,824); E. Lynn Scott (135,160); and Steven R. DeMent (11,166).
(4) Includes all of the shares of Common Stock owned by Charter Oak Partners
because, as Director of Private Investments of Charter Oak Partners, Mr.
Dowd may be deemed to beneficially own such shares. Mr. Dowd disclaims
beneficial ownership of shares held by Charter Oak Partners except to the
extent of his proportionate interest therein.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $0.01 per share. Prior to completion of the Offering,
the Company had 4,608,899 shares of Common Stock outstanding. As of the date
of this Prospectus, options to purchase an aggregate of 995,310 shares of
Common Stock were also outstanding. Upon completion of the Offering, the
Company will have 6,883,899 outstanding shares of Common Stock (7,225,149
shares if the Underwriters' over-allotment option is exercised in full). See
"Management."
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to the stockholders for a vote, including the election of directors.
Holders of Common Stock are not entitled to cumulate their votes in elections
of directors. Holders of Common Stock are entitled to receive such dividends
as may be declared and paid in the discretion of the Board of Directors out of
funds legally available therefor and to share ratably in the net assets, if
any, of the Company upon liquidation after payment or provision for all
liabilities. Holders of Common Stock have no preemptive rights to purchase any
shares of the Company's capital stock. Shares of Common Stock are not subject
to any redemption provisions and are not convertible into any other securities
of the Company. All outstanding shares of Common Stock are, and the shares of
Common Stock to be issued pursuant to the Offering will be upon payment
therefor, fully paid and nonassessable.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
The directors shall be elected for one-year terms at each annual meeting of
the stockholders. The number of directors shall be fixed by the Board of
Directors, but shall consist of no less than three nor more than nine
directors. In general, the Board of Directors, not the stockholders, has the
right to appoint persons to fill vacancies on the Board of Directors. The By-
laws of the Company may be amended only by the Board of Directors or by the
affirmative vote of a majority of the Company's voting stock.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS--INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the
corporation, officers and directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by Delaware law, officers and directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Restated Certificate of
Incorporation limits the liability of officers and directors of the Company to
the Company or its stockholders to the fullest extent permitted by Delaware
law. Specifically, officers and directors of the Company will not be
personally liable for monetary damages for breach of an officer's or
director's fiduciary duty in such capacity, except for liability (i) for any
breach of the officer's or director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the officer and director derived an improper personal
benefit.
The inclusion of this provision in the Restated Certificate of Incorporation
may have the effect of reducing the likelihood of derivative litigation
against officers and directors, and may discourage or deter stockholders or
management from bringing a lawsuit against officers and directors for breach
of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders. Both the Company's
Restated Certificate of Incorporation and By-laws provide indemnification to
the Company's officers and directors and certain other persons with respect to
certain matters to the maximum extent allowed by
43
<PAGE>
Delaware law as it exists now or may hereafter be amended. These provisions do
not alter the liability of officers and directors under federal securities
laws and do not affect the right to sue or recover monetary damages under
federal securities laws for violations thereof.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is SunTrust
Bank, Atlanta located in Atlanta, Georgia.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming no exercise of the Underwriters'
over-allotment option, the Company will have 6,883,899 shares of Common Stock
outstanding (7,225,149 shares if the Underwriters' over-allotment option is
exercised in full). Of these outstanding shares of Common Stock, the 2,275,000
shares sold in the Offering (2,616,250 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable without
restriction unless acquired by affiliates of the Company. None of the
remaining 4,608,899 shares of outstanding Common Stock have been registered
under the Securities Act, which means that they may be resold publicly only
upon registration under the Securities Act or in compliance with an exemption
from the registration requirements of the Securities Act, including the
exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted Common Stock from
either the Company or any affiliate (as defined in the Securities Act) of the
Company, the acquiror or subsequent holder thereof may sell, within any three
month period commencing 90 days after the date of this Prospectus, a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (72,251 shares upon completion of the Offering assuming the
Underwriter's over-allotment is exercised in full), or the average weekly
trading volume of the shares of Common Stock on the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the
proposed sale is sent to the Commission. Sales under Rule 144 are also subject
to certain manner-of-sale provisions, notice requirements, and the
availability of current public information about the Company. If two years
have elapsed since the later of the date of the acquisition of restricted
Common Stock from the Company or any affiliate of the Company, a person who is
not deemed to have been an affiliate of the Company at any time for 90 days
preceding a sale would be entitled to sell such shares under Rule 144 without
regard to the volume limitations, manner of sale provisions, or notice
requirements. See "Risk Factors--Shares Eligible for Future Sale."
All of the executive officers, directors, and certain shareholders of the
Company have agreed not to sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of the representatives. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
No prediction can be made regarding the effect, if any, that public sales of
Common Stock or the availability of shares for sale will have on the market
price of the Common Stock after the Offering. Sales of substantial amounts of
the Common Stock in the public market following the Offering, or the
perception that such sales may occur, could adversely affect the market price
of the Common Stock and could impair the ability of the Company to raise
capital through sales of its equity securities. See "Risk Factors--No Prior
Public Market; Maintenance of Listing Requirements and Possible Volatility of
Stock Price."
45
<PAGE>
UNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc. and Dain Bosworth Incorporated (the
"Representatives"), have agreed, severally, subject to the terms and
conditions therein set forth, to purchase from the Company, and the Company
has agreed to sell to them, the number of shares of Common Stock offered
hereby. Each Underwriter will purchase the number of shares set forth opposite
its name below, and will purchase such shares at the price to public, less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriters are committed to take and pay for all shares if
any shares are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
McDonald & Company Securities, Inc. .....................
Dain Bosworth Incorporated...............................
---
Total................................................
===
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow to
certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per share,
and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $ per share to other dealers who are members of the
NASD. After the Offering, the public offering price and the discount to
dealers may be changed by the Representative.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 341,250 shares of Common Stock at the public offering price, less
the underwriting discount, as set forth on the cover page of this Prospectus.
The Underwriters may exercise that option only to cover over-allotments in the
sale of the Common Stock that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase the
same percentage of the option shares as the number of shares to be purchased
and offered by that Underwriter in the table above bears to the total.
The Company has agreed to indemnify the Underwriters against certain
liabilities which may be incurred in connection with the Offering, including
liabilities under the Securities Act.
The Company and the directors, executive officers, and certain current
stockholders of the Company have agreed that they will not offer, sell,
transfer, or otherwise dispose of any Common Stock, or any securities
convertible into or exchangeable for Common Stock, for a period of 180 days
from the date of this Prospectus, without the prior written consent of
McDonald & Company Securities, Inc.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to any
accounts over which they exercise discretionary authority.
At the request of the Company, up to 113,750 shares of Common Stock offered
in the Offering have been reserved for sale to employees of the Company and
certain members of their families. The price of those shares to those persons
will be equal to the public offering price set forth on the cover page of this
Prospectus. The number of shares available to the general public will be
reduced to the extent those persons purchase reserved shares. Any shares not
so purchased will be offered in the Offering at the public offering price set
forth on the cover page of this Prospectus.
In connection with the Offering and in compliance with applicable law, the
Underwriters may over-allot or effect transactions that stabilize, maintain,
or otherwise affect the market price of the Common Stock at levels above those
that might otherwise prevail in the open market, including by entering
stabilizing bids, effecting syndicate covering transactions, or imposing
penalty bids. A stabilizing bid means the placing of any bid, or the
46
<PAGE>
effecting of any purchase, for the purpose of pegging, fixing, or maintaining
the price of a security. A syndicate covering transaction means the placing of
any bid on behalf of the underwriting syndicate or the effecting of any
purchase to reduce a short position created in connection with the Offering. A
penalty bid means an arrangement that permits McDonald & Company Securities,
Inc., as managing underwriter, to reclaim a selling concession from a
syndicate member in connection with the Offering when securities originally
sold by the syndicate member are purchased in stabilizing or syndicate
covering transactions. These transactions may be effected on the Nasdaq
National Market or otherwise. The Underwriters are not required to engage in
any of these activities. Any such activities, if commenced, may be
discontinued at any time.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be determined by
negotiations among the Company and the Underwriters. Among the factors
considered in such negotiations will be the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and overseas and the current level of economic
activity in the industry in which the Company competes and in related
comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company. Application has been made to have the Common
Stock approved for quotation on the Nasdaq National Market under the symbol
"XTRM."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Friday, Eldredge & Clark, Little Rock, Arkansas, and certain legal
matters will be passed upon for the Underwriters by Baker & Hostetler llp,
Cleveland, Ohio.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1995, and 1996, that appear in this Prospectus have been audited by
Crowe Chizek and Company LLP, independent certified public accountants, and
are included in reliance upon the reports of such firm given upon their
authority as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result
of this Offering, the Company will be required to file reports and other
information with the Securities and Exchange Commission (the "Commission")
pursuant to the informational requirements of the Exchange Act.
The Company has filed with the Commission, in Washington D.C., a
Registration Statement on Form S-1 under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain
all the information set forth in Registration Statement and the Exhibits and
Schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement
and the Exhibits and Schedules filed therewith. Statements contained in this
Prospectus as to the content of any contract or any other document referred to
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, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement, and the Exhibits and
Schedules thereto, may be inspected without charge at the public reference
47
<PAGE>
facilities maintained by the Securities and Exchange Commission at the
Judiciary Plaza, in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at 7 World Trade Center, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. In addition, the Registration Statement
may be accessed electronically at the Commission's site on the World Wide Web
located at http://www.sec.gov.
48
<PAGE>
BRASS EAGLE/A DIVISION OF
DAISY MANUFACTURING COMPANY, INC.
ROGERS, ARKANSAS
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS.............................................. F-2
FINANCIAL STATEMENTS
BALANCE SHEETS............................................................ F-3
STATEMENTS OF OPERATIONS.................................................. F-4
STATEMENTS OF DIVISIONAL EQUITY........................................... F-5
STATEMENTS OF CASH FLOWS.................................................. F-6
NOTES TO FINANCIAL STATEMENTS............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Daisy Manufacturing Company, Inc.
Rogers, Arkansas
We have audited the accompanying balance sheets of Brass Eagle/a Division of
Daisy Manufacturing Company, Inc. (Brass Eagle), as of December 31, 1995 and
1996, and the related statements of operations, divisional equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
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 financial position of Brass Eagle as of December
31, 1995 and 1996 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include significant
allocations of costs and expenses of Daisy Manufacturing Company allocated to
Brass Eagle.
Oak Brook, Illinois
May 30, 1997
Crowe Chizek and Company LLP
F-2
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------- AUGUST 31, AUGUST 31,
1995 1996 1997 1997
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 15)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Accounts receivable--less allowance
for doubtful accounts of $18 in
1995, and $52 in 1996 and 1997 (Note
5).................................. $ 1,334 $ 3,656 $ 6,534 $ 6,534
Inventories (Notes 3 and 5).......... 546 1,195 3,547 3,547
Prepaid expenses..................... 55 379 967 967
Deferred income taxes (Note 7)....... 38 83 265 265
------- ------- -------- --------
Total current assets............... 1,973 5,313 11,313 11,313
Property and equipment, net (Notes 4
and 5)................................ 1,223 1,070 1,422 1,422
Other assets
Intangible assets, net (Note 1)...... 3,092 2,886 2,747 2,747
Other................................ -- -- 67 67
------- ------- -------- --------
Total other assets................. 3,092 2,886 2,814 2,814
------- ------- -------- --------
$ 6,288 $ 9,269 $ 15,549 $ 15,549
======= ======= ======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Current maturities of long-term debt
(Note 5)............................ $ 1,122 $ 1,151 $ 1,358 $ 1,358
Accounts payable..................... 52 1,122 6,228 6,228
Accrued expenses..................... 173 422 936 936
Intercompany debt (Note 9)........... 1,619 3,352 2,194 2,194
Distribution payable (Note 15)....... -- -- -- 3,110
------- ------- -------- --------
Total current liabilities.......... 2,966 6,047 10,716 13,826
Long-term debt, less current maturities
(Note 5).............................. 3,043 1,892 1,414 1,414
Deferred income taxes (Note 7)......... 31 200 309 309
Divisional equity (Note 14)
Additional paid-in capital........... -- -- 237 --
Divisional retained earnings......... 248 1,130 2,873 --
------- ------- -------- --------
248 1,130 3,110 --
------- ------- -------- --------
$ 6,288 $ 9,269 $ 15,549 $ 15,549
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,
----------------------- ------------------
1994 1995 1996 1996 1997
------ ------ --------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $2,615 $4,319 $ 13,838 $ 6,977 $ 18,391
Cost of sales...................... 1,258 2,456 9,625 4,962 12,308
------ ------ --------- ------- ----------
Gross profit....................... 1,357 1,863 4,213 2,015 6,083
Operating expenses
Selling and marketing............ 279 640 1,472 622 2,008
General and administrative....... 219 595 750 704 953
Royalty expense.................. 459 487 -- -- --
Amortization expense............. -- 52 202 130 136
------ ------ --------- ------- ----------
957 1,774 2,424 1,456 3,097
------ ------ --------- ------- ----------
Operating income................... 400 89 1,789 559 2,986
Other expense
Interest expense................. -- 87 315 222 162
Other, net....................... -- -- 45 -- --
------ ------ --------- ------- ----------
-- 87 360 222 162
------ ------ --------- ------- ----------
Income before income taxes......... 400 2 1,429 337 2,824
Provision for income taxes (Note
7)................................ 153 1 547 129 1,081
------ ------ --------- ------- ----------
Net income......................... $ 247 $ 1 $ 882 $ 208 $ 1,743
====== ====== ========= ======= ==========
Pro forma net income per share
(Note 14)......................... $ 0.17 $ 0.33
Number of shares used to compute
Pro forma net income per share
(Note 14)......................... 5,296,204 5,312,977
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
STATEMENTS OF DIVISIONAL EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
---------- -------- ------
<S> <C> <C> <C>
Balance January 1, 1994........................... $ -- $ -- $ --
Net income........................................ -- 247 247
----- ------ ------
Balance December 31, 1994......................... -- 247 247
Net income........................................ -- 1 1
----- ------ ------
Balance December 31, 1995......................... -- 248 248
Net income........................................ -- 882 882
----- ------ ------
Balance December 31, 1996......................... -- 1,130 1,130
Stock options granted............................. 237 -- 237
Net income........................................ -- 1,743 1,743
----- ------ ------
Balance August 31, 1997 (unaudited)............... $ 237 $2,873 $3,110
Assumed distribution of divisional equity (Note
15).............................................. (237) (2,873) (3,110)
----- ------ ------
Balance, August 31, 1997 pro forma (unaudited)
(Note 15)........................................ $ -- $ -- $ --
===== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,
----------------------- --------------------
1994 1995 1996 1996 1997
----- ------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income............. $ 247 $ 1 $ 882 $ 208 $ 1,743
Adjustments to
reconcile net income
to net cash from
operating activities
Deferred income
taxes............... (17) 10 124 97 (73)
Depreciation and
amortization........ 1 102 426 277 455
Provision for
doubtful accounts... -- 18 34 -- --
Loss on sale of
equipment........... -- -- 46 -- --
Stock option
compensation
expense............. -- -- -- -- 237
Changes in assets and
liabilities
Accounts
receivable........ (616) (735) (2,356) (971) (2,878)
Inventories........ (232) (314) (649) (290) (2,352)
Prepaid expenses
and other assets.. (32) (42) (323) (219) (655)
Accounts payable
and accrued
expenses.......... 91 188 1,317 1,225 5,620
----- ------- ------- -------- ----------
Net cash provided
by (used in)
operating
activities...... (558) (772) (499) 327 2,097
Cash flows from investing
activities
Purchases of property
and equipment......... (8) (48) (217) (115) (668)
Acquisition of BEI
assets................ -- (2,178) -- -- --
Proceeds from sale of
equipment............. -- -- 105 -- --
----- ------- ------- -------- ----------
Net cash used in
investing
activities...... (8) (2,226) (112) (115) (668)
Cash flows from financing
activities
Proceeds (payments) on
long-term debt........ -- 2,000 (1,122) (199) (271)
Net proceeds (payments)
on intercompany debt.. 566 998 1,733 (13) (1,158)
----- ------- ------- -------- ----------
Net cash provided
by (used in)
financing
activities...... 566 2,998 611 (212) (1,429)
----- ------- ------- -------- ----------
Net change in cash....... -- -- -- -- --
Cash at beginning of
period.................. -- -- -- -- --
----- ------- ------- -------- ----------
Cash at end of period.... $ -- $ -- $ -- $ -- $ --
===== ======= ======= ======== ==========
Supplemental disclosures
of cash flow information
Cash paid during the
year
Interest............. $ -- $ 41 $ 227 $ 100 $ 180
Supplemental schedule of noncash
investing and financing activities
The Company purchased
certain assets of BEI
for $4,343,475.
The purchase price
was allocated as
follows:
Production
equipment........... $ 73
Tooling.............. 1,146
Intangible assets.... 3,125
-------
Total purchase
price............. 4,344
Cash paid............ (2,178)
-------
Amount financed by
seller............ $ 2,166
=======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the Company
are as follows:
Description of Business: Brass Eagle (the "Company") is a leading
manufacturer of paintball guns and other paintball products and is a division
of Daisy Manufacturing Company, Inc. ("Daisy"). The Company sells its products
through both foreign and major national domestic retailers. In 1993, Daisy
began manufacturing, marketing and distributing paintball products under a
royalty arrangement with Brass Eagle, Inc., a Mississaga, Ontario, Canada
company ("BEI"). BEI also supplied manufactured component parts to Daisy. In
October 1995, Daisy purchased certain assets of BEI (see Note 2). Prior to the
purchase of assets from BEI in October 1995, the Company paid royalties to BEI
to sell paintball products under the Brass Eagle name. The financial
statements have been prepared using certain estimates and allocations (see
below) and include only the accounts of Brass Eagle, the paintball division of
Daisy Manufacturing Company, Inc.
Fiscal Year: The Company's fiscal year begins on January 1 and ends on
December 31 of each year.
Reorganization: Concurrently with the consummation of an initial public
offering of common stock Daisy Manufacturing Company, Inc. intends to effect a
corporate reorganization (the "Reorganization"). In preparation for the
Reorganization, Daisy Manufacturing Company, Inc. will change its name to
Brass Eagle. Concurrently with the Offering, the Company will cancel the
existing preferred stock and will transfer all of its non-paintball related
assets, operations and liabilities to a newly created subsidiary, Daisy
Manufacturing Company, a Delaware corporation ("New Daisy"), retaining only
its paintball related assets, operations and liabilities. The Company will
then distribute all of the issued and outstanding common stock of New Daisy to
the Company's existing stockholders in a spin-off transaction described under
Section 355 of the Internal Revenue Code of 1986, as amended. New Daisy will
agree to indemnify and hold harmless the Company and its directors, officers,
employees and shareholders from and against all liabilities and obligations
arising with respect to the Company's non-paintball related operations. In
addition, the Company will agree to indemnify and hold harmless New Daisy and
its directors, officers, employees and shareholders from and against all
liabilities and obligations arising with respect to the paintball related
operations.
Earnings Per Share: Earnings per share amounts were computed by dividing
earnings by the weighted average number of common shares outstanding after
giving effect to the number of shares to be outstanding after the
Reorganization, dilutive stock options and shares to be issued in the offering
whose proceeds will be used to pay divisional equity to New Daisy (See Notes
13, 14 and 15).
Revenue Recognition: The Company recognizes revenue, net of allowances for
estimated returns, upon shipment of product.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property and Equipment: Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred
and expenditures for additions and improvements which significantly extend the
lives of assets are capitalized. Upon sale or other retirement of depreciable
property, the cost and accumulated depreciation are removed from the related
accounts and any gain or loss is reflected in operations.
Tools and dies are depreciated using the units of production method.
Manufacturing equipment and office equipment are depreciated over the
estimated useful lives of the assets, ranging from six to twelve years, using
the straight-line method. Amortization of leasehold improvements is based on
the shorter of the lease term or the useful life, using the straight-line
method.
F-7
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Intangible Assets: Intangible assets, including intellectual property, the
Brass Eagle name, and debt financing costs are stated at amortized cost.
Intangible assets are being amortized over the useful life of the assets,
primarily 15 years on a straight-line basis, and debt financing costs are
amortized over the period of the related debt. Accumulated amortization was
$52, $258, and $397 as of December 31, 1995 and 1996 and August 31, 1997,
respectively.
The valuation of intangible assets is reviewed on an ongoing basis by
comparing the unamortized cost of the asset to the related projected
undiscounted revenue streams. Any impairment is charged to operations in the
period determined.
Income Taxes: The Company has a tax allocation agreement with Daisy which
provides for income taxes to be payable by Brass Eagle on the same basis as if
the Company had filed a separate income tax return.
A deferred tax liability or asset is determined at each balance sheet date.
It is measured by applying enacted tax laws to future amounts that will result
from differences in the financial statement and tax bases of assets and
liabilities.
Financial Instruments: The carrying value of accounts receivable and
accounts payable approximates fair value because of the short maturity of
these items. Based on the current market rates available to the Company, the
fair value of long-term debt approximates carrying value.
Unaudited Financial Statements: The accompanying balance sheet as of August
31, 1997, the statements of operations, divisional equity and the related
statements of cash flows for the eight months ended August 31, 1996 and 1997
are unaudited but, in the opinion of management of the Company, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of operations and cash flows for the eight month
period ended August 31, 1997. The data disclosed in these notes to financial
statements for these periods are also unaudited. The results of operations for
the eight month period ended August 31, 1997 are not necessarily indicative of
the results expected for the full calendar year.
Allocations and Use of Estimates: During the eight month period ended August
31, 1997 and the years ended December 31, 1996, 1995, and 1994, Brass Eagle
shared operational and administrative facilities with Daisy. As a result,
manufacturing, selling, and administrative expenses had to be allocated from
Daisy to Brass Eagle. Allocations were based on various activities including
quantity of inventory produced, quantity of inventory received, number of
shipments, headcount, and estimates of time spent on Brass Eagle. Management
believes these allocations are based on a reasonable method. Sales, returns,
material cost, and direct labor cost were not allocated because they could be
specifically identified to Brass Eagle.
Management must make estimates and assumptions in preparing financial
statements that affect the amounts reported therein and the disclosures
provided. These estimates, allocations, and assumptions may change in the
future and future results could differ.
F-8
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--ACQUISITIONS
On October 1, 1995, Daisy purchased certain assets of BEI for $4,344. The
purchase price was allocated to equipment, tools, dies, jigs, molds, exclusive
rights to the Brass Eagle name, and intellectual property. The purchase price
was allocated to the tangible and intangible assets acquired as follows:
<TABLE>
<S> <C>
Production equipment.............................................. $ 73
Tooling........................................................... 1,146
Intellectual property and the Brass Eagle name.................... 3,125
------
$4,344
======
</TABLE>
NOTE 3--INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- AUGUST 31,
1995 1996 1997
------------- ----------
<S> <C> <C> <C>
Finished goods...................................... $ 298 $ 437 $2,432
Raw materials....................................... 248 758 1,115
----- ------- ------
Total inventory................................... $ 546 $ 1,195 $3,547
===== ======= ======
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- AUGUST 31,
1995 1996 1997
------ ------ ----------
<S> <C> <C> <C>
Tools and dies.................................... $1,186 $1,117 $1,424
Manufacturing equipment........................... 88 169 243
Leasehold improvements............................ -- -- 85
Office equipment.................................. -- 21 72
------ ------ ------
1,274 1,307 1,824
Accumulated depreciation.......................... (51) (237) (567)
------ ------ ------
1,223 1,070 1,257
Construction in progress.......................... -- -- 165
------ ------ ------
$1,223 $1,070 $1,422
====== ====== ======
</TABLE>
NOTE 5--LONG-TERM DEBT
The Company has a term loan agreement specifically allocated in the Daisy
credit facility at LIBOR plus 2.5%. This allocated portion along with
borrowings under the loan by Daisy Manufacturing are secured by all personal
assets including accounts receivable, inventory, property and equipment, and
intangible properties of both Daisy and Brass Eagle. As of December 31, 1995
and 1996, and August 31, 1997, the Company had $2,000, $1,800, and $1,500,
respectively, outstanding under this term loan agreement.
F-9
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company, through Daisy, also has a non-interest-bearing promissory note
of $2,500 with the prior owners of BEI, which is secured by the assets
purchased in the acquisition. This note has been discounted at 8.4% which was
the Company's incremental borrowing rate as of October 1, 1995, the inception
of the note. The present value of the note outstanding at December 31, 1995
and 1996 and August 31, 1997 was $2,166, $1,243, and $1,243, respectively.
Installments of principal and accrued interest are due as follows:
<TABLE>
<S> <C>
October 3, 1997................................. $ 650
January 31, 1998................................ 350
October 3, 1998................................. 395
------
$1,395
======
</TABLE>
Covenants related to the term loan agreement establish borrowing limitations
and net worth, interest coverage, and debt to equity and cash flow
requirements and impose restrictions on the disposition and purchase of assets
and the creation and retirement of debt for the parent company. As of December
31, 1996, the Company and Daisy were in compliance with the covenants or had
obtained the appropriate waivers from the lender.
Aggregate maturities of long-term debt as of August 31 are as follows:
<TABLE>
<S> <C>
1998............................................ $1,358
1999............................................ 900
2000............................................ 509
2001............................................ 5
------
$2,772
======
</TABLE>
NOTE 6--LEASES
The Company leases a manufacturing facility under an operating lease which
expires December 1999. In addition, the Company leases office facilities under
an operating lease which expires December 1999. Rent expense approximated $27
for the year ended December 31, 1996 and $43 for the eight month period ended
August 31, 1997. Previous to the Company entering into these leases, the
Company was allocated facility cost from Daisy. Total minimum rentals under
noncancelable operating leases over future years as of August 31 are:
<TABLE>
<S> <C>
1998............................................. $ 136
1999............................................. 136
2000............................................. 45
-----
$ 317
=====
</TABLE>
F-10
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7--INCOME TAXES
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
---------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Current payable................................ $170 $ (9) $423 $ 32 $1,154
Deferred income taxes.......................... (17) 10 124 97 (73)
---- ---- ---- ---- ------
$153 $ 1 $547 $129 $1,081
==== ==== ==== ==== ======
</TABLE>
Income tax expense is reconciled to the tax expense that would result from
applying regular statutory rates to pretax income as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
-------------- -----------
1994 1995 1996 1996 1997
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Income taxes at the statutory rate............... $135 $ 1 $486 $115 $ 960
State taxes, net of federal benefit.............. 18 -- 61 14 121
---- --- ---- ---- ------
$153 $ 1 $547 $129 $1,081
==== === ==== ==== ======
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- AUGUST 31,
1995 1996 1997
------ ------- ----------
<S> <C> <C> <C>
Current deferred items
Accounts receivable allowance................... $ 7 $ 20 $ 20
Accrued warranty................................ 16 34 147
Accrued vacation................................ 5 10 17
Inventory valuation............................. 5 13 81
Accrued insurance............................... 5 6 --
----- ------- -----
38 83 265
Noncurrent deferred items
Accrued pension cost............................ 10 27 43
Accrued postretirement benefit cost............. 11 18 22
Stock options................................... -- -- 91
Depreciation and amortization................... (52) (245) (465)
----- ------- -----
(31) (200) (309)
----- ------- -----
$ 7 $ (117) $ (44)
===== ======= =====
</TABLE>
F-11
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 8--EMPLOYEE BENEFIT PLANS
Along with the Reorganization, the Company will assume responsibility for
pension and post-retirement benefits for retirees whose last work assignment
was with the Company (see Note 1). There will be no retirees assigned to the
Company. Until the Reorganization, the Company's financial statements will
include the costs experienced by the Daisy plans for employees who the Company
will assume responsibility.
RETIREMENT INCOME PLAN
The Company participates in the Daisy defined benefit pension plan, which
covers all employees. Daisy's funding policy is to contribute an amount equal
to the minimum required employer contribution under the Employee Retirement
Income Security Act of 1974 (ERISA). Plan assets are invested in various
mutual funds. The expense for this plan allocated to Brass Eagle for the years
ended December 31, 1994, 1995, and 1996 and for the eight-month periods ended
August 31, 1996 and 1997 was $8, $19, $44, $40, and $43, respectively. The
allocation of expense was based on wage accumulations.
Immediately following the Reorganization, the Company will establish another
comparable retirement plan for the employees and future retirees of the
Company. Pension liabilities will be funded based upon actuarial calculations
for the Brass Eagle Employees. For purposes of preparing these financial
statements, estimates were made, of unfunded pension obligations that will be
transferred to New Daisy. As of August 31, 1997, the estimated liability was
$113. The actual amounts funded will be measured at the Reorganization date
and will likely be different from these estimates.
As of December 31, 1995 and 1996, Daisy had accrued pension costs of $3,385
and $2,487, respectively. Based on the estimates described in this note, the
Company's share of the accrued pension costs as of December 31, 1995 and 1996
is $27 and $71, respectively. The assumptions used to calculate the accrued
pension cost are as follows: 8% weighted average discount rate used in
determining the actuarial present value of the projected benefit obligation,
6% expected rate of compensation increase and 9% long-term rate of return on
assets.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company also participates in a postretirement benefit plan maintained by
Daisy. Employees retiring from the Company on or after attaining age 60 with
ten years of service are entitled to postretirement health care benefits.
These benefits are subject to deductibles, copayment provisions, and other
limitations. After attaining age 65, an eligible retiree's health care benefit
coverage terminates. The expense for this plan allocated to Brass Eagle for
the years ended December 31, 1994, 1995, and 1996 and for the eight-month
periods ended August 31, 1996 and 1997 was $4, $25, $17, $16, and $13,
respectively.
F-12
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Immediately following the Reorganization, the Company will consider
establishing a separate post-retirement benefit plan for the employees of the
Company. Postretirement benefits will be funded as they are incurred. For
purposes of preparing these financial statements, estimates were made, as of
August 31, 1997 of the postretirement benefit obligations that will be
transferred to New Daisy. The accumulated postretirement benefit obligation is
estimated at $59. The actual amounts transferred will be measured at the
Reorganization date, and will likely be different from these estimates.
As of December 31, 1995 and 1996, Daisy had an accrued postretirement
benefit liability of $1,100 and $1,016, respectively. The assumptions used to
calculate the accrued postretirement cost are as follows: 8% weighted average
discount rate used in determining the actuarial present value of the
accumulated postretirement benefit obligation, 9.8% assumed health care cost
trend, declining by 1% per year to an ultimate rate of 5.5%.
NOTE 9--INTERCOMPANY DEBT
Brass Eagle's cash collection and cash disbursements are administered by
Daisy. The net cash disbursed in excess of the net cash received is classified
as intercompany debt. In addition, assets transferred from Daisy to the
Company and liabilities assumed from Daisy by the Company are also accounted
for through the intercompany debt account. There has been no interest expense
charged for the use of these funds. The following is a summary of the
intercompany activity:
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,
----------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at the beginning of the
period......................... $ -- $ 566 $ 1,619 $ 1,619 $ 3,352
Cash received from customers.... (1,999) (3,602) (11,516) (6,006) (15,513)
Cash paid to suppliers and oth-
ers............................ 2,387 4,397 11,366 5,547 12,082
Interest paid................... -- 41 227 100 180
Income taxes payable to Daisy... 170 (9) 423 32 1,154
(Proceeds)/payments of long term
debt........................... -- (2,000) 1,122 199 271
Purchase of property and equip-
ment........................... 8 48 111 115 668
Purchase of Brass Eagle......... -- 2,178 -- -- --
------ ------ ------- -------- ---------
Balance at the end of the peri-
od............................. $ 566 $1,619 $ 3,352 $ 1,606 $ 2,194
====== ====== ======= ======== =========
Average balance outstanding..... $ 283 $1,093 $ 2,486 $ 1,613 $ 2,773
====== ====== ======= ======== =========
</TABLE>
F-13
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 10--MAJOR CUSTOMERS AND SUPPLIERS
Customers accounting for 10% or more of the Company's sales for the periods
presented are as follows:
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS ENDED
DECEMBER 31, AUGUST 31,
---------------- ---------------------
1994 1995 1996 1996 1997
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Customer A................................ * 10% 14% 15% 17%
Customer B................................ * * 22% 12% 33%
Customer C................................ 15% 15% * * *
Customer D................................ 11% * * * *
Customer E................................ 10% * * * *
Customer F................................ * * 10% * *
--- --- --- --------- ---------
36% 25% 46% 27% 50%
=== === === ========= =========
</TABLE>
- --------
* Customer's sales were less than 10% of the Company's sales in these periods.
Accounts receivable balances to these customers were approximately $593,
$1,723 and $2,976 at December 31, 1995, December 31, 1996 and August 31, 1997,
respectively.
Because the Company does not manufacture its own paintballs, it has entered
into a strategic alliance with a paintball producer, pursuant to which the
Company has agreed to serve as such producer's exclusive worldwide paintball
distributor to all retail and wholesale outlets (other than paintball field
operators, to whom the Company is prohibited from selling during the terms of
the Agreement). This Agreement extends through August 1999, but is terminable
prior to that time upon one year's notice and contains certain provisions
which prohibit the Company from selling any competing products during the term
of the Agreement. Failure of this supplier to meet the Company's product needs
on a timely basis or loss of this supplier could have a material adverse
effect on the Company.
NOTE 11--RELATED PARTY TRANSACTIONS
The Company has been allocated costs in the amounts of $1,199, $2,327 and
$3,527 for the years ended December 31, 1994, 1995 and 1996, respectively, and
$1,488 and $3,128 for the eight month periods ended August 31, 1996 and 1997,
respectively. The costs represent costs associated with advertising,
promotions, utilities, insurance, customer service, warehousing, shipping,
human resources, information systems, finance and legal services. The Company
intends to begin to function on a stand alone basis during the second half of
1997. As part of operating on a stand alone basis, the Company is intending to
enter into an administrative services agreement for warehousing, shipping,
human resources, information system, credit and collections, and legal
services with New Daisy. The administrative services agreement will define
specific services to be provided and the fees related to these services.
During 1994, 1995, and 1996, and for the eight months ended August 31, 1996
and 1997, the expenses related to these services were allocated to Brass Eagle
as discussed in Note 1.
For the years 1994, 1995, and 1996, and for the eight months ended August
31, 1996 and 1997, there was no interest expense charged on the intercompany
debt.
NOTE 12--GEOGRAPHIC SEGMENTS
The Company sells paintball guns, paintballs, and accessories through both
foreign and major national domestic retailers. The following summarizes the
geographic segment activity:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
--------------------- --------------
1994 1995 1996 1996 1997
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues
United States........................ $2,471 $4,056 $11,845 $6,123 $16,760
Other geographic areas............... 144 263 1,993 854 1,631
</TABLE>
F-14
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 13--EMPLOYEE STOCK OPTIONS
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by the FASB and if fully
adopted changes the methods for recognition of cost on plans similar to those
of the Company. Adoption of SFAS 123 is optional; however, pro forma
disclosures as if the Company adopted the cost recognition requirements under
SFAS 123 are presented below.
Certain employees of the Company have stock options in Daisy. The stock
options consist of options granted when Charter Oak Partners and certain
members of management acquired Daisy on June 30, 1993. The options granted in
June 1993 reserved 5% of Daisy's common stock for issuance under the plan. The
options granted vested on September 15, 1997, because of the Offering, and are
exercisable until September 15, 2002. The exercise price of the options is
fixed at $1,000 per share, $0.56 per share adjusted to reflect a 1,777.96-for-
1 stock split (See Note 1). The exercise price of the options granted by Daisy
has generally been equal to or greater than fair market value at the date of
grant. Fair market value is determined by the Board of Directors without an
independent valuation. As of August 31, 1997, there were 105.6 shares granted
under this plan, 187,753 adjusted to reflect a 1,777.96-for-1 stock split (See
Note 1). Brass Eagle employees hold options to purchase 35.2 shares (62,584
adjusted to reflect the stock split) of common stock granted on June 30, 1993.
None of these options have been exercised as of August 31, 1997.
The Company also reserved 157 shares (279,140 adjusted to reflect the stock
split) on June 30, 1993, to be distributed at the discretion of Daisy's
compensation committee. The option price was fixed at $1,000 per share, $0.56
per share adjusted to reflect the stock split) and the options are exercisable
until June 1, 2003. As of August 31, 1997, 138.2 shares were granted under
this plan (245,714 adjusted to reflect the stock split). Brass Eagle employees
held options to purchase 47.1 shares of common stock (83,742 adjusted to
reflect the stock split) granted prior to August 31, 1997. None of these
options have been exercised as of August 31, 1997.
All 243.8 shares (433,467 adjusted to reflect the stock split) granted to
both Brass Eagle and Daisy employees by Daisy under the above stock option
plan are outstanding options to purchase the Company's stock and are currently
vested and exercisable whether they are held by Brass Eagle employees or Daisy
employees.
Information regarding Brass Eagle employees participating in the plan is
shown below adjusted to reflect a 1,777.96-for-1 stock split (see Note 1):
<TABLE>
<CAPTION>
NUMBER AMOUNT AGGREGATE
OF SHARES PER SHARE VALUE
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at December 31, 1994..... 73,750 $0.56 $41,300
Granted...................................... 16,748 0.56 9,379
------- ----- -------
Options outstanding at December 31, 1995..... 90,498 0.56 50,679
Granted...................................... 22,331 0.56 12,505
------- ----- -------
Options outstanding at December 31, 1996..... 112,829 0.56 63,184
Granted...................................... 33,497 0.56 18,758
------- ----- -------
Options outstanding at August 31, 1997....... 146,326 $0.56 $81,942
======= ===== =======
</TABLE>
F-15
<PAGE>
BRASS EAGLE/A DIVISION OF DAISY MANUFACTURING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AUGUST 31, 1997 AND FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1996 AND 1997 ARE UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
There was no compensation expense recorded for the years ended December 31,
1995 and 1996 because the exercise price equaled or exceeded the fair market
value of the option on the date of the grant. The Company recorded
compensation expense of approximately $237 for the eight month period ended
August 31, 1997 based on the estimated fair market value of the Company
including the anticipated consummation of an initial public offering (see
Notes 1 and 14) at that time. A deferred tax asset of approximately $91 has
also been recognized for the book tax differences associated with the options.
The Company's net income and net income per share would be the same under
SFAS 123 as under APB Opinion 25 for the years ended December 31, 1995 and
1996 because the options had no significant fair value on the dates
distributed. Under SFAS 123, the Company's pro forma net income would be
$1,741 or $0.33 per share. The weighted average fair value of options granted
in the eight month period ended August 31, 1997 was approximately $7.00 per
share. The following assumptions were used to calculate the option values:
exercise price $0.56, risk-free weighted average rate 5.7%, option term 4.0
years, dividend yield 0% and 30% volatility.
The effects of applying SFAS 123 are not indicative of future amounts. SFAS
123 does not apply to awards prior to 1995, and additional awards in future
years are anticipated.
Along with the reorganization and spin-off of New Daisy (see Note 1), the
Daisy employees will retain their stock options in the Company. These
individuals hold options to purchase 161.5 shares of common stock (287,141
adjusted to reflect the stock split) at $1,000 per share ($0.56 per share
adjusted to reflect the stock split).
NOTE 14--WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
As discussed in Note 1, the Company, concurrent with the consummation of the
initial public offering, will complete a reorganization. Accordingly, the
historical presentation of net income per common share is based on 2,592.24
shares to be issued after the reorganization, plus the weighted average
outstanding stock options and a 1,777.96-for-one stock split, and the number
of shares to be issued in the Offering whose proceeds will be used to pay the
divisional equity to Daisy as if the shares had been outstanding during all
periods presented.
NOTE 15--DISTRIBUTION PAYABLE
The Company intends to use a portion of the proceeds from the offering to
pay to Daisy the value of its divisional equity in the Company. The pro forma
balance sheet and statement of divisional equity reflect the pro forma
adjustment for the distribution of divisional equity as if it had occurred in
the period ended August 31, 1997.
F-16
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
On the inside back cover is a collage of photographs depicting
individuals participating in paintball games on a HyperBall field, a trade show
booth displaying a variety of Brass Eagle products, and various photographs
depicting a shooting gallery product designed for the amusement industry.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN
THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Corporate History........................................................ 15
Reorganization........................................................... 15
Dividend Policy.......................................................... 15
Use of Proceeds.......................................................... 16
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 24
Management............................................................... 34
Certain Transactions .................................................... 40
Principal Stockholders................................................... 42
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Additional Information................................................... 47
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,275,000 SHARES
[BRASS EAGLE LOGO]
BRASS EAGLE PAINTBALL PRODUCTS
COMMON STOCK
----------------
PROSPECTUS
----------------
MCDONALD & COMPANY
SECURITIES, INC.
DAIN BOSWORTH
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
offering described in this Registration Statement.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 10,000
NASD Filing Fee................................................. 4,000
The Nasdaq National Market Listing Fee.......................... 37,000
Legal Fees and Expenses......................................... 250,000
Printing and Engraving Expenses................................. 120,000
Accounting Fees and Expenses.................................... 100,000
Blue Sky Fees and Expenses (including counsel).................. 5,000
Transfer Agent and Registrars Fees.............................. 7,000
Directors and Officers Liability Insurance...................... 15,000
Miscellaneous Expenses.......................................... 62,000
--------
Total........................................................... $610,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation incorporates
substantially the provisions of the General Corporation Law of the State of
Delaware providing for indemnification of directors and officers of the
Registrant against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Registrant or is or was serving at the request of the Registrant as a
director, officer, employee, agent, or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
As permitted by Section 102 of the Delaware General Corporation Law, the
Registrant's Restated Certificate of Incorporation contains provisions
eliminating a director's personal liability for monetary damages to the
Registrant and its stockholders arising from a breach of a director's
fiduciary duty except for liability (a) for any breach of the director's duty
of loyalty to the Registrant or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation
Law, or (d) for any transaction from which the director derived an improper
personal benefit.
Section 145 of the Delaware General Corporation Law provides generally that
a person sued as a director, officer, employee, or agent of a corporation may
be indemnified by the corporation for reasonable expenses, including
attorney's fees, if in the case of other than derivative suits he has 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, in the case of a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful).
In the case of a derivative suit, an officer, employee, or agent of the
corporation who is not protected by the Restated Certificate of Incorporation
may be indemnified by the corporation for reasonable expenses, including
attorney's fees, if he has acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in the case of a derivative suit
in respect of any claim as to which an officer, employee or agent has been
adjudged to be liable to the corporation unless that person is fairly and
reasonably entitled to indemnity for proper expenses.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Daisy granted non-contingent options to purchase the following number of
shares of Common Stock at a price of $0.52 per share to the persons listed
herein on the dates specified:
<TABLE>
<C> <S>
Marvin Griffin: 24,378 on October 25, 1994
24,378 on August 4, 1995
24,378 on August 6, 1996
48,756 on August 20, 1997
E. Lynn Scott: 12,189 on October 25, 1994
18,283 on August 4, 1995
24,378 on August 6, 1996
24,378 on August 20, 1997
Bob DeGarmo: 12,189 on February 20, 1997
12,189 on August 20, 1997
Steven R. DeMent: 12,189 on August 20, 1997
James C. Moody: 12,189 on October 25, 1994
18,283 on August 4, 1995
John D. Flynn: 12,189 on September 4, 1997
</TABLE>
These grants were made in reliance on the exemption from registration set
forth in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 Form of Underwriting Agreement
3(i)(a)(1) Restated Certificate of Incorporation*
3(i)(a)(2) DMC Holdings, Inc. Certificate of Merger*
3(i)(a)(3) Brass Eagle Inc. Certificate of Merger*
3(i)(b) Form of Restated Certificate of Incorporation of Registrant*
3(ii)(a) By-laws of Daisy (as predecessor to Registrant)*
3(ii)(b) Form of By-laws of Registrant*
4(i) Specimen Common Stock Certificate
5 Opinion of Friday, Eldredge & Clark*
8 Opinion of Friday, Eldredge & Clark**
10(i) Form of Assignment, Assumption, and Indemnification Agreement
between New Daisy and Registrant
Distributor Agreement between Goldcaps, Inc. and Registrant
10(ii) dated July 28, 1995*
10(iii) Distributor Agreement between Leader Industries and Registrant
dated August 31, 1995*
10(iv) International Agency Agreement between WDP Ltd. and Registrant
dated June 19, 1996*
10(v) Lease Agreement between R.L. Brown Investments and Registrant
dated June 5, 1997*
10(vi) Lease between Granby Apparel, Inc. and Registrant dated December
11, 1995*
10(vii) Form of Administrative Agreement between New Daisy and
Registrant*
10(viii)(a) Credit Agreement between Daisy and First Bank National
Association
10(viii)(b) Letter re Release of Liens by First Bank National Association
10(ix) Employment Agreement between E. Lynn Scott and Registrant dated
as of September 15, 1997*
10(x) Form of 1997 Stock Option Plan*
10(xi) Form of Employee Stock Purchase Plan*
10(xii) Form of Indemnification Agreement between Marvin W. Griffin and
Registrant*
10(xiii) Form of Indemnification Agreement between E. Lynn Scott and
Registrant*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(xiv) Form of Continuing Guaranty
11 Computation of Earnings per share
23.1 Consent of Crowe, Chizek and Company, LLP
23.2 The Consent of Friday, Eldredge & Clark is contained in its Opinion
filed as Exhibit 5*
24 Powers of Attorney (see page II-4)*
27 Financial Data Schedule
</TABLE>
- --------
* Previously filed
** To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriter at
the Closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person in connection with the securities being registered) the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant also hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF ROGERS, STATE OF ARKANSAS, ON THIS 4TH DAY OF NOVEMBER, 1997.
Brass Eagle Inc.
/s/ E. Lynn Scott
By: __________________________________
E. LYNN SCOTT
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ E. Lynn Scott President, Chief
- ------------------------------------ Executive Officer, November 4,
E. LYNN SCOTT and Director 1997
(Principal
Executive Officer)
Controller
/s/ Stephen J. Mattia (Principal November 4,
- ------------------------------------ Financial Officer 1997
STEPHEN J. MATTIA and Principal
Accounting Officer)
Chairman of the
* Board of Directors November 4,
- ------------------------------------ 1997
MARVIN GRIFFIN
Director
* November 4,
- ------------------------------------ 1997
ANTHONY J. DOWD
Director
* November 4,
- ------------------------------------ 1997
STEPHEN J. SCHAUBERT
Director
* November 4,
- ------------------------------------ 1997
H. GREGORY WOLD
/s/ E. Lynn Scott
*By: __________________________
E. LYNN SCOTT
POWER-OF-ATTORNEY
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement
3(i)(a)(1) Restated Certificate of Incorporation*
3(i)(a)(2) DMC Holdings, Inc. Certificate of Merger*
3(i)(a)(3) Brass Eagle Inc. Certificate of Merger*
Form of Restated Certificate of Incorporation of
3(i)(b) Registrant*
3(ii)(a) By-laws of Daisy (as predecessor to Registrant)*
3(ii)(b) Form of By-laws of Registrant*
4(i) Specimen Common Stock Certificate
5 Opinion of Friday, Eldredge & Clark*
8 Opinion of Friday, Eldredge & Clark**
10(i) Form of Assignment, Assumption, and
Indemnification Agreement between New Daisy and
Registrant
10(ii) Distributor Agreement between Goldcaps, Inc. and
Registrant dated July 28, 1995*
10(iii) Distributor Agreement between Leader Industries
and Registrant dated August 31, 1995*
10(iv) International Agency Agreement between WDP Ltd.
and Registrant dated June 19, 1996*
10(v) Lease Agreement between R.L. Brown Investments
and Registrant dated June 5, 1997*
10(vi) Lease between Granby Apparel, Inc. and Registrant
dated December 11, 1995*
10(vii) Form of Administrative Agreement between New
Daisy and Registrant*
10(viii)(a) Credit Agreement between Daisy and First Bank
National Association
10(viii)(b) Letter re Release of Liens by First Bank National
Association
10(ix) Employment Agreement between E. Lynn Scott and
Registrant dated as of September 15, 1997*
10(x) Form of 1997 Stock Option Plan*
10(xi) Form of Employee Stock Purchase Plan*
10(xii) Form of Indemnification Agreement between Marvin
W. Griffin and Registrant*
10(xiii) Form of Indemnification Agreement between E. Lynn
Scott and Registrant*
10(xiv) Form of Continuing Guaranty
11 Computation of Earnings per share
23.1 Consent of Crowe Chizek and Company LLP
23.2 The Consent of Friday, Eldredge & Clark is
contained in its Opinion filed as Exhibit 5*
24 Powers of Attorney (see page II-4)*
27 Financial Data Schedule
</TABLE>
- --------
* Previously filed
** To be filed by amendment
<PAGE>
EXHIBIT 1
DRAFT 10/31/97
2,275,000 Shares*
BRASS EAGLE INC.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
______________, 1997
McDONALD & COMPANY SECURITIES, INC.
DAIN BOSWORTH INCORPORATED
As Representatives of the Several Underwriters
c/o McDonald & Company Securities, Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Ladies and Gentlemen:
1. Introduction. Brass Eagle Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 2,275,000 shares of its common stock,
$.01 par value (the "Common Stock"), which are authorized but unissued, to the
public through the underwriters named in Schedule A annexed hereto (the
"Underwriters") for whom you are acting as the Representatives. The 2,275,000
shares of Common Stock to be purchased from the Company are hereinafter referred
to as the "Firm Stock." The Company also proposes to sell to the Underwriters,
at their option, an aggregate of not more than 341,250 additional shares of
Common Stock solely to cover over-allotments which are hereinafter referred to
as the "Option Stock." The Firm Stock and the Option Stock are hereinafter
collectively referred to as the "Stock" and are more fully described in the
Registration Statement and the Prospectus (as hereinafter defined). The Company
hereby confirms its agreements, as set forth herein, with you acting as the
Representatives of the Underwriters.
2. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
(a) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
Delaware with power and authority to own and lease its properties and conduct
its business as described in the Prospectus (as hereinafter defined). The
Company is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions (i) in which the conduct of business, as presently
conducted, requires such qualification (except for those jurisdictions in which
the failure to so qualify will not in the aggregate have a material adverse
effect on the Company or its prospects)
- --------------------
* Plus an option to purchase up to 341,250 additional shares to cover
over-allotments.
<PAGE>
and (ii) in which the Company owns or leases real property. Except as disclosed
in the Registration Statement, the Company does not own, directly or indirectly,
any equity securities or securities convertible into or exchangeable for equity
securities of any other corporation, partnership, Massachusetts or other
business trust or any other business enterprise.
(b) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Company and constitutes a valid and
binding obligation of the Company enforceable in accordance with its terms.
(c) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission"), in accordance with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations of
the Commission thereunder (as hereinafter defined), a registration statement on
Form S-1 (Registration No. 333-36179) including a preliminary prospectus
relating to the Company's Stock. The Company expects to file on or prior to the
effective date of such registration statement (the "Effective Date") one or more
additional amendments to such registration statement. The registration
statement, as amended at the time when it becomes effective, and including
information (if any) contained in a prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Act, and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act is hereinafter referred to as the "Registration Statement"; the
prospectus in the form first used to confirm sales of Stock, whether or not
filed with the Commission pursuant to Rule 424(b) under the Act is hereinafter
referred to as the "Prospectus."
(d) As of the Effective Date, and at all times subsequent
thereto, up to and including the respective Closing Dates (as hereinafter
defined) of the offering, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will contain all statements of material facts
which are required to be stated therein in accordance with the Act and the
applicable rules, regulations and interpretive releases of the Commission
thereunder (the "Rules and Regulations"), and will in all material respects
conform to the requirements of the Act and the Rules and Regulations; and
neither the Registration Statement nor the Prospectus, nor any amendment thereof
or supplement thereto, will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
makes no representations, warranties or agreements as to information contained
in the last paragraph of the cover page of the Prospectus and the statements
relating to the terms of the offering by the several Underwriters set forth
under the caption "Underwriting" in the Prospectus, provided to the Company by
you, expressly for such use.
(e) The Company has a duly authorized and outstanding
capitalization as set forth under "Capitalization" in the Prospectus except for
changes due to payments required by debt agreements, or as otherwise provided in
the Prospectus; the outstanding shares of Common Stock are duly authorized and
validly issued, fully paid and nonassessable, are free of any preemptive rights,
rights of first refusal or similar rights, were issued and sold in compliance
with the applicable Federal and state securities laws and conform in all
material respects to the description in the Prospectus; except as described in
the Prospectus, there are no outstanding
-2-
<PAGE>
options, warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue any shares of capital stock of the
Company or any security convertible or exchangeable or exercisable for capital
stock of the Company. There are no holders of securities of the Company who, by
reason of the filing of the Registration Statement have the right to request the
Company to include in the Registration Statement securities owned by them.
(f) The shares of Common Stock of the Company conform in
substance to all statements in relation thereto contained in the Registration
Statement and the Prospectus; the Stock to be sold by the Company hereunder has
been duly authorized and, when issued and delivered pursuant to this Agreement,
will be validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus. All corporate action required
to be taken for the issuance of the Stock by the Company has been validly and
sufficiently taken. No preemptive rights of security holders of the Company
exist with respect to the issuance and sale of the Stock by the Company pursuant
to this Agreement
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as set forth
or contemplated in the Prospectus, (i) the Company has not incurred any material
liabilities or obligations, direct or contingent, nor has it entered into any
material transaction, (ii) there has not been and will not have been any change
on a pro forma basis or otherwise in the capital stock or funded debt of the
Company which is material or any material adverse change in the business,
prospects, financial position or results of operations of the Company, and (iii)
no loss or damage (whether or not insured) to the property of the Company have
been sustained which materially and adversely affects the operations of the
Company or its prospects.
(h) The consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms and provisions of, or constitute a default under, the
Certificate of Incorporation or By-laws of the Company, or any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company is
a party or by which the Company is bound, or any order, rule or regulation
applicable to the Company of any court or of any federal or state regulatory
body or administrative agency or other governmental body having jurisdiction
over the Company or any of its property.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus fairly present the financial position
and results of operations of the Company at the respective dates and for the
respective periods to which they apply, and such financial statements have been
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved. The pro forma financial
statements of the Company included in the Prospectus fairly present the pro
forma financial position and results of operations of the Company at the dates
and for the periods to which they apply, and have been prepared to give effect
to certain assumptions and proposed transactions made on reasonable bases which
are fully and accurately described in the Prospectus, and the pro forma
adjustments have been properly applied on the bases described therein.
-3-
<PAGE>
(j) Crowe, Chizek and Company, LLP, who have examined and
expressed their opinion on the financial statements of the Company referenced in
their opinion set forth in the Prospectus, are independent accountants within
the meaning of the Act and the Rules and Regulations.
(k) The Company holds all necessary material authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies (collectively the "licenses")
required for the conduct of its business as described in the Prospectus, and all
such licenses are valid and in full force and effect, and the Company is
operating in compliance in all material respects with the terms and provisions
of such licenses and with all material laws, regulations, orders and decrees
applicable to the Company and its business and assets.
(l) The Company is in not violation of any applicable Federal,
state or local laws, statutes, rules, regulations or ordinances relating to
public health, safety or the environment, including, without limitation,
relating to the release, discharge, emission or disposal to air, water, land or
groundwater, to the withdrawal or use of groundwater, to the use, handling or
disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to
the treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction thereof, or
other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous
or other controlled, prohibited or regulated substances, which violation could
have a material adverse effect on the business, prospects, condition (financial
or other) or results of operations of the Company, or which might materially and
adversely affect the consummation of the transactions contemplated by this
Agreement. In addition, and irrespective of such compliance, the Company is not
subject to any liabilities for environmental remediation or clean-up, including
any liability or class of liability of the lessee under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
the Resource Conservation and Recovery Act of 1976, as amended, which liability
could have a material adverse effect on the business, prospects, condition
(financial or other) or results of operations of the Company, or which might
materially and adversely affect the consummation of the transactions
contemplated by this Agreement.
(m) There are no legal or governmental actions, suits or
proceedings pending or, to the knowledge of the Company, threatened to which the
Company, or any of its executive officers or directors is a party or of which
the business or property (including, without limitation, any of the licenses
referred to in (k) above) of the Company or any of the Company's employees is
the subject which could have a material adverse effect on the business,
prospects, condition (financial or other) or results of operations of the
Company, except as set forth in the Prospectus.
(n) The Company is not in violation of its Certificate of
Incorporation or Bylaws or other organizational documents, and no default exists
by the Company in the due performance and observance of any material term,
covenant or condition of any agreement material to the Company to which the
Company is a party or by which the Company is bound.
-4-
<PAGE>
(o) The Company has good title to, or valid and enforceable
leasehold estates in, all properties and assets used for its business (including
the property described in the Prospectus as being owned or leased by the
Company), in each case free and clear of all liens, encumbrances and defects
other than those set forth or referred to in the Registration Statement or
Prospectus or those which do not materially affect the value of such property or
leasehold and do not materially interfere with the use made or proposed to be
made of such property or leasehold by the Company; and all of the leases and
subleases under which the Company hold such properties are in full force and
effect.
(p) Other than as set forth in the Prospectus, the Company
owns or possesses, or can acquire on reasonable terms, the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets,
applications and other unpatented or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, and trade names
(collectively, "Proprietary Rights") used in or necessary for the conduct of its
business as now conducted and as proposed to be conducted as described in the
Prospectus; the Company has the right to use all Proprietary Rights used in or
necessary for the conduct of its business without infringing the rights of any
person or violating the terms of any licensing or other agreement to which the
Company is a party, and to the knowledge of the Company no person is infringing
upon any Proprietary Right which the Company has the sole and exclusive right to
use; no charges, claims or litigation have been asserted or to the knowledge of
the Company threatened against the Company contesting the right of the Company
to use, or the validity of, any Proprietary Right or challenging or questioning
the validity or effectiveness of any license or agreement pertaining thereto or
asserting the misuse thereof, and, to the Company's knowledge, no valid basis
exists for the assertion of any such charge, claim or litigation; all licenses
and other agreements to which the Company is a party relating to Proprietary
Rights are in full force and effect and constitute valid, binding and
enforceable obligations of the Company, and, to the Company's knowledge, the
other respective parties thereto, and there have not been and there currently
are not any defaults which could have a material adverse effect on the Company
or its prospects, and no event has occurred which (whether by notice or lapse of
time or both) could constitute a default under any license or other agreement
affecting Proprietary Rights used in or necessary for the conduct of the
businesses of the Company by any party; and except as set forth in the
Prospectus, the validity, continuation and effectiveness of all such licenses
and other agreements and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.
(q) No approval, authorization, consent or other order of any
public board or body (other than in connection with or in compliance with the
provisions of the Act and the securities or Blue Sky laws of various
jurisdictions) is legally required for the sale of the Stock by the Company.
(r) The shares of Common Stock have been registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and have been authorized for trading over-the-counter on the National
Association of Securities Dealers Automated Quotation National Market (the
"NASDAQ/NM") subject to notice of issuance or sale, as the case may be.
-5-
<PAGE>
(s) The outstanding debt, the properties and the business of
the Company conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus.
(t) The Company maintains insurance with reputable,
independent and financially stable third-party insurers of the types and in the
amounts generally deemed adequate for its business and, to the best of the
Company's knowledge, consistent with insurance coverage maintained by similar
companies in similar businesses, including, but not limited to, insurance
covering (i) personal injury claims (whether arising under tort, products
liability, warranty or any other legal theory), including without limitation,
with respect to all paintball and non-paintball products sold by the Company
prior to the transfer by the Company of all of the Company's non- paintball
related assets and liabilities to Daisy Manufacturing Company, a Delaware
corporation ("New Daisy"), in connection with the initial public offering of the
Stock contemplated by this Agreement (the "Reorganization") and (ii) real and
personal property owned or leased by the Company against theft damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect. The Company does not have
any material exposure to any products liability or other claim, whether pending
or not, and whether derived from any paintball or non-paintball product sold by
it, for which it does not have adequate insurance coverage or which could
materially adverse effect on the business, prospects, assets, results of
operation or condition (financial or other) of the Company.
(u) The Company has filed on a timely basis all necessary
federal, state, local and foreign income and franchise tax returns required to
be filed through the date hereof and has paid all taxes due with respect to the
period covered thereby; and no tax deficiency has been asserted against the
Company, nor does the Company know of any tax deficiency which could be asserted
against the Company which if determined adversely to the Company could
materially adversely affect the business, prospects, properties, assets, results
of operations or condition (financial or otherwise) of the Company. All tax
liabilities are adequately provided for on the books of the Company.
(v) The Company will be required to recognize gain on the
transfer of certain assets and liabilities from the Company to New Daisy to the
extent that the value for tax purposes of the liabilities assumed by New Daisy
exceeds the Company's adjusted tax basis in the assets transferred. The Company
has available to it tax loss carryforwards from prior years and current year tax
losses through the effective date of the Reorganization sufficient to offset all
of this gain.
The Company would also be required to recognized gain on
the spin-off if and to the extent that the fair market value of the outstanding
capital stock of New Daisy exceeds the Company's adjusted tax basis in such
stock. The adjusted basis in the stock is $-0- and the fair market value of the
stock is also $-0-.
(w) To the best of the Company's knowledge, no labor problem
exists with its employees or is threatened or imminent that could materially
adversely affect the Company, and
-6-
<PAGE>
the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, contractors or
customers that could materially adversely affect the business, prospects,
properties, assets, results of operation or condition (financial or other) of
the Company.
(x) The Company has obtained the agreement of each of its
executive officers, directors and all stockholders owning in excess of 5% of the
Common Stock issued and outstanding immediately prior to the Offering, that, for
a period of 180 days from the date of the final Prospectus, such persons will
not, without the prior written consent of McDonald & Company Securities, Inc.,
directly or indirectly sell, offer to sell, grant any option for the sale of, or
otherwise dispose of any shares of the Common Stock (including, without
limitation, shares of Common Stock which may be deemed to be beneficially owned
by such persons in accordance with Rule 13d-3 of the Exchange Act) or any
securities convertible into Common Stock.
(y) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Act and the Rules and Regulations), has taken or
will take, directly or indirectly, any action designed to stabilize or
manipulate, or which has constituted, or might in the future reasonably be
expected to cause or result in, stabilization or manipulation of, the price of
the Stock of the Company in order to facilitate the sale or resale of the Stock
or otherwise.
(z) The Company's system of internal accounting controls is
sufficient so to meet the broad objectives of internal accounting control as far
as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that could be material in relation to the Company's
financial statements; and, to the best of the Company's knowledge, neither the
Company nor any employee or agent of the Company has made any payment of funds
of the Company or received or retained any funds and no funds of the Company
have been set aside to be used for any payment in violation of any law, rule or
regulation.
(aa) The Company is not and does not intend to become, an
"investment company" as defined in Section 3(a) of the Investment Company Act of
1940, as amended.
(bb) The Company shall not, in connection with the
Reorganization or otherwise, have incurred, or otherwise exposed itself to any
material obligation or liability (whether fixed, contingent, known or unknown)
attributable to the operations of New Daisy or the historical, non-paintball
related operations of the Company.
(cc) All contracts and documents which are required to be
filed as exhibits to the Registration Statement have been so filed.
3. Sale, Purchase and Delivery of Stock. (a) On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell to each
Underwriter, and each Underwriter, severally and not jointly, agrees to purchase
from the Company the respective number of shares of the Firm Stock set forth
opposite the Underwriter's name in Schedule A hereto, at a price of $________
per
-7-
<PAGE>
share, as adjusted by the Representatives to avoid fractions and to reflect any
adjustment required by Section 11 hereof.
(b) The Company will deliver the Firm Stock to you for the
respective accounts of the several Underwriters at the office of McDonald &
Company Securities, Inc., McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio 44114, at 10:00 A.M., Cleveland time, or to your designee at a
specified place at the same time, against payment of the purchase price at the
place of such Closing, by certified or official bank checks in next day funds
drawn to the order of the Company on the third full business day after the
effective date of the Registration Statement (or, if the Firm Stock is priced
after 4:30 p.m., Cleveland time on the effective date of the Registration
Statement, the fourth full business day after the effective date of the
Registration Statement), or at such other time not later than seven full
business days after such initial public offering as you shall determine, such
time and place being herein referred to as the "Closing Date." The certificates
for the Firm Stock so to be delivered will be in such denominations and
registered in such names as you may specify to the Company at or before 3:00
P.M., Cleveland time, on the second full business day prior to the Closing Date.
Such certificates will be made available for checking and packaging at least 24
hours prior to the Closing Date. Certificates for further delivery of the Firm
Stock will be in such denominations and registered in such names as you may
request.
(c) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to 341,250 additional shares in the aggregate, of the Option
Stock at the purchase price set forth in Section 4(a) hereof, for use solely in
covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Stock. The option granted hereunder may be exercised at
any time (but not more than once) within 30 days after the date the Registration
Statement becomes effective, upon written or telegraphic notice by the
Representatives to the Company setting forth the aggregate number of shares of
the Option Stock as to which the Underwriters are exercising the option and the
time and place at which certificates will be delivered, such time (which, unless
otherwise determined by you and the Company, shall not be earlier than three nor
later than seven full business days after the exercise of said option) being
herein called the "Second Closing Date." The number of shares of the Option
Stock to be sold by the Company to each Underwriter and purchased by such
Underwriter from the Company shall be the same percentage of the total number of
shares of the Option Stock to be purchased by the several Underwriters on the
Second Closing Date as such Underwriter purchased of the total number of shares
of the Firm Stock, as adjusted by the Representatives to avoid fractions and to
reflect any adjustment required by Section 11 hereof. The Company will deliver
certificates for the shares of the Option Stock being purchased by the several
Underwriters to you on the Second Closing Date at the place and time of such
Closing, or to your designee at a specified place at the same time, against
payment of the purchase price at the place of such Closing, by certified or
official bank checks in next day funds drawn to the order of the Company. The
certificates for the Option Stock so to be delivered will be in such
denominations and registered in such names as you may specify to the Company at
or before 3:00 P.M., Cleveland time, on the second full business day prior to
the Second Closing Date. Such certificates will be made available for checking
and packaging at least 24 hours prior to the
-8-
<PAGE>
Second Closing Date. Certificates for further delivery of the Option Stock will
be in such denominations and registered in such names as you may request. The
option granted hereby may be canceled by you as the Representatives of the
several Underwriters, as to the shares of the Option Stock for which the option
is unexercised, at any time prior to the expiration of the 30 day period, upon
notice to the Company.
4. Offering by Underwriters. Subject to the terms and conditions
hereof, the several Underwriters agree that (i) they will offer the Stock to the
public as set forth in the Prospectus as soon after the Registration Statement
becomes effective as may be practicable, but in no event later than 5:00 p.m.,
Cleveland time, on the 15th business day subsequent to the date that the
Registration Statement becomes effective, and (ii) they will offer and sell the
Stock to the public only in those jurisdictions, and in such amounts, where due
qualification and/or registration has been effected or an exemption from such
qualification and/or registration is available under the applicable securities
or Blue Sky laws of such jurisdiction; it being understood, however, that such
agreement only covers the initial sale of the Stock by the Underwriters and not
any subsequent sale of such Stock in any trading market which may develop after
the public offering.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will make every reasonable effort to cause the
Registration Statement to become effective and will advise you when it is
effective under the Act. The Company will not file any amendment to the
Registration Statement, or supplement to the Prospectus, of which you have not
been previously advised and furnished with a copy, or to which you have
reasonably objected in writing.
(b) The Company will advise you promptly of any request of the
Commission for amendment of the Registration Statement or Prospectus or for
additional information and of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose of which it has knowledge, and the Company
will make every reasonable effort to prevent the issuance of any such stop order
and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will comply, to the best of its ability, with the
Act so as to permit the continuance of sales of and dealings in the Stock under
the Act for such period as may be required by the Act; whenever it is necessary
to amend or supplement the Prospectus to make the statements therein not
misleading, furnish, without charge to you as the Representatives, either
amendments to the Prospectus or supplemental information, so that the statements
in the Prospectus as so amended or supplemented will not be misleading; and file
a post-effective Amendment to the Registration Statement whenever such an
amendment may be required and furnish, without charge to you, a reasonable
number of copies of any such amendment and related Prospectus.
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(d) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its security holders and
deliver to you an earnings statement (which need not be audited) covering a
period of at least 12 months beginning not earlier than the Effective Date which
shall satisfy the provisions of Section 11(a) of the Act and/or Rule 158
promulgated under the Act.
(e) The Company will furnish to you copies of the Registration
Statement (two of which will be signed and will include all exhibits thereto),
each preliminary prospectus, the Prospectus, all amendments of and supplements
to such documents, and all correspondence between the Commission and the Company
or its counsel or accountants relating thereto, in each case as soon as
available and in such quantities as you may reasonably request.
(f) For a period of three years from the date of the
Prospectus, the Company will deliver to you (i) within 90 days after the end of
each fiscal year, audited consolidated balance sheets, statements of income,
statements of cash flow and statements of changes in stockholders' equity of the
Company and its consolidated subsidiaries, if any, as at the end of and for such
year and the last preceding year, all in reasonable detail and certified by
independent accountants, (ii) within 45 days after the end of each of the first
three quarterly periods in each fiscal year, unaudited consolidated balance
sheets and statements of income, statements of cash flow and statements of
changes in stockholders' equity of the Company and its consolidated
subsidiaries, if any, as at the end of and for such period, all in reasonable
detail, (iii) as soon as available, copies of each report or other publicly
available information of the Company mailed to the holders of the Common Stock
or filed with the Commission or any stock exchange, and such other publicly
available information concerning the Company as you may reasonably request.
(g) The Company will apply the net proceeds from the sale of
the Stock sold by it in the manner set forth in the Prospectus and will timely
file with the Commission such reports on Form SR as may be required pursuant to
Rule 463 under the Act.
(h) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A promulgated under the Act, then immediately following the execution of
this Agreement, the Company will prepare and file with the Commission, in
accordance with Rule 430A and Rule 424(b) promulgated under the Act, copies of
an amended Prospectus or, if required by such Rule 430A, a post-effective
amendment (including an amended Prospectus), containing all information so
omitted.
(i) The Company will file with the NASD all documents and
notices required of companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported by the NASDAQ/NM.
(j) The Company will satisfy all requirements for continued
listing on the NASDAQ/NM for a period of three years after the effective date of
the Registration Statement and will consult with McDonald & Company Securities,
Inc. prior to making any decision to
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discontinue such listing at any time within five years after the effective date
of the Registration Statement.
(k) The Company will cooperate with you and your counsel to qualify
the Stock for sale under the securities or Blue Sky laws of such jurisdictions
within the United States as you designate, including furnishing such information
and executing such instruments as may be required, and will continue such
qualifications in effect for a period of at least three months from the date
hereof; provided, however, the Company shall not be required to register or
qualify as a foreign corporation or as a dealer in securities nor, except as to
matters and transactions relating to the offer and sale of the Stock, consent to
a service of process in any jurisdiction.
(l) For a period of 180 days from the time of the initial public
offering of the Stock by the Underwriters, the Company will not publicly sell,
except with your prior written consent, any Common Stock or securities
convertible into Common Stock for cash, except pursuant to the exercise of any
outstanding stock options of the Company that are described in the Prospectus.
(m) After the Closing Dates, the Company will comply with the
financial record-keeping requirements and internal accounting control
requirements of Section 13(b)(2) of the Exchange Act.
6. Payment of Expenses. The Company will pay or cause to be paid all
costs and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, the reasonable fees, costs and
expenses of preparing, printing and delivering the certificates for the Stock;
the reasonable fees, costs and expenses of the transfer agent and registrar for
the Common Stock; the reasonable fees and disbursements of its accountants; the
reasonable fees and expenses of its counsel; the filing fees and reasonable
expenses incurred in connection with the qualification, registration or
exemption of the Stock under state securities or Blue Sky laws and the fees and
disbursements of counsel for the Underwriters in connection with such
qualification, registration or exemption and the preparation and printing of the
preliminary and final Blue Sky Surveys; the filing fees, and reasonable expenses
paid and incurred by the Underwriters, including fees and disbursements of
counsel for Underwriters, in connection with the review of the terms of the
underwriting arrangements by the NASD; the costs and expenses in connection with
the preparation, printing and filing of the Registration Statement (including
exhibits thereto) and the Prospectus and the furnishing to the Underwriters of
such copies of each preliminary and final Prospectus as the Underwriters may
reasonably require; and the costs and expenses in connection with the printing
of this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement and other documents distributed to the Underwriters. In addition to
the foregoing, on the Closing Date the Company shall pay to you the amount of
$100,000 in non-accountable expenses to cover the Underwriters' other counsel
fees and expenses.
7. Conditions of the Obligation of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Stock on the Closing
Date and the Option Stock on the Second Closing Date shall be subject to the
condition that the representations and
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warranties made by the Company herein are true and correct as of the date hereof
and as of the respective Closing Dates, to the condition that the written
statements of Company officers made pursuant to the provisions hereof are true
and correct, and to the performance by the Company of its obligations hereunder
and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., Cleveland time, on the date of this Agreement, or at such
later time as shall have been consented to by you, and prior to each Closing
Date no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or to the knowledge of the Company or you, shall
be contemplated by the Commission.
(b) You shall not have advised the Company that the Registration
Statement or Prospectus or any amendment thereof or supplement thereto contains
an untrue statement of fact which, in the reasonable opinion of Baker &
Hostetler LLP, counsel for the Underwriters, is material, or omits to state a
fact which, in the opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not misleading.
(c) You shall have received as of each Closing Date (or prior
thereto as indicated) the following:
(i) An opinion of Friday, Eldredge & Clark, dated as of each
respective Closing Date, to the effect that:
(aa) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of Delaware with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus. The Company is duly qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions (i) in which the conduct of business, as presently being
conducted, requires such qualification (except for those jurisdictions in
which the failure to so qualify will not in the aggregate have a material
adverse effect on the Company or its prospects) and (ii) in which the
Company owns or leases real property.
(bb) The authorized capital stock of the Company is as
set forth under "Capitalization" in the Prospectus; all issued and
outstanding shares of Common Stock of the Company have been duly authorized
and validly issued, are free of preemptive rights of stockholders, rights
of first refusal or similar rights and are fully paid and nonassessable.
Except as described in the Prospectus, there are no outstanding options,
warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital stock of
the Company or any security convertible or exchangeable or exercisable for
capital stock of the Company. There are no holders of securities of the
Company who, by reason of the filing of the Registration Statement, have
the right to request the Company to include in the Registration Statement
securities owned by them.
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(cc) The shares of Common Stock of the Company to be
issued and sold by the Company hereunder have been duly authorized, and,
when issued, delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable. No preemptive rights of
security holders of the Company exist with respect to the issuance and sale
of the Stock by the Company pursuant to this Agreement. The shares of
Common Stock of the Company conform to the description thereof contained in
the Prospectus and the certificates for the shares of Common Stock of the
Company (including the Stock) are in due and legal form under Delaware law.
(dd) The Company has the corporate power and authority
to enter into and perform this Agreement and to issue and deliver the Stock
as provided herein. The execution, delivery and performance of this
Agreement by the Company has been duly authorized by all necessary action
of the Company. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity may be limited by public policy and applicable
federal or state securities laws and except as enforcement thereof may be
limited by bankruptcy, insolvency or other laws of general application
affecting the enforcement of creditors' rights or by limitations upon the
availability of certain remedies that may be precluded by general
principles of equity.
(ee) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act. The Registration Statement and the
Prospectus, and each amendment thereof or supplement thereto (except for
the financial statements and schedules included therein as to which such
counsel need express no opinion) comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations (except for
the financial statements and schedules included therein as to which such
counsel need express no opinion); the descriptions in the Registration
Statement and the Prospectus of the shares of Common Stock, statutes,
regulations, leases, employee benefit plans, contracts and other documents
are materially accurate and fairly present the information required to be
shown; and such counsel does not know of any legal or governmental
proceedings which are required by the Act and the Rules and Regulations to
be described in the Prospectus and which are not described as so required,
or of any leases, contracts or other documents of a character which are
required by the Act and the Rules and Regulations to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement and which are not described and/or filed as so
required.
(ff) The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not result in a
breach of any of the terms and provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party and of which such counsel has
knowledge after reasonable investigation, or the Certificate of
Incorporation or By-laws of the Company, or, to the knowledge of such
counsel, any order, rule or regulation
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applicable to the Company of any court or of any federal or state
regulatory body or administrative agency or other governmental body having
jurisdiction over the Company or its property, except for such breaches or
defaults as will not have a material adverse effect on the consummation of
the transactions herein contemplated and the fulfillment of the terms
hereof by the Company.
(gg) All approvals, consents and orders of all
governmental bodies required in connection with the valid authorization,
issuance and sale of the Stock as contemplated by this Agreement have been
obtained, except such as may be required under the securities or Blue Sky
laws of any jurisdiction as to which such counsel need express no opinion.
(hh) To such counsel's knowledge, the Company is not in
violation of its Certificate of Incorporation or By-laws or other
organizational documents, and no default exists by the Company in the due
performance and observance of any term, covenant or condition of any
agreement material to the Company to which the Company is a party or by
which the Company is bound.
(ii) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(jj) No facts have come to the attention of such counsel
which would lead such counsel to believe that either the Registration
Statement at the time it became effective and at the Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus as of the date thereof and as of the Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with respect
to the financial statements and schedules and other financial data included
therein).
(kk) [Each of (A) the Assignment, Assumption and
Indemnification Agreement between the Company and Daisy Manufacturing
Company, a Delaware corporation ("New Daisy") to be dated as of the
Effective Date, (B) the Guaranty to be executed by each of the stockholders
of New Daisy in favor of the Company and dated as of the Effective Date,
and (C) the Tax Allocation Agreement between the Company and New Daisy to
be dated as of the Effective Date, constitute valid, binding and
enforceable obligations of each of the parties thereto enforceable against
them in accordance with their respective terms.]
(ll) Such other matters as you may reasonably request.
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In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent specified in such
opinion, if at all, upon an opinion or opinions of other counsel, familiar with
the applicable laws; (B) as to matters of fact on certificates of officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company. The opinion of such counsel
for the Company shall state that the opinion of any such other counsel is in
form satisfactory to such counsel and, in their opinion, you and they are
justified in relying thereon.
(ii) An opinion of Friday, Eldredge & Clark, dated as of the
Closing Date, to the effect that:
(aa) [tax free nature of the "spin"]; and
(bb) [methodology set forth in the certificate
contemplated by Section 7(h)].
(iii) An opinion of John D. Flynn, Esq., Secretary and General
Counsel of the Company, dated as of each respective Closing Date, to the effect
that:
(aa) To the best of his knowledge, the Company holds,
and is in compliance with, all necessary material authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies (collectively, the "licenses")
required for the conduct of its business as described in the Prospectus,
except where the failure to so hold or comply with any license would not
have, individually or in the aggregate, a material adverse effect on the
business, prospects, condition (financial or other) or results of
operations of the Company.
(bb) To the best of his knowledge, the Company is not in
violation of any Federal or Delaware laws and regulations that are of
general application to corporations in the conduct of its business, except
where the failure so to comply or conform would not have a material adverse
effect on the business, prospects, condition (financial or other) or
results of operations of the Company.
(cc) Except as set forth in the Prospectus, such counsel
does not know of any past, pending or threatened action, suit, proceeding,
inquiry or investigation before any court or before or by any public,
regulatory or governmental body or board against or involving the business
or property of the Company, if successful, could have a material adverse
effect on the business, prospects, condition (financial or other) or
results of operations of the Company.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which he is admitted, to the extent specified in such opinion,
if at all, upon an opinion or
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opinions of other counsel, familiar with the applicable laws; (B) as to matters
of fact on certificates of officers of the Company. The opinion of Mr. Flynn
shall state that the opinion of any such other counsel is in form satisfactory
to him and, in his opinion, you and they are justified in relying thereon.
(iv) Such opinion or opinions of Baker & Hostetler LLP,
counsel for the Underwriters, dated as of each respective Closing Date, with
respect to the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement, the validity of the Stock, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and the Company shall have furnished to such counsel such documents as
they may request for the purpose of enabling them to pass upon such matters. In
connection with such opinions, such counsel may rely on representations or
certificates of officers of the Company; and in rendering an opinion such
counsel may rely on the opinion of Friday, Eldredge & Clark.
(v) A certificate of the Company executed by the principal
executive officer and the principal financial and accounting officer of the
Company, dated as of each respective Closing Date, to the effect that:
(aa) The representations and warranties of the Company
in Section 2 of this Agreement are true and correct as of each respective
Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to each respective Closing Date.
(bb) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the knowledge of the respective
signers of the certificate, are contemplated under the Act.
(cc) The signers of the certificate have carefully
examined the Registration Statement and the Prospectus; no facts have come
to their attention which would lead them to believe that either the
Registration Statement at the time it became effective (or any amendment
thereof or supplement thereto made prior to the Closing Date or the Second
Closing Date, as the case may be, as of the date of such amendment or
supplement) contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus as of the date
thereof (or any amendment thereof or supplement thereto made prior to the
Closing Date or the Second Closing Date, as the case may be, as of the date
of such amendment or supplement) contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; since the latest
respective dates as of which information is given in the Registration
Statement, there has been no material adverse change in the financial
position, business, prospects or results of operations of the Company,
except as set forth in or contemplated by the Prospectus; and since the
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Effective Date of the Registration Statement there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been set forth.
(vi) Letters from Crowe, Chizek and Company, LLP, dated
respectively the date of this Agreement and each respective Closing Date,
addressed to you and in form and substance previously approved by you, with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(vii) A certification from the Company that (i) it has received
a written representation from each of its directors and executive officers who
are also stockholders of the Company (with a copy of each such representations
attached thereto) that such stockholder does not have any plan or intention to
sell, exchange, transfer by gift or otherwise dispose of any shares of the
Company, and (ii) that the Company is not aware that any other stockholder has
any such plan or intention.
(viii) A certification from New Daisy that (i) it has received
a written representation from each of its directors and officers who are also
stockholders of New Daisy (with a copy of each such representation attached
thereto) that such stockholder does not have any plan or intention to sell,
exchange, transfer by gift or otherwise dispose of any shares of New Daisy, and
(ii) that New Daisy is not aware that any other stockholder has any such plan or
intention.
(e) The Company shall have furnished to you such further
certificates and documents as you may reasonably request.
(f) No stop order suspending the qualification of the Stock under
the securities or Blue Sky laws of the states in which the Stock is to be
offered and sold shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or to the knowledge of the
Company or you, shall be contemplated by the applicable state securities
administrators.
(g) You shall have received a copy of a duly executed and delivered
continuing guaranty between shareholders of New Daisy and the Company in form
and substance reasonably satisfactory to you and counsel for the Underwriters.
(h) You shall have received a written statement signed by the
Secretary of the Company and dated as of the Closing Date certifying (A) the
amount of the Company's adjusted tax basis in the assets transferred by the
Company to New Daisy in connection with the Reorganization, (B) the value, for
tax purposes, of the liabilities assumed by New Daisy in connection therewith,
(C) the amount of the Company's net operating losses from prior years and
current year operating losses through the date of the Reorganization that are
available to offset the gain associated with the asset transfer described in
clause (A) and the gain associated with the termination of the LIFO reserve
described in clause (D), (D) the amount and timing of the recognition by the
Company for tax purposes of the gain attributable to the contemplated election
by the Company to terminate its LIFO reserve effective as of January 1, 1997,
(E) that the Company's adjusted tax basis in the outstanding capital stock of
New Daisy distributed by the Company in connection with
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the Reorganization exceeds the fair market value thereof, and (F) that such
Secretary has made all inquiries with the Company's chief accounting officer and
independent certified public accountants, as well as with such other persons,
including, without limitation, appraisers and other financial and legal
advisors, necessary to familiarize himself with such matters and to enable him
to render such certifications. Such statement shall otherwise be in form and
substance reasonably satisfactory to you and your counsel and, with respect to
the certifications contained in clauses (A) through (E), such statement shall
include a detailed numerical calculation supporting such certifications.
If any condition of the Underwriters' obligations hereunder to be
satisfied prior to any Closing Date is not so satisfied, this Agreement may be
terminated by you prior to such Closing Date, by notice in writing or by
telegram confirmed in writing to the Company.
All such opinions, certificates, letters and documents furnished to
you pursuant to this Section 7 will be in compliance with the provisions hereof
only if they are in all material respects satisfactory to you and to Baker &
Hostetler LLP, counsel for the Underwriters, as to which both you and such
counsel shall act reasonably. The Company will furnish you with such executed
and conformed copies of such opinions, certificates, letters and documents as
you may request.
You, on behalf of the Underwriters, may waive in writing the
compliance by the Company of any one or more of the foregoing conditions or
extend the time for their performance.
8. Representations of the Underwriters. Each of the Underwriters
severally represents and warrants to the Company that the information provided
to the Company in writing by such Underwriters or by you expressly for use in
the preparation of the Registration Statement or the Prospectus does not, and
any amendments thereof or supplements thereto thus provided will not, contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
Through you each Underwriter has furnished to the Company expressly for such
use, only the statements made in the last paragraph of the cover page of the
Prospectus and the statements relating to the terms of the offering by the
several Underwriters set forth under the caption "Underwriting" in the
Prospectus.
9. Termination of Agreement. This Agreement shall become effective upon
the earlier to occur of (i) the time the Stock is released by you for sale or
(ii) 11:00 A.M., Cleveland time, on the first business day following the date on
which the Registration Statement becomes effective. At any time before the
happening of such occurrence, the Company may, by notice to you, terminate this
Agreement; and at any time prior to such time, you, as the Representatives of
the several Underwriters, may, by notice to the Company, terminate this
Agreement.
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This Agreement may also be terminated by you, as Representatives of
the several Underwriters, by notice to the Company on or after the Effective
Date of the Registration Statement and prior to each respective Closing Date, if
at any time during such period any of the following has occurred: (i) except as
disclosed in or contemplated by the Registration Statement, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company or the earnings, business affairs, management or
business prospects of the Company, whether or not arising in the ordinary course
of business; (ii) any outbreak of hostilities or escalation in existing
hostilities anywhere in the world or other national or international calamity or
crisis or change in economic or political conditions, if the effect of such
outbreak, escalation, calamity, crisis or change in the financial markets in the
United States would, in your reasonable judgment, make it impracticable to offer
for sale or to enforce contracts made by the Underwriters for the resale of the
Stock agreed to be purchased hereunder; (iii) any general suspension of trading
in securities on the New York Stock Exchange or the American Stock Exchange or
the NASDAQ/NM or any general limitation on prices for such trading or any
general restrictions on the distribution of securities, all to such a degree as
would in your reasonable judgment materially adversely affect the market for the
Stock; or (iv) a banking moratorium shall have been declared by either Federal,
Arkansas, Delaware, Ohio or New York State authorities.
This Agreement may also be terminated as provided in Sections 7 and
11 hereof.
If this Agreement shall be terminated by you because of any failure
on the part of the Company to comply with any of the terms or to fulfill any of
the conditions of this Agreement, or if for any reason the Company shall be
unable to perform its obligations under this Agreement, the Company shall pay,
in addition to the costs and expenses referred to in Section 6, all reasonable
out-of-pocket expenses incurred by the Underwriters in contemplation of the
performance by them of their obligations hereunder, including but not limited to
the reasonable fees and disbursements of counsel for the Underwriters, the
Underwriters' reasonable printing and traveling expenses and postage, telegraph
and telephone charges relating directly to the offering contemplated by the
Prospectus, and also including reasonable advertising expenses of the
Representatives incurred after the Effective Date of the Registration Statement
and so relating, it being understood that such out-of-pocket expenses shall not
include any compensation, salaries or wages of the officers, partners or
employees of any of the Underwriters. Only such out-of-pocket expenses as shall
be accounted for by the Underwriters shall be paid to the Underwriters by the
Company.
The Company shall not in any event be liable to the several
Underwriters for damages on account of loss of anticipated profits arising out
of the actions contemplated by this Agreement.
10. Indemnification. (a) The Company will indemnify and hold harmless
each Underwriter, and each person, if any, who controls each Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such
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losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder, or arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any related preliminary prospectus (if used prior to the
Effective Date), the Prospectus or any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and, subject to the provisions of Section
10(c), will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(a) with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter or to the benefit
of any person controlling such Underwriter in respect of any loss, claim,
damage, liability or action asserted by a person who purchases shares of the
Stock from such Underwriter, if such Underwriter failed to send or give a copy
of the Prospectus (as the same may then be amended or supplemented) to such
person with or prior to written conformation of the sale to such person; and
provided, further, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission or alleged omission made in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment thereof or supplement thereto in reliance upon or in conformity with
written information furnished to the Company by an Underwriter specifically for
use in the preparation thereof, as referred to in the last sentence of Section 8
hereof. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Act each of its directors, each of its officers who have signed the Registration
Statement, against any losses, claims, damages or liabilities to which the
Company, or any such director or officer may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any preliminary prospectus, the Prospectus, or any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment thereof
or supplement thereto in reliance upon or in conformity with written information
furnished to the Company by such Underwriter through you, as the Representatives
of the Underwriters, specifically for use in the preparation thereof, as
referred to in the last sentence of Section 8 of this Agreement; and will
reimburse the Company and each such director or officer for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which the Underwriters may
otherwise have.
-20-
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify each party against whom indemnification is to be
sought in writing of the commencement thereof; but the omission so to notify an
indemnifying party will not relieve it from any liability which they may have to
any indemnified party otherwise than under this Section. In case any such action
is brought against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, to assume the defense thereof, with counsel
approved by such indemnified party (which approval shall not be unreasonably
withheld), and after notice from the Company to such indemnified party of its'
election so to assume the defense thereof, the Company will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the named parties to any such action include both the indemnifying
party and the indemnified party, and the indemnified party shall have reasonably
concluded that there is an actual or potential conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the defense of
such action (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party), or (iii)
the indemnifying parties shall not have employed counsel to assume the defense
of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. In no event shall the indemnifying party or
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one or separate but similar or
related actions in the same jurisdiction arising out of the same allegations or
circumstances. Anything in this Section to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent.
(d) In order to provide for contribution in circumstances in
which the indemnification provided for in this Section is for any reason held to
be unavailable from the Company or the Underwriters or is insufficient to hold
harmless a party indemnified hereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provisions (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of the Act, officers of the Company who signed the Registration Statement and
directors of the Company) to which the Company and one or more of the
Underwriters may be subject, in such proportions as is appropriate to reflect
the relative benefits received by the Company and the
-21-
<PAGE>
Underwriters from the offering of the Stock or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in this Section,
in such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as (y) the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and (z) the underwriting
discounts and commissions received by the Underwriters, respectively, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and of the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omissions or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 10(e) were determined by pro rata allocation even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 10(e), (i) in no case
shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discounts and commissions applicable to the Stock purchased by such
Underwriter hereunder and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person, if any, who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 10(e), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act shall have
the same rights to contribution as such Underwriter, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 10(e). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 10(e), notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 10(e) or otherwise. No party
shall be liable for contribution for any settlement of any action or claim
effected without its written consent.
11. Default of the Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase the Stock hereunder and arrangements
satisfactory to you and the Company, evidenced by a writing or writings signed
by you and the Company, for the purchase of such Stock by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Company (except
that the Company shall be liable for the expenses to be paid by it pursuant to
the provisions of Section 8), provided, however, that if the number of shares of
the Stock which all
-22-
<PAGE>
such defaulting Underwriters have agreed but failed to purchase shall not exceed
10% of the number of shares of the Firm Stock or the Option Stock, as the case
may be, agreed to be purchased pursuant to this Agreement (other than the shares
agreed to be taken up hereunder which the defaulting Underwriters failed to
purchase) by all non-defaulting Underwriters, the non-defaulting Underwriters
shall be obligated proportionately to take up and pay for the shares of the Firm
Stock or the Option Stock which such defaulting Underwriters failed to purchase.
If any such default occurs, either you or the Company shall have
the right to postpone the Closing Date for not more than seven business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangement, may be effected. As used
in this Agreement, the term "Underwriters" includes any person substituted for
an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from its liability to the other several Underwriters and the Company
for its default hereunder.
12. Representations and Indemnities to Survive Delivery. The respective
indemnities, agreements, representations and warranties of the Company and the
several Underwriters, set forth in or made pursuant to this Agreement, will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and will survive delivery of and payment for the Stock
and, in the case of the agreements contained in Sections 6, 9 and 10 hereof,
will survive any termination of this Agreement.
13. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to you in care of McDonald & Company Securities, Inc., McDonald Investment
Center, 800 Superior Avenue, Cleveland, Ohio 44114, Attention: J.W. Sean Dorsey,
with a copy to Baker & Hostetler LLP, 3200 National City Center, 1900 East 9th
Street, Cleveland, Ohio 44114-3485, Attention: Albert T. Adams, Esq., or if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to the
Company at 1203A North Sixth Street, Rogers, Arkansas 72756, Attention: E. Lynn
Scott, President and Chief Executive Officer; with a copy to Friday, Eldredge &
Clark, 2000 First Commercial Building, 400 West Capitol Avenue, Little Rock,
Arkansas 72201-3493, Attention:
Paul B. Benham, III.
14. Successors, Governing Law. This Agreement will inure solely to the
benefit of and be binding upon the parties hereto and the officers and directors
and persons referred to in Section 10 hereof and their respective successors,
assigns, heirs, executors and administrators, and no other persons will have any
right or obligation hereunder. This Agreement will be governed by and construed
in accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law's thereof.
17. Execution in Counterparts. This Agreement may be executed by any
one or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
-23-
<PAGE>
18. Authority of the Representatives. You represent and warrant that
you have been authorized by the several Underwriters to enter into this
Agreement on their behalf and to act for them in the manner provided herein.
-24-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement by and among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
BRASS EAGLE INC.
By:
----------------------------------
Name:
----------------------------
Title:
----------------------------
The foregoing Agreement is hereby confirmed and accepted by us acting on our own
behalf and as the Representatives of the several Underwriters named on Schedule
A annexed hereto, as of the date first above written.
McDONALD & COMPANY SECURITIES, INC.
As Representative of the Several Underwriters
By:
-----------------------------------------
Name:
----------------------------------
Title: Managing Director
DAIN BOSWORTH INCORPORATED
As Representative of the Several Underwriters
By:
-----------------------------------------
Name:
-----------------------------------
Title: Managing Director
-25-
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of Shares
Underwriter to be Purchased
----------- ----------------
McDonald & Company Securities, Inc.
Dain Bosworth Incorporated
Total
-26-
<PAGE>
Exhibit 4 (i)
-------------
================================================================================
NUMBER [LOGO OF BRASS EAGLE(R) SHARES
C APPEARS HERE]
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 10553F 10 6
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK
PAR VALUE $.01 PER SHARE, OF
- -------------------------------BRASS EAGLE INC.---------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to all the provisions of the Certificate of Incorporation of the
Corporation, as amended from time to time, to all of which each holder of this
Certificate, by acceptance hereof, assents.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
/s/ Lynn Scott COUNTERSIGNED AND REGISTERED:
PRESIDENT SUNTRUST BANK, ATLANTA
TRANSFER AGENT
AND REGISTRAR
[SEAL OF BRASS EAGLE, INC.
1997 DELAWARE APPEARS HERE]
/s/ John D. Flynn
SECRETARY BY
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- ___ Custodian ___
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _______________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint
Attorney
- --------------------------------------------------------------------
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------------
X
----------------------------------
X
----------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
--------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10(i)
FORM OF
-------
ASSIGNMENT, ASSUMPTION AND INDEMNIFICATION AGREEMENT
----------------------------------------------------
STATE OF ARKANSAS )
)
COUNTY OF BENTON )
KNOW ALL PERSONS BY THESE PRESENTS:
For and in consideration of the sum of Ten Dollars ($10.00) cash and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, BRASS EAGLE INC. (the "Assignor"), a Delaware corporation, does
hereby grant, bargain, sell, convey, transfer, and assign unto DAISY
MANUFACTURING COMPANY (the "Assignee"), a Delaware corporation, and unto said
Assignee's successors and assigns, forever, all of Assignor's rights, title and
interest in and to its nonpaintball related assets, (whether tangible or
intangible) contracts, licenses, leases and agreements, of whatever kind and
wherever located, including all claims, causes of action and other rights with
respect to such property, known or unknown, fixed, contingent or otherwise (the
"Assets").
TO HAVE AND TO HOLD the same unto said Assignee, and its successors and
assigns forever, subject to the following terms and obligations:
1. Assumption of Liabilities and Obligations. Assignor, by this
-----------------------------------------
assignment, hereby transfers and assigns to Assignee all of its rights,
liabilities, obligations and duties in connection with such Assets, including
without limitation (i) any liability attributable to any products sold by
Assignor through the date hereof (other than any products sold by Assignor under
the Brass Eagle name) and any products sold by Assignee on or after the date
hereof, (ii) any liability attributable to any claim by any present or former
employee of Assignor or by any present, former or future employee of Assignee to
the extent that such claim relates to medical, pension or other employee
benefits that are attributable to the employment of any such individual in
Assignor's non-paintball operations or in any operations of Assignee, (iii) any
Federal, state or local income taxes imposed on or assessed against Assignor as
a result of the assignment and assumption contemplated hereby, (iv) any Federal,
state or local personal property, real property, sales, use, excise, income or
other tax imposed on or assessed against Assignor to the extent that such taxes
relate or are attributable to the non-paintball related business of Assignor or
to any operations of Assignee, (v) any indebtedness, accounts payable or other
financial obligations attributable to such Assets and (vi) any other liability
or obligation attributable to the operation of the Assignor's nonpaintball
related business, or under any contracts, licenses, leases or other agreements
transferred to the Assignee hereby (the "Assumed Liabilities"); and Assignee, by
acceptance hereof, hereby assumes and agrees to fully and timely undertake and
perform all of the Assumed Liabilities and duties relating to the Assets.
2. Indemnification.
---------------
(a) By Assignee. Assignee hereby assumes liability for, and
-----------
irrevocably agrees to indemnify, defend and hold Assignor (which term includes
its officers, directors, employees, agents, shareholders, subsidiaries and
affiliates) harmless from and against any and all claims, actions, suits,
losses, damages, liabilities, obligations, costs and expenses (including,
without limitation, attorneys fees) of any nature whatsoever, whether direct or
indirect, matured or unmatured, accrued or unaccrued, liquidated or
unliquidated, asserted or unasserted, known or unknown, absolute, fixed,
contingent or otherwise, incurred by or asserted against Assignor (specifically
including, without limitation, any thereof incurred by or asserted against
Assignor as predecessor in interest to Assignee) which arise out of, result from
or otherwise relate to the Assets, the Assumed Liabilities and/or the operation
of the nonpaintball business conducted by Assignor or any business conducted by
Assignee, including without
<PAGE>
limitation (aa) any business or other activities relating thereto and regardless
of whether the event giving rise thereto shall have occurred in the past or
shall occur in the future (including, but not limited to, any product claims
associated with any products sold by Assignor prior to the effective date hereof
(other than paintball related products sold under the Brass Eagle name); (bb)
any of the foregoing arising out of, resulting from or otherwise relating to the
ownership or use of any of the Assets or to the Assumed Liabilities; (cc) the
conduct of any businesses through the Assets or with respect to the Assumed
Liabilities, (dd) any violation of any applicable law, rule, regulation or
governmental order relating thereto, (ee) any tort or other claims by third
parties relating thereto, and (ff) any and all other events, occurrences,
operations and activities relating to the Assets or the Assumed Liabilities,
specifically including, without limitation, the ownership, processing,
generation, distribution, use, storage, disposal, transportation, handling,
emission, discharge, release or threatened release into the environment of any
pollutant, contaminant or hazardous or toxic waste, substance or material, to,
from, on, under, or otherwise relating to any of the Assets.
(b) By Assignor. As additional consideration for Assignee's assumption of
-----------
the Assumed Liabilities and the indemnification obligations under (a) above,
Assignor hereby assumes liability for, and irrevocably agrees to indemnify,
defend and hold Assignee (which term includes its officers, directors,
employees, agents, shareholders, subsidiaries and affiliates) harmless from and
against any and all claims, actions, suits, losses, damages, liabilities,
obligations, costs and expenses (including, without limitation, attorneys fees)
of any nature whatsoever, whether direct or indirect, matured or unmatured,
accrued or unaccrued, liquidated or unliquidated, asserted or unasserted, know
or unknown, absolute, fixed, contingent or otherwise, incurred by or asserted
against Assignee (specifically including, without limitation, any thereof
incurred by or asserted against Assignee as successor in interest or transferee
of the Assets) which arise out of, result from or otherwise relate to Assignor's
paintball business, the assets used exclusively in connection therewith and the
liabilities and obligations incurred in connection with the same, including
without limitation (aa) any paintball business relating thereto and regardless
of whether the event giving rise thereto shall have occurred in the past or
shall occur in the future; (bb) any of the foregoing arising out of, resulting
from or otherwise relating to the ownership or use of any of the paintball
assets; (cc) the conduct of any businesses through the paintball assets, (dd)
any violation of any applicable law, rule, regulation or governmental order
relating thereto, (ee) any tort or other claims by third parties relating
thereto, and (ff) any and all other events, occurrences, operations and
activities directly relating to the paintball assets, specifically including,
without limitation, the ownership, processing, generation, distribution, use,
storage, disposal, transportation, handling, emission, discharge, release or
threatened release into the environment of any pollutant, contaminant or
hazardous or toxic
2
<PAGE>
waste, substance or material, to, from, on, under, or otherwise directly
relating to any of the paintball assets located at Assignors Granby, Missouri
facility, but excluding any such claim, action, suit, loss, damage, liability,
obligation, cost or expense relating to Assignee's Roger's, Arkansas facility.
3
<PAGE>
(c) Indemnification Procedure.
-------------------------
(i) Notice. Within thirty (30) days, or such shorter period
------
as is required to avoid any prejudice to the Indemnifying Party, after receipt
by Assignor or Assignee, as the case may be (the recipient being the
"Indemnified Party"), of any claim (written or oral) (a "Third Party Claim"),
asserted or made against the Indemnified Party based on any facts or
circumstances, the prosecution or assertion of which results in, or
could reasonably be expected to result in, the Indemnified Party's right to
indemnity from the other party (the "Indemnifying Party") under the terms of
this Assignment, Assumption and Indemnification Agreement, the Indemnified Party
shall deliver to the Indemnifying Party a written notice of the initiation or
filing of, or a threat to initiate or file, a Third Party Claim (the "Claim
Notice"). To the extent known, the Claim Notice shall describe in reasonable
detail the facts giving rise to or on which the Third Party Claim is based, and
the amount of such Third Party Claim. The failure to timely deliver a Notice of
Claim pursuant to any provision contained herein shall not affect the
Indemnifying Party's obligations hereunder except to the extent such failure
actually prejudices Indemnifying Party's ability to defend, or to reduce the
loss attendant to, such Third Party Claim.
(ii) Election to Defend. Within thirty (30) days after receipt
-----------------
of the Claim Notice, or such shorter period as is required to avoid prejudice in
defense of the Third Party Claim, Indemnifying Party may elect to defend the
Third Party Claim at its own expense if it acknowledges in writing that it is
fully responsible for all damages relating to such Claim Notice, without
reservation of rights, and pays all damages with respect thereto incurred as of
the date of such acknowledgment (including all attorneys' fees and expenses of
any counsel employed by the Indemnified Party in respect of such claim incurred
through the date of such acknowledgment). Notwithstanding the foregoing, the
Indemnified Party shall also have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party. If Indemnifying Party timely elects to defend a Third
Party Claim, then Indemnifying Party shall do so with counsel of its choosing,
but which counsel shall be reasonably acceptable to the Indemnified Party and,
subject to the limitations set forth in this section (ii) and section (iv)
below, may compromise or settle such action. The Indemnifying Party shall not be
entitled to assume control of such defense and shall pay the fees and expenses
of counsel retained by the Indemnified Party if (A) the claim for
indemnification relates to or arises in connection with any criminal proceeding,
action, indictment, allegation or investigation; (B) there is a reasonable
probability that the claim may materially and adversely affect the Indemnified
Party other than as a result of money damages or other money payments, including
by having a detrimental impact on the Indemnified Party's reputation or future
business prospects, (C) the claim seeks an injunction or equitable relief
against the Indemnified Party or (D) upon petition by the Indemnifying Party,
the appropriate court rules that the Indemnifying Party. failed or is failing
to vigorously prosecute or defend such claim.
(iii) Failure to Undertake Defense. If Indemnifying Party does
----------------------------
not timely elect to defend a Third Party Claim, then the Indemnified Party may
undertake the defense thereof with counsel of its choosing and may compromise or
settle such action on behalf of and for the account and risk of the Indemnifying
Party. Thereafter, each of the parties (and its respective counsel) shall timely
provide information (including without limitation copies of all notices and
documents, including court papers) to the other (and to such other party's
counsel) as shall be necessary or desirable to keep the other party apprised of
the status and progress of, and any material matters relating to, the defense of
the Third Party Claim. Each party shall cooperate with the other in responding
to such reasonable requests as are made for access to or copies of records,
books, documents, and other materials as shall be necessary or desirable to the
conduct of the defense of, or to evaluate the defense of, any Third Party Claim.
Such cooperation shall also include making employees available on a mutually
convenient basis to provide additional information and explanation of any
materials provided hereunder. Regardless of which party undertakes the defense
of any Third Party Claim, the other party shall have the right to participate in
such defense with its own counsel at its own cost.
(iv) Settlement and Release. Unless the Third Party Claim is
----------------------
fully satisfied and discharged by the Indemnifying Party by
4
<PAGE>
the payment of money (without any continuing obligation on the part of the
Indemnified Party hereunder, and subject to the delivery of the release set
forth below), neither party shall compromise or settle any Third Party Claim or
consent to the entry of any judgment with respect to any Third Party Claim,
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. Unless otherwise agreed in writing by the
Indemnified Party, any such settlement must include as an unconditional term
thereof a complete release of the Indemnified Party and its officers, directors,
employees, agents, shareholders, subsidiaries and affiliates from all liability
with respect to such claim. Except as set forth herein, the right to defend a
Third Party Claim shall include the right to settle or compromise the same.
(v) Payment of Indemnification.
--------------------------
(A) Notice of Loss. Upon final resolution (including lapse of
--------------
time in which to perfect an appeal) of any Third Party Claim, whether by
settlement or final court order, which determines the existence of an obligation
to indemnify hereunder (an "Indemnified Obligation"), the Indemnified Party
shall promptly deliver to the Indemnifying Party a written notice setting forth
the amount of any and all claims, actions, suits, losses, damages, liabilities,
obligations, costs and expenses which comprise any Indemnified Obligation to
which the Indemnified Party is entitled to indemnity under this Agreement,
including without limitation any amount resulting from a Third Party Claim
(any such notice, a "Notice of Loss").
(B) Required Response to Notice of Loss. Within ten (10) days
-----------------------------------
after Indemnifying Party receives a Notice of Loss, Indemnifying Party shall
deliver to the Indemnified Party current funds in such amount as is required to
fully pay the amount of the Indemnified Obligation or notify the Indemnified
Party that it disputes all or a portion of the amount of the Indemnified
Obligation which is the subject of such Notice of Loss together with a payment
of the amount of the Indemnified Obligation that is not in dispute.
(C) Dispute in the Amount of Indemnified Obligation. If the
-----------------------------------------------
Indemnifying Party disputes all or a portion of the amount of the Indemnified
Obligation which is the subject of such Notice of Loss, the parties shall
attempt to negotiate a resolution of any disputed portion of the Notice of Loss
within thirty (30) days thereafter.
(D) Tax Affect of Indemnity Payments. The amount of any claim,
--------------------------------
action, suit, loss, damage, liability, obligation, cost or expense for which
indemnification is provided under this Agreement shall be increased or "grossed
up" to take account of any net tax cost incurred by the Indemnified Party
arising from the receipt of any indemnity payment made hereunder.
(E) No Obligation to Pursue Insurance. Notwithstanding the
---------------------------------
availability or possible availability of any insurance proceeds from any
insurance coverage maintained by the Indemnified Party with respect to any
claim, action, suit, loss, damage, liability, obligation, cost or expense for
which indemnification is sought or provided hereunder, the Indemnified Party
shall have no obligation to pursue any such coverage or proceeds.
(vi) Default by Indemnifying Party. If (i) Indemnifying Party fails
-----------------------------
to timely pay (by delivery of current funds) any undisputed amount of an
Indemnified Obligation, or (ii) if the parties are unable to resolve by
negotiation any dispute with regard to a Notice of Loss as provided in (c)(v)(C)
above, or (iii) the Indemnifying Party is in breach of any representation,
5
<PAGE>
warranty, obligation, covenant or other agreement of the Indemnifying Party
contained herein and fails to cure same to the reasonable satisfaction of the
Indemnified Party within thirty (30) days after written notice thereof is
delivered to the Indemnifying Party by the Indemnified Party, then the
----
Indemnifying Party shall be deemed in "default" hereunder and the Indemnified
Party shall be entitled to pursue any available remedy provided for in this
Agreement or otherwise available at law or in equity.
3. Miscellaneous.
-------------
(a) Authorization. The execution, delivery and performance of this
-------------
agreement and the consummation of the assignment and assumption contemplated
hereby, has been duly authorized by all necessary action on the part of the
Assignor and the Assignee and their respective Boards of Directors.
(b) Validity. Each party warrants and represents that this agreement
--------
has been duly executed and delivered, constitutes the legal, valid and binding
obligation of such party, enforceable against it in accordance with its terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights, or by general principles of
equity.
(d) Survival. The covenants, agreements, representations, warranties
--------
and obligations of the parties hereto shall survive the effective date hereof
and the assignment of the Assets and assumption of the Assumed Liabilities.
(e) Further Assurances. The parties agree that from time to time
------------------
hereafter, upon request, each of them will execute, acknowledge and deliver such
other documents and instruments, and take such further action, as may be
reasonably necessary to carry out the intent of this agreement.
(f) Binding Effect and Benefit. This agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto, and their respective successors
and assigns. Otherwise, this agreement is not intended to create any rights for
the benefit of any third party.
(g) Governing Law. This agreement shall be subject to and governed by
-------------
the laws of the State of Delaware.
(h) Assignment, Amendment, Cancellation. Neither this Agreement nor
-----------------------------------
any obligation or right hereunder shall be amended, cancelled, assigned,
transferred or otherwise discharged (other than through performance hereunder)
without the prior written consent of both of the parties hereto. Assignee shall
not sell, enter into any agreement to sell, or consummate any sale or other
disposition of, the "Daisy" name or all or substantially all of its assets,
enter into any agreement to merge or consolidate with any other entity, or
consummate any such merger or consolidation, unless Assignee either requires and
receives as a condition precedent to the consummation of any such transaction
the express written assumption by the acquiring or surviving entity, as the case
may be, of all of Assignee's obligations and liabilities under this Agreement or
provides security for Assignee's obligations and liabilities under this
Agreement which is reasonable under the circumstances, as determined by one of
the nations six largest independent accounting firms. Any amendment,
cancellation, assignment, transfer or other discharge of this Agreement or any
right or obligation hereunder made in violation of this Agreement shall be void
and of no force or effect.
(i) Notices. All notices, requests and demands required or permitted
-------
under this Agreement shall be in writing and shall be deemed to have been duly
given if (a) delivered personally, (b) sent by certified or registered mail,
postage prepaid, (c) sent by next-day or overnight mail or delivery, or (d) sent
by fax, addressed as follows:
To Assignor:
Brass Eagle, Inc.
12034 North Sixth Street
Rogers, Arkansas 72756
Phone: (501) 621-4390
Fax: (501) 986-6617
Attention: E. Lynn Scott, President and CEO
To Assignee:
Daisy Manufacturing Company
-------------------------
-------------------------
Phone: (501) 621-4203
Fax: (501) 631-1406
Attention: Marvin Griffin, President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
effective as of the ____ day of ________________, 1997.
ASSIGNOR:
BRASS EAGLE INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
ASSIGNEE:
DAISY MANUFACTURING COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
7
<PAGE>
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)
COUNTY OF BENTON )
On this the ______ day of _________, 1997, before me, the undersigned
officer, personally appeared ______________________ who acknowledged himself to
be the _______________________ of Brass Eagle Inc., a Delaware corporation, and
that he, as such officer, being authorized so to do, executed the foregoing
instrument in the name of and on behalf of said corporation for the purposes
therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------
[Title of Officer]
My Commission Expires:
- ----------------------
STATE OF ARKANSAS )
)
COUNTY OF BENTON )
On this the ______ day of _________, 1997, before me, the undersigned
officer, personally appeared ______________________ who acknowledged himself to
be the _______________________ of Daisy Manufacturing Company, a Delaware
corporation, and that he, as such officer, being authorized so to do, executed
the foregoing instrument in the name of and on behalf of said corporation for
the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------
[Title of Officer]
My Commission Expires:
- ----------------------
8
<PAGE>
EXHIBIT 10(viii)(a)
CONFORMED THROUGH TWELFTH AMENDMENT
CREDIT AGREEMENT
BY AND BETWEEN
DAISY MANUFACTURING COMPANY, INC.
AND
FIRST BANK NATIONAL ASSOCIATION
DATED AS OF DECEMBER 29, 1993
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS............................ 1
Section 1.1 Defined Terms................................................. 1
Section 1.2 Accounting Terms and Calculations............................. 20
Section 1.3 Computation of Time Periods................................... 20
Section 1.4 Other Definitional Terms...................................... 20
ARTICLE II TERMS OF THE CREDIT FACILITIES............................. 21
Section 2.1 Lending Commitments........................................... 21
Section 2.2 Procedure for Loans........................................... 22
Section 2.3 Notes......................................................... 25
Section 2.4 Conversions and Continuations................................. 26
Section 2.5 Interest Rates, Interest Payments and Default Interest........ 27
Section 2.6 Repayment..................................................... 30
Section 2.7 Prepayments................................................... 31
Section 2.8 Letters of Credit............................................. 33
Section 2.9 Procedures for Letters of Credit.............................. 33
Section 2.10 Terms of Letters of Credit.................................... 33
Section 2.11 Agreement to Repay Letter of Credit Drawings.................. 34
Section 2.12 Obligations Absolute.......................................... 34
Section 2.13 Increased Cost for Letters of Credit.......................... 35
Section 2.14 Optional Reduction of Commitments or
Termination of Commitments................................... 35
Section 2.15 Loans to Cover Unpaid Drawings................................ 36
Section 2.16 Commitment Fees and Facility Fees............................. 36
Section 2.17 Letter of Credit Fees......................................... 37
Section 2.18 Computation................................................... 38
Section 2.19 Payments...................................................... 38
Section 2.20 Revolving Commitment Ending Date and Extension................ 38
Section 2.21 Use of Loan Proceeds.......................................... 38
Section 2.22 Interest Rate Not Ascertainable, Etc.......................... 39
Section 2.23 Increased Cost................................................ 40
Section 2.24 Illegality.................................................... 41
Section 2.25 Capital Adequacy.............................................. 41
Section 2.26 Funding Losses; Fixed Rate Advances........................... 41
Section 2.27 Discretion of Bank as to Manner of Funding.................... 41
ARTICLE III CONDITIONS PRECEDENT....................................... 42
Section 3.1 Conditions of Initial Loans and Letter of Credit.............. 42
Section 3.2 Conditions Precedent to all Loans and Letters of Credit....... 45
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................. 46
Section 4.1 Organization, Standing, Etc................................... 46
Section 4.2 Authorization and Validity.................................... 46
Section 4.3 No Conflict; No Default....................................... 47
Section 4.4 Government Consent............................................ 47
Section 4.5 Financial Statements and Condition............................ 47
Section 4.6 Litigation.................................................... 48
Section 4.7 Environmental, Health and Safety Laws......................... 48
Section 4.8 ERISA......................................................... 49
Section 4.9 Federal Reserve Regulations................................... 49
Section 4.10 Title to Property; Leases; Liens; Subordination............... 49
Section 4.11 Taxes......................................................... 49
Section 4.12 Trademarks, Patents........................................... 50
Section 4.13 Burdensome Restrictions....................................... 50
Section 4.14 Force Majeure................................................. 50
Section 4.15 Investment Company Act........................................ 50
Section 4.16 Public Utility Holding Company Act............................ 50
Section 4.17 Retirement Benefits........................................... 50
Section 4.18 Full Disclosure............................................... 50
Section 4.19 Subsidiaries.................................................. 51
Section 4.20 Solvency...................................................... 51
ARTICLE V AFFIRMATIVE COVENANTS...................................... 51
Section 5.1 Financial Statements and Reports.............................. 51
Section 5.2 Corporate Existence........................................... 53
Section 5.3 Insurance..................................................... 53
Section 5.4 Payment of Taxes and Claims................................... 53
Section 5.5 Inspection.................................................... 53
Section 5.6 Maintenance of Properties..................................... 54
Section 5.7 Books and Records............................................. 54
Section 5.8 Compliance.................................................... 54
Section 5.9 Notice of Litigation.......................................... 54
Section 5.10 ERISA......................................................... 54
Section 5.11 Environmental Matters; Reporting.............................. 55
Section 5.12 Interest Rate Protection...................................... 58
Section 5.13 Accounts...................................................... 59
Section 5.14 Post Closing Matters.......................................... 59
ARTICLE VI NEGATIVE COVENANTS......................................... 62
Section 6.1 Merger......................................................... 63
Section 6.2 Sale of Assets................................................. 63
Section 6.3 Plans.......................................................... 64
Section 6.5 Subsidiaries................................................... 64
Section 6.6 Negative Pledges............................................... 64
<PAGE>
Section 6.7 Restricted Payments........................................... 64
Section 6.8 Capital Expenditures.......................................... 65
Section 6.9 Subordinated Debt............................................. 65
Section 6.10 Investments................................................... 66
Section 6.11 Indebtedness.................................................. 67
Section 6.12 Liens......................................................... 67
Section 6.13 Contingent Liabilities........................................ 68
Section 6.14 Net Worth..................................................... 68
Section 6.18 Loan Proceeds................................................. 69
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES............................. 69
Section 7.1 Events of Default............................................. 69
Section 7.2 Remedies...................................................... 72
Section 7.3 Offset........................................................ 72
ARTICLE VIII MISCELLANEOUS.............................................. 73
Section 8.1 Modifications................................................. 73
Section 8.2 Expenses...................................................... 73
Section 8.3 Waivers, etc.................................................. 73
Section 8.4 Notices....................................................... 73
Section 8.5 Taxes......................................................... 74
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees..... 74
Section 8.7 Confidentiality of Information................................ 74
Section 8.8 Governing Law and Construction................................ 75
Section 8.9 Consent to Jurisdiction....................................... 75
Section 8.10 Waiver of Jury Trial.......................................... 76
Section 8.11 Survival of Agreement......................................... 76
Section 8.12 Indemnification............................................... 76
Section 8.13 Captions...................................................... 77
Section 8.14 Entire Agreement.............................................. 77
Section 8.15 Counterparts.................................................. 77
Section 8.16 Borrower Acknowledgements..................................... 77
<PAGE>
LIST OF EXHIBITS
Exhibit 1.1(a) Formula For Borrowing Base
Exhibit 1.1(b) Borrowing Base Certificate
Exhibit 1.1(c) Capital Expenditure Term Note
Exhibit 1.1(d) Collateral Assignment Of Patents
Exhibit 1.1(e) Collateral Assignment Of Trademarks
Exhibit 1.1(f) Combination Mortgage, Security Agreement, Assignments Of Rents
And Leases And Fixture Financing Statement
Exhibit 1.1(g) Revolving Note
Exhibit 1.1(h) Security Agreement
Exhibit 1.1(i) Term Note
Exhibit 1.1(j) List Of Management Stock And Options And Current Stock Ownership
Exhibit 1.1(k) Overline Revolving Note
Exhibit 2.21 Amounts Outstanding And Wire Instructions With Respect To Amounts
To Be Paid With Loan Proceeds
Exhibit 3.1(a) Environmental Certification And Indemnification
Exhibit 3.1(b) Matters To Be Covered By Opinion Of Counsel To The Borrower
Exhibit 5.1(d) Form Of Compliance Certificate
Exhibit 6.11 Existing Indebtedness
Exhibit 6.12 Existing Liens
<PAGE>
EXHIBIT 10(viii)
CONFORMED THROUGH TWELFTH AMENDMENT
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 29, 1993, is by and between
DAISY MANUFACTURING COMPANY, INC., a Delaware corporation (the "Borrower"), and
FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):
"Accumulated Contribution Requirement": As of any date of determination,
the aggregate principal amount of Charter Oak Contribution Requirements with
respect to which Charter Oak has not made payment to the Borrower or the Bank or
delivered a Charter Oak Letter of Credit (other than the 1997 Charter Oak Letter
of Credit) and that consequently has not been converted to Charter Oak
Contributions. The 1997 Charter Oak Letter of Credit, and any Charter Oak
Letter of Credit that expired on or before April 1, 1997, shall be deemed not to
have reduced the Accumulated Contribution Requirement. Except as provided in
the next sentence, any Charter Oak Contribution Requirement (beginning with the
Charter Oak Contribution Requirement with respect to the fiscal quarter ended
December 31, 1995) with respect to a fiscal quarter shall continue to be
included in the Accumulated Contribution Requirement until such time as it is
converted to a Charter Oak Contribution, even if the relevant fiscal quarter is
no longer included in computations of the Fixed Charge Coverage Ratio. The
Accumulated Contribution Requirement shall be reduced dollar for dollar by the
amount of each prepayment made to the Bank pursuant to Section 2.7(a)(ii) out of
the proceeds of the asset sales and other actions described in Section 5.17, up
to a maximum reduction of $7,272,000 (which is the aggregate amount of Charter
Oak Contribution Requirements for all periods ending on or prior to December 31,
1996).[Tenth Amendment]
"Accumulated Distribution Rights": As of any date of determination, the
amount by which the aggregate principal amount of all Charter Oak Distribution
Rights, determined for each fiscal quarter of the Borrower to have ended prior
to the date of determination, exceeds the amount of Restricted Payments that
have been paid to Charter Oak. [Seventh Amendment]
"Adjusted Capital Expenditures": (i) For purposes of computing Fixed
Charge Coverage Ratio or Cash Flow Leverage Ratio for any period ending at a
time other than a fiscal year end, the lesser of actual Capital Expenditures
during the relevant period or $750,000; and (ii) for purposes of computing Fixed
Charge Coverage Ratio or Cash Flow Leverage Ratio for any
-1-
<PAGE>
period ending on a fiscal year end, all Capital Expenditures during the relevant
period that have not been financed with term financing.
"Adjusted CD Rate": With respect to each Interest Period applicable to a
CD Rate Advance, the sum (rounded upward, if necessary, to the next one
hundredth of one percent) of (a) the rate per annum obtained by dividing (i) the
CD Rate as of the first day of the Interest Period, by (ii) 1.00 minus the
Domestic Reserve Percentage, plus (b) the annual rate most recently estimated by
the Bank as the then current net annual assessment rate payable by the Bank to
the Federal Deposit Insurance Corporation (or any successor) for insuring time
deposits made in Dollars at the Bank's domestic offices, plus (c) the cost
(converted to an equivalent rate per annum) of customary brokerage fees incurred
by the Bank in obtaining funds by the sale of its negotiable certificates of
deposit.
"Adjusted Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the rate (rounded upward, if necessary,
to the next one hundredth of one percent) determined by dividing the Eurodollar
Rate for such Interest Period by 1.00 minus the Eurodollar Reserve Percentage.
"Advance": Any portion of the outstanding Brass Eagle Loan, Capital
Expenditure Term Loans, Revolving Loans, Overline Revolving Loans or Term Loan
by the Bank as to which the Borrower elected one of the available interest rate
options and, if applicable, an Interest Period. An Advance may be a CD Rate
Advance, a Eurodollar Rate Advance or a Reference Rate Advance; provided
however, that Overline Revolving Loans may be obtained and maintained only as
Reference Rate Advances. [Twelfth Amendment]
"Affiliate": When used with reference to any Person, (a) each Person that,
directly or indirectly, controls, is controlled by or is under common control
with, the Person referred to, (b) each Person which beneficially owns or holds,
directly or indirectly, five percent or more of any class of voting stock of the
Person referred to (or if the Person referred to is not a corporation, five
percent or more of the equity interest), (c) each Person, five percent of more
of the voting stock (or if such Person is not a corporation, five percent or
more of the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Person referred to, and (d) each of such Person's officers,
directors, joint venturers and partners. The term control (including the terms
"controlled by" and "under common control with") means the possession, directly,
of the power to direct or cause the direction of the management and policies of
the Person in question.
"Applicable Margin": Except as provided in the next sentence, shall mean:
(a) With respect to Revolving Loans:
(i) Reference Rate Advances -- 1.0%, or
(ii) Eurodollar Rate Advances -- 2.5%; and
-2-
<PAGE>
(b) With respect to Overline Revolving Loans -- 3.0%
For so long as the 1997 Charter Oak Letter of Credit is in force and has not
been drawn on, the "Applicable Margin" with respect to Revolving Loans for the
lesser of (i) the amount outstanding under the Revolving Note or (ii) the amount
available to be drawn under the 1997 Charter Oak Letter of Credit shall mean,
with respect to:
(x) Reference Rate Advances -- 0%, or
(y) Eurodollar Rate Advances -- 1.5%. [Twelfth Amendment]
"Applicable Term Margin": With respect to:
(a) Reference Rate Advances -- 1.0%.
(b) CD Rate Advances -- 2.5%.
(c) Eurodollar Rate Advances -- 2.5%.
"Bank": As defined in the opening paragraph hereof.
"BankAmerica Letter of Credit": Letter of Credit No. 75195, in the amount
of $300,000, dated December 29, 1993, issued by the Bank for the account of the
Borrower and for the benefit of BankAmerica Business Credit, Inc., and any
amendments, modifications or extensions thereof.
"Board": The Board of Governors of the Federal Reserve System or any
successor thereto.
"Borrower": As defined in the opening paragraph hereof.
"Borrower Loan Documents": This Agreement, the Notes and the Security
Documents.
"Borrowing Base": As determined in accordance with the formula set forth
in Exhibit 1.1(a) hereto.
"Borrowing Base Certificate": A certificate in the form of Exhibit 1.1(b)
hereto.
"Borrowing Base Deficiency: At the time of any determination, the amount,
if any, by which Total Revolving Outstandings exceed the Borrowing Base.
"Brass Eagle": Brass Eagle Inc., an Ontario business corporation.[Fifth
Amendment]
"Brass Eagle Assets": All assets owned by Brass Eagle and used in the
manufacture of
-3-
<PAGE>
paint guns or parts therefor, including but not limited to all equipment,
inventory and intellectual property.[Fifth Amendment]
"Brass Eagle Loan": As defined in Section 2.1.[Fifth Amendment]
"Brass Eagle Loan Commitment": The agreement of the Bank to make a Term
Loan to the Borrower in the amount specified in Section 2.1 upon the terms and
subject to the conditions of this Agreement.[Fifth Amendment]
"Brass Eagle Note": A promissory note of the Borrower in the form of
Exhibit 1.1(m) attached hereto.[Fifth Amendment]
"Brass Eagle Sale Documents": Collectively, an Asset Purchase Agreement
between Brass Eagle, as Seller, and the Borrower, as Purchaser, with respect to
the Brass Eagle Assets, including but not limited to all exhibits thereto; the
Brass Eagle Seller Note; a security agreement granting Brass Eagle a security
interest in the Brass Eagle Assets to secure the Brass Eagle Seller Note; any
related financing statements or other documents; and any amendments,
modifications or extensions thereof.[Fifth Amendment]
"Brass Eagle Seller Note": a non-interest bearing promissory note in the
amount of $2,500,000 or less from the Borrower to Brass Eagle, providing for
annual payments of principal in the amounts of $1,000,000, $1,000,000 and
$500,000 or less.[Fifth Amendment]
"Business Day": Any day (other than a Saturday, Sunday or legal holiday in
the State of Minnesota) on which national banks are permitted to be open in
Minneapolis, Minnesota.
"Capital Expenditure Term Loan": As defined in Section 2.1.
"Capital Expenditure Term Loan Commitment": The agreement of the Bank to
make Capital Expenditure Term Loans to the Borrower in the aggregate principal
amount specified in Section 2.1 upon the terms and subject to the conditions of
this Agreement.
"Capital Expenditure Term Loan Commitment Fees": As defined in Section
2.16.
"Capital Expenditure Term Loan Date": The date of the making of any
Capital Expenditure Term Loan hereunder.
"Capital Expenditure Term Note": A promissory note of the Borrower in the
form of Exhibit 1.1(c) hereto.
"Capital Expenditures": For any period, the sum of all amounts that would,
in accordance with GAAP, be included as additions to property, plant and
equipment on a statement of cash flows for the Borrower during such period, in
respect of (a) the acquisition, construction, improvement, replacement or
betterment of land, buildings, machinery, equipment
-4-
<PAGE>
or of any other fixed assets or leaseholds, (b) to the extent related to and not
included in (a) above, materials, contract labor (excluding expenditures
properly chargeable to repairs or maintenance in accordance with GAAP), and (c)
other capital expenditures and other uses recorded as capital expenditures or
similar terms having substantially the same effect (including expenditures for
nonrecurrent tangible assets such as software).
"Capitalized Lease": A lease of (or other agreement conveying the right to
use) real or personal property with respect to which at least a portion of the
rent or other amounts thereon constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board) and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Cash Flow Leverage Ratio": For any period of determination, the ratio of
(a) the sum of the aggregate principal amount outstanding of all Capitalized
Lease Obligations and Total Indebtedness that bears interest, but with respect
to any period ending on or after March 31, 1996, minus the aggregate principal
amount outstanding under the Revolving Note in excess of $4,000,000, to (b)
EBITDA, minus the sum of tax expense, Interest Expense and Capital Expenditures
not financed with term financing (except in the case of the determination of the
Cash Flow Leverage Ratio for the period ending on June 30 1994, when only the
sum of tax expense and Interest Expense shall be subtracted from EBITDA), in
each case determined for said period in accordance with GAAP.[Third Amendment]
"CD Rate": With respect to any CD Rate Advance for any Interest Period
applicable thereto (a) the rate per annum for negotiable certificates of deposit
having a maturity comparable to the Interest Period for the related CD Rate
Advance as such rate is released by the Board as reported on page 120 (or other
applicable page) of the Telerate Systems, Inc. screen under the heading "Certs
of Deposit" on the first day of such Interest Period; but if by 1:00 p. m.
(Minneapolis time) on such day no such rate is reported, then (b) the arithmetic
average per annum dealer bid rate (rounded upward, if necessary, to the next
higher one hundredth of one percent) determined by the Bank without mark-up on
the basis of quotations received by the Bank from three certificate-of-deposit
dealers of recognized standing (or if such quotations are unavailable, then on
the basis of other sources reasonably selected by the Bank) as of such day for
the purchase at face value of negotiable certificates of deposit of the Bank
denominated in U.S. dollars having a maturity comparable to such Interest Period
and in an amount approximately equal to the Advance to which such Interest
Period is to apply.
"CD Rate Advance": An Advance with respect to which the interest rate is
determined by reference to the Adjusted CD Rate.
-5-
<PAGE>
"Change of Control": The occurrence, after the Closing Date, of any of the
following circumstances: (a) Charter Oak not owning, directly or indirectly, 51%
of all securities of the Borrower entitled to vote in the election of directors;
or (b) any Person or two or more Persons acting in concert acquiring beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934), directly or indirectly,
of securities of the Borrower (or other securities convertible into such
securities) representing 10% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election of directors; or (c)
during any period of up to twelve consecutive months, whether commencing before
or after the Closing Date, individuals who at the beginning of such twelve-month
period were directors of the Borrower ceasing for any reason to constitute a
majority of the Board of Directors of the Borrower (other than by reason of
death, disability or scheduled retirement); or (d) any Person or two or more
Persons acting in concert acquiring by contract or otherwise, or entering into a
contract or arrangement which upon consummation will result in its or their
acquisition of, control over securities of the Borrower (or other securities
convertible into such securities) representing 10% or more of the combined
voting power of all securities of the Borrower entitled to vote in the election
of directors; provided, however that no acquisition of any of the shares
described on Exhibit 1.1(j) attached hereto by the relevant Person described on
Exhibit 1.1(j) attached hereto shall constitute a Change in Control.
"Charter Oak": Charter Oak Partners, a Connecticut limited partnership.
"Charter Oak Contributions": For any period of determination, the sum of
(i) all cash contributions to the Borrower's capital made by Charter Oak during
such period (but not including any amount received by the Borrower prior to
September 21, 1995), (ii) all cash proceeds received by the Borrower from
Charter Oak in exchange for any preferred or common stock or subordinated debt
during such period (but only if the terms of such preferred or common stock or
subordinated debt were approved by the Bank, in its sole and unlimited
discretion, prior to the issuance thereof, and not including any amount received
by the Borrower prior to September 21, 1995) and (iii) the amount by which the
aggregate amount available to be drawn under any Charter Oak Letters of Credit
held by the Bank increased during such period and all proceeds of any drawing
under a Charter Oak Letter of Credit received by the Bank during such period.
[Seventh Amendment]
"Charter Oak Contribution Requirement": Subject to the remainder of this
definition, for any fiscal quarter, an amount sufficient, when included in the
numerator of the calculation of Fixed Charge Coverage Ratio for the four
consecutive fiscal quarters ending on the last day of such fiscal quarter, along
with the Charter Oak Contribution Requirements (if any) for the three previous
fiscal quarters, to cause the Fixed Charge Coverage Ratio to be at least 1:1.
If a Charter Oak Contribution Requirement is included in the calculation of
Fixed Charge Coverage Ratio for a fiscal quarter pursuant to the preceding
sentence, then the same Charter Oak Contribution Requirement shall be included
with respect to that fiscal quarter for each subsequent calculation of Fixed
Charge Coverage Ratio for any period of determination that includes such fiscal
quarter. If the Charter Oak Maintenance Agreement has expired or
-6-
<PAGE>
otherwise been terminated in accordance with its terms, then the Charter Oak
Contribution Requirement for any fiscal quarter ending on or after such date of
expiration or termination shall be zero for purposes of computing the Fixed
Charge Coverage Ratio (but this sentence shall not affect Charter Oak's
obligation to make Charter Oak Contributions with respect to the Accumulated
Contribution Requirement).[Fifth Amendment]
"Charter Oak Distribution Rights": Subject to the next sentence, at any
time, an amount equal to the remainder of the aggregate principal amount of all
Charter Oak Contributions made on or prior to the date of determination, minus
all previous payments or distributions on account thereof. Notwithstanding the
previous sentence, the Charter Oak Distribution Rights for any fiscal quarter
shall not exceed the amount, if any, by which
(i) the remainder of EBITDA for the period of four consecutive fiscal quarters
ending on the last day of the relevant fiscal quarter, minus the sum of Capital
Expenditures not financed with term financing and tax expense during the period
of four consecutive fiscal quarters ending on the last day of the relevant
fiscal quarter, minus Charter Oak Distribution Rights for the three fiscal
quarters immediately preceding the relevant fiscal quarter, exceeds
(ii) Interest Expense and all required principal payments with respect to Total
Indebtedness (including but not limited to all payments with respect to
Capitalized Lease Obligations, but excluding any principal payments with respect
to the obligations listed in Section 2.21 hereof), all determined for the period
of four consecutive fiscal quarters ending on the last day of the relevant
fiscal quarter.
If a Charter Oak Distribution Right is included in the calculation of Fixed
Charge Coverage Ratio for a fiscal quarter pursuant to the preceding sentence,
then the same Charter Oak Distribution Right shall be included with respect to
that fiscal quarter for each calculation of Fixed Charge Coverage Ratio for any
period of determination that includes such fiscal quarter.[Fifth Amendment]
"Charter Oak Guaranty": That certain Guaranty dated September 21, 1995,
from Charter Oak to the Bank, of up to $1,000,000.00 of the amounts outstanding
under the Brass Eagle Note.[Fifth Amendment]
"Charter Oak Letter of Credit": An irrevocable letter of credit delivered
to the Bank, issued for the account of Charter Oak and for the benefit of the
Bank, issued by a bank, and in form and substance, satisfactory to the Bank in
its sole and unlimited discretion. Without limiting the Bank's absolute
discretion to impose additional requirements, each Charter Oak Letter of Credit
must have an expiration date no sooner than 15 days after the Revolving
Commitment Ending Date and the Bank must be able to draw under each Charter Oak
Letter of Credit upon the occurrence of any Event of Default under Section
7.1(a), (f), (g) or (h) or if the
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Charter Oak Letter of Credit is scheduled to expire within 15 days and no
extension or replacement satisfactory to the Bank has been provided. [Seventh
Amendment]
"Charter Oak Maintenance Agreement": That certain Amended and Restated
Maintenance Agreement dated as of May 13, 1997 from Charter Oak to, and accepted
by, the Bank.[Tenth Amendment]
"Closing Date": Any Business Day between the date of this Agreement and
January 31, 1994 selected by the Borrower for the making of the Term Loan or the
first Revolving Loan or Capital Expenditure Term Loan hereunder; provided, that
all the conditions precedent to the obligation of the Bank to make such Loan, as
set forth in Article III, have been, or, on such Closing Date, will be,
satisfied. The Borrower shall give the Bank not less than two Business Days
prior notice of the day selected as the Closing Date.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Assignments": Collectively, a Collateral Assignment of Patents
and a Collateral Assignment of Trademarks from the Borrower to the Bank, in the
forms of Exhibits 1.1(d) and 1.1(e) respectively.
"Commitment Fees": The Revolving Commitment Fees, the Overline Revolving
Commitment Fees and the Capital Expenditure Term Loan Commitment Fees. [Twelfth
Amendment]
"Commitments": The Brass Eagle Loan Commitment, the Capital Expenditure
Term Loan Commitment, the Revolving Commitment, the Overline Revolving
Commitment and the Term Loan Commitment. [Twelfth Amendment]
"Contingent Obligation": With respect to any Person at the time of any
determination, without duplication, any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect the owner against
loss in respect thereof; provided, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Default": Any event which, with the giving of notice (whether such notice
or otherwise) or lapse of
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time, or both, would constitute an Event of Default.
"Domestic Reserve Percentage": As of any day, that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System, with deposits comparable in amount to those held by the Bank, in
respect of new non-personal time deposits in dollars having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The rate of interest applicable to any outstanding CD Rate Advance shall be
adjusted automatically on and as of the effective date of any change in the
Domestic Reserve Percentage.
"EBITDA": For any period of determination, the net income of the Borrower
before deductions for income taxes, Interest Expense, depreciation and
amortization, all as determined in accordance with GAAP.
"Eligible Equipment": With respect to any request for a Capital
Expenditure Term Loan, any new manufacturing equipment purchased by the Borrower
within the fiscal year during which the request was made which is a replacement
for or similar to manufacturing equipment used in the Borrower's manufacturing
processes as of the Closing Date, or any other new or used equipment purchased
by the Borrower and deemed acceptable by the Bank in its sole and unlimited
discretion.
"Environmental Assessments": Any inspection or review for the purpose of
determining whether the Borrower complies with Environmental Laws and whether
there exists any condition or circumstance which requires or may require a
clean-up, removal, or other remedial action under Environmental Laws or on the
part of the Borrower which includes, without limitation, on site inspections,
review of site geology, sampling and analysis of environmental media, air
samples, testing of tanks, review of permits, compliance records and regulatory
correspondence, interviews with the Borrower and regulatory agencies, and
reviewing operations, plans, procedures and historical operations by the
Borrower.
"Environmental Certificate": The Environmental Certification and
Indemnification delivered pursuant to Section 3.1(a)(xvii).
"Environmental Law or Laws": All federal, state and local laws, including
statutes, regulations, ordinances, codes, rules and other governmental
restrictions and requirements relating to the discharge of air pollutants, water
pollutants, or process waste water or otherwise relating to the environment or
degradation of the environmental or hazardous substances, including, but not
limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of
1976, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Toxic Substances Control Act, the Federal
Hazardous Materials Transportation Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Federal Safe Drinking Water Act and the regulations adopted
and publications promulgated pursuant thereto, all as amended.
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<PAGE>
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day for trading
by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": With respect to each Interest Period applicable to a
Eurodollar Rate Advance, the interest rate per annum (rounded upward, if
necessary, to the next one-sixteenth of one percent) at which United States
dollar deposits are offered to the Bank in the interbank Eurodollar market two
Eurodollar Business Days prior to the first day of such Interest Period for
delivery in Immediately Available Funds on the first day of such Interest Period
and in an amount approximately equal to the Advance to which such Interest
Period is to apply as determined by the Bank and for a maturity comparable to
the Interest Period; provided, that in lieu of determining the rate in the
foregoing manner, the Bank may substitute the per annum Eurodollar interest rate
(LIBOR) for United States dollars displayed on the Reuters Screen LIBO page two
Eurodollar Business Days prior to the first day of such Interest Period.
"Reuters Screen LIBO page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rate Screen (or such other page as may replace the LIBO
page on such service) for the purpose of displaying Reuters interbank offered
rates of major banks for United States dollar deposits. [Seventh Amendment]
"Eurodollar Rate Advance": An Advance with respect to which the interest
rate is determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board for
determining the maximum reserve requirement (including any basic, supplemental
or emergency reserves) for a member bank of the Federal Reserve System, with
deposits comparable in amount to those held by the Bank, in respect of
"Eurocurrency Liabilities" as such term is defined in Regulation D of the Board.
The rate of interest applicable to any outstanding Eurodollar Rate Advances
shall be adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
"Fixed Charge Coverage Ratio": For any period of determination, the ratio
of:
(a) (i) EBITDA, plus (ii) Charter Oak Contribution Requirements, minus
(iii) Capital Expenditures not financed with term financing, minus (iv) tax
expense, minus (vi) Charter Oak Distribution Rights,
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to
(b) Interest Expense and all required principal payments with respect to
Total Indebtedness (including but not limited to all payments with respect
to Capitalized Lease Obligations, but excluding any prepayments of the Term
Loan required by Section 2.7(a)), plus any prepayments on the Brass Eagle
Seller Note (other than any prepayments made out of proceeds of the
casualty loss or sale of all or any portion of the Brass Eagle Assets),
in each case determined for said period in accordance with GAAP (except that:
(x) Charter Oak Contribution Requirements and Charter Oak Distribution Rights
will be determined in accordance with the definitions thereof, and (y) for any
determination of Fixed Charge Coverage Ratio for a period ending on or before
September 30, 1996, there shall be added to EBITDA an amount equal to the lesser
of: (i) $4,580,000; (ii) the sum of (1) noncash loss on asset impairment of up
to $3446,000, (2) noncash LIFO reserve increase of up to $258,000, (3) noncash
postretirement health care plan amendment of up to $294,000, (4) noncash
adjustment for prepaid litigation costs related to NCR as of December 31, 1994
of up to $283,000, and (5) noncash increase in reserve for warranty claims and
customer promotions of up to $299,000, all to the extent such losses,
adjustments or reserves were suffered or taken during the relevant period; or
(iii) the amount of the noncash losses and adjustments, and restructuring and
early retirement reserves, described in clauses (1) through (5) above as shown
on the audited financial statements delivered pursuant to Section 5.1(a) with
respect to the Borrower's fiscal year ended December 31, 1995). [Seventh
Amendment]
"Fixed Charge Coverage Ratio (Unadjusted)": For any period of
determination, the ratio of:
(a) (i) EBITDA, minus (ii) Capital Expenditures not financed with term
financing, minus (iii) tax expense,
to
(b) Interest Expense and all required principal payments with respect to
Total Indebtedness (including but not limited to all payments with respect
to Capitalized Lease Obligations, but excluding any prepayments of the Term
Loan required by Section 2.7(a)), plus any prepayments on the Brass Eagle
Seller Note (other than any prepayments made out of proceeds of the
casualty loss or sale of all or any portion of the Brass Eagle Assets),
in each case determined for said period in accordance with GAAP.[Tenth]
"Fixed Rate Advance": A CD Rate Advance or a Eurodollar Rate Advance.
"GAAP": Generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public
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<PAGE>
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of any date of determination.
"Holding Account": A deposit account belonging to the Bank into which the
Borrower may be required to make deposits pursuant to the provisions of this
Agreement, such account to be under the sole dominion and control of the Bank
and not subject to withdrawal by the Borrower, with any amounts therein to be
held for application toward payment of any outstanding Letters of Credit when
drawn upon. The Holding Account shall be a money market savings account or
substantial equivalent (or other appropriate investment medium as the Borrower
may from time to time request and to which the Bank in its sole discretion shall
have consented) and shall bear interest in accordance with the terms of similar
accounts held by the Bank for its customers.
"Immediately Available Funds": Funds with good value on the day and in the
city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, (j)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Bearing Debt": That portion of Total Indebtedness with respect
to which interest is paid or accrues. [Seventh Amendment]
"Interest Expense": For any period of determination, the aggregate amount,
without duplication, of interest paid, accrued or scheduled to be paid in
respect of any Indebtedness of the Borrower, including (a) all but the principal
component of payments in respect of conditional sale contracts, Capitalized
Leases and other title retention agreements, (b) commissions, discounts and
other fees and charges with respect to letters of credit and bankers' acceptance
financings and (c) net costs under interest rate protection agreements, in each
case determined in accordance with GAAP.
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<PAGE>
"Interest Period": (a) With respect to each Eurodollar Rate Advance, the
period commencing on the date of such Advance or on the last day of the
immediately preceding Interest Period, if any, applicable to an outstanding
Advance and ending twelve or any lesser integral number of months thereafter, as
the Borrower may elect in the applicable notice of borrowing, continuation or
conversion; provided that:
(1) Any Interest Period that would otherwise end on a day which is not
a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Eurodollar Business Day;
(2) Any Interest Period that begins on the last Eurodollar Business
Day of a calendar month (or a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Eurodollar Business Day of a calendar month; and
(3) Any Interest Period applicable to an Advance on a Revolving Loan
that would otherwise end after the Revolving Commitment Ending Date shall
end on the Revolving Commitment Ending Date, and any Interest Period
applicable to an Advance under any of the Brass Eagle Loan, any Capital
Expenditure Term Loan or the Term Loan that would otherwise end after the
scheduled maturity of such Loan shall end on such maturity.
(b) With respect to each CD Rate Advance, the period commencing on the
date of such Advance or on the last day of the immediately preceding Interest
Period, if any, applicable to an outstanding Advance and ending any integral
multiple of 30 days thereafter, as the Borrower may elect in the applicable
notice of borrowing, continuation or conversion; provided that:
(1) Any Interest Period that would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day; and
(2) Any Interest Period applicable to an Advance on a Revolving Loan
that would otherwise end after the Revolving Commitment Ending Date shall
end on the Revolving Commitment Ending Date, and any Interest Period
applicable to an Advance under any of the Brass Eagle Loan, any Capital
Expenditure Term Loan or the Term Loan that would otherwise end after the
scheduled maturity of such Loan shall end on such maturity.
Interest Periods shall be selected so that the installment payments on the Brass
Eagle Note, the Capital Expenditure Term Note and the Term Note can be paid
without having to pay a Eurodollar Rate Advance or a CD Rate Advance prior to
the last day of the Interest Period applicable thereto. No Interest Period may
end after the date the final payment of principal is due under the relevant
Note.[Fifth Amendment]
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<PAGE>
"Investment": The acquisition, purchase, making or holding of any stock or
other security, any loan, advance, contribution to capital, extension of credit
(except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real or personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of or any interest in another Person or any integral
part of any business or the assets comprising such business or part thereof. The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"Letter of Credit": An irrevocable letter of credit issued by the Bank
pursuant to this Agreement for the account of the Borrower. The BankAmerica
Letter of Credit shall be deemed to be a Letter of Credit for all purposes of
this Agreement, notwithstanding its issuance prior to the Closing Date.
"Letter of Credit Fee": As defined in Section 2.17.
"Leverage Ratio": At the time of any determination, the ratio of (a) (i)
Total Indebtedness minus (ii) the Borrower's contingent obligations with respect
to letters of credit (if any) that are included within Total Indebtedness but
are not liabilities as determined in accordance with GAAP to (b) Net Worth.
{Seventh Amendment]
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan": The Brass Eagle Loan, a Revolving Loan, an Overline Revolving
Loan, a Capital Expenditure Term Loan or the Term Loan. [Twelfth Amendment]
"Loan Documents": This Agreement, the Notes and the Security Documents.
"Mortgage": That certain Combination Mortgage, Security Agreement,
Assignment of Rents and Leases and Fixture Financing Statement from the Borrower
to the Bank in the form of Exhibit 1.1(f).
"Multiemployer Plan": A multiemployer plan, as such term is defined in
Section 4001 (a) (3) of ERISA, which is maintained (on the Closing Date, within
the five years preceding the Closing Date, or at any time after the Closing
Date) for employees of the Borrower or any ERISA Affiliate.
"Net Worth": As of any date of determination, the sum of the amounts set
forth on the
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balance sheet of the Borrower as the sum of the common stock, preferred stock,
additional paid-in capital and retained earnings of the Borrower (excluding
treasury stock).
"1997 Charter Oak Letter of Credit": A Charter Oak Letter of Credit in the
amount of $10,650,000, with an expiration date on or after February 16,
1998.[Tenth Amendment]
"Note": The Capital Expenditure Term Note, the Overline Revolving Note,
the Revolving Note, the Term Note or the Brass Eagle Note. [Twelfth Amendment]
"Obligations": The Borrower's obligations in respect of the due and
punctual payment of principal and interest on the Notes and Unpaid Drawings when
and as due, whether by acceleration or otherwise and all fees (including
Commitment Fees), expenses, indemnities, reimbursements and other obligations of
the Borrower under this Agreement or any other Borrower Loan Document, in all
cases whether now existing or hereafter arising or incurred.
"Overline Revolving Commitment": The obligation of the Bank to make
Overline Revolving Loans to the Borrower in an aggregate principal amount
outstanding at any time not to exceed the Overline Revolving Commitment Amount
upon the terms and subject to the conditions and limitations of this Agreement.
[Twelfth Amendment]
"Overline Revolving Commitment Amount": $2,500,000, as the same may be
reduced from time to time pursuant to Section 2.7(a)(ii) or Section 2.14.
[Twelfth Amendment]
"Overline Revolving Commitment Fees": As defined in Section 2.16.b
[Twelfth Amendment]
"Overline Revolving Loan": As defined in Section 2.1. [Twelfth Amendment]
"Overline Revolving Loan Date": The date of the making of any Overline
Revolving Loan hereunder. [Twelfth Amendment]
"Overline Revolving Note": A promissory note of the Borrower in the form
of Exhibit 1.1 (k) hereto. [Twelfth Amendment]
"Overline Termination Date": The earliest of (a) the Revolving Commitment
Ending Date, (b) the date on which the Overline Revolving Commitment is
terminated pursuant to Section 7.2 hereof or (c) the date on which the Overline
Revolving Commitment Amount is reduced to zero pursuant to Section 2.14 hereof.
[Twelfth Amendment]
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions
thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision
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<PAGE>
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Plan": Each employee benefit plan (whether in existence on the Closing
Date or thereafter instituted), as such term is defined in Section 3 of ERISA,
maintained for the benefit of employees, officers or directors of the Borrower
or of any ERISA Affiliate.
"Prohibited Transaction": The respective meanings assigned to such term in
Section 4975 of the Code and Section 406 of ERISA.
"Rate Protection Agreement" Any interest rate swap, cap or option
agreement, or any other agreement between the Borrower and the Bank pursuant to
which the Borrower hedges interest rate risk with respect to a portion of its
floating interest rate financing. The Bank has no obligation to provide any
Rate Protection Agreement to the Borrower, the Bank shall enter into Rate
Protection Agreements (if at all) in the Bank's sole and unlimited discretion
and the Bank's entry into one or more Rate Protection Agreements shall not be
deemed to obligate the Bank to provide any other Rate Protection Agreements.
[Seventh Amendment]
"Rate Protection Obligations" The liabilities, indebtedness and
obligations of the Borrower, if any, to the Bank under a Rate Protection
Agreement.[Fourth Amendment]
"Reference Rate": The rate of interest from time to time publicly
announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder or under any Loan Document which is
based on the Reference Rate, such interest rate shall change as and when the
Reference Rate shall change.
"Reference Rate Advance": An Advance with respect to which the interest
rate is determined by reference to the Reference Rate.
"Regulatory Change": Any change which becomes effective after the Closing
Date in federal, state or foreign laws or regulations or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including the Bank under any federal, state or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of ERISA
and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.
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<PAGE>
"Restricted Payments": With respect to the Borrower, collectively, all
dividends or other distributions of any nature (cash, securities other than
common stock of the Borrower, assets or otherwise), and all payments on any
class of equity securities (including warrants, options or rights therefor)
issued by the Borrower, whether such securities are authorized or outstanding on
the Closing Date or at any time thereafter and any redemption or purchase of, or
distribution in respect of, any of the foregoing, whether directly or
indirectly, other than any distributions described on Exhibit 1.1(j) hereto.
"Revolving Commitment": The obligation of the Bank to make Revolving Loans
to, and issue Letters of Credit for the account of, the Borrower in an aggregate
principal amount outstanding at any time not to exceed the Revolving Commitment
Amount upon the terms and subject to the conditions and limitations of this
Agreement.
"Revolving Commitment Amount": $25,000,000, as the same may be reduced
from time to time pursuant to Section 2.7(a)(ii) or Section 2.14.[Tenth
Amendment]
"Revolving Commitment Ending Date": As defined in Section 2.20.
"Revolving Commitment Fees": As defined in Section 2.16.
"Revolving Loan": As defined in Section 2.1.
"Revolving Loan Date": The date of the making of any Revolving Loan
hereunder.
"Revolving Note": A promissory note of the Borrower in the form of Exhibit
1.1 (g) hereto.
"Rogers Property": The Borrower's land, buildings and other improvements
in Rogers, Arkansas, which property is subject to the Mortgage.
"Security Agreement": A Security Agreement in the form of Exhibit 1.1 (h)
attached hereto, pursuant to which the Borrower grants the Bank a first priority
perfected security interest in all current and non-current assets of the
Borrower, including but not limited to all accounts receivable, chattel paper,
instruments, inventory, machinery, equipment, fixtures, patents and general
intangibles now or hereafter owned by the Borrower, wherever located.
"Security Documents": The Collateral Assignments, the Mortgage and the
Security Agreement.
"Solvent": With respect to any Person, that as of any date of
determination, (i) the then fair saleable value of the assets of such Person is
(a) greater than the then total amount of liabilities (including contingent,
subordinated, matured and unliquidated liabilities) of such Person and (b)
greater than the amount that will be required to pay such Person's probable
liability on such Person's then existing debts as they become absolute and
matured, (ii) such Person's capital is not unreasonably small in relation to its
business or any contemplated or
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undertaken transaction, and (iii) such Person does not intend to incur, or
believe or reasonably should believe that it will incur, debts beyond its
ability to pay such debts as they become due.
"Subordinated Debt": Any Indebtedness of the Borrower, now existing or
hereafter created, incurred or arising, which is subordinated in right of
payment to the payment of the Obligations in a manner and to an extent (a) that
the Bank has approved in writing prior to the creation of such Indebtedness, or
(b) as to any Indebtedness of the Borrower existing on the date of this
Agreement, that the Bank has approved as Subordinated Debt in a writing
delivered by the Bank to the Borrower on or prior to the Closing Date.
"Subsidiary": Any corporation or other entity of which securities or other
ownership interests having ordinary voting power for the election of a majority
of the board of directors or other Persons performing similar functions are
owned by the Borrower either directly or through one or more Subsidiaries.
"Termination Date": The earliest of (a) the Revolving Commitment Ending
Date, (b) the date on which the Revolving Commitment is terminated pursuant to
Section 7.2 hereof or (c) the date on which the Revolving Commitment Amount is
reduced to zero pursuant to Section 2.14 hereof.
"Term Loan": As defined in Section 2.1.
"Term Loan Commitment": The agreement of the Bank to make a Term Loan to
the Borrower in the amount specified in Section 2.1 upon the terms and subject
to the conditions of this Agreement.
"Term Note": A promissory note of the Borrower in the form of Exhibit 1.1
(i) hereto.
"Total Indebtedness": At the time of any determination, the amount of all
obligations, liabilities and indebtedness of the Borrower as determined in
accordance with GAAP.
"Total Revolving Outstandings": As of any date of determination, the sum
of (a) the aggregate unpaid principal balance of Advances outstanding under the
Revolving Note on such date, (b) the aggregate face amount of Letters of Credit
outstanding on such date and (c) the aggregate amount of Unpaid Drawings on such
date. [Seventh Amendment]
"Unpaid Drawing": As defined in Section 2.11.
"Unused Capital Expenditure Term Loan Commitment": As of any date of
determination, the amount by which the Capital Expenditure Term Loan Commitment
Amount exceeds the total principal amount of all Capital Expenditure Term Loans
outstanding on such date.
"Unused Overline Revolving Commitment": As of any date of determination,
the
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amount by which the Overline Revolving Commitment Amount exceeds the outstanding
principal amount of all Overline Revolving Loans on such date. [Twelfth
Amendment]
Section 1.2 Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP. To the extent any change in GAAP affects any computation
or determination required to be made pursuant to this Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless the Borrower and the Bank agree in writing on an adjustment to
such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.4 Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
----------
TERMS OF THE CREDIT FACILITIES
Part A -- Terms of Lending
---------------------------
Section 2.1 Lending Commitments. On the terms and subject to the
conditions hereof, the Bank agrees to make the following lending facilities
available to the Borrower:
2.1 (a) Revolving Credit. (i) A revolving credit facility available as
loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans")
to the Borrower on a revolving basis at any time and from time to time from
the Closing Date to the Termination Date, during which period the Borrower
may borrow, repay and reborrow in accordance with the provisions hereof,
provided, that no Revolving Loan will be made in any amount which, after
giving effect thereto, would cause the Total Revolving Outstandings to
exceed the Revolving Commitment Amount. Revolving Loans may be obtained and
maintained, at the election of the Borrower but subject to the limitations
hereof, as Reference Rate Advances or Eurodollar Rate Advances. [Twelfth
Amendment]
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(ii) A revolving credit facility available as loans (each, an
"Overline Revolving Loan" and, collectively the "Overline Revolving Loans")
to the Borrower on a revolving basis from time to time to the Overline
Termination Date, during which period the Borrower may borrow, repay and
reborrow in accordance with the provisions hereof, provided that (A) no
Overline Revolving Loan will be made until such time that, and no Overline
Revolving Loan shall be maintained unless, the Total Revolving Outstandings
equal the Revolving Commitment Amount, and (B) no Overline Revolving Loan
will be made in any amount which, after giving effect thereto, would cause
the outstanding principal amount of all Overline Revolving Loans to exceed
the Overline Revolving Commitment Amount. Overline Revolving Loans may be
obtained and maintained only as Reference Rate Advances. [Twelfth
Amendment]
2.1 (b) Term Loan. A term loan (the "Term Loan") from the Bank to the
Borrower on the Closing Date in the amount of $13,000,000. The Term Loan
and any portion of the balance thereof (in minimum amounts of $100,000, or,
if more, in integral multiples thereof) may be made, maintained, continued
and converted to Reference Rate Advances, CD Rate Advances or Eurodollar
Rate Advances as the Borrower may elect in its notice of borrowing,
continuation or conversion.
2.1 (c) Capital Expenditure Term Loans. A credit facility available as
loans (each, a "Capital Expenditure Term Loan" and, collectively, the
"Capital Expenditure Term Loans") to the Borrower on a nonrevolving basis
at any time and from time to time from the Closing Date to the third
anniversary of the Closing Date, during which period the Borrower may
borrow in accordance with the provisions hereof, provided, that no Capital
Expenditure Term Loan will be made in any amount which would: (i) exceed
75% of the cost of the Eligible Equipment purchased with the proceeds of
the Capital Expenditure Term Loan, or (ii) cause the aggregate original
principal amount of all Capital Expenditure Term Loans to exceed $1,200,000
(the "Capital Expenditure Term Loan Commitment"). Capital Expenditure Term
Loans may be obtained and maintained, at the election of the Borrower but
subject to the limitations hereof, as Reference Rate Advances, Eurodollar
Rate Advances or CD Rate Advances.[Third Amendment]
2.1 (d) Brass Eagle Loan. A term loan (the "Brass Eagle Loan") from the
Bank, available to the Borrower on any Business Day during the period
beginning on and including September 21, 1995 and ending on and including
October 31, 1995, in the amount of up to $2,000,000. The Brass Eagle Loan
and any portion of the balance thereof (in minimum amounts of $100,000, or,
if more, in integral multiples thereof) may be made, maintained, continued
and converted to Reference Rate Advances, CD Rate Advances or Eurodollar
Rate Advances as the Borrower may elect in its notice of borrowing,
continuation or conversion.[Fifth Amendment]
Notwithstanding any provision hereof, this Agreement, the Capital Expenditure
Term Loan Commitment and the Revolving Commitment shall terminate and the Bank
shall have no obligation hereunder if the Term Loan hereunder has not been made
by January 31, 1994,
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provided, however, that the obligations of the Borrower under Section 8.2 shall
survive any such termination.
Section 2.2 Procedure for Loans.
2.2 (a) Procedure for Revolving Loans. (i) On the Closing Date, the
Borrower shall be deemed to have requested a Revolving Loan in an amount
equal to the remainder of (x) the sum of the amounts specified on Exhibit
2.21, minus (y) the amount of the Term Loan. The first $2,500,000 of
the initial Revolving Loan shall be made as a Eurodollar Advance with an
Interest Period of three months, and the balance (if any) of the initial
Revolving Loan shall be made as a Reference Rate Advance. Any subsequent
request by the Borrower for a Revolving Loan hereunder shall be in writing,
or by telephone promptly confirmed in writing, and must be given so as to
be received by the Bank not later than 1:00 P. M. (Minneapolis time) two
Eurodollar Business Days prior to the requested Revolving Loan Date if the
Revolving Loan is requested as a Eurodollar Rate Advance and not later than
1:00 P.M. (Minneapolis time) on the requested Revolving Loan Date if the
Revolving Loan is requested as a Reference Rate Advance. Each request for a
Revolving Loan hereunder shall be irrevocable and shall be deemed a
representation by the Borrower that on the requested Revolving Loan Date
and after giving effect to the requested Revolving Loan the applicable
conditions specified in Article III have been and will be satisfied. Each
request for a Revolving Loan hereunder shall specify (i) the requested
Revolving Loan Date, (ii) the amount of the Revolving Loan to be made on
such date which shall be in a minimum amount of $50,000 or, if more, an
integral multiple of $25,000 in excess thereof, (iii) whether such
Revolving Loan is to be funded as a Reference Rate Advance or Eurodollar
Rate Advance, and (iv) in the case of a Fixed Rate Advance, the duration of
the initial Interest Period applicable thereto. Without in any way limiting
the Borrower's obligation to confirm in writing any telephone request for a
Revolving Loan hereunder, the Bank may rely on any such request which it
believes in good faith to be genuine; and the Borrower hereby waives the
right to dispute the Bank's record of the terms of such telephone request.
Unless the Bank determines that any applicable condition specified in
Article III has not been satisfied, the Bank will make available to the
Borrower at the Bank's principal office in Minneapolis, Minnesota in
Immediately Available Funds not later than 3:00 P.M. (Minneapolis time) on
the requested Revolving Loan Date the amount of the requested Revolving
Loan, other than the initial Revolving Loan, which shall be made available
as provided in Section 2.2(b).
(ii) Any request by the Borrower for an Overline Revolving Loan
hereunder shall be in writing, or by telephone promptly confirmed in
writing, and must be given so as to be received by the Bank not later than
1:00 P. M. (Minneapolis time) on the requested Overline Revolving Loan
Date. Each request for an Overline Revolving Loan hereunder shall be
irrevocable and shall be deemed a representation by the Borrower that on
the requested Overline Revolving Loan Date and after giving effect to the
requested Overline Revolving Loan the applicable conditions specified in
Article III have been and will be
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satisfied. Each request for an Overline Revolving Loan hereunder shall
specify (A) the requested Overline Revolving Loan Date, (B) the amount of
the Overline Revolving Loan to be made on such date which shall be in a
minimum amount of $50,000 or, if more, an integral multiple of $25,000 in
excess thereof, and (C) that the Total Revolving Outstandings then equal
the Revolving Commitment Amount. Without in any way limiting the Borrower's
obligation to confirm in writing any telephone request for an Overline
Revolving Loan hereunder, the Bank may rely on any such request which it
believes in good faith to be genuine; and the Borrower hereby waives the
right to dispute the Bank's record of the terms of such telephone request.
Unless the Bank determines that any applicable condition specified in
Article III has not been satisfied, the Bank will make available to the
Borrower at the Bank's principal office in Minneapolis, Minnesota in
Immediately Available Funds not later than 3:00 P.M. (Minneapolis time) on
the requested Overline Revolving Loan Date the amount of the requested
Overline Revolving Loan. [Twelfth Amendment]
2.2 (b) Procedure for Term Loan. On the Closing Date, the Borrower
shall be deemed to have requested the Term Loan, as a Eurodollar Rate
Advance with an Interest Period of seven months. Unless the Bank determines
that any applicable condition specified in Article III has not been
satisfied, the Bank will make the proceeds of the Term Loan and the initial
Revolving Loan available to the Borrower by wiring the amount thereof to
the payees, and in the amounts, designated on Exhibit 2.21 on the Closing
Date.
2.2 (c) Procedure for Capital Expenditure Term Loans. Any request by
the Borrower for a Capital Expenditure Term Loan hereunder shall be in
writing, or by telephone promptly confirmed in writing, and must be given
so as to be received by the Bank not later than 1:00 P. M. (Minneapolis
time) two Eurodollar Business Days prior to the requested Capital
Expenditure Term Loan Date if the Capital Expenditure Term Loan is
requested as a Eurodollar Rate Advance and not later than 1:00 P.M.
(Minneapolis time) on the requested Capital Expenditure Term Loan Date if
the Capital Expenditure Term Loan is requested as a CD Rate Advance or
Reference Rate Advance. Each request for a Capital Expenditure Term Loan
hereunder shall be irrevocable and shall be deemed a representation by the
Borrower that on the requested Capital Expenditure Term Loan Date and after
giving effect to the requested Capital Expenditure Term Loan the applicable
conditions specified in Article III have been and will be satisfied. Each
request for a Capital Expenditure Term Loan hereunder shall specify (i) the
requested Capital Expenditure Term Loan Date, (ii) the amount of the
Capital Expenditure Term Loan to be made on such date which shall be in a
minimum amount of $50,000 or, if more, an integral multiple of $25,000 in
excess thereof, (iii) whether such Capital Expenditure Term Loan is to be
funded as a Reference Rate Advance, Eurodollar Rate Advance or CD Rate
Advance, (iv) in the case of a Fixed Rate Advance, the duration of the
initial Interest Period applicable thereto, (v) the Eligible Equipment to
be financed with the proceeds of such Capital Expenditure Term Loan, and
(vi) the cost of such Eligible Equipment, and be accompanied by a copy of
the invoice for such
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<PAGE>
Eligible Equipment, evidence of the delivery to and acceptance by the
Borrower of such Eligible Equipment, and proof of payment of the seller of
such Eligible Equipment. Without in any way limiting the Borrower's
obligation to confirm in writing any telephone request for a Capital
Expenditure Term Loan hereunder, the Bank may rely on any such request
which it believes in good faith to be genuine; and the Borrower hereby
waives the right to dispute the Bank's record of the terms of such
telephone request. Unless the Bank determines that any applicable condition
specified in Article III has not been satisfied, the Bank will make
available to the Borrower at the Bank's principal office in Minneapolis,
Minnesota in Immediately Available Funds not later than 3:00 P.M.
(Minneapolis time) on the requested Capital Expenditure Term Loan Date the
amount of the requested Capital Expenditure Term Loan.
2.2 (d) Procedure for Brass Eagle Loan. The Borrower shall request the
Brass Eagle Loan in writing, or by telephone promptly confirmed in writing,
and such request must be given so as to be received by the Bank not later
than 1:00 P. M. (Minneapolis time) two Eurodollar Business Days prior to
the requested date of disbursement if the Brass Eagle Loan is requested as
a Eurodollar Rate Advance and not later than 1:00 P.M. (Minneapolis time)
on the requested date of disbursement if the Brass Eagle Loan is requested
as a CD Rate Advance or Reference Rate Advance. Each request for a Brass
Eagle Loan hereunder shall be irrevocable and shall be deemed a
representation by the Borrower that on the requested date of disbursement
and after giving effect to the requested Brass Eagle Loan the applicable
conditions specified in Article III have been and will be satisfied. Each
request for a Brass Eagle Loan hereunder shall specify (i) the requested
date of disbursement, (ii) the amount of the Brass Eagle Loan to be made on
such date which shall be in a minimum amount of $50,000 or, if more, an
integral multiple of $25,000 in excess thereof, (iii) whether such Brass
Eagle Loan is to be funded as a Reference Rate Advance, Eurodollar Rate
Advance or CD Rate Advance, (iv) in the case of a Fixed Rate Advance, the
duration of the initial Interest Period applicable thereto, and (v) wire
transfer instructions for Brass Eagle. Without in any way limiting the
Borrower's obligation to confirm in writing any telephone request for a
Brass Eagle Loan hereunder, the Bank may rely on any such request which it
believes in good faith to be genuine; and the Borrower hereby waives the
right to dispute the Bank's record of the terms of such telephone request.
Only a single advance shall be made under the Brass Eagle Loan. Unless the
Bank determines that any applicable condition specified in Article III has
not been satisfied, the Bank will make the proceeds of the Brass Eagle Loan
available to the Borrower by wiring the amount thereof to Brass Eagle,
pursuant to wire instructions to be provided by the Borrower.[Fifth
Amendment]
Section 2.3 Notes. All Revolving Loans shall be evidenced by a single
Revolving Note in the amount of $25,000,000. All Overline Revolving Loans shall
be evidenced by a single Overline Revolving Note in the amount of $2,500,000.
The Brass Eagle Loan shall be evidenced by a Brass Eagle Note payable to the
order of the Bank in the principal amount of $2,000,000. The Term Loan shall be
evidenced by a Term Note payable to the order of the Bank in the principal
amount of the Term Loan. The Capital Expenditure Term Loans shall be
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<PAGE>
evidenced by a single Capital Expenditure Term Note payable to the order of the
Bank in a principal amount equal to the original Capital Expenditure Term Loan
Commitment. The Bank shall enter in its ledgers and records the amount of the
Brass Eagle Loan, the Term Loan and each Revolving Loan, Overline Revolving Loan
and Capital Expenditure Term Loan, and the various Advances made, converted or
continued and the payments made thereon, and the Bank is authorized by the
Borrower to enter on a schedule attached to its Brass Eagle Note, Term Note,
Revolving Note, Overline Revolving Note or Capital Expenditure Term Note, as
appropriate, a record of such Brass Eagle Loan, Term Loan, Revolving Loans,
Overline Revolving Loans, Capital Expenditure Term Loans, Advances and payments;
provided, however that the failure by the Bank to make any such entry or any
error in making such entry shall not limit or otherwise affect the obligation of
the Borrower hereunder and on the Notes, and, in all events: (i) the principal
amount owing by the Borrower in respect of the Revolving Note shall be the
aggregate amount of all Revolving Loans made by the Bank, less all payments of
principal thereof made by the Borrower; (ii) the principal amount owing by the
Borrower in respect of the Overline Revolving Note shall be the aggregate amount
of all Overline Revolving Loans made by the Bank, less all payments of principal
thereof made by the Borrower; (iii) the principal amount owing by the Borrower
in respect of the Term Note shall be the aggregate amount of the Term Loan less
all payments of principal thereof made by the Borrower; (iv) the principal
amount owing by the Borrower in respect of the Capital Expenditure Term Note
shall be the aggregate amount of all Capital Expenditure Term Loans made by the
Bank less all payments of principal thereof made by the Borrower; and (v) the
principal amount owing by the Borrower in respect of the Brass Eagle Note shall
be the aggregate amount of the Brass Eagle Loan made by the Bank less all
payments of principal thereof made by the Borrower. At any time when the Charter
Oak Guaranty is outstanding and a Default or Event of Default exists, the Bank
may apply any payments made by the Borrower, and/or the proceeds of any or all
collateral or security for the Borrower's obligations to the Bank, to the
Obligations other than the Brass Eagle Note and the Brass Eagle Loan if the Bank
so elects, in its sole and unlimited discretion, and notwithstanding any
instructions to the contrary from the Borrower. [Twelfth Amendment]
Section 2.4 Conversions and Continuations. On the terms and subject to the
limitations hereof, the Borrower shall have the option at any time and from time
to time to convert all or any portion of the Advances into Reference Rate
Advances, Eurodollar Rate Advances or CD Rate Advances, or to continue a
Eurodollar Rate Advance or a CD Rate Advance as such; provided, however that a
Eurodollar Rate Advance or a CD Rate Advance may be converted or continued only
on the last day of the Interest Period applicable thereto, no Advance may be
converted or continued as a Eurodollar Rate Advance or a CD Rate Advance if a
Default or Event of Default has occurred and is continuing on the proposed date
of continuation or conversion, and no Advance constituting a part of the
Revolving Loans may be converted to a CD Rate Advance. Advances may be converted
to, or continued as, Eurodollar Rate Advances or CD Rate Advances only in
amounts of $100,000 or an integral multiple of $25,000 in excess thereof. The
Borrower shall give the Bank written notice of any continuation or conversion of
any Advance and such notice must be given so as to be received by the Bank not
later than 1:00 P.M. (Minneapolis time) two Eurodollar Business Days prior to
requested date of conversion
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or continuation in the case of the continuation of, or conversion to, a
Eurodollar Rate Advance and not later than 1:00 P.M. (Minneapolis time) on the
date of the requested continuation of a CD Rate Advance or conversion to a CD
Rate Advance or Reference Rate Advance. Each such notice shall specify (a) the
amount to be continued or converted, (b) the date for the continuation or
conversion (which must be (i) the last day of the preceding Interest Period for
any continuation or conversion of Eurodollar Rate Advances or CD Rate Advances,
(ii) a Eurodollar Business Day in the case of conversions to or continuations as
Eurodollar Advances, and (iii) a Business Day in the case of continuations as CD
Rate Advances or conversions to CD Rate Advances or Reference Rate Advances),
and (c) in the case of conversions to or continuations as Eurodollar Rate
Advances or CD Rate Advances, the Interest Period applicable thereto. Any notice
given by the Borrower under this Section shall be irrevocable. If the Borrower
shall fail to notify the Bank of the continuation of any Eurodollar Rate Advance
or CD Rate Advance or of the conversion of a Eurodollar Rate Advance to a CD
Rate Advance or vice versa within the time required by this Section, such
Advance shall, on the last day of the Interest Period applicable thereto,
automatically be converted into a Reference Rate Advance of the same principal
amount.
Section 2.5 Interest Rates, Interest Payments and Default Interest.
2.5(a) The Revolving Loans. (i) Subject to Subsection 2.5 (c) below,
interest shall accrue and be payable on the Advances constituting part of
the Revolving Loans as follows:
(A) Each Eurodollar Rate Advance outstanding under the Revolving
Note shall bear interest on the unpaid principal amount thereof during
the Interest Period applicable thereto at a rate per annum equal to the
sum of (1) the Adjusted Eurodollar Rate for such Interest Period, plus
(2) the Applicable Margin.
(B) Each Reference Rate Advance outstanding under the Revolving
Note shall bear interest on the unpaid principal amount thereof at a
varying rate per annum, calculated on a daily basis, equal to the sum
of (1) the Reference Rate then in effect, plus (2) the Applicable
Margin.
(C) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest until paid
in full (1) during the balance of any Interest Period applicable to
such Advance, at a rate per annum equal to the sum of the rate
applicable to such Advance during such Interest Period plus 2.0%, and
(2) otherwise, at a rate per annum, calculated on a daily basis, equal
to the sum of the Reference Rate then in effect, plus the Applicable
Margin, plus 2.0%.
(D) Interest shall be payable (1) with respect to each Eurodollar
Rate Advance, on the last day of the Interest Period applicable thereto
and on the last day of each month ending during that Interest Period;
(2) with respect to any
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Reference Rate Advance, on the last day of each month; (3) with respect
to all Advances, upon any permitted prepayment (on the amount prepaid);
and (4) with respect to all Advances, on the Termination Date; provided
that interest under Section 2.5 (a)(i)(C) shall be payable on demand.
(ii) Subject to Subsection 2.5(c) below, interest shall accrue and be
payable on the Advances constituting part of the Overline Revolving Loans
as follows:
(A) Each Advance outstanding under the Overline Revolving Note
shall bear interest on the unpaid principal amount thereof at a varying
rate per annum, calculated on a daily basis, equal to the sum of (A)
the Reference Rate then in effect, plus (B) the Applicable Margin.
(B) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest until paid
in full at a rate per annum, calculated on a daily basis, equal to the
sum of the Reference Rate then in effect, plus the Applicable Margin,
plus 2.0%.
(C) Interest shall be payable on the last day of each month, upon
any permitted prepayment (on the amount prepaid), and on the Overline
Termination Date; provided that interest under Section 2.5(a)(ii)(B)
shall be payable on demand. [Twelfth Amendment]
2.5(b) The Brass Eagle Loan, the Term Loan and the Capital Expenditure
Term Loans. Subject to Subsection 2.5 (c) below, interest shall accrue and
be payable on the Advances constituting part of the Brass Eagle Loan, the
Term Loan or the Capital Expenditure Term Loans as follows:
(i) Each Eurodollar Rate Advance shall bear interest on the unpaid
principal amount thereof during the Interest Period applicable thereto at a
rate per annum equal to the sum of (A) the Adjusted Eurodollar Rate for
such Interest Period, plus (B) the Applicable Term Margin.
(ii) Each CD Rate Advance shall bear interest on the unpaid
principal amount thereof during the Interest Period applicable thereto at a
rate per annum equal to the sum of (A) the Adjusted CD Rate for such
Interest Period, plus (B) the Applicable Term Margin.
(iii) Each Reference Rate Advance shall bear interest on the unpaid
principal amount thereof at a varying rate per annum, calculated on a daily
basis, equal to the sum of (A) the Reference Rate then in effect, plus (B)
the Applicable Term Margin.
(iv) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest until paid in
full (A) during the balance of
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any Interest Period applicable to such Advance, at a rate per annum equal
to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0%, and (B) otherwise, at a rate per annum, calculated on a
daily basis, equal to the sum of (1) the Reference Rate then in effect,
plus (2) 2.0%.
(v) Interest shall be payable (A) with respect to each Eurodollar
Rate Advance and each CD Rate Advance, on the last day of the Interest
Period applicable thereto and on the last day of each month ending during
that Interest Period; (B) with respect to any Reference Rate Advance, on
the last day of each month; (C) with respect to all Advances, upon any
permitted prepayment (on the amount prepaid); and (D) with respect to all
Advances, on the scheduled maturity date of the relevant Note; provided
that interest under Section 2.5 (b) (iv) shall be payable on demand.[Fifth
Amendment]
2.5 (c) Performance Pricing. If and only if each of the following
conditions is satisfied:
(i) The Borrower's Cash Flow Leverage Ratio for a fiscal year,
computed based on the audited financial statements delivered to the Bank
pursuant to Subsection 5.1 (a), was less than 3.5 to 1.0;
(ii) There were no Revolving Loans outstanding for 30 consecutive
days or more during the fiscal year described in clause (i) above;
(iii) The Borrower's Net Worth is $16,700,000 or more; and
(iv) No Default or Event of Default exists;
then interest calculated under any of Subsections 2.5 (a)(i)(A) and (B), 2.5
(a)(ii)(A) and (B) and 2.5 (b)(i), (ii) and (iii) shall be reduced by one
quarter of one percent (0.25%) per annum. If the Borrower satisfies clauses (i)
through (iv) above and subsequently fails to satisfy clause (iii) and (iv) at
any time, or fails to satisfy clauses (i) and (ii) with respect to any
subsequent fiscal year, the Borrower shall not be entitled to a reduction in
interest rates from the date of such failure until the Borrower again satisfies
all of clauses (i) through (iv) above.
Section 2.6 Repayment.
(a)(i) The unpaid principal of the Revolving Note, together with all
accrued and unpaid interest thereon, shall be due and payable on the Termination
Date..
(ii) The unpaid principal of the Overline Revolving Note, together with
all accrued and unpaid interest thereon, shall be due and payable on the
Overline Termination Date.
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(iii) All repayments of principal pursuant to this Section 2.6(a) shall
be applied first to the unpaid principal of the Overline Revolving Note, and
then to the unpaid principal of the Revolving Note. [Twelfth Amendment]
(b) The principal of the Term Loan shall be payable in six
installments, payable on each January 31 beginning in 1995 and ending in 2000,
as follows:
1995: $1,500,000
1996: $1,800,000
1997: $2,400,000
1998: $2,400,000
1999: $2,400,000
2000: $2,500,000
and any other amount then remaining unpaid with respect to the Term Loan.[Fifth
Amendment]
(c) On January 31 of each of 1995, 1996 and 1997, the aggregate
principal amount of all Capital Expenditure Term Loans made during the period
ending on that January 31 and beginning on the immediately preceding February 1
(except that the first such period shall begin on the Closing Date) that remain
outstanding shall be amortized under a straight line amortization schedule with
quarterly principal payments and any final maturity of up to five years chosen
by the Borrower. This may result in three separate payment schedules, and the
final maturity of amounts advanced during the year ending on January 31, 1997
may be as late as January 31, 2002. The Bank shall provide the Borrower with the
amortization schedules for the Capital Expenditure Term Loans within 14 days
after January 31 of each of 1995, 1996 and 1997.[Fifth Amendment]
(d) Intentionally omitted. [Seventh Amendment]
(e) The principal of the Brass Eagle Loan shall be payable in five
installments, payable on each January 31 beginning in 1996 and ending in 2000,
as follows:
1996: $200,000
1997: $300,000
1998: $500,000
1999: $500,000
2000: $500,000
and any other amount then remaining unpaid with respect to the Term Loan.
If the actual original amount of the Brass Eagle Loan is less than $2,000,000,
then the difference shall be deducted from the above installments in the inverse
order of their maturity.[Fifth Amendment]
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Section 2.7 Prepayments.
2.7 (a) Mandatory Prepayments.
(i) Payments from Proceeds of Conversion to Assembly Operation.
The Borrower shall pay to the Bank, immediately upon the receipt
thereof, an amount equal to all proceeds of any asset sales permitted
by Section 6.2(iii), net of the actual cash costs paid by the Borrower
in connection with the sale, as a prepayment of the Term Loan. The
lesser of the amount paid prior to January 31, 1997, or the first
$1,400,000 paid, to the Bank pursuant to this Section 2.7(a)(i) shall
reduce the amount of the payment due under the Term Loan on January 31,
1997. Any amount paid in excess of $1,400,000, or paid on or after
January 31, 1997, to the Bank pursuant to this Section 2.7(a)(i) shall
be applied to the principal installments due under the Term Loan in the
inverse order of their maturity, and to the extent possible within that
limitation, shall be applied first to Reference Rate Advances and then
to Fixed Rate Advances in order starting with the Fixed Rate Advances
having the shortest time to the end of the applicable Interest Period.
The Borrower shall also pay to the Bank, immediately upon the receipt
thereof, an amount equal to all proceeds of any asset sales permitted
by Section 6.2(v), net of the actual cash costs paid by the Borrower in
connection with the sale, as a prepayment of the Overline Revolving
Loan. Any amounts paid to the Bank and remaining after application
pursuant to the previous sentence shall be applied first to amounts
outstanding under the Term Loan, until all amounts outstanding
thereunder are paid in full, and then to amounts outstanding under the
Revolving Loan.
(ii) Payments from Proceeds under Section 5.17. Subject to the
limit in the second succeeding sentence, the Borrower shall pay to the
Bank, immediately upon the receipt thereof, an amount equal to:
(x) all proceeds of any sale of the Rogers Property pursuant to
Section 5.17(i), net of the actual cash costs paid by the Borrower in
connection with the sale; and
(y) from the proceeds of any sale of the contract manufacturing
line pursuant to Section 5.17(ii), net of the actual cash costs paid by
the Borrower in connection with the sale, an amount equal to the sum of
(1) the lesser of the amount of the net proceeds of such sale or
$8,000,000, plus (2) fifty percent (50%) of the amount (if any) by
which the net proceeds of such sale exceed $9,500,000.
All prepayments under this Section 2.7(a)(ii) shall be applied first to the
Term Loan, until all amounts outstanding thereunder are paid in full;
second, to the Capital Expenditure Term Loan, until all amounts outstanding
thereunder are paid
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in full; third, to the Overline Revolving Loan, until all amounts
outstanding thereunder are paid in full; and fourth, to the Revolving Loan,
until all amounts outstanding thereunder are paid in full. If the initial
public offering described in Section 5.17(iii) closes, the Borrower may
retain any amount by which the proceeds described in clauses (x) and (y)
above exceed the prepayments required by the previous sentence. If that
initial public offering does not close, any such excess shall be applied to
the Brass Eagle Loan, until all amounts outstanding thereunder are paid in
full. All prepayments applied to a particular Loan pursuant to this Section
2.7(a)(ii) shall be applied to the installments due under that Loan in the
order of their maturity, and to the extent possible within that limitation,
shall be applied first to Reference Rate Advances and then to Fixed Rate
Advances in order starting with the Fixed Rate Advances having the shortest
time to the end of the applicable Interest Period. If any prepayments are
made on the Overline Revolving Loan pursuant to this Section 2.7(a)(ii),
the Overline Revolving Commitment Amount shall contemporaneously be reduced
by the amount of such prepayment. If any prepayments are made on the
Revolving Loan pursuant to this Section 2.7(a)(ii), the Revolving
Commitment Amount shall contemporaneously with such prepayment be reduced
by the lesser of (1) the amount of such prepayment, or (2) the amount, if
any, by which Total Revolving Outstandings before giving effect to such
prepayment exceed the Borrowing Base.
2.7 (b) Optional Prepayments. The Borrower may prepay the Overline
Revolving Loans, in whole or in part, at any time without premium or
penalty. With respect to Revolving Loans, (i) the Borrower may prepay
Reference Rate Advances, in whole or in part, at any time, without premium
or penalty, and (ii) except upon an acceleration following an Event of
Default or upon termination of the Revolving Commitment in whole, the
Borrower may pay Fixed Rate Advances only on the last day of the Interest
Period applicable thereto; provided that no part of the Revolving Loans may
be prepaid until such time that the Overline Revolving Loans are paid in
full. Amounts paid (unless following an acceleration or upon termination of
the Revolving Commitment or the Overline Revolving Commitment, as
applicable, in whole) or prepaid on Overline Revolving Loans or Revolving
Loans under this paragraph (b) may be reborrowed upon the terms and subject
to the conditions and limitations of this Agreement. Amounts prepaid on the
Brass Eagle Loan, the Term Loan or the Capital Expenditure Term Loans may
not be reborrowed. Each partial prepayment shall be in a minimum amount of
$50,000 or, if more, an integral multiple of $25,000 in excess thereof.
[Twelfth Amendment]
Section 2.8 Letters of Credit. Upon the terms and subject to the
conditions of this Agreement, the Bank agrees to issue Letters of Credit for the
account of the Borrower from time to time between the Closing Date and the
Termination Date in such amounts as the Borrower shall request up to an
aggregate amount at any time outstanding not exceeding $2,000,000; provided that
no Letter of Credit will be issued in any amount which, after giving effect to
such issuance, would cause Total Revolving Outstandings to exceed the Revolving
Commitment Amount. [Seventh Amendment]
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Section 2.9 Procedures for Letters of Credit. Each request for a Letter
of Credit (other than the BankAmerica Letter of Credit) shall be made by the
Borrower in writing, by telex, facsimile transmission or electronic conveyance
received by the Bank by 2:00 P.M., Minneapolis time, on a Business Day which is
not less than one Business Day preceding the requested date of issuance (which
shall also be a Business Day). Each request for a Letter of Credit shall be
deemed a representation by the Borrower that on the date of issuance of such
Letter of Credit and after giving effect thereto the applicable conditions
specified in Article III have been and will be satisfied. The Bank may require
that such request be made on such letter of credit application and reimbursement
agreement form as the Bank may from time to time specify, along with
satisfactory evidence of the authority and incumbency of the officers of the
Borrower making such request.
Section 2.10 Terms of Letters of Credit. All Letters of Credit must
expire not later than the Business Day preceding the Revolving Commitment Ending
Date.
Section 2.11 Agreement to Repay Letter of Credit Drawings. If the Bank is
obligated to, or has decided that it will, pay a drawing on any Letter of
Credit, it will notify the Borrower of that fact. The Borrower shall reimburse
the Bank by 11:30 A.M. (Minneapolis time) on the day on which such drawing is to
be paid in Immediately Available Funds in an amount equal to the amount of such
drawing. Any amount by which the Borrower has failed to reimburse the Bank for
the full amount of such drawing by 12:00 noon on the date on which the Bank in
its notice indicated that it would pay such drawing, until reimbursed from the
proceeds of a Loan pursuant to Section 2.15 or out of funds available in the
Holding Account, is an "Unpaid Drawing."
Section 2.12 Obligations Absolute. The obligation of the Borrower under
Section 2.11 to repay the Bank for any amount drawn on any Letter of Credit and
to repay the Bank for any Loans made under Section 2.15 to cover Unpaid Drawings
shall be absolute, unconditional and irrevocable, shall continue for so long as
any Letter of Credit is outstanding notwithstanding any termination of this
Agreement, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without limitation the
following circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, setoff, defense or other right which
the Borrower may have or claim at any time against any beneficiary,
transferee or holder of any Letter of Credit (or any Person for whom any
such beneficiary, transferee or holder may be acting), the Bank or any
other Person, whether in connection with a Letter of Credit, this
Agreement, the transactions contemplated hereby, or any unrelated
transaction; or
(c) Any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever.
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Neither the Bank nor its officers, directors or employees shall be liable or
responsible for, and the obligations of the Borrower to the Bank shall not be
impaired by:
(i) The use which may be made of any Letter of Credit or for any acts
or omissions of any beneficiary, transferee or holder thereof in connection
therewith;
(ii) The validity, sufficiency or genuineness of documents, or of any
endorsements thereon, even if such documents or endorsements should, in
fact, prove to be in any or all respects invalid, insufficient, fraudulent
or forged;
(iii) The acceptance by the Bank of documents that appear on their face
to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; or
(iv) Any other circumstances whatsoever in making or failing to make
payment under any Letter of Credit.
Notwithstanding the foregoing, the Borrower shall have a claim against the Bank,
and the Bank shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by the Bank's willful misconduct
or gross negligence in determining whether documents presented under any Letter
of Credit comply with the terms thereof.
Section 2.13 Increased Cost for Letters of Credit. If any Regulatory
Change shall either (a) impose, modify or make applicable any reserve, deposit,
capital adequacy or similar requirement against Letters of Credit issued by the
Bank, or (b) shall impose on the Bank any other conditions affecting this
Agreement or any Letter of Credit; and the result of any of the foregoing is to
increase the cost to the Bank of issuing or maintaining any Letter of Credit, or
reduce the amount of any sum received or receivable by the Bank hereunder, then,
upon demand (which demand shall be given by the Bank promptly after it
determines the amount of such increased cost or reduction), the Borrower shall
pay to such Bank the additional amount or amounts as will compensate the Bank
for such increased cost or reduction. A certificate submitted to the Borrower
by the Bank setting forth the basis for the determination of such additional
amount or amounts necessary to compensate the Bank as aforesaid shall be
conclusive and binding on the Borrower absent error.
Part C -- General
-------------------
Section 2.14 Optional Reduction of Commitments or Termination of
Commitments. (a) The Borrower may, at any time, upon not less than two
Business Days prior written notice to the Bank, reduce the Revolving Commitment
Amount, with any such reduction in a minimum amount of $100,000, or, if more, in
an integral multiple of $100,000; provided, however, that the Borrower may not
at any time reduce the Revolving Commitment Amount at any time prior to the
termination of the Overline Revolving Commitment and the payment in full of the
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Overline Revolving Loans, and the Borrower may not reduce the Revolving
Commitment Amount below the Total Revolving Outstandings. The Borrower may, at
any time when there are no Letters of Credit outstanding, the Overline Revolving
Commitment has been terminated and all Overline Revolving Loans have been paid
in full, upon not less than two Business Days prior written notice to the Bank,
terminate the Revolving Commitment in its entirety. Upon termination of the
Revolving Commitment pursuant to this Section, the Borrower shall pay to the
Bank the full amount of all outstanding Revolving Loans, all accrued and unpaid
interest thereon, all unpaid Commitment Fees accrued to the date of such
termination and any other amounts payable with respect to Advances.
(b) The Borrower may, at any time, upon not less than two Business
Days prior written notice to the Bank, reduce the Overline Revolving
Commitment Amount, with such reduction in a minimum amount of $100,000, or,
if more, in an integral multiple of $100,000. The Borrower may, at any
time, upon not less than two Business Days prior written notice to the
Bank, terminate the Overline Revolving Commitment in its entirety. Upon
termination of the Overline Revolving Commitment pursuant to this Section,
the Borrower shall pay to the Bank the full amount of all outstanding
Overline Revolving Loans, all accrued and unpaid interest thereon, all
unpaid Overline Commitment Fees accrued to the date of termination, and any
other amounts payable with respect to the Advances. [Twelfth Amendment]
Section 2.15 Loans to Cover Unpaid Drawings. Whenever any Unpaid Drawing
exists for which there are not then funds in the Holding Account to cover the
same, the Bank is authorized (and the Borrower does here so authorize the Bank)
to, and shall, make a Revolving Loan (as a Reference Rate Advance) to the
Borrower in an amount equal to the amount of the Unpaid Drawing. The Bank shall
apply the proceeds of such Revolving Loan directly to reimburse itself for such
Unpaid Drawing. If at the time the Bank makes a Revolving Loan pursuant to the
provisions of this Section, the applicable conditions precedent specified in
Article III shall not have been satisfied, the Borrower shall pay to the Bank
interest on the funds so advanced at a floating rate per annum equal to the sum
of the Reference Rate plus the Applicable Margin for Reference Rate Advances
plus two percent (2.00%).
Section 2.16 Commitment Fees and Facility Fees.
2.16 (a) Revolving Commitment Fee. The Borrower shall pay to the Bank
fees (the "Revolving Commitment Fees") in an amount determined by applying
a rate of three eighths of one percent (0.375%) per annum to the average
daily Unused Revolving Commitment for the period from the Closing Date to
the Termination Date. Such Revolving Commitment Fees are payable in arrears
quarterly on the last day of each fiscal quarter and on the Termination
Date.
2.16 (b) Overline Revolving Commitment Fees. The Borrower shall pay to
the Bank fees (the "Overline Revolving Commitment Fees") in an amount
determined by applying a rate of three eighths of one percent (0.375%) per
annum to the average daily
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Unused Overline Revolving Commitment for the period from the date of the
making of the first Overline Revolving Loan to the Overline Termination
Date. Such Overline Revolving Commitment Fees are payable in arrears
quarterly on the last day of each fiscal quarter and on the Overline
Termination Date.
2.16 (c) Capital Expenditure Term Loan Commitment Fee. The Borrower
shall pay to the Bank fees (the "Capital Expenditure Term Loan Commitment
Fees") in an amount determined by applying a rate of three eighths of one
percent (0.375%) per annum to the average daily Unused Capital Expenditure
Commitment for the period from the Closing Date to the third anniversary of
the Closing Date. Such Capital Expenditure Commitment Fees are payable in
arrears quarterly on the last day of each fiscal quarter and on the third
anniversary of the Closing Date.
2.16 (d) Facility Fees. (i) The Borrower shall pay to the Bank a fee
(the "Facility Fee") in an amount equal to one per cent (1%) of the sum of
the original Revolving Commitment, the Capital Expenditure Term Loan
Commitment and the original principal amount of the Term Loan. One half of
the Facility Fee shall be paid to the Bank on or before the Closing Date
(and the $20,000 paid to the Bank by the Borrower in connection with that
certain commitment letter dated November 24, 1993 shall be credited against
this installment of the Facility Fee) and the remainder of the Facility Fee
shall be paid to the Bank on the first anniversary of the Closing Date.
(ii) the Borrower shall pay to the Bank a Facility Fee in the
amount of one-quarter of one percent (.25%) of the sum of the original
Overline Revolving Amount, payable to the Bank on September 1, 1997.
[Twelfth Amendment]
Section 2.17 Letter of Credit Fees. For each standby Letter of Credit
issued, the Borrower shall pay to the Bank, in advance payable on the date of
issuance (except that the fee for the BankAmerica Letter of Credit shall be
payable on the Closing Date), a fee (a "Standby Letter of Credit Fee") in an
amount determined by applying a per annum rate of one and one half percent
(1.5%) to the original face amount of the Letter of Credit for the period from
the date of issuance to the scheduled expiration date of such Letter of Credit.
For each documentary Letter of Credit issued, the Borrower shall pay to the
Bank, in advance payable on the date of issuance, a fee (a "Documentary Letter
of Credit Fee" and, together with the Standby Letter of Credit Fees, a "Letter
of Credit Fee") in an amount determined by applying the Bank's then-customary
per annum rate for documentary letters of credit to the original face amount of
the Letter of Credit for the period from the date of issuance to the scheduled
expiration date of such Letter of Credit. In addition to the Letter of Credit
Fees, the Borrower shall pay to the Bank, on demand, all issuance, amendment,
drawing and other fees regularly charged by the Bank to its letter of credit
customers and all out-of-pocket expenses incurred by the Bank in connection with
the issuance, amendment, administration or payment of any Letter of Credit. If
any Letter of Credit is terminated prior to its scheduled expiration date (as
evidenced by return of the original Letter of Credit to the Bank and a writing
by the beneficiary thereof acknowledging surrender thereof, or as otherwise
established to the Bank's satisfaction), the
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Bank shall refund to the Borrower the unearned portion of the Letter of Credit
Fee paid for such Letter of Credit (consisting of an amount equal to the product
of such Letter of Credit Fee multiplied by a fraction, the numerator of which is
the number of days from the date the Bank is satisfied that such Letter of
Credit has been terminated through the scheduled expiration date of such Letter
of Credit and the denominator of which is the number of days in the original
term of such Letter of Credit). If the face amount of any Letter of Credit is
increased or decreased by any amendment to such Letter of Credit after the
original issuance, the Borrower shall pay to the Bank an additional Letter of
Credit Fee, or the Bank shall refund to the Borrower any unearned portion of the
Letter of Credit Fee previously paid, as the case may be, with such additional
Fee or refund calculated in a manner consistent with this Section.
Section 2.18 Computation. Commitment Fees and Letter of Credit Fees and
interest on the Loans shall be computed on the basis of actual days elapsed (or,
in the case of Letter of Credit Fees which are paid in advance, actual days to
elapse) and a year of 360 days.
Section 2.19 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 1:00 P.M. (Minneapolis time) on the
dates called for under this Agreement and the Notes to the Bank at its main
office in Minneapolis, Minnesota. Funds received after such time shall be
deemed to have been received on the next Business Day. Whenever any payment to
be made hereunder or on the Notes shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time, in the case of a payment of principal, shall be
included in the computation of any interest on such principal payment. The Bank
may charge any amount payable under any of the Notes or this Agreement to any
account maintained by the Borrower with the Bank, on the date said payment is
due.
Section 2.20 Revolving Commitment Ending Date and Extension. The
"Revolving Commitment Ending Date" is January 2, 1998. The Bank shall not be
under any obligation or commitment to extend the Revolving Commitment Ending
Date. [Eleventh Amendment]
Section 2.21 Use of Loan Proceeds. The proceeds of the Term Loan and the
initial Revolving Loan shall be used first to repay all of the Borrower's
indebtedness to each of: BankAmerica Business Credit, Inc. (f/k/a SPBC, Inc.),
outstanding pursuant to a Loan and Security Agreement dated August 2, 1991, as
amended; Charter Oak, pursuant to that certain Promissory Note dated June 30,
1993 in the original principal amount of $8,550,000; and the City of Rogers,
Arkansas with respect to any lease or other agreement obligating the Borrower to
make payments in amounts sufficient to pay debt service on the City of Rogers,
Arkansas Industrial Development Revenue Bonds (Daisy Manufacturing Project),
1983 Series B in the original principal amount of $2,000,000; and to pay any
other expenses specified on Exhibit 2.21. The Borrower hereby represents and
warrants that the principal amount outstanding and all interest accrued with
respect to each of the obligations described in the preceding sentence is as set
out in Exhibit 2.21 attached hereto, and directs the Bank to disburse the Term
Loan and the initial Revolving Loan to pay such amounts by wire transfer to the
addresses specified in
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Exhibit 2.21. Any remaining balance of the initial Revolving Loan, the proceeds
of any subsequent Revolving Loans and the proceeds of the Overline Revolving
Loans shall be used for the Borrower's general business purposes in a manner not
in conflict with any of the Borrower's covenants in this Agreement. All
proceeds of Capital Expenditure Term Loans shall be used to pay a portion of the
purchase price of Eligible Equipment. No part of the proceeds of any Loans or
Advances shall be used, directly or indirectly, to purchase or carry any margin
stock (as defined in Regulation U of the Board) or to extend credit to others
for the purpose of purchasing or carrying such margin stock. The proceeds of
the Brass Eagle Loan will be used to pay a portion of the purchase price of the
Brass Eagle Assets. [Twelfth Amendment]
Section 2.22 Interest Rate Not Ascertainable, Etc. If, on or prior to the
date for determining the Adjusted CD Rate or the Adjusted Eurodollar Rate in
respect of the Interest Period for any CD Rate Advance or Eurodollar Rate
Advance, the Bank determines (which determination shall be conclusive and
binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being made
available to the Bank in the relevant market for such Interest Period, or
(b) the Adjusted CD Rate or the Adjusted Eurodollar Rate, as the case
may be, will not adequately and fairly reflect the cost to the Bank of
funding or maintaining CD Rate Advances or Eurodollar Rate Advances for
such Interest Period,
the Bank shall forthwith give notice to the Borrower of such determination,
whereupon the obligation of the Bank to make or continue, or to convert any
Advances to, CD Rate Advances or Eurodollar Rate Advances, as the case may be,
shall be suspended until the Bank notifies the Borrower that the circumstances
giving rise to such suspension no longer exist. While any such suspension
continues, all further Advances by the Bank shall be made with an interest rate
option to which such suspension does not apply. No such suspension shall affect
the interest rate then in effect during the applicable Interest Period for any
CD Rate Advance or Eurodollar Rate Advance outstanding at the time such
suspension is imposed.
Section 2.23 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other charge with
respect to its Fixed Rate Advances, the Revolving Note, its obligation to
make Fixed Rate Advances or shall change the basis of taxation of payment
to the Bank of the principal of or interest on Fixed Rate Advances or any
other amounts due under this Agreement in respect of Fixed Rate Advances or
its obligation to make Fixed Rate Advances (except for changes in the rate
of tax on the overall net income of the Bank imposed by the jurisdiction in
which the Bank's principal office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including, without
limitation, any such requirement imposed by the Board, but excluding (i)
with respect to any CD Rate Advance any such
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requirement to the extent included in calculating the applicable Adjusted
CD Rate and (ii) with respect to any Eurodollar Rate Advance any such
requirement to the extent included in calculating the applicable Adjusted
Eurodollar Rate) against assets of, deposits with or for the account of, or
credit extended by, the Bank or shall impose on the Bank or on the United
States market for certificates of deposit or the interbank Eurodollar
market any other condition affecting its Fixed Rate Advances, the Revolving
Note or its obligation to make Fixed Rate Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Fixed Rate Advance, or to reduce the amount of any sum
received or receivable by the Bank under this Agreement or under the Revolving
Note, then, within 30 days after demand by the Bank, the Borrower shall pay to
the Bank such additional amount or amounts as will compensate the Bank for such
increased cost or reduction. The Bank will promptly notify the Borrower of any
event of which it has knowledge, occurring after the date hereof, which will
entitle the Bank to compensation pursuant to this Section. A certificate of the
Bank claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable detail
the basis for the charge and the method of computation, shall be conclusive in
the absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of the Bank
to demand compensation for any increased costs or reduction in amounts received
or receivable with respect to any Interest Period shall not constitute a waiver
of the Bank's rights to demand compensation for any increased costs or reduction
in amounts received or receivable in any subsequent Interest Period.[Third
Amendment; Seventh Amendment]
Section 2.24 Illegality. If any Regulatory Change shall make it unlawful
or impossible for the Bank to make, maintain or fund any Fixed Rate Advances,
the Bank shall notify the Borrower, whereupon the obligation of the Bank to make
or continue, or to convert any Advances to, CD Rate Advances or Eurodollar Rate
Advances, as the case may be, shall be suspended until the Bank notifies the
Borrower that the circumstances giving rise to such suspension no longer exist.
If the Bank determines that it may not lawfully continue to maintain any CD Rate
Advances or Eurodollar Rate Advances, as the case may be, to the end of the
applicable Interest Periods, all of the affected Advances shall be automatically
converted to Reference Rate Advances as of the date of the Bank's notice, and
upon such conversion the Borrower shall indemnify the Bank in accordance with
Section 2.26.
Section 2.25 Capital Adequacy. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return on the Bank's
capital or the capital of its parent corporation (by an amount the Bank deems
material) as a consequence of the Commitments and/or the Loans to a level below
that which the Bank or its parent corporation could have achieved but for such
Regulatory Change (taking into account the Bank's policies and the policies of
its parent corporation with respect to capital adequacy), then the Borrower
shall, on demand from the Bank, pay to the Bank additional amounts sufficient to
compensate the Bank or its parent corporation for such reduction. Any
determination by the Bank under this Section and any certificate as to the
amount of such reduction given to the Borrower by the Bank shall
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be final, conclusive and binding for all purposes, absent error.
Section 2.26 Funding Losses; Fixed Rate Advances. The Borrower shall
compensate the Bank, upon its written request, for all losses, reasonable
expenses and liabilities (including any interest paid by the Bank to lenders of
funds borrowed by it to make or carry Fixed Rate Advances to the extent not
recovered by the Bank in connection with the re-employment of such funds and
including loss of anticipated profits) which the Bank may sustain: (i) if for
any reason, other than a default by the Bank, a funding of a Fixed Rate Advance
does not occur on the date specified therefor in the Borrower's request or
notice as to such Advance under Section 2.2 or 2.4, or (ii) if, for whatever
reason (including, but not limited to, acceleration of the maturity of Advances
following an Event of Default), any repayment of a Fixed Rate Advance, or a
conversion pursuant to Section 2.24, occurs on any day other than the last day
of the Interest Period applicable thereto. The Bank's request for compensation
shall set forth the basis for the amount requested and shall be final,
conclusive and binding, absent error.
Section 2.27 Discretion of Bank as to Manner of Funding. The Bank shall
be entitled to fund and maintain its funding of CD Rate Advances and Eurodollar
Rate Advances in any manner it may elect, it being understood, however, that for
the purposes of this Agreement all determinations hereunder (including, but not
limited to, determinations under Section 2.26, but excluding determinations that
the Bank may elect to make from the Reuters screen) shall be made as if the Bank
had actually funded and maintained each CD Rate Advance and Eurodollar Rate
Advance during the Interest Period for such Advance through the issuance of its
certificates of deposit, or the purchase of deposits, having a maturity
corresponding to the last day of the Interest Period and bearing an interest
rate equal to the CD Rate or the Eurodollar Rate, as the case may be, for such
Interest Period. [Seventh Amendment]
ARTICLE III
-----------
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Loans and Letter of Credit. The making
of the Term Loan, the initial Capital Expenditure Term Loan and the initial
Revolving Loan and the issuance of the initial Letter of Credit shall be subject
to the prior or simultaneous fulfillment (or written waiver by the Bank) of each
of the following conditions:
3.1 (a) Documents. The Bank shall have received the following:
(i) The Capital Expenditure Term Note, the Revolving Note and
the Term Note executed by a duly authorized officer (or officers) of
the Borrower and dated the Closing Date.
(ii) The Security Documents duly executed by the respective
parties thereto.
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(iii) A copy of the corporate resolution of the Borrower
authorizing the execution, delivery and performance of the Borrower
Loan Documents, certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Borrower.
(iv) An incumbency certificate showing the names and titles and
bearing the signatures of the officers of the Borrower authorized to
execute the Borrower Loan Documents and to request Loans and
conversions and continuations of Advances hereunder, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Borrower.
(v) A copy of the Restated Certificate of Incorporation of the
Borrower with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation as of a
date not more than five Business Days prior to the Closing Date.
(vi) A certificate of good standing for the Borrower in the
States of Delaware and Arkansas, certified by the appropriate
governmental officials as of a date not more than five Business Days
prior to the Closing Date.
(vii) A copy of the bylaws of the Borrower, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the
Borrower.
(viii) A letter from the accountants who prepared the audited
financial statements referred to in Section 4.5 hereof, acknowledging
the Bank's prospective reliance on the audited financial statements to
be prepared by such accountants with respect to the Borrower's 1993
fiscal year.
(ix) A certificate dated the Closing Date of the chief executive
officer or chief financial officer of the Borrower certifying as to the
matters set forth in Sections 3.2 (a) and 3.2 (b) below.
(x) An initial Borrowing Base Certificate, prepared as of
December 29, 1993.
(xi) A certificate in the form of Exhibit 5.1 (d), dated the
Closing Date but showing both (1) actual financial ratios and results
as of November 30, 1993, and (2) projected financial ratios and results
as of December 31, 1993, of the chief executive officer or chief
financial officer of the Borrower.
(xii) A current ALTA form loan title insurance policy, dated the
closing date, in form and substance, and from a title insurance
company, acceptable to the Bank, covering the Rogers Property.
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(xiii) An appraisal of the Rogers Property from an appraiser
selected and retained by the Bank, supporting the Bank's assumptions as
to the value of the Rogers Property.
(xiv) An "as-built" survey of the Rogers Property, in form, and
prepared by a surveyor, acceptable to the Bank.
(xv) Evidence satisfactory to the Bank that the Rogers Property
is not in a flood plain, or flood insurance.
(xvi) Certificates evidencing all insurance required by the
Mortgage, the Security Agreement or any of the other Loan Documents.
(xvii) An Environmental Certification and Indemnification in the
form of Exhibit 3.1(a)(xvii) hereto, completed and executed by the
Borrower, together with a letter from Woodward-Clyde indicating that
the Bank can rely on the Environmental Assessments identified in said
Environmental Certificate and Indemnification and that no significant
environmental risks or liabilities exist with respect to the Borrower,
the Borrower's assets and the Rogers Property.
(xviii)Copies of a Warranty Deed and Bill of Sale from the City of
Rogers, Arkansas (the "City") to the Borrower with respect to the
Rogers Property, a Release Agreement between the City and the Borrower,
and a Release and Conveyance from Worthen National Bank, Little Rock,
Arkansas (formerly Union National Bank) as trustee, to the Borrower,
all as executed by the parties thereto and in form and substance
satisfactory to the Bank.
3.1 (b) Opinion. The Borrower shall have requested Friday, Eldredge &
Clark, its counsel, to prepare a written opinion, addressed to the Bank and
dated the Closing Date, covering the matters set forth in Exhibit 3.1(b)
hereto, and each such opinion shall have been delivered to the Bank.
3.1 (c) Compliance. The Borrower shall have performed and complied
with all agreements, terms and conditions contained in this Agreement
required to be performed or complied with by the Borrower prior to or
simultaneously with the Closing Date.
3.1 (d) Security Documents. All Security Documents (or financing
statements with respect thereto) shall have been appropriately filed or
recorded to the satisfaction of the Bank; any pledged collateral shall have
been duly delivered to the Bank; any title insurance required by the Bank
(with endorsements required by the Bank) shall have been obtained and be
satisfactory to the Bank; and the priority and perfection of the Liens
created by the Security Documents shall have been established to the
satisfaction of the Bank and its counsel.
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3.1 (e) Other Matters. All corporate and legal proceedings relating to
the Borrower and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Bank and its counsel, and the Bank shall have
received all information and copies of all documents, including records of
corporate proceedings, as the Bank or its counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
3.1 (f) Fees and Expenses. The Bank shall have received all fees and
other amounts due and payable by the Borrower on or prior to the Closing
Date, including the reasonable fees and expenses of counsel to the Bank
payable pursuant to Section 8.2, the portion of the Facility Fee due on or
prior to the Closing Date pursuant to Section 2.16 (c), the fee for the
collateral audit performed prior to the Closing Date, the appraisal fee,
the issuance fee for the BankAmerica Letter of Credit and the fee for any
interest rate cap or other interest rate protection purchased by the
Borrower from the Bank as of the Closing Date.
Section 3.2 Conditions Precedent to all Loans and Letters of Credit.
[Fifth Amendment] The obligation of the Bank to make any Loans hereunder
(including the Brass Eagle Loan, the Term Loan, the initial Capital Expenditure
Term Loan and the initial Revolving Loan) and to issue each Letter of Credit
(including the initial Letter of Credit) shall be subject to the fulfillment of
the following conditions:
3.2 (a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of
the Closing Date and on the date of each Loan or the date of issuance of
each Letter of Credit, with the same force and effect as if made on such
date.
3.2 (b) No Default. No Default or Event of Default shall have occurred
and be continuing on the Closing Date and on the date of each Loan or the
date of issuance of each Letter of Credit or will exist after giving effect
to the Loan made on such date or the Letter of Credit so issued.
3.2 (c) Notices and Requests. The Bank shall have received the
Borrower's request for such Loan as required under Section 2.2 or its
application for such Letters of Credit specified under Section 2.9.
Section 3.3 Conditions Precedent to Brass Eagle Loan. [Fifth Amendment]
The obligation of the Bank to make the Brass Eagle Loan shall be subject to the
fulfillment of the following conditions (in addition to those specified in
Section 3.2):
3.3 (a) Fifth Amendment. All conditions precedent specified in that
certain Fifth Amendment to Credit Agreement dated as of September __, 1995
have been satisfied.
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3.3 (b) Brass Eagle Acquisition. The Bank shall have received copies of
the Brass Eagle Seller Note and the other Brass Eagle Sale Documents,
certified as true, correct and complete copies by the Borrower's Chief
Financial Officer; such Brass Eagle Sale Documents shall be in the form of
the 9/19/95 drafts provided to the Bank's counsel by Goodman Phillips &
Vineberg, with such changes as shall be acceptable to the Bank in its sole
and unlimited discretion; and the Bank shall have received evidence
demonstrating to the Bank's reasonable satisfaction that upon disbursement
of the proceeds of the Brass Eagle Loan to Brass Eagle, the Borrower will
have acquired title to the Brass Eagle Assets.
3.3 (c) Financing Statements. The Bank shall have received written
notice from the Borrower of the location to which the Brass Eagle Assets
will be shipped and such financing statements as the Bank may request in
order to perfect its security interest in such assets.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, to grant the Commitments
and to make Loans hereunder and to induce the Bank to issue Letters of Credit,
the Borrower represents and warrants to the Bank:
Section 4.1 Organization, Standing, Etc. The Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the
Borrower Loan Documents. The Borrower (a) holds all certificates of authority,
licenses and permits necessary to carry on its business as presently conducted
in each jurisdiction in which it is carrying on such business, except where the
failure to hold such certificates, licenses or permits would not have a material
adverse effect on the business, operations, property, assets or condition,
financial or otherwise, of the Borrower, and (b) is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the character of
the properties owned, leased or operated by it or the business conducted by it
makes such qualification necessary and the failure so to qualify would
permanently preclude the Borrower from enforcing its rights with respect to any
assets or expose the Borrower to any liability, which in either case would be
material to the Borrower. The current ownership of all of the Borrower's issued
and outstanding stock is as set forth in Exhibit 1.1(j) attached hereto.
Section 4.2 Authorization and Validity. The execution, delivery and
performance by the Borrower of the Borrower Loan Documents have been duly
authorized by all necessary corporate action by the Borrower, and this Agreement
constitutes, and the Notes and other Borrower Loan Documents when executed will
constitute, the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their
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respective terms, subject to limitations as to enforceability which might result
from bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and subject to limitations on the availability of
equitable remedies.
Section 4.3 No Conflict; No Default. The execution, delivery and
performance by the Borrower of the Borrower Loan Documents will not (a) violate
any provision of any law, statute, rule or regulation or any order, writ,
judgment, injunction, decree, determination or award of any court, governmental
agency or arbitrator presently in effect having applicability to the Borrower,
(b) violate or contravene any provision of the Certificate of Incorporation or
bylaws of the Borrower, or (c) result in a breach of or constitute a default
under any indenture, loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or any of its
properties may be bound or result in the creation of any Lien thereunder. The
Borrower is not in default under or in violation of any such law, statute, rule
or regulation, order, writ, judgment, injunction, decree, determination or award
or any such indenture, loan or credit agreement or other agreement, lease or
instrument in any case in which the consequences of such default or violation
could have a material adverse effect on the business, operations, properties,
assets or condition (financial or otherwise) of the Borrower.
Section 4.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Borrower to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Borrower Loan Documents, except for any
necessary filing or recordation of or with respect to any of the Security
Documents.
Section 4.5 Financial Statements and Condition. The Borrower's audited
financial statements as at December 31, 1992 and its audited balance sheet as at
July 1, 1993, as heretofore furnished to the Bank, have been prepared in
accordance with GAAP, and such audited financial statements and balance sheet
and the Borrower's unaudited financial statements as at November 30, 1993, as
heretofore furnished to the Bank, have been prepared on a consistent basis
(except for year-end audit adjustments as to the interim statements) and fairly
present the financial condition of the Borrower as at such dates and the results
of its operations and changes in financial position for the respective periods
then ended. As of the dates of such financial statements, the Borrower had no
material obligation, contingent liability, liability for taxes or long-term
lease obligation which is not reflected in such financial statements or in the
notes thereto. Since October 31, 1993, there has been no material adverse
change in the business, operations, property, assets or condition, financial or
otherwise, of the Borrower. The Borrower has informed the Bank that the
Borrower's actual results for December 1993 are below projections, and the Bank
has agreed that this shortfall, in and of itself, is not a material adverse
change.
Section 4.6 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to the Borrower, would have a material adverse
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effect on the business, operations, property or condition (financial or
otherwise) of the Borrower or on the ability of the Borrower to perform its
obligations under the Loan Documents.
Section 4.7 Environmental, Health and Safety Laws. Except as disclosed on
the Environmental Certificate,
(a) there does not exist any violation by the Borrower of any
Environmental Law or any other applicable federal, state or local law, rule
or regulation or order of any government, governmental department, board,
agency or other instrumentality relating to environmental, pollution,
health or safety matters which will or threatens to impose a material
liability on the Borrower or which would require a material expenditure by
the Borrower to cure;
(b) the Borrower has not given or received any notice to the effect
that any part of its operations or properties is not in material compliance
with any such law, rule, regulation or order or notice that it or its
property is the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to any release of any
toxic or hazardous waste or substance into the environment, which non-
compliance or remedial action could reasonably be expected to have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the Borrower; and
(c) without limiting the generality of the preceding clause, the
Borrower has not given nor received any notice, letter, citation, order,
warning, complaint, injury, claim or demand that:
(i) the Borrower has violated, or is about to violate, any
federal, state, regional, county or local environmental, health or
safety statute, law, rule, regulation, ordinance, judgment or order;
(ii) there has been a release, or there is a threat of release,
of hazardous substances (including, without limitation, petroleum, its
by-products, derivatives, or other hydrocarbons) from the Rogers
Property;
(iii) the Borrower may be or is liable, in whole or in part, for
the costs or cleaning up, remediating, removing or responding to a
release of hazardous substances (including, without limitation,
petroleum, its by-products, derivatives, or other hydrocarbons); or
(iv) the Rogers Property is subject to a lien in favor or any
government entity for any liability, costs or damages, under federal,
state or local environmental law, rule or regulation arising from, or
costs incurred by such governmental entity in response to, a release of
a hazardous substance (including, without limitation, petroleum, its
by-products, derivatives, or other hydrocarbons).
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Section 4.8 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA.
Section 4.9 Federal Reserve Regulations. The Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in
Regulation U of the Board). The value of all margin stock owned by the Borrower
does not constitute more than 25% of the value of the assets of the Borrower.
Section 4.10 Title to Property; Leases; Liens; Subordination. The
Borrower has (a) good and marketable title to its real properties and (b) good
and sufficient title to, or valid, subsisting and enforceable leasehold interest
in, its other material properties, including all real properties, other
properties and assets, referred to as owned by the Borrower in the most recent
financial statement referred to in Section 4.5 (other than property disposed of
since the date of such financial statements in the ordinary course of business).
None of such properties is subject to a Lien, except as allowed under Section
6.12. The Borrower has not subordinated any of its rights under any obligation
owing to it to the rights of any other person.
Section 4.11 Taxes. The Borrower has filed all federal, state and local
tax returns required to be filed and has paid or made provision for the payment
of all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property and all other taxes, fees and
other charges imposed on it or any of its property by any governmental authority
(other than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such taxes, fees or charges. The charges, accruals
and reserves on the books of the Borrower in respect of taxes and other
governmental charges are adequate and the Borrower knows of no proposed material
tax assessment against it or any basis therefor.
Section 4.12 Trademarks, Patents. The Borrower possesses or has the right
to use all of the patents, trademarks, trade names, service marks and
copyrights, and applications therefor, and all technology, know-how, processes,
methods and designs used in or necessary for the conduct of its business,
without known conflict with the rights of others.
Section 4.13 Burdensome Restrictions. The Borrower is not a party to or
otherwise bound by any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter, corporate or partnership
restriction which would foreseeably have a material adverse effect on the
business, properties, assets, operations or condition (financial or otherwise)
of the Borrower or on the ability of the Borrower to carry out its obligations
under
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any Loan Document.
Section 4.14 Force Majeure. Since the date of the most recent financial
statement referred to in Section 4.5, the business, properties and other assets
of the Borrower have not been materially and adversely affected in any way as
the result of any fire or other casualty, strike, lockout, or other labor
trouble, embargo, sabotage, confiscation, condemnation, riot, civil disturbance,
activity of armed forces or act of God.
Section 4.15 Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended.
Section 4.16 Public Utility Holding Company Act. The Borrower is not a
"holding company" or a "subsidiary company" of a holding company or an
"affiliate" of a holding company or of a subsidiary company of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 4.17 Retirement Benefits. Under the accounting rules proposed as
of the date of this Agreement by the Financial Accounting Standards Board with
respect thereto, the present value of the expected cost to the Borrower of post-
retirement medical and insurance benefits with respect to employees, as
estimated by the Borrower in accordance with procedures and assumptions deemed
reasonable by the Bank, does not exceed $1,200,000 as of the Closing Date and is
not expected to exceed $3,000,000 at any time.
Section 4.18 Full Disclosure. Subject to the following sentence, and to
the Borrower's actual knowledge, neither the financial statements referred to in
Section 4.5 nor any other certificate, written statement, exhibit or report
furnished by or on behalf of the Borrower in connection with or pursuant to this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading. Certificates or statements furnished by or on behalf of the
Borrower to the Bank consisting of projections or forecasts of future results or
events have been prepared in good faith and based on good faith estimates and
assumptions of the management of the Borrower, and the Borrower has no reason to
believe that such projections or forecasts are not reasonable.
Section 4.19 Subsidiaries. The Borrower has no Subsidiaries.
Section 4.20 Solvency. The Borrower is Solvent.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
Until any obligation of the Bank hereunder to make the Brass Eagle Loan,
the Capital Expenditure Term Loans, the Term Loan and the Revolving Loans and to
issue Letters of Credit
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shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full and all outstanding Letters of Credit shall
have expired or the liability of the Bank thereon shall have otherwise been
discharged, unless the Bank shall otherwise consent in writing:[Fifth Amendment]
Section 5.1 Financial Statements and Reports. The Borrower will furnish
to the Bank:
5.1 (a) As soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, the financial statements of the
Borrower consisting of at least statements of income, cash flow, changes in
financial position and stockholders' equity, and a consolidated balance
sheet as at the end of such year, setting forth in each case in comparative
form corresponding figures from the previous annual audit, certified
without qualification by Crowe Chizek & Company or other independent
certified public accountants of recognized national standing selected by
the Borrower and acceptable to the Bank, together with (a) any management
letters, management reports or other supplementary comments or reports to
the Borrower or its board of directors furnished by such accountants, (b) a
letter from such accountants addressed to the Bank acknowledging that the
Bank is extending credit in reliance on such financial statements and
authorizing such reliance, and (c) a certification signed by the chief
financial officer of the Borrower as to the underfunded amount of Plan
benefits guaranteed under ERISA.
5.1 (b) Together with the audited financial statements required under
Section 5.1 (a), a statement by the accounting firm performing such audit
to the effect that it has reviewed this Agreement and that in the course of
performing its examination nothing came to its attention that caused it to
believe that any Default or Event of Default exists, or, if such Default or
Event of Default exists, describing its nature.
5.1 (c) As soon as available and in any event within 30 days after the
end of each month, unaudited statements of income, cash flow, changes in
financial position and stockholders' equity for the Borrower for such month
and for the period from the beginning of such fiscal year to the end of
such month, and a balance sheet of the Borrower as at the end of such
month, setting forth in comparative form figures for the corresponding
period for the preceding fiscal year, accompanied by a certificate signed
by the chief financial officer of the Borrower stating that such financial
statements present fairly the financial condition of the Borrower and that
the same have been prepared on a basis consistent with the Borrower's most
recent audited financial statement.
5.1 (d) As soon as practicable and in any event within 30 days after
the end of each month, a statement in the form of Exhibit 5.1 (d) attached
hereto, signed by the chief financial officer or interim chief financial
officer of the Borrower, or a deputy of either, demonstrating in reasonable
detail compliance (or noncompliance, as the case may be) with (i) Sections
6.8 and (with respect to any month ending on or after December 31, 1997)
6.14 and 6.15 as at the end of such month, (ii) Section 6.16 and 6.17 with
respect
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to December 1997 and any subsequent month that ends a fiscal quarter, and
(iii) Section 6.19 with respect to any month that ends a fiscal quarter,
and in any case stating that as at the end of such month there did not
exist any Default or Event of Default or, if such Default or Event of
Default existed, specifying the nature and period of existence thereof and
what action the Borrower proposes to take with respect thereto.[Tenth
Amendment]
5.1 (e) As soon as practicable and in any event with eight calendar
days after the end of each month, a Borrowing Base Certificate signed by
the chief financial officer of the Borrower, reporting the Borrowing Base
as of the last day of the month just ended.
5.1 (f) As soon as practicable and in any event within 30 days after
the beginning of each fiscal year of the Borrower, statements of forecasted
income for the Borrower for each fiscal month in such fiscal year and a
forecasted balance sheet of the Borrower, together with supporting
assumptions, as at the end of each fiscal month, all in reasonable detail
and reasonably satisfactory in scope to the Bank.
5.1 (g) Immediately upon any executive officer of the Borrower
becoming aware of any Default or Event of Default, a notice describing the
nature thereof and what action the Borrower proposes to take with respect
thereto.
5.1 (h) Immediately upon any executive officer of the Borrower
becoming aware of the occurrence, with respect to any Plan, of any
Reportable Event or any Prohibited Transaction, a notice specifying the
nature thereof and what action the Borrower proposes to take with respect
thereto, and, when received, copies of any notice from PBGC of intention to
terminate or have a trustee appointed for any Plan.
5.1 (i) Promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements, if any, mailed to the
Borrower's shareholders, and copies of all registration statements,
periodic reports and other documents, if any, filed with the Securities and
Exchange Commission (or any successor thereto) or any national securities
exchange.
5.1 (j) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Bank may
reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain its corporate
existence in good standing under the laws of its jurisdiction of incorporation
and its qualification to transact business in each jurisdiction where failure so
to qualify would permanently preclude the Borrower from enforcing its rights
with respect to any material asset or would expose the Borrower to any material
liability.
Section 5.3 Insurance. The Borrower shall maintain with financially sound
and reputable insurance companies such insurance as may be required by law and
such other insurance in such amounts and against such hazards as is customary in
the case of reputable firms engaged in the
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same or similar business and similarly situated, which shall in any event
include at least $15,000,000 in comprehensive general liability insurance issued
by an insurer reasonably acceptable to the Bank.
Section 5.4 Payment of Taxes and Claims. The Borrower shall file all tax
returns and reports which are required by law to be filed by it and will pay
before they become delinquent all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including but not limited to those of suppliers, mechanics, carriers,
warehouses, landlords and other like Persons) which, if unpaid, might result in
the creation of a Lien upon its property; provided that the foregoing items need
not be paid if they are being contested in good faith by appropriate
proceedings, and as long as the Borrower's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Borrower's books in accordance with
GAAP.
Section 5.5 Inspection. Subject to the provisions of Section 8.7, the
Borrower shall permit any Person designated by the Bank to visit and inspect, at
reasonable times during normal business hours, as the Bank may from time to time
request, any of the properties (specifically including but not limited to the
Rogers Property), corporate books and financial records of the Borrower, to
examine and to make copies of the books of accounts and other financial records
of the Borrower, and to discuss the affairs, finances and accounts of the
Borrower with, and to be advised as to the same by, its officers. Except as
provided in the next sentence, so long as no Event of Default exists, the
expenses of the Bank for such visits, inspections and examinations shall be at
the expense of the Bank, but any such visits, inspections and examinations made
while any Event of Default is continuing shall be at the expense of the
Borrower. Without limiting the generality of the preceding portion of this
Section 5.5, the Bank shall be entitled to conduct two collateral audits during
each fiscal year, in or around April and October, at the Borrower's
expense.[Third Amendment]
Section 5.6 Maintenance of Properties. The Borrower will maintain its
properties used or useful in the conduct of its business in good condition,
repair and working order, and supplied with all necessary equipment, and make
all necessary repairs, renewals, replacements, betterments and improvements
thereto, all as may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
Section 5.7 Books and Records. The Borrower will keep adequate and proper
records and books of account in which full and correct entries will be made of
its dealings, business and affairs.
Section 5.8 Compliance. The Borrower will comply in all material respects
with all laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject; provided, however, that failure so
to comply shall not be a breach of this covenant if such failure does not have,
or is not reasonably expected to have, a materially adverse effect on the
properties, business, prospects or condition (financial or otherwise) of the
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Borrower and the Borrower is acting in good faith and with reasonable dispatch
to cure such noncompliance.
Section 5.9 Notice of Litigation. The Borrower will give prompt written
notice to the Bank of the commencement of any action, suit or proceeding before
any court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Borrower or any property of the Borrower or to
which the Borrower is a party in which an adverse determination or result could
have a material adverse effect on the business, operations, property or
condition (financial or otherwise) of the Borrower or on the ability of the
Borrower to perform its obligations under this Agreement and the other Loan
Documents, stating the nature and status of such action, suit or proceeding.
Section 5.10 ERISA. The Borrower will maintain each Plan in compliance
with all material applicable requirements of ERISA and of the Code and with all
material applicable rulings and regulations issued under the provisions of ERISA
and of the Code and will not and not permit any ERISA Affiliates to (a) engage
in any transaction in connection with which the Borrower or any ERISA Affiliates
would be subject to either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code, in either case in an
amount exceeding $50,000, (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code, and as determined by the Borrower's independent actuaries),
whether or not waived, with respect to any Plan, or (c) fail to make any
payments in an aggregate amount exceeding $50,000 to any Multiemployer Plan that
the Borrower or any of the ERISA Affiliates may be required to make under any
agreement relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Environmental Matters; Reporting.
(a) Generally. The Borrower will observe and comply with all laws,
rules, regulations and orders of any government or government agency
relating to health, safety, pollution, hazardous materials or other
environmental matters to the extent non-compliance could result in a
material liability or otherwise have a material adverse effect on the
Borrower. The Borrower will give the Bank prompt written notice of any
violation as to any environmental matter by the Borrower and of the
commencement of any judicial or administrative proceeding relating to
health, safety or environmental matters (i) in which an adverse
determination or result could result in the revocation of or have a
material adverse effect on any operating permits, air emission permits,
water discharge permits, hazardous waste permits or other permits held by
the Borrower which are material to the operations of the Borrower, or (ii)
which will or threatens to impose a material liability on the Borrower to
any Person or which will require a material expenditure by the Borrower to
cure any alleged problem or violation.
(b) Ongoing Compliance With Respect to Rogers Property.
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(i) The Borrower shall carry on the business and operations at the
Rogers Property to comply in all respects, and will remain in compliance,
with all applicable federal, state, regional, county or local laws,
statutes, rules, regulations or ordinances, concerning public health,
safety or the environment, including, but not limited to, the Environmental
Laws, and all rules, regulations and guidance documents promulgated or
published thereunder, and any state, regional, county or local statute,
law, rule, regulation or ordinance relating to public health, safety or the
environment, including, without limitation, those relating:
(1) to releases, discharges, emissions or disposals to air, water,
land or groundwater,
(2) to the withdrawal or use of groundwater,
(3) to the use, handling or disposal of polychlorinated biphenyls
(PCBs), asbestos or urea formaldehyde,
(4) to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, its derivatives,
by-products or other hydrocarbons), and any other solid, liquid or
gaseous substance, exposure to which is prohibited, limited or
regulated, or may or could pose a hazard to the health and safety of
the occupants of the Rogers Property or locations adjacent to or
surrounding the Rogers Property,
(5) to the exposure of Persons to toxic, hazardous, or other
controlled, prohibited or regulated substances,
(6) to the transportation, storage, disposal, management, or
release of gaseous or liquid substances, and any regulation, order,
injunction, declaration, notice or demand issued thereunder.
(ii) The Borrower shall prevent the imposition of any liens or
encumbrances against the Rogers Property for the costs of any response,
removal, or remedial action or cleanup of hazardous substances.
(iii) The Borrower shall cause any tenant or sub-tenant of the Rogers
Property to comply, and to remain in compliance, with clauses (i) and (ii)
above.
(c) Periodic Certification of Compliance.
(i) On or before March 15th of each calendar year, and upon
completion of any remediation plan, the Borrower shall submit to the Bank a
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written report in scope, form and substance acceptable to the Bank, and
prepared by the Borrower, or representatives of the Borrower, which
documents that no evidence or indication came to light during the preceding
calendar year which would suggest there was a release of "Hazardous
Materials" (as defined in the Environmental Certificate) on the Rogers
Property which could necessitate an environmental response action, and
which certifies that the Rogers Property complies with, and does not
deviate from, all applicable Environmental Laws, ordinances, rules and
regulations, including any licenses, permits or certificates required
thereunder.
(ii) The Borrower hereby grants, and will cause any tenants or sub-
tenants to grant, to the Bank, its agents, attorneys, employees,
consultants and contractors, an irrevocable license and authorization to
enter upon and inspect the Rogers Property, and perform such tests,
including without limitation, subsurface testing, soils and ground water
testing, and other tests on the Rogers Property, as the Bank, in its sole
discretion, determines is necessary to protect its Liens.
(d) Use of Property and Facilities.
(i) the Borrower will not conduct or allow to be conducted any
business, operations or activity on the Rogers Property, or employ or use
the Rogers Property, to manufacture, treat, store, or dispose of any
hazardous substance (including, without limitation, petroleum, its
derivatives, by-products, or other hydrocarbons), or any other substance
which is prohibited, controlled or regulated under applicable law, or which
poses a threat or nuisance to safety, health or the environment, including,
without limitation, any business, operations or activity which would bring
the Borrower the Rogers Property, within the ambit of, or otherwise
violate, the Resource Conversation and Recovery Act of 1976, as amended by
the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. (S) 6901 et
seq., or cause, or allow to be caused, a release or threat of release, of
hazardous substances on the Rogers Property as defined by, and within the
ambit, of, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 9186, 42 U.S.C. (S) 9601 et seq., the Clean Air Act
of 1966, as amended, 42 U.S.C. (S) 7401 et seq., or any similar state,
county, regional or local statute, law, regulation, rule or ordinance,
including, without limitation, any state statute providing for financial
responsibility for cleanup for the release of substances provided for
thereunder.
(ii) The Borrower will not do or permit any act or thing, business or
operation, that materially increases the danger, or poses an unreasonable
risk, of harm, or impairs, or may impair, the value of the Rogers Property,
or any part thereof.
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(iii) In the event the Borrower receives or submits any notice of the
types described in clauses (i) through (iv) of Section 4.7, the Borrower
shall promptly (and in no event later than fifteen (15) days from
Borrower's receipt or submission thereof) provide a copy to the Bank.
(e) Asbestos Covenant
(i) The Borrower shall abate any friable asbestos-containing
material (ACM) (if any) at the Rogers Property by completing such action as
is necessary promptly after the discovery of such friable asbestos-
containing material. The ACM abatement shall be completed by a contractor
(the "Contractor") and monitored by a professional engineer or certified
industrial hygienist (the "Engineer"), all of whom must be accredited under
the Asbestos Hazard Emergency Response Act of 1986 ("AHERA"). The
Contractor and Engineer must be satisfactory to the Bank. Air monitoring
shall be performed at appropriate intervals during the abatement work, and
the samples shall be analyzed using appropriate analytical techniques by an
AHERA accredited laboratory. Promptly after the Borrower has completed the
abatement, but no later than 30 days thereafter, the Borrower shall deliver
to the Bank a clearance audit prepared by the Engineer in scope, form and
substance satisfactory to the Bank demonstrating that the abatement has
been completed, the ACM has been properly disposed of, and that the
abatement satisfies the requirements of this paragraph.
(ii) With respect to any actions under (e)(i) above, the Borrower
shall implement a Special Operations and Maintenance Program ("O & M
Program") to address the presence of asbestos-containing materials on the
Rogers Property. The O & M Program shall be prepared by a professional
engineer or certified industrial hygienist acceptable to the Bank, shall
include, at a minimum, employee training and appropriate work practices and
shall follow the guidelines set forth in U.S. Environmental Protection
Agency's "Managing Asbestos in Place," dated July 1990. The ACM inspections
required by (e)(i) above shall be performed by an ACM inspector accredited
under AHERA. In addition, Borrower shall undertake semi-annual ACM
inspections (which need not be performed by an AHERA-accredited inspector)
to confirm the condition of the ACM at the Rogers Property.
Section 5.12 Interest Rate Protection. The Borrower shall either (i)
elect to treat each principal installment payable under the Term Loan as a CD
Rate Advance for an interest period ending on the maturity date of that
principal installment; or (ii) subject all principal outstanding under the Term
Loan to interest rate caps, interest rate options or a series thereof, interest
rate swaps or other forms of interest rate hedging agreements in each case
having terms and with parties acceptable to the Bank.
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Section 5.13 Accounts. The Borrower shall: (i) maintain with the Bank all
of the Borrower's material lock box, depository, savings and other banking
accounts and make all investments of amounts deposited therein through the Bank;
(ii) from time to time, upon request by the Bank, deliver to the Bank a schedule
of all of the Borrower's depository, savings and other banking accounts
maintained at any other financial institution; and (iii) immediately upon
request by the Bank, either (x) execute and deliver to the Bank such documents
as the Bank may request to perfect the Bank's security interest in all of the
Borrower's depository, savings and other banking accounts maintained at any
other financial institution, and cause such other financial institutions to
acknowledge and agree to such documents, or (y) close such depository, savings
and other banking accounts maintained at any other financial institution.
Notwithstanding the foregoing sentence, the Borrower may continue to use its
existing lockbox arrangements until April 30, 1995, but on or before April 30,
1995, the Borrower shall instruct all Persons obligated to the Borrower to
forward all monies, checks, notes, drafts or other payments to one or more post
office boxes established by the Borrower but under the control of the Bank (the
"Lockboxes"), and all such payments received in the Lockboxes shall be forwarded
each day to the Bank for collection and deposit in one of the Borrower's
accounts at the Bank.
Section 5.14 Post Closing Matters. The Borrower will obtain and record in
all appropriate offices releases, in form and substance satisfactory to the
Bank, of all assignments of any interest in the Borrower's copyrights or
trademarks to any Person other than the Bank, and of any financing statement in
favor of any Person listed on Exhibit 2.21 or any Person not listed on Exhibit
6.12, on or before May 1, 1994. The Borrower will execute and return to the
Bank financing statements suitable for filing in the states of Idaho, Louisiana,
Minnesota, Mississippi (state and local), Missouri (state and local), Nevada,
Oklahoma and South Dakota by or before January 7, 1994. The Borrower will also
deliver to the Bank an insurance certificate evidencing $10,000,000 in liability
insurance in addition to the $5,000,000 in such coverage evidenced by the
certificate delivered on the Closing Date by or before January 7, 1994.
Section 5.15 Charter Oak Contributions.
(a) Charter Oak Contributions Related to Fixed Charge Coverage. In
addition to the Charter Oak Contributions required by Sections 5.15 (b) and
(c), (i) if at any time after January 1, 1998, the Accumulated Contribution
Requirement ever exceeds the Accumulated Distribution Rights by $500,000 or
more; or (ii) if an Event of Default exists at any time (whether before or
after January 1, 1998), the Borrower shall cause Charter Oak to make
Charter Oak Contributions within fourteen days of each written demand
therefor from the Bank in an amount equal to the remainder of the
Accumulated Contribution Requirement minus the Accumulated Distribution
Rights, determined as of the date of demand by the Bank (subject to the
limitation in Section 5.15(e). The amount of any Charter Oak Contributions
(other than a Charter Oak Letter of Credit) required by this clause 5.15(a)
shall be paid to the Borrower, unless any Event of Default described in
Section 7.1(a), (f), (g) or (h) exists as of the date such Charter Oak
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Contribution is required to be made. If such an Event of Default exists on
such date, the amount of the Charter Oak Contribution shall be paid by
Charter Oak directly to the Bank, for the account of the Borrower, and
applied to the Obligations in such order as the Bank shall elect.[Tenth
Amendment]
(b) Charter Oak Contributions Related to Total Revolving
Outstandings/Borrowing Base. In addition to the Charter Oak Contributions
required by Sections 5.15 (a) and (c), if: (i) an Event of Default exists
at any time (whether before or after January 1, 1998); or (ii) the Total
Revolving Outstandings exceed $12,000,000 on the Termination Date; or (iii)
the Total Revolving Outstandings exceed the Borrowing Base on the
Termination Date, then the Borrower shall cause Charter Oak to make a
Charter Oak Contribution within fourteen days of each written demand
therefor from the Bank in an amount such that the aggregate of all Charter
Oak Contributions pursuant to this clause 5.15(b) is equal to the greater
of (subject to the limitation in Section 5.15(e)): (x) the amount by which
Total Revolving Outstandings exceed the Borrowing Base; or (y) the amount
by which Total Revolving Outstandings exceed $12,000,000 (clauses (x) and
(y) being determined as of the date of demand by the Bank). The amount of
any Charter Oak Contributions (other than a Charter Oak Letter of Credit)
required by this clause 5.15(b) shall be paid by Charter Oak directly to
the Bank, for the account of the Borrower, and shall be applied to the
Obligations in such order as the Bank shall elect. [Tenth Amendment]
(c) 1997 Charter Oak Letter of Credit. Contemporaneously with the
execution and delivery of the Tenth Amendment to Credit Agreement and
Limited Waiver between the Borrower and the Bank, the Borrower will cause
Charter Oak to deliver the 1997 Charter Oak Letter of Credit to the
Bank.[Tenth Amendment]
(d) General Terms Applicable to Charter Oak Contributions. At any time
after the occurrence and during the continuation of any Event of Default
described in Section 7.1(a), (f), (g) or (h), or if a Charter Oak Letter of
Credit is scheduled to expire within 15 days and has not been replaced by
another Charter Oak Letter of Credit, the Bank may draw on any Charter Oak
Letter of Credit then held by the Bank and apply the proceeds of such draw
to the Obligations, in such order as the Bank may elect. The Borrower
acknowledges that if Charter Oak elects to deliver a Charter Oak Letter of
Credit to satisfy its obligations under this Section 5.15 at any time after
the occurrence and during the continuation of any Event of Default
described in Section 7.1(a), (f), (g) or (h), the Bank may draw under such
Charter Oak Letter of Credit at any time, including but not limited to
immediately upon the Bank's receipt of such Charter Oak Letter of Credit.
The Bank may make multiple demands for Charter Oak Contributions under each
of Section 5.15(a) and (b). The Borrower's obligations to cause Charter Oak
Contributions under each of Sections 5.15 (a) and (b) are independent, and
the amount of any Charter Oak Contributions made under either of Sections
5.15(a) or (b) shall not be credited against Charter Oak Contributions owed
under the other. Except for the 1997 Charter Oak Letter of Credit, if
Charter Oak Contributions are made in the form
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of Charter Oak Letters of Credit, separate Charter Oak Letters of Credit
must be provided to evidence the Charter Oak Contributions made pursuant to
each of Sections 5.15(b) and (c). Any Charter Oak Contribution requested
based on unaudited financial statements shall be subject to adjustment
based on the audited financial statements.[Tenth Amendment]
(e) Effect of 1997 Charter Oak Letter of Credit on Charter Oak
Contributions. If the Bank makes any demand for Charter Oak Contributions
at a time when an amount is available to be drawn under the 1997 Charter
Oak Letter of Credit, the amount of the Charter Oak Contributions shall be
an amount equal to the sum of (i) the amount, if any, of Charter Oak
Contributions payable under Section 5.15(a), determined as of the date of
demand, plus (ii) the amount, if any, of Charter Oak Contributions payable
under Section 5.15(b), determined as of the date of demand, minus (iii) the
amount available to be drawn under the 1997 Charter Oak Letter of Credit on
the date of demand.[Tenth Amendment]
Section 5.16 Post-Seventh Amendment Matters. On or before May 1, 1996,
the Borrower shall, at its expense, take each of the following actions: (i) the
Borrower will cause all tangible Brass Eagle Assets to be located within
Arkansas or another state in which the Bank has appropriate financing statements
on file, and deliver written notification of the location of the Brass Eagle
Assets to the Bank; (ii) the Borrower shall record assignments of the
intellectual property included in the Brass Eagle Assets, from Brass Eagle to
the Borrower and from the Borrower to the Bank; (iii) the Borrower shall deliver
to the Bank landlord waivers satisfactory to the Bank with respect to the Brass
Eagle Assets and any other assets of the Borrower located on leased premises and
agreements satisfactory to the Bank from each of the Borrower's suppliers that
holds tooling or other assets of the Borrower, obligating such suppliers to
surrender such assets to the Bank on demand and waiving any Liens in such
assets; and (iv) the Borrower shall deliver to the Bank a date down endorsement
to the title policy delivered to the Bank pursuant to Section 3.1(a)(xii) of the
Credit Agreement (the "Title Policy") extending the effective date of the Title
Policy to the date of this Amendment and insuring that the priority and validity
of the Mortgage will not be impaired by this Amendment or any prior amendment,
by any other document executed in connection therewith or by the transactions
contemplated thereby, which endorsement shall be in form and substance
satisfactory to the Bank. [Seventh Amendment]
Section 5.17 Mandatory Asset Dispositions. On or before December 31,
1997, the Borrower shall take each of the following actions: (i) sell the Rogers
Property for cash proceeds, net of costs of sales, of $3,500,000 or more (the
Borrower expects to receive net proceeds of approximately $4,000,000 from such
sale); (ii) sell the assets used in or related to the Borrower's contract
manufacturing/steel shot line of business for cash proceeds, net of costs of
sale, of $8,000,000 or more; and (iii) transfer the Brass Eagle Assets and other
assets used in or related to the Borrower's paintball gun line of business to a
Subsidiary of the Borrower and cause such Subsidiary to issue stock of such
Subsidiary in an initial public offering (provided, however that the assets
transferred to and debts assumed by the Subsidiary and the terms of the
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initial public offering and the use of the net proceeds thereof must all be
satisfactory to the Bank). Upon completion of one or more of the sales or
transfers required by Section 5.17, the Bank will consider, in light of the
financial and other condition of the Borrower at the time, allowing an amendment
to the 1997 Charter Oak Letter of Credit to reduce the amount thereof. [Tenth
Amendment]
Section 5.18 Deliveries with Respect to Tenth Amendment. On or before May
16, 1997, the Borrower shall deliver to the Bank each of the following: (i) a
copy of the resolutions of the Board of Directors of the Borrower ratifying and
authorizing the execution, delivery and performance of the Tenth Amendment to
Credit Agreement and Limited Waiver dated as of May 13, 1997 (the "Tenth
Amendment"), certified as true and accurate by the Borrower's Secretary or
Assistant Secretary; (ii) certificates of good standing for the Borrower,
certified by the Delaware and Arkansas Secretaries of State, respectively; (iii)
a certificate from the Secretary of the Borrower (x) certifying that the
Restated Certificate of Incorporation and Bylaws of the Borrower have not been
repealed, rescinded, amended or otherwise modified since copies of the same were
delivered to the Bank on or about December 29, 1993 pursuant to Section 3.1 of
this Agreement and (y) identifying the officers who executed the Tenth Amendment
on behalf of the Borrower, and certifying as to their incumbencies; and (iv) an
opinion of counsel to the Borrower, and in form and substance, satisfactory to
the Bank, to the effect that the Tenth Amendment is the valid and binding
obligation of the Borrower, enforceable against it in accordance with its
terms.[Tenth Amendment]
ARTICLE VI
----------
NEGATIVE COVENANTS
Until any obligation of the Bank hereunder to make the Brass Eagle Loan,
the Capital Expenditure Term Loans, the Term Loan and the Revolving Loans and to
issue Letters of Credit shall have expired or been terminated and the Notes and
all of the other Obligations have been paid in full and all outstanding Letters
of Credit shall have expired or the liability of the Bank thereon shall have
otherwise been discharged, unless the Bank shall otherwise consent in
writing:[Fifth Amendment]
Section 6.1 Merger. The Borrower will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution).
Section 6.2 Sale of Assets. The Borrower will not sell, transfer, lease
or otherwise convey all or any substantial part of its assets except for:
(i) sales and leases of inventory in the ordinary course of
business;
(ii) sales of used or obsolete equipment provided that the book value
of all equipment sold during any fiscal year under this clause (ii) does
not exceed 5% of the
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book value of all equipment owned by the Borrower as of the start of that
fiscal year;
(iii) sales of assets in connection with the Borrower's conversion of
its operations (other than the steel shot division) from a vertically
integrated manufacturing operation to an assembly operation in which parts
are purchased from outside vendors, provided, however, that (x) no sales
may be made pursuant to this clause 6.2(iii) until the Bank has given its
written consent to a list of all assets to be sold pursuant to this clause
6.2(iii) (which list must be delivered to the Bank by the Borrower no later
than May 31, 1996, and which consent the Bank may grant or withhold in its
sole and unlimited discretion), (y) no sales may be made pursuant to this
clause 6.2(iii) for prices lower than 90% of the prices specified on the
list consented to by the Bank, and (z) all proceeds of sales pursuant to
this clause 6.2(iii), net of cash costs of sale, must be used to prepay the
Term Loan as provided in Section 2.7(a);
(iv) sales and transfers required by (but only to the extent
permitted by) Section 5.17 provided, however that (x) no sale or transfer
shall be made pursuant to clause 5.17(ii) or (iii) until the Bank has given
its written consent to a list of all assets to be sold or transferred
pursuant to such clause 5.17(ii) or (iii) (which list must be delivered to
the Bank sufficiently in advance of the proposed sale or transfer to give
the Bank a reasonable opportunity to evaluate such list, and which consent
the Bank may grant or withhold in its sole and unlimited discretion, or, in
the case of the transfer described in Section 5.17(iii), may condition on
documentation acceptable to the Bank whereby the Subsidiary to whom assets
are transferred grants the Bank a Lien in all such assets to secure the
Obligations, and containing other provisions acceptable to the Bank), and
(y) the proceeds of sales pursuant to Section 5.17(i) and (ii), and of the
initial public offering pursuant to Section 5.17(iii), shall be used to
prepay the Loans to the extent required by Section 2.7(a), and any proceeds
of the sale pursuant to Section 5.17(ii) that are not paid to the Bank
shall be used to pay the expenses of the initial public offering pursuant
to Section 5.17(iii), expenses associated with moving the Borrower's
operations from the Rogers Property, and (if and only if the Bank, in its
sole and unlimited discretion, consents), the costs of redeeming the
Borrower's preferred stock; and
(v) sales of assets sold by the Borrower pursuant to clause 6.2(iii)
above, which were subsequently repurchased by the Borrower for an aggregate
repurchase price of $650,000.[Tenth Amendment]
Section 6.3 Plans. The Borrower will not permit any event to occur or
condition to exist which would permit any Plan to terminate under any
circumstances which would cause the Lien provided for in Section 4068 of ERISA
to attach to any assets of the Borrower.
Section 6.4 Change in Nature of Business. The Borrower will not make any
material change in the nature of the business of the Borrower, as carried on at
the date hereof, except that the Borrower may convert its operations (other than
the steel shot division) from a vertically integrated manufacturing operation to
an assembly operation in which parts are purchased from
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outside vendors. [Seventh Amendment]
Section 6.5 Subsidiaries. The Borrower will not form or acquire any
corporation which would thereby become a Subsidiary, except in connection with
the transfer described in Section 5.17(iii) and provided that the Bank has
consented to such transfer as described in Section 6.2(iv).[Tenth Amendment]
Section 6.6 Negative Pledges. The Borrower will not enter into any
agreement, bond, note or other instrument with or for the benefit of any Person
other than the Bank which would prohibit the Borrower from granting, or
otherwise limit the ability of the Borrower to grant, to the Bank any Lien on
any assets or properties of the Borrower.
Section 6.7 Restricted Payments.
(a) Except as provided in the remainder of this Section 6.7, the
Borrower will not make any Restricted Payments. [Seventh Amendment]
(b) If: (i) Accumulated Distribution Rights exceed Accumulated
Contribution Requirements by $500,000 or more, (ii) there is no
Subordinated Debt then included in the outstanding Charter Oak
Contributions, and (iii) no Event of Default exists, then the Borrower may
make Restricted Payments to Charter Oak in the amount of the lesser of (x)
such excess of Accumulated Distribution Rights over Accumulated
Contribution Requirements, or (y) the amount of Charter Oak Contributions
made pursuant to Section 5.15(a) that have not previously been returned to
Charter Oak. [Seventh Amendment]
(c) If: (i) Accumulated Distribution Rights exceed Accumulated
Contribution Requirements by $500,000 or more, (ii) there is no
Subordinated Debt then included in the outstanding Charter Oak
Contributions, (iii) no Event of Default exists, (iv) all Charter Oak
Contributions made pursuant to Section 5.15(a) have been returned to
Charter Oak, and (iv) Total Revolving Outstandings are less than the lesser
of the Borrowing Base or $12,000,000, then the Borrower may make Restricted
Payments to Charter Oak in the amount of the lesser of (x) such excess of
Accumulated Distribution Rights over Accumulated Contribution Requirements,
or (y) the amount of Charter Oak Contributions made pursuant to Section
5.15(b) that have not previously been returned to Charter Oak. [Seventh
Amendment]
(d) Any Restricted Payment to Charter Oak shall be applied first to
repay the amount of Charter Oak Contributions made to the Borrower in cash
by Charter Oak that can then be repaid under subsection (b) or (c) above,
as appropriate. If there are no unpaid cash Charter Oak Contributions
outstanding that can be paid under this Section 6.7, and the Borrower would
be entitled to make a Restricted Payment under this Section 6.7, the Bank
shall consent to one or more amendments to any Charter Oak Letters of
Credit then held by the Bank pursuant to Section 5.15(a) or (b), reducing
the amount
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available to be drawn under such Charter Oak Letters of Credit by an amount
equal to the Restricted Payment that the Borrower would be entitled to make
on account of Charter Oak Contributions under Section 5.15(a) or (b), as
appropriate, if there were unpaid cash Charter Oak Contributions
outstanding. [Seventh Amendment]
Section 6.8 Capital Expenditures. The Borrower will not make Capital
Expenditures that cause the aggregate Capital Expenditures during any fiscal
year to exceed: (i) during the fiscal year ending December 31, 1995, the sum of
the purchase price of the Brass Eagle Assets or $4,500,000, whichever is less,
plus $1,800,000; and (ii) during any other fiscal year, $1,800,000.[Fifth
Amendment]
Section 6.9 Subordinated Debt. The Borrower will not (a) make any
scheduled payment of the principal of or interest on any Subordinated Debt which
would be prohibited by the terms of such Subordinated Debt and any related
subordination agreement; (b) directly or indirectly make any prepayment on or
purchase, redeem or defease any Subordinated Debt or offer to do so (whether
such prepayment, purchase or redemption, or offer with respect thereto, is
voluntary or mandatory) except that if any Subordinated Debt is included in
outstanding Charter Oak Contributions and Accumulated Distribution Rights ever
exceed Accumulated Contribution Requirements by $500,000 or more, the Borrower
may prepay such Subordinated Debt by up to the amount of such excess; (c) amend
or cancel the subordination provisions applicable to any Subordinated Debt; (d)
take or omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (e) omit to give the
Bank prompt notice of any notice received from any holder of Subordinated Debt,
or any trustee therefor, or of any default under any agreement or instrument
relating to any Subordinated Debt by reason whereof such Subordinated Debt might
become or be declared to be due or payable.[Fifth Amendment]
Section 6.10 Investments. The Borrower will not acquire for value, make,
have or hold any Investments, except:
6.10 (a) Investments existing on the date of this Agreement.
6.10 (b) Travel advances to management personnel and employees in the
ordinary course of business.
6.10 (c) Investments in readily marketable direct obligations issued
or guaranteed by the United States or any agency thereof and supported by
the full faith and credit of the United States.
6.10 (d) Certificates of deposit or bankers' acceptances issued by
either: (i) any commercial bank organized under the laws of the United
States or any State thereof which has (x) combined capital and surplus of
at least $100,000,000, and (y) a credit rating with respect to its
unsecured indebtedness from a nationally recognized rating service that is
satisfactory to the Bank, or (ii) Worthen National Bank of Arkansas,
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provided that the Bank has not notified the Borrower that Worthen National
Bank of Arkansas is no longer acceptable to the Bank (in its sole and
unlimited discretion), and that the aggregate principal amount of
certificates of deposit at Worthen National Bank of Arkansas at any time
shall never exceed $750,000.
6.10 (e) Commercial paper given the highest rating by a nationally
recognized rating service.
6.10 (f) Repurchase agreements relating to securities issued or
guaranteed as to principal and interest by the United States of America.
6.10 (g) Other readily marketable Investments in debt securities which
are reasonably acceptable to the Bank.
6.10 (h) Any other Investment if the aggregate consideration therefor
does not exceed $100,000;
provided, however,that any Investments under clauses (c), (d), (e) or (f) above
shall mature within one year of the acquisition thereof by the Borrower.
Section 6.11 Indebtedness. The Borrower will not incur, create, issue,
assume or suffer to exist any Indebtedness, except:
6.11 (a) The Obligations.
6.11 (b) Current Liabilities, other than for borrowed money, incurred
in the ordinary course of business.
6.11 (c) Indebtedness existing on the date of this Agreement and
disclosed on Exhibit 6.11 hereto, but not including any extension or
refinancing thereof.
6.11 (d) Indebtedness other than the Obligations incurred to finance
Capital Expenditures.
6.11 (e) Indebtedness secured by Liens permitted under Section 6.12
hereof.
6.11 (f) Any Rate Protection Obligations.[Fourth Amendment]
6.11 (g) Indebtedness under the Brass Eagle Seller Note.[Seventh
Amendment]
Section 6.12 Liens. The Borrower will not create, incur, assume or suffer
to exist any Lien, or enter into, or make any commitment to enter into, any
arrangement for the acquisition of any property through conditional sale, lease-
purchase or other title retention agreements, with respect to any property now
owned or hereafter acquired by the Borrower, except:
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6.12 (a) Liens granted to the Bank under the Security Documents to
secure the Obligations.
6.12 (b) Liens existing on the date of this Agreement and disclosed on
Exhibit 6.12 hereto.
6.12 (c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social
security obligations, in the ordinary course of business of the Borrower.
6.12 (d) Liens for taxes, fees, assessments and governmental charges
not delinquent or to the extent that payment therefor shall not at the time
be required to be made in accordance with the provisions of Section 5.4.
6.12 (e) Liens of carriers, warehousemen, mechanics and materialmen,
and other like Liens arising in the ordinary course of business, for sums
not due or to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 5.4.
6.12 (f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.12 (g) Encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not
materially detract from the value of such property or impair the use
thereof in the business of the Borrower.
6.12 (h) The interest of any lessor under any Capitalized Lease
entered into after the Closing Date or purchase money Liens on property
acquired after the Closing Date; provided, that, (i) the Indebtedness
secured thereby is otherwise permitted by this Agreement and (ii) such
Liens are limited to the property acquired and do not secure Indebtedness
other than the related Capitalized Lease Obligations or the purchase price
of such property.
6.12 (i) A security interest in the Brass Eagle Assets only, in favor
of Brass Eagle, securing the Brass Eagle Seller Note. [Fifth Amendment]
Section 6.13 Contingent Liabilities. The Borrower will not be or become
liable on any Contingent Obligations.
Section 6.14 Net Worth. The Borrower will not permit its Net Worth at any
time on or after December 31, 1997 to be less than $5,500,000.
Section 6.15 Leverage Ratio. The Borrower will not permit the Leverage
Ratio at any time on or after December 31, 1997 to be more than 6.75:1.[Tenth
Amendment]
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Section 6.16 IBD/EBITDA Ratio. The Borrower will not permit the ratio
of its Interest Bearing Debt to its EBITDA as of the last day of each fiscal
quarter ending on or after December 31, 1997, for the four consecutive fiscal
quarters ending on each such date, to be greater than 5.0:1.[Tenth Amendment]
Section 6.17 Fixed Charge Coverage Ratio (Unadjusted). The Borrower will
not permit the Fixed Charge Coverage Ratio (Unadjusted) as of the last day of
each fiscal quarter ending on or after December 31, 1997, for the four
consecutive fiscal quarters ending on such date, to be less than 0.65:1.[Tenth
Amendment]
Section 6.18 Loan Proceeds. The Borrower will not, use any part of the
proceeds of any Loan or Advance directly or indirectly, and whether immediately,
incidentally or ultimately, (a) to purchase or carry margin stock (as defined in
Regulation U of the Board) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund Indebtedness originally
incurred for such purpose or (b) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of Regulations G, U or X of the
Board.
Section 6.19 EBITDA. The Borrower will not permit its EBITDA: (i) for the
fiscal quarter ended on March 31, 1997 to be less than ($500,000); (ii) for the
period of two fiscal quarters ended on June 30, 1997 to be less than $850,000;
(iii) for the period of three fiscal quarters ended on September 30, 1997 to be
less than $2,300,000; and (iv) for any period of four fiscal quarters ended on
or after December 31, 1997 to be less than $5,000,000.[Tenth Amendment]
Section 6.20 Brass Eagle Sale Documents and Assets. The Borrower will not
modify or amend any of the Brass Eagle Sale Documents without the prior written
consent of the Bank (which the Bank may grant or withhold in its sole and
unlimited discretion). [Seventh Amendment]
ARTICLE VII
-----------
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
7.1 (a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on any
Note or any other Obligation required to be made to the Bank pursuant to
this Agreement.
7.1 (b) Any representation or warranty made by or on behalf of the
Borrower in this Agreement or any other Loan Document or by or on behalf of
the Borrower in any certificate, statement, report or document herewith or
hereafter furnished to any Bank pursuant to this Agreement or any other
Loan Document shall prove to have been
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false or misleading in any material respect on the date as of which the
facts set forth are stated or certified.
7.1 (c) The Borrower shall fail to comply with Sections 5.2, 5.3,
5.15, 5.16 or 5.17 hereof or any Section of Article VI hereof.[Tenth
Amendment]
7.1 (d) The Borrower shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other
than those hereinabove set forth in this Section 7.1) and such failure to
comply shall continue for fifteen (15) calendar days after whichever of the
following dates is the earliest: (i) the date the Borrower gives notice of
such failure to the Bank, (ii) the date the Borrower should have given
notice of such failure to the Bank pursuant to Section 5.1, or (iii) the
date the Bank gives notice of such failure to the Borrower.
7.1 (e) Any default (however denominated or defined) shall occur under
any Security Document.
7.1 (f) The Borrower shall cease to be Solvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of the
Borrower or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian, trustee
or receiver shall be appointed for the Borrower or for a substantial part
of the property thereof and shall not be discharged within 45 days, or the
Borrower shall make an assignment for the benefit of creditors.
7.1 (g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against the Borrower, and, if instituted against the Borrower, shall
have been consented to or acquiesced in by the Borrower, or shall remain
undismissed for 60 days, or an order for relief shall have been entered
against the Borrower.
7.1 (h) Any dissolution or liquidation proceeding shall be instituted
by or against the Borrower, and, if instituted against the Borrower, shall
be consented to or acquiesced in by the Borrower or shall remain for 45
days undismissed.
7.1 (i) A judgment or judgments for the payment of money in excess of
the sum of $100,000 in the aggregate shall be rendered against the Borrower
and the Borrower shall not discharge the same or provide for its discharge
in accordance with its terms, or procure a stay of execution thereof, prior
to any execution on such judgment by such judgment creditor, within 60 days
from the date of entry thereof, and within said period of 60 days, or such
longer period during which execution of such judgment shall be stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal.
7.1 (j) The maturity of any material Indebtedness of the Borrower
(other than
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Indebtedness under this Agreement) shall be accelerated, or the Borrower
shall fail to pay any such material Indebtedness when due (after the lapse
of any applicable grace period) or, in the case of such Indebtedness
payable on demand, when demanded (after the lapse of any applicable grace
period), or any event shall occur or condition shall exist and shall
continue for more than the period of grace, if any, applicable thereto and
shall have the effect of causing, or permitting the holder of any such
Indebtedness or any trustee or other Person acting on behalf of such holder
to cause, such material Indebtedness to become due prior to its stated
maturity or to realize upon any collateral given as security therefor. For
purposes of this Section, Indebtedness of the Borrower shall be deemed
"material" if it exceeds $750,000 as to any item of Indebtedness or in the
aggregate for all items of Indebtedness with respect to which any of the
events described in this Section 7.1(j) has occurred.
7.1 (k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower shall be taken or
attempted to be taken and the same shall not have been vacated or stayed
within 30 days after the issuance thereof.
7.1 (l) Any Security Document shall, at any time, cease to be in full
force and effect or shall be judicially declared null and void, or the
validity or enforceability thereof shall be contested by the Borrower, or
the Bank shall cease to have a valid and perfected security interest having
the priority contemplated thereunder in all of the collateral described
therein, other than by action or inaction of the Bank if (i) the aggregate
value of the collateral affected by any of the foregoing exceeds $100,000
and (ii) any of the foregoing shall remain unremedied for ten days or more
after receipt of notice thereof by the Borrower from the Bank.
7.1 (m) Any Change of Control shall occur.
7.1 (n) The Borrower shall either:
(i) fail to make when due, whether by acceleration or otherwise,
any payment of Rate Protection Obligations when required to be made to
the Bank pursuant to a Rate Protection Agreement; or
(ii) the Borrower shall fail to comply with any other provision
of a Rate Protection Agreement and such failure shall continue for
fifteen calendar days after the earlier of (1) the date the Borrower
gives notice of such failure to the Bank, or (2) the date the Bank
gives notice of such failure to the Borrower.[Fourth Amendment]
7.1(o) Charter Oak shall repudiate or purport to revoke the Charter
Oak Guaranty, the Charter Oak Maintenance Agreement or any Charter Oak
Letter of Credit; the Charter Oak Guaranty or the Charter Oak Maintenance
Agreement shall for any reason cease to be in full force and effect or
shall be judicially declared null and void;
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Charter Oak shall fail to make any Charter Oak Contribution or other
payment when due under the Charter Oak Guaranty or Charter Oak Maintenance
Agreement; or Charter Oak shall fail to comply with any other provision of
the Charter Oak Guaranty or the Charter Oak Maintenance Agreement. [Seventh
Amendment]
7.1(p) The bank that issued a Charter Oak Letter of Credit shall
repudiate or purport to revoke any Charter Oak Letter of Credit; any
Charter Oak Letter of Credit shall for any reason cease to be in full force
and effect or shall be judicially declared null and void; or the bank that
issued any Charter Oak Letter of Credit shall fail to make any payment due
under any Charter Oak Letter of Credit. [Seventh Amendment]
Section 7.2 Remedies. If any Event of Default described in Sections
7.1(f), (g) or (h) shall occur with respect to the Borrower, the Commitments
shall automatically terminate and the Notes and all other Obligations shall
automatically become immediately due and payable, and the Borrower shall without
demand pay into the Holding Account an amount equal to the aggregate face amount
of all outstanding Letters of Credit. If any other Event of Default shall
occur and be continuing, then the Bank may (i) declare the Commitments
terminated, whereupon the Commitments shall terminate, (ii) declare the
outstanding unpaid principal balance of the Notes, the accrued and unpaid
interest thereon and all other Obligations to be forthwith due and payable,
whereupon the Notes, all accrued and unpaid interest thereon and all such
Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding, and (iii) demand that the Borrower pay into the
Holding Account an amount equal to the aggregate face amount of all outstanding
Letters of Credit, whereupon the Borrower shall pay such amount. Upon the
occurrence of any Event of Default, the Bank may exercise all rights and
remedies under any of the Loan Documents, and enforce all rights and remedies
under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Borrower hereby irrevocably authorizes the Bank to set off any
Obligations against all deposits and credits of the Borrower with, and any and
all claims of the Borrower against, the Bank. Such right shall exist whether or
not the Bank shall have made any demand hereunder or under any other Loan
Document, whether or not the Obligations, or any part thereof, or deposits and
credits held for the account of the Borrower is or are matured or unmatured, and
regardless of the existence or adequacy of any collateral, guaranty or any other
security, right or remedy available to the Bank. The Bank agrees that, as
promptly as is reasonably possible after the exercise of any such setoff right,
it shall notify the Borrower of its exercise of such setoff right; provided,
however, that the failure of the Bank to provide such notice shall not affect
the validity of the exercise of such setoff rights. Nothing in this Agreement
shall be deemed a waiver or prohibition of or restriction on the Bank to all
rights of banker's Lien, setoff and counterclaim available pursuant to law.
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ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
the Borrower; provided that no amendment, modification or waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Bank, and then such amendment, modification, waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
Section 8.2 Expenses. Whether or not the transactions contemplated hereby
are consummated, the Borrower agrees to reimburse the Bank upon demand for all
reasonable out-of-pocket expenses paid or incurred by the Bank (including filing
and recording costs and fees and expenses of Dorsey & Whitney, counsel to the
Bank) in connection with the negotiation, preparation, approval, review,
execution, delivery, amendment, modification, interpretation, collection and
enforcement of this Agreement and the other Loan Documents and any commitment
letters relating thereto. The obligations of the Borrower under this Section
shall survive any termination of this Agreement.
Section 8.3 Waivers, etc. No failure on the part of the Bank or the
holder of a Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in the other Loan Documents provided are cumulative and
not exclusive of any remedies provided by law.
Section 8.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Bank under Article II hereof shall be deemed to have been
given only when received by the Bank.
Section 8.5 Taxes. The Borrower agrees to pay, and save the Bank harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement or the issuance of the
Notes, which obligation of the Borrower shall survive the termination of this
Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.
This Agreement
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shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign its
rights or delegate its obligations hereunder or under any other Borrower Loan
Document without the prior written consent of the Bank. The Bank may at any
time grant participations in, or (but only with the prior written consent of the
Borrower, which will not be unreasonably withheld) sell, assign, transfer or
otherwise dispose of any portion of the Commitments, the Loans and/or Advances
(each such interest so disposed of being herein called a "Transferred Interest")
to banks or other financial institutions ("Transferees"). The Borrower agrees
that each Transferee shall be entitled to the benefits of Sections 2.23, 2.24,
2.25, 2.26 and 8.2 with respect to its Transferred Interest and that each
Transferee may exercise any and all rights of banker's Lien, setoff and
counterclaim as if such Transferee were a direct lender to the Borrower. If the
Bank makes any assignment to a Transferee, then upon notice to the Borrower such
Transferee, to the extent of such assignment (unless otherwise provided
therein), shall become a "Bank" hereunder and shall have all the rights and
obligations of the Bank hereunder and the Bank shall be released from its duties
and obligations under this Agreement to the extent of such assignment.
Notwithstanding the sale by the Bank of any participation hereunder, (a) no
participant shall be deemed to be or have the rights and obligations of the Bank
hereunder except that any participant shall have a right of setoff under Section
7.3 as if it were the Bank and the amount of its participation were owing
directly to such participant by the Borrower, (b) the Bank shall not in
connection with selling any such participation condition the Bank's rights in
connection with consenting to amendments or granting waivers concerning any
matter under any Loan Document upon obtaining the consent of such participant
other than on matters relating to (i) any reduction in the amount of any
principal of, or the amount of or rate of interest on, the Note or Advance in
which such participation is sold, (ii) any postponement of the date fixed for
any payment of principal of or interest on the Note or Advance in which such
participation is sold, or (iii) the release or subordination of any material
portion of any collateral other than pursuant to the terms of any Security
Document, and (c) the Borrower shall continue to deal solely and directly with
the Bank in connection with this Agreement.
Section 8.7 Confidentiality of Information. The Bank shall use reasonable
efforts to assure that information about the Borrower and its operations,
affairs and financial condition, not generally disclosed to the public or to
trade and other creditors, which is furnished to the Bank pursuant to the
provisions hereof is used only for the purposes of this Agreement and any other
relationship between the Bank and the Borrower and shall not be divulged to any
Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Bank hereunder and
under the Notes and the Security Documents or otherwise in connection with
applicable litigation, (c) in connection with assignments and participations and
the solicitation of prospective assignees and participants referred to in the
immediately preceding Section (which shall agree to maintain the confidentiality
of all such information to the extent required by this Section 8.7), and (d) as
may otherwise be required or requested by any regulatory authority having
jurisdiction over the Bank or by any applicable law, rule, regulation or
judicial process, the opinion of the Bank's counsel concerning the making of
such disclosure to be binding on the parties hereto. The Bank shall not incur
any liability to the Borrower by
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reason of any disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE OTHER BORROWER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL
COURT OR MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA;
AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND
WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT
THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY
TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE BORROWER AND THE BANK
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.11 Survival of Agreement. All representations, warranties,
covenants and agreement made by the Borrower herein or in the other Borrower
Loan Documents and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be deemed to have been relied upon by the Bank and shall survive
the making of the Loans by the Bank and the execution and delivery to the
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Bank by the Borrower of the Notes, regardless of any investigation made by or on
behalf of the Bank, and shall continue in full force and effect as long as any
Obligation is outstanding and unpaid and so long as the Commitments have not
been terminated; provided, however, that the obligations of the Borrower under
Section 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations and
the termination of the Commitments.
Section 8.12 Indemnification. The Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers, employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any commitments
relating thereto, or any transaction contemplated by any Loan Document; or
(b) by reason of, relating to or in connection with any credit
extended or used under the Loan Documents or any act done or omitted by any
Person, or the exercise of any rights or remedies thereunder, including the
acquisition of any collateral by the Bank by way of foreclosure of the Lien
thereon, deed or bill of sale in lieu of such foreclosure or otherwise;
provided, however, that the Borrower shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Borrower may otherwise have. Without prejudice to the survival of any other
obligation of the Borrower hereunder the indemnities and obligations of the
Borrower contained in this Section shall survive the payment in full of the
other Obligations.
Section 8.13 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
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Section 8.14 Entire Agreement. This Agreement and the other Borrower Loan
Documents embody the entire agreement and understanding between the Borrower and
the Bank with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof. Nothing contained in this Agreement or in any other Loan
Document, expressed or implied, is intended to confer upon any Persons other
than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 8.16 Borrower Acknowledgements. The Borrower hereby acknowledges
that (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents, (b) the Bank has no
fiduciary relationship to the Borrower, the relationship being solely that of
debtor and creditor, (c) no joint venture exists between the Borrower and the
Bank, and (d) the Bank undertakes no responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the business
or operations of the Borrower and the Borrower shall rely entirely upon its own
judgment with respect to its business, and any review, inspection or supervision
of, or information supplied to, the Borrower by the Bank is for the protection
of the Bank and neither the Borrower nor any third party is entitled to rely
thereon.
Section 8.17 Release of Charter Oak Guaranty and Charter Oak Maintenance
Agreement.
(a) The Bank shall release Charter Oak from its obligations under the
Charter Oak Maintenance Agreement at such time as the Bank has received
both:
(i) the Borrower's audited financial statements for the fiscal
year ended December 31, 1997, and
(ii) the Borrower's quarterly (or annual audited) financial
statements for any fiscal quarter ending on or after December 31, 1997
demonstrating to the Bank's reasonable satisfaction that: (x) the
Borrower is in compliance with all covenants contained in this
Agreement; (y) no Default, Event of Default or Accumulated Contribution
Requirements exist; and (z) the ratio of the sum of the Borrower's
interest-bearing Total Liabilities as of the date of determination,
plus the amount outstanding under the Brass Eagle Seller Note as of the
date of determination, to EBITDA for the four fiscal quarters ended on
that date is less than or equal to 2.5:1.0.
(b) The Bank shall release Charter Oak from its obligations under the
Charter Oak Guaranty at such time as the Bank has received the Borrower's
quarterly (or annual audited) financial statements demonstrating to the
Bank's reasonable satisfaction that: (x)
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the Borrower is in compliance with all covenants contained in this
Agreement; (y) no Default or Event of Default exists; and (z) the Borrower
has paid the first $1,000,000 in principal due under the Brass Eagle Seller
Note in a timely fashion.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
DAISY MANUFACTURING COMPANY, INC.
By
Name: James C. Moody
Title: Vice President, Chief Financial Officer
and Assistant Secretary
Address:
2111 South Eighth Street
Rogers, Arkansas 72756
Telecopier No.: (501) 636-1601
FIRST BANK NATIONAL ASSOCIATION
By
Name: Mark McDonald
Title: Vice President
Address:
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Mark McDonald, MPFP0907
Telecopier No. (612) 973-0822
SIGNATURE PAGE TO CREDIT AGREEMENT
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EXHIBIT 1.1(a) TO
CREDIT AGREEMENT
FORMULA FOR
BORROWING BASE
1. Borrowing Base. The "Borrowing Base" as of any date of determination
shall be the sum of the following:
(a) 75% of the face amount of Eligible Accounts, and
(b) the lesser of (i) $5,500,000 or (ii) (a) for the period from June
1, 1994 through August 31, 1994, 50% of the lower of cost (determined
on a first-in, first-out basis) or market value of Eligible Inventory,
and (b) at all other times, 40% of the lower of cost (determined on a
first-in, first-out basis) or market value of Eligible Inventory
[First Amendment] plus
(c) $2,500,000 during the period beginning on February 1, 1995 and
ending on October 31, 1995, and zero at all other times[Fifth
Amendment].
2. Definitions. Capitalized terms use herein which are defined in the
Credit Agreement are used herein with the respective meanings attributed thereto
in the Credit Agreement. In addition, for the purposes of this Exhibit and for
determining the Borrowing Base, the following terms shall have the following
respective meanings:
"Eligible Accounts": the right of the Borrower to receive payment for
goods sold, including any such right evidenced by instruments or chattel paper,
provided such right to payment:
(a) has arisen out of the sale by the Borrower of goods within the
United States or Canada, or, if sold outside the United States or
Canada, either (i) is backed by a letter of credit issued or confirmed
by a bank chartered under the laws of the United States or of any
State, or (ii) does not cause the aggregate amount of all Eligible
Accounts arising out of sales outside the United States or Canada and
not backed by a letter of credit issued or confirmed by a bank
chartered under the laws of the United States or of any State to
exceed $1,000,000;
(b) is the valid, binding and legally enforceable obligation of the
obligor, such right to payment has not been subordinated by the
Borrower to any other claim against the obligor and such obligor is
not (i) the Borrower or a Subsidiary of the Borrower (ii) a Person who
is a shareholder, director, officer or employee of the Borrower, (iii)
the United States or any department, agency or instrumentality thereof
unless (x) the total amount of Eligible Accounts owed by the United
States or any
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<PAGE>
department, agency or instrumentality thereof does not exceed $500,000
or (y) the Borrower shall have complied with the Assignment of Claims
Act to the satisfaction of the Bank with respect to that portion of
any amounts owed by the United States or any department, agency or
instrumentality thereof that exceeds $500,000, (iv) a debtor under any
proceeding under the Bankruptcy Code or comparable provision of state
or foreign law or (v) an assignor for the benefit of creditors;
(c) is assignable;
(d) is subject to a perfected first security interest in favor of the
Bank and is free and clear of any other Lien;
(e) is not subject to any claimed offset, counterclaim or other
defense with respect thereto;
(f) is not owed by an obligor who is obligated on accounts owed to
the Borrower, the aggregate outstanding unpaid balance of which exceeds any
credit limits established for such obligor by the Bank;
(g) is not unpaid more than the earlier of (i) 180 days from the date
of the relevant invoice, or (ii) 60 days from the due date of the relevant
invoice;
(h) is not owed by an obligor who is obligated on accounts owed to
the Borrower more than 50% of the aggregate unpaid balance of which remains
unpaid for longer than the relevant period specified in clause (g) above;
(i) is not conditioned upon the approval of the obligor obligated
thereon or subject to any repurchase obligations on the part of the
Borrower or any return privilege on the part of such obligor; and
(j) is not, as reasonably determined by the Bank in its discretion,
uncollectible, difficult to collect or otherwise disqualified;
provided, that the Bank shall, notwithstanding the foregoing, have the
right, in the reasonable exercise of its discretion, to establish reserves
against the aggregate amount of Eligible Accounts.
"Eligible Inventory": all inventory held by the Borrower as raw materials
or finished product held for sale in the ordinary course of business (excluding
work in process and supplies) and which:
(a) is subject to a perfected, first priority security interest in
favor of the Bank free and clear of all other Liens;
(b) either (i) is located at one of the locations set forth in the
Security Agreement or in any schedule delivered pursuant thereto as a
location at which inventory is kept, and is not in transit to any location
other than a location set forth in
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<PAGE>
the Security Agreement or in any schedule delivered pursuant thereto as a
location at which inventory is kept, or (ii) is in transit from a foreign
supplier to the Borrower, has been fully paid for and does not cause the
aggregate amount of Eligible Inventory in transit to exceed $750,000;
(c) is not so identified to a contract to sell that it is evidenced by
an account;
(d) is of good and merchantable quality free from any defects which
would affect the market value thereof;
(e) is not, as reasonably determined by the Bank, nonsaleable in the
ordinary course of the Borrower's business;
(f) is insured against loss or damage in accordance with the
provisions of the Security Agreement;
(g) is not subject to or covered by a negotiable document of title,
including, without limitation, negotiable warehouse receipts and negotiable
bills of lading;
(h) is not stored in a public warehouse or held by any Person as
bailee, unless the terms of such storage or bailment are satisfactory to
the Bank; and
(i) is not a product that has been discontinued by the manufacturer or
by the vendor from which the Borrower purchased such inventory;
provided, that the Bank shall, notwithstanding the foregoing, have the right, in
the reasonable exercise of its discretion, to establish reserves against the
aggregate amount of Eligible Inventory.
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<PAGE>
EXHIBIT 1.1(b) TO
CREDIT AGREEMENT
[Fifth Amendment]
BORROWING BASE CERTIFICATE
Borrowing Base as of __________________________________, 199___
To: First Bank National Association:
The undersigned hereby certifies to First Bank National Association that as
of the date above, the Borrowing Base for Borrower was as follows:
A. (i) Eligible Accounts other than Eligible Accounts arising out of sales
outside the United States or Canada and not backed by a letter of
credit issued or confirmed by a bank chartered under the laws of the
United States or of any State: $________
(ii) Eligible Accounts arising out of sales outside the United States or
Canada and not backed by a letter of credit issued or confirmed by a
bank chartered under the laws of the United States or of any State:
$________ (not to exceed $1,000,000)
(iii) Eligible Accounts arising out of sales to the United States or any
department, agency or instrumentality thereof as to which the
Borrower has not complied with the Assignment of Claims Act:
$________ (not to exceed $500,000)
(iv) Total of (i), (ii) and (iii): $________
(v) Availability Rate: 75%
B. Borrowing Base Amount (line A(iv) times line A(v)) $________
C. (i) Eligible Inventory other than Inventory in transit from a foreign
supplier to the Borrower: $________
(ii) Eligible Inventory in transit from a foreign supplier to the
Borrower: $________ (not to exceed $750,000)
(iii) Total of (i) and (ii): $________
(iv) Availability Rate: 40%
D. Borrowing Base Amount (the lesser of $5,500,000 or line C(iii) times line
C(iv)): _______$
E. Total Borrowing Base (B + D plus,
during the period beginning on
February 1, 1995 and ending on
October 31, 1995 only, $2,500,000) $________
F. Revolving Loans $________
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<PAGE>
G. Letters of Credit
$________
H. Total Loans & L/Cs (F + G) $________
Margin or (Deficiency) (E - H) $________
Capitalized terms are used herein as defined in the Credit Agreement
dated as of _____________________ , 199__ between the undersigned and First Bank
National Association and the Exhibits thereto, as the same may be from time to
time amended, modified, supplemented or extended.
Date of Certificate:__________ , 199__
DAISY MANUFACTURING COMPANY, INC.
By
Name
Title
-78-
<PAGE>
EXHIBIT 1.1(c) TO
CREDIT AGREEMENT
CAPITAL EXPENDITURE
TERM NOTE
$2,250,000.00
December 29, 1993
Minneapolis, Minnesota
FOR VALUE RECEIVED, DAISY MANUFACTURING COMPANY, INC., a Delaware
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal amount of TWO MILLION TWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($2,250,000.00) or, if less, the
aggregate unpaid principal amount of all Capital Expenditure Term Loans made by
the Bank under the Credit Agreement, and to pay interest (computed on the basis
of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.
The principal hereof is payable as provided in the Credit Agreement.
This note is the Capital Expenditure Term Note referred to in the Credit
Agreement dated as of December 29, 1993 (the "Credit Agreement") between the
undersigned and the Bank. This note is secured, it is subject to certain
mandatory prepayments and its maturity is subject to acceleration, in each case
upon the terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
DAISY MANUFACTURING
COMPANY, INC.
By
Name: James C. Moody
Title: Vice President, Chief Financial Officer
and Assistant Secretary
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<PAGE>
EXHIBIT 1.1(g) TO
CREDIT AGREEMENT
[Eighth Amendment]
REVOLVING NOTE
$25,000,000.00
August 21, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, DAISY MANUFACTURING COMPANY, INC., a Delaware
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) on the dates provided in the Credit
Agreement, the principal amount of TWENTY FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00) or, if less, the aggregate unpaid principal amount of all
Advances made by the Bank under the Credit Agreement, and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) in like
funds on the unpaid principal amount hereof from time to time outstanding at the
rates and times set forth in the Credit Agreement.
This note is the Revolving Note referred to in the Credit Agreement dated
as of December 29, 1993 between the undersigned and the Bank, as amended by
First Amendment to Credit Agreement and Limited Waiver dated as of June 30,
1994, by Second Amendment to Credit Agreement and Limited Waiver dated as of
October 13, 1994, by Third Amendment to Credit Agreement and Limited Waiver
dated as of March 27, 1995, by Fourth Amendment to Credit Agreement and Limited
Waiver dated as of August 15, 1995, by Fifth Amendment to Credit Agreement dated
as of September 21, 1995 by Sixth Amendment to Credit Agreement dated as of
January 15, 1996, by Seventh Amendment to Credit Agreement and Limited Waiver
dated as of February 29, 1996 and by Eighth Amendment to Credit Agreement and
Limited Waiver dated as of August 21, 1996 (as so amended, and as amended from
time to time, the "Credit Agreement"). This note is secured, it is subject to
certain permissive and mandatory prepayments and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
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<PAGE>
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
DAISY MANUFACTURING
COMPANY, INC.
By
Name:
Title:
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<PAGE>
EXHIBIT 1.1(i) TO
CREDIT AGREEMENT
TERM NOTE
$13,000,000.00
December 29, 1993
Minneapolis, Minnesota
FOR VALUE RECEIVED, DAISY MANUFACTURING COMPANY, INC., a Delaware
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal amount of THIRTEEN MILLION AND
NO/100 DOLLARS ($13,000,000.00), and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.
The principal hereof is payable as provided in the Credit Agreement.
This note is the Term Note referred to in the Credit Agreement dated as of
December 29, 1993 (the "Credit Agreement") between the undersigned and the Bank.
This note is secured, it is subject to certain mandatory prepayments and its
maturity is subject to acceleration, in each case upon the terms provided in
said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
DAISY MANUFACTURING
COMPANY, INC.
By
Name: James C. Moody
Title: Vice President, Chief Financial Officer
and Assistant Secretary
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<PAGE>
EXHIBIT 1.1(k) TO
CREDIT AGREEMENT
[Twelfth Amendment]
OVERLINE REVOLVING NOTE
$2,500,000.00
September 1, 1997
Minneapolis, Minnesota
FOR VALUE RECEIVED, DAISY MANUFACTURING COMPANY, INC., a Delaware
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) on the dates provided in the Credit
Agreement, the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($2,500,000.00) or, if less, the aggregate unpaid principal amount of
all Advances made by the Bank under the Credit Agreement, and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) in like
funds on the unpaid principal amount hereof from time to time outstanding at the
rates and times set forth in the Credit Agreement.
This note is the Overline Revolving Note referred to in the Credit
Agreement dated as of December 29, 1993 between the undersigned and the Bank, as
amended by First Amendment to Credit Agreement and Limited Waiver dated as of
June 30, 1994, by Second Amendment to Credit Agreement and Limited Waiver dated
as of October 13, 1994, by Third Amendment to Credit Agreement and Limited
Waiver dated as of March 27, 1995, by Fourth Amendment to Credit Agreement and
Limited Waiver dated as of August 15, 1995, by Fifth Amendment to Credit
Agreement dated as of September 21, 1995 by Sixth Amendment to Credit Agreement
dated as of January 15, 1996, by Seventh Amendment to Credit Agreement and
Limited Waiver dated as of February 29, 1996, by Eighth Amendment to Credit
Agreement and Limited Waiver dated as of August 21, 1996, by Ninth Amendment to
Credit Agreement dated as of February 28, 1997, by Tenth Amendment to Credit
Agreement and Limited Waiver dated as of May 13, 1997, by Eleventh Amendment to
Credit Agreement dated as of July 1, 1997 and by Twelfth Amendment to Credit
Agreement dated as of September 1, 1997 (as so amended, and as amended from time
to time, the "Credit Agreement"). This note is secured, it is subject to
certain permissive and mandatory prepayments and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit Agreement.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF,
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<PAGE>
BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS.
DAISY MANUFACTURING
COMPANY, INC.
By
Name:
_________________________________
_________________________________
Title:_________________________________
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<PAGE>
EXHIBIT 3.1(b) TO
CREDIT AGREEMENT
MATTERS TO BE COVERED BY
OPINION OF COUNSEL
TO THE BORROWER
The opinion of counsel to the Borrower which is called for by Section 3.1
of the Credit Agreement (the "Credit Agreement") shall be addressed to the Bank
and dated the Closing Date. It shall be satisfactory in form and substance to
the Bank and shall cover the matters set forth below, subject to such
assumptions, exceptions and qualifications as may be acceptable to the Bank and
counsel to the Bank. With respect to opinions on the validity and
enforceability of those loan documents which provide that they are to be
governed by the laws of the State of Minnesota, counsel may opine that such
documents would be valid and binding under the laws of the State of Arkansas.
Capitalized terms used herein have the respective meanings given such terms in
the Credit Agreement.
(a) The Borrower is a corporation duly incorporated and validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business as now
conducted, to enter into the Borrower Loan Documents and to perform all of its
obligations under each and all of the foregoing. The Borrower is duly qualified
and in good standing as a foreign corporation in Arkansas and all of the
jurisdictions in which the character of the properties owned or leased by it or
the business conducted by it makes such qualification necessary and the failure
to so qualify would permanently preclude the Borrower from enforcing its rights
with respect to any material asset or expose the Borrower to any material
liability.
(b) The execution, delivery and performance by the Borrower of the
Borrower Loan Documents have been duly authorized by all necessary corporate
action by the Borrower.
(c) The Borrower Loan Documents constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
(d) The execution, delivery and performance by the Borrower of the
Borrower Loan Documents will not (a) violate any provision of any law, statute,
rule or regulation or, to the best knowledge of such counsel, any order, writ,
judgment, injunction, decree, determination or award of any court, governmental
agency or arbitrator presently in effect having applicability to the Borrower,
(b) violate or contravene any provision of the Certificate of Incorporation or
bylaws of the Borrower, or (c) result in a breach of or constitute a default
under any indenture, loan or credit agreement or any other agreement, lease or
instrument known to such counsel to which the Borrower is a party or by which it
or any of its properties may be bound or result in the creation of any Lien
thereunder.
(e) No order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by, any governmental or
public body or
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<PAGE>
authority is required on the part of the Borrower to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, the Borrower Loan Documents,
except for any necessary filing or recordation of or with respect to any of the
Security Documents.
(f) To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting the Borrower or any of
its properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which (i) challenge the legality,
validity or enforceability of the Borrower Loan Documents, or (ii) if determined
adversely to the Borrower, would have a material adverse effect on the business,
operations, property or condition (financial or otherwise) of the Borrower or on
the ability of the Borrower to perform its obligations under the Borrower Loan
Documents.
(g) Each Security Document creates the Lien it purports to create upon the
properties and interests specifically described therein. The descriptions of
properties and interests in the Security Documents and any related financing
statements are adequate for the purpose of such instruments and for perfection
of the Liens of the Bank. As to any Security Documents which are Security
Agreements, the filing of the Uniform Commercial Code financing statements
delivered by the Borrower to the Bank in the filing offices listed thereon will
perfect Liens created under such Security Agreements to the extent such Liens
are capable of being perfected by filing financing statements under the Uniform
Commercial Code.
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<PAGE>
EXHIBIT 5.1(d)
[Tenth Amendment]
[FORM OF COMPLIANCE CERTIFICATE]
To: First Bank National Association
THE UNDERSIGNED HEREBY CERTIFIES THAT:
(1) I am the duly elected chief financial officer or interim chief
financial officer (or the deputy thereof) of Daisy Manufacturing Company,
Inc. (the "Borrower"), a Delaware corporation;
(2) I have reviewed the terms of the Credit Agreement dated as of
December 29, 1993, among the Borrower and First Bank National Association
(the "Bank"), as amended by First Amendment to Credit Agreement and Limited
Waiver dated as of June 30, 1994, by Second Amendment to Credit Agreement
and Limited Waiver dated as of October 13, 1994, by Third Amendment to
Credit Agreement and Limited Waiver dated as of March 27, 1995, by Fourth
Amendment to Credit Agreement and Limited Waiver dated as of August 15,
1995, by Fifth Amendment to Credit Agreement dated as of September 21,
1995, by Sixth Amendment to Credit Agreement dated as of January 15, 1996,
by Seventh Amendment to Credit Agreement and Limited Waiver, dated as of
February 29, 1996, by Eighth Amendment to Credit Agreement and Limited
Waiver, dated as of August 21, 1996, by Ninth Amendment to Credit Agreement
dated as of February 28, 1997 and by Tenth Amendment to Credit Agreement
and Limited Waiver dated as of May 13, 1997 (as so amended, and as amended
from time to time, the "Credit Agreement") and I have made, or have caused
to be made under my supervision, a detailed review of the transactions and
conditions of the Borrower during the accounting period covered by
Attachment No. 1 hereto;
(3) The examinations described in paragraph (2) did not disclose, and
I have no knowledge, whether arising out of such examinations or otherwise,
of the existence of any condition or event which constitutes a Default or
an Event of Default (as such terms are defined in the Credit Agreement)
during or at the end of the accounting period covered by Attachment No. 1
hereto or as of the date of this Certificate, except as described below (or
in a separate attachment to this Certificate), the exceptions listing, in
detail, the nature of the condition or event, the period during which it
has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
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<PAGE>
The foregoing certifications, together with the computations set forth in
Attachment No. 1 hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _____ day of
_________, 19__, pursuant to Section 5.1(d) of the Credit Agreement.
DAISY MANUFACTURING COMPANY, INC.
By:
Name:
Title:
-88-
<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
AS OF ____________, 199_
AND PERTAINS TO THE PERIOD FROM
____________, 19___ TO ____________, 19___
1. Capital Expenditures (Section 6.8).
----------------------------------
Amount Expended
Amount Permitted Fiscal Year to Date
---------------- -------------------
$1,800,000 $_______
2. Net Worth (Section 6.14).
------------------------
(beginning 12/31/97)
(a) Required minimum (from Section 6.14) $________
(b) Actual Net Worth: $________
3. Leverage Ratio (Section 6.15).
-----------------------------
(beginning 12/31/97)
(a) Total Indebtedness: $________
(b) Net Worth: $________
(c) Ratio of (a) to (b): _____ to 1.0
(d) Required ratio (from Section 6.15): less than or equal to _____ to
1.0
4. IBD/EBITDA Ratio (Section 6.16).
-------------------------------
(beginning 12/31/97)
(a) Sum of Total Indebtedness that bears interest: $________
(b) EBITDA: $________
(c) Ratio of (a) to (b): _____ to 1:0
(j) Required ratio (from Section 6.16): less than or equal to _____ to
1.0
5. Fixed Charge Coverage Ratio (Unadjusted) (Section 6.17).
--------------------------------------------------------
(beginning 12/31/97)
(a) EBITDA: $________
(b) Tax expense: $___________________
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<PAGE>
(c) Capital Expenditures not financed: $___________________
(d) Total of line 5(a), minus sum of lines 5(b) and 5(c): $___________
(e) Sum of Interest Expense and all required principal payments with
respect to Total Indebtedness, plus any prepayments on Brass Eagle
Seller Note: $________
(f) Ratio of (d) to (e): _____ to 1.0
(g) Required ratio (from Section 6.17): greater than or equal to ____ to
1.0
6. EBITDA (Section 6.19).
----------------------
(a) Required minimum EBITDA (from Section 6.19): $________
(b) EBITDA: $____________________
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<PAGE>
EXHIBIT 10(viii)(b)
October 30, 1997
Mr. Mark R. McDonald
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Dear Mr. McDonald:
In response to your letter of September 25, 1997 we wanted to outline the
procedures for disbursement of funds from the Brass Eagle, Inc. IPO to First
Bank for purposes of determining when all debt attributed to the Brass Eagle
business will have been paid in full. Brass Eagle Inc. (the Company) intends to
use the proceeds from the offering (i) to repay debt specifically allocated to
the Company, (ii) to repay certain intercompany indebtedness owed to Daisy, and
(iii) to pay to Daisy the value of its divisional equity in the Company, all
calculated as of the effective date (the "Effective Date") of the offering
(collectively, the Disbursement). The Disbursement is intended to pay all First
Bank debt attributed to the Brass Eagle business.
The procedures for calculating and disbursing the funds are as follows:
1) Prior to the Effective Date the Company and Daisy will calculate the
amount of the three components of the Disbursement based upon the
balances on the internal financial statements of the Company and Daisy
as of October 31, 1997, as certified by the CFO of each company (the
"October 31 Balance").
2) 95% of the October 31 Balance will be paid to First Bank upon receipt of
the proceeds from the Offering (the "Initial Disbursement").
3) Within 120 days after the Effective Date, the Company and Daisy will
cause Crowe Chizek and Company LLP to deliver to the Company and the
representatives of the underwriters an audit of the balance sheet of the
Company as of the Effective Date (the "Effective Date Balance Sheet"),
setting forth the amounts as of that date of the three components of the
disbursement.
4) Within 15 days after the delivery of the Effective Date Balance Sheet,
the Company will pay the remaining balance of the Disbursement to First
Bank or First Bank will refund to the Company the excess Disbursement
received pursuant to the Initial Disbursement.
5) Upon payment of the amount contemplated by paragraph 4, First Bank will
release its lien on all Brass Eagle (paintball) assets.
<PAGE>
Page Two
Please indicate below your agreement with this process by signing below and
returning a signed copy of this letter to me.
Sincerely,
/s/ LYNN SCOTT
Lynn Scott
Agreed to as of October 31, 1997:
/s/ MARK R. McDONALD
- -----------------------------------------
Mark R. McDonald
Vice President
<PAGE>
EXHIBIT 10(xiv)
FORM OF
CONTINUING GUARANTY
For value received and specifically in consideration of the benefits the
shareholders of Daisy Manufacturing Company (collectively, the "Guarantors" and
each a "Guarantor") expect to receive as a result of the initial public offering
of the capital stock of Brass Eagle Inc. ("Brass Eagle"), the Guarantors do
hereby severally and separately according to their pro rata ownership of the
outstanding common stock of Daisy Manufacturing Company ("Daisy"), and not
jointly and severally, agree for themselves, their heirs, successors, executors,
and administrators with and unto Brass Eagle as follows:
1. Guarantee of Payment. In order to provide additional security for the
--------------------
performance of all of Daisy's obligations pursuant to that certain
Assignment, Assumption and Indemnification Agreement by and between
Daisy, as Assignee/Indemnifying Party, and Brass Eagle, as
Assignor/Indemnified Party, dated _______________, 1997 (the
"Indemnification Agreement"), Guarantors, separately and severally,
hereby unconditionally guarantee the payment of Daisy's obligations
pursuant to the Indemnification Agreement for up to Five Million Dollars
($5,000,000) for two years following the spin-off of the Daisy common
stock to the Guarantors from Brass Eagle (the "Spin-Off") and up to
Three Million Dollars ($3,000,000) for the following two years. The
obligation of each Guarantor as to any claim for indemnification is
limited to the Guarantor's pro rata ownership of the outstanding Daisy
common stock as of the Effective Date hereof.
2. Termination of Guaranty. This guaranty by the Guarantors will expire
-----------------------
upon the earlier of (a) four years from the date of the Spin-Off or (b)
the date one of the nation's six largest independent accounting firms
renders a determination that Daisy alone may satisfy its obligations
under the Indemnification Agreement; provided, however, the obligations
of the Guarantors shall survive such termination with respect to claims
made prior to the fourth anniversary of the Effective Date.
3. Waivers of Notice and Additional Authority. The Guarantors waive notice
------------------------------------------
to them or any of them of any default by Daisy upon its obligations
under the Indemnification Agreement. Brass Eagle shall not be permitted
to recover under this Guaranty with respect to any claim until thirty
(30) days after Brass Eagle shall have submitted a Claim Notice to Daisy
(as defined in the Indemnification Agreement) with respect to such
claim. Brass Eagle may, without notice to Guarantors, deal with Daisy
from time to time with respect to the Indemnification Agreement in any
manner whatsoever, and Guarantors hereby specifically waive each and
every defense predicated upon such dealing except the defense of actual
payment in cash on the obligation.
<PAGE>
4. Waiver of Acceptance. The Guarantors further waive notice of the
--------------------
acceptance of this Guaranty by Brass Eagle and further waive
presentment, demand, notice of nonpayment and protest of any or all
obligations under the Indemnification Agreement.
5. Binding Effect of Agreement. In the event of the death of any one of the
---------------------------
undersigned, the obligations herein of each of the undersigned are
independent and several and shall be binding upon their respective
heirs, personal representatives, and estates. The failure of any person
to sign this Guaranty and indemnity shall not affect the liability
hereunder of any signer hereof. The death or release from liability
hereunder of any of the undersigned shall not relieve the others from
liability hereunder.
6. Governing Law. The substantive law of the State of Arkansas shall govern
-------------
this Agreement and the rights and obligations of the parties.
7. Effective Date. This Guaranty shall be effective as of the date of the
--------------
Spin-Off.
8. Continuing Guaranty. This instrument shall be deemed to be a continuing
-------------------
guaranty and Brass Eagle shall be entitled to enforce its rights
hereunder in one or multiple actions, and subject to the dollar
limitations and termination provisions hereof, no prior action or
recovery by Brass Eagle hereunder shall preclude or affect any
subsequent action or recovery.
IN WITNESS WHEREOF, the undersigned Guarantors have hereunto set their hand
and seals as of the dates set opposite their respective names.
GUARANTORS:
-------------------------- --------------------------
Guarantor Guarantor
Date:_______ 1997 Date:_______ 1997
-------------------------- --------------------------
Guarantor Guarantor
Date:_______ 1997 Date:_______ 1997
-------------------------- --------------------------
Guarantor Guarantor
Date:_______ 1997 Date:_______ 1997
<PAGE>
EXHIBIT 11
BRASS EAGLE
FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
December 31, 1996 August 31, 1997
<S> <C> <C> <C> <C>
Weighted average shares
- -----------------------
The number of shares outstanding after split 4,608,899 4,608,899
Add: Number of weighted average shares
assumed to be outstanding from stock options 390,337 421,351
Add: Equivalent shares for 56,965.84 of treasury shares
purchased March 31, 1996 14,241
Add: Number of shares sufficient to replace the equity
distribution divided by the IPO price of $11 282,727 282,727
----------- ------------
5,296,204 5,312,977
=========== ============
Net income $ 882,000 $ 0.17 $ 1,743,000 $ 0.33
----------- ------------
Weighted average shares outstanding 5,296,204 5,312,977
</TABLE>
<TABLE>
<CAPTION>
Number of weighted average shares
assumed to be outstanding from stock options
--------------------------------------------
<S> <C> <C>
Stock options outstanding at December 31, 1995 288,243 288,243
Weighted average shares for 55,827.94 options granted August 6, 1996 22,637 55,828
Weighted average shares for 11,165.59 options granted February 20,1997
(Assumed to be outstanding for all periods presented) 11,166 11,166
Weighted average shares for 89,324.71 options granted August 20, 1997
(Assumed to be outstanding for all periods presented) 89,325 89,325
Less weighted average options forfeited in August 1997
originally granted August 6, 1996 -- (506)
Less proceeds from weighted average options outstanding (21,034) (22,705)
-------- --------
Weighted average shares from stock options at end of period 390,337 421,351
======== ========
</TABLE>
-1-
<PAGE>
EXHIBIT 11
BRASS EAGLE
PRO FORMA FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
December 31, 1996 August 31, 1997
<S> <C> <C> <C> <C>
Weighted average shares
- -----------------------
The number of shares outstanding after split 6,883,899 6,883,899
Add: Number of weighted average shares
assumed to be outstanding from stock options 390,337 421,351
Add: Equivalent shares for 56,965.84 of treasury shares purchased March 31, 1996 14,241 --
Add: number and shares sufficient to replace the equity distribution
divided by the IPO: price of $11 282,727 282,727
------------ -------------
7,571,204 7,587,977
============ =============
Net income $ 1,315,000 $ 0.17 $ 2,024,000 $ 0.27
------------ -------------
Weighted average shares outstanding 7,571,204 7,587,977
</TABLE>
<TABLE>
<CAPTION>
Number of weighted average shares
assumed to be outstanding from stock options
--------------------------------------------
<S> <C> <C>
Stock options outstanding at December 31, 1995 288,243 288,243
Weighted average shares for 55,827.94 options granted August 6, 1996 22,637 55,828
Weighted average shares for 11,165.59 options granted February 20,1997
(Assumed to be outstanding in all periods presented) 11,166 11,166
Weighted average shares for 89,324.71 options granted August 20, 1997
(Assumed to be outstanding for all periods presented) 89,325 89,325
Less weighted average options forefitted in August 1997 originally
granted August 6, 1996 -- (506)
Less proceeds from weighted average options outstanding (21,034) (22,705)
------------ -------------
Weighted average shares from stock options at end of period 390,337 421,351
============ =============
</TABLE>
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement on Amendment
No. 1 to Form S-1 and the related Prospectus of our report dated May 30, 1997
except as to Note 14 for which the date is October 31, 1997 on the financial
statements of Brass Eagle/A Division of Daisy Manufacturing Company, Inc. and to
the reference to our firm under the heading "Experts" included in this
Registration Statement and the related Prospectus.
Oak Brook, Illinois
November 3, 1997
CROWE CHIZEK AND COMPANY LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM THE DECEMBER
31, 1995 AND DECEMBER 31, 1996 AND AUGUST 31, 1997 BALANCE SHEETS AND THE
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996, AND THE
EIGHT MONTHS ENDED AUGUST 31, 1997 AND THE NOTES THERETO, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 AUG-31-1997
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 1,352 3,708 6,586
<ALLOWANCES> 18 52 52
<INVENTORY> 546 1,195 3,547
<CURRENT-ASSETS> 1,973 5,313 11,313
<PP&E> 1,274 1,307 1,989
<DEPRECIATION> 51 237 567
<TOTAL-ASSETS> 6,288 9,269 15,549
<CURRENT-LIABILITIES> 2,966 6,047 10,716
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 248 1,130 3,110
<TOTAL-LIABILITY-AND-EQUITY> 6,288 9,269 15,549
<SALES> 4,319 13,838 18,391
<TOTAL-REVENUES> 4,319 13,838 18,391
<CGS> 2,456 9,625 12,308
<TOTAL-COSTS> 4,230 12,049 15,405
<OTHER-EXPENSES> 0 45 0
<LOSS-PROVISION> 18 34 0
<INTEREST-EXPENSE> 87 315 162
<INCOME-PRETAX> 2 1,429 2,824
<INCOME-TAX> 1 547 1,081
<INCOME-CONTINUING> 1 882 1,743
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1 882 1,743
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 .17 .33
</TABLE>
