<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From ____ To ___
Commission File Number 0-23385
BRASS EAGLE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0578572
(State or other jurisdiction I.R.S. Employer
of incorporation of organization) Identification Number
1201 S. E. 30th St., Bentonville, Arkansas 72712
(Address of principal executive offices) (zip code)
501-464-8700
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
Yes X No : and (2) has been subject to such filing requirements
for the past 90 days.
Yes No X
The number of shares of the Registrant's Common Stock, $0.01 par
value, outstanding as of July 19, 1999 was 7,248,479.
<PAGE>
BRASS EAGLE INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
INDEX
-----
Page
----
PART I: FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of June 30,
1999 (unaudited) and December 31, 1998 . . . . . . . 1
Condensed Statements of Operations for the
Three and Six Months ended June 30, 1999
(unaudited) and June 30, 1998 (unaudited). . . . . . 2
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1999 (unaudited)
and June 30, 1998 (unaudited). . . . . . . . . . . . 3-4
Notes to Condensed Financial Statements. . . . . . . 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 7-12
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K. . . . .. . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
BRASS EAGLE INC.
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
CONDENSED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash & cash equivalents $ 2,943 $ 6,836
Accounts receivable _
less allowance for
doubtful accounts of $457
in 1999 and $479 in 1998 18,234 18,271
Inventories 12,354 5,607
Prepaid expenses and other
current assets 2,934 2,829
---------- ---------
Total current assets 36,465 33,543
Property and equipment, net 7,375 5,337
Other assets
Intangible assets, net 6,884 2,550
---------- ---------
$ 50,724 $ 41,430
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,384 $ 2,772
Accrued expenses 4,579 4,171
---------- --------
Total current liabilities 10,963 6,943
Deferred income taxes 350 213
Stockholders' equity
common stock, $.01 par value,
10,000,000 shares authorized,
issued and outstanding 7,248,055
in 1999, and 7,241,951 in 1998 72 72
Additional paid-in capital 25,742 25,667
Retained earnings 13,597 8,535
---------- --------
39,411 34,274
---------- --------
$ 50,724 $ 41,430
========== ========
</TABLE>
See accompanying notes to condensed financial statement
-1-
<PAGE>
BRASS EAGLE INC
CONDENSED STATEMENTS OF OPERATIONS
(In thousands except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
-------------------- -------------------
1999 1998 1999 1998
----- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 17,416 $ 19,497 $ 36,420 $ 35,155
Cost of sales 9,670 12,196 21,278 22,449
--------- --------- --------- ---------
Gross profit 7,746 7,301 15,142 12,706
Operating expenses 3,359 3,234 7,164 6,698
--------- --------- --------- ---------
Operating income 4,387 4,067 7,978 6,008
Interest income/(expense) 55 90 120 231
--------- --------- --------- ---------
Income before income
taxes 4,442 4,157 8,098 6,239
Provision for income
taxes 1,610 1,593 3,036 2,390
---------- --------- --------- ---------
Net income $ 2,832 $ 2,564 $ 5,062 $ 3,849
========== ========= ========= =========
Net income per share:
Basic $ 0.39 $ 0.35 $ 0.70 $ 0.53
Diluted $ 0.37 $ 0.33 $ 0.66 $ 0.50
Weighted Average Shares Outstanding:
Basic 7,246,434 7,240,756 7,245,739 7,236,793
Diluted 7,730,061 7,683,310 7,709,827 7,682,299
</TABLE>
See accompanying notes to condensed financial statements.
-2-
<PAGE>
BRASS EAGLE INC.
CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 5,062 $ 3,849
Adjustments to reconcile net income to
Net cash from operating activities
Deferred income taxes (139) (307)
Depreciation and amortization 664 705
Provision for doubtful accounts 91 376
Stock Compensation Expense 16 12
Changes in assets and liabilities
Accounts receivable (54) (6,430)
Inventories (6,702) (4,161)
Prepaid expenses and other assets 171 233
Accounts payable and accrued expenses 4,020 4,144
Due from affiliate 0 2,156
---------- ----------
Net cash from operating activities 3,129 577
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (2,081) (3,669)
Acquisition of C. M. Support (5,000) 0
Net proceeds from investments 0 9,625
Distribution to Daisy 0 (2,737)
---------- -----------
Net cash from investing activities (7,081) 3,219
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt 0 (304)
Common stock issuance 59 (103)
---------- -----------
Net cash from financing activities 59 (407)
---------- -----------
NET CHANGE IN CASH (3,893) 3,389
---------- -----------
CASH AT BEGINNING OF PERIOD 6,836 504
---------- -----------
CASH AT END OF PERIOD $ 2,943 $ 3,893
========== ===========
</TABLE>
-3-
<PAGE>
BRASS EAGLE INC.
CONDENSED STATEMENT OF CASH FLOWS
(Continued)
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ 0 $ 62
Taxes 2,758 2,430
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
BRASS EAGLE INC.
Notes to Condensed Financial Statements
(All information for the three and six month periods ended June 30, 1999 and
1998 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Brass Eagle are
as follows:
DESCRIPTION OF BUSINESS: Brass Eagle Inc. is a leading manufacturer of
paintball markers and other paintball products. Brass Eagle sells its products
through both foreign and major national domestic retailers. The financial
statements have been prepared using certain estimates and allocations (see
below) and include only the accounts of Brass Eagle.
INTERIM RESULTS: The accompanying condensed balance sheet at June 30, 1999 and
the condensed statement of operations for the three and six month periods ended
June 30, 1999 and 1998 and condensed statement of cash flows for the six month
periods ended June 30, 1999 and 1998 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of only
normal recurring adjustments necessary for the fair presentation of the results
of the interim periods. The results of operations for the three and six month
periods ended June 30, 1999 are not necessarily indicative of the results
expected for the full calendar year. Because all of the disclosures required
by generally accepted accounting principles are not included, these interim
statements should be read in conjunction with the financial statements and
notes thereto contained in the Brass Eagle's 1998 Annual Report.
NOTE 2 - INVENTORIES
Inventories consist of the following components (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Finished goods $ 8,462 $ 3,131
Raw materials 3,892 2,476
-------- ---------
$ 12,354 $ 5,607
======== =========
</TABLE>
NOTE 3 - ACQUISITION
On January 4, 1999, Brass Eagle acquired certain assets of C. M. Support, Inc.
of Dallas, Texas for $5.0 million in cash. The assets acquired were patents,
trademarks, fixed assets and inventory. The acquisition was accounted for as a
purchase with approximately $4.6 million allocated to intangible assets and $.4
million allocated to fixed assets and inventory.
-5-
<PAGE>
BRASS EAGLE INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(All information for the three and six month periods ended June 30, 1999 and
1998 is unaudited)
NOTE 4 - CHANGE-OF-CONTROL AGREEMENT
Brass Eagle has entered into an agreement with the certain officers that
contain change-of-control provisions that would entitle each officer to receive
compensation if there is a change-of-control in the company (as defined) and
their termination of employment.
-6-
<PAGE>
BRASS EAGLE INC.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
condensed financial statements for the three and six month periods ended June
30, 1999 and June 30, 1998 and the 1998 Annual Report.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this filing and in other filings by Brass Eagle with the
Securities and Exchange Commission and in press releases, presentations by
Brass Eagle or its management and oral statements may constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements may include statements regarding Brass
Eagle's financial position, results of operations, market position, product
development, regulatory matters, growth opportunities and growth rates,
acquisition and divestiture opportunities, and other similar forecasts and
statements of expectation. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates, should and variations of these words and similar
expressions, are intended to identify these forward-looking statements. The
statements are not statements of historical fact. Rather, they are based on
Brass Eagle's estimates, assumptions, projections and current expectations, and
are not guarantees of future performance. Brass Eagle disclaims any obligation
to update or revise any forward-looking statement based upon the occurrence of
future events, the receipt of new information, or otherwise. The forward-
looking statements involve known and unknown risks, uncertainties, and other
factors which may cause the actual results, performance or achievements of
Brass Eagle to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Factors
that could cause Brass Eagle's actual results to differ materially from the
results, projections and expectations expressed in the forward-looking
statements include the following possibilities:
(1) 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
(2) Failure to obtain new customers or retain existing customers
(3) Inability to carry out marketing and sales plans
(4) Loss of key executives
(5) General economic and business conditions which are less favorable than
expected
(6) Unanticipated changes in industry trends.
-7-
<PAGE>
BRASS EAGLE INC.
YEAR 2000
As is true for most companies, the Year 2000 computer issue could create a risk
for Brass Eagle Inc. If systems do not correctly recognize date information
when the year changes to 2000, there could be an adverse impact on Brass
Eagle's operations. The risk for Brass Eagle exists in the following areas:
systems used by Brass Eagle to run its business, systems used by Brass Eagle's
suppliers and systems used by Brass Eagle's customers and service providers.
Brass Eagle conducted a comprehensive inventory and evaluation of its systems.
Brass Eagle's information technology infrastructure consists of a business
enterprise resource planning system, departmental workstations, application
servers, and a network system that links all systems at each location. It is
important to Brass Eagle's operations that these computer systems are
compliant. Brass Eagle also has several non-information technology systems
that use dates electronically that have been reviewed for compliance. These
include security systems, fire detection systems, gas detection systems, voice
mail and phone systems, electrical systems, workstations, radio frequency
equipment and telecommunication.
At present, all application and departmental servers have been tested, 100% of
networking infrastructure has been certified and the enterprise resource
planning Unix server has been upgraded.
During 1997, Brass Eagle upgraded its primary business enterprise system to a
version that is Year 2000 compliant. Brass Eagle completed comprehensive, full
system testing in the fourth quarter of 1998. The underlying database and raw
data have been either modified to support four digit years or the application
has been modified and tested to support correct date calculations using two
digit years.
Brass Eagle has also contacted its critical suppliers to determine that the
suppliers' operations and the products and services they provide are Year 2000
compliant. Where practicable, Brass Eagle will attempt to mitigate its risks
with respect to the failure of suppliers to be Year 2000 ready. The vendors
that Brass Eagle considers to be critical to its business have responded and
Brass Eagle is satisfied with their plans to operate without interruption into
the next century. In the event that suppliers are not year 2000 compliant,
Brass Eagle may seek alternative sources of suppliers.
Brass Eagle's financial institution has provided reasonable assurance, of Year
2000 operational compliance. While we can not guarantee the performance of
outside parties, we will continue to monitor their state of readiness, and if
need be seek an alternative financial institution.
Brass Eagle sent questionnaires to several customers and is satisfied by their
responses. Brass Eagle has tested Electronic Data Interchange order receipt
and invoicing for key customers.
-8-
<PAGE>
BRASS EAGLE INC.
YEAR 2000 (Continued)
Brass Eagle has certified all external providers of mission critical services.
These include telecommunications, security and electrical. Brass Eagle does
not expect any issue with respect to Year 2000 issues that will lead to
significant service interruptions.
Since Brass Eagle is a relatively new company, most of its computer equipment
and software is Year 2000 certified. The external cost for Brass Eagle, in
its efforts to become Year 2000 compliant in 1998, was approximately $35,000.
The internal cost of Year 2000 compliance is not measured by Brass Eagle. No
significant costs relating to Year 2000 compliance are anticipated for 1999.
Management believes its actions to be sufficient for Year 2000 remediation.
However, management plans to monitor all critical systems at the change of the
millenium and other critical dates in order to promptly respond to any systems
issues which may arise.
RESULTS OF OPERATIONS
The following table sets forth operations data as a percentage of sales for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 55.5% 62.6% 58.4% 63.9%
Gross profit 44.5% 37.4% 41.6% 36.1%
Operating expenses 19.3% 16.6% 19.7% 19.0%
Operating income 25.2% 20.8% 21.9% 17.1%
Net income 16.3% 13.2% 13.9% 10.9%
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1998
SALES. Sales decreased by 10.8% to $17.4 million for the three months ended
June 30, 1999 compared to $19.5 million in the three months ended June 30,
1998. The decrease in sales was primarily due to a shift in the timing of
product expansions at certain retailers. Additionally, last year's second
quarter included significant new store stocking orders. Of the $2.1 million
decrease in sales, $0.4 million was due to a decrease in selling price and $1.7
million was due to a volume difference.
-9-
<PAGE>
BRASS EAGLE INC.
RESULTS OF OPERATIONS (Continued)
Domestic sales decreased by 14.6% to $16.4 million (or 94.3% of sales) for the
three months ended June 30, 1999 from $19.2 million (or 98.5% of sales) for the
three months ended June 30, 1998. International sales increased by 215.5% to
$1.0 million (5.7% of sales) for the three months ended June 30, 1999 from
$317,000 (or 1.5% of sales) for the three months ended June 30, 1998. The
increase in International sales was primarily due to increased sales to
Canadian customers and a European distributor.
GROSS PROFIT. Gross profit as a percentage of net sales increased to 44.5% for
the three months ended June 30, 1999; as compared to 37.4% for the three months
ended June 30, 1998. This increase was primarily due to the Brass Eagle
paintball production facility producing approximately 58% of the requirements
in the second quarter, that were previously purchased at a higher unit cost.
In addition, the gross profit was favorably impacted by increasing the mix of
the Viewloader products sold. Brass Eagle also continued to achieve a
favorable raw material purchase price variance by obtaining volume discounts
and resourcing certain requirements.
OPERATING EXPENSES. Operating expenses increased by 6.3% to $3.4 million in
the three months ended June 30, 1999 compared to $3.2 million in the three
months ended June 30, 1998. This represented an increase from 16.6% of sales
to 19.3% of sales as a result of increased marketing costs and additional
amortization of goodwill as a result of acquiring certain assets of C. M.
Support.
OPERATING INCOME. Operating income increased by 7.3% to $4.4 million in the
three months ended June 30, 1999 as compared to $4.1 million in the three
months ended June 30, 1998. The increase was primarily due to improved gross
profit percentages.
INTEREST. Brass Eagle recorded interest income of $55,000 in the three months
ended June 30, 1999 as compared to interest income of $90,000 in the three
months ended June 30, 1998. The change was primarily due to a reduction of
cash in short-term investments associated with funds expended to build and
equip Brass Eagle's new paintball facility completed during 1998 and the
acquisition of certain assets from C. M. Support in January 1999.
INCOME TAX RATE. Brass Eagle's effective federal and state income tax rate was
36.2% in the three months ended June 30, 1999 and 38.3% in the three months
ended June 30, 1998. The decrease in the income tax rate is due to Brass
Eagle qualifying for certain Missouri enterprise zone tax credits.
-10-
<PAGE>
BRASS EAGLE INC.
RESULTS OF OPERATIONS (Continued)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTH ENDED JUNE 30, 1998
SALES. Sales increased by 3.4% to $36.4 million for the first six months of
1999 compared to $35.2 million the first six months of 1998. The increase in
sales of $1.2 million was due to an increase of $2.4 million in volume offset
by a $1.2 million decrease in price. The increase in volume was primarily due
to sales of accessories from the Viewloader product line acquisition and
increased volumes of certain markers. The decrease in price was primarily a
decrease in the average selling price of paintballs.
Domestic sales increased by 0.9% to $34.9 million (or 95.9% of sales) for the
six months ended June 30, 1999 from $34.6 million (or 98.4% of sales) for the
six months ended June 30, 1998. International sales increased by 172.7% to
$1.5 million (or 4.1% of sales) for the six months ended June 30, 1999 from
$550,000 (or 1.6% of sales) for the six months ended June 30, 1998.
International sales increased primarily because of increased sales to Canadian
customers and a European distributor.
GROSS PROFIT. Gross profit as a percentage of net sales increased to 41.6% for
the first six months of 1999 compared to 36.1% for the first six months of
1998. This increase was primarily due to the Brass Eagle paintball production
facility producing approximately 63% of the requirements for the first six
months of 1999 that were previously purchased at a higher unit cost. The gross
profit was favorably impacted by incorporating the production of the Viewloader
products at Brass Eagle. Brass Eagle also continued to generate a favorable
raw material purchase price variance by obtaining volume discounts and
resourcing certain requirements.
OPERATING EXPENSES. Operating expenses increased by 7.5% to $7.2 million the
first six months of 1999 compared to $6.7 million in the first six months of
1998. This represented an increase from 19.0% of sales to 19.7% of sales as a
result of increased marketing costs and additional goodwill associated with
acquiring certain assets from C. M. Support.
OPERATING INCOME. Operating income increased by 33.3% to $8.0 million in the
first six months of 1999 compared to $6.0 million in the first six months of
1998. The increase was primarily due to improved gross profit percentages.
INTEREST. Brass Eagle recorded interest income of $120,000 in the first six
months of 1999 compared to interest income of $231,000 in the first six months
of 1998. The changes were primarily due to a reduction of cash in short-term
investment, associated with funds expended to build and equip Brass Eagle's new
paintball facility completed during 1998 and the acquisition of certain assets
from C. M. Support in January 1999.
INCOME TAX RATE. Brass Eagle's effective federal and state income tax rate
was 37.5% in the first six months ended June 30, 1999 and 38.3% for the first
six months ended June 30, 1998. The decrease in the income tax rate is due to
Brass Eagle qualifying for certain Missouri enterprise zone tax credits.
-11-
<PAGE>
BRASS EAGLE INC.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 Brass Eagle had working capital of $25.5 million. Brass Eagle
has in place a $10 million line of credit with Bank of America. Brass Eagle is
planning capital expenditures of approximately $1.9 million for the remainder
of 1999 for a new office building and the expansion and improvement of
manufacturing capacity.
Brass Eagle believes that funds generated from operations, together with
borrowings under the credit facility, will be adequate to meet its anticipated
cash requirements for at least the next 18 months. Brass Eagle may, when and
if the opportunity arises, acquire other businesses involved in activities or
having product lines that are compatible with those of Brass Eagle or pursue
the vertical integration of production capabilities for one or more of Brass
Eagle's products which are currently purchased from third parties. The capital
expenditures that would be associated with any such activities that may occur
in the future would be funded with available cash and cash equivalents,
borrowings from the credit facility, working capital, or a combination of these
sources.
Net cash provided by operating activities for the six months ended June 30,
1999 was $3.1 million, which consisted primarily of net income of $5.1 million,
depreciation and amortization expense of $664,000, less net increases in
accounts receivable of $54,000, an increase in accounts payable and accrued
expenses and prepaid expenses of $4.2 million, an increase in inventory of $6.7
million and an increase in deferred taxes of $139,000. Approximately $2
million of the increase in inventory is the result of a build up of inventory
for orders booked to correspond with large promotions by national mass
merchandisers in the second half of 1999.
Net cash used in investing activities was $7.1 million for the six months ended
June 30, 1999. Brass Eagle used $5.0 million to purchase certain assets of C.
M. Support and $2.1 million was used to fund other capital expenditures.
Net cash provided by financing activities was $59,000 in the six months ended
June 30, 1999, due to issuance of common stock.
Effective September 1, 1999, Brass Eagle has renewed its agreement with the
supplier of its masks for a term of three (3) years on terms similar to the
existing agreement.
-12-
<PAGE>
BRASS EAGLE INC.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 13, 1999 Brass Eagle held its Second Annual Meeting of Stockholders
in Bentonville, Arkansas, for the purposes of electing five members of the
Board of Directors.
(b) The following table sets forth the directors elected at such meeting and
the number of votes cast for and withheld for each director:
<TABLE>
<CAPTION>
Directors For Withheld
--------- --- --------
<S> <C> <C>
Marvin W. Griffin 6,585,296 790
E. Lynn Scott 6,584,946 1,140
Anthony J. Dowd 6,585,296 790
H. Gregory Wold 6,585,296 790
Stephen J. Schaubert 6,585,296 790
</TABLE>
ITEM 5. OTHER INFORMATION
Pursuant to newly adopted rules of the Securities and Exchange Commission, any
proposals of stockholders intended to be presented at Brass Eagle's annual
meeting of stockholders in 2000 must be received by Brass Eagle at its
principal executive offices not later than December 7, 1999 in order to be
included in Brass Eagle's Proxy Statement and Proxy Form relating to that
meeting. If a stockholder intends to present a proposal at Brass Eagle's
annual meeting in 2000 without requesting Brass Eagle to include the proposal
in Brass Eagle's proxy material, the stockholder must notify Brass Eagle of the
proposal on or prior to February 20, 2000. Otherwise, at the meeting
management may, with regard to the proposal, use its discretionary authority to
vote the proxies held by it even though there will be no discussion of the
proposal in the 2000 proxy statement.
-13-
<PAGE>
BRASS EAGLE INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this Report or are incorporated herein
by reference to previously filed material:
(a) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
10(i) Change-of-Control Agreement between Brass Eagle Inc. and Steve Cherry
effective May 17, 1999.
10(ii) Change-of-Control Agreement between Brass Eagle Inc. and Steve DeMent
effective May 17, 1999.
10(iii) Change-of-Control Agreement between Brass Eagle Inc. and John D.
Flynn effective May 17, 1999.
10(iv) Change-of-Control Agreement between Brass Eagle Inc. and J. R. Brian
Hanna effective May 17, 1999.
10(v) Change-of-Control Agreement between Brass Eagle Inc. and Daniel
Obergfell effective May 17, 1999.
10(vi) Change-of-Control Agreement between Brass Eagle Inc. and Charles
Prudhomme effective May 17, 1999.
10(vii) 1999 Distributor Agreement between Brass Eagle Inc. and Leader
Industries Inc. effective September 1, 1999.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
- -------------------------------------------------------------------------------
(b) Reports on Form 8-K:
None
-14-
<PAGE>
BRASS EAGLE INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Brass Eagle Inc.
By: /s/ J. R. Brian Hanna
J. R. Brian Hanna
Vice President-Finance and Chief
Financial Officer and Treasurer
(on behalf of the Registrant and as the
Registrant's principal Financial and
Accounting Officer)
-15-
<PAGE>
BRASS EAGLE INC.
EXHIBIT INDEX
-------------
The following exhibits are filed with this Report or are incorporated herein by
reference to previously filed material:
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
10(i) Change-of-Control Agreement between Brass Eagle Inc. and Steve Cherry
effective May 17, 1999.
10(ii) Change-of-Control Agreement between Brass Eagle Inc. and Steve DeMent
effective May 17, 1999.
10(iii) Change-of-Control Agreement between Brass Eagle Inc. and John D.
Flynn effective May 17, 1999.
10(iv) Change-of-Control Agreement between Brass Eagle Inc. and J. R. Brian
Hanna effective May 17, 1999.
10(v) Change-of-Control Agreement between Brass Eagle Inc. and Daniel
Obergfell effective May 17, 1999.
10(vi) Change-of-Control Agreement between Brass Eagle Inc. and Charles
Prudhomme effective May 17, 1999.
10(vii) 1999 Distributor Agreement between Brass Eagle Inc. and Leader
Industries Inc. effective September 1, 1999.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and Steve Cherry (`Executive'), to be effective immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. `Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii) the
surviving entity's outstanding securities, or (iii) in the case of a
division, the outstanding securities of each entity resulting from
the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ Steve Cherry
Title: President Name: Steve Cherry
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and Steven R. DeMent (`Executive'), to be effective
immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. `Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case
of a division, the outstanding securities of each entity resulting
from the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ Steven R. DeMent
Title: President Name: Steven R. DeMent
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and John D. Flynn (`Executive'), to be effective immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. `Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case
of a division, the outstanding securities of each entity resulting
from the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ John D. Flynn
Title: President Name: John D. Flynn
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and J. R. Brian Hanna (`Executive'), to be effective
immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. 'Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case
of a division, the outstanding securities of each entity resulting
from the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ J. R. Brian Hanna
Title: President Name: J. R. Brian Hanna
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and Daniel L. Obergfell (`Executive'), to be effective
immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. `Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case
of a division, the outstanding securities of each entity resulting
from the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ Daniel L. Obergfell
Title: President Name: Daniel L. Obergfell
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT
This Agreement is executed this 17th day of May, 1999 by and between Brass Eagle
Inc. (`Employer') and Charles Prudhomme (`Executive'), to be effective
immediately.
WHEREAS, Employer wishes to assure continuity of upper management personnel;
and
WHEREAS, Executive desires financial protection in the event of unforeseen
circumstances;
NOW, THEREFORE, the parties agree as follows:
1. `Change in Control' shall be deemed to have occurred if the conditions set
forth in any one of the following paragraphs shall have been satisfied:
A. the Employer's shareholders approve (or, in the event no approval of
the Employer's shareholders is required, the Employer consummates) a
merger, consolidation, share exchange, division or other
reorganization or transaction of the Employer (a `Fundamental
Transaction') with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of the
Employer outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51 percent (51%)
of the combined voting power immediately after such Fundamental
Transaction of (i) the Employer's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case
of a division, the outstanding securities of each entity resulting
from the division; or
B. the shareholders of the Employer approve a plan of complete
liquidation or winding-up of the Employer or an agreement for the
sale or disposition (in one transaction or a series of transactions)
of all or substantially all of the Employer's assets;
2. In the event of a Change in Control, Executive shall have the following
rights:
A. If Employer does not wish to continue Executive as an employee of
Employer, with salary equal to or greater than Executive's annual
compensation prior to the Change in Control, then Executive shall be
entitled to one year's severance pay at Executive's rate of pay prior
to the Change in Control, plus bonus payment on the same basis as in
effect prior to the Change in Control, plus all benefits in effect
prior to the Change in Control.
<PAGE>
BRASS EAGLE INC. EXHIBIT 10(i)
CHANGE-OF-CONTROL AGREEMENT (Continued)
B. If Employer wishes to continue the services of Executive after the
Change in Control, Executive shall have the option of electing to
continue as an employee of Employer or to elect a one-year severance
package as outlined in A. above.
C. In no event shall Executive receive less than one year's compensation
after the date of the Change in Control.
3. This Agreement shall have a term of three (3) years from the date of
execution.
4. This Agreement shall be interpreted according to the laws of the State of
Arkansas.
Executed the date first written above.
BRASS EAGLE INC. EXECUTIVE
BY: /s/ Lynn Scott /s/ Charles Prudhomme
Title: President Name: Charles Prudhomme
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
Confidential portions of the Distributor Agreement with Leader Industries, Inc.
have been omitted and filed separately with the Commission.
1999 DISTRIBUTOR AGREEMENT
THIS AGREEMENT made and entered into by and between LEADER INDUSTRIES INC., (a
Quebec corporation having operations in the State of New York) with its
principal place of business at 1280 Nobel Street, Boucherville, Quebec, Canada
J4B 5H1, hereinafter referred to as `Manufacturer', and BRASS EAGLE INC., (a
Delaware corporation), with its principal place of business at 1201 South East
- - 30th Street, Bentonville, Arkansas 72712 hereinafter referred to as
`Distributor'.
WITNESSETH:
WHEREAS, manufacturer is engaged in the manufacture and sale of paintball
masks together with spare parts and accessories used in connection therewith as
set forth on Addendum `A' attached hereto (collectively sometimes called the
`Products'); and
WHEREAS, Distributor desires to market such Products and Manufacturer wants it
to do so in the manner hereinafter set forth; and
WHEREAS, Distributor is engaged in the manufacturing of certain paintball
products and accessories other than protective eyewear and in the sale of a
complete line of paintball products and accessories; and
WHEREAS, this Agreement shall replace, as of and from September 1, 1999, the
existing Distributor Agreement entered into on August 31, 1995 between
manufacturer and Distributor (then known as Daisy Manufacturing Company, Inc.);
NOW THEREFORE, in consideration of the premises and of the mutual agreements
and covenants hereinafter set forth, Manufacturer and Distributor agree as
follows:
SECTION 1. PURCHASE, SALES, AND DELIVERY OF PRODUCTS.
A. TERRITORY. Manufacturer hereby appoints Distributor exclusive
distributor for the sale of the Products worldwide, except Canada
(the 'Territory'). Notwithstanding the foregoing, Distributor may
sell Products to U.S.-based mass merchants who carry on, directly or
through subsidiaries, retail sale operations in Canada.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
B. ACCEPTANCE BY DISTRIBUTOR. Distributor accepts the appointment made
in section 1.A. hereof. Distributor agrees to use its best efforts
to develop the market for the Products in the Territory, and to
promote, sell, and distribute the Products in such a way as to
maintain and enhance the demand therefore within the Territory.
Except as otherwise expressly set forth in this Agreement,
Manufacturer shall not be required to furnish Distributor with any
know-how or other proprietary information.
C. EXCLUSIVE PRODUCT MARKETING BY DISTRIBUTOR. During the term of this
Agreement, except as otherwise expressly permitted in writing,
Distributor shall not, and shall cause its affiliates not to, market,
manufacture, or cause to be manufactured, sell, import, or take any
steps designed to lead to the act of marketing, manufacturing,
selling, or importing within the Territory any items in direct
competition with the Products. Distributor agrees that it shall not,
and shall cause its affiliates not to, sell, market, or distribute
any Products outside the Territory.
D. PRICE AND DISCOUNTS. The prices of the Products and other terms of
purchase are set forth in Addendum `A' attached hereto.
The parties agree to periodically review and consult each other as to
the pricing of the Products with a view to ensuring their
competitiveness in the market from a price standpoint while providing
reasonable profit margins to the parties hereto.
E. ORDER AND WARRANTY. Distributor agrees to submit purchase orders in
writing and signed by Distributor for all Products ordered by it. In
addition to the terms and conditions set forth on the purchase order
(Addendum `B') to the extent they are not superseded by the terms
hereof, the following conditions shall apply to and become a part of
each purchase order submitted by Distributor for the Products:
1. Distributor shall have the right to select the mode of
transportation to be used in the shipment of the Products
ordered by it.
2. All shipments shall be F.O.B. Manufacturer's warehouse or plant
in Boucherville, Quebec. Transportation charges shall be borne
by Distributor and title to all Products shall pass to
Distributor and Distributor shall assume all risks of loss upon
delivery of such Products to Distributor's carrier. Payments
for all merchandise shall be made in the lawful currency of the
United States of America.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
3. a. Manufacturer hereby warrants that any product to be
delivered pursuant to this Agreement and manufactured by
Manufacturer shall (i) be free from defects in material and
workmanship which impair its functioning under normal and
proper use for the purpose for which it was intended and
(ii) shall comply with the specifications issued by
Manufacturer describing such Product and with ASTM American
Society for Testing and Materials) standards.
b. If distributor notifies Manufacturer during the 90-day
warranty period of any such defect and such defect is
demonstrated or substantiated to the reasonable
satisfaction of Manufacturer, then Manufacturer shall at
its expense, have the Product returned, and its sole
obligation under this warranty shall be to, either repair
or replace the defective portion of the relevant Product or
credit Distributor with the price paid therefor.
c. Manufacturer extends this warranty to Distributor only with
respect to those Products (or portions thereof)
manufactured by Manufacturer. However, if Manufacturer
obtains warranties from manufacturers (other than
Manufacturer) of Products (or portions thereof) sold to
Distributor but not so manufactured by manufacturer, then
Manufacturer shall, and hereby does, assign to Distributor
all of such manufacturers' warranties so obtained to the
fullest extent such assignment is permitted by such
manufacturers.
d. The warranty set forth above shall be null and void and not
apply to any Product which is (i) altered, modified,
damaged, or repaired by someone other than Manufacturer,
(ii) damaged due to use contrary to any package insert,
instruction manual, or other labeling furnished by
Manufacturer, (iii) damaged due to the use of equipment not
manufactured, supplied, or approved by manufacturer, (iv)
not maintained in accordance with any specifications or
directions supplied by Manufacturer or (v) otherwise
abused, misuses or subjected to an accident, whether
intentional or negligent.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
4. a. In the event Distributor determines that any unit of the
Product does not conform to Manufacturer's product
specifications or is actually otherwise defective,
Distributor may reject such specific unit of the Product in
accordance with the provisions of the Arkansas Uniform
Commercial Code, but such rejection must be made by written
notice mailed within ten (10) days after the date of
delivery by Manufacturer to Distributor of such non-
conforming or defective Product. Failure to notify
Manufacturer shall constitute acceptance but shall not
constitute a waiver of any warranty-related claims.
b. Manufacturer shall have the right to replace the non-
conforming or defective Product or otherwise cure the non-
conformance or defect within thirty (30) days after date of
Distributor's written notice. If the non-conformance or
defect is not remedied within such thirty (30) day period,
Manufacturer shall refund to Distributor the purchase price
paid by Distributor for such non-conformance or defective
Product by credit to Distributor's account.
c. Upon Manufacturer's specific request in each instance,
Distributor shall promptly return any non-conforming
Products to Manufacturer at Manufacturer's expense.
F. MINIMUM PURCHASES AND FORECASTS. Distributor shall purchase and take
delivery of a minimum of U.S. / / (based on the purchase
price before taxes) of Products during each 91-day period during the
term or renewed term of this Agreement, which undertaking shall be
subject to the following:
1. Upon default of Distributor under the foregoing provisions of
this paragraph F, Manufacturer may, at its option, either (i)
elect to terminate the exclusivity rights granted to Distributor
hereunder in which case Manufacturer shall have the right to
appoint other distributors or selling agents (including itself)
for the Products in the Territory, or (ii) elect to terminate
this Agreement in accordance with sub-clause B.5 of Section 3
hereof.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
2. Distributor shall, on or before the commencement of each 3-month
period during the term hereof, provide Manufacturer with
Distributor's forecast of Product purchases and delivery dates
for such period. Provided any such forecast is prepared using
reasonable assumptions and submitted in good faith to
Manufacturer and provided Distributor notifies Manufacturer in a
timely fashion of any material change to the current forecast,
Distributor shall not be responsible to Manufacturer for
differences between actual orders received for Products and such
forecast.
3. Except for Products covered by purchase orders and subject to
the foregoing provisions concerning reasonableness and good
faith of order forecasts and except for Manufacturer's remedies
under paragraph 1 of this clause F, Distributor shall not be
liable to Manufacturer for distributor's failure to purchase and
take delivery of the minimum set forth in paragraph 1 above.
G. WITHDRAWAL OF PRODUCTS AND NEW PRODUCTS. From time to time,
Manufacturer, in its reasonable and sole discretion, may elect to
withdraw world-wide any Product. Manufacturer agrees to give
Distributor not less than six months prior written notice as to any
such withdrawal except in the case of emergency or recall.
SECTION 2. OPERATION REQUIREMENTS
A. DEALERS. Distributor has the responsibility to provide adequate
sales coverage in all areas of the Territory and may appoint dealers
(`Dealers') for that purpose. Distributor shall be responsible for
negotiating and effect appointment arrangements with his respective
Dealers. Dealers must agree to comply with the policies and
practices of Manufacturer, as well as Distributor.
B. OBLIGATIONS OF DISTRIBUTOR. From and after the date hereof
Distributor, at its sole cost and expense, with sole responsibility
in its capacity as distributor and in full compliance with all
applicable laws and regulations in that capacity, including but not
limited to those of appropriate regulatory authorities, shall:
1. Store the Products under their respective labeled conditions
using appropriate facilities and equipment which comply with
current good manufacturing procedures and practices;
2. Distribute the Products and their labeling as received from
Manufacturer without any modifications unless such modifications
are mutually agreed upon prior to distribution:
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
3. Promptly forward, in writing, to Manufacturer all charges,
complaints or claims which Distributor receives or which
otherwise come to Distributor's attention covering any Product,
and, at Manufacturer's request, cooperate with Manufacturer in
investigating any such charges, complaints or claims:
4. Submit for Manufacturer's review and approval, prior to
distribution and usage, all written trademark, labeling, and
instructional materials, and other items subject to regulatory
control to be used in connection with any Products and following
approval and printing, provide Manufacturer with ten (10) copies
of each item, and submit, for informational purposes only, all
other written promotional materials not requiring regulatory
approval for major promotions prior to distribution and usage;
5. Obtain and maintain in full force and effect such federal, state
and local records, authorization, permits, and licenses as may
be required by law, including any appropriate regulatory
authority, and fully comply with and observe all applicable
laws, ordinances, rules and regulations;
6. Maintain adequate sales and warehouse facilities for the
Products;
7. Maintain a sufficient inventory of Products and replacement
parts to reasonably fulfill the requirements of Dealers and
other customers located in the Territory;
8. Maintain a training program for sales personnel in connection
with the demonstration, use, and sale of the Products;
9. Not make any warranty, representation, or claim concerning any
Product which violates applicable laws or regulations, including
those of appropriate regulatory authorities, or, without the
express prior written approval of Manufacturer, which is
inconsistent or contrary to such Product's specifications.
C. NAME OF PRODUCT.
1. Manufacturer agrees that it will place the name BRASS EAGLE on all
packaging of the Products manufactured for Distributor unless
instructed to do otherwise in writing.
2. Distributor agrees that Manufacturer will place the name and logo Z
Leader on the strap and visor parts of the Products. The words
`BRASS EAGLE by Leader' or `manufactured by Leader for BRASS EAGLE'
will also appear in a non predominant manner on the strap and on the
Products' packaging.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
SECTION 3. TERM AND TERMINATION OF THE AGREEMENT.
A. TERM. This Agreement shall be for a period of three (3) years commencing
September 1, 1999 and shall be automatically renewed for another three
year period under the same terms unless either party notifies the other
party at least sixty (60) days before expiry of the initial term that it
does not wish to renew the Agreement.
B. TERMINATION FOR CAUSE. This Agreement may be terminated immediately by
notice to the other party in the event of such other party:
1. Assigning or attempting to assign this Agreement without the written
consent of the first party.
2. Making an assignment for the benefit of creditors.
3. Admitting its insolvency.
4. Being subject to voluntary or involuntary proceedings by or against
it in bankruptcy, or under any of the provisions of the United States
federal or any state bankruptcy act or any comparable bankruptcy
laws, or for a corporate reorganization or for a receivership, or for
its dissolution or merger.
5. Not purchasing the minimum as set forth in paragraph F of Section 2.
6. Not paying for the Products as set for in the Addendum `A'.
7. Being in breach of any other provision of this Agreement and such
breach not being remedied ten (10) days after notice thereof.
C. TERMINATION WITHOUT CAUSE. This Agreement may be terminated at any time
by either party, without cause, upon three (3) months written notice to
the other party, but such period of notice may be changed by mutual
written consent. No other provision herein contained shall be interpreted
to limit or qualify the method of termination set forth in this Section C.
D. TRANSACTIONS AFTER TERMINATION.
1. Upon termination of this Agreement, Distributor will immediately
account for and pay over to Manufacturer all sums due Manufacturer.
Upon compliance with and performance of the termination procedures
and obligations by Distributor as herein set forth, Manufacturer will
account for and pay over to Distributor all sums due Distributor.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
2. Upon termination by Distributor of this Agreement for cause,
Manufacturer agrees that it will not for a period of three (3) months
after the effective date of termination, solicit orders from any
business entity to which Distributor has sold any of the Products
during the term of this Agreement, unless compensated as provided
below.
3. Compensation shall be calculated as Distributor's operating profit of
the previous three months fairly allocable to the Products.
(Operating profit equals gross profit less operating expenses).
SECTION 4. INDEMNIFICATION.
A. BY MANUFACTURER. Manufacturer shall, on a timely basis, defend,
indemnify, and hold Distributor and its affiliates harmless from, against,
for and in respect of any and all damages, losses, costs, and expenses
(including, without limitation, reasonable attorneys' fees) resulting or
arising out of any suit, action or proceeding for bodily injury, death, or
property damage or other suit, action, or proceeding if and to the extent
any of the latter is caused by the acts, omission, or negligence of
Manufacturer, its affiliates or their respective agents during the term of
this Agreement except upon Distributor's breach of its warranties,
obligations, representations or required performance under this Agreement.
B. BY DISTRIBUTOR. Distributor shall defend, indemnify, and hold
Manufacturer and its affiliates harmless from, against, for and in respect
of any and all damages, losses, costs, and expenses (including, without
limitation, reasonable attorneys' fees) resulting or arising out of any
suit, action or proceeding for bodily injury, death, or property damage or
other suit, action, or proceeding if and to the extent any of the latter
is caused by the acts, omission, or negligence of Distributor, its
affiliates or their respective agents during the term of this Agreement
except upon Manufacturer's breach of its warranties, obligations,
representations or required performance under this Agreement.
C. LIABILITY INSURANCE. Both Manufacturer and Distributor agree to name each
as an additional insured on their respective general liability insurance
policies and provide proof thereof throughout the term of the Agreement.
SECTION 5. GENERAL TERMS AND CONDITIONS.
A. DISTRIBUTOR NOT AN AGENT. This Agreement does not appoint Distributor as
an agent or legal representative of Manufacturer for any purpose
whatsoever. Distributor is not granted any express or implied right or
authority to assume or to create any obligation or responsibility on
behalf of or in the name of Manufacturer or to bind Manufacturer in any
manner or thing whatsoever.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
B. CONFIDENTIAL INFORMATION. During the term of this Agreement and for three
(3) years thereafter, each party shall use the same degree of care as it
uses with regard to its own confidential information to prevent the
disclosure, use or publication of confidential information relating to the
other coming to its knowledge as a result of this Agreement unless such
use, disclosure or publication is permitted by this Agreement or
authorized by the other in writing. However, neither party shall be
obligated to treat information or data as confidential which without
breach of confidentiality, (i) is, or becomes available to the public,
(ii) is already possessed by such party or (iii) is independently
developed by such party.
C. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be settled by arbitration
conducted at the American Arbitration Association in State of New York, in
accordance with the rules of the American Arbitration Association, and
judgement upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. All submissions and proceedings,
including arguments and briefs, shall be in English.
D. ENGLISH LANGUAGE. All communications relating to the subject matter of
this Agreement whether spoken or written, including, but without prejudice
to the generality of the foregoing, literature, manuals, price lists and
training, shall be in English.
E. FORCE MAJEURE. No party shall be liable for any failure to perform or
delay in performance of its obligation hereunder caused by circumstances
beyond its reasonable control which make performance commercially
impracticable including, without limitation, fire, storm, flood,
earthquake, hurricane, explosion, accident, acts of the public enemy, war,
rebellion, insurrection, sabotage, epidemic, quarantine, restrictions,
labor shortages, transportation embargoes or delays, inability to secure
raw materials or machinery for the manufacture of its devices, acts of
God, acts of any government or any agency thereof, judicial action and
other such external circumstances.
F. NO IMPLIED WAIVERS. The failure of either party at any time to require
performance by the other party of any provision hereof shall in no way
affect the full right to require such performance at any time hereafter.
Nor shall the waiver by either party of a breach of any provision hereof
constitute a waiver of any succeeding breach of the same or any other such
provision, nor constitute a waiver of the provision itself.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
G. NOTICES. Any notice between the parties shall be deemed duly served when:
(i) personally delivered and receipt thereof confirmed; (ii) five (5) days
after sent by registered airmail; or (iii) when transmitted by facsimile
machine with receipt thereof confirmed, and addressed as follows, or to
such other address as notified by the recipient;
If to Manufacturer: LEADER INDUSTRIES INC.
1280 Nobel Street
Boucherville Quebec J4B 5H1
Canada
Attention: President
Telephone: (514) 641-4480
Facsimile: (514) 641-4484
If to Distributor: BRASS EAGLE INC.
P. O. Box 1956
1201 Southeast 30th Street
Bentonville, Arkansas 72712-1956
U.S.A.
Attention: President
Telephone: (501) 464-8700
Facsimile: (501) 464-6644
H. APPLICABLE LAW. It is expressly agreed and understood that this Agreement
is a complete Agreement and that it shall be governed by the laws of the
State of New York in all matters, including, without limitation, validity,
obligation, interpretation, construction, performance and termination.
I. AMENDMENT, ALTERATION OR MODIFICATION. The amendment, alteration or
modification of this Agreement shall only be valid when executed in
writing and signed personally by both an authorized officer of
Manufacturer and Distributor.
J. ADDENDA. The Addenda, if any, attached hereto is by this express
reference made a part of this Agreement as fully as though set out at
length herein. Notwithstanding anything to the contrary, such Addenda may
be amended, altered or modified by Manufacturer from time to time, and as
so amended, altered or modified will be binding upon Distributor.
K. SEPARABILITY. If any provision of this Agreement is invalid or
unenforceable, this Agreement shall be considered divisible as to such
provision and the remainder of the Agreement valid and binding as though
such provision were not included herein.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
L. GENDER. Wherever used herein, the masculine gender shall include both the
feminine and neuter genders.
M. THIS CONSTITUTES SOLE AGREEMENT. The sole and total Agreement of the
Parties is as set forth in Sections 1 through 5 preceding this Paragraph
M, and the `Witnesseth' clauses preceding Section 1, and there are no oral
or implied representations, rights or obligations to be considered or
construed with the express written provisions herein above set forth. No
alterations, changes, or interlineations of this written document shall be
effective unless the same are initialed by an authorized officer of each
of the parties. Addendum C is attached hereto and incorporated herein by
reference.
IN WITNESS WHEREOF, the parties hereto have hereunto signed this
Agreement, this 29th day of June, 1999.
WITNESS LEADER INDUSTRIES INC.
/s/ Mary Ohberi By: /s/ Pierre Habib
Pierre Habib, President
WITNESS BRASS EAGLE INC.
/s/ John D. Flynn By: /s/ Lynn Scott
E. Lynn Scott, President
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
ADDENDUM `A'
1. Products and Price List
Product Leader Product # Brass Eagle Price from Leader
Product # to Brass Eagle
(U.S.$) F.O.B.
Canada
- ------------------------------------------------------------------------------
GOGGLES
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
ACCESSORIES
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
/ / / / / / / /
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT
ADDENDUM `A'(Continued)
2. Terms of Payment
Pricing includes all duties as there are currently no duties under NAFTA.
/ / / / / / / / / / / / / / / / / / / / / / / / // / / // / / // / / // /
/ / / / / / // / // // / / / // / / / // / / / / // / / / / / // / / / /
/ / // / // / / // // // / // / / // / // / // / // / // / / // / // / /
/ / // // / // / // // // // / // // // / // // / // / // // / // // / /
/ / // / // / // / // / / // / // / / // / / / // / / / // / / / // / /
/ / / // / / // / / // / / / // / / // / // / / / // / / / // / / / / /
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
ADDENDUM `B'
PURCHASE ORDER TERMS
1. Brass Eagle Inc. (`Buyer') shall not be charged for any costs of packing,
crating, drayage or storage without its prior written consent.
2. Buyer shall not be liable for the payment of any federal, state or local
taxes which may be applicable to the materials, goods or services covered
by this order unless the same shall have been separately itemized and set
forth in Seller's quotation.
3. Seller warrants and represents that the prices for the goods and materials
set forth herein does not exceed the net price now charged by Seller to
any other customer purchasing the same items in like or similar
quantities, and agrees that if at any time during the pendency of this
order, lower net prices are quoted to any other person for similar goods
and materials, such lower net prices shall be from that time substituted
for the prices contained herein.
4. (a) Seller warrants and represents that the goods furnished hereunder
shall be of the quantity, quality, description and specifications set
forth herein and free of defects in design, workmanship and
materials. All such goods and materials shall be received subject to
Buyer's inspection and approval. Payment for the goods and materials
shall not constitute acceptance thereof.
(b) Seller agrees to promptly repair or replace any goods and materials
found to be defective in design, workmanship or material or not in
conformity with the specification thereof. Buyer may return any non-
conforming goods or materials at Seller's expense.
(c) Goods delivered in excess of the quantity specified herein may be
refused and returned to Seller at its expense.
(d) Buyer may cancel any portion of this order if shipment is not timely
made as specified.
(e) Seller warrants that the sale or use of the articles or materials
covered by this order, either alone or in combination with any other
articles or materials with which Seller intends or has advised or
advertised that they may be used, will not constitute an infringement
or contributory infringement of any patents or trademarked or
copyrights in any country, and Seller hereby licenses Buyer and its
customers under all of Seller's patents or trademarks or copyrights
to use and sell the articles or materials covered by this order,
alone or in any combination for which the materials may be used.
5. Seller covenants and agrees to hold harmless, defend, indemnify and keep
indemnified, the Buyer, its affiliated and Subsidiary companies,
successors, and assigns, customers and users of its products of and from
any and all action or actions, loss, claims, demands, expenses, fees and
charges, costs and damages of any person whomsoever, arising out of or
caused by any breach of warranties or violation of the terms and
conditions hereof.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT
ADDENDUM `B'(Continued)
6. The representations and warranties of the Seller and the remedies of the
Buyer for breach thereof set forth herein shall not be construed to limit
or exclude any other warranties or remedies provided by law.
7. The warranties herein shall run to the Buyer, its affiliated and
subsidiary companies, successors, assigns and its customers and the users
of the goods and materials involved.
8. Seller shall bear the sole responsibility for any materials furnished to
it by Buyer in connection with this order.
9. Seller shall not assign any portion of this order without Buyer's written
consent. Buyer's consent shall not release Seller from its obligation and
liabilities hereunder.
10. Any terms herein to the contrary not withstanding, neither party shall be
liable for delays or defaults due to force majeure, acts of governmental
authority or public enemy, war, strikes and labor troubles, freight
embargoes or any other causes or contingencies beyond its control,
provided, however, that buyer may cancel any portion of this order if
shipment is not timely made as specified hereunder.
11. This order is subject to and Seller shall comply with all applicable
federal, state and local laws and regulations, including the requirements
of the Fair Labor Standards Act of 1938, as amended and including, for
orders (or contracts) not exempt under Section 204 of Executive Order
11246, as amended by Executive Order 11375, the provisions of paragraphs
(1) through (7) of Section 202 thereof, which provisions are incorporated
herein by reference. Acceptance of this order on the part of the Seller
shall constitute its certification of full compliance with such laws and
regulations.
12. The terms of this order supersede any prior dealings or negotiations of
the parties and contain the entire agreement between them, and no
amendment or modification thereof shall be valid or binding upon the Buyer
unless contained in a written instrument signed by its authorized
representative, provided, however, that where this purchase order form is
used in connection with purchase release under formal written contracts,
the contract provisions shall prevail if inconsistent with the within
terms.
13. In the case of federal government contracts, Seller agrees to comply with
all laws necessary to assure Buyer's status as Federal Contractor.
14. Buyer may cancel this order at any time without cause, and Buyer's
liability shall be limited to actual costs incurred by Seller up to the
point of cancellation.
<PAGE>
BRASS EAGLE INC.
EXHIBIT 10(vii)
1999 DISTRIBUTOR AGREEMENT (Continued)
ADDENDUM 'C'
Manufacturer agrees to join the Protective Eyewear Certification Council
(PECC), and to pay all fees associated with such membership and with affixing
the PECC seal to the Products.
<PAGE>
BRASS EAGLE INC. Exhibit 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(In thousands except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------
1999 1998 1999 1998
----- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Net income available to
common stockholders $ 2,832 $ 2,564 $ 5,062 $ 3,849
========= ========= ========= =========
Weighted average common
shares outstanding 7,246,434 7,240,756 7,245,739 7,236,793
========= ========= ========= =========
Basic net income per
Share $ 0.39 $ 0.35 $ 0.70 $ 0.53
========= ========= ========= =========
DILUTED NET INCOME PER SHARE
Net income available to
common stockholders $ 2,832 $ 2,564 $ 5,062 $ 3,849
========= ========= ========= =========
Pro forma basic weighted
average common shares
outstanding 7,246,434 7,240,756 7,245,739 7,236,793
Add dilutive effect of
stock options 483,627 442,554 464,088 445,506
--------- --------- --------- ---------
Weighted average
dilutive common shares
outstanding 7,730,061 7,683,310 7,709,827 7,682,299
========= ========= ========= =========
Diluted net income per
share $ 0.37 $ 0.33 $ 0.66 $ 0.50
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNUAUDITED JUNE 30, 1999 CONDENSED BALANCE SHEET AND THE UNAUDITED CONDENSED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND THE UNAUDITED
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,943
<SECURITIES> 0
<RECEIVABLES> 18,691
<ALLOWANCES> 457
<INVENTORY> 12,354
<CURRENT-ASSETS> 36,465
<PP&E> 9,873
<DEPRECIATION> 2,498
<TOTAL-ASSETS> 50,724
<CURRENT-LIABILITIES> 10,963
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 39,339
<TOTAL-LIABILITY-AND-EQUITY> 50,724
<SALES> 36,420
<TOTAL-REVENUES> 36,540
<CGS> 21,278
<TOTAL-COSTS> 28,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 91
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,098
<INCOME-TAX> 3,036
<INCOME-CONTINUING> 5,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,062
<EPS-BASIC> .70
<EPS-DILUTED> .66
</TABLE>
